Third Country Action

When the domestic industry of a third country (also an exporting country) suffers injury because of the dumping practices of the enterprises of a Member in an importing Member country, the third country Member has to request the importing country Member to conduct an investigation and to take further action for anti-dumping measures. The decision whether to initiate and proceed with an investigation rests with the importing country.

Questions

1. What is Dumping and how is it countered by countries?

2. Outline the Procedure of Imposing Anti-Dumping Duties.

3. Which measures may count as subsidies?

4. How are subsidies treated in WTO system?

5. Give examples of “unfair trade practices”.

6. Does the GATT allow unilateral action against “unfair trade practices”?

References

1. John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (2nd ed., Cambridge, MA: MIT Press, 1997). p. 247-277

2. Jackson/Davey/Sykes, 666-756, 757-814, 815-843.

Lecture 6. Trade in Services

1. Significance of Liberalization of Trade in Services

Trade liberalization, and even economic growth, are not ends in themselves. The ultimate aim of Government is to promote human welfare in the broadest sense, and trade policy is only one of many instruments Governments use in pursuing this goal. But trade policy is nevertheless very important, both in promoting growth and in preventing conflict. The building of the multilateral trading system over the past 50 years has been one of the most remarkable achievements of international cooperation in history. The system is certainly imperfect—that is one of the reasons why periodic negotiations are necessary—but the world would be a far poorer and more dangerous place without it.

In January 2000, WTO Member Governments started a new round of negotiations to promote the progressive liberalization of trade in services. The GATS agreement specifically states that the negotiations “shall take place with a view to promoting the interests of all participants on a mutually advantageous basis” and “with due respect for national policy objectives and the level of development of individual Members”. The pace and extent of these negotiations are set by the WTO’s 149 Member Governments themselves according to their different national policy priorities.

It is impossible for any country to prosper today under the burden of an inefficient and expensive services infrastructure. Producers and exporters of textiles, tomatoes or any other product will not be competitive without access to efficient banking, insurance, accountancy, telecoms and transport systems. In markets where supply is inadequate, imports of essential services can be as vital as imports of basic commodities. The benefits of services liberalization extend far beyond the service industries themselves; they are felt through their effects on all other economic activities.

The production and distribution of services, like any other economic activity, is ultimately destined to satisfy individual demand and social needs. The latter element—social needs—is particularly relevant in sectors like health or education which in many, if not all, countries are viewed as a core governmental responsibility. They are subject to close regulation, supervision and control. Although social policy concepts—including equity and universal access—do not necessarily imply that Governments also act as producers, public facilities have traditionally been, and continue to be, the main suppliers of services such as health and education in most countries.

In 1999, the value of cross-border trade in services amounted to US$1350 billion, or about 20% of total cross-border trade. This understates the true size of international trade in services, much of which takes place through establishment in the export market, and is not recorded in balance-of-payments statistics. For the past two decades trade in services has grown faster than merchandise trade. Developing countries have a keen interest in many services areas including tourism, health and construction. According to the World Travel and Tourism Council, tourism is the world’s largest employer accounting for one in ten workers worldwide. According to IMF data for 1999, tourism exports, estimated at US$443 billion, were 33% of global services exports and 6.5% of total exports.

The liberalization of trade in goods, which has been promoted through negotiations in the GATT over the past 50 years, has been one of the greatest contributors to economic growth and the relief of poverty in mankind's history. Following the catastrophic experience of the first half of the 20th century, Governments deliberately turned away from the policies of economic nationalism and protectionism which had helped to produce disaster, and towards economic cooperation based on international law. Growth in this period was not uniformly shared, but there is no doubt that those countries which chose deeper involvement in the multilateral trading system through liberalization benefited greatly from doing so.

There was no parallel movement of multilateral liberalization of services trade until the negotiation of the GATS and its entry into force in 1995. Since the services sector is the largest and fastest-growing sector of the world economy, providing more than 60% of global output and in many countries an even larger share of employment, the lack of a legal framework for international services trade was anomalous and dangerous—anomalous because the potential benefits of services liberalization are at least as great as in the goods sector, and dangerous because there was no legal basis on which to resolve conflicting national interests.

Benefits of Service Liberalization.

1. Economic performance

An efficient services infrastructure is a precondition for economic success. Services such as telecommunications, banking, insurance and transport supply strategically important inputs for all sectors, goods and services. Without the spur of competition they are unlikely to excel in this role – to the detriment of overall economic efficiency and growth. An increasing number of Governments thus rely on an open and transparent environment for the provision of services.

2. Development

Access to world-class services helps exporters and producers in developing countries to capitalize on their competitive strength, whatever the goods and services they are selling. A number of developing countries have also been able, building on foreign investment and expertise, to advance in international services markets – from tourism and construction to software development and health care. Services liberalization has thus become a key element of many development strategies.

3. Consumer savings

There is strong evidence in many services, not least telecoms that liberalization leads to lower prices, better quality and wider choice for consumers. Such benefits, in turn, work their way through the economic system and help to improve supply conditions for many other products. Thus, even if some prices rise during liberalization, for example the cost of local calls, this tends to be outweighed by price reductions and quality gains elsewhere. Moreover, governments remain perfectly able under the GATS, even in a fully liberalized environment, to apply universal-service obligations and similar measures on social policy grounds.

4. Faster innovation

Countries with liberalized services markets have seen greater product and process innovation. The explosive growth of the Internet in the US is in marked contrast to its slower take-off in many Continental European countries which have been more hesitant to embrace telecom reform. Similar contrasts can be drawn in financial services and information technology.

5. Greater transparency and predictability

A country's commitments in its WTO services schedule amount to a legally binding guarantee that foreign firms will be allowed to supply their services under stable conditions. This gives everyone with a stake in the sector—producers, investors, workers and users—a clear idea of the rules of the game. They are able to plan for the future with greater certainty, which encourages long-term investment.

6. Technology transfer

Services commitments at the WTO help to encourage foreign direct investment (FDI). Such FDI typically brings with it new skills and technologies that spill over into the wider economy in various ways. Domestic employees learn the new skills (and spread them when they leave the firm). Domestic firms adopt the new techniques. And firms in other sectors that use services-sector inputs such as telecoms and finance benefit too.

2. Main Purpose of the GATS

The creation of the GATS was one of the landmark achievements of the Uruguay Round. The GATS was inspired by essentially the same objectives as its counterpart in merchandise trade (GATT):

· creating a credible and reliable system of international trade rules;

· ensuring fair and equitable treatment of all participants;

· stimulating economic activity through guaranteed policy bindings;

· promoting trade and development through progressive liberalization.

While services currently account for over 60 percent of global production and employment, they represent no more than 20% of total trade (BOP basis). This seemingly modest share should not be underestimated, however. Many services, which have long been considered genuine domestic activities, have increasingly become internationally mobile. This trend is likely to continue, owing to the introduction of new transmission technologies (e.g. electronic banking, tele-health or tele-education services), the opening up in many countries of long-entrenched monopolies (e.g. voice telephony and postal services), and regulatory reforms in hitherto tightly regulated sectors such as transport. Combined with changing consumer preferences, such technical and regulatory innovations have enhanced the “tradability” of services and, thus, created a need for multilateral disciplines.

3. Frame of Commitments of GATS

GATS establishes a framework within which liberalization commitments in the area of services are to be undertaken and implemented. GATS provides a frame for initial commitments, and also for progressively increasing commitments through successive rounds of negotiations. There are broadly two types of obligations and commitments, i.e., general obligations and specific commitments. The general commitments are applicable to all Members and all sectors of services trade. The specific commitments in services sectors are those undertaken by individual Members in particular sectors. Some specific commitments had been negotiated by Members before 1 January 1995 when the Agreement went into effect; further specific commitments will be added through negotiations in the future.

Scope of Application of GATS

GATS applies to any measures by a Member, which affects trade in services. “Measure” covers any actions taken by any level of government as well as by authorized non-governmental bodies, and could take any form: a law, regulation, administrative decision or guideline. “Affect” means that the scope of GATS encompasses not only measures designed to regulate trade in services directly, but also any other measures that might be designed to regulate other matters but incidentally affect the supply of a service.

Modes of Service Supply

The mode of supply refers to the manner in which the service is supplied. Four modes of supply of service have been specified in the Agreement.

Box A: Examples of the four Modes of Supply (from the perspective of an "importing" country A)

Mode 1: Cross‑border

A user in country A receives services from abroad through its telecommunications or postal infrastructure. Such supplies may include consultancy or market research reports, tele-medical advice, distance training, or architectural drawings.

Mode 2: Consumption abroad

Nationals of A have moved abroad as tourists, students, or patients to consume the respective services.

Mode 3: Commercial presence

The service is provided within A by a locally-established affiliate, subsidiary, or representative office of a foreign-owned and – controlled company (bank, hotel group, construction company, etc.)

Mode 4: Movement of natural persons

A foreign national provides a service within A as an independent supplier (e.g., consultant, health worker) or employee of a service supplier (e.g. consultancy firm, hospital, construction company).

4. Specific Commitments of GATS

Specific commitments in services sectors are those undertaken by individual Members in particular sectors of services. Individual countries’ commitments to open markets in specific sectors — and how open those markets will be — are the outcome of negotiations. Each Member of the WTO is required to have a schedule. The commitments appear in the “schedules” that list the sectors being opened (i.e., market access), the extent of market access being given in those sectors (i.e., market access limitation, e.g. whether there are any restrictions on foreign ownership), and any limitations on national treatment (whether some rights granted to local companies will not be granted to foreign companies.)

As an example, if a government commits itself to allow foreign banks to operate in its domestic market, that is a market access commitment. And if the government limits the number of licenses it will issue, then that is a market access limitation. If it also says foreign banks are only allowed one branch while domestic banks are allowed numerous branches, it is an exception to the national treatment principle.

These commitments are “bound”: like bound tariffs, they can only be modified or withdrawn after negotiations with affected countries — which would probably lead to compensation. However, new commitments and improvements to existing ones can be added at any time. Because “unbinding” is difficult, the commitments are virtually guaranteed conditions for foreign exporters and importers of services and investors in the sector to do business. In each of the selected sectors of services, a Member will have taken commitments in three areas, i.e., market access, national treatment, and other commitments.

Market access

Market access is a negotiated commitment in specified sectors. In the frame of the Agreement, a Member has to select the sector in which it makes commitments and grants free market access. The sectors left out by the Member will not be granted any market access. Market access may be made subject to some terms, conditions and various types of limitations. Limitations may be imposed on:

· the number of services suppliers (e.g. annual quota on the establishment of branches of banks and licenses for new restaurants based on an economic needs test),

· the total value of transactions or the total assets of service transactions (e.g., limitation of the transactions or assets of branches of banks to a specified percentage of the total domestic transactions or assets of all banks),

· total number of service operations or the total quantity of service output (e.g., prescribing the maximum weekly duration of the telecast of films),

· total number of employees in the sector (e.g., in computer software service, only a prescribed maximum number of workers can be employed in a year),

· requirement regarding the type of the legal form of the service supplier (e.g., in a particular sector, commercial presence can only be in the form of a company in which the citizens of the country must have a majority shareholding),

· the participation of foreign capital.

The lists of market access commitments (along with any limitations and exemptions from national treatment) are negotiated as multilateral packages, although bilateral bargaining sessions are needed to develop the packages. The commitments therefore contain the negotiated and guaranteed conditions for conducting international trade in services. If a recorded condition is to be changed for the worse, then the government has to give at least three months’ notice and it has to negotiate compensation with affected countries. But the commitments can be improved at any time. They will be subject to further liberalization through the future negotiations already committed under GATS.

National treatment

National treatment means treating one’s own nationals and foreigners equally. In services, it means that once a foreign company has been allowed to supply a service in one’s country there should be no discrimination between the foreign and local companies. In this context, the treatment accorded by a Member to the services and service suppliers of any other Member must not be less favorable


9-09-2015, 02:03