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Amsterdam Law School

Master‘s Programme ―International and European Law‖ 2016-2017 Master track: International Trade and Investment Law

Master Thesis 2016-2017

Financial system protectionism through Electronic Payment

Services

Student: Anna Sougle Student Number: 11315792 Thesis supervisor: Dr James H. Mathis Date of submission (final version): 27th July 2017

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Abstract:

This thesis paper aims to analyse the role and function of Electronic Payment Services (EPS) in world trade. The legal framework for EPS in the context of WTO and more specifically the GATS will be reviewed. Subsequently, based on relevant WTO case law, the research will engage in associating the commitments undertaken by WTO members under GATS with the obligations they produce, and provide an answer to which modes of supply are concerned in the field of EPS and which measures concerning EPS can be found to be in violation of WTO law. Following the above findings, the paper will proceed with examining further steps to be taken by WTO Members in the EPS and more generally the financial services sector for the purpose of further trade liberalization.

Table of Contents

I. Introduction ... 3

II. Electronic Payment Services ... 4

III. Specific commitments in the GATS system ... 5

1. Market Access and National Treatment in the GATS... 5

2. Concerned modes of supply ... 7

3. Schedules of Commitments ... 8

IV. Specific Commitments for Electronic Payment Services ... 10

1. Classification of EPS in the Schedule of Commitments ... 10

2. Market access for EPS... 12

3. National treatment for EPS ... 13

V. Measures in violation of Specific Commitments for EPS ... 18

1. Measures that violate market access commitments for EPS ... 18

2. Measures that violate national treatment commitments for EPS ... 20

VI. Expansion of Services Liberalization ... 22

1. Developments after the Uruguay round of Negotiations ... 22

2. Scheduling expansion ... 24

3. Interpretative expansion ... 25

4. Plurilaterization of services negotiations ... 28

VII. Conclusion ... 30

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I. Introduction

The financial services sector is a key sector for a country‘s sound economic development. The importance of financial services lies in their infrastructural nature, namely, their necessity in supporting the development and functioning of other sectors and the economy in general. The global liberalization of financial services results in less volatile capital flows, institutional capacity building, transfer of expertise and labour training.1

However, states are oftentimes inclined to maintain strict laws and regulations on the provision of financial services originating from other countries. These can, on their face, be construed as belonging to the legitimate policy making sphere of the state. They can nevertheless have covert protectionist purposes. The state may, namely, consciously pose obstacles to the operation of foreign service suppliers in order to support the growth of its own financial institutions.

These protectionist purposes can especially be served through the restrictive domestic regulation of means of electronic payment - i.e. bank cards - that aims to facilitate the primacy of domestic financial institutions and payment card providers, particularly in the retail banking sector. The provision of electronic payment services is internationally regulated in the system of the World Trade Organization, and is within the ambit of the General Agreement of Trade in Services, which was signed as part of the Marrakesh Agreement in 1994.2

This thesis paper will first – in Section II - provide an outline of the definition and function of Electronic Payment Services in the framework of the WTO. It will then proceed, in Section III, with analyzing the two principles against protectionism and discrimination in the GATS, market access and national treatment. Section III will also identify the modes of supply of services that are most relevant in the field of

1

Council for Trade in Services – Communication from the European Communities and their Member States (proposal of negotiations on financial services), S/CSS/W/39, 22 December 2000

2

General Agreement on Trade in Services (GATS) Agreement Establishing the World Trade Organization Annex 1B

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Electronic Payment Services (EPS), as well as explain the role of WTO Members‘ Schedules of Commitments. Following that, Section IV will conduct an analysis of Specific Commitments specifically in the field of EPS. Section V will identify the measures that can be found to violate those commitments. Finally, in Section VI, the paper will explore ways for the expansion of the liberalization of Electronic Payment Services, either through adaptation of the Schedules of Commitments or through interpretation of the existing Schedules.

II. Electronic Payment Services

The definition of what constitutes an Electronic Payment Service can, for the purposes of the present analysis, be found in the context of WTO relevant legislation, and more specifically in the GATS. The definition of financial services is contained in the GATS Annex on Financial Services, in paragraph 5 thereof. Electronic Payment Services can be found under the category of financial services. In paragraph 5 of the Annex on Financial Services, under the subcategory of ―banking and other financial services‖, case (viii) mentions ―all payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers drafts‖.3 Besides, all forms of services that receive substantive protection under the GATS by WTO Members are outlined in the Schedules of Commitments.

The activities covered under Electronic Payment Services are also elaborated in WTO jurisprudence, namely the China-Electronic Payment Services case. The Panel report in that case outlined the function of payment card transactions. Payment card transactions are divided in ―pay-before‖, ―pay-now‖ and ―pay-later‖, for which credit, debit and prepaid cards are issued respectively. In the case of ―pay-later‖ cards, consumers are allowed to make purchases using the credit card and be billed later. In the second case, the payment occurs at the time of purchase of goods or services and is linked to an existing account at a financial institution, authorized real-time at the point-of-sale (POS) terminal. Prepaid cards, on the other hand, are loaded with funds before the purchase occurs, and the account associated with them may be the liability of a financial institution.4

3

GATS, Annex on Financial Services par. 5 (a)(viii)

4

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, paras 7.12-7.13

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The different types of payment cards are issued by the issuing institutions which determine the eligible card holders. They possess the infrastructure necessary to supply card payment services or authorize payment card companies for that purpose. In that case the payment card company processes the payments. The authorized payment card companies then sign up merchants in the payment services network. These services may also be outsourced to a ―third-party‖ processor. Payment card companies own and manage the payment brands, and they establish rules and standards for their product platforms.5

The two main business models in electronic payment transactions are the four-party model and the three-party model. Their difference lies in the fact that in the first case the payment card company is not authorized to issue payment cards, whereas in the second case it acts as both an issuer and a processor of the transactions. When a card holder presents a card for payment, the merchant sends a request for authorization to a third-party processor or the payment card company, which – in case of the four-party model - analyzes it and forwards it to the concerned issuer. The issuer checks the authenticity of the card and the eligibility of the relevant account and approves the transaction. In the three-party model, the payment card company is the one that decides whether to authorize the transaction.6

III. Specific commitments in the GATS system

1. Market Access and National Treatment in the GATS

The unique nature of the GATS Agreement lies in the fact that WTO Members have by its virtue both general obligations and Specific Commitments. The granting of most-favoured-nation treatment is a general obligation imposed by article II of the GATS Agreement on all Members; so is the principle of transparency enshrined in article III GATS. In contrast, Specific Commitments are obligatory upon the Members only if they have themselves agreed to be committed to protection in a services sector by inscribing a commitment in the relevant section of their Schedules of Commitments. Thus commitments are termed specific because the Members choose the service sectors to liberalize and the level of liberalization. There are two

5Ibid paras 7.14-7.17 6Ibid paras 7.18-7.23

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principles that can produce specific commitments and they are both contained in Part III of the GATS: market access (article XVI) and national treatment (article XVII).7

The financial services sector is one of the sectors where WTO members have made the most commitments, along with tourism, business, telecommunications etc. Nevertheless, it can be said that the number of sectors and the level of openness included in the Schedules is still limited.8 The present state of the Schedules of Commitments is the result of the Uruguay Round of Negotiations. WTO Members have an obligation under GATS Article XIX:1 to enter into new rounds of negotiations with the aim of gradually increasing their level of liberalization in services. The liberalization of services was brought in the Doha Round of Negotiations of 2001, which are still not concluded.9

In order, therefore, for a measure by a state to be found to violate GATS by virtue of its protectionist nature, it must be found a) that the measure ―affects trade in services‖ within the meaning of article I:1 of the GATS, b) that it falls within the scope of one of the two standards –market access and national treatment- for which the Member has voluntarily made a commitment. It must be ascertained that the measure is inconsistent with the inscription in the Schedule of Commitments in the relevant sector and mode of supply. Subsequently, it must be found c) that the measure falls within the substantive content of article XVI or XVII. For article XVI, this means that the measure falls under one of the six limitations listed in article XVI:2. For article XVII, on the other hand, the examination is less simplified; it entails an analysis of the ―likeness‖ and ―favourable treatment‖ requirements.10

For the ―likeness‖ criterion, analogies are drawn between GATS and the GATT 1994, and two of the four criteria used for determining likeness in GATT article III on national treatment for goods –namely the characteristics of the service and

7

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 821

8

Zleptnig Stefan, The GATS and internet-based services: between market access and domestic regulation, Cambridge Review of International Affairs, 20:1 (2007), p. 135 9

Muller Gilles, De facto discrimination under GATS national treatment: Has the Genie of Trade Liberalization been let out of the bottle?, Legal Issues of Economic Integration, 44:2 (2017), p. 155

10

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 820

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consumers‘ tastes and habits- are used also in the context of GATS article XVII. The criterion of ―no less favourable treatment‖ accorded to imported products is the specific non-discrimination standard within the national treatment obligation. This obligation can be violated through both de jure and de facto discrimination. Examples include nationality requirements, certain residency requirements and discriminatory licensing and qualification requirements.11

2. Concerned modes of supply

The GATS in article I:2 recognizes four modes of supply of services: cross-border supply; consumption abroad; commercial presence; and presence of natural persons. Cross-border supply is defined to cover services‘ flows from the territory of one Member into the territory of another Member (e.g. bank cards issued by an institution of one Member that are used in another). Consumption abroad refers to situations where a service consumer (e.g. tourist or patient) moves into another Member's territory to obtain a service. 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 banks or payment card companies). Presence of natural persons consists of persons of one Member entering the territory of another Member to supply a service (e.g. accountants, 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.12

Commitments for mode 4 are generally more restrictive; in modes 1 and 2 there is a higher level of full or partial commitments. Comparing modes 1 and 2, mode 1 commitments are more restrictive compared to mode 2; that is due to the fact that at the time of the first commitments states were not as technologically advanced as to envisage the possibility for extensive cross-border supply of services. There was

11 Zleptnig Stefan, The GATS and internet-based services: between market access and

domestic regulation, Cambridge Review of International Affairs, 20:1 (2007), p. 145

12

The General Agreement on Trade in Services (GATS): objectives, coverage and disciplines - https://www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm

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additionally legal uncertainty surrounding the regulation of the cross-border supply of services, and the potential implications of this mode of supply were unknown.13

As has been demonstrated in China-Electronic Payment Services, the modes of supply in which members of the WTO are more likely to have scheduled commitments for EPS are modes 1 and 3; i.e. cross-border supply and commercial presence.14

3. Schedules of Commitments

The Schedule of Commitments serves as the record of WTO Member‘s decision to liberalize a sector of services and also reflects the level of liberalization they wish to be committed to. The Schedules of Commitments are annexed to the GATS and form an integral part of the agreement (article XX:3). They are hence legally binding on the respective WTO Member.15

There are three possible options when choosing the level of commitments in the Schedule. The most liberalizing one is to inscribe ―none‖ in the Schedule; which means that there are no limitations on market access or national treatment in the particular sector, sub-sector and mode of supply. The second and most restrictive option is to inscribe ―unbound‖ which means that the Member does not enter into any commitment for the particular sector, sub-sector and mode of supply. The third option is to undertake a specific commitment but limit it to specific circumstances or exempt particular measures.16

The limitations that Members can include in their Schedules for market access commitments are the six categories of measures enumerated in article XVI:2. This list is considered to be exhaustive.17 Contrarily, national treatment limitations can be any

13

Zleptnig Stefan, The GATS and internet-based services: between market access and domestic regulation, Cambridge Review of International Affairs, 20:1 (2007), p. 135 14

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, para 7.513

15

Krajewski Markus, National regulation and trade liberalization in services: the legal impact of the General Agreement on Trade in Services (GATS) on national regulatory autonomy, Kluwer Law International, 2003, p. 76

16

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 822

17

United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services, DS285/R, 10 November 2004, para 6.138

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kind of measure, as specified by the phrase ―subject to any conditions and qualifications set out therein‖ in article XVII:1.

In order to interpret the Schedules of Commitments, a hybrid approach which consists of a positive and a negative aspect is implemented. For the sectors or sub-sectors that are not included in a Member‘s Schedule, it is deemed that the Member has not made any commitments about them; that it has not ―opened‖ the relevant sector or sub-sector. This method of reading the Schedule is termed a positive or bottom-up approach. On the other hand, the desired limitations on opened sectors or sub-sectors must be inscribed in the relevant parts of the Schedule; otherwise it will be deemed that there exist no limitations on market access and national treatment in these sectors. That is the negative or top-down approach.18

The reading of Schedules is informed by the provision of Article XX:2 GATS, which stipulates that the limitations inscribed in the market access column are conditions or qualifications on national treatment as well. This provision creates conflict in the interpretation of the Schedules when a Member has inscribed ―unbound‖ in a sector or sub-sector for market access and ―none‖ for national treatment; and vice versa. 19 It is also noteworthy that the application of article XX:2 entails that, if a Member has inscribed one of the six limitations of article XVI:2 in its market access column, then these limitations may be regarded as national treatment measures, provided that they are discriminatory.20

This interpretative hurdle was addressed in the China-Electronic Payment Services Panel decision. It affirms the primacy of market access obligations of article XVI as lex specialis to article XVII. As a result, when an inscription of ―unbound‖ exists in the market access column, the Member is not in breach of its national treatment obligations either for the limitations of article XVI:2.21 It does, however, point out that the purpose of the provision is not to establish a hierarchy between the two

18

Wang Wei, On the relationship between market access and national treatment under the GATS, The International Lawyer, 46: 4 (winter 2012), p. 1052

19

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 823

20

Wang Wei, On the relationship between market access and national treatment under the GATS, The International Lawyer, 46: 4 (winter 2012), p. 1055

21

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, para 7.662

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standards, but rather to create a scheduling primacy for entries in the market access column.22

Moreover, the 2001 Scheduling Guidelines issued by the WTO Secretariat cannot constitute a binding legal basis for the interpretation of the Schedules. They have been ruled by US-Gambling not to constitute context of the GATS or subsequent practice to the conclusion of the GATS - pursuant to the general rule of interpretation enshrined in article 31 of the Vienna Convention on the Law of Treaties -, as they were not issued by the parties to the treaty, but rather by the Council for Trade in Services. The 1993 Scheduling Guidelines are however considered to be preparatory work of the Schedules and constitute a supplementary means of interpretation in the sense of article 32 VCLT.23

Despite the non-binding character of the Scheduling Guidelines, they are of great practical importance. Together with the GATS provisions, they can be used to gain a comprehensive understanding of the structure and terminology of the Schedules.24

IV. Specific Commitments for Electronic Payment Services

1. Classification of EPS in the Schedule of Commitments

As was mentioned above,25 Electronic Payment Services are classified under ―banking and other financial services‖ in the GATS Annex on Financial Services 5(viii). In the most relevant jurisprudential example, the China-Electronic Payment Services case, the Panel was tasked with finding the appropriate subsector of China‘s Schedule of Commitments that housed commitments for the measures maintained by China in the field of EPS.

The Complainant US identified subsector (d), ―all payment and money transmission services, including credit, charge and debit cards, travelers cheques and bankers drafts‖ of Sector 7B entitled ―banking and other financial services‖ as the sole

22 Ibid para 7.664

23 United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services, DS285/ABR, 7 April 2005, paras 175-197

24

Krajewski Markus, National regulation and trade liberalization in services: the legal impact of the General Agreement on Trade in Services (GATS) on national regulatory autonomy, Kluwer Law International, 2003, p. 77

25

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subsector containing EPS commitments. China contended that the services falling under the measures were not conducted exclusively by banks, therefore subsector (d) was not applicable. The Panel ruled, however, that the heading ―banking services‖ does not imply that services included in this subsector are provided necessarily by banking institutions.26 This interpretation, using the interpretative tools of the Vienna Convention,27 is wholly consistent with the function of the four-party model for payment transactions, which bestows payment card companies rather than banks with the role of processing electronic payment transactions.

The Panel also rejected China‘s argument that the services at issue could fall within subsector (x) of paragraph 5(a) of the Annex on Financial Services, which covers ―trading for own account or the account of customers‖ of various instruments, including money market instruments and in particular cheques, foreign exchange and derivative instruments. It concluded that the definitions of subsector (d) were broad enough to encompass ―clearing and settlement services concerning transactions using payment cards‖.28

Another important finding of the panel was that a sector may include any service activity that falls within the scope of the definition of that sector, regardless of whether the activity is expressly enumerated in the definition of the sector or subsector.29 It also concluded that the mere fact that different suppliers supply different components of a service does not make those components a distinct service.30

In conclusion of the findings on the classification of EPS in the system of scheduled commitments, it can be said that the process of paying for a transaction by card and

26

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, para 7.133

27

Hoekman Bernard, Meagher Niall, China – Electronic Payment Services: discrimination,

economic development and the GATS, World Trade Review, 13: 2 (2014), p. 420

28Ibid p. 422 29

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, para 7.179

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getting billed or debited for the amount of the purchase is correctly identified as a single transaction – not only from a legal but also from a consumer‘s viewpoint.31

2. Market access for EPS

A breach of a Member‘s scheduled obligation to grant market access exists when there are any commitments of that Member for any of the four modes of supply of services and the measures responsible are of one of the six types of limitations in article XVI:2 – provided that this type of limitation is not expressly excluded by the Member in its Schedule.32

The list of measures in article XVI:2 is a precise and exhaustive explanation of measures which constitute a violation of article XVI if they are not scheduled. According to this interpretation of article XVI, WTO Members do not need to schedule any other measures than those mentioned in article XVI:2. This includes, for example, subsidies and taxes, which are not mentioned in XVI:2, but do not need to be scheduled even if they effectively prevent market access.33

In the case of China-Electronic Payment Services, China had inscribed Unbound in mode 1 of market access in subsector (d), excluding the cross-border transmission of financial information and advisory, intermediation and other auxiliary financial services. The Panel concluded that these entries did not constitute commitments relating to the disputed ―payment and money transmission services‖.34

Mode 3 refers to the commercial presence of foreign service suppliers in the territory of the scheduling Member. China in its Schedule in mode 3 of market access for financial services had inscribed a series of limitations on geographic presence, client limitations and licensing requirements; which entail that China made a full commitment in mode 3 with the exception of the listed limitations. China contended that its commitments applied only to Foreign Financial Institutions (FFIs), and that

31Hoekman Bernard, Meagher Niall, China – Electronic Payment Services: discrimination,

economic development and the GATS, World Trade Review, 13: 2 (2014), p. 423

32

Ibid p. 427

33Krajewski Markus, National regulation and trade liberalization in services: the legal

impact of the General Agreement on Trade in Services (GATS) on national regulatory autonomy, Kluwer Law International, 2003, p. 84

34

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, para 7.538

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electronic payment suppliers do not fall under the category of FFIs. The Panel, however, reasoned that any foreign organizations, companies or other business entities that provide financial services classified under subsectors (a) to (f) of the Schedule were FFIs, thus also including electronic payment companies. These companies include – but are not limited to – banks and finance companies. Subsequently, the Panel found that there were no limitations to China‘s commitments on the number of EPS suppliers, only qualifications requirements.35 Thus China – contrarily to the restricted cross-border supply of EPS - maintains in effect a broad market access commitment regarding the commercial presence of foreign electronic payment companies on its soil.

3. National treatment for EPS

Concerning national treatment commitments violations for services, a three-part test is to be applied. It consists of whether the examined country has actually made a national treatment commitment in the relevant sector and mode of supply; whether the measure affects the supply of services; and lastly whether the measure accords to services and service suppliers of other WTO Members less favourable treatment than it accords to domestic services and service suppliers.36 The first two prerequisites relate to the scope of application of article XVII. The third one relates to the content of the article.37

China had inscribed ―None‖ in mode 1 in the national treatment column for subsector (d) of EPS, which means that China provides a full commitment in this respect. The issue posed before the Panel was whether the ―Unbound‖ inscription in the same sector for market access meant that China was not bound by any of the six limitations referred to in article XVI:2 for national treatment either, by virtue of the provision of article XX:2 that stipulates that measures inconsistent with both articles XVI and XVII – which are inscribed for market access - are deemed to be in place for national treatment as well. The Panel noted first of all that the scope of the articles are not mutually exclusive, as China suggested, seeing as both provisions can apply to the same measure. Moreover, the inscription of ―Unbound‖ for market access is 35 Ibid paras 7.551, 7.556, 7.565, 7.575 36 Ibid para 7.641 37

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 820

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equivalent to inscribing a limitation on the commitment for all of the measures mentioned in article XVI:2 individually, even though they are not explicitly limited.38

It is worth noting that this finding does not limit WTO Members‘ options in their choice of the desirable liberalization level. On the contrary, the provision of article XX:2 - as it was interpreted by the Panel – grants more flexibility to WTO Members to choose the combination of market access and national treatment limitations they wish to maintain.39

The outcome of this interpretation is that discriminatory measures listed –implicitly or explicitly in the Schedules- under article XVI:2 are analyzed in terms of its provisions, while other discriminatory measures are assessed under article XVII. As a consequence, many measures fall outside of the scope of national treatment. The problem could grow if the scope of article XVI is widened.40 This systemic problem will be addressed in greater detail below, in Section VI:3.

In respect of mode 3 commitments for national treatment, China‘s limitations on national treatment for geographic restrictions and client limitations on local currency business - that it had scheduled in its market access column pursuant to its Accession Agreement to the WTO – expired in 2006, five years after the accession. Therefore, China maintained a full commitment for mode 3, pursuant to its ―otherwise, none‖ inscription. The issue of whether Foreign Financial Institutions (FFIs) were taken to mean EPS suppliers was also resolved affirmatively at a previous stage.41

Having found that a Member has made a mode 3 commitment in its Schedule, the next issue, as we have reiterated, is to consider whether it affects trade in services. This consideration is composed of two aspects: The existence of ―trade in services‖ and whether the measures ―affect‖ trade in services. ―Trade in services‖ and ―supply of services‖ are considered in conjunction, according to the respective definitions provided by article XXVIII (b) and (c) GATS. Article XXVIII (b) defines the supply

38

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, paras 7.658, 7.660

39Ibid para 7.664 40

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 824

41

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, paras 7.674 – 7.675

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of services as ―the production, distribution, marketing, sale and marketing, sale and delivery of services‖. Article XXVIII (c) defines measures affecting trade in services as ―the purchase, payment or use of the service‖. The outcome of their combined reading is that article XVII does not extend to measures that only affect the consumption of a service.42

The Panel in Argentina-Financial Services found that the determination of trade in services must be based on competition conditions, rather than actual effects on specific service suppliers. It stressed that national treatment provisions aimed to ensure equal competitive opportunities rather than actual trade flows.43

The term ―affecting‖ is intended to give a broad reach to the GATS and ensure its broad application. It encompasses all measures that directly govern the supply of a service, and those that regulate other matters but nevertheless affect trade in services. It also covers both pre-establishment and post-establishment situations.44

The requirement is to determine whether the measures under scrutiny regulate or at least have an effect on the supply of EPS services by service suppliers of other Members through modes 1 and 3. Since in the present case of China-EPS, the requirements affected the supply of services by one EPS supplier, namely CUP, they consequently have an effect on the terms on which its competitors – suppliers from other WTO Members – can supply their services in China. Hence, the measures affect trade in services.45

As to the ―less favourable treatment‖ requirement, it has to be noted first that this requirement is fulfilled, according to the provision of article XVII:3, if formally identical or different treatment is deemed to be modifying the conditions of competition to the detriment of a Member. This clarification was introduced to GATS article XVII as an interpretative tool that was applied for the determination of less

42 Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence,

Journal of World Trade, 50: 5 (2016), p. 826

43

Argentina - Measures Relating to Trade in Goods and Services, DS453/R, 30 September 2015, para 7.85

44 Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence,

Journal of World Trade, 50: 5 (2016), p. 828

45

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, paras 7.681, 7.682, 7.686 – CUP (UnionPay) is the official EPS supplier for cards issued by Chinese banks

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favourable treatment also in the context of GATT article III on national treatment – and in particular article III:4, but without being explicitly provided for in that article.46

At this point, a distinction has to be made in the framework of the non-discrimination principle of national treatment in article XVII, between de jure and de facto discrimination. De jure discrimination exists when a measure distinguishes explicitly between services and service suppliers based on foreign or domestic origin. De facto discrimination, on the other hand, exists when a measure that is based - on the face of it - on ―neutral‖ criteria, has the effect of modifying the conditions of competition to the detriment of foreign services and service suppliers.47

As concerns de jure discrimination, the argument deducted from China-EPS is that the issuer, terminal equipment and acquirer requirements on their face confer an advantage, or privilege, on one supplier that is not afforded to suppliers of other WTO Members. That is, the measures provide formally different treatment, thus establishing de jure discrimination.48

In contrast, the definition of de facto discrimination is more problematic. As we mentioned above, de facto discrimination includes any origin neutral measure that modifies the conditions of competition in favor of domestic services and suppliers. It follows from the above that, any measure affecting trade in services may modify the conditions of competition. A limit is set by footnote 10 of article XVII: the Member‘s conduct can only be in the form of a regulation or practice.49

46

European Communities – Measures Affecting Asbestos and Asbestos Containing Products, WT/DS135/R, 18 September 2000, para 8.151, and European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400, 401/AB/R, 22 May 2014, para 5.101

47

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 835

48

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, para 7.688

49

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 836

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The issue with de facto national treatment is that it may effectively result in a policy of deregulation, or of international harmonization and standardization reducing the regulatory autonomy of WTO Members.50

The Appellate Body in Argentina-Financial Services rejected the Panel‘s use of the aims and effects test in order to determine de facto discrimination. It ruled specifically that there was no legal basis by virtue of which the regulatory aspects of a measure could be taken into account in order to assess whether it is justified in modifying the conditions of competition to the detriment of a foreign service supplier. This entails that a measure is discriminatory even if its aim is to ensure equal conditions of competition between foreign and domestic service suppliers.51

Subsequently, the content of ―formally different treatment‖ in de jure discrimination has to be outlined. The complainant US in China-EPS contended that the requirements in the Chinese legislation provided disparate treatment solely according to the identity of the supplier being CUP or not. Additionally, the different treatment has to be provided to ―like services and service suppliers‖. This is construed, in China-Publications and Audiovisual Materials, to mean domestic and foreign suppliers that under the measure are the same in all material respects except origin.52

The interpretation of likeness cannot be conducted simply by transposing the likeness criterion for trade in goods to services; due to the intangible nature of services, their supply through four different modes, and possible differences in how trade in services is conducted and regulated. Pursuant to the clarification provided in XVII:3 for the less favorable treatment being determined by the modification of conditions of competition, the provision suggests that like services are services that are in a competitive relationship with each other.53

50

Krajewski Markus, National regulation and trade liberalization in services: the legal impact of the General Agreement on Trade in Services (GATS) on national regulatory autonomy, Kluwer Law International, 2003, p. 59

51

Argentina - Measures Relating to Trade in Goods and Services, DS453/ABR, 14 April 2016, paras 6.138-6.147

52China — Measures Affecting Trading Rights and Distribution Services for Certain

Publications and Audiovisual Entertainment Products, WT/DS363/R, 12 August 2009, para 7.975

53

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, paras 7.698-7.700

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In the case of China-EPS, CUP is perceived by other global EPS suppliers as a competitor in the global marketplace. It provides the same data-processing infrastructure, authorization and clearing of payment card transactions, and also facilitates their settlement. Thus the services they provide are essentially the same in competitive terms. Consequently, the measures at issue resulted in different treatment of ―like‖ services and service suppliers.54

The ―likeness‖ criterion was also examined in Argentina-Financial Services for both articles II and XVII, whereby the interpretation and application of article II is transposed to article XVII. The Appellate Body reasoned that the interpretation the concept of ―likeness‖ allows the conclusion that likeness can be presumed when the complainant demonstrates that the measure at issue makes a distinction between services and service suppliers based exclusively on origin. While an analysis of whether or not a distinction is based exclusively on origin is more complex in the context of trade in services than in trade in goods, this does not render the presumption approach inapplicable.55

After having established likeness, it remains to be seen whether the formally different or formally identical treatment is less favourable than that accorded to domestic services and service suppliers, in accordance with the provision of article XVII:3. This is related to an individual examination of the measures that a Member maintains, which will be carried out for both market access and national treatment principles immediately below, in sections V:1 and V:2.

V. Measures in violation of Specific Commitments for EPS

1. Measures that violate market access commitments for EPS

As we reviewed above,56 article XVI:2 contains an exhaustive list of six types of measures that can be found to violate a WTO Member‘s commitments, if that Member has not scheduled them. Numerical quotas, monopolies and exclusive suppliers – pursuant to case (a) - are direct limitations on the number of service suppliers. If these limitations are scheduled, the respective Member can specify the

54

Ibid para 7.703

55

Argentina - Measures Relating to Trade in Goods and Services, DS453/ABR, 14 April 2016, para 6.52

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number of foreign service suppliers in its Schedule. Nationality requirements amount to ―zero quotas‖ because they restrict the supply of EPS by foreign suppliers to zero. Monopolies are not restricted to private monopolies, because the definition of ―monopoly supplier of a service‖ according to article XXVIII(h) GATS includes public and private judicial persons. Economic needs tests as conditions for licenses or prior approvals can also have the effect of restricting the participation of foreign suppliers.57

Article XVI:2 cases (b) to (d) contain other types of quantitative limitations, such as limitations on the value of transactions, which can be put into effect in the case of EPS if, for instance, a ―ceiling‖ is applied to the values of transactions using bank cards of foreign suppliers. Other restrictions include restrictions of legal entity and participation of foreign capital.58

The Panel in China-EPS examined whether in effect China‘s measures constituted the first of the six limitations on market access that the US alleged, namely article XVI:2 case (a), a monopoly or exclusive supplier of the service. The measures that the Panel had identified for scrutiny were: requirements for all bank cards, ATMs and POS terminals to bear the Yin Lian/UnionPay electronic payment provider logo; all ATMs to be designed to accept UnionPay cards; and for acquirers to join the CUP network, comply with CUP technical standards and post the Union Pay logo. The Panel reasoned that none of these measures imposed a limitation on the supply of EPS that is quantitative in nature, because they did not numerically restrict the provision of payment services by suppliers other than CUP. Consequently, these measures did not have the effect of limiting the number of service suppliers, and thus did not constitute a monopoly in the sense of article XVI:2(a).59

The only instance where the Panel found that CUP operated as a monopoly was by virtue of the measures that authorized the processing of bank card transactions denominated in RMB, China‘s currency, to CUP as a sole supplier of the service,

57

Krajewski Markus, National regulation and trade liberalization in services: the legal impact of the General Agreement on Trade in Services (GATS) on national regulatory autonomy, Kluwer Law International, 2003, pp. 85-90

58

Ibid pp. 90-93

59

China – Certain Measures Affecting Electronic Payment Services, DS413/ABR, 16 July 2012, paras 7.600,7.602

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when the transaction was made in Hong Kong or Macao with a bank card issued in China. The Panel stressed that the definition of services supplied through commercial presence addresses only the location of the foreign service supplier; not that of the recipient of the relevant service, nor the nationality of the recipient. Therefore China‘s commitment concerned not only the supply of EPS to clients within China, but also to clients located in the territory of other WTO Members. In that sense, China‘s measure was quantitative in nature, as it established CUP as the only possible processor of RMB transactions made in Hong Kong and Macao. Therefore, China was in breach of its market access commitments for mode 3 (commercial presence) by maintaining a monopoly in the supply of EPS for the specific transactions.60

Furthermore, it was not considered necessary for the Panel to examine the inconsistency of the measures with article XVI:1 separately, since article XVI:2 sets an exhaustive list of limitations, and no other limitations can be viewed to stem from paragraph 1 except those mentioned in paragraph 2. XVI:1 is merely the general principle of granting market access in services.61

2. Measures that violate national treatment commitments for EPS

As we mentioned above, in section IV:3, the last step in the analysis of national treatment commitments is to assess whether the formally different or formally identical treatment accorded to foreign services and service suppliers is less favourable than that accorded to domestic services and service suppliers.

Concerning, first, issuer requirements, the US in China-EPS contended that issuing banks could not use the mandatory CUP logo unless they had access to the CUP network, paid CUP for that access, and met CUP‘s technical standards. As a result, they had no reason to seek an alternative EPS supplier. The Panel added to this that, since all RMB bank cards were required to feature the Yin Lian/Union Pay logo on the front of the card, any supplier of another Member would have no choice but to accept that the logo would feature prominently on the card; thus, the bank holders would be constantly reminded of the availability of CUP, a competing EPS supplier.

60Ibid paras 7.617, 7.619, 7.623, 7.624 61Ibid paras 7.628-7.630

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Consequently, the conditions of competition were modified in favour of CUP, so that foreign EPS and EPS suppliers were treated less favourably than domestic ones.62

As for interoperability requirements, namely the mandatory access to an EPS network and charging fees for that access, these mean that EPS suppliers of other Members have to convince issuers to join their networks, which entails expending time and effort. It can therefore be said that interoperability requirements that oblige issuing institutions to have access to one specific network also result in less favourable treatment for importing services and service suppliers of EPS.63

Moving on to terminal equipment requirements, a requirement that all POS and ATM terminals must bear the logo of the national EPS provider gives automatic and universal acceptance to its bank cards by banks and merchants. In contrast, foreign EPS suppliers are forced to build that network by marketing themselves to merchants and acquiring banks. That was the case with Yin Lian/CUP, which had guaranteed acceptance of its bank cards by commercial bank and merchant terminal equipment in China. Contrarily, EPS suppliers of other WTO Members may not be able to have access to all terminals because, unlike CUP – which is entitled to be accepted by every terminal – commercial banks, acquirers and merchants could refuse them access. Therefore, these types of terminal equipment requirements also modify the conditions of competition to the detriment of foreign EPS suppliers and accord them less favourable treatment than to domestic ones.64

Finally, concerning acquirer requirements, terminal equipment operated by acquiring banks and merchant terminal equipment provided by acquirers that is required to be capable of accepting cards bearing a specific logo leads to a modification of the conditions of competition to the detriment of the foreign EPS supplier; similarly to what we found above for terminal equipment requirements. Subsequently, the obligation inflicted upon acquirers to post the logo of a specific EPS provider is detrimental to foreign suppliers, who need to invest time and effort to achieve the same result.65 62 Ibid paras 7.710, 7.712 63 Ibid para 7.714 64Ibid paras 7.723, 7.725 65Ibid para 7.738

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As a supplementary remark, it has to be noted that the issue of less favourable treatment for these three types of requirements is not affected by the distinction of whether the services are supplied through modes 1 or 3.66

VI. Expansion of Services Liberalization

1. Developments after the Uruguay round of Negotiations

WTO Members‘ existing Commitments for services are the product of the Uruguay round of negotiations that led to the conclusion of the GATS Agreement. The majority of these commitments entered into force on 1 January 1995, i.e. the date of entry into force of the WTO. Article XIX of the GATS – entitled ―Negotiation of Specific Commitments‖ mandates that Members must enter into new successive rounds of negotiations beginning no later than five years after the entry into force of the WTO Agreement, in order to achieve a progressively higher level of liberalization. These negotiations, according to article XIX:2, shall of course be proportionate to the national policy objectives of Members, and shall take into account the particular circumstances of developing and least developed Members.67

Moreover, the signatories to the Marrakesh Agreement signed an Understanding on Commitments in Financial Services, which they annexed to the agreement establishing the WTO in Annex 4. This instrument offered an alternative way of undertaking commitments in the area of financial services. It consisted of a predetermined set of commitments, from which exceptions remained possible. These commitments covered the following: scheduling of monopoly rights; most-favoured-nation and most-favoured-national treatment in public procurement of financial services; cross-border MAT insurance provision and relevant auxiliary financial services; transfer of financial information and financial data processing; right to purchase financial services abroad; right of establishment and expansion of a commercial presence etc.68

66

Ibid para 7.739

67

General Agreement on Trade in Services (GATS) Agreement Establishing the World Trade Organization Annex 1B, Article XIX

68

Understanding on Commitments in Financial Services – Agreement Establishing the World Trade Organization https://www.wto.org/english/tratop_e/serv_e/21-fin_e.htm

(23)

A set of negotiations, which were initiated at the sectoral level for financial services in particular, were successfully concluded in mid-December 1997. In these negotiations, Members achieved significantly improved commitments with a broader level of participation. The new Commitments are neither legally independent from other sector-specific commitments nor constitute agreements different from the GATS. The new Commitments were incorporated into the existing Schedules by way of separate Protocols to the GATS. Thus the financial services sector became one of the sectors with the most advanced Commitments and level of liberalization.69

Nevertheless, the liberalizing effects remained relatively modest, compared to the progress that was envisaged by the signatories of the GATS. This is partly explained by the fact that many administrations needed time to develop the necessary regulation — including quality standards, licensing and qualification requirements — that ensures that external liberalization is compatible with core policy objectives.70

The new round of negotiations officially began in January 2000, and WTO Members submitted their proposals for the expansion of the existing Commitments. The negotiations were initiated based on the built-in agenda – i.e. the work programme set out by the GATS for concluding further services negotiations. Many states focused on the issue of expanding the coverage of services under modes 1 and 3, which are specifically the focus of EPS.

In particular, the EU submitted a Proposal in which they suggested – according to articles B.3 and B.4 of the Understanding on Commitments in Financial Services – for mode 1: the permission of the cross-border supply of MAT insurance services and auxiliary financial services; transfer of financial information, financial data processing and other auxiliary services, excluding intermediation; and the purchase abroad of financial services (excluding direct insurance). For mode 3 they proposed: to eliminate the ceiling on foreign ownership, allow the choice of legal form, eliminate restrictions to geographical expansion or to the types of activities that can be carried out in a given geographical area. Most relevant to our examination are the proposals

69

The General Agreement on Trade in Services (GATS): objectives, coverage and disciplines - https://www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm

70

The General Agreement on Trade in Services (GATS): objectives, coverage and disciplines - https://www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm

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for the establishment of the right to non-discriminatory access to payment systems, funding and refinancing facilities.71

Similarly, the US submitted their Proposal, which, in addition to the respective proposals of the EU, featured the suggestion for removal of quantitative limitations on the number of service suppliers, in the form of numerical quotas, monopolies or exclusive providers or economic needs tests, as well as the removal of mandatory cession requirements. They also suggested the removal of discrimination between domestic and foreign suppliers regarding application of laws, regulations, and practices; and the assurance that acquired rights for commercial presence are protected (grandfathering).72

Since the making of the initial Proposals, negotiations in the field of services are either stalled or fragmented into bilateral negotiations behind closed doors, whereby Member States try to strike individual deals for mutual commitments in services areas that are more sensitive to them individually. These deals are in recent years mostly effected through Regional Trade Agreements, which have greatly proliferated – from no more than four in 2004 to close to 120 by mid-2014.73

2. Scheduling expansion

For market access, the preceding analysis shows that each and every one of the limitations of article XVI:2, although constituting a closed list, has a very broad scope. A Member that decides to provide full market access protection has to abandon or abstain from introducing a large number of measures. This in turn entails that the introduction of any of the six limitations excludes a great number of services from having access to this Member‘s economy.

Measures such as numerical quotas and economic needs tests are typical examples of quantitative entry controls. Public monopolies are often associated with public

71

Council for Trade in Services – Communication from the European Communities and their Member States (proposal of negotiations on financial services), S/CSS/W/39, 22 December 2000

72Council for Trade in Services – Communication from the United States (proposal of

negotiations on financial services), S/CSS/W/27, 18 December 2000

73

Adlung Rudolf, The Trade In Services Agreement (TISA) and its compatibility with GATS: An assessment based on current evidence, World Trade Review 14:4 (2015), p. 618

(25)

ownership. This means that, especially for developing Members, the decision to fully open a sector for market access is difficult, because it entails a limitation of their regulatory autonomy in the field of universal or public services. Additionally, even if a member could theoretically only abandon market access restrictions for foreign service supply, in practice, such a move would inevitably require a general abolishment of these restrictions also for domestic suppliers. Another example is the case in which foreign companies are allowed to compete with a public service supplier, but domestic companies are not, because monopoly rights of the public supplier are still applied to them. Then, the regulatory purpose of such a public monopoly collapses.74

As far as commitments for national treatment are concerned, it is important that commitments for commercial presence are improved. In order to encourage the long-term commitment of financial institutions and payment card companies to their respective host countries, it is essential for them to be able to establish, control and expand commercial operations in third countries. Foreign ownership ceilings should disappear, as well as limitations on the legal form of the service supplier.75

3. Interpretative expansion

The expansion of trade liberalization can be implemented, not only by reform of the Schedules of Commitments, but also by a broader interpretation of the existing Schedules and the respective substantive standards.

The expansion of the interpretation of the market access standard pursuant to article XVI is already aided by the provision of article XX:2, which gives scheduling primacy to market access commitments. The six exhaustive limitations that apply to market access are also in place for the section of schedules that concerns national treatment. Moreover, these limitations tend to be interpreted broadly, resulting in the inclusion of more measures that would normally pertain to national treatment

74

Krajewski Markus, National regulation and trade liberalization in services: the legal impact of the General Agreement on Trade in Services (GATS) on national regulatory autonomy, Kluwer Law International, 2003, pp. 94-95

75

Council for Trade in Services – Communication from the European Communities and their Member States (proposal of negotiations on financial services), S/CSS/W/39, 22 December 2000

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limitations. For instance, restrictions such as the nationality requirement are determined to be included in article XVI:2, even though they do not explicitly belong to it, since they are not expressed in numerical form, but are equivalent to zero quota.76

Concerning the national treatment standard, a broader interpretation of the ―likeness‖ and ―less favourable treatment‖ requirements can effectively extend the number of measures that are found to be in violation of the standard. Especially the interpretation of de facto discrimination as part of the ―less favourable treatment‖ analysis can constitute a ―gateway‖ for liberalization – if the correct tests are used, that do not restrict excessively the state‘s right to regulate. Arguably all forms of behavioural control and all quantitative entry controls could become de facto discriminations, if they cause adverse effects on foreign services or service suppliers. However, even if de facto discrimination is understood narrowly, the impact of article XVII on national regulation would still cover some regulatory measures.77

Several tests have been proposed for incorporation into the assessment of less favourable treatment, with the aim of eliminating protectionist measures, while at the same time not infringing upon Members‘ regulatory autonomy. The ―aims and effects‖ test has, as we mentioned above,78 been excluded as a test for finding de facto discrimination by the Argentina-Financial Services Appellate Body. Therefore, we will exclude it from our examination. We will focus more on the necessity test and the ―stems exclusively from a legitimate regulatory distinction‖ limitation.

The necessity test is derived from provisions of the GATS other than article XVII. Those provisions are article XIV, the GATS general exceptions, and VI:4-5, for licensing requirements and technical standards. The application of the test entails that the line between origin-neutral measures that modify the conditions of competition and measures that are more trade-restrictive than necessary becomes blurred. The problem with this approach is that the article XIV necessity test contains a closed list

76

Muller Gilles, National Treatment and the GATS: Lessons from jurisprudence, Journal of World Trade, 50: 5 (2016), p. 824

77

Krajewski Markus, National regulation and trade liberalization in services: the legal impact of the General Agreement on Trade in Services (GATS) on national regulatory autonomy, Kluwer Law International, 2003, p. 116

(27)

of legitimate objectives. Such a list does not reflect reality in services regulation. Moreover, this approach poses a systemic problem: Elements of a general exception are prematurely examined in the treatise of the national treatment standard; and it therefore renders article XIV inoperative.79

The ―stems exclusively from a legitimate regulatory distinction‖ limitation is brought in from article 2.1 of the TBT Agreement, and implies the interpretation of the test applied in US-Clove Cigarettes. Accordingly, a measure that affects trade in services can be allowed if it stems exclusively from a legitimate regulatory distinction. Transposed to the GATS, this would mean that once a panel finds that an origin-neutral measure modifies the condition of competition in favour of domestic services and service suppliers, it must then determine whether such a measure stems exclusively from a legitimate regulatory distinction. This approach would be justified, according to its proponents, by two arguments: that the content of articles XVII GATS and 2.1 TBT is comparable, as both of them contain the ―treatment no less favourable‖ requirement; and that they share the objective of striking a balance between trade liberalization and the preservation of the rights of WTO Members.80

Ultimately, recent jurisprudence seems content with the spaces for regulatory autonomy that (a) the Schedules of Commitments and (b) the exception of article XIV provide. The Appellate Body in Argentina-Financial Services, for example, rejected the ―stems exclusively from a legitimate regulatory distinction‖ limitation as well.81

It is also useful to look at the parties‘ to the Argentina-Financial Services case view of what the decision on the dispute means for the interpretation of their commitments. In Argentina‘s view, this decision has various systemic implications. It gives WTO Members ample margin to maintain defensive anti-abuse measures, especially relating to transparency. The decision also featured an expansive interpretation of the ―prudential exception‖ that had been established in paragraph 2(a) of the GATS Annex on Financial Services. This means that the loss of policy space that the

79

Muller Gilles, De facto discrimination under GATS national treatment: Has the Genie of Trade Liberalization been let out of the bottle?, Legal Issues of Economic Integration, 44:2 (2017), p. 160

80

Ibid p. 162

81

Argentina - Measures Relating to Trade in Goods and Services, DS453/ABR, 14 April 2016, para 6.121

(28)

Members sustain because of the broad reading of the substantive standards is mitigated by the more extensive use of the ―safety valve‖ that the prudential exception offers. It is noteworthy that there are no restrictions on the type or form of a ―measure‖ falling under that provision.82

4. Plurilaterization of services negotiations

The stalemate in the Doha Development Agenda for services negotiations prompted some states to seek an alternative way to progress trade liberalization. On the initiative of the US and the EU, a coalition of 23 WTO Members, the so-called ―Really Good Friends of Services‖ (RGFS) grouping, opened negotiations on a new international agreement in services. This agreement is termed ―TISA‖ (Trade in Services Agreement). TISA is envisaged as complying with WTO rules, so that it can be ―multilateralized‖ at a later stage. However, if elements of a preferential trade agreement under article V of the GATS are to be found in the final form of TISA, it is less likely that it will be incorporated in the WTO system.83

Negotiations for TISA are conducted by 51 WTO Members – if EU members are considered individually – which together account for 70% of world trade in services. The large number of participants thus points towards the plurilateral character of the agreement, especially if one considers that the new commitments enshrined in the TISA are scheduled to be applied on an MFN basis towards all other WTO Members.84

On the other hand, the negotiations for TISA are conducted outside the ambit of the WTO, so the agreement cannot have the character of a classic WTO Plurilateral Agreeement, such as the likes of the Government Procurement Agreement. The progression of negotiations is made with a ―closed club‖ mindset, whereby third countries are not granted observeship and new members can participate only if they

82

Dispute Settlement Body – Minutes of meeting held in the Centre William Rappard on 9 May 2016 (Argentina-Financial Measures AB report adoption), WT/DSB/M/378, pp. 4-5

83 Sauve Pierre, Towards a plurilateral Trade in Services Agreement (TISA):

Challenges and Prospects, Journal of International Commerce, Economics and Policy 5:1 (2014), p. 1

84

Adlung Rudolf, The Trade In Services Agreement (TISA) and its compatibility with GATS: An assessment based on current evidence, World Trade Review 14:4 (2015), p. 618

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are accepted by the existing parties. This situation increases the risk that the concluded agreement will not enjoy a wider adoption, much like the Understanding on Commitments in Financial Services, to which no developing or transition economy signed onto by the end of the Uruguay Round.85 Notable absences from the TISA workings include China – which traditionally faced difficulties adjusting its national regulation of services to the demands for services liberalization pursuant to WTO accession, but recently petitioned to join the TISA talks –, and India, which impeded the extension of its GATS commitments as counteraction to issues in other areas of the Doha Round negotiations, such as agriculture. Absent from the negotiations are also other countries with significant development rhythms, such as South Africa and Brazil.

Besides, the proposed reforms in TISA do not include only improvements in GATS commitments; they also introduce new restrictions which are not contained in the GATS. This follows the trend in introducing GATS-minus commitments in Regional Trade Agreements (RTAs) concluded in the past 15 years, especially in the field of financial services, which account for 40% of the total GATS-minus commitments.86 The EU‘s initial offer for TISA, for example - although dispensing with frequent GATS-minus elements such as the exclusion of subsidies from national treatment under modes 1 and 2 – retains or even adds, contrastingly, sector-related minus commitments, including for educational and hospital services.87

This aspect of the new agreement makes its incorporation in the WTO framework and its desired multilaterization less likely, not only because of issues of participation, but also for reasons of WTO-inconsistency. GATS-minus commitments render TISA a Preferential Trade Agreement rather than a multilateral instrument. Article V GATS is an exception clause that allows Members, in specified circumstances, to depart from

85

Sauve Pierre, Towards a plurilateral Trade in Services Agreement (TISA): Challenges and Prospects, Journal of International Commerce, Economics and Policy 5:1 (2014), p. 4

86

Adlung Rudolf, The Trade In Services Agreement (TISA) and its compatibility with GATS: An assessment based on current evidence, World Trade Review 14:4 (2015), pp. 628-629

87

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