TWN Info Service on WTO and Trade Issues (Mar16/09)
22 March 2016
Third World Network

GATS Mode 4 issues to be raised at Working Party on Rules
Published in SUNS #8204 dated 18 March 2016

Geneva, 17 Mar (D. Ravi Kanth) - India and Turkey are expected to raise Thursday at the Working Party on GATS Rules (WPGR), the unaddressed issues over the movement of short-term service providers under Mode 4 of supply of the General Agreement on Trade in Services (GATS), services negotiators told SUNS.

The European Union is due to start a conversation Thursday at the WPGR on how to bring government procurement procedures for treating foreign-owned or controlled established service suppliers under Mode 3 of the General Agreement on Trade in Services.

At this time, Turkey and India are expected to raise the unaddressed issues concerning the movement of short- term services providers under Mode 4 of the GATS.

These two issues are expected to figure prominently at the meeting of the WPGR.

While attempts are being made to set aside all the previous work done in the services negotiations under the Doha work program since 2001, the developed countries are leaving no stone unturned in bringing their core issues such as government procurement because of the controversial post-Nairobi work program, according to several developing country members.

The Nairobi ministerial declaration in paragraph 34 has provided vague language to bring new issues though with some caveats. It says: "While we concur that officials should prioritize work where results have not yet been achieved, some wish to identify and discuss other issues for negotiation; others do not. Any decision to launch negotiations multilaterally on such issues would need to be agreed by all Members."

The European Union, which remained unsuccessful in its efforts to include government procurement in the ongoing plurilateral trade in services agreement, has flagged the issues concerning government procurement procedures for services suppliers as a central priority.

The EU, which is the main demandeur for starting a discussion on new issues at the WTO's tenth ministerial conference in Nairobi over three months ago, wants to address "whether and to what extent, Members discriminated against locally established service suppliers on the basis of their degree of foreign ownership or control in their procedures relating to public procurement of services."

In the run-up to the WPGR meeting, the EU has said that it wants "a voluntary exchange of information among Members regarding their existing government procurement practices."

Although the EU's proposal was made in the context of the Working Party's regular work, the EU sought to know several legal and interpretational aspects concerning established services suppliers. The EU provided the following clarifications:

(a) Definition of "established" service suppliers: the latter designated a "juridical person", i.e., any legal entity duly constituted or otherwise organized under applicable law in the host country in accordance with GATS Article XXVIII lit. (l). Hence, this excluded forms of commercial presence without separate legal personality, such as branches or representative offices;

(b) Definition of "foreign-owned or controlled" service suppliers: the latter was in accordance with the definitions in GATS Article XXVIII lit. (n);

(c) Possible coverage of all levels of government: the delegation of the European Union stated its openness, in principle, to cover all levels of governments in the information exchange (i.e., also the EU member States). As the information exchange was voluntary, this question would be left to the discretion of each Member participating in it;

(d) Inclusion of other modes of supply beyond mode 3: the EU delegation was open to include other modes of supply, and invited those Members who had suggested this to present specific proposals on how other modes could be incorporated in the discussion.

Effectively, the EU is attempting to bring the government procurement in services into the centre-stage as part of its post-Nairobi efforts to kick-start the discussion on new issues, said a developing country trade negotiator.

As a counter to efforts launched by the EU, developing countries have also brought their core issues concerning continued and escalating barriers faced by services providers in the movement of natural persons under Mode 4.

Turkey, for example, circulated a paper for addressing economic needs tests (ENTs) and whether they are discriminatory or not. Although "Article XVI covers both discriminatory and non-discriminatory ENTs," the members' schedules often do not provide a description as to whether the origin of the service or the service supplier is a criterion of the test.

Turkey argued that "as such, the fact that most ENT entries in Members' schedules do not conform to the Scheduling Guidelines creates inconsistency among Members' schedules, lack of transparency on ENTs has a chilling effect on the potential service supplier."

Against this backdrop, Turkey wants members "to work on how best to schedule ENTs in commitments" for removing the discriminatory aspects, particularly in the movement of short-term services providers in Mode 4.

In its detailed restricted proposal on Mode 4, India has called for commercially meaningful market access for short-term services providers under Mode 4 of the General Agreement on Trade in Services (GATS) in major industrialized countries, including the United States, by removing various regulatory barriers so as to ensure that the already shallow commitments are not rendered meaningless.

In a six-page restricted proposal on "Mode 4: Assessment of Barriers to Entry," India cited several escalating barriers to Mode 4 in the United States, Canada, the United Kingdom, as well as other complex measures that "act as disincentives for movement of natural persons, or act as barriers for market access."

The enveloping barriers for movement of short-term services providers include "increased application fees for entry by certain categories of foreign professionals, increased salary thresholds for foreign professionals, or implementation of visa categories in a manner that renders effective market access meaningless and non- portability of social security benefits," India maintained.

Despite repeated calls for addressing the barriers in Mode 4 following the Bali ministerial decision in December 2013, major industrialized countries continued to impose "administrative and other barriers" that "nullify and impair the commitments made by a country".

The WTO Secretariat has already showed that commitments in Mode 4 are "shallow" as compared to Mode 3 concerning commercial presence in telecom, financial services, and distribution services among others. India listed the following obstacles to Mode 4 as cited by the WTO Secretariat:

* Movement tends to be associated with a commercial establishment in the host country and contingent upon prior period of employment with the home country company;

* There are also numerical quotas and ENTs (economic needs tests) that are frequently imposed. ENTs are conducted in the absence of clearly defined criteria and procedures are comparable in effect to the absence of any binding policy;

* Eligibility criteria for visa and work-permit related requirements and procedures tend to have a bias towards persons who are highly skilled and educated, at elevated functional levels;

* Procedures relating to visas and work permits can act as an additional impediment since they often tend to be cumbersome, costly and administratively complex and time consuming. Rejection rates are also high, and the procedures are sometimes opaque and arbitrary;

* The paper cites a study which estimates that the worldwide costs of processing visa/work permit applications represents around 0.3% of the world GDP;

* Nationality and residency requirements, and non-portability of social security benefits, also act as Mode 4 barriers;

* Even non-discriminatory regulatory requirements may seriously affect Mode 4 trade, and this includes assessment of an applicant's credentials by taking into account only formal qualifications, rather than considering skills and experience. Approval procedures may be complex and discretionary, particularly where no specified criteria exist for judging equivalence.

The US, according to India, has imposed measures such as increased fees on certain applicants for L-1 and H-1B categories of non-immigrant visas. These measures, India said, act as barriers. The H-1B visa category corresponds to United States' commitments in its GATS Schedule in respect of natural persons engaged in specialty occupations, and the L-1 visa category corresponds to 'intra-corporate transferees'.

Close on the heels of a trade dispute launched against the United States, India's latest proposal queers the pitch for hard negotiations on the movement of natural persons or non-immigration services providers. The US wants enhanced market access for goods and services but is not willing to provide commercially meaningful access for services providers from the developing countries, according to several studies on the issue.