RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG50/M/3
WT/REG51/M/3
WT/REG52/M/3
10 June 1998
(98-2359)
Committee on Regional Trade Agreements
Seventeenth Session
EXAMINATION OF
THE EUROPEAN COMMUNITIES-HUNGARY EUROPE AGREEMENT, SERVICES;
THE EUROPEAN COMMUNITIES-POLAND EUROPE AGREEMENT, SERVICES; AND
THE EUROPEAN COMMUNITIES-SLOVAK EUROPE AGREEMENT, SERVICES
Note on the Meeting of 4 May 1998
Chairman:  Mr. Chul-Ki Ju (Korea)
1. Under Agenda Items C.I-III of its Seventeen th Session, as found in Airgram WTO/AIR/831,
the Committee on Regional Trade Agreements (CRTA) took up the examinations of the European
Communities-Hungary Europe Agreement, Services;  the European Communities-Poland Europe
Agreement, Services;  and the European Communities-Slovak Republic Europe Agreement, Services.
2. The Chairman recalled that the Committee had previously held two rounds of examinations
for these three Agreements during its Fourteenth Session in November 1997 under the chairmanship
of Mr. John Weekes, and during its Sixteenth Sessi on in February 1998 under the chairmanship of Mr.
Stuart Harbinson.  Summary records of those meetings had been distributed as multi-symbol
documents WT/REG50-51-52/M/1 and WT/REG50-51-52/ M/2.  By the end of the last Session, the
Committee had reached the point where it appeared it was close to finishing the factual part of the
examinations.  Some outstanding questions had since been submitted to the parties in writing, and amulti-symbol document containing the questions and replies had subsequently been circulated as
WT/REG50-51-52/2.  Today's meeting would prov ide an opportunity for Members to raise any
remaining questions or points regarding this additional information.  Discussion would be structured
according to the layout of the Standard Format for Information on Economic Integration Agreements
on Services (for the EC-Hungary Europe Agr eement, document WT/REG50/1; for the EC-Poland
Europe Agreement, document WT/REG51/1; and for the EC-Slovak Republic Europe Agreement,
document WT/REG52/1).  In line with past practice, the Chairman proposed that the Committee
examine the three Europe Agreements together, while keeping in mind that they were separate
Agreements.
3. The representative of the United States said that, because the replies had been submitted only
one week ago, his delegation had not had sufficient time to treat the material in the thorough way
which it would like to.  His delegation would therefore request that the examination be extended to
another Session so that additional questions could be posed.
4. The representative of Japan said the point raised by the United States delegate was valid.  His
delegation would nonetheless raise a number of questions for the day's meeting.
5. The representative of Canada agreed that it would have been helpful if the documentation had
been available earlier.  However, his delegation had some points regarding which it would seek
clarification during the day's meeting.WT/REG50/M/3
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6. The representative of the European Communities said her delegation would be eager to give
any additional clarifications regarding the nature of its integration agreements which were currently
under review.  In terms of examining consistency with the GATS, some of the questions submittedrelated to the condition of "substantial coverage", and the responses given should allow Members to
assess the Agreements in this regard; there had also been questions concerning the degree of roll-back
of discriminatory measures.  Other questions seemed to relate simply to the functioning of the
Agreements and were geared toward a better under standing of the integration process, with many
questions relating to the safeguards provisions.
I. BACKGROUND INFORMATION ON THE AGREEMENT
3. Plan and Schedule
7. With respect to the transition periods, the representative of Japan said that in document
WT/REG50-51-52/2 the EC had referred to the U nderstanding on the Interpretation of Article XXIV
of the GATT 1994 (the Understanding).  However, during the last examination, the representatives of
the United States and New Zealand had pointed out that there was no established interpretation on
what a "reasonable time-frame" of GATS Article V:1(b) should be with respect to services
agreements.  The interpretation should be made in light of the spirit of progressive liberalization.
Members should bear in mind that the next round of services negotiations would come in less than acouple of years.  Therefore, her delegation wished to register that it considered a "reasonable time-
frame" to be five years.
8. The representative of Canada said with respect to the period of implementation that the
explanation for a ten-year period was not altogether persuasive.  Some sectors were involved which in
the meantime had also been significantly liberalized, for example the banking and insurance sectors.
Had there been discussion in the Association Council to speed up the period of implementation for
specific sectors?  Certain sectors had been scheduled to have a long, phased-in implementation, but
then autonomous or multilateral liberalization had taken place in those sectors; had an attempt been
made to speed up the liberalization in those areas of the Agreements?  His delegation wished to
register its view that the ten-year period for implementation seemed somewhat long in the context of
these Agreements.
9. The representative of the European Communitie s referred to the way in which the Japanese
delegation had framed the issue of the ten-year period and explained that her delegation was not
saying that, because GATT Article XXIV had a ten-year period, ipso facto  this was to be the measure
for GATS Article V agreements.  This matter could be taken up as a systemic issue.  Thecircumstances prevailing at the time of the conclusion of these Europe Agreements had been such
that, in a limited number of services sectors or activities, the Parties had had to agree on an
implementation period, this being subject to possible review and acceleration when discussed by the
Association Council.  The ten-year transition period might in fact be overtaken by events, as these
countries were in EC accession negotiations.  If a ten-year period for services was viewed as too long,it was still not appropriate to use as a reference point the initial time set for a round of negotiations
and argue that the transition period thus should be five years.  Regarding acceleration in areas subject
to the transition period, she would need to elabor ate on the different processes in the Association
Council to give concrete examples.  However, she could indicate that in financial services, where this
transition period mattered most, there had been an acceleration because the three countriessubstantially improved their commitments in the last round of financial services negotiations in
December 1997.  At the time of the conclusion of the Europe Agreements, the level of liberalization
had been set at MFN levels, and thus liberaliza tion had substantially been improved with theWT/REG50/M/3
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subsequent improvements in MFN treatment.  For other examples of acceleration, her delegation
would need to reply later .
4. Relationship of the Agreement to a Wider Process of Economic Integration
10. The representative of Korea referred to the European Communities’ White Paper on the
approximation of law, which was the ultimate precondition for economic integration, especially in the
services area.  In this respect, the examination of the White Paper in terms of the related provisions of
GATS was important in evaluating the consistency of these three Europe Agreements with the GATS.
He asked if the White Paper was available with the Secretariat and then requested the EC delegationto explain the overall structure of this document.  GATS Article VI:1 required Members to ensure that
all measures of general application affecting trade in services were administered “in a reasonable,
objective and impartial manner” in sectors where specific commitments were undertaken.  This
principle also applied to free trade agreements in the services area.  Was there any discrimination
against any third party under the new, revised domestic legislation, as compared with the levelapplicable prior to the conclusion of these Europe Agreements?
11. The Chairman said that the White Paper was available with the Secretariat.
12. The representative of the European Communities said the process of approximating laws had
created no new discrimination.  On the contrary, access for third countries had been facilitated
through the approximation of EC legislation regulating trade, as there were no provisions in that
legislation which would render access for third countries more difficult than among member States.
What the association countries were doing was taking up legislation with a view to acceding to the
EC, so this was not legislation that made distinctions between third-country service suppliers andinternal or domestic suppliers.  Third countries should actually benefit from this process.
13. The representative of Korea requested the EC delegate to explain the scope and content of the
White Paper.14. The representative of the European Communities explained that white papers generally were
issued when the EC was undertaking a major initiative to set out the main principles and provide
guidance on how to achieve the objective.  The objective of the White Paper in question was to
prepare the associated countries for fuller integrati on into the EC's internal market, so as to allow
them to have the proper legislation.  The White Paper thus focused on the EC’s “Four Freedoms” for
realizing the internal market:  free movement of capital, the right of establishment, the supply of
services on a cross-border basis and consumption of services by companies or citizens in one memberState to another member State, and the free movement of persons (in this context, persons supplying
services).  The process went beyond the Four Freedoms, as there was a good deal of supporting
legislation involved in achieving the internal market.  So, the White Paper was a guide on how the
association countries had to prepare new legislation, adjust existing legislation and “re-regulate” so
that their regimes would be compatible with the EC’s internal market.
II. PROVISIONS AFFECTING TRADE IN SERVICES
3. Restrictions Remaining in Force
15. The representative of Canada noted that the reply to question 8 said the reason for the
exemption for transport services was that there was a tendency for the Parties to regulate this sector by
bilateral agreements instead of covering them in the Europe Agreement itself.  This was also the case
in some other agreements notified under GATS Article  V.  He would note, however, that the transportWT/REG50/M/3
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sector which was excluded here accounted for a significant share of the trade in services, according to
the statistics provided.  Were the Association Counc ils looking into this matter, and were there any
plans to bring these services under the scope of these Agreements in the near future?
16. The representative of Japan requested elaboration on the workings of the Association
Councils.  Information provided said “the Association Council has the option of making
recommendations for the improvement of establishment and operation in these sectors”.  Did the
Agreements each include specific provisions author izing the Association Council to do so?  How was
the Association Council formed and organized?  Were its recommendations legally binding?  If so, it
seemed the recommendations would become an integral part of the Agreement itself.  Moreparticularly, information submitted on the EC-Hungary Europe Agreement indicated that the
Association Council was charged with regularly examining whether legal services and the
organisation of gambling, betting, lotteries and similar activities could be brought under the scope of
the Agreement.  Was there a provision mandating the Association Council to do so, and would the
results of such an examination be legally binding?
17. The representative of the European Communities had some comments addressing the extent
to which the Europe Agreements had “substantial coverage”.  It had been suggested that transport was
substantially not covered while the statistics showed the sector to be important in the Parties’ trade
relations.  However, most of the trade in transport was covered by the Europe Agreements, as seen inthe chapter on the supply of services.  Most trade in transport was done on a cross-border basis, and
this part was covered.  What was not yet covered and what needed to be done on an ad hoc  basis
during the transition period, based on recommendations by the Association Council, was the
establishment part of transport, which was much more complicated.  Once a Party took up this
question of the conditions of establishment for tran sport companies (air transport, inland transport,
shipping companies) in the Association Council, th e decision that would follow from the Association
Council would be binding and would be an integral part of the Europe Agreement.  This demonstrated
again that the Europe Agreements were framework agreements, where the foundations for full
liberalization had been laid but not yet implemented.  So, the transport sector was not excluded;
rather, the Agreement provided that parts of the transport sector would be dealt with later, when the
Parties had better examined the way in which th e transport companies in the different areas were
organized.  It should be remembered that the bulk  of trade was done by cross-border supply.  For
example, in maritime transport, the area where establishment mattered was maritime agency
companies, to the extent that this was relevant.  (In a country like Hungary this was almost irrelevant,
though as a matter of principle it was not excluded.)  There were reciprocal rights of establishment.
In the Association Council the Parties had already undertaken initiatives and negotiations with respect
to inland waterway and road transport.  Her dele gation could provide more detailed information, but
certainly there was no exclusion, and the substantive trade that took place in transport was already
covered.  For historical reasons and local specificities of adjacent countries, the Parties needed to treat
this transport on a bilateral basis and not just according to the general principles of liberalization.  No
initiatives had yet been taken for the other sectors mentioned (i.e. gambling or other minor services
activities so far excluded from the basic principles of the Europe Agreement).
18. The representative of the United States asked if there were provisions relating to
establishment in these transport sectors that were not applicable to the entire EC, but rather only to
individual EC members with respect to the association partner countries.
19. The representative of Canada said his delegation would welcome further information on the
exact nature of the coverage.  Perhaps it was a matte r of semantics, but the statement that substantive
trade was included did not seem to comport with the written responses, which for all three
Agreements read: “air, inland waterway and maritime cabotage transport services are excluded fromWT/REG50/M/3
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the scope of the provisions on establishment and operation”.  If these were not excluded, Members
needed to know what was excluded.
20. The representative of the European Communities said that the information which the Parties
had submitted should be read in its totality.  In GATS terms, Members knew how much trade was
represented by maritime cabotage and how difficult it was to liberalize.  Most of air transport was
carved out from the GATS, so her delegation had no demonstration to make on that part of air
transport under Article V.  For the rest of maritime transport, all other activities except cabotage were
covered by the Agreements.  What was not yet covered - which was a different matter from what was
excluded - was the establishment part of transport.  The bulk of transport trade was throughcross-border supply.  Given the interest expressed, her delegation would provide more precise
information on the various degrees of liberalization undertaken so far .  With respect to the question on
bilateral agreements, she replied that yes, there were a number of bilateral agreements (e.g., Poland
with Germany or Austria); her delegation would provide additional information on this as well .
7. Safeguards
21. The representative of Canada said the written replies had indicated that the only form that
safeguards could take was a temporary limitation on the establishment of foreign companies and
nationals in a sector, and this type of safeguard was not to conflict with the GATS commitments ofthe Party concerned.  Did that mean that a Party could take a safeguard action only in a service sector
in which there was no GATS commitment for that particular Party?  Would the safeguard action only
be applied against EC nationals and firms, or would it be applied against all foreign service suppliers
in the affected sector?  It would seem that the application would be with respect to EC service
suppliers only, since presumably that was where much of the injurious impact would arise.  Inprevious meetings his delegation had asked about th e criteria for the application of a safeguard.  Had
there been any experience of the various Association Councils in this area, or had any administrative
guidance been established for the implementation of these provisions?  Finally, the replies indicated
that the Association Council was required to give explicit authorization for any measure taken from
the sixth year onward during the transition period; pr ior to that time, how would the Party take action?
Would action be taken without the authorization of the Association Council?  Why was there a need
to provide for review by the Association Council only after the sixth year, and not in the first trancheof implementation?
22. The representative of Japan said that in the written replies the Parties indicated that safeguard
measures could “take the form of temporary limitations on the establishment of foreign companies
and nationals...”  Did this mean that the measures were only applied to Mode 3, and not Modes 1, 2 or4?  Her delegation would also appreciate further clarification on the conditions for the application of
the measures and on the Parties’ experience in this regard.
23. The representative of Korea said GATS Article X did not establish emergency safeguard
provisions, but rather provided that “there shall be multilateral negotiations on the question of
emergency safeguard measures...”  The only time Members (including those which were parties to
regional trade agreements) were permitted to maintain such safeguard provisions was in a case fitting
Article X:2.  First, how then were the safeguard provisions of these Europe Agreements consistent
with this Article?  Second, the replies indicated that most safeguard measures had to cease to apply by
the end of the eighth year after entry-into-force, and all had to end by the end of the ten-yeartransitional period, unless exceptionally extended with the agreement of the Association Council.
What were the criteria for applying safeguards under the Europe Agreements, in terms of the surplus
of imports and injury to domestic industry?  Third, in the replies it was stated:  “measures must not
lead to discrimination against the Community companies already established in the country
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third-country companies already established in the country concerned?  Fourth, the Association
Council was charged with dealing with safeguards.  What was the function of the Association Council
in this regard - did it conduct an investigation assessing injury prior to making a recommendation tothe Parties?
24. The representative of the European Communities said the interest in the Europe Agreements'
safeguard provisions seemed to stem in part from the WTO’s ongoing negotiations for a GATS
safeguard clause.  So far the safeguard clause, which had been built into the Europe Agreements as a
safety valve, had not been invoked.  The Parties had not elaborated disciplines to control it or to
implement it; they had agreed to do this when the need to invoke it would arise.  It was possible to
invoke it only in the bilateral context, between the EC and its 15 Member States vis-à-vis  one of the
association countries, and vice versa.  A Canadian company, for example, that was established in the
EC would be considered as an EC company, whic h meant not only that Canada would benefit from
the Europe Agreement but also that the company would be treated as an EC company in the sense of
having establishment rights in the association country and being subject to a safeguard enforceableagainst the EC.  At the time that these Europe Agreements were concluded, there were no multilateral
disciplines in this regard, and there still were not; however, if such disciplines were developed, the
Parties would invoke or apply safeguards in full compliance with the multilateral obligations.  Again,
to date the safeguard clause of the Agreements had not been invoked.
25. The representative of the United States said that since the safeguard provision seemed to
apply to the establishment aspect of these services, it was unclear how bilateral agreements relating to
establishment in services were affected by the Europe Agreements.  Did the Europe Agreements'
safeguard provisions take precedence over liberalizing elements contained in those bilateral
agreements?
26. The representative of Hungary wished to address the question posed by the delegations of
Canada and Japan.  First, as had been mentioned, the Europe Agreement should be seen with historic
perspective:  at the time when the Agreement was negotiated, Article 50 had been viewed as
necessary, in view of the fact that some services industries were emerging industries, at least in
Hungary.  It also should be noted that Article 50 had never been invoked by Hungary, so there was no
corporate experience regarding the application of that Article.  Of course, should a case arise,Hungary would respect all of its obligations under th e WTO.  As noted by the EC representative, there
was no guidance for the criteria for applying the provision.  In fact, it seemed that there was no need
to develop such guidance, and the Parties had no working plans in this regard.  Second, according to
the text, it was up to the country proposing the measure to demonstrate the necessity of invoking
Article 50. The criteria might be similar to those used in the goods area, based on such factors as aserious decline of employment in the sector or a loss of market share, etc.  In practice the Association
Council had never dealt with this issue.  The text said a safeguard could be applied until a maximum
of two years after the end of stage one of the transition period (or, to protect a service industry, two-
and-a-half years); this year would mark the end of stage one, so in principle a safeguard could be
applied until the end of 2000.  Looking at the matter from the business side, it seemed unlikely thatHungary would raise any safeguard issue.  If a prob lem arose and there was a question in that regard,
Hungary might introduce a measure after a consultati on procedure with the EC.  But that possibility
would be reduced after stage one of the transition period.
27. The representative of Korea asked, if Hungary and others needed to impose safeguard
measures against imports of a third country, did it need to have consultations?  Through a safeguard
measure, commitments were modified or withdrawn, so consultations were needed regarding the
measure taken by the Party.WT/REG50/M/3
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28. The representative of the European Communities said the safeguard mechanism between two
Europe Agreement Parties did not affect multilateral commitments of the WTO, and therefore there
was no need to consult with third parties.  Third-party access into any of the partner countries was notaffected by the Europe Agreements, but rather was run by the multilateral WTO commitments.  As his
delegation had explained, an investment from a third party, on the condition that there was an
effective economic presence in one of the Parties, would be treated as an establishment of one of the
Parties themselves and therefore benefit from the improved market access conditions over and above
the WTO.  The safeguard action regulated only the bilateral relationship and was not affecting rights
set down under the WTO.  So there did not seem to be a need for consultations regarding effects on
the WTO rights of any Member.
29. The representative of the United States clarified his question, using the example of where a
Germany-Poland agreement provided liberal terms with respect to establishment in transport.  In such
a case, would an Association Council imposition of a safeguard measure in that sector override the
provision in the bilateral agreement, so that the safeguard would be applied on an EC-wide basis, orwas there a carve-out because of the other bilateral agreement?
30. The representative of the European Communities said such a matter would need to be
considered on an ad hoc  basis, as was the case for any safeguard action being invoked.  The scope of
a bilateral agreement would need to be looked at  in terms of the rights provided, but it seemed
unlikely that a bilateral agreement would override the EC treatment resulting from the Europe
Agreement.  In any event, the safeguard action went only in one direction, i.e. it was only the
association country that could invoke it or stop esta blishment from the EC to that country.  So, the
question seemed purely theoretical.
31. The representative of the United States said this seemed logical, in light of the fact that the
Europe Agreements specifically excluded establishmen t in the transport sectors.  There was also the
question of whether it would be possible to invoke a measure dealing with establishment, based upon
injury due to cross-border services in any of the sectors.  That would be the situation when this
hypothetical example could develop, at least with respect to the transport sector.  Could injury caused
by Modes other than Mode 3 result in a Mode 3 measure?
32. The representative of the European Communities reiterated that the Parties had not yet
devised all the modalities, but the logical approach would be that safeguards should be taken where
injury was caused.  Therefore, if injury was caused in Mode 3, a safeguard should address that; if the
injury came from another Mode, however, there seemed to be no reason for a safeguard to be taken on
Mode 3.  There ought to be a logical link between the injury and the safeguard action proposed.  Butagain, this was one of those modalities which would need to be looked at if a situation arose.  For the
moment nothing had arisen, and it seemed hi ghly unlikely that anything would arise.
33. As there were no further questions, the Chairman proposed that the Committee request the
Secretariat to prepare minutes for this round of  examination.  There remained some outstanding
questions to be addressed in a written exchange, w ith a document then to be issued and circulated.
There had been a request to have another round of examination to allow follow-up questions and
comments on information recently circulated.  If documents could be distributed well in advance of
the next Session, it seemed the Committee would be able to finalize the process of the factual
examination and embark on the process of drafting a report.
34. The Committee took note of the comments made.
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