RESTRICTED
WORLD TRADE S/WPGR/W/5
6December 1995
ORGANIZATION
(95-3999)
Original: English Working Party onGATS Rules
COMMUNICATION FROM AUSTRALIA
Some Conceptual Issues Concerning theApplication ofSafeguards toTrade inServices
ThefollowingcommunicationiscirculatedattherequestofAustraliatoMembersoftheWorking
Party onGATS Rules.
_________________
TheWorking Party onRules established bytheCouncil forTrade inServices isnowconsidering
thequestion ofemergency safeguards intradeinservices. Thispaper offers apreliminary consideration
ofsome oftheconceptual issues participants inthenegotiations maywishtoconsider.
TheNegotiating Mandate
ThemandateforthenegotiationsonemergencysafeguardsstemsfromArticleX.1oftheGeneral
Agreement onTrade inServices (GATS) which states thatthere shallbemultilateral negotiations on
thequestionofemergencysafeguardmeasuresbasedontheprincipleofnon-discrimination.Themandate
alsorequires theresults ofthese negotiations toenter intoeffect nolaterthanthree years from the
dateoftheentry intoforce oftheWTO Agreement, i.e.nolaterthan1January 1998.
TheUruguay Round negotiators therefore haveleftittothemembers oftheworking party
tosuggest rules fortheimposition ofemergency safeguards, subject onlytotheobservance ofthe
principle ofnon-discrimination.
TheCharacteristics ofServices andTrade inServices
Services areintangible. Forthemost part,theycannot bestored. Usually there isaneed
forsomeinteraction between theconsumer andtheproducer. Many services canbetraded electronically
across national borders which makes theimposition ofcontrols verydifficult. Some services canonly
betraded through some form ofcommercial presence which mayhaveanindependent productive
capacity. Another wayoftrading services derives fromthemovement ofpeople, either asconsumers
orassuppliers.
What allthismeans isthatthenormal border measures available under GATT Article XIX
fortheadministration oftradeingoods areavailable onlyindirectly ornotatallinthecaseofservices.
Itispossible alsothatthemethods tobeusedwould havetobefairly blunt tohaveanyeffect. The
taskoftheworking party istodetermine whether alternative means toimpose safeguards intrade in
services areavailable and,indeed, practicable.
Members mayalsowishtoconsider theextent towhich services areintermediate products
intheireconomies. Aninevitable effect ofsafeguards action isariseinthecostoftheaffected product.
Thiswillgivetherelevant domestic industry some breathing space. However, where animported
service canserve equally asanintermediate orasafinalproduct, andmany areofthiskind, an
unintended result ofsafeguards action maybetomake other industries lesscompetitive. Thisisof
course wellunderstood from theexperience ofsafeguards action intrade ingoods.S/WPGR/W/5
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Some Basic Issues
Thispaper accepts thatcountries might experience temporary import surges affecting domestic
industry. Italsoaccepts thatcountries might wishtohaveavailable tothemasetofmeasures todeal
withthisphenomenon inorder tosetintrainaprocess ofdomestic adjustment. Thissection ofthe
paper therefore dealswithsome issues theywillhavetoclarify before theycantakeeffective safeguards
action.
Emergency safeguards aretemporary andselective measures designed tolimitimports orlimit
growth inimports toenable aparticular industry toadjust toheightened competition from foreign
suppliers. They would require some temporary derogations fromtheGATS rulesandcommitments.
Inorder forsafeguards action tobeeffective, itmustberelatively easytoimpose, anditmust have
animpact within areasonable time. Additionally, itmustbeapplied onanon-discriminatory basis.
TheAgreement onSafeguards ,which represents theresults ofyears ofimplementing and
negotiating history onsafeguards intheGATT fortrade ingoods, isthemain model available tothe
members oftheworking party. Itsaysthatacountry hastheright toapply asafeguard measure if
aproduct isbeing imported insuchincreased quantities, absolute orrelative todomestic production,
andunder suchconditions astocause orthreaten tocause serious injury tothedomestic industry that
produces likeordirectly competitive products.
Clearly, iftherules oftheAgreement ofSafeguards wereadapted totrade inservices, three
possible threshold issues would immediately come tomind. Thefirstisadefinition of"import in
increased quantities". Theofficial statistics fortrade inservices published inmostcountries donot
atpresent permit anidentification ofimport surges inmost services because oftheirhighlevel of
aggregation, longinterval between releases andalackofcomparability. Inorder toovercome this
statistical problem, itcould benecessary toobtain datafromfirms intheaffected industries orfrom
industry associations. Such anapproach might leadtotheproduction ofinformation lacking in
objectivity, particularly astheleastefficient firms aremostlikely toinitiate safeguards action. Nor
isitpossible tolookatthestatistics ofthesupplying countries deemed tobepartoftheproblem, since
theirstatistics arelikely tobeequally deficient.
Thesecond issue thatwould havetobelooked atisthatofserious injury orthreat ofinjury.
Thisisrelated tothestatistical problem, except thatinthiscaseadequate domestic production and
performance statistics would havetobeavailable foravaliddemonstration thatthereisindeed athreat
ofinjury. There isprobably sufficient material available toassist theworking party with an
understanding ofthemeaning ofinjury orthreatened injury. Indeed, similar issues riseinthecontext
ofanti-dumping andcountervailing duties.
Third, there would havetobesome agreed definition ofwhat constitutes alikeordirectly
competitive product. Services production canbehighly differentiated because theneeds ofconsumers
varygreatly. Theproblem becomes immeasurably more complex when services aresoldasapackage
ofactivities oraspartof,forexample, apiece ofmachinery.
Consideration ofthesafeguards question willalsohavetoinclude another setofissues which
canberaised hereinapreliminary wayonly. First, there is,forexample, thequestion ofwhat
constitutes domestic industry andwhatitsstanding inanysafeguards action willbe.Second, ananalysis
ofhowthecausallinkbetweenincreasedimportsandthedifficultiesexperiencedbythedomesticindustry
willbeassessed isnecessary. Third, towhatextent should itbepossible foraMember toinstitute
safeguards action, andhowshould anylimits bedefined. Fourth, theimposition ofsafeguards action
demands arightforcompensation toaffected trading partners.S/WPGR/W/5
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TwoPractical Examples
Thefollowing paragraphs briefly drawattention tothekindofcomplexity Members canexpect
oncetheyconsider imposing safeguard action.
There isnodoubt thatinthecaseofairline services, itwould beeasytodemonstrate thatan
economy seatononeairline isdirectly competitive withaneconomy seatonanother iftheyflyexactly
thesameroute. If,however, thetwoairlines flyondifferent long-distance routes tothesameornearly
thesamedestinations, onecould argue thattheseatsonofferarenolonger directly competitive. Aviation
hardrights are,ofcourse, notcovered bytheGATS, butasimilar casecould bemade forshipping
routes andcapacity.
Infinancial services, ontheother hand, product differentiation hasreached averyhighdegree.
Banks,stockbrokers,insurancecompaniesorfundsmanagerswouldagreethattheirproductsaredirectly
competitive, butonlyatanaggregated level. They probably would dispute, forexample, thatashare
trustoffering access toEuropean shares isthesame asoneoffering participation inAsian equities.
Similarly, theprospective investor would notviewthem thesame andwould notnecessarily buythe
oneiftheopportunity tobuyintheother haddisappeared. Yetitisquitepossible thatthesame firms
offer them both.
Imposing Safeguards Action inTrade inServices
Afundamental question isthatofhowsafeguards action would betaken todealwithan
occurrence likely tocause orthreaten serious injury. Inother words, whatmeasures would acountry
takeinorder toinfluence theflowofimports? Intradeingoods, countries canrelyinthefirstinstance
onborder measures, suchastheimposition ofquotas orthewithdrawal ofatariffconcession, toachieve
theiraim.Suchborder measures would bedifficult toapply tomany services because oftheirintangible
nature. Itappears therefore thatinservices, effective border measures arelikely tobelimited to
restrictions onthemovement ofconsumers andsuppliers.
Ameasurewithbroaderapplicabilitywouldbetheimpositionofrestrictionsonforeignexchange
transactions. However, suchameasure maynotbelegalunder Article XIandXIIoftheGATS which,
while allowing members tosafeguard theirbalance ofpayments byadopting ormaintaining restrictions
ontrade inservices onwhich theyhaveundertaken specific commitments, including onpayments and
transfers fortransactions related tosuchcommitments, alsospecifically states thatsuchrestrictions
shallnotbeadoptedormaintainedforthepurposeofprotectingaparticularservicesector(ArticleXII.3).
Safeguards actions always would entail aderogation fromoneormore articles contained intheGATS,
anditispossible, therefore, thatrestrictions onforeign exchange availability could bepartoflegitimate
safeguards action inservices.
Anotherwaytoimposesafeguardsactionwouldbetoinstitutesomekindofturnovertaxdesigned
toincrease prices. Itisdoubtful inmany cases, however, thattheimpact ofsuchameasure could
beconfined toimported services.
Emergency Safeguards Action byModes ofSupply
Thissection ofthepaper attempts toidentify some general issues thatcould arisewiththe
application ofsafeguards according tothefourGATS modes ofsupply. Itdoesnotpretend tobein
anywayexhaustive.S/WPGR/W/5
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1. Cross-border supply: thistypeofsupply, where there isnonecessity fortheexporter and
theimporter tomeet, takes place mainly through electronic means. Although thetechnology
might beavailable toinfluence theimport ofservices itisunlikely thatmembers would consider
thisauseful approach. Itwould ofcourse bepossible toissue aregulation restraining cross-
border trade, butitprobably could onlybeenforced through theforeign exchange mechanism.
Inthiscontext, itisworth noting thattheUNCTAD/World Bank publication Liberalizing
International Transactions inServices: Ahandbook makes thepoint thatinmost cases, no
sound economic caseforrestricting cross-border services imports bymeans ofquantitative
restrictions canbemade.
2. Consumption abroad: thismode involves residents going abroad topurchase services. The
mostimportantoftheseprobablyaretourismservices.Non-discriminatoryemergencysafeguards
areprobably easier toinstitute inthiscase. Methods usedmight include travel restrictions,
travel taxes, aquota onnewpassports andalimitontheforeign exchange persons leaving
thecountry areallowed totakewiththem.
3. Commercial presence: twodistinct situations needtobeconsidered under thismode ofsupply:
(a)thescope forapplying emergency safeguards before acommercial presence isestablished,
and(b)thescope fordoing soafterestablishment hasoccurred. Inthefirstsituation, itwould
bepossible foracountry toprevent newcompanies fromestablishing ifthere wasasurge in
foreign companies seeking toestablish, andifanassessment hadbeenmade thatthiswascausing
injury orthreatening tocause injury. Inthesecond case,further action would beverydifficult.
Itwould alsoentail areversal orimpediment ofnational treatment andmarket access
commitments forcompanies already established.
4. Presence ofnatural persons: itwould appear thattherearethreedistinct situations under which
natural persons supply aservice, asdefined inArticle XXVIII(b) oftheGATS. Thefirst
situation isonewhere business visitors enter acountry toexplore export opportunities. The
second applies toaperson actually supplying ordelivering aservice, andthethirdcasecovers
natural persons whoareemployees ofservice providers. Asurge inthenumber ofentrants
inthefirsttwocases would berelatively easytoidentify anddealwith, eventhough itisnot
immediately obvious whyaMember would wanttoplace restrictions onthenumber ofpersons
entering forthepurpose ofexploring business opportunities. Theremedies forthissituation
could involve tightening themarket access limitations onthenumber ofnatural persons that
maybeemployed inaparticular service sector through atemporary change tothehorizontal
commitments.
Thethird situation covers natural persons, suchasexecutives, senior managers, specialists
andtechnical advisers whoenter asintra-corporate transfers. Denying entry tosome keypersonnel
could certainly affect thecompetitiveness ofaforeign supplier, butthiscould beverymuch adelayed
action because itwould havetobetaken when temporary entry visas expire. Visas could alsobe
cancelled, butthismaybesubject todomestic appeals procedures.
Where acountry decides toimpose safeguards ononemode ofsupply only, itwould ofcourse
bequite easytocircumvent themeasure bysupplying through theother three modes, butthiswould
depend ontheservice tobesupplied andthetypeofcommitment made bytheMember taking theaction.
Tobeeffective, therefore, safeguards action would havetocover allmodes ofsupply.S/WPGR/W/5
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Conclusion
Thepreceding discussion doesnotdenythattemporary import surges inservices likely tocause
orthreaten tocause injury todomestic industry mayoccur. Itnotes, however, thatthestatistical backing
forsuchaclaim would notbeavailable inmost countries, bearing inmind thatstatistical collection
anddissemination covering services production andtradeneeds tobeimproved onthewhole. Safeguard
action therefore would havetobebased onnon-transparent anecdotal evidence.
Members willhavetorecognise thatthehistory ofsafeguards action ongoods hasessentially
lefttheprocess inthehands oftheauthorities oftheimporting country. Theresults ofthishaveoften
ledtoconcerns about objectivity andfairness. TheWTO Agreement onSafeguards hastriedtocodify
proceduralrulesandtoincreasetransparency,butmattersstillarelargelyinthehandsoftheinvestigating
authorities. Inthecaseofservices, themore amorphous nature oftheissues maygiveevengreater
discretion totheimporting country. Some ofthese issues mayinfactnotbecapable ofbeing dealt
withthrough rules.
Thesecond conclusion isthattheimposition ofemergency safeguards intradeinservices poses
challenges thatareevengreater thanthose experienced insafeguard action ingoods trade. Thisis
duemainly tothefactthatservices areintangible, thatmost services cannot bestored andtheways
inwhich services aretraded.
Itappears infactthatinmany cases theonlyeffective action available toGATS Members to
influence trade inservices would lieinapolicy ofallocating foreign exchange based onsupporting
thesafeguards objective.
Oneaspect worth considering iswhether participants inthenegotiations already havedomestic
safeguards legislation requiring orpermitting them toinitiate action onthebasis ofcriteria setoutin
therelevant laws. Ifthiswere thecase, theworking party should beabletobenefit from national
experience acquired inthisway.