The texts reproduced here do not have the legal standing of the original documents which are entrusted and kept at the WTO Secretariat in Geneva.
Also in this section:
- Article I
- Article II
- Article III
- Article III bis
- Article IV
- Article V
- Article V bis
- Article VI
- Article VII
- Article VIII
- Article IX
- Article X
- Article XI
- Article XII
- Article XIII
- Article XIV
- Article XIV bis
- Article XV
- Article XVI
- Article XVII
- Article XVIII
- Article XIX
- Article XX
- Article XXI
- Article XXII
- Article XXIII
- Article XXIV
- Article XXV
- Article XXVI
- Article XXVII
- Article XXVIII
- Article XXIX
- Annex on Article II Exemptions
- Annex on Movement of Natural Persons Supplying Services Under the Agreement
- Annex on Air Transport Services
- Annex on Financial Services
- Second Annex on Financial Services
- Annex on Negotiations on Maritime Transport Services
- Annex on Telecommunications
- Annex on Negotiations on Basic Telecommunications
- Understanding on Commitments in Financial Services
VI. Article IV
Article IV: Increasing Participation of Developing Countries
1. The increasing participation of developing country Members in world trade shall be facilitated through negotiated specific commitments, by different Members pursuant to Parts III and IV of this Agreement, relating to:
(a) the strengthening of their domestic services capacity and its efficiency and competitiveness, inter alia through access to technology on a commercial basis;
(b) the improvement of their access to distribution channels and information networks; and
(c) the liberalization of market access in sectors and modes of supply of export interest to them.
2. Developed country Members, and to the extent possible other Members, shall establish contact points within two years from the date of entry into force of the WTO Agreement to facilitate the access of developing country Members’ service suppliers to information, related to their respective markets, concerning:
(a) commercial and technical aspects of the supply of services;
(b) registration, recognition and obtaining of professional qualifications; and
(c) the availability of services technology.
3. Special priority shall be given to the least-developed country Members in the implementation of paragraphs 1 and 2. Particular account shall be taken of the serious difficulty of the least-developed countries in accepting negotiated specific commitments in view of their special economic situation and their development, trade and financial needs.
B. Interpretation and Application of Article IV
49. With respect to application of Article IV to electronic commerce, see the Progress Report adopted by the Council for Trade in Services in the context of the Work Programme on Electronic Commerce on 19 July 1999.(68)
50. With respect to the contact points provided for in paragraph 2, see the “Decision on the Notification of the Establishment of Enquiry and Contact Points” referenced in paragraph 47 above.
51. With respect to contact points in accountancy services, see the Disciplines on Domestic Regulation in the Accountancy Sector, adopted by the Council for Trade in Services on 14 December 1998.(69)
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VII. Article V
Article V: Economic Integration
1. This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement:
(a) has substantial sectoral coverage,(1) and
(footnote original) 1 This condition is understood in terms of number of sectors, volume of trade affected and modes of supply. In order to meet this condition, agreements should not provide for the a priori exclusion of any mode of supply.
(b) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through:
(i) elimination of existing discriminatory measures, and/or
(ii) prohibition of new or more discriminatory measures,
either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI, XII, XIV and XIV bis.
2. In evaluating whether the conditions under paragraph 1(b) are met, consideration may be given to the relationship of the agreement to a wider process of economic integration or trade liberalization among the countries concerned.
3. (a) Where developing countries are parties to an agreement of the type referred to in paragraph 1, flexibility shall be provided for regarding the conditions set out in paragraph 1, particularly with reference to subparagraph (b) thereof, in accordance with the level of development of the countries concerned, both overall and in individual sectors and subsectors.
(b) Notwithstanding paragraph 6, in the case of an agreement of the type referred to in paragraph 1 involving only developing countries, more favourable treatment may be granted to juridical persons owned or controlled by natural persons of the parties to such an agreement.
4. Any agreement referred to in paragraph 1 shall be designed to facilitate trade between the parties to the agreement and shall not in respect of any Member outside the agreement raise the overall level of barriers to trade in services within the respective sectors or subsectors compared to the level applicable prior to such an agreement.
5. If, in the conclusion, enlargement or any significant modification of any agreement under paragraph 1, a Member intends to withdraw or modify a specific commitment inconsistently with the terms and conditions set out in its Schedule, it shall provide at least 90 days advance notice of such modification or withdrawal and the procedure set forth in paragraphs 2, 3 and 4 of Article XXI shall apply.
6. A service supplier of any other Member that is a juridical person constituted under the laws of a party to an agreement referred to in paragraph 1 shall be entitled to treatment granted under such agreement, provided that it engages in substantive business operations in the territory of the parties to such agreement.
7. (a) Members which are parties to any agreement referred to in paragraph 1 shall promptly notify any such agreement and any enlargement or any significant modification of that agreement to the Council for Trade in Services. They shall also make available to the Council such relevant information as may be requested by it. The Council may establish a working party to examine such an agreement or enlargement or modification of that agreement and to report to the Council on its consistency with this Article.
(b) Members which are parties to any agreement referred to in paragraph 1 which is implemented on the basis of a time-frame shall report periodically to the Council for Trade in Services on its implementation. The Council may establish a working party to examine such reports if it deems such a working party necessary.
(c) Based on the reports of the working parties referred to in subparagraphs (a) and (b), the Council may make recommendations to the parties as it deems appropriate.
8. A Member which is a party to any agreement referred to in paragraph 1 may not seek compensation for trade benefits that may accrue to any other Member from such agreement.
B. Interpretation and Application of Article V
52. The Panel in Canada — Autos, in a finding subsequently not addressed by the Appellate Body, considered that, with respect to an import duty exemption available to only a limited number of firms, Canada could not claim an exemption from its MFN obligation under Article II by invoking Article V:1. The Panel noted that the Canadian measures at issue did not grant more favourable treatment to all services and service suppliers of members of NAFTA:
“Even assuming that the [Canadian measures at issue] could be brought within the scope of the services liberalization provisions of NAFTA, we note that the import duty exemption under the [measures at issue] is accorded to a small number of manufacturers/wholesalers of the United States to the exclusion of all other manufacturers/wholesalers of the United States and of Mexico. The [measures at issue], therefore, provide more favourable treatment to only some and not all services and service suppliers of Members of NAFTA, while, according to Article V:1(b), an economic integration agreement has to provide for ‘the absence or elimination of substantially all discrimination, in the sense of Article XVII’, in order to be eligible for the exemption from Article II of the GATS.
Although the requirement of Article V:1(b) is to provide non-discrimination in the sense of Article XVII (National Treatment), we consider that once it is fulfilled it would also ensure non-discrimination between all service suppliers of other parties to the economic integration agreement. It is our view that the object and purpose of this provision is to eliminate all discrimination among services and service suppliers of parties to an economic integration agreement, including discrimination between suppliers of other parties to an economic integration agreement. In other words, it would be inconsistent with this provision if a party to an economic integration agreement were to extend more favourable treatment to service suppliers of one party than that which it extended to service suppliers of another party to that agreement.
Moreover, it is worth recalling that Article V provides legal coverage for measures taken pursuant to economic integration agreements, which would otherwise be inconsistent with the MFN obligation in Article II. Paragraph 1 of Article V refers to ‘an agreement liberalizing trade in services’. Such economic integration agreements typically aim at achieving higher levels of liberalization between or among their parties than that achieved among WTO Members. Article V:1 further prescribes a certain minimum level of liberalization which such agreements must attain in order to qualify for the exemption from the general MFN obligation of Article II. In this respect, the purpose of Article V is to allow for ambitious liberalization to take place at a regional level, while at the same time guarding against undermining the MFN obligation by engaging in minor preferential arrangements. However, in our view, it is not within the object and purpose of Article V to provide legal coverage for the extension of more favourable treatment only to a few service suppliers of parties to an economic integration agreement on a selective basis, even in situations where the maintenance of such measures may explicitly be provided for in the agreement itself.”(70)
(a) Format for notifications(71)
53. At its 44th Session on 13 October 2006, the Committee on RTAs adopted a common and simplified notification format for regional trade agreements, and agreed to recommend it to the relevant bodies. The Council for Trade in Services adopted this format at its meeting on 6 November 2007.(72) With respect to the format for notifications prior to that date, see the Guidelines for Notifications under the General Agreement on Trade in Services.(73)
(b) Reporting on the operation of regional trade agreements
54. On 20 February 1998, the Committee on RTAs made recommendations to the Council for Trade in Services with respect to the reporting on the operation of regional trade agreements to the Committee.(74) On 23 and 24 November 1998, the Council for Trade in Service took note of the recommended procedures, as general guidelines with respect to reports/information on regional trade agreements submitted to it.(75)
(c) Examination and consideration of specific agreements
55. With respect to the procedures for the examination and consideration of specific agreements, see generally Article IV:7 of the Chapter on the WTO Agreement and Article XXIV:7 of the Chapter on the GATT 1994. For a complete list of RTAs notified to the GATT/WTO, see the table at the end of the Chapter on the GATT 1994.
56. The annual reports of the Committee on Regional Trade Agreements are contained in the document series WT/REG/-.
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VIII. Article V bis
Article V bis: Labour Markets Integration Agreements
This Agreement shall not prevent any of its Members from being a party to an agreement establishing full integration(2) of the labour markets between or among the parties to such an agreement, provided that such an agreement:
(footnote original) 2 Typically, such integration provides citizens of the parties concerned with a right of free entry to the employment markets of the parties and includes measures concerning conditions of pay, other conditions of employment and social benefits.
(a) exempts citizens of parties to the agreement from requirements concerning residency and work permits;
(b) is notified to the Council for Trade in Services.
B. Interpretation and Application of Article V bis
57. With respect to the format for notifications under subparagraph (b), see the Guidelines for Notifications under the General Agreement on Trade in Services.(76)
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IX. Article VI
Article VI: Domestic Regulation
1. In sectors where specific commitments are undertaken, each Member shall ensure that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner.
2. (a) Each Member shall maintain or institute as soon as practicable judicial, arbitral or administrative tribunals or procedures which provide, at the request of an affected service supplier, for the prompt review of, and where justified, appropriate remedies for, administrative decisions affecting trade in services. Where such procedures are not independent of the agency entrusted with the administrative decision concerned, the Member shall ensure that the procedures in fact provide for an objective and impartial review.
(b) The provisions of subparagraph (a) shall not be construed to require a Member to institute such tribunals or procedures where this would be inconsistent with its constitutional structure or the nature of its legal system.
3. Where authorization is required for the supply of a service on which a specific commitment has been made, the competent authorities of a Member shall, within a reasonable period of time after the submission of an application considered complete under domestic laws and regulations, inform the applicant of the decision concerning the application. At the request of the applicant, the competent authorities of the Member shall provide, without undue delay, information concerning the status of the application.
4. With a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, through appropriate bodies it may establish, develop any necessary disciplines. Such disciplines shall aim to ensure that such requirements are, inter alia:
(a) based on objective and transparent criteria, such as competence and the ability to supply the service;
(b) not more burdensome than necessary to ensure the quality of the service;
(c) in the case of licensing procedures, not in themselves a restriction on the supply of the service.
5. (a) In sectors in which a Member has undertaken specific commitments, pending the entry into force of disciplines developed in these sectors pursuant to paragraph 4, the Member shall not apply licensing and qualification requirements and technical standards that nullify or impair such specific commitments in a manner which:
(i) does not comply with the criteria outlined in subparagraphs 4(a), (b) or (c); and
(ii) could not reasonably have been expected of that Member at the time the specific commitments in those sectors were made.
(b) In determining whether a Member is in conformity with the obligation under paragraph 5(a), account shall be taken of international standards of relevant international organizations(3) applied by that Member.
(footnote original) 3 The term “relevant international organizations” refers to international bodies whose membership is open to the relevant bodies of at least all Members of the WTO.
6. In sectors where specific commitments regarding professional services are undertaken, each Member shall provide for adequate procedures to verify the competence of professionals of any other Member.
B. Interpretation and Application of Article VI
58. With respect to application of Article VI to electronic commerce, see the Progress Report adopted by the Council for Trade in Services in the context of the Work Programme on Electronic Commerce on 19 July 1999.(77)
(a) Professional services/domestic regulation
59. With respect to the Working Party on Professional Services and its successor, the Working Party on Domestic Regulation, see paragraphs 208–210 below.
(b) Disciplines on domestic regulation in the accountancy sector
60. On 14 December 1998, with a view to ensuring that domestic regulations affecting trade in accountancy services met the requirements of Article VI:4, the Council for Trade in Services adopted the Disciplines on Domestic Regulation in the Accountancy Sector,(78) which had been recommended by the Working Party on Professional Services. These Disciplines contain, inter alia, the following provision under the heading “General Provisions”:
“Members shall ensure that measures not subject to scheduling under Articles XVI or XVII of the GATS, relating to licensing requirements and procedures, technical standards and qualification requirements and procedures are not prepared, adopted or applied with a view to or with the effect of creating unnecessary barriers to trade in accountancy services. For this purpose, Members shall ensure that such measures are not more trade-restrictive than necessary to fulfil a legitimate objective. Legitimate objectives are, inter alia, the protection of consumers (which includes all users of accounting services and the public generally), the quality of the service, professional competence, and the integrity of the profession.”(79)
61. The disciplines are to be applicable to Members who have entered specific commitments on accountancy in their schedules.(80) It was further decided that the Working Party shall aim to develop general disciplines for professional services, while retaining the possibility to develop or revise sectoral disciplines, including accountancy.(81) Whilst adopted, the accountancy disciplines are not yet in force. The Decision on Disciplines Relating to the Accountancy Sector provided that:
“No later than the conclusion of the forthcoming round of services negotiations, the disciplines developed by the WPPS are intended to be integrated into the General Agreement on Trade in Services (GATS)”.(82)
(c) Relationship with Articles XVI and XVII
62. On 10 December 1998, the Working Party on Professional Services submitted a report to the Council for Trade in Services on the development of Disciplines on Domestic Regulation in the Accountancy Sector, including the informal note by the Chairman entitled “Discussion of Matters Relating to Articles XVI and XVII of the GATS in Connection with the Disciplines on Domestic Regulation in the Accountancy Sector.”(83)
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X. Article VII
Article VII: Recognition
1. For the purposes of the fulfilment, in whole or in part, of its standards or criteria for the authorization, licensing or certification of services suppliers, and subject to the requirements of paragraph 3, a Member may recognize the education or experience obtained, requirements met, or licenses or certifications granted in a particular country. Such recognition, which may be achieved through harmonization or otherwise, may be based upon an agreement or arrangement with the country concerned or may be accorded autonomously.
2. A Member that is a party to an agreement or arrangement of the type referred to in paragraph 1, whether existing or future, shall afford adequate opportunity for other interested Members to negotiate their accession to such an agreement or arrangement or to negotiate comparable ones with it. Where a Member accords recognition autonomously, it shall afford adequate opportunity for any other Member to demonstrate that education, experience, licenses, or certifications obtained or requirements met in that other Member’s territory should be recognized.
3. A Member shall not accord recognition in a manner which would constitute a means of discrimination between countries in the application of its standards or criteria for the authorization, licensing or certification of services suppliers, or a disguised restriction on trade in services.
(a) within 12 months from the date on which the WTO Agreement takes effect for it, inform the Council for Trade in Services of its existing recognition measures and state whether such measures are based on agreements or arrangements of the type referred to in paragraph 1;
(b) promptly inform the Council for Trade in Services as far in advance as possible of the opening of negotiations on an agreement or arrangement of the type referred to in paragraph 1 in order to provide adequate opportunity to any other Member to indicate their interest in participating in the negotiations before they enter a substantive phase;
(c) promptly inform the Council for Trade in Services when it adopts new recognition measures or significantly modifies existing ones and state whether the measures are based on an agreement or arrangement of the type referred to in paragraph 1.
5. Wherever appropriate, recognition should be based on multilaterally agreed criteria. In appropriate cases, Members shall work in cooperation with relevant intergovernmental and non-governmental organizations towards the establishment and adoption of common international standards and criteria for recognition and common international standards for the practice of relevant services trades and professions.(84)
B. Interpretation and Application of Article VII
63. With respect to application of Article VII to electronic commerce, see the Progress Report adopted by the Council for Trade in Services in the context of the Work Programme on Electronic Commerce on 19 July 1999.(85)
64. With respect to the format for notifications under paragraph 4, see the Guidelines for Notifications under the General Agreement on Trade in Services.(86)
(a) Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector
65. On 29 May 1997, the Council for Trade in Services approved the voluntary Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector.(87)
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XI. Article VIII
Article VIII: Monopolies and Exclusive Services Suppliers
1. Each Member shall ensure that any monopoly supplier of a service in its territory does not, in the supply of the monopoly service in the relevant market, act in a manner inconsistent with that Member’s obligations under Article II and specific commitments.
2. Where a Member’s monopoly supplier competes, either directly or through an affiliated company, in the supply of a service outside the scope of its monopoly rights and which is subject to that Member’s specific commitments, the Member shall ensure that such a supplier does not abuse its monopoly position to act in its territory in a manner inconsistent with such commitments.
3. The Council for Trade in Services may, at the request of a Member which has a reason to believe that a monopoly supplier of a service of any other Member is acting in a manner inconsistent with paragraph 1 or 2, request the Member establishing, maintaining or authorizing such supplier to provide specific information concerning the relevant operations.
4. If, after the date of entry into force of the WTO Agreement, a Member grants monopoly rights regarding the supply of a service covered by its specific commitments, that Member shall notify the Council for Trade in Services no later than three months before the intended implementation of the grant of monopoly rights and the provisions of paragraphs 2, 3 and 4 of Article XXI shall apply.
5. The provisions of this Article shall also apply to cases of exclusive service suppliers, where a Member, formally or in effect, (a) authorizes or establishes a small number of service suppliers and (b) substantially prevents competition among those suppliers in its territory.(88)
B. Interpretation and Application of Article VIII
66. With respect to application of Article VIII to electronic commerce, see the Progress Report adopted by the Council for Trade in Services in the context of the Work Programme on Electronic Commerce on 19 July 1999.(89)
67. With respect to the format for notifications under paragraph 4, see the Guidelines for Notifications under the General Agreement on Trade in Services.(90)
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XII. Article IX
Article IX: Business Practices
1. Members recognize that certain business practices of service suppliers, other than those falling under Article VIII, may restrain competition and thereby restrict trade in services.
2. Each Member shall, at the request of any other Member, enter into consultations with a view to eliminating practices referred to in paragraph 1. The Member addressed shall accord full and sympathetic consideration to such a request and shall cooperate through the supply of publicly available non-confidential information of relevance to the matter in question. The Member addressed shall also provide other information available to the requesting Member, subject to its domestic law and to the conclusion of satisfactory agreement concerning the safeguarding of its confidentiality by the requesting Member.
B. Interpretation and Application of Article IX
68. With respect to application of Article IX to electronic commerce, see the Progress Report adopted by the Council for Trade in Services in the context of the Work Programme on Electronic Commerce on 19 July 1999.(91)
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XIII. Article X
Article X: Emergency Safeguard Measures
1. There shall be multilateral negotiations on the question of emergency safeguard measures based on the principle of non-discrimination. The results of such negotiations shall enter into effect on a date not later than three years from the date of entry into force of the WTO Agreement.
2. In the period before the entry into effect of the results of the negotiations referred to in paragraph 1, any Member may, notwithstanding the provisions of paragraph 1 of Article XXI, notify the Council on Trade in Services of its intention to modify or withdraw a specific commitment after a period of one year from the date on which the commitment enters into force; provided that the Member shows cause to the Council that the modification or withdrawal cannot await the lapse of the three-year period provided for in paragraph 1 of Article XXI.
3. The provisions of paragraph 2 shall cease to apply three years after the date of entry into force of the WTO Agreement.
B. Interpretation and Application of Article X
1. Working Party on GATS Rules
69. Negotiations on the question of emergency safeguard measures have been carried out in the Working Party on GATS Rules, established on 30 March 1995 by the Council for Trade in Services.(92) Members have extended five times the deadline referred to in Article X:1. The latest extension, contained in the Fifth Decision on Negotiations on Emergency Safeguard Measures adopted by the Council for Trade in Services on 15 March 2004, set no specific end-date:(93)
“1. The first sentence of paragraph 1 of Article X shall continue to apply.
2. Subject to the outcome of the mandate in paragraph 1, the results of such negotiations shall enter into effect on a date not later than the date of entry into force of the results of the current round of services negotiations.
3. Notwithstanding paragraph 3 of Article X, until the entry into effect of the results of the negotiations mandated under paragraph 1 of Article X, the provisions of paragraph 2 of that Article shall continue to apply.”
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XIV. Article XI
Article XI: Payments and Transfers
1. Except under the circumstances envisaged in Article XII, a Member shall not apply restrictions on international transfers and payments for current transactions relating to its specific commitments.
2. Nothing in this Agreement shall affect the rights and obligations of the members of the International Monetary Fund under the Articles of Agreement of the Fund, including the use of exchange actions which are in conformity with the Articles of Agreement, provided that a Member shall not impose restrictions on any capital transactions inconsistently with its specific commitments regarding such transactions, except under Article XII or at the request of the Fund.
B. Interpretation and Application of Article XI
70. The Panel in US — Gambling made the following observations in the context of exercising judicial economy over a claim under Article XI. The Panel stated that:
“Article XI has not, as yet, been the subject of interpretation or application by either panels or the Appellate Body. In light of this and taking into account the limited facts and arguments submitted by the parties with respect to Antigua’s claim under Article XI, we believe that there is not sufficient material on record to enable us to undertake a meaningful analysis of this provision and its specific application to the facts of this case. Moreover, in our view, the findings of violation under Article XVI in Section VI.D above of our Report should allow the parties to settle this dispute, even in the absence of a ruling on Antigua’s Article XI claim. We will, therefore, exercise judicial economy and not rule on Antigua’s claim under Article XI.(94)
However, the Panel wants to emphasize that Article XI plays a crucial role in securing the value of specific commitments undertaken by Members under the GATS. Indeed, the value of specific commitments on market access and national treatment would be seriously impaired if Members could restrict international transfers and payment for service transactions in scheduled sectors. In ensuring, inter alia, that services suppliers can receive payments due under services contracts covered by a Member’s specific commitment, Article XI is an indispensable complement to GATS disciplines on market access and national treatment. At the same time, the Panel is of the view that Article XI does not deprive Members from regulating the use of financial instruments, such as credit cards, provided that these regulations are consistent with other relevant GATS provisions, in particular Article VI.”(95)
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XV. Article XII
Article XII: Restrictions to Safeguard the Balance-of-Payment
1. In the event of serious balance-of-payments and external financial difficulties or threat thereof, a Member may adopt or maintain restrictions on trade in services on which it has undertaken specific commitments, including on payments or transfers for transactions related to such commitments. It is recognized that particular pressures on the balance of payments of a Member in the process of economic development or economic transition may necessitate the use of restrictions to ensure, inter alia, the maintenance of a level of financial reserves adequate for the implementation of its programme of economic development or economic transition.
2. The restrictions referred to in paragraph 1:
(a) shall not discriminate among Members;
(b) shall be consistent with the Articles of Agreement of the International Monetary Fund;
(c) shall avoid unnecessary damage to the commercial, economic and financial interests of any other Member;
(d) shall not exceed those necessary to deal with the circumstances described in paragraph 1;
(e) shall be temporary and be phased out progressively as the situation specified in paragraph 1 improves.
3. In determining the incidence of such restrictions, Members may give priority to the supply of services which are more essential to their economic or development programmes. However, such restrictions shall not be adopted or maintained for the purpose of protecting a particular service sector.
4. Any restrictions adopted or maintained under paragraph 1, or any changes therein, shall be promptly notified to the General Council.
5. (a) Members applying the provisions of this Article shall consult promptly with the Committee on Balance-of-Payments Restrictions on restrictions adopted under this Article.
(b) The Ministerial Conference shall establish procedures(4) for periodic consultations with the objective of enabling such recommendations to be made to the Member concerned as it may deem appropriate.
(footnote original) 4 It is understood that the procedures under paragraph 5 shall be the same as the GATT 1994 procedures.
(c) Such consultations shall assess the balance-of-payment situation of the Member concerned and the restrictions adopted or maintained under this Article, taking into account, inter alia, such factors as:
(i) the nature and extent of the balance-of-payments and the external financial difficulties;
(ii) the external economic and trading environment of the consulting Member;
(iii) alternative corrective measures which may be available.
(d) The consultations shall address the compliance of any restrictions with paragraph 2, in particular the progressive phase-out of restrictions in accordance with paragraph 2(e).
(e) In such consultations, all findings of statistical and other facts presented by the International Monetary Fund relating to foreign exchange, monetary reserves and balance of payments, shall be accepted and conclusions shall be based on the assessment by the Fund of the balance-of-payments and the external financial situation of the consulting Member.
6. If a Member which is not a member of the International Monetary Fund wishes to apply the provisions of this Article, the Ministerial Conference shall establish a review procedure and any other procedures necessary.
B. Interpretation and Application of Article XII
71. With respect to the format for notifications under paragraph 4, see the Guidelines for Notifications under the General Agreement on Trade in Services.(96)
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XVI. Article XIII
Article XIII: Government Procurement
1. Articles II, XVI and XVII shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of services purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of services for commercial sale.
2. There shall be multilateral negotiations on government procurement in services under this Agreement within two years from the date of entry into force of the WTO Agreement.
B. Interpretation and Application of Article XIII
72. The Panel in US — Large Civil Aircraft (2nd Complaint) referred to Articles XIII:2 and XV of the GATS in the context of interpreting the definition of a subsidy found in Article 1 of the SCM Agreement. The Panel concluded that transactions properly characterized as purchases of services are excluded from the scope of Article 1 of the SCM Agreement, which expressly refers to purchases of goods but omits any reference to purchases of services. In the course of its analysis, the Panel observed that “[w]hile the SCM Agreement was being negotiated, parallel negotiations on trade in services were also taking place. Article XIII:2 and XV of the GATS reflect the fact that the negotiators of the GATS were unable to reach agreement on disciplines regarding governmental purchases of services, or on disciplines governing the provision of subsidies to service suppliers.”(97) The Panel concluded that when the omission of “purchases” of “services” from the text of Article 1 of the SCM Agreement is read against this historical background, it offers further confirmation that the drafters of that provision could not have removed the express reference to “purchases” of “services” from Article 1 of the SCM Agreement on the understanding that the reference was superfluous.(98)
2. Working Party on GATS Rules
73. Negotiations on government procurement in services have been carried out in the Working Party on GATS Rules, established on 30 March 1995 by the Council for Trade in Services.(99) Members agreed to complete negotiations under Articles VI:4, XIII and XV prior to the conclusion of negotiations on specific commitments (S/L/93).
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XVII. Article XIV
Article XIV: General Exceptions
Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures:
(a) necessary to protect public morals or to maintain public order;(5)
(footnote original) 5 The public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society.
(b) necessary to protect human, animal or plant life or health;
(c) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to:
(i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on services contracts;
(ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts;
(d) inconsistent with Article XVII, provided that the difference in treatment is aimed at ensuring the equitable or effective(6) imposition or collection of direct taxes in respect of services or service suppliers of other Members;
(footnote original) 6 Measures that are aimed at ensuring the equitable or effective imposition or collection of direct taxes include measures taken by a Member under its taxation system which:
(i) apply to non-resident service suppliers in recognition of the fact that the tax obligation of non-residents is determined with respect to taxable items sourced or located in the Member’s territory; or
(ii) apply to non-residents in order to ensure the imposition or collection of taxes in the Member’s territory; or
(iii) apply to non-residents or residents in order to prevent the avoidance or evasion of taxes, including compliance measures; or
(iv) apply to consumers of services supplied in or from the territory of another Member in order to ensure the imposition or collection of taxes on such consumers derived from sources in the Member’s territory; or
(v) distinguish service suppliers subject to tax on worldwide taxable items from other service suppliers, in recognition of the difference in the nature of the tax base between them; or
(vi) determine, allocate or apportion income, profit, gain, loss, deduction or credit of resident persons or branches, or between related persons or branches of the same person, in order to safeguard the Member’s tax base.
Tax terms or concepts in paragraph (d) of Article XIV and in this footnote are determined according to tax definitions and concepts, or equivalent or similar definitions and concepts, under the domestic law of the Member taking the measure.
(e) inconsistent with Article II, provided that the difference in treatment is the result of an agreement on the avoidance of double taxation or provisions on the avoidance of double taxation in any other international agreement or arrangement by which the Member is bound.
B. Interpretation and Application of Article XIV
(a) Relevance of jurisprudence under Article XX of the GATT 1994
74. The Appellate Body in US — Gambling elaborated on the similarities between Article XX of the GATT 1994 and Article XIV and stated that the article sets out general exceptions under the GATS (services) much in the same way as Article XX of the GATT 1994 does under the GATT (goods). The Appellate Body also found previous decisions under Article XX of the GATT 1994 relevant for the analysis under Article XIV:(100)
“Article XIV of the GATS sets out the general exceptions from obligations under that Agreement in the same manner as does Article XX of the GATT 1994. Both of these provisions affirm the right of Members to pursue objectives identified in the paragraphs of these provisions even if, in doing so, Members act inconsistently with obligations set out in other provisions of the respective agreements, provided that all of the conditions set out therein are satisfied. Similar language is used in both provisions,(101) notably the term ‘necessary’(102) and the requirements set out in their respective chapeaux. Accordingly, like the Panel, we find previous decisions under Article XX of the GATT 1994 relevant for our analysis under Article XIV of the GATS.(103)”(104)
75. The Appellate Body in US — Gambling stated that Article XIV, like Article XX of GATT 1994, provides for a ‘two-tier analysis’(105):
“Article XIV of the GATS, like Article XX of the GATT 1994, contemplates a ‘two-tier analysis’ of a measure that a Member seeks to justify under that provision.(106) A panel should first determine whether the challenged measure falls within the scope of one of the paragraphs of Article XIV. This requires that the challenged measure address the particular interest specified in that paragraph and that there be a sufficient nexus between the measure and the interest protected. The required nexus — or ‘degree of connection’ — between the measure and the interest is specified in the language of the paragraphs themselves, through the use of terms such as “relating to” and ‘necessary to’.(107) Where the challenged measure has been found to fall within one of the paragraphs of Article XIV, a panel should then consider whether that measure satisfies the requirements of the chapeau of Article XIV.”(108)
76. With respect to application of Article XIV to electronic commerce, see the Progress Report adopted by the Council for Trade in Services in the context of the Work Programme on Electronic Commerce on 19 July 1999.(109)
(d) Trade in services and the environment
77. On 1 March 1995, the Council for Trade in Services, pursuant to the Ministerial Decision on Trade in Services and the Environment, adopted the Decision on Trade in Services and the Environment.(110) The Decision stipulates, inter alia:
“In order to determine whether any modification of Article XIV of the Agreement is required to take account of such measures, [Ministers] request the Committee on Trade and Environment to examine and report, with recommendations if any, on the relationship between services trade and the environment including the issue of sustainable development. The Committee shall also examine the relevance of inter-governmental agreements on the environment and their relationship to the Agreement.”(111)
78. The Appellate Body in US — Gambling stated that the focus of the chapeau is on the application of a measure already found by the Panel to be inconsistent with its obligations under GATS but falling within one of the paragraphs of Article XIV(114):
“The focus of the chapeau, by its express terms, is on the application of a measure already found by the Panel to be inconsistent with one of the obligations under the GATS but falling within one of the paragraphs of Article XIV.(113) By requiring that the measure be applied in a manner that does not to constitute ‘arbitrary’ or ‘unjustifiable’ discrimination, or a ‘disguised restriction on trade in services’, the chapeau serves to ensure that Members’ rights to avail themselves of exceptions are exercised reasonably, so as not to frustrate the rights accorded other Members by the substantive rules of the GATS.”(114)’(115)
79. The Appellate Body in US — Gambling stated that, since a panel is free to decide which legal issues it must address in order to resolve a dispute, it may proceed to analyse a measure under the chapeau, even if the panel has found that the measure is not provisionally justified under one of the subparagraphs of Article XIV.(116)
80. The Appellate Body in US — Gambling stated that a panel, in examining a facially neutral measure for “arbitrary” or “unjustifiable” discrimination in its application, must place isolated instances of enforcement in their proper context:
“In our view, the proper significance to be attached to isolated instances of enforcement, or lack thereof, cannot be determined in the absence of evidence allowing such instances to be placed in their proper context. Such evidence might include evidence on the overall number of suppliers, and on patterns of enforcement, and on the reasons for particular instances of non-enforcement. Indeed, enforcement agencies may refrain from prosecution in many instances for reasons unrelated to discriminatory intent and without discriminatory effect.”(117)
81. The Panel in US — Gambling identified two elements that a party invoking paragraph (a) of Article XIV had to demonstrate:
“(a) the measure must be one designed to “protect public morals” or to “maintain public order”; and
(b) the measure for which justification is claimed must be “necessary” to protect public morals or to maintain public order.”(118)
(b) “Protect public morals” and “maintain public order”
82. The Appellate Body in US — Gambling was asked to examine only one aspect of the Panel’s findings on whether the relevant US measures were designed to protect public morals or maintain public order, namely, whether the Panel failed to apply the standard set out in footnote 5 to Article XIV(a). The appeal on this issue failed, and is discussed in paragraph 84 below. The Appellate Body therefore left the Panel’s reasoning intact.
83. The Panel in US — Gambling, noting that jurisprudence under Article XX of the GATT 1994 was applicable to the interpretation of this provision, stated that the meaning of ‘public morals’ and ‘public order’ varied depending on a range of factors, and that a Member had the right to determine the appropriate level of protection:
“We are well aware that there may be sensitivities associated with the interpretation of the terms ‘public morals’ and ‘public order’ in the context of Article XIV. In the Panel’s view, the content of these concepts for Members can vary in time and space, depending upon a range of factors, including prevailing social, cultural, ethical and religious values. Further, the Appellate Body has stated on several occasions that Members, in applying similar societal concepts, have the right to determine the level of protection that they consider appropriate.(119) Although these Appellate Body statements were made in the context of Article XX of the GATT 1994, it is our view that such statements are also valid with respect to the protection of public morals and public order under Article XVI of the GATS. More particularly, Members should be given some scope to define and apply for themselves the concepts of “public morals” and ‘public order’ in their respective territories, according to their own systems and scales of values.”(120)
84. The Appellate Body in US — Gambling summarized the Panel’s findings, and left them untouched, on the definition of “public morals” and ‘public order’, and their application to particular measures related to gambling, in the following terms:
“In its analysis under Article XIV(a), the Panel found that “the term ‘public morals’ denotes standards of right and wrong conduct maintained by or on behalf of a community or nation.” The Panel further found that the definition of the term “order”, read in conjunction with footnote 5 of the GATS, “suggests that ‘public order’ refers to the preservation of the fundamental interests of a society, as reflected in public policy and law.” The Panel then referred to Congressional reports and testimony establishing that “the government of the United States consider[s] [that the Wire Act, the Travel Act, and the IGBA] were adopted to address concerns such as those pertaining to money laundering, organized crime, fraud, underage gambling and pathological gambling.” On this basis, the Panel found that the three federal statutes are “measures that are designed to ‘protect public morals’ and/or ‘to maintain public order’ within the meaning of Article XIV(a).”(121)
85. The Appellate Body in US — Gambling stated that the Panel had properly applied footnote 5 to Article XIV(a), which states “that [t]he public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society”, since:
“Having defined “public order” to include the standard in footnote 5, and then applied that definition to the facts before it to conclude that the measures “are designed to ‘protect public morals’ and/or ‘to maintain public order’“,(122) the Panel was not required, in addition, to make a separate, explicit determination that the standard of footnote 5 had been met.”(123)
86. The Appellate Body in US — Gambling observed that the standard of “necessity” is an objective standard:
“We note, at the outset, that the standard of ‘necessity’ provided for in the general exceptions provision is an objective standard. To be sure, a Member’s characterization of a measure’s objectives and of the effectiveness of its regulatory approach — as evidenced, for example, by texts of statutes, legislative history, and pronouncements of government agencies or officials — will be relevant in determining whether the measure is, objectively, ‘necessary’. A panel is not bound by these characterizations,(124) however, and may also find guidance in the structure and operation of the measure and in contrary evidence proffered by the complaining party. In any event, a panel must, on the basis of the evidence in the record, independently and objectively assess the ‘necessity’ of the measure before it.”(125)
87. The Appellate Body in US — Gambling observed that the assessment of the standard of “necessity” was carried out through a process of “weighing and balancing a series of factors”:
“In Korea — Various Measures on Beef, the Appellate Body stated, in the context of Article XX(d) of the GATT 1994, that whether a measure is ‘necessary’ should be determined through ‘a process of weighing and balancing a series of factors’.(126) The Appellate Body characterized this process as one:
… comprehended in the determination of whether a WTO-consistent alternative measure which the Member concerned could “reasonably be expected to employ” is available, or whether a less WTO inconsistent measure is “reasonably available”.”(127)”(128)
88. The Appellate Body in US — Gambling described the specific steps in the process of weighing and balancing:
“The process begins with an assessment of the ‘relative importance’ of the interests or values furthered by the challenged measure.(129) Having ascertained the importance of the particular interests at stake, a panel should then turn to the other factors that are to be ‘weighed and balanced’. The Appellate Body has pointed to two factors that, in most cases, will be relevant to a panel’s determination of the ‘necessity’ of a measure, although not necessarily exhaustive of factors that might be considered.(130) One factor is the contribution of the measure to the realization of the ends pursued by it; the other factor is the restrictive impact of the measure on international commerce.
A comparison between the challenged measure and possible alternatives should then be undertaken, and the results of such comparison should be considered in the light of the importance of the interests at issue. It is on the basis of this ‘weighing and balancing’ and comparison of measures, taking into account the interests or values at stake, that a panel determines whether a measure is ‘necessary’ or, alternatively, whether another, WTO-consistent measure is ‘reasonably available’.“(131)’(132)
89. In determining what constitutes a “reasonably available” alternative measure the Appellate Body in US — Gambling observed:
“The requirement, under Article XIV(a), that a measure be ‘necessary’ — that is, that there be no ‘reasonably available’, WTO-consistent alternative — reflects the shared understanding of Members that substantive GATS obligations should not be deviated from lightly. An alternative measure may be found not to be ‘reasonably available’, however, where it is merely theoretical in nature, for instance, where the responding Member is not capable of taking it, or where the measure imposes an undue burden on that Member, such as prohibitive costs or substantial technical difficulties. Moreover, a ‘reasonably available’ alternative measure must be a measure that would preserve for the responding Member its right to achieve its desired level of protection with respect to the objective pursued under paragraph (a) of Article XIV.”(133)’(134)
90. The Appellate Body in US — Gambling reversed the Panel’s finding that the responding Member must have first “explored and exhausted” all reasonably available WTO-compatible alternatives before adopting its WTO-inconsistent measure,(135) and the Panel’s further finding that the United States therefore had “an obligation to consult with Antigua before and while imposing its prohibition on the cross-border supply of gambling and betting services”, especially in light of its existing specific commitments with respect to these services.(136),(137) The Appellate Body stated:
“In our view, the Panel’s “necessity” analysis was flawed because it did not focus on an alternative measure that was reasonably available to the United States to achieve the stated objectives regarding the protection of public morals or the maintenance of public order. Engaging in consultations with Antigua, with a view to arriving at a negotiated settlement that achieves the same objectives as the challenged United States’ measures, was not an appropriate alternative for the Panel to consider because consultations are by definition a process, the results of which are uncertain and therefore not capable of comparison with the measures at issue in this case.(138)
We note, in addition, that the Panel based its requirement of consultations, in part, on “the existence of [a] specific market access commitment [in the United States’ GATS Schedule] with respect to cross-border trade of gambling and betting services”.(139) We do not see how the existence of a specific commitment in a Member’s Schedule affects the “necessity” of a measure in terms of the protection of public morals or the maintenance of public order. For this reason as well, the Panel erred in relying on consultations as an alternative measure reasonably available to the United States.”(140)
91. The Appellate Body in US — Gambling clarified that the burden of proof on the party invoking Article XIV(a) is to establish a prima facie case that the measure at issue is “necessary”:
“It is well-established that a responding party invoking an affirmative defence bears the burden of demonstrating that its measure, found to be WTO-inconsistent, satisfies the requirements of the invoked defence.(141) In the context of Article XIV(a), this means that the responding party must show that its measure is ‘necessary’ to achieve objectives relating to public morals or public order. In our view, however, it is not the responding party’s burden to show, in the first instance, that there are no reasonably available alternatives to achieve its objectives. In particular, a responding party need not identify the universe of less trade-restrictive alternative measures and then show that none of those measures achieves the desired objective. The WTO agreements do not contemplate such an impracticable and, indeed, often impossible burden.
Rather, it is for a responding party to make a prima facie case that its measure is ‘necessary’ by putting forward evidence and arguments that enable a panel to assess the challenged measure in the light of the relevant factors to be ‘weighed and balanced’ in a given case. The responding party may, in so doing, point out why alternative measures would not achieve the same objectives as the challenged measure, but it is under no obligation to do so in order to establish, in the first instance, that its measure is ‘necessary’. If the panel concludes that the respondent has made a prima facie case that the challenged measure is ‘necessary’ — that is, ‘significantly closer to the pole of ‘indispensable’ than to the opposite pole of simply ‘making a contribution to’’381 — then a panel should find that challenged measure ‘necessary’ within the terms of Article XIV(a) of the GATS.”(142)
92. The Appellate Body in US — Gambling specified that a respondent invoking Article XIV(a) must nonetheless demonstrate why a WTO-consistent measure raised by the claimant is not “reasonably available”:
“If, however, the complaining party raises a WTO-consistent alternative measure that, in its view, the responding party should have taken, the responding party will be required to demonstrate why its challenged measure nevertheless remains ‘necessary’ in the light of that alternative or, in other words, why the proposed alternative is not, in fact, ‘reasonably available’. If a responding party demonstrates that the alternative is not “reasonably available”, in the light of the interests or values being pursued and the party’s desired level of protection, it follows that the challenged measure must be ‘necessary’ within the terms of Article XIV(a) of the GATS.”(143)
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XVIII. Article XIV bis
Article XIV bis: Security Exceptions
1. Nothing in this Agreement shall be construed:
(a) to require any Member to furnish any information, the disclosure of which it considers contrary to its essential security interests; or
(b) to prevent any Member from taking any action which it considers necessary for the protection of its essential security interests:
(i) relating to the supply of services as carried out directly or indirectly for the purpose of provisioning a military establishment;
(ii) relating to fissionable and fusionable materials or the materials from which they are derived;
(iii) taken in time of war or other emergency in international relations; or
(c) to prevent any Member from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.
2. The Council for Trade in Services shall be informed to the fullest extent possible of measures taken under paragraphs 1(b) and (c) and of their termination.
B. Interpretation and Application of Article XIV bis
93. With respect to the format for notifications under paragraph 2, see the Guidelines for Notifications under the General Agreement on Trade in Services.(144)