RESTRICTEDWORLD TRADE
ORGANIZATIONS/WPGR/M/24
8 September 1999
(99-3731)
Working Party on GATS Rules
REPORT OF THE MEETING OF 27 JULY 1999
Note by the Secretariat
1. The twenty-fourth meeting of the Working Party of GATS Rules was chaired by Mr. Siva
Somasundram of Singapore.  The agenda of the meeting was contained in WTO/AIR/1129.  It
consisted of five items:  negotiations on safeguards under Article X of the GATS;  negotiations on
subsidies under Article XV of the GATS;  negotiations on government procurement under
Article XIII of the GATS;  date of the next meeting of the Working Party;  and other business.
2. The Chairman indicated that he had circulated a Note, Job No. 4141 dated 12 July 1999, to
assist delegations in their preparation for the m eeting.  The Note recapitulated where the Working
Party stood on its three negotiating issues and proposed a certain structure for the discussion.
ITEM A: NEGOTIATIONS ON SAFEGUARDS UNDER ARTICLE X OF THE GATS
3. The Chairman commended delegations' efforts in reaching an acceptable compromise
providing for the extension of the deadline on safeguards.  The Working Party's recommendation,
which was adopted by the Services Council on 24 June, testified to a spirit of cooperation and
flexibility.  He hoped that a similar spirit would enable the Working Party to progress with its
discussions and successfully conclude the negotiations on safeguards.  He urged delegations to
contribute not only general statements, but concrete examples of safeguard-type situations,assessments of individual injury and causality concepts, descriptions of the adjustments required, and
other relevant issues.  Written submissions would be particularly welcome.
4. The Chairman proposed proceeding in accordance with what had been agreed at the previous
meeting.  He thus invited Members to discuss, first, the question of injury and causality based on
indicators listed in Venezuela's informal submission (Job. No. 2860 of 17 May), then focus onalternative safeguard concepts and, finally, take up other items contained in document
S/WPGR/W/27/Rev.1 and, in particular, the question of applicable measures.
(i) Concepts of injury and causality
5. The Chairman recalled that several delegations had noted at the previous meeting that more
work was needed to explore the relevance of indivi dual injury and causality indicators.  The informal
paper by Venezuela seemed to be a useful starting-point for such work;  several participants had also
pointed out the need for flexibility in selecting adequa te indicators.  He felt that that it would be most
productive if delegations deepened their understanding of individual indicators – their significance
and their limits – before addressing the issue of flexibility.
6. The representative of Thailand, speaking on behalf of ASEAN, said that a safeguard measure
should be applied only after an investigation looking into all relevant factors of an objective and
quantifiable nature.  The Venezuelan paper was a useful contribution in this respect;  it showed thatindicators of increased imports, injury and causality were available to the invoking party.  All listed
indicators were relevant.  They were normally available, or could be made available and used forS/WPGR/M/24
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continued monitoring, supplemented by qualitative analysis.  Referring to concerns about
confidentiality, he noted that it was for the invoking party, which had the burden of proof, to provide
relevant information in the event of safeguard situations.  The causal link between increased supplies
and injury had to be demonstrated on the basis of objective evidence, using a flexible approach which
took into account the specificities of services trade.
7. The representative of the European Communities said that, given the inadequacy of services
statistics, it was important to have a broad selection of indicators.  They should cover a variety of
causes as no single criterion was by itself sufficient.  Further work on indicators would also help to
determine the feasibility of a safeguard mechanism and, by implication, its desirability.
8. The representative of the Republic of Korea suggested that, in addition to the criteria listed by
Venezuela, other factors might be relevant for the determination of injury.  Referring to the
Agreements on Safeguards and on Textiles and Clothing, he mentioned changes in the level ofinventories, reductions in exports, and declining (relative) wages.  Indicators based on value-added
taxes (VAT) could be misleading as the relevant returns varied significantly between countries.
9. The representative of Japan expressed reservation about the emphasis that some other
Members had placed on the need for flexibility;  clear procedures and criteria were required to arrive
at objective and transparent decisions.  It would be difficult to decide a priori  on this issue.  The
obligations to conduct public hearings and to grant compensation, contained in Articles III:1 and
VIII:1 of the Agreement on Safeguards, were other important issues for future discussion.  In
addition, he enquired why the last two injury criteria listed in the Venezuelan paper referred to
national suppliers only.
10. The representative of Australia concurred that the indicators proposed by Venezuela were a
useful starting point to establish the existence of injury.  However, substantial losses had to be
involved.  Before safeguards could be invoked, the link to increased supplies had to be ascertained
and the impact of balance-of-payments or macroeconomic problems be ruled out.  Measures should be
taken on behalf of all domestic suppliers, irrespective of whether they were of national or foreign
origin.  A prima facie  case had to be established before the start of an investigation, it had to be based
only on factual evidence.
11. The representative of the United States said that the Venezuelan paper was useful in
identifying how a possible emergency safeguard mechanism could be structured;  concepts like
increased imports, injury and causality were essential.  He reiterated his delegation's call for real-
world examples and, more generally, for problem cases which might warrant safeguard measures.
12. The representative of Venezuela, addressing questions raised in the discussion, said that the
list of injury criteria was meant to be illustrative rather than exhaustive.  Injury had to be evaluated
with respect to a services industry and not necessarily a service.  On the point raised by Japan, he
noted that all proposed criteria should indeed have referred to national as well as domestic
suppliers/markets.  Concerning value added taxes, he noted that different tax rates in individual
countries and sectors might affect their relevance as an indicator.  Further comments would be
provided at the next meeting of the Working Party.
13. The Chairman invited delegations' comments on a question which had been earmarked for,
but not addressed, at the previous meeting.  Should the reasons contributing to increased imports be
relevant in determining the permissibility or the actual form of a safeguard measure?  For example,
should it matter if macroeconomic problems had played a role or an industry's capacity to adjust had
been affected by government regulation rather than own weaknesses?S/WPGR/M/24
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14. The representative of Venezuela said that macro-economic effects had to be eliminated in the
evaluation of injury.  He also felt that it was necessary, but difficult, to prove that a government's
policy had done harm to its own industry.  The burden rested on the invoking party.
15. The representative of the United States noted that, depending on the relevant causality
standard, the responsibility to prove that injury had been caused by increased imports, rather than by a
change in government regulation, might rest on the in voking party.  If the increase in imports was to
be considered the primary cause of injury, the invoking party had to exclude other potential causes.
The representative of Venezuela added that, in his country's legal system, the party opposing the
application of government measures would also have to furnish evidence in response to claims made
in the administrative process.   The representative of the European Communities observed that
governments might have a vested interest in prov ing that they were not responsible for the injury
suffered by their industry.
16. The representative of Thailand, speaking on behalf of ASEAN, said that the reasons
contributing to increased imports needed to be taken into account in deciding on the permissibility of
safeguard action.  While he considered the Chairman's questions to be pertinent, he feared that
identifying the role of individual factors might impl y an element of subjectivity.  It was important to
use objective criteria.  The representative of Venezuela observed that it was difficult to develop
examples without a clearer picture of future safeguard disciplines.
17. The Chairman reminded delegations of the suggestion to set up a "checklist" of individual
injury and causality indicators introduced in the Working Party.  Such a list could be developed in
conjunction with a second revision of document S/WPGR/W/27.  It would be open for future
suggestions and would not prejudice delegations' positions on feasibility and desirability.  TheWorking Party agreed to request the Secretariat to produce an informal document, including the
indicators proposed by Venezuela, additional concepts introduced since, and comments made in the
Working Party.  The Chairman noted that the in formal nature of the document would not prevent
Members from discussing its content in formal session.
(ii) The question of horizontal versus sector-specific safeguards
18. The Chairman recalled the Working Party's discussion of various concepts previously
introduced:  (1) Horizontal, generally available safeguards;  (2) sector-specific safeguards which
would also be generally available;  (3) sector-s pecific safeguards whose content and inclusion in
schedules would be negotiated case-by-case;  and (4) a "hybrid" approach based on a general
framework mechanism whose inclusion in schedule s would then be decided through negotiation.
Discussions had focused so far on the principle advantages of either approach in terms of
transparency, predictability etc., and the relevant legal basis in the GATS.  While inviting additionalcomments, the Chairman also mentioned the possibility, previously raised by the delegation of Japan,
that the Working Party temporarily suspended this discussion and rather focused on basic elements
which would form part of any safeguards mechanism.  It might be possible to work out common rules
and principles, which would be equally relevant fo r horizontal and scheduled safeguards.  The United
States submission of 17 March 1997 (S/WPGR/W/17) contained an illustrative list of such rules and
principles.  These included the requirement to give adequate advance notice before invocation;  use
safeguards only temporarily and with a specified maximum period of duration;  limit access to a given
safeguards-type provision – for example, once during the course of a specified period of time – and
prevent re-invocation during the specified period;  apply safeguards on a degressive basis;  clearly
specify the envisaged action by mode and sector or sub-sector;  respect "established rights" (althougha different term was used in the paper) if limits were imposed on mode 3;  and waive compensation if
the rules are respected.  Although some of these issues had already been touched upon in the
discussion of document S/WPGR/W/27/Rev.1, they might warrant greater attention with a view to
reaching a common understanding.S/WPGR/M/24
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19. The representative of Hong Kong, China found this idea useful.  The paper submitted by his
delegation, document S/WPGR/W/18, shared many of the elements proposed in the United States
paper, such as the need for advance notice, temporary application, application on an MFN basis,
objective and identifiable criteria.  His delegation was still considering, however, whether a safeguard
mechanism needed to be paired with a commitment to liberalize and whether compensation should bewaived.  Further elaboration of such issues would be a way forward.
20. The representative of Thailand, speaking on behalf of ASEAN, noted that it was widely
accepted in the Working Party that sector-specific safeguards, if any, should be made generally
available.  No link should be established between an emergency safeguard mechanism and
scheduling.  Without prejudice to this question, ASEAN was ready to discuss the elements contained
in the United States' paper which was a useful contribution.  However, it remained limited in scope as
it dealt only with scheduled safeguards whose legal basis in the GATS was not beyond doubt.  Hesought further clarification on the "hybrid" appr oach proposed by the United States delegation, in
particular on the question whether general framework rules would apply across all sectors while the
measures would be sector-specific.
21. The representative of Japan said that, while his delegation was still considering the different
forms an EMS could take, it was inclined to support a horizontal approach.  Safeguards were meant to
deal with unforeseen developments which, by imp lication, could not be predicted and scheduled.  To
advance the discussion at that stage, however, the Working Party should rather focus on the basic
elements of any mechanism:  All elements contained in the United States' submission were relevant in
this context.  However, unlike the United States, his delegation felt that it was not always necessary to
specify an action by mode;  it should be left to Members to make this choice.
22. The representative of Switzerland echoed Japan's view that most of the elements listed in the
United States' paper - such as temporary application, degressivity, clearly specified criteria, MFN
application, no divestment - were central to any safeguard mechanism.  On the issue of compensation,
he felt like Hong Kong, China that more reflection was needed.  Without a requirement to
compensate, safeguards could lend themselves to abuse, especially by powerful domestic interests.
23. The representative of Mexico said that her delegation favoured horizontal safeguards on the
grounds of transparency and integrity.  In view of the peculiarities of services trade, however, such a
mechanism might need to be flexible and, in addition to general rules, allow for sector- or mode-
specific solutions.  She called for practical examples to advance the discussion.  A safeguard
mechanism should be available to all WTO Members, without prejudice to provisions for special and
differential treatment of developing countries.  Access must not in any way be linked to scheduling or
made contingent on other GATS provisions, such as Article XXI, which pursued different ends.Several elements listed in the United States' paper should be used, such as adequate advance notice;
degressive and temporary application;  maximum duration (with special treatment for developing
countries);  MFN application;  and objective and identifiable criteria.  On compensation, closer
examination was necessary.  Compensation would im ply that safeguards protection was at a cost to
the invoking Member, thus limiting its use to exceptional circumstances and preventing anyprotectionist abuse.  In addition, the concept of adjustment could be added to ensure that the sectors
protected were committed to carrying out adjustment with a view to regaining competitiveness by the
time the measures were removed.
24. In response to an issue raised by Thailand, the representative of the United States noted that
the principle scope of emergency safeguard measures should be addressed in a context different from
the rules governing application.  In his delegation's view, measures would be sector-specific and
scheduled, whereas the general rules would be horizontal.  Without prejudice to the final mechanism,
elements of these rules could be discussed.  On compensation, his delegation was still examining the
issues involved - including concerns about abuse - in the light of Article XXI which was a potentialS/WPGR/M/24
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alternative.  If a safeguards mechanism were to be put in place, and if it contained a compensation
requirement, this might create a bias in favour of modifications of commitments under Article XXI
which were available without proof of injury or causality.
25. The representative of Japan concurred that the relationship between a possible safeguard
mechanism and the provisions under Article XXI needed to be clarified.  A safeguard measure should
be easier to invoke in principle, but only for a limited period.  The need for compensation should be
further examined with a view to achieving a balance between easy availability of safeguards and
prevention of protectionist misuse.  The experience in the area of goods could help to inform the
discussion on this issue.
26. The representative of the European Communities observed that a possible safeguards
mechanism and the provisions of Article XXI had to accommodate different situations.  A safeguard
mechanism would be in place to respond speedily to emergency cases, which could be addressed andsolved within a relatively short period of time, whereas Article XXI modifications dealt with longer-
term changes in competitive conditions of a systemic nature.
27. The Chairman said that the Working Party should revert to discussing basic elements of a
safeguard mechanism at the following meeting.  He  invited delegations to re-examine the relevant
submissions by the United States and Hong Kong, China.
(iii) Applicable measures and other relevant issues
28. The Chairman noted that the question of applicable measures was one of the few items of
document S/WPGR/W/27/Rev.1 which the Working Party had not yet discussed in depth.  He
suggested that Members consider, first, whether safeguard actions should be limited to the suspension
of commitments under Article XVI and XVII or also include commitments under Article XV III, and,
second, whether there should be a preference for measures such as subsidies.  Their application might
prove more transparent, more predictable and less distortive from a supplier's perspective than, for
example, quotas, while quotas might be deemed less costly and more efficient from the invoking
country's perspective.
29. The representative of Thailand, speaking on behalf of ASEAN, said that the main safeguard
measures envisaged were restrictions on market access and suspensions of national treatment, but the
possibility of suspending commitments made under Article XVIII should not be precluded.  Subsidies
as safeguard measures amounted to a suspension of national treatment;  they were preferable on
transparency and predictability grounds.  Nevertheless, the applicability of different types of
safeguard measure needed to be evaluated for each mode;  actions under mode 3 had to take acquired
rights fully into account.
30. The representatives of Hong Kong, China and Japan  agreed that, in general, the possibility of
suspending commitments under Article XVIII should not  be ruled out and that priced-based measures,
including subsidies, were in principle preferable to quotas.  However, more time was needed to
discuss concrete examples and reach a final decision.  The representatives of Japan and Uruguay  also
said that the on-going negotiations under Article XV of GATS might help to further clarify subsidy-related questions.  Noting that subsidy-type remedies represented departures from national treatment,the representative of Japan recognized that Members might also want to suspend market-access
commitments.
31. The representative of the Republic of Korea observed that the Agreement on Safeguards did
not specify the type of restrictions to be applied.  While its Article 5 prescribed the level at which any
quantitative restrictions should be set, Article 6 provided that provisional safeguard measures beprice-based.  He felt that it might be useful to review the historical background of these provisionsS/WPGR/M/24
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and, in addition, clarify who would pay for any subsidies.  Recognizing that price-based measures
were in principle preferable to quantitative restrictions, he added that, given that the main purpose was
to remedy injury (or threat thereof) caused by increased imports, quota-type restrictions tended to
have shorter implementation periods and produce immediate results.  The representative of Egypt
concurred that the choice between subsidies and quota-type measures depended on the situation to be
remedied;  the fact that safeguard measures were applied only for limited periods had to be taken into
account.
32. The representative of the United States said that his delegation was still considering the
possibility of suspending Article XVIII commitments.  However, it would be a matter of concern if
regulatory principles, including those under the telecommunications Reference Paper, could be
suspended as well.  While quotas tended to be the most disruptive type of trade restriction, it was not
clear whether subsidies were able to meet all positive expectations associated with price-basedmeasures.  The representative of Uruguay expressed doubts about the perceived advantages, in terms
of transparency, predictability and less distortive effects, of subsidies.
33. Concluding on this item, the Chairman said that Members recognized that applicable
measures could involve the suspension of commitments under Article XVI and XVII.  While some
concerns had been raised about the withdrawal of Article XVIII commitments, no delegation hadruled out this possibility at that stage.  The discussion on whether price-based measures (e.g.
subsidies) were preferable to others (e.g. quotas) had not yet led to clear conclusions.  While price-
related measures were considered to be more transparent, less distortive and disruptive by some
delegations, others noted that quota-type restrict ions offered more immediate remedies.  The key
challenge was to identify the best available remedy from the perspective of all parties involved, andthe Working Party would need to revert to this issue at its next meeting.
34. The Working Party requested the Secretariat to prepare a second revision of S/WPGR/W/27,
tracing the discussion on emergency safeguards at this  and the past two meetings.  In this context, the
Chairman encouraged delegations to use the summer break to reflect on the structure of future
discussions and submit suggestions which he would then circulate in his preparatory Note for the nextmeeting.  Ideally, the submissions should include concrete cases where safeguards, of one type or
another, might be needed and outline the implications for future rule-making.
ITEM B: NEGOTIATIONS ON SUBSIDIES UNDER ARTICLE XV OF THE GATS
35. The Chairman drew the Working Party's attention to a recent submission from Hong Kong,
China under the information exchange programme pursuant to Article XV.  It had been circulated as
document S/WPGR/W/16/Add.3.
36. The representative of Hong Kong, China explained his authorities' response to the relevant
questionnaire.  It excluded expenditure for a range of social services and social welfare programmes
which governments throughout the world maintained in pursuit of legitimate welfare objectives.
Subsidies for services supplied in the exercise of governmental authority, as defined in Article I:3(b)
of the GATS, had also been are excluded.  All subsidies listed in the response were granted on a
national-treatment basis under mode 3.  While compliance with national treatment was likely toreduce any trade distortive effects, such subsidies might nevertheless cause spill-over effects between
modes.  According to the Scheduling Guidelines (document MTN.GNS/W/164), Members were not
obliged, however, to extend national treatment to suppliers established outside their territorial
jurisdiction.  Nevertheless, the submission recommended that the issues involved - distortive effects
and mode specificity of subsidies - be further discussed by the Working Party.  This could help toclarify the meaning of national treatment under modes 1 and 2 and, in turn, might enable Members to
schedule more significant commitments for national treatment especially under these modes.  As aS/WPGR/M/24
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preliminary response to a question from the delegation of Japan, he explained that all subsidies were
provided to established service suppliers only.
37. The representative of Brazil noted that discussions in the General Council had shown a broad
consensus for negotiating subsidy disciplines under Article XV in the next round.  Although only
three delegations had yet responded to the relevant questionnaire, it was important that the mandate ofArticle XV be met.  Subsidy disciplines were in the interest of all Members and in particular of
developing countries, which often lacked the resources for active subsidization.  He suggested that
Members take up again relevant issues raised in the Secretariat background paper on subsidies,
document S/WPGR/W/9,  in order to advance work.
38. The representative of Guyana noted that some Members had excluded subsidies from national
treatment obligations, while others had undertaken full commitments.  The resulting imbalance was a
matter of concern;  it could seriously affect the competitive position of developing country suppliersin foreign markets.  He felt that any disciplines to be developed under Article XV would need to take
this disparity into account.
39. Summing up the discussion on this item, the Chairman reminded delegations of the
information exchange requirement under Article XV.  In his preparatory Note for the next meeting, he
intended to draw attention to core issues raised in the Secretariat background paper on subsidies.
ITEM C: NEGOTIATIONS ON GOVERNMENT PROCUREMENT UNDER ARTICLE XIII
OF THE GATS
40. The Chairman recalled that, during the past two meetings, several delegations had suggested
definitions, or elements of a definition, of what could be considered government procurement of
services.  The notion of financial responsibility, i.e. the assumption of the financial risks and benefitsassociated with the purchase of services, seemed to be widely considered one suitable criterion to
distinguish procurement form other forms of government involvement.  He invited delegations to
introduce any additional criteria and comments into the discussion.
41. The representative of Australia said that, following domestic consultations on how to define
government procurement, her delegation now supported a broad definition.  This was a pragmatic
move since the processes of choosing contracts, as well as the relationship between companies and
government, were generally identical and not influenced by notions of financial responsibility.
Government procurement was thus considered to include all three categories in the hierarchy
Australia had originally suggested:  first, government purchases of services for consumption by the
government;  second, government purchases of services for consumption by the public;  and, third,
contracts between the government and private companies for the commercial provision of services to
the public or to industry.  The latter category was covered by the definition of GATS Article XIIIbecause it was the government that initiated and organized the supply of the service and, thus, enabled
the public to consume it.
42. The representative of Canada felt that the term  "hierarchy" was not appropriate as it implied
the setting of priorities;  she proposed using a more neutral term such as "listing".  The representative
of the European Communities said that the definition offered by Australia was broad and wondered
how it squared with relevant GATS provisions, given that the Working Party was mandated to deal
with transactions not currently covered by the GATS.
43. The representatives of Venezuela, Brazil  and Mexico  noted that in their national legislations,
concessions did not fall, and could not be categorized, under government procurement.  The
representative of Mexico suggested that examples be given under each category proposed by
Australia.  She wondered how this categories relate d to the concept of financial responsibility, whichS/WPGR/M/24
Page 8
many delegations considered relevant.  In response to several requests, the representative of Australia
undertook to submit her contribution in writing.
44. The representative of Hong Kong, China said that  considerations related to the structure of the
relevant market were important in determining what fell under government procurement.  The
representative of the United States suggested that the Working Party set aside its discussion on
concessions for the time being and rather develop a genuine definition of government procurement.
By default, it would also inform the definition of concessions.
45. As mentioned in his preparatory Note, the Chairman suggested further examining the range of
entities considered to conduct government procurement.  At previous meetings, it had been said that,
in principle, entities at all government level should be covered, and that government ownership and
control were important criteria.  The legal form of operation or incorporation had not been mentioned
as relevant.  Some delegations had noted, however, that attention should be given primarily to entitiesenjoying some degree of exclusivity, i.e. to entities not fully subject to market disciplines.  He invited
delegations to further elaborate on these issues.
46. The representative of Canada said that government ownership and control were critical
factors in defining government procurement.  The representative of Hong Kong, China favoured in
principle the inclusion of entities at all levels of government, but was not sure whether the legal form
of operation or incorporation should be a determining factor.  Criteria related to the form and structure
of the markets concerned needed to be considered as well.
47. Notwithstanding the importance attached to de finitional issues, the Chairman remarked that
the negotiations under this item might benefit from Members giving thought to their ultimate purpose.
This included in particular the question what common disciplines, if any, might be agreed upon at theend of the process.  A prominent candidate would be the concept of non-discrimination. The Working
Party endorsed his proposal of raising pertinent questions in the preparatory Note for the next
meeting.
ITEM D: DATE OF THE NEXT MEETING
48. The next meeting is scheduled to take place in the vicinity of the October meetings of the
Committee on Government Procurement and the Transparency Working Group, possibly on Friday,
October 8, 1999.
ITEM E: OTHER BUSINESS
49. No matters were raised under this agenda item.
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