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Which sectors are covered by GATS?
The GATS applies to all service sectors
The standard classification list contains eleven broad sectors, each divided into several sub-sectors:
1. Business services
, professional services, including legal services, accounting, auditing and bookkeeping, architectural and real estate services, engineering services, medical and dental services, veterinary services, other professional services , computer and related services, research and development services, real estate services and rental?/ leasing services , other business services, such as management consultancy, advertising, technical testing, maintenance and repair, packaging and printing services, convention services, cleaning services
2. Communication services
, all forms of basic and value added telecommunication services, including on-line information and date processing services , postal and courier services , audio-visual services: radio and television services, motion picture and video tape production and distribution services, satellite communication
3. Construction and engineering services
4. Distribution services including retail, wholesale and franchising
5. Educational services
6. Environmental services such as sewage, disposal and sanitation services
7. Financial services
, direct insurance underwriting, reinsurance and insurance intermediation and other insurance auxiliary services , banking and other financial services, including securities-related services, provision of financial information, and asset management
8. Health-related services and social services
9. Tourism and travel-related services
travel agencies and tour operators, hotels and restaurants, catering, tourist guide services
10. Recreational, cultural and sporting services including entertainment and news agency services
11. Transport services
including maritime, internal waterways, air, space and road transport services, pipeline transport, multi-modal transport, and services auxiliary to all modes of transport.
12. Other services
This category covers any other services not specified elsewhere. It would certainly cover here energy transport and distribution and other energy related services, which can also be covered under the residual categories of services of distribution, transport, environmental and other business services.
Business Services, including Professional Services
Business Services cover a wide range of activities which are vital to the smooth operation of all companies in today's business environment. These include services such as computer consultancy and data processing, the installation of computer hardware and software, research and development, advertising, market research, management consultancy, placement and recruitment of personnel, cleaning services, printing and publishing.
Professional Services are also included under the overall Business Services heading, although they clearly have their own particular characteristics. Typically they are regulated in a more stringent manner than the other business services, in particular in respect of the qualifications required of individuals in order to obtain an authorisation to practice and the observance of strict technical standards.
Because of their diversity, it is difficult to generalise about these services, but taken together, all these services typically account for around 20% of the EU's total international trade in services and in the past few years their growth has kept pace with the overall growth in trade in services.
General Business Services
For many of these business-to-business services there are often no specific government regulations, and the possibilities for European companies to supply their services abroad therefore depend on the general foreign investment regime in the target market.
These services are important in that they have a particular capacity for job creation and tend to react very positively in a climate of economic growth. Specialist services related to the implementation and operation of information technology are likely to perform especially well as the use of IT accelerates around the world. Business services are also benefiting generally from the growing tendency towards the contracting out of services by governments and companies.
To the extent that commitments have been made by GATS Members in these services, the conditions of access tend to be fairly liberal. However, in spite of the fact that most of these business activities are not as highly regulated as services in other sectors, many countries have still not made sufficient commitments under the Agreement. This is an area in which European companies are among the world leaders and it is important that all European firms in this sector should be able to invest and do business in a predictable and stable regulatory environment. Given Europe's strength and the economic importance of this sector, these activities will undoubtedly need to be the subject of more attention in the next round of GATS negotiations.
Professional Services
The liberalisation of Professional Services is important for European industry generally, since these activities cover a series of vital elements for the functioning of a modern economy and, indeed, for the functioning of any country. These services include the provision of legal services, of accountancy and auditing, of architectural and engineering services, and of medical and para-medical services.
There are numerous domestic regulations affecting professional services. Governments, at the national and sub-national level, and professional bodies and associations, all attach great importance to regulating the standards of qualification and experience of individuals, and the organisation of the professions. Although the rationale for most regulations is the protection of the consumer and the public interest in general, many of the access conditions to the professions nevertheless constitute real barriers to international trade.
A nationality condition is the most extreme example of such a restriction as it completely closes the market to all foreign professionals, but other regulations can also seriously impede the EU services supplier seeking to work abroad. Even where a GATS Member has offered national treatment to foreign professionals, this can still mean that the market is effectively closed since stringent national rules on licensing and qualifications can be virtually impossible for foreigners to meet.
Given this high degree of regulation in the professional services, it is more difficult to achieve effective liberalisation than in other services. For this reason the GATS does offer its Members the chance to develop bilateral and plurilateral mutual recognition agreements to try to facilitate and encourage the movement of professionals and services suppliers between countries (see page XX, GATS Article VII). Such agreements allow countries to recognise one another's' qualifications and licences so that professionals do not need to re-qualify when they seek to do business in another country. This exception to the general MFN most-favoured nation rule recognises the need to tackle the particular regulatory barriers that block international trade in professional services.
The lack of precise multilateral rules on the regulation of the professions was recognised during the Uruguay Round, and this lead to the establishment of a Working Party on Professional Services. This Working Party has been examining in detail government regulations that have an impact on the tradability of professional services, such as those on standards, market access conditions and qualifications. In order to tackle a concrete example, work began focussed on the Accountancy sector. Already the Working Party has established guidelines for GATS Members seeking to enter into mutual recognition agreements, and work is continuing on a basic set of rules on the regulation of the accountancy sector. This work is based on the provisions of Article VI of the GATS.
Communication services
Telecommunications
Telecommunications forms one of the largest and fastest-growing sectors, and it plays a dual role as a communications service, as well as the underlying means of transport for delivering many types of services electronically. It is a sector of crucial importance to all service exporters who use it during production and supply.
Currently the telecommunications services market is estimated to be US$600 billion. The EU is a net exporter of telecommunications services. The EU's telecoms revenue is estimated to be 28 % of total world telecom revenues. In 1995 the total transactions of the EU with the rest of the world amounted to ECU12,503 Mio for communications services and ECU13,190 Mio for computer and information services.
The world market for telecommunications services is expected to double or even triple in the next decade. The overall network-generated revenue by 2001 is expected to reach US$1 Trillion.
The Annex on Telecommunications
This GATS Annex sets out the rules for telecommunications, and deals with measures affecting access to, and use of, public telecommunications transport networks and services. This excludes measures affecting the cable or broadcast distribution of radio or television programming.
The Annex does not oblige Members to allow firms to operate telecommunications services and facilities. But they are required to ensure that foreign services suppliers have access to public networks and services on reasonable and non-discriminatory terms and conditions both within the market and across borders. This includes connecting equipment, interconnection of private circuits, and choice of use of operating protocols. Free movement of information must be allowed, including intra-corporate communications and access to databases. Detailed guidance is given on what conditions and criteria on access and use can acceptably be imposed. Under the transparency obligation, information has to be made publicly available on charges, technical interfaces, standards, conditions for attaching equipment, and registration requirements. Technical co-operation and international standards for global compatibility and interoperability are encouraged.
The Annex on telecommunications applies once a Member has made a commitment for the supply of services in a sector (i.e. in any sector, including telecommunications).
The GATS Fourth Protocol on Basic Telecommunications Services
The telecommunications sector is divided into two broad categories within the GATS: basic services (e.g. voice telephone, packet and circuit switched data transmission services, telex, telegraph, facsimile and leased circuits services) and value-added services (e.g. electronic mail, voice mail, on-line information and data base retrieval, EDI and code and protocol conversion).
As a result of the Uruguay Round negotiations, most countries undertook commitments for value added services, but only a few countries included basic telecommunications services within their schedules. A Decision on negotiations on basic telecommunications was agreed at the time with the aim of achieving progressive and comprehensive liberalisation of trade in telecommunications services from which no aspects would be excluded. A Negotiating Group on Basic Telecommunica-tions was set up to oversee those negotiations.
The Negotiations on Basic Telecommunications were concluded on 15 February 1997, ten months later than originally scheduled (30 April 1996). Sixty-nine countries, representing more than 93 per cent of world revenues in telecommunications services made binding commitments in most basic telecommunications sub-sectors. The deal is expected to make the telecommunications services industry, which represents some US$600 billion, to double, or even triple, during the next few years. The conclusion of the negotiations was recorded in the Fourth Protocol to the GATS on basic telecommunications services, which entered into force on 5 February 98.
The GATS Fourth Protocol covers all telecommunications services sub-sectors: local, long-distance and international, irrespective of whether they consist of the transport of sound, data, images or any combinations thereof. Generally, the commitments made by WTO countries on basic telecommunications include all possible technological means of transmission: cable, radio or satellites. Most countries have specified in their schedules that broadcasting of radio and television programmes is excluded (via footnotes, headnotes or specific references in the general commitments part of their schedules). A Note of the Chairman of the Negotiations clarified that, unless otherwise specified, schedules follow a technologically neutral approach (i.e. any bound basic telecom service may be provided through any means of technology, whether cable, wireless or satellites).
The commitments made by the 69 countries that were part of the Fourth Protocol on basic telecommunication services cover market access and national treatment, depending on their level of development. Market access commitments from most governments are phased-in: the dates for liberalisation of services such as public voice telephony vary from 1998 to 2011. Nine governments tabled exemptions to the basic GATS rule of MFN (Most-Favoured Nation). Most of these exemptions aim to preserve the possibility of maintaining differential accounting rates for international communications. However, other MFN exemptions (such as the ones listed by the US and Brazil) are specifically targeted to protect some specific telecom services: satellites-based services.
Forty-eight WTO Members undertook additional commitments on regulatory principles on the basis of the so-called ?Reference paper', which is a basic non-binding document with principles on issues such as interconnection, anti-competitive practices, licensing conditions, scarce resources, universal service and independence of the regulatory authorities. These principles are general, so that they can easily accommodate all the different regulatory regimes that currently exist in the world. They aim to underpin market access and national treatment commitments made by WTO Members.
During the Negotiations, a Chairman's note clarified the possibility for WTO Members to maintain policies on management of frequencies. In particular, the Note indicated that management of frequencies is not ?per se' a measure which needs to be listed as a market access restriction. Thus, a WTO Member has the right to exercise spectrum?/?frequency management provided that such management complies with the criteria of Article VI (Domestic Regulation) of the GATS. This includes the ability to allocate frequency bands taking into account not only present, but also future needs.
On 15 February 97 an Understanding was reached among members of the Group on basic telecommunications that the application of accounting rates established under the International Telecommunications Regulations will not give rise to dispute settlement action. This understanding will be reviewed no later than by the start of the new round of negotiations on services which is due to begin by 1 January 2000 at the latest.
The GATS Fourth Protocol, and therefore the commitments and MFN exemptions listed by WTO Members on basic telecommunications services, entered into force on 5 February 1998. Fifty-seven of the Sixty-nine WTO Members that have taken commitments on basic telecommunications have already ratified it and five governments have accepted it subject to ratification or referendum. The date for acceptance of the Protocol has been extended from 30 November 1997, as originally scheduled, to 31 July 1998 in order to enable the countries which have not yet ratified the deal to do so.
Postal and courier services
Postal services cover letters, parcels, counter services and other postal services including poste restant and public postal services not classified elsewhere. Excluded are services related to postal giros and postal savings accounts which are classified under monetary intermediary services.
Courier services have until now been described under the United Nations' Central Product Classification as services consisting of the pick-up, transport and delivery, whether for domestic or foreign destinations, of letters, parcels and packages, rendered by courier and using one or more modes of transport, other than by the national postal administration. These services can be provided by using either self-owned or public transport media. Courier services for mail by air is classified under mail transportation by air.
These two linked sectors are changing very quickly in the face of the diminution of the services in which national post offices enjoy a monopoly. This is an area where future negotiations may be needed, as only a small number of countries have made commitments for both sectors, under the four modes of delivery. As far as the European Union is concerned, the adoption of a directive which reduces considerably the scope of services subject to the monopoly of national post offices should enable it to face the negotiations from a strong position and to request increased market access from other countries.
Electronic information, news agency and audio-visual services
The convergence of telecommunications, computing, information, media and entertainment systems due to rapid technological advances and the reduced relative costs of hardware, has enabled significant innovative progress to be made in electronic information, news agency and audio-visual services which are so reliant on informatic infrastructure.
Electronic Information Services
The main activities of this fast growing sector are the provision of financial and company data, and information for market research, business, and news. Specialised business information services are overtaking the demand for scientific and technological data. Alpha-numerical based services account for about three quarters of the EU turnover of 3.3 billion ECU, and videotext services for 17?%. Financial and business oriented information services constitute 96?% of the real-time demand, which in turn accounts for half of the on-line demand. Much of the activity, however, goes unrecorded, since tracking international electronic information across borders is virtually impossible.
The EU has international competitive strengths in this sector, and several world-ranking information and media conglomerates are based in the EU. Although the GATS addresses legal and administrative barriers holding back the development of transnational information products, only co-operation between the industry, the PTTs, and governments can assure the development of convergent telematic network infrastructures.
News Agencies
The business of new agencies used to be the collection and distribution of news and still photographs to newspapers and magazines. Now they offer TV news recordings for broadcasters, information databases, and financial markets dealing screens. In many financial dealing rooms 'news' and 'information' screens are side by side, or a single screen carries both. These developments have blurred the edges of the news agency category, except in those countries where the national news agency is still state owned or a government monopoly.
There are only a few world-wide news agencies, and a number are based in the EU, the largest being in the UK and France. They compete with American groups, and also with the large US commercial on-line data bank services. News agencies with substantial international presence are also based in Germany, Italy and Spain. The majority of agencies are, however, essentially national, or specialise in certain subjects or media, such as newsreels, sport, radio and TV reports, agriculture, EU affairs, and various economic and financial services for business users.
For European agencies the largest export markets are in North America and the Far East, but Latin America is set to develop as well. It is important that most OECD countries have made specific commitments in this sector, but none were made by the developing countries or those in transition, the largest of which are interesting potential markets.
Audio-Visual Services
The three biggest audio-visual markets (EC, Japan and the US) account for US$173 billion. The United States accounts for 51?% of the world audio-visual market compared with just 31?% for Europe. Growth in the sector expanded at a rate of circa 8?% (from 1994 to 1995). The European market has grown fastest, at a rate of circa 13 %, followed by Japan at 10.6?%. In the US growth during this period was 4.8?%. It is estimated that around 1.8 million people work in audio-visual sector in Europe and by the year 2004 the audio-visual workforce might approach 4 million.
Films, and other audio-visual products reflect cultural values contributing to the very identity of societies. This role was already recognised in 1947 by the GATT, which permitted governments to impose national screen quotas. Few countries have availed themselves of this possibility and most of the restrictions have been eliminated over time.
With the appearance of television as a major outlet for audio-visual products, countries have regulated this media. In the EC, the Television without frontiers Directive guarantees the free circulation of European programmes on condition that minimum screen time requirements are met, under which a majority of works screened must be European. Faced with competition by the major US producers, the European film industry has undergone a dramatic decline, and in response governments have set up various support schemes for European productions.
For the US, audio-visual products are their second most successful export, and they are seeking to gain greater access to European markets, particularly for satellite transmissions, pay-TV networks, and the newest media.
The EC failed to obtain recognition in the GATS of the special nature of audio-visual products, and because the audio-visual sector is included in the GATS, the EC therefore chose not to make any commitments for market access. As a result, the EC is free to regulate this sector, including the setting of market access conditions.
There are formally no more negotiations outstanding at the multilateral level, until start of the next round before the year 2000.
Commitments and MFN Exemptions
Only twelve countries made commitments in the audio-visual sector. The US made comprehensive commitments (as did New Zealand) and took no MFN exemptions, though it has reservations on radio and TV transmission equipment. The EU made no commitments and took comprehensive MFN exemptions covering all aspects of its policies. A few other countries took MFN exemptions to protect co-production agreements and limited regional broadcasting.
Only three countries (including the US) made commitments relating to new technologies in the transmission or tele-distribution of audio-visual services. Issues raised by these developments are likely to loom large in future negotiations.
The future of trade in services electronic commerce
Approximately 100 countries enjoy nowadays access to the Internet. The number of Internet users is estimated to be around 100 million and there are around 20 million Internet hosts world-wide. By the end of the century, the number of internet users is expected to increase to between a quarter of billion and 330 millions by 2010. By then, business to business commerce on the internet is expected to have reached 300 billion ECU and the volume of electronic commerce would have grown ten-fold.
The GATS is of direct relevance to trade through the Internet. In fact, electronic commerce consists of a combination of different services: telecommunications, advertising and information services, commerce and distribution (in the case of goods ordered electronically), and payment services, in addition to content services delivered electronically: these may range from professional and business services, cultural or entertainment services, audio-visual services, banking or other financial services, to education or tourism and travel agency services.
The GATS principles apply to trade in services provided on-line. The GATS Annex on Telecommunications establishes that each Member shall ensure that service suppliers of any other WTO Member are accorded access to and use of the public telecommunication transport network and services on reasonable and non-discriminatory terms and conditions for the supply of a service included in its Schedule.
Thus the GATS Annex on Telecommunications guarantees that whenever a WTO Member has specific market access and national treatment commitments for a particular service sector?/?sub-sector, such commitments apply also to those services sectors?/?sub-sectors when provided in electronic form. This includes also the distribution services involved in the electronic ordering of goods that are delivered physically.
The commitments that WTO Members have made within their GATS schedules of specific commitments guarantee the market access and national treatment conditions bound by each WTO Member for those services, not only when provided in a traditional format, but also via electronic means.
The ideal regulatory context for electronic commerce is the existence of a combination of commitments on content services and on basic telecommunication services. In this respect, the progressive liberalisation of both content and telecommunications services under the GATS is essential for the development of electronic commerce.
Likewise, the GATS general principles and obligations (such as transparency of the Most-Favoured Nation principle) apply to services provided on-line. In principle, the provision of services via electronic form does not alter the legal treatment of those services under the GATS.
The GATS is therefore a relatively predictable and clear international legal environment for the provision of electronic commerce. However, a debate has already emerged as to whether there may be a need to adjust more closely those GATS provisions when they apply to services provided electronically. In this respect, the US has presented a proposal for WTO Members not to impose custom duties on electronic transmissions.
The EC is also considering the trade aspects of electronic commerce which are relevant within the GATS so that actual or potential obstacles to the development of electronic services are avoided.
Relevant trade-related aspects include the non-imposition of import duties on electronic deliverables; ensuring an adequate level of protection of privacy and personal data so that insufficient protection does not act as a deterrent to the information flows necessary for electronic commerce; the treatment of services provided on-line in the same way as services provided otherwise, including for instance the absence of discriminatory taxation; or competitive safeguards to ensure fair access to, and use of, the internet by any service suppliers.
In this respect, the WTO / GATS could act as a forum in which appropriate consideration could be given to any trade-related aspects of electronic commerce and in which solutions could be found to deal with regulatory problems, regardless of the precise modalities by which problems will be handled.
Construction services
Construction services include pre-erection work, new construction and repair, and alteration, restoration and maintenance work on buildings or civil engineering works.
In 1995, the EU construction services industry generated a cross-border trade surplus of ECU4,604 million, representing 1.8 times the total cross-border commercial services trade surplus. Cross-border exports in construction services sector have been growing at an average annual rate of 6.2 % since 1992.
Construction activities account for up to 10?% of GDP in the industrialised countries, but often much less in the developing countries. The EU is the largest construction market in the world, and about one third larger than the US. Transnational business operations amount to only about 5?% of the construction volume of the EU. Some 160 US and EC construction firms account for 85?% of the world market for projects, split between the US (49?%) and EU (36?%). The EU is a major market for US firms, and EU firms are strong in Africa, the Middle East, and Asia.
Trade in construction services is predominantly undertaken by majority owned affiliates located in foreign markets and firms that engage in international trade generally establish some type of affiliate, joint venture or branch office in third country markets. Therefore, limitations to commercial presence such as investment restrictions, nationality requests, restricted access to local utilities and institutions and restrictions on types of corporate entities all have a great effect on the construction firms providing services in foreign markets.
Successful firms must have mastery in organisation skills as well as advanced technology and computer aided design. Countries that are strong in consultancy, design services, technology and organisational know-how will have a comparative advantage in the construction services sector. For this reason it is important that the liberalisation of construction services proceeds together with the liberalisation of related activities and sectors.
Construction services are governed by the general framework disciplines of the GATS, and an Annex for specific sectoral rules was considered unnecessary.
Effective market access for EU construction firms will depend on whether it is possible for them to compete for the public procurement of construction projects abroad. The absence of multilateral rules for procurement is probably the most important non-tariff barrier affecting this sector. Many informal, invisible" trade barriers to trade exist in construction services and were not addressed during the scheduling exercise.
The development of multilateral rules, as foreseen in the GATS future work programme, is therefore to be strongly welcomed.
The existing plurilateral Agreement on Government Procurement, which applies to the procurement of construction projects by public entities, is already valuable since the US, Japan and some other developed countries are members. European construction firms also have strong economic interests in other markets, particularly in South East Asia, and so the situation is not yet satisfactory.
The EU has made a liberal commitment in this sector by permitting the establishment of foreign firms and applying almost no market access restrictions. In addition, the removal of internal trade barriers such as technical regulations and standards should enhance the business opportunities for EU trading partners.
The major developed countries have included commitments in this sector, as have some developing countries - although the total amount is very limited only 55 countries in all.
Distribution services
A significant proportion of foreign direct investment in the service sector is in distribution related to the sale of manufactured products, food and drink. In every country wholesaling and retailing account for a large proportion of employment and GDP about 16% of employment and 13 % of GDP in the EU. The efficiency and dynamism of the sector can significantly affect the whole economy, the rigidities in the Japanese market often being cited for high consumer prices, as well as resistance to imported products.
GATS commitments in this sector refer to commission agents services, wholesale distribution (which relates to the resale of goods to retailers other wholesalers or to other major users), and retail trade, (which is concerned with the distribution to final consumers of consumption goods). Franchising is considered as a separate subsector for which specific commitments can be undertaken.
Major changes are under way in the EU distribution sector, with greater concentration and a subsequent reduction in the number of traditional operators in the wholesale subsector. As regards retailing, where traditional independent retailers are losing market share, co-operation between companies and diversification have been common strategies in the past few years. In addition to this, there has been an increase in the use of different forms of distance selling, and other newer forms of distribution such as franchising are also playing a significant role in the modernisation of the sector. Although with significant variance from one subsector to another, there is a clear trend towards internationalisation among EU distribution businesses. This means that the GATS is becoming increasingly important for EU companies as a means of market opening and a tool for improving the business-environment.
No specific provisions for continuing negotiations in this sector were included in the GATS, as was the case for telecommunications or financial services. However, the general provisions on progressive liberalisation contained in part IV of the GATS do apply to distribution, giving trading partners the opportunity to push for further liberalisation in this sector during the next round of GATS negotiations.
Market obstacles
The major issues relate to restrictions on market access, since the setting up of wholesale and retail chains in foreign markets requires heavy investment. The general foreign investment regime applicable in the market is therefore most significant, but many other government regulations may also have an impact on the supply of distribution services. Examples include regulations on urban planning, public order in general, the protection of historical sites, restrictions on the acquisition of real estate, specific rules concerning the distribution of certain products, and competition laws. To ensure compliance with a variety of these regulations, a needs test is often applied before the local authorities will issue the necessary authorisations to establish distribution outlets. Depending on the criteria applied, the needs tests can be very restrictive, particularly for foreign applicants, who may already be at a disadvantage because they are not present in the market, nor represented there.
However, other obstacles are also relevant; for instance, mail order firms will be interested in any restrictions on the cross-border supply of products, as will agents who work on a fee basis.
Specific commitments
In general, OECD countries have made commitments in this sector, as well as some countries in Central Europe, Africa, Asia and Latin America, ranging from very liberal to not-so-liberal. The EU grants full national treatment for foreign firms to supply cross-border and through commercial presence, though a few limitations on market access are still maintained.
However, the overall situation is not satisfactory: only less than one third of WTO members have made commitments regarding distribution, some of them rather limited. This poor coverage has to be addressed in future negotiations in accordance with the economic importance of this sector, especially now that the WTO Appellate Body has confirmed the relevance of distribution commitments for the full exploitation not only of GATS, but also of GATT rights and obligations.
Franchising
Sectors in which franchising is well developed cover high street shops, and other retail outlets for home improvements and decoration, copying and printing, photo-developing, repair services, and cleaning. Other areas include hotels and restaurants, car and truck rental, tax and accounting services, and management consultancy.
Many countries have included franchising in the initial package of commitments. However, given the economic importance of franchising for European firms, the level of commitments needs to be improved in the next round of negotiations on specific commitments.
Financial services
Financial services comprise the insurance, banking and securities industries, including trading in different financial instruments and currencies, asset management and other services, such as the provision of financial information or financial advisory services. It constitutes a large sector that accounts for more than 7?% of EU GDP. It is also a sector which plays a central function in the working of the economy as a whole. The existence of an efficient and well-functioning financial sector is of crucial importance for the economic health of any country. It allows savings to be channelled and allocated efficiently to those in need of financial support for investment or consumption purposes. It also helps spread risks among operators, thus contributing to the stable functioning of the economy as a whole. Its inclusion in a multilateral agreement is a development of major significance in international economic co-operation.
The sector is estimated to involve US$1.2 trillion per day in foreign exchange transactions. International financing extended by banks around the world reporting to the Bank for International Settlements (March 1997) is estimated at $7.0 trillion, including $5.1 trillion net international lending. Total world banking assets are put at more than $40 trillion, insurance premiums over $2 trillion, stock market capitalisation according to the FIBV, at the end 1996, was over $19.6 trillion and market value of listed bonds at around $16.3 trillion.
During the Uruguay Round, participants agreed to list the following activities as financial services in the GATS (cf. Annex to the GATS on Financial Services):
, Insurance and related services life and non-life insurance services; reinsurance and retrocession; insurance intermediation, such as broking and agency services; services auxiliary to insurance. , Banking and other financial services (excluding insurance) acceptance of deposits; lending of all types including consumer credit, mortgage credit, factoring and financing of commercial transactions; financial leasing; all payment and money transmission services; guarantees and commitments; trading in money market instruments, foreign exchange, derivatives, exchange rate and interest rate instruments such as swaps and forward rate agreements, securities, other negotiable instruments and other assets such as gold; participation in issues of new securities; money broking; asset management such as portfolio management or pension fund management; settlement and clearing services for financial assets; provision and transfer of financial information and financial data processing; advisory and other auxiliary financial services.
Uruguay Round and subsequent negotiations on financial services
Initial commitments on financial services were made at the end of the Uruguay Round in 1993, when 82 countries undertook commitments to open their markets to foreign financial service providers. As a result of extended negotiations in the first half of 1995, a second set of improved commitments was put together on 28 July 1995, when 43 countries agreed to improve their Uruguay Round commitments. This so-called interim agreement offered improved market access opportunities to all WTO Member countries, including those who decided not to sign up to the interim agreement (such as the United States).
Commitments made in July 1995 by 95 WTO Members entered into force on 1 September 1996. However, in accordance with a decision taken in July 1995, the commitments and MFN exemption lists did not have to be applied on a permanent basis; they would only continue to apply if were not modified or withdrawn by a deadline established at 12 December 1997. The period within which members were allowed to modify or withdraw their schedules and MFN exemptions started on 1 November 1997 and ended 12 December 1997 this was therefore the date by which the further negotiations on financial services would have to finish.
1997 Financial Services Negotiations
When the WTO negotiations on financial services were relaunched in April 1997, it was the second time after the conclusion of the Uruguay Round that governments had engaged in negotiations to improve their commitments on market access and national treatment in financial services. They were successfully concluded by the established deadline of 12 December 1997 with the agreement of WTO Members to include financial services on a permanent and most-favoured-nation (MFN) basis in the GATS. All major trading partners, including the US, signed up to this agreement, and many of them submitted significantly improved commitments as regards both market access and national treatment for foreign financial service suppliers.
The EC's major negotiating objectives were therefore achieved. 70 WTO members (counting the EC as 15) improved their commitments, and 32 others maintained their existing schedules dating from the Uruguay Round or from the 1995 interim agreement. This means that countries with a share of world-wide financial services trade of more than 95 % agreed to open their domestic financial markets to foreign suppliers on a permanent basis and to guarantee non-discriminatory operating conditions, subject to a set of multilateral rules legally enforceable through the WTO dispute settlement mechanism.
Many WTO members have agreed to permit foreign financial institutions to establish a new commercial presence in various forms (subsidiary, branch, acquisition of shares in domestic companies), to expand current commercial operations and to maintain their existing shareholdings in those operations. At the same time, the overwhelming majority of the EC's trading partners were also ready to forego the application of reciprocity measures: only very few countries have listed broad MFN exemptions for the purpose of reciprocity.
The basic element of the legal framework of the deal reached in December 1997 is the Fifth Protocol to the GATS, which provides for the replacement of the existing financial services sections of the Schedules of Specific Commitments and the Lists of MFN exemptions of the Members concerned by the corresponding lists annexed to the Protocol. This means that the agreement does not constitute a separate agreement under the GATS, but simply that the new schedules and MFN exemptions lists will be an integral part of the corresponding Member's schedules once the results of the negotiations enter into force.
The prerequisite for entry into force is the acceptance by WTO Members of the Fifth Protocol, in accordance with their internal procedures, by 29 January 1999. Once this happens, the Fifth Protocol, and with it the new schedules and MFN exemption lists, will enter into force on 1 March 1999.
In addition to the Fifth Protocol, the Decision by which it is adopted provides for a political standstill commitment by all WTO Members not to take any measures inconsistent with their new schedules and MFN exemption lists tabled on 12 December 1997 until the entry into force of the Fifth Protocol. Finally, there is a Decision of December 1997 on Commitments in Financial Services, which allows Members to amend or withdraw their Schedules of Commitments and MFN exemption Lists in financial services if for some unforeseen reason the Fifth Protocol does not enter into force (for example, because not all Members concerned accept the Fifth Protocol by the agreed deadline, and those who have accepted it decide not to allow it to enter into force). This would imply the resumption of negotiations for a period of two months.
The Annex to the GATS on Financial Services
The Annex applies to all Members. It completes basic GATS terms with certain sector-specific provisions, such as a far-reaching "prudential carve-out", an itemised list of financial services, and the definition of excluded activities.
The "prudential carve-out" is a key feature of the Annex, as it allows supervisory and regulatory authorities to take prudential measures for investor protection, or to ensure the integrity of the financial system. Members will need to pay close attention to the interpretation of this provision to ensure that there is no circumvention for reasons relating less to genuine prudential concerns than to the protection of the domestic industry against international competition.
The Annex contains its own classification of financial services activities that define its coverage. It also makes clear that central bank activities, and those forming part of a statutory system of social security or public retirement schemes, are excluded from the coverage of the GATS. All other activities conducted by a public entity for the account of, or with the guarantee of, or using the financial resources of, the government, are similarly excluded.
The Annex obliges panels that are appointed to examine disputes between Members involving prudential issues and other financial matters to "have the necessary expertise relevant to the specific financial service under dispute". The Annex further contains a clause explicitly authorising Members to recognise the prudential standards applied by other Members, thereby facilitating access to each others' markets for service suppliers originating in any of them.
Understanding on Commitments in Financial Services
The Understanding represents an optional approach for the scheduling of specific commitments which has been used by most OECD countries. Instead of the ?bottom-up' approach, where only listed sectors are subject to binding commitments on market access and national treatment as defined in the schedule, the Understanding constitutes a ?top-down' approach. Members who agreed to schedule on the basis of the Understanding have thereby accepted a higher level of minimum obligations than that provided for in the basic GATS provisions.
These minimum obligations comprise, amongst others, the important standstill commitment that requires members not to introduce any new restrictive measures which would be incompatible with the fundamental market access and national treatment provisions of the Understanding: limitations listed in a member's schedule can therefore only be applied to its existing non-conforming measures. The minimum obligations also cover a far-reaching right to establish and to expand a commercial presence in all possible forms, including through acquisition, and financial service suppliers also have the right to offer new financial services. Each Member concerned has furthermore agreed that it shall endeavour to remove or to limit any significant adverse effects created by non-discriminatory measures which enforce the strict segmentation of banking, insurance and securities activities, or which involve restrictions on geographical expansion. This clause is very important in the United States where the Glass-Steagall and McFadden Acts restrict business opportunities for European banks and securities firms operating there.
Tourism and travel-related services
Tourism-related activities comprise the services used by persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes. They cover different services that business travellers and holiday-makers purchase both before leaving and at the destination, ranging from the direct supply of food, lodging and transport facilities, to intermediary services provided by travel agencies and tour operators.
Some 613 million tourists travelled world-wide in 1997 to foreign countries. The number of international tourist arrivals has increased of about 64% in less than a decade and cross-border exports in tourism and travel have been growing at an average annual rate of 4.3 per cent since 1992.
Economic activities directly related to tourism play a significant role in the European Union and world-wide in terms of external trade, economic growth and employment. According to Eurostat, Travel and Tourism cross-border trade of EU Member States accounted for ECU 481 billion in 1996 (including intra EU trade). EU travel and tourism services represented 55% of the EU's total exports of commercial services and 56% of imports. More than half of external trade in services between EU Member States and third countries (excluding intra EU trade) is generated by travel and tourism-related services. In the European Union, the important contribution of tourism to total employment (6?%) and to GDP (5.5?%) is an important element of the European integration process. Moreover, the steady growth of tourism-related services, forecasted to continue over the coming years, is generally considered as an important contributor to the creation of new jobs and the fight against unemployment.
Despite a decrease in Europe's share of the world market to the benefit on new emerging tourist destinations, the European Union is still the main source as well as the main destination of international tourist flows. This is facilitated by the general liberalisation of inbound and outbound tourism for EU Member States and by the fact that no major third countries still restricts the movement of people and their spending abroad. The main mode of supply of tourism services is to foreign individuals present in the home market. Nearly all countries have made commitments in this sector 107 in all, therefore implementing the existing commitments under the agreement should be a very high priority.
As the main mode of supply of tourism and travel related services is to individuals consuming services in a foreign travel destination, the primary focus of tourism and travel-related services relates to the cross-border movement of consumers so-called consumption abroad (in contrast with merchandise and other services exports, the main specificity of international tourism is the need for private consumers to cross a national border in order to satisfy their demand).
The regulations concerning travel agencies and tour operators abroad can be of great significance: Often foreign ownership and presence are restricted, and foreign computer reservation systems are sometimes not permitted in locally-owned travel agencies or foreign-owned offices. Certain restrictions on the commercial presence of foreign firms in the EU are recorded.
The EU hotel, restaurant, and catering industries are major investors abroad, and these services can only be supplied through commercial presence. Therefore, any discrimination against foreign firms compared with national firms is of key importance, and EU firms should look carefully at the national treatment limitations, as well as the market access conditions and requirements, as these can involve investment and ownership restrictions.
In general, the access conditions are rather liberal and this open regime has been reflected in the schedules of commitments. Both developed and developing countries have made binding commitments of interest to the European industry.
Transport Services
Maritime Transport
Maritime transport is a major service sector in its own right, creating significant foreign exchange earnings for the EU which arise directly from EU merchandise exporters for whom the services are crucial and from carriage between third countries. Bulk cargo accounts for 80?% by volume of total world trade: the transport of oil, liquid gas, coal, ores, chemicals, grain, and so on, and a few goods. The ships operate between specialised ports often owned by their customers: it is virtually all cross-border trade. Mostly these round-the-clock charter services are not available to others. The ships can be highly specialised. There is intense competition among the major shipping companies.
The other 20% of world trade consists of the carriage of intermediate and finished goods. This is mostly carried by shipping companies that sail according to set schedules, and charge published rates: the so-called liner trade. Nowadays little of the liner trade carries people, this activity mostly consisting of charter holiday cruises and short-crossing ferries. An important part of the liner trade is carried in containers, and often relies on state-owned port facilities and services. There is even stronger international competition here than in bulk trade. Only a handful of privately owned ports are open to general trade. Often container trade is carried by multi-modal firms, which own or lease transport between the manufacturer and the export port, and between the import port and the final customer. These links are on road and rail, and form an integral part of the service.
During the Uruguay Round negotiations, it was proposed to divide maritime services into three categories, referred to by the negotiators as the "three pillars", which are:
, international (or deep sea, blue water) traffic of freight and passengers , commercially-related auxiliary services (e.g. cargo handling, storage and warehousing, customs clearance, container stations and depots, agency and freight forwarding) , port services (e.g. pilotage, towing, fuelling, garbage, port captain, navigation aids, utilities, emergency repairs, anchorage and berthing).
If commitments on the first two pillars are to have any value, the provision of port services by public authorities has to be made available to international maritime transport suppliers, these being mostly private firms. These services should be supplied on the basis of reasonable and non-discriminatory terms and conditions, in accordance with the GATS provisions on monopolies and exclusive services suppliers. It should also be noted that the definition of a measure affecting trade in services includes "the access to and use of, in connection with the supply of a service, services which are required by those Members to be offered to the public generally". It is important therefore that port services are part of the commitments in maritime transport. What is sought here is not the supply of these services by a foreign service supplier, but for foreign shipping companies and commercially related firms to have access to these facilities on a reasonable and non-discriminatory basis.
The environment for international shipping is generally liberal and competitive, and some of the restrictions which exist could not be curbed by the multilateral disciplines being newly developed. But in order to ensure additional liberalisation and to prevent the risk of "back-tracking" from the existing open access to cargo markets, the previous negotiations focused both on the elimination of cargo-sharing and unilateral cargo reservation practices (the "first pillar"), and on facilitating the multi-modal integration and free marketing of shipping services (the "second pillar"). The "third pillar", access to and use of port facilities, was considered the indispensable technical complement to guarantee the effectiveness of any liberalisation undertaken. Many countries indicated the likely extent of their specific commitments using a "draft model schedule" based on the three pillar approach, but many offers of commitments, including those of the EC and its Member States, were withdrawn as a signal of dissatisfaction with the generally insufficient position, and this left only a few commitments on the table. Indeed, various countries, mainly the developed, tried to build a balanced package, expecting all countries with substantial shipping fleets to undertake the obligations. However, the US was sceptical and reluctant to abandon its unilateral practices, which prevented the formation of a "critical mass" of countries committed to meaningful liberalisation.
On 28 June 1996, the Council for Trade in Services adopted the Decision on Maritime Transport Services that was proposed by the Negotiating Group on Maritime Transport Services (NGMTS). This decision essentially provides for:
1. The suspension of the negotiations on maritime transport services and their resumption with the commencement of comprehensive negotiations on Services in accordance with Article XIX of the GATS on the basis of existing or improved offers; 2. The suspension of the application of the MFN obligation until the end of the resumed negotiations; 3. A standstill clause to be observed until the end of the resumed negotiations. As a conclusion, maritime transport services are covered by the GATS and will be further negotiated in the framework of the next GATS global round, which is due to start no later than in the year 2000. Until the conclusion of these negotiations, the application of the MFN obligation is suspended and a standstill clause must be observed.
Land Transport and Multi-modal Transport Services
Land transport was not given much attention during the Uruguay Round negotiations. The liberalisation of passenger and freight transport by road is only of interest to countries that are neighbours, and is therefore more often dealt with bilaterally or at a regional level. GATS Members have so far chosen to maintain the bilateral route by taking exemptions from the MFN obligation for existing bilateral and plurilateral land transport arrangements. For the same reason there was little demand for negotiations to open up rail transport because it is closely linked to a country's infrastructure, and in most instances provided by public entities and monopolies.
Potentially it is important however that the GATS disciplines also apply to land transport (by rail, inland waterways and road), because these activities play a crucial role in the supply of multi-modal transport services. By means of commitments in this sector, the previous negotiations on maritime transport aimed at ensuring that a multi-modal transport operator will be able to rent or lease lorries, railway trucks, barges, and related equipment, for inland cargo transport. They should also have access to, and the use of, these facilities on reasonable and non-discriminatory terms and conditions.
Air Transport Services
The "Annex on Air Transport Services" states that the GATS applies to trade in air transport services, whether scheduled or non-scheduled, and ancillary services.
Initially however, traffic rights (the so-called "hard rights") and services directly related to the exercise of traffic rights are excluded. The Annex contains a definition of traffic rights which include landing rights, routes, capacity, fares and criteria for ownership and control of airlines. For the time being, the GATS disciplines and rules apply only to the following soft rights:
, aircraft repair and maintenance, excluding line maintenance, , selling and marketing, which includes market research, advertising and distribution of literature - but not pricing, , and other conditions of sale, , computer reservation systems (CRS), for information on schedules, availability, fares and fare rules, and through, , which reservations may be made and tickets issued.
It is important to note that Members can only make specific commitments on the auxiliary services explicitly listed in the Annex. The specific commitments made, or obligations assumed under the GATS, do not affect Members' rights and obligations under bilateral or multilateral agreements that were in effect on the date of entry into force of the WTO agreement such as the Chicago Convention.
The coverage of air transport services under the GATS is subject to periodical review. The annex provides that, at least every five years, developments in the air transport sector and the operation of the Annex will be reviewed, with a view to considering the possible further application of the GATS disciplines to this sector.
The EU took an MFN exemption on CRS systems, sales and marketing, so as to be able to enforce the reciprocity provision under EU regulations on CRS information displays.
The WTO Dispute Settlement Understanding can only be invoked in relation to specific commitments, and after exhaustion of all bilateral and other multilateral procedures.
The future outlook
Although the main air services have been initially excluded, the GATS represents the first attempt to formulate trade disciplines for the sector on a world-wide basis, and brings it within the integrated WTO multilateral system. As trends towards privatisation, de-regulation, and globalisation continue, the prospects of extending the GATS coverage will probably improve.
Other services
Energy services
Energy services is not a sector classified as such in the list of sectors which the WTO Members have taken as a basis to schedule commitments. The production of energy from using coal, oil, water and other energy resources is covered by the GATT, as energy itself is considered as a product. However, a number of important economic activities relating to energy or energy-related services are covered by the GATS under different headings, for instance: pipeline transport services and other transport services, distribution services, environmental services and energyrelated consultancy and other business services. Yet very few WTO Members have during the Uruguay Round made commitments on these activities.
In an area of deregulation and opening up of monopoly industries to competition, liberalisation of energy services will become more important. There is certainly a vast potential for future commitments. The European Community, which has adopted (or agreed) directives opening the electricity and gas markets to competition, is determined to take up this challenge. This will require work on understanding better the energy services sector, which services activities are tradeable, and in which sectors do European operators have an export interest.
Market access to the energy services sectors in third countries could be achieved mainly through opening-up possibilities for the establishment and acquisition of companies by foreign energy groups, mainly in the areas of transmission and distribution of gas and electricity, including facilities supplying ancillary services. A number of European energy distribution companies (which often are integrated companies) are already expanding overseas.
Water distribution services
Another area which could deserve further attention in further negotiations is water distribution, which fall under the heading of distribution services. Further liberalisation of this sector would offer new business opportunities to European companies, as the expansion and acquisitions abroad by a number of European water companies show.
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