C. A 10-STEP TEMPLATE FOR ASSESSING THE IMPLICATIONS OF TRADE IN
SERVICES AGREEMENTS FOR PACIFIC POLICY & REGULATION
To make a proper assessment of what trade in services agreements might mean for domestic
policy and regulation it is necessary to start with a clear picture of the country’s existing
services, and related policies and regulation. The approach also has to treat services in a way
that people can understand. This template offers a systematic, step-by-step approach that
begins from the reality of services as people experience them. It asks who has responsibility
for regulating those services, the profile of the services workforce, the government’s legal
obligations in providing those services, the reasons for any special protections to local service
suppliers or restrictions that are applied to foreign firms, and the nature of public services.
The final steps seek to match this information to the more technical content of trade in
services agreements and schedules.
Step 1: What services are provided in your country and who regulates them?
Step 2: What is the supply chain for those services and how is each part regulated?
Step 3: What effect would more foreign competition in these services have on employment
Step 4: What are the government’s existing legal obligations and people’s legal rights in
relation to services?
Step 5: Are there preferences for local firms and restrictions on foreign firms and why?
Step 6: How does government define and manage ‘public services’ and government
Step 7: What are the main regulatory issues for temporary migration of services workers?
Step 8: How does the government regulate the supply of services by foreigners, such as
moving money, granting licenses and recognising qualifications?
Step 9: Are there existing arrangements with countries that give their services firms and
people preferential treatment over other countries?
Step 10: What areas of policy and regulation should be restricted by trade in services rules,
in what sectors and subject to what limitations?
Each step sets out a list of key points to consider and provides a table that suggests ways of
recording the relevant information. The electronic version of these tables can be adapted by
adding/deleting columns and changing the headings to reflect national conditions.
The exercise will be most valuable if all steps are completed for all of the country’s key
services. That involves a lot of work and may be unrealistic, so it would make sense to begin
with priority sectors.
The overall template is designed to be a collective process that can draw on the insights of
different parts of the community. Each step indicates whether it is more suited to NGOs and
local businesses, trade unions, non-trade officials or the trade experts.
STEP 1. What services are provided in the country and who regulates them?
(This step is most suited to officials from sectoral and commerce ministries, local
businesses, NGOs and trade unions working in particular services areas)
The starting point for understanding how trade in services commitments could impact
on national regulation and ‘policy space’ is to identify which services are actually
provided in the country. Ideally, this should be forward looking and include services
that are not yet provided but could be. Because trade in services agreements target
the measures that are used by all official bodies at all levels of decision-making it is
also necessary to identify who has responsibility for the laws, policies, regulations
and decisions that affect those services.
Points to consider
(a) What are the main services that are or might be provided in the country (drawing
on ministry documents, national development plans, national accounts, national
budget, PRSPs, etc)?
(b) What official decision-making bodies are involved in the regulation of those
services at any level?
Regulatory responsibility for major services activities
Services Central State govt Statutory Local Village Non-govt Other
(examples government within a body government council delegated
only) federation authority
STEP 2: What is the ‘supply chain’ for those services and how is each element
(This step is most suited to officials from sectoral and commerce ministries, local
businesses, NGOs and trade unions working in particular services areas)
The broad services categories identified in step 1 are themselves made up of many
activities. For example, ‘health services’ includes general practitioners, hospitals,
midwives, pharmacies, laboratory testing, x-rays, ambulances, nurse training, etc.
Within each of these sub-sectors there may be further sub-divisions of activities. To
identify which sub-sectors are relevant to a particular service it is helpful to think of
all the commercial activities that make up the supply chain for that service.
Sometimes these involve technical services and expertise (eg the many different sub-
services that are involved in providing a sanitation service).
Most sub-sectors are subject to their own regulations and professional standards,
which are administered by a range of government ministries, statutory bodies and
delegated authorities. To predict how trade in services agreements might affect a
service it is therefore necessary to identify all the relevant sub-sectors, how they are
regulated and by whom.
The difficulty of predicting the future shape of services adds a further complication.
New commercial opportunities relating to services are emerging all the time,
especially through the Internet. In addition, existing public services like telecoms,
post, electricity or broadcasting will look very different if they are commercialized
and/or a public monopoly is unbundled into several operations and opened to
competition. This uncertainty makes it hard for governments to anticipate the likely
future impact of trade in services commitments on their policy and regulatory options.
Points to consider
(a) What are the main components of each of the major services categories identified
in step 1 (eg tertiary education: university undergraduate education, postgraduate
education, medical schools, polytechnic trade training, language training, adult
literacy, teacher training, student loan schemes, qualification authorities, on-line
libraries, foreign franchises, curriculum specialists, accreditation agencies, ...)
(b) What commercial activities form part of the supply chain for these services?
(c) Who delivers these services (central government, local government, community,
(d) How are these subsectors regulated (eg legislation, regulations, bylaws, custom,
(e) Who has authority over their regulation (eg ministers, tribunals, local bodies,
village councils, professional bodies)?
(f) Where possible, identify how the supply chain for services might change in the
Eg. Sub-sectors of services related to tourism
Subservices Service Form of Regulatory body Relevant
delivered by regulation regulation
Duty free shops
Credit card co’s
STEP 3: What effect would more foreign competition in these services have on
employment and labour market policy?
(This step is most suited to labour ministry officials, trade unions and local business)
The aim of trade in services agreements is to guarantee that foreign firms can provide
local services through various means, including by foreign investment, supplying
them over the Internet from outside the country, or when foreigners visit the country
to supply a service. Foreign firms also want to guarantees that they can operate on
equal or better terms than locals.
From an employment perspective, this can create or expand services industries that
provide new jobs. Competition from foreign firms, especially large transnational
companies, can also drive local firms out of business and mean job losses. People
working for the public sector may be affected when public services face competition
from private firms and then cut costs and staff levels to compete. Shifts between
public and private sector employment commonly erode levels of unionization. All
these considerations make it important to identify which services sectors and activities
are the main sources of employment so the potential affects of trade in services
commitments on local workers and employment policy can be anticipated.
Points to consider:
(a) Which services are the main sources of local employment, and which of these is
so important for employment that they need to be sustained?
(b) What is the profile of the services workforce in terms of gender, age and
(c) Are these services activities concentrated in particular locations, eg outlying
islands or towns, and does that raise special employment considerations?
(d) Are these workers likely to find alternative employment if they lose those jobs?
(e) Do these jobs mainly involve self-employed and family operations, larger local
firms or foreign firms, and how might they be affected by more foreign
(f) What effect would more foreign competitors have on public sector services and
(g) What services are seen as potential new sources of employment and are local
people qualified for those jobs?
(h) What would increased foreign competition in the private sector and more large
foreign firms mean for trade unions?
(i) What issues would trade in services commitments raise for current and future
Services workforce profile
Service % of Gender Qualific- Age Experience Location Kind of Chances Union-
activity workforce ations business of new isation
Implications of increased foreign competition for employment policy
Service % of Potential Potential Chances Impact on Implications
activity workforce for new loss of of workers unionisation for
jobs existing getting employment
jobs new work policy
STEP 4. What are the government’s existing legal obligations and people’s legal
rights in relation to services?
(This step is most suited to officials from justice and foreign affairs ministries,
statutory bodies for human rights and environment, international agencies, NGOs
and trade unions)
All Pacific Islands governments already have legal obligations involving services.
These obligations may be to provide essential services (eg. safe drinking water),
ensure access of a service to everyone everywhere (eg. universal postal services),
promote decent work (eg collective bargaining), develop local business opportunities
(eg. affirmative action), make basic social services free (primary education) or ensure
those services are affordable (health care).
Sometimes existing obligations do not involve the service itself, but relate to an
integral element of a service, such as culture (eg. broadcasting), language (eg.
education), land ownership (eg. tourism), or natural resources (eg. mining).
These obligations have many different rationales, including indigenous rights, self-
determination, conservation, social wellbeing, workers’ rights or human development.
The Constitution often guarantees certain services as a right of citizenship and
recognizes that particular bodies have authority over specific services or elements of
them. Other obligations are set down in international treaties or national laws.
These obligations may require broad ranging or very specific actions from the state.
They may relate to particular parts of the country. The rights they create may apply to
individuals, communities or the whole nation.
Trade in services agreements have their own mechanism to enforce the rules and
commitments, even where they conflict with the government’s other obligations. In
many cases the government can avoid a clash by not making a commitment in a
particular sector or entering a horizontal reservation that excludes certain activities or
elements for all services. Once the agreement is signed, however, it is almost
impossible to remove a commitment. Governments then have to rely on a limited
number of exceptions that do not give them a lot of room to regulate (see Part B).
The binding nature of the trade in services rules and commitments makes it essential
to identify any existing rights and obligations before any negotiations start. Again, a
commitment would also restrict the ability of the government to enter into future
treaties or adopt new laws to meet non-economic objectives, but it is very hard to
anticipate what those might be.
Points to consider
(a) Does the Constitution guarantee rights relating to services or key ingredients of
services? (eg. right to health care, land ownership, status of the language, support
for local enterprises)
(b) Does the Constitution reserve decisions to certain bodies or confer decision
making authority on levels or government or people (eg. customary law, village
councils, indigenous leaders)
(c) What obligations and rights relating to services, or ingredients of services, are
specified in domestic law?
(d) What international treaties has the government signed that impose obligations, or
confer rights, relating to services and what are these rights and obligations? (eg.
UN Covenant on Social and Economic Rights, Declaration on Right to
Development, ILO Conventions, UN Declaration on the Rights of Indigenous
Peoples, Convention on Biodiversity)
(e) What Pacific regional commitments has the government made that relate to
services and what do they require government to do? (eg. University of the South
Pacific, South Pacific Tourism Organisation, Forum, Fisheries Agency, Fiji
School of Medicine, South Pacific Regional Environment Programme, other
CROP agencies, and Pacific Islands Forum declarations)
(f) Are there formal or informal commitments to indigenous peoples or specific
communities that involve services or affect inputs to services (eg. land ownership,
exclusive rights to develop tourism operations, guarantees of access to essential
services, subsidised loans or water transport, rights of autonomous decision
making over particular matters)?
(g) Have court decisions imposed binding obligations on the state in relation to
services (eg. interpretation of the Constitution or domestic laws that require
universal access to water, affirmative action, land ownership, pension rights)
(h) Are any new treaties, regional agreements or domestic laws in the pipeline that
might conflict with trade in services rules and commitments?
Sources of obligations and rights relating to services
Services or key Constitution Domestic International Pacific Customary Indigenous Other
elements, eg. legislation treaties agreements law rights
STEP 5: Are there preferences for local firms and restrictions on foreign firms
(This step is most suited to officials from sectoral ministries, foreign investment board
and local businesses)
Services like shops, schools, banks, transport, media and electricity are part of
everyday life. Traditionally, people have provided and used these services within their
local communities and have a personal relationship with their providers. Governments
have usually regulated these services to achieve social and development objectives
and to sustain local businesses, jobs and livelihoods.
As noted earlier, trade in services agreements view services very differently, as
commercial transactions within a borderless free market. The rules are designed to
make sure that services markets are open to foreign firms and foreign services
providers are not discriminated against. Laws, policies and other measures that
impede the access of foreign firms to services markets are described as ‘barriers to
trade’. The rules target two kinds of government policies and regulation in particular:
- measures that give preferences to local providers of a service and discriminate
against foreign providers of a similar service, eg. affirmative action laws,
requirements that at least some of the directors are local citizens or live in the country,
restrictions on foreigners leasing or owning land, or restricting subsidies to national
suppliers of a service. (This doesn’t affect the preferences that are given to foreign
- measures that restrict the number of people or firms that can provide the service or
the potential for the market in that service to grow, such as caps on the number of
firms that are permitted in parts or all of the country (eg. hotels in sensitive areas) or
on the total number of services operations (eg. cruise ships that can dock in a day),
limits on the size of services operations (eg. floor size of supermarkets and
department stores), bans on certain activities (internet gambling) or quotas limiting
the level of foreign content in services (eg local content quotas for broadcasting).
‘Market access’ rules also target restrictions that exclude new providers (eg. requiring
them to show an unmet need for their service, known as an ‘economic needs test’), or
restrict foreign participation (eg. caps on the level of foreign ownership in
telecommunications or requiring foreign investors to operate through joint ventures).
If a government makes commitments that prevent it from using such measures, and
another party to the agreement complains, the government would need to rely on the
exception provisions in the text of the agreement (see Part B). These exceptions
usually provide a limited range of justifications for breaching the rules (eg public
morals or protection of public health), and require the government to use the most
market-friendly approach when they do so.
Points to consider
(a) Are foreigners restricted from owning or operating certain businesses or resources?
(b) Are certain services activities reserved for locals?
(c) Are essential inputs for services reserved for locals?
(d) Can private and/or foreign services providers get government subsidies or grants?
(e) Do local service providers get other kinds of preferential treatment?
(f) What services activities are subject to economic needs tests or labour market
(g) Are there restrictions on the number of operators in a particular sector, or on the
number of activities in a sector, or on the size of businesses in a sector?
(h) Are certain services activities banned altogether?
(i) Are there requirements for local directors on boards or senior management in
general, or in specific sectors?
Preferences for local services providers
Sector Special rules Preference for Subsidies/grants Indirect Objectives of
for foreign local service limited to locals preferences local
firms providers preference
Restrictions on potential size of services markets
Sector Economic Cap on no. Banned Cap on Joint- Other Objectives
needs test of operators/ services foreign venture of
Operations activities ownership required restriction
STEP 6. How does government define and manage ‘public services’ and
(This step is most suited to officials from sectoral ministries and public sector
Trade in services agreements routinely exclude ‘services supplied in the exercise of
governmental authority’. However, this exclusion does not apply where services are
commercial. It is not clear exactly what ‘commercial’ means (eg does it include user
charges or school fees?). The government service must also not be provided in
competition with a private supplier of similar services. Again, it is not clear how
similar the competing service has to be (eg landline vs mobile phone).
When assessing whether a service comes within this exclusion it is necessary to
consider whether its various elements or sub-sectors might be considered
‘commercial’ or face ‘competition’ (eg some aspects of health care).
Similar provisos about ‘commercial sale’ and ‘competition’ are usually found in the
exclusion that applies to government procurement.
Most trade in services agreements also have rules that govern public and private
monopolies and exclusive suppliers of services. One concern is whether public
monopolies use some of the revenue they receive from their monopoly activity (eg
basic postal service) to cross-subsidise other activities in which they compete with
private firms (eg couriers). Recent agreements require governments to ‘unbundle’
services, such as telecoms. There are also special restrictions on the way that
governments can provide universal access in sectors like post and courier and
telecommunications. This may limit a government’s ability to require private and
foreign providers to contribute to the general cost of maintaining the infrastructure.
The World Bank and donor countries have been promoting new ways of delivering
public services through ‘public private partnerships’ or ‘private finance initiatives’.
These are used for toll roads, airports, water services, hospitals, schools, prisons, etc.
They often involve a consortium that has finance, construction and management arms
and operate each contract through a specially created company. The parent companies
are often involved in contracts to run different kinds of services in many countries.
A less obvious private, foreign influence on public services comes through
procurement or contracts for public policy advice and the management of policy
change, including the restructuring of government ministries and agencies. This work
is often contracted out to foreign consultancy firms who have a vested interest in the
privatization of services. Trade in services commitments in ‘business services’ like
consultancy or management services give those companies a foothold and often have
an edge over local firms in tendering for contracts to give policy advice. Some foreign
governments have argued for the rules to apply to all government procurement
contracts as low as $20,000, which could prevent a government from requiring the
participation of local people or firms in policy or management contracts.
Points to consider
(a) What services does the central or local government provide directly?
(b) Does the government charge for any of these services?
(c) Has the government transferred responsibility for some services to state-owned
corporations to run them on a commercial basis?
(d) Has the government contracted the provision of public services to private firms?
(e) Which services that are provided by public or private providers get subsidies or
grants from central or local government?
(f) Does the government provide, fund or subsidize services that are competing with
private providers of similar services?
(g) Has the government designated any services as ‘essential services’ that it has a
duty to ensure are provided to its people?
(h) Are any services subject to a ‘universal service obligation’ and if so, how is that
operated and funded?
(i) How is government procurement of services organized and who can secure those
(j) Are there any formal public or private monopolies or exclusive services suppliers
and do they cross-subsidise unprofitable activities from their monopoly
(k) Are there special areas of government procurement that the government wants to
exclude from foreign tenders, eg. policy advice and restructuring?
Eg. Public services and monopolies
Public State Govt Private Subsidy Monopoly Universal Government
service, by provider charge competitor or service procurement
sector and Grant obligation rules
STEP 7. What are the main regulatory issues for temporary migration of
(This step is most suited to officials from immigration and labour ministries, trade
unions and NGOs)
The main ‘offensive’ interest of Pacific governments in trade in services negotiations
has been to secure guaranteed quotas for people to work in the services industries of
preferred destinations, especially Australia and NZ, building on the Recognised
Seasonal Employer scheme. Some Pacific governments also seek better access for
professional and trades people, who currently find that their qualifications are not
recognized and they have can to take less skilled jobs (eg nurses as caregivers).
‘Mode 4’ of delivering trade in services refers to the temporary presence of people to
deliver a service in another country. In the GATS, Mode 4 applies to people who
supply services at any skill level. In practice, the main destination countries have
limited their commitments to professionals, executives and high-skilled categories, as
an essential complement to foreign investment, but view entry for other levels of
services workers as an immigration issue.
It is useful to look at the recent practices of destination countries to assess whether
Pacific states are likely to secure binding commitments, especially for lower-skilled
categories of services workers (eg. the EC limited mode 4 to ‘key business personnel’
in its draft EPA. NZ took a similar approach in its recent FTA with China; a side-
letter provides for holiday workers, subject to strict qualifications, and can be
suspended for foreign policy reasons and cancelled with three months notice.)
Trade in services agreements view labour mobility from a purely economic
viewpoint; they do not provide a regulatory framework for managing temporary
migration. It is therefore important to consider whether an effective regime is already
in place to protect the rights of migrant workers abroad (eg. to join unions, access
health and social services, and be protected against exploitation) or to minimize the
negative social and cultural impacts at home (eg. on domestic services and on
The trade-offs that Pacific governments are asked to make during the negotiations (eg.
cutting tariffs on local products) may intensify the factors that push their people to
seek work offshore and increase the country’s dependence on remittances. They will
also be asked to liberalise access into their countries for foreign managers,
professionals and skilled workers.
Commitments in a range of services may constrain the ability of governments to
regulate the ‘remittance industry supply chain’ more effectively.
Points to consider
(a) In what ways is temporary employment offshore expected to contribute to the
country and is any assessment underway to monitor whether those expectations
are being met?
(b) What are the skills or occupation categories that people want to access in
(c) Do they want to work offshore permanently or temporarily?
(d) Are there ways to encourage skilled workers and professionals to leave
temporarily rather than permanently and what incentives might get them to return?
(e) Is there an effective regulatory regime in place for managing the temporary
migration of professionals and skilled services workers?
(f) What are the potential benefits from high skilled workers and professionals
(g) What is the effect of their absence on domestic skills and professional services?
(h) What are the ‘push’ factors that encourage skilled workers and professionals to
leave and are there policy changes that might stem the outflow?
(i) What are the preferred destinations for professional and high skilled workers and
what restrictions do they face in being able to work in those countries?
(j) Based on their existing practices in FTAs, are those destinations likely to make
binding commitments for professionals and high skilled services workers in a
trade agreement with the Pacific?
(k) What are the potential benefits from accessing less skilled services work offshore?
(l) What are the ‘push’ factors that encourage less skilled services workers to leave
and what changes at home could stem the outflow?
(m) What are the preferred destinations for less skilled services workers and what
restrictions do they face in being able to work in those countries?
(n) Based on their existing practices in FTAs, are those destinations likely to make
binding commitments for less skilled services workers in a trade agreement with
(o) Is a trade agreement likely to include a means for managing the temporary
migration of less skilled services workers?
(p) What effect might the trade-off of increased access to goods, food, services and
investment from foreign imports have on these ‘push’ factors?
(q) What does increased dependency on remittances mean for the nation’s future
(r) What issues arise when people return home from working overseas and are there
any programmes for their reintegration?
(s) Has there been any social and cultural impact assessment of how the absence of
mothers and/or fathers working offshore affects their families and communities?
(t) What protections needed to ensure that people working overseas are not exploited
and have access to essential health and social services?
(u) What services make up the migration-for-remittance supply chain?
(v) How do foreign or domestic recruitment agencies operate and are they effectively
(w) Who runs the training programmes to develop skills for export and are they
(x) How do people pay for courses to qualify for work offshore (eg loans, advances
on a parent’s pension) and what are the downstream effects of that?
(y) Are there restrictions on the right of people in certain skill categories to work in
your country and what are the objectives of those restrictions?
(z) What would be the effect of removing or weakening those restrictions on foreign
Immigration restrictions in destination country ‘A’ (eg New Zealand)
Skill category Restrictions Criteria Entry Recognition of Provisions in
seeking access process qualifications other FTAs
Regulatory Framework for Temporary Services Workers Offshore
Skill Social Cultural Economic Local Reinteg- Human Domestic Provision
category, eg impact impact impact services ration rights Regulation in trade
Regulation of the remittance supply chain
Activity, eg Owned by Concerns Current regulation Potential
Fee paying skills
Restrictions on services workers entering the country
Skill Restrictions Criteria Administrator Legal Objective Effect of
category source increased
STEP 8. How does the government regulate the supply of services by foreigners,
such as moving money, granting licenses and recognising qualifications?
(This step is most suited to officials from the central bank, government agencies
responsible for foreign investment, and professional bodies.)
The GATS recognises four ‘modes’ for delivering trade in services - across the border
(mode 1); by the consumer travelling to the country of the provider (mode 2); by
foreign investment (mode 3); and by temporary presence of a foreign person who
provides the service (mode 4). Recent agreements (eg the EC’s EPAs) reorganize
these modes and extend the rules to investments in non-services activities.
Generic regulations apply ‘horizontally’ across all sectors for one or more mode of
delivering services, such as movement of funds for current payments and capital
transfers (all modes), foreign investment rules and procedures (mode 3), land
ownership rights (mode 3), licensing requirements (modes 3 and 4), recognition of
foreign qualifications (mode 4), rights of entry and work for foreign nationals (mode
4), etc. There are occasionally special rules for a sector, such as financial services.
Regulations also apply to licensing of service activities (eg. casinos, taxis), practicing
a profession (eg. lawyers, midwives), or technical standards that a service has to meet
(eg. eco-tourism, sanitation). Administration of these rules is commonly delegated to
specialist government or quasi-government agencies, or devolved to private
professional and licensing bodies. The authority of the government to set these
regulations, the role of the administrative bodies and the approach to regulation can
be restricted by the trade in services rules, as well as by commitments in specific
Points to consider
(a) What is the vetting regime for foreign direct investment, how is it administered
and by whom?
(b) What are the restrictions on current and capital movements, how are they
administered and by whom?
(c) Is ownership of certain natural resources reserved for nationals?
(d) Are particular jobs and professions reserved for nationals?
(e) What commercial activities require a license, what criteria do they have to meet
and who administers those regimes?
(f) What professions require particular qualifications, what are the criteria for
becoming accredited and who administers those regimes?
(g) What activities are required to meet technical standards (eg water quality,
pollution levels, building standards), what criteria do they have to satisfy and who
administers those regimes?
Foreign investment and Monetary Regulation
Transaction Restrictions Criteria Administrator Legal source
Profession Restrictions Criteria Administrator Legal source
Activity Restrictions Criteria Administrator Legal source
Subject Restrictions Criteria Administrator Legal source
STEP 9: Are service providers from some foreign countries given preferences
over those from other countries?
(This step is most suited to officials from ministries responsible for trade, foreign
affairs, labour and specific sectors)
Non-discrimination is the most basic requirement of trade in services agreements. The
‘most favoured nation’ (MFN) rule guarantees the party to an agreement that their
services and providers of services will get the best treatment that is given to any other
party to the same agreement. Sometimes a MFN obligation applies across several
agreements – any better treatment that it given to a country in a new agreement has to
be given to the parties to an existing agreement.
Some Pacific states already have agreements with other countries that guarantee
special treatment for their foreign investors or rights of entry for people working in
services sectors. Most countries that want to negotiate on trade in services with the
Pacific will demand at least the same treatment. Pacific states may not want to give
them parity because they would not get the same benefits in return or because the
negative impact on them would be much greater. This may apply especially to the
special treatment that Pacific states give each other in a trade in services agreement
among themselves. The EU’s draft EPA would also require all PICs to give each
other the same treatment they agree to give to the EU.
A foreign country that is a party to an existing agreement may also be guaranteed any
better treatment that the Pacific state gives to a third country in a new agreement. For
example, the Compact states have an obligation to give the US any better treatment
that they give to another state under any future trade agreement.
Some agreements require this kind of parity across the board. Some limit MFN
treatment to particular parts of the agreements or to agreements with certain countries
(eg only developed countries). Other agreements may require that any exceptions are
listed in a special schedule.
Points to consider
(a) Are there any existing agreements that give preferences to services suppliers or
investors from foreign countries?
(b) Considering the impacts already identified, what would be the effect of extending
those preferences to the country/ies that is/are now being negotiated with?
(c) Do those agreements give the other party the automatic right to better treatment
contained in a new agreement with another country?
(d) What does the proposed text of the new agreement say about the right to parity
with existing agreements?
Existing MFN Effects MFN Effects
agreements obligations obligations in
STEP 10. What areas of policy and regulation should be restricted by trade in
services rules, in what sectors and subject to what limitations?
(This step requires in-depth knowledge of trade in services classifications and is most
suited to officials from the trade ministry and governments’ legal office.)
The previous 9 steps should have identified:
the country’s main services and the governments goals in relation to those
the service subsectors that comprise the commercial supply chain for those
who has regulatory responsibility for those activities, as well as the key inputs into
those services, and the key regulations
the government’s existing legal obligations in relation to those services and inputs
into those services
the potential for trade rules to impact on the government’s existing legal
obligations to advance social, cultural, environmental and development objectives
the significance of specific services for employment policy
local preferences and restrictions on foreign firms and the goals of those measures
the extent to which public services are non-commercial and non-competitive and
the commercial nature of any monopolies
whether there is an effective regulatory regime in place for managed temporary
migration and the remittance industry
cross-cutting regulations that would apply to foreign services, and
whether services from any third countries receive preferential treatment.
This information should allow governments to make reasonably informed decisions
about how a services commitment might affect its existing policies and regulations.
However, governments also need to be aware that their future ‘policy space’ to deal
with situations that cannot be foreseen will also be restricted.
If the government decides to proceed with services commitments, these will usually
be set out in several schedules. (See Part D for a detailed guide to these schedules.)
The first is a schedule of exceptions to ‘most favoured nation’ (MFN) status. Entries
in this schedule reserve the right to treat services or service providers from a third
country better than the party to the current agreement. Some recent agreements do not
allow such exceptions.
A second schedule sets out the country’s commitments on specific services. This
usually has several parts. In the ‘horizontal’ section the government lists the
regulations that it wants to retain for all the services on which it makes a commitment.
That saves it having to repeat the same entry for each service. Horizontal reservations
are usually inscribed in the column that deals with measures affecting market access
or national treatment. In GATS schedules it is also indicated that they involve mode
1, 2, 3 or 4. The EC describes these modes differently in its draft; so does NZ in its
The rest of the schedule of specific commitments stipulates the services that the
country is subjecting to the agreement’s rules and can specify aspects of that service
or its regulation that will not be bound by the rules. These commitments can take
different forms. Where a ‘positive list’ approach is used, the parties list the services
that they agree to bring under the trade rules and any limitations. The wording can be
confusing as ‘none’ indicates there is no limitation on a commitment in that sector or
sub-sector. A ‘negative list’ approach requires the government to specify all the
services that will not be subject to the rules. As noted earlier, once a commitment is
made it is usually almost impossible to withdraw it, even if a mistake has been made.
Non-trade ministries often find it hard to identify how the services they have
responsibility for relate to these agreements and assess the implications of bring them
under the trade rules. Many trade officials, who are usually not specialists in the
particular services sectors, have a similar difficulty.
Trade in services agreements define services by referring to the chain of commercial
activities that are involved in supplying them. How a service is described may have
no relationship to the service as it is experienced by the people who use it (eg.
midwives are a business service, shops are distribution services, cruise ships are
transport services). Some generic services affect a wide range of other services (eg.
consultancy related to tourism, construction, postal privatization or education policy;
data processing relates to banking, mining or call centres).
The list of classifications that are used in the GATS to designate a particular service
in a country’s schedule is known as W/120 (formally MTN/GNS/W/120). It has
eleven main headings, each of which has one or more levels of sub-sectors, and a
catch all for ‘other services’ (appended at the end of Part D). The W/120 list broadly
relates to the UN Provisional Central Product Classification (CPCprov)
(http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=9&Lg=1). Even though it was
not compulsory to use the CPCs in their GATS schedules, most countries have listed
the CPC number next to a particular sub-sector, so what it covers can be identified
more precisely. Some services (eg. water or energy services) do not have a sectoral
heading. In those cases it is necessary to identify the wide range of classifications that
comprise that sector, which may be spread across many of the eleven main categories.
W/120 continues to be used in some FTAs today. However, in EPAs and other
bilateral agreements, the W/120 list is supplemented by more recent UN
classifications. Where services and non-services investments have been blended
within the same chapter of an agreement, a further layer of industrial (ISIC)
classifications has been introduced. In some situations a totally new classification is
drawn up that serves the interests of the main exporter (the EC’s list of environmental
services is a prime example).
All this makes the task of scheduling very complex. Getting it wrong can have serious
consequences. Even where governments do understand the implications at the time
they draft the schedule, circumstances can change. It is impossible to predict what
new services might arise in the future that governments might decide need a more
hands-on approach to regulation. Privatisation, liberalisation and deregulation might
not work, and the government might decide it needs to resume control or impose a
new regulatory regime. Government might decide that it needs to give greater priority
to social rather than commercial objectives.
Identifying the domestic policy and regulatory implications of requests that cite
specific sectors or classifications (or possible offers proposed by consultants) is also
difficult. It is necessary to work out what activities are covered by each general
heading and its relevant sub-sectors and how those might relate to a wide range of
different services that are identified in the previous steps. This is especially difficult
with generic headings, such as business services that include data bases and data
processing, consultancy, legal advice, management services, etc.
Points to consider
(a) Does the government understand enough about the potential impacts of a trade in
services commitment now and into the future?
(b) How can the government ensure that it is able to deliver on its existing obligations
under the constitution or international law?
(c) If the government decides to make a commitment in a particular subsector does it
want to reserve the right to give better treatment to its own service providers in
relation to the entire service, particular subsectors or a mode of supply (eg
movement of people or foreign investment)?
(d) What generic laws, policies or regulations would need to be protected in the
horizontal section of the country’s schedule of sectoral commitments?
(e) Are there some levels of government decision making (eg local government,
village councils) that need to be excluded from coverage of the rules?
(f) How do the activities identified in step 2 correspond to the classifications of
services listed in W/120?
(g) Are negotiating parties planning to use the CPCprov list or more recent UN
(h) How do the W/120 categories relate to the classification system that is being
(i) For WTO members, how do any proposed new commitments relate to their
existing GATS schedule, especially if a different classification is being used?
(j) Are the negotiations intending to use a positive or negative list approach?
(k) If a negative list is being proposed, is it possible to identify every classification for
every service subsector that would need to be excluded to protect the
government’s policy space now and into the future?
(l) How can the government retain flexibility to deal with market failure, new
services not yet identified or changed circumstances?
(m) If services and non-services investments are to be combined in a single schedule
(as the EC proposes for the EPA) is it possible to identify how the ISIC
classifications for investments relate to any existing GATS commitments?
(n) If the EC’s new structure is used, is it clear how a commitment in cross-border
trade in services (modes 1 and 2) is linked to commitments on foreign investment
in services (mode 3) and non-services (eg how to these different headings relate to
mining, fisheries or forestry)?
(o) Does the government want to reserve the right to give better treatment to service
providers from another country (ie. MFN exceptions) in relation to any specific
service or subsector, or a mode of supply (eg movement of people or foreign
(p) If a request or proposal for commitments under a particular sector has been made,
it is possible to identify all the relevant activities that may be affected and the
different services to which those activities relate?
(q) What provisions exist to correct a mistake or change a commitment that has
Converting services sub-sectors to schedules using CPCprov
Sub- W/120 Technical CPCs Domestic Domestic Potential
sectors reference Description classif regulating regulation impact
Converting services sub-sectors to schedules using CPCprov
Sub-sectors W/120 Technical CPCs Domestic Domestic Potential
category Description classif regulating regulation Impact
Relating services requests to services provided using CPCprov
Generic W/120 Technical CPC Current Regulating Regulation Affected
heading of category description classific Provider agency services