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INTERRELATION BETWEEN INVESTMENT AND SERVICES UNDER THE NAFTA AND THE GATS Eric H. Leroux

INTERRELATION BETWEEN INVESTMENT AND SERVICES UNDER THE NAFTA AND THE GATS Eric H. Leroux Senior Counsel, International Trade Canada Lima, October 2004. GENERAL CONTEXT. Traditionally, investment was considered a world apart. It was dealt with under BITs/FIPAs and not considered “trade”.

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INTERRELATION BETWEEN INVESTMENT AND SERVICES UNDER THE NAFTA AND THE GATS Eric H. Leroux

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  1. INTERRELATION BETWEEN INVESTMENT AND SERVICES UNDER THE NAFTA AND THE GATS Eric H. Leroux Senior Counsel, International Trade Canada Lima, October 2004

  2. GENERAL CONTEXT • Traditionally, investment was considered a world apart. • It was dealt with under BITs/FIPAs and not considered “trade”. • This has now changed, in part due to the growing importance of trade in services.

  3. GENERAL CONTEXT (Cont.) • The supply of services often requires a commercial presence in the host country, e.g. supply of retail banking services or insurance services. • Also, the supply of services through a commercial presence is the most commonly used means of supply of services. • This adds a strong investment dimension to trade in services, and it means that the two are closely interrelated.

  4. GENERAL CONTEXT (Cont.) • Liberalization of trade in services thus necessarily involves liberalizing investment regimes as well. • An agreement on investment is also, to a large extent, an agreement on trade in services.

  5. INTERACTION BETWEEN, AND REGULATION OF, INVESTMENT AND TRADE IN SERVICES UNDER THE NAFTA

  6. CORE FRAMEWORK Chapter 11 on Investment • Chapter 11 provides a framework for the regulation of investment in NAFTA countries. • Covers what is commonly referred to as FDI. - “Investment” is broadly defined. - Covers pre- and post-establishment of investments.

  7. CORE FRAMEWORK Chapter 11 on Investment(Cont.) • At the time NAFTA was concluded, it represented the most comprehensive set of rules on investment agreed upon at the international level. These rules comprise: • National treatment;

  8. CORE FRAMEWORK Chapter 11 on Investment (cont.) • Most Favoured-nation (MFN) treatment; • Performance requirements; • Minimum standard of treatment; • Expropriation; • Detailed procedures for the settlement of disputes between investors and States.

  9. CORE FRAMEWORK Chapter 11 on Investment (cont.) • Framework has now been refined in new investment agreements and FTAs. • Chapter 11 applies to the supply of services through an investment (commercial presence).

  10. CORE FRAMEWORK Chapter 12 on Services • Chapter 12 applies to the other 3 “modes” of supply of services: consumption abroad; cross-border supply; movement of natural persons. • Chapters 11 and 12 complement each other. Together, they cover the realm of trade in services. • Both Chapters follow the “top-down” approach, whereby everything is covered unless exempted or excluded.

  11. Additional Rules for Specific Issues • In addition to the “core rules” found in Chapters 11 and 12, supplementary rules are needed to address specific issues in certain sectors.

  12. Additional Rules for Specific Issues Chapter 13 on Telecommunications Services Technology is becoming more sophisticated, which makes it easier to provide services through technological means, e.g. banking services over the internet. One needs to have access to relevant networks and means of communication to provide these services.

  13. Additional Rules for Specific Issues Chapter 13 on Telecommunication Services (Cont.) • This is why Chapter 13 exists. It ensures that market access granted with one hand will not be taken away with the other through lack of access to public telecommunications transport networks and services.

  14. Additional Rules for Specific Issues Chapter 16 on Temporary Entry • One of the modes of supply of services is the movement of natural persons. • This raises issues with respect to immigration policy and border requirements.

  15. Additional Rules for Specific Issues Chapter 16 on Temporary Entry (Cont.) • Specific rules providing for the alleviation of certain border requirements, e.g. work permits, labour tests. • Immigration requirements generally remain unaffected by trade rules.

  16. Additional Rules for Specific Issues Chapter 15 On Monopolies and State Enterprises • Specific disciplines to ensure, in particular, that monopolies and state enterprises exercising delegated governmental authority will comply with the obligations of the treaty. • Issue in particular with respect to Mexico, which, at the time of NAFTA negotiations, had a large number of state enterprises.

  17. Additional Rules for Specific Issues Chapter 15 on Monopolies and State Enterprises (Cont.) • Basically, this means that a government cannot avoid its obligations by delegating its authority to non-state actors.

  18. A Case Apart: Chapter 14 on Financial Services • At the time of the negotiation of NAFTA, it was still unclear to what extent this sector could be subjected to trade-related principles. • Chapter 14 put in place a rules-based framework for trade in financial services. • All 4 modes of supply of financial services are covered in one chapter.

  19. A Case Apart: Chapter 14 on Financial Services (Cont.) • Several obligations similar to those in Chapters 11 and 12: • National Treatment • MFN treatment • Expropriation • Some provisions specific to the financial services sector – in particular the exception for prudential measures.

  20. INTERACTION BETWEEN, AND REGULATION OF, INVESTMENT AND TRADE IN SERVICES UNDER THE GATS

  21. GATS is later in time. • More complex negotiations because of the number and diversity of countries involved. • In terms of approach, it is different from NAFTA: • One single agreement covering all 4 modes for all services;

  22. In terms of approach, it is different from NAFTA (cont.): • “Bottom-up” approach for key obligations on market access and national treatment: apply only in service sectors included in a WTO Member’s Schedule.

  23. In terms of the obligations: • Some go beyond those of NAFTA, e.g. disciplines on domestic regulation and market access; • Some represent less than what we have in NAFTA: no obligations on expropriation, performance requirements and minimum standard of treatment.

  24. GATS only provides for state-to-state dispute settlement. • Additional rules found in GATS annexes and other documents integrated into it: • Annex on Financial Services and Understanding on Commitments in Financial Services; • Annex on Telecommunications and Reference Paper on basic telecommunications services;

  25. Additional rules found in GATS annexes and other documents integrated into it (Cont.): • Annex on Movement of Natural Persons; • Annex on Air Transport Services. • Talks on additional investment disciplines no longer on the agenda.

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