WORLD TRADE  
ORGANIZATION  TN/S/W/36 
22 February 2005 
 (05-0745) 
Council for Trade in Services  
Special Session Original:   English 
 
 
 
COMMUNICATION FROM CANADA  
 
Working to Ensure Benefits from the GATS for Members'  
Small and Medium Sized Enterprises (SMEs)  
 
  The following communication, dated 22 Februa ry 2005, from the delegation of Canada is 
being circulated to the Members of the Council for Trade in Services.  
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I. INTRODUCTION  
1. Small and medium enterprises (SMEs) play a crucial role in the domestic economies of all 
WTO Members.  They are often disproportionately affected by barriers to trade.  A strong outcome in 
the services negotiations that will encourage an d fa cilitate SME participation in services trade is a 
priority for Canada.  Canada's bilateral discussions  on the subject have confirmed that this is an 
objective that is strongly shared by other WTO Members, developing country Members in particular. 
2. As WTO Members prepare their revised services offers, and as the services request-offer 
process intensifies over the coming year, we encour age WTO Members to give consideration to the 
GATS-related needs of SMEs – consideration that  reflects their important, but often unrecognized 
contribution to our domestic and coll ective growth and prosperity.   
II. IMPORTANCE OF SMEs 
3. Small and medium enterprises are the driving force of both developing and highly 
industrialized economies.  They are the primary s ource of innovation, growth and new employment.  
In Canada, SMEs contribute 43 per cent of Canada's  private sector GDP, employ 6 in 10 Canadians, 
and have created 80 per cent of new jobs annually over the past 21 years.  In Canada, the vast 
majority of services firms (86 per cent) are small enterprises employing fewer than 50 people.  In Organisation for Economic Coopera tion and Development (OECD) c ountries, SMEs make up over 
95 per cent of enterprises, a large number of which are services firms.   In OECD countries, SMEs 
account for 60 – 70 per cent of employment, and are responsible for over 90 per cent of new job 
creation.  Worldwide, the importance of SMEs is even more pronounced.  A recent UNCTAD study 
found that SMEs usually comprise about 99 pe r cent of all enterprises worldwide, account for 
50 per cent of manufacturing output, from 44 – 70 per cent of employment, and play an especially important role in new job creation.   
III. SME PARTICIPATION IN SERVICES TRADE 
4. Given their contribution to economic growth an d development, SMEs have generally been 
considered under-represented in world trade.  Recent  research suggests, however, that SMEs are much TN/S/W/36 
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 more active in services trade than was previously th ought.  In Canada for example, a recent study by 
Industry Canada's Small Business Policy Branch rev eals that 85 per cent of Canadian exporters are 
small businesses (fewer than 100 employees).  Canadian SMEs are also indirectly involved in services 
trade in industries such as storage, transportati on, finance, communications, and a myriad of other 
activities that are essential to trade.   A recent survey by the Canadian Federation of Independent 
Business found that the majority of Canadian SMEs strongly favour trade liberalization. 
5. Worldwide, a recent OECD study found that SM Es also predominate in services related to 
computer software and information processing, research and development, marketing, business 
organization and human resource development.  Furthermore, SME market share in these sectors has been growing due to the global growth in outsourci ng and the advent of new technologies.  Advances 
in technology will continue to increase SMEs glob al reach.  Now is an opportune time to consider 
what WTO Members can do in the GATS negotiations to help services SMEs access international markets. 
IV. BARRIERS TO SME PARTICIPATION IN SERVICES TRADE 
6. Many of the problems faced by SMEs have been previously raised in the GATS context.  For 
instance, in communications from Canada in March 2001 (S/CSS/W/49) the United States in 
October 2002 (TN/S/W/5), and from Mauritius in October 2002 (TN/S/W/8).  SMEs face cost 
disadvantages compared to larger enterprises in accessing the finance, information and technology 
necessary to tap into new markets.  Furthermor e, discriminatory, non-transparent regulatory 
environments create market access barriers for firms of any size, but often have a disproportionate 
affect on SMEs.  Due to financial and human resour ce constraints, smaller enterprises find it relatively 
more costly than larger firms to "jump over" these regulatory hurdles to enter into new markets, and 
sustain their activities there.  A recent OECD study, submitted at the June, 2004 Istanbul Ministerial 
Conference on Small and Medium Enterprises, found that the complexity and differences in the 
regulatory systems and business environment betwee n countries is a major factor impeding SMEs 
contribution to the global economy.  Reducing the time and financial expe nse that SMEs spend 
navigating regulatory environments is one of the most important outcomes the GATS negotiations can 
provide for SMEs. 
7. We must keep in mind that some of the determin ants of SMEs higher costs relative to larger 
enterprises, such as inadequate  access to low-cost financing
1, reduced ability to capture gains from 
vertical integration and economies of scale and sc ope, and smaller domestic markets for their goods 
and services are domestic policy challenges that cannot  be directly addressed within the scope of the 
GATS.  There are, however, practical, concrete ways that GATS rules and commitments can reduce 
the costs of SMEs' trade in services. 
V. MAXIMIZING THE BENEFITS THE GATS DELIVERS TO SMEs 
8. WTO Members can create a more supportive environment for SME service exporters by 
giving consideration to the specific needs of  SMEs during the GATS request offer process: 
1) Members should work towards an ambitious out come in sectors where the greatest export 
potential for services SMEs lies, such as computer and related services, research and development, marketing and various business services.   
 
2) Members must also work towards an ambitious  outcome in key infrastructure services.  
Access to low cost infrastructure services he lps SMEs remain competitive.  Mauritius' 
paper on small economies (TN/S/W/8) outlines so me of the difficulties that SMEs have, 
                                                     
 
1 Research has demonstrated that this  is not the case for all countries.  TN/S/W/36 
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 in small economies in particular, accessing co re services such as transport, financial and 
telecommunications services at competitive rates.   
 
3) From a modal perspective, research suggest s that modes 1 and 4 are the most cost-
effective modes of delivery for SMEs.  As Chile, India and Mexico pointed out in their 
June 2004 communication on mode 1 liberaliza tion [JOB(04)/87], the computerization of 
services, the rapid increase in telecommunica tions capacity and the steep decline in 
telecommunications prices makes it possible to  transmit services across countries at lower 
costs.  As the communication pointed out, this  cost-advantage is particularly important for 
SMEs.  Additional commitments on mode 1 w ould help SMEs take advantage of new 
technologies.  The planned 2005 Symposium on Cross-Border Supply of Services is a 
welcome step in this direction. 
 
Generally, WTO Members have made m ode 4 commitments on intra-corporate 
transferees (not necessarily for all categories), a fewer number of commitments for 
business visitors, and only a small number of  commitments for professionals, most of 
which are linked to commercial presence.  SMEs would benefit from additional commitments by Members on business visitors, contract service suppliers and independent professionals.  Current mode 4 horizontal commitments may be undermined 
by various limitations for economic need s tests (ENTs), and non-transparent and 
discriminatory requirements tied to licensing and certification requirements.  SMEs 
would also benefit from greater transparency in mode 4 commitments.  
 
Inter-modal linkages, in particular mode 3 li nkages are also worthy of consideration.  A 
2004 OECD study found that Foreign Direct Investment is an important vehicle by which SMEs access international markets.  FDI also fosters inclusion of SMEs in international 
supply chains, as many SMEs are domestic s uppliers of intermediary inputs to products 
exported by larger firms. 
 
4) WTO Members must also work towards the e limination of specific regulatory "measures" 
that are particularly problematic for SMEs.  Regulations that require that services be supplied through commercial presence  or through local partnership are some of the most 
visible measures that discriminate against SMEs.  These types of requirements force 
substitution across modes, limiting market acce ss to smaller firms to whom commercial 
presence is not financially feasible.  Other restrictions listed in Members' GATS schedules that may disproportionately affect ser vices SMEs include taxes that are specific 
to foreign service suppliers, restrictions on remittances, capital transfers and currency 
conversion, residency and nationality require ments, registration requirements and fees 
that are specific to foreign companies,  and technology transfer requirements. 
 5) Finally, WTO Members must work to ensure that the GATS plays its part in fostering a 
simple, transparent and stable regulatory environment.  SMEs do not have as many 
resources at their disposal to navigate co mplicated regulatory environments.  Members 
should work to promote regulatory transparency within country schedules, by clearly and 
unambiguously listing market access and national treatment restrictions.  Members should also work towards making information rega rding domestic regulatory frameworks as 
inexpensive, accessible and up-to-date as possible.   Canada's March 2001 initial 
negotiating proposal on regulatory transparency and predictability (S/CSS/W/47) outlined 
the key transparency elements of the Governme nt of Canada's Regulatory Policy.  Canada 
encourages an exploration of current best practices to determine where existing GATS 
transparency provisions can be enhanced so  as to promote more transparent regulatory 
practices.   
 TN/S/W/36 
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 VI. CONCLUSIONS 
9. SMEs are the base for a strong, dynamic econo my.  Technological changes (internet-based 
electronic commerce in particular) will continue to increase SMEs' ability to compete internationally.  
As we move into a more refined stage in the re quest-offer process, and as the negotiations intensify 
leading up to the Hong Kong Ministerial Conference,  Canada encourages WTO Members to consider 
ways in which regulatory measures that unnecessarily constrain the global reach of services SMEs can 
be eliminated.  Furthermore, Canada hopes this  communication will stimulate constructive dialogue 
as to other steps that can be taken within the GATS context to promote a more transparent, facilitative 
regulatory environment for services SMEs.   
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