Negotiations on safeguards and subsidies in services: A never-ending story?

Journal of International Economic Law

Volumn 10, Issue 2, 2007, Pages 235-265

  Adlung, Rudolf ^a  

^a WTO Secretariat

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EID: 52649153050     PISSN: 13693034     EISSN: 14643758     Source Type: Journal    
DOI: 10.1093/jiel/jgm004     Document Type: Review

References (78)

1. The negotiating period for safeguards has been extended several times, most recently in March 2004. The relevant decision now provides that, subject to the outcome of the mandate, the results shall enter into effect not later than the results of the current round of services negotiations. For a history of the safeguards negotiations and an overview of various proposals tabled by WTO Members see, for example, Pierre Sauvé, 'Completing the GATS Framework: Addressing Uruguay Round Leftovers', 57(3) Aussenwirtschaft (2002), 301 and Roy Clogstoun/Ray Trewin/Malcolm Bosworth, 'Would Emergency Safeguard Measures Work for Services?', 20(2) Asian-Pacific Economic Literature (2006), 56. Especially the latter article presents a variety of - mostly economic - arguments against the creation of a safeguards mechanism (costs to consumers and other producers; economy-wide inefficiencies if infrastructural services are involved; reduced adjustment incentives in potentially vulnerable industries; etc.) as well as - mainly politically motivated - considerations militating in favour (positive impact on Member's propensity to undertake commitments; insurance mechanism in the event of ill-specified entries; substitute for less transparent and potentially more distortive options such as non-specified economic needs tests; etc.). The proponents' view, with a particular emphasis on developing country interests, is also eloquently reflected in an UNCTAD document: Mario Marconini, 'Emergency Safeguard Measures in the GATS: Beyond Feasible and Desirable', UNCTAD/DITC/TNCD/2005/4, 16 March 2005.
2. Sauvé (ibid, at 314) considers the negotiating mandate in Art. X:1 to amount to 'a contractual obligation to conclude an emergency safeguard agreement'. He opines that a number of developing countries might have undertaken commitments in the Uruguay Round on the understanding that such a mechanism would eventually be created. For a conflicting interpretation of the mandate, see Yong-Shik Lee, Safeguard Measures in World Trade - The Legal Analysis (The Hague/London/New York: Kluwer Law International, 2003), 60.
3. See, however, below n 46.
4. Interestingly, the GATS does not contain a definition of the term 'subsidy'. Following Sauvé (ibid, at 326-31), however, it appears reasonable to start from the definition of the Agreement on Subsidies and Countervailing Measures. Hence, broadly speaking, a subsidy involves a financial contribution by a government that confers a benefit on a recipient. The Members that have inscribed subsidy-related limitations in their schedules of commitments (Table 1) most likely have based themselves on such a definition.
5. See, for example, the minutes of the Working Party on GATS Rules, circulated as WTO documents S/WPGR/M/[. . .], the publications quoted in above n 1 and 2 as well as Juan A. Marchetti/Petros C. Mavroidis, 'What are the Main Challenges for the GATS Framework? Don't Talk About Revolution', 5 European Business Organization Law Review (2004) 511.
6. Article VI of the GATT (Anti-dumping and Countervailing Duties) uses the term 'material injury'. The Appellate Body has stressed on several occasions that safeguard measures must be applied only when all the provisions of the Agreement on Safeguards and of Art. XIX are satisfied, including the existence of ' "unexpected" and, thus, "unforeseen" circumstances which lead to the product "being imported" in "such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers of like or directly competitive products" '. WTO Appellate Body Report, Argentina - Safeguard Measures on Imports of Footwear (Argentina - Footwear), WT/DSR121/AB/R, adopted 12 January 2000, para 94. See also n 27.
7. See Marconini, above n 1, at 5. In fact, of the trade remedy measures taken during the first ten years of the WTO (January 1995 to December 2004) over 90% concerned anti-dumping and less than 4% safeguards cases. The latter, however, proved particularly controversial. Of the 65 safeguards measures imposed during the WTO's first ten years, eight were referred to Panels. The relevant share, 12%, compares with 6% for countervailing duties and 1.5% for antidumping measures. See Hiromi Yano, 'Recent Trends and Developments in the Use of Safeguard Measures', in Mitsuo Matsushita, Dukgeun Ahn and Tain-Jy Chen (eds), The WTO Trade Remedy System: East Asian Perspectives (London: Cameron 2006) 159.
8. Under the MFN requirement of Art. II, Members are required to extend 'immediately' and 'unconditionally' to services and service suppliers of other Members the treatment accorded to like services and service suppliers of any other country. Members that had not listed relevant exemptions (see n 16) would need to seek a waiver under the WTO Agreement for MFN-inconsistent measures. Maritime transport is a special case, however. The relevant negotiations could not be concluded during the Uruguay Round and a sector-specific extension until mid-1996. Pending an agreed outcome, the MFN obligation has remained suspended for those WTO Members that have not scheduled commitments in the sector. This includes the EC which had created in 1986 a particular mechanism against unfair pricing practices in maritime transport. Council Regulation 4057/86 allows for the imposition of duties to protect Community ship-owners from such practices on the part of third-country owners (Official Journal L 378, 31 December 1986). The regulation was used in 1989 against the Korean-owned Hyundai Merchant Marine Company (n 64).
9. Roughly speaking, the camp of the sceptics consists of all developed countries, with the US, EC, Japan, Canada and Switzerland being particularly articulate, plus a number of developing countries such as India, Chile and Mexico. The proponents are led by ASEAN Members, except Singapore, and supported, inter alia, by Brazil, China and African countries. See also Malcolm Bosworth/Dionisius A. Narjoko, 'Desirability, Feasibility and Options for Establishing ESM within the AFAS', REPSF Project No. 05/007 (2006).
10. In contrast, subsidies displacing imports of non-agricultural products might fall under Part III of the Agreement on Subsidies and Countervailing Measures ('Actionable Subsidies') and could ultimately be challenged by the affected Member under dispute settlement provisions. See n 57.
11. The relevant provisions apply only to government-mandated monopolies and not to otherwise acquired monopoly positions. See Art. XXVIII(h) of the GATS.
12. For example, the exemption of foreign established companies from an export promotion scheme would be incompatible with national treatment under mode 3.
13. At the centre of the following discussion are the trading conditions under modes 1-3. The extension to mode 4 would have complicated the picture without adding a lot of relevant insights, given the extremely restrictive nature of the commitments concerned. See, for example, Antonia Carzaniga, 'The GATS, Mode 4, and Patterns of Commitments', in Aaditya Mattoo and Antonia Carzaniga (eds), Moving People to Deliver Services (Washington, DC: the World Bank and Oxford University Press, 2003), 21-26.
14. For example, out of some 160 services sectors, a few least-developed countries have scheduled only one or two, while others committed over 100. The corresponding range for developed countries spreads from less than 90 to close to 120 (see also Tables 1 and 2). On average, the latter group scheduled 105 sectors as compared to 24 for least-developed and 41 for developing countries (excluding transition economies). See Rudolf Adlung/Martin Roy, 'Turning Hills into Mountains? Current Commitments Under the General Agreement on Trade in Services and Prospects for Change', 39 Journal of World Trade 1161 (2005), at 1183.
15. The measures involved can confidently been maintained under relevant GATS provisions and do not include conceivable 'grey area' substitutes such as excessively restrictive standards, qualification or licensing requirements.
16. Exemptions from the MFN obligation could be obtained for measures listed at the end of the Uruguay Round or, if later, the date of accession. The Annex on Art. II Exemptions provides that 'in principle, such exemptions should not exceed a period of ten years'. Permanent departures from MFN treatment are possible, in specified circumstances, for WTO Members participating in Economic Integration Agreements (Art. V) or recognizing the equivalence of particular foreign standards, licences or degrees (Art. VII). See also Box 1.
17. Article XXI:1 provides for modifications of commitments if at least three years have lapsed from the date of entry into force. Pending agreement on an emergency safeguards mechanism, Art. X shortens this period to one year provided that the Member 'shows cause' that the full three years would be too long. See also Section III.D.
18. See Adlung and Roy in above n 14.
19. For a comparison of access obligations under PTAs with GATS commitments and Doha Round offers see Martin Roy/Juan Marchetti/Hoe Lim, Services Liberalization in the New Generation of Preferential Trade Agreements (PTAs): How Much Further than the GATS?, WTO Staff Working Paper ERSD-2006-07 (Geneva: WTO 2006).
20. AWTO Secretariat document of 2003 provides an overview of safeguard-type provisions in a relatively limited number of Economic Integration Agreements (EC Treaty of Rome, Agreement on the European Economic Area, EFTA Convention, the Europe Agreements between the EC and Central and Eastern European countries, and the North American Free Trade Agreement). WTO document S/WPR/W/4/Add.1, 20 February 2003. See also Bosworth and Narjoko in above n 9, at 6-7.
21. Of the 25 definitive safeguard measures maintained by WTO Members in merchandise trade in October 2006, three took the form of quantitative restrictions, 15 consisted of tariff surcharges, specific duties and similar measures, and seven were of a non-disclosed nature. WTO document G/L/795, 3 November 2006.
22. Pursuant to its Art. I:1, the GATS applies 'to measures by Members affecting trade in services'. The Scheduling Guidelines, adopted by the Council for Trade in Services in March 2001, state that Art. XVII 'applies to subsidies in the same way as it applies to all other measures . . . . Therefore, any subsidy which is a discriminatory measure within the meaning of Art. XVII would have to be either scheduled as a limitation on national treatment or brought into conformity with that Article'. WTO document S/L/92, 28 March 2001, at 59. For a discussion of the legal status of the Scheduling Guidelines see WTO Appellate Body Report, United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services (United States - Gambling Services), WT/DS285/AB/R, adopted 20 April 2005, paras 175 and 196. The Report elaborates on an older version of the Scheduling Guidelines, circulated in 1993. It considers that these Guidelines do not constitute context for the purpose of interpreting the GATS within the meaning of Art. 31(2) of the Vienna Convention, but supplemental means of interpretation as identified in Art. 32 of the Convention.
23. Given the GATS' extension to four modes of supply and its application to both products (services) and producers/suppliers, an assessment of likeness is even more challenging than under the GATT. For a discussion see Mireille Cossy, Determining 'likeness' under the GATS: Squaring the circle?, WTO Staff Working Paper ERSD-2006-08 (Geneva: 2006).
24. See WTO document S/L/92, 28 March 2001, para 16.
25. WTO documents GATS/SC/130 (Croatia) and GATS/SC/137, 22 December 2000 and 22 April 2004, respectively. Armenia's schedule explicitly states that the limitations apply irrespective of capital ownership.
26. See Rudolf Adlung, 'Services Negotiations in the Doha Round: Lost in Flexibility?', 9 JIEL 865 (2006), at 880.
27. According to the Appellate Body, '. . . safeguard measures were intended by the drafters of the GATT to be matters out of the ordinary, to be matters of urgency, to be, in short, "emergency actions". And, such "emergency actions" are to be invoked only in situations when, as a result of obligations incurred under the GATT 1994, an importing Member finds itself confronted with developments it had not "foreseen" or "expected" when it incurred that obligation. The remedy that Art. XIX:1(a) allows in this situation is temporarily to "suspend the obligation in whole or in part or to withdraw or modify the concession". Thus, Art. XIX is clearly an extraordinary remedy.' WTO Appellate Body Report, Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS/98/AB/R, adopted 12 January 2000, para 86.
28. In fact, GATT/WTO Panels found non-violation and impairment in only four cases since 1947, and none in services. See, for example, Thomas Cottier/Matthias Oesch, International Trade Regulation - Law and Policy in the WTO, the European Union and Switzerland (Berne and London: Staempfli Publishers and Cameron May, 2005), at 127-136;
29. and Locknie Hsu, 'Non-violation Complaints - World Trade Organization Issues and Recent Free Trade Agreements', 39(2) Journal of World Trade 205 (2005), at 208.
30. There is always the option for Members to adopt a common understanding in this regard. However, past experience in other cases, concerning for example the status of electronic transmissions under mode 1 or mode 2, suggests that the chances of an agreed outcome are remote. See Rudolf Adlung, 'Public Services and the GATS', 9 JIEL 455 (2006), at 470.
31. The shares of modes 1 and 2 are in the order of 30 and 15-20%, respectively, while that of mode 4 is almost negligible. See WTO, International Trade Statistics 2005 (Geneva: WTO Publications, 2005), at 8.
32. For example, Art. 48 of the EC Treaty requires in principle that companies that are established in EC Member States be treated in the same way as natural persons who are nationals of Member States. No distinction is made on the grounds of ownership.
33. See also the publications listed in above n 1.
34. See, for example, WTO document S/WPGR/M/41, 12 March 2003, at 5.
35. See also above n 27.
36. However, what may be true for developing countries on average, needs to be qualified in quite a number of cases. See above n 14. On the other hand, the Hong Kong Ministerial Declaration explicitly exempts least-developed countries, 'in view of their particular economic situation', from the expectation to undertake new commitments in the current round. WTO document WT/MIN(05)/DEC, 22 December 2005, para 26.
37. Interestingly, under the negotiating mandate on subsidies in Art. XV:1, Members are held to 'recognize the role of subsidies in relation to the developing programmes of developing countries and [to] take into account the needs of Members, particularly developing country Members, for flexibility in this area'.
38. See above n 27. There may be temptations, however, to apply safeguards, once available in services, as a broader-based trade remedy instrument, including in situations where Members might resort to anti-dumping or countervailing actions in merchandise trade (Section I).
39. This is true not only for submissions in WTO fora, including documents prepared by the WTO Secretariat (S/WPGR/W/1, 6 July 1995, and S/WPGR/W/8, 6 March 1996), but also for the publications listed in above n 1 and 5.
40. For a discussion of technical issues (relevant periods, data requirements, need for compensation of affected Members, etc.), see Marconini in above n 1.
41. Different variants of this concept have been mentioned. See, for example, WTO document S/WPGR/M/42, 19 June 2003, at 9.
42. Some additional 600 Treaties are still awaiting ratification, although their status is not always clear. The most frequent signatories are Germany and China, with some 130 and 115 Treaties, respectively, followed by Switzerland with over 100. The possibly largest economy not currently bound under any BIT is Brazil, which has not yet ratified any of its 14 Treaties. See UNCTAD, The Entry into Force of Bilateral Investment Treaties (BITs), IIA Monitor No. 3 (2006) 3 (UNCTAD/WEB/ITE/IIA/2006/9). 'Investment' in these Treaties is defined to include, among others: 'shares in and stocks of a company and any similar forms of participation in a company'. This implies a wider coverage than the scope of the GATS, which is limited to foreign majority-owned or foreign-controlled companies, thus excluding mere portfolio investments. For more details see Martin Roy, 'Implications for the GATS of Negotiations on a Multilateral Investment Agreement', 4(6) The Journal of World Investment 963 (2004), at 968. The Treaties are available at: www.unctadxi.org/templates/ DocSearch____779.aspx (visited 28 January 2007).
43. For example, the Treaty with Singapore contains a grandfathering provision that provides cover for existing legislation inconsistent with national treatment.
44. Zachary Elkins/Andrew T. Guzman/Beth A. Simmons, 'Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960-2000', 60 International Organization 811 (2006), at 814; and UNCTAD, Systemic Issues in International Investment Agreements (IIAS), IIA Monitor No. 1 (2006) 2 (UNCTAD/WEB/ITE/IIA/ 2006/2).
45. For instance, while higher minimum reserve requirements for foreign-owned companies or restrictions on the participation of foreigners in company boards would need to be covered by national treatment limitations under Art. XVII, their status as pre- or post-establishment measures under BITs appears less clear.
46. Only few Members have sought MFN exemptions specifically for their BITs. The only cases among the countries mentioned above are Chile, Costa Rica, Singapore and Uruguay. Chile's exemption relates to the dispute settlement procedures provided for under such Treaties, while Singapore refers to obligations under BITs to protect co-signatories from unforeseen contingencies, such as nationalization or war, which are not extended to other WTO Members. See WTO documents GATS/EL/18 and GATS/EL/76, 15 April 1994.
47. Apparently, negotiators have tended to associate the mandate's explicit reference to 'the principle of non-discrimination' (Art. X:1, 1st sentence) with an MFN obligation only, rather than with a national-treatment requirement as well. This is understandable insofar as GATT-type safeguard measures necessarily discriminate foreign-based suppliers. Interestingly, however, a footnote (n 2) to the GATS' Annex on Telecommunications extends the meaning of 'non-discrimination' to national treatment as well.
48. The results were incorporated in the participating Members' schedules via the Fourth Protocol to the GATS, which entered into force on 5 February 1998 (WTO document S/L/92, 26 April 1996).
49. WTO document WT/L/567, 17 May 2004.
50. See above n 17.
51. See above n 27.
52. For example, during a specified period prior to and after the entry into force of a full(?) commitment, its implementation could be suspended for, say, up to two or three years. The possibility of prior invocation might prove relevant in the case of phase-in commitments whose implementation is hampered, for example, by unexpected delays in the legislative process. To prevent excessive use, some procedural obligations might be needed - e.g. notification and explanation to the Council for Trade in Services - and the number of such initiatives could be limited to one or two cases per Member.
53. See Adlung in above n 26, at 891. In this context, it is interesting to note Ministers' commitment in the Hong Kong Declaration (above n 35, Annex C, para 1) to removing or substantially reducing such tests for modes 3 and 4 as well as to ensuring that the scheduling of 'any remaining' tests adheres to the Scheduling Guidelines, i.e. that the main criteria are specified. In turn, this language is indicative of a common perception that, at least with regard to economic needs tests, current schedules contain too much scope for discretion.
54. See, however, Sauvé in above n 2.
55. Commission of the European Communities, COMP/35.141 Deutsche Post AG - Art. 82 of the EC Treaty - Antitrust - [2001] ECComm 10 (20 March 2001).
56. The instruments chosen were fidelity rebates to the biggest clients. The rebates were deliberately intended to prevent competitors from reaching a critical minimum turnover. According to the Commission Decision, the system demonstrably had the same effect as exclusive purchase obligations.
57. The relevant requirement under Art. XV:2 consists of no more than according 'sympathetic consideration'. In the absence of a notification requirement, it is unclear whether such consultations have ever been conducted under either Article.
58. Marc Benitah, Subsidies, Services and Sustainable Development (Geneva: ICTSD Issue Paper No.1 2004), at 9. In contrast, the Agreement on Subsidies and Countervailing Measures (Arts 6 and 7) provides that if import-displacing subsidies cause serious prejudice to an industry, the aggrieved Member may request consultations with the subsidizing Member and, if these remain unsuccessful, refer the case to the Dispute Settlement Body for the establishment of a Panel. Depending on the Panel's findings, the Member concerned might be required to take 'appropriate steps to remove the adverse effects or . . . withdraw the subsidy'. The same possibilities exist for Members whose exports on third-country markets are displaced or impeded by other Members' subsidized exports.
59. The economically preferable solution might be not to react at all, of course, and to simply consider another country's subsidies as gifts. However, this may prove too naïve an advice for governments that are under pressure to defend the national (producer) interest.
60. This presupposes that, at least during an initial period, the imposition of safeguards would not be subject to compensation. As noted before (Section II.B.1), appropriate levels of compensation would prove very difficult to determine in any event.
61. The following section pays no particular attention to one potentially relevant issue, the link between subsidies and the provision of public services, which has been discussed at length in Adlung, above n 29.
62. It is conceivable, however, that for cultural or humanitarian policy reasons, countries may want to subsidize cross-border exports of tele-education, tele-health or cultural services (e.g. audiovisual products).
63. See also Carzaniga, above n 13. Concerns raised in development-related discussions tend to focus on the risk of brain drain in the home country, rather than on the possibility that services professionals in a receiving country might be exposed to 'unfair' competition. However, there are no constraints under the GATS that would prevent a country from regulating the outflow of professionals, for example, in the form of public service obligations on newly trained doctors, nurses, etc. See Adlung above n 29, at 461.
64. See, for example, Report of the Working Party on GATS Rules, WTO document S/WPGR/M/21, 16 April 1999.
65. An overview of subsidies identified in WTO Trade Policy Reviews is contained in WTO document S/WPGR/W/25/Add. 4, 12 February 2004. The 'redressive duties' imposed by the EC under its Regulation on unfair pricing practices in maritime transport, in 1989, were justified on two grounds: the existence of benefits under a cargo reservation scheme in the company's home country (Korea) and various support measures, including tax benefits, accruing to it under an industrial rationalization plan. The Communities' intervention thus comes closer to an anti-dumping than to a countervailing action under the GATT. See Edwin Vermulst, 'Commercial Defense Actions and Other International Trade Developments in the European Communities: 1 July 1988 - 30 June 1989', 1(1) European Journal of International Law 337 (1990), at 353.
66. As indicated before (n 29), however, the borderline between modes 1 and 2 is not entirely clear in the case of electronic transmissions.
67. The Scheduling Guidelines (n 22) expressly confirm that mode 2 also covers 'activities such as ship repair abroad, where only the property of the consumer "moves", or is situated abroad'. In turn, this implies that repairs of foreign-owned ships, aircraft, and so on within the scheduling Member's territory represent 'exports' under mode 2.
68. See n 64. Subsidies in the health or education sectors are rarely mentioned in TPR Reports. This may be due not only to governments' reluctance to provide information, but also to doubts whether the funds involved actually constitute 'subsidies' and the initial recipients (e.g. governmental bodies) fall under the GATS.
69. Article 3 of the Agreement on Subsidies and Countervailing Measures (ASCM) bans all non-agricultural subsidies that are 'contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance'. A footnote further clarifies that this includes cases where 'the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export earnings'. The mere fact that a receiving enterprise conducts exports is not deemed sufficient per se to qualify a subsidy as an export subsidy.
70. There may even be doubts, whether incentives destined for hotels in tourist regions already constitute 'in fact' export subsidies within the meaning of the ASCM. In Canada - Aircraft, the Appellate Body stated that the 'relationship of contingency, between the subsidy and export performance, must be inferred from the total configuration of the facts constituting and surrounding the granting of the subsidy, none of which on its own is likely to be decisive in any given case'. See WTO Appellate Body Report, Canada - Measures Affecting the Export of Civilian Aircraft (Canada - Aircraft), WT/DS70/AB/R, adopted 29 August 1999, para 167.
71. See Benitah, n 57, at 20f.
72. As noted before (Section III.A), an aggrieved Member could call for consultations under Art. XV:2, but would have no palpable remedies at hand.
73. The Decision adopted by the General Council on the Doha Work Programme, on 1 August 2004, provides that 'no work towards negotiations will take place within the WTO during the Doha Round' on most of the so-called Singapore issues, including the interaction between trade and competition policy (WTO document WT/L/579, 2 August 2004, para g). This was despite a mandate contained in the Doha Ministerial Declaration of 2001 which provided for such negotiations to take place after the following Ministerial Conference 'on the basis of a decision to be taken, by explicit consensus, . . . on modalities of negotiations' (WTO document WT/MIN(01)/DEC/1, 20 December 2001). See also Robert D. Anderson/Hannu Wager, 'Human Rights, Development, and the WTO: The Cases of Intellectual Property and Competition Policy', 9 JIEL 707 (2006), at 735.
74. There has been some discussion of this issue, however, in the aftermath of the Panel and Appellate Body Reports in United States - Gambling Services (above n 22). For further references see Adlung in n 26, at 878.
75. See, for example, Roy in above n 41. The Decision adopted by the General Council on the Doha Work Programme, on 1 August 2004, also precluded work during the Doha Round on the relationship between trade and investment.
76. The EC Member States are counted individually. For more details see Marco C.E.J. Bronckers/Pierre Larouche, 'Telecommunications Services and the World Trade Organization', 31 Journal of World Trade 5 (1997).
77. Like the preceding sections, the following discussion excludes trade under mode 4, given the particularly restrictive nature of virtually all commitments and offers under this mode. Also, the focus is not on the economic rationale of such measures, which has already been dealt with extensively in the publications listed in above n 1, 5 and 9.
78. A potentially relevant forum is the International Centre for Settlement of Investment Disputes (ICSID); see www.worldbank.org/icsid/about/about.htm (visited 28 January 2007).