# **1. Introduction**

This paper addresses investment facilitation in services and the reduction of attendant trade costs involved in supplying services through an established presence in a host country market. Services have long been the fastest growing component of cross-border exchange. Of all modes of supply, Mode 3 (commercial presence, or investment)<sup>2</sup> remains by far the most important means of selling services abroad. The WTO estimates that Mode 3 transactions account for over three-fifths of aggregate services trade.<sup>3</sup> This is so even as Mode 3 trade tends to be particularly vulnerable to risks deriving from host country conduct, typically confronts a range of trade-cost inducing measures in host country markets, particularly of a discriminatory nature, and as technological advances induce modal substitution effects favoring the remote (i.e. cross-border) supply of services over digital networks in the long-run.

This paper situates its analysis in the context of ongoing global discussions on trade facilitation in services as well as investment facilitation, two closely related topics currently taken up along separate negotiating tracks at the World Trade Organization (WTO). In the case of trade in services, discussions of trade facilitation provisions started within the aegis of the WTO Working Party on Domestic Regulation established by the Council on Trade in Services to develop additional GATS Article VI disciplines,<sup>4</sup> a setting in which the issue of trade facilitation in services formally received greater attention in the wake of a proposal first mooted by the Government of India in September 2016.

In the case of investment facilitation, talks were initiated within the G20 Trade and Investment Working Group (TIWG) launched during the Chinese G20 presidency in 2015-16. These have subsequently been taken up within a so-called Joint Statement Initiative at the World Trade Organization (WTO) following the organization’s 11th Ministerial meeting (MC11) held in Buenos Aires in December 2017.

Discussions held in Geneva over the past two years have seen the substantive perimeter of a possible multilateral investment facilitation regime progressively emerge. This is an important initial step. Yet, to bear fruit, discussions of investment facilitation in services should ideally be anchored in an integrated framework enabling stakeholders not only to properly assess the different dimensions of the potential impact of investment facilitation measures, but also to identify the main drivers of services trade costs through Mode 3 in order to prioritize and start working in those areas where the greatest impact may be achieved in the short- to medium-term.

This paper explores whether the current trade facilitation agendas in services and investment address the most important factors raising the cost of services delivered via Mode 3 trade. The paper draws on the

> 2 <mark>Article I:2 (Scope and Definition) of the WTO’s General Agreement on Trade in Services (GATS) states that the Agreement “applies to measures by Members affecting trade in services, including “by a service supplier of one Member, through commercial presence, in the territory of any other Member (Mode 3 – commercial presence).” Article XXVIII: d) (Definitions) defines commercial presence as “any type of business or professional establishment, including through: (i)   the constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or a representative office, within the territory of a Member for the purpose of supplying a service.”</mark>

> 3 <mark>Roy, Martin, (2019), “</mark> _<mark>Elevating Services: Services Trade Policy, WTO Commitments, and their Role in Economic Development and Trade Integration</mark>_ <mark>”, (March 8). Available at SSRN: https://ssrn.com/abstract=3358775 or http://dx.doi.org/10.2139/ssrn.3358775.</mark>

> 4 GATS Article VI focuses on non-discriminatory domestic regulation.

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