RESTRICTED
WORLD TRADE S/WPGR/W/19
25June1997
ORGANIZATION
(97-2793)
Original: English Working Party onGATS Rules
COMMUNICATION FROM SINGAPORE
Emergency Safeguard Measures
Thefollowing communication iscirculated attherequest ofSingapore toMembers ofthe
Working Party onGATS Rules.
___________
Introduction
1. TheWorking Party onGATS Rules (WPGR) hastodatediscussed extensively thedesirability
andfeasibility relating toEmergency Safeguard Measures inServices (ESM). TheWPGR deliberations,
theresponses tothequestionnaire andthepapers thathavebeensubmitted ontheissue havebrought
anumber ofconceptual problems totheforefront, particularly inthecommercial presence mode. The
conceptual andthestatistical problems inservices datahaveunderlined thedifficulties involved in
designing ESM.
2. Theanalytical exercise should alsoinvolve alisting ofpossible means toaddress theissue of
serious injury and/or thethreat ofserious injury intheservices trade. Besides addressing some
definitional issues, thispaper alsoexamines possible measures toaddress suchinjury, viz.ESM, GATS
Article XXI(modification ofschedules) andWTO Article IX(waiver).
Definition ofDomestic industry
3. TheSecretariat paper (S/WPGR/W/8) andthevarious responses havegiven varying notions
ofthedefinitionofdomesticindustry.SomeresponseshavepointedoutthattheuseofESMstosafeguard
national service suppliers attheexpense offoreign service suppliers already established intheterritory
ofthemember could leadtounnecessary discrimination andharm totheeconomy. Theyhavetherefore
suggested thatthedefinition ofdomestic industry should encompass bothnational andforeign suppliers
suchasintheSafeguards Agreement ofGATT 1994.
4. Wearehowever oftheviewthatthisdefinition maynotbesufficient intheservices context.
Since national treatment (GATS Article XVII) andmarket access (GATS Article XVI) arenegotiable
intheGATS, amember maybeexpected tomake adistinction between national andforeign service
suppliers andtocalibrate national treatment inorder toaccord phased protection/favourable treatment
fornational service suppliers. Thus, itmaybeappropriate fortheGATS toexamine theneedtohave
separate definitions fornational service suppliers andforeign service suppliers. Aproblem ofnational
ownership mayariseinthecaseofjointventures between national andforeign services providers.
Some criteria e.g.percentage ofequity mayhavetobeagreed onnational ownership forpurpose of
ESM.S/WPGR/W/19
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ThecaseforESMs
5. Anumber ofdelegations haveargued thatitmaynotbenecessary todesign specific ESMs,
along thelinesofGATT 1994Article XIX, since theGATS already contains anumber ofsafety valve
articles, viz.,Article II(MFN Exemptions), Article XII(BOPs), Article XIV(General Exceptions),
Article XIVbis(Security Exceptions), Article XVI&XVII (Scheduling ofCommitments) and
Article XXI(Modification ofSchedules). Other delegations arehowever oftheviewthatthesaidarticles
maynotprovide forunforeseen emergency situations. They havealsoargued thattheprovision of
ESMs intheGATS would provide theincentive andcomfort fordeveloping countries tobemore
forthcoming withtheircommitments.
ESMs intheGATS
6. Conceptually, ESMs intheGATS would bedifferent from safeguards ingoods because of
tworeasons. First, GATT 1994Article III(National Treatment) obligates members toaccord similar
treatment todomestic andimported (foreign) products. Itissilent ontreatment offoreign producers
orproduction inthehostcountry. However, GATS Article XVII (National Treatment) applies to
scheduled sectors only, which could besubjected tomarket access andnational treatment limitations.
Second, inthegoods sector, trade iseffected through thecross-border movement oftheproducts.
Through cross-border measures, acountry could effectively control thequantity ofthegoods thatcan
enteritsmarket. Thisisnotthecaseintheservices trade, especially inthecommercial presence mode.
Once foreign service supplier/s havebeenallowed toestablish operations inamember ’sterritory,
theycould continue toexpand theirproduction/supply evenafterborder measures areapplied subject
towhether limitations thatarespecified inthecountry schedule.
Measures toaddress injury
7. Ifnational service supplier/s suffer serious injury orfacethethreat ofserious injury1,beyond
whatcannormally beexpected when schedules aresubmitted, themember concerned could havethe
following options: (a)theESM route; (b)GATS Article XXImodification route ;or(c)theWTO
Article IXwaiver route.
(i) TheESM route
8. Atemporary ESM could beeffected byregulating theforeign service supplier ’smarket share
andscaleofactivities/operations through suspension ofscheduled market access andnational treatment
obligations. However, theESM should adhere tospecific rules2andbesubject toapproval bythe
Council forTrade inServices (CTS) oraSafeguards Committee.
9. ESMs inthecommercial presence mode maybeapplied toboththepre-andpost-establishment
phases. Whereas aESM could beapplied withrelative easeinthepre-establishment phase, itisnot
thecaseinthepost-establishment phase. Application ofESMs inthepost-establishment phase may
involve thereversal orsuspension ofnational treatment andmarket access forcompanies already
established. Itmaygiverisetodivestment problem. Canforeign service suppliers already established
1Inascertaining whether serious injury hastaken place orasupplier faces thethreat ofserious injury, the
concepts andtestsinArticle 4:2(a)ofthesafeguards agreement such asdrastic decline (andrateofdecline)
inrelative market share orprofitability could beutilised.
2suchasdigressivity, MFN application, specified duration andadequate advance notice, among others.S/WPGR/W/19
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beasked tode-register ordisband theiroperations? Would domestic lawspermit this? Theissue of
ESM inthepost-establishment phase thusneeds further analysis. Weagree, however, thatthereshould
benodivestment arising from ESM.
10. ESMs inthecommercial presence mode could beeffected inthefollowing ways:
(i) themarket access route involving theregulation ofentry ofnewforeign suppliers intothe
domestic market evenifthemarket access schedule allows formore foreign service suppliers;
(ii) thenationaltreatmentrouteinvolvingtheregulationofthescale/extentofoperationofestablished
foreign service suppliers (e.g.inthebanking sector, amember could impose limits onnew
lending activities byforeign banks);
(iii) acombination ofboththemarket access andnational treatment routes.
Economic Welfare argument
11. TheissueofeconomicwelfaremayariseintheuseofESMs.UnliketheGATT1994Safeguards
Agreement, theuseofESMs intheGATS could reduce theoverall domestic output andemployment.
Inthegoods sector, domestic output isbound toincrease asaresult ofprotection andattheexpense
ofimports. Thismayalsoleadtoariseindomestic employment. However, theeconomic impact
ofESMs intheGATS isuncertain. Whereas theoutput ofnational service suppliers would increase,
theoutput offoreign service suppliers maydecline duetonewrestrictions.
(ii) TheArticle XXIModification route
12. Some delegations have suggested thatsubject toconditions likeprior notification and
compensation, theArticle XXIroute maybeemployed. This route hashowever three serious
shortcomings. One, itisonlyavailable threeyears afteracommitment hasbeenmade. Two, itcould
onlybeusedafterthree months following thenotification oftheintention tomodify schedules. (In
theview ofESM advocates, boththeabove conditions reduce thescope formembers toaddress
unforeseen emergency situations). Three, itinvolves compensation. Some haveargued thatmeasures
taken forlegitimate emergency situations should notinvolve compensation. Inaddition, thepeculiarities
oftheservices trade (i.e.difficulty indetermining unitoutput andmarket share) makes itdifficult to
determine theequivalent levelofcompensation. Nonetheless, itmaybeuseful fortheCTStoexamine
thisroute asanalternative totheESM.
(iii) TheWTO Article IXwaiver route
13. Some delegations havesuggested thatiftheconceptual andstatistical problems arenotclarified
byend1997 andconsequently anacceptable outcome isnotforthcoming bythattime, theWPGR
should extend themandate ofGATS Article Xfor,say,another twoorthreeyears. However, inorder
tokeepthepolitical impetus forcontinued liberalisation intheservices sector trade, theWPGR could
contemplate aninterim solution. Theinterim solution could betheWTO Article IXwaiver route.
Itcould taketheformofamulti-year waiver granted inaccordance withWTO Article IXandthereafter
subjected toregular annual review. Aslongasthetwobasicrequirements forawaiver, ie.“exceptional
circumstances ”andthe“terms andconditions ”aremet,thewaiver canbeextended annually until
itstermination.
14. Ourviewisthatthecriteria andcircumstances fortherequest forawaiver under Article IX
would beverydifferent from thatunder ESM. Itwould notbeproper torelax waiver rules simplyS/WPGR/W/19
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toaccommodate aESM situation. Forexample, thequestion ofMFN mayariseinthegrant ofawaiver
foratemporary period forthepurpose ofESM. Thisisasystemic issue which theWPGR hasto
examine carefully.