ࡱ> q Jbjbjt+t+ &AABU]82Fd#:L   9999999$; =::  d  99709 =)Id9J Joint ϲʹ-World Bank Symposium on movement of Natural Persons (Mode 4) under the gats ϲʹ, Geneva, 11-12 April 2002 GATS, MODE 4 and the pattern of commitments Background information ϲʹ Secretariat I. INTRODUCTION The concept of international trade in services is relatively new. Unlike the bulk of agricultural and industrial production, services have long been considered not to be tradable across borders or, more generally, over distance. The only significant exceptions have been services directly related to the exchange of goods, such as transport, and to tourism. The generally low level of trade in services has been attributed to institutional, administrative and/or technical constraints, such as the existence of public monopolies, strict access regulations and controls and the need for direct physical contact between suppliers and consumers. However, in an increasing number of sectors such constraints have diminished or even disappeared. The advent of new communication technologies, including the Internet, has helped to reduce distance-related barriers to trade. Governments have begun to reconsider their role in the provision of services, and this has presented new opportunities for private participation, both domestic and foreign. The entry into force of the General Agreement on Trade in Services (GATS) in 1995 confirmed the global trend towards the reorganization and restructuring of services. The Agreement provides a system of predictable and legally enforceable conditions for services trade, and has a potentially positive impact on investment, efficiency and growth. It applies to measures taken by governments, at whatever level, or by government-mandated bodies, affecting trade in services. ϲʹ Member countries have committed themselves to the progressive liberalization of services. A new round of services negotiations was launched on 1January2000. It can be expected to promote further market liberalization, or at least the legal binding of liberalization already achieved autonomously, and thus advance or consolidate developments that have been going on for years in many countries. II. Basic structure of the GATS The GATS allows Member countries to assume legally binding commitments concerning their use or renunciation of trade-related measures in individual service sectors. These commitments are laid down in country schedules, one for each Member. There is wide scope to adjust schedules to domestic policy objectives and constraints. For example, the GATS does not prescribe the number, level or sectoral pattern of a country's commitments and does not compel Members, even in sectors they include in schedules, to offer conditions that are more liberal than the prevailing trading conditions. A large majority of schedules have been confined to confirming the status quo or to guaranteeing only some form of minimum trading rights below present levels. Reflecting the need in many service sectors for direct physical interaction between supplier and consumer, the range of transactions covered by GATS is particularly broad. The Agreement not only embraces the traditional concept of cross-border trade in the form of country A importing services from abroad (mode1), but extends to A's residents consuming services in foreign markets (mode2), foreign suppliers establishing a commercial presence in A (mode3), and people (designated legally as "natural persons") moving temporarily into A for the purpose of providing a service (mode4). For any sector included in its services schedule, a Member is held to specify the commitments that it is prepared to undertake on market access and national treatment. The granting of market access implies that the Member must refrain from operating any of six types of restrictions, mostly quota-related barriers, enumerated in ArticleXVI of the GATS. ArticleXVII defines national treatment as the absence of any measure that modifies the conditions of competition to the detriment of foreign services or service suppliers. Departures from market access and national treatment are not prohibited per se, but they must be listed in the schedule as limitations. Limitations applying to all scheduled sectors may be inscribed in a horizontal section, to avoid repetition. The GATS is therefore based on a "hybrid" approach: it combines a positive listing of sectors with a negative listing of restrictions. Since market access and national treatment each apply to the four modes of supply, trading conditions are defined in the form of eight entries per sector. These may vary within a spectrum whose opposing ends are guaranteed market access and/or national treatment without limitations (full commitments) and the denial of any such guarantees (no bindings). While the relevant entry would be "none" in the former case, the absence of commitments would be indicated as "unbound". The non-scheduling of a sector or a non-commitment on a particular mode do not imply that the relevant policies are beyond all GATS disciplines. Some basic obligations first and foremost, the most-favoured-nation (MFN) principle apply regardless of such circumstances. The MFN obligation prohibits any form of discrimination between trading partners on grounds of nationality. Thus, while a ϲʹ Member may prohibit all trade in a non-committed sector or mode, it must, as a rule, operate this prohibition on an MFN basis, i.e. vis--vis all its trading partners. Exceptions relate to preferences granted amongst participants in economic integration agreements. In addition, exemptions from MFN treatment could have been sought, for a period not exceeding 10 years in principle, at the date of entry into force of the Agreement or, for new ϲʹ Members, at the date of accession. III. MODE 4 The presence of natural persons, otherwise referred to as mode 4, is one of the four possible ways of trading a service under the GATS. Mode 4 is defined in ArticleI:2(d) as entailing "the supply of a service by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member". The Annex on Movement of Natural Persons Supplying Services under the Agreement (hereinafter the Annex) specifies that two categories of measures are covered: those affecting natural persons who are "service suppliers of a Member", i.e. self-employed suppliers who obtain their remuneration directly from customers; and those affecting natural persons of a Member who are "employed by a service supplier of a Member in respect of the supply of a service". These natural persons can be employed either in their home country and be present in the host market to supply a services or employed by a service supplier in the host country. The Annex clarifies that the GATS does not apply to measures affecting individuals seeking access to the employment market of a Member, nor to measures regarding citizenship, residence or employment on a permanent basis. There is no specified timeframe in the GATS of what constitutes "temporary" movement; this is defined negatively, through the explicit exclusion of permanent presence. A cursory look at Members' schedules shows that the maximum length of stay permitted under Mode 4 varies with the underlying purpose. Thus, while business visitors are generally allowed to stay up to 90 days, the presence of intra-corporate transferees, another frequently scheduled category, tends to be limited to periods of between two and five years. The Annex does provide for the possibility that commitments, and therefore access conditions, be scheduled by "categories of natural persons", thereby introducing an additional element of flexibility. The Annex also clarifies that, regardless of their obligations under the Agreement, Members are free to regulate the entry and stay of individuals in their territory, including through measures necessary to protect the integrity of, and ensure the orderly movement of natural persons across, their borders, provided that the measures concerned "are not applied in such a manner as to nullify or impair the benefits accruing to any Member under the terms of a specific commitment". The operation of visa requirements only for natural persons of certain Members, but not for others, is not per se regarded as nullifying or impairing such benefits. The economic impact of mode 4 may differ widely between sectors and economic activities. For analytical purposes, it may be useful to distinguish three scenarios. First, situations where movements of persons are the only feasible mode of supply. This is the case whenever the physical presence of a supplier is the determinant factor for the provision of a service and the consumer, or his property, are regionally immobile. Second, sectors and activities where movements of persons are one among several possible modes of supplying services; they may be replaced, for example, by cross-border communication links between suppliers and consumers of a service. In general, such links may prove easier to achieve in relatively sophisticated, knowledgeintensive fields of activity, including advisory or consultancy work. Third, cases in which temporary movements complement and facilitate trade under other modes. Direct personal contacts may help to promote a company's reputation, bridge information gaps and cultivate business links. Recent estimates, based on limited empirical information, suggest that mode 3, commercial presence, accounts for more than half of world trade in services and mode 1, cross-border trade, for about a fourth, while mode2, consumption abroad contributes less than one-fifth. Mode4 was found to be nearly insignificant, accounting for just over 1% of world services trade. IV. PATTERN OF MODE 4 COMMITMENTS The Uruguay Round negotiations were concluded in December 1993. However, negotiations on basic telecommunications, financial services and maritime transport services, as well as on the movement of natural persons, were extended beyond the end of the Uruguay Round because of widespread dissatisfaction with the level of liberalization achieved in these areas. Negotiations on mode 4, which were extended until 30 June 1995, produced no major break-through. Only Australia, Canada, the EU and its member States, India, Norway and Switzerland improved on the commitments made in the Uruguay Round, and these improvements were annexed to the Third Protocol to the GATS. The improvements mainly concern access opportunities for additional categories of services suppliers, usually independent foreign professionals in a number of business sectors, or the extension of their permitted duration of stay. A cursory look at Members' current GATS schedules shows that levels of commitments vary strongly across modes of supply. Within a given sector, trade conditions for mode 4 tend to be significantly more restrictive than conditions for other modes. No developed country has scheduled a "none" entry for its mode 4 commitments, and only 1% of market-access commitments undertaken by developing countries are fully liberal. This compares with one out of two entries for mode 2 being full commitments. The shallow level of commitments for mode 4 is to a certain extent also reflected in the pattern of horizontal limitations, which apply across all sectors: there are five times as many such limitations scheduled for mode 4 than for mode 2. In turn, this reflects many Members' basic method to scheduling mode4 entries. Contrasting with other modes, the negative list approach to scheduling limitations has been turned upside-down: schedules start with a general "unbound", which is then qualified by liberalization commitments, mostly limited to specified types of persons (e.g.managers), movements (e.g.intracorporate) and stays (e.g.up to four years). Commitments are often exclusively governed by what is inscribed in the horizontal part of the schedule, so that identical access conditions apply to all scheduled sectors. Commitments are usually based on functional or hierarchical criteria, related either to the type of person involved (e.g. executive, manager, specialist) or to the purpose of their movement (e.g. to establish business contacts, negotiate sales, set up a commercial presence). Besides, no generally agreed definitions or precise descriptions exist of the types of natural persons to which access is granted, which can detract from the predictability of entry conditions. Many schedules have established links across modes of supply. Members' schedules are mostly biased in favour of "intra-corporate transferees", hence making the economic value of such commitments dependent on access conditions for mode 3. Such commitments are of limited interest to Members which, given their level of economic development, are not significant foreign investors. Schedules are also more open for highly skilled labour, where developing countries tend to be net importers, as their comparative advantage lies with relatively unskilled labour-intensive services. It is also widely acknowledged that Members' mode 4 commitments do not generally reflect actual entry conditions for natural persons, as Members have bound less than the access granted in practice. As of April 2002, an overview of Members' horizontal commitments shows that the majority of the entries scheduled  close to 280 out of a total of 400 concern executives, managers and specialists. Of these, around 170 entries explicitly relate to intra-corporate transferees, their economic value being thus determined by commitments on mode 3 (see Table). An additional feature is the schedules' general bias in favour of qualified labour; only 17 percent of all horizontal entries may cover low-skilled persons as well ("business sellers" and "other"). Types of natural persons supplying services (horizontal commitments), April 2002 No. of entriesNo. of aggregate entries% of aggregate entriesIntra-corporate transfereesExecutives5616842%Managers55Specialists56Others1Executives2411028%Managers42Specialists44Business visitorsCommercial Presence419323%Sale Negotiations52Contract Suppliers12123%Other17174%Totala400400100% a Total number of entries by those ϲʹ Members that have included commitments on Mode 4 in the horizontal section of their schedules. No significant differences exist between the commitments scheduled by developed and developing countries; both groups seem to have been equally hesitant in undertaking very liberal commitments for mode 4. Access conditions scheduled by countries having acceded to the ϲʹ after 1995, the date of its entry into force, are also substantially identical to the ones scheduled by Uruguay Round participants. This contrasts with the situation in the three other modes of supply, for which recently-acceded Members have generally undertaken deeper commitments, i.e. subject to less limitations. The only detectable difference with regard to mode 4 is a relatively higher number of commitments scheduled by recent ϲʹ Members for "contract suppliers", i.e. employees of a foreign enterprise which has concluded a contract to supply a services in a country but does not have a commercial presence in that market. The periods for which entry may be permitted have not always been indicated. This is surprising as one might have expected that, in the absence of a definition of "temporary" in the GATS (Annex), Members would provide more precision in their schedules. Where time-limits have been specified, the relevant periods are shorter for business visitors than for executives, managers and specialists. The focus of existing commitments on employed persons is reflected also in Members' frequent use of employment links as an entry criterion: "pre-employment", usually of one year, is one of the most recurrent restrictions scheduled. Numerical quotas and economic needs tests rank next in terms of frequency of limitations. While most of the quotas relate to the total staff of a company, some Members also have reserved the right to operate quotas based on parameters such as senior staff or wages. Significant administrative discretion results from the frequent scheduling of economic needs tests without indication of the criteria on which they are operated; with such entries, the relevant government agency grants access to foreign natural persons provided that not further specified economic-related conditions are met. Measures denying national treatment include residency requirements and non-eligibility of foreigners under subsidy schemes. Members have also scheduled horizontal limitations with regard to the right to own real estate, which are likely to impinge in particular on activities requiring stays of significant duration. Requirements to train local staff are also encountered in schedules; these have been included only by developing country Members, mainly by Latin American and African countries.  Calculated on a sample of 37 sectors deemed representative for various services areas. (See document S/C/W/99, 2 March 1999).  The revised guidelines for the scheduling of commitments, adopted by the Council for Trade in Services on 28 March 2001 and contained in document S/L/82 state that " in the absence of a reference to a specific duration for the temporary stay of a foreign service supplier, it could be understood that no binding is being undertaken in respect of the duration of that stay. .. Commitments should include the duration of temporary stay of natural persons for the purpose of supplying a service. In any event a Member's regulatory measures would still be subject to the general requirement, in paragraph 4 of the Annex on the Movement of Natural Persons, that they do not nullify or impair the benefits accruing to any other Member under the terms of a specific commitment". 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