RESTRICTED  WORLD TRADE  
ORGANIZATION  S/WPGR/M/47 
22 April 2004 
 (04-1806) 
Working Party on GATS Rules  
  
 
 
REPORT OF THE MEETING OF 24 MARCH 2004 
 
Note by the Secretariat
1  
 
 
1. The Working Party on GATS Rules held this m eeting under the chairmanship of Mr. Santiago 
Urbina, from Nicaragua.  The agenda for the meeting was contained in WTO/AIR/2271.  It included the following items: emergency safeguard measures, gove rnment procurement, subsidies, date of the 
next meeting, other business, and election of the new chairperson.  To assist delegations in the 
preparation of the meeting, the Chairperson ha d prepared an annotated agenda contained in 
JOB(04)/11.  The agenda for the meeting was adopted
.   
I. NEGOTIATIONS ON EMERGENCY SAFEGUARD MEASURES (ARTICLE X) 
2. The Chairperson  recalled that the decision taken by the Council for Trade in Services on the 
extension of the negotiating mandate, pursuant to  a recommendation from the Chairperson of the 
Working Party on GATS Rules, could be found in docu ment S/L/159.  He then drew attention to the 
fact that a group of ASEAN Members had circulat ed a communication (JOB(04)/4) providing further 
thoughts on an emergency safeguard mechanism.  Members now had the opportunity to express their 
views on that contribution or to raise other substantive or technical issues.  In that regard, the discussion of hypothetical examples might contin ue to prove useful.  Members had expressed 
different views on whether the Shangri-La example ju stified the application of safeguard measures.  
However, setting that aside, the type of safeguard m easure proposed to be applied in that particular 
situation and its effects, as well as the determination and calculation of injury, still could be discussed.  
As always, Members could also consider alternativ e approaches or other hypothetical situations.   
3. The representative of the Philippines
 noted that the communication from the group of 
ASEAN Members had been presented during an inform al meeting and he asked that his intervention 
at the time be reflected in the records of th is meeting (see paragraphs 4 to 8 below).   
4. The representative of the Philippines, speaking al so on behalf of the delegations of Brunei 
Darussalam, Indonesia, Malaysia, Myanmar and Tha iland, stressed the importance of the negotiations 
on rules and on emergency safeguards in particular. He wished to present an informal communication 
providing further thoughts on an emergency safegua rd mechanism.  The context for this new 
contribution was, first, that the delegations con cerned had thought of revising the ASEAN draft text 
submitted to the Working Party in 2 000 in order to look where further flexibility could be provided.  
This exercise also helped to identify points of convergence that had emerged since 2000.  He wished 
to highlight key points of the paper.  In terms of the policy context for establishing an emergency 
safeguard mechanism, he emphasized that given the binding and largely irrevocable nature of services 
commitments, some form of an ESM would be needed to address, on a temporary and extraordinary 
basis, adverse consequences that might arise in the implementation of services commitments.  He 
                                                      
1 This document has been prepared under the Secret ariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO.  S/WPGR/M/47 
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 agreed that the application of an emergency saf eguard mechanism would not be appropriate for 
situations not attributable to commitments made by Members.  While he thought that regulatory 
measures could in some instances be adequate, such  measures would not be sufficient to adequately 
address all emergency situations.  At the same time, the existence of an ESM would not necessarily mean that a safeguard measure would be the only means of resolving an emergency situation, as 
various policy tools might be needed.  An ESM w ould provide the necessary margin for the effective 
combination of policy tools.  While some had questioned the usefulness of establishing an ESM because some situations might arise out of structural factors calling for longer-term solutions, it should not be assumed that all emerge ncy situations were structural in nature.  An ESM would be a 
necessary element of a solution in cases where domestic  private stakeholders suffered injury, or threat 
of injury, as a consequence of liberalizati on and regulatory reforms bound in schedules of 
commitments.  An ESM would be an essential safety net for services liberalization.  He thought that 
most Members, especially developing countries, saw an ESM as an integral component of the overall 
balance sought to be achieved in the current round of services negotiations.  An ESM might be seen as 
a condition  sine qua non , or at least something that would be likely to induce, a positive outcome in 
the overall services negotiations.  It would also he lp governments, particularly in developing 
countries, to alleviate their constituents' con cerns about making commitments.  An ESM would 
provide some comfort since a temporary safety net would be available if the extent or pace of committed liberalization had been misjudged.  An  ESM might be seen as filling the gap between 
permanent commitment and permanent withdrawal.  Such  a safety net would be expected, at least, to 
encourage Members to consider certain requests fo r liberalization which would not otherwise have 
been contemplated.  This positive linkage was buttressed  by certain delegations stating that they could 
accommodate greater liberalization given the comfort level that an ESM would bring. 
5. With respect to the elements that an ESM c ould include, the representative of the Philippines 
said that an attempt had been made to pay heed to calls of various Members for a more creative approach, not too closely patterned after the Agreem ent on Safeguards.  Nevertheless, he considered 
that some elements of the goods model remained esse ntial for an ESM to be workable and effective.  
A first element was that any safeguard measure be taken on an MFN-basis, as already reflected in 
Article X of the GATS.  Second, it had been argued th at any injury or threat thereof which could arise 
as a result of liberalization would presumably manifest  itself within a concrete period of time.  If so, 
Members could consider a limited window of time du ring which an ESM could be invoked.  Logically 
this should be a certain period after the actual libera lization or reforms entered into force, although the 
full entry into force of a Member's commitments  might be a better benchmark since the ESM was 
intended to apply only to liberalization and refo rms which had been committed under a Member's 
schedule of commitments.  The third element relate d to limited duration.  A number of Members had 
said that the period of application of a safeguard me asure should be relatively short.  While the draft 
text proposed by ASEAN in 2000 had envisaged an in itial period of application of three years, with a 
maximum of seven or eight years, he thought that the total period would need to be reduced.  Maybe 
this could be seen from the perspective of special  and differential treatment, in the sense that 
developing countries could be the beneficiaries of an extension.  Such extension could be of a 
maximum of three years and subject to either pr ior review by Council for Trade in Services (CTS) 
confirming that reasonable grounds existed for continuing the applica tion of the safeguard measure or, 
alternatively, adopting Article XXI-type procedures.  Where a longer or even indefinite suspension of 
commitments was needed, the situation would proba bly lend itself to a permanent modification or 
withdrawal of commitments under Article XXI.  In  other words, any measure extending beyond the 
time limit should automatically lead to the initiation of Article XXI procedures.   Related to the issue 
of duration was the notion of provi sional safeguard measures.  A lot of Members might feel that, 
given the shortened timeframe and streamlined procedures for invoking an ESM, the provisional 
safeguard measures proposed in the ASEAN draft text of 2000 might not be indispensable.   
6. The fourth element related to acquired rights.  A major criticism levelled against an ESM was 
that it would erode the legal certainty and predictabi lity of market liberalisation and regulatory reform  S/WPGR/M/47 
 Page 3 
 
 
 undertaken by Members as a result of negotiations.  Regarding mode 3, where the supply of a service 
was accompanied by substantial capital investment, concerns had been raised about the possibility 
that foreign service suppliers be required to disinvest .  Given governments' keen interest in attracting 
investment, they would be most reluctant to cons ider measures tantamount to forcing disinvestment.  
Nevertheless, the ASEAN draft had sought to alleviate such concerns by proposing three options 
regarding acquired rights.  For example, the first option aimed at protecting all acquired rights of pre-
established foreign service suppliers.  Additional concerns had been raised to the effect that the 
application of a safeguard measure might have an ti-competitive effects in a given sector.  He thought 
that the second and third options of the ASEAN draft text addressed such concerns.  Based on 
discussions of the ASEAN draft text, he considered it was logical to adopt an approach that would 
protect acquired rights along the lines of the second opti on.  However, there might be a need to revisit 
and refine, in light of the views expressed, the lis t of activities that the ASEAN draft considered as 
falling outside the ambit of acquired rights.   
7. With respect to the fifth element, conditions  of application, the representative of the 
Philippines thought that, while the onus of proving  the need for an emergency safeguard measure 
should rest with the Member invoking an ESM, the A SEAN draft text could be reconsidered in favour 
of a more streamlined approach, as suggested for example in the communication from Australia 
circulated in 2002 (JOB(02)/8), in particular m odel II.  Nevertheless, certain elements remained 
fundamental.  These included: that the situation faced by the domestic industry resulted from the 
implementation of a Member’s commitments undertak en under Part III of the GATS; that there be a 
sudden increase in the supply of services by foreign supplie rs; that injury or threat of serious injury be 
determined for the relevant domestic industry; that there be causality between injury and the increase 
in supply of the relevant service; and that the situ ation be of an emergency nature.  In terms of 
procedure, he considered that Australia’s Model II approach could provide a useful template.  In 
exchange for less prescriptiveness at the invoking Member’s end, an ESM should provide for more 
accountability vis-à-vis  affected Members and a stronger surveilla nce role for the CTS.  Therefore, a 
Member should be allowed some latitude in conducting an investigation and suspending its 
commitments, akin to what was allowed under Ar ticle XXI, as long as the substantive elements 
previously mentioned were duly established.  If the threshold was met, the justification for invoking a 
safeguard action could form part of the notification submitted to the CTS, possibly through a "show just cause" report, as suggested by Australia.  The report could be based on a checklist of issues which 
would include the following: who requested the action and why; how implementation of GATS 
commitments had caused injury or damage; extent of injury or damage; sector and modes affected; 
who had been consulted during the investigation process; what less trade-restrictive options had been 
considered and why these had been deemed inad equate; how this approach would remedy the 
situation; the duration required; and the phase-out  plan, where appropriate.  This would provide 
greater transparency on the part of the invoking Me mber, a chance for the memb ership to be appraised 
of the situation, and a stronger surveillance role for the Council for Trade in Services.  
8. The sixth element related to the definition of domestic industry.  Recognizing that a number 
of delegations had some concerns with the proposed  use of the definition found in Article XXVIII of 
the GATS, he considered that de termining which entities fell under the definition of domestic industry 
had to be largely left to the national laws of each  Member.  This amounted to a radical departure from 
the previous ASEAN draft text.  Seven, with regard  to applicable measures, he indicated that the 
principle that safeguards be applied only to the extent  necessary to prevent or remedy serious injury or 
threat thereof remained paramount.  In order to a ddress some concerns, it was important that measures 
inconsistent with commitments should, to the ex tent possible, only be taken as a last resort.  
Regarding coverage, he still consid ered that an ESM should apply to all modes of supply, even though 
it might appear more difficult in some sectors to en force a safeguard measure in certain modes.  In 
addition, he considered that most delegations see med to think that a safeguard measure should be 
sector-specific and, to the extent possible, mode -specific.  The eighth element of a revised ESM 
concerned a surveillance mechanism.  This might requ ire further elaboration if an increased role was S/WPGR/M/47 
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 to be accorded the CTS.  Various submissions an d interventions had alluded to the need for a 
mechanism to be set up to ensure that an ESM was cr edible and not subject to abuse.  In this respect, 
the ASEAN draft text probably needed to be revi sited and revised.  The ninth element concerned 
special and differential treatment for developing countries.  Given that many developing countries 
were increasingly dependent on, and had expressed in terest in the temporary movement of natural 
persons, he thought that in cases where a quantitative restriction was used as a safeguard measure on 
Mode 4, it should not reduce the number of mode 4 s uppliers in the affected sector below the level of 
a recent representative period.  One of the additional elements that had not been elaborated upon in 
the communication related to compensation.  Since th e period of applicability of a safeguard would be 
shorter and an extension would be subject to an approval process, compensation might not be 
necessary.  Another element concerned the concept of  unforeseen circumstances, which remained key.  
In light of a previous submission from Argentina,  he thought that perhaps unforeseen circumstances 
should relate primarily to increases in the suppl y of services.  He did not think that unforeseen 
circumstances should be defined in an ESM and tho ught it might be preferable to let jurisprudence 
develop.  The same would go for the concept of  like services.  The onus would be on the invoking 
Member to establish likeness.  In concluding, he st ressed the importance that the group of delegations 
he was speaking for attached to the issue of an ESM and wished to emphasize the flexibility shown by 
indicating readiness to move away from the ASEAN draft text presented in 2000. 
9. The representative of the United States
 said that her delegation would want to have its 
statements made at the informal meeting on the communication from the group of ASEAN Members 
reflected in the record of this mee ting (see paragraph 10 below).      
10. The representative of the United States said that  the issue of emergency safeguard measures 
was very sensitive, but that it was important to assess where the divide lied, so that obstacles to  
finding common ground could, if possible, be surmount ed.  She noted that concerns raised over many 
years of discussions still remained to be a ddressed, including the questions raised in the 
communication from the EC on modal application.  She felt that the presentation by the delegate of 
the Philippines appeared to yield little in terms of new thinking.  The focus was still on the 
mechanism approach.   
11. The representative of Hong Kong, China , while stressing that his delegation remained to be 
convinced of the need for and the value of an ESM, noted the importance of pursuing substantive 
discussions and technical analysis.  He wanted to comment on three parts of the communication.  First, regarding part II, he took note of the situa tions described in paragraph 6 where a certain group 
of stakeholders suffered injury consequent to bou nd liberalization commitments.  He wondered what 
such a situation could be.  For instance, who would be  the stakeholders in that situation, why did the 
injury in such a situation need to be redress ed through a safeguard, and what was the safeguard 
intended to protect against?  In th at regard, it would also be inter esting to get a better understanding of 
what was meant by "unintended or unanticipated con sequences" in paragraph 3.  While helpful to the 
discussions in past meetings, the Shangri-La exampl e did not seem to provide clear answers to these 
questions since it implied structural problems rather than a safeguard situation.  Clearer examples of 
the situations referred to in paragraph 6 might prov e helpful.  Second, regarding part III, he took note 
of the fact that the communication highlighted th e link between an ESM and progressive liberalization 
in market access negotiations; this probably related to  the issue of desirability.  He wondered whether 
the use of the terms "safety net" implied that an ESM  was to be used in situations where structural 
adjustments were required as a result of liberalizati on.  He doubted that an ESM should aim to address 
such situations, which could and should be anticip ated.  Rather, the purpose of an ESM might be to 
address emergencies or unforeseen circumstances.  Th ird, concerning part IV, he took note of the fact 
that the proponents found it desirable or even n ecessary to have an ESM in place when undertaking 
liberalization, although he did not necessarily agree that an ESM should be a pre-condition for further 
liberalization.  It was not clear how the ESM described in the communication would establish a 
concrete, substantive and positive li nkage to liberalization.  The communication did not suggest how  S/WPGR/M/47 
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 Members would find it compelling to undertake liber alization if and when there was an ESM.  He 
wondered whether the proponents coul d elaborate further on this issue, especially since the initial 
offers received so far did not point out the existence of such a positive linkage.  
12. The representative of Chinese Taipei  considered that the communication from the group of 
ASEAN Members was a useful basis for construc tive discussions, which she hoped could focus on 
technical issues relating to the feasibility of safe guards in services.  She had several preliminary 
comments on the communication.  Regarding parts III a nd IV, she was sympathetic to the view that an 
ESM would make it easier to pers uade domestic industries in developing countries to accept further 
opening of markets.  Also, she agreed that a safeguard measure could only be applied as a result of an emergency situation, which was characterized by its  extraordinary nature and its link to unforeseen 
developments.  With respect to part V, she agreed that certain elements contained in the goods model, 
such as MFN or conditions of application, were al so important in the services context.  Regarding 
procedures, she concurred that model II in the s ubmission by Australia provided a basis for discussing 
a more simple and streamlined ESM.  However, the particular nature of services trade probably meant 
that a more creative approach was n eeded in some respects.   More ti me was also needed for in-depth 
discussions of such topics as the definition of dom estic industry and the cros s-modal application of 
safeguard measures.  Her delegation also asked wh ether her delegation was correct in assuming that 
an ESM could only be invoked in relation to furthe r liberalization commitments and not with respect 
to existing commitments.  Further, paragraphs 13(a)  and 13(b) indicated that the determination of 
situations justifying a safeguard, as well as the concept of like services, were best left to 
jurisprudence.  However, she thought that panels and the Appellate Body ha d not generally examined 
these elements in disputes arising out of the Agre ement on Safeguards.  Rather, their existence was 
determined by the investigative authorities, who ha d to give reasoned and ad equate explanations in 
their reports.  Without prejudice to the position of her delegation, she thus felt it might be 
inappropriate, if the intent of the proponents was to mirror the disciplines in goods, to let panels 
determine such issues on a case-by-case basis.  Rath er, investigative authorities might be vested with 
such issues.  Finally, regarding paragraph 13( c) on compensation, she wondered what would 
constitute a "relatively short period of a pplication of a safeguard measure".   
13. The representative of the United States
 wished to give a number of comments and raise 
questions on the communication by the group of ASE AN Member to try to get a better and clearer 
understanding of the underlying intentions.  The questions should in no way be perceived as an 
endorsement of the approach taken, on which she ha d, in the past, expressed concerns.  Noting that 
the Working Party had recently agr eed to extend the mandate in an open-ended and indefinite fashion 
and that there was no guarantee of an outcome or of the timing of any outcome, she indicated that her delegation was interested in a substantive and t echnical discussion on issues regarding feasibility.  
First, with respect to paragraph 3 of the comm unication, she asked how the proponents proposed to 
determine whether serious injury or threat of serious injury was being caused by liberalization 
undertaken according to a Member's schedule of commi tments as opposed to other factors.  She also 
hoped to get further details regarding transparency  and the type of information that would be 
considered in making a determination of injury or threat thereof.  For example, what would be the 
source of statistics used by the group of ASEAN Members?  Would these statistics be provided 
according to mode of supply?  Second, her delegati on wished to have a description, for each of the 
countries that had prepared the submission, of a transparent process which would allow for public 
comment by all interested parties and the legal ba sis for such a process that the respective countries 
would be able to undertake.  Some of the inform ation provided in paragra ph 12(e) only described the 
conditions of application in very ge neral terms and, hence, did not he lp to examine the feasibility of a 
possible emergency safeguard mechanism.  Third, c oncerning paragraph 4, she sought clarification of 
what was meant by the terms "or are never sc heduled as part of a Member's liberalization 
commitments" and how they related to the schedu ling guidelines.  Fourth, regarding paragraphs 10 
and 12(b), she wondered what type of regulatory reform was referred to, and how an emergency 
safeguard measure would be imposed?  Regarding pa ragraph 12(b), she thought that some of the S/WPGR/M/47 
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 comments by the representative of Hong Kong, China we re very relevant.  Fifth, she took note of the 
fact that paragraph 12(c) mentioned special and differential treatment in favour of developing 
countries with respect to duration. She wondere d what would happen in situations involving 
predominantly developing countries.  In such instances, would the beneficiary of special and 
differential treatment be the developing country whose industry suffered injury or the developing 
countries whose suppliers had caused injury?   
14. Sixth, regarding paragraph 12(d) on acquired ri ghts, she thought that it was imperative that 
these be protected, should there be agreement to negotiate provisions on emergency safeguards.  
Introducing restrictions not contemplated by services  suppliers at the time of establishment would 
result in a poor investment climate, provide an unstable basis for business decisions, and could have a 
negative effect on employment in the country impos ing the safeguard.  Since the sponsors of the 
communication did not think that the concept of dom estic industry should be defined, she asked for a 
clarification of the relationship between the prop osed approach on acquired rights in option 2 and 
national treatment commitments and any other bilate ral commitments not captured by Article V of the 
GATS such as those flowing from b ilateral investment treaties.  Se venth, regarding paragraph 12(d), 
she had concerns about the proposal to extend acqui red rights to mode 4.  Acquired rights had been 
mentioned in the context of establishing a comme rcial presence, where stability and predictability 
were important for making long-term investment decisions.  Mode 4 implied temporary movements 
and, hence, should not carry the same implications .  Foreign natural persons , by definition, were not 
permanent parts of the labour market.  She wondere d whether mode 4 was not indeed the mode where 
it might be easier to transpose a goods-type safeguard mechanism.   
15. The representative of Canada
, while reiterating concerns regarding the case for an ESM in 
services, wished to ask preliminary questions on the communication.  He first wondered why the 
proponents felt comfortable with transposing the goo ds model to services given that goods trade was 
similar only to mode 1, but not to other modes of services supply.  With respect to acquired rights, he noted that paragraph 12(d) menti oned that expansionary activities of  established firms would not fall 
under acquired rights and, hence, could be subject to  safeguard measures.  He asked how that would 
apply in practice and wondered what limiting expansion might entail.  For example, did that mean banning acquisitions of new facilities, new hiring, in creased marketing, expanding consumer base, or 
new strategic alliances?  Would domestic suppliers also  be subjected to such restrictions?  Regarding 
paragraph 12(e)(v), he considered that it would be important to ha ve a better understanding of what 
might be an emergency situation in mode 3.   Fi nally, he wondered what ro le domestic regulation and 
capital markets would play in restoring market equilibrium in the absence of an ESM.    
16. The representative of Venezuela
 wished to provide preliminary comments on the 
communication.  She noted that her authorities had so me concerns with regard to issues such as the 
application of a safeguard measure to all modes of  supply, in particular modes 1 and 3, acquired 
rights, compensation, and duration.  She thought, like the group of ASEAN Members, that emergency 
safeguard measures were part of the overall ba lance to be achieved in the current round of 
negotiations.  An effective safeguard mechanism c ould facilitate liberalization.  In particular, 
developing countries, who were net importers of services, could benefit from a safety net, which 
would help to overcome domestic resistance to gr eater commitments that could have unforeseen 
economic effects, for example in financial services,  transport, and professional services.  At the same 
time, an ESM should allow for special and differen tial treatment of developing countries as provided 
for in the GATS.  An ESM should not be conditio nal on new commitments to greater openness, but 
rather would help to comply with commitments al ready undertaken and to support liberalization in 
line with the principles set out in Articles IV and XI X of the GATS.  With regard to the extension of 
the period of application of a safeguard measure, in paragraph 12(c), she consid ered that a review or 
approval process in the CTS would put a greater bur den on the invoking Member than the use of 
Article XXI procedures.  She also highlighted the continued relevance of the two previous 
contributions from her delegation, on indicators for the determination of injury and on the causal  S/WPGR/M/47 
 Page 7 
 
 
 relationship (JOB(01)/48, JOB(01) /101, and JOB(01)/101/Add.1).  She indicated that her delegation 
would present a modification to the section of JOB(01)/48 relating to statistics.   
17. The representative of Chile  also wished to put forward some preliminary questions and 
comments.  Regarding paragraph 7, she clarified that, although a developing country, Chile did not 
consider an ESM necessary.  It still was not cl ear how, from a technical point of view, such a 
mechanism could work.  Much had been said about the political rationale, but fundamental questions 
of a technical nature still remained to be answer ed.  Regarding paragraph 12(b), she asked about the 
proposed duration of the limited window.  Did such limited window refer only to actual liberalization 
commitments, in contrast to comm itments that merely bound policies that had been in place for some 
time?  Concerning the issue of special and differential treatment, would such treatment be for 
developing countries subject to a safeguard measure  or those imposing a safeguard measure?  With 
respect to paragraph 12(g), she asked what less trade restrictive options, or policy tools, regulations 
and solutions were being referred to and whether examples could be provided.   Regarding paragraph 
12(h), she wished to hear more from the proponents w ith respect to the type of surveillance exercised, 
the role of the Council for Trade in Services, and th e information to be presented.  On paragraph 12(i), 
she wondered why special and diffe rential treatment was only menti oned with respect to mode 4, 
given that various developing countries, including Chile, had interests in other modes of supply as well.  She also asked what type of special and differential treatment was contemplated.  Moreover, like Hong Kong, China, she enquired how the link between liberalization and an ESM could be 
operationalized, and be reflected in the offers that  would be submitted in the coming months.  Finally, 
she emphasized that the issue of acquired rights was very sensitive for her delegation and, as the 
delegation of Canada, wondered what  was the proposed scope of the term "expansionary activities".   
18. The representative of Brazil
 commended the quality of discussions and, in this context, 
expressed satisfaction about the extension of the ma ndate.  He suggested that, in the future, the 
sessions be organized so as to permit more interacti on.  In his view, the establishment of an ESM was 
not a prior condition for further market acc ess commitments, because the GATS had other 
mechanisms that provided flexibility.   It was nevertheless an important element since it could provide 
some comfort to domestic constituencies.  On the submission by the group of Members from ASEAN, 
he wondered why the idea of limited window was be ing introduced since it had no counterpart in 
goods trade.  He failed to see why, in services, an  ESM should be applied only until a certain point in 
time.  Regarding limited duration, he also wondered why a shorter dur ation was contemplated than for 
trade in goods.  Reacting to comments of other delegations, and recalling the open and constructive 
approach of his delegation, he also wondered why feasibility issues raised regarding an ESM would 
not also arise under Article XXI.  He then asked  how Article XXI could be  implemented in that 
context and what would be the consequences.  The case currently discussed under Article XXI might 
also provide some guidance for temporary modifica tions of commitments.  Finally, he reiterated 
interest in examining safeguard clauses found in  schedules and initial offers so as to see how 
feasibility issues were deal t with in such cases. 
19. Regarding Brazil's suggestion on the organization of discussions, the Chairperson  proposed, 
in order to help structure the debate, to compile questions raised.   
20. While the communication from the group of ASEAN Members was still being analysed by 
his authorities, the representative of the European Communities  considered, at first sight, that it did 
not really bring forward new elements and that it did not contain answers to previously raised 
questions on modal application or  on situations justifying a safegua rd.  It was important to focus 
discussions and work on the issues raised today.  He wi shed to make a few specific points.  First, he 
wondered why the paper suggested that an ESM w ould require neither previous authorization nor 
compensation.  Compensation was needed under Ar ticle XXI while under waiver procedures, which 
entailed exceptional circumstances,  authorization was required.  S econd, regarding paragraph 12(f), 
he wondered why the paper suggested that each Member adopt its own definition of domestic S/WPGR/M/47 
Page 8  
 
 industry, as opposed to having a clear and multilatera lly-agreed definition.  Third, on surveillance 
procedures, he asked whether the proponents were revising the ASEAN draft text, as hinted in 
paragraph 12(h).  Finally, regarding the link between ESM and liberalization, he mentioned a 
hypothetical scenario where a horizontal limitation provided for maximum foreign ownership of 49%, 
conditional on a safeguard.  It was not clear how such safeguard could work since there were no 
foreign suppliers that could injure domestic suppliers.   
21. Taking up the issue of acquired rights in para graph 12(d), the representative of the Republic 
of Korea  noted that the communication seemed to sugg est that, should the second option be followed, 
disallowing mergers and acquisitions could alleviate concerns about possible anti-competitive effects.  
Such limitations on mergers and acquisitions, especially  if in place for three years, appeared very 
restrictive and would seem to impact on the overall economic environment.  She thought that this 
issue highlighted the need for fu rther discussion on the type of measures that could be taken as 
safeguards.   
22. The representative of China  considered that, although some Members' commitments tended to 
simply reflect the level of liberalization in place during the Uruguay Round, it  had to be recognized 
that others had undertaken commitments beyond their actual regulatory capacity and the then 
prevailing liberalization level.  At the end of th e current round, some Members might also have to 
make commitments that go beyond the status quo.  These Members should be given the option of invoking safeguard measures in case of emergency.  Her delegation therefore considered that it was 
necessary to have an ESM in services.  Neverthel ess, a number of technical issues needed to be 
addressed.  She asked Members that had safeguard-t ype measures in their schedules to explain how 
these were intended to be implemented.  Turning to the communication, she expressed support for the 
efforts of the group of ASEAN Members, as well as fo r the idea that the Council for Trade in Services 
should assume greater responsibility in monitoring the implementation of an ESM.  With respect to 
the concept of limited window, she asked whether th e period of entry into force of a Member's 
commitments, mentioned in paragraph 12 (b), referred to the date of entry into effect of a schedule or, 
rather, to the date when the implementation period in the sector ended.  In addition, it was important 
that a mechanism include the possibility of provision al safeguard measures.  As well, her delegation 
was still considering the need for compensation, which might be necessary in order to discourage 
Members from using an ESM at their discretion.   Concerning acquired rights, these should not be 
confined to modes 3 and 4, as they might be releva nt for other modes.  Finally, regarding duration, 
she wondered why the communication proposed three years given that the Agreement on Safeguards 
allowed up to four years, with the possibility of an extension for another four years.   
23. While considering that the communication cont ained to a certain extent new elements 
including some positive points, the representative of Switzerland
 thought that, overall, it remained 
close to the draft text presented in 2000.  Although paragraph 4 of the communication suggested that some Members considered regulatory measures to be  in themselves unfailingly sufficient to redress 
injury, she reiterated that her delegation had neve r argued that a given measure might fully address the 
problem at hand.  Regarding paragraph 11, she fe lt that the modalities for autonomous liberalization 
had a major role to play in the discussions of an  ESM.  Countries could liberalize progressively and 
take into account their own experience with liberaliza tion.  In such a context, unexpected effects of 
undertaking commitments were largely sidelined.  So  far, countries had tende d to take commitments 
when they felt confident to bind themselves at the in ternational level.  She thought that the idea of a 
limited window, in paragraph 12(b), was extremely useful.  Also, the communication contained some 
constructive thoughts on the issue of acquired rights.   
24. She wished to elaborate on four concerns of a non-technical nature, which her delegation 
hoped could be taken into account in the discussions .  First, it had to be recognized that some 
Members wanted to send a clear and firm message to  investors that their policy was to provide for 
liberal conditions of market entry.   Because of  its legally binding and multilateral character, the  S/WPGR/M/47 
 Page 9 
 
 
 GATS was the main instrument in pursuing such a policy, but an ESM would go against such policy 
by making the legal environment less  certain for all Members.  The establishment of an ESM thus had 
a cost.  Second, an ESM would compromise all commi tments made in previous  negotiations.  Third, 
there could only be a very limited set of situati ons, if any, where an ESM might be necessary.  
However, the communication did not take this into  account.  Her delegation w ould have preferred to 
see proposals that would limit the scope of an ESM to what was strictly necessary.  Fourth, while 
some delegations were trying to make a li nk between ESM negotiations and market access 
negotiations, it was unfortunate that a negative lin k was drawn.  Proponents should rather create a 
positive and concrete link by identifying the commitmen ts they could undertake if there was an ESM.  
These four concerns were of a political nature and re lated to the issue of desi rability; she hoped they 
would be taken into account.     
25. The representative of Australia  recalled that Australia's communi cation circulated in 2002 had 
been without prejudice to his delegation's position on desirability and feasibility of an ESM.  The 
communication from the group of ASEAN Members still needed to fully address the issues of 
desirability and feasibility, and faile d to concretely address definition of injury in services.  In relation 
to injury, he considered that the communication fo cused only on one aspect, that is injury to service 
providers in a particular sector.  The national ec onomic interests of a Member imposing a safeguard 
might be more relevant.  It cons isted of the benefits conferred by  a safeguard on all participants, 
minus the cost to those that did not gain from its im position.  Determination of injury needed to take 
both aspects of the equation into account.  Members should also have deeper discussions on the factors that had to be examined in any determina tion of injury.  For example, reduction in competition 
in the retail sector might have adverse consequences for consumers, while an increase in the price of 
financial and telecommunication services might ne gatively impact on intermediate users.   
26. The communication from the group of ASEAN Members proposed that any safeguard 
measure extending beyond the permitted time limit should automatically lead to the initiation of 
Article XXI procedures.  He believed that the c onversion of a temporary measure into a permanent 
measure defeated the purpose of an ESM, were it cons idered to be desirable.  The maximum period of 
application proposed, six years, seemed overly long for a domestic industry to engage in restructuring.  
In contrast, the Australian communication had mentioned a period of two years.  With respect to acquired rights, he doubted that the second and th ird options proposed were practical.  Asking a 
foreign service supplier to limit its operations might work in some sectors, but not in others.  For 
example, requesting a retail chain to place a cap on the number of outlets might be relatively 
straightforward, but things were more problematic when the ongoing provision of a service was 
concerned.  A safeguard measure in insurance services might deprive policy holders of insurance 
cover, interrupt the flow of pension contributions, and threaten the prudential standing of companies 
by interrupting the flow of new contracts.  In addition, Members would need to take into account 
commitments made under bilateral investment treaties,  particularly the possible violation of the MFN 
obligation with regard to the treatment of establishe d foreign firms.  He also remarked that, in many 
instances, the communication proposed to leave impor tant aspects of an ESM in the hands of the 
authorities of the invoking Member, for example the de termination of likeness.  This raised concerns 
with regard to transparency, objectivity, and fairn ess.  Such concerns were even greater in the case of 
services than for goods.  He also wished to cha llenge the assumption reflected in footnote 4 that 
permanent modification of commitments pursuant to  Article XXI was a right and, thus, that a 
temporary modification should be construed the same way.  He recalled that a permanent modification 
of commitments had to be accompanied by compensati on.  Finally, he welcomed the reference to the 
Australian proposal for the inclusion of a "show just cause" report.  However, it needed to be recalled 
that the indispensable information listed in th e proposal was only indicative and represented the 
absolute minimum that needed to be included.     
27. The representative of Colombia
 thought that focusing, as a start, on technical elements 
included in the communication from the group of ASEAN Members would help to advance and S/WPGR/M/47 
Page 10  
 
 organize discussions.  Colombia's participation in  discussions was without prejudice to its ultimate 
position.  The negotiations attracted significant in terest in the public and private sectors in her 
country.  While some elements of the Agreem ent on Safeguards could be used in a possible 
mechanism for services, others could perhaps be le ft aside.  She understood the need expressed in 
paragraph 3 of the communication to protect the domestic industry against injury resulting from 
liberalization commitments, but it was not clear how one could make a distinction between such cases 
and others not directly related to the implementation of commitmen ts.  Concerning paragraph 12(c), 
she wondered whether the proposed duration should be the same as the one provided for in the goods 
area.  Regarding paragraph 12(e), her delegation thought that any ESM should not apply to foreign 
suppliers already established.   Rather, safeguard measures could apply to future entrants.  With 
respect to paragraph 12(i), she considered that the concept of special and differential treatment should 
apply to all four modes of supply.  The Safegua rds Agreement, as well as the earlier ASEAN draft 
text, could provide useful elements in that  regard, for example the establishment of a de minimis  
clause providing for non-application of a safeguard in certain cases.  She noted that mode 4, given its 
scope, could benefit from various regulatory safety nets, which made effective application of a 
safeguard more difficult.  Finally, she expressed support for the idea of compiling a list of the 
questions raised, and wondered whether the previous  synopsis by the Chairperson could be updated.   
28. The representative of New Zealand
 reiterated that her delegation remained to be convinced of 
the usefulness of an emergency safeguard in servi ces.  A compilation by the Chairperson of questions 
raised would be helpful.  Regarding injury, she wo ndered, in light of the importance of considering a 
broader economic picture than solely damage to a particular industry, whether consumers' views 
would also be taken into account in a process of ass essing injury, and what weight would be given to 
them.  Imports that a domestic i ndustry might consider to be dama ging could provide consumers with 
more choice and lower costs.  Concerning modal a pplication, she wondered, in view of paragraph 
12(g), what type of safeguard measures the group of ASEAN Members could envisage under mode 2.  
She thought that applying safeguard measures to such a mode of supply seemed as problematic as the 
notions of forced disinvestment or of labour deportation with respect to modes 3 and 4.  Also, she 
asked whether the use of the terms "prevent injury" in paragraph 12(g) meant that an ESM could be 
invoked as a pre-emptive measure in the face of potentia l injury and, if so, how such a situation could 
be considered an emerge ncy, and how such emerge ncy could be demonstrated .  Finally, she wondered 
about the role that the group of ASEAN Member s envisaged in future discussions for the 2002 
communication from Australia.         
29. The representative of Cuba  highlighted the political importance of the negotiations on 
emergency safeguards and their influence on the market access negotiations.  He expressed support 
for the concept of limited window in paragraph 12(b)  and thought that the issues of acquired rights, 
mentioned in paragraph 12(d), and of prior notif ication to the Council for Trade in Services, in 
paragraph 12(e), should be further elaborated on.  Finally, regarding paragr aph 12(f), he considered 
that it was not optimal to allow each Member to use its own definition of domestic industry. 
30. The representative of the United States  said that she could not agr ee at this juncture to an 
update of the synopsis, recalling con cerns previously expressed with this particular document.  She 
was not objecting to a compilation of questions, however.  The Chairperson  took note of the 
reservations regarding the synopsis.  The proposed lis t of questions was simply intended to facilitate 
the preparations of an in-depth discussion. 
31. The representative of Japan  recalled his delegation's position on the issue of an ESM.  
Regarding acquired rights, he said that the applica tion of safeguard measures to mode 3 would deter 
investors wanting to establish a commerc ial presence.  The representative of Mexico  did not think that 
safeguard measures were necessary in the contex t of trade in services.  Other domestic policy 
instruments could be used to deal with circum stances that, according to some, could justify the 
application of safeguard measures.    S/WPGR/M/47 
 Page 11 
 
 
 32. While she did not want to associate her dele gation with any partic ular position on an ESM, 
the representative of Trinidad and Tobago  thought that it was important to discuss ways to minimize 
the possibility of abuse.  In that context, the c oncept of surveillance could be elaborated on.  She 
wondered whether the idea of progressively reducin g the restrictiveness of a safeguard measure as 
conditions improved was being considered.  The communication could further address ways to 
minimize the damage that safegua rd measures might cause to foreign suppliers that had already 
invested.  She also shared some of the questions put forward by New Zealand and Australia concerning the impact of safeguards on consumers.   
33. The representative of Hong Kong, China
 felt that various delegations, when speaking on the 
issue of an ESM, might have different types of safe guard measures in mind.  It was thus important to 
clarify this question.  First, he wondered how safeguard measures would be different from market 
access or national treatment limitations listed in schedules.  If possible safeguard measures were the same, or a subset of the range of  conceivable market access or national treatment limitations, why 
would such measures be less feasible than a market access or national treatment limitation?  He recognized that measures listed as limitations in sch edules tended to be in place and then to be 
progressively liberalized, whereas safeguard meas ures were introduced after liberalization had 
occurred.  If safeguards were less feasible for modes 1 and 2, would this imply that market access and 
national treatment limitations were also less feasi ble in those modes?  If so, what would be the 
purpose of the GATS of covering these modes of s upply?  Second, should there be a situation 
justifying safeguards, one feasible measure that c ould be taken against a surge of services imports 
were discriminatory subsidies to support competin g domestic suppliers.  Such subsidies could be 
effective under any mode of supply, provided that th e suppliers to be safeguarded could be clearly 
identified.  The problem was that such type of measu re was costly and might thus be more affordable 
for some Members than for others.  Third, econom ic needs tests (ENT) were found in schedules for 
mode 3 but also for modes 1, 2 and 4.  Presumably, these ENTs were meant to be used to restrict the imports of services.  While the underlying objectives were different from safeguards, they might 
entail the same type of measures.  The argument th at safeguard measures were not feasible for all 
modes, for example modes 1 and 2, would thus also  mean that ENTs were not feasible and, hence, 
had to be removed from schedules.  Finally, he cons idered that the feasibility of safeguard measures 
would depend mostly on the type of measure th at might be taken as well as on the particular  
circumstances of individual sectors.  One inferen ce to be drawn from the earlier communication from 
the EC on modal application (S/WPGR/W/38) could be that there was possibly no single type of 
safeguard that would fit all modes and sectors.    
34. The representative of Argentina
 said that he agreed with the first point made by the 
representative of Hong Kong, China.  Questioning the feasibility of applying a restriction to trade in services amounted to questioning the feasibility of the GATS.  He also agr eed that feasibility of 
safeguards under certain modes depe nded on the type of measure bei ng contemplated.  Discriminatory 
subsidies could be one feasible measure, although they  were costly.  A similar option consisted of 
discriminatory taxes.  Apparently less costly, they were technically feasible for any mode of supply.  
The representative of Brazil
 also reacted to the intervention by the representative of Hong Kong, 
China.  Stating that trade under modes 1 and 2 could not be restricted meant that there was no need to 
seek market access through these modes since such trad e could, in any event, not be prevented.  
Delegations should also address entries in schedules and offers that had an effect similar to those of 
safeguard measures.   
35. The representative of the United States  expressed strong concerns about the points made by 
the delegations of Argentina and Brazil.  There was no point in shifting the debate to such issues as 
the value of existing commitments, which did not prov ide answers to the technical questions raised on 
the communication from the group of ASEAN Members. S/WPGR/M/47 
Page 12  
 
 36. The representative of the Philippines
 wished to answer as many questions as possible, but 
considered that a written compilation would be of significant assistance.  Future discussions could be structured so as to permit a more interactive debate .  On the general question why an approach based 
on the goods model was deemed preferable, he ac knowledged that the group of delegations he was 
representing was not entirely comfortable with a stri ct transposition of the goods model to services.  
Nevertheless, it provided useful elements, some of wh ich could not be set aside in a services context.  
For example, the concept of injury seemed indisp ensable.  It was also important to assess whether 
injury was being caused by factors not related to a Member's liberalization commitments.  Regarding 
the comments by Hong Kong, China on the possible use of discriminatory subsidies as safeguard 
measures, he thought that not all countries had the resources to provide subsidies.  On Argentina's 
related point that discriminatory taxes might be used instead, he was not sure whether all such 
measures were necessarily covered by the GATS.  C oncerning the reference to economic needs tests, 
he indicated that not all Members had included them  in their schedules and that the greatest number of 
ENTs were found in schedules of de veloped countries.  Using ENTs as an alternative instrument of 
flexibility would mean that not all Members would be  on an equal playing field.  With regard to 
consumers interests, he thought that an investigativ e authority would be expected to consult and take 
into account the broadest range views possible, in cluding those of consumers.  The investigation 
would have to involve as many potentially affected sectors as possible.  With respect to the statistics 
used for injury determination, he said that the source would be national statistics.  For many Members, little information existed at a sufficiently  disaggregated level so as to be used for mode-
specific purposes.  But statistics were perhaps not th e sole determinant of whether injury was being 
caused to a domestic industry.  Rather, they coul d serve to buttress the petition of a sector claiming 
injury.   
37. In response to comments about the role of  domestic regulations, he emphasized that 
regulations would not always be effective in res ponding to injury caused to the domestic industry.  
While some problems might be structural in nature, he did not wish to convey the idea that this was 
true in all cases, quite the contrary.  Trying to char acterize, in the Working Party, situations that were 
structural in nature could lead to endless debates,  and it might be preferable to leave this for the 
investigating authorities to determine.  Reacting to a related point, he agreed that an ESM should not 
be used mistakenly as a remedy for structural probl ems.  When injury in a given sector called for the 
application of an ESM, the invoking Member was not precluded from using other policy tools that 
might be available.  An ESM could not cure all pr oblems.  If the authorities realized, after the limited 
period of time during which a safeguard measure could remain in place, that a structural problem 
existed, they would then have to decide whether to invoke Article XXI procedures.  With respect to 
the question from the representative of Hong Kong, China on whether a safeguard measure could be 
used in situations where structural adjustments were  required as a result of liberalization, he reiterated 
that applying a safeguard measure for three or more  years in response to structural problems would 
not provide a cure for such problems and that, if the problem had not been cured, a Member would 
have to decide whether to invoke Article XXI procedures.  On a point made by the delegation of Switzerland concerning autonomous liberalization, he believed that an ESM, by providing an 
additional safety net, could encourage a Member to bind liberalization previously undertaken 
autonomously.  He was open to further discussion on that point.   
38. The Chairperson
 suggested, given time constraints, that the delegations representing the 
Members that had prepared the communication cons ider providing answers in writing in preparation 
of the next meeting.   
II. NEGOTIATIONS ON GOVERNMENT PROCUREMENT (ARTICLE XIII) 
39. The Chairperson  recalled that the delegation of Singapore had presented, at the last meeting, a 
communication, circulated as JOB(03)/216, which pr oposed some issues and questions for discussion 
in the Working Party.  He invited Members to take  up the paper again since, at the December meeting,  S/WPGR/M/47 
 Page 13 
 
 
 only preliminary comments could be made.  Memb ers might also want to further comment on the 
proposal by the European Communities for a fram ework of rules in the area of government 
procurement under the GATS.  In that regard, he re called that a number of de legations had noted the 
importance of using concrete examples, including scheduling ex amples, to better understand how 
such a framework might apply.   
40. The representative of Singapore  recalled that his delegation had submitted the communication 
to help focus work, and without prejudging the scope of the mandate.  As a Member of the 
Government Procurement Agreement (GPA), hi s authorities had to ascertain how results of 
negotiations pursuant to Article XIII could rela te to GPA commitments.  He thought that the 
communication from the European Comm unities had helped domestic consultations on that point.  He 
considered that the issue mentioned in paragraph 2(j) of his delegation's communication, relating to 
private challenge procedures, might not necessarily be ready for considerati on at this juncture.  
Paragraph 2(h), which asked how the proposed frame work could be operationalized under the various 
modes could be addressed as a priority.  The EC  could perhaps provide examples to show how 
scheduling would work under varying circumstances.   For example, what if there were varying 
thresholds for different modes?  Examples could al so touch upon the possible format and content of 
MFN exemptions.  Regarding paragr aph 2(g) of his delegation's comm unication, which alluded to the 
work in the Working Group on Transparency in Government Procurement (WGTGP), he wondered, 
given the uncertainties surrounding the WGTGP, whethe r the Secretariat could prepare, for ease of 
reference, a compilation of government procuremen t procedures and disciplines in regional trade 
agreements.  He wondered whether similar work had already been done in the past in other fora.  
41. The Chairperson  noted that the Secretariat had prepared, for the WGTGP, documents on 
procurement disciplines found in regional tr ade agreements, for example WT/WGTGP/W/6, 
WT/WGTGP/W/32, and WT/WGTGP/W/33.  In additio n, the Secretariat had recently circulated to 
the Working Party an overview of government procurement-related provisions in economic 
integration agreements (S/WPGR/W/44).   
42. The representative of the European Communities  expressed support for the suggestion that 
the Secretariat prepare a compilation of procuremen t provisions contained in the economic integration 
agreements listed in S/WPGR/W/44.  That Note could be elaborated upon by compiling the relevant 
procedural rules.  Work done in the WGTGP only focused on certain provisions relating to transparency.  The repres entative of Chinese Taipei
, like the delegation of Singapore, asked the 
European Communities to present concrete examples so  as to help clarify the concepts used in their 
proposal.  Regarding provisions on procedures, he agreed that, given the situation surrounding the 
WGTGP, the Working Party might want to use, for the time being, examples of such provisions from 
economic integration agreements.   
43. The representative of the United States  noted that her delegation was seeking greater 
transparency in relation to procurement of both goods and services.  She considered that it was 
difficult, as a practical matter, to distinguish between services procurement and goods procurement 
since most cases involved a mixture of both.  Existing international instruments, including the GPA, UNICTRAL, and the World Bank instruments had rules covering services and goods.  Procurement 
laws and regulations generally did not distinguish between them, and drawing a distinction for 
purposes of transparency did not seem practical nor  necessary.  She thought  that the communication 
circulated by Singapore would help focus discussions in the Working Party.  Following up on a 
question put to the EC in that communication, she enquired whether the EC considered that 
Article I:3(a) of the GATS was relevant in that context.   
44. The representative of Australia
 believed that the questions surrounding the scope of the 
mandate contained in Article XIII of the GATS, par ticularly whether it covered market access issues, 
needed to be resolved for progress to be made.  He also supported Singapore's suggestion to look at S/WPGR/M/47 
Page 14  
 
 examples of government procurement procedures in re gional trade agreements.  The Secretariat Note 
circulated as S/WPGR/W/44 provided a good basi s and could be expanded.  Another issue of 
importance for his delegation was whether the MFN oblig ation should apply.  He noted in that regard 
that the EC proposed the possibility of listing MFN exemptions, and that an option could be to include a specific exception in order to protect the prefer ential treatment amongst signatories to the GPA.  
These issues needed to be di scussed further.       
45. The representative of Chile
 indicated that her delegation saw various elements of interest in 
the communications from the European Communities and Singapore.  Given the current uncertainty 
surrounding the WGTGP, she had doubts about whether th is was the appropriate moment to enter into 
detailed discussions on this issue.  Nevertheless, she wondered whether the EC could present statistics 
on government procurement in services, more specifica lly with respect to s ectors and markets where 
there was participation from developing countries.  This would prove helpful in assessing the benefits 
of disciplines in this area for developing countries.  Also, she expressed interest in concrete examples 
of how such commitments could be incorporated in  schedules.  Finally, she supported the suggestion 
to have the Secretariat prepare a Note on provisions  on transparency and procedures found in bilateral 
and regional trade agreements.   
46. The representative of China  recalled her delegation's position on this issue and, without 
prejudice to that position, wished to raise questions  concerning MFN treatment in light of the proposal 
by the EC.  She thought that MFN exemptions found in existing lists of Members could not be expanded.  In that context, how could the GP A be added to those lists of exemptions?   
47. Reacting to questions mentione d in paragraph 2(b) of the communication from Singapore, the 
representative of Hong Kong, China
 indicated that the preliminary view of his delegation was that, to 
the extent that the conditions in Article I were me t, the Articles of the GATS other than Articles II, 
XVI and XVII, already seemed to be applicable to government procurement.  Would that include the 
general transparency provisions in Article III and, if so, to what extent were they being complied 
with?  Similarly, did the generally applicable provisi ons in Article VI already apply?  With respect to 
the proposal by the EC to schedule government pr ocurement commitments in an additional column, 
he noted that Article XIII excluded the application of Articles XVI and XVII, but not Article XVIII.  
A Member might thus have the possibility to un dertake additional commitm ents with respect to 
government procurement in the current negotiations. 
48. The representative of the Republic of Korea  hoped that the EC could provide further statistics, 
as mentioned by Chile.  In view of paragraph 5 of the Secretariat Note circulated as S/WPGR/W/44, 
she asked the EC to explain the rationale for having services contracts in sectors of 
telecommunications, water, energy and transport cove red by a separate EC directive.  Regarding the 
question raised by China on MFN exemptions, she thought this depended on th e scope of negotiations 
pursuant to Article XIII.  If negotiations were about  transparency, MFN treatment should be granted.  
If they involved market access, the issue would need  further thought since the preferential treatment 
flowing from the GPA needed to be taken into account.   
49. The representative of Japan  said his delegation was still reflec ting on elements contained in 
the communications from the EC and Singapore, in cluding proposals with respect to MFN, and 
wished to come back to this issue at the next meeting.   
50. The representative of Singapore  referred to the point made by the representative of the United 
States that procurement contracts often covered both goods and services.  Sometimes services could 
be incidental to goods procurement, while at other times goods could be incidental to services 
procurement.  He wondered whether the Toky o Round Code on procurem ent had provisions to 
address such situations.    S/WPGR/M/47 
 Page 15 
 
 
 51. The representative of Hong Kong, China  called attention to the fact that paragraph B.2 of the 
Understanding on Commitments in Financial Services contained provisions on procurement.  This 
underscored the point that there was already scope under the GATS for procurement disciplines.  He 
did not want to establish a link between the provisions of the Understanding and his earlier comment about Article XVIII, but there was an element of complementarity.   
52. The representative of th e European Communities
 wished to answer some of the questions 
raised.  On the issue of MFN treatment, he indicat ed that Article II of the GATS currently did not 
apply to government procurement and recalled that Members were allowed to list exemptions at the 
end of the Uruguay Round.  He considered it logical that an extension of the scope of application of 
Article II to government procurement be accompanied by an opportunity for Members to list relevant 
exemptions since there had been no need to do so  during the Uruguay Round.  With respect to the 
GPA, he did not propose an exemption, but rather an exclusion from the application of the MFN obligation.  An exclusion was more practical sinc e additional Members could, in the future, become 
signatories to the GPA.  With respect to the points  raised regarding the importance of distinguishing 
between procurement of goods and pr ocurement of services, he considered that the situation under the 
GATS was similar to that which prevailed when  the GATT Code on Government Procurement only 
covered goods.  Article 1.1.a. of that Code specifi ed that it applied to laws, regulations, procedures 
and practices regarding procuremen t of products by the entities subject  to this Agreement, and that 
this included services incidental to the supply of products if the value of these incidental services did not exceed that of the products themselves, but not service contracts per se .  A similar provision could 
be contemplated in a GATS Annex on Government Pr ocurement.  Such distinctions worked well in 
practice.  For example, the European Union had di fferent laws for government procurement of goods 
and services.  The question of which law applied re gularly came up.  The distinction was based on 
whether the principal purpose of the contract was procurement of goods or procurement of services in function of the value of the goods and services s upplied.  He agreed with Hong Kong,  China's 
interpretation that the GATS, other than Artic les II, XVI and XVII, applied to government 
procurement.  He also agreed that various Me mbers had already used Article XVIII to make 
commitments on government procurement for fina ncial services.  Concerning the link between 
government procurement disciplines and the exclus ion of services supplied within the exercise of 
governmental authority in Article I:3 of the GATS,  he indicated that Article I:3 excluded certain 
services, while government procurement as defined in  Article XIII related to purchases of services by 
the government.  The scope of Article XIII depende d on whether the client was a public entity, and 
not on the type of service supplied.   
53. The Chairperson
 asked for a clarification of the type of government procurement provisions 
that should be compiled in a Secretariat Note , as requested by Singapore and others.  The 
representative of the European Communities  considered that all provisi ons relating to procurement 
should be included in a compilation.   
III. NEGOTIATIONS ON SUBSIDIES (ARTICLE XV) 
54. The Chairperson  recalled that at the last meeting the delegation of Chile had presented and 
circulated a communication, JOB(03)/216, whic h proposed to discuss and analyse examples of 
subsidy programmes in services sectors.  A good numbe r of delegations felt that this was a helpful 
way to focus discussions.  Given that reactions te nded to be preliminary in nature, he invited 
Members to pursue that discussion.  Also, the delegation of Chinese Taipei had made available a 
room document that analyzed the examples of subsidy programmes put forward by Chile in light of 
the definition of subsidies in the Agreement on S ubsidies and Countervailing Measures (ASCM).  He 
also encouraged Members to c ontinue the discussion initiated at the last meeting concerning 
disciplines on services subsidies found in regional trad e agreements.  Finally, he indicated that, as 
requested, the Secretariat had prepared an update of  an earlier note on information on subsidies in 
services sectors contained in WTO Trade Policy Reviews (TPR), circulated as S/WPGR/W/25/Add.4.     S/WPGR/M/47 
Page 16  
 
 55. A representative from the Secretariat
 explained that the Note covered the 26 TPR reports 
issued since the last update in August 2002.  In terms of findings, the Note highlighted that tax incentives were the preferred tool to subsidize and that subsidies were generally found in all sectors, 
but mainly in tourism, transport, and banking.  However, as indicated on previous occasions, the Note 
suffered from certain limitations that had to be kept in mind.  One caveat related to the fact that TPR 
reports tended to focus on certain sectors more than  on others, depending on the particular situation of 
a country, which meant that the sectoral focus of s ubsidies mentioned could not be said to be fully 
comprehensive.  Another limitation was that TPR re ports were prepared with a broader purpose in 
mind; the amount of information on particular s ubsidy programmes was thus often quite limited and 
made classifications difficult.  Moreover, no defini tion of subsidies existed in services.  In that 
context, the overview provided by the Secretariat was to be seen as a "best estimate" on the basis of 
limited information.   Finally, it was important to keep in mind that being listed as a donor of 
subsidies did not imply any wrong-doing.  The Note did not address the issue of trade distortive subsidies.   
56. The representative of Chile
 hoped that the communication presented by her delegation could 
lead to an interactive debate between delegations and reiterated that the purpose of the communication 
was to analyse and better understand the issues involved.   The intent at this time was not to propose 
disciplines to be elaborated in this area.  She thought that such an exchange of views was very 
relevant in the context of market access negotiations , just as the deliberations on emergency safeguard 
measures.  Discussions of examples obviously need ed to be complemented by discussions of a 
definition of subsidies, as well as greater informa tion sharing.  She wished to focus her comments 
today on the first example mentioned in the commun ication, the Export Programme.  Such types of 
programmes, contingent on either  export performance or the use of domestic inputs, had been 
prohibited in the goods area because they we re considered to be trade distortive per se .  She wished to 
suggest answers, in a preliminary manner, to the questions listed in part IV of the communication 
from her delegation.  The first question concerned th e element of subsidy or financial contribution in 
the programme.  The ASCM could be used as a b asis.  The Export Progra mme was described as 
supporting enterprises by sharing the costs of export market development activities.  She considered 
that by sharing costs, the government was, in effect, providing a direct transfer of funds, which was a form of financial contribution.  The second question related to the beneficiary of the programme.  The 
information found in paragraphs 4 and 7 of the communication made it clear that the programme 
benefited enterprises or professional associations  operating within the national territory.   
57. The following question asked under which modes of  supply.  She wished to clarify that the 
purpose of that question was rather to ask under wh ich mode(s) of supply the subsidy was distorting 
trade in services.  While the beneficiaries of th e subsidy were enterprises established within the 
territory, the subsidy might affect conditions in fo reign markets because it was contingent on exports 
through modes 1, 3 or 4.  The fourth question rela ted to the effects of the programme.  Despite the 
lack of detailed information, it might be assume d that such programmes produced some effects in 
other markets, as the beneficiaries would have an advantage when competing with the domestic industry of another Member.  A similar effect could be observed when enterprises of Neverland 
competed with enterprises of other countries in thir d markets.  The fifth question asked whether these 
effects were trade distortive.  She thought it w as obvious that a support programme would have an 
impact on the normal functioning of a market, alt hough such effects might not necessarily be adverse 
to other Members' interests.  For example, it c ould be that export progra mmes benefited a small or 
medium size enterprise, whose development had strategic importance for the country, but whose 
impact in other markets was minimal given the size of  the company.  It could also be that enterprises 
benefiting from such programmes exported to ma rkets where the services concerned were not 
produced domestically.  She believed that it was also important to keep in mind a previous 
communication from Poland, JOB(02)/207, where it w as recalled that the trade distortive effect was 
not a constitutive element of the definition of s ubsidies in the ASCM.  The ASCM permitted the 
adoption of measures against subsidies only if these caused adverse effects on other Members'  S/WPGR/M/47 
 Page 17 
 
 
 interests.  The ASCM, in addition, prohibite d certain subsidy programmes because it was assumed 
that they had, per se , a trade distortive effect.  She wished to emphasize that her delegation's intent in 
the discussion of examples was not to propose to prohibit any support programme in the field of services, but rather to advance discussions on an issue of great relevance for the market access 
negotiations.  She also called on Members to share information on their subsidy programmes.  Finally, 
she requested that the issue of subsidies be inscrib ed as the first agenda item for the next meeting  
58. The representative of Chinese Taipei
 introduced a room document, which aimed to the 
development of definitions of subsidies in ser vices.  The document, without prejudice to her 
delegation's position, examined whether the AS CM, as well as the jurisprudence under that 
agreement, provided a suitable basis by using the concrete examples of subs idy programmes listed in 
Chile's communication.  The analysis was based on th e questions mentioned in that communication.  
She took note of the point made earlier by Chile th at the question concerning modes of supply was not 
intended to refer to the beneficiary of the subsidy.   Her analysis of the Export Programme proceeded 
in two parts, according to the two recipients: th e industry and the members of national trade or 
industry associations.  The first part of her analysis  focused on the former group.  Regarding the form 
of the subsidy, she noted that the programme was designed to increase export sales; it directly targeted 
the industry by sharing the costs and risks of activities through repayable contributions.  She 
considered that the programme met the definition of  subsidy under Article 1.1 of the ASCM because 
it constituted a financial contribution by a govern ment.  With regard to the second question, 
concerning the benefits to the recipient, she said that  the ASCM did not contain a definition of benefit.  
The report of the panel on Canada/A ircraft concluded that a financia l contribution would only confer 
a benefit, i.e., an advantage, if it was provided on terms more advantageous than available on the 
market.  In that regard, since the programme pr ovided that the repayment be based on 4% of the 
incremental revenues in the target market, she cons idered that the existence of a benefit to the 
company depended on whether the total amount of the repayment, minus disbursements under the 
programme, was lower than the interest that woul d have been incurred if the company had borrowed 
on the market.  Identifying the beneficiary and th e relevant mode of supply was more complicated, 
particularly for mode 2, and also because the progr amme required a domestic content of 50%.  With 
respect to the third question, relating to the effect s of the programme and whether such effects were 
distortive, she considered that the programme clea rly provided a prohibited subsidy under Article 3.1 
of the ASCM.   Accordingly, it was likely to distort trade through mode 1.   
59. The second part of her analysis focused on the pa rt of the programme that targeted members 
of national trade or industry associa tions.  Concerning the first question on the form of the subsidy, 
she said that the financial assistance provided to national trade associations, whose activities included 
helping their members to develop market information,  could be considered to  be a subsidy under the 
ASCM because it amounted to a government provision of goods or services other than general infrastructure, according to Article 1.1(a)(1)(iii).  On the second question, she indicated that the 
beneficiaries of the programme were the members of  national trade associations.  Regarding the third 
question, she thought that determining trade effect s was difficult.  Nevertheless, the fact that the 
programme related to export promotion raised susp icions that the subsidy was contingent on export 
performance.  In conclusion, she wished to raise three sets of questions regarding this programme.  
First, to what extent could the definition of subsidy in Article 1 of the ASCM be used in the services 
context?  Should the subsidies captured by that definition, but not distorting trade, be exempt from 
disciplines?  Should there be other exemptions, for example development-relate d subsidies?  Second, 
how could the benefits to the recipient be defi ned under various modes of  supply when traditional 
notions of domestic and foreign, exports and imports, could not readily  be transferred to services?  
Third, how could export subsidies be defined under modes 3 and 4?   
60. The representative of Japan
 considered that the communicati on from Chile provided a useful 
basis for future discussions and indicated that her dele gation would come back to it at a later stage.   S/WPGR/M/47 
Page 18  
 
 61. The representative of Switzerland
 stated that his delegation, in the context of market access 
negotiations, would have significan t problems advising suppliers to take the risk of entering new 
foreign markets if the possibility existed that they could be affected by unfair competition from suppliers of third countries receiving financial support from their government and no recourse was 
available.  This was the main reason why his de legation was interested in progress on the issue of 
subsidies.  In addition, he wished to make some  more specific points regarding the issue of export 
subsidies in services.  First, he noted that there were various reasons, most of which were legitimate, 
for subsidizing service suppliers.  However, expor t programmes were cases where the motivations for 
the subsidies were, in the overwhelming majority of cases, trade oriented.  This had to be discussed as 
a matter of priority.  Second, while a discriminat ory subsidy had to be listed as a limitation in 
schedules, export subsidies were often non-discriminat ory and, hence, did not need to be scheduled, 
despite being very distortive.  This created a problem of level playing field and of lack of transparency.  Third, export subs idies could only be addressed in the GATS; regional or bilateral trade 
agreements could not effectively deal with issues su ch as effects in third markets.  Therefore, his 
delegation was seeking an agreement in this round on a framework that would allow for a progressive 
elimination of such subsidies.  Moreover, in light of the lack of time allo tted to the issue in past 
meetings and the recent contributions made, he supported Chile's suggestion to put the issue of 
subsidies as the first item on the agenda of the next meeting.  He also called attention to the obligation 
to share information pursuant to Article XV.   
62. Turning more specifically to the examples listed in the communication from Chile, the 
representative of Switzerland said that subsidies having effects in third markets were most relevant in 
these negotiations.  Examples A and B mentioned in the communication from Chile referred to export 
subsidies.  Subsidies by governments artificially allowed service providers to be more competitive by 
offering lower prices.  With respect to mode 3, th e key question was to what extent national treatment 
was granted, as subsidies were generally limited to domestic service suppliers.  Some subsidies, while 
granted to suppliers having established a commercia l presence, could also have distortive effects on 
trade under mode 1.  Mode 1 imports would, in such  cases, be distorted.  Concerning the beneficiaries 
of the programme, she thought that some subsidies that were aimed at benefiting suppliers with a 
commercial presence could in turn affect exports of services through mode 1.   
63. Regarding the first example, the Export Progra mme, she wished to distinguish between the 
part of the programme directly targeting the industr y and the one aimed at national trade associations.  
Regarding the former, any subsidies involved we re not discriminatory within the meaning of 
Article XVII as foreign suppliers established in  the territory had the same access as domestic 
suppliers.  The problem was that competition was dist orted in third markets.  Domestic companies in 
these markets would face unfair competition from abroad.  The same was true for service suppliers of third countries who exported to these markets.  Her delegation was concerned about such unfair 
competition and thought this needed to be addressed  as a priority.  Description of the programme in 
paragraph 5 of the communication suggested that it was akin to an export risk scheme.  She 
considered that governments should not operate s upport schemes that afford ed companies cheaper 
risk insurance than from privat e sources.  The conditions attached to the contribution from the 
government, described in paragraph 6, were much more favourable than comparable schemes from a 
private financial service supplier.  The subsidy pr ogramme thus provided an unfair advantage.  The 
situation was different for pure political risk insuranc e, where the role of governments was legitimate.  
Turning to the part of the programme relating to nati onal trade associations, she stressed that that part 
was not directed at individual companies but, rather, at the whole sector and that it did not support 
exports, as was the case in the other part of the progr amme, but aimed to promote a sector as a whole.  
The generic aspect  of this part of the programme  made it far less problematic than the other part 
described in paragraph 5.  It was hard to see that it would artificially lower prices of services sold or 
exported.    S/WPGR/M/47 
 Page 19 
 
 
 64. Regarding example B in the communication fro m Chile, she called attention to paragraph 
8(d), which in her view described a typical export subsidy that harmed foreign competitors.  In 
conclusion, she indicated that subsidy rules in the goods area could only be used as a starting point.  A 
lot of adjustments would have to  be made, especially since services were not being checked at the 
border in relation to the price paid.  This meant th at any subsidy disciplines could not be built on the 
notion of countervailing duties as in goods trade.  A key concern in services was to have national 
treatment applied, especially in mode 3.  Neverthe less, as showed in the examples, some subsidies, 
even if granted in a non-discriminatory manner to  established suppliers, could distort competition in 
third markets.  
65. The representative of Turkey  considered that the definition of subsidies and related 
disciplines was complicated by the fact that service s sectors had very different particularities.  For 
example, it was difficult to set rules that could meet the requirements of both banks and restaurants.  The extent of trade distortion in a given sector would depend on secondary effects of the subsidy, 
which would be different for each sector.  For example, a subsidy to the banking sector would indirectly benefit other sectors by reducing interest rates on credit.  Therefore, categorizing services 
sectors into main sub-groups and having a study done  on trade impacts per sub-group might help to 
advance discussions.  The level of restrictions coul d then be determined for each sub-group.  The use 
of sub-groups could also be useful for consid ering public policy objectives, which were more 
prominent in such sectors as health and education.  It was important to keep the balance between the 
ability of governments to pursue social policy obj ectives and tackling trade distortions.  Also, the 
scope of services sectors as defined in Article I:3(b) of the GATS included a wide range of 
enterprises, from small-sized firms to multinational companies.  Trade distortions seemed more likely 
when the recipient of a subsidy was a significant play er in the market, and this had to be taken into 
account when categorizing subsidies.   
66. The representative of Colombia
 believed that looking at concrete examples was a positive 
way to advance discussions because it helped to pr ovide more information on subsidy practices and 
fostered technical analysis.  With respect to the Export Programme, she considered it would be 
beneficial to further analyze that programme in lig ht of the criteria and co ncepts contained in the 
ASCM, for example, the existence of a financial c ontribution by a government or any public body 
within the territory of a Member or the conferring of a benefit.  It was also important to further assess 
the applicability of the concept of specificity, as well as the granting of subsidies conditional on 
export performance.   The update of the Secretariat Note on subsidy information found in TPR reports 
provided useful examples of subsidy programmes.  She highlighted that the update indicated that the 
majority of subsidies took the form of tax in centives, duty-free inputs and free zone incentives, as 
well as preferential credit, sometimes linked to ex ports.  In the banking sector, for example, 33 
Member governments provided subsidies, often in  the form of tax incentives.  In addition, 24 
Members provided subsidies to the transport sector in general, 25 to maritime transport in particular, 
14 to air transport, and 14 to rail transport.  The No te also listed subsidies in such sectors as energy, 
telecommunications, construction, software and info rmation technology.  Since the Note, which drew 
on TPR reports, necessarily lacked detailed informat ion on subsidy programmes, she considered that 
Members that had such programmes in place could provide additional information, maybe along the 
lines suggested in Chile's communication. 
67. The representative of Brazil  characterized the position of his delegation on this issue as one of 
creative and careful curiosity.  Whatever the outco me of the discussions, Article XV provided that the 
negotiations had to recognize the role of subsid ies in relation to the development programmes of 
developing countries and take into account the need s of Members, particularly developing country 
Members, for flexibility in this area.  He also  wanted to draw attention to the Agreement on 
Agriculture, which he thought could be helpful in discussions.  Annex 2 of that Agreement contained 
a list of green-box measures, one of which was re ferred to as general services.  Such measures 
included research, pest and disease control, training services, extension and advisory services, S/WPGR/M/47 
Page 20  
 
 inspection services, marketing and promotion services,  infrastructural services, including electricity, 
roads, port facilities, water supplies, etc.  He thought there might be common ground between such 
examples and the last two examples mentioned in the communication from Chile.   
68. The representative of Hong Kong, China
 lent support to the proposal by Chile that subsidies 
be the first item on the agenda of the next meeting.   He wished to comment on the first example found 
in the communication from Chile.  He had found th ree distinct elements of subsidies in the 
programme.  First, there was a fi nancial contribution by the governm ent.  Second, the contribution 
was to an established entity fulfilling certain expor t or content criteria.  Third, the subsidy was 
contingent on exports.  An additional element of impo rtance was that of benefit, and further analysis 
was needed to see whether concepts  used in the ASCM could be r eadily applied in the context of 
services.  Regarding the second question, he cons idered it was clear that the company receiving 
support was the beneficiary of the programme.  Howe ver, it was not clear that the subsidies were 
specific to any mode of supply.  Indeed, it seemed unlikely that a subsidy programme targeting services exports would specify any particular mode of supply to be subsidized.  Hence, trying to make 
a modal distinction in terms of the recipient of th e subsidy was not very meaningful.  The same could 
be said regarding the effects of subsidies.  As poi nted out by Switzerland, subsidies were likely to 
distort conditions of competition in a foreign market in favour of the exported services, to the detriment of the domestic services in that foreign ma rket as well as those exported by third countries.  
He believed that, in such cases, the distortive e ffects did not easily lend themselves to any modal 
distinction, as they would affect all suppliers suppl ying services to the same market.  The impact of 
such distortive effects would appear to arise with in the boundary of the market concerned and would 
not be related to any particular mode of supply.  Reacting to comments made by other delegations, he 
said that his delegation considered that the issue of  distortive effects and that of the definition of 
subsidies should be separated.  While the definitio n could be generic and be relevant across all 
sectors, the distortive effects might need to be anal ysed having regard to the particular circumstances 
of individual sectors.  It would be useful to assess dist ortive effects in the light of the policy objectives 
of the subsidies.  He expressed support for Switzer land's approach to the issue, emphasizing the need, 
first, to try to achieve transparency of subsid y practices and, second, to see whether a level playing 
field could be established.  In that regard, he  hoped to hear more on the notion of progressive 
elimination of subsidies.  He also stressed th e importance of sharing information pursuant to 
Article XV.   
69. The representative of Canada
 said that the nature of the programmes mentioned in the 
communication from Chile, combined with the particul ar characteristics of services trade, underlined 
the difficulties involved in defining trade-distortive subsidies in services.  Considering possible disciplines was equally complex.  Various progr ammes in the communication were described as 
aiming to promote social prosperity, or to sa tisfy broad economic objectives beyond the context of 
trade in services, relating for example to infrastruct ure development.  He believed that subsidies in 
some cases could correct distortions arising from market failure, satisfy important needs, and often 
contribute to what was public policy in many co untries.  These subsidies were not necessarily trade 
distortive.  He agreed that it was important to stru cture the discussion on subsidies and that the use of 
examples could be helpful in that  regard.  Regarding the room docum ent presented by Chinese Taipei, 
he was surprised by the approach  used, which seemed to involve judging compliance with the ASCM.  
He considered that it was premature because it seemed  to suggest that this Agreement should apply to 
services subsidies or be replicated in the GATS.  Regarding the intervention by the representative of 
Switzerland, he wondered why reference was made to  risk insurance, which he did not see in the 
description of the programme.   
70. While reserving her delegation's position on the appl icability of the ASCM to subsidies in the 
services area, the representative of China
 had some preliminary comments and questions on the room 
document from Chinese Taipei.  She wondered whether it was appropriate to conclude that, because 
they were prohibited in the ASCM, subsidies conti ngent on local content were most likely to be  S/WPGR/M/47 
 Page 21 
 
 
 distortive in services trade.  Regarding the financial assistance provided to national trade associations, 
she mentioned that Chinese Taipei 's room document suggested that such assistance amounted to the 
government providing goods and services other than ge neral infrastructure to th e private sector.  She 
asked why financial assistance to national trade asso ciation was regarded as government provision of 
goods and services.  With respect to generic export promotion activities, the room document said that 
the use of the term 'export' raised suspicions that  the subsidy was contingent on export performance.  
She found it difficult to draw such inferences.  W ith respect to the second example listed, concerning 
services related to technology, the room document said that the elimination of import duties did not 
constitute a subsidy while income tax holidays fo r computer training could be considered as a 
subsidy.  She wished to hear more about the unde rlying reasoning.  Regarding the tourism example, 
she hoped that the delegation of Chinese Taipei could elaborate, in the light of the conclusion reached 
in the previous example, on why the import duty ex emption for advertising and promotional material 
was thought to be a subsidy.  With respect to the tourism example, she also hoped to hear more on the 
point made in the room document regarding the application of personal income taxes to local 
investors.  Finally, concerning the example on scientific research and technology transfer, she wished 
to have further explanation of why the burden of  proof should depend on whether a subsidy was 
deemed non-actionable or not.   
71. The representative of New Zealand  said she was interested to hear more from delegations 
about the nature of distortions.  'Distortion' was not a clearly defined term and could not be 
automatically associated with subsid ies.  She shared the view expressed  by Hong Kong, China that the 
issue of what was trade distortive should be de-linked from the definition of subsidies.  The 
underlying policy objectives would be a very importa nt factor in clarifying the notion of trade 
distortion.  In response to questions raised at the last meeting by Hong Kong, China in the context of the Secretariat Note S/WPGR/W/46, she wished to  confirm that the subsidy disciplines relating to 
services in the Australia-New Zealand Closer Economic Relations Agre ement had never been 
invoked.  Article 11 of the Protocol on trade in services under that Agreement prohibited Members 
from introducing new or expanding existing export subsidies, expor t incentives and other assistance 
measures having a direct distorting effect on trade.  Article 19 of the Protocol provided for consultations in cases where an obligation had not been , or might not be, fulfilled, or the achievement 
of an objective of the Protocol was being frustrated.   To date no consultations had been requested by 
either party on perceived trade distorting effects arising from export subsidies in services.   
72. The representative of the United States
 recalled the previous comments from her delegation 
on the exercise proposed by Chile.  With respect to the update of th e Secretariat Note on information 
on services subsidies contained in TPR reports, she took note of the caveats mentioned by the representative of the Secretariat and also wished to draw attention to paragraph 3 of the Note.  Accordingly, it needed to be kept in mind that potentially relevant information was compiled against 
the background of the definition of subsidies and re lated concepts contained in the ASCM, and that 
not all data recorded in TPR reports might be comp atible with this definition.  Paragraph 3 also 
indicated that some of the subsidies mentioned mi ght be financial contributions to services which 
were beyond the scope of the GATS, i.e., services  falling under Article I:3(b) or services in areas 
excluded under the Annex on Air Transport Services.   These caveats needed to be kept in mind in 
discussing the information provided in the Note.  The Working Party should focus on what was 
covered by the mandate under Article XV.  She would come back to the room document from 
Chinese Taipei at a later stage.   
73. The representative of the Australia
 wished to associate himself with the statement made by 
the delegation of New Zealand in response to the qu estions previously raised by Hong Kong, China.  
Services subsidies were not an issue or a problem under the Australia-New Zealand Closer Economic Relations Agreement.  The representative of Singapore
 believed that a number of commentators had 
said that the GATS might not necessarily cover expo rt-related measures.  If that was the case, and 
without prejudging the position of his delegation, how could export subsidies relate to the GATS?    S/WPGR/M/47 
Page 22  
 
 74. Commenting on the Secretariat Note on subsid y-related information contained in TPR 
reports, the representative of the Republic of Korea
 noted that one of these reports pointed out that 
subsidies to services sectors were increasing, while  those relating to goods were declining.  Also, 
subsidies that were hidden before privatisation ha d now become important for pursuing certain policy 
objectives.  The information compiled from TPR reports  also highlighted that different motivations 
for providing subsidies existed, for example regi onal development, universal service obligations, or 
security concerns.  Without implying that such subsidies should be subject to disciplines, she found it useful to see that the role of subsidies in servi ces was growing.  With respect to the definition of 
subsidies, she believed that defin itional elements of the ASCM could apply, especially the existence 
of a financial contribution and of  a benefit.  However, a key issue in the services sector was the 
question of modal application, which needed to be  further explored.  She wondered how the concept 
of export subsidies could be applied to the four modes of supply.   
75. The representative of Mexico
 indicated that the possible elaboration of disciplines on 
subsidies was a key aspect of the services negotiati ons for his delegation.  He thought that the 
communication from Chile provided a useful way to focus discussions, and he would come back to 
the examples at a later stage.   
76. The representative of Hong Kong, China  wished to react to a comment made by the 
delegation of Singapore.  Since Article XV provide d for negotiations on subsidies that might have 
distortive effects on trade in services, it should be cl ear that delegations coul d talk about any subsidy 
issue relating to trade in services.  Also, Article XV said that the exchange of information concerned 
all subsidies relating to trade in services.  Obvi ously, delegations could still disagree over whether 
certain subsidies were trade distortive or not.  With  respect to the update of the Secretariat Note on 
information on services subsidies contained in TPR, he  wished to take note of the caveats mentioned 
by the representative of the Secretariat.  The Note  included a possible subsidy being granted by Hong 
Kong, China, which referred to tax exempti ons provided under double taxation arrangements for 
international operations of ships or airlines.  He wi shed to clarify that, in his view, such measures 
were covered by the general excep tion under Article XIV(d) of the GA TS and should not be subject to 
any subsidy disciplines to be developed.  Such disciplines should not apply to measures covered by 
the general and security exceptions under Articles XIV and XIV bis, as well as perhaps to services 
supplied under the exercise of governmental author ity and prudential measures in financial services.  
He suggested that Members whose subsidies had been  mentioned in the Note share their views as to 
the types of measures that might not constitute s ubsidies or that should not be subject to subsidy 
disciplines because they did not have  trade distortive effects.   
77. The representative of Chile  indicated that she had asked her authorities for information on the 
two Chilean programmes mentioned in the Secretariat Note on information contained in TPR reports.  
She would later come back to this issue.  In a preliminary manner, it appeared that such programmes 
aimed to fulfil some public policy objective.   
78. The representative of Chinese Taipei  said she hoped to obtain in writing the questions raised 
regarding the room document.  Concerning her reference to the ASCM for a possible model 
definition, she thought that the Agreement was commonly used and thus could not be ignored, although she acknowledged that services trade, give n the different modes of supply, was more 
complex.  With regard to the question raised by the delegation of Singapore, she was of the view that export-related measures, such as export subsidi es, were within the scope of the GATS.   
79. Regarding the preceding discussion on ESM, the Chairperson
 said that his successor would 
circulate, as quickly as possible, a list of questions raised in the light of the recent contribution by the 
group of Members from ASEAN.  The list would serve as a tool to focus discussions and facilitate the provision of answers.  With respect to government  procurement, he noted that the Secretariat was 
asked to elaborate on its previous Note contained in S/WPGR/W/44.  The additional Note might take  S/WPGR/M/47 
 Page 23 
 
 
 some time to be completed given the large amount of potentially relevant information.  Concerning 
subsidies, he noted that the discussion inspired  by Chile's communication and the room document 
from Chine Taipei had proved useful.  He recalled that the delegation of Chile, supported by others, 
had asked for the issue of subsidies to be put as the first item on the agenda for the next meeting.  He 
asked the membership if they coul d agree to such a proposal.    
80. The representative of the Philippines  said he was open to such an idea, but that was 
conditional on the incoming Chairperson conducting c onsultations on this issue and perhaps having 
informal sessions of the Working Party between the clusters of meetings so as to alleviate concerns 
about the lack of time to discuss all issu es.  The representative of the United States  thought that 
consultations by the Chairperson might be appropria te, but was not sure about the need for informal 
meetings raised by the delegation of the Philippin es.  Regarding the work to be undertaken by the 
Secretariat, for example with respect to procuremen t, she reserved the right to provide her delegation's 
views and opinions at the time the relevant document was circulated so that positions or interpretations were not prejudged.   The representative of Canada
 did not think that consultations on 
the order of agenda items were necessary.  The representative of Chile  agreed with Canada and 
doubted the usefulness of consultations on su ch procedural issues.  The Chairperson  preferred not to 
pre-empt his successor.   
IV. DATES OF THE NEXT MEETING 
81. The Chairperson  said that the Working Party would hol d its next formal meeting during the 
next cluster of services meetings. The exact date would be announ ced in due course.  
V. OTHER BUSINESS  
82. No point was raised under this item.  
VI. ELECTION OF THE NEW CHAIRPERSON 
83. The Chairperson  recalled that, according to the rules of procedures, the hand-over of the 
chairmanship needed to take place at the end of the first meeting of the year.  He indicated that, as a 
result of consultations, the Chairman of the Counc il for Trade in Services, Ambassador Camara, had 
announced at the meeting of the Council held on 15  March that Ms. Clare Kelly, from New Zealand, 
seemed to be supported by the whole membership.  He thus proposed that the Working Party elect 
Ms. Kelly as Chairperson of the Working Party on GATS Rules.  Ms. Clare Kelly was elected  by 
acclamation.   
84. The incoming Chairperson  thanked delegations for their confidence and thanked the outgoing 
Chairperson for the work done under his tenure.  Delegations expressed their appreciation for the 
outgoing Chairperson's engagement and congratulat ed the new Chairperson on her election.   
 
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