RESTRICTED
WORLD TRADE S/WPGR/W/15/Add.7
25August 1997
ORGANIZATION (97-3468)
Original: Spanish Working Party onGATS Rules
COMMUNICATION FROM CUBA
Response totheQuestions Relating toanEmergency
Safeguard Mechanism inGATS
Addendum
Thefollowing communication isbeing circulated attherequest ofCuba tomembers ofthe
Working Party onGATS Rules.
Ithasbeenrequested thatthesereplies becirculated tomembers oftheWorking Party onGATS
Rules together withtheobservation thattheyareintended tocontribute tothediscussion andanalysis
forevaluating thepossibility ofapplying safeguards totradeinservices, andshould notprejudice Cuba's
position onthismatter orbeinterpreted asrepresenting itsposition.
_______________
1. What isthejustification andpurpose ofanemergency mechanism under GATS?
Thequestion ofwhat asafeguard mechanism would beforinvolves thefollowing
considerations:
(a) Would anemergency safeguard forservices beintended todealwiththekindofsituation
foreseen inArticle XIXofGATT -thatis,atemporary threat toadomestic "industry" arising
from increased imports? Would ithave anyother objective?
Yes,anemergency safeguard forservices would beintended todealwithsituations involving
atemporarythreattodomestic"industry"arisingfromincreasedimportsofservicesorfromtheexistence
ofservices which, owing totheirhigher quality, theirlower price ortheirvolume andvariety, are
more competitive thandomestic services.
Thismeans thatsafeguards could beapplied inresponse toatemporary threat tothedomestic
industry caused byservices provided under anyoftheexisting modes ofsupply fortrade inservices.
(b) Areexisting "safeguard" mechanisms inGATS, notably those contained inArticle XII
andArticleXIV,sufficienttoaddressanydifficultiesgovernmentsmightencounterasaconsequence
oftheirGATScommitments?Similarly,doesArticleXXIprovideanadequatevehicleforreversing
ormodifying scheduled commitments intheevent ofunanticipated difficulties?
Wedonotconsidertheexisting"safeguard"mechanismsorinstrumentscontainedinArticlesXII,
XIV, XIV-bisandXXIofGATS sufficient toaddress anydifficulties governments might encounter
asaconsequenceoftheirGATScommitmentssince,forexample,themechanismcontainedinArticleXII
(Restrictions toSafeguard theBalance ofPayments) doesnotallow theadoption ormaintenance of
restrictions forthepurpose ofprotecting aspecific service sector. Moreover Article XXI, while itS/WPGR/W/15/Add.7
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provides asuitable instrument forwithdrawing ormodifying commitments intheschedules incase
ofunforeseen difficulties, provides thatthiscanonlybedoneafterthree years haveelapsed fromthe
dateonwhich thecommitment entered intoforce, anddoesnottherefore permit theapplication of
asafeguard inresponse toanemergency. Consequently, weconsider thatthementioned GATS
provisions should bereinforced withanemergency safeguard mechanism which would alsoprovide
anefficient instrument forapplying suchmeasures wherever necessary, asinthecaseoftheAgreement
onSafeguards withrespect totrade ingoods.
(c) Does thenature ofcommitments undertaken inGATS -whereby Members maychoose
whether toschedule asector, andmayalsocondition market access andnational treatment with
respect tocommitments thataremade -obviate theneedforsafeguards? Orwould itbemore
appropriate tothink interms oftheideathattheexistence ofasafeguard would allow governments
tobemore forthcoming withrespect totheir scheduled commitments?
Thenature ofthecommitments undertaken inGATS whereby Members maychoose whether
toschedule asector andmayalsocondition market access andnational treatment withrespect to
commitments thataremade doesnotobviate theneedforthesafeguard mechanism, which would ensure
thataState mayapply emergency safeguards toasector oftheeconomy which isnotincluded inits
ScheduleofSpecificCommitmentswheresuchsectoristemporarilythreatened.Indeed,theveryexistence
ofthismechanism could serve asanincentive forStates tobemore forthcoming inscheduling their
commitments, since theywould have thepossibility ofresorting tooneofthese measures where
necessary, regardless ofwhattheyhaveincluded intheirschedules.
(d) What would betheeconomic objective ofasafeguard -toprotect production, investors
oremployment? Would itprotect alldomestic production, oronly thatpartofproduction
attributable tonational suppliers? Would itaimtoprotect investment bynationals, orall
domestically-based investments? What would betheobjective ofallowing departures fromnational
treatment under modes 3and4?Isthedistinction between establishment rights perseand
post-establishment operations relevant inrelation topossible safeguard measures under modes 3
and4?
Theeconomic objective ofasafeguard would betoprotect domestic production initsentirety,
i.e.domestic supply ofservices, including bothdomestic suppliers andforeign suppliers established
inthecountry through commercial presence orthemovement ofnatural persons, andwhich, since
theyoperate within thecountry, mustalsobeprotected bytheState inquestion from anytemporary
threat caused byaservice supplier from another State.
Theobjectiveofallowingdeparturefromnationaltreatmentundermodes3and4,i.e.ofapplying
safeguards toforeigners established inthenational territory through commercial presence ormovement
ofnatural persons, would betoprevent them fromendangering domestic suppliers inthestrict sense
oftheterm, inother words suppliers fromthecountry inquestion, owing theircompetitiveness inthe
domestic services market, andincases where anyofthemeasures referred inArticle XIVoftheGATS
proves necessary (seethereply toquestion 1(b)).
Yes,thedistinction between establishment rights perseandpost-establishment operations is
relevant inrelation topossible safeguard measures under modes 3and4,including incases where
asafeguard measure applied tomode 3hasasignificant influence onmode 4,since theapplication
ofsuchmeasures would bepossible bothatthetimeofestablishment intheterritory ofthecountry
offoreign natural orjuridical persons aswellasfollowing theirestablishment, i.e.inthecourse of
subsequent operations.S/WPGR/W/15/Add.7
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(e) Would asafeguard mechanism need tocontemplate special provisions fordeveloping
countries ordoestheconcept ofprogressive liberalization offer adequate leeway inthisrespect?
Wethink thatitwould beappropriate forthesafeguard mechanism fortrade inservices to
include special provisions fordeveloping countries likethose established fortrade ingoods, with
particular attention, asappropriate, totheleast-developed countries, inaccordance withtheirtrade
development andfinancial needs. These provisions should cover thepossible need toapply the
mechanism inreinforcement ofthedeveloping country provisions contained inArticle IVoftheGATS,
which stipulate thattheparticipation ofdeveloping countries inworld trade shall befacilitated in
accordance withtheirdomestic services capacity anditsefficiency andcompetitiveness, andmarket
access insectors andmodes ofsupply ofexport interest tothem liberalized.
Theestablishment ofspecial provisions forthedeveloping countries within thesafeguard
mechanism would make itpossible todevelop aconcrete definition ofuniform treatment forall
developingcountrymembersintheapplicationofsafeguards.Indeed,aprogressiveliberalizationclause,
ascontained inPartIVoftheGATS, would leave ituptoeachcountry todetermine voluntarily the
differentiated treatment tobeapplied inaccordance withitsnational policy, andcould undermine the
application ofpolicies consistent withtheprinciples oftheWTO itself.
Theadoption ofspecial provisions fordeveloping countries within thesafeguard mechanism
would ensure thatsafeguards were implemented inaccordance withthelevelofdevelopment ofthe
Member countries.
(f) Isthere anything intrinsic toservice transactions, suchasintangibility, simultaneity of
production andconsumption, ortheneed forphysical proximity between theproducer andthe
consumer, which makes (some) services transactions different from goods transaction inways
thatmight influence arguments astothenecessity orutility ofsafeguard measures inservices?
No,thesefeatures havenobearing onthenecessity orutility ofsafeguard measures inservices.
Aswithtrade ingoods, whatdetermines thenecessity orutility ofemergency safeguard measures in
services isatemporary threat tothedomestic industry. Features intrinsic totrade inservices could
have asignificant influence onthetypeofsafeguard measures tobeapplied andonthespecific
regulations governing theirimposition, butnever onthenecessity orutility ofemergency safeguard
measures inservices. Indeed, suchmeasures arenecessary, infactessential, inaddressing anobvious
temporary threat tothedomestic industry.
(g) Isanything intrinsic toservices markets, suchastheroleandimportance ofregulatory
regimes, standards andcertification requirements, which makes services markets different from
goods markets inways thatmight influence arguments astothenecessity orutility ofsafeguards
measures inservices?
While regulatory regimes, standards andcertification requirements havenobearing onthe
necessityorutilityofsafeguardmeasuresinservices,wherethereareinternationalagreementsgoverning
certain service activities theycould influence thespecific regulations tobeestablished bytheWTO
forthesafeguard mechanism, since suchagreements must beconsistent withtheWTO regulations.
Thus, athorough revision ofgeneral international standards forthevarious service activities isrequired
inorder toeliminate anyinconsistencies among them.
Itshould alsobeborne inmind thattheviolation ofalready existing international standards
forthedifferent service activities could cause atemporary threat tothedomestic industry ofaMember
country andnecessitate theapplication ofemergency safeguard measures, afactwhich underscoresS/WPGR/W/15/Add.7
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theneedtoestablish amechanism governing theimplementation ofsuchmeasures within thecontext
oftheWTO.
(h) Isanything intrinsic totheroleofservices intheeconomy, suchastheirimportant support
andinfrastructure role,which makes services markets different from goods markets inways that
might influence arguments astothedesirability ofsafeguards measures inservices?
Theroleofservices intheeconomy andtheirimportant support andinfrastructure rolehave
nobearing onthedesirability ornecessity ofemergency safeguard measures inthatarea(which are
dictated solely byatemporary threat tothedomestic industry caused byaservice supplier fromanother
Member country), although theydoinfluence thenature ofsuchmeasures: forexample, financial
services, which influence allbranches oftheeconomy through theirpotential horizontal effect, could
influence thetypeandform ofsafeguard measures andtheconditions governing theirapplication.
(i) DoMembers maintain anyemergency safeguard measures innational legislation? Ifso,
what arethese measures andhowaretheyimplemented?
Cuba'snational legislation doesnotyetprovide foremergency safeguard measures.
2. What criteria might bebrought tobear indetermining when anemergency safeguard
measure maybejustified?
(a) What, interms ofGATS, istheequivalent ofincreased imports under Article XIXof
GATT? Inmode 1,thecross-border flowofservices maybesimilar totheimport ofgoods, but
thesituation isquite different under other modes. How should thepossibility ofsafeguards be
triggered inthese circumstances?
Interms oftradeinservices under GATS, theequivalent ofincreased imports under Article XIX
ofGATT would betheincrease inthecross-border flowofservices toaMember country fromanother
Member country. Thus, mode 1callsforaction similar totheexisting emergency safeguard measures
fortrade ingoods incaseofatemporary threat tothedomestic service industry.
Inmode 2,thesafeguard mechanism could betriggered onthebasisofpre-established objective
criteria fordetermining thatdomestic consumption inagiven service sector hasdropped significantly
asaresult ofanincrease inconsumption abroad inthesame services sector, asreflected, forexample,
inanunusual flowofforeign exchange outofthecountry forthatpurpose.
Inmodes 3and4,safeguard measures would beintroduced, orthesafeguard mechanism
triggered, through thelegislation governing quantitative andqualitative restrictions ontheestablishment
andsubsequent operation inthecountry ofnatural andjuridical persons involved inthesupply ofa
given service, since they could pose athreat tothedomestic service industry owing tothe
competitiveness.
(b) How should serious injury bedetermined? Injury towhom orwhat?
Serious injury isdefined asasignificant overall impairment ofadomestic service industry
tothebenefit ofoneormoreforeign service suppliers established inthecountry whose domestic industry
isaffected.
Theinjury tothedomestic service supplier andtothebalance ofpayments ofthecountry in
which theservice isconsumed isinitself quantifiable.S/WPGR/W/15/Add.7
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Fordomestic service suppliers, serious injury willbeconsidered tohavetaken place ifthere
isaconsiderable dropindemand fortheservice theysupply, reflected inaconsiderable decrease in
earnings resulting fromthesupply ofsuchservice, oriftherehasbeenasignificant diversion ofdomestic
consumption oftheservice towards aforeign supplier.
Inthecaseofmodes 3and4,theinjury isalsoreflected inthebalance ofpayments ofthe
country inwhich theservice isconsumed, provided theneteffect foritseconomy isnegative, through
asignificant increase inremittances ofprofits tothecountry oforigin oftheforeign suppliers established
inthecountry where theservice isconsumed.
(c) What standards would berequired todetermine thatincreased competition from foreign
sources caused injury tothenational industry?
Thestandards required todetermine thatincreased competition from foreign sources caused
injury tothenational industry would be:adecrease inthevolume ofdomestic services and,ultimately,
intheearnings resulting fromthesupply ofsuchservices; andconversely, anincrease inthevolume
ofservices andintheearnings ofoneormore foreign service suppliers.
(d) How would thenational industry bedefined forthepurpose ofdetermining injury?
Thenational industry would bedefined as:"thedomestic suppliers asawhole oflikeordirectly
competitive services operating within theterritory ofaMember, orthose whose collective supply of
likeordirectly competitive services constitutes amajor proportion ofthetotaldomestic supply ofthose
services".
Inthisconnection, domestic suppliers mustbeunderstood tomean suppliers thataredomestic
inthestrict sense ofthetermaswellasforeign suppliers established inthenational territory inthe
caseofmodes 3and4.
(e) Should alinkbeestablished between thenature ofaspecific commitment inaparticular
sector, including inrelation tolimitations onmarket access andnational treatment, andthe
availability ofasafeguard measure? Inother words, should theavailability ornature ofa
safeguard berestricted where limitations have been inscribed?
There should notnecessarily beanyrestrictions ontheavailability ofasafeguard measure when
aState hasincluded limitations onmarket access andnational treatment initsSchedule ofSpecific
Commitments, sincethiscould leavedefenceless aMember thatneeds toapply anemergency safeguard
measure inresponse toatemporary threat toitsdomestic service industry regardless ofwhatisincluded
initsSchedule.
(f) What measurement andidentification problems arise inservices thatmight complicate
thedevelopment ofasafeguard instrument, andhowshould theybedealt with?
Theproblems thatmight complicate thedevelopment ofasafeguard instrument inservices
would bethelackofaninternational register fortheclassification ofservices andthedifficulty in
determining thepossible methods formeasuring injury toadomestic service industry owing firstly
tothelackofcompatible statistics fordomestic industries among Member countries, andsecondly to
thedifficulty ofidentifying precisely theforeign service suppliers directly causing theinjury.S/WPGR/W/15/Add.7
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3. What form might asafeguard mechanism forservices take?
(a) What typeofmeasure should beapplied? Would taxes, foreign exchange restrictions,
other quantitative limitations, orregulatory restraints besuitable assafeguard measures?
While themeasures tobeapplied would generally bequantitative, qualitative measures would
alsobepossible. Quantitative restrictions, generally speaking, would consist inrestrictions onthe
volume ofservices, onthenumber ofservice suppliers, onthetotalnumber ofnatural persons that
canbeemployed inagiven service sector orthataservice supplier mayemploy, andonforeign equity
participation. Measures could alsobeintroduced torestrict orlaydown thespecific types ofjuridical
persons thatmaysupply aservice. Inthelattercase,thepossible types ofservices thatcould besupplied
would berestricted.
Where itisnecessary toresort toanemergency safeguard inservices, practical measures could
include, specifically, foreign exchange restrictions andother quantitative limitations.
(b) What would betheimplications ofdifferent modes ofsupply forthekindofmeasures
employed?
Agiven mode ofsupply would callforspecific measures according toitsparticular
characteristics. Inother words, where itisnecessary toapply anemergency safeguard inservices,
themode ofsupply determines thetypeofmeasures tobetaken.
Forexample, inmode 1,thevolume ofservices could berestricted and/or exchange measures
applied.
Mode 2poses thegreatest problem astothetypeofmeasure tobeapplied, since itsintrinsic
features limittheoptions. Inthiscase, weconsider thatmeasures would havetobedecided onthe
basis ofreciprocal treatment.
Inmodes 3and4,inaddition tolimiting thevolume ofservices and/or imposing foreign
exchange measures, itwould alsobepossible tolimitthenumber ofservice suppliers, thetotalnumber
ofnatural persons thatcould beemployed inagiven service sector orthataservice supplier mayemploy,
andforeign equity participation, andtorestrict orlaydown thespecific typesofjuridical persons entitled
tosupply aservice.
(c) Would there becircumstances inwhich theapplication ofasafeguard measure inrespect
ofonemode ofsupply would provoke ademand forcomparable measures inrelation toother
modes atthesame time?
There maybecircumstances inwhich theapplication ofasafeguard measure inrespect ofone
mode ofsupply would provoke ademand forcomparable measures inrelation toother modes atthe
same time. Insuchcases, appropriate measures could beapplied inrespect ofeffects ineachmode
ofsupply attributable toacommon cause.
(d) Should safeguards beapplied onanon-discriminatory basis inallcircumstances?
Emergency safeguard measures should always beapplied onanon-discriminatory basis to
"producers" ofservices thatcause atemporary threat tothedomestic industry inquestion. Emergency
safeguard measures aredesigned tobeapplied toallservice suppliers thatcause atemporary threat
tothedomestic services industry.S/WPGR/W/15/Add.7
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(e) How quickly would itbepossible foraMember totakeasafeguard measure? Would
thenotion of"critical circumstances", asdeveloped intheAgreement onSafeguards, apply in
theservices area?
Whereithasbeendeterminedthatthereisatemporarythreattothedomesticindustryinservices,
aMember mayfinditnecessary toapply anemergency safeguard onthebasisofthenotion of"critical
circumstances" asdeveloped intheAgreement onSafeguards. Indeed, theprovisions governing
emergency safeguards withrespect totrade ingoods areperfectly applicable totrade inservices.
(f) What should betheduration ofanysafeguard measures adopted?
Theduration ofanygiven emergency safeguard would depend onthetimeneeded toprevent
orrepair theserious injury andtomake thenecessary adjustments. Thebasic criteria fordetermining
themaximum period ofapplication ofameasure inagiven situation cannot befixed inadvance.
(g) Would safeguard measures bemade degressive during their period ofapplication?
Notnecessarily. However, adegressive scalecould beapplied, extending totrade inservices
thepolicy applied totrade ingoods under Article XII,paragraph 2(b)oftheGATT, which stipulates
that:
"Contracting parties applying restrictions (...)shallprogressively relaxthemassuchconditions
improve, maintaining themonlytotheextent thattheconditions specified inthatsubparagraph
stilljustify theirapplication. They shalleliminate therestrictions when conditions would no
longer justify theirinstitution ormaintenance under thatsubparagraph."
(h) Would aMember taking asafeguard action berequired alsotoadopt adjustment measures?
AMember taking anemergency safeguard action should adjust themeasure progressively as
thecauses foritsapplication diminish. Atthesame time, andinorder tohelptoeliminate thesaid
causes, thesectors benefiting from suchsafeguard measures should make theadjustment thatwould
allow themtocompete onceagain withforeign suppliers andtoensure thatthemeasures arenotused
forprotectionist purposes.
(i) Wouldtheapplicationofsafeguardmeasuresbeaccompaniedbycompensatoryadjustments
intheschedule oftheMember taking themeasure?
No,wedonotthink thattheyshould beincorporated intheSchedule ofCommitments.