GATS

Turin, October, 2007

ITUC-Geneva Office

GATS

WTO principlesGATS agreementFour modesCommitmentsRulesMode 4Trade union concernsState of playPossible action

WTO principles MFN

Most Favoured Nation (MFN) In general, any agreement or deal that gives

rights to one WTO member state must be given to all other member states

A country cannot discriminate amongst WTO member states

If a multinational enterprise (MNE) from one country enjoys trade privileges, all other MNEs in other countries in that same business must be treated the same

WTO principles NT

National TreatmentIn general, if your country has committed

itself to some trade liberalisation, it must, in that area, treat foreign suppliers/investors from other WTO member states ‘no less favourably than domestic suppliers/investors are treated’.

That does not mean ‘equal treatment for all’: you can treat foreign MNEs better than the way you treat your domestic firms - as in export processing zones

WTO principles Dispute panels

Country A (and B, C, ….) can complain that country X is breaching its obligations under one or more WTO agreements

If Country X disagrees, the WTO can set up a mutually agreed (or imposed) panel – a ‘jury’

The panel hears evidence from all formal parties (and may allow external party evidence)

The panel decision may tell Country X to change its behaviour (if ‘guilty’) or face punitive financial action from the complainants until it complies

An Appellate Body can rule on disputed verdicts

GATS agreement

GATS Agreement- Set of multilateral rules on trade in services- Negotiated in the Uruguay Round- Agreement contains general obligations and

disciplines- Measures affecting trade in services taken at

all government levels- Agreement contains countries’ commitments

for access to their services markets- And agreement contains annexes with rules

for specific sectors such as financial services

Services sectors

Business services (including professional services and computer services)

Communication services Construction and related engineering services Distribution services Educational services Environmental services Financial services (including insurance and banking) Health-related and social services Tourism and travel-related services Recreational, cultural and sporting services Transport services Other services not included elsewhere

Mandate

Request offer process 70 initial offers (2003, including

Philippines) 30 revised offers (2005) Rules negotiations

Four Modes of Supply

Buying a service across a border, such as telemedicine diagnostics: Mode 1

Going to another country to buy a service, such as going abroad for cheaper health services: Mode 2

Establishing a commercial presence abroad to provide services, such as opening a clinic: Mode 3

A service worker moving abroad on a temporary basis to provide a contracted service, such as an engineer whose firm has won a contract to build a bridge: Mode 4

MFN in GATS

In the context of the GATS, the MFN obligation (Article II) is applicable to any measure that affects trade in services in any sector falling under the Agreement, whether specific commitments have been made or not. Exemptions could have been sought at the time of the acceptance of the Agreement (for acceding countries: date of accession). They are contained in country-specific lists, and their duration must not exceed ten years in principle.

Market Access and GATS

The market access provisions of GATS, laid down in Article XVI, cover six types of restrictions that must not be maintained in the absence of limitations. The restrictions relate to

the number of service suppliers the value of service transactions or assets the number of operations or quantity of output the number of natural persons supplying a service the type of legal entity or joint venture the participation of foreign capital These measures, except for (e) and (f), are not

necessarily discriminatory, i.e. they may affect national as well as foreign services or service suppliers.

National Treatment

National treatment (Article XVII) implies the absence of all discriminatory measures that may modify the conditions of competition to the detriment of foreign services or service suppliers. Again, limitations may be listed to provide cover for inconsistent measures, such as discriminatory subsidies and tax measures, residency requirements, etc. It is for the individual Member to ensure that all potentially relevant measures are listed;

The national treatment obligation applies regardless of whether or not foreign services and suppliers are treated in a formally identical way to their national counterpart. What matters is that they are granted equal opportunities to compete.

Schedule of Commitments

All commitments on services liberalization are put in a schedule

The schedule is divided into two parts. While Part I lists “horizontal commitments”, i.e. entries that apply across all sectors that have been scheduled, Part II sets out commitments on a sector-by-sector basis.

Such are commitments on market access and national treatment, and possible additional commitments.

Application to individual sectorsThree possible Scenarios:

I. Not covered: Governmental services and large segments of air traffic services

II. Covered but no access commitmentsMain consequence: Most-favoured-Nation Treatment

III. Covered + access commitments undertaken“Specific Commitments”: Market Access & National Treatment

GATS and Public services

Public service ‘protections’Article I 3 of the GATS is claimed to protect

public services. In fact, it protects ‘services provided under government authority’ provided that they are neither ‘provided on a commercial basis’ nor ‘in competition with another service provider’. No defintions or case law exists for these two conditions.

Many public services are provided on some kind of fee/payment basis. Is that ‘commercial’?

Many public services have private sector alternatives. Are these ‘in competition’?

There is no clear answer to these two questions. Does the GATS protect public services?

Schedules of commitments

Schedules specify the extent of liberalization a Member guarantees in designated sectors.

General layout: Sector; limitations on market access;

limitations on national treatment; additional commitments

Levels of commitment

Options: Full – No limitations (“none”) Partial – Specified limitations apply

(e.g. “foreign equity participation limited to 49%”)

Unbound – Fully policy discretion (“unbound”)

Specific commitments

Selection of sectors Inscription of limitations, by mode and

by Market Access/National Treatment(i) Less than status quo(ii) Status quo(iii) More liberal

• - With immediate effect• - Pre-commitment

Current pattern of commitments

WTO Members

Average number of commitments per

Member

Range (Lowest/highest number of

sectors per schedule)

Least-developed countries 24 1 – 111

Developing countries 41 1 – 123

Developed countries 105 86 – 115

Accessions since 1995a 102 37 – 147

ALL MEMBERS (147) 50 1 -147

a Transition economies (11) and developing countries (9). They are not included in other groups. Source: WTO Total number of sectors: ~160

Sector pattern of commitments(Number of Members, March 2005, source: WTO)

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160

DevelopedDeveloping

Modal pattern of commitments(Number of MA commitments in selected sectors, per cent, July 2000, Source: WTO)

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80

100

Mode 1 Mode 2 Mode 4Mode 3

DVD DVG

Calculated on the basis of a sample of 37 sectors deemed representative for various services areas (See WTO Document S/C/W/99, 2 March 1999)

DVD DVG DVD DVG DVD DVG

LegendThe upper part of each bar represents partial commitments, the lower part full commitments.DVD = Developed countriesDVG = Developing and transition economies

Sectoral pattern of offers (Number of offers with commitments per sector), source: WTO

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Developing

Characteristics of Offers

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Off

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Additional Sectoral EntriesImprovements to Existing Entries

Sub-sectors committed: Before and after offers (all Members), source: WTO

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100

All Developed Developing

Members

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With Offers

Existing Commitments

Qualifications: - LDCs are not expected to undertake new commitments - Does not reflect economic importance of individual sectors or

‘quality’ of commitments

Rules: Domestic Regulation

Governments can continue to pass regulations in areas where they have made a GATS commitment. But in such cases or in any area affecting MFN, governments can be challenged if their regulations on licences, qualifications and technical standards are deemed ‘more burdensome than is neccessary to trade’. Again, no definition but it means that a regulation, law, policy or ‘any other measure’, democratically passed by a national or local government can effectively be overturned by a WTO disputes panel.

Domestic Regulation

Negotiations on DR are still ongoing Chairman’s text has been proposed Main issues are transparency in regulations

and prior consultation, and necessity test Current language on necessity test is better,

but there is still a modified necessity test: regulatory requirements have to be relevant to the service supplied and regulations have to be based on objective criteria

Rules

Other rules and issuesWith regard to subsidies and a definition

of a subsidyWith regard to rules governing public

procurement (not on procurement policies and commitments per say)

With regard to the establishment of an emergency safeguard mechanism (ESM).

Mode 4

Natural persons can be service suppliers of a member that supply a service in another member, self employed. Or a natural person who is sent abroad by his company to supply a service, OR a company setting up a subsidiary and employing the natural person there.

Mode 4 cont’d

The GATS does not cover natural persons seeking access to the employment market. It is not clear however how it can be ensured that people leave after their contract finishes.

Governments are free to regulate entry and temporary stay, provided these measures do not nullify or impair the commitments.

Mode 4 contn’d

The GATS does not cover measures regarding citizenship, residence or employment on a permanent basis. However, there is no definition of temporary, and even 5 years is quite long. Also, some DCs would like to ensure that temporary contracts can be renewed.

Few mode 4 commitments

Politically sensitive. There are political and regulatory concerns resulting in less commitments.

There are also ENTs, Economic Needs tests, many commitments contain these. Also quotas and pre-employment requirements.

50 countries have scheduled conditions related to domestic wage legislation, working hours and social security.

22 countries have reserved the right to suspend commitments in the case of a labour dispute (mainly with regard to intra corporate transferees)

commitments made in mode 4 especially for higher skilled service suppliers (business visitors, intra corporate transferees etc.)

Barriers

- structure and coverage of existing commitments

- Economic Needs Test (ENT) - definitional problems - administrative practices,

transparency and access to information

- recognition of qualifications.

Concerns with mode 4

Collective agreements, minimum wages and safety measures might even be challenged under GATS as they could be interpreted as unnecessary barriers to trade in services.

Developing countries (India) have already argued for the removal of the EU offer condition that work and pay standards of the host country should be complied with.

some rules, which were established to regulate the market (for example on opening hours in supermarkets) can be considered illegal under GATS once a commitment is made.

Concerns with mode 4

Services can be broadly interpreted and agriculture work could be easily renamed as agricultural services

Once commitments have been made a country cannot change them. In theory they can withdraw a commitment after three years but then they have to negotiate with the benefiting countries and offer them compensation

GATS mode 4 is a business driven agenda. Companies want free movement of personnel, bring them where they need them, no barriers, and no protection

Multilateral framework on migration should promote managed migration (including bilateral

and multilateral agreements), look at labour market needs and demographic trends,

licensing and supervision of recruitment and contracting agencies,

promote decent work for migrants and awareness of migrants rights,

non-discrimination and covered by national laws and social regulations, portability of social security entitlements, etc.

It should focus on the protection of migrant workers, but it should also provide receiving countries with the right to regulate.

Right to regulate

US-gambling case shows that the GATS prohibits government measures if market access is committed whether they are discriminatory or not.

Local governments who are responsible for many services regulations will be affected and restricted in their regulatory capacity.

If a country makes commitments in a sector or subsector, for full market access (no restrictions) then even regulations that are not mentioned in the GATS but that do restrict MA can be prohibited, regulations such as prohibition of billboard advertising, pesticide spraying, casino gambling and garbage incineration that restrict the market access can be ruled illegitimate by a dispute panel.

TRADE UNION CONCERNS

So, what are the problems from a union perspective?– GATS has no social objectives, it’s only about business

interests– Competition in services will be for profit– Profit can prevent access, equity and quality of service– Multinational companies will be the big winners– Governments may no longer control the provision of key

public or other strategic services such as health, education, water, social security, postal services, financial services….

– For-profit providers will be operating in all these sectors, sometimes exclusively

TRADE UNION CONCERNS

– GATS doesn’t allow ‘unnecessary’ barriers to trade

– Barriers too ‘burdensome to trade’ include legislation to protect the environment, foreign ownership limits, labour and affirmative action laws, consumer protection, licensing standards…

– All foreign providers have to be treated at least as well as domestic providers, including in access to subsidies

– A panel of trade experts in Geneva decides what is a barrier and what is ‘less burdensome to trade than is necessary’

TRADE UNION CONCERNS

– The GATS process in negotiating services commitments is secret

– Governments can offer to commit services under these rules without parliamentary discussion

– Regional/Provincial/State and municipal tiers of government have no say, but their services are included

– GATS over-rides national laws that are “barriers” to trade if a service is covered by these rules

– Commitments are irreversible

State of play

Plurilateral negotiations decided in Hong Kong

2 rounds of plurilaterals took place in 2006 based on 22 collective requests

Some were positive others not Suspension before revised offers in

july 2006 Resumption in february 2007

State of play

NAMA and Agriculture revised modalities in October/November

Also some language on services Possible benchmarking might come up

again Improved offers will be asked for Text on Domestic Regulation Regional distribution uneven (developed,

LA and some Asia) Countries wait with these for Ag and NAMA

first to be decided

Possible areas of action

Analyze your country’s offer Get information on the possible revised

offer Identify which sectors and subsectors

should not be committed or which restrictions should be put in place when committing them.

Identify sectors and subsectors that were committed and where commitments should be withdrawn or reduced