II. INTERNATIONAL TRANSACTIONS IN SERVICES

national treatment (such as: restrictions on living conditions and civil rights, restrictions on the rights of dependants, restrictions on overseas remittances by foreign workers, taxation of foreign services providers); finally, there are (iii) other measures, that usually refer to repatriation and cultural barriers. e) Technology Technology is among the issues of higher prominence in relation to trade in services. The increasing internationalisation of the economic activities together with the emergence of new styles of production and of organisation and the new role of the information technology necessitates a new focus on the role of services. This is so because services are important users of technology and, on the other hand, due to the process of internationalisation and the growing technology-intensity of services, they are potential agents of technology transfer and sources of innovations. The delivery of services to a receiving country (or the production of services inside the boundaries of a consumer country) can imply the use of new technologies. This can raise questions on the effects on local providers of services and equipment, and on the local accumulation of technical capabilities. The selection of technologies and the development of technical capabilities to benefit from this choice is perhaps one of the fundamental aspects of this issue. Four main areas of decision may be identified in this sense: (i) purchase of services and technology-related services; (ii) importation via the physical presence of foreign service facilities (joint-ventures, franchising or through FDI; (iii) purchase of information services (delivered through new telematics media or through electronic and audio-visual media); (iv) purchase for local service organisation of information technology based software and hardware. Another way of classifying technological services transactions is dividing them in 3 groups: (i) transfer of proprietary and non-proprietary technology ( technical assistance agreements and licensing); (ii) delivery of specific technical services (feasibility studies, maintenance and training); (iii) provision of information on the economic and technical characteristics of a certain technology (either included or not in a equipment) as well as alternative technologies available on the market (catalogues, personal contacts or computer systems)

These points are mentioned extensively in: UNCTAD, Technological change in services and international trade competitiveness, (UNCTAD/ITP/TEC/29), 21 July 1991.

III. BASIC PRINCIPLES FOR LIBERALIZATION

1. NON-DISCRIMINATION The term, non-discrimination, refers to two different concepts: one is most-favored nation treatment, defined by Grey (p.17) as "a policy or objective, or treaty rule, that there shall be no difference in the treatment accorded by one country to the companies, nationals, goods, etc. of anther country as compared with the treatment accorded by that country to companies, nationals, goods, etc. of any third country"; the other refers to national treatment which relates to "the treatment accorded by a country to the companies, nationals, goods etc. as compared with the treatment accorded the companies, nationals, goods, etc. of the country itself." The MFN clause in treaties take two forms. One is the "conditional" form which has frequently been a cover for discrimination, and, historically, has been closely related to the interest in securing "reciprocity". The other is the "unconditional" form. a) Most Favored Nation (MFN) The principle of MFN has been adopted in numerous international agreements with respect to various fields ranging from imports and exports of goods, customs tariffs, maritime transport, investment, establishment of foreign jurisdiction persons, intellectual property rights, administration of justice, access to courts and administrative tribunals, diplomatic and consular privileges is: "...treatment accorded by the granting State to the beneficiary State, or to the person or things in a determined relationship with that State, no less favorable than treatment extended by the granting State to a third State or to persons or things in the same relationship with that third State." Strictly in the area of trade, non-discrimination in the GATT is expressed in the MFN principle in its unconditional form (article I of the GATT).

The useful and extensive literature on the treatment of distinct concepts with respect to trade in services includes: Rodney de C. Grey, Concepts of Trade Diplomacy and Trade in Services, Thames Essay No. 56, Trade Policy Research Centre, Gower, 1989, London; UNCTC, Key concepts in International Investment Arrangements and their Relevance to Negotiations on International Transactions in Services, UNCTC Current Studies Series A, No.13, United Nations, New York, February 1990. A more brief treatment of the subject is offered in Richard H. Snape, "Principles in Trade in Services", The Uruguay Round: Services in the World Economy edited by Patrick A. Messerlin and Karl P. Sauvant, World Bank and UNCTC, 1990.       The literature which analyzes the history of the MFN clause and its application include, among others: R. de C. Grey, concepts of Trade Diplomacy and Trade in Services, op.cit.; H. Davis, America's Trade Equality Policy, 1942. G. Schwarzenberger, "The Most-Favored Nation Standard in British State Practice", in The British Yearbook of International Law, Geoffrey Cumberlage, Oxford University Press, Vol. 22., London, 1945; International Law as Applied by International Courts and Tribunals, 3rd edition, Vol.I, Stevens & Sons Ltd., London, 1957; E. Sauvignon, La clause de la nation la plus favorisée, Presses universitaires de Grenoble, Grenoble, 1972; J.H. Jackson, World Trade and the Law of GATT: A Legal Analysis of the General Agreement on Tariffs and Trade, Bobbs-Merrill, Virginia, 1969; Yi Wang, "Most-Favored-Nation Treatment under the General Agreement on Trade in Services--and its Implication in Financial Services", Journal of World Trade, February, No. 1, 1996, pp. 90-124. International Law Commission of the United Nations (Yearbook of the International Law Commission 1978, Vol. II. Part Two, United Nations, New York, p. 21)

III. BASIC PRINCIPLES FOR LIBERALIZATION

The principle requires not only that a trading partner of the agreement be treated no less favorably than any other member, but also that any advantage that is withdrawn from any member has to be withdrawn from all. So long as entry is prohibited to foreigners, the question of MFN does not arise. If entry is allowed, MFN would imply equal opportunity of access for nationals of all other member countries. The exceptions to this GATT principle relate to customs unions and free trade areas and preferences for developing countries. Though it is a basic principle of GATT, the MFN has been also one of the principal principles of several bilateral or plurilateral agreements ((e.g., The Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) and North American Free Trade Agreement (NAFTA)). The GATS incorporates it, for the first time, in a multilateral trade agreement framework dealing with services. Article II of the GATS stipulates: "With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favorable than it accords to like services and service suppliers of any other country." The application of unconditional MFN is relatively easy and visible for those services in which the providers and receivers do not have to come together and barriers to trade resemble tariffs or other measures that are converted into tariff-like levies. The same tariff-like charges would be applied to all parties to the agreement, and reduction in the charges imposed on the imports from any source would be granted to all, whether or not they gave any concessions in return. On the other hand, in cases where entry to an industry is restricted by licensing arrangements, for example, MFN implies equal opportunity for all foreign suppliers when licenses are issued. When a local presence --that is, when the provider needs labor or capital (financial or physical) in the host country-- is involved, requiring visas, work permits and compliance with foreign investment regulations, the MFN principal implies that the labor and capital of all parties to an agreement should be treated equally with respect to entry and, for labor, with respect to professional and related qualifications.

Article XXIV provides an exception to the MFN rule of Article I in the case of the formation of customs unions or free trade areas, or interim agreements leading to such arrangements. Article XXV provides that the Contracting Party (by a two-third majority) may "waive" the obligations of a contracting party, including the MFN obligations of Article I. Bernard Hoekman, Trade Laws and Institutions: Good Practices and the World Trade Organization, Supplementary Paper for the Conference on the Uruguay Round and the Developing Economies, January 26-27, 1995, World Bank. A detailed analysis of the MFN principle under the GATS is offered in Wang, op.cit., pp.91-124. A more general discussion on the GATS' core rules is found in Harry G. Broadman, "GATS: The Uruguay Round Accord on International Trade and Investment in Services", The World Economy, vol.17, No.3, May 1994, pp.281-291. For the meanings and implications of the terms, "immediately", "unconditionally", "treatment", "no less favourable than that...", "any other country", "like services and service suppliers", see Wang, op.cit., pp.96-99.

III. BASIC PRINCIPLES FOR LIBERALIZATION

The foregoing does not mean that all types of labor should be treated equally --only that nationality should not be a criterion for differentiation. Neither, it implies that if a professional qualification is a condition for practice in the host country, qualifications obtained in all countries should be treated equally; it is the quality of the training that is the criterion, not the country in which it is earned. b) National Treatment A complementary nondiscrimination principle is the national treatment rule, but should be distinguished from MFN in the sense that it refers to the treatment of foreign products (or suppliers) not with respect to each other but with respect to national products or suppliers. This principle is expressed, directly or indirectly, in several service-industry agreements (e.g., International Civil Aviation Organization), in many bilateral treaties of friendship, commerce and navigation, in GATT Article III (with respect to goods) and, for the OECD, in the Decision on National Treatment (with regard to firms, including those in service industries). Article III of the GATT requires that foreign goods, once they have passed the customs formalities and paid whatever duties are applicable, be treated no less favorably in terms of taxes, and measures with equivalent effect than domestic firms. In fact, the GATT authorizes or legitimatize certain forms of discrimination against goods produced by foreigners, usually by an import tariff, though in some circumstances quantitative restrictions on imports. Defined this way, national treatment implies that once the authorized form of discrimination has been imposed on a product, there should be no further discrimination according to national source (Snape, 1990, p. 9). With respect to trade in services, Grey (1989, p.39) defines the principle in the following manner: "the rule that, apart from specified exemptions or with regard to particular measures or forms of regulation, the imported product, the foreign-controlled firm which is , established- and the foreign national doing business or carrying on a commercial activity within the domestic jurisdiction are to be treated on the same basis as the domestic or national product, the domestically-controlled firm and nationals."

Richard H. Snape, "Principles in Trade in Services", The Uguruay Round: Services in the World Economy in edited by Patrick A. Messerlin and Karl P. Sauvant, World Bank and UNCTC, 1990.     Detailed analysis on the principle of national treatment includes: from an American viewpoint, John H. Jackson, World Trade and the Law of GATT, Indianapolis, Bobbs-Merrill, 1969, ch. 12, pp. 273-303.; John H. Jackson, Legal Problems of International Economic Relations: Cases, Materials and Texts, American Casebook Series, St. Paul, Minnesota, West Publishing ch. 10, pp. 573-614. For the OECD Decision of 21 June 1976, and subsequent examination, see, National Treatment for Foreign-controlled Enterprises Established in OECD Countries, Paris, OECD Secretariat, 1978; International Investment and Multinational Enterprises: the 1984 Review of the 1976 Declarations and Decisions, Paris, OECD Secretariat, 1984. UNCTC, Key Concepts in International Investment Arrangements and Their Relevance to Negotiations on International Transactions in Services, UNCTC Current Studies, Series A. No. 13, United Nations, February, 1990, Chapter I.

III. BASIC PRINCIPLES FOR LIBERALIZATION

Therefore, a general agreement on services could include a provision for specifying particular means of discrimination against foreign-produced services. "Sector-specific agreements could then identify the particular form or forms of authorized discrimination for the services in that sector, and particular levels of the forms of discrimination could be bound among the parties to that agreement. National treatment would then imply that in all other respects domestic and foreign producers should be treated equally." For instance, though the Chicago Convention establishing the ICAO provides for national treatment in regard to the use of aviation facilities and charges for the use of airports and other facilities, it does not provide for national treatment in regard to route sharing. It should be reminded, however, that such treatment may or may not be identical to that applying to domestic firms, in recognition of the fact that identical treatment may actually worsen the conditions of competition for foreign-based firms (e.g., a requirement for insurance firms that reserves be held locally). For cross-border services, the concept of treatment "no less favorable" in respect of all regulations than that accorded to domestic services in the same market has a clear meaning, because those instruments which affect national treatment are priced-based (i.e. tariffs, taxes and subsidies), aimed at giving a domestic producer or supplier a price advantage relative to a foreign product or supplier. But this definition is plagued by many problems when services are "traded" through the establishment of suppliers in "importing" countries. For example, it might exclude situations in which the domestic provider in the importing country is a monopoly. Another problem arises when one trade partner imposes stricter regulations on its domestic firms than another partner. The EC faced with this problem in the specific context of the banking sector in a debate with the United States and Japan, given that under article 58 of the Treaty of Rome, subsidiaries of non-EC banks benefit from all the rights accorded by Community law. Such cases have led the EC to expand the definition of national treatment (the "no less favorable" clause) by a provision that takes into account the mode of delivery of services in foreign markets. The EC forged the concept of "effective market access" defined as the situation in which service providers of the two countries enjoy "comparable competitive opportunities" in the two markets.

Bernard Hoekman, "Tentative First Steps: An Assessment of the Uruguay Round Agreement on Services", Policy Research Working Paper 1455, European and Central Asia, and Middle East and North Africa Technical Department, Finance and Private Sector Development Team, World Bank, May 1995. Snape, 1990, p.9. Grey, 1989, p.51. Hoekman, 1995, p.8. UNCTAD and World Bank, Liberalizing International Transctions in Services: Handbook, op.cit. UNCTAD an World Bank 1994, ch.VI.     Patrick A. Messerlin, "The European Community", in World Bank and UNCTC, The Uruguay Round, Services in the World Economy, Washington, D.C. and New York, 1990.

III. BASIC PRINCIPLES FOR LIBERALIZATION

The measures that condition national treatment regarding foreign direct investment are well known. The measures which are particularly relevant to services include: i) limits to the scope of business operations, in terms of the type of activities, the geographical location, or the expansion of business operation, and access to local finance; ii) performance requirements which might take form of local content requirement, export requirements, transfer-of-technology requirements, domestic-sales requirements, trade-balancing requirements, employment, personnel and training requirements, etc; iii) investment incentives(e.g., tax holidays, accelerated depreciation, etc.), which are often related to performance requirements, to guide investments to certain sectors; iv) rules relating to external financial transfer (e.g., exchange controls on current account transactions, controls and restrictions on transfers related to FDI, capital movements other than FDI, etc.); and v) tax measures (general taxes, direct and indirect, treatment of FDI, measures to eliminate or reduce double taxation, etc.). Also, the limitations on national treatment involving labor movement may include: i) restrictions on living conditions and civil rights; ii) restrictions on the rights of dependents; iii) restrictions on overseas remittances by foreign workers; iv) taxation of foreign providers; v) restrictions on benefits enjoyed by foreign workers; vi) discrimination against foreign workers in the work place; and vii) restrictions on local government procurement and subsidies. Similarly, when the movement of consumers or buyers to the producing country is involved, the major instruments which condition national treatment are: i)limits on foreign currency available to the traveller (country of origin); ii) taxes on travel (country of origin); iii) regulations relating to transborder medical insurance (country of origin); iv) rules relating to the recognition of educational standards and certificates obtained abroad (country of origin and country of destination); v) restrictions on land ownership (country of destination); vi) restrictions on freedom of movement (country of destination); vi) price discrimination (country of destination); and vii) measures relating to gainful employment (country of destination).

On the instruments relating to national treatment, see: UNCTAD and World Bank, Liberalizing International Transctions in Services: Handbook, op. cit. Chapter IV. For further discussion on TRIMs, see: UNCTC, The Impact of Trade Related Investment Measures, United Nations, New York, 1991.           A concise discussion on the limitations on national treatment in labor movement is provided in, UNCTAD and World Bank, Liberalizing International Transations in Services: Handbook, op.cit., Chapter V. For further study, consult, Thierry Noyelle, Katlen Blöcker, Devak; Chandra Ani Beth Redfield, Trade in labor Services and Temporary Movement of Personnel, Eisenhower Center, Working Paper No.91-08. The Eisenhower Center for the Conservation of Human Resources, Columbia University, 1992. On the measures which might restrict national treatment, see: UNCTAD and World Bank, Liberalizing International Transctions in Services: Handbook, op.cit. Chapter VII.

III. BASIC PRINCIPLES FOR LIBERALIZATION

c) Liberalization and Transparency Another GATT-like principle pertaining to trade in goods relevant to services, embodied in the Declaration of Punta del Este and is common in the OECD instruments in services, is "progressive" liberalization. The connotation of the word, "progressive", is that services structures and capacities vary widely across countries, and that countries would differ in their capacity to liberalize their markets of services. This is to acknowledge that an international agreement on services should respect the policy objectives of national laws and regulations applying to services. Based on this principle, all members should undertake a firm commitment to the objective of liberalization and submit to a regular examination procedure that encourages steady progress toward that goal. This requires that liberalization, once achieved, is irreversible (Standstill), and remaining restrictions are subject to examination with a view toward their gradual elimination (Rollback). Therefore, all members should subscribe to common rules of the game and submit to international surveillance of the way in which they carry out their obligations. For these purposes, the negotiations need to create rules and procedures for formulating disciplines. They also require to establish exceptions that take into account national policy objectives and provisions for further negotiations. Therefore, the term is understood as "the facilitation and promotion of trade across borders and the stimulation of international competition, especially by increasing market access, but with due respect for national policy objectives". (Pipe, 1990, p.111). They also require procedures for withdrawing concessions and for raising barriers, while these measures are seen as temporary deviations from the norm. It is generally known that reductions in tariffs are easier than those in non-tariff barriers, because the former are the most easily identified and the effects of reduction are relatively predictable. However, as Snape argues (1990, p. 10), that non-tariff barriers are the norm for services creates difficulties for liberalization, since it is hard to get agreement for exchanges of concessions on a range of products when the forms of barriers are disparate and the levels often unquantifiable. Standstill applied in services often incorporate important qualifications and limitations, such as on the category of persons, that may supply services, their nationality and residency requirements, limited equity participation, exclusion of acquisition, etc.

For the understanding and implication of the concepts, progressive liberalization and transparency, for the distinct services sectors, consult the individual sector studies in: The Uruguay Round:Services in the World Economy, edited by Patrick A. Messerlin and Karl P. Sauvant, World Bank and UNCTC, 1990; UNCTAD, Trade in Services: Sectoral Issues, New York, 1989; Rainer Geiger, "Lessons from the Experience of the OECD", The Uruguay Round:Services in the World Economy, edited by Patrick A. Messerlin and Karl P. Sauvant, World Bank and UNCTC, 1990; UNCTAD, Trade in Services: Sectoral Issues, op.cit.   (Mario Marconini, "The Uruguay Round Negotiations on Services: An Overview", in The Uruguay Round:Services in the World Economy, op.cit, p.20.     G. Russel Pipe, "Telecommunications" in The Uruguay Round: Services in the World Economy, op.cit., pp.105-113.   Snape, op.cit.

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