GATS and Services Negotiations Prepared by Wenguo Cai Senior Trade - - PDF document

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

GATS and Services Negotiations

Prepared by Wenguo Cai Senior Trade Expert, TPSA The Conference Board of Canada

Jakarta, Indonesia September 9-10, 2015

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Presentation Outline

(1) Introduction to Trade in Services (2) General Agreement on Trade in Services (3) Services Negotiations in the WTO

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

(1) Importance of Trade in Services

• Increasing Importance of Trade in Services in the

World Economy: – Services represent about 2/3 of world’s GDP (for example, 70% Canada, 54% Indonesia, 27% Nigeria) – Trade in services is increasing its economic importance (about 22% of the world trade) – Developed countries: strong on trade in services (a CBoC study: 44% of Canada’s exports from services) – Developing countries are increasingly becoming more active in exporting services (e.g. Thailand’s tourism sector, India’s IT services; foreign direct investment in China’s services sectors; How about Indonesia?

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Developing Countries & Services Trade: Some Facts

• The share of developing countries in world services

exports increased from 20 to 26% (1990-2014).

• Travel and transport account for over 60% of

developing countries’ services exports.

• India’s success is well known – software and BPS,

accounting for 33% of India’s exports.

• Brazil, Costa Rica and Uruguay are also exporting

processional services.

• Philippines and Egypt have developed world-class

call centers.

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Trade in Services: Some Differences with Trade in Goods

• Simultaneity of production and consumption
• Services also support trade in goods
• No tariff duties: market access conditions determined by

regulations, and restrictions

• Strong government involvement

– Existence of natural monopolies, public service obligations – Infrastructural importance of services (transport, telecom) – Role of non-economic objectives (social, cultural and safety)

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Trade in Services: Increasing Importance for Indonesia

• The service is the largest sector – 7% growth rate - 54% of

GDP, & 50% of employment

• 7.1 million jobs depend on trade in services
• Transport, travel, trade, ICT, transport, construction

financial, health, education and social services are key service sectors.

• Promoting services exports from Indonesia:

– Creating a more competitive service industry – Delivering high quality services abroad – Negotiating better service package (WTO, FTAs) – Making good use of MODE 4 and MRAs

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

(2) General Agreement on Trade in Services (GATS)

• Objectives and Principles

– Expansion of trade in services – Progressively liberalization of trade in services – Increasing participation of developing countries in services – Flexibility for developing countries, particularly LDCs

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Architecture of GATS

• Framework of general rules and

disciplines for all sectors (e.g. MFN, Transparency, etc.)

• Annexes addressing special conditions

relating to individual sectors listed in national schedules of commitments (e.g. Market Access, National Treatment)

• Work plan for progressive liberalization

(built-in negotiations)

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

GATS: Scope, Coverage, and Definition

• Measures affecting trade in services at all government

levels (including central, regional, and local governments and their delegates)

• All Services sectors (except for governmental

services and air traffic rights)

• No definition of services but a definition of trade in

services is based on four (4) modes of supply

– Mode 1 – Cross Border Supply – Mode 2 – Consumption Abroad – Mode 3 - Commercial Presence – Mode 4 – Presence of natural persons

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

GATS: Sectoral Coverage (CPC)

• Business services
• Communications
• Construction
• Distribution
• Education
• Environmental

services

• Health services
• Financial services
• Tourism
• Recreation, culture

and sports

• Transport
• Others

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

How to Read GATS Schedule (Example: Health)

Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

Sector or subsector Limitations on market access Limitations on national treatment Additional commitments

• 8. HEALTH

RELATED AND SOCIAL SERVICES

• A. Hospital

Services (CPC 9311) 1) Unbound 2) Unbound 3) Only through incorporation with a foreign equity ceiling of 51 per cent 4) Unbound except as indicated in the horizontal section 1) Unbound 2) Unbound 3) None 4) Unbound except as indicated in the horizontal section

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

“Horizontal” Commitments

• To avoid repetition, measures applied to a

number sectors are listed at the front of he

• schedule. Like sector-specific entries, they are

legally binding. Listed by column and mode

• Some may relate to one mode of supply

– Example: overall limitation on foreign investment (commercial presence)

• Others may affect more than one mode of supply

– Example: tax measures contrary to national treatment

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Typical Horizontal Commitments

• Measures can relate to one or more modes of

supply

– Restrictions on land ownership, investment, entry of natural persons – Discriminatory tax measures

• Horizontal commitments condition all other

entries unless otherwise specified:

– “None” in sector-specific section - >except as set out in horizontal section – Departures must be clearly and consistently indicated

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

GATS Obligations Regarding Listed Sectors

• A member may withdraw or modify a specific

commitment

– On 3 month’s notice to the Services Council

• WTO members may claim compensation in the

form of trade concessions for lost benefits:

– May be determined by arbitration if not agreed – Compensatory adjustment extended on MFN basis to all WTO Members

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Special Provisions for Certain Sectors and Activities

• Financial Services

– Annex on Financial Services

• Definition: banking, securities and insurance
• Carve out for central bank activities and prudential

measures

– Higher customized commitments taken by some members

• Right of commercial presence
• Cross-border supply and consumption abroad (insurance)
• Access to payment and credit clearing servics
• Membership in self-regulating body
• No discrimination in government procurement

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Special Provisions for Certain Sectors and Activities

• Telecommunications

– Annex on Telecommunications – Members must provide non-discriminatory access to public communications services for services providers in the listed sectors – Many WTO members committed on the basis of a “reference paper”

• Specific competition on “major suppliers”

– E.g. cross subsidization prohibited

• Commitments on interconnection
• Transparency of interconnection procedures
• Regulator independence of major supplier

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Special Provisions for Certain Sectors and Activities

• Movement of Natural Persons (Mode 4)

– Annex provides that

• No obligations regarding access to employment,

residence or citizenship on a permanent basis

• Air Transport

– Air traffic rights under the Chicago Convention excluded from GATS

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

GATS and Developing Countries

• Increased participation of developing countries in

the services trade

• Progressive liberalization of services
• Improved market access of developing country

services suppliers

• GATS contact points for information
• Technical assistance to be provided by the WTO

Secretariat as decided upon by the Trade in Service Council

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

(3) Services Negotiations in the WTO

• It was the first time that trade in services was included in the trade

negotiations in the UR that created the WTO in 1995.

• The services negotiations in the UR were unfinished business –

continuing negotiations from UR to DDA

• WTO members continued negotiating sectoral services

agreements (Basic Telecoms; Financial Services; etc.)

• WTO members also committed to services negotiations in order to

progressively liberalize the services sectors. However, the progress was slow and limited.

• 24 WTO members (EU as one) are trying to negotiate a plurilateral

Trade in Service Agreement (TiSA)

• Many WTO members are also moving to FTA negotiations,

including services.

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Doha Development Agenda (November 2001)

• Doha Ministerial Declaration Paragraph 15:

Services – To promote economic growth of all trading partners, especially developing and LDCs. – To recognize the work already undertaken since January 2000 & a large number of proposals submitted – To reaffirm the Guidelines and Procedures for Services Negotiations and Request-Offer Approach

• a single undertaking approach adopted
• deadline: 1 January 2005

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

From Doha to Bali and Beyond

• Service negotiations got started slowly
• Many WTO members missed the deadlines to submit their

requests and initial offers; Many initial offers remained modest.

• July 2004 package after Cancun
• Hong Kong Ministerial – Annex C – plurilateral and more

flexibility to developing/LDCs

• By April 2011, 71 initial offers and 31 revised offers on

services received by WTO

• In March 2013, Trade in Services Agreement (TiSA)

launched by the RGF group (now 25).

• Bali Ministerial (Dec 2013): an agreement on trade

facilitation, but not on services.

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Trade in Services Agreement (TiSA)

• The TiSA is an initiative of US, originally called

the Really Good Friends (RGF) – aiming at a plurilaterial service agreement.

• 25 WTO members – US, EU, Canada, HK,

accounting for 70% of global service trade

• 13 rounds conducted - low transparency in the

negotiation process

• US, EU & Australia are taking turns to chair
• The negotiations are progressing well.
• WikiLeaks has published its draft text in July

2015 – a lot criticisms to TiSA

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Services Negotiations at DDA: Objectives and Principles

• Progressive liberalization to benefit all

trading partners, particular developing countries and LDCs

• Due respect given to national policy
• bjectives, the level of development, and

the size of economies

• Flexibility granted to individual developing

countries and LDCs

• Negotiations shall take place within the

existing structure of GATS

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

The Scope of WTO Services Negotiations

• No a priori exclusion of any service sector
• r mode of supply (market access and

national treatment)

• MFN exemptions are subject to

negotiations

• Negotiations on trade rules for trade in

services (safeguards, government procurement, and subsides)

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Services Negotiations: Modalities and Procedures

• Main method: request-offer approach
• Starting point: current schedules
• To be conducted in Special Sessions of the

Services Council, reporting to the General Council

• To be open and transparent
• Appropriate flexibility for individual developing

members for opening fewer sectors, liberalizing fewer transactions

• Credits for autonomous services liberalizations

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

How to Make Requests

• Requests may be made to a group of participants or to

an individual member

• Study your trading partners’ schedules and identify your

export interests in order to prepare the requests

• Four types of requests can be made:

– Addition of sectors/sub-sectors that are not included in the current services schedule – Removal of existing limitations or reductions in their restrictiveness – Additional commitments – Removal of MFN exemptions

• Requests can be presented in a letter form and

transmitted to a WTO member on a bilateral basis.

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

How to Make Offers

• Similarly four types of offers can be made to respond to

requests from a WTO member: – Addition of sectors/sub-sectors that are not included in the current services schedule – Removal of existing limitations or reductions in their restrictiveness – Additional commitments – Removal of MFN exemptions

• However, careful assessment for growth, development and
• ther implications of offers should be taken.
• Domestic consultations may be needed for important policy

shifts due to the offers.

• Offers consists of a draft schedule of commitments.
• Offers will be circulated multilaterally.

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Negotiating GATS Rules

• Article VI: Domestic Regulation
• Article X: Emergency Safeguard
• Article XIII: Government Procurement
• Article XV: Subsidies

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

How to Prepare GATS Rules Negotiations

• The revised GATS rules will have significant

implications for WTO members.

• Carry out the impact studies of the changes of

the GATS rules on your economies and trade relations

• Equip with knowledge and skills of these

concepts in the services area (government procurement, safeguards, subsidies) and how they are different from those in GATT?

• Be an active participant in GATS rules-making

negotiations

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Some Practical Services Negotiating Issues

• Mode 1: Cross-border supply (India’s IT sector)
• Mode 2: Consumption abroad (China’s Approved

Destination Status - ADS)

• Mode 3: Commercial Presence (investment

issue): ->Developed countries are more interested in this mode.

• Mode 4: Movement of Natural Persons

(immigration issue) -> Developing countries are more interested in unskilled labor exports.

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

WTO Services Negotiation and Indonesia

• Seeking market access commitment from other

WTO members, particularly Mode 4

• Giving market access commitments:

– Attract foreign direct investments through GATS bindings – credibility of regulatory reform commitments

• Develop infrastructure services – capacity and

efficiency:

– Financial services – Telecommunications – Transportation

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Final Words on Services Negotiations

• There are some misconceptions of GATS and

service negotiations. The following serves as a reminder to the services negotiators:

– Public Services are beyond the scope of GATS and not subject to services negotiations. – Liberalization do not mean privatization. – The change of a service regime is a voluntary process. – A WTO member has the right to regulate. This is the fundamental premise of the GATS. – Universal services can be requested by a government. – All proposals are posted in the WTO website in order to ensure transparency (not on TiSA)

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Canada-Indonesia Trade and Private Sector Assistance Project (TPSA)

Thank you for your attention For more information, contact: cai@conferenceboard.ca