. /. RESTRICTED  WORLD TRADE  
ORGANIZATION  TN/S/W/53 
30 September 2005 
 
 (05-4327) 
Council for Trade in Services 
Special Session  Original:   English 
 
 
COMMUNICATION FROM AUSTRALIA, CANADA, EUROPEAN COMMUNITIES, HONG 
KONG CHINA, JAPAN, NEW ZEALAND, NORWAY, REPUBLIC OF KOREA, 
SWITZERLAND, THE SEPARATE CUSTOMS TERRITORY  
OF TAIWAN, PENGHU, KINMEN AND MATSU AND THE UNITED STATES 
 
The importance of Mode 3 commitments  
   The following communication, dated 29 September 2005, from the delegations of Australia 
Canada, European Communities, Hong Kong China,  Japan, New Zealand, Norway, Republic of 
Korea, Switzerland, the Separate Customs Territo ry of Taiwan, Penghu, Kinmen and Matsu and the 
United States, is being circulated to the Me mbers of the Council for Trade in Services. 
 
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1. It is estimated that between one half and two thirds of world trade in services takes place 
through commercial presence (Mode 3). Whereas all modes of supply are important, the particular significance of Mode 3 should therefore be recognised.  
2. As highlighted by many delegations in recent meetings, UNCTAD, in its 2004 World 
Investment Report, observes the remarkable and cont inuing shift in the composition of foreign direct 
investment (FDI) from goods to services. Specifically, the following findings from UNCTAD’s World Investment Report, all of which are particular ly relevant for developing countries, merit being 
highlighted: 
- FDI in services can bring capital, skills and technology into a country. 
- FDI can help link countries to gl obal value chains in services. 
- Developing countries have an offensive in terest in FDI.  Their outward FDI 
in services began to grow visibly from the 1990s and their share in the global outward FDI services stock climbed from 1% in 1990 to 10% in 2002, faster than in other sectors. 
- FDI in services can improve export competitiveness, as many services serve 
as inputs into other sectors, including export sectors (both goods and 
services). 
- The benefits are more likely to be realised if the conditions are right, 
including in terms of appropriate re gulatory structures and contribution to 
competition. 
3. In spite of the benefits of opening up the services sector to commercial presence of foreign 
service suppliers, the supply of services often tends to  be subject to significantly more restrictions TN/S/W/53 
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than other sectors of the economy. While rec ognising WTO members’ right to regulate, overly 
burdensome regulations can stifle business activity  and prevent countries from taking full advantage 
of the benefits of opening up their economy. 
4. Most WTO members have long realised that  the commercial presence of foreign service 
providers, and the foreign direct investment such commercial presence generates, can create a stable 
source of external financing, driv e economic growth and generate em ployment. This is reflected in 
many members’ efforts in improving the investme nt climate and promoting commercial presence of 
foreign service suppliers. In addition, research has shown that there is a positive relationship between 
mode 3 liberalization and the growth of services delivered through mode 4 and mode 1, business 
process outsourcing for instance. 
5. An important component in improving the inv estment climate is the establishment of a 
reliable and transparent framework of rules govern ing the establishment of foreign service providers. 
The GATS provides the ideal vehicle for signalling to foreign investors that a WTO member is 
serious in its efforts at establishing and maintain ing a favourable climate for the commercial presence 
of foreign service providers. 
6. The co-sponsors urge WTO members to review  their existing Mode 3 commitments, and 
consider how these commitments could be improved with a view toward enhancing the investment 
climate and attracting higher levels of co mmercial presence of foreign service providers. 
7. Specifically, it would be desirable that commitments in Mode 3 include, in principle, the right 
to establish new and acquire existing companies, a nd the right to choose the form of establishment, 
whether in the form of wholly-owned subsidiaries,  joint ventures or branches, as well as the right to 
acquire real estate connected with the establishment of a commercial presence.  
8. Finally, it is also important to ensure that commitments undertaken provide an appropriate 
level of legal certainty. That can be achieved for instance by removing or at least narrowing wide ranging and unspecified economic needs tests and horizontal limitations. More generally, the co-
sponsors urge WTO Members to improve the clarity of their commitments notably by using the 
scheduling guidelines as a basis.  
 
 
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