Workshop on Trade in Services

Demetrios J. Marantis/Pham Minh Tri

U.S.-Vietnam Trade Council

demetrios.marantis@usvtc.org/tri.pham@usvtc.org

Ho Chi Minh City Law University

1 July 2003

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Overview

I. Trade in Services

II. The Legal Rules of the GATS and BTA

III. Dispute Settlement, Regulation, WTO Accession, and Other Issues

I. TRADE IN SERVICES

Importance of Trade in Services

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Importance of Trade in Services

Services have become critical to the world economy.

In the mid-1990’s, the service sector represented: almost 40 percent GDP in Uganda and Cameroon, 50 percent of GDP in Malaysia and India, almost 60 percent of GDP in the Philippines and Peru, almost 70 percent in Poland, 75 percent GDP in France and the United Kingdom, and 80 percent GDP in the United States

(Source: World Bank and WTO data)

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Share of Services in Production (GDP, 2000)(Source: World Bank, World Development Report 2002)

0%10%20%30%40%50%60%70%80%90%

100%

Services Industry Agriculture

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World Export of Goods/Services (1980-2000)Source: WTO

0

50

100

150

200

250

300

350

400

(19

80

=1

00

)

0

1500

3000

4500

6000

7500

9000

10500

12000

Billio

n $

Goods Services

Services

GDP

Goods

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Services Exports, 1990-2000Source: WTO

80%

20%

1990

Developed

Developing

countries

1995

Developed

Developing

countries

26%

74%

2000

Developed

Developing

countries

25%

75%

II. LEGAL RULES OF GATS & BTA

Agreements, Modes, Obligations, Commitments, and Schedules

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Key Agreements

WTO General Agreement on Trade in Services (GATS) Cornerstone WTO Agreement Entered into Force in 1995 Only Multilateral Agreement on Trade in Services Foundation and Model for Bilateral and Regional Agreements

BTA, Chapter III Incorporates most of GATS

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Scope and Coverage

Scope: covers all services (except those supplied in the exercise of governmental authority and air traffic rights)

Coverage: applies to 4 principal ways of delivering services (GATS Art. I(2), BTA Ch. III, Art. 1(2)):(1) cross-border: supply a service from one country into another (e.g.,

international telephony); (2) consumption abroad: service consumer moves to another country

to obtain a service (e.g., tourist or patient)(3) commercial presence: establish a local operation to supply a

service (e.g., local bank subsidiary, hotel chain); (4) natural persons: person of one country goes to another country

temporarily to supply a service (e.g., doctor, model, teacher)

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Structure of Agreements

Legal Rules (GATS & BTA) have 4 parts:

(1) General Provisions (apply to ALL services): e.g., MFN

(2) Specific Commitments (apply to NEGOTIATED services): e.g., Market Access, National Treatment

(3) Specific MFN Exemptions

(4) Special Rules for Special Services: e.g., financial, telecom

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General Provisions**

MFN (GATS Art. II/BTA Ch. III, Art.2): treat services from all trading partners equally (e.g., do not treat German bank better than US bank)

Transparency (GATS Art. III/BTA Ch.VI): publish relevant laws and regulations (e.g., publish in advance measures affecting legal sector)

Domestic Regulation (GATS Art. VI/BTA Ch. III, Art. 4): administer laws in reasonable, objective, and impartial manner (e.g., do not implement insurance laws to favor one company over another)

Monopolies (GATS Art. XVIII/BTA Ch. III, Art. 5): do not abuse monopoly position (e.g., monopoly provider of basic telecom may not distort competition in value-added services sector)

Exceptions (GATS Art. XIV and XIVbis/BTA Ch. VII, Art.2/3): allows countries to deviate from the rules in narrow circumstances (e.g., national security, public morals, protect health, prevent fraud)

** These provisions apply to ALL services.

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Specific Negotiated Commitments**

** Rules that apply only to services listed in a country’s “Schedule”.

A “Schedule” sets forth the specific services a country will open, the extent of

Market Access (GATS Art. XVI/BTA Ch. III, Art. 6) National Treatment (GATS Art. XVII/BTA Ch. III, Art. 7)

…and any

Additional Commitments (GATS Art. XVIII/BTA Ch. III, Art. 8)

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Specific Negotiated Commitments:General Layout of a Schedule

Sector Limitations on Market Access (four modes of

supply)

Limitations on National

Treatment (four modes of

supply)

Additional Commitments

(Optional)

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Specific Negotiated Commitments: Market Access

Market Access (GATS Art. XVI/BTA Ch. III, Art. 6): do not maintain the following 6 limitations, unless listed in the Schedule:(1)number of service suppliers (e.g., monopoly basic telecom supplier)

(2)value of service transactions (e.g., foreign bank can accept deposits based on value of paid in capital )

(3)number of service operations/total quantity of service output (e.g., total quantity of architectural services may not exceed 350 blueprints per year)

(4)number of natural persons (e.g., foreign labor in legal sector may not exceed 10%)

(5)type of legal entity (e.g., may only supply service through joint venture)

(6)foreign ownership (e.g., foreigners may own only 49% of local firm)

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Specific Negotiated Commitments:National Treatment & Additional Commitments

National Treatment (GATS Art. XVII/BTA Ch. III, Art. 7) General obligation: treat services and services suppliers of the

other country no less favorably than how you treat your own like service and service providers

Limitations: a country may derogate from this rule provided that it lists this derogation in its Schedule (e.g., foreign banks must pay US$10 million to establish a local subsidiary)

Additional Commitments (GATS Art. XVIII/BTA Ch. III, Art. 8): Permits negotiation of additional commitments beyond market

access and national treatment (e.g., Telecom Reference Paper (GATS Schedules/BTA Annex F))

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Specific Negotiated CommitmentsBanking Services Example from the BTA

Sector: Vietnam undertook commitments on many banking services, including acceptance of deposits, lending, financial leasing, money transmission services, asset management, etc.

Limitations: Vietnam undertook MA and NT limitations Mode 1 (cross border): unbound (i.e., no commitment) Mode 2 (consumption abroad): none (i.e., full commitment) Mode 3 (commercial presence): various MA and NT limitations

limitations on legal entity (e.g., U.S. fin service providers may only operate as bank branch, JV, or US fin leasing company)

limitations on foreign equity (e.g., 100% U.S. owned subsidiaries permitted after 9 years)

limitations on service transactions (e.g., U.S. bank branch may accept dong deposits according to a specific percentage of its paid-in capital)

Mode 4 (natural persons): unbound (i.e., no commitment)

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Specific Negotiated MFN Exemptions**

MFN is a core obligation. Agreements permit temporary MFN exemption (GATS

Art. II(2)/BTA Ch. III, Art. 2(2)): thus allowing a country to discriminate among trading partners. But not automatic: Must be negotiated Applies to specific sector Temporary: 10 years Example: US MFN Exemption (GATS and BTA)

**Applies only to sectors listed in a country’s negotiated list of MFN exemptions.

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Special Rules for Special Services

(1) Annex on Financial Services (incorporated into BTA via Annex F) Allows parties to take “prudential measures” to protect investors,

depositors, policy holders and to ensure integrity of financial system Excludes from coverage certain services provided when a government

exercises its authority over the financial system (e.g., monetary policy, exchange rate policy, social security)

(2) Annex on Telecommunications (incorporated into BTA via Annex F) Requires parties to ensure that service suppliers can access/use public

telecom networks/services on reasonable and non-discriminatory terms and conditions

(3) Annex on Air Transport Services (not part of BTA) Excludes certain services from GATS coverage (e.g., traffic rights) Applies GATS to other services (aircraft repair and maintenance, selling

and marketing of air transport services, computer reservation services)

III. OTHER ISSUES

Dispute Settlement, Regulation, WTO Accession, WTO Services Negotiations

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Dispute Settlement

Little current WTO jurisprudence on GATS. But, pending cases will interpret key provisions.

Existing WTO Jurisprudence EC Bananas (US/others challenge EU’s banana import regime)

Measure can raise both GATT and GATS issues MFN applies to de facto discrimination Entities supplying like services are like service suppliers

Canada Autos (EU/Japan challenge Canada’s import duty exemption) Pending WTO Disputes

Mexico Telecom (U.S. challenges aspects of Mexico’s telecom regime) Panel will interpret Reference Paper, Telecom Annex, Art. XVII

US Gambling (Antigua challenges U.S. gambling laws) If proceeds, could examine Art. XIV public morals exception

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GATS and Regulation

Misapprehension about the relationship between the GATS/BTA and the ability of a country to regulate.

Agreements do not prohibit legitimate regulation. GATS Preamble reaffirms this right: “Recognizing the right of

Members to regulate, and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives and ... the particular need of developing countries to exercise this right.”

Agreements set framework on how (not whether) regulator can regulate (e.g., must not discriminate, must be transparent, etc.).

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Moving Forward: Vietnam’s WTO Accession

Services is a critical aspect of Vietnam’s accession. Accession will not happen until WTO Members are satisfied with

Vietnam’s services offer.

BTA is the floor. Remember MFN!

Beyond the BTA? WTO Members will likely seek enhanced commitments:

Reduced phase in periods (e.g., banking)Reduced foreign investment limitations (e.g., telecom)

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Moving Forward: WTO Services Negotiations

WTO Members are now engaged in a new round of services negotiations.

Purpose Further liberalize trade in services (i.e., expand current commitments) Address horizontal issues, including movement of natural persons

Timetable January 2000: beginning of negotiations November 2001: Doha March 2003: offers due (so far, 26 Members have made offers) July 2003: negotiations in Geneva September 2003: Cancun Ministerial January 2005: Target Completion Date

Proposals: WTO Members are tabling proposals on the negotiations (e.g., sector-by-sector, cross-sector, general)

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July 2003