RESTRICTED
WORLD TRADE S/FIN/W/11
1May1997
ORGANIZATION(97-1923)
Committee onTrade inFinancial Services
ISSUES CONCERNING THE ADOPTION OFAPROTOCOL
TOCONCLUDE THE FINANCIAL SERVICES NEGOTIATIONS
Note bytheSecretariat
Thepurpose ofthisnoteistoassist delegations inconsidering specific issues concerning the
adoption ofaprotocol toconclude thefinancial services negotiations. Itiscirculated inresponse to
arequest made atthemeeting oftheCommittee on10April 1997.
Theneedforaprotocol
Attheendofanegotiation, ithasbeenstandard practice forthenegotiating parties tosign
aprotocol tolegalize theresults ofthenegotiations. Thishasbeenthecaseforthepost-Uruguay Round
negotiations inservices under theGeneral Agreement onTrade inServices (GATS).1Changes tothe
Schedules ofSpecific Commitments (Schedules) and/or ListsofArticle II(MFN) Exemptions (Lists)
agreed asaresult ofthenegotiations areannexed tothetextofaprotocol. Since theSchedules and
Lists form anintegral partoftheGATS, suchchanges would needtobemade through aformal
procedure under theGATS. Asthelegalbasis formaking those changes, theGATS andsubsequent
decisions bytheCouncil forTrade inServices haveprovided forthepossibility ofaMember tomodify
orwithdraw itsspecific commitments ortolistMFN exemptions during acertain period when
negotiations areexpected totakeplaceforaspecific sector oramode ofsupply.2ThisrightofaMember
tomodify, withdraw orlistcanbeexercised unilaterally.3
1Thefollowing protocols have been adopted under theGATS:
- Second Protocol totheGeneral Agreement onTrade inServices, done on6October 1995
(financial services) (S/L/11 of24July1995)
- Third Protocol totheGeneral Agreement onTrade inServices, done on6October 1995
(movement ofnatural persons) (S/L/12 of24July1995)
- Fourth Protocol totheGeneral Agreement onTrade inServices, done on15April 1997 (basic
telecommunications) (S/L/20 of30April 1996)
TheFirstProtocol wasoriginally drafted fortheSchedules ofleast-developed country Members resulting
from theUruguay Round. However, thisprotocol wasnever adopted, asadifferent procedure wasfollowed
fortheannexation ofthose Schedules totheGATS.
2Forfinancial services, seetheSecond Annex onFinancial Services totheGATS andtheSecond Decision
onFinancial Services adopted bytheCouncil forTrade inServices on21July1995 (S/L/9 of24July1995).
3Three Members modified theirSchedules andLists inJune1995 inexercise oftheirrights under theSecond
Annex onFinancial Services.S/FIN/W/11
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However, when thenegotiations result inanagreed setofcommitments, aprotocol isadopted
asalegalinstrument certifying thechanges agreed. Thepractical needforadopting aprotocol certifying
theresults ofanegotiation arises from theneedtoensure thattheagreed changes enter intoforce
simultaneouslywiththeprotocol;i.e.anychangesinthecommitmentsorMFNexemptionsofaMember
donotenterintoforceunless thechanges ofother Members enterintoforceatthesametime. Itensures
theconditionality oftheentry intoforce oftheagreed commitments. Itcantherefore besaidthatthe
protocolisameansthroughwhichthebalancebetweenthenegotiatedcommitmentsandMFNexemptions
ismaintained attheconclusion ofanegotiation.
Principal elements ofaprotocol
Theprincipal elements which would needtobeincluded inaprotocol concluding negotiations
onspecific commitments andMFN exemptions under theGATS arethefollowing:
- Apreamble indicating theMembers concerned andthecontent oftheagreement resulting from
thenegotiations; i.e.which Members haveagreed onwhich texts, typically asetofSchedules ofSpecific
Commitments (Schedules) andListsofArticle II(MFN) Exemptions (Lists) annexed totheprotocol,
having regard totherelevant legalinstruments;
- Adescription ofhowtheannexed Schedules andLists relate toearlier Schedules orLists;
i.e.whether thenewSchedules andListsreplace, supplement ormodify allorpartofthepreviously
existing Schedules andLists;
- Theprocedure fortheacceptance oftheprotocol; inparticular, untilwhich datetheprotocol
willbeopenforacceptance;
- Anindication ofwhen theprotocol shallenterintoforce, whether theentry intoforce issubject
toanyconditions, andtheprocedure tobefollowed incasesuchconditions arenotfulfilled;
- Other procedural matters; suchasthedesignation ofadepositary fortheprotocol, usually the
Director-General oftheWTO, andreferences totheprompt distribution ofcertified copies and
notifications ofacceptances. Reference isalsomade totheregistration oftheprotocol inaccordance
withtheCharter oftheUnited Nations;
- Thedateandtheplace theprotocol wasdone.
Adiscussion ofselected issues follows.
Relation between theoldandnewcommitments
There areseveral possible ways inwhich thenewcommitments canrelate tothenew
commitments. Schedules andListsannexed totheprotocol caneither replace, supplement ormodify
allorpartofthepreviously existing Schedules andLists. Thisrelation between theoldandnew
commitments needs tobemade absolutely clear. Normally theprotocol willspecify howtheannexed
Schedules andListsrelate totheexisting Schedules orLists, butifthesituation varies between Members
orbetween entries inaMember 'sSchedule, itneeds tobespecified intheannexed Schedules andLists
themselves.
Themostunambiguous andstraightforward waytodothiswould befortheMembers concerned
toreplace theentire sections onaparticular service intheirexisting Schedules andLists. Ifthisis
thecase, itbecomes unnecessary toindicate oneachindividual Schedule orListthefactitisa
replacement. There willalsobenoneedtorefertotheoldSchedule orListwhen oneneeds toidentifyS/FIN/W/11
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thecommitment ofaMember foraparticular service when theprotocol enters intoforce. Analternative
approach would betoannex totheprotocol onlytheadditions ormodifications tothespecific entries
intheexisting Schedules andLists. Although thismayresult inasmaller volume oftext,itwould
make itmore difficult toidentify andinterpret thecommitments.
Special procedures inthecaseofnon-acceptance byMembers
Typically, aprotocol enters intoforce onaspecified dateprovided ithasbeenaccepted by
allMembers concerned; i.e.byallMembers having annexed their commitments totheprotocol.
However, ithasbeenthecasethatsome Members were notbeabletoformally accept theprotocol
inthespecified timeduetoprocedural delays orother difficulties arising inthedomestic ratification
process. Ithasbecome customary, therefore, toaddspecial provisions which apply intheevent that
notallMembers wereabletoaccept theprotocol; forexample, itmaybestipulated thatthose Members
which haveaccepted theprotocol bythespecified datemaydecide, within aspecified period, onits
entry intoforce.
Thiswould avoid asituation inwhich adelay intheacceptance ofaMember (orasmall number
ofMembers) prevents theprotocol fromentering intoforce. Inthisformulation, theMembers having
accepted theprotocol could alsooptnottolettheprotocol enter intoforce, ifthenon-acceptance of
aMember (orMembers) isfeltsignificant enough tojustify this.
Normally, Members which werenotabletoratify theprotocol intimewillnolonger beable
toformally accept theprotocol oncethedeadline foracceptance haspassed. However, itwould be
possible forsuchMembers toundertake thecommitments inscribed inthenewSchedule and/or List
iftheyconstitute animprovement tothepreviously existing Schedule and/or List. Thisshould bedone
intheformofaformal notification bytheMembers inquestion toallMembers.4IfthenewSchedule
contains modifications orwithdrawals ofcommitments which adversely affect other Members, the
procedures ofArticle XXI(Modification ofSchedules) oftheGATS would normally apply.
Status ofMembers maintaining theirexisting commitments
The"Members concerned" asreferred toinaprotocol aretheMembers which haveattached
theirnewcommitments totheprotocol, andthose commitments enter intoforce when theprotocol
enters intoforce. IfaMember doesnotsignaprotocol, thepreviously existing Schedule andList
ofthatMember stays inforce regardless ofthestatus oftheprotocol. With theentry intoforce of
theprotocol, parties totheprotocol assume thenewobligations vis-à-vis alltheMembers oftheWTO
under theGATS. Therefore, aMember which isnotasignatory totheprotocol willhavethesame
rights asasignatory totheprotocol withrespect tothecommitments ofallsignatories toaprotocol.
Asmentioned above, being asignatory toaprotocol onlyensures thatthenewcommitments enter
4Itwasnever theintention ofArticle XXIoftheGATS toapply anonerous procedure when aMember
intended tomodify itsSchedule inamanner beneficial toother Members. Intheearly years oftheGATT, a
methodofmodificationorrectificationofscheduleswasappliedwherebyanotificationoftheproposedmodification
wascirculated withtheadvice thatprovided noobjections were lodged within aspecified period -usually thirty
days-themodificationswouldbecomeeffectiveatthecloseoftheperiod.(WTO,GuidetoGATTLawandPractice,
Geneva 1995, pp1005-6.) Subsequently, aprocedure ofCertification wasestablished, whereby adraftcontaining
changes intheSchedules iscommunicated toallthecontracting parties. Provided thatnoobjection hasbeen
raised byacontracting party within three months, thedraft shall become aCertification. (SeeProcedures for
Modification andRectification ofSchedules ofTariff Concessions ,Decision of26March 1980, BISD 27S/25.)
Thisprocedure wasalsoemployed intheimplementation oftheMinisterial Declaration onTrade inInformation
Technology Products. (SeeImplementation oftheMinisterial Declaration onTrade inInformation Technology
Products ,Communication totheChairman oftheCouncil forTrade inGoods, G/L/160 of2April 1997.)S/FIN/W/11
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intoforce simultaneously; thisisimportant when theimprovements made areconditional upon other
parties totheprotocol making theagreed improvements totheircommitments.
Itwould therefore beredundant foraMember maintaining itsexisting commitments tosign
theprotocol; inthiscasesignature would havenoeffect onthecommitments oftheMember inquestion,
which would continue tobevalid eveniftheprotocol failed toenter intoforce.
Onepossible shortcoming ofnon-modifying Members signing aprotocol maybetoincrease
theriskassociated withratification orother domestic procedures foraccepting theprotocol, inthe
sense thatthelarger thenumber ofMembers needing togothrough domestic ratification procedures
thelarger mustbethedanger thatsome willhavebeenunable tocomplete theprocess bytheagreed
date.
Thequestion mayariseastowhether aMember notmodifying itsexisting commitments might
nevertheless findadvantage inattaching them totheprotocol, inorder tomake itclear thattheyare
toberegarded aspartoftheresults ofthecurrent negotiation andthattheywillnot,ornotnecessarily,
bemaintained iftheprotocol failstoenter intoforce. (Itcannot beassumed thatiftheprotocol failed
toenter intoforce, allexisting commitments, dating from pastnegotiations, would bemaintained.)
However, toattach existing commitments totheprotocol would notbeenough tosecure theirwithdrawal
intheevent offailure oftheprotocol; itwould benecessary towithdraw them before theendofthe
current negotiation ortosignify formally thattheywould bewithdrawn iftheprotocol didnotenter
intoforce.
These procedures would seem tocreate unnecessary complications andrisks. Amuch more
simple wayofprotecting theposition ofMembers wanting toretain therighttoreconsider theirexisting
commitments intheevent offailure oftheprotocol toenterintoforcewould betofollow theprocedure
usedatthetimeofthefinancial services negotiations in1995. InthatcasetheCouncil forTrade in
Servicestookadecision("theDecisiononCommitmentsinFinancialServices")whichallowedaMember
tomodify orwithdraw allorpartofitscommitments andtolistMFN exemptions during aperiod
of60daysafter1August 1996 iftheSecond Protocol didnotenter intoforce5.Inother words, this
Decision extended untiltheendoftheratification period thesame rights Members enjoyed during the
negotiating period itself: thisislogical, since itisonlyattheendoftheratification period thatthere
canbecertainty astowhether theresults ofthenegotiation willbeimplemented.
Verification ofSchedules andLists
Ithasbeentheruleaftereachservice negotiation toenter thedateonwhich theverification
process wasfinalized asthedateonwhich theprotocol wasdone. Thisisbecause theprotocol becomes
ready forformal acceptance onlywhen verification iscompleted. Itshould therefore beborne inmind
thatthere needs tobeasufficient interval between theconclusion ofthenegotiations andthedateof
theopening oftheprotocol foracceptance, sothatadequate timeisallocated totechnical verification.6
5Decision adopted bytheCouncil forTrade inServices on21July1995, inS/L/8 of24July1995. Since
theSecond Protocol entered intoforce on1September 1996, thiscondition wasnotfulfilled. Seethe
Communication fromMembers which haveaccepted theSecond Protocol totheGATS inS/L/25 of30July1996.
6In1995, theperiod available fortheverification oftheSchedules andLists wasalittleovertwomonths,
from 28Julyto6October. Theperiod forratification wasinitially until30June1996, which wassubsequently
extended until30November 1996. (SeetheDecision onAcceptance oftheSecond andThird Protocols tothe
GATS, adopted bytheCouncil on30July1996, inS/L/28 of30July1996.)