WORLD TRADE  
ORGANIZATION   
WT/REG236/2 
22 June 2011  
 
(11-3075) 
Committee on Regional Trade Agreements  Original:   English 
  
 
FREE TRADE AGREEMENT BETWEEN THE EUROPEAN UNION  
AND MONTENEGRO (GOODS AND SERVICES) 
 
Questions and Replies 
 
 
 The following communication, dated 20 June 2011,  is being circulated at the request of the 
delegations of the European Union and Montenegro.  
_______________ 
 
 This document reproduces the questions addressed to the Parties and the responses submitted.  
Questions from the Delegation of Japan 
1. Paragraph 82 indicates that this Agreement does not follow either a typical "negative" 
nor "positive" approach.  In the case of that, how do the EU and Montenegro commit 
liberalization on trade in services? 
 The Stabilisation and Association agreements ar e part of the EU Stabilisation and Association 
Process (SAP).  These agreements are designed to pr epare the country concerned to accede to the EU 
and its internal market and are therefore based on the EU's acquis communautaire.  
 Liberalization in trade in services is achieved as follows: 
  - Chapter II of Title V provides for uncon ditional national treatment on establishment. 
 This equates to a full commitment for mode 3 in all sectors covered by the  Agreement.  
 
 - Title V also provides for access in m ode 4 (ICT) and the elimination of any 
 discrimination for workers.  
  - With regards to cross border trade, th e Agreement provides for a transitional period 
 of four years from entry into force af ter which the Stabilisation and Association 
 Council is to take measures to progr essively provide for cross border trade 
 liberalization.  The measures to be taken must consider the progress made by the  SAA country in adapting its national legislation to the EU's acquis communautaire.   This is checked by the Commission servi ces on a regular basis, in cooperation with 
 Montenegro, and it is assessed in annual progress reports. 
 2. While Paragraph 85 indicates that this Agre ement does not stipulate explicitly market 
access limitation as seen in the provisions of GATS  Article XVI, how can this Agreement ensure 
the market access of service suppliers of the Parties? 
 Please refer to reply to Question 1. WT/REG236/2 
Page 2  
 
  Questions from the Delegation of the United States 
Provisions on Trade in Services 
 
3. Paragraph 80 of the Factual Presentation no tes that the services-related provisions of 
the Agreement do not apply to activities that  "are connected, even occasionally, with the 
exercise of official authority." 
(a) What do the Parties understand to be the scope of this exception?   
(b) What types of "activity" does this exception cover (e.g., the sale of services, the 
purchase of services, etc.)? 
(c) What is meant by the "exercise of offi cial authority" (e.g., does it include 
authority delegated to non-governmental entities)? 
(d) What factors determine the "connection" (occasional or otherwise) between 
such activity and the exercise of an official authority?  
 The concept of the " activities that are connected, even occasionally, with the exercise of 
official authority " is taken directly from Article 511 of the Treaty on the Functioning of the European 
Union as the exception to the right of the establishment. 
 
 According to the European Court the 'exercise of official authority' needs to be judged on a case by case basis and activities which, in one Member St ate, do not fall within the sphere of official 
authority cannot be relied upon for the purpose of ex ception, even if the same activities fall within the 
sphere of official authority in other Member States.  4. Paragraph 82 of the Factual Presentation indi cates that the structure of the Agreement 
is in large part directed at achieving "approximati on" of Montenegro's legislation to that of the 
European Union.  As a result, several provision s typically found in WTO-Member RTAs and in 
the GATS do not appear to be found in the Agreem ent (or exist in different form), which rather 
focuses on mirroring elements of EU primary law (Treaty establishing the European 
Community). 
(a) In light of the non-typical structure, objectives, and provisions of the Agreement, 
how should Members assess this Agreement with respect to the requirements of GATS Article V.1? 
 The Stabilisation and Association agreements ar e part of the EU Stabilisation and Association 
Process (SAP).  These agreements are designed to pr epare the country concerned to accede to the EU 
and its internal market and are therefore based on the EU's acquis communautaire. 
  The progress of the SAA country in adapting its national legislation to the EU's acquis 
communautaire is monitored and checked by the EU  in cooperation with Montenegro on a regular 
basis.  It is discussed in the various fora cr eated by the SAA (subcommittees, association committee 
and association council).  The Commission assesses the progress made in annual progress reports, 
which are detailed by EU accession negotiating chapter.    
                                                      
1 Or Article 45 of Treaty establishing the European Community.   WT/REG236/2 
 Page 3 
 
 
   With regard to the requirements of GA TS Article V (1), the SAA agreement has: 
  - substantial sectoral coverage, since all sectors are included, with the exception of air 
 transport services, inland waterways transport services and maritime cabotage  services.  However, these sectors can be added upon a recommendation of the 
 Stabilisation and Association Council; 
  - covers all modes of supply (there  is no a priori exclusion) and; 
  -  provides for the absence or elimination of substantially all discrimination.  
 
(b) To what extent should the timeframe of implementation of Parties' commitments 
under the Agreement affect assessment  of the Agreement relative to the 
GATS Article V.1 criteria? 
 According to GATS Article V.1, the above me ntioned requirements should be fulfilled at the 
entry into force of the Agreement or on the basis of a reasonable timeframe.  Article 8 of the 
Agreement foresees the realization of the associa tion agreement within a transitional period of 
maximum five years from the entry into force of the Agreement.  Article 59 links the progressive 
liberalization of cross border trade in services to th e progress made in the alignment to the EU acquis 
and provides for a transitional period of four years from entry into force of the agreement after which 
the Stabilisation and Association Council is to ta ke the measures necessary to progressively allow 
cross border trade in services, taking into account the progress made in the legislative approximation. 
 
5. Paragraph 84 indicates that Parties to the Agreement may deny the benefits of 
services-related provisions of the agreements to co mpanies having only their registered office in 
the territory of a Party, unless they possess a "r eal and continuous link" with the economy of 
one of the Parties. 
 To what extent does the concept of possessing  a "real and continuous link" as contained 
in the Agreement equate to the concept of engaging in "substantive business operations" as 
contained in GATS Article V.6? 
 
 In line with its notification of the Treaty establishing the European Community to the WTO 
(WT/REG39/1), the EU understands the concept of "effective and continuous link" with the economy 
of a Member State of the European Union enshrine d in Article 54 of the Treaty on the Functioning of 
the European Union as equivalent to the concept of "substantive business operations" provided for in 
paragraph 6 of Article V of the GATS.  Accordingl y, for a juridical person set up in accordance with 
the laws of Montenegro and having only its register ed office or central administration in the territory 
of Montenegro, the EU shall only extend the benef its of this Agreement if that juridical person 
possesses an effective and continuous link with the economy of Montenegro. 
 
6. The SAA Agreement includes a general exception  to services-related provisions of the 
agreement for "limitations justified on the grounds of public policy" (among others). 
 What do Parties to the Agreement understand the term "public policy" to mean in the 
context of this exception?  What types of meas ures taken by a governme nt are not a matter of 
public policy? 
 WT/REG236/2 
Page 4  
 
   The concept of the " limitation justified on the grounds of public policy, public security and 
public health " is taken directly from Article 45
2 of the Treaty on the Functioning of the 
European Union, Directive 2004/38/EC the European  Parliament and of the Council of 29 April 2004 
on the right of citizens of the Union and their fa mily members to move and reside freely within the 
territory of the Member States3) and wide case law in this respect.  
 
 As it could be found in the Judgment of the Court 4 December 197 in the case 41-74 Yvonne 
van Duyn vs. Home Office the concept of public policy in the context of the Community and where, in 
particular, it is used as a justification for derogating from a fundamental principle of community law, 
must be interpreted strictly, so that its scope ca nnot be determined unilaterally by each Member State 
without being subject to control by the institutions  of the Community.  Nevertheless, the particular 
circumstances justifying recourse to the concept of public policy may vary from one country to 
another and from one period to another, and it is therefore necessary in this matter to allow the 
competent national authorities an area of discre tion within the limits imposed by the Treaty. 
 
 According to the EU law, measures taken on grounds of public policy or public security must 
be based exclusively on the personal conduct of th e individual concerned.  For example, previous 
criminal convictions do not in themselves constitu te grounds for the taking of such measures and 
expiry of the identity card used by the person c oncerned does not justify expulsion from the territory; 
only the diseases or disabilities listed in the Annex of the directive may justify refusal of entry into a 
territory or refusal to issue a first residence permit. 
 
 Moreover, according to the Communication4 on the special measures concerning the 
movement and residence of citizens of the Union wh ich are justified on grounds of public policy, 
public security or public health  Member States are free to determine the scope of these concepts on 
the basis of their national legislation and case law,  but within the framework of Community law. 
However, any measures taken on grounds of public po licy, public security or public health must be 
justified by a real and sufficiently serious threat to  a fundamental interest of society and must be in 
conformity with the European Convention for the Protection of Human Rights and Fundamental 
Freedoms and with the proportionality principle.  
7. As described paragraphs 87-89 of the Fa ctual Presentation, the Agreement does not 
provide for immediate liberalization of cross- border services trade among Parties (services 
supplied through modes 1, 2 and 4).  Rather, th e Agreement provides for a standstill obligation, 
combined with a requirement that the Parties "t ake the necessary steps to allow progressively 
the supply of services."  The Agreement does not specify the process or timeline by which such 
steps should take place, although the "General Principles" sections of the agreements contain a 
deadline for "full realization" of the Agreement. 
(a) With respect to the "standstill" provision in the "Supply of Services" chapter of 
the Agreement (requiring that Parties not take any measures or actions that render conditions for cross-border suppl y "significantly more restrictive as 
compared to the situation existing [befo re entry into force]"), how do the Parties 
define "significantly more restrictive"?  What types of measures would be 
simply "more restrictive," rather than "s ignificantly more restrictive"?  What 
factors are relevant in such an analysis? 
                                                      
2 Article 39 of Treaty establishing the European Community or Article 48 of EC Treaty as in the 
Maastricht consolidated version or Article 48 - EEC Treaty. 
3 Amending Regulation (EEC) No 1612/68 and repealing Directives 64/221/EEC, 68/360/EEC, 
72/194/EEC, 73/148/EEC, 75/34/EEC, 75/35/EEC, 90/364/EEC, 90/365/EEC and 93/96/EEC. 
4 COM/99/0372.  WT/REG236/2 
 Page 5 
 
 
   There is no specific definition or common prior understanding of these terms.  The 
Agreement provides for consultations should the Par ties disagree on the facts and on the definition. 
 
(b) With respect to implementation of the Agreements' obligation to "allow 
progressively the supply of services," how do Parties to the Agreement measure 
implementation of this obligation?  What conditions need to be satisfied in order 
for this commitment to be considered "fully realized"? 
 As mentioned in the reply to Question 2, the progress of the SAA country in adapting its 
national legislation to the EU acquis communautai re is checked by the EU, in cooperation with 
Montenegro, on a regular basis and it is assessed in annual progress reports.  The reports are public 
and can be consulted on the following website:  " http://ec.europa.eu/enlarg ement/press_corner/key-
documents/reports_nov_2010_en.htm ". 
 
8. As noted in the Factual Presentation, the Ag reement does not contain specific provisions 
on national treatment or most-favored-nation t reatment in the area of cross-border supply of 
services.  Rather, it requires that Parties take steps to "allow progressively" the supply of 
services, and to refrain from taking measures th at "render conditions for the supply of services 
… significantly more restrictive." 
 Do the Parties consider that the Agreement 's requirements to "allow progressively" the 
cross-border supply of services and to refrain fr om "significantly more restrictive measures" 
encapsulate a requirement to eliminate and prohibit discrimination in the sense of 
GATS Article XVII? 
 
 According to GATS Article XVII, in the sectors inscribed in its Schedule, and subject to any 
conditions and qualifications set out therein,  each Member shall accord to services and service 
suppliers of any other Member, in respect of all measures affecting the suppl y of services, treatment 
no less favourable than that it accords to its own like services and service suppliers.   A Member may 
meet this requirement by according to services a nd service suppliers of any other Member, either 
formally identical treatment or formally different  treatment to that it accords to its own like services 
and service suppliers.   The SAA does not include specific schedules of  commitments.  However, national treatment 
is committed in a different way.  Firstly, chapter I eliminates discrimination for workers.  Secondly, 
chapter II provides for an unqualified national tr eatment obligation for establishment (mode 3). 
Article 59 also provides for access and national treatment for mode 4 (ICT).  Finally, as indicated above, the Agreement provides for a progressive openi ng of cross border services trade in line with 
the progress made towards the approximation of laws to those of the EU, hence providing for the 
elimination of any discrimination. 
 
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