lecture notes 7b

8/9/2019 Lecture Notes 7B

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COURSE 7B

BARRIERS TO TRADE IN SERVICES

WHAT IS A BARRIER TO TRADE IN SERVICES?

A barrier to trade in services is a government measure that creates an obstacleto the sale of services produced abroad.

Normally there is also an implication that the government measure involvedcreates a burden on foreign producers that is not borne by domestic producers.Use of the word barrier in a trade policy context can also add an analytical

judgment that the burden on foreign producers is unnecessary for theachievement of non-protectionist, domestic regulatory objectives.

A trade barrier could be an added cost that is imposed on services producedabroad, either through a discriminatory tax on imported services or throughregulations that require foreign producers to spend money on people or thingsthat they do not need. A head tax on tourists who wish to travel abroad is anadded cost on imports of tourism services. A requirement that foreign insurancecompanies sta sales o!ces with experts in every area of insurance, eventhough they are not allowed to sell many "inds of insurance, represents adiscriminatory burden on imported insurance services.

A trade barrier could also ta"e the form of a quantitative limit on the services thatcan be produced by a foreign company, and in some cases foreign companiesmight be prohibited from producing certain services altogether. #oreign ban"soperating in $anada, for example, have a ceiling on their permitted level of

deposits and loans. #oreign companies until recently have been prohibited fromselling life insurance policies, %re insurance on public buildings, or compulsoryauto insurance in &orea.

'ometimes governments have to draft di erent regulations for foreign anddomestic producers in order to achieve a domestic regulatory objective. #orexample, a government may wish to protect buyers of insurance against poormanagement through periodic audits of the investment portfolios of companiesselling insurance. 'ince governments %nd it di!cult to audit the boo"s of companies located abroad, they may require foreign companies to maintaindeposits and investments in local %nancial institutions, where they are within thereach of local regulatory authorities.

(he question in such cases is whether the requirement imposed on foreignproducers is reasonable from the point of view of the domestic regulatoryobjective and minimi)es any added burden on foreign producers. *n order todetermine whether a trade barrier exists, it may therefore be necessary todetermine not only whether a government treats foreign producers di erentlyfrom domestic producers, but also whether any di erences in treatment thatmight exist are justi%ed as a means for achieving equivalent domestic regulatoryobjectives.

*n other situations, the imposition of the same regulation on both foreign and

domestic producers can be highly discriminatory. (wo very di erent examples canhelp illustrate the point. #oreign exchange regulations that prevent both domesticand foreign architects from converting local currency receipts into foreign

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exchange are li"ely to be highly discriminatory against foreign architects, andcould exclude foreign architects entirely. A regulation that free)es the totalnumber of domestic or foreign companies allowed to sell securities could behighly discriminatory, particularly if foreign companies were largely excluded inthe past.

+overnment measures that limit the ability of foreign companies to carry outcertain activities in the local mar"et can also create trade barriers. #oreignproducers of services, depending on the requirements of the speci%c industry,may need local sales representatives or agents, freight handlers, insuranceadjusters, repairmen, or professionals familiar with the local environment. (heymay also need access to local communications systems, air and hotel reservationsystems, and local transportation systems.

#oreign suppliers of services also have to be able to carry out activities requiredby government regulations. #or example, foreign insurance companies may needto invest a portion of their premiums locally, or they may need to establishthemselves locally to satisfy regulatory requirements. +overnment measures thatrestrict any of these local activities by foreign producers of services can limittrade opportunities, and it is useful to analy)e them as potential trade barriers. *norder to determine whether they are in fact trade barriers, one has to examinewhether the restricted activity is essential for meaningful trade in a particularservices industry.

arriers to trade in services need to be distinguished from barriers to theestablishment and. operation of foreign-owned %rms producing services.egulations limiting the local production and sale of services by companiesowned by foreigners are usually considered investment barriers. Nevertheless,restrictions on foreign investment in services can have a restrictive e ect oncross-border trade in services, since trade and investment are often closelylin"ed. arriers to foreign investment in services thus frequently also constitutebarriers to trade in services.

The instruments of protectionTypical restrictions on services trade

Aaditya attoo identi%ed the following trade-restrictive measures in services/0. %rst , tarifs, that are di!cult to impose on services imports because they

are often not delivered through the cross-border mode, and even whenthey are, it is usually in an intangible form.

1. quotas , on the other hand are pervasive. 2n cross-border trade, they aremost evident in the transport sectors.

#oreign providers are either completely shut out 3i.e. a )ero quota4 of certainsegments, such as cabotage, or only provided limited access, as in internationaltransport.2n consumption abroad, quotas are sometimes implemented through foreignexchange restrictions5 e.g. the ability of citi)ens to consume services, such astourism and education, abroad is limited by limits on foreign exchangeentitlements. 2n commercial presence, quotas are imposed on the number of foreign suppliers who are allowed to establish in sectors li"e telecommunicationsand ban"ing. 6uotas on foreign participation also ta"e the form of restrictions onforeign equity ownership in individual enterprises.

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#inally, quotas are perhaps most stringent in the case of movement of service-providing personnel, and a ect trade not only in professional services, but also ina variety of labor-intensive services.

7. apart from quotas, there are numerous internal policies that discriminateagainst foreign providers.

(hese include measures that directly provide a cost-advantage to domesticproviders, such as subsidies and other measures that impose a cost or create acompetitive disadvantage for foreign providers. ost obvious are internal 3director indirect4 tax instruments. 8ess visibly, foreign suppliers may be provided lessfavorable access to essential facilities such as ports, airports ortelecommunications networ"s.+eneral incentives 3e.g. tax concessions4 for use of local content may causedomestic producers to favor the use of locally-produced services.

9. %nally, there is the class of measures which are neither quotas, nor do theydiscriminate explicitly against foreigners but they can nevertheless impedetrade. (hese include a variety of domestic regulations.

Economics o services trade policy

:e have relatively straightforward policy ran"ings of instruments a ecting tradein goods.#irst, if the object of policy is to sustain the output of an import-competingindustry at a higher level than would otherwise be the case, then a subsidy to theoutput of the industry is superior to a trade restriction, such as a tari .'econdly, if for some reason it is necessary to restrict imports, than a measuresuch as a tari is generally to be preferred to a quantitative restriction ;especially when quota rents are appropriated by foreigners, there is scope forrent-see"ing behavior or mar"ets are imperfectly competitive.How can the prescriptions o the standard goods theory help us to navigatethrough the spectrum o instruments described above, speci c to services?irst , the superiority of subsidies over trade restrictions continues to be valid.oth encourage national production, the former by reducing the private costs of national producers and the latter by imposing a cost on foreign service providers.

(he latter is an inferior instrument because it leads to deterioration in the price-quality mix that foreigners are able to provide local consumers.Secon!"# , in principle, tari s are to be preferred to quotas for much the samereason as in the case of goods.ut there are $t "e$st three re$sons %h# !i&erences $rise .0. (he %rst reason is that the di!culty of imposing tari s implies that thesubstitution of a more desirable policy instrument for a less desirable one is not

always feasible.1. 'econdly the instruments which have a tari -li"e e ect in terms of increasingcosts of foreign providers, are not however tari -li"e in generating revenue.$onsider the consequences of restrictive measures that increase foreign costsbut do not generate revenue. Now part of the loss in consumer surplus is noto set by increase in tari revenue. 'o loss in welfare is much greater.'imilarly, when quotas are imposed, their welfare consequences could bealleviated if the rents generated accrued to domestic importers rather thanforeign exporters. ut the di!culties of intermediation in services suggest thatquota-rents are more li"ely to be appropriated by exporters.*f complete liberali)ation is not feasible, a shift from both quotas and non-revenue generating measures to %scal measures would lead to an increase inwelfare.

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7. #inally, the range of restrictions that are imposed on foreign direct investmentand the movement of personnel directly a ect the mar"et structure.estrictions on foreign investment assume particular signi%cance in the case of services where cross-border delivery is not possible, so that consumer pricesdepend completely on the domestic mar"et structure. estrictions on new entryand on the participation of foreign capital are the most common, particularly incommunications and %nancial services.#oreign investment clearly brings bene%ts even in situations where it does notlead to enhanced competition 3i.e., there are entry restrictions4. #oreign equitymay relax a capital constraint, can help ensure that wea" domestic %rms arebolstered 3e.g. via recapitali)ing %nancial institutions4, and serve as a vehicle fortransferring technology and "now-how, including improved management.


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374administrative restrictions ; licensing, standards, customs valuation,clearance procedures, rules of origin, professional licensing systems, copyrights,trademar"s, franchises, government procurement5394discriminatory access to distribution and communication systems

#$%&uantitative restrictions6uantitative restrictions 36 s4 are often used to restrict international trade inservices, although the intangibility and non-storability of many services impliesthat quotas may be applied to providers of services rather than services per se.>rominent examples of 6 -type policies are the bilateral air service agreements3A'As4 that regulate international trade in air transportation services and thecargo sharing arrangements administered by the United Nations $onference on

(rade and =evelopment 3UN$(A=4 8iner $ode. (he A'As specify which airlinesmay ?y on a given route, the capacity 3number of seats@?ights4 that may beprovided in a given time period by the airlines involved, and the amount of capacity that airlines from third countries are permitted to o er on that route.

(he UN$(A= 8iner $ode is somewhat similar in that it speci%es that in liner trade

between any two states that are signatories to the $ode, the national shippinglines of those states shall have equal right to participate in the freight andvolume of tra!c generated by their mutual trade, subject to the condition thatthird-party shipping lines be given the right to acquire a signi%cant part, such as1B percent of such tra!c.*n many instances trade is simply prohibited. $ommon examples where foreignaccess to service mar"ets may be reserved exclusively for domestic suppliers arethe transportation of goods within a country 3whether by air, road, or water4 andbasic telecommunication service providers 3e.g., voice telephony4. anycountries also require that activities such as legal, insurance, educational,surveying or investment advisory services be provided by residents or citi)ens of the country concerned.ore recently, with the expansion of computer-mediated networ"s 3e.g., the*nternet4and the proliferation of computer conferences or electronic bulletin boards withparticipants from di erent nations, operating under di erent legal regimes,issues concerning privacy, control over pornography, protection of minors andintellectual property rights as they apply to cyberspace are being currentlydebated. (hese new regulations can evolve into indirect barriers to trade,generating signi%cant transaction costs for private participants and curtailing theadvantages of mar"et access brought up by this new medium.

#'% (rice!based instruments

*n the services context, tari s are used primarily to a ect trade that occurs viathe cross-border movement of natural persons, ta"ing the form of visa fees andentry or exit taxes, or discriminatory airline landing fees and port taxes. All of these are analogous to speci%c tari s.*n most countries such tari s are low, 6 s and immigration policies constitutingthe primary means of restricting mar"et access. (ari s are potentially moreimportant barriers to trade for services 3intangible assets4 that are eitherembodied in goods or for goods that are necessary inputs into the production of services. Cxamples of the former include %lms, television programs, andcomputer software on dis" or tape, while examples of the latter includecomputers, telecommunications equipment and speci%c advertising orpromotional material.>rice controls may also be used. (hese involve either price-setting bygovernment agencies or government-sanctioned industry bodies and@or price

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monitoring and approval procedures by government agencies for prices chargedby industries for their products. #requently such controls will involve serviceprovision by a government-owned or sanctioned monopoly. >rice controlsfrequently go hand in hand with capacity or quantitative restrictions, theintention usually being to ensure that prices are not set at either mar"et clearinglevels or at the monopoly level in cases where providers of speci%c services havesubstantial mar"et power.ajor examples of service sectors subject to price controls are air transportation,%nancial services and telecommunications, where government agenciesfrequently impose minimum or maximum prices, enforce a price setting rule orformula, or require uniform pricing.

>rocedures agreed under auspices of the *nternational (elecommunication Union3*(U4 to share revenues between national post, telegraph, and telephonecompanies 3>((s4 related to international telecommunications tra!c provideanother example of a price-related mechanism that distorts trade in services. *nthis case, an internationally agreed system of cooperation creates disincentives

for further liberali)ation of international telephony. (he origins of the internationalaccounting rate system go bac" to 0DEF. *t was designed as a mechanism toshare revenues between origin, destination and transit countries at a time wheninternational services were provided in a cooperative manner by monopolisticcarriers. (he system relies on a dual price scheme in which the carrier from thecountry that originates the call charges a retail price 3the collection charge4 tothe local consumer and agrees on a wholesale price 3the accounting rate4 withthe carrier of the country where the call is terminated. *f over time there is animbalance in the outgoing and incoming tra!c between the two countries, thenthe carrier that generates more tra!c compensates the other by applying thesettlement rate 3usually half of the accounting rate4 to the net imbalance.

(he accounting rates provide a ?oor for retail prices in any given economy withrespect to international telephony. As countries begin to liberali)e their telecomindustries, competition in the liberali)ed mar"ets tends to drive collection pricesdown. (o the extent that international telephony typically faces an elasticdemand, this increases the volume of outgoing calls in the liberali)ed mar"et vis-G-vis incoming calls from monopolistic mar"ets. And as the accounting rate doesnot re?ect the true cost of the service 3which typically has been falling as aconsequence of technological progress4, the si)e of the related distortionsescalate. *n this context, the carteli)ed arrangements for international pricedetermination create barriers to further liberali)ation as they tend to bolster theproducer surplus of monopolistic carriers by promoting rent transfers fromliberali)ed to monopolistic mar"ets.

'ervice industries are also sometimes supported through explicit or implicitsubsidies - especially construction, communications, and transport. 2f the servicesectors, available statistics show that rail transport is often highly subsidi)ed,with rates of support varying between 0FH and 0DBH of total value addedproduced in this sector.

374 )dministrative restrictions (o be able to provide services, suppliers often must obtain certi%cation orlicensing. (his is the case in particular for professional and certain businessservices 3e.g., %nancial4. Cxamples of licensed professions include legal,accountancy, and medical services. (he required licenses are often accorded bythe government or by the professional bodies concerned. Cnvironmentalstandards may also in?uence service activities, especially transportation and

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tourism. (hus, transport may be subjected to emission or energy e!ciencystandards, while tourism may be a ected by environmentally-motivated )oningor land-use restrictions or limitations on the number of visitors allowed to accessa certain area.*n many instances regulation has been used to severely restrict entry byforeigners and thus the supply of services, thereby allowing prices to be drivenup. (hus, the licensing regime that a ects trade in professional services oftenacts to restrict entry into the industry be it by domestic or foreign persons. *n theservices context, the primary standards-type restrictions a ecting internationaltrade relates to issues such as non-recognition of imported services or servicesprocured abroad 3e.g., diplomas obtained in foreign education or trainingprograms4 as well as non-recognition of the certi%cation or professionalquali%cations of foreign service providers. Alternatively, there may bediscriminatory standards imposed upon foreign service providers that are morestringent or more costly to meet than those a ecting domestic providers of similar services. A lac" of uniform or mutually recogni)ed standards andregulations may act to protect domestic industries and may therefore have a

negative impact on consumer welfare.+overnment procurement and sourcing policies may also be designed todiscriminate in favor of domestic service providers. As government contractscomprise a large share of the mar"et for a number of services, the impact of discriminatory procurement policies on trade in services may be large. #orexample, in the United &ingdom some 7BH of billings of managementconsultants are from government wor". 'imilarly, government accounts for asubstantial share of construction contracts awarded in a given year in manycountries. (he use and transparency of procurement preference policies variesacross countries.Under the uy American Act, the U.'. government o ers a six percent pricepreference to domestic suppliers of goods and services, a 01 percent preferenceto small businesses and %rms located in regions with high unemployment, and aFB percent preference for defense-related contracts. (his is supplemented byoutright bans on foreign sourcing for certain types of products. 2ther countriesdo not employ speci%c, formal criteria such as price margins, but rely on lesstransparent methods to favor domestic %rms. #or example, many countries haveunwritten rules under which accounting or advertising business go to local%rms.+overnment procurement discrimination is particularly important in services asgovernment entities frequently account for a signi%cant share of total demand forsome services.

#*% +iscriminatory access to distribution networ s*n order to o er@provide many types of services, suppliers need to be able to useexisting distribution and communications infrastructures, especiallytelecommunication networ"s. A dominant telecommunication carrier - whetherpublic or private - may discriminate across users@demanders of their networ"services by imposing restrictions on the ability of new service providers to attachspeci%c types of equipment to the networ" or by forcing newcomers to buildadditional infrastructure to reach interconnection points that are rationed by theincumbent.egulatory intervention is often required in these cases to guarantee that theincumbent provides the needed information on the architecture of the networ"and allows for interconnection at any point of the existing networ".*n the case of air transport, discrimination with respect to the availability and costof ancillary services may substantially reduce the competitiveness of an airline in

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a particular mar"et. Not being listed in the computer reservation systems used bylocal travel agents may result in an e ective inability to compete5 inadequateground handling services may result in long delays and customer dissatisfaction.ention can also be made of access to mar"eting channels. estrictions onmar"eting 3advertising4 may have an analogous e ect to limitations regardingaccess to telecommunication networ"s as far as the ability of a foreign providerto contest a mar"et is concerned. #or example, in the insurance industrylimitations on advertisingare a prevalent form of limiting the ability of foreign service suppliers to compete.

:ith respect to barriers to #=* in services,


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(EASURIN) BARRIERS TO TRADE IN SERVICES

=ue to the nature of services, impediments to trade tend to come in the form of non-tari barriers 3N( s4, re?ecting the di!culties inherent in imposing tari sdirectly upon either the service consumer or the service supplier as they interactacross borders.N( s are notoriously di!cult to identify and measure. 8ac" of information on theextent and impact of impediments to trade in services may undermine theliberali)ation process.

(he attempts to measure the barriers to trade and investment in services havebeen included into a three-step process/- %rst, available qualitative evidence that compares the way nation s discriminateagainst potential entrants in various service industries was collected. (hisevidence was then transformed into a requency!type inde- , with every attemptmade to weight discriminatory policies by their economic signi%cance5

- second, the impact of the policies as measured by the frequency indices wasassessed against cross!national diferences in domestic prices or domesticquantities , with the e ect of other factors explaining cross-national di erencesexplicitly ta"en into account5- and third, the measured impact of the frequency indices 3the coe!cient4 onprices or quantities was incorporated into a general equilibrium model to assessthe economy wide impacts of the policies at issue. :here possible, partialequilibrium modeling was also underta"en.

*IBERA*I+IN) INTERNATIONA* TRANSACTIONS WITH SERVICES

iberali/ation o trade in services involves the reduction o regulatory barriers tomar et access and discriminatory national treatment across all our modes o supply.

(his is not to be confused with the process of deregulation that many countriesare pursuing.

(he focus of deregulation is to reduce the total amount of state regulation in asector 3opening the mar"et to new providers and encouraging internalcompetition4, while that of trade liberali)ation is to ensure that existing regulationdoes not discriminate against foreign participation in the mar"et 3equal treatmentfor external competition4.

It is import$nt to point out th$t !ere'u"$tion in the ser,ices sector isnot necess$ri"# corre"$te! %ith "i-er$"i.$tion . C orts at deregulation maybring about changes in ownership patterns of domestic service providers andmay reduce bureaucratic delays and red tape, but do not necessarily imply theopening of the domestic mar"et to foreign service providers. (his also impliesthat deregulation may not necessarily bene%cial, if its end result does notenhance the contestability of mar"ets.


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consumer protection, prudential management of the economy, control of naturalmonopolies, or the achievement of social goals.oving to a nondiscriminatory regulatory regime, however, can require

signi%cant changes in how some sectors, in particular, public utilities, arecurrently regulated. Networ"-based utilities such as electricity, transport, andtelecommunications have typically been operated as public monopolies becauseof the natural monopoly aspects of their production and in order to pursueuniversal service through cross-subsidi)ation. $hanges in technology, increasesin demand, and the ability to subdivide the production chain have led to a declinein the importance of the natural monopoly argument in many of these sectors. *nthis case, continued monopoli)ation for the sa"e of universal service, whenalternative regulatory means of ful%lling these social objectives are available,would clearly fall foul of attempts to give mar"et access to foreign %rms

Also, di erences in regulatory measures for service industries acrosscountries, even when applied in a non-discriminatory manner, may restrictaccess on a de acto basis, and to minimi)e this, governments may encouragethe harmoni)ation of regulatory practices.

$onsequently, liberali)ation and regulatory reform are two di erentprocesses that can be simultaneous or successive 3pro-competitive regulatoryreform would have to precede liberali)ation of services4.

/O*IC0 I(/*ICATIONS

At a general level, the focus of mar"et-based policies is on creating and improvingthe institutional framewor" for private decision-ma"ing.*n this context, emphasis is placed on/- ensuring competitive conditions on factor and product mar"ets,- enhancing transparency,- removing entry barriers and price distortions,- avoiding divergences between private and social e!ciency considerations.Appropriate initiatives might thus include, depending on the actual situation in asector and country/

3a4 pro-competitive policy initiatives to abolish, for example, traditionalexclusivity rights and access barriers5

3b4 external mar"et opening to confront domestic industries with bestinternational practice5

3c4 information requirements and, in sensitive areas, prudential rules toprotect public interests5

3d4 institutional reforms providing for independent regulatory supervision5 3e4 measures to incorporate social costs, attributable to environmental

impacts and other externalities, in production and investment decisions.:hile such policy initiatives are li"ely to bene%t any sector of economic activity, itmay be argued that they tend to be more urgent and, at the same time, morechallenging and promising in "ey services industries. (he need for, and thepotential bene%ts of, institutional reforms in services sectors are underscored bythe following considerations/

The tr$!ition$" fr$me%or1 of $!ministr$ti,e re'u"$tion $n! contro"in m$n# ser,ices $re$s2 inten!e! to ensure re"i$-i"it# $n! st$-i"it#of supp"ies2 is i""3suite! to $n en,ironment ch$r$cteri.e! -# r$pi!techno"o'ic$" $n! economic ch$n'e4

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The quantity o investment and the e-pertise required to up!grade andoperate modern services sectors, li e telecom, may go well beyond what government bureaucracies are normally prepared to handle. )t the sametime, empirical evidence suggests that early liberali/ation can contributesubstantially to a country0s locational attractiveness or new investment inmodern services industries.

*$r'e ser,ices sectors h$,e "on' -een ti'ht"# re'u"$te!2 su''estin'th$t the potenti$" for "i-er$"i.$tion2 $n! the ensuin' economic-ene5ts2 $re p$rticu"$r"# hi'h4

1n many countries, liberali/ation and deregulation initiatives have initially eluded services, re2ecting the operation o long!entrenched publicmonopolies #e.g. in basic telecommunications, insurance, retail ban ing andrail transport% and the traditional view o services as being lesstransportable and tradable ! and thus less amenable to trade liberali/ation !than goods. However, this view has been con ounded by regulatory and

technical developments #e.g. the emergence o satellite communicationsand electronic ban ing% and the attendant reduction o both policy!inducedand technological barriers to competition and trade.

In the $-sence of m$r1et3!ri,en reforms2 the secu"$r e6p$nsion of m$n# ser,ices sectors in the !e,e"opment process %ou"! 'r$!u$""#-ro$!en 'o,ernment re'u"$tion $n! contro"4

+emand and supply shi ts bene ting sectors such as nancial services,telecommunications or air transport would e-pand, i current regimes weremaintained, the reach o regulatory control over production andemployment in an economy.

)i,en the infr$structur$" n$ture of m$n# ser,ices sectors2 e cienc#enh$ncin' reforms 3 inc"u!in' re'u"$tor# $n! institution$" ch$n'es3 $re "i1e"# to promote the competiti,eness of m$n# !o%nstre$m$cti,ities $n!2 thus2 impro,e o,er$"" economic perform$nce4

3rom that perspective, services liberali/ation would not be viewed as aconcession to other countries, but a precondition or enhancing domesticindustrial per ormance. The inclusion o services into the mainstream o themultilateral system, in the 4ruguay 5ound, enables governments to loc insuch re orms in an international conte-t and, thus, protect them rom

slippages and reversals.

2pen mar"ets are expected to encourage quality improvement and product andprocess innovation5 reduce the scope for waste and rent-see"ing5 constrain theeconomic power of any individual actor5 and ensure users of the continuedavailability of the relevant goods and services. ar"et-based structural change isthus helping to promote an optimal balance, from a userOs perspective, betweenproduct quality, product variety and price. At the same time, the possibility of drawing on alternative sources of supply reduces the ris" of economic shoc"s anddisturbances.

)ATS

$4 The scope of the )ATS

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(he +A(' covers all services with the exception of those provided in the exerciseof governmental authority and the greater part of the air transport sector. (heexclusion of services provided in the exercise of governmental authority ensuresthe ability of governments, notwithstanding their +A(' obligations, to implementimportant objectives of public policy. *t means for example that public health andeducation services which are supplied neither on a commercial basis nor incompetitionPthis is the relevant de%nitionPfall outside the scope of the +A('while the private services which may co-exist alongside them and are supplied ona competitive basis are covered by the Agreement.

(he +A(' also covers all measures by embers a ecting trade in services. (he most-favored-nation 3 #N4 obligation in Article ** of the Agreement requires

embers to extend to all other embers the best treatment that they give to theservices and service suppliers of any other country. (he #N principle is apowerful instrument of liberali)ation and guarantee of mar"et access.


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-4 Sche!u"es of commitments

*ts very comprehensive coverage would probably have made the Agreementunacceptable to many countries had it not provided at the same time aremar"able degree of ?exibility.embers have great freedom in negotiations to specify and limit the extent towhich they will guarantee access to their mar"ets.

(hough every ember must maintain a national schedule of commitments, it isfree to decide which service sectors will be included in the schedule and, withinthose sectors, to maintain speci%ed limitations on the degree of mar"et accessand national treatment guaranteed to foreign suppliers.

(he Agreement prescribes no minimum coverage or threshold5 a commitment inone sector is su!cient to meet the requirement that all :(2 embers must havea +A(' schedule. *t is a basic principle of the Agreement that liberali)ation should

ta"e place with due respect for the level of development of individual embers,and in general there is a strong positive relationship between the level of development of embers and the coverage of their schedulesPalthough this ismuch less true of the schedules negotiated by countries acceding to the :(2,which are commonly far more extensive than those submitted by countries at asimilar level of development in the Uruguay ound.

(he +A(' de%nes trade in services as ta"ing place under four di erent modes of supply. ember governments may ma"e commitments guaranteeing the right tosupply services under any or all of these modes. #or each service on which acommitment is made, the schedule must indicate, under each of the four modes,any limitations on mar"et access or national treatment which it is intended tomaintain5 limitations not scheduled in this way become illegal. (he entry nonesigni%es full accessPno limitations are maintained. Unbound indicates that no

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commitment is made on the mode of supply concerned5 the ember remains freeto introduce restrictions. etween these two extremes come all the entries listingspeci%c limitations, which are partial commitments. (he schedules are thus acombination of a positive list of covered services with a negative list of scheduled measures. (hey guarantee a minimum standard of access5 countriesare always free to grant higher levels of mar"et access and national treatmentthan are speci%ed in their schedules, on an #N basis and many do so. (heabsence of a commitment therefore does not mean that supply is not permitted.A country may maintain a very liberal regime while ma"ing no +A('commitments at allPbut without commitments there are no guarantees that itwill stay liberal.'ectoral commitments are presented in a four-column format. (he %rst columnde%nes the sector or sub-sector concerned, the second column indicates anylimitations on mar"et access and the third limitations on national treatment. (hefourth column contains additional commitments made under Article RQ*** onmeasures not subject to scheduling under Articles RQ* or RQ**.$ommitments or limitations which relate to all sectors are recorded as hori)ontal

commitments in the %rst part of the national schedule, in the same four-columnformat. *t is also possible for embers to bind measures of liberali)ation to comeinto force at a future date, as some have done in the telecommunicationsnegotiations, for example, and to ma"e commitments applying to only part of their territory.Article RQ* lists six di erent types of limitations on mar"et access which must bescheduled if they are to be maintained. *t is to be noted that these accesslimitations must be scheduled whether or not they contain any element of discrimination against foreign services and service suppliers.Article RQ**, which contains the national treatment obligation, also permitsembers to schedule and maintain limitations.Unli"e Article RQ*, Article RQ** contains no closed list of measures subject toscheduling5 any measure which a ects conditions of competition to the detrimentof foreign services or suppliers must be scheduled. (ypical national treatmentlimitations included in schedules of commitments relate to nationality orresidency requirements for executives and board members, requirements toinvest a certain amount of assets in local currency, restrictions on the purchaseof land by foreign service suppliers, special subsidy or tax privileges granted todomestic suppliers, di erential capital requirements and special operational limitsapplying only to operations of foreign suppliers.A scheduled commitment does not necessarily involve liberali)ation. (he majorityof commitments negotiated and scheduled in the Uruguay ound were in factstandstill bindings , committing the country concerned only to maintain the

current level of access.


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Article RQ*/ limitations on mar"et access

#ormat and Cxample of a 'chedule of +A(' $ommitments

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lecture notes 7b

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