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Trade in Services
Outline of Presentation Trade in Services Introduction to International Trade in Services Approaches to services commitments • WTO General Agreement on Trade in Services (GATS) • The EU-Cariforum EPA • NAFTA
2
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 3
Introduction Comparative advantage of developed countries increasingly dependent on services EU is largest exporter of services (45% of global total) US exports 14% of global total 35% of all US exports are services
Growing importance of services exports for many developing countries Caribbean’s tourism sector India’s IT service outsourcing Travel and transport account for over 60% of developing countries’ exports 4
Why services trade is increasingly important Technological changes facilitating transborder 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 Strategic Trade Policy in Context
5
Why few international trade and investment rules regarding services until recently Complex and diverse in nature from telecommunications to tugboats
Subject to complex and diverse forms of regulation Goods 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 system unrelated to trade but with trade effects Strategic Trade Policy in Context
6
Why few international trade and investment rules regarding services until recently 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
Strategic Trade Policy in Context
7
Consumption Commercial Cross Border Supply Abroad Presence
Temporary Presence
BORDER
Investment Strategic Trade Policy in Context
8
Why few international trade and investment rules regarding services until recently 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
Strategic Trade Policy in Context
9
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
Strategic Trade Policy in Context
10
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 Strategic Trade Policy in Context
11
Example of GATS-MFN Exemption Sector / Subsector
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 All countries Indeterminate 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 Strategic Trade Policy in Context
Promotion and protection of foreign investment
12
GATS Obligations Applying to All Sectors Transparency publication 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 decisions Members must allow WTO Members adequate opportunity to seek to participate in arrangements for recognition of educational and other qualifications Strategic Trade Policy in Context
13
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
BUT subject to limitations in each National Schedule
“Horizontal limitations” by Canada carve out Investment Canada review and other discriminatory measures favouring domestic investors in all listed sectors Strategic Trade Policy in Context
14
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 Strategic Trade Policy in Context
15
Classification of services under GATS used to list sectors (UN CPC and W/120) 130 categories of services sectors and sub-sectors
Business services Communications Construction Distribution Education Environmental services
Health services Financial services Tourism Recreation, culture and sports Transport Others
Strategic Trade Policy in Context
16
How to Read GATS Schedule (Example: Health) 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
1) Unbound
1) Unbound
2) Unbound
2) Unbound
Additional commitments
8. HEALTH RELATED AND SOCIAL SERVICES A. Hospital Services (CPC 9311)
3) Only through 3) None incorporation with a foreign equity ceiling of 51 per cent 4) Unbound except as indicated in the horizontal section
4) Unbound except as indicated in the horizontal section
Strategic Trade Policy in Context
17
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 Commercial presence (Except banks which are dealt with in Part B, Section 7)
Limitations on market access 3) None, other than: - The acquisition of control of a Canadian business by a nonCanadian 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 nonCanadian is subject to approval*
Limitations on national treatment
Additional commitments
A “horizontal limitation”
Strategic Trade Policy in Context
18
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 transactions enhanced 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 Negotiations – licensing and qualification requirements and technical standards – based on objective transparent criteria and on more – no more burdensome than necessary to ensure service specific quality – so as not to impair specific commitments rules Strategic Trade Policy in Context
19
Special Provisions for certain sectors and activities Financial services Telecommunications Movement of natural persons Annex provides that • No obligations regarding access to employment, residence or citizenship on a permanent basis Air transport other than aircraft repair, maintenance and specialty air services
Strategic Trade Policy in Context
20
Trade and Services in the EU-Cariforum Economic Partnership Agreement Commitments on Commercial Presence Same concept as GATS – but applies to all investors not just services suppliers MFN 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 Strategic Trade Policy in Context
21
Trade and Services in the EU-Cariforum Economic Partnership 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 Strategic Trade Policy in Context
22
Annex IV of Trade and Services in the EU-Cariforum Economic Partnership Agreement lists commitments (k) Retail sales of pharmaceuticals and retail sales of medical And orthopaedical goods (CPC 63211) and other services supplied by Pharmacists
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.
Strategic Trade Policy in Context
23
Trade and Services in the EU-Cariforum Economic Partnership Agreement 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 with Mutual recognition, transparency and requirements for administrative procedures Specific commitments in certain areas • computer services, courier services, telecommunications, financial services, maritime transport, tourism, e-commerce
Strategic Trade Policy in Context
24
NAFTA and Trade in Services (GATS Modes 1 and 2) NAFTA Chapter 12
Applies 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 Strategic Trade Policy in Context
25
NAFTA and Trade in Services NAFTA 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
Subject to Annex I and II Reservations
• 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) Strategic Trade Policy in Context
26
NAFTA and Trade in Services NAFTA 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 Strategic Trade Policy in Context
27
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:
To be licenced as a customs broker or brokerage in Canada (a) An individual must be a Canadian citizen…
Phase out:
None Strategic Trade Policy in Context
28
NAFTA and Trade in Services Separate chapters on some issues Temporary 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
Strategic Trade Policy in Context
29
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 Strategic Trade Policy in Context
30
Outline of Presentation Trade in Services Introduction to International Trade in Services Approaches to services commitments • WTO General Agreement on Trade in Services (GATS) • The EU-Cariforum EPA • NAFTA
2
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 3
Introduction Comparative advantage of developed countries increasingly dependent on services EU is largest exporter of services (45% of global total) US exports 14% of global total 35% of all US exports are services
Growing importance of services exports for many developing countries Caribbean’s tourism sector India’s IT service outsourcing Travel and transport account for over 60% of developing countries’ exports 4
Why services trade is increasingly important Technological changes facilitating transborder 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 Strategic Trade Policy in Context
5
Why few international trade and investment rules regarding services until recently Complex and diverse in nature from telecommunications to tugboats
Subject to complex and diverse forms of regulation Goods 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 system unrelated to trade but with trade effects Strategic Trade Policy in Context
6
Why few international trade and investment rules regarding services until recently 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
Strategic Trade Policy in Context
7
Consumption Commercial Cross Border Supply Abroad Presence
Temporary Presence
BORDER
Investment Strategic Trade Policy in Context
8
Why few international trade and investment rules regarding services until recently 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
Strategic Trade Policy in Context
9
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
Strategic Trade Policy in Context
10
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 Strategic Trade Policy in Context
11
Example of GATS-MFN Exemption Sector / Subsector
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 All countries Indeterminate 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 Strategic Trade Policy in Context
Promotion and protection of foreign investment
12
GATS Obligations Applying to All Sectors Transparency publication 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 decisions Members must allow WTO Members adequate opportunity to seek to participate in arrangements for recognition of educational and other qualifications Strategic Trade Policy in Context
13
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
BUT subject to limitations in each National Schedule
“Horizontal limitations” by Canada carve out Investment Canada review and other discriminatory measures favouring domestic investors in all listed sectors Strategic Trade Policy in Context
14
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 Strategic Trade Policy in Context
15
Classification of services under GATS used to list sectors (UN CPC and W/120) 130 categories of services sectors and sub-sectors
Business services Communications Construction Distribution Education Environmental services
Health services Financial services Tourism Recreation, culture and sports Transport Others
Strategic Trade Policy in Context
16
How to Read GATS Schedule (Example: Health) 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
1) Unbound
1) Unbound
2) Unbound
2) Unbound
Additional commitments
8. HEALTH RELATED AND SOCIAL SERVICES A. Hospital Services (CPC 9311)
3) Only through 3) None incorporation with a foreign equity ceiling of 51 per cent 4) Unbound except as indicated in the horizontal section
4) Unbound except as indicated in the horizontal section
Strategic Trade Policy in Context
17
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 Commercial presence (Except banks which are dealt with in Part B, Section 7)
Limitations on market access 3) None, other than: - The acquisition of control of a Canadian business by a nonCanadian 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 nonCanadian is subject to approval*
Limitations on national treatment
Additional commitments
A “horizontal limitation”
Strategic Trade Policy in Context
18
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 transactions enhanced 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 Negotiations – licensing and qualification requirements and technical standards – based on objective transparent criteria and on more – no more burdensome than necessary to ensure service specific quality – so as not to impair specific commitments rules Strategic Trade Policy in Context
19
Special Provisions for certain sectors and activities Financial services Telecommunications Movement of natural persons Annex provides that • No obligations regarding access to employment, residence or citizenship on a permanent basis Air transport other than aircraft repair, maintenance and specialty air services
Strategic Trade Policy in Context
20
Trade and Services in the EU-Cariforum Economic Partnership Agreement Commitments on Commercial Presence Same concept as GATS – but applies to all investors not just services suppliers MFN 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 Strategic Trade Policy in Context
21
Trade and Services in the EU-Cariforum Economic Partnership 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 Strategic Trade Policy in Context
22
Annex IV of Trade and Services in the EU-Cariforum Economic Partnership Agreement lists commitments (k) Retail sales of pharmaceuticals and retail sales of medical And orthopaedical goods (CPC 63211) and other services supplied by Pharmacists
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.
Strategic Trade Policy in Context
23
Trade and Services in the EU-Cariforum Economic Partnership Agreement 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 with Mutual recognition, transparency and requirements for administrative procedures Specific commitments in certain areas • computer services, courier services, telecommunications, financial services, maritime transport, tourism, e-commerce
Strategic Trade Policy in Context
24
NAFTA and Trade in Services (GATS Modes 1 and 2) NAFTA Chapter 12
Applies 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 Strategic Trade Policy in Context
25
NAFTA and Trade in Services NAFTA 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
Subject to Annex I and II Reservations
• 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) Strategic Trade Policy in Context
26
NAFTA and Trade in Services NAFTA 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 Strategic Trade Policy in Context
27
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:
To be licenced as a customs broker or brokerage in Canada (a) An individual must be a Canadian citizen…
Phase out:
None Strategic Trade Policy in Context
28
NAFTA and Trade in Services Separate chapters on some issues Temporary 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
Strategic Trade Policy in Context
29
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 Strategic Trade Policy in Context
30
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