National treatment is treated differently for services. For goods (GATT) and intellectual property (TRIPS) it is a general principle. In that case, once a product has crossed a border and been cleared by customs it has to be given national treatment even if the importing country has not made any commitment under the WTO to bind the tariff rate. Under GATS, a country only has to apply this principle when it has made a specific commitment to provide foreigners access to its services market. It does not have to apply national treatment in sectors where it has made no commitment.
GATS allows some limits on national treatment. Again, the extension of national treatment in any particular sector may be made subject to conditions and qualifications. Members are free to tailor the sector coverage and substantive content of such commitments as they see fit. The commitments thus tend to reflect national policy objectives and constraints, overall and in individual sectors.
While some Members have scheduled less than a handful of services, others have assumed market access and national treatment disciplines in over 120 out of a total of 160-odd services. The existence of specific commitments triggers further obligations concerning, inter alia, the notification of new measures that have a significant impact on trade and the avoidance of restrictions on international payments and transfers.
Other/additional commitments: commitments relating measures other than those subject to scheduling under market access or national treatment, involving competition policy, or qualifications, technical standards or licensing in respect of trade in services.
Schedules of specific commitments
Normally, a Member offers low levels of commitments, expands its commitments through a series of bilateral and plurilateral (involving a limited number of Members) negotiations, and finally reaches a balance of costs and benefits and have an overall reciprocity among the Members as a whole.
Illustration
Box B: Sample Schedule of Commitments: Arcadia
Modes of supply: (1) Cross-border supply; (2) Consumption supply; (3) Commercial presence; (4) Presence of natural persons
| Sector or sub-sector | Limitations on market access | Limitations on national treatment | Additional commitments |
| I. HORIZONTAL COMMITMENTS | |||
ALL SECTORS INCLUDED IN THIS SCHEDULE |
(4) Unbound, other than for (a) temporary presence, as intra-corporate transferees, of essential senior executives and specialists and (b) presence for up to 90 days of representatives of a service provider to negotiate sales of services. |
(3) Authorization is required for acquisition of land by foreigners. | |
| II. SECTOR-SPECIFIC COMMITMENTS | |||
4. DISTRIBUTION SERVICES C. Retailing services (CPC 631, 632) |
(1) Unbound (except for mail order: none). (2) None. (3) Foreign equity participation limited to 51%. (4) Unbound, except as indicated in horizontal section. |
(1) Unbound (except for mail order: none). (2) None. (3) Investment grants are available only to companies controlled by Arcadian nationals. (4) Unbound. |
|
“Unbound” means the Member has taken no commitment in respect of that mode of supply in this sector. In other words, the Member is free to impose any restriction on market access or national treatment in respect of that mode in this sector.
“None” means the Member will not put any limitation on market access or national treatment relating to this mode in this sector.
Special treatment of developing countries
· Due respect for national policy objectives and the level of development of developing Members
· Opening up fewer sectors and liberalizing fewer types of transactions
· Extend market access progressively in line with their development situation
· Strengthening domestic service capacity, access to technology and access to information channels and networks while allowing market access to foreign service suppliers
Modification of schedules
A Member may modify its schedule of specific commitments by offering alternative equivalent concessions three years after the application of the particular commitment. The modifying Member and the affected Member or Members may get into negotiations to reach an agreed compensatory adjustment which will be applicable to all Members. If no agreement is reached, the affected Members may refer the matter to arbitration and abide by its decision. Without compensatory adjustment in accordance with the findings of the arbitration, the affected Members may modify or withdraw substantially equivalent benefits from the modifying Member. With no agreement and no arbitration, the modifying Member is free to modify or eliminate its commitments as was proposed in its notice to the Council for Trade in Services.
5. General Obligations and Disciplines
Most-favored-nation (MFN) treatment
Under Article II of the GATS, Members are held to extend immediately and unconditionally to services or services suppliers of all other Members “treatment no less favorable than that accorded to like services and services suppliers of any other country” (whether a Member or not). It is permissible to accord more favorable treatment to Members than to a non-Member. This amounts to a prohibition, in principle, of preferential arrangements among groups of Members in individual sectors or of reciprocity provisions which confine access benefits to trading partners granting similar treatment.
Favor one, favor all. MFN means treating one’s trading partners equally. Under GATS, if a country allows foreign competition in a sector, equal opportunities in that sector should be given to service providers from all other WTO members. (This applies even if the country has made no specific commitment to provide foreign companies access to its markets under the WTO.)
MFN applies to all services, but some special temporary exemptions have been allowed. Derogations are possible in the form of so-called Article II-Exemptions.
· initial exemptions: Members were allowed to seek initial exemptions before the Agreement entered into force. Individual Members have listed their initial exemptions in their schedules after consultation with interested Members.
· New/ Later exemptions: New/ Later exemptions can only be granted to new Members at the time of accession or, in the case of current Members, by way of a waiver under Article IX:3 of the WTO Agreement. In the latter case, a request for such a waiver will be made to the Council for Trade in Services. The Ministerial Conference will decide on this issue. A waiver can be allowed only by a decision of three-fourths of the Members.
All exemptions are subject to review; they should in principle not last longer than 10 years. The obligation to apply MFN treatment does not prevent adjacent countries from exchanging advantages in order to facilitate exchanges of services limited to contiguous frontier zones where such services are locally produced and consumed. Further, the GATS allows groups of Members to enter into economic integration agreements or to mutually recognize regulatory standards, certificates and the like if certain conditions are met.
Illustration of a schedule of exemption
LIST OF ARTICLE II MFN EXEMPTIONS Switzerland (GATS/EL/83)
Sector or Sub-Sector |
Description of measure indicating its inconsistency with Article II | Countries to which the measure applies | Intended duration | Conditions creating the need for the exemption |
| Audiovisual services | To confer national treatment to audiovisual works covered by bilateral or plurilateral agreements on coproduction in the field of audiovisual works, in particular in relation to access to funding and to distribution | All countries with whom cultural cooperation may be desirable (at present agreements exist with member countries of the Council of Europe and with Canada) | Indefinite | Promotion of common cultural objectives |
Measures granting the benefit of support programmes, such as MEDIA and EUruguayI- MAGES, and measures relating to the allocation of screentime which implement arrangements such as the Council of Europe Convention on Transfrontier Television and confer national treatment, to audiovisual works and/or to suppliers of audiovisual services meeting specific European origin criteria |
European countries | Indefinite | Promotion of cultural objectives based on long-standing cultural links | |
| Concessions for the operation of radio or television broadcast stations may be granted, normally on the basis of bilateral agreements, to persons of countries other than Switzerland | All countries with whom cultural cooperation may be desirable | Indefinite | Promotion of common cultural objectives, and to regulate access to a market limited in scale (given the size of Switzerland) in order to preserve diversity of supply |
Source: Damien Géradin/David Luff (eds.), The WTO and Global Convergence in Telecommunications and Audiovisual Services, Oxford University Press 2003.
Transparency
Services activities are typically subject to heavy domestic regulation, which makes transparency even more important than in any other Agreements. GATS says governments must publish all relevant laws and regulations. If publication is not practicable, such information must be made available publicly. Within two years (by the end of 1997) they have to set up inquiry points within their bureaucracies to provide information on laws and regulations affecting trade in services. Foreign companies and governments can then use these inquiry points to obtain information about regulations in any service sector. And they have to notify the Service Council of the WTO, at least annually, of any changes in regulations that apply to the services that come under specific commitments.
Domestic regulations
Since domestic regulations are the most significant means of exercising influence or control over services trade, the agreement says governments should regulate services reasonably, objectively and impartially. Disciplines are prescribed in respect of the following aspects:
Review of decisions: A Member must establish an administrative or judicial procedure for the review of administrative decisions affecting trade in services. If a service supplier is dissatisfied with an administrative decision, recourse to such a review should be possible for an objective and impartial consideration of the issues.
Authorization for supply of service: In case any authorization is needed for the supply of a service for which specific commitments have been made, the decision of the authorities has to be conveyed within a reasonable period of time to avoid trade barriers caused by unnecessary delays.
Qualification, standards and licensing: Members are required, in sectors where they have scheduled specific commitments, to ensure that measures relating to qualification requirements (necessary qualifications of the service supplier), technical standards ( of the service) and licensing requirements and procedures (for providing the service in a Member country) do not constitute unnecessary barriers to trade in services. For this purpose, a Member must ensure that:
· qualification requirements are based on objective and transparent criteria;
· technical standards are not more burdensome than necessary to ensure the quality of the service;
· licensing procedures are not in themselves a restriction on the supply of service.
Recognition process: Members are expected to adopt criteria or standards for the authorization, licensing or certification of service suppliers. Such recognition may be granted through harmonization, may be based on a mutual recognition agreement or an arrangement with other countries, or may be accorded autonomously. Different level of qualifications means different treatment granted to service suppliers, wherever the suppliers come from. When two (or more) governments have agreements recognizing each other’s qualifications (for example, the licensing or certification of service suppliers), GATS says other members must also be given a chance to negotiate comparable pacts, or to join such harmonization agreements. The recognition of other countries’ qualifications must not be discriminatory, and it must not amount to protectionism in disguise.
In order that there be at least some degree of harmonization among these standards and criteria, GATS provides that a Member may recognize:
· the education or experience obtained in another country,
· the requirement met in another country,
· the licenses or certifications granted in another country.
· Balance-of-payment provision
If there is a situation of serious BOP difficulties and external financial difficulties, or if there is a threat of such difficulties, a Member may adopt or maintain restrictions on trade in service on which it has undertaken specific commitments and adopt or maintain restrictions on payments or transfers for transactions related to such commitments. Such measures have to be non-discriminatory, temporary, avoid unnecessary damage to the commercial, economic and financial interests of other Members and must be phased out progressively.
Monopoly suppliers of service
In some cases, governments regulate certain service activities (usually services constituting inputs to other service activities) by granting monopoly or exclusive rights to certain entities to supply the service. Or sometimes a government establishes or provides authority to a small number of service suppliers, and substantially prevents competition among those suppliers in the country. GATS does not prohibit the maintenance of such monopoly right, but the behavior of such service suppliers must be consistent with the general obligations and specific commitments of the Member concerned.
Requirements in respect of monopoly suppliers of service:
· A Member has to ensure that a monopoly supplier of service of its territory does not act in a manner inconsistent with the obligations of the Member regarding MFN treatment and specific commitments;
· When such a supplier competes for the supply of a service outside the scope of the monopoly and yet in a sector covered by the obligations of the Member, the Member has to ensure that the supplier does not abuse it monopoly position to act in a manner inconsistent with the commitments of the Member.
· A new monopoly right in the area of trade in service granted after 1 January 1995 has to follow the procedure for modification of a Member’s commitments.
Cases of monopoly: telecommunications, financial services, insurance, railway transport service
For example, if a telecommunications monopoly allows interconnection to suppliers of value-added telecommunications, it should do so without discrimination between suppliers of other Members. If the Member concerned has undertaken a national treatment commitment in value-added services, it must ensure that its telecommunications monopoly provides interconnection to service suppliers of other Members on a national treatment basis.
Competition-restrictive practices
If a Member considers that the business practices of a service supplier are restraining competition and are thereby restricting trade in services, it may request consultation with the Member concerned. The other Member has to enter into consultation with a view to eliminating these practices.
Economic integration
A Member may enter into an agreement of integration for liberalizing trade in services among parties to the agreement, whether the parties are Members or not. Such an agreement must have substantial sectoral coverage. A Member may also enter into an agreement providing for full integration of labor markets among parties to the agreement, such as free entry into the employment markets of the parties.
International payments and transfers
Capital transaction and international transfers and payments for current transactions relating to services activities covered by specific commitments should not be restricted by Members.
If a Member has undertaken a commitment of market access through the cross-border mode of supply of service and if cross-border movement of capital is an essential part of the service itself, the Member, in such a case, is committed to allowing such movement of capital. Further, in the case of a commitment of market access through the mode of commercial presence, a Member is committed to allowing related transfers of capital into its territory.
Once a government has made a commitment to open a service sector to foreign competition, it must not normally restrict money being transferred out of the country as payment for services supplied (“current transactions”) in that sector. The only exception is when there are balance-of-payments difficulties, and even then the restrictions must be temporary and subject to other limits and conditions.
Exceptions
General exceptions: The GATS permits Members in specified circumstances to introduce or maintain measures in contravention
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