NEW SERVICES DRAFT ADOPTS "POSITIVE LIST" APPROACH.

Oct 15, 1990

NEW SERVICES DRAFT ADOPTS "POSITIVE LIST" APPROACH.

GENEVA, OCTOBER 12 (BY CHAKRAVARTHI RAGHAVAN)— A revised text of a draft multilateral framework for trade in services tabled by the Chairman of the Group of Negotiations on Services (GNS), Amb. Felipe Jaramillo of Colombia, to be the basis for further consultations and negotiations has incorporated language and provisions that seem to meet some of the viewpoints of Third World countries.

Among the revisions is one adopting a "positive list" approach to commitments of parties in respect of national treatment, market access and liberalisation: countries would be obliged to provide national treatment, market access and liberalisation only in accord with their schedules of bindings which would specify the sectors or subsectors which would be open for foreign service providers, and the conditions and limitations under which they would enjoy national treatment and market access.

Previous drafts of the GATS (General Agreement for Trade in Services) had a "negative list" approach: all service sectors and subsectors, not specifically excluded with or without specific conditions and limitations, would be "liberalised".

There had been strong criticism of it from several Third World countries since the negative list approach would have favoured the major industrial countries, which had a high level of regulations and restrictions and would have been detrimental to interests of the Third World countries.

In GATT (which in theory limits market access through border tariff measures), countries are obliged to provide market access in terms of tariff and other import charges, only to the extent they have bound their tariffs in their country-schedules.

Some of the other revisions in the new text, such as in regard to definition of trade in services or measures against restrictive business practices of business operators, however have moved in the opposite direction.

Trade in services, in the revised text, is defined as covering transactions involving:

* Cross-border supply of the service,

* Cross-border movement of consumers of the service,

* Cross-border movement of "providers" of the service,

* Establishment of commercial presence,

for the effective production, distribution, marketing, sales or delivery of a service.

There is as yet no definition of "service provider" and hence it is not clear whether it would cover enterprises or individuals.

Earlier drafts had referred to transactions involving cross-border movement of factors of production (which would mean both capital and labour) under conditions of specificity of purpose, discreteness of transactions and of limited duration.

The new definition about establishment of commercial presence could result in foreign service enterprises getting a right of establishment.

The draft also provides for universal coverage (trade in all sectors), with an "indicative list of sectors" to be attached in an annex. This is the approach that the large majority of the participants favour while the U.S. wants an approach that would enable it to exclude ab initio several of its service sectors like maritime, banking, aviation, etc.

It could still do so by not listing them in its schedule (in respect of national treatment, market access or liberalisation), but would be committed to engage in future rounds for liberalisation in respect of these sectors too.

Nevertheless the general obligations and disciplines including those for most-favoured-nation treatment requirements, transparency, limitations on future domestic regulations, exceptions and subsidies would apply. In the case of the U.S. this would have some implications for example in respect of benefits it accords to countries under its bilateral commerce and navigation treaties.

An alternative text in the revision on MFN treatment would enable where it is multilaterally agreed, non-application of this principle to activities in specific sectors covered by other international agreements, identified in annexes to the agreement.

This could be used to exclude civil aviation agreements in respect of which under the Chicago civil aviation conventions, air-services between countries and access are regulated on basis of bilaterally negotiated agreements involving reciprocity.

On the question of provisions for increasing participation of Third World countries in world trade and expansion of their service exports, apart from calling for measures to strengthen their domestic service capacities, efficiency and competitiveness, the revised draft has provisions for assuring them "improved access to distribution channels and information networks and liberalisation of market access in sectors of export interest to them".

However the instrumentality to achieve is still weak merely talking about facilitating such access through specific measures agreed in pursuance of the agreement under its provisions for market access, national treatment and progressive liberalisation. This could mean that in practice the commitments of the ICs in this regard could be a pious hope or at most a "best endeavour effort".

But the revised draft would enable Third World countries, when making market access available to foreign service providers, to attach conditions to enable them to secure improved market access to distribution channels and information networks.

The provisions on domestic regulations in the revised text has knocked out a provision in an earlier draft that would have granted "grand-father" privileges for the parties to the agreement: parties will not be required "to eliminate or modify any procedures in force at the time of entry into force of this agreement".

This would have benefited the U.S. and other leading ICs with an array of domestic regulations and procedures in that all these would have been "saved" even if contrary to the explicit provisions of the agreement.

The already weak provisions in the earlier drafts on measures to deal with behaviour of private operators have however been further weakened in the new text. The U.S. is steadfastly opposed to any provisions with teeth to deal with restrictive business practices of its service enterprises, which are mostly TNCS.

Now there are only very weak provisions for cooperation and exchange of information bearing on anti-competitive business practices, "within limits of the provisions of confidentiality on their respective laws" and would thus enable the home-countries to protect the cartel activities of their service exporters.

The application article in the revised draft provides that apart from general obligations (MFN, transparency, domestic regulation, emergency safeguard measures, government procurement, exceptions and subsidies, etc.) would be applied to all sectors by all parties, in accordance with any relevant sectoral annexes.

Provisions for market access and national treatment are to be applied by each party to the relevant sectors, subsectors and modes of delivery covered in its schedule in accordance with negotiated specific commitments set out.

After negotiations are concluded on specific commitments and the resulting bindings are inscribed in national schedules, no party, with respect to the sectors, subsectors and modes of delivery in its schedule, shall place or maintain limitations or conditions on market access other than those it has set out in its schedule of bindings. It cannot also modify existing measures or introduce new ones, which would result, with respect to national treatment, in according services or service providers of other parties less favourable treatment than provided in its schedule.

In relation to market access, parties are to provide access to their markets for services and service providers of other parties in accord with terms, conditions or limitations agreed and specified in its appropriate schedule, and treatment no less favourable than that provided in its schedule.

Also as set out in their appropriate schedules, parties are obliged to provide national treatment to services and service providers of other parties, i.e. treatment no less favourable than that accorded to domestic services or service providers.

The provisions for progressive liberalisation commits parties to engage in successive rounds of liberalisation, with the process of liberalisation taking place "with due respect to national policy objectives and level of development of individual parties".

There are provisions for "appropriate flexibility" for "individual developing countries" for opening fewer sectors or liberalising fewer types of transactions or progressively extending market access in line with their development situation.

The negotiations for progressive liberalisation, to take place in each round according to negotiating guidelines and procedures to be established, are to increase the general level of bindings assumed by parties with regard to their specific commitments of national treatment and market access.

The negotiations for such liberalisation are to include those:

* For new market access or national treatment commitments with respect to unbound sectors, subsectors or modes of delivery,

* Total or partial elimination of any limitations and/or conditions on market access and any conditions or qualifications on national treatment in bound sectors/subsectors or modes of delivery.

Each party's schedules of bindings resulting from negotiations are to specify the sectors and subsectors where bindings exist and contain: any limitations or conditions on market access, any conditions and qualification on national treatment.

Where there is a partial binding of a sector or subsectors, there is to be an indication in the schedule as to where market access or national treatment is not bound with respect to any mode of delivery.