RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG39/M/4
13 October 1998
(98-3941)
Committee on Regional Trade Agreements
Nineteenth Session
EXAMINATION OF THE TREATIES ESTABLISHING
THE EUROPEAN UNION, SERVICES
Note on the Meeting of 24 September 1998
Chairman:  Mr. Chul-Ki Ju (Korea)
1. The Committee on Regional Trade Agreements took up the examination of the services
aspects of the Treaties Establishing the European Union under Agenda Item F.V of its NineteenthSession, as found in Ai rgram WTO/AIR/915/Rev.1.
2. The Chairman recalled that the first meeting devoted to the examination of the services
aspects of the Treaties Establishing the European Union had taken place in November 1997, with two
other rounds having taken place during the Seventeenth and Eighteenth Sessions.  Minutes of those
meetings could be found in documents WT/REG39/M/1, 2 and 3.  In addition to the Standard Format(WT/REG39/1), the Committee had before it a follow-up document containing questions and replies
(WT/REG39/2) according to the same layout.  Th e representative of the European Communities had
informed him that she intended to respond orally to outstanding questions during the current round of
examination.  It appeared the Committee was approaching the finishing stages of the factual
examination; with that in mind, he reminded Members of the desirability of moving on to the phase of
considering the examination Report.
3. The representative of the European Communities said she would respond orally to the
questions that her delegation had received in writing; her delegation had not yet been able to prepare
replies to every question submitted, so it would wait until all the answers were compiled before
submitting replies in writing.  The reason her delegation had not finalized that document was that
many questions did not pertain to this examination exercise.  It should be noted that at the time of
concluding the Uruguay Round negotiations, commitments had been negotiated as one entity, asreflected in the EC's single Schedule of Commitments.  The purpose of the examination was to
identify whether, as an integration, barriers had been raised vis-à-vis  third countries.  She did not see
how it was technically and legally feasible to conduct this exercise because the level of the EC-12 was
the level that they had signed in Marrakesh and which had entered into force on 1 January 1995.
Many questions which had been submitted related to  the construction of the EC, dealing with the EC's
internal decision-making processes, etc.; but there was a question as to whether the questions were
relevant to the examination itself.  Therefore, today she would respond to questions which seemed
relevant to the exercise.  The first question concerned requests for documentation.  As she had said in
a previous round, all relevant documentation referred to in the Standard Format was available with the
WTO Secretariat.  This information related to the general programme on supply of services.  Thewhole European integration was built upon the so-called "Four Freedoms" and the basic obligations
according to which the Member States (whether they were six, nine, ten, twelve, or now fifteen)
operated – i.e. freedom to supply services, right of establishment, movement of persons necessary to
supply the services, and freedom of capital – so they had very large obligations to ensure free
circulation among the Member States.  However, it was well-known that having rights to marketWT/REG39/M/4
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access did not necessarily mean that market access was easy or was facilitated.  The Member States
had taken a first broad initiative to facilitate market access with their general programme in 1962,
which included a general programme for the supply of services and a programme for establishment,
both of which were published in the Official Journal of the European Communities (copies of which
were available with the Secretariat).  The next st ep for implementing the Four Freedoms to realize the
internal market was called the White Paper from the Commission to the European Council of
June1998 (also available with the Secretariat) – which indicated steps that Member States needed to
take at the Community level in order to recognize each other's qualifications, harmonize, etc, at the
level of implementing legislation starting from the Four Freedoms.  Besides this general
documentation explaining the implementing initiative, there were also the basic Treaties in which
appeared these basic Freedoms and other institutional arrangements.  These Treaties were the EEC
Treaties and Euratom (denominated as the Treaty of Rome), the Single European Act, the accessionTreaties, the Maastricht Treaty, and the Treaty of Amsterdam which was the most recent modification
and which consolidated them all.  Information on how the EC functioned from a legal point of view,
with the Freedoms and other policies they undertook commonly (e.g., transport, health, consumer,
competition, etc.), was presented at the end of the Treaty of Amsterdam in consolidated form,
available in the Official Journal and on the Internet.  These sources contained a plethora ofinformation on European integration.
4. Another type of information requested related to the volume of trade covered.  Her delegation
had already provided graphics and charts on how trad e volume had increased as a result of integration.
This increase had been felt equally in intra-EC and third-party trade.  Thus, it could not be argued that
there had been trade diversion resulting from the integration.
5. Regarding coverage of the transport sector by a separate treaty, she explained that in post-
World War II circumstances, this sector had been viewed as strategically important and had
traditionally been regulated by a set of very specif ic rules, governed by many bilateral agreements.
In 1957, the Governments had been of the view that transport could not be dealt with by the classical
Freedoms of the right of establishment and supply of services, and that they needed a special chapteron transport services.  But it was part of their general obligation to create a common policy on
transport, according to the same foundations as other common commercial policies.  Through the
years, whether through jurisprudence or implementin g legislation, the whole transport sector had been
governed by the same fundamental Freedoms, rights and obligations, so that in regulating transport,
among themselves Member States were bound by the basic principles of non-discrimination on the
basis of nationality and the obligation to ensure that all legislation was in place to facilitate transport
among Member States.  Over time, internal liberalization of the transport sector had taken placeprogressively, faster in certain modes of transport than in others.  The Member States had done this
for maritime, road, and air transport and now were looking at improving access for rail transport to
ensure multi-modal transportation.  The basic initiatives and regulations to ensure a single market in
transport had been taken, just like in any other sector, even if transport were regulated by a separate
chapter.  The fact that it was a separate chapter was not due to the specificities of transport, andthrough experience and jurisprudence, the same principles applied.
6. Regarding how the shared competence of the EC Commission and Member States was
divided, and what the rules were that affected trade in services both internally and externally, she said
the question of how competencies were divided was a difficult one in practice, on a daily basis.
Shared competence in trade in services affected only the internal decision-making process;  it affectedonly the fact that certain proposals relating to the internal market had to be taken by unanimity or
qualified majority, or even co-decision by the European Parliament, with proposals by the
Commission going to the Council of Ministers to be decided.  Effects on their relationship with third
countries was the external dimension, and this should be the Committee's concern.  It was
questionable whether certain questions needed to be answered at all because many questions related tothe EC's internal policy and related to daily decision-making.  Treatment of other WTO Members,WT/REG39/M/4
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was determined by the EC's schedule of commitments, and it was irrelevant in this respect whether an
area was under Member State's competence or under competence at the Community level.  All
Member States were individual Members of the WTO and the Communities were also a Member
collectively;  once they took a commitment, that level of treatment would be ensured, irrespective of
the source of competence.  There had been a question as to whether some services sectors wereexcluded from the internal market and whether Member States had sole authority to regulate.  From
all EC rules, there was no single service excluded.  As in the GATS, the Member States did not have a
definition of what was the universe of services sectors, but one could argue that the whole universe of
services was broader than what was considered the universe of services sectors under the GATS,
which more or less corresponded to the services sectors identified in the CPC.  The only services
activities (rather than sectors) excluded from regulation under Community rules, were those activities
which were in the "exercise of official authority".  This narrow term referred to functions thatrepresented official governmental authority, such  as a notary public who would have a governmental
function in certifying documents, in addition to a normal service-supplying function.  These functions
were more in the judicial realm and in the protection of national security.  Although Member States
individually had the freedom to define what was the exercise of their official authority, they could not
do so in a way which would circumvent the Freedoms of supply of services or the right ofestablishment; they had all committed to these obligations at the Community level, and the obligations
were therefore contestable before the European Court of Justice.  It was ultimately the Court which
would decide how far a Member State could go in th e exercise of official authority, and the Court had
interpreted this in a very narrow way.
7. Turning to European company law, the repres entative of the European Communities noted
that European company law had not yet come into fo rce, but was close to coming into force.  The
elements that had prevented it from being adopted in June related more to social policy than to
internal market policy.  What was being foreseen was a new type of company that could be created.
The draft statutes would set out elements of how to constitute a company common to all Member
States, so that registration in one Member State would be sufficient to allow a company to operate inthe other Member States.  This would tremendously facilitate and improve the operation of the
internal market.  This was different from the current situation, where to operate in a market a
company needed some type of commercial presence in the form of a juridical person, which basically
was a re-establishment requirement, unless the company could supply all the services on a cross-
border basis.  Under the new initiative, establishment of a European company in one Member State
would also constitute establishment in another Memb er State.  So, from a company point of view, the
EC Member States had broadened the scope of their internal market and thereby had improved andincreased the possibilities of operating in one single market.  This would have positive effects on the
opportunities for services providers, not only among the Member States but also vis-à-vis  third
countries, since the draft statutes' requirements for constituting such a company were not different for
service operators from Member States or from third countries: any company wanting to establish
according to the proposed new form of juridical person could do so in any of the Member States,irrespective of the origin of the capital or of the shareholders.  The new company law would be an
additional demonstration of improved business opportunities as a result of the EC's internal market.
8. The representative commented on questions regarding the interpretation of the requirement of
"real and continuous link", which she had addressed in replies on an earlier date.  This language was
the equivalent of that found in GATS Article V:6, which read:  "substantive business operations".  Itcame from the general programme of 1962, mentioned previously.  The language did not set out a
definition of what constituted a real and continuous business link with a Member State or place of
registration;  but it was expressly provided that a real and continuous link could not be made
contingent on the nationality of a company's partners or of the shareholders or members of the board
of directors.  Rather, the issue was whether a company had real activities in the country where it hadchosen to establish.  In other words, the requirement for a "real and continuous link" prevented so-
called "letter-box" operations, where a company might try to establish somewhere to have a foot inWT/REG39/M/4
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the Community and take advantage of an entire market, when in fact its only interest was to
circumvent specific rules or regulations.
9. Regarding cross-border trade, the representative of the European Communities noted that in
the Standard Format the Parties referred to measures taken to implement cross-border trade in
traditional services such as financial services, transport and communications.  These were by way ofexample;  the Parties' Standard Format would have been too lengthy if it had listed all the services
activities for which they had taken implementing legislation to make the freedom to supply services
effective.  For any sector – be it tourism, door-to-door sales, construction, professional services –
there was legislation supporting this obligation.  If in some sectors there was no implementing
legislation yet, it did not mean that Member States could discriminate among each other; rather, the
general obligation would apply.  As in GATS Article VI, once Member States had made market-
access commitments, they had an obligation to regulate and apply measures in a non-discriminatoryway.  For the bulk of the services sectors, and certainly for the most important ones, obligations were
more specifically defined and implemented at the Community level, but where the obligations had not
yet been elaborated specifically with respect to a sector, the general principles applied, with
enforcement procedures available through the Court.
10. The representative then addressed questions as to whether the Member States had raised the
level of restrictions for trade in services for any WTO Member, and how third parties would be
affected by the harmonization or alignment of legislation that took place with enlargement.  The
treatment given by the 12 Member States was that found in their Schedule of Commitments, which
entered into force on 1 January 1995, and there had been no raising of barriers.  For questions
concerning enlargement to the 15 Member States, a separate examination was taking place.  Withrespect to future accessions, that issue would be addressed at the appropriate time as well.  These
matters were outside the scope of  this particular examination.  Her delegation would therefore request
that questions treated here be directly related to this examination of the EC-12, concerning whether
there was substantial coverage, non-discrimination, a stand-still, a roll-back, trade volume, etc.  With
respect to all these requirements, her delegation had given much information, and it would seem thatthe factual examination would be nearing its end.
11. The representative of the United States asked when the information would be circulated in
writing.  He then queried whether there were a typographical error in the chart in Annex I, where the
last row read "EC-12" and perhaps instead should have read "EC-15".  With reference to the tables
containing import and export statistics, he said it would be interesting to know what the figures
comprised, in particular what items were included under the category "Communications Services" and
which items were included under the category "Other Business Services".
12. The representative of Japan explained that, due to some confusion over what items were being
deleted from the Session's agenda, his delegation did not have questions at this time and would like to
have an opportunity to raise them in another round of examination.
13. The Chairman said there would be an opportunity to pose outstanding questions.
14. The representative of Australia said that he understood the EC representative's reference to
"official authority" as meaning "governmental authority".  The EC delegation had explained that
Articles 55 and 56 of the Treaty were in accordance with GATS Article I:3(b) because the services
referred to were essential utilities and therefore not covered by the GATS.  His delegation would
appreciate confirmation that, in accordance with GATS Article I:3(c), these services were supplied in
the exercise of governmental authority, and not supplied either on a commercial basis or incompetition with one or more service suppliers.  He then asked whether the EC had plans to privatize
the provision of these services, and, if so, whether access would be allowed for other WTO Members
on the basis of national treatment.WT/REG39/M/4
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15. With respect to the United States' question on statistical classifications, the representative of
the European Communities said that her delegation would consult with the official statistical office in
Luxembourg for clarification.  On official authority, she confirmed that what was in the Treaty ofRome was also captured by GATS Article I:3; though there had not been an official interpretation of
the GATS, what the Member States considered a services activity of official authority waspresumably narrower than what was in the GATS, but it was the same type of activity:  these services
were not supplied within the Community on a commercial basis and were not open to just anyone.
There were very few activities covered by that exception.  Whatever Member States decided as to
whether something was an exercise of official authority, they would do so in full respect of their
GATS obligations.  She indicated that written information would be supplied in time for the next
round of examination.
16. The representative of Japan asked if there were legal texts or some legal precedents defining
the exercise of official authority.  His delegation would also appreciate if the explanation regarding
the new European company law would be included in the written replies.
17. The representative of the European Communities indicated that the written replies would
respond to these questions, including elaborations both on services excluded under the exercise of
official authority and on the new European company law.
18. The Chairman indicated that the written replies to questions should be submitted by the end of
October.  Once the written exchange of outstanding questions and replies had taken place,
Chairman Noirfalisse would hold consultations to determine whether Members saw the need for
another round of examination for this Agreement.  At that point, the Committee could decide whether
to request the Secretariat to begin drafting the examination report.
19. The Committee took note of the comments made.
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