World Trade
Organization RESTRICTED S/WPGR/M/47
22 April 2004 (04-1806) Working Party on GATS Rules

Report of the meeting of 24 March 2004

Note by the Secretariat

The Working Party on GATS Rules held this meeting under the chairmanship of Mr.
In terms of the policy context for establishing an emergency safeguard mechanism, he emphasized that given the binding and largely irrevocable nature of services commitments, some form of an ESM would be needed to address, on a temporary and extraordinary basis, adverse consequences that might arise in the implementation of services commitments.
Logically this should be a certain period after the actual liberalization or reforms entered into force, although the full entry into force of a Member's commitments might be a better benchmark since the ESM was intended to apply only to liberalization and reforms which had been committed under a Member's schedule of commitments.
A major criticism levelled against an ESM was that it would erode the legal certainty and predictability of market liberalisation and regulatory reform undertaken by Members as a result of negotiations.
The report could be based on a checklist of issues which would include the following: who requested the action and why; how implementation of GATS commitments had caused injury or damage; extent of injury or damage; sector and modes affected; who had been consulted during the investigation process; what less trade-restrictive options had been considered and why these had been deemed inadequate; how this approach would remedy the situation; the duration required; and the phase-out plan, where appropriate.
Given that many developing countries were increasingly dependent on, and had expressed interest in the temporary movement of natural persons, he thought that in cases where a quantitative restriction was used as a safeguard measure on Mode 4, it should not reduce the number of mode 4 suppliers in the affected sector below the level of a recent representative period.
The representative of the United States said that her delegation would want to have its statements made at the informal meeting on the communication from the group of ASEAN Members reflected in the record of this meeting (see paragraph 10 below).
Third, concerning part IV, he took note of the fact that the proponents found it desirable or even necessary to have an ESM in place when undertaking liberalization, although he did not necessarily agree that an ESM should be a pre-condition for further liberalization.
Noting that the Working Party had recently agreed to extend the mandate in an open-ended and indefinite fashion and that there was no guarantee of an outcome or of the timing of any outcome, she indicated that her delegation was interested in a substantive and technical discussion on issues regarding feasibility.
Since the sponsors of the communication did not think that the concept of domestic industry should be defined, she asked for a clarification of the relationship between the proposed approach on acquired rights in option 2 and national treatment commitments and any other bilateral commitments not captured by Article V of the GATS such as those flowing from bilateral investment treaties.
In particular, developing countries, who were net importers of services, could benefit from a safety net, which would help to overcome domestic resistance to greater commitments that could have unforeseen economic effects, for example in financial services, transport, and professional services.
She also highlighted the continued relevance of the two previous contributions from her delegation, on indicators for the determination of injury and on the causal relationship (JOB(01)/48, JOB(01)/101, and JOB(01)/101/Add.

While the communication from the group of ASEAN Members was still being analysed by his authorities, the representative of the European Communities considered, at first sight, that it did not really bring forward new elements and that it did not contain answers to previously raised questions on modal application or on situations justifying a safeguard.
With respect to the concept of limited window, she asked whether the period of entry into force of a Member's commitments, mentioned in paragraph 12 (b), referred to the date of entry into effect of a schedule or, rather, to the date when the implementation period in the sector ended.
the GATS was the main instrument in pursuing such a policy, but an ESM would go against such policy by making the legal environment less certain for all Members.
A safeguard measure in insurance services might deprive policy holders of insurance cover, interrupt the flow of pension contributions, and threaten the prudential standing of companies by interrupting the flow of new contracts.
She understood the need expressed in paragraph 3 of the communication to protect the domestic industry against injury resulting from liberalization commitments, but it was not clear how one could make a distinction between such cases and others not directly related to the implementation of commitments.
Regarding injury, she wondered, in light of the importance of considering a broader economic picture than solely damage to a particular industry, whether consumers' views would also be taken into account in a process of assessing injury, and what weight would be given to them.
Also, she asked whether the use of the terms "prevent injury" in paragraph 12(g) meant that an ESM could be invoked as a pre-emptive measure in the face of potential injury and, if so, how such a situation could be considered an emergency, and how such emergency could be demonstrated.
The argument that safeguard measures were not feasible for all modes, for example modes 1 and 2, would thus also mean that ENTs were not feasible and, hence, had to be removed from schedules.
With respect to the question from the representative of Hong Kong, China on whether a safeguard measure could be used in situations where structural adjustments were required as a result of liberalization, he reiterated that applying a safeguard measure for three or more years in response to structural problems would not provide a cure for such problems and that, if the problem had not been cured, a Member would have to decide whether to invoke Article XXI procedures.

NEGOTIATIONS ON GOVERNMENT PROCUREMENT (ARTICLE XIII)
The Chairperson recalled that the delegation of Singapore had presented, at the last meeting, a communication, circulated as JOB(03)/216, which proposed some issues and questions for discussion in the Working Party.
Regarding paragraph 2(g) of his delegation's communication, which alluded to the work in the Working Group on Transparency in Government Procurement (WGTGP), he wondered, given the uncertainties surrounding the WGTGP, whether the Secretariat could prepare, for ease of reference, a compilation of government procurement procedures and disciplines in regional trade agreements.
Nevertheless, she wondered whether the EC could present statistics on government procurement in services, more specifically with respect to sectors and markets where there was participation from developing countries.

Reacting to questions mentioned in paragraph 2(b) of the communication from Singapore, the representative of Hong Kong, China indicated that the preliminary view of his delegation was that, to the extent that the conditions in Article I were met, the Articles of the GATS other than Articles II, XVI and XVII, already seemed to be applicable to government procurement.
He considered it logical that an extension of the scope of application of Article II to government procurement be accompanied by an opportunity for Members to list relevant exemptions since there had been no need to do so during the Uruguay Round.
regulations, procedures and practices regarding procurement of products by the entities subject to this Agreement, and that this included services incidental to the supply of products if the value of these incidental services did not exceed that of the products themselves, but not service contracts per se.
Finally, he indicated that, as requested, the Secretariat had prepared an update of an earlier note on information on subsidies in services sectors contained in WTO Trade Policy Reviews (TPR), circulated as S/WPGR/W/25/Add.
She believed that it was also important to keep in mind a previous communication from Poland, JOB(02)/207, where it was recalled that the trade distortive effect was not a constitutive element of the definition of subsidies in the ASCM.
In that regard, since the programme provided that the repayment be based on 4% of the incremental revenues in the target market, she considered that the existence of a benefit to the company depended on whether the total amount of the repayment, minus disbursements under the programme, was lower than the interest that would have been incurred if the company had borrowed on the market.

The representative of Switzerland stated that his delegation, in the context of market access negotiations, would have significant problems advising suppliers to take the risk of entering new foreign markets if the possibility existed that they could be affected by unfair competition from suppliers of third countries receiving financial support from their government and no recourse was available.
Regarding the former, any subsidies involved were not discriminatory within the meaning of Article XVII as foreign suppliers established in the territory had the same access as domestic suppliers.
at the whole sector and that it did not support exports, as was the case in the other part of the programme, but aimed to promote a sector as a whole.

The representative of Colombia believed that looking at concrete examples was a positive way to advance discussions because it helped to provide more information on subsidy practices and fostered technical analysis.
Since the Note, which drew on TPR reports, necessarily lacked detailed information on subsidy programmes, she considered that Members that had such programmes in place could provide additional information, maybe along the lines suggested in Chile's communication.
As pointed out by Switzerland, subsidies were likely to distort conditions of competition in a foreign market in favour of the exported services, to the detriment of the domestic services in that foreign market as well as those exported by third countries.
Regarding the financial assistance provided to national trade associations, she mentioned that Chinese Taipei's room document suggested that such assistance amounted to the government providing goods and services other than general infrastructure to the private sector.
Accordingly, it needed to be kept in mind that potentially relevant information was compiled against the background of the definition of subsidies and related concepts contained in the ASCM, and that not all data recorded in TPR reports might be compatible with this definition.

Commenting on the Secretariat Note on subsidy-related information contained in TPR reports, the representative of the Republic of Korea noted that one of these reports pointed out that subsidies to services sectors were increasing, while those relating to goods were declining.
He suggested that Members whose subsidies had been mentioned in the Note share their views as to the types of measures that might not constitute subsidies or that should not be subject to subsidy disciplines because they did not have trade distortive effects.

The representative of the Philippines said he was open to such an idea, but that was conditional on the incoming Chairperson conducting consultations on this issue and perhaps having informal sessions of the Working Party between the clusters of meetings so as to alleviate concerns about the lack of time to discuss all issues.
Regarding the work to be undertaken by the Secretariat, for example with respect to procurement, she reserved the right to provide her delegation's views and opinions at the time the relevant document was circulated so that positions or interpretations were not prejudged.