BUSINESS GUIDE TO TRADE AND INVESTMENT | INTERNATIONAL TRADE

The Trade in Services Agreement (TiSA) is the first trade agreement since the GATS
was negotiated more than 20 years ago, that focuses exclusively on updating the
standards for international trade in services. Not all WTO Members are participating in
the TiSA negotiations, which involve 50 countries (including the 28 EU members),
mostly developed, accounting for 70% of the world services market. China has
expressed an interest in joining the negotiations, but there has not been a consensus
to admit China. Some parties have expressed concern that China’s record in services
does not correspond to the level of liberalisation contemplated for TiSA.

The critical mass of participants means that the standards and level of ambition in this
agreement are likely to become the template and standard for the global system. The
world urgently needs TiSA. In the absence of such an agreement, countries are
imposing many kinds of restrictions on service suppliers. The negotiations are taking
place in Geneva but are not part of the Doha Round or any other WTO negotiation.
However, the results will be legal in terms of the parties’ WTO obligations, assuming
under U.S. or applicable copyright law.

TiSA meets the requirements of GATS Article V.

11.0 The Post-GATS Landscape and the Forward Agenda

11.1 The Digital Revolution: A Business Perspective
Cross-border commercial data flows are the real backbone of the digital economy and
are crucial to boosting growth in all sectors of the economy, including small and
medium-size enterprises. Many business leaders believe that trade agreements should
allow cross-border data flows and data-processing (cloud computing), and should
Contents

prohibit requirements to use local network infrastructure or local servers. They assert
permitted

that these commitments should be applied across all services sectors, including
financial services. Any exceptions to these provisions should be limited to legitimate
uses of

public policy objectives and only in full compliance with the provisions of GATS Article
Table

XIV (General Exceptions).

All rights reserved. May not be reproduced in any form without permission from the publisher, except fair

Many countries are imposing limits on businesses’ ability to conduct their operations in
the most efficient ways possible. Governments increasingly and routinely impose legal
restrictions on the ability of a firm to manage and move its own data across borders,
or they impose requirements to store data on local servers. A common requirement is
for a government to require that foreign firms establish facilities for storing and
processing their data in the jurisdiction they are serving. This tendency is particularly
pronounced in regulated sectors such as banking, insurance and telecommunications.
Localisation requirements essentially make cloud computing services impossible.
Examples of local data storage and processing requirements abound. For example,
Canada, China, Greece, India, Indonesia, Malaysia and Russia all require that data
generated within the country be stored on servers within the country.

From a global business perspective, it is essential that governments resist attempts to

impose localisation requirements on service sector providers. The opportunity to do
so lies in the current trade negotiations – various free trade agreements and the TiSA
negotiations, which could be stepping stones ultimately to multilateral provisions in
the WTO.
Copyright 2017. ICC Services.

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 CHAPTER 10 | TRADE IN SERVICES

These negotiations should set the standard for digital trade by:
 Ensuring that parties can transfer, access, process, and store data across
borders and prohibiting parties from requiring the establishment or use of
local servers;
 Ensuring non-discriminatory treatment of digital products and services from
other parties; and
 Allowing parties to regulate cross-border data flows for legitimate policy
reasons only within accepted standards under one of the exceptions set
forth in GATS Article XIV.

11.2 The Digital Revolution and the Trans-Pacific Partnership

The Trans-Pacific Partnership (TPP),concluded in February 2016 among 12 Asia-Pacific
countries,20 addressed the digital revolution explicitly in the form of a separate
chapter on e-commerce. The text includes a number of ground-breaking provisions
vital for supporting services trade in the digital age. Importantly, the TPP assures that
a Member’s service sector market access commitments apply equally to services
delivered or performed electronically and services delivered conventionally.
Furthermore, Members may not require service firms to establish a local presence as a
condition for supplying services – a vital requirement for ensuring the ability to offer
cloud computing and other Internet-based services. The TPP also ensures that digital
products, such as software and video products, remain duty free if transmitted online.
For the first time in a trade agreement, TPP calls for Member countries to cooperate
on cyber-security – an increasingly important priority for almost every economy.
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The negotiations have made important progress in advancing the objective of

freedom for cross-border data flows and prohibitions on localisation requirements.
TPP provides that each Party shall allow the cross-border transfer of information by
electronic means. In addition, the agreement prohibits localisation requirements.
However, despite the advantages that TPP would appear to offer for services trade,
the United States withdrew from the Agreement in January 2017 and it is uncertain
whether the 11 other signatories will ratify it, at least in the near future.

FINANCIAL SERVICES AND TPP

From the business perspective, the TPP includes a very disturbing excep-
tion to the prohibition of localisation requirements. The financial services
chapter of the TPP, which includes banking, securities, insurance, electronic
payment service providers, and any other non-traditional financial services
suppliers, does not contain a provision on the prohibition of localisation
requirements present for all other businesses in the e-commerce chapter. By
this exclusion, financial services are denied the cost and efficiency benefits
of lowered trade barriers, and are also exposed to the considerable risks that
derive from data localisation laws, thus limiting the parties’ ability to manage
secure, well-functioning global information systems.

The financial services chapter also states that each party shall allow the
cross-border supply of electronic payment services for payment card
transactions, but it does not guarantee national treatment or the ability to
conduct the full range of business activities related to electronic payments
(i.e., beyond cross-border processing of payments transactions). From the
business perspective, this is a significant omission, and business should be
on guard that it is not repeated in future negotiations.

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11.3 State-Owned and State-Sponsored Enterprises

Businesses are finding that unfair competition from government-subsidised, supported,
or owned/controlled enterprises is a rapidly increasing barrier to the provision of
services by commercial suppliers in many markets. The preferential treatment granted
by governments to state-owned enterprises (SOEs) takes many forms:
 Exemptions, in whole or in part, from laws and regulations applicable to
privately owned enterprises, in particular foreign enterprises;
 Subsidies or monopoly rights to provide a particular service granted by
governments to an SOE; and
 Imposition of harsher financial and regulatory requirements, and/or stricter
supervisory enforcement on private and foreign firms.

The business community will benefit if TiSA and other services agreements
establish appropriate globally relevant disciplines on state trading
enterprises, state-owned enterprises, and designated monopolies
that are engaged in commercial activities.

The TPP marks an initial effort to establish disciplines on anti-competitive behaviour

with respect to services by SOEs. The disciplines are confined to those SOEs (as
defined by the TPP) that affect trade or investment among the TPP parties within the
12 TPP jurisdictions. This, obviously, is one of the limitations resulting from a purely
plurilateral agreement, but it is an important first step. The significance of the
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disciplines is also limited by the narrow definition of an SOE. To qualify as an SOE in

the TPP, the entity must be directly owned at least 50% by the government (or the
government exercises more than 50% of the voting rights or the power to appoint a
majority of the board of directors). Business would benefit if this narrow definition
does not become the model for defining SOEs in future agreements.

The TPP requires member governments to ensure that their SOEs provide commercial
services in accordance with commercial considerations, and do not discriminate in
their sale or purchase of goods or services. In addition, TPP parties are enjoined from
providing non-commercial assistance to their SOEs, subject to a finding of adverse
effects or injury to the interests of another TPP party or that party’s industry. The test
for adverse effects is tightly drawn, with the result that the burden of proof on the
complaining party is substantial. Moreover, the agreement does not recognise that
adverse effects can result from an SOE’s behaviour in its own country – an
inexplicable assumption. Nevertheless, if the TPP ever enters into force, businesses will
find that the value of its SOE provisions lie in their impact on the terms of competition
in TPP markets, and as a basis on which to build future agreements.

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 CHAPTER 10 | TRADE IN SERVICES

11.4 Regulatory Cooperation and Coordination

REGULATORY COOPERATION:
BENEFITS FOR SERVICE PROVIDERS
In many markets services companies have identified regulatory coopera-
tion as the primary benefit from entering an FTA. Regulatory cooperation
results in processes and mechanisms that reduce costs associated with
regulatory differences and that promote greater compatibility in dealing with
common issues. Regulatory dialogues that are taking place in many sectors,
for example insurance, help to create mutual confidence with respect to the
application of foreign and domestic regulations.

In order to increase the benefits of regulatory cooperation, businesses

should take steps to ensure that trade agreements leverage the results of
these dialogues in order to advance commonality and cooperation, and to
promote competitive fairness, equal application for all market participants,
and the rule of law. Negotiators and services regulators should work toward
establishing meaningful, outcome-driven regulatory coherence where
appropriate. One of the principal objectives for many businesses in the
Trans-Atlantic Trade and Investment Partnership (TTIP) under negotiation
between the United States and the EU has been much more robust and
accountable regulatory coherence. To date, however, progress has been
negligible, owing in part to regulators’ fears of encroachment upon their
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independence by trade agreements.

Regulatory cooperation is especially important in the area of financial services, where

the industry has called for the inclusion of mechanisms to strengthen coordination
and cooperation between financial regulators to ensure that financial sector reforms in
different countries are implemented in compatible ways. Such provisions are not
intended to take decisions about appropriate prudential regulation out of the hands of
regulators, but to encourage them to work together to ensure that regulatory
environments in different countries operate in a coherent manner that is supportive of
cross-border business development.

11.5 Transparency and Due Process in Regulations

In sectors subject to regulation, businesses stand to gain if the agreements subject
regulators to horizontal disciplines, regulatory principles and best practices. Principles
such as regulatory transparency, consultation with stakeholders before adoption of
new or revised rules, impartiality and due process with regard to licensing and
qualification requirements and procedures, right of appeal, etc. are already normal
practice in many jurisdictions.

11.6 Mobility of Persons

Mobility of highly skilled personnel (Mode 4) is a key component of the daily activities
of international goods and service providers. Commitments to facilitate mobility and
expedite business visas and temporary work permits are a matter of great importance
to services providers. However, it is necessary for business to recognise that mobility
of persons refers only to temporary activities, such as training, sales, after-sales
service and maintenance. It does not include permanent employment or an unfettered
right to a work permit or residence permit, such as a US green card.

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 BUSINESS GUIDE TO TRADE AND INVESTMENT | INTERNATIONAL TRADE

Businesses contemplating a foreign investment in Mode 3 (Commercial

Presence) should not only evaluate the market access and national
treatment commitments of the host state in Mode 3, they should examine
whether they may need to move key personnel temporarily from the home
state, and if so whether the host state’s Mode 4 commitments (Temporary
Movement of Natural Persons) would allow such movement. Likewise,
host state businesses should examine whether they would benefit from
the presence of foreign competition and foreign service providers.

11.7 Investor-State Dispute Settlement

Many free trade agreements and bilateral investment treaties (BITs) contain provisions
for investor-state dispute settlement (ISDS), which enables an individual investor to
initiate an arbitration process with a host government that has expropriated an
investment or caused other harm to an investor. ISDS does not require the consent of
the investor’s home government. Governments often are reluctant to initiate WTO
dispute settlement based on the allegations of a single investor, so ISDS offers a
private investor an avenue for pursuing its claim against the host government. The
arbitration process frequently is handled by the International Centre for the
Settlement of Investment Disputes (ICSID), as well as other institutions, including to a
lesser extent the International Chamber of Commerce. (See Volume Two of this series).

12.0 Conclusion
Table of Contents

Services are no longer the red-headed stepchild of the international trading system,
but are integral to its functioning. In the 25 years since services initially were
incorporated into the multilateral trade rules, the global economy has undergone
revolutionary change, in large measure due to the digital revolution. Service sector
businesses have been among the most active and successful in exploiting the
opportunities created by the digital economy. All businesses have a stake in
advocating updated multilateral rules for services, and all governments must
recognise that their economies depend on access to efficient services for their
citizens’ competitiveness, prosperity and economic growth.

Because the importance of the service sector will only grow over time,
businesses should recognise that they are working in an environment
where regulations and disciplines are subject to change. They should factor
in the risk of change when they consider service sector investments.

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 CHAPTER 10 | TRADE IN SERVICES

Appendix A
JAPAN - SCHEDULE OF SPECIFIC COMMITMENTS

Modes of supply: 1) Crossborder supply 2) Consumption abroad 3) Commercial presence

4) Presence of natural persons

Sector or subsector Limitations on market access Limitations on

national treatment

I. HORIZONTAL COMMITMENTS

ALL SECTORS INCLUDED 3) Unbound for research

IN THIS SCHEDULE and development
subsidies

4) Unbound except for measures 4) Unbound except

concerning the entry and for measures
temporary stay of a natural concerning the
person who falls in one of the categories of natural
following categories: persons referred to
in the market access
column

Unbound for
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research and
development
subsidies

a) A natural person who has been

employed by a juridical person of
a Member other than Japan for a
period of not less than one year
immediately preceding the date
of his application for the entry
and temporary stay in Japan, and
who is being transferred, for a
period not exceeding 5 years, to a
branch office or a juridical person
constituted or registered in Japan
owned or controlled by the
aforementioned juridical person
of a Member other than Japan,
provided that he will be engaged
in one of the following activities:

i) Activities to direct a branch office

as its head;

ii) Activities to direct a juridical person

as its board member or auditor;

iii) Activities to direct one or more

departments or a juridical person;

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iv) Activities which require technology

and/or knowledge at an advanced
level pertinent to physical sciences,
engineering or other natural
sciences; and

v) Activities which require knowledge

at an advanced level pertinent to
jurisprudence, economics, business
management, accounting or other
humanities sciences.

1. BUSINESS SERVICES 1) None 1) None

*****
2) None 2) None
F. Other Business Services
3) None 3) None except as
a) Advertising services indicated in
(871) 4) Unbound except as indicated in HORIZONTAL
HORIZONTAL COMMITMENTS COMMITMENTS

4) Unbound except
as indicated in
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HORIZONTAL
COMMITMENTS

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 CHAPTER 10 | TRADE IN SERVICES

1 "Labor Force-By Occupation," World Factbook (2009), https://www.cia.gov/library/publications/the-world-factbook/

fields/2048.html.
2 World Bank, World Development Indicators 2011, Table 4.2 and World Development Indicators 2002, Table 4.2.
3 "Committed to Connecting the World." ITU Releases 2014 ICT Figures (1 May 2015), https://www.itu.int/net/pressoffice/press_
releases/2014/23.aspx.
4 It is important to understand that the GATS does not deal with permanent employment, immigration, or job-seeking. See
Annex on Movement of Natural Persons Supplying Services, discussed in Section 8.2.
5 "World Trade Organization International Trade Statistics 2015", https://www.wto.org/english/res_e/statis_e/its2015_e/
its2015_e.pdf.
6 Lanz, Rainer, and Andreas Maurer. "Services and Global Value Chains – Some Evidence On Servicification of Manufacturing
and Services Networks." World Trade Organization Economic Research and Statistics Division (2 March 2015), https://www.
wto.org/english/res_e/reser_e/ersd201503_e.pdf.
7 However, the GATS does cover aircraft repair and maintenance services, computer reservation services, and sales/marketing
of air transport services.
8 Article XXVIII(a) GATS.
9 See http://i-tip.wto.org/services/ (Applied Regimes) for services notifications.
10 For GATS Enquiry Points, see https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdL
ist=228325,130183,120409,113636,88562,78794,92700,28578,76068,59320&CurrentCatalogueIdIndex=0&FullTextHash=&HasEn
glishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True.
11 See http://i-tip.wto.org/services/.
12 The Service sector Classification List, MTN.GNS/W/120 (10 July 1991), appears in the Service Sector Gateway of the WTO
website: https://www.wto.org/english/tratop_e/serv_e/mtn_gns_w_120_e.doc.
13 Of course, technological advances have meant that some service activities that in the 1990s could not have been delivered
cross-border can be today. For example, doctors can now control scalpel-wielding robots over the Internet.
14 The name was reserved for some least developed countries’ commitments, which were to take effect a few months after
1 January 1995, when the results of the Uruguay Round negotiations came into force. In the end, these delayed commitments
were incorporated into the Uruguay Round agreement, and so there was no need for a separate protocol.
15 Mexico – Measures Affecting Telecommunications Services, WT/DS204/R (2004).
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16 United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services WT/DS285/AB/R (2005).
17 China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment
Products, WT/DS363/AB/R (2010).
18 China – Certain Measures Affecting Electronic Payment Services, WT/DS413/R (2012).
19 Id.
20 Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United
States.

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