“Analysis of the outcomes of agreements in GATS: Services”

For SARPN & FOCCISAFor SARPN & FOCCISABurgers Park HotelBurgers Park Hotel

6 April 20066 April 2006

StructureStructure

ContextContext– ApproachesApproaches– GloballyGlobally

GATSGATS– Hong Kong and Negotiation ProcessHong Kong and Negotiation Process– IssuesIssues

CommentsComments Theoretical underpinningsTheoretical underpinnings

– Broader PerspectiveBroader Perspective– Strategic and Tactical QuestionsStrategic and Tactical Questions

ApproachesApproaches

What is needed to make discerning judgement?What is needed to make discerning judgement? ChoiceChoice

– EngageEngage AggressivelyAggressively ReluctantlyReluctantly

– Not engageNot engage ReluctantlyReluctantly DefensivelyDefensively

– Affirmative Defensive Agenda: middle roadAffirmative Defensive Agenda: middle road Strategic valueStrategic value Tactical valueTactical value

Context Context

Services TradeServices Trade– Services as % of GDPServices as % of GDP

Global 2.9%Global 2.9% Low income countries – 3.2 % (faster rate of growth)Low income countries – 3.2 % (faster rate of growth) Middle income countries – 3.6 %Middle income countries – 3.6 %

– Developing countries Developing countries 40 – 70% of GDP40 – 70% of GDP 30 – 50% of employment30 – 50% of employment 60% of FDI in services60% of FDI in services 12 developing countries lead service exports in 1998 – 66%, 12 developing countries lead service exports in 1998 – 66%,

2004 – 71% (potentially divisive)2004 – 71% (potentially divisive)

Context EU and USContext EU and US

– EU doubled services surplus 2000 to 2003EU doubled services surplus 2000 to 2003– US in 1990’s tripled, since 1995 increased 69%US in 1990’s tripled, since 1995 increased 69%

US Export $340 billion 2004 (30% of US Exports)US Export $340 billion 2004 (30% of US Exports) US firms established abroad earn $400 billionUS firms established abroad earn $400 billion 30% of exports bought by US firms30% of exports bought by US firms US 75% GDP and 80% of jobsUS 75% GDP and 80% of jobs

– AggressiveAggressive Demandeurs at WTODemandeurs at WTO

– Finance, Telecoms, Environment, DistributionFinance, Telecoms, Environment, Distribution Free Trade Areas alternatives to multilateralismFree Trade Areas alternatives to multilateralism

GATS IntroductionGATS Introduction

Characteristics of services?Characteristics of services?– Impediments to Services TradeImpediments to Services Trade– ComplexityComplexity

What is a public service?What is a public service?– CharacteristicsCharacteristics

Goods vs. Services TradeGoods vs. Services Trade

Services are not like goods when tradedServices are not like goods when traded

Country X

Goods Border measures as main obstacles

Regulation

Services Regulation as main obstacles – beyond border

Key ElementsKey Elements GATS applies to many different types of actions (known GATS applies to many different types of actions (known

as measures) that a state governments may take. The as measures) that a state governments may take. The GATS applies to all levels of government, national, state, GATS applies to all levels of government, national, state, and local.and local.

Market access limits a government’s ability to regulate Market access limits a government’s ability to regulate services and service providers.services and service providers.

National treatment requires governments to treat foreign National treatment requires governments to treat foreign services and suppliers no less favourably than domestic services and suppliers no less favourably than domestic ones. ones.

A GATS general exception allows governments to A GATS general exception allows governments to maintain a challenged measure if they can demonstrate maintain a challenged measure if they can demonstrate that it is “necessary” to protect human health. that it is “necessary” to protect human health.

GATS limitations on Domestic Regulation require that all GATS limitations on Domestic Regulation require that all regulations be necessary and “least trade restrictive” to regulations be necessary and “least trade restrictive” to be validbe valid

How GATS structuredHow GATS structured

ModesModes

Top Down ElementsTop Down Elements– Domestic RegulationDomestic Regulation– Most Favoured Nation TreatmentMost Favoured Nation Treatment

Bottom Up ElementsBottom Up Elements– National Treatment National Treatment

Formally equal or formally unequalFormally equal or formally unequal

– Market AccessMarket Access Equivalent of “quantitative restrictions”Equivalent of “quantitative restrictions”

How negotiateHow negotiate GATS processGATS process

– Request – offerRequest – offer– BilateralBilateral– Special and Differential Treatment for developing countries Special and Differential Treatment for developing countries

Hong Kong ChangesHong Kong Changes– PlurilateralPlurilateral

Negotiating processNegotiating process– Proposed: Shall engage in Plurilateral NegotiationsProposed: Shall engage in Plurilateral Negotiations– Resolved: Shall consider Plurilateral RequestsResolved: Shall consider Plurilateral Requests

Change in the GATS agreementChange in the GATS agreement– What quid pro quo?What quid pro quo?– Impact on participation of African countriesImpact on participation of African countries

Trade in ServicesTrade in Services

Trade inservices

Cross-bordersupply of services

(Mode 1): telemedicine

Consumption of services abroad

(Mode 2): hospitaltreatment overseas

Presence of naturalpersons (Mode 4):nurses working inother countries

Commercialpresence (Mode 3):

establishment ofhealth facilities

abroad

WHO, Drager

Public Services...Public Services...Does GATS Apply?Does GATS Apply?

Is the health-related service supplied by the government?

Is the health-related service supplied on a commercial basis?

Is the health-related service supplied in competition with

one or more service providers?

Is the health-related servicesupplied by a private actor

pursuant to delegated governmental authority?

GATS applies to measures of WTO members that affect

trade in health-related services

No

YesYes

No

No

Yes

GATS does not apply

No

Yes

START

WHO, Drager

Domestic RegulationDomestic Regulation

Domestic regulation Domestic regulation refers to the power of refers to the power of a country to make non-discriminatory laws, a country to make non-discriminatory laws, regulations or policies to address its needs regulations or policies to address its needs or objectives or objectives

Covers licensing, standards and Covers licensing, standards and qualificationsqualifications

Must be no “more burdensome than Must be no “more burdensome than necessary to ensure the quality of the necessary to ensure the quality of the service.” service.”

Right to RegulateRight to Regulate

The specific right to regulate dependsThe specific right to regulate depends– unscheduledunscheduled– ScheduledScheduled

changes to regulations must be anticipatedchanges to regulations must be anticipated

DSU makes decisions where limited DSU makes decisions where limited guidance from texts and contextguidance from texts and context

Mode 4Mode 4 Temporary movement of natural personsTemporary movement of natural persons Right in GATSRight in GATS

– ““by a service supplier of one Member, through presence of natural persons by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member” Art. I.2.dof a Member in the territory of any other Member” Art. I.2.d

ParametersParameters– ““not apply to measures affecting not apply to measures affecting natural personsnatural persons seeking access to the seeking access to the

employment marketemployment market of a Member, nor shall it apply to measures regarding of a Member, nor shall it apply to measures regarding citizenship, residence or employment on a permanentcitizenship, residence or employment on a permanent basis.” basis.”

– ““not prevent a Member from applying measures to not prevent a Member from applying measures to regulate the entry of natural regulate the entry of natural personspersons into, or their temporary stay in, its territory, including those measures into, or their temporary stay in, its territory, including those measures necessary to protect the integrity of, and to ensure the orderly movement of natural necessary to protect the integrity of, and to ensure the orderly movement of natural persons across, its borders, provided that such measures are not applied in such a persons across, its borders, provided that such measures are not applied in such a manner as to nullify or impair the benefits … Annex on Movement of Natural manner as to nullify or impair the benefits … Annex on Movement of Natural PersonsPersons

– ““The sole fact of requiring a visa for natural persons of certain Members and The sole fact of requiring a visa for natural persons of certain Members and not for those of others shall not be regarded as nullifying or impairing benefits not for those of others shall not be regarded as nullifying or impairing benefits under a specific commitment.under a specific commitment. “ Footnote to Annex “ Footnote to Annex

ESMESM

There shall be multilateral negotiations on the question of There shall be multilateral negotiations on the question of emergency safeguard measures based on the principle of emergency safeguard measures based on the principle of non-discrimination. The results of such negotiations shall non-discrimination. The results of such negotiations shall enter into effect on a date not later than three years from enter into effect on a date not later than three years from the date of entry into force of the WTO Agreementthe date of entry into force of the WTO Agreement. .

Sub-Paragraph 1 Article X Sub-Paragraph 1 Article X

ESM suspend liberalisation commitments if:ESM suspend liberalisation commitments if: Import surgeImport surge ResultResult Serious threat/injury to domestic industrySerious threat/injury to domestic industry

Developing country interestsDeveloping country interests

Mode 4Mode 4 ESMESM OthersOthers

– Outcomes of Domestic Regulation rulesOutcomes of Domestic Regulation rules– Emergency Safeguard MeasureEmergency Safeguard Measure– Assessment and ReviewAssessment and Review

DevelopmentDevelopment– Special & Differential TreatmentSpecial & Differential Treatment– DevelopmentDevelopment– Less commitments than Developed countriesLess commitments than Developed countries

Comment

Value of Concessions CommentValue of Concessions Comment

GATS that liberalisation commitments may not be GATS that liberalisation commitments may not be meaningful:meaningful:– export supply capacity;export supply capacity;– high barriers to market entry in highly competitive high barriers to market entry in highly competitive

foreign markets;foreign markets;– offers made by foreign federal governments may not be offers made by foreign federal governments may not be

binding on provinces or states under their jurisdictionbinding on provinces or states under their jurisdiction

Link to development of other sectorsLink to development of other sectors Demand for reciprocityDemand for reciprocity

Lack of Data Comment– UN acknowledged that there is a lack of data

in terms of the GATS modes– Caution: as not evidence based and

evidence led

Classification Issues Comment– clarity should be provided for the nature and

scope of the service liberalization as classification issues are important

Domestic Regulation CommentDomestic Regulation Comment

The Concession may be quite narrow if outcome grants The Concession may be quite narrow if outcome grants governments wide governments wide authority to regulate authority to regulate

Conversely, the Concession may be wide if the Conversely, the Concession may be wide if the Rules Committee removes a great deal of Rules Committee removes a great deal of government’s rights to regulate. government’s rights to regulate.

The GATS formulation is imprecise and undermines The GATS formulation is imprecise and undermines legal precisionlegal precision

Art. VI.5.a – requires crystal ballArt. VI.5.a – requires crystal ball– lock in of current regulations lock in of current regulations – Realm of possibility definedRealm of possibility defined– Periodic review built into schedulePeriodic review built into schedule

All offers that are made should be made conditional All offers that are made should be made conditional upon a satisfactory outcome of the Rules upon a satisfactory outcome of the Rules negotiations.negotiations.

Update on Domestic RegulationUpdate on Domestic Regulation

DOMESTIC REGULATION: PREPARATION FOR THE DOMESTIC REGULATION: PREPARATION FOR THE SIXTH MINISTERIAL CONFERENCETECHNICAL SIXTH MINISTERIAL CONFERENCETECHNICAL STANDARDS” Working Party On Domestic Regulation 25 STANDARDS” Working Party On Domestic Regulation 25 October 2005October 2005

Transparency requirements Transparency requirements – ““opportunity for comments opportunity for comments and taking the results into account”and taking the results into account” – Plus “review of necessity” a legally binding obligation.   Plus “review of necessity” a legally binding obligation.   – Requires proactive government reviewRequires proactive government review

Technical StandardsTechnical Standards–   imposition of imposition of international norms as the ceiling for services international norms as the ceiling for services

standardsstandards because there would be a “ because there would be a “presumption of presumption of consistency”consistency” with disciplines if in compliance with relevant with disciplines if in compliance with relevant international standards.”  international standards.” 

Update on Domestic RegulationUpdate on Domestic Regulation

LICENSING REQUIREMENTS AND LICENSING REQUIREMENTS AND PROCEDURES:PROCEDURES:– Setting as a requirement “the  Setting as a requirement “the  relevancerelevance of of

licensing requirements to the activities for which licensing requirements to the activities for which authorization is sought”  authorization is sought”  

– ““Imposition of a relevance test would be as Imposition of a relevance test would be as problematic as imposition of a necessity test, problematic as imposition of a necessity test, potentially restricting requirements to very potentially restricting requirements to very narrowly defined criteria. ” Gould 2005narrowly defined criteria. ” Gould 2005

ESM CommentESM Comment

ESM (recap)ESM (recap)– suspend liberalisation commitments if:suspend liberalisation commitments if:

Import surge that results serious threat/injury to domestic Import surge that results serious threat/injury to domestic industryindustry

ContextContext– Developing countries chronic forex problemsDeveloping countries chronic forex problems– Casino currency price effectsCasino currency price effects– Limited competitive domestic industry & domestic Limited competitive domestic industry & domestic

market to withstand surgesmarket to withstand surges

Mandated but no conclusionMandated but no conclusion

ESM CommentESM Comment

Foreign competition may displace local Foreign competition may displace local suppliers and lead to erratic service supply suppliers and lead to erratic service supply

Value of GATS concessions without Value of GATS concessions without increase it dramaticallyincrease it dramatically

Market Access CommentMarket Access Comment

Measures to protect local investments and Measures to protect local investments and to prevent destructive competition should be to prevent destructive competition should be included in the schedule. included in the schedule.

Economics Needs Tests must be protectedEconomics Needs Tests must be protected

National Treatment CommentNational Treatment Comment

Lack of precision in languageLack of precision in language Not define what level terrain of Not define what level terrain of

competition iscompetition is Foreign access to domestic subsidiesForeign access to domestic subsidies

Slippery SlopesSlippery Slopes Issues in negotiationsIssues in negotiations

– Investment Clause:Investment Clause: Crystal Ball provision – domestic regulationCrystal Ball provision – domestic regulation

– CompetitionCompetition What terrain of competition is – national treatmentWhat terrain of competition is – national treatment

– Subsidies:Subsidies: problem of content of boxes – risk current flexibilitiesproblem of content of boxes – risk current flexibilities

– Transparency in Government ProcurementTransparency in Government Procurement Application of GATSApplication of GATS Bilateral clarificationsBilateral clarifications Bilateral definitional issues (should be multilateral)Bilateral definitional issues (should be multilateral)

– Trade FacilitationTrade Facilitation Sectors: transport, distributional services, logistics, insuranceSectors: transport, distributional services, logistics, insurance

Change of negotiating processChange of negotiating process– Within GATSWithin GATS– New Director GeneralNew Director General

Negotiation IssuesNegotiation Issues

Understand trade offs – need more certaintyUnderstand trade offs – need more certainty No additional offers till more clarity and No additional offers till more clarity and

quality concessionsquality concessions Protect current negotiation flexibilitiesProtect current negotiation flexibilities Any agreement conditional upon satisfactory Any agreement conditional upon satisfactory

outcomes in:outcomes in:1.1. Domestic regulationDomestic regulation2.2. Emergency SafeguardEmergency Safeguard3.3. SubsidiesSubsidies4.4. Mode 4 Mode 4

Broader View – Service ProvisionBroader View – Service Provision

Subsidy to wagesSubsidy to wages Preventative measures rather than curativePreventative measures rather than curative Social InvestmentsSocial Investments Increase aggregate demandIncrease aggregate demand Efficient use from effective regulation?Efficient use from effective regulation?

– Regulatory rents as distributionRegulatory rents as distribution

Theoretical GapsTheoretical Gaps

Factor price equalisation impeded because:Factor price equalisation impeded because:– Liberalisation between countries that have similar levels Liberalisation between countries that have similar levels

AND quality of development may be beneficial, whereas AND quality of development may be beneficial, whereas liberalisation between countries of different levels and liberalisation between countries of different levels and quality of development is positively harmful. This is quality of development is positively harmful. This is especially the case where exchange for increasing especially the case where exchange for increasing return goods is made for decreasing return goods.return goods is made for decreasing return goods.

Reinert – The Other CanonReinert – The Other Canon

Approach RevisitApproach Revisit

Middle ground?Middle ground? Affirmative agendaAffirmative agenda

– Strategically - sound because safeguard Strategically - sound because safeguard interests on broad basisinterests on broad basis

– Tactically – many issues to trade off on to reach Tactically – many issues to trade off on to reach “improved” arrangements and engaged“improved” arrangements and engaged

Not detract that GATS unsuited instrument Not detract that GATS unsuited instrument for Services Development Planfor Services Development Plan