Tải bản đầy đủ (.pdf) (78 trang)

NATIONAL TREATMENT UNDER GENERAL AGREEMENT ON TRADE IN SERVICES AND ASSESSMENT ON IMPLEMENTATION OF NATIONAL TREATMENT IN FINANCIAL SERVICES UNDER VIETNAMESE REGULATIONS (luận văn thạc sỹ luật)

Bạn đang xem bản rút gọn của tài liệu. Xem và tải ngay bản đầy đủ của tài liệu tại đây (1.11 MB, 78 trang )

MINISTRY OF EDUCATION AND TRAINING
HO CHI MINH UNIVERSITY OF LAW
THE MANAGING BOARD OF SPECIAL TRAINING PROGRAM
------ -----

HUYNH HUONG GIANG

NATIONAL TREATMENT
UNDER GENERAL AGREEMENT ON TRADE IN
SERVICES AND ASSESSMENT ON IMPLEMENTATION
OF NATIONAL TREATMENT IN FINANCIAL
SERVICES UNDER VIETNAMESE REGULATIONS

BACHELOR’S THESIS
Major in International Law

HO CHI MINH CITY – 2014


HO CHI MINH UNIVERSITY OF LAW
THE MANAGING BOARD OF SPECIAL TRAINING PROGRAM
------ -----

BACHELOR’S THESIS

NATIONAL TREATMENT
UNDER GENERAL AGREEMENT ON TRADE IN
SERVICES AND ASSESSMENT ON
IMPLEMENTATION OF NATIONAL TREATMENT IN
FINANCIAL SERVICES UNDER VIETNAMESE
REGULATIONS



STUDENT:

HUYNH HUONG GIANG

COURSE:

35

STUDENT CODE:

1055010070

SUPERVISOR:

DR. TRAN PHU VINH

MAJOR:

INTERNATIONAL LAW

`
HO CHI MINH CITY – 2014


I hereby confirm that this thesis is a presentation of my original work and contains
no material which was previously published or written by another person, except
where due reference has been made in the text.
I give consent to this copy for being published and being made available for
copying in the library of Ho Chi Minh University of Law, subject to provisions of

Intellectual Property regulations.
The work was completed under the guidance of Professor Tran Phu Vinh, at Ho Chi
Minh University of Law.

In my capacity as supervisor of the candidate‟s thesis, I certify that the above
statements are true to the best of my knowledge.

Date: July 21, 2014.


Acknowledgments
Apart from the efforts of myself, the thesis is completed depending largely on the
encouragement and support of many others. This is opportunity to expressing my
gratitude to all those people who have supported me and had their contributions to
this thesis possible.
I express my deepest gratitude to my supervisor, Mr. Tran Phu Vinh for his
guidance and support to my thesis. He has given me enough freedom during my
research and substantial comments as well as encouragement, which helped me to
coordinate the thesis.
Furthermore, I would like to thanks all professors in Ho Chi Minh University of
Law for their guidance, remarks and encouragement through the learning process of
my bachelor degree. All the knowledge, experience I have acquired from the
professors and other students in Ho Chi Minh University of Law are all
contributions to materializing this thesis.
I also would like to acknowledge with much appreciation to the support from
Audier and Partners LLC for giving me encouragement to finish the thesis during
my training period. Without the help from my mentor and staff of A&P, this thesis
would not have been completed.
Last but not least, I express my deepest gratitude to all my friends and my family
who have continually supported me throughout the entire process, your help was

vital for the success of this thesis as well as my future career.


TABLE OF CONTENT

INTRODUCTION

1

CHAPTER I. OVERVIEW ON NATIONAL TREATMENT UNDER THE GATS 8
1.1

Introduction .................................................................................................... 8

1.2

History background and structure of the GATS ............................................ 8

1.2.1

The purpose and historical background of GATS ......................................... 8

1.2.2

The substance and structure of the GATS ................................................... 10

1.3

The substances of national treatment obligation under GATS .................... 14


1.3.1

National treatment in general and the execution of this principle in the
GATS ........................................................................................................... 14

1.3.2.

Descriptive analysis of national treatment under GATS ............................. 21

1.4

The relationship between national treatment obligation and market access 25

1.4.1

Market access under the GATS ................................................................... 25

1.4.2.

The connection and intertwinement of market access and national treatment
under Article XX:2 of the GATS ................................................................. 27

1.4.3.

The approaches to address the overlap issue ............................................... 29

1.5

Summary of Chapter I .................................................................................. 32


CHAPTER II.
NATIONAL TREATMENT IN FINANCIAL SERVICES
UNDER THE GATS AND ASSESSMENT ON IMPLEMENTATION OF
NATIONAL TREATMENT IN FINANCIAL SERVICES UNDER VIETNAM
LEGISLATIONS
33
2.1.

Introduction .................................................................................................. 33

2.2.

Specific national treatment rules in financial services and its exceptions ... 33

2.2.1.

Specific national treatment obligation in financial services ........................ 33

2.2.2.

Exceptions of national treatment related to financial services .................... 35

2.3.

Status of national treatment commitment of Vietnam in financial services
sector ............................................................................................................ 40

2.3.1.

Commitment in Banking sector ................................................................... 40


2.3.2.

Commitment in Securities sector ................................................................. 44

2.4.

Assessment on Vietnam‟s implementation of national treatment
commitment in financial services under domestic regulations .................... 46

2.4.1.

Vietnam legal framework for national treatment principle ......................... 47


2.4.2.

Assessment on implementation of national treatment commitment in
banking regulations ...................................................................................... 48

2.5.

Assessment on implementation of national treatment commitment in
securities regulations .................................................................................... 52

2.6.

Proposals for domestic regulation to be compatible with accession
commitment of Vietnam .............................................................................. 56


2.6.1.

Confirmation on the position of international treaties in the hierarchy of
domestic regulations .................................................................................... 56

2.6.2.

Strengthening the law enforcement mechanism .......................................... 56

2.6.3.

Providing more detail in implementation of WTO commitment ................. 57

2.7.

Summary of Chapter II ................................................................................ 57

CONCLUDING REMARKS

59

BIBLIOGRAPHY

i

APPENDIX A COMMITMENT OF VIETNAM TO WTO IN BANKING
SECTOR

x


APPENDIX B COMMITMENT OF VIETNAM TO WTO IN SECURITIES
SECTOR
xiii


INTRODUCTION
1.1

Significance of the study

The General Agreement on Trade in Services1 (“GATS”), which came into force on
January 1, 1995 is a breakthrough of Uruguay Round trade negotiations, marking a
giant step for liberalization for trade in services. For the very first time, there is a
comprehensive multilateral legal framework of disciplines for trade in services, 2
with the join of more than 150 World Trade Organization (“WTO”) Members. In
order to ensure equal opportunities for foreign services and effective access to
services market, the GATS use a three-pronged approach including market access,
national treatment and disciplines on domestic regulations.3 National treatment is
the commitment by a country to treat foreign competitors operating on its territory,
but controlled by the national of another country, no less favorably than domestic
counterparts in like situation. This is just general definition of national treatment, in
order to understand how national treatment applied to services, in particular
financial services, and the difference of this principle applied to goods and services,
a study about national treatment under the GATS is essential.
One of the characteristics of national treatment under the GATS is its complicated
relationship with market access. The clear demarcation between market access and
national treatment with respect to trade in goods seems to blur in trade in services.
The relationship between national treatment and market access is complicated and
confusing, and there is a viewpoint that researches or studies about this matter are
just valuable in theory. However, since the WTO dispute United States, China –

Electronic Payment Services, the issue becomes a pressing one. The Panel report
although explained some question related to the GATS, it still shows the limited
suitability of the current framework of the GATS and inadequate guidance
regarding national treatment obligation and market access in financial services
sector. Therefore, it is essential to study about the national treatment and to identify
the relationship between national treatment and its relationship with market access
under GATS, helping WTO Members to define whether a measures shall be violate
market access or national treatment obligation or not.

1

2

3

General Agreement on Trade in Services (Apr. 15, 1994), Marrakesh Agreement Establishing the World
Trade Organization, Annex 1B, The Legal Texts: The Results Of The Uruguay Round Of Multilateral
Trade Negotiations 284 (1999), 1869 U.N.T.S. 183, 33 I.L.M. 1167 (1994) [hereinafter the GATS].
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.
154, 33 I.L.M. 1144 (1994).
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 International, pp. 130.

1


Furthermore, financial sector, being an important part of the world economy and
having huge effect to other sectors and globalization and liberalization of trade all
over the world, is a sensitive sectors for all governments. Due to that fact, financial

services has been provided specific regulations under the GATS, and domestic
regulators have always been cautious towards introduction competition in financial
sector due to policies to develop domestic financial industries and due to prudential
concerns. This issue is extremely crucial for developing countries when joining
WTO, including Vietnam. Vietnam has become a Member of WTO since January 1,
2007 and has been taking step-by-step to integrate to the world financial markets. In
the era of globalization and liberalization of trade, national treatment obligation
together with market access affects directly to trade in services of nations. However,
as a WTO Member, Vietnam has its commitment to liberalization trade in services
and still has to balance between its WTO obligation and the development of our
young domestic financial sector. The significance of the study is to provide in-depth
knowledge about national treatment, to assess the regulations of Vietnamese law
with the Accession Commitment of Vietnam to the WTO in financial services and
to give possible solutions for more efficient operation of Vietnamese‟s legislation in
financial services.
From the above reason, the author decides to write a bachelor‟s thesis on “National
treatment under General Agreement on Trade in Services, and the assessment
on implementation of national treatment in financial services under
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


First and foremost, as the GATS is the multilateral agreement between WTO
Members, the Secretariat of WTO has published a guideline for Members to have
an overview about the GATS namely “Guide to the GATS : An overview of issues
for further liberalization of trade in services”, published by Kluwer law
international in 2001. This guideline covers all the aspects of the GATS, however,
as a guideline; this book does not specifically aim at studying on national treatment
obligation or its application in any specific sector.
Besides, there are other scholarly works of many authors on national treatment
obligation under the GATS such as, "National Treatment in the GATS: Corner-

2


stone or Pandora's Box?" of Mattoo, Aaditya4; “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” of Trachtman R5; “The Law and
Policy of the WTO” of Peter Van D Bossche6, “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 ChinaElectronic Payment Services. An illustration of the Structure and Interpretive
Problem in GATS” of Rachel Block7; “National treatment in financial services in
the context of the GATS/WTO” by Wei Wang8; etc., however, these journals or
papers do not compare National treatment under the GATT9 and the GATS and they
do not study on the regulation of financial services under Vietnamese regulations.
1.2.2.

Research status in Vietnam


Regarding research status in Vietnam, there is a master thesis of Phạm Thị Nguyệt
Sương on “Quy chế đối xử quốc gia đối với nhà đầu tư nước ngoài và sự tác động
của quy chế này đối với đầu tư trong nước” (National treatment to foreign investors
and its affect to domestic investors).10 This thesis mainly focus on studying on
national treatment and measures usually used by countries to protect domestic
investors. Although the thesis of author Phạm Thị Nguyệt Sương also focuses on
national treatment obligation, there are differences on the scope and the purpose of
researching with the current thesis. The purpose of the current thesis is to research
about national treatment in a specific sector and to deal with the complicated

4

Aaditya Mattoo(1997), “National Treatment in the GATS: Corner-stone or Pandora‟s Box?”, 31 Journal of
World Trade, Issue 1.
5
Ryan Teksten (2001), “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”, Legal and
Institutional Aspect of International Trade.
6
Peter Van den Bossche, Werne Zdouc (2013), The Law and Policy of the World Trade Organization, Text
Cases and Materials, 3rded, 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.
9

General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the
World Trade Organization, Annex 1A, The Legal Texts: The Results Of The Uruguay Round Of
Multilateral Trade Negotiations 17 (1999), 1867 U.N.T.S. 187, 33 I.L.M. 1153 (1994) [hereinafter the
GATT].
10
Phạm Thị Nguyệt Sương (2007), Quy chế đối xử quốc gia đối với đầu tư nước ngoài và sự tác động của
quy chế này đối với đầu tư trong nước (National treatment to foreign investors and its affect to domestic
investors), Master thesis, Ho Chi Minh University of Law.

3


relationship between market access and national treatment in the GATS rather than
focus on the domestic regulation of Vietnam related to foreign investment.
There is also bachelor thesis of Nguyễn Thị Tuyết Minh on “Hiệp định chung về
thương mại dịch vụ (GATS) và pháp luật ngân hàng Việt Nam trong quá trình gia
nhập” (General Agreement on Trade in Services (GATS) and Vietnamese
legislation on banking in accession period).11This thesis‟ main aim is to provide an
overview about the GATS and regulations on banking of Vietnamese. It is different
with the author‟s thesis as it does not study about national treatment and its
implementation to Vietnamese regulation.
Additionally, there are book by Vũ Như Thăng on “Tự do hóa thương mại dịch vụ
trong WTO: Luật và thơng lệ” (Liberalization in trade in services of WTO: Law and
common policy)12 or the journal of LLM. Vũ Anh Thư: “Áp dụng nguyên tắc không
phân biệt đối xử trong các cam kết về thương mại dịch vụ của Việt Nam khi gia
nhập WTO” (Application of national treatment of Vietnam in the accession
commitment to WTO in trade in services) also study on National treatment in
general.
These books and papers help the author to have better understanding and profound
knowledge about the topic to provide accurate and adequate information for the

purpose of the thesis. However, as there is no research or any scholarly works focus
on national treatment in financial services and the effect of national treatment to
Vietnamese regulations on financial services, the thesis on this matter is not
identical to any published scholarly works of any author.
1.3

The purpose of conducting the thesis

The thesis is conducted with two major purposes:
Firstly, the aim of the research is to provide an overview about national treatment in
GATS and how national treatment is adapted to characteristics of the trade in
services. Furthermore, by descriptively analyzing national treatment disciplines, the
thesis shall clarify the interrelationship of national treatment and market access in
GATS and provide possible approaches to address the overlap between national
treatment and market access.
Secondly, by studying on specific national treatment in financial services and the
exemption designated for this specific sector, the study shall specifically concern on
the assessment of national treatment and market access in banking and securities
11

Nguyễn ThịTuyết Minh, Hiệp định chung về thương mại dịch vụ (GATS) và pháp luật ngân hàng Việt Nam
trong quá trình gia nhập (General Agreement on Trade in Services (GATS) and Vietnamese legislation on
banking in accession period), Ho Chi Minh University of Law, Bachelor thesis.
12
Vũ Như Thăng (2007), Tự do hóa thương mại dịch vụ trong WTO: Luật và thông lệ (Liberalization in trade
in services of WTO: Law and common policy), Ha Noi Publishing.

4



sectors under the commitment of Vietnam to WTO and its implementation to
domestic regulations. Last but not least, subsequently to identifying the imbalance
or disparities between the regulations of Vietnamese law and the commitment of
Vietnam to the WTO in banking and securities regulations, the thesis shall give
possible solutions to improve or shorten the gaps of the Vietnamese law with the
commitment to WTO.
1.4

Scope of the thesis

National treatment under GATS is different from national treatment under the
GATT as it is not a general principle but special commitments of WTO Members in
each sector. Therefore, the main scope of the thesis will focus on the functioning of
national treatment obligation with respect to financial services and its effect on
domestic financial services regulations.
On the first part, prior to study about national treatment under the GATS, it is
important to have an overview about the GATS including its history and purpose of
establishment. Consequently, the thesis will focus on descriptive analysis of
national treatment which is regulated at Article XVII of the GATS and compare this
principle with that of the GATT. One of the significance of the study is to study
about the interrelationship of national treatment with market access and provide
possible methods to address the overlap issue and in order to do that, a short
introduction about market access will be employed.
The second part of the study deals with application of national treatment in financial
services and the exceptions for this sector. The thesis will define legal ground for
national obligation in financial services sector and introduce its exceptions
including general exceptions and specific exceptions which designated for trade
related to financial services. The exceptions the thesis shall focus on including
exception to protect the Balance of Payments (Article XII of GATS), exception on
Government Procurement (Article XIII of GATS), General Exceptions regulated at

Article XIV of GATS, Security Exception pursuant to Article XIVBis of GATS and
regulations on Prudential Crave-out under Annex on Financial Services.
Last but not least, the thesis will focuses on understanding national treatment
commitment of Vietnam in financial services sector. Given the constraints of a
bachelor thesis and timeframe‟s limitations, the thesis will not study on the
implementation of national treatment obligation in practice of all trade in services
and measures to ensure national treatment obligation in practice. Nonetheless, the
thesis will focus on the implementation of national treatment commitment in
Vietnamese legislation of financial services, particularly in banking and securities
sectors. By assessing the regulations in these two services sector, the thesis shall
demonstrate the effects of national treatment to foreign investment in financial
5


services and compare the disparities between the commitment of Vietnam in WTO
and our current regulation and/or to find possible solution to improve our
legislations.
1.5

Research Methodologies

As the thesis is conducted in English and solely focuses on international law and
giving comparison with domestic regulations, the main methodologies used to
studying on the topic is analytic method, synthetic method, comparative legal
analysis method, and exploratory method.
Firstly, analytical method aims to collate, organize and describe descriptively legal
rules and to offer commentary on the emergence and significance of the
authoritative legal sources in which such rules are considered, in particular, case
law, with the aim of identifying an underlying system. Through analyzing
regulations under GATS about national treatment, the thesis shall identify the scope

of application of national treatment and the relationship between national treatment
and market access.
The thesis uses comparative legal analysis to analyze and compare regulations
under GATT and GATS for readers to have an overview about national treatment in
general and in trade in services in particular. This method is also employed to
compare Vietnamese regulations with the commitment of Vietnam in WTO to find
the disparities between them and to access the current legislation whether it is in
accordance with the Commitment of Vietnam in WTO or not. After determining the
disparities or the differences, comparative legal analysis again applied to compare
Vietnamese regulation regarding financial market with other legal system to find
more efficient solutions to resolve the disparities.
Exploratory method is also used to provide solutions to improve our law.
Exploratory method is about indicating the implications of possible developments
or events that may lie outside of these familiar trends based on the present situation.
Exploratory method would be helpful to locate turning points or policy actions that
could create a more desirable future. Based on the present trends of financial market
as the starting point, the thesis will use exploratory method to give possible
solutions to the more efficient operation of Vietnamese law in the near future.
Last but not least, the thesis applies synthetic methodology to conclude the analysis
or to give an overview about the arguments or to give commentaries of the author
about specific legal aspect of the study.

6


1.6

Structure of the thesis

Besides the Introduction to introduce about the thesis and the Concluding Remarks

to summarize main ideas of this thesis, the main content of the thesis comprises of
two chapters and proceeds as follows:
Chapter I gives overview about national treatment under the GATS including the
importance of the GATS in Section 1.1, the legal ground for national treatment
obligation at Section 1.2. In Section 1.2, by illustrating overview about national
treatment under the GATT and descriptive analysis of national treatment disciplines
in Article XVII of GATS, the thesis shall compare differences of this principle
apply to goods and services. This Chapter also identifies the relationship between
market access and national treatment to determine the scope of application and
introduces different approaches to resolve the overlap of application between
national treatment and market access.
Chapter II is designated to illustrate national treatment disciplines financial services
under the GATS and in the accession commitment of Vietnam to WTO.
Furthermore, the thesis aims to assess the implementation of commitments in
banking and securities sub-sectors under Vietnamese legislations (Section 2.3 and
2.4). Prior to do that, it is necessary to understand how financial services and
national treatment in financial services are regulated under the GATS and examine
the specific exemptions in relation to this principle. This will be illustrated in
Section 2.2. The last section in this Chapter is the proposals to improve the
implementation of commitment of Vietnam to WTO in general and national
treatment in particular to Vietnamese legislation.

7


CHAPTER I.
1.1

OVERVIEW ON NATIONAL TREATMENT UNDER
THE GATS


Introduction

The GATS, which came into force in 1994, is a positive result of the Uruguay
Round. As a set of separate annex to the Marrakesh Agreement Establishing the
WTO, in the accession to WTO, Members shall be subject to the GATS and all
provisions provided therein including national treatment principle.
National treatment obligation under the GATS was inspired by that of the GATT.
However, national treatment under the GATS is subject to specific commitment of
Member and not a general principle as provided under the GATT. By analyzing the
nature of national treatment under the GATS, we can compare and explain the
resemblances and differences of this principle under the GATT and GATS.
However, prior to analyze national treatment under GATS (Section 1.4), it is
essential to provide the basis of the GATS such as the purpose for establishment of
the GATS and its structure (Section 1.2).
As mentioned in the Introduction, the relationship between market access and
national treatment in trade in services is complicated and rather confusing, which
causes the overlap in scope of application between those regulations. The possible
approaches to address the overlap issues which were agreed by major WTO
Members are described in Section 1.4.
1.2
1.2.1

History background and structure of the GATS
The purpose and historical background of GATS

After the success in reducing barriers in trade in goods by GATT, economist and
policy makers began to turn attention to liberalize services merchandise by
establishing a multilateral agreement aimed at eliminating barriers to international
trade in services.13 Despite the increasing importance of services in economic

growth of countries, occupying as much as 70%-80% (seventy per cent to eighty per
cent) of the GDP of developed countries and around 40% (forty per cent) of
developing countries14, the attention to create legal basis for liberalization in trade
in services did not grow until trade negotiations in the 1980s. The GATS, which is a
major achievement of the Uruguay Round trade negotiation held from 1986 to 1993,
is the first multilateral trade agreement to regulate trade in services among WTO
Members.
13

14

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 (2014), Ratio of services sector in GDP of the world, OCED National account data files,
retrieved from http://data.worldbank.org/indicator/NV.SRV.TETC.ZS/countries/1W?display=default:
(last visited on 24 May 2014).

8


In the past, international economists have ignored liberalization of trade in services,
but technological progress and international trade negotiations are likely to keep
liberalization of trade in services a high-profile policy issue.15 Before the
establishment of the GATS, even for developed countries, there is perception that
services are non-tradable and that they are exclusively domestic activities.
Traditionally, large areas of services such as transport, telecommunication, and
energy have been viewed as being owned and controlled by governments, in other
words, subject to government monopoly.16 Other services, such as education, health
care, at a certain degree, are still under government control. Services are also
dependent on the factors of production such as labour, capital and technology.

Therefore, in order to liberalize services sector, liberalization of these factors of
production is necessary. However, from political perspective, in some cases, it is
difficult to achieve liberalization in these factors, such as in labour mobility.
17
Thanks to technology changes as well as privatization in many areas of services,
policy makers and economists realize that low cost and high quality services are
important for the growth performance of the economy, hence, the dire need for
establishment of multilateral agreement to process the internalization of services, to
create competitive and effective services market.
WTO Members realize that liberalization of trade in services is important as
services are considered the real engine of economic growth. First and foremost,
services provide inputs for all of other sectors of an economy. When there is an
efficient, competitive transport services, it will affect the cost of shipping goods and
movement of labourers within and between countries. Likewise, internationalization
in business services such as accounting, consulting and legal services reduce the
transaction costs and process the transition of innovations among countries. Health
and education services are also key inputs into the stock and growth of human
resources.18Secondly, services also perform important public functions. For
demonstration, education, health care, and energy provide essential public
functions. Economic evidence demonstrates that, wherever the comparative
advantage of a country might lie, a proper and functioning services sector would be
likely to boost economic growth.

15

16

17

18


Bernard Hoekman& Carlos A. Primo Braga (1997), “Protection and Trade in Services”, World Bank,
Policy Research Working Paper No. 1747, Apr. 1997, pp.3-4,
retrieved from
http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-1747 (last visited on 24 May 2014)
A WTO Secretariat Publication Prepared by the WTO Trade in Services Division (2005), A Handbook on
the GATS agreement, Cambridge University Press, pp.1.
Dr Surya P. Subedi D Phil (2012), Text book International Trade and Business Law of Hanoi Law
University, Section 4, 1sted, The People‟s Publish Security Publishing House, pp.170.
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.

9


For the above reasons, the GATS was established with its major purpose to abolish
direct and indirect barriers to international trade in services, consequently,
enhancing its worldwide development.19Furthermore, by taking advantage of trade
expansion, the GATS aims for its ultimate purpose: to promote growth and
development. In order to promote progressive liberalization through negotiations,
the GATS aims at improving market access and extending national treatment for
foreign services and services suppliers in a wider range of sectors. It does not
eliminate the right of governments to regulate their laws to meet their national
policies, which are especially important for developing countries.20 Therefore, the
GATS was established as a legal framework for WTO Members to regulate their
domestic regulations associated with the GATS for improving efficiency.
In conclusion, the GATS is a multilateral agreement aimed at eliminating barriers to
international trade in services. It was concluded in 1994 and came into force in 1995
and considered as one of the WTO agreements which applies to all WTO Members.
1.2.2


The substance and structure of the GATS

As stated above, the GATS provides legal framework for trade in services, covers a
wide range of services and also calls out attention for liberalization of regulations
that hinder trade and investment in services. However, due to distinctive
characteristics of services, which adversely affect their tradability, it was a
challenge for negotiators and drafters of the GATS to create a regulatory platform
for services, which is an issue nothing similar to any other issues. The design of the
GATS stands out among other WTO Agreements and provides a comprehensive
discipline governing international transaction in services.
The GATS is divided into three main bodies. The first segment comprising of
twenty eight articles sets out disciplines for trade in services. The second segment
includes eight annexes to clarify or set out specific provision. The third part is the
Schedule of Specific Commitment of the Members.
The first segment is structured in seven parts. First is the Preamble describing the
basic principles of the GATS, the philosophy behind it and its goals. Part I (Article
I) defines the scope of application and provides general definition of modes of
supplies. Part II comprises of fourteen articles (from Article II to Articles XV
regulating about general obligation and disciplines applied to all services sectors ad
its exceptions. In contrast, Part III (Article XVI, XVII, XVIII) is the specific
19

20

The Preamble of the GATS, see also the Panel report in WT/DS363/R China – Publications and
Audiovisual Products, n.8, para. 7.1219, 7.1348 : “the aim of establishing a multilateral framework of
principles and rules for trade in services with view to the expansion of such trade under conditions of
transparency and progressive liberalization” and “to securing the overall balance of rights and
obligations between the Members”.

A WTO Secretariat Publication Prepared by the WTO Trade in Services Division, supra note 16, pp. 296.

10


commitment including regulations about market access, national treatment and
additional commitment which only apply to specific services and modes of supply
scheduled by each Member. WTO Members are only obliged to enter into a specific
commitment only if they has voluntarily agreed to be bound by the obligations;
otherwise, they are not subject to any obligation. It is a main difference between
Part II and Part III of GATS as provisions in Part II apply to all service sectors
irrespective of whether a Member has scheduled a commitment in this sector or not.
Part IV and Part V contain provisions regarding enhancement of trade liberalization,
improvement of specific commitment and “institutional provisions” respectively.
Last but not least, Part VI includes provisions dealing with denial of benefit and
attached annexes.
From the overview of Part II and III of the GATS, it can be seen that the agreement
creates three types of obligations for its Members, namely (i) unconditional and (ii)
conditional obligation.
(i)

Unconditional obligation

Unconditional obligations, which can be found in Part II of the GATS, are called
mandatory obligations or the top-down as they are applied to all services. 21 This
category includes Most-Favoured-Nation (“MFN”) and transparency commitment.
These two general principles were transited from the GATT and apply to
government policies affecting trade in services.
Transparency obligation requires governments of Members to publish all measures
of general application for services such as laws, regulations, rules, procedures,

decisions, and administrative actions regulated in both domestic regulations and
international agreements, as well as changes thereto.22 Furthermore, WTO Members
are also required to promptly respond to request for information by other Members,
and establish enquiry points. Drafters of the GATS took inspiration from the GATT
by using terms and concepts that have been demonstrated for decades in
merchandise trade. Therefore, transparency and predictability, the fundamental
obligations in the GATT are also implemented in the GATS. The key factors for an
effective market are having transparent and predictable rules and regulations so the
traders can invest and conduct business.
MFN is also a core general obligation of the GATS binding on WTO Members.
MFN principle is universally applied immediately and unconditionally to services
and service suppliers of any other Members; a “no less favourable” treatment
compared to “like” services and services suppliers of any other country.

21
22

Nellie Munin (2010), Legal Guide to the GATS, Chapter II, Part II, Kluwer Law International, pp.22-25.
Article III of GATS.

11


Transparency and MFN are crucial elements for competition in domestic market,
however, it does not necessarily lead to liberalization or limit the autonomy of
domestic regulations. Thanks to transparency principle, foreign services are more
aware of business opportunities in other country, thus, the scope of competition in
domestic services market will be enhanced. It should be noticed that equal treatment
for any services from different origins will help consumers gain access to the most
competitive foreign providers of services. However, these elements are not key

factors to help liberalize trade in services.23
(ii)

Conditional obligation

Conditional disciplines apply to subsectors in which a Member has made specific
commitment and can be found in Part III of the GATS, including market access and
national treatment, which are often called bottom-up obligation. This is because
they only apply to what Members voluntarily choose to include various subsectors
in its schedule of specific commitment; otherwise, the default is no commitment.24
To improve liberalization of trade in services, governments have made specific
commitment in their schedules, either due to the pressure of demand from other
negotiators in Uruguay Round or bilateral negotiations or on an autonomous basis.
The purpose of these commitments is to balance Member‟s domestic regulatory
autonomy and trade liberalization as domestic regulation may have adversely
protectionist effects.
Besides national treatment and market access, there is another kind of specific
commitment namely additional commitment which cannot be qualified in the
schedule of commitment. Additional commitment can be modified or withdrawn,
but only three years after the commitment has come into force, and subject to
negotiations. The purpose of these negotiations is to agree on compensation in the
form of alternative market-opening adjustment, and with MFN as a basis to all
WTO Members.25
Despite the fact that drafters of the GATS took inspiration from the GATT to set out
discipline for trade in services, the structure of the GATS is not analogous to the
GATT and other WTO Agreements.26. This is due to typical characteristics of
services such as: (i) intangibility, which means it is subject to invisible barriers and
make international transactions in services hard to monitor; (ii) non-storability,
which means production and consumption often occur at the same time and the
same place; (iii) differentiation, which means services usually produced being

23

Laura Altinger Alice Enders (1996), The Scope and Depth of GATS Commitment, Blackwell Publisher,
pp.309.
24
Article XVI, XVII of GATS.
25
Laura Altinger, Alice Enders, supra note 24, pp.311.
26
Dr. Surya P. Subedi DPhil, supra note 17, pp.145.

12


accustomed with the need of consumers; and (iv) joint production, which means
customers having to participate in the production process.27
In relation the substance of the GATS, modes of service supply should be noticed as
it is unconventional compared to trade of goods. Drafters of the GATS have
introduced four different modes of supply for trade in services, which are based on
the legal status of services supplier and the movement of the consumer or of the
service supplier:28
 Mode 1 – Cross-border supply: It refers to the services supplied “from
the territory of one member into the territory of any other member”.29 It
means that a consumer receives the services from abroad and does not
require physical movement by the consumer or supplier. Consumers will
receive the products by means of telecommunications or postal
infrastructure. Examples to illustrate are market research reports,
memorandum of legal services, distant training, or architecture drawings.
 Mode 2 – Consumption abroad: It refers to the services supplied “in the
territory of one member to the service consumer of any other member”.30

This mode of supply applied for certain services industry, namely
tourism or healthcare. In this mode of supply, a consumer shall move to
another country (go abroad) to receive a service while a service supplier
remains in his own country. For example, a tourist moves to another
country for traveling and staying in a hotel or a resort, or a patient goes
to a foreign hospital for treatment.
 Mode 3 – Commercial presence: It indicates the mode of supply in which
a service is supplied through “a service supplier of one member, through
commercial presence in the territory of any other member.”31In this
mode of supply, a service is supplied by a company that moves to
another country to provide service by establishing a commercial presence
in that country. Commercial presence in this situation means service is
provided by local affiliate, subsidiary, branch, or representative office of
a foreign company. This concept avoids the requirement that the foreign
entities must be fully incorporated or established in the host state. 32This
mode of supply constitutes majority of trade in services, plays an

27

Bernard Hockman, supra note 18, pp.2967.
See Id. at pp.147.
29
Article I(2)(a) of the GATS.
30
Article I(2)(b) of the GATS.
31
Article I(2)(c) of the GATS
32
Peter Van den Bossche, WerneZdouc, supra note 6 , pp.325.
28


13


important role in foreign direct investment, and is the main channel for
foreign services or services supplier to contest in services market.
 Mode 4 – Temporary Movement of Natural Persons: In this mode of
supply, services is supplied “by a service supplier of one member,
through the presence of natural person of a member in the territory of
any other member.”33This mode of supply services shall be provided by
employees who migrate to work in local affiliate or office of foreign
firms, as well as services of a person who goes abroad to work
independently, such as a doctor or engineering consultant. This mode of
supply may facilitate the exercise of Modes 1 and 3.34However, this
mode of supply is considered to be sensitive as it interferes with
countries‟ sovereign right to control entry of individuals into their
territory and the movement of labour force from one country to another.
This thesis focuses on the scope of application of national treatment in four modes
of supplies which is included in specific commitments in order to analyze national
treatment under the GATS in general and in financial services sector.
1.3
1.3.1
1.3.1.1

The substances of national treatment obligation under GATS
National treatment in general and the execution of this principle in
the GATS
Overview of national treatment in general and in the GATT

In general, national treatment prohibits a country from discriminating against other

countries.35 In other words, it was established to ensure equal treatment between
host country and foreign countries. Purpose of national treatment on one hand, is to
prevent countries from taking discriminatory measures on imports. On the other
hand, it shall help to prevent countries from offsetting the effects of tariffs through
non-tariff measures and to prevent domestic tax and regulatory policy from being
used as protectionist measures that would defeat purpose of tariff bindings.36
National treatment, together with MFN, is two aspects of non-discrimination
treatment exist in many areas from trade, investment o patent law or copyright law 37
or even criminal law.38With respect to WTO Agreements, national treatment can be

33
34

35
36

37
38

Article I(2)(c) of the GATS.
R. Chanda (2001), Movement of Natural Persons and the GATS, 24 The World Economy, Blackwell
Publishers Ltd, pp.631-643.
Peter Van den Bossche, Werne Zdouc, supra note 6, pp.70.
John Howard Jackson (1997), The World Trading System: Law and Policy of International Economic
Relations, 2nded , MIT Press, pp.213.
Article II of Paris Convention for the Protection of Industrial Property, 1883.
See id. at 37.

14



found in three main areas: trade in goods39, trade in services40 and trade-related
intellectual property rights.41 Moreover, one of plurilateral agreements namely the
Government Procurement Agreement also contains national treatment provision in
Article III.
Although the thesis mainly focus on national treatment under GATS, it is essential
to study about national treatment under the GATT as GATS is broadly model on the
GATT.42 National treatment principle is regulated under Article III of the GATT,
whose characteristics are as follows: firstly, national treatment is general obligation
applied to imported products regardless of whether Members have set tariff barriers
on them or not. Secondly, national treatment as same as MFN, applies to both de
factor and de jure discrimination. Thirdly, Article III of the GATT applies only to
internal measures, not to border measures.
General meaning of national treatment is provided in Paragraph 1 of Article III of
the GATT: “The contracting parties recognize that internal taxes and other
internal charges, and laws, regulations and requirements affecting the internal sale,
offering for sale, purchase, transportation, distribution or use of products, and
internal quantitative regulations requiring the mixture, processing or use of
products in specified amounts or proportions should not be applied to imported or
domestic products so as to afford protection to domestic production.” This
paragraph sets out the first and crucial purpose of national treatment clause which is
to avoid protectionism. In Japan- Alcoholic Beverages, the Appellate Body stated
that “Article III: 1 articulates a general principle” which “informs the rest of Article
III.”43
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
“like products” is contained in the first sentence of Article III:2 of GATT: “…
[T]he products of the territory of any contracting party imported into the territory
of any other contracting party shall not be subject, directly or indirectly, to internal

taxes or other internal charges of any kind in excess of those applied, directly or
indirectly, to like domestic products”.
39
40
41

42

43

Article III of GATT.
Article XVII of GATS.
Article 3 of Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994,
Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, THE LEGAL TEXTS:
THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 320
(1999), 1869 U.N.T.S. 299, 33 I.L.M. 1197 (1994) [hereinafter TRIPS Agreement].
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
(eds), Cameron May, pp.184.
Appellate Body Report, Japan –Alcoholic Beverages. WT/DS8/AB/R, WT/DS10/R, WT/DS11/AB/R,
Section G.

15


From the above mentioned provision, it is understood that whether there is a
violation of Article III:2 of the GATT, two-tier test should be set out: (a) whether
imported and domestics products are like products and (b) whether the imported
products are taxed in excess of domestics products. If the answer to both questions
is positive, the violation of first sentence of Article III: 2 is found.44

In order to examine “likeness” of products, it should be noted that there is no
definite procedure to examine “like products”; and it must be based on case by case
approach using three criteria, namely the product‟s end-users in a given market,
consumers‟ tastes and habits, and product‟s properties, nature and qualities. This
approach is from conclusion in Working Party Report on Border Tax Adjustments 45
and being cited again in Japan – Alcohol Beverages case, the first case where
Article III:1 was found violated.46 In Japan-Alcoholic Beverages II, the Appellate
Body reaffirmed the approach which has been introduced in the 1970 Report on
Border Tax Adjustment. However, it should be noticed that the range of “like
products” should be kept narrow and tariff classification based on Harmonized
System shall help in determining the “likeness”.47
In relation to the second element regarding the internal taxation to foreign services
or service suppliers exceed of the internal taxes applied to like domestic products,
three steps should be taken. Firstly, as same as determine “like” products, the
determination of “directly competitive or suitable products” should be made on
case-by-case basis, and should take into consideration of all relevant
facts.48Secondly, competition in relevant markets can be used as a mean to identify
broader category of products that might be described as “directly competitive or
substitutable products”. The Appellate Body in Korea – Alcoholic Beverages has
confirmed that “products are competitive or substitutable when they are
interchangeable or if they offer alternative ways of satisfying a particular need or
taste”.49 Thirdly, in order to determine whether two products are directly
competitive or substitutable, common end-uses, as shown by elasticity of
substitution should be examined carefully.50
44

Appellate Body Report, Canadian Periodicals: Canada - Certain Measures Concerning Periodicals, AB1997-2, WT/DS31/AB/R, para. 468.
45
Report of the Working Party on Border Tax Adjustments, p.102, paragraph 18, adopted on 2 December
1970, BISD 188/97.

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.

16


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 held that “similar tax” and the phrase “in excess of” do not
have the same meaning.51Furthermore, the differential taxation must be more than
the “de minimis” to be deemed “not similar taxed”, and should be determined based
on case-by-case basis.52
The last step in the national treatment test under Article III:2 is only taken in case
“directly competitive or substitutable” products are not “similar taxed”. In case
there is dissimilar in taxation, it is crucial to identify whether the tax applied is to
afford protection. In order to answer this question, it is required a comprehensive
and objective analysis of the structure and application of the measure which applies

to domestics as compared to imported products.53The three tests applied by the
Appellate Body in Japan – Alcoholic Beverages have been followed by panels and
altered by other Appellate Body in other cases related to tax or regulatory measures.
It should be noted that national treatment in GATT not only applies to fiscal
measures but also non-fiscal measures, which is regulated under Paragraph 4 of
Article III.54 Pursuant to the Appellate Body in Korea – Various Measures, in order
to establish a violation in Article III:4, three elements shall be satisfied: (i) the
measure is a “law, regulation or requirement” which affect internal sale, offer for
sale, purchase, transportation, distribution, or use of domestic and imported
products; (ii) there is a “likeness” between domestic products and imported products
sold in domestic market place; and (iii) less favourable treatment has been afforded
in the imported products than to the like domestics products.55
In order to prove the first element, in many cases, the Panel or the Appellate agreed
that the term “affecting” should be interpreted widely and so does for the
government action.56For the second element, Article III: 4 only apply to “like”
products and does not apply to “directly competitive or substitutable” products,
therefore, determination of “like” products in Article III:4 shall bear differences
compared to Article III: 2. In identifying “like” products under Article III: 4, it is
essential to take into account the principle of anti-protectionism in Article III:1.
51
52
53
54

55

56

See id. at para. 118.
See id. at para. 119.

See id. at para. 120.
Article III:4 of the GATT say: “The products of the territory of any contracting party imported into the
territory of any other contracting party shall be accorded treatment no less favourable than that
accorded to like products of national origin in respect of all laws, regulations and requirements affecting
their internal sale, offering for sale, purchase, transportation, distribution or use.”
Appellate Body Report, Korean – Measures Affecting of Fresh Chilled and Frozen Beef (Korean –
Various Measures), WT/DS161/AB/R, adopted 10 January 2001, para. 133.
Appellate Body Report, United States – Tax Treatment for Foreign Sales Corporation – Recourse to
Article 21.5 of the DSU by the European Communities , (US-FSC (Article 21.5 - EC) , WTDS/108/AB/R,
para. 208-210, pp.65.

17


This is because protectionism exists only in competitive relationship, therefore, the
Appellate Body held that determination about “the nature and extent” of
competitive relationship between products is essential in determining “like”
products under Article III:4.57However, no matter how broad the concept of “like”
products in Article III:4 is, its concept shall not be broader than “like” products‟
concept under Article III:2 and should be based on case-by-case basis. The final
element is only considered when the two mentioned elements are satisfied. In
another words, only when there is differential treatment of “like” products amounts
to “less favourable treatment” between imported products and domestic products,
there would be violation of Article III:4. The Appellate Body in EC – Asbestos
stated that even where products are in close enough relationship to be considered
“like”, members of that class or group of “like” products may still be distinguished
in regulation provided that the result is not that of less favourable treatment,
understood as protection of domestic production.58
The initial analysis of national treatment principle under the GATT is necessary as
it is provide profound foundation to understand about national treatment under the

GATS, which is described in the next section.
1.3.1.2

Negotiation history of national treatment in the GATS

Despite the long history of national treatment, national treatment in trade in services
was still a new topic and it is worth considering the foundation of this principle in
the negotiation of the GATS.
In 1980, the United States suggested negations for framework of trade in services
comparable to the GATT, including national treatment principle. In 1986, service
negotiation was conducted under guidance of Group of Negotiations on Services
(“GNS”), a part of the Trade Negotiations Committee.59In the negotiations at Punta
de Este, negotiating countries knew that it was worth trying to examine how far
GATT‟s principles could be applied to services.60 Discussion in the GNS, some
countries believed that national treatment might be difficult to apply to services than
goods. One country even thought that the concept of national treatment was the
most complex in the negotiations.61With some countries, non-discrimination
principle, especially national treatment should be fundamental and unconditional
principle in services agreement, while other believed that it might not be practical

57

58
59
60
61

Appellate Body Report, European Communities – Measures affecting Asbestos and Asbestos containing
products (EC-Asbestos), WT/DS135/AB/R, para.94, pp.36.
See id. at para.100, pp.38.

Ministerial Declaration on the Uruguay Round: Declaration on 20 September 1986, para. 101-102.
Note on the Meeting of 23-25 Feb.1987, 20 Mar 1987, MTN.GNS/7, para.29.
Opinion of representative of India included in the Note on the Meting of 17-21 July 1989, para. 212,
MTN.GNS/24, August 1989.

18


as their domestic legislature would not be ready to open up services market to
countries which did not offer similar openings in return.62
In October 1987, the United States submitted comprehensive proposal, which
proposed GNS to include national treatment as general principle to enhance
liberalization of trade in services. In 1988, the Montreal Agreement was made,
including a list of principles applicable to trade in services, such as transparency,
market access, national treatment, etc., which was what the United States suggested.
In Montreal Declaration, there was preliminary definition of national treatment for
trade in services:
“When accorded in conformity with other provisions of the multilateral
framework, it is understood that national treatment means that services
exports and/or exporters of any signatory are accorded in the market of
any other signatory, in respect of all laws, regulations and
administrative practices, treatment „no less favorable‟ than that
accorded domestic services or service providers in the same market.”63
This provision only provided that national treatment principle shall be applied to
foreign services or service exporters in the same market with domestic services and
service providers. It does not set out any criterion to compare domestic services or
service providers and foreign services or service suppliers, therefore the scope of
national treatment still remains unclear. According to Montreal Agreement, national
treatment to be one of the four basic principle governing trade in services, which
confirmed the initial opinion of the United States. On the other hand, European

Communities (“EC”) tended to regard national treatment as soft obligation.64 In
addition, there was opposition from developing countries, which considered general
obligation of national treatment was unacceptable. For example, Brazil directly
stated that “developing countries should not be expected to undertake the same level
of market access or national treatment commitment of developed countries.” 65 In
the end, the view of EC and developing countries prevailed, resulting the national
treatment obligation in the final agreement was not general principle.
In July 1990, the Chairman of the GNS issued Draft Multilateral Framework for
Trade in Services (the “Chairman’s July Text”), which included national treatment
article in Article XVII as follows:

62

63

64
65

John Croome (1999), Reshaping the World Trading System: a History of the Uruguay Round, 2nded
Kluwer Law International, pp.102.
Ministerial Declaration (1993), MTN.TNC/8, Volume III: Document 62, Terence P. Stewart ed., Kluwer
Law and Taxation Publishers, Part II:7(c).
Note on the Meeting of 17-21 July 1989, MTN.GNS24, para 214.
Note on the Meeting of 17-21 July 1989, MTN.GNS24, August 1989 para 214.

19


×