RESTRICTED
WORLD TRADE S/WPGR/W/1
6July1995
ORGANIZATION(95-1864)
Working Party onGATS Rules
EMERGENCY SAFEGUARD MEASURES UNDER ARTICLE XOFGATS
Note bytheSecretariat
Background
1. Article XoftheGeneral Agreement onTrade inServices callsfornegotiations onthequestion
ofemergency safeguard measures. Theresults ofsuchnegotiations aretotakeeffect notlaterthan
threeyears fromthedateofentry intoforceoftheWTO Agreement. Thenegotiating history ofArticle
Xsuggests thattheuseofthephrase "negotiations onthequestion ofemergency safeguard measures"
(Article X.1)implies thatprior toelaborating specific provisions, Members maywishtoconsider the
broader question ofwhether ornotitwould bedesirable todevelop anemergency safeguard instrument
inthefieldoftrade inservices.
2. Thepresent notebytheSecretariat, prepared attherequest oftheCouncil forTrade inServices
atitsfirstmeeting on1March 1995, setsoutsome oftheissues raised bytheconcept ofemergency
safeguards inthecontext oftrade inservices. Itdraws onearlier discussions thattookplace inthe
Group ofNegotiations onServices, andonaprevious Note bytheSecretariat onthissubject
(MTN.GNS/W/70). Thisnoterelies heavily oncomparisons withexisting safeguard provisions in
thefieldofgoods. Thisdoesnotimply, however, thattheapproach adopted intheWTO Safeguards
Agreement isassumed tobethemostappropriate forservices, northatcomparisons willnecessarily
berelevant inevery case.
3. Thediscussion ofsafeguards canbedivided intofourbroad subject areas. Thefirstrelates
totheobjectives ofsafeguard action. Inother words, whatisitthatanintervention ofthiskindwould
bedesigned tosafeguard? Second, once theobjective isclear, adefinition isrequired ofthe
circumstances thatwould constitute legal justification. Thisisakintotheinjury testandcausality
determination intheSafeguards Agreement. Thethirdquestion concerns thekindofmeasures that
might beapplied, oncetheobjectives oftheaction areclearandtheirjustification hasbeenestablished.
Inservices, forexample, adecision would berequired astowhether specific commitments onmodes
ofsupply could bewithdrawn oronlymodified, andwhether asingle safeguard action would warrant
withdrawal ormodification ofspecific commitments inmore thanonemode. Finally, having clarified
theobjectives ofsafeguards, established thecircumstances inwhich safeguards maybeapplied, and
determined thenature ofsafeguard measures thatmaybeauthorized, aseries ofquestions would need
tobeanswered about theprecise modalities ofsafeguard action. These relate tosuchmatters as
investigations, useofprovisional measures, duration, degressivity, degree ofdiscriminatory application,
compensation, andinstitutional provisions.
4. Thisnotedoesnotattempt todealexhaustively withanyoftheabove subject areas. Most
ofthediscussion touches upon thefirstandsecond issues, relating toobjectives andthenature ofthe
circumstances thatmight callforsafeguard actions. Themain reason forsetting aside detailed
consideration ofspecific measures andmodalities inthefirstinstance istoavoid prejudicing priorS/WPGR/W/1
Page2
examinationofmorefundamentalquestionsrelatingtotherationaleandfeasibilityofsafeguardmeasures
fortrade inservices. Thenotebegins withabriefgeneral discussion ofsafeguards intheservices
context, andthenconsiders whyandhowsafeguards might apply inrespect ofeachofthefourmodes
ofsupply under which specific commitments havebeentaken.
Safeguards intheContext ofTrade inServices
5. Document MTN.GNS/W/70 discusses averybroad concept ofsafeguards. Adistinction is
made between safeguard actions thataretemporary andcontingent upon aparticular occurrence or
circumstance, andthose thatconstitute permanent exceptions togenerally applicable rules. Examples
ofactions falling intothefirstcategory include balance-of-payments measures, measures tocounteract
unfair trading practices suchasdumping andsubsidization, andmeasures toprotect domestic industry
frominjurious foreign competition. Thecategory ofpermanent safeguards includes general exceptions
toaddress suchconsiderations astheprotection ofpublic morals, health, safety, natural resources and
nationalsecurity.TheGATSalreadycontainsprovisionsaddressinganumberofthesematters,including
Article XII(balance ofpayments), Article XIV(general exceptions), andArticle XIVbis(security
exceptions). Inaddition, Article IXoftheMarrakesh Agreement provides fortime-bound waivers,
under exceptional circumstances, from WTO obligations, including those oftheGATS.
6. Itisassumed inthisnotethattheemergency safeguard provisions envisaged inArticle Xwould
beavailable toservice suppliers faced with unexpected adverse developments arising from
Members’obligationsundertheGATS.Itisalsoassumedthatemergencysafeguardswouldbetemporary
innature, andthatifalonger-term difficulty arose asaresult ofGATS commitments, these could be
renegotiated under Article XXI. Defined inthismanner, anyArticle Xsafeguard provisions thatmight
beadopted would closely parallel, atleastconceptually, whatiscontained intheSafeguards Agreement.
Themajor difference between existing safeguards ingoods andthose thatmight bedeveloped inservices
isthatthelatter would havetodealbothwithcross-border service supply andwithestablishment-based
service supply, whereas safeguards inthefieldofgoods areonlyconcerned withcross-border trade.
Inconsidering thecircumstances thatmight giverisetoaneedforsafeguard measures inservices,
itisimportant tonotethattheGATS asitstands, andpending theachievement ofhigher levels of
liberalization, embodies considerable scope forlimiting theextent ofMembers ’obligations.
7. TheGATS permits signatories tocircumscribe theircommitments inseveral ways. First, the
GATS contains relatively fewgeneral obligations thatapply intheabsence ofspecific commitments.
Moreover, thesingle most important general obligation --themost-favoured-nation (MFN) ruleof
Article II--willnotapply ifaMember exempts certain measures fromMFN atthetimeofentry into
force oftheagreement. Secondly, specific commitments onlyapply ifasector hasbeenscheduled,
andallMembers haveomitted sectors fromtheirpositive listsofcommitments. Even where asector
hasbeenscheduled, particular modes ofdelivery maybeexcluded fromanycommitment, andtheprecise
terms ofcommitments undertaken canbeconditioned through market access limitations (Article XVI)
andnational treatment limitations (Article XVII). These opportunities fortheexantecircumscription
ofGATS obligations clearly influence thenature andscope ofanysafeguard measures thatMembers
might wishtointroduce. Indeed, itisthisbuilt-in capacity tolimitthecoverage ofobligations that
made itpossible forgovernments toagree thattheirGATS obligations would enter intoforce before
Article Xsafeguards became available.
8. These considerations suggest thatthepresent discussion ofsafeguards ismostrelevant tofuture
commitments. Inother words, thedesirability ofanewGATS safeguard mechanism would bemost
appropriatelyassessedinthecontextofhigherlevelsofcommitment.Thus,thejustificationfordesigning
anynewsafeguard mechanism would beitscontribution tofuture market opening. Thesecurity of
knowingthatappropriatesafeguardswereavailableagainstunforeseendevelopmentsmightinducehigher
levels ofcommitment thanMembers would otherwise bewilling toassume. Viewed inthismanner,S/WPGR/W/1
Page3
itwould seem essential thatanysafeguard measures beaccessible enough tomake Members confident
thattheircommitments canbemodified ifextenuating circumstances sodemand, butnotflexible to
thepoint where thevalue oftheunderlying commitments themselves iscalled intoquestion. Itshould
beemphasized thattheargument hereisnotforexcluding commitments already undertaken from
eligibility foranysafeguard remedies thatMembers might decide toestablish, butrather tothink of
thedesign ofanemergency safeguard mechanism inthecontext ofwhattheGATS agreement might
looklikeinthefuture.
Possible Safeguard Actions under Alternative Modes ofSupply
Cross-border supply ofservices (Mode 1)
9. Ofallthemodes, cross-border supply ofservices istheonemost analogous tothesituation
addressed bytheSafeguards Agreement. Theobjective ofasafeguard action under Mode 1would
betoprovide relief toadomestic industry faced withcompetition fromalikeordirectly competitive
service supplied byanexporter fromanother country. Protection ofadomestic industry inthisfashion
isprecisely what theSafeguards Agreement doesinrespect ofgoods, andsimilar considerations as
tothedesirability orotherwise ofsuchaction would apply.
10. Asalready noted, questions relating toinjury, causality, available measures ormodalities for
theirapplication willnotbeaddressed inthepresent paper. Suffice ittonote, however, thathere,
aselsewhere inservices, complexities ofakindnotencountered inthefieldofgoods mayariseas
Members attempt todefine available safeguard measures andthecircumstances oftheirapplication.
Consumption abroad (Mode 2)
11. Noparallel exists withtheSafeguards Agreement under thismode. Agovernment might wish
tocontrol consumption abroad inorder toinduce orforce itsconsumers topurchase identical orsimilar
services intheirowncountries. Thiswould beameasure aimed atprotecting adomestic industry.
Among themeasures thatcould beapplied, depending ontheactivity involved, arequantitative controls
orfiscal charges onforeign consumption, physical controls ontravel, andexchange controls. The
possibility ofusing exchange controls would, ofcourse, becomplicated bytheprovisions ofArticle
XIandMembers 'obligations under theArticles ofAgreement oftheInternational Monetary Fund.
Depending onthenature oftheactivity involved, Mode 2safeguard measures could bequite direct
(e.g. restricting theconsumption offoreign financial services forwhich domestic substitutes are
available). Inotherinstances, Mode 2safeguards would beanindirect andtherefore relatively inefficient
wayofprotecting adomestic industry (e.g.prohibiting consumption offoreign tourist services inthe
hope thatconsumers would consume domestic tourist services instead). Ingeneral, theeffective
implementationofsafeguardmeasuresunderMode2wouldbecomplexfromanenforcementperspective,
astransactions occur outside thejurisdiction oftheMember concerned.
Commercial presence (Mode 3)
12. Itisuseful toconsider commercial presence interms oftwoseparate aspects ofcommitments
--thecommitment toallow aservice supplier toenterthemarket andthepost-establishment commitment
relating toproduction intheterritory ofthehostMember, fordomestic consumption orexport. The
firstpartofthecommercial presence commitment --allowing foreign investment tooccur oraservice
supplier toenterthemarket --involves across-border transaction (i.e.afactor ofproduction crossing
theborder inorder toestablish alocal presence). Ifacommercial presence commitment hasbeen
made, andforeign penetration ofthemarket occurs atapacethatcreates difficulties forestablished
service suppliers inthehostcountry, agovernment might wishtoapply asafeguard toslowdown the
entry offoreign service suppliers.S/WPGR/W/1
Page4
13. Commitments relating topost-establishment trademight alsobeattenuated bysafeguard action.
Inthiscase, however, asafeguard measure would, bydefinition, havetodistinguish between service
suppliers ofnational origin andservice suppliers ofother Members. Otherwise, there would beno
pointintaking asafeguard measure inrespect ofpost-establishment tradesubject tocommitments under
GATS. Theobjective ofsuchaction would betoprotect suppliers ofnational origin fromcompetition
withlocally-established foreign suppliers, andtheaction would introduce adeparture from national
treatment, orfurther extend suchadeparture already inscribed inthelimitations columns ofaMember 's
schedule ofspecific commitments. From thepointofviewofaffected foreign suppliers, abasicquestion
ofprofitability could arise, since asafeguard action against suchsuppliers would normally reduce
production andeatintoprofitability. Theprospect ofbeing subject tosuchaction mayinhibit investors
fromestablishing acommercial presence inthefirstplace. Abasicquestion tobeconsidered, therefore,
iswhether itwould make sense toprotect national suppliers visavisestablished foreign suppliers
operating under similar oridentical conditions inthesame market. Furthermore, itwould bedifficult
tojustify thiskindofsafeguard action onthebasisofreduced employment levels orsimilar grounds,
since theonlybeneficiaries would besuppliers ofnational origin, rather thanalldomestically-based
suppliers (i.e.employers) intheindustry concerned.
Movement ofnatural persons (Mode 4)
14. Asafeguard action under Mode 4would bedesigned toprotect natural persons ofnational
origin fromcompeting withnatural persons ofanother Member. Theprotection would apply inrespect
ofnatural persons whoareemployees ofservice suppliers aswellasnatural persons whoareindependent
suppliers ofservices. Insimilar fashion toMode 3,adistinction isuseful between theauthorization
toestablish apresence inthehostcountry andtheright tosellservices oncedomestically located.
Therightofservice suppliers toemploy natural persons orofnatural persons whoareindependent
service suppliers toestablish apresence could becircumscribed through asafeguard measure ifa
scheduled commitment created anunanticipated inflow ofnatural persons ofother Members, andthis
werejudged tocause injury tocompeting localservice suppliers. Suchaction would effect theright
ofentry perseandnotanyrights during thetemporary stay.
15. Bycontrast, safeguard actions affecting natural persons already residing andworking inthe
hostcountry would, aswiththeinvestment caseunder Mode 3,necessarily entail discrimination between
national andforeign service suppliers. Asimilar question arises astothedesirability ofsubjecting
suchsuppliers torestrictions ofthisnature, oncetheyhaveestablished aphysical presence intheterritory
ofanother Member. Itmaybenoted, however, thatinthiscaseanargument based onemployment
considerations would carry more weight thanunder Mode 3.
Summary andConclusions
16. Thisnotehassuggested thatthediscussion onsafeguards might usefully bedivided intodifferent
topics, asthiswould clarify issues andensure thatmore basic questions about howtoapproach the
subject matter were addressed prior toconsideration ofspecific details relating toanysafeguard
mechanisms tobedeveloped. Afour-fold distinction wasproposed:
(i) Objectives --Theobjective ofsafeguard action, orthetarget ofrelief fromunforeseen
circumstances arising asaresult ofcommitments under GATS.
(ii) Circumstances triggering safeguard actions --Thestandards tobeestablished fortaking
action, orinother words thedefinition ofthecircumstances thatwould trigger safeguard
measures
(iii) Authorized measures --Thenature andscope ofauthorized safeguard measures.S/WPGR/W/1
Page5
(iv) Modalities --Thedetails ofsafeguard disciplines, including inrelation toprocedures.
17. Many alternative approaches toemergency safeguards forservices could beenvisaged. On
thebasis oftheabove distinctions, however, thepresent notehasconcentrated primarily oncertain
aspects ofthefirsttwocategories above. Several broad questions arisefromtheforegoing discussion.
These aresummarized below.
- Most obligations under theGATS onlyariseinthecontext ofspecific commitments. Themost
significant exception tothisisthegeneral applicability oftheMFN rule, buteven here
exemptions maybetaken. Members alsoenjoy ample scope tolimit thecoverage oftheir
specific commitments. They canomitsectors andmodes within sectors from theirspecific
commitments, andtheycanimpose market access limitations andqualify national treatment
intheirschedules. Members mayalsorenegotiate scheduled commitments under Article XXI.
Inviewoftheseoptions, whatadditional safeguard mechanisms might berequired intheGATS?
- Ifthejustification forasafeguards mechanism isthatitwillpermit Members toassume higher
levels ofcommitment under GATS, thenisitpossible toconceive ofamechanism thatisneither
sorigid astopreclude itsuse,norsoflexible astorender meaningless thecommitments it
isdesigned toprotect?
- MemberswereabletoallowtheirGATScommitmentstogointoeffectwithouthavingdeveloped
asafeguard mechanism. Isitvalid toargue from thisobservation thatanyjustification for
safeguards should bepredicated upon higher levels ofcommitment inthefuture?
- Isitpossible toavoid distinguishing among modes ofsupply when contemplating asafeguard
mechanism under GATS? Ifmode-specificity isessential, isthere ariskthatundesirable
distortionsmaybeintroducedforservicesupplierswhenchoicesareexercisedamongalternative
modes intheapplication ofasafeguard measure? Aresafeguards lesseasytojustify or
implement under some modes ofsupply thanothers?
- Does thecaseforsafeguards varydepending uponthesector towhich theymight beapplied?
- Under Modes 3and4,achoice mustbemade astohowthe"domestic industry" istobedefined.
Thechoice isbetween adefinition encompassing bothnational suppliers andsuppliers ofother
Members, oradefinition covering onlynational suppliers. Arethere circumstances inwhich
thenarrower definition might bejustified?