TISA: THE LEAKED CORE TEXT

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1 FACULTY OF LAW Professor Jane Kelsey Law School Buildings 9-17 Eden Crescent, Auckland Telephone ext Facsimile j.kelsey@auckland.ac.nz The University of Auckland Private Bag Auckland Mail Centre Auckland 1142, New Zealand TISA: THE LEAKED CORE TEXT The Trade in Services Agreement (TISA) is being negotiated by a self-selected group of mainly rich countries, calling themselves the Really Good Friends of Services. The leaked core text provides further evidence of their game plan to bypass other governments in the World Trade Organization (WTO) and rewrite its services agreement in the interests of their corporations. It also makes the new risks from TISA to governments right to regulate in their national interest much clearer. Many of the basic rules are carried over from the WTO S General Agreement on Trade in Services (GATS), so that TISA can be exported back into the WTO without having to revise the core rules. By adding new rules and changing some existing ones they aim to tighten the handcuffs on the freedom of governments to regulate their services. What TISA reinforces While TISA threatens to impose more extreme restrictions on governments, the problem lies with the core rules themselves. The following illustrates some of their main implications 1 (see footnotes for references to the leaked text): Trade in services agreements treat services as marketable commodities, 2 and deny or subordinate or deny altogether their social, cultural, environmental, employment, and development functions. People are not viewed as citizens or members of their communities - they are consumers. 3 Those who provide the services do not need to have any connection to the people or communities that rely on their services they can be supplied from offshore, 4 or by a temporary visitor, 5 or through foreign firms who establish a local presence but whose priority is to deliver profits to offshore shareholders. 6 None of these suppliers has any long-term responsibility or accountability to the country that consumes them. Governments sign away their right to give preferences to local providers of services, such as broadcasting, education, electricity or sanitation, or to limit foreign investors and require majority local directors for sensitive services sectors. 7 The core rules on market access restrict governments ability to shape those markets by limiting the size or growth of certain activities, such as banks, tourist ventures or hypermarkets, whether nation-wide or in local areas, and whether they are locally or foreign owned. 8 The restrictions apply at central and local government level, and non-government bodies like professional bodies. 9 1 This list is illustrative and is not an extensive analysis of all the existing GATS rules carried into TISA. 2 Article I-2(g) 3 Article I-2 (g) and (i) 4 Article I-1.2(a) and (b) 5 Article I-1.2(d) 6 Article I-1.2(c) and Article I-2(d) 7 Article I-4 8 Article I-3

2 These rules are sweeping in their scope, because they limit governments rights to use almost every tool available to them any law, regulation, rule, procedure, decision, administrative action or any other form. 10 They also apply to any measures that affect trade in a service, 11 even if it does so indirectly, such as payment or distribution systems, or for a non-commercial reason, for example environmental objectives, or restrictions on sale of unhealthy products. Further, they apply to any aspects of the supply chain for a particular service its production, distribution, marketing, sale and delivery. 12 A public or private monopoly, such as a postal service or agricultural marketing and distribution board can be challenged for using its monopoly to cross-subsidise or advantage any nonmonopoly services it provides. 13 The pretend carveout for public services only applies to the very rare situations where a service is provided through a public monopoly for free. 14 The exceptions for public health, environment, public order and morality must be established as a defence to a complaint, and are subject to many onerous tests. 15 They have proven ineffective as safeguards in the WTO, succeeding fully in only 1 out of more than 40 disputes. 16 Privacy protections are illusory. In addition to all the hurdles for other exceptions, laws and regulations to protect individual s privacy in relation to processing and disseminating personal data and protecting confidentiality must not be inconsistent with the provisions of the agreement! 17 Governments cannot restrict cross-border movements of capital that are essential to a service, or inflows of capital that relate to foreign investment, where they have made commitments in those services. 18 There are very limited options for governments to impose capital controls, even in situations of an actual or threatened balance of payments emergency. If they manage to meet those circumstances, the kinds of controls they can adopt are severely limited and would face a high risk of being challenged. 19 What is new about TISA Services are much more exposed to existing and new rules: Three features of TISA combine to go far beyond the GATS. First, the core rules are supplemented by new substantive restrictions on what governments can do. 9 Article I-1.3(a). As with the GATS, there is a requirement for central government to take such measures as may be reasonably available to it to ensure their observance ; some more recent FTAs apply to all levels of government without that caveat. 10 Article I-2(a) 11 Article I-2(c) 12 Article I-2(b) 13 Article [ ] Monopolies and Exclusive Service Suppliers 14 Article I-1.3(b) and (c) 15 Article I Article I-9(c)(ii). See the discussion of the leaked TISA e-commerce text. For reasons that are not clear, the text from the GATS on the right not to disclose confidential information that would impede law enforcement, or otherwise be contrary to the public interest, is in square brackets. 18 Article I-3 fn 2, and Article I-7 19 Article I-8: Restrictions to Safeguard the Balance of Payments 2

3 Second, there are new or more extensive criteria for decision-making and rights for commercial firms, including foreign firms, to pressure governments to protect their interests. Third, changes to scheduling bring more services under the two main rules on non-discrimination in favour of locals (national treatment) and not restricting the size and shape of, and foreign presence in, the market (market access). The TISA text also anticipates much greater use of additional commitments, whereby governments will become bound to a range of new restrictions on certain activities or sectors, which may or may not be linked to the schedules. 20 Scheduling: In the GATS, the national treatment and market access rules only apply to the services that governments agree to make subject to them. Each country has its own list or schedule, and there are several ways to limit its exposure for example, not committing to the non-discrimination rule or retaining the right to limit its market in certain ways. It can also limit its exposure to certain ways of delivering the service, for example by a foreign investor or over the Internet. Part II of TISA sets out different rules for market access and national treatment, although the provisions refer to Sections A and B and Parts I and II of schedules that are not explained in this text. Services sectors are still brought under the market access rule using a positive list, meaning it only applies to a sector that is explicitly committed, and is subject to any limitations that are specified. 21 National treatment (foreign services and suppliers must be treated at least as well as their local counterparts) is where the major change occurs. It is presumed that all services, and all ways of supplying them, are covered by the TISA rule, unless they are explicitly protected. A government can protect the future right to use a measure that relates to a sector, sub-sector or activity by listing it in Section A of Part 1 of its schedule. 22 A government can also list lesser protections in its schedule, 23 which preserves its right to apply current measures that breach the national treatment rule. However, it cannot increase the level of non-compliance 24 (ie new restrictions on foreign firms or benefits to local ones) and a ratchet will apply that automatically locks in any new liberalisation. 25 Sectors that are not listed in the schedule under one or other of these parts will be required to apply the national treatment rule, potentially forever. This negative list approach is designed to extend a government s obligations under TISA far beyond the positive list approach of the GATS, and puts a country s future regulatory capacity at risk of error, omission, unforeseen or unforeseeable situation, or a highly liberalising government that is intent on binding the hands of its successors. The EU has also proposed a special schedule for the temporary movement of (elite) services personnel, which appears to apply a positive list approach to both market access and national treatment rules. Making the new sectoral and other annexes part of the agreement: The other major expansion of the GATS is through new disciplines, such as those on domestic regulation, transparency, and e- commerce, and new or revised annexes on specific sectors, such as maritime transport, telecommunications and financial services. 26 The TISA parties want to make sure that these are considered part of the actual agreement, especially as their game plan is to get TISA recognised as a plurilateral agreement in the WTO. They also want to make sure the new disciplines and sectoral annexes are in a form that allows them to be included in countries GATS schedules as additional commitments. No special treatment for developing countries: None of the development provisions in the GATS are repeated in the core TISA text. Clearly gold standard does not allow for any development sensitivities. That includes the requirement in GATS that much less is asked of developing countries when they enter into non-wto trade in services agreements, and that the other countries make 20 Article I-5: Additional Commitments 21 Article II-1: Scheduling of Market Access Commitments 22 Article II-2.4: Scheduling of National Treatment Commitments, through Section A of Part 1 of its schedule 23 Article II-2.1, through Section B of Part I or Part II of its schedule. 24 Article II Article II Drafter s note to Article [ ]: Annexes 3

4 concessions in areas of interest to developing countries. That means any developing country participation in, or seeking to join, TISA will be subject to the same onerous rules. Some existing provisions may be expanded, depending on new and enhanced disciplines : There may be new definitions, 27 changes to the mechanism for adopting additional commitments, 28 and to the provision on Annexes, 29 depending on what is in the new and enhanced disciplines being developed under TISA. (Please refer to the other leaked TISA documents). Where have they not agreed The ratchet effect of other agreements into TISA: The coverage of these agreements is ratcheted up through what is called the most-favoured-nation rule. All parties to TISA are entitled the best treatment that a government gives to the like services and suppliers of any other country, for any measure that is covered by the agreement, even if that other country is not a TISA party or even a member of the WTO. 30 This entire provision on Most-Favoured-Nation Treatment has square brackets that indicate it has not been agreed to. The text indicates several points of disagreement, although there may be more. Under the GATS, countries could list any measures they wanted to exempt from this, but they had to do so at the time they adopted the GATS. Those exemptions were meant to be temporary and be reviewed after 5 years, but few of them have been removed. The TISA parties disagree about how the way those exemptions should be identified, and whether it should be subject to the same conditions as the GATS (meaning the review after 5 years). How far governments can limit this rule is especially important because TISA countries that have signed up to stronger rules and obligations in other free trade or investment agreements could have to provide the same treatment to all the other TISA countries. Colombia is especially concerned about having to give other TISA parties the same rights it has given other countries foreign investors under bilateral investment treaties, including controversial investor protections and enforcement through investor-state dispute settlement (ISDS). The MFN rule is linked to a second rule on Economic Integration GATS Article V 31 - about the kind of free trade agreements (FTAs) that are permissible under the GATS. Switzerland, Norway and Turkey want to exclude the MFN rule from applying to existing agreements that cover trade in services and have been notified to the WTO as complying with its rules Turkey wants that to extend to future agreements as well. Japan and Colombia suggest a negatively worded right to enter into FTAs that cover services, provided they are notified to the WTO as complying with the GATS rules. This Article is also in square brackets. The US doesn t want this provision at all, but the EU will only agree to the MFN rule if there is a protection for these economic integration agreements. Government procurement is more extensively covered: TISA repeats part of the GATS provision on government procurement, which says the non-discrimination and market access rules do not apply to rules, regulations and requirements where government agencies procure services. But that exclusion only applies where the services are procured for governmental purposes and not for commercial resale or to use in the supply of services for sale. It would not apply where governments are contracting for supply of electricity or water services, or construction and operation of transport or social services through public private partnerships and contracts. The TISA provision reiterates the GATS provision, 32 but drops the reference to future negotiations on government procurement of services. The entire government procurement provision in the core text is in square brackets. However, there is a separate proposal on government procurement; the analysis of that leaked proposal explains its implications Drafter s note at end of Article I-2 28 Placeholder: [Article II-4: Scheduling Additional Commitments] [Under discussion] 29 Article [ ] Annexes 30 Article [ ] Most-Favoured-Nation Treatment 31 Article [ ] [Economic Integration GATS Article V] [Linked to Article on MFN] 32 [GATS Article XIII: Government Procurement] 33 See new analysis on Wikileaks 4

5 Requiring Reviews of Administrative Decisions: A large number of countries want all parties to maintain tribunals or procedures where an aggrieved service firm can obtain prompt review of administrative decisions that affect trade in services, and appropriate remedies where they are justified. 34 If the procedures are not independent of the agency that made the decision it needs to provide for an objective and impartial review. Similar language was proposed for the Domestic Regulation Annex, 35 and may be moved into the core text. There is disagreement on whether governments can establish the tribunals or procedures as soon as practicable or they must be in existence at time agreement comes into force. Domestic Regulation: The provision on domestic regulation in the core text is much more limited than in the annex on domestic regulation that has been leaked several times. This text indicates that the purely rhetorical part of that Annex will be included in the core text, in particular recognition of the right of governments to regulate and introduce new regulations, which is still subject to compliance with the TISA rules. 36 There is disagreement on whether that should be for public or national policy objectives. The US has a long-standing sensitivity over domestic regulation rules, and has blocked them in the GATS, and wants to limit the contestable requirement that general measures are administered in a reasonable, objective and impartial manner to sectors committed in its schedule. Presumably the remainder of the disciplines, which will impose more extensive restrictions on governments, will be in separate rules or annex. Transparency: There is a placeholder for a core provision on transparency, with a cross-reference to a US text proposal. It is clear that transparency will go beyond the GATS requirement to publish relevant measures of general application. Transparency in TISA means ensuring that commercial interests, especially but not only transnational corporations, can access and influence government decisions that affect their interests rights and opportunities that may not be available to local business or to national citizens. They may want to stop or change government decisions they don t like, or rally to support those that are being challenged. Several texts on Transparency have been leaked, along with transparency provisions in other chapters. (Please see the separate analyses of these documents. 37 ) Subsidies: There is simply a placeholder for a provision on subsidies. 38 Subsidies are a measure covered by the core rules. It would breach the national treatment rule to restrict them to domestic services and suppliers, unless the right to do so has been protected in the schedule. The actual texts of some FTAs have excluded subsidies (and even grants and similar supports) from the rules. There is no indication of whether that is being considered for TISA, or whether they are considering whether to repeat the GATS provision that commits to negotiate rules on trade distorting subsidies and provide consultations where a party says it has been disadvantaged by payment of a subsidy - a provision that has largely been ignored. The structure of TISA TECHNICAL NOTES As expected, many basic provisions of what is called the core text for TISA are identical to the General Agreement on Trade in Services (GATS) in the World Trade Organization (WTO). That is to 34 [Article [ ]: review of Administrative Decisions] 35 February 2014 text ( and analysis ( Annex.pdf). See new text and analysis on Wikileaks. 36 [Article [ ] Domestic Regulation] January 2015 text ( and analysis ( Article.pdf) 38 [Placeholder for subsidies] 5

6 make it easier to integrated back into the GATS. New schedules of commitments of sectors will greatly extend the coverage and impact of the rules. In addition there will be referred to as new and enhanced disciplines. Disciplines are trade-speak for restrictions on what governments can do in relation to services. Provisions that are different from the GATS are in blue italics. The corresponding GATS provision is in brackets. PREAMBLE PART 1: GENERAL PROVISIONS Scope (Art 1 and Art 28) Most-Favoured-Nation Treatment (Art 2) Economic Integration (Art 5) Market access (Art 16) National treatment (Art 17) Disclosure of Confidential Information (Art III bis) Domestic Regulation (Art 6) Additional Commitments (Art 18) Review of Administrative Decisions (new) Transparency (Art III) Recognition (Art 7) Payments and Transfers (Art 11) Restrictions to Safeguards for Balance of Payments (Art 12) Monopolies and Exclusive Service Suppliers (Art 8) General Exceptions (Art 14) Security Exceptions (Art 14 bis) Denial of Benefits (Art 28) Government Procurement (Art 13) (Subsidies: Art 15) PART II SCHEDULING COMMITMENTS Scheduling of Market Access Commitments (cf Art 20) Scheduling of National Treatment Commitments (cf Art 20) Scheduling Measures Inconsistent with both Market Access and National Treatment (cf Art 20) Scheduling of Additional Commitments (cf Art 20) [PART III: NEW AND ENHANCED DISCIPLINES PART IV INSTITUTIONAL PROVISIONS Resolution of disputes Future participation in Agreement Multilateralisation Institutional provisions ANNEXES] Standard provisions of GATS in TISA Because the core text reflects the strategy of creating a text that can dock with the GATS many of the core definitions and rules about coverage are also the same: definitions, measures supply of services modes of supplying services, sector 6

7 commercial presence application to local government services supplied in exercise of government authority monopoly. 7