Trade in Services

1. Trade in Services

2. Outline of Presentation • Trade in Services • Introduction to International Trade in Services • Approaches to services commitments • WTO General Agreement on Trade in Services (GATS) • The EU-Cariforum EPA • NAFTA Strategic Trade Policy in Context

3. Introduction • Why have international trade rules on services? • Services trade is increasing in economic importance • Services represent more than 20% of world trade • For most of the 1990’s, services trade was increasing 50 % faster than trade in goods • From 2001– 2008 services exports increased • but at slower rate than trade in goods Strategic Trade Policy in Context

4. Introduction • Comparative advantage of developed countries increasingly dependent on services • EU is largest exporter of services (45% of global total) • US exports 14% of global total35% of all US exports are services • Growing importance of services exports for many developing countries • Caribbean’s tourism sector • India’s IT service outsourcing • Travel and transport account for over 60% of developing countries’ exports Strategic Trade Policy in Context

5. Why services trade is increasingly important • Technological changes facilitating trans-border delivery of services • e.g. financial services - e-banking • Separation of services from goods • e.g. warranty services, finance, marketing • Globalisation of firm production functions • Privatisation and deregulation of services • Foreign direct investment Strategic Trade Policy in Context

6. Why few international trade and investment rules regarding services until recently • Complex and diverse in nature • from telecommunications to tugboats • Subject to complex and diverse forms of regulation • Goods trade is primarily regulated at the border • Many instruments of regulation the same from one country to the next and for all goods • Services trade is regulated at the point of delivery or consumption • Source, nature and content of regulation varies by country and service • Services regulation tied to important public policy goals • e.g. health, safety, integrity of financial system • unrelated to trade but with trade effects Strategic Trade Policy in Context

7. Why few international trade and investment rules regarding services until recently • Services delivered in different ways - not just cross border exchange • Different modes of delivery may raise different issues • e.g.,investment entry and entry of natural persons raise different issues than cross border supply • Need to permit different levels of commitment for (1) individual sectors and (2) different modes of supply Strategic Trade Policy in Context

8. Service Supplier Consumption Abroad Commercial Presence Temporary Presence Cross Border Supply BORDER Service Consumer Investment Strategic Trade Policy in Context

9. Why few international trade and investment rules regarding services until recently • Services delivered in different ways - not just cross border exchange • Different modes of delivery may raise different issues • e.g.,investment entry and entry of natural persons raise different issues than cross border supply • Need to permit different levels of commitment for (1) individual sectors and (2) different modes of supply Strategic Trade Policy in Context

10. Choices in Treaty Architecture Strategic Trade Policy in Context

11. WTO’s General Agreement on Trade in Services (GATS) All services are subject to GATS - including services delivered through a commercial presence(i.e. investment) Over 50% of new investment worldwide is in services Some obligations apply to all services that are subject to the agreement E.g. Most Favoured Nation (MFN) Subject to MFN exemption list (a negative list) Other obligations apply only to services sectors listed by each WTO Member in its National Schedule(positive list) E.g.National treatment and market access Strategic Trade Policy in Context

12. Example of GATS-MFN Exemption … Strategic Trade Policy in Context

13. GATS Obligations Applying to All Sectors • Transparency • publication of laws and regulations • Measures affecting trade in services must be administered • in “reasonable, objective and impartial manner” • Must be right to judicial review of administrative decisions • Members must allow WTO Members adequate opportunity to seek to participate in arrangements for recognition of educational and other qualifications Strategic Trade Policy in Context

14. GATS Obligations Regarding Listed Sectors Some obligations that apply only to services sectors listed by each WTO Member in its National Schedule and can be limited National Treatment Market Access “Horizontal limitations” by Canada carve out Investment Canada review and other discriminatory measures favouring domestic investors in all listed sectors BUT subject to limitations in each National Schedule Strategic Trade Policy in Context

15. GATS Obligations Regarding Listed Sectors Market access limitations that a WTO Member must list if it wants to maintain Limitations on number of service suppliers total value of services transactions or assets total number of service operations or total output number of employees employed in services type of entity used participation of foreign capital Strategic Trade Policy in Context

16. Business services Communications Construction Distribution Education Environmental services Health services Financial services Tourism Recreation, culture and sports Transport Others Classification of services under GATSused to list sectors (UN CPC and W/120) 130 categories of services sectors and sub-sectors Strategic Trade Policy in Context

17. How to Read GATS Schedule (Example: Health) Strategic Trade Policy in Context

18. Investment Canada Review Carved out of GATS in Canada’s National Schedule of Commitments A “horizontal limitation” Strategic Trade Policy in Context

19. GATS Obligations Regarding Listed Sectors (ii) • Additional obligations applying to sectors listed in national schedules of commitments • permit international transfers and payments to settle current transactions • enhanced transparency – domestic regulation (Art. VI) • notify WTO of new laws and regulations affecting trade in services in listed sector • enquiry point regarding regulation of listed sectors • Re: listed sectors • licensing and qualification requirements and technical standards • based on objective transparent criteria and • no more burdensome than necessary to ensure service quality • so as not to impair specific commitments Negotiations on more specific rules Strategic Trade Policy in Context

20. Special Provisions for certain sectors and activities • Financial services • Telecommunications • Movement of natural persons • Annex provides that • No obligations regarding access to employment, residence or citizenship on a permanent basis • Air transport • other than aircraft repair, maintenance and specialty air services Strategic Trade Policy in Context

21. Trade and Services in the EU-Cariforum Economic Partnership Agreement • Commitments on Commercial Presence Same concept as GATS – but applies to all investors not just services suppliers • MFN all sectors re: commitments in future trade agreements • But some sectors excluded • mining, manufacturing and processing of nuclear materials • production of or trade in arms, munitions and war materials • audio-visual services • national maritime cabotage • national and international air transport services • Market Access and National Treatment (positive list) • In sectors and on terms listed in Annex IV to Agreement Strategic Trade Policy in Context

22. Trade and Services in the EU-Cariforum Economic Partnership Agreement • Commitments on Cross-Border Trade in Services (GATS Modes 1 and 2) • MFN all sectors re: commitments in future trade agreements • But some sectors excluded • audio-visual services • national maritime cabotage • national and international air transport services • Market Access and National Treatment • In sectors and on terms listed in Annex IV to Agreement Strategic Trade Policy in Context

23. Annex IV of Trade and Services in the EU-Cariforum Economic Partnership Agreement lists commitments (k) Retail sales of pharmaceuticals and retail sales of medical And orthopaedical goods (CPC 63211) and other services supplied by Pharmacists AT, BG, CY, FI, MT, PL, RO, SE, SI: Unbound BE, DE, DK, EE, ES, FR, IT, HU, IE, LV, PT, SK: Authorisation is subject to an Economic needs test. Main criteria: population and geographical density of existing pharmacies. Strategic Trade Policy in Context

24. Trade and Services in the EU-Cariforum Economic Partnership Agreement • Separate Chapter on temporary presence of natural persons for business purpose • Key personnel, graduate trainees, business services sellers, contractual services suppliers, independent professionals and short term visitors for business purposes • Separate Chapter on regulation deals with • Mutual recognition, transparency and requirements for administrative procedures • Specific commitments in certain areas • computer services, courier services, telecommunications, financial services, maritime transport, tourism, e-commerce Strategic Trade Policy in Context

25. NAFTA and Trade in Services (GATS Modes 1 and 2) NAFTA Chapter 12 Applies to all measures relating to cross-border trade in services and not specifically excluded or reserved (“negative list” approach) except Air services other than aircraft repair, maintenance and specialty air services Financial services Subsides and grants Government procurement (separate commitments) Separate chapters for financial and telecommunications services (Chapters 13 and 14) Separate chapters on investment and movement of persons Strategic Trade Policy in Context

26. NAFTA and Trade in Services NAFTA Chapter 12 Better of National treatment (Art. 1202) Most favoured nation treatment (Art. 1203) No requirements for residency or establishing commercial presence to provide service (Art. 1205) Can maintain quantitative restrictions but Must list federal Notify of new ones Endeavour to negotiate for removal (Art. 1207, Annex V) Commitments to liberalize quantitative restrictions, licensing requirements, performance requirements or other non-discriminatory measures (Annex VI) Subject to Annex I and II Reservations Strategic Trade Policy in Context

27. NAFTA and Trade in Services NAFTA Chapter 12 (Art. 1210) Endeavour to ensure that licensing and certification requirements and procedures are Based on objective and transparent criteria and No more burdensome than necessary to ensure the quality of the service Not disguised restriction on provision of the service But recognition of experience, education and qualifications not required Opportunity to seek recognition required if recognize those of another state Within 2 years remove any citizenship or permanent residency requirements to be licenced to provide professional service listed in Annex I Strategic Trade Policy in Context

28. Carved Out of NAFTA – Excerpt from Canada’s Schedule to Annex I Strategic Trade Policy in Context

29. NAFTA and Trade in Services Separate chapters on some issues Temporary presence of natural persons for business purpose (Chapter 16) Investment (Chapter 11) Distinct obligations including prohibition on direct and indirect expropriation fair and equitable treatment Strategic Trade Policy in Context

30. General Categories of Services Issues • Positive vs. negative list • What sectors to include (or carve out) • Limitations • How to deal with different modes of supply • Especially investment and the movement of people • Sector specific commitments • Typical categories of substantive obligations • MFN, NT, Market Access, Recognition, Transparency, Administrative Procedures Strategic Trade Policy in Context