RESTRICTED
WORLD TRADE S/WPGR/W/15/Add.5
20May1997
ORGANIZATION(97-2139)
Working Party onGATS Rules Original: English
COMMUNICATION FROM EGYPT
Response totheQuestions Relating toanEmergency Safeguard Mechanism inGATS
Thefollowing communication isbeing circulated attherequest ofEgypt toMembers ofthe
Working Party onGATS Rules.
____________
What isthejustification andpurpose ofanemergency mechanism under GATS?
1. Thequestion ofwhat asafeguard mechanism would beforinvolves thefollowing
considerations:
a. Would anemergency safeguard forservices beintended todealwiththekindof
situation foreseen inArticle EXES ofGATT --thatis,atemporary threat toadomestic
“industry ”arising from increased imports? Would ithaveanyother objective?
Theoriginal intent behind article XoftheGATS wastoconduct negotiations on
emergency safeguards mechanism ofthekindaddressed by,andtoserve thesame
objectiveofarticleXIXofGATT.Withoutdismissingthepossibilityofusingsafeguard
mechanism beyond article XIX, sofarourfocus remains onmeasures toprovide
immediate relief todomestic industry fromthepressure arising fromasurge ofimports
orathreat thereof. Thepossibility ofgoing beyond article XIXcould bewarranted
bythecrucial strategic andinfrastructural roleofservices intheeconomy asawhole,
which thusmake theimpact ofservices more far-reaching thanthatofgoods onthe
development process. Itistherefore essential thatinundertaking theircommitments,
countries reckon thattheymayresort totemporary safeguards ifthecommitments were
toresult ininjurious effects, difficult toforesee inadvance. Suchaclause would even
induce countries tomake more ambitious commitments toliberalize.
b. Areexisting“safeguard”mechanismsinGATS,notablythosecontainedinArticleXII
andArticle XIV, sufficient toaddress anydifficulties governments might encounter
asaconsequence oftheirGATS commitments? Similarly, doesArticle XXIprovide
anadequate vehicle forreversing ormodifying scheduled commitments intheevent
ofunanticipated difficulties?
Article XIIandXIVarenotdesigned toaddress thesame typeofsituations which an
emergency safeguard mechanism analogous tothatofarticle XIXoftheGATT will
address.S/WPGR/W/15/Add.5
Page2
Article XIIismeant toaddress balance ofpayments problems which arespecifically
defined inthetextofthearticle itself. Itisanalogous toarticle XVIII oftheGATT.
There should benoconfusion between those different types ofproblems.
Similarly article XIV(General Exceptions) ismeant toprovide coverage formeasures
inconsistent withaMember 'sobligations under theGATS, inorder toserve asetof
well-defined paramount policy objectives. Thisprovision isanalogous toarticle XX
oftheGATT.
Although conceptually theseprovisions could becalled "safeguard mechanisms", they
should notbeconfused withtheemergency safeguard mechanism discussed under
article XoftheGATS, therefore thequestion ofwhether theywould besufficient to
address anydifficulties governments might encounter asaconsequence oftheirGATS
commitments might notbetherightquestion toask.Emergency safeguard mechanism
should -infact-accommodate situations which werecompletely unforeseen when the
commitments were initially negotiated. Asservice markets arefurther liberalized,
temporary emergency safeguards become allthemore relevant toaddress difficulties
governments could encounter asaconsequence oftheirGATS commitments.
Possibility ofrecourse toemergency safeguards could ovate theneedforeconomic
needs test.
While those whoargue against suchasafeguard clause forlackoffeasibility, consider
article XXIassufficient, itisworthwhile noting thatthisarticle implies apermanent
modification inthecommitment inaddition topayment ofcompensation, which isnot
thethrust oftheargument ofthose favouring asafeguard clause. Inaddition, the
modification oftheconcession inaccordance witharticle XXIisconditioned byalapse
ofathree yearperiod before anyaction canbetaken bytheMember concerned.
Furthermore itisconceptually difficult toseearticle XXImechanism asasolution to
emergency situations, asitwould seem toprovide asolution ofapermanent nature
foraproblem ofatemporary nature.
c. DoesthenatureofcommitmentsundertakeninGATS--wherebyMembersmaychoose
whether toschedule asector, andmayalsocondition market access andnational
treatment with respect tocommitments thataremade --obviate theneed for
safeguards? Orwould itbemore appropriate tothink interms oftheideathatthe
existenceofasafeguardwouldallowgovernmentstobemoreforthcomingwithrespect
totheirscheduled commitments?
Thefirstquestion resembles toalarge extent theprevious oneinterms ofbuilt-in-
safeguards, which webelieve donotobviate theneedforemergency safeguards. On
thecontrary, asafeguard clause could lessen thelimitations under market access and
national treatment provisions. Weareoftheviewthat,designing asafeguard clause -
asalonger termobjective -should encourage countries tobemore forthcoming with
substantive offers toliberalize. Integrating asafeguard clause should alsobeeffective
forensuring abetter involvement andincreased participation onthepartofdeveloping
countries inmore sectors intrade inservices asitwould make countries feelsecure
intheircommitments. Asmentioned earlier, thereisaqualitative difference between
theconcerns thatgovernments might haveinscheduling commitments andthose which
may arise inemergency situations. Intheformer such concerns may relate
predominantly tolong-term considerations, while inthelattertheymayrelate tosudden
changes intrade patterns.S/WPGR/W/15/Add.5
Page3
d. What would betheeconomic objective ofasafeguard --toprotect production,
investors, oremployment? Would itprotect alldomestic production, oronlythat
partofproduction attributable tonational suppliers? Would itaimtoprotect
investment bynationals, oralldomestically based investments? What would bethe
objective ofallowing departures from national treatment under modes 3and4?Is
thedistinction between establishment rights perseandpost-establishment operations
relevant inrelation topossible safeguard measures under modes 3and4?
These areanumber ofverycomplex questions which would necessitate inourview
further studies andanalysis. Theanswers given inthiscontext arerather ofa
preliminary nature. Inregard totheeconomic objective ofasafeguard andwhether
itwould aimatprotecting production, investors oremployment, thiswillcertainly vary
according tothedifferent modes ofsupply anddifferent situations. Inanycase,those
elements maynotbemutually exclusive. Thiscanbebetter illustrated bywayof
examples.
- Inthecross border mode, theeconomic objective ofasafeguard might beto
protect domestic suppliers inthefaceofasudden surge ofimports ofinsurance
products.
- Intheconsumption abroad mode, theobjective might betoprotect theeconomy
against theexcess ofoutflow ofresources created bysudden surge indemand
onthepartofdomestic consumers toconsume services abroad, which would
injure thedomestic suppliers.
- Incaseofcommercial presence, theobjective would beingeneral toprotect
domestic industry, andtoensure minimum domestic production andcontrol.
Thatmayrelate tolevels ofproduction, employment and/or investments.
- Inthecaseofthemovement ofnatural persons, theobjective would beto
protect employment fromasudden increase inforeign labour. Itcould obviate
theneedforeconomic needs test.
Inregard tothesecond andthirdquestions, whether thesafeguard would protect all
domestic production oronlythatpartattributable tonational suppliers andwhether
itwould aimtoprotect investment bynationals oralldomestically based investments,
forthepurpose ofanemergency safeguard mechanism, thisissue isstillunder
consideration inCairo, andneeds tobefurther analyzed bythegroup.
Inregard totheirfourth question, itisdifficult toperceive whatismeant byallowing
departures from national treatment under modes 3and4.Asforthefifthquestion
regarding therelevancy ofmaking thedistinction between establishment rights perse
andpost-establishment operations inrelation topossible safeguard measures under
modes 3and4,Egypt, atthisstage, doesnotseeanypurpose thatcanbeserved by
dis-establishment orwithdrawal oflicences ofoperating service suppliers. Theaim
ofemergency safeguards -inourview-istoregulate import levels, limitthenumber
ofservice suppliers andlimitthevolume orvalue ofservices operations. Thekey
words are"regulate" and"limit" nottodigress orrenege onprevious commitments.S/WPGR/W/15/Add.5
Page4
e. Would asafeguard mechanism needtocontemplate special provisions fordeveloping
countries ordoestheconcept ofprogressive liberalization offer adequate leeway in
thisrespect?
Theconcept ofprogressive liberalization isabout undertaking national treatment and
market access commitments. Ifthequestion meant tobeasked iswhether theelement
ofprogressivity would obviate theneedofasafeguard mechanism, theanswer isNO.
Asmentioned before inthecontext ofreplying tothequestion (b),thereisaconceptual
distinction between thescheduling andmodification ofcommitments ontheonehand
andtheability toaddress emergency situations, ontheother hand. Insofaras
developing countries areconcerned, theremayverywellbegoodreasons forallowing
developing countries toaddress special situations thatmayariseonlyinthecaseof
developing economies. Theexact nature andremedies forsuchsituations isamatter
thatneeds further detailed examination.
f. Isthere anything intrinsic toservice transactions, suchasintangibility, simultaneity
ofproduction andconsumption, ortheneed forphysical proximity between the
producer andtheconsumer, which makes (some) services transactions different from
goods transaction inwaysthatmight influence arguments astothenecessity orutility
ofsafeguard measures inservices?
From apolicy objective point ofview, there seems tobenodifference between the
services andgoods thatcould affect orlessen inanyway thenecessity orutility of
safeguardmeasuresinservicesascomparedtogoods.However,thedifferencesreferred
tointhequestion mayleadtodifferent approaches indevising howasafeguard
mechanism would operate inthecaseofservices. Wehavealsototakeintoaccount
thedefinition oftrade inservices under which salesbyforeign owned corporations
onthedomestic market areconsidered as"exports" ofservices.
What criteria might bebrought tobearindetermining when anemergency safeguard measure
maybejustified?
2. Anumber ofquestions canbeidentified inrelation tothecriteria thatmight apply in
determining thecircumstances inwhich emergency safeguard measures aretobeused. Thequestions
included below assume thatessentially thesame GATT concepts ofincreased imports, injury and
causality would apply under anemergency safeguards mechanism inGATS.
a. What, interms ofGATS, istheequivalent ofincreased imports under Article XIX
ofGATT? Inmode 1,thecross-border flowofservices maybesimilar totheimport
ofgoods, butthesituation isquite different under other modes. How should the
possibility ofasafeguard betriggered inthese circumstances?
Safeguard action would flowfromthedefinition oftradeinservices. Onecanmeasure
interms ofarticle XVIonmarket access. Increased imports could bedefined interms
ofvalue, volume, number ofproviders, share ofthemarket taken bythesurge in
imports, levelofsales, capacity utilization, etc.Thus, itmight include arapid series
oftakeovers ofdomestic firms byforeigners, arapid expansion oftheshare ofthe
domestic market byforeign owned/controlled firms. Notion ofinjury would alsoneed
toaddress theretardation inthedevelopment ofdomestic services.S/WPGR/W/15/Add.5
Page5
b. How should serious injury bedetermined? Injury towhom orwhat?
Thecriteria fordetermination ofinjury would needtobefurther examined. However,
alinkbetween increased service supply (orcompetition) andapotential injurious effect
onthedomestic industry should alsobedrawn inthisrespect. Itisnotinconceivable
thatcriteria might differ according tothesector ormode ofsupply.
c. Whatstandardswouldberequiredtodeterminethatincreasedcompetitionfromforeign
sources caused injury tothenational industry?
Thesame kindofstandards asingoods inestablishing thecausality between serious
damage oractual threat thereof andtheincreased imports.
d. Howwould thenational industry bedefined forthepurpose ofdetermining injury?
Itisnotclearforthepurpose ofdetermining injury whether asafeguard mechanism
should define national ordomestic industry. Ourpreliminary view isasafeguard
mechanismshouldaimatprotectingdomesticindustrywhichwouldnormallyencompass
national suppliers aswellasofforeign origin. However, asmentioned above, this
matter isstillunder consideration.
e. Should alinkbeestablished between thenature ofaspecific commitment ina
particular sector, including inrelation tolimitations onmarket access andnational
treatment, andtheavailability ofasafeguard measure? Inother words, should the
availability ornature ofasafeguard berestricted where limitations have been
inscribed?
Logically, theneedtotakeemergency safeguard action would notnecessarily relate
towhether there arelimitations onmarket access andnational treatment inrelation
tothesector concerned. Inourviewthere should benolinkbetween thetwo.
f. What measurement andidentification problems ariseinservices thatmight complicate
thedevelopment ofasafeguard instrument, andhowshould theybedealt with?
Lackofstatistical datahasbeenmentioned asoneofthemainreasons fornotincluding
aclause onemergency safeguard measures. Itshould benoted thatlackofappropriate
disaggregated statistical dataonproduction, tradeandforeign direct investment affects
theimplementation oftheGATS asawhole.
What form might asafeguard mechanism forservices take?
3. Ifincreased foreign competition andserious injury todomestic services orservice suppliers
have occurred, andcausality between thetwohasbeen established, aquestion arises astothe
characteristics ofasafeguard measure thatmight beapplied.
a. What typeofmeasure should beapplied? Would taxes, foreign exchange restrictions,
other quantitative limitations, orregulatory restraints besuitable assafeguard
measures?
Allabove measures could beused. Price based measure could certainly beadequate
tools forsafeguard measures interms oftaxes orsubsidies fordomestic service
suppliers.S/WPGR/W/15/Add.5
Page6
b. What would betheimplications ofdifferent modes ofsupply forthekindofmeasures
employed?
- Forcross-border mode: restriction ofsupply ortemporary restrictions onthe
supply ofservices;
- forconsumption abroad mode: taxes;
- forcommercial presence mode: limitorstopnewestablishments, higher taxes;
- formovement ofnatural persons
c. Would there becircumstances inwhich theapplication ofasafeguard measure in
respect ofonemode ofsupply would provoke ademand forcomparable measures
inrelation toother modes atthesame time?
Because oftheinfrastructural andeconomy wideroleofservices relating tothemacro-
economicpolicies,thepossibilitymightariseofapplyingcomparablesafeguardmeasures
ononeormore modes atthesame time.
e. Howquickly would itbepossible foraMember totakeasafeguard measure? Would
thenotion of"critical circumstances," asdeveloped intheAgreement onSafeguards,
apply intheservices area?
Theanswer tothese questions could berather lefttothenegotiations. Wecould think
ofthecriteria developed intheAgreement onTextiles andClothing, asinarticle VI,
orapply thesame criteria oftheAgreement onSafeguards.
f. What should betheduration ofanysafeguard measures adopted?
Three tofiveyears.
g. Would safeguard measures bemade degressive during theperiod oftheirapplication?
Itmight alsobeleftforfurther negotiations. Article 7.4oftheAgreement on
Safeguardsprovidesthatifthesafeguardmeasureisoveroneyear,theMemberapplying
themeasure shallprogressively liberalize itatregular intervals during theperiod of
application.
h. Would aMember taking asafeguard action berequired alsotoadopt adjustment
measures?
Adjustment measures interms ofcompensation -No.
i. Would theapplication ofsafeguard measures beaccompanied bycompensatory
adjustments intheschedule oftheMember taking themeasure?
Since asafeguard mechanism would beofatemporary nature, asamatter ofprinciple,
Members should notbeasked toprovide compensation.