GATS Article V and Regional Liberalization in Trade in Services

Markus JelittoSADC Secretariat

Requirements of GATS Article V

• Article V provides cover for preferences among members of an Economic Integration Agreement• No MFN exemption required if conditions are met• In practice, a number of MFN exemptions were filed in

the Uruguay Round to cover existing PTAs• PTAs may apply to merchandise and services trade:

Article V is relevant for the services parts or for services-only Agreements

Article V in a nutshell• Between parties to the agreement:• “Substantial sectoral coverage” (volume of trade, number of

sectors, and modes of supply)• No a priori exclusion of modes of supply• Absence or elimination of discrimination “in the sense” of

Article XVII (national treatment)

• With respect to non-parties: • Should facilitate trade among parties and not raise overall

barriers vis-à-vis other Members• If GATS specific commitments are affected, renegotiation

according to Article XXI is required

Flexibility in Art V

• Elimination of all discrimination can be achieved over “a reasonable timeframe”• Conditions are relaxed if developing countries are

parties to the agreement• Consideration may be given to the relationship with a

wider process of economic integration• However: No discrimination of suppliers (juridical

persons) of third countries, except for agreements among developing countries

Flexibility regarding the consistency criteria• For an agreement between/among developing countries,

some flexibilities are provided

The level of development of the countries concerned, both overall and in the individual sectors and subsectors

Art V 3 (a)

No guidelines on how to assess the level of development, and its effect on the consistency criteria

Relationship with service providers from third countries (rules of origin) -Article V:6

• Service providers from third countries can take advantage of an RTA, subject to such third country’s “substantive business operations” in the RTA parties• However, for an agreement between/among

developing countries, some flexibilities for them are provided

Preferences may be granted to the parties “own” services suppliers only Art V 3 (b)

Rules of Origin in practice

Rest of the world EIU

C1C1

Exports through M 1, 2, 3

Country 1

Country 2

SADC requires “substantial business operations” in the territory of a State Party

Rules of origin (2)• From an economic perspective a liberal rule of

origin is to be preferred, -> • Possible approaches (for commercial presence):• Substantial business operations in one MS (most liberal

stance)• Local incorporation in each MS• MS ownership and control

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Rules of Origin in African Services PTAs• SADC:• Defines “juridical person” (to which benefits of the Agreement are conferred) as a legal

entity set up in accordance with the laws of a State Party, and engaged in “substantial business operations” in the territory of that Member or any other State Party.

• Denial of benefits possible “where the State Party establishes that the service is being provided by an enterprise that is owned or controlled by persons of a non-State Party and that has no substantial business operations in the economy of a State Party.”

• COMESA:• “Juridical person” means a legal person set up in accordance with the laws of a Member

State of the COMESA respectively, and having its registered office, central administration, or principal place of business in the territory of the Member State -> if operations possess a real and continuous link with the economy of the member State

• EAC: • (Establishment)companies or firms having their registered office, central administration or

principal place of business and which undertake substantial economic activities in the Partner State shall, for purposes of establishment, be accorded non discriminatory treatment in other Partner States. (Note: the terms company and firm do not refer to nationality of ownership)

• Services: Free movement of services: for service suppliers who are nationals. “national of a Partner State” means a natural or legal person who is a national in accordance with the laws of the Partner State

Negotiating approaches in African PTAs

• COMESA,EAC, SADC all use positive list approach• ..but COMESA negotiating guidelines provide for standstill as target

• All RECs use request-offer approach:• With Comesa starting with offers and “topping up”on basis of

requests

Priority SectorsSector COMESA EAC SADC

Business Services X X

Communication X* X X

Construction X (incl. engineering) X

Distribution X

Education X

Environmental

Financial X* X X

Health and Social

Tourism and Travel X* X X

Recreational, Cultural, Sporting

Transport X* X X#

Energy X X

*= denotes priority sector in first phase# =excludes air traffic rights

Status quo in the three African RECs

• EAC• Common Market Protocol in force 1 July 2010• Finalized first round of schedules in priority sectors• Now discussing negotiations on remaining sectors

• COMESA• COMESA Services Regulations adopted June 2009• Contain mutual definitions on M4 (ICT, CSS, IP, BV) and targets for removal of

quotas and Needs Tests in M4.• Negotiations on 4 priority sectors progressing, offers partly submitted• Allows for denial of benefits to MS who do not make commitments in priority

sectors• SADC• Draft services Protocol to be signed at Summit in August 2012• Requires ratification by 2/3 of Member States to enter into force• Negotiating Guidelines approved by CMT• Negotiations on priority sectors commenced in April 2012• Roadmap foresees completion of negotiations by April 2015