Chapter 19: GATS

Chapter 19: GATS

I.

Section 19.1: Idea

The creation of the GATS was one of the landmark achievements of the
Uruguay Round, whose results entered into force in January 1995. The GATS
was inspired by essentially the same objectives as its counterpart in
merchandise trade, the General Agreement on Tariffs and Trade (GATT):
a. creating a credible and reliable system of international trade rules;
b. ensuring fair and equitable treatment of all participants (principle of
non-discrimination);
c. stimulating economic activity through guaranteed policy bindings; and
d. promoting trade and development through progressive liberalization.
The GATS distinguishes between four modes of supplying services: crossborder trade, consumption abroad, commercial presence, and presence of
natural persons.
a. Cross-border supply is defined to cover services flows from the
territory of one Member into the territory of another Member / not
requiring the physical movement of the supplier or consumer (e.g.
banking or architectural services transmitted via telecommunications
or mail);
b. Consumption abroad refers to situations where a service consumer
(e.g. tourist, student or patient) moves into another Member's territory
to the location of the provider to obtain a service;
c. Commercial presence implies that a service supplier of one Member
establishes a territorial presence, including through ownership or lease
of premises, in another Member's territory to provide a service (e.g.
domestic subsidiaries of foreign insurance companies or hotel chains);
d. Presence of natural persons consists of persons of one Member
entering the territory of another Member to supply a service /
temporary movement of natural persons (e.g. accountants, lawyers,
doctors or teachers). The Annex on Movement of Natural Persons
specifies, however, that Members remain free to operate measures
regarding citizenship, residence or access to the employment market
on a permanent basis.

II.

Section 19.2 : Summary of GATS (pp. 939-51)

Some articles:
a. Article II: the MFN obligation is applicable to any measure that affects
trade in services in any sector falling under the Agreement, whether
specific commitments have been made or not. Exemptions could have
been sought at the time of the acceptance of the Agreement (for acceding

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Chapter 19: GATS

b.
c.
d.
e.

f.
g.

countries: date of accession). They are contained in country-specific lists,

and their duration must not exceed ten years in principle.
Article III: Obligations on transparency and disclosure
Article IIbis: disclosure of confidential information
Article IV: participation of the developing countries (giving some
advantages in the system)
Article V: Economic integration in the goods area we experienced
intergration, via the special bilateral treaties. Here, it does not have too
much language on what to be expected from integration (artivle XXIV
GATT), but there is a substantial sectorial coverage in the GATS (there
is a hope)
Article VI: Domestic Regulation very important. It is tempting to have a
rule of fair regulation.
Article VII: setting standards should be eligible to be recognized as valid
standards for other countries

h. Article XII allows for the introduction of temporary restrictions to safeguard the
balance-of-payments; and a so-called prudential carve-out in financial services
permits Members to take measures in order, inter alia, to ensure the integrity and
stability of their financial system In the event of serious balance-of-payments
and external financial difficulties or threat thereof, a Member may adopt or
maintain restrictions on trade in services on which it has undertaken specific
commitments
i. Article XIII: Government Procurement
j. Article XIV: General Exceptions (similar to Article XX GATT) Members may
take measures necessary for certain overriding policy concerns, including the
protection of public morals or the protection of human, animal or plant life or
health. However, such measures must not lead to arbitrary or unjustifiable
discrimination or constitute a disguised restriction to trade. Attention to Article
XIV(1)(a): necessary to protect public morals or to maintain public order in US
Gambling
k. Article XIVbis: if essential security interests are at stake, provides cover.
l. Article XV: Subsidies (but no implementation)
m. Article XVI: Market access

n. Article XVII: National treatment implies the absence of all discriminatory

measures that may modify the conditions of competition to the detriment
of foreign services or service suppliers. Again, limitations may be listed to
provide cover for inconsistent measures, such as discriminatory subsidies
and tax measures, residency requirements, etc
For purposes of structuring their commitments, WTO Member have generally used a
classification system comprised of 12 core service sectors:

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Business services (including professional services and computer services)

Communication services
Construction and related engineering services
Distribution services
Educational services
Environmental services

Chapter 19: GATS

Financial services (including insurance and banking)

Health-related and social services
Tourism and travel-related services
Recreational, cultural and sporting services
Transport services
Other services not included elsewhere

These sectors are further subdivided into a total of some 160 sub sectors. Under this
classification system, any service sector may be included in a Member's schedule of
commitments with specific market access and national treatment obligations. Each WTO
Member has submitted such a schedule under the GATS.
III.

Section 19.3: Overview of the WTO case-law (3 cases)

a. Canada automobiles DS 139, DS142 (p. 959)
i. Measure at issue: Canada's import duty exemption for imports by
certain manufacturers, in conjunction with the Canadian Value
Added ("CVA") requirements and the production to sales ratio
requirements.
ii. Product at issue: Motor vehicle imports and imported motor
vehicle parts and materials.
iii. First, the measure concerns the wholesale trade services of motor
vehicles, a category of services. Second, AB considered whether
the measure at stake affects the trade in services
iv. Finding AB: reversed the Panels decision and found that
determination of whether a measure is covered by the GATS must
be made before the assessment of that measure's consistency with
any substantive obligation of the GATS
b. EC Bananas (DS27)
i. Measures at issue: The European Communities' regime for the
importation, distribution and sale of bananas, introduced on 1 July
1993 and established by EEC Council Reg. 404/93.
ii. Products at issue: Bananas imported from third countries.
iii. Idea: wholeservice and retail trade services made up the larger
category of distributive trade services. US and Latin American
companies supplied wholesale trade services to the EC on a crossborder and commercial presence basis.
iv. EC: the measures remained the same as the ones contested under
the GATT, i.e. the licensing system, in particular the allocation.
EC: these measures were directed at goods (aim & effect) and
except for some broad allegations on competitive conditions, the
Complainants did not substantiate that the measures related to
trade in services. AB: upheld the Panels decision that allocation of
licenses created less favorable conditions of competition for
Complainants and clarified that the "aim and effect" of a measure
is irrelevant under GATS Art. II and XVII.
c. Canada Periodicals (DS31)

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i. Measures: (i) Tariff Code 9958, which prohibited the importation

into Canada of any periodical that was a "special edition"; (ii) the
Excise Tax Act, which imposed, in respect of each split-run edition
of a periodical, a tax equal to 80 per cent of the value of all the
advertisements contained in the split-run edition; and (iii) the
postal rate scheme under which different postal rates were applied
to domestic and foreign periodicals.
ii. Products at issue: Imported periodicals (from the United States)
and domestic periodicals.
iii. Canada: since the provision of magazine advertising services falls
within the GATS and Canada has not taken any commitments in
respect of the provision of advertising services in its schedule of
Specific Commitments, Canada is not bound to provide national
treatment to Members of the WTO with respect to the provision of
advertising services in the Canadian market
iv. Panel: obligations under GATT 1994 and GATS can coexist. Panel
does not find necessary to pronounce on the issue of whether there
can be potential overlaps between the GATT 1994 and the GATS.
v. AB upheld the Panels conclusion: the measure at stake is a
measure that clearly applies on goods, i.e. an excise tax on splitrun edition of periodicals. It is not appropriate to consider
Canadas rights and obligations under the GATS.
IV.

Section 19.4: US Gambling (p. 972): first case that walks through the steps

a. Measureatissue:VariousUSmeasuresrelatingtogamblingandbettingservices,
includingfederallawssuchasthe"WireAct",the"TravelAct"andthe"Illegal
GamblingBusinessAct"("IGBA").
b. Servicesatissue:Crossbordersupplyofgamblingandbettingservices.
c. Vienna Convention (VC) principles to determine scope of specific commitments
made by the US in GATS schedule
d. Used Art 32 VC to find that gambling included in other recreational activities
e. GATS Art XVI: market access commitments US has undertaken to provide
full market access in respect of the services
f. Zero quota
i. The fact that the US did not need to use numerical values or
the word quota to determine that zero quota in the US
measure does not mea that the measures are beyond the reach
of Article XVI (2)(a)
ii. This is prohibited by GATS
g. GATS Art XIV: exception for public morals
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i. Same 2 tier analysis as in GATT Art XX:

First look at whether fits within one of the paragraphs of Article

XIV
Then look at whether the measure satisfies the requirements of
the chapeau
ii. Art XIV(a) exception
Measures designed to protection public morals and/or to
maintain public order
Necessity analysis of the 3 federal statutes (Wire Act, Travel Act
and Illegal Gambling Business Act IGBA)
- The standard of necessity is an objective standard
- Question for necessity: Is there any WTO consistent
alternative reasonably able to employ or less-WTO
inconsistent measure reasonably available?
- Balance / relationship between Means/ends
- Impact on intl trade
- Burden of proof on party invoking the aff def (US)
- AB reversedthePanel'sfindingthattheUnitedStateshad
notshownthatitsmeasureswere"necessary"todoso
becausethePanelhaderredinconsideringconsultations/
negotiationswithAntiguatoconstitutea"reasonably
available"alternativemeasure.Youdonotneedto
negotiate.
- US showed that measures were necessary, so the next step
is whether measures are consistent with the Chapeau
iii. Chapeau: Arbitrary or unjustifiable discrimination
Remote v. nonremote supply of gambling services: AB
maintained the distinction
Idea: did the Panel appliy the requirements of the Chapeau? No,
the Appellate Body modified the Panel's finding with respect to
the chapeau of Article XIV.
The Appellate Body reversed the Panel's finding that the
measures did not meet the requirements of the chapeau because
the United States had discriminated in the enforcement of those
measures.
The Appellate Body upheld the second ground upon which the
Panel based its finding, namely that in the light of the Interstate
Horseracing Act IHA (which appeared to authorize domestic
operators to engage in the remote supply of certain betting
services), the United States had not demonstrated that its
prohibitions on remote gambling applied to both foreign and
domestic service suppliers, i.e. in a manner that did not constitute

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Chapter 19: GATS

"arbitrary and unjustifiable discrimination" within the meaning

of the chapeau
Idea: IHA exempts only domestic suppliers of remote betting
services for horse racing from prohibition of the federal statutes,
not the foreign suppliers
US measures do not satisfy the requirements of the chapeau only
because of the IHA exemption of the domestics suppliers of
remote betting services for horse racing

6 Steps by Professor Jackson:

-

p. 974: Panel examined 8 state laws (not all state law, too complex). Is there
an obligation scheduled for gambling? It would be a schedule that binds the
US. US: no, gambling does not enter within the obligation that we have
bound. Does gambling comes under other recreational activities? Finally,
yes.

Article XVI : US has undertaken to provide full market access in respect of

the services. There is an obligation that can be qualified as having quantitative
effects.

P. 977: Has it been breached under US law? Yes. Panels analysis focused on
the 3 federal laws.

Article XIV: exception / public moral. US proved that measures were

necessary.

Analysis under the chapeau. They focused under the discrimination and AB
limited the analysis for horse racing. US was allowing horse betting in some
parts of the US, while not allowing the foreign suppliers to do the same.

Step 6: enforcement (another Panel request and arbitration)

This was an oops case. US: wanted to change the concession [eliminate gambling],
members are allowed to change their schedules IF they pay compensation.

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