• Divyashree Suri

#1: Introduction: A Disservice to Trade in Services

The next few weeks will be dedicated to the GAPS in the GATS Series, which will revolve around an incomplete GATS Framework, and the possible benefits of extending legal provisions from other agreements under GATT to trade in services. This makes for Issue #1 of these Series.


The world economy is moving away from the traditional brick and mortar forms of business, and is using technology as its driving force. In such a shift, the importance of trade in services in today’s economy is not only comparable to that of the traditional trade in goods but will soon demand a larger space for itself in a globalized economy. This is reflected by the expansion of trade in services by 5.4% per year on average since 2005, which is a faster pace than that of trade in goods. Trade in services accounted for USD 13.3 trillion in 2017, which constituted half of the total global trade recorded in 2017.


Despite this leap in trade in services, there exist no complementary agreements to holistically form a framework for trade in services, beyond the General Agreement on Trade in Services (“GATS”). Owing to the traditional nature of trade in goods, its liberalization has been made a priority in negotiations and agreement-building since the very beginning of the institutionalization of trade. The General Agreement on Tariff and Trade (“GATT”) is read with a number of multilateral agreements as an established framework for trade in goods. The scope of these multilateral agreements is limited to trade in goods. Due to their limited scope, issues in trade in services, which would ideally fall under the scope of the said agreements, do not get addressed. This leaves a lacuna in WTO law and may create hindrance in policy- making. Some of these agreements are as follows:


1) Agreement on Technical Barriers to Trade (“TBT”): TBT serves as an important mechanism to avoid qualitative restrictions on trade. TBT lays out provisions to ensure that technical negotiations and standards do not create “unnecessary obstacles” to trade in goods. Compliance with the TBT includes ensuring that a standard is non-discriminatory in nature, notification of the technical standard, public consultation, etc. However, there exists no such standard for trade in services. While Articles III and VI of GATS can be used to ensure transparency of domestic regulation pertaining to trade in services, they do not create a robust mechanism to address all the issues which may arise and create barriers in trade. For example, recently the Telecom Regulatory Authority of India (“TRAI”) issued a Consultation Paper on Cloud Services (“Consultation Paper”), which gave stakeholders 42 days to file comments. The Consultation Paper proposed to set up an industry body for regulating cloud service providers. While the standard under WTO is 60 days for stakeholders to be able to file comments, in the given scenario, countries would have no remedy under WTO law even if no consultation was done with the stakeholders.


2) Agreement on Trade-Related Investment Measures (“TRIMS”): TRIMS deals with investment measures imposed by countries relating to trade in goods. Arguably, investment in the services sector is covered by GATS itself, through commitments made under Mode 3 (Commercial Presence). However, no concrete framework is available to regulate such investments. Member Countries can choose to not commit under Mode 3 at all in certain sectors, and investment measures can prove to be a hinderance to trade in services.


3) Agreement on Rules of Origin (“Rules of Origin”): This governs the rules which trace the origin of the imported goods. This categorization is important to ensure that the correct preferential tariff is being collected from the imports, and to ensure that any trade remedial duty/measure imposed on the imports from the said country is also collected/implemented. This becomes trickier in terms of services, due to its intangible nature. However, the nationality of services becomes important for accurately implementing GATS in the form and manner it was intended to be. For example, Article XXVII of GATS allows Member Countries to deny benefits under GATS to services supplied by Non-Members. However, without proper Rules of Origin, the same is hard to establish. Further, in order to determine non-discrimination by the way of preferable national treatment, it must be determined if a service is originating domestically or from another country. An example of the hardships faced while determining the origin of a service in trade law, is the case of Canada-Autos, CAMI was a joint venture of General Motors of Canada and Suzuki Motor Company. GATS defines the ownership of a juridical person as the ownership of over 50% of the equity shares. However, owing to the equal ownership of CAMI in this case, no ownership could be determined. Neither the Appellate Body nor the Panel identified the nationality of CAMI.


4) Trade Remedial Measures: It must further be noted that while Article XV of the GATS recognizes the trade-distortion which can be caused by subsidies, it does not address the issue of creating a framework of trade-remedial measures for services, as it exists for trade in goods. Safeguard measures are also permitted under Article X of the GATS, but no mechanism exists for the same. The effect of cheap/subsidized imports of goods can prove to be disastrous to a domestic industry, as can the effect of cheap services. It is interesting to note that since no tariffs are imposed on the import of services, it would be hard to extend trade remedial measures on import of services as is done in the case of goods. Read more about Trade Remedial Measures here.


Conclusion

While it is true that a framework identical to that of trade in goods cannot be adopted for the trade in services, it is important for a proximate framework to be negotiated upon. It must be noted that various Free Trade Agreements (“FTAs”) and Regional Trade Agreements (“RTAs”) cover issues related to trade in services. However, several countries are weary of the quick tariff liberalization caused by FTAs and the subsequent damage to its domestic industry. A concrete GATS framework is essential for ensuring that there ensues no unfair trade in services, and that space is made in the WTO for the new economic order.


In the course of the next few weeks, we’ll attempt to discuss all the Agreements listed above, and their possible relevance in trade of services, if extended to it, at all. Stay tuned!


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