RESTRICTEDWORLD TRADE
ORGANIZATIONS/WPGR/M/19
21 January 1999
(99-0216)
Working Party on GATS Rules
REPORT OF THE MEETING OF 1 DECEMBER 1998
Note by the Secretariat
1. The nineteenth meeting of the Working Party on GATS Rules was chaired by Mr. Harald
Fries of Sweden.  The agenda of the meeting wa s contained in WTO/AIR/980.  It consisted of six
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;
report on the activities of the Working Party to the Council for Trade in Services;  date of the nextmeeting of the Working Party;  and other business.
ITEM A: NEGOTIATIONS ON SAFEGUARDS UNDER ARTICLE X OF THE GATS
2. The Chairman recalled that the Secretariat had been asked to produce a paper which had been
circulated as S/WPGR/W/27.  The paper considered, first, alternative forms that a safeguard
mechanism under the GATS might take, based on Members' suggestions.  It then elaborated on the listof issues submitted by Venezuela (Job No. 5412, dated 14 October 1998), drawing upon views
expressed by delegations and the precedents in Article XIX of GATT 1994 and the Agreement on
Safeguards.  In structuring the discussion, he suggested that Members address the two parts of the
paper separately.
Alternative forms of a safeguard mechanism
3. Several delegations emphasized the need to thoroughly examine the applicability of the
different forms of safeguard mechanisms which had been identified in the Secretariat's note.  Therepresentatives of the European Communities and Mexico noted that the specificities of services trade
had to be taken into account.  The representative of Brazil stressed that one basic rationale of a
safeguard mechanism was to serve as a remedy in the event of unforeseen developments.  Therepresentatives of Australia and the European Communities
 expressed support for an approach similar
to that used in the Safeguards Agreement, under which all domestic firms, regardless of ownership,
received the same treatment. The representative of Thailand added that a desirable mechanism could
incorporate quantitative criteria as well as procedural restraints. The representative of Egypt indicated
that any safeguard mechanism should combine elements contained in Article XIX of GATT 1994,
Article 5 of the Agreement on Agriculture, and Article 6 of the Agreement on Textiles and Clothing.
4. The representative of Japan expressed reservations about the possibility of including sector-
specific safeguard mechanisms in individual schedules.  In his view, this might allow for excessive
flexibility and could lead to instability in existing commitments.  Such an approach could be
improved, however, if it were combined with some form of common guidelines. The representative of
Mexico added that the idea of sector-specific safeguard mechanisms was interesting for discussion,
but could lead to fragmentation in the system.  She thus felt that a horizontal or general safeguard
mechanism was more appropriate. The representative of Hong Kong, China concurred.  According to
the representative of Hong Kong, China different types of emergency safeguard measures couldS/WPGR/M/19
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render the interpretation of schedules extremely difficult.  In light of statistical problems, it might be
necessary to apply a horizontal mechanism to certain sectors initially and extend it to others when
statistics became available. The representative of Poland and Norway  indicated their preference for a
sector-specific approach. The latter recognized, however, potential negative implications fortransparency as compared to a general safeguard provision. The representative of the European
Communities noted that a sector-specific approach might be able to respond to specific requirements
of individual service sectors.  However, the Working Party had not had sufficient discussions to drawany conclusion at that stage. The representative of the United States agreed that additional work was
needed on this approach before decisions could be made.  The ability to invoke safeguards woulddepend on specific criteria associated with the characteristics of a sector.  Perhaps no injury
determination should be required since such a determination could not be based on sufficient
empirical information.
5. In relation to Article 5 of the Agreement on Agriculture, the representative of the United
States expressed doubts about its applicability to services.  The policy background was very different
in agriculture and while there was no injury requirement, invocation of the Article relied on a
considerable amount of empirical information which was lacking in the case of services. The
representative of Canada also noted that though an injury criterion was absent, rigorous data
requirements had to be fulfilled in order to trigger the mechanism.  These included information on the
volume of imports and domestic consumption of the product in question and its import price.  Also,
the data had to be available for a series of consecutive years in order to set the trigger price levels.  It
was doubtful whether such data requirements could be met in services trade. The representative of
Japan voiced similar concerns. The representative of Venezuela  added that one interesting element of
the mechanism was that it allowed for a continued degree of market access.
6. Referring to Article 6 of the Agreement on Textiles and Clothing, the representative of the
United States noted similarities with Article XIX of GATT 1994 and, in consequence, similar data
requirements.  However, developments in the textiles sector were captured by excellent statistics,which was not the case in services.  The representative of Canada drew the attention of the Working
Party to the fact that this mechanism could be invoked in a selective manner, based on criteria such as
serious damage.  Such an approach would be difficult to apply to services trade.  The representative of
Japan voiced concerns regarding the non-MFN basis of this mechanism but regarded as positive that
the burden of proof was placed on the country imposing safeguards.  The representative of Venezuela
recommended another element in the safeguard mechanism of the textiles agreement for closer
consideration, namely the special treatment foreseen for small exporting countries and least developed
countries.
Definition and scope of safeguards in services
7. The representatives of Australia and the European Communities  said that safeguard measures
should be applied by the Members themselves, whether via government regulation or delegated
powers.  From the Communities' point of view, it wa s important in the latter case, that the delegation
of power was clear and compliance with the relevant conditions ensured.  For instance, if aprofessional association was to be involved, it would need to follow the same steps as any government
agency in applying safeguard measures.
8. The representative of Australia expressed support for an approach modelled on the
Agreement on Safeguards where any action is to be taken on behalf of a domestic industry.  In turn,
the concept of domestic industry was defined to cover the producers as a whole of like or directlycompetitive products operating within the territory of a Member. The representative of Hong Kong,
China said that, in principle, any measure should apply only to new entrants, not to pre-existing
enterprises, and irrespective of nationality.  The representative of Japan was also sceptical whether a
distinction could, or should be made.  He noted the importance of defining imports clearly.  TheS/WPGR/M/19
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representative of Brazil felt that no distinction should be made between national and foreign own
investment, and action should affect only new entrants.   The representative of Canada remarked that
the use of nationality criteria could have the effect of expropriating foreign investors.  In turn, this
could affect investment in foreign jurisdictions.
9. The representative of Australia saw the possibility of a conflict between the protection of
acquired rights of locally established foreign firms and the MFN principle.  Safeguards should not
consist of measures which forced disinvestment or undermined the MFN obligation. The
representative of the United States noted the importance both of protecting the status of established
suppliers and of respecting the MFN principle.  In  his view, the real question was what purpose could
be served by a safeguard measure which applied to mode 3.  The issue of acquired rights would need
to be discussed extensively. The representative of Venezuela stressed the policy interest in
guaranteeing investment and ensuring predictability.
10. Discussing sectoral coverage, the representative of Australia proposed focusing on areas
where adequate statistics were available.  However, this was a difficult issue, given the general lack of
data.  With regard to modal coverage she preferred a safeguard mechanism applicable to individual
modes only.  While it could be argued that foreign suppliers might then focus on unrestricted modes,
this possibility should not be overestimated, given the costs involved in switching between modes.However, her delegation could also support an approach which allowed for broader implementation,
provided this was based on a case-by-case assessment.  The representative of Brazil felt that it was
important to take into account the objectives of a safeguard, e.g. protection of employment orinvestment.  The labour intensity of many services was an important argument in favour of a
safeguard mechanism.  While not yet convinced of the necessity of a safeguard mechanism, therepresentative of the European Communities expressed preference for a horizontal approach which
was more transparent.  The current lack of information in many industries about the functioning of theGATS would be compounded by new sector-specific rules.  She also saw no need to distinguish
between modes for the purpose of safeguard actions. The representative of Egypt favoured a
mechanism which covered all services and all modes of supply without deterring investment.
Situations justifying the application.  Type of injury
11. The representative of the European Communities noted that the Members arguing in favour of
safeguards had failed so far to give compelling examples of situations calling for emergency
protection.  However, it was essential that such exam ples be discussed.  The representative of Canada
reiterated that the state of statistics in the services area rendered the concept of serious injury to
domestic industry irrelevant.  In the goods context, a safeguard could be applied to imported products
that were traded fairly, i.e. not dumped or subsidised, with a view to preventing economic
displacement in the domestic market.  Thus, it was essential to apply the most stringent injury
standards which, in turn, needed to rely on precise information on the financial status of individual
firms in the industry concerned. The representative of Australia felt that the Agreement on Safeguards
could provide a model for circumstances in which such measures could be invoked in services;however, statistical deficiencies posed problems for the establishment of injury.  It would also be
necessary to ensure that wider public interest considerations would be taken into account in any
investigation.  For example, this included the inte rest of industries relying on the service in question
as an input.  The representative of Japan felt that the concept of public interest was vague and could
create unnecessary uncertainty.  The representative of Thailand, on behalf of ASEAN, pointed out that
the Agreement on Textiles and Clothing contained provisions on the attribution of damage whichshould be taken into account;  the burden of proof rested with the invoking Member.S/WPGR/M/19
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Temporary or provisional measures
12. The representative of Canada observed that in the goods context safeguards were intended to
allow a domestic industry to adjust to foreign competition during a limited transition period.  The
Working Party should consider what circumstances should be addressed by a safeguard in the services
context and whether a principle of adjustment was al so appropriate.  The representative of Australia
felt that Article 7 of the Agreement on Safeguards could provide a model.  However, given the lack of
statistics, she had reservations with regard to provisional safeguard measures.  For the European
Communities the temporary nature of the measure followed from its purpose to address an emergency
situation.  Permanent relief could be sought under other GATS provisions.  Members needed to
consider the length of an appropriate period and the remedies available if the emergency situation
persisted after the period had elapsed.  For instance, should there be a requirement to invoke
Article XXI in such cases?
Applicable procedures.  Investigation of injury
13. The representative of Canada wondered what kind of information would be used for the
investigation.  Reference had been made to income tax and VAT declarations; however, such
information was protected in Canada, and possibly in other countries, under privacy laws.  The
representative of Venezuela noted that it was for the affected industry to supply the relevant
information corroborating the existence of injury.  The representative of Australia suggested that
Article 3 of the Agreement on Safeguards could serve as basis for further discussion.  Hong Kong,
China, also felt that elements of this Agreement could be used in the services context.
Applicable measures.  National Treatment and non-discrimination principles
14. The representative of Canada was sceptical whether safeguard actions involving temporary
suspensions of market access or national treatment could ever be enforced, particularly in relation to
Modes 1 and 2. For example, services provided electr onically would be difficult to identify, monitor
and restrict.  The representative of Australia noted that while safeguard actions would involve the
suspension of market access and national treatment commitments, it was doubtful whether theyshould affect additional commitments under Article XVIII.  She felt that such actions should beavailable as protection against unforeseeable injury related to the scheduling of liberalizing
commitments.  However, her delegation was mindful of the conceptual problems involved, including
the definition of unforeseen developments, and the relevant timeframe.  The representative of the
European Communities reiterated the MFN requirement contained in Article X of the GATS.
Regarding foreign exchange restrictions, the representative of Japan reminded delegations of the
relevant provisions of Article XI of the GATS.  The representative of Egypt noted that a provisional
suspension of market access and national treatment, on an MFN basis, should be acceptable.
Transparency and notifications
15. The representative of the European Comm unities recognized the importance of such
obligations.  The representative of Australia stressed  the need for similar standards as in the area of
goods.
Special and differential treatment
16. The representative of Australia, recognizing the importance of special and differential
treatment, felt it premature to discuss details at that stage.  The representative of the European
Communities observed that there were already relevant provisions within the GATS, their extension
to safeguard situations might need to be addressed case-by-case.  Account could be taken, for exampleS/WPGR/M/19
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of different levels of development within an industry.  The representative of Egypt stressed the
importance of the principle of special and differential treatment for developing countries.
Summary observations
17. The Chairman noted that many delegations were prepared to consider the option of a sector
specific safeguard mechanism.  However, its application should be based on general rules.  While the
mechanism provided for under the Agreement on Agri culture had very heavy statistical requirements;
its counterpart in the textiles area was at odds with the MFN principle.  There seemed to be agreement
that only Member governments or officially mandated bodies should be entitled to take safeguard
measures.  While many delegations had indicated that there should be no distinction between
domestic and national suppliers, views expressed in pr evious meetings suggested that this issue might
require more discussion.  The same applied to the concept of acquired rights, although there seemed
to be agreement that existing investments should be protected.  More discussion was also needed tospecify circumstances justifying the application of measures and the relevant injury criteria.
18. The Working Party decided to continue the discussion of the Secretariat Note at the next
meeting.  The representative of Thailand emphasised the importance of producing concrete results -
e.g. draft safeguard rules by the June 1999 deadline.  The representative of Egypt reiterated that as a
next step the Secretariat should prepare a draft agreement, based on views expressed by Members.The discussion of the current Secretariat Note would not advance the work of the Working Party.
ITEM B:   NEGOTIATIONS ON SUBSIDIES UNDER ARTICLE XV OF THE GATS
19. The Chairman recalled that at the previous meeting, some delegations had suggested a
discussion of the two issues identified in the Ch airman's Note (Job No. 5169, dated 22 September
1998).  This could help to clarify the precise scope of existing GATS disciplines in the area ofsubsidies and identify circumstances of trade distortion, if any, which were not satisfactorily covered
at present.  The two issues related to subsidy programmes which had (a) an "import-substituting"
effect, or (b) an "export-enhancing" effect.
20. The representative of Argentina agreed with the assessment made by the Secretariat in
paragraph 39 of document S/WPGR/W/9, ("... while the national treatment obligation does not impose
any restraint on the level of subsidies that may be granted by Members, it is nevertheless a potentially
powerful discipline with respect to the non-discriminatory use of subsidies. But realization of this
potential depends, first of all, on the extent to which Members schedule commitments free of national
treatment limitations relating to subsidies, and secondly, on whether the national treatment obligation
is interpreted to extend across modes of supply .") The clarification given in the Scheduling Guidelines
(document MTN/GNS/W/164), exempting Member s from adopting measures outside territorial
jurisdiction, implied that there was no obligation under Article XVII to extend subsidies to supplierslocated abroad.  However, the Scheduling Guidelines referred exclusively to the treatment of suppliers
and not of services, although both were covered by the GATS.  Argentina felt that the obligation of
national treatment applied to all services provided in the territory of a Member, regardless of theirsource or mode of supply.  The limitations scheduled with regard to subsidies compiled in document
S/WPGR/W/13, suggested that other Members shared  this interpretation; otherwise they would not
have exempted subsidies from national treatment under Modes 1 and 2
21. Regarding import-substituting subsidies effects, it was useful to distinguish between services
of national and of domestic origin.  If with regard to Mode 3 only national suppliers benefitted from
subsidies and not the suppliers of other Members - although located on the territory of the subsidy
granting Member, this would amount to a clear violation of national treatment.  By contrast, if thesubsidies benefitted all domestically produced services regardless the origin of the supplier, they
would not normally violate national treatment under Mode 3. However, Mode 3 might expand to theS/WPGR/M/19
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detriment of trade under other Modes.  Structured th at way, subsidies such as investment incentives,
which were subject to the national treatment obligation with regard to Mode 3, might need to be
assessed in a wider context.
22. Regarding subsidies with export-enhancing effects, their importance in practice would depend
upon the predominant mode through which a service was provided.  The representative of Argentina
doubted, however, whether services subsidization was essentially designed to promote exports.
Nevertheless, it was conceivable that investment or localization incentives promoted production not
only for domestic consumption, but also for consumption by foreigners.  A case in point were services
which could be delivered electronically.  However, as in other service areas, lack of information
affected further exploration of this issue seriously.
23. The representative of Venezuela stressed the need for further clarifications of the scope of the
work under Article XV.  She proposed that an informal meeting or a brainstorming session be held to
clarify matters.  The proposal received some support and it was agreed to revert to it at a future
meeting.
ITEM C: NEGOTIATIONS ON GOVERNMENT PROCUREMENT UNDER ARTICLE XIII
OF THE GATS
24. The Chairman recalled that the previous meeting had been devoted to discussing the scope
and coverage of government procurement of services.  He felt that the time had come to aim at
reaching conclusions and, where necessary, identifying key issues for further consideration.  The
discussion could then move on to the second item in the work programme, i.e. the application of the
basic discipline of non-discrimination to services procurement.  The discussion could be divided into
three parts, based on the three questions raised in  the Non-Paper from the European Communities and
their Member States (dated 13 February 1998).  In the context of the first question regarding what
transactions constitute procurement,  delegations had recognized that more information was needed on
how concessions were defined and treated within national legislations.  In response to the
Questionnaire on Government Procurement of Services detailed information on concessions has been
provided only by Argentina and Costa Rica.  Concessions had also been mentioned in the responses ofColombia; Hong Kong, China; and Poland.
25. The representative of Argentina stressed that more information was necessary to understand
what was meant by concessions.  It was important in this context not to focus on definitions of
transactions between the State and private suppliers since these could vary among legislations.  Focus
should rather be on the economic nature of the transactions.  Procurement contracts had to do with
public entities and covered what could be called public services.  While the State was responsible for
their provision, different procedures existed: the State could use its own resources and personnel orcontract a third party to carry out the work.  In the latter case, the contractual relationship could be of
limited duration and involves only the State and an enterprise which carried out the work and was
paid by the State.  The other option consisted of a continuous contractual relationship with the
supplier which also involved the user of service,  who in a way contributed to the payment.  This
option had to do with public works and public service concessions, where the state allowed a privateparty to supply a service to the public without ceding its competence, and where the supplier normally
received a payment from the individual user.  The relevant price might be determined and/or
subsidized by the State.  Such transactions would not include concessions related to the exploitation
of natural deposit, e.g. mines, which would not be covered by the GATS.
26. The representative of Canada said that the EU paper suggested that the transaction for the
service itself (as distinguished from the buying or hiring of the service) did not appear to be covered
by the Agreement on Government Procurement.  The paper suggested that such transactions were not
to the benefit or use of the government and thus would also not be covered by the current GATSS/WPGR/M/19
Page 7
Article XIII definition of services.  The actual mean ing of the critical phrase in the EU paper: the
transaction for the service itself is not clear.  An elaboration of some examples may be useful.  Would
for example a contract providing a license to a private sector contractor to distribute government
procurement data on an electronic tendering service and generate revenue from purchasers of the data,
be considered to fit within the transaction for the service itself and, if so, on what basis would it notmeet the definitions of a procurement in the AGP and GATS Article XIII?  On how to proceed with
the work, he suggested requesting the Secretariat to prepare a note listing the types of policies that are
applied to government procurement and may not be  consistent with non-discrimination, both MFN
and national treatment, with a brief explanation of each.
27. The Chairman noted that definitions of concessions varied and that it would be helpful to
have brief descriptions of how concessions were tr eated in domestic legislation provided by Members.
On the Canadian proposal, he recalled that various documents had such information, namelyS/WPGR/W/3, section 9 of the document S/WPGR /W/20 and the submission from New Zealand (Job.
5446 dated 30 September 1997).  He also recalled the other two questions posed in the European
Communities submission, i.e. who was the procuring entity and what was being procured had still to
be discussed.  He suggested continuing discussion in the following meeting on scope and definition,
and addressing the two remaining questions in this context.
ITEM D: REPORT ON THE ACTIVITIES OF THE WORKING PARTY TO THE COUNCIL
FOR TRADE IN SERVICES
28. The Chairman noted that the draft report of the Working Party to the Council for Trade in
Services had been circulated as S/WPGR/W/28.  The report was essentially factual in nature.  The
Working Party adopted the report with a modification suggested by the representative of  Thailand, on
behalf of ASEAN.
ITEM E: DATE OF THE NEXT MEETING
29. The Chairman suggested holding the next formal meeting on Friday, 26 February 1999.  The
Working Party agreed.
ITEM F: OTHER BUSINESS
30. No matters were raised under this agenda item.
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