RESTRICTED
WORLD TRADE S/WPGR/W/14
10October 1996
ORGANIZATION
(96-4268)
Original: English Working Party onGATS Rules
COMMUNICATION FROM SWITZERLAND
Safeguards andTrade inServices
Characteristics oftheGATS andidentification ofcircumstances
Given theflexibility oftheGATS initspresent shape, itisnotobvious whether circumstances can
beidentified under which inclusion ofaspecific safeguard mechanism intheGATS would benecessary.
Theprinciple ofprogressive liberalization oftheGATS (Art. XIX), whereby specific commitments
onmarket access andonnational treatment aredetermined bysuccessive negotiations, allows Members
-while progressively liberalizing tradeinservices -totakeintoconsideration thelevelofdevelopment
andcompetitive strength ofindividual sectors ofthedomestic industry. Thisapproach contributes to
considerably reducing thelateroccurrence ofsituations thatmight induce Members totakemeasures
inorder toprevent undesirable effects, iftheyshould occur, resulting from specific commitments in
particular circumstances. Intheareaoftrade inservices suchcircumstances, ifany,aremostly
conceivable inrelation topayments andtransfers. Thisisobviously thecaseinthefieldoffinancial
services, butitisalsotrueforother services sectors, sincetradeinservices normally involves payments
andtransfers, irrespective ofmodes ofdelivery. These types ofdifficulties, however, arealready dealt
withinarticle XIIoftheGATS.
Further flexibility isprovided byarticle XXIoftheGATS, allowing members totakespecific action
incircumstances thatmayrequire taking particular measures. While itistruethatmeasures under article
XXImayonlybetaken when some conditions arefulfilled (waiting period, prior notification,
compensation ifother Members request so),themechanism available under article XXIlends itself
toovercome difficulties arising from unforeseen effects ofspecific commitments. Theconditions to
beobserved when taking recourse toarticle XXIprevent members from taking premature oroverly
burdensomemeasures,whichmightundulymodifythebalanceofbenefitsundertheAgreement.Although
article XXIdoesnotmake explicit reference totemporary modification ofschedules, theAgreement
doesnotexclude making useofarticle XXIincaseaparticular commitment needs tobemodified on
atemporary basis -iftemporary modification ofacommitment relating totrade inservices isatall
practically feasible (seebelow).
Engaginginnegotiationsonthedesignofaspecificsafeguardmechanismwillonlymakesenseifrelevant
circumstances notalready cared forbyexisting provisions oftheGATS havebeenconcretely identified.
OnlythenwilltheMembers beinaposition tosensibly decide whether ornottoengage innegotiations
onthedesign ofaspecific safeguards clause under theGATS.
Conceptual andpractical problems relating tocharacteristics oftrade inservices
EmergencysafeguardmeasuresundertheAgreementonSafeguardsoftheGATTaretemporarymeasures
aMember mayimplement inorder tolimitexcessively increased imports causing, orthreatening to
cause serious injury toitsdomestic industry producing likeordirectly competitive products. ForaS/WPGR/W/14
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safeguard mechanism tofunction properly, keyconcepts likeimports, domestic industry, injury, and
likeordirectly competitive products havetobeclearly defined. These terms poseanumber ofconceptual
andpractical problems resulting from specific characteristics oftrade inservices. Inaddition the
implementation ofanysafeguard mechanism intheservices areawould encounter arange ofpractical
problems related tothetypes ofmeasures, toservices sectoral classification, andtostatistical and
measurement difficulties.
Imports anddomestic industry
While intheservices context imports anddomestic industry (andhence injury caused tothedomestic
industry) maybedefined meaningfully inrelation tomodes 1and2,these concepts cause considerable
difficulties inrelation tomode 3(andtoacertain degree alsoinrelation tomode 4).Thedefinition
ofimports under mode 3depends onthedefinition ofdomestic industry. Ifdomestic industry includes
allservice providers established inaMember 'sterritory, thereareno"imports" (andhence noserious
injury caused byincreased "imports") under mode 3.If,however, service providers owned orcontrolled
byforeign persons established inaMember 'sterritory areexcluded fromthedefinition ofitsdomestic
industry, theirservices -although produced (andsupplied) domestically -would bedeemed "imports".
Thisleadstothefollowing dilemma: either thereareno"imports" under mode 3or,although established
intheterritory ofaMember, service suppliers creating value-added andemployment within theterritory
ofthatMember, would notbeconsidered partofthedomestic industry, depending onownership or
control oftheestablished entity. Ifthelatter approach wereadopted, safeguard measures could betaken
against services ofsuppliers established intheterritory oftheMember taking themeasure. Thiswould
mostprobably increase injury tothedomestic economy oftheMember concerned instead ofrelaxing
theproblem, aneffect, obviously, inconsistent withthepurpose ofanysafeguard mechanism.
Likeordirectly competitive products
Application oftheconcept oflikeordirectly competitive products might bemore difficult inthefield
ofservices thaninthefieldofgoods, inparticular withregard tomodes ofsupply no.1andno.2.
Given thefactthatservices areinmany cases produced andconsumed atthesame timeandindirect
contact ofasupplier andaconsumer, aservice consumed abroad (mode 2),orsupplied across the
border (i.e.without thephysical presence ofthesupplier, mode 1),isnotnecessarily like,oraclose
substitute toa"similar" service supplied atthelocation oftheconsumer byaproducer established
intheterritory oftheMember concerned. Even iftheservice, abstraction made fromthelocation and
theproximity ofthesupplier andtheconsumer, maylookverysimilar fromatechnical point ofview,
theabsence ofthephysical presence ofthesupplier, ortheforeign location oftheconsumption
respectively maymake animportant difference fromaneconomic pointofview, thelatterbeing relevant
fordetermining whether twoservices arelikeordirectly competitive (i.e.,inmarket terms, close
substitutes). Duetothespecific nature ofservices, determination ofwhether aservice supplied
cross-border islikeordirectly competitive toasimilar service supplied domestically willinmany cases
bemore difficult thaninthecaseoftrade ingoods, andhence could giveraise toconsiderable
implementation problems. Inaddition services typically aredifferentiated andindividualized toahigher
degree thangoods, rendering determination oflikeanddirectly competitive products more difficult
inthecontext oftrade inservices, evenwhen nothaving tocompare services supplied under different
modes ofdelivery.
Domestic regulation
Incontrast toliberalisation oftrade ingoods, which ismainly brought about byreduction oftariffs
andremoval ofother barriers attheborder, liberalisation oftrade inservices almost exclusively is
donebymodification ofdomestic regulation, inmany cases applied toforeign anddomestic suppliers
alike. Tariffs andother measures applied attheborder arerarely applicable totrade inservices dueS/WPGR/W/14
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totheintangible nature ofservices output. Inthecontext oftrade inservices, measures taken "atthe
border" could atbestrelate topayments andtransfers, ortomovement ofconsumers orsuppliers of
services. Control oftrade inservices bypreventing people from crossing theborder would inmany
cases bepractically difficult, andmeasures relating topayments andtransfers arealready covered by
art.XIIoftheGATS.
Even ifalimited range ofborder measures were available, safeguard measures inrelation totrade
inservices would inthevastmajority ofcases incontestably havetorelyontemporary modification
ofdomestic regulation. However, practicability oftimely andtemporary modification ofdomestic laws
andregulations isinmostcasesverydoubtful, where indeed timely andtemporary action isfundamental
toanysafeguard mechanism. Even iftimely andtemporary modification ofdomestic regulation were
possible insome cases, itwould notbedesirable, because temporary change ofdomestic lawsand
regulations tends toundermine stability andforeseeability ofthelegalsystem, notonlydetrimental
toforeign butalsotodomestic suppliers. Even ifMembers wereprepared toaccept resulting negative
implications onthenational economy, suchaction would stillnotbeacceptable fromthepoint ofview
ofthestability ofthetrading system, particularly inrelation to"acquired rights" inthecontext of
commercial presence.
Classification ofservices sectors
Inservices, targeting safeguard measures tospecific activities isconsiderably more difficult thanin
thecaseoftrade ingoods, where theharmonised system ismuch more detailed thanthesectoral
classification under which specific commitments relating totrade inservices aretypically inscribed.
Together withthefactthatsafeguard measures would havetobeapplied, inanyparticular sector, in
strictconformity withtheprinciple ofMFN (GATS, article X,paragraph 1),thisimplies aconsiderable
riskofunravelling. Asafeguard measure would almost necessarily affect awiderange ofsuppliers,
possibly originating from agreat number ofMembers, irrespective oftheorigin ofthedifficulty
triggering thesafeguard measure.
Statistical difficulties andmeasurement problems
Further practical difficulties related toimplementation ariseduetostatistical andmeasurement problems.
First, theinvisibility ofmostservices makes itdifficult tomeasure trade flows andhence "increased
quantities", theproper identification ofwhich isanecessary prerequisite forasafeguard action tobe
triggered (andreviewed) byobjective standards. Thefactthatservices areprovided under fourmodes
ofsupply makes thetaskevenmore difficult. Second, tobeabletoevaluate theimpact ofincreased
imports onthedomestic economy, reliable andsufficiently detailed dataonproduction andemployment
arenecessary. Thisisalsotrueinviewofproper review ofanysafeguard action. Statistical dataneed
tobeavailable onasub-sectoral levelorevenonthelevelofsingle products, forfourmodes ofsupply,
andonaquarterly ormonthly basis. Existing statistics fortradeinservices donotnormally fulfilthese
requirements.Typically,availablestatisticsonserviceslackinternationalcomparability,andmeasurement
conceptsfrequentlyareinconsistentevenonthenationallevel,e.g.betweenmodesofsupply,orbetween
trade anddomestic production. Even ifagreat effort were putintostatistical work, itishardly
conceivable thatsufficiently detailed andreliable datacould bemade available intheforeseeable future.
Conclusions andoptions forfuture work
Further examination clearly seems tobenecessary. Thequestion hastobeanswered whether, inrelation
totrade inservices, circumstances thatmake asafeguard mechanism desirable canbeconcretely
identified. Should asafeguard clause prove tobedesirable, inprinciple, possible benefits and
practicability stillremain doubtful, given thepresent stateofknowledge.S/WPGR/W/14
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Considering thatimplementation problems, duetospecific characteristics oftrade inservices, would
make proper monitoring andeffective review ofsafeguard measures difficult, theriskofundermining
basic principles oftheGATS israther high. Iftheconcepts ofimports andinjury maybereasonably
defined fortrade inservices under modes 1and2,theapplication oftheconcept oflikeanddirectly
competitive products might cause, forthese twomodes, considerably greater difficulties thaninthe
context oftradeingoods. Ontheother hand, while theconcept oflikeanddirectly competitive products
mayreasonably beapplied tomodes 3and4,inthecontext ofthese modes thisseems toberather
doubtful fortheconcept of"imports", andhence ofinjury tothedomestic industry. Inaddition, for
allmodes ofsupply, domestic regulation, measurement problems, andsectoral classification pose
difficulties.
These difficulties arenotmerely ofpractical importance, butarefundamental fortheeffectiveness
andthewellfunctioning ofanysafeguard mechanism notundermining thebalance under, andbasic
disciplines oftheAgreement. Ifthese difficulties cannot beovercome, developing asafeguard clause
remains atheoretical exercise without prospect ofreasonable application.
Ifexamination ofthese issues should takelonger thanthetimeframe foreseen inarticle X,paragraph
2,extension ofthedeadline foreseen inarticle X,paragraph 3could beconsidered. Allowing for
sufficient timetocarefully examine relevant issues would alsoallow toconsider thequestion of
emergency safeguard measures inthecontext ofextended experience relating tothefunctioning of
thestillrather young GATS andtoongoing progressive liberalisation.