RESTRICTEDWORLD TRADE
ORGANIZATIONS/WPGR/M/20
17 March 1999
(99-1072)
Working Party on GATS Rules
REPORT OF THE MEETING OF 19 FEBRUARY 1999
Note by the Secretariat
1. The twentieth meeting of the Working Party on GATS Rules was chaired by Mr. Harald Fries
of Sweden.  The agenda of the meeting was contai ned in WTO/AIR/1009.  It consisted of five items:
negotiations on safeguards under Article X of the GATS;  negotiations on subsidies under Article XV
of the GATS;  negotiations on government procurement under Article XIII of the GATS;  date of the
next meeting of the Working Party;  and other business.
2. The Chairman indicated that in order to assist delegations in their preparation for the meeting
he had circulated a Note, Job. No. 772 dated 10 February 1999.  The Note recapitulated where the
Working Party stood on the three issues and proposed a certain structure for the discussion.
ITEM A: NEGOTIATIONS ON SAFEGUARDS UNDER ARTICLE X OF THE GATS
3. The Chairman noted that at the previous meeting, the Working Party had had a first exchange
of views on the Secretariat Note entitled "Issues for Future Discussions on Emergency Safeguards"
(S/WPGR/W/27);  delegations had agreed to continue this discussion.  The Note considered, first,
alternative forms that a safeguard mechanism under the GATS might take and, second, elaborated on
the list of issues identified in the outline submitted by Venezuela (Job No. 5412, dated
14 October 1998).  He suggested addressing the individual issues one-by-one.
 Alternative forms of a safeguard mechanism
4. The Chairman recalled the initial discussion regarding the pros and cons of a sector-specific
versus a uniform, generally applicable, safeguard mechanism.  He invited the proponents of a sector-
specific mechanism to elaborate on its possible form.  Relevant issues in that context included:  (i) the
need for, and potential content of, any general rules and principles;  (ii) the sectors for which such a
mechanism should be prepared; and (iii) the possibility that either all Members had access to the
mechanism or only those which had reserved the right to use it in their schedules.
5. The representative of the United States briefly summarized his delegation's previous
submission on the subject (S/WPGR/W/17).  It was based on the hypothesis that liberalization
commitments might be facilitated if it were possible to inscribe safeguards-type provisions in
schedules.  The relevant disciplines would not be very different from those provided for under Article
XIX of GATT, including degressivity, temporariness, etc.  However, he saw no realistic possibility toinclude an injury test, given serious data problems.  Rather, a set of conditions conferring the right to
take action could be developed for a limited number of services sectors.  While financial services
might not be a good example, given the prudential carve-out, safeguards-type provisions could be
envisaged, at least conceptually, for telecommunications.
6. Some delegations expressed concerns about a sector-specific approach incorporated in
schedules.  The representative of Korea felt that small economies without strong bargaining powerS/WPGR/M/20
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might have problems to achieve its inclusion in negotiations.  The representative of European
Communities noted conceptual difficulties in developing a list of sectors where safeguards could be
needed and expressed preference for a horizontal approach.  The representative of Brazil also
favoured a horizontal approach, commensurate with the notion of unforeseen developments. The
representative of Thailand said that data problems were not a strong argument against a horizontal
mechanism since sector-specific rules would suffer from similar problems.  Moreover, it would be
difficult to identify sectors which, on a longer-term basis, were more prone to safeguard-type
situations than others. He requested clarification as to the legal basis of a sector-specific approach.
The representative of Australia said it might not be practical to develop separate disciplines for
different sectors, given the statistical problems involved.  The representative of New Zealand, echoing
these concerns, favoured the  development of horizontal rules.
7. Expressing support for a horizontal mechanism, the representative of Mexico felt that a
sector-specific approach could fragment the system and jeopardize its predictability and stability.  She
also wondered about the legal basis.  The representative of India, noting various problems, expressed
strong opposition to a sector-specific approach.  The representative of Uruguay stressed the
conceptual difficulties involved, inter alia,  in safeguard actions under mode 3, and the lack of
comparable statistics at international level.  However, the mandate of Article X of the GATS wasclear and formed part of the Uruguay Round implementation process.  Among the various options,
Uruguay would prefer a horizont al approach.  It should not necessarily be based on the models
contained in the  Agreements on Agriculture and on Textiles, which captured exceptional
circumstances.  Special and differential treatment for developing countries should be ensured in any
mechanism.  The representative of Thailand, while reiterating ASEAN's support for a horizontal
approach, was also open to consider arguments in favour of a sector-specific model.
8. The representative of Japan distinguished three options for a safeguard mechanism:
scheduled safeguards;  safeguards specific to certain sectors;  and a horizontal mechanism.  In his
view, the first option would introduce instability in  scheduled commitments. The second option would
be available to all Members in a certain sector, unrelated to the schedules.  He suggested to discussalternative mechanisms in parallel with the issues id entified in Section II of the Secretariat Note. The
representative of Canada stressed the importance of advancing the work on safeguards, and suggested
discussing the individual issues in detail.  In turn, this was compatible with a horizontal approachwhich, in any event, appeared to command more support.  The representative of the United States
noted that several delegations seemed to presume that the Working Party needed to decide between ahorizontal and a sector-specific approach.  However, the real issue to be decided was whether
safeguards were needed at all.  A number of considerations arguing against a horizontal approach hadnot been sufficiently addressed.
9. In introducing the discussion on Section II of document W/27, the Chairman emphasized the
importance of certain key issues, such as situations justifying the application of safeguard measures
and the concepts of injury and causality.  He also called for concrete examples in this context.
Definition and scope
10. According to the Chairman, the common view seemed to be that only governments and
government-mandated bodies should be authorized to apply safeguards.  Regarding the potential
beneficiaries, a strong majority of delegations had argued in favour of the domestic rather than the
national industry only.  No delegation seemed to question the principle of protecting the "acquired
rights" of established foreign-owned firms.  However, there were doubts as to whether such protectioncontravened the MFN principle.  Moreover, some delegations had questioned the purpose of
preventing new entries into an industry through a safeguard action under Mode 3.S/WPGR/M/20
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11. The representative of Japan concurred that governments should be the active subjects and the
domestic industry, rather than national industry, the passive subject in any  safeguard action.  He
shared the view that established suppliers should be protected; this would not pose any MFN problem
since all Members were covered in principle.  He doubted whether mode-specific actions would entail
serious efficiency losses and, thus, whether disciplines were necessary to prevent such actions.  Therepresentative of Korea argued that the MFN obligation required to give Members equal treatment to
"like suppliers" of other Members;  however, if locally established service suppliers were "like" theservice suppliers established abroad, then their protection could be inconsistent with the MFN
principle.
Situations justifying application (type of injury)
12. The Chairman noted three key issues under this heading: the need for compelling examples of
situations where safeguards were needed to facilitate sectoral adjustment; the availability of empirical
data which would allow to establish a credible link between increased foreign supplies and injury to
industry;  and the question of a public interest clause.
13. The representative of Venezuela said that several indicators could be used to prove the
existence of injury, including the revenue from value added tax.  It had been argued that information
provided for tax purposes was normally confidential.  However, confidentiality was protected, forinstance, in antidumping and safeguards cases for goods, where one of the elements used to evaluate
injury were tax declarations.  Other indicators could be offer/sales statistics, which were normally
maintained by private enterprises and chambers of commerce;  the number of providers in the market;
changes in prices and the price structure;  market share;  capital flows recorded by national statistical
offices for individual activities, groups of enterprises and purposes;  as well as statistics on the entryof foreigners and their professional activities.  While delegations had emphasized the need for reliable
proof, it was necessary to bear in mind that the standards of proof tended to be lower in economic
investigations than in penal cases.  The representative of the United States expressed reservations as
to whether capital flows could be used to measur e increased imports and ensuing injury.  Capital
flows were associated with a wide variety of economic activities and not necessarily related to sales ofservices.  The representative of Argentina pointed ou t that the first step in any investigation was the
determination of an "increase in imports";  the number of foreign services suppliers in a market could
be used  in this context as a proxy for trade under mode 4.  However, he wondered how "imports"
could be defined for the other modes of supply, bearing in mind paragraph 14 of the Secretariat Note.
The challenge would be to find a definition consistent with the concept of domestic industry,
including all established providers, and then to identify appropriate statistics.
14. The representative of Australia saw the concepts of injury and causality as important elements
in any safeguards rules for services; it was necessary to ensure that measures were taken only if
resulting from injury surges in imports.  The representative of Japan expressed concern about the use
of not properly defined "public interest" clauses.  He acknowledged, however, that the concept couldserve as a positive element and prevent excessive application of safeguards in individual case;
Article 3 of the Safeguards Agreement provided for a public hearing system that might be used in theservices context as well.
15. The representative of the European Communities recalled that the purpose of a safeguard
mechanism was to facilitate adjustment in emergency situations;  the concepts of injury and causality
were intended to define such situations.  It was clear that the focus had to be on injury caused by
imports rather than on any other structural issues which might be arising at the same time.  Therepresentative of Canada recommended to discuss first the notion of injury and then link it to trade.
Precise information was necessary for that purpose, and it might be useful to further consider theoptions mentioned by Venezuela.S/WPGR/M/20
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Temporary or provisional measures
16. The Chairman indicated that this point combined items 3 and 6 of the initial Venezuelan
proposal. All statements at previous meetings had emphasized that safeguards should provide
breathing space for adjustment, i.e that they should be temporary.  Otherwise, commitments wouldneed to be modified under Article XXI.
Applicable procedures/investigation of injury
17. According to the Chairman, there seemed to be general agreement that any safeguard
disciplines should include provisions regarding the investigation of injury.  Several Members had
previously referred to Article 3 of the Agreement on Safeguards as a possible model, provided it
could be filled with substance.
Applicable measures.  National treatment and non-discrimination principles
18. The Chairman recalled a suggestion at the previous meeting that additional commitments
under Article XVIII should not be affected by safeguard actions;  he wondered whether there were
any conflicting views.  No delegation took the floor.
Transparency and notification
19. The Chairman indicated that this point combined items 7 and 8 of the Venezuelan proposal.
He felt that all Members agreed on the importance of these items;  the Agreement on Safeguards
could be used as a model.  As for the three previous items, no in-depth discussion might be necessary
at that stage.
Special and differential treatment
20. The Chairman recalled various general statements made at the previous meeting.  One
delegation said it might be premature to conduct an in-depth discussion at present.  The representative
of Thailand noted the importance of the principle of special and differential treatment which was
consistent with the preamble of GATS;  Article 9 of the Agreement on Safeguards constituted anappropriate model.
21. In conclusion, the Chairman noted that many delegations had expressed the view that the
Working Party should continue focusing on a few key issues, in parallel with discussions on
alternative forms of a safeguard mechanism.
Additional Statements
22. The representative of Thailand, on behalf of ASEAN, stressed the need for the Secretariat to
prepare a draft safeguards agreement.  There was an obligation to implement the results of the
negotiations by the deadline of end June 1999.  Any other outcome could contravene the mandate of
Article X and, thus, affect the rights and obliga tions of Members under the WTO Agreements.  The
representative of Poland, supporting this view, recalled his delegation's submission of May 1997
which had called on the Working Party to complete the negotiations in time.  The representative ofEgypt stressed that the creation of safeguards rules was not an option, but an obligations.  Therefore,
concrete result should be in place by end of June 1999.  The representative of the United Stated
reiterated the existence of conceptual problems that needed to be resolved.  He saw no point inrequesting the Secretariat to draft disciplines, given that a general agreement on the need forS/WPGR/M/20
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safeguards had not been reached.  Delegations were free to submit their own draft texts.  The
representative of Malaysia drew attention, again, to the question of what would be the legal basis of a
sector-specific safeguard action and reminded delegations of the obligation to have rules by the Junedeadline.  A draft prepared by the Secretariat would have been a valuable basis for further discussion.
23. The Chairman observed that there were competing views on how to proceed in the light of the
obligations established under Article X.  He suggested holding an informal meeting in the second half
of March to address these issues in the light of the end of June deadline.  The Working Party agreed.
ITEM B:   NEGOTIATIONS ON SUBSIDIES UNDER ARTICLE XV OF THE GATS
24. The Chairman reminded delegations of the information exchange exercise mandated under
Article XV.  Subsidies had not attracted much attention in past meetings.  He felt that further work
would benefit greatly from a collective effort to improve the Working Party's understanding of (a) the
circumstances in which subsidies were likely to create trade distortions; and (b) the relevance ofexisting GATS disciplines in such circumstances.  In his view, two scenarios seemed to warrant
particular attention, i.e. the granting of either import-substituting or export-enhancing subsidies.
Recalling the contribution made by Argentina at the previous meeting, he invited comments from
other delegations.
25. The representative of Argentina clarified a misunderstanding which might be implied in
paragraph 7 of the Chairperson's Note  of  10 February 1999.  While encouraging on in-depth
discussion of subsidies-related issues, his delegation was not proposing a joint interpretation exercise
to define the scope of current disciplines.  The representative of India said that his delegation was not
convinced of the need for any action, but was willing to discuss other views.
26.  Given the relatively low level of participation in this area and the time constraints facing the
safeguards negotiations, the Chairman proposed keeping subsidies on the agenda of future meetings;
however, he would not invite any in-depth discussion. The representative of Japan concurred that it
was reasonable to focus on safeguards, given the existing deadline.  The representative of Argentina
reiterated his delegation's interest in subsidy issues, but recognized current time constraints.    He didnot object to the Chairperson's proposal whic h he understood, would not prevent Members from
raising subsidy-related issues and government proc urement would be treated in the same way.  The
representative of Uruguay, while not objecting to the proposal, emphasized the need for balance
between the three areas remitted to the Working Party.
ITEM C: NEGOTIATIONS ON GOVERNMENT PROCUREMENT UNDER ARTICLE XIII
OF THE GATS
27. The Chairman recalled previous discussions of scope and coverage of government
procurement of services.  At this meeting, he would like to invite further comments to reach
preliminary conclusions, not necessarily agreed,  and identifying key issues for further consideration.
He reminded delegations of the three questions raised in the European Communities' informal paper
of February 1998:  (a) What transactions constitute procurement?;  (b) who is the procuring entity?;
and (c) what is being procured?.
28. As to the first question, the Chairman noted that an important issue was the definition and
treatment of concessions.  The representative of Canada reminded the Working Party of his
delegation's request for clarification from the European Communities, and indicated that the issue
would be pursued bilaterally.  The representative of the European Communities added that the issue
raised related to the interpretation of the Government Procurement Agreement.  In relation toconcessions, she added that the relevant definition seemed to differ between national legislations;  theS/WPGR/M/20
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EC was preparing a submission on this subject and looked forward to contributions from other
delegations as well.
29. The representative of the United States recommended to use as a starting-point the definition
contained in Article XIII of the GATS, which referred to procurement in terms of services purchased
"for governmental purposes and not with a view to commercial resale or with a view to use in thesupply of services for commercial sale".  This mirrored the language contained in Article III:8 of
GATT 1994.  Given the degree of ambiguity involved, he felt it would be useful if the Secretariat
provided background information on the interpretation developed in the goods context.  He also noted
that the wording in Article XIII did not apparently capture the procurement of services with a view to
their use in the supply of goods  for commercial sale. The Working Party might want to address the
definitional and legal implications of this omission.  As to concessions, he noted that some
delegations considered that these were outside the scope of government procurement, and somepotentially strong arguments might be made.  It w ould be very useful if further information could be
provided on the relevant domestic regimes and any definitional distinctions from government
procurement.
30. The representative of Australia reiterated the definitional difficulties involved and concurred
that the starting-point for future work should be Article XIII of the GATS.  A BOT contract might be
an example of a concession;  contrasting with the government's purchase of a service the costs
involved were born entirely by consumers over a certain period of time.  Accordingly, the relevant
transactions were subject to general GATS disciplines.  By contrast, services like garbage collection,
which were totally or partially paid for by the government, might be considered procurement.  In
trying to develop general criteria, it would be useful to further discuss whether the allocation of costswere a determining factor.  Another important issue was the definition of "governmental purposes"
and, in this context, whether the focus should be on the government's use of a service – as in the case
of maintenance and cleaning services – or its role in, and responsibility for, the provision of a service
– as in the case of garbage collection. However, the role of governments differed from country to
country.  The relationship between the government and the private sector was also changing, as moreand more companies were delivering services traditionally provided by governments.
31. The representative of Thailand agreed that it would be useful to discuss the interpretation
given to the relevant GATT provisions.  In Thailand, concessional regimes were provided for in many
different pieces of legislation;  however, they were always defined as services supplied in the exercise
of governmental authority.
32. The representative of Mexico indicated variations in national legislation with regard to
concessions and government procurement, for reference purposes.  In her country, concessions were
not assimilated with government procurement since they did not involve direct acquisition of goods or
services, nor any expense, by the government.  To avoid confusion, Mexico maintained different sets
of legislation for, on the one hand, public works, which fell under government procurement, and
concessions for the provision of public services which had their own rules.  In the latter context, the
State authorized one or more private companies to offer a public service and also determined thetariffs to be charged.  By contrast, public works contracts did not involve the granting of any
authorization to private parties to operate a public service.  Another difference was that a concession
could be transferred to other parties, while the responsibility for the execution of public works
remained with the main contractor, notwithstanding the degree of subcontracting involved.  While a
concessionaire had to provide the economic resources for the execution of the works and theexploitation of the service, in the procurement of public works the costs were covered by the State.  In
the case of concessions, legal relationship involved not only the government and the concessionaire,
but the user of the service as well;  legal obligations in the sphere of public works were limited to the
contractor and the procuring authority.S/WPGR/M/20
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33. In concluding the discussion on this issue, the Chairman encouraged delegations to submit
information on their national regimes, preferably in writing.  In turn, the Secretariat would provide a
background note on how language similar to that contained in Article XIII:1 of the GATS had been
interpreted in the GATT context.  He wondered whet her the Working Party would find it useful if the
Secretariat also prepared a note on possible forms of concessions and potentially relevant GATSprovisions.  The Secretariat indicated that any su ch note would essentially distinguish between three
categories of services:  those supplied in the exercise of governmental authority, which were outside
the scope of the GATS;  services procured by governments which fell under Article XIII;  and all
other services.  If concessions were neither services provided in the exercise of governmental
authority nor constituted government procurement, then the general MFN obligation and, where
relevant, specific commitments applied to them.  Fr om a legal perspective, any Secretariat note would
not be able to go significantly beyond these principle issues.
34. Several delegations, including Argentina, Venezuel a and Malaysia,  felt it would be useful to
further discuss these issues in the Working Party, based on information provided by Members before
the Secretariat was asked to prepare a background note.
35. Regarding the second question, i.e. who is the procuring entity, the Chairman recalled that
two criteria had been suggested thus far:  (a) gove rnment control of the entities concerned;  and (b)
the relevant market structure, in particular the existence of competition.  The representative of
Canada, agreeing with views expressed in the non-paper from the European Communities, stressed
the difference between a definitional exercise, aimed at determining the types of entities to be coveredby the rules, and a negotiating process, in which individual entities would be made subject to the
rules.   In defining the scope of procurement rules, the level of government control should be the mainconsideration.  The representative of the United States said that the range of potentially relevant
entities extended from Central to Sub-central levels of government, with the latter involving particular
difficulties.  As to the existence of government control, he felt that any definition should exclude
procurement by entirely privately-owned enterprises since the notion of government procurement
implied some degree of government ownership.
36. Regarding the third question, i.e. what is be ing procured, the Chairman wondered whether it
was necessary to further specify services not falling under the GATS, i.e. "services supplied in the
exercise of governmental authority" as stated in Article I:3.  In addition, he enquired whether there
were other issues to be raised in this context and/or whether the Working Party was ready to address
the second item of the work programme, i.e. the basic disciplines of non-discrimination.  No views
were expressed.  The Chairman concluded that the next meeting would continue to focus on the first
item of the work programme.
ITEM D: DATE OF THE NEXT MEETING
37. The Chairman suggested holding the next formal meeting on Friday, 16 April 1999.  The
Working Party agreed.
ITEM E: OTHER BUSINESS
38. No matters were raised under this agenda item.
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