Market Access Negotiations in GATS: Moving Forward by

1. Market Access Negotiations in GATS: Moving Forwardby Rupa Chanda IIM, Bangalore April 7, 2006

2. Hong Kong Ministerial Outcome and Services • Low priority in negotiating agenda • Hong Kong Ministerial Declaration-Annex C urges members to negotiate towards achieving progressively higher level of liberalization • Aims to intensify negotiations by expanding sectoral and modal coverage of commitments and improving their quality • Particular attention to be given to sectors and modes of export interest to developing countries • Appropriate flexibility for developing members • LDCS are not expected to make commitments • Attempt to strike a balance between flexibility in commitment process and regulatory autonomy and improving market access

3. Objective of improved commitments to: • Bind in commitments at existing levels across sectors in modes 1 and 2 • Commit to greater levels of foreign equity participation and remove/reduce use of ENT restrictions in mode 3 • New or improved commitments on contractual service suppliers, independent professionals, others, delinked from commercial presence in mode 4 • New or improved commitments for intracorporate transferees and business visitors in mode 4 • Greater clarity in commitments • In addition to multilateral negotiations, to pursue request offer approach on vluntary plurilateral basis, results to be extended on MFN basis to all • Plurilateral requests by Feb 28, 2006 • Second round of revised offers by 31 July, 2006 • Final draft schedules of commitments to be submitted by October 31, 2006

4. Annex C of declaration also calls for rules negotiations • Domestic Regulations • Specific mandate for development of disciplines before end of round • Call for intensification by developing texts • Basis – proposals and illustrative list of elements on all aspects of VI:4 (domestic regulation) • GATS Rules • ESM, Subsidies,Government Procurement • Intensification of efforts in all three areas

5. Post Hong Kong Process – Plurilateral Negotiations • Formation of plurilateral groups • Around 20 such groups, most of them have mixed membership • Approximately 30 members in most such groups • Deadline of 28th February or immediately thereafter met with submission of collective requests in 15 sectors and on 2 cross cutting issues • Following sectors and issues covered by plurilateral requests • Air transport services • Architectural and engineering services • Audiovisual services • Computer and related services • Construction • Distribution • Education • Energy • Environmental • Financial • Legal • Logistics • Maritime transport • Postal and courier • Telecommunications • Cross border services (mode 1) • Movement of personnel (mode 4)

6. Key features of sector-specific plurilateral requests • Mainly involve developed countries, except in sectors like computer and related services • Participation by developing countries is limited • Main focus is on market access through mode 3 • Substantial reduction or elimination of restrictions on: • number of foreign service suppliers and firms • type of legal entity • Operational requirements • foreign equity participation • establishment or acquisition of existing companies in different forms • related nationality/residency requirements • Remove economic needs tests • Focus on mode 4 access in areas of limited significance for developing countries • Relating to commercial presence and for highly skilled, professional categories • Limited to horizontal commitments and limitations • Not much focus on deepening sectoral commitments • Requests largely reflect the interests of a core group of developed countries

7. Examples of sectoral plurilateral requests Telecommunication services • Members involved: • Australia, Canada, EC, Japan, Hong Kong China, Republic of Korea, Norway, Singapore, Taiwan, USA • Nature of request: • Commercially meaningful coverage of subsectors, esp voice and data transmission services and leased circuit services • Mode 1- no national treatment limitations and no substantial market access limitations • No unbound entries • no requirement to use networks of specific suppliers • no requirement of commercial presence, no requirement for commercial arrangements • Mode 2 – no market access or national treatment limitations

8. Mode 3- no national treatment limitations and no substantial market access limitations • No limitations on establishment or number of service suppliers • No economic needs tests • No restrictions on types of legal entity allowed • No limitations on nationality or residency • Majority foreign capital participation and effective control to be allowed • Mode 4 • Commit on categories of ICTs and BVs • No additional limitations beyond horizontal limitations • Not exclude telecom services from horizontal mode 4 commitments • Commit to all provisions of reference paper • Remove all MFN exemptions

9. Financial services • Members involved • Australia, Canada, EC, Hong Kong China, Japan, Korea, Norway, Taiwan, USA • Nature of requests • Mode 1- expand coverage to include additional subsectors such as insurance, advisory, and information and data processing type financial services • Mode 2 – similar as in mode 1 • Mode 3 • undertake commitments encompassing rights to establish new and acquire existing companies in form of wholly owned subsidiaries, joint ventures, branches • Remove discrimination between domestic and foreign suppliers • Remove limitations such as monopolies, numerical quotas, economic needs tests • Transparency in development and application of rules and regulations, other regulatory issues • Nothing requested in mode 4

10. Construction services • Members involved • Australia, Canada, Taiwan, Japan, EC, Korea, Malaysia, Mexico, New Zealand, Norway, Singapore, Turkey, USA • Nature of requests • Wider coverage of commitments across subsectors and in related areas of other services • Mode 2- full commitments • Mode 3 • Eliminate foreign equity limitations • Eliminate restriction on type of commercial presence and joint venture and joint operation requirements • Eliminate discriminatory registration requirement and licensing procedures • Eliminate restrictions on types of projects undertake by foreign service suppliers, including size of projects assessed by total project value • Eliminate burdensome asset requirements • Nothing requested in modes 1 and 4

11. Environmental services • Members involved • Australia, Canada, EC, Japan, Korea, Norway, Switzerland, Taiwan, US • Nature of request • Expand scope of commitments to cover all environmental services subsectors and related activities ( but excludes water for human use) • Mode 1 and 2- full commitments where possible • Mode 3 • Remove barriers to commercial presence, such as foreign equity limitations, joint operation requirements, restrictions or requirements on type of legal entity • Where award exclusive rights for supply of services at central or local level to environmental service suppliers, also permit foreign service suppliers to provide service • Not cover non commercial government procured services • Mode 4 • Ensure sectoral and horizontal commitments to cover service suppliers in this sector, focus on those with specialized knowledge and skills

12. Computer and related services • Members involved • Australia, Canada, Chile, EC, Hong Kong China, India, Japan, Korea, Mexico, New Zealand, Norway, Pakistan, Peru, Singapore, Taiwan, US • Nature of request • Modes 1-3 • Full market access and national treatment commitments for entire sector • Mode 4 • Commitments on relevant categories of service suppliers as per Annex C • Not exclude CRS services from horizontal mode 4 commitments • No additional limitations beyond horizontal limitations • Model schedule provided • Focus on mode 4 limited to: • horizontal commitments • not seeking deeper sectoral commitments • limited to particular categories only • limitations and discretionary scope can continue

13. Regulatory and autonomy issues • Some collective requests raise difficult public policy issues • Possible undermining of national autonomy in meeting public policy objectives like • universal service obligations • public subsidies and funding of institutions • right to discriminate between domestic and foreign suppliers in national interest

14. Private education services • Members involved • Australia, Taiwan, Malaysia, US, New Zealand • Nature of request • Seek new or improved commitments in private higher and/or other education • Not seek commitments in public education and asks countries to individually define scope of commitments without necessarily defining what is public and what is private • Mode 1 and 2- no market access or national treatment limitations • Mode 3 • No MA or NT limitations other than scheduling time bound limitation with regard to foreign capital participation or shareholdings • Mode 4 • Horizontal commitments that allows natural persons who are education providers to enter • Provides possible scheduling approach so that countries have flexibility

15. But several questions raised by request • Can developing countries comprehensively carve out of scope of commitments all types of education services where policy sensitivities, even if not required to define what is public and what is private? • Request does not seem to recognize the need for national treatment limitations on modes 1 and 3 to protect national interests (a) Request proposes that countries carve out of scope of private education commitments any institutions with government equity/assistance • But what other criteria would be relevant to carve out certain types of education providers, even if private institutions? • How comprehensively should public funding be defined- fee concessions, R&D grants, scholarships,other subsidies? • Request says that if member chooses to make government funding available to private education providers then should consider extending same treatment to domestic and foreign private providers? • Why should governments be asked to use scarce resources on foreign private education providers? • Can national treatment limitations be maintained adequately to give preferences to domestic providers?

16. Will government be able to exercise enough control over standards of foreign education providers? Regulatory capacity issues • Will government be able to prevent profiteering, ensure adequate investment back in country’s educational infrastructure? Again, regulatory enforcement and capacity issues even if adequate conditions inscribed • How can national interests be secured through only foreign equity participation restrictions in mode 3- what other NT limitations may be required? • Issue of necessity test and whether a measure used as a limitation is least burdensome way of meeting legitimate objective under GATS domestic regulation discipline • How to assess least burdensome measure? • Who is to determine what is a legitimate objective?

17. Telecom services • Request to adhere to all provisions in Telecom Reference Paper • Certain provisions could be problematic • Focus on preventing anti-competitive practices • Cross subsidization • Interconnection • To be ensured at any technically feasible point in network and under non-discriminatory terms and conditions, rates, similar quality, timely manner, cost-oriented rates that are transparent, reasonable • Universal service • Gives members right to define kind of USO it wishes to maintain and states such obligations not to be regarded as anti-competitive per se • But requires administered in transparent, non-discriminatory, and competitively neutral manner, not more burdensome than necessary for the kind of universal service defined by member • Ambiguity about what constitutes legitimate objective and measure deemed appropriate for meeting that objective • What does “not more burdensome than necessary” in relation to a specified objective mean?

18. US-Mexico Telmex case reflects problems that can arise when members commit with one interpretation but legal interpretation of what constitutes anti-competitive practices is different • April 2004 WTO dispute panel ruled against Mexico in case filed by US • Mexico’s laws and regulations charged as being anti-competitive and contravening Telecom Reference Paper guidelines which Mexico had signed • Panel ruled that Mexico had failed to ensure US basic telecom suppliers had equal access to and use of public telecom networks and services • Mexican supplier, Telmex had charged US supplier higher interconnection rates • Mexico argued that rates charged on basis that were designed to include costs for rolling out telecom infrastructure as a developing country • Panel accepted US argument that rates charged should be based solely on specific services foreign companies required and contribution to developing Mexico’s telecom infrastructure could not be included in that rate • Mexico argued for interpretation in line with S&D treatment provisions of GATS whereby members recognized as needing measures to strengthen domestic service capacity and efficiency and competitiveness • But panel concluded that these provisions described types of commitments members should make with respect to developing country members but do not provide interpretation of commitments already made by developing country members

19. Some cause for concern if schedule a sector where strong public service, equity, and universal provision type dimensions: • Ambiguous coverage of public services under GATS carve out clause • Not clear what constitutes “commercial”, what constitutes non-competitive co-existence of public and private providers, and likeness of public and private services • Some sovereignty may be lost in domestic regulation • Once sector is scheduled, subject to conditions on domestic regulation under GATS disciplines • Requirements of transparency, objectivity, necessity, and legitimacy of objectives to be met when using domestic regulation

20. Cross-cutting issues • Two main issues are cross border supply and movement of personnel • Request in cross border supply • Involves several key developing countries • Goes some way in obtaining full commitments in wider range of services and emerging areas in future through improved classification under computer and related services and other business services • Calls specifically for removal of commercial presence, nationality/residency requirements, and national treatment limitations • Similar commitments requested in modes 1 and 2, with differences where required • While focus is on securing and binding in existing levels of market access and removal of certain limitations with suggested list of sectors/sub sectors for specific commitments, less ambitious than earlier mode 1 proposal for full horizontal commitments with small negative list

21. Collective request in mode 4 • Focus on expanding coverage of commitments to include CSS and Independent professionals • Clarifies definitions of CSS and IP categories • De-links mode 4 access from mode 3 presence • Qualification commensurate to job requirement-based on diploma or university degree or demonstrated experience for positions such as management of operations, provision of services at level of complexity and specialty • Limits scope for covering non formally qualified under CSS • Duration of stay for 1 year or longer depending on contract, with provision for renewal • Removal of certain conditions like wage parity • Removal of ENTs or at least greater transparency in their use • Positive list approach to specify sectors to which IP and CSS categories applicable • Engineering, technical analysis, medical and dental, computer and related, tourist guide and some others for CSS • Engineering, technical testing and analysis, accounting and bookkeeping, management consulting and some others for IPs • Transparency and non discrimination in administrative procedures • While reflects concern for additional categories as in earlier mode 4 proposal, does not specifically ask for SPV/any administratively different mechanism to distinguish between temporary and permanent movement

22. Request is likely to result in only incremental gains in mode 4 • Gains in mode 4 likely to be in the form of: • Some improvement in transparency of mode 4 commitments & related regulations • Better classification and clarification of categories • Relaxation/removal of some limitations like ENTs/LMTs, clarification of criteria • Easier renewal/granting of visas for highly skilled • Unlikely to realize substantive increase in market access or inclusion of wider range of service categories and skill levels • Unclear how discussions on regulatory issues will affect mode 4 discussions • Likely that developing countries, esp. those in critical group, may have to concede more in mode 3, expand scope of commitments for incremental gains in mode 4 • As majority of LDCs will be outside critical mass in plurilateral negotiations, their interests in expanding scope of mode 4 will not be addressed at all • To the extent LDCs join plurilateral groupings, will also need to trade off concessions in mode 3 and other sectors like financial, telecom services for any operationalization of special “priority for market access” in mode 4

23. Moving Forward the GATS Negotiations • Analysis of collective requests and issues raised by post Hong Kong negotiations suggests certain problems • Participation is not broad based, dominated by certain developed countries across most sectors • Developing country interest seems limited to a few, probably reflecting underlying concerns about level of ambition expected in offers, tradeoffs they may be required to make, regulatory capacity and autonomy issues • Ambition levels in mode 1 and especially mode 4 seem somewhat diluted relative to earlier proposals in these modes • Shifted to sector by sector approach for widening/securing market access in mode 1 • Shifted more to removal of limitations and transparency than market access mechanisms that distinguish temporary from permanent movement and enhance mode 4 access • These problems also suggest possible ways forward

24. (1) Increased participation by developing countries • Developing countries need to increase their participation in ongoing negotiations • Could consider requests in certain sectors where have market access interests • Could consider offers where already liberalized and bind in existing level of market access • But several uncertainties remain • Will their participation lead to sectoral negotiations with more thrust by developed countries in key sectors like telecom and financial services? • Even if voluntary, once country receives a request, will it be obliged to join the negotiations • Will there be a move towards harmonizing regulatory obligations, especially with regard to investment and competition policy in the interests of foreign service suppliers? • Once a baseline of commitment or regulatory framework has been agreed, will that become a minimum norm expected from all member countries, undermining flexibility in GATS commitment process? • Would a requesting party be expected to make as deep a level of commitment as it has requested in some other area/mode? • There needs to be clarity on what is expected and degree of flexibility that can be retained by developing countries under plurilateral approach

25. Three ways to increase participation by developing countries (i) Assure developing countries that: • regulatory autonomy will be retained • regulatory deficiencies will be addressed and regulatory capacity enhanced • mechanisms for regulatory cooperation will be introduced • Need to assist developing countries in identifying regulatory deficiencies and remedying them before market opening commitments made • Link commitments to regulatory reform, giving greater assurance to developing countries that benefits of liberalization will not be undermined by lack of regulatory capacity • Negotiations must be supported by regulatory cooperation as developing countries can then participate more meaningfully and use negotiations to institute regulatory reforms • Technical assistance in setting up regulatory bodies needs to be considered

26. (ii) Shift focus of offers towards non-discrimination • One possibility is to focus more on removal of national treatment limitations than on market access as differential treatment of foreign service providers may not be required for attaining all public policy goals • Relevant to developing country offers in mode 3 in some sectors where discriminatory scope can be reduced without undermining regulatory autonomy and where possible additional obligations can be assumed • Relevant to developed country offers in mode 4 in sectors like legal, accountancy, architectural, other professional services where discriminatory conditions relating to nationality, licensing, registration not required given other recognition and market access conditions already present • Could consider using assurance of non-discrimination as a step towards market access while retaining flexibility to inscribe quotas, foreign equity caps, other non-discriminatory provisions under market access commitments

27. (iii) Coalition building and drawing in players • Large developing countries with more pro-active agenda in services need to: • assure other developing countries that their regulatory autonomy and overall GATS flexibility will not be undermined in order to draw in more players • show willingness to liberalize in other parts of the negotiations for effective coalition building • have a more inclusive outlook in certain modes, like mode 4 to incorporate wider range of interests among developing countries • need to involve more developing countries to shape domestic regulation discussions to address common concerns • Developed countries will need to show willingness to negotiate in key sectors and modes to draw in more developing countries

28. (2) Progress in mode 4 • Movement in mode 4 negotiations essential if more developing countries are to be brought into the negotiations and their fears are to be allayed on flexibility issue • Need to devise ways to liberalize market access for wider range of service suppliers, including non-professional, semi and less skilled categories working • Approach 1: Expand range of service suppliers under the classifications of ICTs and CSS • ICT: • Expand beyond executives, managers, specialists by lowering and diversifying functional/hierarchic criteria, relaxing conditions • include employees who provide assistance/advice/service to foreign client/receive business training regardless of status, without requirement of period of prior employment • CSS: • Relax minimum eligibility conditions to include non-professional, non-formally qualified persons, experience/competence based qualifications

29. Need to expand concept of contract under CSS • Consider approved government bodies/government approved agencies which involved in deploying and certifying credentials of non-professional, non-formally qualified independent service providers as juridical entities • Contract between overseas firm/individual and such juridical entities in home country • Such home agencies responsible for monitoring and enforcement of contracts, screening of qualifications of deployed workers in coordination with host country • Key modification to include less skilled: • Provide juridical affiliation in case of non formally qualified service suppliers rather than directly between client and service supplier • Notion of juridical entity expanded beyond enterprises to include government agencies/approved agencies • Need ways to assess qualifications and competence of less skilled as often international benchmarks absent • Where possible approval by appropriate trade/industry association/guild in home and/or host country; or • If such bodies missing, consider occupational certification and competence check by concerned government/approved agency; or • Allow employer in host country to judge skills and competence

30. Alternative approach: Create new CSS subcategory to cover non-formally qualified, non-professional service providers • CSS-1: formal qualifications, minimum skill threshold • CSS-2: non formal qualifications, based on demonstrated experience via apprenticeships, vocational training, on-the job experience • Contract between juridical entity that deploys/certifies competence of CSS-2 providers and host country client • Different entry and stay conditions for CSS-2 providers to address labour market and trade union concerns in host countries • Quantitative ceilings • Minimum wages • Shorter duration of stay (3-6 months) • Possible safeguards via small negative list of sectors where CSS-2 not applicable • Where possible deeper sectoral commitments on CSS-2

31. Need to support inclusion of additional categories with better classification of categories, greater clarity and uniformity in definitions • Agreement on common list of occupations and definitions • Make use of ILO’s ISCO categories • Commitments at finer, more disaggregated level • Closer cooperation among professional bodies across countries required for disaggregating categories, determining qualifying work and educational criteria, and equivalence • Closer cooperation between regulatory authorities in host and source countries • While expanding the CSS category not use skill levels as mean for differentiation but occupational classification and definitions as means for differentiation in terms and conditions • There remain larger questions of feasibility • Burden of enforcement and capacity • Occupational certification capability in developing countries for non formally qualified

32. Key to progress in mode 4 is widening coverage but with greater coordination between regulatory authorities in host and source countries and sharing of responsibilities by source country • Need to reassure immigration authorities that source countries will screen service providers, accept and facilitate their return, prevent abuse of market access, address security concerns • Need to consider mechanisms for regulatory assistance to developing countries • What conditions might source countries be required to fulfil to be granted better market access? Can these conditions be included under GATS? • Can there be flexibility in market access commitments in mode 4 to reflect varying labour market conditions in host countries or set of criteria when access could be reduced to address domestic concerns in host countries? • Can one draw upon relevant elements of existing bilateral, seasonal, guest worker arrangements to facilitate entry along with safeguards, with source country responsibilities and flexibilities for host countries?

33. (3) Improved offers by developing countries • If some progress in mode 4 and mode 1 realized, developing countries should be willing to improve their own offers in mode 3 • Eliminate barriers to foreign investment in sectors where already liberalized, where benefits evident, some regulatory capacity developed, and where reversal unlikely • Pre-commit where pre-conditions for liberalization can be met in reasonable time • But maintain flexibility by not offering/giving more restrictive offers in those areas where limited experience with liberalization, where public policy objectives combined with regulatory capacity constraints, and not yet clear about impact • But also need to distinguish between those areas where liberalization is desirable but prevented by vested interests versus those where regulatory and other reforms required before liberalization • Deeper commitments by developing countries will in part depend on regulatory assistance and cooperation and in part on progress in mode 4 negotiations

34. Overall Assessment of State of Play • Unclear how complementary approach and emerging state of play post Hong Kong Ministerial will play out • Pros: • Prioritization of requests • Better chances of trade offs between sectors/modes of interest to different members • More efficient use of limited resources • Participation based on critical interests, as requesting or requested member • Cons: • Tradeoffs could become more difficult and concessions made may not be commensurate to market access gains realized in key modes/sectors of interest to developing countries • More pressure possible on particular sectors • LDCs may not be able to realize their main market access interest in mode 4 • Regulatory autonomy could be undermined • May not be possible to strengthen regulatory capacity to extent required • Lack of disciplines leaves the road open to disputes and creates uncertainty