RESTRICTEDWORLD TRADE
ORGANIZATIONS/WPGR/M/18
13 November 1998
(98-4548)
Working Party on GATS Rules
REPORT OF THE MEETING OF 6 OCTOBER 1998
Note by the Secretariat
1. The eighteenth meeting of the Working Party on GATS Rules was chaired by Mr. Harald
Fries of Sweden.  The agenda of the meeting wa s contained in WTO/AIR/916.  It consisted of five
items: negotiations on safeguards under Article X of the GATS; negotiations on subsidies under
Article XV of the GATS; negotiations on government procurement under Article XIII of the GATS;
date of the next meeting of the Working Party; and other business.
ITEM A: NEGOTIATIONS ON SAFEGUARDS UNDER ARTICLE X OF THE GATS
2. The Chairman recalled that, as agreed at the previous meeting, he had circulated a Note
(Job No. 4935, dated 16 September 1998), containing provisional, not necessarily agreed, responses to
the four key questions concerning a possible emergency safeguard mechanism.  That document also
listed other related questions, some of which had been discussed during the brainstorming sessionheld on 1 October 1998.  The Chairman proposed that delegations address both the text and the
questions in the Note.  Since delegations were already familiar with each others basic positions, and
these had been reflected in the Note, he suggested that the discussion should focus on possible
solutions to problems and on how the Working Party's work should be structured over the period
before the end-June 1999 deadline.
3. Regarding the points made in the Chairperson's Note, the representative of Canada said that
the discussion should explore the implications of emergency safeguard measures using hypothetical
examples.  With respect to the question on whose behalf actions would be taken, absent from the Note
was a requirement to examine the effects of a safeguard measure on services consumers and the
society as a whole.  This would still need to be  addressed. The question whether a distinction between
national and locally established foreign suppliers was feasible should be considered in terms of the
national treatment obligation.  The treatment of commercially established foreign suppliers and theiracquired rights would touch on investment-related aspects.  As to whether it could be left to a
Member taking a safeguard action to justify its choice of "like or directly competitive" services, the
GATT practice was that the use of exceptions should be circumscribed.  As a consequence, Members
should not be given the latitude to define "like or directly competitive" services.  In this respect
guidelines could be developed.  In relation to other GATS provisions which allow for certainrestrictions, the prudential carve-out in financial services also provided an element of flexibility to
Members.  In regard to what measures should be taken, the restrictions on capital movements were
not a remedy in emergency safeguard situations where a domestic industry had to cope with
unexpected foreign competition.  In his view, the Working Party should continue the discussion of the
issues raised in the Chairperson's Note.
4. On the procedural question, the representative of Venezuela said that the issues that had been
identified so far should be dealt with methodically to identify differences and points of convergence.
For that purpose an outline for future discussion could be established.  Such an outline could include:S/WPGR/M/18
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a) definition and scope of safeguards in services; b) situations justifying its application and the type of
injury; c) temporary or provisional measures; d) applicable procedures and investigation of injury; e)
applicable measures; f) periods of application or time-limits; g) transparency; h) notifications; i)
special and differential treatment.  The proposal was an attempt to put some order to the ideas that the
Working Party had been debating for some time.  A number of delegations expressed support for thisproposal.
5. In relation to the questions in the Chairperson's Note, Egypt's delegation recalled its
submission in document S/WPGR/W/15/Add. 5.  A ccordingly, no distinction between domestic and
foreign investment, in relation to commercial presence, was intended.  In Egypt, foreign direct
investment was protected by domestic legislation and bilateral agreements for the protection of
investment.  As to how to structure the work of the Working Party, the representative felt that many
delegations agreed on the need to have a safeguard mechanism in services.  As the next step, heproposed that the Secretariat be requested to prepare a draft of possible safeguard disciplines to focus
the discussion.  Such a draft would not prejudge the position of any delegation.  In that context, the
Secretariat could use the information contained in Members' submissions, regional agreements, and
the work conducted by other international organizations such as UNCTAD.
6. The representative of Hong Kong, China supported Egypt's proposal.  His delegation had
already argued that focusing on what a safeguard mechanism would look like, without prejudice to the
outcome of the discussion on whether such a mechanism was merited, would be the most efficient
way of taking forward the discussion.  Docume nt S/WPGR/W/26, dated 10 February 1998, contained
some general and operational principles that could be embodied in the outline of a possible emergency
safeguard mechanism.  He recalled that Members had expressed concern about the lack of statisticsand proof of causality; his delegation was thus considering submission of a paper that might shed
some light on the issues related to feasibility.  Other delegations such as Australia, Argentina
, Brazil ,
Colombia, India , Norway , Poland  and Thailand  on behalf of ASEAN, expressed support for a text
outlining a possible safeguard mechanism.  Such an approach would help focus the discussion and
allow delegations to raise any problems that they might have.
7. The representative of Thailand added that the Secretariat could assist this process by, first,
compiling the various views expressed by delegations and, second, preparing a draft of possible
disciplines.  Such a draft should reflect all possible options for a safeguard mechanism including the
approaches followed in Article V of the Agreement on Agriculture and Article VI of the Agreement
on Textiles and Clothing.  In these two cases, a causal link between imports and injury was not
required.
8. The representative of the United States expressed reservations about initiating a drafting
process.  In his view drafting would be an appropriate next step once an agreement had been reached
within the Working Party on the need for a safe guard mechanism and that was still not the case.
While many questions had been addressed, the fundamental issues of desirability and feasibility had
still not been resolved.  A drafting exercise would not provide an answer to those questions and could
distract from other possible options. He felt that Members should explore the safeguards question on a
sector-by-sector basis, since a general safeguard mechanism would not work in services due to the
difficulty of establishing injury and a causal link with increased imports.  The Working Party should
not ignore the option of building a safeguard regime on specific criteria for certain sectors.  Those
criteria would not necessarily be dependant upon injury, but take into account sector-specific
regulatory approaches.
9. The representative of Canada also felt it would be premature to develop a draft safeguard
mechanism.  In light of the various options that had been put forward as basis for a draft, namely,
Article XIX of the GATT, the sector-specific appro ach, the safeguards provisions of the Agreements
on Agriculture and the Agreement on Textiles and Clothing, Members needed to decide how toS/WPGR/M/18
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proceed.  In other words, the elements that could serve as the criteria for a drafting exercise would
need to be identified by Members in advance through the discussion in the Working Party.  His
delegation was not in a position to engage in a drafting process at that stage and he suggested
reverting to this question at the following meeting.  The representative of Japan shared those
reservations.  He suggested that at that stage it was more appropriate to request the Secretariat to
prepare a list containing all issues hitherto raised by delegations.  It might be useful to consider the
desirability question looking at the merits of having a safeguard mechanism in the context of the next
round of services negotiations.  The representative of Korea argued that a draft could incorporate all
options that had been mentioned by Members, which could address the concerns expressed by theUnited States and Canada.
10. The representative of the European Communities found the Venezuelan proposal a useful way
to structure the inputs already provided by delegations.  The Secretariat could prepare a summary of
all inputs along those lines.  In her view such a summary would reflect a variety of views as to what
exactly would be covered by the different elements; this would suggest that a consideration of the
summary should precede the drafting of disciplines.  The representative of Uruguay favoured
continuing the discussion of issues in greater depth and stressed the need to maintain a balance inaddressing the different areas of work of the Working Party.
11. In summing up the discussion, the Chairman indicated that the proposal of requesting the
Secretariat to draft an outline of an emergency safeguard mechanism had attracted ample support;
however, some delegations had not been in a position to agree.  He added that a number of
delegations shared the view that a drafting exercise should be the next step, particularly in light of the
June 1999 deadline.  He urged delegations to consult capitals on the steps to be taken for thefollowing meeting.  A consensus seemed to have emerged on continuing the discussion based on a list
of issues, including some alternative options, along the lines of the Venezuelan proposal.  Members
could then decide on how to structure the work over the period up to the June 1999 deadline.  The
Working Party agreed to this proposal.
ITEM B: NEGOTIATIONS ON SUBSIDIES UNDER ARTICLE XV OF THE GATS
12. The Chairman recalled that at the June meeting the Working Party had agreed to clarify its
understanding of the scope of existing GATS disciplines which covered subsidies.  The objective
would be to identify cases of trade distortion, if any, which were not satisfactorily covered by the
existing framework.  As agreed in that meeting, the discussion would be based on Section IV of the
1996 Secretariat paper on "Subsidies and Trade in Services" (S/WPGR/W/9) which had not received
sufficient attention in the Working Party.  Build ing on that paper, two issues might merit further
consideration: a) the implications of subsidy programmes which had an "import-substituting" effect,and b) the implications of subsidy programmes which have an "export-enhancing" effect.  In relation
to the former, national treatment commitments unde r mode 3 and 4 ensured that locally-established
foreign service suppliers were not excluded from sector-specific subsidy schemes.  However, it might
need to be clarified whether it was also ensured that such subsidy schemes did not disadvantage
foreign services imported under mode 1 or consumed abroad under mode 2.  The second class ofsubsidies included those granted to domestic suppliers of transport, hospital, and hotel services which
might enable them to increase sales to foreigners at the expense of foreign suppliers.  Were those
serious problems in practice?  What disciplines under the GATS, if any, would be relevant? And what
remedies would be available, apart from consultations under Article XV:2, to affected suppliers?  The
chairman also reminded delegations of the information exchange exercise mandated under Article XVof the GATS.  No reply to the questionnaire had been received since the summer of 1997.  He
emphasized the importance of this exercise in clarifying the extent and focus of subsidization in
services.S/WPGR/M/18
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13. The representative of Hong Kong, China reit erated his authorities' intention to submit
responses to the questionnaire as soon as possible.  However, definitional problems needed to be
addressed.  For instance, could a government's contribution to the education or health care system be
considered a subsidy?  That was something the Working Party would have to consider.  On the
questions raised by the Chairman, it would seem clear that subsidies administered on a nationaltreatment basis were less likely to have a trade distortive effect.  Concerning the potentially adverse
effects of domestic subsidies on modes 1 and 2, it was generally recognized that Members had no
obligation to extend benefits to a service suppli er located in the territory of another Member.
Nevertheless, this was a major issue that needed to be explored.  Another issue for discussion was the
potential distinction between types of subsidies, namely, prohibited, actionable and non-actionable.  It
was also necessary to determine the compensatory actions that might be taken.  In his view, apart
from consultations, the ultimate remedy should be provided by the dispute settlement mechanism.
14. The representative of New Zealand referr ed to document S/WPGR/W/9, section IV,
paragraph 39.  The extent to which provisions of the GATS had a disciplining effect depended on
whether Members' schedules contained national treatment commitments in the sector concerned and
the existence of any relevant limitations.  The answers to the questionnaire were vital to advance the
discussion.  Without information, the Working Party lacked the basis for assessing the importance ofthis issue and identifying any gaps in the existing provisions.
15. The Chairman noted the difficulty of embarking in substantive discussions, and wondered
whether the Working Party should discuss future prio rities.  For instance, in the absence of further
responses to the questionnaire and submissions from Members, would it be preferable to set this
agenda item aside and concentrate on safeguards and government procurement?  Argentina suggested
that before deciding on priorities, the Working Part y should in any event attempt to address the two
questions posed in the Chair's Note.  These were important issues that Members needed to consider.
The Working Party agreed to revert to this issue at the next meeting.
ITEM C: NEGOTIATIONS ON GOVERNMENT PROCUREMENT UNDER ARTICLE XIII
OF THE GATS
16. The Chairman recalled that previous discussions had been focused on the scope and coverage
of government procurement of services.  He suggested three issues for consideration, based on the
questions posed in the Non-paper by the European Communities, dated 13 February 1998.  Regarding
the first question concerning the transactions that constituted procurement, it had been recognized that
more information was needed on how concessions were defined and treated in national legislations.
Although Members had agreed to provide such information, nothing had been received so far.  In
replying  to the questionnaire, detailed information had been provided only by Argentina and CostaRica, while some reference to concessions was also contained in the responses of Colombia, Poland
and Hong Kong, China.  Regarding the second quest ion (who is the procuring entity?), the EC paper
presented two possibilities.  One approach would cover procurement at all levels of government,
including entities governed by public law and under the influence of government, while the second
approach was based on market structure rather than on public ownership or influence per se  - every
case would be examined on its own merits, the ultimate criterion being whether the entity was subject
to competition.  Regarding the third question (what is being procured?), the EC paper suggested that
all services falling within the scope of GATS shou ld be covered.  In this connection, the exclusion
from the GATS of "services supplied in the exercise of governmental authority", raised the question
of whether the GATS definition of such services was sufficiently clear.  This was also related to thetreatment of concessions, as some concessions might concern services provided in the exercise of
governmental authority.
17. In relation to what transactions constitute procurement, the representative of Venezuela
indicated, in a preliminary manner, that in his country concessions were governed byS/WPGR/M/18
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public/administrative law rather than private/civil law.  That implied an exclusive competence of the
State.  For instance, petroleum and minerals were regarded as State-owned resources and their
exploitation was reserved for the State.  When the government gave concessions, it granted a right to
operate the mines to a private sector entity through a contract, which in some cases involved a royalty
while in others no payment to the State was required, except for taxes on revenues.  Thus, concessionsdid not constitute a purchase by the government since they involved no acquisition of goods or
services and, therefore, they did not constitute government procurement.  Additionally, given that they
were an exclusive competence of  the State and that their commercial and competitive nature was
questionable, the granting of concessions, and the activities involved, were excluded from the
coverage of GATS.
18. The representative of Argentina recalled his doubts about the interpretation of some
delegations of what activities might fall under Article XIII of the GATS and the possibility that
concessions would be covered under the Agreement.  For instance, the case of a concession granted
for operating a motorway, where the government was not buying something for itself, but rather
granting the right to operate a public service to a private operator, was a clear case of a service
provided in the exercise of governmental author ity.  It was necessary to continue studying how
concessions would be considered within the GATS framework.  The United States suggested that in
addressing the issue in future submissions, the definition of concessions be related to the language of
Article XIII, which specifically defined procurement in terms of a purchase.
19. The representative of Canada elaborated on the question of what transactions constituted
procurement.  The EC paper suggested that the transaction for the service itself was distinguished
from the buying or hiring of the service.  She asked whether the case of a contract providing a licenseto a private sector contractor to distribute government procurement data on an electronic tendering
service, generating revenues from the purchaser of the data, would be considered to be a transaction
for the service itself.  If so, would it fall within the definition of procurement in GATS Article XIII?
20. In summing up, the Chairman observed that there was a need to continue the discussion on
the scope and coverage of government procurement of services, and in particular on the issue of
concessions, and urged Members to contribute their views in writing.  He indicated that at the
following meeting, the Working Party would revert to the question of how to proceed with the second
step in the work programme, which concerned the application of the basic discipline of non-
discrimination.
ITEM D: DATE OF THE NEXT MEETING
21. The Chairman proposed holding the next formal meeting on Tuesday, 1 December 1998.
ITEM E: OTHER BUSINESS
22. No matters were raised under this agenda item.
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