What is a "service supplied in the exercise of governmental authority" under Article I:3(b) and (c) of the General Agreement on Trade in Services?

Journal of World Trade

Volumn 40, Issue 3, 2006, Pages 345-385

  Leroux, Eric H ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

INTERNATIONAL TRADE; SERVICE PROVISION; STATE ROLE; TRADE POLICY;

EID: 33745936062     PISSN: 10116702     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (154)

1. GATS Article 1.
2. GATS Article 1:3(c).
3. GATS Article 1:1.
4. See Appellate Body Report, European Communities - Regime for the Importation, Sale and Distribution of Bananas ("EC - Bananas"), WT/DS27/AB/R, 9 September 1997, para. 220: In our view, the use of the term "affecting" reflects the intent of the drafters to give a broad reach to the GATS. The ordinary meaning of the word "affecting" implies a measure that has "an effect on", which indicates a broad scope of application. This interpretation is further reinforced by the conclusions of previous panels that the term "affecting" in the context ofArticle III of the GATT is wider in scope than such terms "regulating" or "governin" [footnote omitted] We also note that Article I:3(b) of the GATS provides that "services" includes any service in any sector except services supplied in the exercise of governmental authority" (emphasis in text), and that Article XXVIII(b) ofthe GATS provides that the "supply of a service" includes the production, distribution, marketing, sale and delivery of a service" There is nothing at all in these provisions to suggest a limited scope of application of the GATS. We also agree that Article XXVIII(c) of the GATS does not narrow "the meaning of the term 'affecting' to 'in 'respect of"
5. See also Appellate Body Report, Canada - Certain Measures Affecting the Automotive Industry ("Canada - Autos"), WT/DS139/AB/R, WT /DS142/AB/R, 31 May 2000, para. 158.
6. GATS Article 1:3(b).
7. Vienna Convention on the Law of Treaties, 23 May 1969, 1155 U.N.T.S. 331;
8. ILM 679. These rules of treaty interpretation are customary rules of interpretation of public international law under Article 3(2) of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).
9. See Appellate Body Report, United States - Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, 29 April 1996, pp. 16-17. In the context of the GATS,
10. see Appellate Body Report, United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services (" US - Gambling Services"), WT/DS285/AB/R, 7 April 2005, para. 159.
11. This is to be contrasted, for instance, with definitions that use the term "include", thereby indicating that the definition is open-ended and only illustrative.
12. A "service supplier" means any person that supplies a service. "Supply ofa service" includes the production, distribution, marketing, sale and delivery of a service. GATS Article XXVIII(b) and (g).
13. The term "modalities" is not a reference to the defined modes of supply under the GATS. We are using the common or ordinary meaning of the term, and thus it refers to all aspects of the supply of a service.
14. GATS Article XXVIII(b).
15. The New Shorter Oxford English Dictionary, Vol. 1 (Oxford: Clarendon Press, 1993), p. 451.
16. Ibid., Vol. 2, p. 3357.
17. In US - Gambling Services, para. 164, the Appellate Body recalled that dictionaries, alone, are not necessarily capable of resolving complex questions of interpretation. See also Appellate Body Report, United States - Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, 19 January 2004, para. 59, where the Appellate Body said that dictionary definitions have their limitations in revealing the ordinary meaning of a term;
18. and Appellate Body Report, United States - Continued Dumping and Subsidy Offset Act of 2000 (" US - Byrd Amendment"), WT/DS217/AB/R, WT /DS234/AB/R, 16 January 2003, para. 248, where the Appellate Body stated that dictionaries are important guides to, not dispositive statements of, definitions of words in agreements and legal documents.
19. Cf GATS Article 1:2(c).
20. GATS Article XXVIII(d).
21. A definition of "commercial presence" is also found in the Understanding on Commitments in Financial Services, Para. D.2: "[c]ommercial presence' means an enterprise within a Member's territory for the supply of financial services and includes wholly- or partly-owned subsidiaries, joint ventures, partnerships, sole proprietorships, franchising operations, branches, agencies, representative offices or other organizations". This definition, taken in its context, arguably also refers to enterprises supplying financial services with a view to making a financial gain.
22. See the Preamble of the GATS.
23. Appellate Body Report, Canada - Certain Measures Concerning Periodicals ("Canada - Periodicals"), WT/DS31/AB/R, 30 June 1997, p. 28.
24. Panel Report, Canada - Measures Relating to Exports of Meat and Treatment of Imported Grain ("Canada - Wheat"), WT/DS276/R, 6 April 2004, para. 6.84.
25. Ibid., paras 6.84-6.89.
26. Appellate Body Report, Canada - Measures Relating to Exports of Wheat and Treatment of Imported Grain, WT/DS2716/AB/R, 30 August 2004, paras 137-151.
27. Letter to Peter Morrison, 25 February 1992.
28. Id.
29. This forms part of the general "context" of Article I:3(c) under Article 31 of the Vienna Convention.
30. Appellate Body Report, Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products ("Canada - Dairy"), WT/DS103/AB/R, WT/DS113/AB/R, 13 October 1999, para. 97.
31. Appellate Body Report, Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products, Recourse to Article 21.5 of the DSU by New Zealand and the United States, WT/DS103/AB/RW, WT/DS113/ AB/RW, 3 December 2001, para. 112.
32. Appellate Body Report, Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products, Second recourse to Article 21.5 of the DSU by New Zealand and the United States, WT/DS103/AB/RW2, WT/DS113/AB/RW2, 20 December 2002, para. 127. While this is not necessarily relevant for the interpretation of the GATS, it may be worth noting that Chapter 15 of the North American Free Trade Agreement (NAFTA; competition policy, monopolies and state enterprises) appears to define "governmental authority" along similar lines, in that it associates that concept with the power to grant import or export licences, expropriate, approve commercial transactions or impose quotas, fees or other charges. NAFTA Articles 1502(3)(a) and 1503(2).
33. Annex on Financial Services, para. 1.
34. Ibid., para. 5(c).
35. GATS Article XXIX.
36. This is a fundamental principle of treaty interpretation invoked countless times by WTO Panels and the Appellate Body. It reflects the fact that the drafters of a treaty are presumed to have meant something by the inclusion of a provision, otherwise such inclusion would not have occurred. See US - Byrd Amendment, para. 271, where the Appellate Body recalled that the "internationally recognized interpretive principle of effectiveness should guide the interpretation of the WTO Agreement, and, under this principle, provisions of the WTO Agreement should not be interpreted in such a manner that whole clauses or paragraphs of a treaty would be reduced to redundancy or inutility".
37. While a few Members may have made entries in their Schedules of Specific Commitments suggesting a broader or narrower (in general the latter) interpretation of Article I:3(b) and (c) of the GATS - for instance references to public services or public utilities - these entries should not have any significant impact on the interpretation of the GATS, unless they reflect a consistent and uniform agreement or practice on the part of the Members. It does not appear that one can point to such a consistent and uniform agreement or practice regarding the scope and meaning of Article I:3(b) and (c). See M. Krajewski, Public Services and Trade Liberalization: Mapping the Legal Framework, 6J.I.E.L. 2 (2003), pp. 354-355, where the few potentially relevant entries made by Members are discussed.
38. In Chile - Price Band System and Safeguard Measures Relating to Certain Agricultural Products, Report of the Appellate Body, WT/DS/207/AB/R, 23 September 2002, para. 272, the Appellate Body indicated, in the context of GATT Schedules, that the Schedule of one Member, and even the scheduling practice of several Members, is not relevant in interpreting the meaning of a treaty provision, unless that practice amounts to "subsequent practice in the application of the treaty" within the meaning of Article 31(3)(b) of the Vienna Convention.
39. In US - Gambling Services, at paras 191-192, the Appellate Body specified that for a "practice" within the meaning of Article 31(3)(b) of the Vienna Convention to be established, there must be a common, consistent, discernible pattern of acts or pronouncements, and those acts or pronouncements must imply agreement on the interpretation of the relevant provision.
40. The definition of the term "juridical person" in Article XXVIII(1) of the GATS covers legal entities constituted or organized under applicable law, whether or not for profit. Thus, a "service supplier" under the GATS can, in principle, be a not-for-profit legal entity. It does not follow that any service supplied by a not-for-profit entity - on non-profit basis and thus arguably on a non-commercial basis - is necessarily covered by the GATS. Indeed, this would not account for the fact that services that are not supplied on a commercial basis (on a for-profit basis) will nevertheless be subject to the GATS if it can be shown that they are supplied in competition with other service suppliers. It was indicated above that the two conditions in Article 1:3(c) of the GATS are cumulative. The word "juridical person", which is a basic term that, as in other trade agreements, is expressed in a broad and neutral manner, must also be understood in the light of the other provisions of the GATS, taking into account their context and the object and purpose of the Agreement. One may note, for instance, that the concept of "juridical person of another Member", and thus of service supplier of another Member, includes a reference to substantive "business operations". GATS Article XXVIII(m). It is also important to recall that the GATS, like other WTO agreements, is a commercial or trade agreement that is concerned with markets. To the extent that a not-for-profit entity does not provide services on a commercial basis or in competition with other service suppliers, the GATS is inapplicable as per the clear provisions of Article I:3(b) and (c).
41. J.V. Reyna, "Services", in T.T. Stewart (ed.), The GATT Uruguay Round - A Negotiating History (1986-1992), Volume II: Commentary (Deventer and Boston, Kluwer, 1993), pp. 2363-2364.
42. Communication from the European Communities, MTN.GNS/W/105, 18 June 1990.
43. Draft Multilateral Framework for Trade in Services, Article I(3), MTN.GNS/35 (23 July 1990).
44. Working Group on Professional Services, Note on the meeting of 30-31 July 1990 (MTN.GNS/PPOF/1).
45. Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Annex II, Article I(3), MTN.TNC/W/35/ Rev.1, 3 December 1990.
46. Group of Negotiations on Services, Note on the Meeting of 27 May to 6, June 1991, MTN.GNS/42.
47. Group of Negotiations on Services, Note on the Meeting of 24-28 June 1991, MTN.GNS/43.
48. Definitions in the Draft General Agreement on Trade in Services, Note by the Secretariat, MTN.GNS/W/139, 15 October 1991.
49. MTN.TNC/W/FA.
50. Letter to Peter Morrison, 25 February 1992.
51. Informal Note by the Secretariat, Definitions: Article XXXIV, 3 December 1992.
52. Id.
53. Informal GNS Meeting, 10 December 1993, Chairman's Statement, MTN.GNS/49.
54. Postal and Courier Services - Background Note by the Secretariat, S/C/W/ 39, 12 June 1998.
55. Environmental Services - Background Note by the Secretariat, S/C/W/46, 6 July 1998.
56. Legal Services - Background Note by the Secretariat, S/C/W/43, 6 July 1998.
57. Health and Social Services - Background Note by the Secretariat, S/C/W/ 50, 18 September 1998.
58. Education Services - Background Note by the Secretariat, S/C/W/49, 23 September 1998.
59. Report of the Meeting Held on 14 October 1998, Note by the Secretariat, S/C/M/30, 12 November 1998.
60. The European Communities - Hungary Europe Agreement & al., Joint Communication from the Parties, WT/REG50/2/Add.3, 19 May 1999.
61. Report of the Second Session of the Review Mandated Under Paragraph 5 of the Air Transport Annex, Note by the Secretariat, S/C/M/50, 5 March 2001.
62. The European Communities and Romania, Services, Questions and Replies, WT/REG2/7, 10 February 2004.
63. J.O.C.E. No. C325, 24 December 2002. For an analysis of this provision, see P. Graig, and G. De Búrca, EU Law: Text, Cases and Materials (3rd edn, Oxford: Oxford University Press, 2003), pp. 769-771.
64. There may also be distinctions to be made between the GATS and the services provisions of the EC Treaty, for instance in terms of context, object and purpose.
65. This view is shared by others. See Krajewski, as note 31 above, pp. 357-358;
66. H. Ruiz Fabri and J-P. Crontiras, L'Organisation mondiale du commerce et les services publics, Les rapports de l'Iddri 2 (2003), pp. 31-32.
67. Ruiz Fabri and Contriras, ibid., p. 30, express a similar idea, which is worth reproducing here: II semble quelélément déterminant est celui des considérations régissant la fixation du prix. Si le prix est fixé en fonction des conditions du marché, sur la base du jeu de l'offre et de la demande, uniquement en vue d'un profit, alors l'activité sera considérée comme rendue sure une base commerciale. Au contraire, l'hypothèse dans laquelle le service est rcndu indépendamment de considérations de rentabilité semble exclure une telle qualification. Pourtant, la frontière est parfois difficile à percevoir.... La situation devra probablement être analysée au cas par cas, en fonction des particularités de l'activité, des coûts inhérents à cette activité et des buts recherchés.
68. Krajewski, as note 31 above, p. 351, also shares that view.
69. See also M. Krajewski, Environmental Services of General Interest in the WTO: No Love at First Sight, 2 J.E.E.P.L. (2004), pp. 101, 107.
70. Annex para. 1(c) provides that if a Member allows any of the activities referred to in subparagraphs (b)(ii) or (b)(iii) of para. 1 (e.g., activities conducted by a public entity for the account or with the guarantee or using the financial resources of the government) to be conducted by its financial service suppliers in competition with a public entity or a financial service supplier, these activities are not "services supplied in the exercise of governmental authority" and are subject to the GATS.
71. Oxford English Dictionary, as note 11 above p. 459.
72. Canada - Periodicals, p. 28.
73. Cf. Article 31 of the Vienna Convention.
74. GATS Article XVII:3.
75. Annex on Financial Services, para. 1(c).
76. Understanding on Commitments in Financial Services, para. B.10(d).
77. Panel Report, Mexico - Measures Affecting Telecommunications Services ("Mexico - Telecoms"), WT/DS204/R, 2 April 2004, para. 7.230. This report was not appealed before the Appellate Body.
78. Ibid., paras 7.230-7.238.
79. The word "competition" is used 30 times throughout the WTO agreements. For example, it is used in Articles 3.3 and 3.5 of the Agreement on the Implementation of Article VI of GATT 1994; in Articles 15.3 and 15.5 of the Agreement on Subsidies and Countervailing Measures; in Articles 22(2)(b), 39 and 40 of the Agreement on Trade-Related Aspects of intellectual Property Rights; and in Articles VI:4, VII:2, X:I, XV:1, XVIII:4, XIX:2, and XIX:4 of the Agreement on Government Procurement.
80. Appellate Body Report, Japan - Taxes on Alcoholic Beverages ("Japan - Alcoholic Beverages"), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, 4 October 1996, pp. 16-17.
81. Ibid., p. 2.
82. Ibid., p. 25.
83. Id.
84. Id.
85. Id.
86. Panel Report, Japan - Taxes on Alcoholic Beverages, WT/DS8/R, WT/DSl0/R, WT/DS11/R, 11 July 1996.
87. Ibid., para. 6.32
88. Canada-Periodicals, pp. 28-31.
89. Appellate Body Report, Korea - Taxes on Alcoholic Beverages ("Korea - Alcoholic Beverages"), WT/DS75/AB/R, WT/DS84/AB/R, 18 January 1999.
90. Panel Report, Korea - Taxes on Alcoholic Beverages, WT/DS75/R, WT/DS84/ R, 17 September 1998.
91. Korea - Alcoholic Beverages, Appellate Body Report, as note 78 above, p. 42;
92. Panel Report, ibid., para. 10.61.
93. Panel Report, Chile - Taxes on Alcoholic Beverages ("Chile - Alcoholic Beverages"), WT/DS87/R, WT/DS110/R, l5 June 1999, paras 7.30-7.88.
94. Appellate Body Report, United States - Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan ("US - Cotton Yarn from Pakistan"), WT/DS192/AB/R, 8 October 2001. Article 6(2) of the Agreement on Textiles and Clothing reads as follows: Safeguard action may be taken under this Article when, on the basis of a determination by a Member, it is demonstrated that a particular product is being imported into its territory in such increased quantities as to cause serious damage, or actual threat thereof, to the domestic industry producing like and/or directly competitive products. Serious damage or actual threat thereof must demonstrably be caused by such increased quantities in total imports of that product and not by such other factors as technological changes or changes in consumer preference.
95. US - Cotton Yarn from Pakistan, para. 96.
96. Cf. Panel Report, Korea - Alcoholic Beverages, para, 10.40.
97. See section IV.C.2. below.
98. Appellate Body Report, European Communities - Measures Affecting Asbestos and Asbestos-Containing Products ("EC-Asbestos"), WT /DS135/AB/R, 12 March 2001, paras 88-89.
99. See section IV.C.2. below.
100. Mexico - Telecoms, paras 7.235-7.236. The Panel did not indicate the specific basis on which it relied to use these sources for the purpose of interpreting the concept of "anti-competitive practices" in the Reference Paper. It appears, however, that the Panel likely used these sources as supplementary means of interpretation under Article 32 of the Vienna Convention.
101. R.S.C. 1985, c. C-34 (as amended).
102. Other relevant statutes include the Consumer Packaging and Labelling Act (R.S,C. 1985, c. C-38); the Textile Labelling Act (R.S.C. 1985, c. T-10); the Precious Metals Marking Act, (R.S.C. 1985, c. P-19) and certain provisions ofthe Criminal Code (R,S.C. 1985, c. C-48).
103. See, e.g., Sections 11 and 15 of the Act.
104. See Sections 45, 77 and 78 of the Act.
105. Available at .
106. Guidelines, Executive Sununary.
107. Guidelines, Part 3.1.
108. Id.
109. Id.
110. Section 2 of the Act defines "product" as including articles and services.
111. Guidelines, Part 3.2.2.1 to 3.2.2.8.
112. Guidelines, Part 3.2.2.1 to 3.3.2.9.
113. Id.
114. The Commissioner of Competition v. Superior Propane Inc., 2000 Comp. Trib. 15, available at , paras 68-69.
115. Ibid., Paras 24-25.
116. Ibid., paras 32-146.
117. Ibid., paras 147, 154, 158.
118. Case 27/76, United Brands v. Commission, [1978] ECR 207.
119. Ibid., paras 12-35.
120. Case 31/80, L'Oréal v. De Nieuwe AMCK, [1980] ECR 3775, para. 25.
121. [1973] ECR 215.
122. Ibid., para. 227.
123. Case 27/76, United Brands v. Commission.
124. Commission Notice of 3 October 1997, on the definition of the relevant market for the purposes of Community Competition Law, OJ 1997 C372.
125. Id.
126. Id.
127. Ibid., Section III.
128. Case No. COMP/M.1741-MCI.
129. In a previous contested merger case between WorldCom and MCI, the Commission rejected the proposition that other forms of data transmission services are equally substitutable for Internet services: "The provision of specific end-user to end-user data transmission facilities using other data protocols might well enable customers to reach a limited number of other customers using the same protocol, but it would not provide the permanent, unfettered access to the community of Internet users which is the main purpose of buying the service." Commission Decision of 8 July 1998, Case IV/M.1069, WorldCom/MCI, para. 60.
130. "In summary, all undertakings involved in the provision of Internet services purchase transit and are direct or indirect customers of the top-tier connectivity providers." Commission Decision of 28 June 2000, Case No. COMP/M.1741-MCI, para. 54.
131. Commission Decision of 8 July 1998, Case IV/M.1069, WorldCom/MCI, para. 69.
132. Commission Decision of 28 June 2000, Case No. COMP/M.1741-MCI, para. 97.
133. Id.
134. It should be noted that the Commission also studied the impact of the merger on the market for the provision of global telecommunications services to multinational companies but could find no anti-competitive impact.
135. 15 U.S.C.A., Sections 1-11.
136. 15 U.S.C.A., Sections 12-27.
137. 15 U.S.C.A., Sections 41-58.
138. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines of 2 April 1992 (as revised on 8 April 1997), available on the DOJ's website at .
139. Although the MEG refer to "products", the federal agencies apply the same MEG, mutatis mutandis, to mergers involving services.
140. MEG, Section 1.11.
141. Ibid., Section 1.11. This list is clearly not exhaustive.
142. Ibid., Secton 1.21.
143. The Convention is available at .
144. OECD, Directorate for Financial, Fiscal and Enterprise Affairs, Competition Committee, Media Mergers, DAFFE/COMP(2003)16, 16 September 2003. Available at .
145. WTO Working Group on the Interaction between Trade and Competition Policy, The Fundamental Principles of Competition Policy, Background Note by the Secretariat, WT/SGTCP/W/127, 7 June 1999.
146. OECD, Glossary of Industrial Organization Economics and Competition Law, available at . The entry also refers to the US and Canadian merger guidelines and the test they adopt based on the likely demand response of consumers to an anticompetitive price increase.
147. World Bank and OECD, A Framework for the Design and Implementation of Competition Law and Policy (OECD and World Bank, 1999).
148. Ibid., p.60.
149. General Assembly resolution 1995 (XIX) of 30 December 1964 (as amended), available at .
150. See, e.g., UNCTAD Series on Issues in Competition Law and Policy. Some articles are available at .
151. Available at .
152. This is by no means an exhaustive list of factors to consider, and each case will need to be determined on its own merits.
153. See note 18 above and the accompanying text.
154. See note 139 above.