RESTRICTED
WORLD TRADE S/WPGR/W/18
16May1997
ORGANIZATION
(97-2082)
Original: English Working Party onGATS Rules
COMMUNICATION FROM HONG KONG
Emergency Safeguard Measures inServices: AWayForward
Thefollowing communication iscirculation attherequest ofHong Kong toMembers ofthe
Working Party onGATS Rules.
___________
Summary
1. Thispaper seeks tosetdown apractical waytotakeforward discussion ofEmergency Safeguard
Measures (ESM) inServices, inorder fortheWorking Party (WP) tofulfil itsmandate tothatany
results ofmultilateral negotiations onthissubject should enterintoforceby1January 1998. Thepaper
doesnotadvocate thatthereshould beESM. Itattempts toallow theWPtodiscuss thepractical issues
involved intheconcept ofESM. Once thishasbeendonesystematically, theWPcanconsider whether
theresults justify anyform ofESM.
Background
2. TheWPhasheldmany discussions andreceived many notable anddetailed papers onthis
question. Most papers havehighlighted thedifficulties thatwould existifthere were tobeESM.
Such difficulties fundamentally result from thefactthattrade inservices doesnotdealwithtangible
goods, andtheconcept -builtintotheGATS -ofthefourmodes ofdelivery. Members willneed
toconsider whether anESM should extend toallfourmodes ofdelivery orwhether some modes of
delivery should beexcluded. Moreover, Members willneedtodecide whether ESM remedies should
bemode-specific, i.e.whether ameasure restricting anyofthefourmodes ofdelivery should be
permitted onlytoremedy injury caused viathesame mode.
3. Most papers havealsopointed outthatthereareseveral articles intheGATS which already
provide anumber ofsafety valves andquestion whether more areneeded, particularly bearing inmind
thedifficulties outlined above. TheArticles involved are:
- Article II(2)(MFN exemptions)
- Article XIIBOP
- Article XIVGeneral Exceptions
- Article XIVbissecurity exceptions
- Article XVI&XVII: Scheduling ofcommitments
- Article XXIModification ofSchedulesS/WPGR/W/18
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4. Ontheother hand, some papers andMembers haveargued thatESM isnecessary. Thisis
primarily because theycanseesituations where noneoftheabove safety valves would cover alegitimate
emergency situation. Further theyargue thatanESM would encourage better andmore specific
commitments because oftheadded comfort theESMwould giveifsomething unexpected weretooccur.
5. Onepointwhere thereseems tobegeneral agreement isthatagoodstarting pointinconsidering
theESMquestion istolookattheAgreement onSafeguards under theGATT/WTO (herein afterGATT
SA).Nevertheless, itisimportant tobearinmindthestructural differences between goods andservices,
andthedifferent mode ofsupply ofservices under GATS.
6. Without adetailed andthorough examination oftheprinciples, thepurpose, andthescope and
operation thatwewould liketoseeinanESM, ifoneweretobeestablished, itisnotpossible toevaluate
theprosandconsofthearguments. Thispaper thusproposes alogical waytoexamine theissues
sothat,attheendofthedayadecision canbemade inthefullknowledge ofalltheissues.
Basic Principles Governing ESM
7. Itmaybepossible -anditwould certainly bedesirable -tosetoutsome basic principles that
would benecessary inanyESM. These might cover suchaspects as:
Itshould beclearly shown thataproposed ESM willremedy theinjury identified.
(i) initiation ofanESM should onlybebased onobjective andwell-defined criteria;
(ii) anESM should represent theminimum measure necessary toadopt inorder totackle
theproblems arising from anemergency situation;
(iii) anESM should beapplied onanMFN basis;
(iv) there should besufficient advance notice toinform other Members oftheproposed
ESM action;
(v) themeasure tobetaken under theESM should beclearly specified (i.e.theremedial
action tobetaken);
(vi) therelationship oftheproposed ESM tothepublic policy concern which itisseeking
toremedy should bespeltout;
(vii) anESM should betime-bound andshould beremoved assoonascircumstances return
tonormal;
(viii) ESM Agreement would besubject toArticle XXIII (dispute settlement).
Most ofthesewillbefamiliar, astheyareensconced intheGATT SA.Many willbediscussed indetail
intheparagraphs following .Members maywishtohavethem inmind when considering theissues
inthepaper.
8. Members willalsoneedtoconsider whether theESM should belimited tomode 1,orifit
istoapply toother modes, whether ESM’sshould bemode specific, i.e.whether restrictions onaS/WPGR/W/18
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particular mode ofdelivery should beallowed onlyiftheinjury iscaused through anincreased supply
of“foreign ”services supplied through thatmode ofdelivery. Members maywishtoconsider which
approach ismost likely tocontribute tothefurther liberalisation ofservices andthemaintenance of
anadequate levelofdiscipline ontrade inservices.
Purpose ,Scope andPrinciples ofOperation
9. Itissuggested thatthedetailed types ofissues tobediscussed inconsidering thequestion of
howanESM could operate areasfollows:
(a) purpose ofanESM;
(b) conditions under which anESM canbeinvoked (e.g.whatconstitutes “emergency ”
situations);
(c) procedure forinvoking anESM;
(d) operation ofanESM;
(e) applicationofanESM(acommonESMforallservicesectorsorsectorspecificESMs?);
(f) remedial measures available under theESM.
These arediscussed indetail below.
(a) Purpose ofanESM
10. Inthecaseofgoods, thepurpose ofthesafeguard measures istoenable aMember toprotect
“thedomestic industry ”from “serious injury ”dueto“increased importation ”of“likeordirectly
competitive products ”.Allthewords ininverted commas aredifficult tograpple withintheservices
context aswasadmirably setoutinsecretariat NoteS/WPGR/W/8. Butweshould examine eachto
considerwhethertheycanbedefined,whethertheyneedtobedefinedandwhethertheremaybedifferent
orbetter ways ofsetting outthepurpose ofanESM. Indoing so,some oftheother issues detailed
inparagraph 7willbetouched upon.
(i) Domestic Industry
11. Intheglobalising economy, theconcept of“domestic industry ”isbecoming more and
more diffuse. IfweweretotaketheleadoftheGATT SA,allproducers oflikeordirectly
competitive products operating intheterritory oftheMember before theESM would count
as“domestic industry ”(Article 4(1)(c).Thisraises thequestion ofwhether suchadefinition
meets theneeds under theGATS andalsomodal issues. Onecould conceive thatan“emergency
“hasarisen because market opening hasoccurred tooquickly forthenational domestic service
suppliers toadapt -seeNote1.Sosome restrictions might needtobeputontheentry of“new”
(foreign) domestic suppliers: i.e.those established under Mode 3.Butunder theGATT SA
itwould notbepossible totakedifferential action against the“newcomers ”.
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Note 1:National domestic service supplies isused inthispaper torefer tosuppliers owned, managed or
controlled bynationals oftheMember concerned.S/WPGR/W/18
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12. Afurther problem relates toMode 4.Under thisthereisacleardifferentiation between
ownandforeign nationals. Soananomalous situation could arisewhere aforeign company
wasnotaffected byanESM, butforeign nationals within thecompany could be.
13. Istherefore thedefinition ofdomestic industry intheGATT SAappropriate foraGATS
ESM? Itwould seem tobearetrograde steptoattempt todifferentiate between foreign and
“domestic ”established bodies. Butthatisexactly whattheNTcolumn allows andisthefactual
position inmany Members ’specific commitments (i.e.limitations intheshare holdings or
directorships which foreigners canhold). Doweneedaseparate definition, which might be
related tothetypeofspecific commitment made byMembers?
(ii) Serious Injury
14. Thekeyquestion hereiswhatorwhom aMember might beseeking tosafeguard from
serious injury. Because ofthefourmodes ofsupply, there areatleastthree possible targets:
- service suppliers (including individuals) established intheterritory irrespective of
ownership/management
- national domestic owned/managed service suppliers
- ownnationals
15. Theanswer would seem todepend ontheemergency situation, thesector inwhich
theMember hasmade acommitment andthemode ofsupply thatiscausing theinjury.
16. Asregards theevaluation ofwhether serious injury hasorwilltakeplace, theconcepts
andtestsintheGATT SAseem quite appropriate. i.e.theMember would needtoexamine
allrelevant factors including theamount orrateofincrease inimportation oftheproduct
concerned, theshare ofthedomestic market taken, changes inthelevelofsales, production,
productivity, capacity utilisation, profits andlosses andemployment. Onecanconceive of
suchmeasures being transferable tomostservices sectors. Reliability ofsomeofthedatawould,
however, beproblematic -seebelow. Further, factors forjudging serious injury willdepend
onthemode ofdelivery causing theinjury. Itmaybenecessary toconsider whether itwould
bedesirable todistinguish injury todomestic industry, injury todomestically owned industry,
orinjury tonational service providers.
(iii) Increased importation
17. Theclearquestion tobefaced hereishowtoobtain reliable datatoestablish increased
importation andtodecide what“increased importation ”infactmeans. Aspointed outinseveral
submissions, thisislikely tobehighly problematic inseveral services sectors because the
relevant statistics simply donotexist. Andagain thequestion ofwhatconstitutes “importation ”
iscomplicated bythefourmodes ofdelivery. Mode 1isclear: itisthesupply from one
Member intotheterritory ofanother -onemight sayclassic importation. Butanupsurge in
Mode 2(consumption abroad) could leadtoserious injury tothedomestic service suppliers
buthasnorelation totheclassic definition of“importation ”.Under Mode 3,theimportation
could apply to“newentrants ”(i.e.foreign established) service suppliers whowere taking
business from oldestablished domestic suppliers. Under Mode 4theimportation isclear.
18. Does this,again, show thatanyESM would havetobesector andmode specific?S/WPGR/W/18
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(iv) Likeproducts
19. Theissue hereiswhether itwillbepossible todefine adequately “likeproducts ”in
anumber ofareas. Difficulties could ariseinareas suchasfinancial services, where there
isahugediversity ofproducts inthesame areaofactivity (i.e.isaninsurance policy which
bundles life,home, carandpersonal insurance together, a“likeproduct ”toapolicy which
onlycovers oneofthese? Orisamulti-currency account alikeproducts toasingle foreign
currency account?). Onepossible solution would benottoseektodefine likeproducts inany
detailed wayandtoputtheonusontheMember seeking toimpose theESM tojustify the
measure. Case lawwould then build up.
(b) Conditions under which anESM canbeinvoked (i.e.what constitutes “emergency ”
situations)
20. Itwould seems onlylogical thatan“emergency ”situation under theGATS could onlyrelate
tospecific commitments made there under, ortoMFN exemptions -orthelackofthem. i.e.likethe
GATT, theESM would havetobeproduct (service) specific andcould notbeusedtocombat ageneral
economic malaise, which would bebetter dealtwithbymeasures already permitted under theGATS.
Under Modes 1,2and3onecould envisage emergencies where theshare ofdomestic service suppliers,
whether defined asallestablished oronlynational, could suffer serious decline intotalmarket share.
Onecanequally seethatunder Mode 4social unrest orunemployment could arise from aMA
commitment. Andonecould conceive ofsituations where aninflux offoreign nationals (i.e.NTarea)
could leadtoserious unemployment inaspecific sector ofnationals.
21. Thus itissuggested thatpossible emergency situations arelimited butcould include:
- serious environmental orsocietal problems, suchaspollution (duetoaspecific commitment
ontransport?), mounting andhighunemployment inaparticular sector orsocial/racial problems
- drastic reduction inorelimination oftotalmarket share heldbynational service providers
- national service providers undergoing (temporary) restructuring orwhich arenewly emerging
(c) Procedures forinvoking anESM
22. TheGATT SAoffers some proven procedural requirements forinvoking anESM, which cover
suchissues as:
- priornotification (intheGATT SAthisisarequirement tonotify theWTO immediately upon
initiation oftheinvestigatory process, making afinding ofserious injury andtaking adecision
toapply asafeguard measure. Theexact details must bespeltout.)
- notice period (intheGATT SAitisnotspecified butputas“adequate opportunity forprior
consultations ”)
- consultation withaffected parties (intheGATT SAthisisarequirement)
- compensation (seebelow), and
- dispute settlement (thisisavailable under theGATT SA)
Alsoforconsideration iswhether there should bescope foraprovisional ESM .Given the
speed atwhich many areas ofservices change andevolve, thisconcept should certainly beevaluated.S/WPGR/W/18
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23. TheGATT SAalsohasspecial provision fordeferential treatment fordeveloping countries
inthatproducts fromsuchMembers maynotbeatarget ofanESM aslongascertain conditions are
met-seeNote 2.Thisquestion should beaddressed intheGATS context. Since allMembers have
theopportunity toassess theircommitments, itisnotimmediately obvious whydeveloping countries
would require greater protection. But,assome papers havepointed out,suchcountries maybeless
capable ,fromthetechnical pointofview, fullytoassess theimplications/impact ofcommitments made.
24. Alltheabove concepts arereadily understandable andcould bediscussed inturn.Tworelated
points ofinterests could beborninmind:
i) Should anyESM onlyrelate tofuture improvements inspecific commitments andnot
tothe(current) situation Members havealready bound themselves to-willingly in
theabsence ofanESM? Thishasbeenpostulated inacouple ofpapers.
ii) Ifi)above weretobeaccepted, should compensation bepayable inonlysome orindeed
nocircumstances? Thiswould clearly alsodepend onthegeneral eventual scope
ofESM measures.
d) Operation ofanESM
25. Ofconsiderable importance ishowtheserious injury would beassessed, andwhattheduration
andsubsequent progressive liberalisation might beandthemechanisms forreview.
26. Asregards assessment ofserious injury, thisposes themost difficult question inanumber
ofservice areas. Iftheconcepts oftheGATT SAaretobeborrowed, andthere seems littlechoice,
aMember seeking toimpose theESM would havetodemonstrate thatthere wasindeed aproblem
andshow causality .Butstatistics anddatainmany service areas areacknowledged, evenindeveloped
countries, tobelessthanadequate. How willaMember beabletoprovide convincing datainsuch
circumstances? Itissuggested thatthisproblem isnotonethatcanberesolved bylaying down guidelines
orbyprescription. Itwillresolve itself inthree ways. First, bytherealisation byMembers thatin
some areas, anESM simply cannot betaken because ofalackofmeans toprove thecause ofthe
emergency. Indeed itisforconsideration thatifanESM isfinally agreed, oneofitsclauses should
bearecognition byMembers thatESM hasonlyalimited place inresolving problems. Second, by
caselawoncases which arise. While notthebestwayofdefining thelimits ofactions, itisnevertheless
acommon one.Third, bytheadvance ofstatistics anddataontheservices sector ascompetent authorities
seektomeasure thisareaofactivity better andasitgrows inimportance totheeconomies ofall
Members.
27. There should clearly belimits ontheduration ofanyESM measure. Given thespeed atwhich
matters change intheservices sector, itmight beappropriate toconsider shorter periods thaninthe
GATT SA.Thus instead offouryears asthemaximum (subject topossible extension), perhaps two
would bemore appropriate.
28. Thesamecould beargued fortheprogressive relaxation oftheESM andtheprocess ofreview.
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Note 2:Under theGATT SA,safeguard measures shall notbeapplied against aproduct originating ina
developing country Member aslongasitsshare ofimports oftheproduct concerned intheimporting Member
doesnotexceed 3percent, provided thatdeveloping country Members withlessthan3percentimport share
collectively account fornotmore than9percentoftotal imports oftheproduct concerned.S/WPGR/W/18
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(e) Application ofanESM
29. TheChairman ’snoteof1Mayprovides valuable insights intothisquestion, which hasalready
beendiscussed above. Thekeyquestion iswhether itispossible ordesirable tohaveacommon ESM
forallModes ormode-specific ESMs. Many oftheanalyses thusfarhavesuggested thatacommon
ESM simply willnotwork intheGATS. Thus ,astheChairman succinctly putit,canweagree that
itisnotpossible toavoid modal distinctions inpossible ESMs?
30. Ifitisagreed thatESM should bemode-specific, weneedtoconsider whether restrictions
onaparticular mode should beallowed onlyiftheinjury iscaused through anincreased supply of
“foreign ”services through thatmode ofdelivery. Indoing so,wemayneedtoconsider which approach
ismostlikely tocontribute tothefurther liberalisation ofservices andthemaintenance ofanadequate
leveloflevelofdiscipline intradeinservices. TheGATT SAseems toprovide thebestfitwithrespect
toservices provided through mode 1.Ifitisdecided toallow ESM’sforother modes ofdelivery,
modifications willbenecessary withrespect tokeyelements oftheGATT SA,inparticular withrespect
todefinitions ofindustry andserious injury. Moreover, iftheESM isnotmode specific, itmaybe
necessary torethink theconceptual foundation ofasafeguard mechanism inservices.
31. Thenextquestion ishowtotreatnewentrants andexisting suppliers under anESM. Asthe
Chairman ’sNote points out,while Modes 1and2donotpresent difficulties inthisarea, Modes 3
and4do.(Although intheory itmight bepossible toenvisage asituation where national suppliers
aresuffering from lossofcustomers duetoMode 2buttheirforeign domestic counterparts arenot
because theyaremultinationals andthusabletooffer awider spread ofservices thanthenational
suppliers.) InbothModes 3and4itispossible todifferentiate between foreign domestic service
suppliers andnational service suppliers andthustoinvoke theESM toprotect onlynational service
suppliers. Thiscould evenbeattheexpense offoreign domestic suppliers, irrespective ofwhen they
were established.
32. Ashasbeen outlined above, some papers haveexpressed concern attheideathatalready
established foreign domestic suppliers might either bepenalised byanESM ornotprotected byan
ESM .They haveargued thatsuchaprovision could make anypotential foreign investor wary about
investing inaMember which hadtheoption totakesuchanESM .Itwould seem thatlimits onthe
reach ofESMs inModes 3and4would bedesirable, perhaps, based onthenotion thateverything
committed (inspecific commitments) sofarshould beconsidered asadonedeal,andthatthereshould
benodifferentiation between already established domestic suppliers asregards anyESM.
33. Afurther question inthisareaiswhether Mode 4issodifferent from Modes 1,2&3that
adifferent typeofESM should beconsidered forit.Whereas Modes 1,2&3alldealwiththesupply
ofaservice, irrespective ofwhoorwhatisdoing thesupplying, Mode 4dealswithpresence ofnational
persons. Itisalso,perhaps, amore sensitive area.
(f) Remedial Measures available under anESM
34. Itwillbenecessary toconsider andtoperhaps toprescribe whatsortofmeasures canbetaken
under anESM. While theGATT SAdoesnotprescribe particular measures, inpractice twokinds
havebeenused- quantitative restrictions (such asquotas) andpricebased measures (e.g.tariffincreases
ortaxes). Ifsuchmeasures areused, thentheGATT SAsetsoutthelimits ofthemeasures thatmay
betaken.S/WPGR/W/18
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35. Bothsuchconcepts could beusedintheGATS, although itwould benecessary totailor the
concept tofitthefourModes ofsupply. Mode 1isthesame asclassic importation. Mode 2would
require some measure suchasataxorarestriction ontravel toplace disincentives onconsumption
abroad. Under Mode 3themeasures could cover suchareas astaxes orrestrictions oninvestment
flows. These could seektoreduce orstopnewforeign commercial presence ortolimitthescope of
established foreign domestic suppliers. Under Mode 4themeasure could limitthephysical movement
ofnatural persons, orplace limits onthestayofsuchpersons, orimpose taxes onsuchpersons. As
withMode 3,itwould bepossible todifferentiate between already established foreign domestic suppliers
andnewonesbutalsotolimittheactivities ofexisting established foreign domestic suppliers.
36. Twopoints maybeworth having inmind inthis.Oneiswhether theremedial measure should
bemode-specific, i.e.whether aremedial action should target themode ofdelivery which ledtothe
domestic injury. Thesecond istofindways toensure thattheproposed ESM willindeed remedy the
injury identified.
WayForward
37. Itishoped thattheabove examination ofthematters thatarerelevant totheconsideration of
whether ornotESM intheGATS isviable andappropriate, willprovide amethod totakeforward
thiscomplex andimportant issue.