Mode 4 –Definition, commitments, state

of play in the negotiations

Hamid MamdouhDirector, Trade in Services Division, WTO

22-23 September 2008

WTO Symposium“Mode 4 of the GATS -

Taking stock and moving forward”

What is mode 4?

Trade in services under the GATS

Four modes of supply (Article I):

(1) Cross border supply

(2) Consumption abroad

(3) Commercial presence

(4) Presence of natural persons

GATS Definition ofmode 4

The supply of a service by:

“a service supplier of one Member, through presence of natural persons

of a Member in the territory of any other Member”

GATS Annex -(1) What types of natural persons?

• “Natural persons who are service suppliers of a Member”

and are present in the territory of any other Member

– Self-employed• “Natural persons of a Member who are employed by a

service supplier of a Member” (= or ≠ Member) and are present in the territory of any other Member

– Intra-corporate transferees

– Business visitors

– Contractual service suppliers

– Employees of foreign service suppliers

Categories of natural persons under mode 4

The GATS covers services supplied by whom?

Service supplier of another Member

What form can such a “foreign” service supplier take?

Natural person Juridical person

How are services supplied in the host country?

Directly to consumer in host

country as independent

service supplier

Through an employee of a

“foreign” company with commercial

presence in host country

Through an employee of a “foreign” company without

commercial presence in host country

What categories of natural persons are generally found in Members' Schedules?

• Independent professional

• Contractual service supplier

Intra-corporate transferee

OR“temporary”

employee

Contractual service supplier

GATS Annex -(2) Mode 4 does not cover:

• Measures affecting natural persons seeking access to the employment market

• Measures regarding citizenship, residence or employment on a permanent basis

(Annex)

Plus ...

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

commitments

Including by applying differential visa requirements

GATS Definitions(Article XXVIII)

• Service supplier of another Member

• In the case of a juridical person

• In the case of a natural person

Mode 4 commitments – where do we stand?

A snapshot of commitments

• Governed by horizontal commitments

• Absence of full liberalization (i.e. “None”)

• Positive listing: “Unbound except ...”

• Often linked to commercial presence

• High-level of training/expertise, often as ICT

• Most frequently specified durations of stay: 3 months for BV, 5 years for ICT

Main limitations scheduled

• Limited categories included

• Pre-employment requirements

• Economic Needs Tests/Labour Market Tests

• Quotas

• Residency and nationality requirements

• Training/Education/ Qualification

• Authorisation, approval, registration requirements

• Training of locals

“Typical” definitions of categories in commitments - ICT

• “Intra-corporate transferees” (ICT) – work for an enterprise established in the territory of a Member and are transferred to the enterprise’s commercial presence in the territory of another Member in the context of the supply of a service. Often as executives, managers, specialists.

• “Executives” – direct the management, have wide latitude in decision-making, are supervised only by board of directors or stockholders, do not provide service directly

• “Managers” – direct organization or department, hire/fire, have day-to-day discretion, supervise other staff

• “Specialists” – have essential knowledge at advanced level of expertise, proprietary knowledge of organisation

“Typical” definitions of categories in commitments - BV

• “Business visitors” (BV) are not engaged in supplying the service or making direct sales to the public, and do not receive remuneration from a source in host Member

• “Sales” BV – negotiate for the sale of a service, establish business contacts, attend business meetings and similar

• “Set-up” BV – set-up a commercial presence in another Member, where their employer has none

“Typical” definitions of categories in commitments - CSS

• “Contractual service suppliers” (CSS) – employees of a juridical person (which has no commercial presence in host Member) who supply a service on the basis of a contract their employer has concluded with a consumer in host Member

• The employee receives remuneration from the employer while abroad, has appropriate educational and professional qualifications, may not engage in other employment

• Commitment relates only to the activity which is the subject of the contract

“Typical” definitions of categories in commitments - IP

• “Independent professional” (IP) – self-employed person based in the territory of another Member who supplies a service on the basis of a services contract with a consumer in the host Member

• IP has appropriate educational and professional qualifications

• Commitment relates only to the activity which is the subject of the contract

Structure of Horizontal Commitments(% of total categories scheduled, 2008)

ICT43%

Contract4%

Other4%

E,M,S25%

BV24%

BV = Business VisitorsICT = Intra-Corporate Transferees

E,M,S = Executives, Managers, Specialists Source: WTO Secretariat (2008)

State of play in the mode 4 negotiations

Starting point

In comparison to the other three modes of supply, mode 4

commitments are the least liberal,due to positive listing and proliferation

of limitations

Main mode 4 barriers identified by Members

• Structure and coverage of existing commitments

• Economic Needs Tests (ENTs)

• Definitional problems

• Administrative practices: no access to information and lack of transparency

• Lack of recognition of qualifications

Some of the solutions proposed...

• More and better commitments more categories, improved definitions, finer classification, “sector-specific” commitments

• Removal of barriersmultilateral criteria for ENTs - more specific, transparent and non-discriminatory

• Greater transparency and predictability• GATS visa• More regulatory cooperation amongst

sending and receiving Members

Mode 4 - Offers so far…

• 30 of around 70 offers propose some improvement to horizontal commitments (half developed, half developing countries)

• The value or importance of horizontal commitments in mode 4 depends on the number of sectors included in the schedule

Main mode 4 improvements contained in offers

• New categories, broader coverage• Expanded list of sectors to which the

commitments apply• Extended periods of stay; possibility of renewal • Clarification of the application/reduction of the

scope of ENTs• Reduction of discriminatory measures• Some improvements in transparency

Overall state of play in the services negotiations

• Number and quality of offers has thus far been unsatisfactory, including on mode 4

“Few, if any, new commercial opportunities would ensue for service suppliers. Most Members feel that the negotiations are not progressing as they should.“

[Chair of CTSS, July 2005 (TN/S/20)]

• BUT Hong Kong Ministerial (December 2005) provided objectives and plurilateral process

Hong Kong Ministerial Declaration – Mode 4 objectives

Members to be guided, to the maximum extent possible, by the following mode 4 objectives:

• New or improved commitments on:– CSS, IP and Others de-linked from commercial

presence– ICT, Business Visitors

• to reflect inter alia– removal or substantial reduction of ENTs– indication of duration of stay and renewal

Plurilateral Requests - Mode 4Collective request on mode 4

• From 15 developing to 9 developed countries• Seeks commitments on CSS and IP • Commitments are called for in a number of

sectors, falling under business, construction, environmental, tourism and recreational services

• Asks for the removal/clarification of Economic Needs Tests

Least-developed countries have also submitted a mode 4 request, with a largely

similar focus

July 2008 “Mini-Ministerial” – Signalling Conference

• Indications were exchanged on own new and improved commitments as well as on the contributions expected from others

• Overall, positive indications were given about market access commitments across all major services sectors and modes of supply

• “Most participants indicated their readiness to improve access conditions for mode 4. In several statements, these signals were expressly linked to the development character of this Round.”[Report by the Chairman of the TNC, 30 July 2008 (JOB(08)/93)]

THANK YOU