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 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

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 Temporary
Cross Border Supply Abroad Presence 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 NAFTA and
EPA Canadian FTAs
General Approach Positive list Positive list Negative list
to Commitments (specify covered (specify covered (specify activities
activities) activities) not covered)
Approach to Commercial presence Commercial Investment dealt
Investment covered for service presence covered with in separate
suppliers only for all types of chapter
(A mode of services investors
supply)
Approach to Dealt with as mode Temporary Temporary
Movement of of services supply presence of people presence of people
People dealt with in dealt with in
separate chapter 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 / Sub- Description of Countries to Intended Conditions
sector the measure which the duration creating the
indicating its measure need for the
inconsistency applies exemption
with Article II

…
All sectors Canada accepts All countries Indeterminate Promotion and
compulsory protection of
arbitration of foreign
investor/state investment
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 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 BUT subject to limitations
Market Access 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 Health services
Communications Financial services
Construction Tourism
Distribution Recreation, culture
Education and sports
Environmental Transport
services 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 Limitations on Limitations on Additional

subsector market access national treatment commitments
8. HEALTH
RELATED AND
SOCIAL
SERVICES
1) Unbound 1) Unbound
A. Hospital
Services 2) Unbound 2) Unbound
(CPC 9311)
3) Only through 3) None
incorporation with a
foreign equity ceiling of
51 per cent

4) Unbound except as 4) Unbound except as

indicated in the indicated in the
horizontal section 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 Limitations on Limitations on Additional

subsector market access national treatment commitments
Commercial 3) None, other than:
- The acquisition of control of a
presence Canadian business by a non-
(Except banks Canadian is subject to
which are dealt approval* for all direct
acquisitions of Canadian
with in Part B,
A “horizontal limitation”
businesses with assets not
Section 7) 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*
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
on more – based on objective transparent criteria and
– no more burdensome than necessary to ensure service
specific quality
rules – so as not to impair specific commitments

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) Subject to
• Most favoured nation treatment (Art. 1203) Annex I and II
Reservations
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)
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