RESTRICTEDWORLD TRADE
ORGANIZATIONS/WPGR/M/22
15 June 1999
(99-2413)
Working Party on GATS Rules
REPORT OF THE MEETING OF 19 MAY 1999
Note by the Secretariat
1. The twenty-second meeting of the Working Party on GATS Rules was chaired by
Mr. Siva Somasundram of Singapore.  The age nda of the meeting was contained in WTO/AIR/1086.
It consisted of five items:  negotiations on safeguards under Article X of the GATS;  negotiations on
subsidies under Article XV of the GATS;  negotiations on government procurement under
Article XIII of the GATS;  date of the next meeting of the Working Party;  and other business.
2. The Chairman indicated that in order to assist delegations in their preparation for the meeting
he had circulated a Note, Job No. 2803 dated 11 May 1999.  The Note recapitulated where the
Working Party stood on the three issues and proposed a certain structure for the discussion.
ITEM A: NEGOTIATIONS ON SAFEGUARDS UNDER ARTICLE X OF THE GATS
3. The Chairman recalled that at the previous meeting a useful discussion of various issues listed
by the Secretariat in document S/WPGR/W/27 had been conducted.  As requested at that meeting, the
Secretariat had meanwhile produced a revision (S/WPGR/W/27/Rev.1) which incorporated recentcontributions.  He suggested using that document as a basis for the discussion and addressing relevant
issues in the order suggested in the preparatory Note.
(i) Situations justifying the application of safeguards measures
4. The Chairman noted that in past discussions the concept of "unforeseen developments" had
been frequently referred to.  It was, however, his impression that Members had approached this
concept from different angles.  For instance, there was a notion that unforeseen developments related
to market developments not anticipated by governments at the time they negotiated commitments.
Alternatively, but not in a mutually exclusive manner,  the concept had also been tied to import-related
developments confronting individual services suppliers in a committed sector.  This second notion
corresponded to the conventional interpretation contained in Article XIX of GATT, but not explicitlytaken up in the Agreement on Safeguards (AS).  Based on the second notion, a previous Secretariat
document (S/WPGR/W/24 of 3 September 1997) asked whether the concept of unforeseen
developments could be made legally meaningful.  This question had been answered by some
Members in the negative.  It might be helpful to further clarify these different notions of "unforeseen
developments" and to determine, first, whether they were relevant to the Working Party's  discussion
and, second, whether it would be possible to give them legal effect.  He suggested that delegations
give actual or hypothetical examples.S/WPGR/M/22
Page 2
5. The representative of Thailand observed that the Working Party had achieved some
encouraging progress.  Discussion on the feasibility of an emergency safeguards mechanism (ESM)
for services would facilitate judgement on its desirability.  The concept of "unforeseen developments"
was essential to the GATT Article XIX mechanism for goods.  He acknowledged that the concept
might leave room for various interpretations but, thus far, had not posed serious problems in the goods
area.  "Unforeseen developments" should be interpreted as developments occurring after the
negotiation of a tariff concession which could not be reasonably expected to have been foreseen bynegotiators at the time when the concession was made.  Such developments could be of differentnature;  they might primarily be import-related, but other market developments should also be takeninto account, for instance, technological changes.
6. The representative of Canada reiterated that the main difficulty still faced by the Working
Party was determining circumstances where safe guards would be warranted.  The Agreement on
Safeguards had been suggested as a model, but it did not include references to "unforeseendevelopments" because it was recognized in the Uruguay Round that the concept had never beenclearly defined.  By contrast, the AS referred to objective, clearly defined circumstances, i.e. importsurges that might cause injury.  However, such import surges were difficult to identify in services;they had to be closely circumscribed in order not to affect liberalizing commitments.  The
representative of Australia concurred that the legitimate role of safeguards was to facilitate adjustment
to more liberal market conditions.  In her view, the concept of "unforeseen developments" posedproblems, one of them being its subjectivity.  As an alternative, she proposed exploring the notion of"unforeseeable developments".  It might be possible to develop objective criteria in this regard;  theycould be based, for instance, on available information, reasonable precautions, standard practices, etc.The representative of Japan echoed Australia's concern as to the concept of unforeseen developments.
If it were understood to capture "market developments", the term would be very broad - includingnon-trade-related developments – and required a cl ear definition.  By contrast, the concept of
"import-related developments" suffered from the difficulty of specifying the term "imports" in trade inservices.  The representative of the European Communities associated herself with Australia's interest
in exploring the concept of "unforeseeable developments" and with Japan's comments on "marketdevelopments".  The latter could be linked to injury and causality  in bound sectors;  the relevant
injury test should be conducted for the "domestic industry" as a whole.
7. The representative of Barbados requested further clarification of the criteria which might be
used to test "for eseeab ility".  In her view, the focus should be on whethe r or not there had been
injury.  The representative of Thailand added that regarding the distinction between "unforeseen" and
"unforeseeable", the borderline was very thin in the GATT context.
8. The representative of the United States reiterated reservations as to whether Article XIX of
GATT could be used as a model for any possible safeguard mechanism in the area of services.  He
also felt that the concept of "unforeseen developments" was very subjective and proposed focussing
on injury rather than its cause.  The example concerning technological changes was interesting;  in his
view, however, technological developments were foreseeable.  He observed that document W/27 had
placed emphasis on the protection of juridical persons, but the possibility of protecting natural persons
through safeguards should also be considered.
9. The representative of Switzerland was in favour of relating the safeguards concept to the
interests of domestic industry.  It should cover producers of like or directly competitive products,
established within the territory of a Member, regardless of ownership and control.  Special and
differential treatment for developing countries should be possible.  Both the possibilities of horizontal
and sector-specific approaches should be studied.  She also suggested considering the prioritisation ofindividual modes;  for example, safeguards on m odes 3 and 4 should be possible only after action hadS/WPGR/M/22
Page 3
been taken on modes 1 and 2.  Members should be required to take the public interest into account,
i.e. to weigh the interests of consumers, users and producers.  All actions should be limited in
duration.  Finally, compensation should be required to ensure that measures are not taken for
protectionist purposes.  The representative of Japan felt that, if the relevant criteria were met, all
domestic suppliers should be protected against all new suppliers entering into the market.
10. Regarding the passive subject, the representative of Venezuela said that his delegation had no
specific views on who would qualify for protecti on in relevant cases;  it could be enterprises,
industries, natural persons, etc.  Article 4 of the Antidumping Agreement contained a definition of
industry which could be taken into account.  As to the circumstances justifying an action, he added
that the effects of "unforeseen circumstances" – increases in the supply of a services and the injury
caused by it - should be analysed together.  The representative of Korea felt that no Member would
want to open its market to an extent that a serious injury could occur.  In turn, this implied that all
such injury was unforeseen and that there was no need to impose both the conditions of "unforeseendevelopment" and "serious injury".  As safeguards were exceptional measures, employed when other
measures were not effective, they should not be taken when a situation could be addressed under other
GATS provisions.  In considering whether ESMs should be taken, the benefit ensuing to the whole of
the economy, as opposed to an industry, should be taken into account.  Since this implied a subjective
evaluation, the invocation of safeguard provisions should be left to the discretion of the Membersconcerned.
11. In summing up, the Chairman noted that many delegations considered the concept of
"unforeseen developments" as essential, while others felt it was too subjective in nature.
Alternatively, it had been suggested to discuss the concept of "unforeseeability" which might be made
subject to an objective test concerning the justification of an action, the benefits for the economy as awhole and public interest issues had been mentioned.  Some delegations had called for more concrete
examples of situations justifying the use of safeguard measures and, in this context, an in-depth
discussion of the importance of technological changes.
(ii) The question of horizontal versus sector-specific safeguards
12. The Chairman recalled that the delegation of Japan had proposed a conceptual distinction
between three principal approaches for safeguards:  (a) horizontal safeguards (available to all
Members in standard format across all sectors);  (b) sector-specific safeguards (available to all
Members in sector-specific format);  and (c)  sector-specific safeguards which would be available
only if included in schedules.  Additional variants were possible.  This conceptual distinction was also
related to an issue discussed at the previous meeting, namely, the distinction between (a) ex-ante
safeguards to be included in schedules and (b) ex-post safeguards which would be available whenever
the relevant criteria were met.
13. The representative of Thailand, on behalf of ASEAN, said that the distinction suggested by
the delegation of Japan was relevant.  It made clear that a sector-specific approach did not necessarily
call for scheduling.  He felt that there was no legal basis in Article X for a scheduled mechanism since
the Article envisioned ex-post safeguards to cope with unforeseen circumstances.  While favouring a
horizontal approach, he could also consider a sector-specific ESM which was unrelated to thescheduling of commitments.  The representative of the European Communities added that an ex-ante
approach would require Members to clearly identify possible emergency situations in advance.
Instead, a general framework for safeguards might be developed, including conditions for application.
Regarding sector-specific approaches, the prudential carve-out for financial services could be
considered a model.  The representative of Japan reiterated reservations vis-à-vis  the inclusion of
sector-specific safeguards in schedules as these could affect the quality and stability of commitments.
In any case, the circumstances justifying an action should have been unforeseeable at the time of
scheduling.S/WPGR/M/22
Page 4
14. The representative of the United States observed that all approaches were potentially relevant.
There was also a possibility of combining horizontal and sectoral approaches, based on a general
framework mechanism that countries could include in their schedules.  It could indicate in a more
specific manner the comfort level that a country mi ght need when opening its market, given that the
case for safeguards was related to liberalization.  Whether the circumstances were unforeseen was not
as important as reaching agreement on the level of "imports" acceptable for a country.  He felt that thefinancial services carve-out could not be considered as a safeguard of the kind referred to in Article X.
Using it for such purposes could unduly diminish the financial services commitments.
15. In summing up, the Chairman noted the additional variant introduced in the discussion,
namely the combination of horizontal and sector-specific elements.  In this context, basic framework
rules would define general criteria for invocation, while more specific rules could deal with sectoral
peculiarities.  He reminded delegations that all options remained open for consideration.
(iii) Concepts of injury and causality16. The Chairman thought it useful to further discuss indicators which might be used to (a) prove
the existence of injury and (b) establish a causal relationship between increased foreign presence in a
market and such injury.  He recalled that the delegation of Venezuela had voiced some suggestions in
this regard, which had also been made available in an informal paper (Job No. 2860 of 17 May 1999).
It was also worth discussing on the degree of flexibility that Members should have in selectingadequate indicators; the delegation of Brazil had mentioned that Article 3 of the Antidumping
Agreement could provide some guidance.  Secondly, he drew delegations' attention to questions raised
by the Secretariat in document W/24.  In particular,  (a) should the reasons which contributed to an
increase in imports be taken into account, or only the increase in imports per se , and (b) should the
existence of injury caused by increased imports be a sufficient condition for safeguard action, orshould there be additional criteria (e.g. the existence of market imperfections)?
17. The representative of Thailand reiterated views previously expressed by his delegation on the
use of Articles 4:2(a) and (b) of the AS and Ar ticle 3 of the Antidumping Agreement as models in
determining injury and causality.  Venezuela's submission demonstrated that relevant indicators wereavailable.  Confiden tiality was not an issue sin ce the burden of proof woul d rest on the invoking party,
who would have access to information that could be considered confidential.  The representative ofVenezuela concurred.  He suggested referring to increased "supply or consumption" of foreign
services, rather than increased imports.  The representative of Argentina shared these views and added
that it remained to be decided how existing information could be made comparable.  Therepresentatives of Uruguay, Cuba
, Poland , and Egypt  welcomed the Venezuelan submission and the
views expressed on the use of relevant provisions of the AS.  Also, it was suggested that track shouldbe kept of the discussion on various injury indicators in order to facilitate an overall assessment. Theanalysis should continue.
18. The representative of the United States felt that the criteria proposed in the Venezuelan
submission were too broad.  More concrete examples of real world situations, taking into account the
four modes of supply, would help to clarify the proposal.  Referring to a question posed in theChairman's Note for the meeting, the representative of Japan wondered whether "market
imperfections" could be taken into account in the determina tion of injury and causality.
19. In summing up, the Chairman observed that most delegations wished to discuss the
Venezuelan submission in greater detail. Real-world examples relating to the determination of injury
and causality would be helpful.  Mo st delegations that had spoken fe lt that Articles 4:2 (a) and (b) of
AS were relevant; given data problems in services, the approach underlying Article 3 of theAntidumping Agreement could also be taken into account.  He suggested continuing at the followingS/WPGR/M/22
Page 5
meeting the discussion of the concepts of injury and causality, the notions of unforeseen vs.
unforeseeable developments as well as any ot her issues deemed relevant under this item.
ITEM B: NEGOTIATIONS ON SUBSIDIES UNDER ARTICLE XV OF THE GATS
20. The Chairman recalled that at the previous meeting the delegation of Norway had suggested
that Members provide any available information re garding trade-distorting subsidies encountered in
foreign markets.  The proposal had been well received.  He invited delegations' contributions in this
regard.
21. The representative of Switzerland stressed that the mandate of Article XV had to be fulfilled.
Despite the lack of information, it should be possibl e for delegations to discuss such issues as existing
subsidy disciplines in GATS, subsidies with trade-distortive effects and the definition andcategorization of subsidy schemes, which had been suggested in the Chairman's Note dated
10 February 1999 (Job No. 772).  She shared the view expressed in paragraph 7 of that Note regarding
the national treatment obligation for mode 1.  If no limitation had been inscribed for national
treatment, services supplied from abroad and cons umed in the country must not be discriminated
against in terms of subsidies.  She also felt that subsidy schemes that had an "export-enhancing" effectwere a problem but no disciplines or remedies existed in the GATS.  Other issues that could be
discussed had been pointed out in document S/WPGR/W/9.
22. The representative of New Zealand expressed interest in contributing to a discussion along the
lines suggested in Norway's submission.  Subsidy schemes might undermine a services exporter's
position in other markets.  The representative of Japan said that in addressing trade-distortive
subsidies, delegations might start from the criteria laid down in Article XVII.
23. The representative of the United States stressed the need to comply with the exchange of
information mandated by Article XV; relevant information could be provided in different ways.  He
recalled that his delegation had clarified in the past that it would endeavour to contribute, but not
necessarily by way of replying to the questionnaire.  The representative of Argentina added that the
principal mandate of Article XV was to develop di sciplines for subsidies to avoid trade-distortive
effects, and the exchange of information was not the only possibility of fulfilling that mandate.
24. In summing up, the Chairman reiterated the importance of the information exchange exercise
mandated by Article XV, as pointed out by some delegations.  He emphasized the term "mandated"
because Members had to fulfill a common obligation under the Agreement.  Even partial responses tothe questionnaire would be helpful; additional contributions along the lines of Norway's proposal
would be appreciated as well.  He also observed an interest in continuing the discussion of questions
raised in his Note of February 1999, in conjunction with issues discussed in S/C/WPGR/9, at the next
meeting.
ITEM C: NEGOTIATIONS ON GOVERNMENT PROCUREMENT UNDER ARTICLE XIII
OF THE GATS
25. The Chairman observed that at the previous meeting, the Working Party had its first
discussion of issues raised in the Secretariat Note S/WPGR/W/29.  Some delegations expressed the
need to develop a working definition of government procurement.  In that context, Australia had
recommended to consider whether the term "government purposes" in Article XIII of the GATS
should be interpreted to mean "government use" in a narrow sense ( i.e. the government "consumes"
the service) or also include cases where the government was not the actual consumer.  He proposed todiscuss both W/29 and these contributions in greater depth.  The three questions contained in the
European Communities' informal paper were closely related to these definitional issues.  Additionally,S/WPGR/M/22
Page 6
Japan had introduced a typology of concessions which distinguished between three types of
transactions.
26. The representative of Brazil provided a brief overview of his country's legislation which
distinguished between concessions and government procurement.  In Brazil, the concept of
concession was not covered by the legislation that applied to government procurement (Law 8666 of
June 1993), but had their own lega l framework (Law 8987 of February 1995).  Both legislations were
applicable to federal, state and municipal government s, as well as to public enterprises, foundations
and any form of institution with some level of control, directly or indirectly, by the government.
While government procurement was defined to consist of acquisition of goods and services by
purchase,  concessions implied the delegation to a private entity of the right to supply a services.  The
representative of Venezuela added that the situation in his country was similar.  Concessions and
government procurement were different concepts regulated by separate legislations; the discussion ofconcessions might be of didactic value, but could not be part of negotiations on governmentprocurement.  In relation to the typology proposed by the delegation of Japan, he said that transactions
pertaining to the exploitation of natural resources related to goods and not services.  In Venezuela,
such transactions did not involve any payment by the government; however, the government was
entitled to collect taxes and royalties.  In the ab sence of government procurement, there was no basis
to apply GATS disciplines.  Referring to contracts for constructing and managing industrial sites orpublic facilities, he noted that the financial responsibility laid with the users of the service and not the
government.  The third type of transaction, involving government purchase of services, could be
considered government procurement rather than a concession.  Concessions involved transactions in
which an exclusive competence of the government was delegated to a private entity, but the rights or
resources involved continued to belong to the government.  He reiterated previous requests for moreinformation on Build, Operate and Transfer contracts.
27. The representative of Hong Kong, China, would prefer a working definition of government
procurement which would minimize the exclusion of  transactions from GATS disciplines; such a
definition should include cases in which the government did not consume directly the service.
Regarding the distinction between concessions and go vernment procurement, he felt that the criterion
of financial responsibility was appropriate; if the government did not pay, a transaction could not be
considered government procurement per se .  Thus, concessions in the form of licenses and franchises
would not fall under any government procurement rules.  According to the  representative of
Thailand, the discussion should focus on defining government procurement as referred to in
Article XIII.  In Thailand the legal situation was clear.  Relevant laws distinguished between
concessions and government procurement; concessions were services supplied in the exercise of
governmental authority.  Contracts concerning the exploitation of natural resources were
investment-related, and not particularly relevant for a discussion under Article XIII.
28. The representative of Mexico felt that the analysis of S/WPGR/W/29 should be continued.
The Working Party had not considered all relevant definitional issues at that stage, and no
authoritative interpretation of the term existed.  Although her delegation was still considering the
issues involved, she observed that one of the fund amental characteristics of government procurement
was the financial responsibility by the government.  Concessions involved the granting to the
concessionaire of a right to exploit resources or exercise other prerogatives of the government.  Any
purchases by the concessionaire would constitute private acquisitions, which could not be covered by
government procurement disciplines.  She also echoed the request for information on Build, Operate
and Transfer contracts.
29. The representative of the United States felt that the typology proposed by the delegation of
Japan constituted a good starting-point for developing a working definition.  The representative of
Japan noted that the purpose of current discussions was to define government procurement, not
concessions.  His delegation considered the criterion of financial responsibility as relevant.  RegardingS/WPGR/M/22
Page 7
contracts for exploitation of natural resources, he  considered that the resources themselves were
goods, but the exploitation activity was a service; for instance, energy services were included in the
Services Sectoral Classification List (MTN.GNS/W/120).
30. The representative of Canada concurred that the discussion should focus on determining what
was included in the concept of government procurement; concessions were a secondary issue.  In
defining government procurement, a wider range of factors needed to be considered.  These includedownership, government control and the relevance of existing disciplines under the TRIMS.  The
representative of the European Communities referred to a Draft Interpretative Document on treatment
of concessions under Community Law (O.J. C94 of 7.4.99).  It included definitional elements whichmight be useful for the work of the Working Party such as level of exploitation, ownership, financial
responsibility, etc.  She felt it might be necessary to use a case-by-case approach in the determination
of government procurement.  The paper on conces sions mentioned at the previous meeting had some
factors that could be used in the work on definition, for example, level of exploitation, ownership,financial responsibility, etc. Regarding concessions, it was clear from the discussion that not all
countries used such a concept.
31. In summing up, the Chairman observed that delegations felt the need to intensify work on a
definition of government procurement; for that purpos e, various routes were being contemplated.  The
criterion of financial responsibility was generally found relevant.  The issues raised by the delegationof Australia were considered useful as well; in general, the concept of government use was perceived
to be narrower than that of government purpose.  He stressed the importance of submitting
contributions in writing as a basis for further discussion.
ITEM D: DATE OF THE NEXT MEETING
32. The Chairman suggested holding the next formal meeting on Monday, 21 June 1999.  The
Working Party agreed.
ITEM E: OTHER BUSINESS
33. No matters were raised under this agenda item.
__________