RESTRICTEDWORLD TRADE
ORGANIZATIONS/WPGR/W/27/Rev.1
7 May 1999
(99-1867)
Working Party on GATS Rules
ISSUES FOR FUTURE DISCUSSIONS ON EMERGENCY SAFEGUARDS
Note by the Secretariat
Revision
1. The Secretariat has prepared this revision of an earlier Note, dated 20 November 1998, at the
request of the Working Party on GATS Rules.  The revision takes into account the discussion of
safeguard-related issues which took place in the Working Party's meetings of 1 December 1998,
19 February 1999 and 16 April 1999.  For ease of reference, any substantive changes over the initial
version are indicated in italics.
2. The paper considers first, alternative forms that a safeguard mechanism under the GATS may
take.  It then elaborates on issues for further discussion, building on an outline submitted by
Venezuela (Job No. 5412, dated 14 October 1998), contributions by Members in Working Party
meetings, and the precedent in Article XIX of GATT 1994 and the Agreement on Safeguards.
I. Alternative forms of a safeguard mechanism
3. Members have suggested several alternative forms for a possible safeguard mechanism under
the GATS.  One view has been to model it closely on the mechanism in the goods area.  Such a
mechanism could include quantitative criteria and procedural restraints .  The applicability of
concepts in the Agreement on Safeguards (AS) to the GATS context has been discussed in a previous
Note by the Secretariat (S/WPGR/W/8 ).
4. A second view has been to include safeguard-type provisions for specific sectors in a
Member's schedule of specific commitments (this view has been expressed in a Communication from
the United States, S/WPGR/W/17).  Rules may still need to be developed to be followed by Members
who include such safeguard-type provisions in their sc hedules.  It has been suggested that such rules -
general, sector-specific or mode-specific - could include the requirement that a Member including a
safeguards-type provision in its schedule in a given sector must combine it with a commitment toliberalization in that sector.  The extent of libera lization which would justify inclusion of a safeguard
provision would presumably be determined throug h negotiations between the concerned Member and its
trading partners.  Concerns have been voiced, however, that the ability to negotiate the inclusion of
safeguards may depend on bargaining pow er, thus disadvantaging small ec onomies;  that it could prove
conceptually and politically difficult to identify sectors where "unforeseen circumstances" are likely to
occur or otherwise earmark potential  areas for safeguard action;  and that there is no legal basis in the
GATS to underpin a conditional and/or sector-specific approach to safeguards.
5. A third model is contained in Article 5 of the Agreement on Agriculture.  The relevant
provision does not require injury to domestic industry as a basis for safeguard action.  Actions are
triggered by import volume increases or import price reductions, and permit the imposition of
additional duties up to specified limits.  The volume trigger , which leads to the non-discriminatory
application of additional duties, is sensitive to the degree of import penetration, while the pricetrigger, which may result in additional duties on a consignment-by-consignment basis, is related to
certain base-year prices in domestic currency.  There have been doubts, however, whether such
intense data requirements could be met in services .  On the other hand, it has been argued that data
problems also exist in the area of goods; they should not prevent the development of a mechanismS/WPGR/W/27/Rev.1
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which is sufficiently flexible in terms of quantitative evidence and includes appropriate procedural
constraints.
6. A fourth alternative could be modelled on Article 6 of the Agreement on Textiles and
Clothing which provides for a transitional safeguard mechanism for products not yet integrated into
GATT 1994 and not subject to restriction.  Special treatment is envisaged when applying safeguards
against small exporters, least-developed countries, wool producers, outward-processing trade andcottage industries.  Member s need to demonstrate that a particular product is being imported from the
country in question in such increased quantities as to cause serious damage, or threat thereof, to the
domestic industry producing like and/or directly competitive products.  The safeguard is applied
selectively to particular exporters.  It has been argued, however, that this seems to contravene the
non-discrimination principle enshrined in Article  X and imply significant data requirements.
7. Recent discussions have focused on the pros and cons of sector-specific versus horizontal
safeguards.  A conceptual distinction has been made in this context between those sector-specific
safeguards which would be negotiated case-by-case for inclusion in schedules and those which would
be based on some commonly agreed principles.  In addition to the reservations mentioned above(para. 4), it has been noted, however, that the parallel existence of several safeguard variants could
lead to fragmentation of the system and affect transparency.  A horizontal mechanism, based on
generally applicable criteria, would be available to all Members whenever the situation in a given
sector and, possibly, mode of supply meets the relevant criteria.  However, apart from questions
concerning desirability, doubts have been expressed whether such a broad-based mechanism could be
made subject to effective disciplines (see also Section II.5).  The idea has also been discussed that a
safeguards mechanism conceived for general application might be made available only in sectors
considered prone to crises situations.  The selection of such sectors, however, might prove difficultand could unduly affect trade and investment decisions.
II. List of issues for future discussions
1. Definition and scope of safeguards in services
- Active subject:  who applies the safeguard?  E.g. government, professional
associations, central banks
8. Safeguards would normally be applied by a Member.  It is conceivable that a Member may
delegate the responsibility for action to a particular agency.  Under the GATS, measures by Members
are defined broadly to include measures taken by central, regional or local governments, as well as
non-governmental bodies in the exercise of power s delegated by the government.  Governments can,
therefore, be held accountable in the WTO for decisions or actions affecting trade in services by non-governmental bodies, such as those regulating particular service sectors, which exercise delegated
powers.  This may be relevant if such bodies were to have responsibility for the administration of
safeguard action.  Another view is that safeguard actions should be taken only by governments, thus
excluding agencies with delegated powers.
- Passive subject:  to whom is it applied?  Country, industry of a country, specific
company
9. There are two related aspects of this question:  first, on whose behalf is safeguard action taken
and second, against whom such action is taken.  In the goods case, safeguard action is taken on behalf
of a domestic industry - defined to mean the producers as a whole of the like or directly competitive
products operating within the territory of a Member, or those whose collective output of the like or
directly competitive products constitutes a major proportion of the total domestic production of thoseproducts.  In the Working Party, one view has been that the goods precedent should be followed, and
safeguard action be taken to protect all domestically established suppliers of like or directlyS/WPGR/W/27/Rev.1
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competitive services , regardless of ownership and control.  According to this view, it would not be
desirable to use, for the purpose of safeguard action, the relevant definition in GATS Article XXVIIIto determine what constitutes national industry.
10. Another view has been that safeguard action should be available to protect the national
industry, which is understood to mean all natural and juridical persons of the Member taking the
measure who supply like or directly competitive services.  According to this view, the distinction
between national and foreign entities should be based on the relevant definition in GATS
Article XXVIII.  While it  has been argued that some Members' domestic legislation would not allow
for such a distinction to be made, it has also been noted that there would be no obligation to
introduce it .
11. The response to the second aspect of the question, concerning against whom safeguard action
is taken, depends on the response to the first aspect: all those who do not benefit from such action
would suffer its consequences.  Thus, it would seem that safeguard action could either only be taken
against suppliers of the like or directly competitive products located outside the territory of theMember taking such action, or also against foreign suppliers of such products located in the territory
of the Member.  Two observations are relevant.  First, even Members who wish to make a distinction
within the class of domestically established suppliers on the basis of nationality have stated that
"acquired rights" of foreign suppliers should be respected, and measures which force disinvestment
must not be taken.  (It would be necessary to ex amine closely what is meant by the protection of
acquired rights and whether this would be consistent with MFN.)  Second, given the Article X
requirement that any emergency safeguard measures be "based on the principle of non-
discrimination", it is clear that safeguard action cannot be selective, but must be applied on an MFN
basis to all foreign services and service suppliers.
- Objective:  What is covered? All kinds of services?  Which sectors?  Which modes of
supply?
12. One view has been that a general safeguard provision be created under Article X which would
cover all services and sectors.  Another view has been that safeguard action should only be available
for certain sectors where it is possible to produce adequate quantitative evidence.
13. With regard to modes, it has been argued either  that safeguard actions be taken with respect to
all modes of supply  or that it would be for the invoking Member to decide on the modal coverage,
based on the policy objectives involved .  The argument has been advanced that mode-specific
safeguard action could create economic distortions, and that such action may not be effective since it
could be circumvented by foreign suppliers switching to unrestricted modes.  However, this possibility
should not be overestimated as switching between modes may imply significant costs.   The other view
is that action can only be taken with respect to certain modes.  The argument is that it may be
counterproductive to target all modes;  for instance, if the purpose of safeguard action is to preventunemployment, it may not make sense to restrict new investment or to take action against locally
established foreign firms.  The issues discussed under the previous item may also be relevant.
2. Situations justifying application.  Type of injury .
14. One view is that we should follow the precedent of Article XIX of GATT 1994 and of the
Agreement on Safeguards .  The determination of whether increased imports have caused or are
threatening to cause serious injury to domestic industry should be made by employing, mutatis
mutandis, the rules provided for in Article 4:2(a) and 4:2(b) of the Agreement on Safeguards:
"(a) In the investigation to determine whether increased imports have caused or are threatening to
cause serious injury to a domestic industry under the terms of this Agreement, the competentS/WPGR/W/27/Rev.1
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authorities shall evaluate all the relevant factors of an objective and quantifiable nature having
a bearing on the situation of that industry, in particular, the rate and amount of the increase inimports of the product concerned in absolute or relative terms, the share of the domesticmarket taken by increased imports, changes in level of sales, production, productivity,capacity utilisation, profits and losses, and employment.
(b) The determination referred to in the subparagraph (a) shall not be made unless this
investigation demonstrates, on the basis of objective evidence, the existence of the causal linkbetween increased imports of the product concerned and serious injury or threat thereof.When factors other than dramatic increased imports are causing injury to the domesticindustry at the same time, such injury shall not be attributed to increased imports."
15. It may be deemed appropriate to substitute the notion of "consumption of foreign services" for
"imports" to cover supply through each of the four  modes;  it would also need to be considered
whether references should be to "domestic i ndustry", as above, or to "national industry".
16. The other view is that it is likely to be difficult in the area of services, given the state of
statistics, to demonstrate injury and show that it is caused  by increased imports.  However , it has been
noted that data problems in the goods area had not prevented the creation of anti-dumping and
similar mechanisms, which rely heavily on empirical information.
17. It has also been suggested that any safeguard action should also take into account the wider
public interest, and not only industry-specific considerations.  Article 3 of SA could be used in this
regard.  However, it may be necessary to clarify the concept of "public interest" which, accordingto one view, seems to allow for too much leeway at present.
18. To facilitate for future work, it might be helpful to develop a clearer view of the
circumstances justifying safeguard action;  it has been noted that mere reference to "unforeseen
developments" may not be sufficiently precise.
3. Temporary or provisional measures – periods of application
19. Members seem to agree that any safeguard measure must be temporary.  There is also a view
that any safeguard measure should be progressively liberalized during the period of application.
Article 7 of the AS dealing with Duration and Revi ew of Safeguard Measures may be relevant.  This
provision contains detailed rules on the length of time for which safeguard measures might be applied,and the interval that must elapse before a new safeguard measure may be introduced on a product that
has previously been the subject of safeguard action.  It has been suggested to pay particular attention to
the principle  of adjustment in defini ng terms and modalities of safeguard action.
20. With regard to provisional safeguard measures, it may be useful to consider Article 6 of the AS
which permits the adoption of such measures in “critical circumstances where delay would causedamage which it would be difficult to repair ... pursuan t to a preliminary determination that there is clear
evidence that increased imports have caused or are threatening to cause serious injury”.
4. Compensation
21. One view is that Article 8 of the AS could be used as a model.  Reservations have been
expressed, however, in regard of certain definitional uncertainties and difficulties in determining the
level of compensation.  Another view is that the need for compensation could be made contingent on
the type of adjustment envisaged and the nature of the services-industry involved.  Reference has beenmade to the concept of special and differ ential treatment of developing countries.S/WPGR/W/27/Rev.1
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5. Applicable procedures.  Investigation of in jury.  E.g. statistics, income-tax and VAT
declarations, growth of the bound sector
22. No detailed views have been expressed, but it seems obvious that an investigation would be
required.  Article 3 of the Agreement on Safeguards dealing with investigation has been suggested as
a starting point .  This provision stipulates that a safeguard measure may only be applied following an
investigation, and prescribes the procedures that must be followed.  For the determination of injury,
the concepts contained in Article 4.2(a) of the AS have been proposed as relevant.  The causality
requirement in the area of goods, i.e. Article 4.2(b) of the AS, should be translated into the services
context, provided some key terms were modified .  The Agreement on Implementation of Article VI of
GATT (Antidumping Agreement) has been cited as an approach which provided for the necessary
flexibility in injury determinations, allowing for action based on "best information available" and for
the possibility of consultations with affected Members during an investigation .
23. Indicators to be used in establishing injury might include: losses experienced by domestic
suppliers;  decline in capacity utilisation;  capacity reductions;  decline in sales;  declining
productivity;  reduction in prices or changes in the price structure;  declining number of domestic
suppliers;  and shrinking employment.  An increase in foreign supplies would be reflected in:  tax
declarations (e.g. for sales taxes);  indicators relate d to financial transactions;  statistics maintained
by competent professional associations or regulators (including information on market shares ornumber of foreign professionals);  capital flows;   and revenue figures.  For the determination of
causality, data series (performance before and after market entry) could be used in the same way as
in the goods area;  the burden of proof would rest on the invoking party.  It has been noted that any
type of administrative information might be used;  the standard of proof in such instances would not
need to be as high as in penal cases .
24. While concerns have been expressed that such information, if it were available, would be
subject to confidentiality constraints, it has also been noted that similar constraints have not proved a
problem in antidumping or safeguards cases for goods.   Article 3:2 of SA specifies the treatment of
confidential information.
6. Applicable measures.  National treatment and non-discrimination principles
25. There seem to be agreement that safeguard actions should only be applied to the extent
necessary to prevent or remedy serious injury and to facilitate adjustment, as is required by Article 5of the AS.  Safeguard action could take the form of  temporary market access restrictions or temporary
suspension of the national treatment principle. While it has been suggested that measures could also take
the form of foreign exchange restrictions and lim itations on the movement of capital, this may raise
questions of consistency with GATS Article XI.  It is conceivable that safeguard actions involve the
temporary suspension of other obligations, resu lting for example from addi tional commitments under
Article XVIII, but no detailed views have been expressed so far.  Similarly, there has been no in-depth
discussion of whether specific types of measures (e .g. subsidies) should be deemed preferable to others
(e.g. quotas).  However, the possibility has been raised  of limiting the scope of safeguard actions only to
measures falling under Article XVI.
26. Some of the issues discussed under other items, such as those pertaining to the modal
application of safeguard action, are also relevant.
7. Notification and Transparency
27. Members have emphasized the need for transparency and advance notification, but no specific
discussion has taken place.  The relevant elements of the AS include:  Article 3 on Investigationwhich requires public notice to interested parties, public hearings and publication of findings;
Article 12 on Notification and Consultation which requires notification to the Committee onS/WPGR/W/27/Rev.1
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Safeguards at each stage on initiation of an investigation, finding serious injury, and taking a decision
to apply measures, as well as giving Members with substantial export interest in the product an
opportunity for prior consultations;  and Article 13 on Surveillance which establishes the Committee
on Safeguards with responsibility inter alia  for monitoring the implementation of the AS.
8. Special and differential treatment
28. Some Members have suggested that there should be special and differential treatment for
developing countries.  Article 9 of the AS dealing with Developing Country Members may be
relevant.  This provision stipulates that safeguard measures shall not be taken against a product
originating in a developing country Member as long its share of imports of the product concerned in
the importing country does not exceed certain threshold levels.  The provision also allows developing
countries greater flexibility with respect to the length of time for which safeguard measures might be
applied, and the interval that must elapse before a new safeguard measure may be introduced on a
product that has previously been the subject of safeguard action.
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