The General Agreement on Trade in Services (GATS), effective from January 1, 1995, represents a significant advancement in the liberalization of trade in services, emerging from the Uruguay Round trade negotiations It established the first comprehensive multilateral legal framework governing trade in services, with participation from over 150 World Trade Organization (WTO) Members To promote equal opportunities for foreign service providers and enhance access to service markets, GATS employs a three-pronged strategy encompassing market access, national treatment, and regulations on domestic policies National treatment mandates that countries treat foreign service providers operating within their borders no less favorably than domestic entities in similar circumstances Understanding the application of national treatment to services, especially in the financial sector, necessitates a thorough examination of its principles under GATS.
The relationship between national treatment and market access under the GATS is complex, particularly in the context of trade in services, where the distinctions often become unclear This complexity has led to debates on the theoretical value of studies in this area, yet recent WTO disputes, such as the United States vs China on Electronic Payment Services, have highlighted the urgency of the issue Although the Panel report provided some insights into GATS-related questions, it revealed the limitations of the current GATS framework and offered insufficient guidance on national treatment obligations and market access in the financial services sector Consequently, it is crucial to examine the concept of national treatment and its interplay with market access under GATS, as this understanding will assist WTO Members in determining whether specific measures violate market access or national treatment obligations.
The General Agreement on Trade in Services (GATS), established on April 15, 1994, is a key component of the Marrakesh Agreement that created the World Trade Organization (WTO) This legal framework, detailed in Annex 1B of the agreement, outlines the outcomes of the Uruguay Round of multilateral trade negotiations and is documented in the 1999 publication of The Legal Texts The GATS aims to promote international trade in services by providing a comprehensive set of rules and commitments among member countries.
2 WTO Agreement: Marrakesh Agreement Establishing the World Trade Organization, Apr 15, 1994, The legal texts: the results of the Uruguay Round of multilateral trade negotiations 4 (1999), 1867 U.N.T.S
3 M Krajewski (2003), 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 Inter- national, pp 130
The financial sector plays a vital role in the global economy, significantly impacting other industries and the globalization of trade As a sensitive area for governments, financial services are subject to specific regulations under the General Agreement on Trade in Services (GATS) Domestic regulators often exercise caution in introducing competition within the financial sector to foster the growth of local industries and address prudential concerns This issue is particularly critical for developing countries, such as Vietnam, which became a member of the World Trade Organization (WTO) on January 1.
Since joining the WTO in 2007, Vietnam has progressively integrated into global financial markets, navigating the challenges of globalization and trade liberalization The national treatment obligation and market access directly impact the nation's service trade As a WTO member, Vietnam is committed to liberalizing its service trade while balancing this obligation with the growth of its emerging domestic financial sector This study aims to provide comprehensive insights into national treatment, evaluate Vietnamese regulations against its WTO accession commitments in financial services, and propose solutions for enhancing the efficiency of Vietnam's financial legislation.
The author has chosen to write a bachelor's thesis focused on "National Treatment under the General Agreement on Trade in Services," specifically evaluating the implementation of national treatment in financial services according to Vietnamese domestic regulations.
1.2 Literature review to the topic of the thesis
Study on national treatment obligation under the GATS and especially in financial services has received great attention from many scholars recently, mostly from international scholarly works
1.2.1 Foreign studies related to the topic
The General Agreement on Trade in Services (GATS) is a multilateral agreement among WTO Members, and the WTO Secretariat has published a comprehensive guideline titled "Guide to the GATS: An Overview of Issues for Further Liberalization of Trade in Services" by Kluwer Law International in 2001 This guideline provides a broad overview of GATS but does not focus specifically on national treatment obligations or their application in particular sectors.
Besides, there are other scholarly works of many authors on national treatment obligation under the GATS such as, "National Treatment in the GATS: Corner-
In the article "A Comparative Analysis of GATS and GATT: A Trade in Services Departure from GATT's MFN Principle and the Effect on National Treatment and Market Access" by Aaditya Mattoo and R Trachtman, the authors explore the distinctions between the General Agreement on Trade in Services (GATS) and the General Agreement on Tariffs and Trade (GATT) They examine how GATS diverges from GATT's Most-Favored-Nation (MFN) principle, highlighting its implications for national treatment and market access in international trade This analysis sheds light on the evolving landscape of trade regulations and their impact on service industries globally.
Policy of the WTO” of Peter Van D Bossche 6 , “National treatment and WTO dispute settlement: adjudicating the boundaries of regulatory autonomy” of Gaetan
Verhoosel Nonetheless, these books mainly focus on national treatment obligation in general; there is no book cover national treatment in a specific sector such as financial services
There are also papers and journals which focus on national treatment obligation in financial services such as “Market access and National treatment in China-
The exploration of electronic payment services highlights the complexities of national treatment in financial services within the framework of GATS and WTO, as discussed in works by Rachel Block and Wei Wang However, these studies fail to compare national treatment under GATT and GATS, nor do they examine the specific regulations governing financial services in Vietnam.
In Vietnam, research on national treatment towards foreign investors is exemplified by Phạm Thị Nguyệt Sương's master's thesis, which explores the impact of national treatment on domestic investors This work primarily examines the protective measures employed by countries to safeguard local investors While it shares a focus on national treatment obligations, the current thesis distinguishes itself by concentrating on this concept within a specific sector and addressing its complexities.
4 Aaditya Mattoo(1997), “National Treatment in the GATS: Corner-stone or Pandora‟s Box?”, 31 Journal of
In his 2001 analysis, Ryan Teksten examines the differences between the General Agreement on Trade in Services (GATS) and the General Agreement on Tariffs and Trade (GATT), highlighting how GATS departs from GATT's Most Favored Nation (MFN) principle This departure significantly impacts national treatment and market access within international trade, emphasizing the legal and institutional aspects that shape service trade agreements Teksten's work provides valuable insights into the evolving landscape of global trade regulations.
6 Peter Van den Bossche, Werne Zdouc (2013), The Law and Policy of the World Trade Organization, Text
Cases and Materials, 3 rd ed, Cambridge University Press
7 Rachel Block (2013-2014), “Market access and National treatment in China-Electronic Payment Services
An illustration of the Structure and Interpretive Problem in GATS”, Chicago Journal of International Law, Vol 14, No.2, pp 652-701
8 Wei Wang (2004), “National treatment in Financial Services in the context of the GATS/WTO”,
International Financial Economy and Technology Law Review,pp.149-181
The General Agreement on Tariffs and Trade (GATT), established on April 15, 1994, is a key legal framework resulting from the Uruguay Round of multilateral trade negotiations, as outlined in the Marrakesh Agreement that created the World Trade Organization This foundational document, documented in Annex 1A of the legal texts, plays a crucial role in shaping international trade regulations and agreements.
In her 2007 master's thesis at Ho Chi Minh University of Law, Phạm Thị Nguyệt Sương explores the concept of national treatment for foreign investors and examines its impact on domestic investment The study highlights the importance of equitable treatment in fostering a competitive investment environment, emphasizing how foreign investment regulations influence local investors' strategies and market dynamics.
4 relationship between market access and national treatment in the GATS rather than focus on the domestic regulation of Vietnam related to foreign investment
Nguyễn Thị Tuyết Minh's bachelor thesis titled “Hiệp định chung về thương mại dịch vụ (GATS) và pháp luật ngân hàng Việt Nam trong quá trình gia nhập” focuses on the General Agreement on Trade in Services (GATS) and its implications for Vietnamese banking legislation during the accession period The primary objective of this thesis is to provide an overview of GATS and the relevant banking regulations in Vietnam Unlike the author's thesis, it does not delve into the concept of national treatment and its application within Vietnamese regulatory frameworks.
Vũ Như Thăng's book, "Liberalization in Trade in Services of WTO: Law and Common Policy," along with Vũ Anh Thư's journal article, "Application of National Treatment of Vietnam in the Accession Commitment to WTO in Trade in Services," provide valuable insights into the principles of non-discrimination and national treatment in Vietnam's commitments to the WTO These works contribute to the understanding of trade service liberalization and its implications for Vietnam's integration into the global economy.
OVERVIEW ON NATIONAL TREATMENT UNDER THE GATS 8
Introduction
The General Agreement on Trade in Services (GATS), established in 1994 as part of the Uruguay Round, is a key component of the Marrakesh Agreement that created the World Trade Organization (WTO) All members joining the WTO must adhere to the GATS, which includes essential provisions such as the principle of national treatment.
The national treatment obligation under the General Agreement on Trade in Services (GATS) is influenced by its counterpart in the General Agreement on Tariffs and Trade (GATT), yet it is distinct in that it is contingent upon specific commitments made by member countries rather than being a general principle A thorough examination of national treatment within the GATS allows for a comparison of its similarities and differences with the GATT framework Before delving into the analysis of national treatment under GATS, it is crucial to establish the foundational aspects of the GATS, including its purpose and structural components.
The relationship between market access and national treatment in trade in services is complex and often confusing, leading to overlapping regulations Section 1.4 outlines potential approaches agreed upon by major WTO Members to address these overlap issues.
History background and structure of the GATS
1.2.1 The purpose and historical background of GATS
Following the success of GATT in reducing trade barriers for goods, economists and policymakers shifted their focus to liberalizing trade in services by establishing a multilateral agreement to eliminate obstacles in international service trade Despite services accounting for 70%-80% of GDP in developed nations and about 40% in developing countries, the push for a legal framework for service trade liberalization did not gain momentum until the 1980s The General Agreement on Trade in Services (GATS), a significant outcome of the Uruguay Round negotiations from 1986 to 1993, represents the first multilateral trade agreement aimed at regulating trade in services among WTO members.
13 Preamble of the GATS, General Agreement on Trade in Services, Apr 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, 1869 U.N.T.S 183
The World Bank's 2014 data highlights the significance of the services sector in the global GDP The information was sourced from the OECD National Account data files, emphasizing the importance of understanding economic structures For further insights and updates on this indicator, please refer to the World Bank's official data updates webpage.
In recent years, the liberalization of trade in services has gained prominence due to technological advancements and international trade negotiations, challenging the traditional view that services are non-tradable and primarily domestic Historically, sectors like transport, telecommunications, and energy were seen as government monopolies, while others, including education and healthcare, remain largely under government control The liberalization of the services sector is closely linked to the liberalization of essential production factors such as labor, capital, and technology However, achieving this liberalization can be politically challenging, particularly concerning labor mobility.
Recent advancements in technology and the privatization of various services have highlighted the importance of low-cost, high-quality services for economic growth This realization has led policymakers and economists to advocate for the establishment of multilateral agreements aimed at facilitating the internationalization of services, ultimately fostering a competitive and efficient services market.
WTO Members recognize that liberalizing trade in services is crucial for economic growth, as services are the backbone of all sectors Efficient transport services lower shipping costs and facilitate labor movement, while international business services like accounting and consulting reduce transaction costs and enhance innovation Additionally, health and education services are vital for developing human resources Services also fulfill essential public functions, with sectors like education, healthcare, and energy playing a critical role Economic evidence suggests that a well-functioning services sector can significantly enhance a country's economic growth, regardless of its comparative advantages.
In their 1997 paper, "Protection and Trade in Services," Bernard Hoekman and Carlos A Primo Braga examine the intricate relationship between protectionist measures and international trade in services They emphasize the importance of understanding how regulatory frameworks impact service trade dynamics, highlighting the need for policy coherence to foster a competitive global market The authors argue that effective trade policies can enhance service sector growth while ensuring consumer protection and economic stability Their insights provide a valuable foundation for policymakers aiming to navigate the complexities of service trade in a globalized economy.
16 A WTO Secretariat Publication Prepared by the WTO Trade in Services Division (2005), A Handbook on the GATS agreement, Cambridge University Press, pp.1
17 Dr Surya P Subedi D Phil (2012), Text book International Trade and Business Law of Hanoi Law University, Section 4, 1 st ed, The People‟s Publish Security Publishing House, pp.170
18 Bernard Hockman (2008), “The General Agreement on Trade in Services: Doomed to fail? Does it matter?”, 8 Journal of Industry, Competition and Trade 295, pp.296
The General Agreement on Trade in Services (GATS) was created to eliminate barriers to international trade in services, thereby fostering global development and economic growth By promoting progressive liberalization through negotiations, GATS seeks to enhance market access and ensure national treatment for foreign service providers across various sectors Importantly, it preserves the right of governments, particularly in developing countries, to regulate domestic laws in alignment with their national policies Thus, GATS serves as a legal framework for World Trade Organization (WTO) Members to efficiently manage domestic regulations related to international trade in services.
In conclusion, the General Agreement on Trade in Services (GATS) is a key multilateral treaty designed to remove obstacles to international trade in services Established in 1994 and effective from 1995, it is recognized as one of the foundational agreements of the World Trade Organization (WTO) and is applicable to all WTO member countries.
1.2.2 The substance and structure of the GATS
The General Agreement on Trade in Services (GATS) establishes a legal framework for international trade in services, addressing a broad spectrum of service sectors while advocating for the liberalization of regulations that impede trade and investment The unique characteristics of services, which complicate their tradability, posed significant challenges for GATS negotiators in developing an effective regulatory structure Distinct from other WTO agreements, the GATS offers a comprehensive set of rules that governs international service transactions.
The General Agreement on Trade in Services (GATS) consists of three main components: the first part includes twenty-eight articles that outline the rules governing trade in services, the second part features eight annexes that provide clarification or specific provisions, and the third part contains the Schedule of Specific Commitments made by the member countries.
The first segment of the GATS is divided into seven parts, beginning with a Preamble that outlines its fundamental principles, philosophy, and objectives Part I (Article I) establishes the scope of application and defines the various modes of supply Part II consists of fourteen articles (Articles II to XV) that address the general obligations and disciplines applicable to all service sectors, along with their exceptions In contrast, Part III (Articles XVI, XVII, XVIII) focuses on specific regulations.
The Preamble of the GATS emphasizes the establishment of a multilateral framework that promotes principles and rules for trade in services, aiming to expand such trade through transparency and progressive liberalization while ensuring a balanced distribution of rights and obligations among its Members.
20 A WTO Secretariat Publication Prepared by the WTO Trade in Services Division, supra note 16, pp 296
The General Agreement on Trade in Services (GATS) includes 11 commitments, encompassing regulations on market access, national treatment, and additional commitments that apply to specific services and modes of supply as scheduled by each Member WTO Members are only obligated to fulfill specific commitments if they have voluntarily agreed to these obligations; otherwise, they are not bound by them This distinction is a key difference between Part II and Part III of GATS, as Part II provisions apply universally to all service sectors, regardless of whether a Member has scheduled a commitment Furthermore, Part IV and Part V focus on enhancing trade liberalization and improving specific commitments, along with institutional provisions Lastly, Part VI addresses the denial of benefits and includes relevant annexes.
The GATS outlines three key obligations for its Members, categorized into unconditional and conditional obligations, as detailed in Parts II and III of the agreement.
Unconditional obligations, outlined in Part II of the GATS, are known as mandatory obligations and are universally applied to all services This category encompasses the Most-Favoured-Nation (MFN) principle and transparency commitments, both of which were inherited from the GATT framework These fundamental principles govern government policies that impact trade in services.
The substances of national treatment obligation under GATS
1.3.1 National treatment in general and the execution of this principle in the GATS
1.3.1.1 Overview of national treatment in general and in the GATT
National treatment is a principle that prohibits countries from discriminating against foreign nations, ensuring equal treatment between host countries and their foreign counterparts Its primary purpose is to prevent discriminatory measures on imports while also curbing the use of non-tariff measures that might offset the effects of tariffs Additionally, national treatment aims to stop domestic tax and regulatory policies from being exploited as protectionist tools, thereby upholding the integrity of tariff bindings.
National treatment and Most Favored Nation (MFN) principles are key components of non-discrimination treatment, applicable across various fields such as trade, investment, patent law, copyright law, and even criminal law In the context of WTO Agreements, national treatment plays a crucial role in ensuring equitable treatment for all member nations.
34 R Chanda (2001), Movement of Natural Persons and the GATS, 24 The World Economy, Blackwell
35 Peter Van den Bossche, Werne Zdouc, supra note 6, pp.70
36 John Howard Jackson (1997), The World Trading System: Law and Policy of International Economic Relations, 2 nd ed , MIT Press, pp.213
37 Article II of Paris Convention for the Protection of Industrial Property, 1883
The article highlights three primary areas of trade: trade in goods, trade in services, and trade-related intellectual property rights Additionally, it notes that the Government Procurement Agreement, a key plurilateral agreement, includes a national treatment provision outlined in Article III.
While the thesis primarily examines national treatment under the GATS, it is crucial to also explore national treatment under the GATT, as GATS is largely modeled after GATT principles The national treatment principle is articulated in Article III of the GATT, which establishes several key characteristics: it is a general obligation that applies to imported products, irrespective of the presence of tariff barriers; it addresses both de facto and de jure discrimination, similar to the Most Favored Nation (MFN) principle; and it is applicable exclusively to internal measures, excluding border measures.
The principle of national treatment, outlined in Paragraph 1 of Article III of the GATT, emphasizes that internal taxes, charges, and regulations should not discriminate between imported and domestic products to prevent protectionism This foundational purpose is crucial for maintaining fair competition The Appellate Body in the Japan-Alcoholic Beverages case reinforced that Article III:1 establishes a general principle that guides the interpretation of the entire Article III.
Paragraph 2 and 3 of Article III of GATT regulates in detail about internal taxes or other internal charges Paragraph 2 covers two types of products which are “like products” and “directly competitive or substitutable products” The introduction of
Article III:2 of GATT states that products imported from one contracting party to another should not face internal taxes or charges that exceed those imposed on similar domestic products This principle ensures fair treatment and equal competition between imported and domestic goods.
Article 3 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, established on April 15, 1994, is a key component of the Marrakesh Agreement that created the World Trade Organization This article outlines the essential legal frameworks resulting from the Uruguay Round of multilateral trade negotiations, emphasizing the importance of intellectual property rights in global trade.
42 Philip Ruttley (1999), “Financial Service and the General Agreement on Trade in Services”,
Liberalization and Protectionism in the World Trading System, Philip Ruttley and Iain MacVay et al
43 Appellate Body Report, Japan –Alcoholic Beverages WT/DS8/AB/R, WT/DS10/R, WT/DS11/AB/R, Section G
To determine a violation of Article III:2 of the GATT, a two-tier test must be applied: first, assess whether imported and domestic products are considered like products; second, evaluate if imported products are subject to higher taxation than domestic products A positive response to both inquiries indicates a violation of the first sentence of Article III:2.
To assess the "likeness" of products, a definitive procedure does not exist; instead, a case-by-case approach is essential, considering three key criteria: the end-users in a specific market, consumer preferences and habits, and the product's properties, nature, and qualities This methodology is derived from the Working Party Report on Border Tax Adjustments and was notably referenced in the Japan – Alcohol Beverages case, marking the first violation of Article III:1 The Appellate Body reaffirmed this approach in Japan-Alcoholic Beverages II, emphasizing that the definition of "like products" should remain narrow, with tariff classification based on the Harmonized System aiding in determining "likeness."
To address the issue of internal taxation on foreign services or service suppliers exceeding that of domestic products, three key steps must be followed First, the identification of "directly competitive or substitutable products" should be conducted on a case-by-case basis, considering all relevant facts Second, competition within relevant markets can help define a broader category of products that can be classified as "directly competitive or substitutable." The Appellate Body in Korea – Alcoholic Beverages has indicated that products are considered competitive or substitutable when they can be interchanged or provide alternative means of satisfying a specific need or preference Lastly, a thorough examination of common end-uses, particularly through the lens of elasticity of substitution, is essential to determine the direct competitiveness or substitutability of the products in question.
44 Appellate Body Report, Canadian Periodicals: Canada - Certain Measures Concerning Periodicals, AB- 1997-2, WT/DS31/AB/R, para 468
45 Report of the Working Party on Border Tax Adjustments, p.102, paragraph 18, adopted on 2 December
46 Appellate Body Report, Japan – Alcoholic Beverages WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, Section H1 (a)
47 Appellate Body Report, Japan – Alcoholic Beverages II, WT/DS8/AB/R, WT/DS10/R, WT/DS11/AB/R, Section H, pp.21
48 Appellate Body Report, Korea – Taxes on Alcoholic Beverages (Korea – Alcoholic Beverages),WT/DS75/AB/R, WT/DS84/AB/R, para 137, pp 39
49 Appellate Body Report, Korea – Taxes on Alcoholic Beverages (Korea – Alcoholic Beverages),
WT/DS75/AB/R, WT/DS84/AB/R, para 115, p 33
50 Appellate Body Report, Japan – Alcoholic Beverages II, WT/DS8/AB/R, WT/DS10/R, WT/DS11/AB/R, para 117, pp.26
After determination of competitive or substitutable products, the next step is to identify whether these products are applied similar tax Appellate Body in Japan –
Alcoholic beverages are subject to different tax classifications, as the terms "similar tax" and "in excess of" are not synonymous Additionally, for differential taxation to be considered "not similar taxed," it must exceed a minimal threshold and be assessed on a case-by-case basis.
The last step in the national treatment test under Article III:2 is only taken in case
Products that are "directly competitive or substitutable" may not be subject to the same taxation When there is a difference in tax rates, it is essential to determine if the tax serves a protective purpose This requires a thorough and objective analysis of how the tax is structured and applied to domestic versus imported products The Appellate Body in Japan – Alcoholic Beverages established three tests that have since been referenced by panels and modified by other Appellate Bodies in cases concerning tax or regulatory measures.
National treatment under GATT encompasses both fiscal and non-fiscal measures, as outlined in Paragraph 4 of Article III According to the Appellate Body in the Korea – Various Measures case, a violation of Article III:4 requires three conditions: first, the measure must be a "law, regulation or requirement" impacting the internal sale, purchase, or distribution of domestic and imported products; second, there must be a "likeness" between domestic and imported products in the domestic market; and third, imported products must receive less favorable treatment compared to similar domestic products.
To establish the first element, both the Panel and the Appellate have often agreed that the term "affecting" should be interpreted broadly, as should government actions Regarding the second element, Article III:4 applies solely to "like" products, excluding "directly competitive or substitutable" products, which necessitates a different determination of "like" products than that found in Article III:2 In this context, identifying "like" products under Article III:4 requires careful consideration of the anti-protectionism principle outlined in Article III:1.
The relationship between national treatment obligation and market access 25
1.4.1 Market access under the GATS
The relationship between market access and national treatment is complex due to scheduling techniques, making it essential to first gain a comprehensive understanding of market access to effectively address the overlap between the two concepts.
Market access, outlined in Part III of the GATS, is a specific commitment of Member countries that, alongside national treatment, forms the core of the GATS framework, significantly influencing the liberalization of trade in services When a Member commits to market access in their Schedule, they are obligated to adhere to the specified level and refrain from imposing any additional market access barriers beyond what is outlined Although the GATS does not explicitly define market access barriers in services, it provides a comprehensive list of measures in Article XVI:2, points (a) to (f).
(a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;
(b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;
76 Nicolas F Diebold (2010), Non-discrimination in international trade in services: „Likeness‟ in WTO/GATS, 1 st ed, Cambridge University Press, pp.119
Limitations may be imposed on the total number of service operations or the overall quantity of service output, often quantified through specific quotas or the necessity of an economic needs test.
Limitations may be imposed on the number of individuals that can be employed within a specific service sector, including numerical quotas or economic needs tests These restrictions apply to service suppliers and are essential for the direct provision of particular services.
(e) measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and
(f) limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment
According to Article XVI, market access commitments do not encompass all measures that may restrict access, allowing Members to implement restrictions outside the six specified limitations For instance, a Member can impose a high tax regime in certain sectors that may deter market entry, which would likely still comply with Article XVI Additionally, market access includes both discriminatory and non-discriminatory measures It is important to note that the limitations are considered "minimum guarantees" rather than "maximum quotas," meaning Members can offer more favorable treatment if they wish For example, a Member that limits foreign ownership in commercial banks is permitted to raise this threshold.
Market access is detailed in the third column of a Member's Specific Commitment Schedule, where any sector intended for opening is listed, while unlisted sectors are presumed closed This "bottom-up" approach is contrasted with a "top-down" method, where any limitations on market access and national treatment for specific sectors must be explicitly stated in the Schedule, alongside horizontal commitments applicable to all trades If no limitations are recorded, it is assumed that the sector or sub-sector is open Typically, a Member's Schedule incorporates both approaches, blending the positive and negative frameworks for market access.
77 Subparagraph 2(c) does not cover measures of a Member which limit inputs for the supply of services
78 Dr Surya P Subedi DPhil, supra note 17, pp.155
The hybrid approach highlights the conceptual clarity between market access and national treatment obligations under GATS Article XX:2 However, in practice, distinguishing between the application of these two obligations can be challenging.
1.4.2 The connection and intertwinement of market access and national treatment under Article XX:2 of the GATS
Due to the intangibility of services, there are limited measures applied at borders, with most trade restrictions originating from internal regulations It is challenging to distinguish between market access restrictions and discriminatory measures When a member implements discriminatory measures, these can be considered both market access restrictions and limitations on national treatment as outlined in the member's Schedule For instance, measures specified under Article XVI:2, particularly in their discriminatory forms, can be classified as national treatment restrictions Additionally, regulations concerning specific joint ventures for service provision and foreign equity participation also fall under the purview of both Article XVI and Article XVII, highlighting the "overlap" between these two articles.
Indeed, the overlap between application of market access and national treatment was anticipated by GATS under Article XX:2, which provides as follows:
Measures that do not align with Articles XVI and XVII will be recorded under Article XVI This recording will also be interpreted as a condition or qualification for Article XVII.
The regulation indicates that certain measures listed under market access also serve as limitations within the national treatment framework, highlighting the overlap between these two principles This overlap is primarily due to the provisions of Article XVI of the GATS, which encompass market access restrictions that impact both foreign and domestic service suppliers equally For example, a measure that restricts the establishment of foreign banks to five can also limit the total number of new banks, regardless of origin, to ten Furthermore, while Article XVI addresses market access restrictions, Article XVII's national treatment obligations extend beyond just domestic regulations, applying to “all measures affecting the supply of services,” thus ensuring comprehensive coverage of both pre-entry and post-entry measures.
The introduction of 28 regulations for both domestic and foreign services has led to national treatment encompassing market access restrictions, resulting in a significant overlap between Article XVI and Article XVII of the General Agreement on Trade in Services (GATS) However, market access and national treatment are not fully integrated, as market access includes quantitative limitations applied on a non-discriminatory basis This creates ambiguity, as GATS lacks clear guidance on how to categorize specific measures, presenting four logical possibilities for classification.
Although the national treatment column may not impose restrictions, the market access column can still contain limitations For instance, Vietnam's Schedule of Specific Commitments in Services indicates that in the banking sector, foreign parties are restricted to a maximum contribution of 30% of the charter capital in joint-stock commercial banks.
(ii) While there are some limitations in national treatment column, there may exist more limitations on national treatment inscribed in the market access column;
(iii) While there are some limitations in national treatment column, there may have no national treatment limitation inscribed in market access column;
In situations where there are no limitations in both the national treatment and market access columns, members enjoy full flexibility in their commitments Conversely, if a member has made no commitments in either column, they are free to impose any restrictions they desire concerning various modes of supply.
Among the four possibilities regarding trade in services, the simplest option represents complete openness and liberalization However, confusion arises in other scenarios, particularly concerning overlaps between disciplines This overlap is significant when a full commitment (indicated as “none”) is recorded in the national treatment column, while no commitment (marked as “unbound”) is noted under market access for the same sector and mode of supply In such instances, it remains unclear whether a Member is permitted to impose a discriminatory quantitative restriction under its “unbound” entry as stated in Article XVI, or if such restrictions are prohibited.
79 Schedule CLX – Viet Nam, Part II – Schedule of Specific Commitment in Serivces,
To clarify the application of limitations on foreign suppliers under Article XVII, it is essential to determine whether such restrictions apply solely to foreign service providers or extend to all suppliers, regardless of origin This ambiguity necessitates a clear distinction between the measures listed in the market access column and those in the national treatment column The following section will explore this issue and propose strategies to address the overlap effectively.
1.4.3 The approaches to address the overlap issue
Summary of Chapter I
The General Agreement on Trade in Services (GATS) is a unique WTO Agreement, distinct from other agreements due to the specific characteristics of services Consequently, national treatment under the GATS differs from that of the General Agreement on Tariffs and Trade (GATT) This chapter explores the principle of national treatment within the GATS, highlighting its nature and comparing it to GATT's national treatment Overall, national treatment under the GATS represents a specific commitment, and any violations must be assessed on a case-by-case basis.
To address the overlap between market access and national treatment, it is essential for Members to honor their commitments regarding "Unbound" provisions Allowing Members to implement measures within the limits of their scheduled commitments can provide a viable solution.