 
  WORLD TRADE  
ORGANIZATION  TN/RL/W/163 
13 September 2004 
 
 (04-3802) 
Negotiating Group on Rules Original:   English 
  
 
SUBMISSION ON REGIONAL TRADE AGREEMENTS 
 
Paper by Chile
 
  
 The following submission, dated 8 September 2004,  is being circulated at the request of the 
Delegation of Chile. 
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GATS ARTICLE V 
 
1. Introduction 
1. In document TN/RL/W/152, Chile identified a number of elements that could be analyzed in 
the discussions regarding GATS Article V, in accordance with the mandate of paragraph 29 of the Doha Declaration.  
2. In June 2004, the Chair of the Negotiating Group on Rules circulated the document 
“Roadmap for Discussions on RTAs’ Systemic Issue s”, which divides discussions into three areas: 
issues related to coverage; issues dealing with neutrality; and other questions. Discussions in each 
area are then divided into those aspects of Regi onal Trade Agreements (RTAs) related to trade in 
goods and those related to trade in services.   
3. With the objective of deepening the analysis of GATS Article V in the Negotiating Group on 
Rules, Chile presents this new contribution, whic h focuses on the first area identified in the Chair’s 
note, namely the “Determination of coverage in services RTAs”. This note takes account of documents tabled by Hong Kong, China and the European Communities in the Committee on 
Regional Trade Agreements.
1 At this stage, Chile is not making concrete proposals, but rather trying 
to stimulate the debate. 
2. Determination of coverage in services RTAs 
4. As stated in document TN/RL/W/152, the GATS permits WTO Members to enter into 
preferential agreements liberalizing trade in servi ces, provided that three conditions are met (i.e. 
substantial sectoral coverage; li mitation of substantially all discr imination among its parties in the 
sectors it covers; and not raise the overall level of barriers to members outside those FTAs). Two of 
these conditions deal with coverage. Therefore the anal ysis of this concept is  key in determining the 
consistency of RTAs with GATS Article V2.  
5. In the Roadmap, the Chair propo sed an analysis of coverage based on three questions: What 
is the covered sector? How can compliance with the “substantial sectoral coverage” criteria be 
                                                      
1 WT/REG/W/34 and WT/REG/W/35. 
2 This document does not prejudge the discussions on the second area of the "Roadmap". TN/RL/W/163 
Page 2  
 
 assessed? What is meant by “elimination of substan tially all discrimination”? In this note, only the 
second and third questions are dealt with, although several aspects of  the first question are addressed. 
 2.1 Assessment of the “substantial sectoral coverage” criteria
 
   2.1.1 Substantial sectoral coverage 
 
6. As footnote 1 to GATS Article V states, substantial sectoral coverage  is understood in terms 
of number of sectors, volume of trade affected and modes of supply (no a priori  exclusion of any 
mode of supply) covered by the lib eralization provisions of the Agreement. These three factors are the 
basis for the evaluation of substantial sectoral coverage. While each of these factors should be 
analyzed separately, it must also be acknowledged th at it is the relationship among all three that will 
allow us to determine whether this criteria has been met. 
   2.1.1.1 Number of sectors and volume of trade 
 7. Concerning the number of sectors covered , it seems that Article V allows for exclusions 
(most RTAs exclude air transport and some exclude financial services)
3. This raises a question 
regarding the assessment of this concept. In servi ces classifications -either based on CPC or in other 
industrial classification- , the coverage could be me asured at different levels, i.e. global level of 
sectors, at the subsectoral or product/activity le vels. Should it be more appropriate to do the 
assessment in a disaggregate manner, i.e. looking at activities within each sector included (positive list 
liberalization) or excluded (negative list liberalization) in the schedule?   
8. To carry out this analysis, we should evaluate  the potential trade involved in terms of sectors 
included or excluded and the global trade affected . In addition, we should take into account the 
bilateral volume of trade covered by a RTA4 and the effect on total trad e resulting from the exclusion 
of one or more sectors.   
9. Nonetheless, the lack of statistical data rega rding services trade flows can prove to be an 
additional impediment. This becomes even more  apparent when measuring trade at more 
disaggregated level (subsectors or product/activities).   
10. One useful indicator could be the domestic pr oduction figures of Members, in particular to 
analyze the potential trade involved. In this context, the evaluation could be done measuring the excluded sector (in terms of GDP) vis-à-vis the servic es sectors included in a RTA. On the other hand, 
if it is not possible to use statistics to evaluate trade affected by excluding a sector or a subsector, it 
might be useful (as the EC pointed out in an earlier communication)
5  to select indicative criteria. This 
interesting idea was not developed at that time; we can try to develop it in the course of the 
negotiation.  
11. Additionally, some ideas have been presented in the Negotiating Group for the evaluation of 
“substantially all trade” in the context of goods under GATT Article XXIV. The development of those 
ideas could provide some insights applicable to the services area.   
                                                      
3 The GATS itself excludes air tr ansport and "services supplied in the exercise of governmental 
authority". 
4 An additional question to be asked is why footnote 1 refers to volume of trade rather than value of 
trade. 
5 WT/REG/W/35.  TN/RL/W/163 
 Page 3 
 
 
   2.1.1.2 Modes of supply 
 12. Regarding modes of supply , it is clear that no mode can be excluded a priori , yet what 
happens when a mode of supply is excluded from a sectoral activity? For example, when establishment in national territory is required in  order to supply a servi ce -excluding those cases 
where it is necessary for technical reasons- does that imply that ther e is a prohibition to supply that 
same service across borders?  
13. In this context, Article V could be interprete d in a comprehensive manner, meaning that all 
four modes of supply must be part of the RTA, but certain activities or subsectors may have restrictions or prohibitions for the supply of services in  some modes.  Nevertheless, the effect of such 
restrictions or prohibitions on complying with the cr iteria of “substantial sect oral coverage” must be 
evaluated.  
14. Other issue is how to measure the trade effect  when the services are supplied through mode 
three (commercial presence). In this context, one qu estion to be considered is whether to assess the 
trade effect of the services supplied by the fore ign company on the domestic market, on third markets 
and/or on the investment generated as a result of this commercial presence. 
 2.2 What does “absence or elimination of substantially all discrimination” mean?
 
 15. The elimination of substantially all discrimination  standard attempts to measure the extent 
of liberalization in a RTA. In servi ces, this is difficult, particular ly the measurement of the economic 
impact of not eliminating a discriminatory measure within a specific sector. 
16. The first issue to be dealt with in this cont ext is the meaning of “substantially all”. Hong 
Kong, China has pointed out that this concept w as probably taken from GATT Article XXIV, thus the 
clarifications that have been made in that context could be useful.
6 Overall, the obligation to 
“eliminate substantially all discrimination” -in accord ance with letter b) of paragraph 1 of Article V- 
can be complied with the elimination of all exis ting discriminatory measures and/or prohibiting new 
or more discriminatory measures (“standstill”). This i ssue came up in the systemic discussions held in 
the CRTA and many felt that a standstill commitme nt is insufficient in cases when the existing 
discriminatory measures are significant. In such case s, in order to comply with the standard of 
eliminating all discrimination, maybe RTAs shoul d include commitments to eliminate all existing 
discriminatory measures (“roll-back”). 
17. In the overall assessment of this standard, it mu st be taken into account that discrimination 
can be eliminated by amending legislation or di scriminatory practices, signing MRAs or harmonizing 
regulations. Although several of these measures ar e undertaken, in general terms a number of 
discriminatory measures remain after the signing of a RTA. 
18. In addition, there are many “non-discriminatory” measures such as market access restrictions 
and licenses that in practice can be trade barriers.  It will be necessary to discuss if those measures 
should be considered in the assess ment of the “elimination of s ubstantially all discriminations” 
standard. 
 2.3 Other issues related with coverage  
 19. An additional is how to deal with a RTA that  excludes a sector at an initial stage, yet sets 
forth a commitment to carry out future negotiations on such sector.  Is that sector covered or not by 
the RTA? In principle, this would be better th an excluding a sector, but it also will depend on the 
                                                     
 
6 WT/REG/W/34. TN/RL/W/163 
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 nature of the commitment. If the parties simply state that they will hold talks in the future regarding 
the liberalization of a sector, the question of compliance with the future negotiation provisions 
emerge. 
20. One last issue: Article V of the GATS does not require the immediate elimination of all 
discriminatory measures, but that such elimination is accomplished within a “reasonable time-
frame” .  In the case of goods, the Understanding on Ar ticle XXIV of GATT 1994 established that the 
period can be no longer than 10 years.  Should it be  different in the case of services?  Should there be 
some sectors that require longer time frames for liberalization? 
 
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