STRUCTURE OF THE GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) AND HOW
IT PERTAINS TO TELECOMMUNICATIONS

Introduction

The General Agreement on Trade in Services (GATS) forms an integral part of the Final Act of the Uruguay Round and the Marrakech Agreement Establishing the World Trade Organization (WTO). The latter, signed at a Ministerial Meeting in Marrakech on April 15, 1994, is sometimes simply referred to as the Marrakech Agreement.

In addition to the GATS, the Marrakech Agreement includes a General Agreement on Tariffs and Trade (GATT 1994) based on the text of the original GATT of 1947, an Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), rules and procedures for settling disputes, a trade policy review mechanism, plurilateral trade agreements on trade in civil aircraft, government procurement, and on dairy and bovine meat products, a number of ministerial decisions and declarations and, of course, the agreement to establish the World Trade Organization (WTO).

The GATS itself is divided into three parts:

1) the framework consisting of 29 articles which lay out the scope of the General Agreement on Trade in Services, the general obligations and disciplines to be observed, and how specific commitments are to be negotiated and inscribed in the Agreement. The framework also contains a number of institutional provisions pertaining to consultation, disputes settlement and enforcement, the creation of a Council for Trade in Services, technical cooperation and relations with other international organizations;

2) eight annexes clarifying exemptions and provisions on four specific sectors including telecommunications;

3) 115 schedules of country commitments on specific services and services sectors.

General Obligations and Disciplines

It is important to understand the difference between general obligations and disciplines on the one hand and specific commitments on the other. Every country that signs the Marrakech Agreement is committed to observing and implementing most of the provisions under Part II (General Obligations and Disciplines) of the GATS for all services, however, it is committed to observing and implementing the provisions of Part III (specific Commitments) only for the specific services and service sectors that it has listed in its schedules and only within the limits that it has described for each of these services and service sectors in these schedules. A few provisions in Part II pertain only to specific commitments (see attached table). It is important also to understand that countries must sign on to the whole Marrakech Agreement. They cannot accede to only parts of it, say only GATT 1994, the GATS, or the TRIPS.

The most important provisions under the General Obligations and Disciplines with respect to telecommunications are the following:

Article II Most-Favoured Nation Treatment (MFN)

Article III Transparency

Article VI Domestic Regulation

Article VIII Monopolies and Exclusive Service Providers

Article IX Business Practices

Of these Most-Favoured Nation (MFN) is probably the most important of the whole Agreement. It is the cornerstone of a multilateral trade agreement without which the WTO would be little more than an overseer of bilateral and perhaps regional trade deals. In simple terms, the MFN principle in a trade agreement means that if one country agrees to give another country certain treatment with respect to trade, it has to give treatment "no less favourable" to all other countries that have signed the trade agreement (Signatories of the Marrakech Agreement are referred to as Members).

Therefore, if a Member country extends some additional market opening privileges to services and service providers from another country (which does not even have to be a signatory to the Agreement), it would have to extend those privileges to services and service providers from all other countries which have signed the Agreement "immediately and unconditionally". The market opening measures are extended automatically to all other members. It is for this reason that MFN is considered to be the cornerstone of mutilateralism; however, this important principle of trade can also be considered disadvantageous to a Member country that has a market which is more open than others or which is considering removing further barriers to trade. If, for example, it removes some barriers as a result of negotiations with some other country, it will have to remove them equally for all Members without necessarily getting anything in return from them. Therefore, a Member wanting to advance negotiations on a bilateral basis, and not wanting to extend the advantages gained in these bilateral negotiations to all other countries without getting anything in return from them, will take an exemption on MFN which will allow it to extend certain privileges to one or several countries without having to extend them to all Members. There are exceptions to this for countries that belong to some regional trade areas such as NAFTA or the European Union. There is a time limit on such exemptions in the Marrakech Agreement which, in general, had to be made at the time of signing of the Agreement.

Another principle, transparency, requires governments to make public their laws, rules and regulations affecting trade in services, so that service suppliers can know the rules under which they can do business. It is a key element in promoting the stability and predictability of the trading system.

Other general obligations of the GATS which are of particular relevance to telecommunications are the following: Article VI on domestic regulations sets out some rules of fair play for regulations not directly addressed by commitments entered in the schedules. Article VIII on monopolies and exclusive service providers and Articles IX on restrictive business practices are relevant because of the prevalence of monopolies and exclusive service providers in this sector and, where competition has in terms of the four modes of delivery of a service which are recognized in the GATS, namely, (ref. Article I):

a) from the territory of one member into the territory of any other Member (cross-border supply);

b) in the territory of one Member to the service consumer of any other Member (consumption abroad);

c) by a service supplier of one Member, through commercial presence in the territory of any other Member (commercial presence);

d) by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member (presence of natural persons).

Additional commitments are listed in the fourth column. These may be with respect to interconnection, anti-competitive safeguards, licensing, type approval, numbering and other procedures, pricing related measures, rights of way, etc.

It is important to distinguish between MFN exemptions and limitations. The latter are stated in the schedules and are used to qualify conditions of market access and national treatment. The former allows a Member country to extend certain privileges to one or several countries without having to extend them to all members.

At the conclusion of the Uruguay Round (signing of the Marrakech Agreement), about 60 countries made commitments on telecommunications services. X countries signed the Agreement; therefore, Y countries did not make any specific commitment on telecommunications services; they are nevertheless committed to respecting the general obligations and disciplines contained in Part II of the GATS and the Annexes (i.e. MFN, transparency, domestic regulation, etc.). Most of the specific commitments cover only value-added or enhanced telecommunications services, since basic telecommunications are the subject to extended negotiations which are to continue to April 1996. Other countries may, of course, sign on to the Agreement at any time.

When they do, they become bound by the general obligations and by the commitments they make with respect to specific services and services sectors.

Annex on Telecommunications

The Annex on Telecommunications was developed to elaborate on certain aspects of the GATS pertaining to this sector and, in particular, the dual role of telecommunications in trade, namely, as a mode of delivery for other services and for goods and as a tradable service in its own right. All services (and not only telecommunications services) listed in a Member's schedule of commitments benefit from the rules which are elaborated in the Annex on Telecommunications. There are also annexes elaborating air transport, maritime transport and financial services; however, the most elaborate by far is the Annex on Telecommunications.

This Annex is composed of seven sections, but its core obligations are contained in Section 5 on access to and use of public telecommunications. This section requires each Member to ensure that all service suppliers seeking to take advantage of scheduled commitments are accorded access to and use of public basic telecommunications networks and services on reasonable and non-discriminatory terms and conditions. Members incur these obligations whether or not they have liberalized the supply of basic telecommunications and whether or not they have scheduled commitments on basic telecommunications. However, the beneficiaries of the disciplines in the Annex will be firms that supply services included in a Member's schedule of commitments and will not only be value-added and competing basic telecommunications suppliers, but any service suppliers (e.g., banking or computer services firms) benefiting from commitments made by the country concerned.

These annex obligations strike a fragile balance between the needs of users for fair terms of access and the needs of the regulators and public telecommunications operators to maintain a system that works and that meets universal service objectives. The formulation of the Telecommunications Annex borrowed and benefited greatly from foundations established by the ITU and other organizations. It is also, in spirit, been introduced, the frequent presence of telecommunications service providers with a dominant market share and the potential to take unfair advantage of their position.

Specific Commitments and Schedules

As started, specific commitments apply only to the services and service sectors listed in each country's schedule. These contain each Member's commitments on market access, national treatment, and possible additional commitments. In the schedules, Members may grant full market access and national treatment or they may enter any limitations, conditions, and qualifications that they will maintain on these two provisions. The schedules may also indicate the time frame for implementation of a Country's commitments. Whether full or limited access is granted, signatories may not take measures that reduce the level of access inscribed in their schedules.

Limitations to market access and national treatment serve also as a starting point for subsequent negotiations towards greater liberalization. Market access limitations (Article XVI) are defined primarily in terms of quantitative restrictions, but also include some other forms of limitations such as caps on foreign equity participation or restrictions or requirements regarding the type of legal entity permitted to supply the service. National treatment (Article XVII) is defined as treatment of foreign services or service suppliers that is no less favourable than that granted to domestic services or suppliers.

There may be limitations on nationality or residency of directors, foreign ownership restrictions, or preferences given to domestic suppliers in the allotment of frequencies. Also there are additional commitments (Article XVIII) which create an open-ended possibility to negotiate and agree on commitments on measures affecting trade in services, that are not expressly captured by market access and national treatment.

A country schedule has four columns. The first allows the country to list the sector or sub-sector in which it is making a specific commitment. In the second, it lists the limitations that it wishes to impose on market access and similarly in the third column, the limitation pertaining to national treatment. These limitations are stated based on the long recognized need for competition safeguards in an environment where monopoly and dominant providers could easily upset the competitive balance by restricting access and use.

The attached table shows for some key provisions of the framework and the Annex on Telecommunications those which are general obligations which apply across-the-board to all measures affecting trade in services and those which apply only where specific commitments have been undertaken in the schedules.

TELECOMMUNICATIONS: SELECTED OBLIGATIONS OF THE GATS AND THEIR SCOPE OF APPLICATIONS

Application

GATS
Provision

Obligations

Across
the
board

Only to scheduled sectors
Article II
Most-Favoured-Nation Treatment
With respect to any measure covered by the GATS, a Member cannot discriminate amongst other Members or treat other Members less favourably than a non-member country, except with respect to a measure that a Member has included in a list of m.f.n. exemptions that was permitted by the Annex on Article II. Exemptions to be filed at the end of the Uruguay Round (or, in the case of basic telecommunications, at the conclusion of the extended negotiations).

ü

Article III
Transparency
Members must publish promptly all relevant measures of general application which pertain to or affect the operation of the GATS, and any relevant international agreements to which they are a signatory. Where publication is not practicable, such information must be made otherwise publicly available.

The term "measures of general application" is intended to exclude measures that concern, e.g. a ruling on decision involving an individual service supplier.

ü

In what is known as a notification requirement, Members must inform the Council of Trade in Services of new measures (laws, regulations or administrative guidelines) and changes to existing measures which significantly affect trade.
Members must respond promptly to all requests by other Members for information on any measures of general application and international agreements. They must also establish enquiry points to provide other Members with such information, and the information subject to the notification requirement, within two years from the entry into force of the GATS. Developing countries are given flexibility on this time-limit.

ü

Article VI
Domestic Regulation
Members must ensure that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner.
Members must maintain or establish judicial, arbitral or administrative tribunals or procedures which provide service suppliers with a prompt, objective and impartial review of administrative decisions, and where justified appropriate remedies.

ü

If any type of authorization is required to supply a service, Members' relevant authorities must inform an applicant of their decision within a reasonable period of time. They also must, upon request of an applicant, promptly provide information on the status of the application
A work programme to ensure that qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade, must be undertaken by the Council for Trade in Services. The Council must develop any disciplines which it determines to be necessary and which aim to ensure that such requirements are based on objective and transparent criteria and not more burdensome than necessary and that licensing procedures are not in themselves a restriction on the supply of the service.
Pending the entry into force of any such disciplines, Members must not institute any new practices that cause such measures to be applied in a manner inconsistent with the aims of the work programmed. In determining conformity with this obligation, account shall be taken of international standards of relevant international organizations.
Article VIII
Monopolies and
Exclusive Service Suppliers
Members must ensure that any of its monopoly or exclusive suppliers do not, in the supply of the monopoly or exclusively provided service, act in a manner inconsistent with obligations relating to m.f.n. treatment and specific commitments.

ü
(m.f.n.)

ü

Where a monopoly or exclusive supplier competes, even if through an affiliated company, in the supply of a service outside the scope of its monopoly or exclusive rights, Members must ensure that the supplier does not abuse its monopoly or exclusive position to act in a manner inconsistent with scheduled commitments on the services concerned.

ü

To oversee compliance with the above obligations, at the request of any Member the Council for Trade in Services may request information from the relevant Member concerning the operations of such monopoly or exclusive supplier.

(Exclusive service suppliers are defined as cases in which Members, formally or in effect, a) authorize or establish a small number of service suppliers and b) substantially prevent competition among suppliers.)

After the entry into force of the GATS, if a Member grants monopoly rights for the supply of a service covered by its commitments, that Member must notify the Council for Trade in Services and undertake the Article XXI procedures for the modification of schedules which require a member to negotiate compensatory adjustments.

ü

Article IX
Business Practices
Members recognize that certain business practices of service suppliers, other than those falling under Article VIII, may restrain competition and thereby restrict trade in services.

ü

Article IX
Business Practices
(cont.)
At the request of any other Member, Members must enter into consultations with a view to eliminating such practices. It must supply the requesting member with publicly available non-confidential information of relevance to the matter in question and provide other information available, subject to its domestic law and the conclusion of satisfactory agreement concerning the safeguarding of its confidentiality.
Article XVI
Market Access
With respect to market access through all modes of supply, each Member shall accord services and service suppliers of any other Member treatment no less favourable than that specified in its Schedule.

The measures which a Member shall not maintain or adopt unless otherwise specified in its Schedule, are:

a) limitations on the number of service suppliers;

b) limitations on the total value of service transactions or assets;

c) limitations on the total number of service operations or on the total quantity of service output;

d) limitations on the total number of persons that may be employed in a service sector or by a service supplier;

e) measures which restrict or require specific types of legal entity or joint venture; and

f) limitations on the participation of foreign capital.

ü

Article XVII
National Treatment
Subject to any limitations set out in its schedule of commitments, each Member shall accord to services and service suppliers of any other Member treatment no less favourable than that it accords to its own like services and service suppliers, in respect of all measures affecting the supply of services.

ü

Article XVII
National Treatment
(cont.)
A Member may meet the national treatment standard by according either formally identical treatment or formally different treatment, so long as such treatment is not less favourable than that which it accords to its own like services and service suppliers.
SPECIFIC
COMMITMENTS

Article XVIII
Additional Commitments

Members may negotiate commitments on measures affecting trade in services that are not subject to scheduling under Articles XVI or XVII, including those regarding qualifications, standards or licensing matters. Such commitments shall be inscribed in a Member's Schedule.

ü

Annex on Telecommunications

Transparency

Members must ensure that relevant information on conditions affecting access to and use of public telecommunications transport networks and services is publicly available.

ü

Access to and
use of Public Telecommunications
The listed examples of relevant information are: tariffs and other terms and conditions of service; specifications of technical interfaces with such networks and services; information on bodies responsible for the preparation and adoption of standards affecting such access and use; conditions applying to attachment of terminal or other equipment; and notifications, registration or licensing requirements, if any.
Transport Networks and Services Member must ensure that any service supplier of any other Member is accorded access to and use of public telecommunications transport networks and services on reasonable and non-discriminatory terms and conditions.

The term "non-discriminatory" is understood to refer to most-favoured-nation and national treatment as defined in the Agreement, as well as to reflect sector-specific usage of the term to mean "terms and conditions no less favourable than those accorded to any other user of like public telecommunications transport networks or services under like circumstances".

ü (any commitments, not only those on telecom)