C. A 10-STEP TEMPLATE FOR ASSESSING THE IMPLICATIONS OF TRADE IN SERVICES AGREEMENTS FOR PACIFIC POLICY & REGULATION

To make a proper assessment of what trade in services agreements might mean for domestic policy and regulation it is necessary to start with a clear picture of the country’s existing services, and related policies and regulation. The approach also has to treat services in a way that people can understand. This template offers a systematic, step-by-step approach that begins from the reality of services as people experience them. It asks who has responsibility for regulating those services, the profile of the services workforce, the government’s legal obligations in providing those services, the reasons for any special protections to local service suppliers or restrictions that are applied to foreign firms, and the nature of public services. The final steps seek to match this information to the more technical content of trade in services agreements and schedules.

Step 1: What services are provided in your country and who regulates them?

Step 2: What is the supply chain for those services and how is each part regulated?

Step 3: What effect would more foreign competition in these services have on employment policy?

Step 4: What are the government’s existing legal obligations and people’s legal rights in relation to services?

Step 5: Are there preferences for local firms and restrictions on foreign firms and why?

Step 6: How does government define and manage ‘public services’ and government procurement?

Step 7: What are the main regulatory issues for temporary migration of services workers?

Step 8: How does the government regulate the supply of services by foreigners, such as moving money, granting licenses and recognising qualifications?

Step 9: Are there existing arrangements with countries that give their services firms and people preferential treatment over other countries?

Step 10: What areas of policy and regulation should be restricted by trade in services rules, in what sectors and subject to what limitations?

Each step sets out a list of key points to consider and provides a table that suggests ways of recording the relevant information. The electronic version of these tables can be adapted by adding/deleting columns and changing the headings to reflect national conditions.

The exercise will be most valuable if all steps are completed for all of the country’s key services. That involves a lot of work and may be unrealistic, so it would make sense to begin with priority sectors.

The overall template is designed to be a collective process that can draw on the insights of different parts of the community. Each step indicates whether it is more suited to NGOs and local businesses, trade unions, non-trade officials or the trade experts.

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STEP 1. What services are provided in the country and who regulates them?

(This step is most suited to officials from sectoral and commerce ministries, local businesses, NGOs and trade unions working in particular services areas)

The starting point for understanding how trade in services commitments could impact on national regulation and ‘policy space’ is to identify which services are actually provided in the country. Ideally, this should be forward looking and include services that are not yet provided but could be. Because trade in services agreements target the measures that are used by all official bodies at all levels of decision-making it is also necessary to identify who has responsibility for the laws, policies, regulations and decisions that affect those services.

Points to consider

(a) What are the main services that are or might be provided in the country (drawing on ministry documents, national development plans, national accounts, national budget, PRSPs, etc)?

(b) What official decision-making bodies are involved in the regulation of those services at any level?

Regulatory responsibility for major services activities

Services(examples only)

Central government

State govtwithin a federation

Statutory body

Local government

Village council

Non-govt delegated authority

Other

Health

BanksWater

RetailFood processing

Primary educationTelecoms

Real estate

Electricity

Petroleum supplyMedia

Etc

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STEP 2: What is the ‘supply chain’ for those services and how is each element regulated?

(This step is most suited to officials from sectoral and commerce ministries, local businesses, NGOs and trade unions working in particular services areas)

The broad services categories identified in step 1 are themselves made up of many activities. For example, ‘health services’ includes general practitioners, hospitals, midwives, pharmacies, laboratory testing, x-rays, ambulances, nurse training, etc.

Within each of these sub-sectors there may be further sub-divisions of activities. To identify which sub-sectors are relevant to a particular service it is helpful to think of all the commercial activities that make up the supply chain for that service. Sometimes these involve technical services and expertise (eg the many different sub-services that are involved in providing a sanitation service).

Most sub-sectors are subject to their own regulations and professional standards, which are administered by a range of government ministries, statutory bodies and delegated authorities. To predict how trade in services agreements might affect a service it is therefore necessary to identify all the relevant sub-sectors, how they are regulated and by whom.

The difficulty of predicting the future shape of services adds a further complication. New commercial opportunities relating to services are emerging all the time, especially through the Internet. In addition, existing public services like telecoms, post, electricity or broadcasting will look very different if they are commercialized and/or a public monopoly is unbundled into several operations and opened to competition. This uncertainty makes it hard for governments to anticipate the likely future impact of trade in services commitments on their policy and regulatory options.

Points to consider

(a) What are the main components of each of the major services categories identified in step 1 (eg tertiary education: university undergraduate education, postgraduate education, medical schools, polytechnic trade training, language training, adult literacy, teacher training, student loan schemes, qualification authorities, on-line libraries, foreign franchises, curriculum specialists, accreditation agencies, ...)

(b) What commercial activities form part of the supply chain for these services?

(c) Who delivers these services (central government, local government, community, private)?

(d) How are these subsectors regulated (eg legislation, regulations, bylaws, custom, none)?

(e) Who has authority over their regulation (eg ministers, tribunals, local bodies, village councils, professional bodies)?

(f) Where possible, identify how the supply chain for services might change in the future.

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Eg. Sub-sectors of services related to tourism

Subservices Service delivered by

Form of regulation

Regulatory body Relevant regulation

HotelsApartmentsResortsFalesCamping groundsEco-tourism activitiesTour operatorsTour guidesTranslatorsDiving instructorsTravel agenciesBooking servicesCultural performersMuseumsGolf coursesCasinos Souvenir shopsDuty free shops Kava barsRestaurantsAirport terminalsAirline bookingsAirline cateringAirline cleaningAir traffic controlSeaport terminalsPilotingTaxisCar rentalTour busesFerriesWaste disposal & treatmentFor-ex dealersATMsCredit card co’sEtc

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STEP 3: What effect would more foreign competition in these services have on employment and labour market policy?

(This step is most suited to labour ministry officials, trade unions and local business)

The aim of trade in services agreements is to guarantee that foreign firms can provide local services through various means, including by foreign investment, supplying them over the Internet from outside the country, or when foreigners visit the country to supply a service. Foreign firms also want to guarantees that they can operate on equal or better terms than locals.

From an employment perspective, this can create or expand services industries that provide new jobs. Competition from foreign firms, especially large transnational companies, can also drive local firms out of business and mean job losses. People working for the public sector may be affected when public services face competition from private firms and then cut costs and staff levels to compete. Shifts between public and private sector employment commonly erode levels of unionization. All these considerations make it important to identify which services sectors and activities are the main sources of employment so the potential affects of trade in services commitments on local workers and employment policy can be anticipated.

Points to consider:

(a) Which services are the main sources of local employment, and which of these is so important for employment that they need to be sustained?

(b) What is the profile of the services workforce in terms of gender, age and qualifications?

(c) Are these services activities concentrated in particular locations, eg outlying islands or towns, and does that raise special employment considerations?

(d) Are these workers likely to find alternative employment if they lose those jobs?

(e) Do these jobs mainly involve self-employed and family operations, larger local firms or foreign firms, and how might they be affected by more foreign competition?

(f) What effect would more foreign competitors have on public sector services and workers?

(g) What services are seen as potential new sources of employment and are local people qualified for those jobs?

(h) What would increased foreign competition in the private sector and more large foreign firms mean for trade unions?

(i) What issues would trade in services commitments raise for current and future employment policy?

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Services workforce profile

Service activity

% of workforce

Gender Qualific-ations

Age Experience Location Kind of business

Chances of new work

Union-isation

HotelsBanksMines SchoolsPorts

Implications of increased foreign competition for employment policy

Service activity

% of workforce

Potential for new jobs

Potential loss of existing jobs

Chances of workers getting new work

Impact on unionisation

Implications for employment policy

HotelsBanksMines SchoolsPorts

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STEP 4. What are the government’s existing legal obligations and people’s legal rights in relation to services?

(This step is most suited to officials from justice and foreign affairs ministries, statutory bodies for human rights and environment, international agencies, NGOs and trade unions)

All Pacific Islands governments already have legal obligations involving services. These obligations may be to provide essential services (eg. safe drinking water), ensure access of a service to everyone everywhere (eg. universal postal services), promote decent work (eg collective bargaining), develop local business opportunities (eg. affirmative action), make basic social services free (primary education) or ensure those services are affordable (health care).

Sometimes existing obligations do not involve the service itself, but relate to an integral element of a service, such as culture (eg. broadcasting), language (eg. education), land ownership (eg. tourism), or natural resources (eg. mining).

These obligations have many different rationales, including indigenous rights, self-determination, conservation, social wellbeing, workers’ rights or human development.

The Constitution often guarantees certain services as a right of citizenship and recognizes that particular bodies have authority over specific services or elements of them. Other obligations are set down in international treaties or national laws.

These obligations may require broad ranging or very specific actions from the state. They may relate to particular parts of the country. The rights they create may apply to individuals, communities or the whole nation.

Trade in services agreements have their own mechanism to enforce the rules and commitments, even where they conflict with the government’s other obligations. In many cases the government can avoid a clash by not making a commitment in a particular sector or entering a horizontal reservation that excludes certain activities or elements for all services. Once the agreement is signed, however, it is almost impossible to remove a commitment. Governments then have to rely on a limited number of exceptions that do not give them a lot of room to regulate (see Part B).

The binding nature of the trade in services rules and commitments makes it essential to identify any existing rights and obligations before any negotiations start. Again, a commitment would also restrict the ability of the government to enter into future treaties or adopt new laws to meet non-economic objectives, but it is very hard to anticipate what those might be.

Points to consider

(a) Does the Constitution guarantee rights relating to services or key ingredients of services? (eg. right to health care, land ownership, status of the language, support for local enterprises)

(b) Does the Constitution reserve decisions to certain bodies or confer decision making authority on levels or government or people (eg. customary law, village councils, indigenous leaders)

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(c) What obligations and rights relating to services, or ingredients of services, are specified in domestic law?

(d) What international treaties has the government signed that impose obligations, or confer rights, relating to services and what are these rights and obligations? (eg. UN Covenant on Social and Economic Rights, Declaration on Right to Development, ILO Conventions, UN Declaration on the Rights of Indigenous Peoples, Convention on Biodiversity)

(e) What Pacific regional commitments has the government made that relate to services and what do they require government to do? (eg. University of the South Pacific, South Pacific Tourism Organisation, Forum, Fisheries Agency, Fiji School of Medicine, South Pacific Regional Environment Programme, other CROP agencies, and Pacific Islands Forum declarations)

(f) Are there formal or informal commitments to indigenous peoples or specific communities that involve services or affect inputs to services (eg. land ownership, exclusive rights to develop tourism operations, guarantees of access to essential services, subsidised loans or water transport, rights of autonomous decision making over particular matters)?

(g) Have court decisions imposed binding obligations on the state in relation to services (eg. interpretation of the Constitution or domestic laws that require universal access to water, affirmative action, land ownership, pension rights)

(h) Are any new treaties, regional agreements or domestic laws in the pipeline that might conflict with trade in services rules and commitments?

Sources of obligations and rights relating to services

Services or key elements, eg.

Constitution Domestic legislation

International treaties

Pacific agreements

Customary law

Indigenous rights

Other

Basic educationMaternal health careDrinking waterSanitationEmploymentLand ownershipIndigenous cultureAffirmative action Universal pensionsControl of mineralsFood securityFisheries conservationNational self-determinationAuthority of elders Etc

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STEP 5: Are there preferences for local firms and restrictions on foreign firms and why?

(This step is most suited to officials from sectoral ministries, foreign investment board and local businesses)

Services like shops, schools, banks, transport, media and electricity are part of everyday life. Traditionally, people have provided and used these services within their local communities and have a personal relationship with their providers. Governments have usually regulated these services to achieve social and development objectives and to sustain local businesses, jobs and livelihoods.

As noted earlier, trade in services agreements view services very differently, as commercial transactions within a borderless free market. The rules are designed to make sure that services markets are open to foreign firms and foreign services providers are not discriminated against. Laws, policies and other measures that impede the access of foreign firms to services markets are described as ‘barriers to trade’. The rules target two kinds of government policies and regulation in particular:

- measures that give preferences to local providers of a service and discriminate against foreign providers of a similar service, eg. affirmative action laws, requirements that at least some of the directors are local citizens or live in the country, restrictions on foreigners leasing or owning land, or restricting subsidies to national suppliers of a service. (This doesn’t affect the preferences that are given to foreign firms!) - measures that restrict the number of people or firms that can provide the service or the potential for the market in that service to grow, such as caps on the number of firms that are permitted in parts or all of the country (eg. hotels in sensitive areas) or on the total number of services operations (eg. cruise ships that can dock in a day), limits on the size of services operations (eg. floor size of supermarkets and department stores), bans on certain activities (internet gambling) or quotas limiting the level of foreign content in services (eg local content quotas for broadcasting). ‘Market access’ rules also target restrictions that exclude new providers (eg. requiring them to show an unmet need for their service, known as an ‘economic needs test’), or restrict foreign participation (eg. caps on the level of foreign ownership in telecommunications or requiring foreign investors to operate through joint ventures).

If a government makes commitments that prevent it from using such measures, and another party to the agreement complains, the government would need to rely on the exception provisions in the text of the agreement (see Part B). These exceptions usually provide a limited range of justifications for breaching the rules (eg public morals or protection of public health), and require the government to use the most market-friendly approach when they do so.

Points to consider

(a) Are foreigners restricted from owning or operating certain businesses or resources?

(b) Are certain services activities reserved for locals?

(c) Are essential inputs for services reserved for locals?

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(d) Can private and/or foreign services providers get government subsidies or grants?

(e) Do local service providers get other kinds of preferential treatment?

(f) What services activities are subject to economic needs tests or labour market tests?

(g) Are there restrictions on the number of operators in a particular sector, or on the number of activities in a sector, or on the size of businesses in a sector?

(h) Are certain services activities banned altogether?

(i) Are there requirements for local directors on boards or senior management in general, or in specific sectors?

Preferences for local services providers

Sector Special rules for foreign firms

Preference for local service providers

Subsidies/grants limited to locals

Indirect preferences

Objectives of local preference

Restrictions on potential size of services markets

Sector Economic needs test

Cap on no. of operators/ Operations

Banned services activities

Cap on foreign ownership

Joint-venture required

Other Objectives of restriction

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STEP 6. How does government define and manage ‘public services’ and government procurement?

(This step is most suited to officials from sectoral ministries and public sector unions)

Trade in services agreements routinely exclude ‘services supplied in the exercise of governmental authority’. However, this exclusion does not apply where services are commercial. It is not clear exactly what ‘commercial’ means (eg does it include user charges or school fees?). The government service must also not be provided in competition with a private supplier of similar services. Again, it is not clear how similar the competing service has to be (eg landline vs mobile phone).

When assessing whether a service comes within this exclusion it is necessary to consider whether its various elements or sub-sectors might be considered ‘commercial’ or face ‘competition’ (eg some aspects of health care).

Similar provisos about ‘commercial sale’ and ‘competition’ are usually found in the exclusion that applies to government procurement.

Most trade in services agreements also have rules that govern public and private monopolies and exclusive suppliers of services. One concern is whether public monopolies use some of the revenue they receive from their monopoly activity (eg basic postal service) to cross-subsidise other activities in which they compete with private firms (eg couriers). Recent agreements require governments to ‘unbundle’ services, such as telecoms. There are also special restrictions on the way that governments can provide universal access in sectors like post and courier and telecommunications. This may limit a government’s ability to require private and foreign providers to contribute to the general cost of maintaining the infrastructure.

The World Bank and donor countries have been promoting new ways of delivering public services through ‘public private partnerships’ or ‘private finance initiatives’. These are used for toll roads, airports, water services, hospitals, schools, prisons, etc. They often involve a consortium that has finance, construction and management arms and operate each contract through a specially created company. The parent companies are often involved in contracts to run different kinds of services in many countries.

A less obvious private, foreign influence on public services comes through procurement or contracts for public policy advice and the management of policy change, including the restructuring of government ministries and agencies. This work is often contracted out to foreign consultancy firms who have a vested interest in the privatization of services. Trade in services commitments in ‘business services’ like consultancy or management services give those companies a foothold and often have an edge over local firms in tendering for contracts to give policy advice. Some foreign governments have argued for the rules to apply to all government procurement contracts as low as $20,000, which could prevent a government from requiring the participation of local people or firms in policy or management contracts.

Points to consider

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(a) What services does the central or local government provide directly?

(b) Does the government charge for any of these services?

(c) Has the government transferred responsibility for some services to state-owned corporations to run them on a commercial basis?

(d) Has the government contracted the provision of public services to private firms?

(e) Which services that are provided by public or private providers get subsidies or grants from central or local government?

(f) Does the government provide, fund or subsidize services that are competing with private providers of similar services?

(g) Has the government designated any services as ‘essential services’ that it has a duty to ensure are provided to its people?

(h) Are any services subject to a ‘universal service obligation’ and if so, how is that operated and funded?

(i) How is government procurement of services organized and who can secure those contracts?

(j) Are there any formal public or private monopolies or exclusive services suppliers and do they cross-subsidise unprofitable activities from their monopoly operations?

(k) Are there special areas of government procurement that the government wants to exclude from foreign tenders, eg. policy advice and restructuring?

Eg. Public services and monopolies

Public service, by sector and sub-sectors

State provider

Govt charge

Private competitor

Subsidy orGrant

Monopoly Universal service obligation

Government procurementrules

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STEP 7. What are the main regulatory issues for temporary migration of services workers?

(This step is most suited to officials from immigration and labour ministries, trade unions and NGOs)

The main ‘offensive’ interest of Pacific governments in trade in services negotiations has been to secure guaranteed quotas for people to work in the services industries of preferred destinations, especially Australia and NZ, building on the Recognised Seasonal Employer scheme. Some Pacific governments also seek better access for professional and trades people, who currently find that their qualifications are not recognized and they have can to take less skilled jobs (eg nurses as caregivers).

‘Mode 4’ of delivering trade in services refers to the temporary presence of people to deliver a service in another country. In the GATS, Mode 4 applies to people who supply services at any skill level. In practice, the main destination countries have limited their commitments to professionals, executives and high-skilled categories, as an essential complement to foreign investment, but view entry for other levels of services workers as an immigration issue.

It is useful to look at the recent practices of destination countries to assess whether Pacific states are likely to secure binding commitments, especially for lower-skilled categories of services workers (eg. the EC limited mode 4 to ‘key business personnel’ in its draft EPA. NZ took a similar approach in its recent FTA with China; a side-letter provides for holiday workers, subject to strict qualifications, and can be suspended for foreign policy reasons and cancelled with three months notice.) Trade in services agreements view labour mobility from a purely economic viewpoint; they do not provide a regulatory framework for managing temporary migration. It is therefore important to consider whether an effective regime is already in place to protect the rights of migrant workers abroad (eg. to join unions, access health and social services, and be protected against exploitation) or to minimize the negative social and cultural impacts at home (eg. on domestic services and on families).

The trade-offs that Pacific governments are asked to make during the negotiations (eg. cutting tariffs on local products) may intensify the factors that push their people to seek work offshore and increase the country’s dependence on remittances. They will also be asked to liberalise access into their countries for foreign managers, professionals and skilled workers.

Commitments in a range of services may constrain the ability of governments to regulate the ‘remittance industry supply chain’ more effectively.

Points to consider

(a) In what ways is temporary employment offshore expected to contribute to the country and is any assessment underway to monitor whether those expectations are being met?

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(b) What are the skills or occupation categories that people want to access in destination countries?

(c) Do they want to work offshore permanently or temporarily?

(d) Are there ways to encourage skilled workers and professionals to leave temporarily rather than permanently and what incentives might get them to return?

(e) Is there an effective regulatory regime in place for managing the temporary migration of professionals and skilled services workers?

(f) What are the potential benefits from high skilled workers and professionals working offshore?

(g) What is the effect of their absence on domestic skills and professional services?

(h) What are the ‘push’ factors that encourage skilled workers and professionals to leave and are there policy changes that might stem the outflow?

(i) What are the preferred destinations for professional and high skilled workers and what restrictions do they face in being able to work in those countries?

(j) Based on their existing practices in FTAs, are those destinations likely to make binding commitments for professionals and high skilled services workers in a trade agreement with the Pacific?

(k) What are the potential benefits from accessing less skilled services work offshore?

(l) What are the ‘push’ factors that encourage less skilled services workers to leave and what changes at home could stem the outflow?

(m)What are the preferred destinations for less skilled services workers and what restrictions do they face in being able to work in those countries?

(n) Based on their existing practices in FTAs, are those destinations likely to make binding commitments for less skilled services workers in a trade agreement with the Pacific?

(o) Is a trade agreement likely to include a means for managing the temporary migration of less skilled services workers?

(p) What effect might the trade-off of increased access to goods, food, services and investment from foreign imports have on these ‘push’ factors?

(q) What does increased dependency on remittances mean for the nation’s future economic development?

(r) What issues arise when people return home from working overseas and are there any programmes for their reintegration?

(s) Has there been any social and cultural impact assessment of how the absence of mothers and/or fathers working offshore affects their families and communities?

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(t) What protections needed to ensure that people working overseas are not exploited and have access to essential health and social services?

(u) What services make up the migration-for-remittance supply chain?

(v) How do foreign or domestic recruitment agencies operate and are they effectively regulated?

(w)Who runs the training programmes to develop skills for export and are they effectively regulated?

(x) How do people pay for courses to qualify for work offshore (eg loans, advances on a parent’s pension) and what are the downstream effects of that?

(y) Are there restrictions on the right of people in certain skill categories to work in your country and what are the objectives of those restrictions?

(z) What would be the effect of removing or weakening those restrictions on foreign services workers?

Immigration restrictions in destination country ‘A’ (eg New Zealand)

Skill category seeking access

Restrictions Criteria Entry process

Recognition of qualifications

Provisions in other FTAs

Professional:

High skilled:

Less skilled:

Regulatory Framework for Temporary Services Workers Offshore

Skill category, eg

Social impact

Cultural impact

Economic impact

Local services

Reinteg-ration

Human rights

Domestic Regulation

Provision in trade agreement

ProfessionalTeachersNursesAccountantsHigh SkilledHotel managerIT specialistLess skilledSeafarers Agriculture labourSecurityEtc

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Regulation of the remittance supply chain

Activity, eg Owned by Concerns Current regulation Potential regulatory issues

Local recruitment agenciesImmigration consultantsLendersMoney transferFee paying skills trainingInternet training providersOffshore recruitment firmsEtc

Restrictions on services workers entering the country

Skill category

Restrictions Criteria Administrator Legal source

Objective Effect of increased entry

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STEP 8. How does the government regulate the supply of services by foreigners, such as moving money, granting licenses and recognising qualifications?(This step is most suited to officials from the central bank, government agencies responsible for foreign investment, and professional bodies.)

The GATS recognises four ‘modes’ for delivering trade in services - across the border (mode 1); by the consumer travelling to the country of the provider (mode 2); by foreign investment (mode 3); and by temporary presence of a foreign person who provides the service (mode 4). Recent agreements (eg the EC’s EPAs) reorganize these modes and extend the rules to investments in non-services activities.

Generic regulations apply ‘horizontally’ across all sectors for one or more mode of delivering services, such as movement of funds for current payments and capital transfers (all modes), foreign investment rules and procedures (mode 3), land ownership rights (mode 3), licensing requirements (modes 3 and 4), recognition of foreign qualifications (mode 4), rights of entry and work for foreign nationals (mode 4), etc. There are occasionally special rules for a sector, such as financial services.

Regulations also apply to licensing of service activities (eg. casinos, taxis), practicing a profession (eg. lawyers, midwives), or technical standards that a service has to meet (eg. eco-tourism, sanitation). Administration of these rules is commonly delegated to specialist government or quasi-government agencies, or devolved to private professional and licensing bodies. The authority of the government to set these regulations, the role of the administrative bodies and the approach to regulation can be restricted by the trade in services rules, as well as by commitments in specific sectors.

Points to consider

(a) What is the vetting regime for foreign direct investment, how is it administered and by whom?

(b) What are the restrictions on current and capital movements, how are they administered and by whom?

(c) Is ownership of certain natural resources reserved for nationals?

(d) Are particular jobs and professions reserved for nationals?

(e) What commercial activities require a license, what criteria do they have to meet and who administers those regimes?

(f) What professions require particular qualifications, what are the criteria for becoming accredited and who administers those regimes?

(g) What activities are required to meet technical standards (eg water quality, pollution levels, building standards), what criteria do they have to satisfy and who administers those regimes?

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Foreign investment and Monetary Regulation

Transaction Restrictions Criteria Administrator Legal sourceForeign direct investmentTransfers of paymentsCurrency convertibilityCapital transfers Repatriation of profitsCross-border electronic paymentsEtc

Professional Qualifications

Profession Restrictions Criteria Administrator Legal sourceLegal practiceAccountancyTaxNurse VeterinarianElectricianEtc

Licensing Requirements

Activity Restrictions Criteria Administrator Legal sourceTaxi driverTour guideDive instructorPlumber CasinoEtc

Technical standards

Subject Restrictions Criteria Administrator Legal sourceWater qualityWaste treatmentBuilding standardsEco-tourism criteria Etc

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STEP 9: Are service providers from some foreign countries given preferences over those from other countries?

(This step is most suited to officials from ministries responsible for trade, foreign affairs, labour and specific sectors)

Non-discrimination is the most basic requirement of trade in services agreements. The ‘most favoured nation’ (MFN) rule guarantees the party to an agreement that their services and providers of services will get the best treatment that is given to any other party to the same agreement. Sometimes a MFN obligation applies across several agreements – any better treatment that it given to a country in a new agreement has to be given to the parties to an existing agreement.

Some Pacific states already have agreements with other countries that guarantee special treatment for their foreign investors or rights of entry for people working in services sectors. Most countries that want to negotiate on trade in services with the Pacific will demand at least the same treatment. Pacific states may not want to give them parity because they would not get the same benefits in return or because the negative impact on them would be much greater. This may apply especially to the special treatment that Pacific states give each other in a trade in services agreement among themselves. The EU’s draft EPA would also require all PICs to give each other the same treatment they agree to give to the EU.

A foreign country that is a party to an existing agreement may also be guaranteed any better treatment that the Pacific state gives to a third country in a new agreement. For example, the Compact states have an obligation to give the US any better treatment that they give to another state under any future trade agreement.

Some agreements require this kind of parity across the board. Some limit MFN treatment to particular parts of the agreements or to agreements with certain countries (eg only developed countries). Other agreements may require that any exceptions are listed in a special schedule.

Points to consider

(a) Are there any existing agreements that give preferences to services suppliers or investors from foreign countries?

(b) Considering the impacts already identified, what would be the effect of extending those preferences to the country/ies that is/are now being negotiated with?

(c) Do those agreements give the other party the automatic right to better treatment contained in a new agreement with another country?

(d) What does the proposed text of the new agreement say about the right to parity with existing agreements?

MFN implicationsExisting agreements

MFN obligations

Effects MFN obligations in new text

Effects

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STEP 10. What areas of policy and regulation should be restricted by trade in services rules, in what sectors and subject to what limitations?

(This step requires in-depth knowledge of trade in services classifications and is most suited to officials from the trade ministry and governments’ legal office.)

The previous 9 steps should have identified: the country’s main services and the governments goals in relation to those services the service subsectors that comprise the commercial supply chain for those

services who has regulatory responsibility for those activities, as well as the key inputs into

those services, and the key regulations the government’s existing legal obligations in relation to those services and inputs

into those services the potential for trade rules to impact on the government’s existing legal

obligations to advance social, cultural, environmental and development objectives the significance of specific services for employment policy local preferences and restrictions on foreign firms and the goals of those measures the extent to which public services are non-commercial and non-competitive and

the commercial nature of any monopolies whether there is an effective regulatory regime in place for managed temporary

migration and the remittance industry cross-cutting regulations that would apply to foreign services, and whether services from any third countries receive preferential treatment.

This information should allow governments to make reasonably informed decisions about how a services commitment might affect its existing policies and regulations. However, governments also need to be aware that their future ‘policy space’ to deal with situations that cannot be foreseen will also be restricted.

If the government decides to proceed with services commitments, these will usually be set out in several schedules. (See Part D for a detailed guide to these schedules.)

The first is a schedule of exceptions to ‘most favoured nation’ (MFN) status. Entries in this schedule reserve the right to treat services or service providers from a third country better than the party to the current agreement. Some recent agreements do not allow such exceptions.

A second schedule sets out the country’s commitments on specific services. This usually has several parts. In the ‘horizontal’ section the government lists the regulations that it wants to retain for all the services on which it makes a commitment. That saves it having to repeat the same entry for each service. Horizontal reservations are usually inscribed in the column that deals with measures affecting market access or national treatment. In GATS schedules it is also indicated that they involve mode 1, 2, 3 or 4. The EC describes these modes differently in its draft; so does NZ in its recent FTAs.

The rest of the schedule of specific commitments stipulates the services that the country is subjecting to the agreement’s rules and can specify aspects of that service or its regulation that will not be bound by the rules. These commitments can take different forms. Where a ‘positive list’ approach is used, the parties list the services that they agree to bring under the trade rules and any limitations. The wording can be

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confusing as ‘none’ indicates there is no limitation on a commitment in that sector or sub-sector. A ‘negative list’ approach requires the government to specify all the services that will not be subject to the rules. As noted earlier, once a commitment is made it is usually almost impossible to withdraw it, even if a mistake has been made.

Non-trade ministries often find it hard to identify how the services they have responsibility for relate to these agreements and assess the implications of bring them under the trade rules. Many trade officials, who are usually not specialists in the particular services sectors, have a similar difficulty.

Trade in services agreements define services by referring to the chain of commercial activities that are involved in supplying them. How a service is described may have no relationship to the service as it is experienced by the people who use it (eg. midwives are a business service, shops are distribution services, cruise ships are transport services). Some generic services affect a wide range of other services (eg. consultancy related to tourism, construction, postal privatization or education policy; data processing relates to banking, mining or call centres).

The list of classifications that are used in the GATS to designate a particular service in a country’s schedule is known as W/120 (formally MTN/GNS/W/120). It has eleven main headings, each of which has one or more levels of sub-sectors, and a catch all for ‘other services’ (appended at the end of Part D). The W/120 list broadly relates to the UN Provisional Central Product Classification (CPCprov) (http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=9&Lg=1). Even though it was not compulsory to use the CPCs in their GATS schedules, most countries have listed the CPC number next to a particular sub-sector, so what it covers can be identified more precisely. Some services (eg. water or energy services) do not have a sectoral heading. In those cases it is necessary to identify the wide range of classifications that comprise that sector, which may be spread across many of the eleven main categories.

W/120 continues to be used in some FTAs today. However, in EPAs and other bilateral agreements, the W/120 list is supplemented by more recent UN classifications. Where services and non-services investments have been blended within the same chapter of an agreement, a further layer of industrial (ISIC) classifications has been introduced. In some situations a totally new classification is drawn up that serves the interests of the main exporter (the EC’s list of environmental services is a prime example).

All this makes the task of scheduling very complex. Getting it wrong can have serious consequences. Even where governments do understand the implications at the time they draft the schedule, circumstances can change. It is impossible to predict what new services might arise in the future that governments might decide need a more hands-on approach to regulation. Privatisation, liberalisation and deregulation might not work, and the government might decide it needs to resume control or impose a new regulatory regime. Government might decide that it needs to give greater priority to social rather than commercial objectives.

Identifying the domestic policy and regulatory implications of requests that cite specific sectors or classifications (or possible offers proposed by consultants) is also difficult. It is necessary to work out what activities are covered by each general heading and its relevant sub-sectors and how those might relate to a wide range of different services that are identified in the previous steps. This is especially difficult

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with generic headings, such as business services that include data bases and data processing, consultancy, legal advice, management services, etc.

Points to consider

(a) Does the government understand enough about the potential impacts of a trade in services commitment now and into the future?

(b) How can the government ensure that it is able to deliver on its existing obligations under the constitution or international law?

(c) If the government decides to make a commitment in a particular subsector does it want to reserve the right to give better treatment to its own service providers in relation to the entire service, particular subsectors or a mode of supply (eg movement of people or foreign investment)?

(d) What generic laws, policies or regulations would need to be protected in the horizontal section of the country’s schedule of sectoral commitments?

(e) Are there some levels of government decision making (eg local government, village councils) that need to be excluded from coverage of the rules?

(f) How do the activities identified in step 2 correspond to the classifications of services listed in W/120?

(g) Are negotiating parties planning to use the CPCprov list or more recent UN services classifications?

(h) How do the W/120 categories relate to the classification system that is being proposed?

(i) For WTO members, how do any proposed new commitments relate to their existing GATS schedule, especially if a different classification is being used?

(j) Are the negotiations intending to use a positive or negative list approach?

(k) If a negative list is being proposed, is it possible to identify every classification for every service subsector that would need to be excluded to protect the government’s policy space now and into the future?

(l) How can the government retain flexibility to deal with market failure, new services not yet identified or changed circumstances?

(m) If services and non-services investments are to be combined in a single schedule (as the EC proposes for the EPA) is it possible to identify how the ISIC classifications for investments relate to any existing GATS commitments?

(n) If the EC’s new structure is used, is it clear how a commitment in cross-border trade in services (modes 1 and 2) is linked to commitments on foreign investment in services (mode 3) and non-services (eg how to these different headings relate to mining, fisheries or forestry)?

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(o) Does the government want to reserve the right to give better treatment to service providers from another country (ie. MFN exceptions) in relation to any specific service or subsector, or a mode of supply (eg movement of people or foreign investment)?

(p) If a request or proposal for commitments under a particular sector has been made, it is possible to identify all the relevant activities that may be affected and the different services to which those activities relate?

(q) What provisions exist to correct a mistake or change a commitment that has become problematic?

Converting services sub-sectors to schedules using CPCprov(eg tourism)Sub-sectors

W/120 reference

Technical Description

CPCs classif

Domestic regulating agency

Domestic regulation

Potential impact

HotelsResortsFaleEco-tourism activitiesTravel agenciesTranslatorsCultural performersGolf coursesCasinos Souvenir shopsAirport terminalsAirline cateringForeign exchange Etc

Converting services sub-sectors to schedules using CPCprov(eg water)Sub-sectors W/120

categoryTechnical Description

CPCs classif

Domestic regulating agency

Domestic regulation

Potential Impact

Water collection or extraction Water storageWater distribution through mainsPipeline laying & maintenanceData systems for flow managementMeter

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installation & maintenanceWater purificationTechnical testingWaste water treatmentWholesale distributionBilling & payments Civil engineeringEnvironmental engineeringPolicy consultantsTechnical consultantsEtc

Relating services requests to services provided using CPCprov

Generic heading of request/ proposal

W/120 category

Technical description

CPC classific

CurrentProvider

Regulating agency

Regulation Affected services

Subsectors:

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