RESTRICTED
WORLD TRADE S/WPGR/W/15/Add.4
20May1997
ORGANIZATION(97-2137)
Working Party onGATS Rules Original: English
COMMUNICATION FROM THE EUROPEAN COMMUNITIES
AND THEIR MEMBER STATES
Response totheQuestions Relating toanEmergency Safeguard Mechanism inGATS
Thefollowing communication isbeing circulated attherequest oftheEuropean Communities
andtheirMember States toMembers oftheWorking Party onGATS Rules.
_______________
AtSingapore,Ministersagreedthatfurtherworkshouldbeundertaken,includingmoreanalytical
work, withaviewtocompleting thenegotiations onSafeguards bytheendof1997.
Itiswiththisobjective inmind thattheEuropean Communities andtheirMember States are
participating further inthediscussions onsafeguards through, answering thelistofquestions which
hasbeenestablished lastyearintheWorking Party onGATS Rules (WTO document S/WPGR/W/15
of12December 1996).
Theanswers tothequestions aretherefore without prejudice totheEC'snegotiating position
onwhether anemergency safeguard clause isdesirable andorfeasible withrespect totradeinservices.
Bythesame token, theydonotprovide areaction tothereplies andpapers already transmitted by
other Members oftheWorking Party.
Thethrust oftheanswers istodemonstrate thatifanemergency safeguard action would be
established, itwould havetocomply withstrict anddemanding conditions.
Thissubmission ismade tostimulate theanalytical work. Itisexpected thatother Members
willhavemade similar contributions sothatbythedeadline oftheendof1997, adecision infull
knowledge canbetaken.S/WPGR/W/15/Add.4
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What isthejustification andpurpose ofanemergency mechanism under GATS?
1. Thequestion ofwhat asafeguard mechanism would beforinvolves thefollowing
considerations:
a. Would anemergency safeguard forservices beintended todealwiththekindof
situation foreseen inArticle XIXofGATT --thatis,atemporary threat toadomestic
“industry ”arising from increased imports? Would ithaveanyother objective?
Anemergency safeguard provision under theGATS should fulfil thesame purpose
asfortrade ingoods i.e.allow forthetemporary protection ofadomestic service
industry incaseofserious injury orthreat thereof duetoincreased imports inaservice
sector inwhich specific commitments havebeenundertaken andonlyforsuchperiod
oftimeasmaybenecessary toprevent orremedy serious injury. Anypossible safeguard
measure should beproportional tothenature andextent ofsuchcommitments. Itshould
alsobenon-discriminatory incharacter. Whether there ismerit intaking safeguard
measures inareas where Members havenottaken specific commitments needs tobe
examined since itisnotclearifthere would beareason tojustify asafeguard action
innon-committed sectors.
Since themain purpose oftheGATS istobring about theliberalisation oftrade in
services, there should benoquestion, therefore, ofanysafeguard mechanism being
usedasameansofreversingthenormalconsequencesofthemarketaccesscommitments
which havebeenundertaken.
Ifasafeguards measure wasjustified, itssolepurpose would betoaddress anemergency
situation, which wasunforeseeable when therelevant commitments weremade, and
which involves atemporary -butseriously injurious -threat toadomestic industry
arising fromincreased imports. Itshould beshort-term, progressively liberalised and
structured soastoprovide arealincentive forthedomestic industry ’srestructuring
soastoadapt tothechanged conditions inthemarket. Inanyevent, anemergency
mechanism should notbeusedorapplied insuchawayastoundermine thevalue and
legalcertainty oftheGATS ’commitments.
Therequirement of“unforeseen developments ”ofGATT XIXshould beincluded in
theGATS safeguard definition.
b. Areexisting“safeguard”mechanismsinGATS,notablythosecontainedinArticleXII
andArticle XIV, sufficient toaddress anydifficulties governments might encounter
asaconsequence oftheirGATS commitments? Similarly, doesArticle XXIprovide
anadequate vehicle forreversing ormodifying scheduled commitments intheevent
ofunanticipated difficulties?
Theexisting "safeguards" under theGATS arethere forspecific purposes withtheir
ownprocedures andcannot orshould notbeusedforemergency safeguard actions.
Article XIIallows totakerestrictive measures inthecaseofbalance ofpayments
difficulties which needs tobejustified onthese grounds andaccording tospecific
procedures inconjunction withtheIMF. Itdoesnotallow totakearelief measure if,S/WPGR/W/15/Add.4
Page3
atthesame time, itisnotdemonstrated thattheMember hasbalance ofpayments
difficulties.
Article XIVallows aMember totakerestrictive anddiscriminatory measures forgiven
reasons onlyandprovided theMember complies withthenecessity test.Injury to
domestic industry isnotajustification enumerated under Article XIV. Theexception
Article should bekepttoaminimum andtheexception ofpublic order, forexample,
should notbeinterpreted insuchabroad sense tocover emergency situations.
Article XXIdoesallow aMember tomodify itscommitments andinsodoing bemore
restrictive butithastocompensate forit;there arenoconditions laiddown onthe
duration orthedetermination test;onceasettlement hasbeenfound andisinscribed
inthemodified schedule ofcommitments, itcould lastforanundetermined period
oftime; there isnoobligation toreturn totheoriginal liberalisation commitment.
c. DoesthenatureofcommitmentsundertakeninGATS--wherebyMembersmaychoose
whether toschedule asector, andmayalsocondition market access andnational
treatment with respect tocommitments thataremade --obviate theneed for
safeguards? Orwould itbemore appropriate tothink interms oftheideathatthe
existenceofasafeguardwouldallowgovernmentstobemoreforthcomingwithrespect
totheirscheduled commitments?
Theprogressive liberalisation nature oftheGATS doesnotassuchobviate theneed
ofasafeguard clause since thelatter istoredress unforeseen circumstances i.e.atthe
timeofmaking commitments noemergency situation existed which would havejustified
notmaking aliberalisation commitment.
Astowhether asafeguard action could playtheroleofasafety valve, thisisdifficult
todemonstrate: intheabsence ofasafeguard clause inGATS, haveMembers been
prevented totakeup(more) liberalisation commitments?
d. What would betheeconomic objective ofasafeguard --toprotect production,
investors, oremployment? Would itprotect alldomestic production, oronlythat
partofproduction attributable tonational suppliers? Would itaimtoprotect
investment bynationals, oralldomestically based investments? What would bethe
objective ofallowing departures from national treatment under modes 3and4?Is
thedistinction between establishment rights perseandpost-establishment operations
relevant inrelation topossible safeguard measures under modes 3and4?
Theobjective ofanemergency safeguard action would betoprotect thedomestic service
provider andorservice. Thiscould bethrough production, investors oremployers
butalsoconsumers.
Theprotection should belimited intimeandscope andtherefore itshould begranted
forthatpartoftheproduction attributable tothedomestic suppliers only(seeanswer
toquestion 2dfordefinition ofdomestic service supplier).S/WPGR/W/15/Add.4
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e. Would asafeguard mechanism needtocontemplate special provisions fordeveloping
countries ordoestheconcept ofprogressive liberalization offer adequate leeway in
thisrespect?
No.Theprocess ofliberalisation itself takes intoaccount thelevelofdevelopment of
individual Members, bothoverall andinindividual services sectors. Therefore there
might benoadditional justification todesign adifferent ormore flexible safeguard
fordeveloping countries. Theonlyflexibility which could beconsidered isinthe
application ofasafeguard clause forLLDCs.
f. Isthere anything intrinsic toservice transactions, suchasintangibility, simultaneity
ofproduction andconsumption, ortheneed forphysical proximity between the
producer andtheconsumer, which makes (some) services transactions different from
goods transaction inwaysthatmight influence arguments astothenecessity orutility
ofsafeguard measures inservices?
Some ofthementioned specificities ofaservice transaction doseriously influence the
feasibility ofasafeguard measure andhowtoenforce it.Indeed, itisunderstood that
theuseofasafeguard measure willonlybeacceptable when itcomplies withanumber
ofstrict conditions which imply quantification ofinjury, increased imports, domestic
industry, etc.Further work onalltherequired conditions forapplying asafeguard
action isnecessary before itcanbedecided whether thisisfeasible ornot.
g. Isanything intrinsic toservices markets, suchastheroleandimportance ofregulatory
regimes, standards andcertification requirements, which makes services markets
different from goods markets inways thatmight influence arguments astothe
necessity orutility ofsafeguards measures inservices?
Thefactthatthesupply ofaservice issomuch dependent onagiven regulatory regime
mayhelpinapplying asafeguard measure: ingranting alicense orcertifying the
requirements, control ispossible onaccepting ornotanewservice supplier inthe
market.
h. Isanything intrinsic totheroleofservices intheeconomy, suchastheirimportant
support andinfrastructure role,which makes services markets different fromgoods
markets inways thatmight influence arguments astothedesirability ofsafeguards
measures inservices?
Supply ofanumber ofservices arekeyvehicles foraneconomy (i.e.
telecommunications ,financial services, transport). Butthisisalsothecaseforthe
production ofanumber ofgoods. Iftheprovision ofaservice hasoverriding importance
fortheeconomy, achoice istobemade bytheindividual Member. Itshould not
influence therationale ofcreating asafeguard clause. Asafeguard clause isatoolto
use,notanobligation.
i. DoMembers maintain anyemergency safeguard measures innational legislation?
Ifso,what arethese measures andhowaretheyimplemented?
InCommunity legislation, Article 73foftheECTreaty allows, inexceptional
circumstances, forthepossibility totakesafeguard measures, foraperiod notexceeding
sixmonths, intheareaofmovement ofcapitals toorfromthirdcountries when this
causes, orthreatens tocause, serious difficulties fortheoperation oftheeconomicS/WPGR/W/15/Add.4
Page5
andmonetary union. Insuchcaseitwillbenecessary toactandreact quickly. If
restrictions onmovement ofcapital fromthirdcountries would havetobetaken, this
mayaffect thespecific commitments oncross-border trade andcommercial presence.
InCommunity legislation, there isalsothepossibility totakesafeguard measures in
caseofacrisis inthemarket forinternational carriage ofgoods byroadonCommunity
territory between Member States (seeECRegulation 3916/90 of21/12/90 -OJ
L375/10).
What criteria might bebrought tobearindetermining when anemergency safeguard measure
maybejustified?
2. Anumber ofquestions canbeidentified inrelation tothecriteria thatmight apply in
determining thecircumstances inwhich emergency safeguard measures aretobeused. Thequestions
included below assume thatessentially thesame GATT concepts ofincreased imports, injury and
causality would apply under anemergency safeguards mechanism inGATS.
a. What, interms ofGATS, istheequivalent ofincreased imports under Article XIX
ofGATT? Inmode 1,thecross-border flowofservices maybesimilar totheimport
ofgoods, butthesituation isquite different under other modes. How should the
possibility ofasafeguard betriggered inthese circumstances?
Strictly defined, import ofservices comes under mode 1only. Astomode 2,toomuch
consumption abroad could alsocause injury tothedomestic service supplier. Asto
mode 3:strictly speaking thereisnoimport ofaservice butonlyofaservice supplier
when establishing forthefirsttimeintheterritory. Therefore, anyinjury toaservice
being supplied within aMembers ’territory willdepend oneachMember 'sdomestic
legislation onincorporation /rulesoforigin i.e.atwhatstage doesaforeign service
supplier become adomestic supplier. Astomode 4,anincrease inthenumber of
foreign persons providing services isnotassuchathreat toaservice. Butiftheamount
ofservicesprovidedincreasesinjuriouslyorthreateningly,shouldtheimportingcountry
beabletostopthisthrough limiting thenumber ofnewservices suppliers?
b. How should serious injury bedetermined? Injury towhom orwhat?
Serious injury should beassessed onthebasis ofallrelevant factors ofanobjective
andquantifiable nature having abearing onthesituation oftheindustry, suchasmarket
share, employment, consumers ’interest andprofitability. Theassessment should also
demonstrate theexistence ofacausal linkbetween theincrease invalue ofservices
andtheserious injury todomestic service suppliers.
Asregards safeguards criteria, aquestion which arises issince, presumably, thegreatest
concern would beoverrelatively new,dynamic (andpossibly technologically-volatile)
services, overwhatperiod andagainst whatyardstick would thedatabedetermined,
andwhatwould bethetimescale fordoing thenecessary investigation?
c. Whatstandardswouldberequiredtodeterminethatincreasedcompetitionfromforeign
sources caused injury tothenational industry?
Not“increased competition ”butincrease inthevalue ofservices inabsolute orrelative
terms should berequired ”.S/WPGR/W/15/Add.4
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d. Howwould thenational industry bedefined forthepurpose ofdetermining injury?
Itappears notdesirable tousethedefinition ofaservice provider ofanother Member
asprovided forinArticle XXVIII (n),todefine whatconstitutes anational industry
sincethismayleadtounnecessary discrimination andharm totheeconomy ingeneral.
Inorder todetermine injury, concepts usedunder theGATT mayhavetobeexamined
suchasshould thenational industry bedefined astheproviders asawhole ofthelike
ordirectly competing services operating within theterritory oftheMember, orthose
whose collective supply constitutes amajor proportion ofthetotalMember supply of
those services?
e. Should alinkbeestablished between thenature ofaspecific commitment ina
particular sector, including inrelation tolimitations onmarket access andnational
treatment, andtheavailability ofasafeguard measure? Inother words, should the
availability ornature ofasafeguard berestricted where limitations have been
inscribed?
Nosector specific needforasafeguard action hassofarbeenestablished. Intheabsence
ofageneral safeguard clause intheGATS, because suchapplication could betoobroad
orgeneral, itmight beappropriate toexamine asafeguard clause applicable tosome
specific sectors only. Butanysectoral safeguard clause should bebased onstrict
conditions anddisciplines andnotonunilateral inscriptions intheschedule of
commitments. Itshould benoted thatifaMember hasalready taken some limitations
formarket access ornational treatment intheschedule, thisneednotnecessarily mean
thatanysafeguard action islessjustifiable (seehowever answer under 1a).
f. What measurement andidentification problems ariseinservices thatmight complicate
thedevelopment ofasafeguard instrument, andhowshould theybedealt with?
Theconcept of“increased imports ”andthevariety offactors tobeanalyzed forthe
determination of“serious injury ”mayprove tobedifficult toassess inservices.
Furthermore,itmightbemoredifficulttodeterminethedirectlycompetitiverelationship
between services.
Application ofasafeguard action, inadisciplined way, requires thedevelopment of
thefollowing instruments:
- statistics ontrade inservices; and
- classification ofservices inamore aggregated way.
Theabove arenotonlynecessary forsafeguards. Alsofortheprocedure onmodification
ofschedules anddisciplines onsubsidy measures, forexample, thiswillbenecessary.
Butevenwithbetter available statistics, quantification ofimports andcomparison with
domestic likeservices/service suppliers willremain verydifficult.S/WPGR/W/15/Add.4
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What form might asafeguard mechanism forservices take?
3. Ifincreased foreign competition andserious injury todomestic services orservice suppliers
have occurred, andcausality between thetwohasbeen established, aquestion arises astothe
characteristics ofasafeguard measure thatmight beapplied.
a. What typeofmeasure should beapplied? Would taxes, foreign exchange restrictions,
other quantitative limitations, orregulatory restraints besuitable assafeguard
measures?
Foreign exchange restrictions andlimitations tomovement ofcapital might bean
operational manner tomonitor theimport ofservices together withaquantitative
limitation which could include azeroquota foralimited period oftime. However,
alsoinsuchcasetheapplication ofemergency safeguards hastobeincompliance with
theIMFjurisdiction onforeign exchange restrictions.
Alsothrough regulations thesupply ofaservice canbecontrolled totheextent the
services ’sector isregulated :forexample, onlyapartial licence could begranted,
allowing toexercise some activities ofthewhole range ofservices activities ofthe
sector.
b. What would betheimplications ofdifferent modes ofsupply forthekindofmeasures
employed?
Thesupply ofservices onacross-border basis could besuspended onatemporary
basis. Astomode 2,itcould beenvisaged tohave abanonexpatriation of
capital/deposits ofmoney abroad. Inpractice, itappears thatasafeguard measure
could beapplied tonewentrants inmodes 3and4.
c. Would there becircumstances inwhich theapplication ofasafeguard measure in
respect ofonemode ofsupply would provoke ademand forcomparable measures
inrelation toother modes atthesame time?
Toregulate thesupply ofservices intoyourmarket, soastoadjust yourown, itmay
benecessary totakesafeguard action inallmodes ofsupply atthesame timeoronly
inagiven mode ofsupply, depending onthesector. Applying asafeguard action in
oneofthemodes ofsupply only, mayleadtocircumvention andtherefore possibly
questioning theeffectiveness ofasafeguard clause.
Thisquestion raises alsotheissue oftaking asafeguard action onamode ofsupply
forwhich nocommitments havebeentaken inthesector.
d. Should safeguards beapplied onanon-discriminatory basis inallcircumstances?
Yesbecause safeguards arenotdesigned tooffset theadverse effects ofunfair trade
buttogivethedomestic industry timetoadjust toachanged orunforeseen competitive
environment.S/WPGR/W/15/Add.4
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e. Howquickly would itbepossible foraMember totakeasafeguard measure? Would
thenotion of"critical circumstances," asdeveloped intheAgreement onSafeguards,
apply intheservices area?
Possibility oftaking provisional safeguard measures incritical circumstances asfor
goods :whynot?Thismaybenecessary toaddress difficulties created byexchange
ratepolicy andwhich canaffect thesupply ofseveral sectors andthrough thedifferent
modes ofsupply.
Ifprovisional measures areallowed, theyshould beallowed onlyunder equivalent strict
conditions assetforthinArticle 6oftheAgreement onSafeguards suchasbeing based
onclear evidence thatincreased imports havecaused serious injury andforashort
duration. Additionally, theform ofthemeasure should bereversible.
f. What should betheduration ofanysafeguard measures adopted?
Amaximum period oftwo/three years, within-built review afterthefirstyear, and
withaview toitswithdrawal oranincrease inthepaceofliberalisation, withthe
possibility ofonlyoneprolongation ofjustoneyear.
g. Would safeguard measures bemade degressive during theperiod oftheirapplication?
Yes.
h. Would aMember taking asafeguard action berequired alsotoadopt adjustment
measures?
Yes.
i. Would theapplication ofsafeguard measures beaccompanied bycompensatory
adjustments intheschedule oftheMember taking themeasure?
Under certain conditions, compensatory adjustments existforgoods afteragiven period
ofapplication ofsafeguard measures. Asystem similar toArticle 8oftheAgreement
onSafeguards could beenvisaged.