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WTO/GATS-Alien Framework Provisions in RTAs – A Closer Look

Published online by Cambridge University Press:  24 July 2019

Rudolf Adlung
Rudolf Adlung*
Affiliation:
Independent Trade Policy Analyst
*
*Email: [email protected].
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Abstract

This article deals with a challenge in drafting regional trade agreements (RTAs) in services that has been widely ignored to date: the need to comply with, and ensure consistent use of, GATS-based framework provisions. This includes in particular the requirement for the RTA parties to eliminate substantially all discrimination between their services and service suppliers. Yet the criteria that are used in individual agreements to identify the benchmark services and service suppliers quite often depart from relevant GATS provisions (Article V on economic integration in combination with Article XVII on national treatment). These departures may not only affect the WTO/GATS-compatibility of the RTAs concerned, but contribute to further fragmenting international market conditions. This is particularly unfortunate at a time when regional agreements are the only realistic options to overcome the negotiating stalemate at multilateral level. Hence, given the stakes involved, there is an urgent need for participants to (re-)consider the framework provisions underpinning their RTAs.

Keywords

WTO/GATSRegional Trade AgreementsFramework provisions
Type
Research Article
Information
World Trade Review , Volume 19 , Issue 4 , October 2020 , pp. 493 - 510
Copyright
Copyright © Rudolf Adlung 2019

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Footnotes

Particular thanks are due to Carlo Gamberale and Weiwei Zhang, who provided a variety of truly inspiring thoughts on the scope of GATS Article V, as well as to Rohini Acharya, Bart De Meester, Peter Morrison, and Marta Soprana for very helpful comments and proposals on earlier drafts. In addition, the initial submission has benefitted from, and I am particularly grateful for, highly pertinent suggestions from two anonymous referees. 0f course, the article continues to reflect my personal opinions only, and any errors or inaccuracies are mine.

References

1 Among the first studies paying attention to such ‘minus commitments’ are M. Marconini (2009), ‘Revisiting Regional Trade Agreements and Their Impact on Services Trade’, ICTSD Issue Paper No. 4 (Geneva), and S. Miroudot, J. Sauvage, and M. Sudreau (2010), ‘Multilateralising Regionalism: How Preferential are Services Commitments in Regional Trade Agreements?’, OECD Trade Policy Working Paper No. 106, TAD/TC/WP(2010)18/FINAL.

2 For example, in discussions of the Trade in Services Agreement between India and the Association of Southeast Asian Nations, three delegations (Japan, United States, and Chinese Taipei) referred to various GATS-minus elements (WT/REG372/M/1 of 24 November 2016). For information on the TMRTA, see www.wto.org/english/tratop_e/region_e/trans_mecha_e.htm (accessed 28 March 2019).

3 For an introduction into the basic structure of the Agreement, see, for example, Adlung, R. and Mattoo, A. (2008), ‘The GATS’, in Mattoo, A., Stern, R. M., and Zanini, G. (eds.), A Handbook of International Trade in Services, Oxford University Press, pp. 48–83Google Scholar.

4 A footnote provides that specific commitments under this Article ‘shall not be construed to require any Member to compensate for the inherent competitive disadvantages which result from the foreign character the relevant services or service suppliers’. For a discussion of the Article's scope of application, its interaction with other GATS provisions and relevant dispute rulings, see Muller, G. (2016), ‘National Treatment and the GATS; Lessons from Jurisprudence’, Journal of World Trade, (50)5, 819–844Google Scholar.

5 For an explanation of the latter Article, see Tevini, A. (2011), ‘Article XXIV GATT’, in Wolfrum, R., Stoll, P.-T., and Hestermeyer, H. P. (eds.), WTO – Trade in Goods, Max Planck Commentaries on World Trade Law, Vol. 5, Martinus Nijhoff Publishers, pp. 616–661Google Scholar. An introduction into GATS Article V is provided by Cottier, T. and Molinuevo, M. (2008), ‘Article V GATS’, in Wolfrum, R., Stoll, P.-T., and Feinäugle, C. (eds.), WTO – Trade in Services, Max Planck Commentaries on World Trade Law, Vol. 6, Martinus Nijhoff Publishers, pp. 125–151Google Scholar.

6 P. Low (2014), ‘Preferentialism in Trade Relations: Challenges for the World Trade Organization’, ADBI Working Paper 478, Asian Development Bank Institute, Tokyo, at 7, www.adb.org/sites/default/files/publication/156333/adbi-wp478.pdf (accessed 28 March 2019); see also de Mestral, A. C. M. (2013), ‘Dispute Settlement under the WTO and RTAs: An Uneasy Relationship’, Journal of International Economic Law (16), 777–825, at 819Google Scholar.

7 An economic perspective of various approaches to preferential services liberalization is provided by Mattoo, A. and Sauvé, P. (2014), ‘The Preferential Liberalization of Services Trade: Economic Insights’, in Sauvé, P. and Shingal, A. (eds.), The Preferential Liberalization of Trade in Services, Edward Elgar, pp. 37–67Google Scholar.

8 WTO document WT/MIN(01)/DEC/1 of 20 November 2001.

9 WTO document TN/RL/M/19 of 26 October 2004.

10 WTO document TN/RL/W/253 of 21 April 2011. Similarly, a renewed initiative to discuss systemic issues related to RTAs, mandated under the Nairobi Ministerial Declaration of 2015, has not produced any results to date (see Section 5).

11 As noted by the Appellate Body in United States–Gasoline, ‘one of the corollaries of the “general rule of interpretation” in the Vienna Convention is that interpretation must give meaning and effect to all the terms of a treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.’ Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, 29 April 1996, at 23.

12 Panel Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/R and WT/DS142/R, 11 February 2000, para. 10.271.

13 The negotiating mandate under this Article is not to be confused with the negotiations of regulatory disciplines under Article VI:4 which are part of the Uruguay Round's unfinished business. See also (iii) in Section 2.6.

14 The use of the terms ‘provided that’ rather than ‘that’ in linking ‘an agreement liberalizing trade in services’ to (a) and (b) might indicate that these are the essential building-blocks which, however, could be complemented by additional elements.

15 Appellate Body Report, Peru – Additional Duty on Imports of Certain Agricultural Products, WT/DS457/AB/R, 20 July 2015, para. 5.116.

16 Ibid. There are additional considerations supporting this view. In particular, ‘inter se’ modifications among EIA parties that contain GATS-minus elements might adversely affect the business opportunities of suppliers from other WTO Members that are established within the EIA area under GATS mode 3. Such modifications may prove incompatible with the stipulations of Article 41 of the Vienna Convention on the Law of Treaties, including the absence of adverse effects on ‘the enjoyment of the other parties [i.e., non-participating WTO Members] of their rights under the treaty’. See Adlung, R. (2015), ‘The Trade in Services Agreement (TISA) and Its Compatibility with GATS: An Assessment Based on Current Evidence’, World Trade Review, 14(4), 619–641, at 622ffCrossRefGoogle Scholar.

17 These shares were found to be somewhat higher in NAFTA-type top–down agreements, where everything is deemed liberalized in the absence of explicit exclusions, than in bottom–up agreements that liberalize in scheduled sectors and to the extent that no limitations are attached. Somewhat surprisingly, more recent agreements tended to display at least as many, if not more, minus-entries than agreements enacted before 2005. See Adlung, R. and Miroudot, S. (2012), ‘Poison in the Wine? Tracing GATS-minus Commitments in Regional Trade Agreements’, Journal of World Trade, 46(5), 1045−1082, at 1071Google Scholar.

18 As noted by de Mestral (supra n. 6, at 779), it may be possible for a party to frustrate the whole process by not naming a panellist or later determine unilaterally how to implement a panel decision. See also R. McDougall (2018), ‘Regional Trade Agreement Dispute Settlement Mechanisms: Modes, Challenges and Options for Effective Dispute Resolution’, IDB and ICTSD (Issue Paper, RTA Exchange).

19 For example, the EFTA-Chile FTA of 2004 exempts, inter alia, its subsidy-related disciplines in goods and services trade from dispute settlement. Also, as mentioned below, some agreements concluded by Japan provide for no more than mutual consultations in certain dispute cases (Section 4.2, 3rd and 4th paras.).

20 For example, the classification system generally used by Members for scheduling purposes (WTO document MTN.GNS/W/120 of 10 July 1991) consists of 11 major service sectors, which, in turn, are divided into some 160 sub-sectors.

21 Reportedly, the great majority of such treaties do not specify the standard of comparison for investors. See Molinuevo, M. (2012), Protecting Investment in Services – Investor-State Arbitration versus WTO Dispute Settlement, Kluwer Law InternationalGoogle Scholar.

22 A case in point is GATT Article XXIV:10. It provides for qualified majority voting among contracting parties, in certain circumstances, on proposals leading to the formation of a customs union or free trade area ‘in the sense of GATT Article XXIV’.

23 Panel Report, Canada–Autos, supra n. 12. Members’ reticence to challenge dubious measures may be due to various reasons, as noted below (Section 5), including a lack of commercial interest, fears of unintended repercussions on own policy schemes, or coordination problems between potentially interested industries and ministries.

24 Ibid., paras. 10.270 and 10.271.

25 The Agreement on the European Economic Area between the European Union (EU) and three members of the European Free Trade Area EFTA (Iceland, Liechtenstein, and Norway) is a special case insofar as it does not coincide with one of the plurilateral agreements notified under GATT Article XXIV, but consists of three individual RTAs. Services are covered by a separate agreement.    See http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=114 (accessed 28 March 2019).

26 CETA has been dubbed the ‘most ambitious WTO-plus agreement the EU has concluded to date’. Delimatsis, P. (2017), ‘The Evolution of the EU External Trade Policy in Services – CETA, TTIP, and TiSA after Brexit’, Journal of International Economic Law, 20(3), 583–625, at 595CrossRefGoogle Scholar.

27 An overview is provided by Delimatsis, ibid, as well as Mitchell, A. D., Hawkins, J. K., and Mishra, N. (2016), ‘Dear Prudence: Allowances under International Trade and Investment Law for Prudential Regulation in the Financial Services Sector’, Journal of International Economic Law, 19(4), 787–820CrossRefGoogle Scholar. For a detailed presentation of the carve-out, see Cantore, C. M. (2018), The Prudential Carve-Out for Financial Services – Rationale and Practice in the GATS and Preferential Trade Agreements, Cambridge University PressCrossRefGoogle Scholar.

28 Though this provision remains difficult to interpret, due not least to its circular nature (Cantore, supra n. 27), its omission may widen the parties’ scope for adopting non-conforming measures in the event of financial difficulties.

29 The Canada–Korea FTA, signed in 2014, essentially replicates the requirement that non-conforming measures ‘shall not be used as a means of avoiding the Party's commitments or obligations’ under the respective provisions (Article 10.10). The prudential carve-out contained in the financial-services part of the EU–Korea FTA of 2010 (Article 7.38) goes further in adding the proviso that any such measures ‘shall not be more burdensome than necessary to achieve their aim’.

30 For an overview of the latter provisions, see, for example, M. Krajewski (2008), ‘Article VI GATS – Domestic Regulation‘, in Wolfrum et al. (eds.), supra n. 5, 165–196.

31 For information on the regulation-related provisions contained 23 recent RTAs, see G. Gari (2008), ‘Recent Preferential Trade Agreements’ Disciplines for Tackling Regulatory Divergence in Services: How Far beyond the GATS?’, World Trade Review, https://doi.org/10.1017/S1474745618000368 (accessed 28 March 2019). The study provides an overview, inter alia, of the substantive disciplines governing domestic regulation in these agreements. It finds that the disciplines in three more agreements, in addition to CETA, fail to extend to technical standards as well: the EU's agreements with Japan, Vietnam, and Singapore. These agreements, plus CPTPP, the EU–Korea FTA as well as the US–Korea FTA are also without the necessity-related clause mentioned above. Overall, while Gari observes a remarkable expansion of disciplines on regulatory transparency, coherence, and cooperation beyond the respective GATS provisions, he also notes a significant degree of divergence between individual RTAs.

32 To avoid misunderstandings, it may be useful to recall that the analysis of GATS-minus commitments as undertaken in some previous studies (see, e.g., Adlung and Miroudot, 2012, supra n. 17), does not address the existence of GATS-alien framework provisions. Rather, these studies compare RTA commitments with their GATS-scheduled counterparts, seeking to identify common patterns across agreements, without considering any underlying conceptual modifications.

33 Covered are all EIAs notified during this period and recorded in the WTO database, with a few exceptions: two enlargements of the EU; one RTA that is couched in unusually abstract terms, involving Iceland and Denmark/Faroe Islands; and a handful of projects that were still under negotiation at the time of their notification, including three agreements of the EU with eastern European countries. The WTO database is accessible via www.wto.org/english/tratop_e/region_e/rta_participation_map_e.htm (accessed 28 March 2019).

34 Commitments on mode 4 (presence of natural persons) have not been further considered, since a significant number of EIAs fail to include NT-obligations (e.g. agreements involving the US or Canada) and/or simply provide for future negotiations under this mode (e.g. agreements involving ASEAN).

35 The former type of agreements have been concluded with Chile (notified in April 2004) Singapore (February 2006), India (July 2010), Peru (August 2011), United States (March 2012), Australia (December 2014), Canada (January 2015), New Zealand (December 2015), Vietnam (March 2016), and Colombia (October 2016). In contrast, the NT standard of the agreements with EFTA (August 2006), ASEAN (July 2010), EU (July 2011), and China (March 2016) is based on the treatment of like services and service suppliers.

36 Concerning the uncertainties surrounding the use of likeness criteria in services trade, see, for example, Cossy, M. (2008), ‘Some Thoughts on the Concept of “Likeness” in the GATS’, in Panizzon, M., Pohl, N., and Sauvé, P. (eds.), GATS and the Regulation of International Trade in Services, Cambridge University Press, 317–355Google Scholar.

37 Panel Report, China – Certain Measures Affecting Electronic Payment Services, WT/DS413/R, 16 July 2012, para. 7702.

38 Appellate Body Report, Argentina – Measures Relating to Trade in Goods and Services, WT/DS453/AB/R, 14 April 2016, paras. 6.25 and 6.29.

39 According to Ortino, F. (2015), ‘Regional Trade Agreements and Trade in Services’, in Lester, S., Mercurio, B., and Bartels, L. (eds.), Bilateral and Regional Trade Agreements – Commentary and Analysis, Cambridge University Press, 213–244, at 231Google Scholar. See also Diebold, N. F. (2010), Non-Discrimination in International Trade in Services – ‘Likeness’ in WTO/GATS, Cambridge University Press, at 150ffGoogle Scholar, and DiMascio, N. and Pauwelyn, J. (2008), ‘Non-Discrimination in Trade and Investment Treaties: Worlds apart or two Sides of the same Coin?’, The American Journal of International Law, 102(1), at 73fCrossRefGoogle Scholar.

40 See Diebold, supra n. 39.

41 Nevertheless, there are limits. In a NAFTA dispute with Mexico on cross-border trucking services, the United States argued that Mexico did not maintain ‘the same rigorous standards’ as the regulatory systems in the United States and Canada. Accordingly, the ‘in like circumstances’ language concerning the extension of NT in cross-border trade thus meant that Mexican providers might be treated differently in order ‘to address a legitimate regulatory objective’. In turn, the Panel argued that the proper interpretation of the Agreement's NT and MFN obligations required that ‘differential treatment should be no greater than necessary for legitimate regulatory reasons such as safety, and that such different treatment be equivalent to the treatment accorded to domestic service providers’. A broad interpretation of the ‘in like circumstances’ concept could render the respective obligations meaningless. See NAFTA Report on the Matter of Cross-Border Trucking Services, Secretariat File No. USA-MEX-98-2008-01, 6 February 2001.

42 Agreements with Chile (notified in July 1996), Peru (July 2009), Colombia (October 2011), Panama (April 2013), Korea (January 2015), and Honduras (February 2015)

43 Article XIV(a) provides cover for measures ‘necessary to protect public morals or to maintain public order’, while Article XIV(b) deals with measures ‘necessary to protect human, animal or plant life or health’. At least the same exceptions are contained in Korea's RTAs listed in the preceding Section.

44 See www.mfat.govt.nz/assets/Trans-Pacific-Partnership/Other-documents/Interpretation-of-In-Like-Circumstances.pdf (accessed 28 March 2019).

45 The Drafters’ Note further refers to the findings of various NAFTA tribunals, mentioning inter alia that these have accepted ‘distinctions in treatment between investors or investments that are plausibly connected to legitimate public welfare objectives, and have given important weight to whether investors or investments are subject to like legal requirements’.

46 For an explanation of the ‘aims and effects test’ and its changing role in WTO jurisprudence over time, see Du, M. Ming (2011), ‘The Rise of National Regulatory Autonomy in the GATT/WTO Regime’, Journal of International Economic Law, 14(3), 639–675, at 655ffGoogle Scholar.

47 Voon, T. and Sheargold, E. (2016), ‘The Trans-Pacific Partnership’, British Journal of American Legal Studies, 5, 343–370, at 347CrossRefGoogle Scholar.

48 Equivalent provisions are contained in Article 8.6(1) concerning the treatment of the other Party's investors and covered types of investment.

49 According to Delimatsis, supra n. 26, at 603.

50 Final award in the matter of an UNCITRAL Arbitration (London Court of International Arbitration Administered Case No. UN 3467) between Occidental Exploration and Production Company and the Republic of Ecuador, 1 July 2004, para. 176.

51 Ibid, paras. 168ff.

In turn, another NAFTA tribunal stipulated that ‘like circumstances’ in Article 1102 of NAFTA must be interpreted ‘on its own terms’ and that there is no ‘automatic transfer of GATT law relating to “like products”’. See Cargill, Inc. and United Mexican States, ICSID Case No. ARB(AF)/05/2, Award, 18 September 2009, para. 193.

52 A particularly sceptical assessment on all three counts is provided by Kurtz, J. (2009), ‘The Use and Abuse of WTO Law in Investor-State Arbitration: Competition and its Discontents’, European Journal of International Law, 20(3), 749–771, at 755ffGoogle Scholar. See also DiMascio and Pauwelyn, supra n. 39 and Adlung, R. (2016), ‘International Rules Governing Foreign Direct Investment in Services: Investment Treaties versus the GATS’, Journal of World Investment and Trade, 17, 47–85, at 51ffCrossRefGoogle Scholar.

53 There are exceptions, however. For example, the MFN requirement in the Japan–Philippines EPA (Article 76(1)) stipulates that ‘[e]ach Party shall accord to services and service suppliers of the other Party treatment no less favourable than that it accords, in like circumstances, to services and service suppliers of any non-Party’. In contrast, the agreement's NT clause refers to the treatment of like services and service suppliers. However, what is the underlying rationale (if any) for this distinction?

54 Other recently signed agreements such as the EU–Japan EPA or CETA remain quite vague as well. Article 1.9 of the former agreement (‘Relation to other agreements’) stipulates that ‘[t]he existing agreements between the European Union or its Member States and Japan are not superseded or terminated by this Agreement’ and that ‘[n]othing in this Agreement shall require either Party to act in a manner inconsistent with its obligations under the WTO Agreement’. In a similar vein, Article 1.5 of CETA (‘Relation to the WTO Agreement and other agreements’) reads: ‘The Parties affirm their rights and obligations with respect to each other under the WTO Agreement and other agreements to which they are party.’

55 By the way, all 10 bilateral RTAs involving Peru that are contained in the WTO database use the ‘like-circumstances’ standard in specifying the NT discipline for cross-border trade.

56 Council Decision of 31 May 2012, Official Journal of the European Union, L 354 of 21.12.2012.

57 This includes the United States. While the NT clauses of its trade agreements normally refer to the existence of ‘like circumstances’, the agreement with Jordan, signed in October 2000, uses the GATS concept of ‘like services and service suppliers’ (Article 3.2(b)).

58 According to A. D. Mitchell and N. J. S. Lockart (2015), ‘Legal Requirements for RTAs under the WTO’, in S. Lester et al. (eds.), supra n. 39, at 113.

59 See, for example, S. Miroudot and K. Pertel (2014), ‘Water in the GATS: Methodology and Results’, Working Paper of the Trade Committee, TAD/TC/WP(2014)19/FINAL, OECD.

60 An overview of such initiatives is provided by M. Soprana (2018), ‘Facilitation 2.0: Services and Trade in the Digital Age’, IDB and ICTSD (Think Piece, RTA Exchange). See also Lazo, R. P. and Sauvé, P. (2017), ‘The Treatment of Regulatory Convergence in Preferential Trade Agreements’, World Trade Review, 17(4), 575–607CrossRefGoogle Scholar, and Gari, supra n. 31.

61 Potentially relevant factors include the GATS’ broad modal coverage, extending inter alia to foreign suppliers established under mode 3; relatively liberal rules of origin; commitments to respect international norms and conventions where these exist; and the operation of appropriately phrased MFN clauses, including via investment treaties. See, for example, Pauwelyn, J. (2015), Taking the Preferences out of Preferential Trade Agreements: TTIP as a Provider of Public Goods?, in Moran, J. F. et al. (eds.), The Politics of Transatlantic Trade Negotiations – TTIP in a Globalized World, Routledge, 187–196Google Scholar; Adlung, R. (2016), ‘International Rules Governing Foreign Direct Investment in Services: Investment Treaties versus the GATS’, The Journal of World Investment and Trade, (17), 447–485Google Scholar; and A. Mattoo, A. Mulabdic, and M. Ruta (2017), ‘Trade Creation and Trade Diversion in Deep Agreements’, World Bank Policy Research Working Paper 8206.

62 Otherwise, given the uncertainties surrounding the definitional scope of individual modes, the use of mode-specific NT concepts, as in the EU–Japan EPA (Table A), might prove an additional source of confusion. (For example, while various Members have scheduled nationality requirements governing the composition of company boards under mode 3, mode 4 might be relevant under certain scenarios as well.)

63 The distinction between thick and thin institutionalism is inspired by Trommer, S. (2017), ‘The WTO in an Era of Preferential Trade Agreements: Thick and Thin Institutions in Global Trade Governance’, World Trade Review, 16(3), 501–526Google Scholar.

64 With a view to improving competence and consistency in the interpretation of RTA provisions, it has been proposed to widen the reach of the WTO's dispute settlement mechanism and transform it into ‘a trade court for the world’. (H. Gao (2018), The WTO Dispute Settlement Mechanism: A Trade Court for the World, IDB and ICTSD (Think Piece, RTA Exchange).) However, would RTA parties really want to entrust such a court with interpreting terms and conditions they might have deliberately chosen to depart from the respective WTO obligations?

65 WTO document WT/MIN(15)/DEC of 21 December 2015, at 4.

66 WTO document WT/REG/M/89 of 25 June 2018, at 6.