How to Read GATS Negotiating Requests and Offers

Vicente Paolo B. Yu III WTO Program Officer Friends of the Earth International yuvice@philonline.com www.foei.org 30 July 2002 Geneva, Switzerland Trade Information Project (CIEL-IATP-FOEI)

I. Introduction
This document is intended to assist readers gain a basic understanding of the contents of the negotiating requests and offers relating to the liberalization of trade in services that countries who are Members of the WTO are now submitting to each under the negotiations mandated under the WTO General Agreement on Trade in Services (GATS). It identifies some basic FAQs, or "frequently asked questions," and provides short answers thereto relating to GATS requests and offers. The GATS is an international trade agreement in the WTO system that establishes the multilateral trade rules governing cross-border trade in services. All WTO Members are bound by the provisions of the GATS as part of their treaty obligations under the WTO Agreement. Any non-compliance or violation by them of their GATS obligations and commitments may render them open to binding and economically enforceable dispute settlement proceedings in the WTO. The GATS requires WTO Members to once more negotiate with each other with the objective of achieving further "progressive liberalization" of trade in services. WTO Members are expected to make requests or offer GATS commitments to their trading partners. This will allow or make it easier for the services and service providers of the requester to enter or to provide cross-border services to the consumers of their trading partners.

II. Some FAQs About GATS Negotiating Requests and Offers
1. What are the Different Modes of Supply of a Service under the GATS? The GATS identifies four modes of supply of a service for which specific commitments may be taken: • Mode 1 -- "cross-border supply of services" in which the service is supplied from the territory of one Member into the territory of another Member -- i.e. a Mexican electric utility company provides electricity (networked energy) services to a neighboring town in California; Mode 2 -- "consumption abroad" or cross-border consumption of services in which the service is supplied in the territory of one Member to a service consumer coming from another Member -- i.e. an Argentinean goes to the United States and makes use of the services of a US hotel or US bank while there; Mode 3 -- the establishment of "commercial presence" in which the services is supplied by setting up a business or professional establishment, such as a subsidiary corporation or a branch or representative office, in the territory of one Member by a service supplier of another Member -- i.e. Shell decides to invest in an oil refinery project in Nigeria and does so by creating Shell Nigeria as a separate subsidiary corporation under Nigerian law to take control of the project; or US bank Citibank decides to take advantage of new laws liberalizing the financial and banking sector in the Philippines by setting up a branch office there; and Mode 4 -- "movement of natural persons" involves a "natural person" -- i.e. human staff -- from one Member going to the territory of another WTO Member to provide a service there for short-term, nonimmigrant, business-related purposes -- i.e. a corporation based in the United States sends a manager to a branch office in Qatar to manage its operations for three years, or an information

This means that WTO Members. or provides for market competitive conditions that favour domestic over foreign services and service providers. Unbound -. increase the level of liberalization -. This is the list of commitments for every selected service sector that WTO Members came up with during the Uruguay Round. or all of the 4 modes of supply. the existing power imbalances in the WTO. • • Hence. What Kind of Commitments May be Requested or Offered? A WTO Member can. The circumstances under which WTO Members can impose GATS-consistent national treatment limitations or conditions are specified in GATS Article XVII. request for. This means that there will be not be any limitations on market access or national treatment for the service sector and mode of supply in which this commitment is written. rules. WTO Members can make commitments in each service sector or sub-sector that it wants to make commitments on in one. "National Treatment (NT) Limitations" -. it will request the latter to write down "None" as their market access and national treatment commitments. In making their commitments. and modes of supply.A WTO Member can describe and write specific limitations or conditionalities to market access or national treatment in its Schedule of Specific Commitments.i. do not need to make any commitments at all unless they feel that they are ready to make such commitments.on the GATS commitments made during the Uruguay Round." • "Market Access (MA) Limitations" -. especially developing countries. or regulations that effectively discriminate against foreign in favor of domestic services and service suppliers. Such limitations can be those that are required by existing national laws or regulations.these are laws. These limitations or conditions can be with respect to "market access" or to "national treatment. they provide themselves with more regulatory flexibility that would allow them to impose such limitations or conditions in the future if such are needed. offer.e. How do WTO Member States commit themselves to services liberalization under the GATS? All WTO Member States are expected to have a "Schedule of Specific Commitments" under the GATS. in listing the MA or NT limitations or conditions that they wish to include in their Schedules of Specific Commitments. WTO Members can specify the limitations or conditions under which they will allow foreign services and service providers under the 4 modes of supply above into their domestic market and compete with domestic services and service providers. The focus of the GATS 2000 negotiations is to "improve" -. or commit to. • WTO Members. On the other hand. if a WTO Member (such as the EC) wants its trading partners to fully open up their domestic services sectors to foreign competition. can mean that developing countries will be effectively forced to make GATS commitments that they are neither willing nor ready to provide. By doing so. if a WTO Member wishes to retain regulatory flexibility or to make sure that it will continue to remain free to impose restrictions or regulations on the ability of foreign services and service providers to enter the country and compete with domestic firms. for each mode of supply and for each service sector or sub-sector. 3. WTO Members may make commitments only in those services sectors or sub-sectors. Theoretically. 2. which they wish to make commitments in.A WTO Member writes "unbound" in its schedule of commitments for a given sector or mode of supply if it wishes to remain free to introduce or maintain laws or regulations that limit market access or national treatment or favor domestic over foreign firms in that sector or mode of supply. and the economic pressure for liberalization exerted by industrial countries against developing countries for further services liberalization. it should offer only "Unbound" commitments or at least list down the specific market access and national treatment limitations it wishes to retain. full liberalization. Limitations (to Market Access or National Treatment) -. and are expected to come up with as a result of the GATS 2000 negotiations. may specific any limitation or condition even if such limitation or condition is not currently provided for by their national legislation or rule-making. Those limitations that can be included by WTO Members in their commitments are listed in GATS Article XVI.A WTO Member writes "none" in its schedule of commitments if it wishes to request. 4.technology professional from India is hired by a German firm to work in Germany for five years. However. any of the following commitments: • None -.these are restrictions on the entry of foreign services or service suppliers into the domestic market. or offer. some. What are Horizontal Commitments? .

However. such as those in GATS Article XIV and XIVbis.i. the GATS commitments that they made during the Uruguay Round in the GATS negotiations at that time -. The WTO Members to whom requests have been made are not under any legal obligation to make any offers that directly correspond to the requests that they have received. The submission of the initial offers. How will WTO Members engage in GATS negotiations? WTO Members started submitting their initial GATS negotiating requests to other selected WTO Members on 30 June 2002. These commitments are usually written at the beginning of the Schedule. 6. In order for Mexico’s electric power company to be able to provide electricity to the town in the US. These requests specify the services sectors of their trading partners that they wish to see liberalized and the extent of GATS commitments that they wish their trading partners to undertake with respect to those sectors. What does the request to take "full commitments" mean? If a WTO Member in its request asks another Member to write "none" into its schedule. as in the making of commitments. for example. 8."Horizontal Commitments" are those commitments that apply across-the-board to all the services sectors listed in the country’s Schedule of Specific Commitments. If the "requestee" agrees and writes down "none" as its market access and national treatment limitations for that particular service sector. Mexico can request for a Mode 1 commitment from the US under the GATS to liberalize its electricity service provision regulations so as to allow Mexico’s electricity service providers to provide electricity services to US consumers. the existing power imbalances in the WTO and the economic pressures from developed countries can mean that developing countries will be effectively have to make offers that they are neither willing nor ready to provide. and who have made corresponding offers.htm.org/english/tratop_e/serv_e/serv_commitments_e. What is a Mode 1 Request. 5. or • http://tsdb. MFN as a legal GATS obligation applies to all domestic services sectors even if a WTO Member has not made any commitments with respect to those services sectors. the demanding Member requests its trading partner to refrain from scheduling/listing limitations or conditions to its commitment. this means that it is committing itself to provide full liberalization of such service sector. It commits itself to allowing the services and service providers of other WTO Members full access to the country’s market of services consumers and that it will not impose any regulations that would restrict such access or discriminate in favor of domestic services or service suppliers. or Commitment? A Mode 1 request. as follows: • http://www. When asking for such "full commitment". offer. there are certain exceptional circumstances.can be downloaded from two places in the WTO website. as a WTO Member must treat all other WTO Members in the same way and must not discriminate in favor of one or the other WTO Member. they do not need to make any offers at all. to those requests will commence on 31 March 2003. or responses. WTO Members are under no legal obligation to make requests under the GATS negotiations to their trading partners.wto.org/wto/WTOHomepublic.wto. will then engage in bilateral negotiations with the requesting WTO Member. A Mode 1 request can look like the following1: Request What the Request Means . any results of the bilateral negotiations that will be included in the new GATS Schedule of Specific Commitments of the negotiating partners will be binding not only on both parties but also to all other WTO Members because of the "MostFavoured Nation" (MFN) obligation in the GATS. In fact.e. A hypothetical example would be a situation in which an electric power company of a town in Mexico is prohibited by US energy regulations from providing electricity services to the electricity consumers of a neighboring town across the border in the US. Offer. or commitment refers to the liberalization of regulatory restrictions governing the supply of services from the territory of a WTO Member into the territory of another Member. However. However. this is a request for "full commitments".htm 7. However. MFN simply means that France. Where can Existing GATS Schedules of Specific Commitments of WTO Members be Found? Existing GATS Schedules of Specific Commitments of WTO Members -. under which WTO Members can justify the imposition of regulations that violate their GATS obligations. They can refer to economic considerations that may be applicable to all the services sectors and sub-sectors listed in the Schedule. WTO Members to whom requests have been made.

the provision of grid electricity. auditing and bookkeeping services" refer to the specific services sub-sector to which the request refers. The EC is requesting Colombia to fully liberalize the trading of "non-network" energy products -. i. If Colombia does so and lists down. the limitations and conditions under which foreign companies may or may not engage in the trading of "network-energy products. and (iii) clearly identified to other WTO Members the regulations and restrictions that. Another example of consumption abroad would be the repair of a ship or aircraft outside its home country. i. This means that the EC wants Colombia to refrain from imposing any regulations or restrictions that would limit or restrict the ability of European energy trading companies to enter the Colombian energy market and engage in the trading of energy products there.e. EC Request: Take full commitments.E. a Venezuelan) traveling to the supplying country (such as the United States) and availing of services there. auditing. offer. the EC is requesting Colombia to commit to varying degrees of liberalization for its energy trading services sector. The "CPC 862" annotation indications the classification code number of this particular services sub-sector in the Central Product Classification (CPC) list created by the United Nations Statistical Division. and bookkeeping services of firms located in the EU. For this particular Mode 1 request. such as for tourism or to attend an educational establishment. the two areas in which commitments as to limitations and restrictions can be requested. An example of a Mode 2 request is2: Request b. auditing and bookkeeping services abroad. Rather the EC wants Colombia to identify. MTN.i. No.e. schedule ‘none.e. Brazil’s Mode 2 commitments in relation to such services sub-sector are "unbound. or Commitment? A Mode 2 request.’ under MA and NT for the entire CPC 862. The provisional version of the CPC was the basis of the services classification list contained in GATT Doc. The EC request for Colombia to take "commitments for network-energy products" -i." Colombia will have: (i) committed itself to maintaining only those limitations and restrictions." the EC wants Brazil to commit to allow Brazilians to go and freely obtain the accounting. "MA" refers to Market Access and "NT" refers to National Treatment. What is a Mode 2 Request. the provision of grid electricity -. or commitment refer to the liberalization of regulations or restrictions which involve the consumer (i.i. and cannot impose any other additional limitations or restrictions in the future.means that it does not require "full commitments" in that sub-sector.by writing down "None" in its Schedule of Specific Commitments.3 Trading of energy products EC Request: Modes 1: Take full commitments for non-network energy products and commitments for network-energy products The phrase "trading of energy products" identifies the service sector with respect to which the EC is making the Mode 1 request. The EC request indicates that currently. in its Schedule of Specific Commitments. Accounting. 9. under MA and NT for the entire CPC 862 What the Request Means The header "Accounting.e. Offer.e. By requesting Brazil to "take full commitments. Brazil .e. while currently allowed.GNS/W/120 and used by Uruguay Round negotiators during the negotiations that resulted in the GATS. auditing and bookkeeping services (CPC 862) Mode 2: MA and NT -This mode remains unbound. bulk and retail sales of gasoline and other petroleum products -. describe and list any regulatory restrictions or limitations that it wishes to impose on the entry of foreign energy trading companies that wish to engage in the trade of "network-energy products" -. can then be the subject of further liberalization in the future. If Brazil does so and writes down "none" in its Schedule of Specific Commitments for Mode 2 for this services subsector. schedule "none"." This means that Brazil is still free to impose any regulation or restriction that it wishes relating to the ability of Brazilians to go and obtain accounting.

provides incentives or preferences to Malaysian firms owned corporations. approval if more than 15% (voting rights) of a single foreign interest (30% of aggregate) or The EC request to Malaysia to "remove restrictions" more than RM 5 million. effectively means that Malaysia approval needed is control of Malaysian will have to abolish its laws and regulations that require corporations though joint-venture or other foreign investments and the purchase of real property by arrangement. such as a subsidiary corporation or a branch or representative office. auditors and bookkeepers to Brazilians who are in the EU. EC request: Clarify these over foreign ones. incentives or preferences is basically a request to Malaysia to describe more clearly the basis upon which it . What is a Mode 3 Request. Approval land purchases serves the national Malaysian interest. on the provision of services by foreign accountants. or Commitment? A Mode 3 request. in the territory of one Member by a service supplier of another Member. discriminatory measures. the EC has noted that Paraguay has not made any commitments in any environmental services sector or related sub-sector. A Mode 3 request. This removes from the restrictions. 10. Malaysian law requires governmental approval for any substantial foreign investment in a Malaysian company. Limited to Malaysian. or commitment. offer. applicable to Brazilians.Incentives/Preferences. Approval also required if relating to the need for governmental approvals above. offer. Hence. Malaysian law also Mode 3 requires foreigners to get Malaysian governmental approval before they can purchase land or other real . be for a specific sector or sub-sector. a Mode 3 request. required and may be denied if purpose is speculations and against state interests. An example of a horizontal Mode 3 request is as follows3: Request Horizontal As the EC request indicates. or commitment is essentially about liberalizing the conditions under which the service providers of the United States. can invest and set up branch offices.Land property and real estate (MA). Offer. By identifying the subWhat the Request Means HORIZONTAL COMMITMENTS What the Request Means . The phrase "establishment of a commercial presence" refers to the setting up a business or professional establishment. mergers and take-overs require property in Malaysia.will have agreed and committed to refrain from imposing any future regulations or restrictions. or for any foreign EC Request to Malaysia investment which results in substantial foreign control or ownership of a Malaysian company. Malaysian government a key regulatory tool that it can use to ensure that such foreign investments and foreign .Acquisitions. offer. EC request: remove governmental approval. or subsidiaries in the territory of another WTO Member. Approval depends of interest of foreigners in Malaysia to first get Malaysian the State-test (MA). EC The EC request for clarification of the "discriminatory" request: remove restrictions. if result is foreign ownership or control. Finally agreed to by Malaysia. like those for the other modes. An example of a specific Mode 3 request is as follows4: Request Specific ENVIRONMENTAL SERVICES In this case. or be horizontal. or commitment refer to the liberalization of regulations or restrictions on the establishment of a "commercial presence" by a foreign service provider in another country. for example. joint ventures.

the EC is requesting Paraguay to "undertake full of environmental services: commitments for MA and NT.by management writing down "none" in its Schedule of Specific Commitments. subsidiaries. the EC indicates that it wishes Paraguay to make GATS Paraguay has not undertaken commitments in commitments in these sub-sectors. or (ii) provide only Paraguayan service providers with market rights or privileges that Refuse disposal services (CPC 94020) make it more difficult for foreign firms to compete with them [national treatment conditions]. With respect to Mode 3 commitments in these subbased on the EC proposal for the classification sectors. 11. Solid/hazardous waste management access limitations]. 3 : Undertake full commitments for MA and NT. Sanitation and similar services (CPC 94030) C.Modes . remediation of contaminated/polluted soil and water (part of CPC 94060) E. This can include easing up working visa requirements. Remediation and cleanup of soil & water Treatment. Water collection. environmental services. or eliminating legal . Protection of ambient air and climate Services to reduce exhaust gases and other emissions and improve air quality (CPC 94040) D. purification and distribution services through mains. Noise & vibration abatement Noise abatement services (CPC 94050) F." This means that Paraguay is being requested by the EC to commit to full liberalization of its environmental services sector -A. The EC requests Paraguay to commit the following subsectors.. offer. Water for human use & wastewater especially those sub-sectors identified in the request -. Offer. it will be committing itself not to water impose any regulations or restrictions that would: (i) limit the ability of European service providers from going into Waste water services (CPC 9401) Paraguay and setting up branches. or commitment effectively refer to the liberalization of regulatory restrictions on the entry of foreigners into a country’s job market so that foreigners can provide personal or professional services in the host country. Protection of biodiversity and landscape Nature and landscape protection services (part of CPC 94060) G. except steam and hot If Paraguay does so. or joint ventures there to provide environmental services [market B..EC Request to Paraguay sectors and their respective CPC numbers. or Commitment? A Mode 4 request. What is a Mode 4 Request. Other environmental & ancillary services Other environmental protection services not classified elsewhere (CPC 94090) EC Request for each of the above sub-sectors: .

. Additional commitments . and notes on how to interpret the request Request Mode 4 General • Entry permitted only if there is no available Philippine citizen to fulfill the post. exclusive service suppliers or the requirements of an economic needs test. What the Request Means General: Currently. when it makes its offer) will be: (a) clearly described. In addition. monopolies. Additional commitments: The processing of work permits for foreigners in the Philippines can take between 3-6 months. This might be a commitment that the Philippines. and allow foreigners to take jobs in the Philippines only if there is no Filipino citizen willing and able to take the position..domestic services or service providers. Both of the general and additional commitments requests have the objective of making it easier and faster for foreigners to work in the country. The EC request "to discuss the possibility of taking additional commitments to address this issue" means that the EC wishes the Philippines to commit to reducing the period for processing alien work permits. are clearly described and only be inscribed in the market access or national treatment columns if the measure is of a nature foreseen by Articles XVI-XVII GATS. Philippine labor laws reserve jobs in the domestic market only to Filipino citizens. Mode 4 commitments are often made as horizontal commitments. the high unemployment rate in the Philippines means that it would not be able to absorb new foreign entrants into the labor force.provisions that reserve local jobs to the citizens or permanent alien residents of that country. limitations on the total number of natural persons that may be employed in a particular service sector or that a service • • On National Treatment (GATS Article XVII) Providing conditions and qualifications on national treatment providing foreign services or service providers with formally identical or formally different treatment from that which the country gives to its own "like" --i. limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test. as a developing country. sometimes longer.e. might not be ready to implement due to increased administrative burdens that it cannot afford to pay for.e. • • • .. so long as such formally identical or formally different treatment do not favor or grant market competitive advantages to domestic services or service providers. 12." This means that the recipient of the request is being asked to make sure that any services market access or national treatment limitations that it wishes to impose on the entry of foreign services or service providers in its commitments (i. What is a Measure that is "Of a Nature Foreseen by Articles XVI-XVII GATS"? A WTO Member (such as the EC) may request its trading partners to ensure that the latter’s "remaining limitations on market access . In practice. similar or the same -. and (b) must be one of those limitations identified in GATS Articles XVI and XVII. limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test. The EC request to "eliminate" this restriction will require changes in Philippine labor laws. The EC wishes to discuss the possibility of taking additional commitments to address this issue. This means that a country cannot list down in its commitment any limitations other than those listed in the GATS provisions above. These limitations can be: On Market Access (GATS Article XVI) • limitations on the number of service suppliers whether in the form of numerical quotas. or on national treatment .. Below is an example of a Mode 4 request by the EC to the Philippines5.Difficulties are experienced as a result of the length of time taken to process work permits. EC request : Eliminate.

measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service. and directly related to. . 3 | From the leaked draft EC GATS request to Malaysia. the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test. 5 | From the leaked EC GATS requests documents. and limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment. 4 | From the leaked draft EC GATS request to Paraguay.org.• • supplier may employ and who are necessary for. 1 | From the leaked draft EC GATS requests to Colombia.gatswatch. Copies of this and the other leaked EC GATS requests can be obtained from www. 2 | From the leaked draft EC GATS request to Brazil.

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