Misunderstandings and scare stories: Market access and national treatment commitments

A report published by the World Development Movement in November 2000 included the statement that "the aim of this Agreement (the GATS) is to remove any restrictions and internal governmental regulations in the area of services delivery that are considered 'barriers to trade'". It went on to pose and answer a series of rhetorical questions, as follows: "Should governments be able to demand that foreign building contractors use locally-trained architects? Should governments be able to oblige tour companies to use local caterers? Should governments have the right to demand that foreign companies transfer technical expertise to local industries? According to the GATS national treatment rule the answer is no."

This is quite wrong. According to the GATS national treatment rule (Article XVII) the answer is that the imposition of any of these conditions when making a commitment would be perfectly legitimate. An unqualified national treatment commitment is an undertaking that foreign suppliers will be treated in the same way as nationals, but there are in fact no restrictions on the number or types of conditions which may be attached to national treatment commitments. A requirement that foreign banks wishing to establish in the country should set up branches in every village, for example, would also be perfectly legitimate. National treatment limitations are simply conditions which discriminate against foreign suppliers in favour of nationals. If the service is not scheduled the national treatment principle does not apply anyway. Article XIX specifically provides that developing countries may attach to their market opening commitments conditions designed to increase their participation in services trade—for example on the transfer of technology.

The WDM report went on: "Should a government be allowed—for social or conservation reasons—to limit the number of golf courses being developed in an area? Under the GATS market access rules the answer is no …. The market access rules …. could effectively stop governments from limiting the number of hotels in scenic or historic areas to protect the value of a tourist site. They could prevent local jurisdictions saying no to the expansion of waste dumps."

None of this is true. Market-access commitments do not affect the right to regulate services and they do not oblige Governments to permit the entry of unlimited numbers of services suppliers. They can include limitations on the number of suppliers, the total value of transactions, the number of services operations, the number of persons to be employed, the types of legal entity permitted and the share of foreign capital. The entry "none" in a schedule is an undertaking that limitations of these kinds will not be imposed. But even in such cases, where no limitation has been scheduled, it is absurd to suggest that a Government or local authority would have to set aside planning rules because a foreign company wanted to open a hotel, set up a golf course or expand a waste dump. These are questions of domestic regulation, not market access, and foreign suppliers operating on the basis of a market-access commitment are subject to exactly the same domestic regulations as national suppliers; they have no right to exemption from planning or zoning rules, or any other kind of regulation.

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