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WTO Law on Trade in Services (I)
SHI JINGXIA, UIBE Law School
03/02/2015
UIBE Law School, ILLM
I. Introduction
• In the movie “The Imitation Game”, the signature
line: “Sometimes it is the people who no one
imagines anything of who do the things that no
one can imagine.”
• When people talked about trade before, they
rarely talk about services.
• Yet services constitute the very important part of
the world trade story, and are likely to be even
more so in the future---especially if trade
negotiations can effectively eliminate foreign
barriers to services and services suppliers.
Modern economy is service economy
• The increased importance of the service sector in developed
economies (>80% of GDP). The current list of Fortune 500
companies contains more services companies than before.
• Services constitute over 50% of GDP in low income countries,
the importance of services in the economy continues to grow.
• Employment in services sector
– Developed countries: 2/3 or more
– Developing economies: increasing steadily
– China: over 1/3
• Percentage of services trade in total trade
– World 2013: 20% in BOP basis; 50% as measured in valueadded basis
– Services in global value chain (GVC)
– China: about 10% in BOP basis, much more in value-added
basis
• Beyond the impressive statistics is the role that
services play in facilitating exports from the other
sectors---manufacturing, agriculture, energy, etc.
• The relative importance of service in a product
offering. Products today have a higher service
component than in previous decades—servicification
of manufacturing industry: for example: IBM, Huawei,
etc.
• All other exports are dependent upon an array of
services--- transportation and logistics, financing and
insurance, advertising, computer-related services,
telecommunications.
• Failing to realizing the full potential from services in
energizing our economy because of many barriers
and discrimination that services providers faced.
Services industries in developing
countries
• Percentage of services of GDP is less than
developed countries
• Fourfold increase in trade over last two decades
• Important contributor to economic efficiency and
development
• Labour intensive
• China: 44% of GDP, 9.8% of total trade (BOP),
over 1/3 employment --huge potential for growth
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Services Industry in the U.S.
• Often 80% of GDP, even more than 90%
• The U.S. is the world’s largest services market,
and was the world’s leading cross-border
exporter and importer of services.
• The U.S. continued to remain highly
competitive in the global services market, with
U.S. exports and imports demonstrating a
rapid increase.
The Importance of Services to U.S
• The services sector is the world's largest employer, and
produces 70% of global gross domestic product (GDP).
• In the U.S., services generate more than 75% of the
national economic output and provide 80% of private
sector jobs.
• The U.S. consistently maintains a surplus of services
trade; currently the surplus is over $200 billion.
• According to the USTR, if U.S. business services
achieved the same export potential as U.S.
manufactured goods, then U.S. exports as a whole
could increase by $800 billion.
II. The World Trade Organization (1)
• 1947: GATT (General Agreement on Tariffs
and Trade)
• 1995: WTO (World Trade Organization)
– trade in goods (GATT, etc.)
– Services (GATS)
– intellectual property (TRIPs)
– investment measures (TRIMs), etc.
- binding trade disputes (including service
disputes) procedure (DSU)
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The World Trade Organization (2)
• Currently 160 members (3/4 developing countries)
• Ministerial Conference (every 2 years, 9th, at Bali,
Indonesia, November 2014)
• WTO General Council (monthly)
- oversees day to day operations (GC)
- directs the dispute settlement system (DSB, 490
cases by the end of Feb. 2015)
- In charge of the trade policy review mechanism
(TPRB)
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WTO (3): seen from the functions
• To serve as a forum for trade negotiations
- Multilateral trade agreements (MLAs)
• To conduct Members’ Trade Policy
Review
• To settle trade disputes based upon an
agreed legal framework, including services
disputes arising under GATS
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Now please reflect on:
What is services?
How are services different from goods?
The traditional view on services




Services = intangible = non-tradable?
Services = government monopolies?
Services = rich countries’ playfield?
Services = unsuited for GATT-type
disciplines?
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What are Constraints & Concerns
on services liberalization?
• Domestic opposition?
• Lack of expertise and resources?
• Unable to effectively improve access for
domestic exporters?
• Cannot fully address anti-competitive
practices of foreign firms?
• Inadequate stability or international credibility?
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The Challenges during the Uruguay
Round on GATS Negotiations
 Sectoral coverage? All services?
 Types of transactions?
 Role of Most-Favoured-Nation (MFN) principle?
 Permissible policy instruments?
 Need for GATT-type trade remedies and
regulatory disciplines?
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Application of trade theory to
Services
• Trade in services, in general, display the same
characteristics as trade in goods
• The theory of comparative advantage does apply
to services trade
• Given high levels of regulation (protection) in
service sectors, economic factors alone cannot
explain the pattern of trade in services
• The removal or reduction of barriers to trade in
services would contribute to major increases in
global welfare
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III. What is GATS?
• General Agreement on Trade in Services
concluded in 1994, Marrakesh, Morocco
• Implemented as of January 1995 as an integral
part of WTO single undertaking (package)
• 160 member countries by the end of Feb. 2015
• All sectors (except governmental services and air
traffic rights)
• Positive list approach
• four modes of supply
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Key principles of GATS
(1)
• Non discrimination
- Most Favored Nation Treatment (MFN): applies
to all countries that signed GATS
- National Treatment (NT): applies only to those
sectors for which commitments are made
Compare: non-discrimination principle in GATT
• Market access (6 quantitative limitations)
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Key principles of GATS
(2)
• Transparency: all regulations accessible
and open to public
• Temporary exemption: to MFN and NT i.e.,
on short-term economic crises
• Lock-in effect: once a commitment is
made, it is difficult to withdraw it
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GATS: Main
Features
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IV. 1st Observation on GATS
THE GATS IS FAR WIDER IN COVERAGE
THAN CONVENTIONAL TRADE
AGREEMENTS ....
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GATS: Scope, coverage, and
definitions
n MEASURES AFFECTING TRADE IN
SERVICES AT ALL GOVERNMENT LEVELS
n ALL SERVICES (except governmental services
and measures affecting air traffic rights)
n FOUR MODES OF SUPPLY
- Cross-border supply
- Consumption abroad
- Commercial presence
- Presence of natural persons
n APPLICATION TO SERVICES AND SERVICE SUPPLIERS
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Scope of GATS
• 160 members
• Any sector in any service (about 160 )
except:
- Services supplied in the exercise of
governmental authority (fire, police, …)
- Air traffic rights
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GATS: Coverage
• Infrastructure services,
capital intensive, scale
economies
– Communication
– Transport
• Traditionally “liberal”
services
• Strong institutional &
regulatory difference between
jurisdictions
–
–
–
–
• Other
–
–
–
–
– Distribution
– Tourism
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Financial services
Business services
Health services
Education
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Environmental services
Recreation, Culture, Sport
Professional
Construction
Modes of trade
MODE
MEANING
EXAMPLE
Mode 1
Trade takes place from the
Cross-border trade territory of country A into that of B
- Telehealth
- Passing of information
by means of fax or email
Mode 2
Consumption
abroad
Services consumed by nationals
of country A in territory of country
B
- Tourism
- Consumers who cross
borders to obtain medical
treatment
Mode 3
Commercial
presence
A service supplier of country A
crosses the border to establish
and provide a service in country B
- Establishment of a
private hospital by a
European company in
Ecuador
Mode 4
Movement of
natural persons
Temporary movement from
country A to B to supply a service
- Doctors moving to
another country to
temporarily provide their
services
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... with interesting ramifications
Test question: What modes are involved?
(The patient and the nurse are foreigners, the hospital is
foreign-owned, and ‘SURGERY.COM’ is based abroad.)
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V. 2nd Observation on GATS
... BUT THE GATS IS EXTREMELY FLEXIBLE
IN APPLICATION
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GATS: Obligations
• General (GATS Art. 2-15)
– MFN treatment
– Transparency, etc.
• Specific (GATS Art. 16-18)
– Market access
– National treatment
– Additional commitments
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Most-favoured-nation treatment
 Favour one, favour all
 Immediately and unconditionally
to all
services/providers in all members
 Regardless of specific commitments
 Limited exceptions available for up to 10 years
(Article II exemption)
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Exceptions from MFN
Annex on Article II
Free movement of people (no permanent
employment/citizenship
Air transport (traffic rights regulated by other
bilateral agreements)
Financial services (investor protection, insurance,
central banks)
Maritime transport
TV communications (no discrimination to foreign
suppliers)
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Exceptions from MFN, cont’d
Art V: economic integration exception
(compare: GATT Article XXIV)
e.g., trading blocks (FTAs) can create other
agreements between their members
• Substantial sectoral coverage
• No increase in barriers to other Member States
Art XIV (general exception): alike in GATT
(Article XX)
Public policy, morality, security, health, etc..
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Relevance for individual sectors
Three possible Scenarios:
I. Not covered: Governmental services and large
segments of air traffic rights
II. Covered - but no access obligations
III. Access obligations
(“Specific Commitments”)
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Scenario I:
Status of Governmental Services
Excluded from coverage are ‘services provided in the
exercise of governmental authority’ which, in turn, are
defined as services that are supplied ‘neither on a
commercial basis, nor in competition with one or
more service suppliers’. (Article I:3)
 on a commercial basis
 in competition with
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Scenario II:
What minimum obligations are
incurred in sectors falling under
GATS (‘unconditional obligations”)?
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Unconditional obligations
• Most-Favoured-Nation (MFN) Treatment
• Transparency requirements
• Some other “good governance” provisions
(availability of legal remedies, opportunity for
consultations, etc.)
Note: There is no obligation to open markets.
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Scenario III:
What are the implications of
“Specific Commitments”?
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Specific Commitments –
Three basic concepts
• Market Access
• National Treatment
• Additional Commitments
Plus: Unconditional and
Conditional Obligations
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Market Access and National
Treatment: Main elements
n MARKET ACCESS (Article XVI)
Absence of quota-type and similar restrictions
n NATIONAL TREATMENT (Article XVII)
Non-discrimination with regard to all measures
affecting the supply of a service
Any limitations must be inscribed in Schedules under
the relevant mode(s).
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Market Access restrictions
Not allowed unless specified in a Member’s
Schedule of Commitments.
the number of service suppliers
the value of service transactions or assets
the number of operations or quantity of output
the number of persons that may be employed in
supplying a service
the type of legal entity or joint venture
the participation of foreign capital
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Schedules of Specific
Commitments: General Structure
Sector
Limitations on Limitations
Additional
Market Access on National Commitments
(four modes of Treatment
(Optional)
supply)
(four modes
of supply)
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How Schedules of Commitments
are structured
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or
subsector
Medical and
Dental Services
(CPC 9312)
Limitations on
market access
Limitations on
national treatment
1) Unbound
1) None
2) None
2) None
3) The number of new
foreign doctors
registered each year may
be limited depending on
the total supply of
doctors
4) Unbound except as
indicated in the horizontal
section
3) None
Additional
commitments
4) Unbound
*Unbound due to lack of technical feasibility
NOTE: “unbound” = no commitment (full policy discretion)
“none” = no limitation (full commitment)
Jingxia
“The number of ... “ = partialSHI,
commitment
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Specific Commitments –
Where? How? When?
• Selection of sectors
• Inscription of limitations
(i) Less than status quo?
(ii) Status quo?
(iii) More liberal?
- With immediate effect?
- Pre-commitment?
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Must GATS obligations (and
commitments) be respected at all costs
No. Members may intervene for overriding health
and other policy reasons (Article XIV, ‘prudential
carve-out’ in financial services), because of
security concerns (Article XIVbis) or to protect the
Balance of Payments (Article XII).
Also, they may want to re-negotiate commitments
(Article XXI) or seek a waiver (Article XIX:3 of
WTO Agreement).
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Ongoing negotiations on Services
• To extend the number and extent of commitments made
• To remove existing limitations on current commitments
• To bind commitments so that they cannot be reversed
• GATS 2000 (since January 2000)
• Trade in Services Agreement (TiSA)
– pluralateral (23)
-- dominated by the U.S., EU, & Australia
• The services negotiations in the framework of TPP,
TTIP, etc.
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Four built-in GATS negotiating
mandates
•
•
•
•
Domestic Regulation (Article VI:4)
Emergency Safeguards (Article X)
Government Procurement Article XIII)
Subsidies (Article XV)
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GATS and domestic regulation
• “GATS does not remove a government´s right to
regulate services in its country”
• But: Government regulation of a service should
be “not more burdensome than necessary to
ensure the quality of the service” (possibility of
necessity test)
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TiSA Negotiation
• GATS was established in 1995. Since then, the world has evolved
dramatically from the result of technological advances, changing
business practices, and deeper global integration.
• The Trade in Services Agreement (TiSA) is the most promising
opportunity in two decades to improve and expand trade in
services.
• Initiated by the United States and Australia, the TiSA is currently
being negotiated in Geneva, Switzerland with 50 participants that
represent 70% of the world's trade in services: critical mass?
• As of Feb. 2015, participants in the TiSA include Australia, Canada,
Chile, Chinese Taipei (Taiwan), Colombia, Costa Rica, the European
Union*, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico,
New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, Republic
of Korea, Switzerland, Turkey, and the U.S..
• The world has changed radically in recent years as a result of
technological advances, global data flows, innovative
business practices, and the widespread use of the Internet
by everyone.
• Thus the rules governing trade in services must be brought
into line with the realities of today’s digitally-connected
world. In the absence of such an agreement, countries are
imposing all sorts of restrictions on service suppliers.
• The TiSA can establish new market access commitments and
universal rules that reflect 21st century trade.
• The problem:
– secret and closed negotiation
– future multilateralization, the relationship with GATS, etc.
– China’s application to join the negotiation has not been approved.
THE END
THANK YOU!
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