trade in services. strategic trade policy in context2 outline of presentation trade in services...

Trade in Services

Strategic Trade Policy in Context 2

Outline of Presentation

Trade in ServicesIntroduction to International Trade in ServicesApproaches to services commitments

• WTO General Agreement on Trade in Services (GATS)

• The EU-Cariforum EPA• NAFTA


Introduction

Why have international trade rules on services?

Services trade is increasing in economic importance

• Services represent more than 20% of world trade• For most of the 1990’s, services trade was

increasing 50 % faster than trade in goods• From 2001– 2008 services exports increased

• but at slower rate than trade in goods


IntroductionComparative advantage of developed countries increasingly dependent on services

EU is largest exporter of services (45% of global total)US exports 14% of global total35% of all US exports are services

Growing importance of services exports for many developing countries

Caribbean’s tourism sectorIndia’s IT service outsourcingTravel and transport account for over 60% of developing countries’ exports


Why services trade is increasingly important

Technological changes facilitating trans-border delivery of services

e.g. financial services - e-banking

Separation of services from goods e.g. warranty services, finance, marketing

Globalisation of firm production functions

Privatisation and deregulation of services

Foreign direct investment


Why few international trade and investment rules regarding services until recently

Complex and diverse in naturefrom telecommunications to tugboats

Subject to complex and diverse forms of regulationGoods trade is primarily regulated at the border

• Many instruments of regulation the same from one country to the next and for all goods

Services trade is regulated at the point of delivery or consumption

• Source, nature and content of regulation varies by country and service

Services regulation tied to important public policy goals

e.g. health, safety, integrity of financial systemunrelated to trade but with trade effects



Services delivered in different ways - not just cross border exchange

Different modes of delivery may raise different issues

e.g., investment entry and entry of natural persons raise different issues than cross border supply

Need to permit different levels of commitment for (1) individual sectors and (2) different modes of supply


Cross Border SupplyConsumption

AbroadCommercial

PresenceTemporaryPresence

BORDER

Investment



Services delivered in different ways - not just cross border exchange

Different modes of delivery may raise different issues

e.g., investment entry and entry of natural persons raise different issues than cross border supply

Need to permit different levels of commitment for (1) individual sectors and (2) different modes of supply


Choices in Treaty Architecture

WTO GATS EU-Cariforum EPA

NAFTA and Canadian FTAs

General Approach to Commitments

Positive list(specify covered activities)

Positive list(specify covered activities)

Negative list(specify activities not covered)

Approach to Investment

Commercial presence covered for service suppliers only(A mode of services supply)

Commercial presence covered for all types of investors

Investment dealt with in separate chapter

Approach to Movement of People

Dealt with as mode of services supply

Temporary presence of people dealt with in separate chapter

Temporary presence of people dealt with in separate chapter


WTO’s General Agreement on Trade in Services (GATS)

All services are subject to GATS - including services delivered through a commercial presence (i.e. investment)

Over 50% of new investment worldwide is in services

Some obligations apply to all services that are subject to the agreement

E.g. Most Favoured Nation (MFN)• Subject to MFN exemption list (a negative list)

Other obligations apply only to services sectors listed by each WTO Member in its National Schedule (positive list)

E.g. National treatment and market access


Example of GATS-MFN Exemption

Sector / Sub-sector

Description of the measure indicating its inconsistency with Article II

Countries to which the measure applies

Intended duration

Conditions creating the need for the exemption

All sectors Canada accepts compulsory arbitration of investor/state investment disputes brought by or in respect of service suppliers of countries with which Canada may have agreements providing for such a procedure

All countries Indeterminate Promotion and protection of foreign investment

…


GATS Obligations Applying to All Sectors

Transparencypublication of laws and regulations

Measures affecting trade in services must be administered

in “reasonable, objective and impartial manner”Must be right to judicial review of administrative decisionsMembers must allow WTO Members adequate opportunity to seek to participate in arrangements for recognition of educational and other qualifications


GATS Obligations Regarding Listed Sectors

Some obligations that apply only to services sectors listed by each WTO Member in its National Schedule and can be limited

National Treatment

Market Access

“Horizontal limitations” by Canada carve out Investment Canada review and other discriminatory measures favouring domestic investors in all listed sectors

BUT subject to limitations in each National Schedule


GATS Obligations Regarding Listed Sectors

Market access limitations that a WTO Member must list if it wants to maintain

Limitations on• number of service suppliers• total value of services transactions or assets• total number of service operations or total

output• number of employees employed in services• type of entity used• participation of foreign capital


Classification of services under GATSused to list sectors (UN CPC and W/120)

Business services

Communications

Construction

Distribution

Education

Environmental services

Health services

Financial services

Tourism

Recreation, culture and sports

Transport

Others

130 categories of services sectors and sub-sectors


How to Read GATS Schedule (Example: Health)

Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence ofnatural persons

Sector orsubsector

Limitations onmarket access

Limitations onnational treatment

Additionalcommitments

8. HEALTHRELATED ANDSOCIALSERVICES

A. Hospital Services (CPC 9311)

1) Unbound

2) Unbound

3) Only throughincorporation with aforeign equity ceiling of51 per cent

4) Unbound except asindicated in thehorizontal section

1) Unbound

2) Unbound

3) None

4) Unbound except asindicated in thehorizontal section


Investment Canada Review Carved out of GATS in Canada’s National Schedule of Commitments

Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

Sector or subsector

Limitations on market access

Limitations on national treatment

Additional commitments

Commercial presence (Except banks which are dealt with in Part B, Section 7)

3) None, other than: - The acquisition of control of a Canadian business by a non-Canadian is subject to approval* for all direct acquisitions of Canadian businesses with assets not less than a monetary amount established and published in January of each year in the Canada Gazette The monetary amount for 1994 is $C153 million to be adjusted thereafter annually for changes in nominal GDP - The acquisition of control of a Canadian business, or establishment of a new business related to Canada's cultural heritage or national identity*, by a non-Canadian is subject to approval*

A “horizontal limitation”


GATS Obligations Regarding Listed Sectors (ii)

Additional obligations applying to sectors listed in national schedules of commitments

permit international transfers and payments to settle current transactionsenhanced transparency – domestic regulation (Art. VI)

• notify WTO of new laws and regulations affecting trade in services in listed sector

• enquiry point regarding regulation of listed sectors• Re: listed sectors

– licensing and qualification requirements and technical standards– based on objective transparent criteria and – no more burdensome than necessary to ensure service

quality– so as not to impair specific commitments

Negotiationson more specificrules


Special Provisions for certain sectors and activities

Financial servicesTelecommunicationsMovement of natural persons

Annex provides that• No obligations regarding access to

employment, residence or citizenship on a permanent basis

Air transportother than aircraft repair, maintenance and specialty air services


Trade and Services in the EU-Cariforum Economic Partnership Agreement

Commitments on Commercial PresenceSame concept as GATS – but applies to all investors

not just services suppliersMFN all sectors re: commitments in future trade agreements

• But some sectors excluded– mining, manufacturing and processing of nuclear materials– production of or trade in arms, munitions and war materials– audio-visual services – national maritime cabotage– national and international air transport services

Market Access and National Treatment (positive list)

• In sectors and on terms listed in Annex IV to Agreement



Commitments on Cross-Border Trade in Services (GATS Modes 1 and 2)

MFN all sectors re: commitments in future trade agreements

• But some sectors excluded– audio-visual services

– national maritime cabotage

– national and international air transport services

Market Access and National Treatment • In sectors and on terms listed in Annex IV to Agreement


Annex IV of Trade and Services in the EU-Cariforum Economic Partnership Agreement lists commitments

(k) Retail sales of pharmaceuticalsand retail sales of medical And orthopaedical goods(CPC 63211)and other services supplied byPharmacists

AT, BG, CY, FI, MT, PL, RO, SE, SI: Unbound

BE, DE, DK, EE, ES, FR, IT, HU, IE, LV, PT, SK: Authorisation is subject to an Economic needs test. Main criteria: population and geographical density of existing pharmacies.



Separate Chapter on temporary presence of natural persons for business purpose

Key personnel, graduate trainees, business services sellers, contractual services suppliers, independent professionals and short term visitors for business purposes

Separate Chapter on regulation deals withMutual recognition, transparency and requirements for administrative proceduresSpecific commitments in certain areas

• computer services, courier services, telecommunications, financial services, maritime transport, tourism, e-commerce


NAFTA and Trade in Services (GATS Modes 1 and 2)

NAFTA Chapter 12Applies to all measures relating to cross-border trade in services and not specifically excluded or reserved (“negative list” approach) except

• Air services other than aircraft repair, maintenance and specialty air services

• Financial services• Subsides and grants• Government procurement (separate commitments)

Separate chapters for financial and telecommunications services (Chapters 13 and 14)Separate chapters on investment and movement of persons


NAFTA and Trade in ServicesNAFTA Chapter 12

Better of • National treatment (Art. 1202)• Most favoured nation treatment (Art. 1203)

No requirements for residency or establishing commercial presence to provide service (Art. 1205)Can maintain quantitative restrictions but

• Must list federal • Notify of new ones • Endeavour to negotiate for removal (Art. 1207, Annex V)

Commitments to liberalize quantitative restrictions, licensing requirements, performance requirements or other non-discriminatory measures (Annex VI)

Subject toAnnex I and IIReservations


NAFTA and Trade in ServicesNAFTA Chapter 12 (Art. 1210)

Endeavour to ensure that licensing and certification requirements and procedures are

• Based on objective and transparent criteria and • No more burdensome than necessary to ensure the

quality of the service• Not disguised restriction on provision of the service

But recognition of experience, education and qualifications not required

• Opportunity to seek recognition required if recognize those of another state

Within 2 years remove any citizenship or permanent residency requirements to be licenced to provide professional service listed in Annex I


Carved Out of NAFTA – Excerpt from Canada’s Schedule to Annex I

Sector: Business Service Industries

Industrial Classification: SIC Customs Brokers

Type of Reservation: National Treatment (Article 1202) Local Presence (Article 1106) Senior Management and Boards of Directors (Article 1107)

Level of Government: Federal

Measures: Customs Act, R.S.C. 1985, c. 1(2nd Supp.)

Customs Brokers Licensing Regulations, SOR/86-1067

Description:

Phase out:

To be licenced as a customs broker or brokerage in Canada

(a) An individual must be a Canadian citizen…

None


NAFTA and Trade in Services

Separate chapters on some issuesTemporary presence of natural persons for business purpose (Chapter 16)

Investment (Chapter 11)• Distinct obligations including

– prohibition on direct and indirect expropriation– fair and equitable treatment


General Categories of Services Issues

Positive vs. negative list

What sectors to include (or carve out)Limitations

How to deal with different modes of supply• Especially investment and the movement of people

Sector specific commitments

Typical categories of substantive obligations MFN, NT, Market Access, Recognition, Transparency, Administrative Procedures

trade in services. strategic trade policy in context2 outline of presentation trade in services...

Documents

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