UEPLAC analitycal survey on liberalisation of service market by max or

Ukrainian-European Policy and Legal Advice Centre – Phase V

Information-Analytical Survey on: “Liberalisation of Service Market within a Free Trade Area in the EU Conventional Practice”

Kyiv, January 2011

The Project is implemented by UPMF, PAI, FIIAPP, Louis Berger SAS, KLC and HRTA consortium

The Project is funded by the European Union

The Project is implemented by UPMF, PAI, FIIAPP, Louis Berger SAS, KLC and HRTA consortium

Ukrainian-European Policy and Legal Advice Centre â&#x20AC;&#x201C; Phase V EuropeAid/127777/C/SER/UA

INFORMATION-ANALYTICAL SURVEY ON LIBERALISATION OF SERVICE MARKET WITHIN A FREE TRADE AREA IN THE EU CONVENTIONAL PRACTICE

This publication has been produced with the assistance of the European Union. The content of this publication does not necessarily reflect the views of the European Union

Kyiv, January 2011

The Project is funded by the European Union

TABLE OF CONTENTS

OUTLINE

SECTION 1. INTERACTION BETWEEN GATS AND THE FTA PROVISIONS ON TRADE IN SERVICES

SECTION 2. REVIEW OF THE EU CONVENTIONAL PRACTICE ON LIBERALISATION OF SERVICE MARKET WITH THIRD COUNTRIES WITHIN A FREE TRADE AREA

SECTION 3. ANALYSIS OF FTAS` PROVISIONS ON SERVICES LIBERALISATION

3.1. General provisions on services

3.1.1. Cross-Border Supply of Services and Establishment (or commercial presence)

3.1.2. Market Access

3.1.3. National Treatment

3.1.4. Most Favoured Nation (MFN) Treatment

3.1.5. Domestic Regulation

3.1.6. Mutual Recognition

3.1.7. Temporary Presence of Natural Persons for Business

3.1.8. Miscellaneous Provisions - Institutional Issues

3.2. Financial Services

3.3. Information services

3.4. Liability of Intermediary Service Providers

3.5. Transport Services

CONCLUSIONS

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OUTLINE Considering the trade in services, a modern trend implying servicification of economies and, consequently, of trade, is observed by many experts.1 Just to give an illustration, services account for about 77 per cent of the European Union`s GDP and employment remaining the cornerstone of the EU external trade and competitiveness.2 The main reason behind this tendency might lie in the assumption that the services tend creating more and more jobs, being also innovation-focused and flexible in terms of outsourcing, comparing to trade in goods. As a result, the liberalisation of trade in services has been gradually progressing and still shows its potential for far-reaching. Having the above in mind, the purpose of this survey is to provide an overview and analysis of the extent to which the EU-third countries` service markets are liberalised and of existent peculiarities of the Free Trade Agreements` (FTAs) provisions that differ from those under GATS. The general practice serves as a reference point while summing up the EU earlier, recent and negotiated FTAs with its trade partners along with specifying particular provisions therein that go beyond WTO regime. In order to give a complete picture of the service market liberalisation, the subject-matter is explored given its policy, economic and legal aspects. In terms of the structure, this survey contains three interrelated sections. The first section refers to the policy behind services liberalisation in light of the EU conventional practice. It outlines, in particular, a policy shift of the FTAs during the period under examination – from more conservative, with regard to the degree of liberalisation they were aiming to achieve to more ambitious in coverage and liberalisation degree. As the EU is a World Trade Organisation (WTO) Member and already committed by the GATS provisions on services liberalisation, serving as a multilateral backbone for regional/bilateral commitments, Section 1 also describes the relationship between the General Agreement on Trade in Services (GATS) and FTA provisions as well as the actual or potential effect of the FTAs on the multilateral trading system. The second section reviews and analyses selected FTAs by summarising all similar FTAs` provisions and then giving details on peculiar arrangements of parties. The objective is to identify how the various provisions of the FTAs have been developed over time. For the purposes of this survey, the EU conventional practice has been split into the general provisions in services and the sectoral matters presented under sub-sections, namely: 

general provisions in services – scope, cross-border supply of services and establishment, market access, most-favoured-nation treatment, national treatment, domestic regulation, mutual recognition, temporary presence of natural persons for business, and institutional issues;



financial services ;



information services;



liability of the intermediary service providers; and



transport services.

These provisions have been also compared to the relevant GATS provisions, provided in a Box as a background material. The purpose of this comparison is to identify whether and to what extent the FTA provisions actually reflect the policy shift from sole multilateralism towards more ambitious FTAs. Finally, as the FTA provisions in services are quite diverse, the analysis carried out under this survey 1 2

See for instance trade.ec.europa.eu/doclib/html/146553.htm For more details, see http://aprodev.eu/files/Trade/EU%20FTA%20Manual%20fta4_services.pdf 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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allows to draw respective conclusions, summarised herein, on the scope and degree of service market liberalisation, its beneficiaries and international trade tensions as motives of contractors. As over time one could note more ambitious texts in terms of liberalisation, among the recent ones there is only one FTA, the EU-South Korea FTA, negotiated and signed after the policy shift of 2006. As a consequence, it is quite early to conclude on a trend in the EU conventional practice, as it is early to confirm any actual effect of the possible shift in the EU FTA strategy to the multilateral trade negotiations. Section 1. Interaction between GATS and the FTA provisions on trade in services In this section the relationship between GATS and FTA provisions will be examined. In particular, first it will be discussed what was the role of the WTO/GATS negotiations in affecting the FTA negotiations. The policy shift towards more ambitious FTAs will also be discussed. And, secondly, it suggests the nature of potential or actual effect of the FTAs on GATS and on the multilateral trading system in general. In terms of the policy dimension, the EU maintains its commitment to multilateralism, which offers the means to eliminate trade barriers in a stable and sustainable manner.3 To have a positive impact [to the multilateral trading system] FTAs must be comprehensive in scope, provide for liberalisation of substantially all trade and go beyond WTO disciplines. Therefore, the declared EU’s priority is to ensure that the new FTAs serve as a stepping stone and not as a stumbling block for multilateral liberalisation. Along with this, emergence and substance of the new FTAs seem to mark a response to lack of substantial progress on multilateral negotiations. The relationship between GATS and the FTAs As the conventional practice proves GATS serves as a basis for the FTA negotiated by the European Union. In terms of drafting, GATS sets down the general framework for trade in services, which applies to all WTO Members including the EU. GATS contains the main terms and definitions, which are further used by its members for the negotiation of free trade agreements. In the same way, the FTAs use inter alia the four modes of supply of services as those used under GATS, provide the same definitions for MFN and National treatment (NT) etc. Similarly, for example, the minimum platform on investment for FTAs – an internal document in DG trade setting down the minimum standards – as a draft legal text, where negotiations for relevant provisions would start, it reaffirms the basic GATS provisions on MFN, NT and market access.4 Assessing the final text of the FTAs examined in this survey, one may witness that in certain cases the FTA just follows the GATS commitments. In other cases, the FTAs appear more ambitious in coverage and achieve higher degree of liberalisation. This mainly reflects a policy shift which is described in the following paragraphs, or sometimes the degree of liberalisation that the trading partner is ready to reach (as for example, the case of EU-Algeria FTA). The policy shift of the FTAs – from more conservative, with regard to the degree of liberalisation they were aiming to achieve to more ambitious in coverage and liberalisation – has been linked to the progress (or lack of) the WTO negotiations. This was clearly stipulated in the 2006 document 'Global Europe',5 stating that: 3 4 5

‘Global Europe: Competing in the World’ EC Communication of 4 October 2006 http://www.iisd.org/pdf/2006/itn_ecom.pdf ‘Global Europe: Competing in the World’ EC Communication of 4 October 2006 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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‘With regard to FTAs (bilateral and regional agreements), if approached with care they can build upon he WTO and address matters that are not yet subject of WTO disciplines or go beyond whatever multilateral disciplines have been agreed. The new FTAs should be more comprehensive and ambitious in coverage aiming at the highest possible degree of trade liberalisation including far reaching liberalisation in services and investment. Where the trade partners have signed FTAs with other countries EU competitors, the EU would seek with the FTAs full parity at least.’ This communication marked an external trade policy shift from an almost exclusive focus on multilateral rule-making, which had been the norm in recent years.6 From 1999 until the recent policy shift, the EU exercised a de facto moratorium on new FTA negotiations. This was not a formal policy, but was based on a consensus of the Member States and the Commission during the preparations for what was then to be called the Millennium Round of the WTO. This remained the policy of the Union despite the difficulties in launching a new round. After the Cancun WTO Ministerial at which the EU effectively allowed three of the ‘Singapore issues’ (investment, competition, and transparency in government procurement) to be dropped from the Doha Development Agenda (DDA), the EU continued to favour multilateral negotiations. Only as the prospects of an ambitious comprehensive round have diminished the pressure for FTAs with Asian states has grown. During the Prodi Commission, the DG Trade Commission held to the moratorium because new bilateral negotiations would have weakened the EU’s position in pushing for a comprehensive multilateral round. First reason for the shift of policy can be attributed to the difficulties in multilateral negotiations under WTO’s Doha round and the EU’s failure to achieve a comprehensive WTO agenda. Another reason appears related to the US trade practice as the States have been using extensively the FTAs as a means to trade liberalisation and as an alternative to multilateral liberalisation. A third reason might lie in the economic growth in Asia, with a number of FTAs accompanying this growth. Effect of EU FTAs on GATS and WTO negotiations All things considered, it seems early to conclude on what is the effect of the shift in the FTA policy in the WTO negotiations. The main reason is that there is only one FTA currently and very recently signed, the EU-South Korea FTA, which reflects this trend, and although there are other FTAs currently negotiated on similar terms, the negotiating parties have not yet reached an agreement. However, one statement is definitely valid, that the EU policy shift to more ambitious FTAs has not affected the EU commitment to multilateralism. The EU explicitly states its commitment to multilateralism in the FTAs it signs or negotiates. In addition, there has not yet been reported any shift in the negotiating strategy of the EU in the WTO level. It is still of great importance that in cases where the negotiating partner of the EU does not participate in the multilateral trading system, the effect of FTAs can be more obvious. As in case of the FTA with Algeria, which is not yet a WTO Member, the FTA introduces notions and principles used in GATS. Such commitments can be considered to smooth the way of Algeria to WTO membership and have an overall positive effect on multilateralism. As a future perspective, the conditions are in place for a potential positive impact of the new FTAs on the multilateral trading system. As long as the FTAs are comprehensive and clearly drafted and, at the same time, provide for ambitious liberalisation and go beyond GATS provisions, then they can potentially serve as a stepping stone and not as a stumbling block for multilateral liberalisation.

Woolcock, S: ‘European Union policy towards free trade agreements’, ECIPE Working paper 3/2007 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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Section 2. Review of the EU conventional practice on liberalisation of service market with third countries within a free trade area The purpose of Section 2 is is to examine the EU FTA practice on liberalisation of services. The purpose of this section is to highlight, with practical examples, the policy shift from the exclusive focus of multilateral rule making towards more ambitious FTAs. In order to discuss to what extent this has been achieved, it is necessary to compare the relevant FTA provisions with the GATS provisions: If the FTA provisions constitute a mere repetition or reaffirmation of the relevant GATS provisions, then the FTA has not achieved a higher degree of liberalisation than the multilateral rules; it is a proof that Parties rely mainly on the multilateral trading system for liberalisation. Where there are examples that the FTA provisions are clearer, more detailed, providing for more liberalised trade in services between the negotiating Parties than the relevant GATS provisions, then this is an example of a policy shift towards more ambitious FTAs. It should be noted that there are cases where the FTA provisions do not merely reach the degree of services liberalisation provided in the GATS. These are the cases where the trading partner of the EU and negotiating party to the agreement are not WTO Members; in such cases it is interesting to see to what extent the FTA includes provisions reaffirming GATS commitments, to prepare and ease the path of its negotiating partner to WTO accession. The review of the EU FTAs with third parties reveals a general trend of liberalisation of trade in services, described in the below table. EuroMediterranean Agreements CONTRACTING PARTIES

TYPE OF AGREEMENT

Algeria, Egypt, Israel, Bilateral Association Jordan, Lebanon, Agreements Morocco, Palestinian Authority, Tunisia (with Syria launched in 2008)

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KEY COMMITMENTS AND PROVISIONS  limited in scope in terms of liberalisation, as certain parties are not WTO Members, therefore, the steps for liberalisation of services are much smaller and more cautious than in case of FTAs with current WTO Members;  WTO Members re-affirm commitments under GATS, requirement to reassess scope and speed of service liberalisation;  with non-WTO Members, others provide GATS commitments (potentially in preparation for future application for WTO Membership) while others have no reference to trade liberalization;  cover essentially trade in goods, they are being complemented with a number of additional negotiations to liberalise trade in services and investment, as well as establish bilateral dispute settlement mechanisms for trade matters Tel.: +38044 581 55 83 Tel./Fax: +38044 581 58 19 E-mail: office@ueplac.kiev.ua http://www.ueplac.kiev.ua

There are four FTAs examined for the purposes of this survey. A draft FTA will also be used as an example in some instances. EU-Algeria Agreement The EU-Algeria FTA is one of the Euro-Mediterranean Agreements, which constitute some of the earliest agreements in force. They are association agreements covering essentially trade in good, complemented with a number of additional negotiations to liberalise trade in services and investment, as well as establish bilateral dispute settlement mechanisms for trade matters. The interest with these agreements lies on the fact that many of the above countries are not yet WTO Members but are still in the membership negotiation process. It is therefore possible that the steps for liberalisation of services are much smaller and more cautious than in case of FTAs with current WTO Members. In case of FTAs with countries in the WTO accession process, it is interesting to see how far they can go with the liberalisation process and whether this is going to ease/ or reinforce the WTO Membership negotiations. The EU-Algeria Agreement was signed in 2002 and entered into force in 2009. Note that Algeria is not a WTO member, but an Observer government. This FTA is unique compared to the other agreements examined, to the extent that the contracting partner of the EU is not a WTO member. For this reason, in some cases, the FTA provides for a lesser degree of liberalisation than the GATS. There is no example where the FTA provides for a higher degree of liberalisation of services compared to the comparable GATS regime. In most provisions in services, GATS notions and principles are being used in the text of the FTA. This practice is useful for multilateralism, as it is considered to ease the way of the Observer government to WTO membership. EU-Mexico Global Agreement The Economic Partnership, Political Coordination and Cooperation Agreement between the European Community and its Member States, of the one part, and the United Mexican States, of the other part7 (hereinafter the EU Mexico Agreement) was signed on 8 December 1997 and entered into force on 1 October 2000. With regard to services, Article 6 of the Global Agreement Final Act specifies that the necessary arrangements for implementing services liberalisation will be made by a decision of the EU-Mexico Joint Council, consisting of members of the Council of the European Union, the European Commission and the government of Mexico. Accordingly, Decision 2/2001, containing four chapters on trade in services, was adopted by the Joint Council on 27 February 2001 implementing Articles 6, 9, 12(2)(b) and 50 of the Economic Partnership, Political Coordination and Cooperation Agreement (2001/153/EC), which entered into force on 1 March 2001 (hereinafter 'the decision).8 At its major part, this FTA reaffirms the existing GATS commitments and policy. There are two points where the EU Mexico FTA takes a step further in terms of liberalisation: First, it includes a special the MFN provision, not only in the general provisions but also in the field of financial services; and 7 8

OJ L276/45, 28/10/2000 OJ L70/7, 12/3/2001 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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Second, in introduces a two stage approach of trade liberalisation in services, which gives a the dynamic element in the FTA. Otherwise, the general provisions and the sectoral approach in financial services, information services and transport just re-confirm the WTO achievements and positions. EU-Chile Association Agreement The Agreement establishing an association between the European Community and its Member States, on the one part, and the Republic of Chile, on the other part, was signed in 2002 and entered into force in 2003. Title III of this FTA includes the general provisions on trade in services and establishment. Most of the services provisions of the EU-Chile FTA reaffirm the existing GATS commitments. Certain provisions go further in the liberalisation process, mainly from an institutional point of view, by introducing the Association Committee and the Association Council for regular reassessment of commitments and for proposing further liberalisation. The provisions on movement of natural persons and their dynamic character in terms of liberalisation seem quite daring too. The chapter on financial services reaffirms the GATS provisions. EU-South Korea FTA The Free Trade Agreement (FTA) between the EU and the Republic of South Korea has been initialled in Brussels on October 2009 and was signed in October 2010. It is the first of the 'new generation' of FTAs foreseen in the Global Europe communication and it is widely perceived as a point of reference for future agreements by EU trade officials, particularly as a result of an unprecedented level of liberalisation foreseen in services.9 The new structure introduced by the EU-South Korea FTA forms a basis for the negotiation of future FTAs, as it appears from the draft CETA. The MFN treatment both in cross-border trade but also establishment departs significantly from the conservative MFN provision of the minimum platform10 The provisions on mutual recognition and domestic regulation become more concrete, to ensure effective implementation of GATS commitments worded in a more general way. The provisions on financial services, computer services and transport at their major part reaffirm GATS commitments.

EU-Canada FTA

The FTA with Canada is still under negotiation; therefore, this survey refers to its draft publicly available.

Work in progress that should not be officially cited: Gabriel Siles Br端gge, 'The Global Europe services and Investment agenda: bringing politics back into the study of EU Trade policy', 2010 10 See above footnote 1 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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CONTRACTING PARTIES

TYPE OF AGREEMENT

KEY COMMITMENTS AND PROVISIONS

EU-Canada (CETA)

Free Trade Agreement

 A draft text is publicly available11, from where one can use some examples and draw conclusions, which are of course subject to change, until the signed draft gets circulated;  The text has a lot of similarities with the EUSouth Korea FTA. This confirms the trend that the EU has turned into more assertive FTA strategy, in terms of services liberalisation, than in the past. Before having the final text it seems early to draw more specific conclusions.

EU-India

Free Trade Agreement

 No draft text available - analysis based on comments and articles.  At the beginning of negotiations it was recognised that the EU would aim to would like to complete liberalisation in market access and NT in Mode 3 in most services, the removal of Foreign Investment Promotion Board approval and allowing subsidiaries in the financial sector to be wholly-owned. India was expected to have offensive interests in liberalising GATS Modes 1 and 4.12  Expansive liberalisation in services and investment: services and investment liberalisation is expanded to cover all public services.  The EU in demanding such liberalisation does not exclude any commercial sectors (only the sensitive ones such as audiovisual).  Includes provisions for completely opening up the banking sector. India has indicated that it would be willing to liberalise its financial market, in exchange for increased EU market liberalisation for Indian banks.13 This is expected to take the form of commitments in terms of market access, more than what India has to date agreed in its services schedule under GATS.  It is also expected that there may be provisions on de-regulation of the financial services sector.

EU-ASEAN and EU-Singapore

Free Trade Agreement

With regard to European service suppliers and services, the points below should be in the text to

11 12 13

Draft Consolidated CETA text of 13.01.2010 http://www.europarl.europa.eu/sides/getDoc.do?type=COMPARL&mode=XML&language=EN&reference=PE409.788 SOMO Paper, September 2009,'Rethinking liberalisation of banking services under the India-EU Free trade Agreement 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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ensure better access to the ASEAN market:14  Negotiations on services and investment should be based on a negative list approach;  Removal of all equity caps in Singapore;  Removal of all nationality or residency requirement for members of executive boards of branches, subsidiaries and joint-ventures;  Negotiations of Mutual Recognition Agreements of diplomas and qualifications in professional services, starting with architectural services, aiming at legally binding instruments;  Negotiations of significant market access to Singaporean public procurements at all levels.

http://www.esf.be/new/esf-eu-trade-policy/bilateral-negotiations/eu-asean-singapore/ 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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Section 3. Analysis of FTAs` provisions on services liberalisation While the first section deals with the theoretical part of this exercise, second section deals with the practical aspects of the FTAs. In this section the main provisions of the FTA will be presented and compared with the relevant GATS provisions. The question to be answered is to what extent the FTA provisions go further than the relevant GATS provisions, and therefore practically demonstrate the policy shift from exclusive focus to multilateral rule making towards more ambitious and thorough FTAs. In summary, most of the provisions below reaffirm the relevant GATS commitments, while very few go beyond GATS in terms of services liberalisation. The main reason is that from the moment the shift in policy has been officially marked, in 2006, there is only one FTA negotiated and signed, the EU-South Korea FTA. It is therefore maybe a bit early to practically confirm the trend and to reach substantiated conclusions with regard to the EU new conventional practices with regard to services.

3.1. General provisions on services This part will describe the general provisions on services, namely: cross-border supply of services and establishment, market access, most-favoured-nation treatment, national treatment, domestic regulation, mutual recognition, temporary presence of natural persons for business, and institutional issues. Within each matter, the relevant GATS provisions will be set on the top, for the purposes of comparison.

3.1.1. Cross-Border Supply of Services and Establishment (or commercial presence) The cross-border supply of services and the establishment (commercial presence) have been regulated by GATS as parts of the four modes of supply of services. Cross-border supply of services corresponds to mode 1 and mode 2, while establishment corresponds to mode 3. The most important provisions in the GATS, such as MFN, national treatment and market access apply automatically to both cross-border supply of services and establishment. GATS Modes of supply of services GATS provides for four modes of supply of services: 

from the territory of a Party into the territory of the other Party (Cross-border trade, mode 1);

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services provisions covers all four modes of supply of services, as in the GATS (Article 2). Therefore, all provisions in the agreement apply to cross-border supply of services (Mode 1 and 2) and to establishment (mode 3). With regard to cross-border supply and establishment, the market access provisions, national treatment and MFN treatment applies in the EU-Mexico trade in services. In the EU-Chile agreement, Article 95 provides that the services provisions apply to the four modes of supply of services, including therefore cross-border trade (mode 1 and 2) and establishment (mode 3). In the same way, all provisions in the agreement apply to cross-border supply of services (Mode 1 and 2) and to establishment (mode 3). With regard to cross-border supply and establishment, the market access provision and national treatment apply in the EU-Chile trade in services. As one may conclude, these two FTAs reaffirm the existing GATS structure in their drafting. Along with this, some peculiarities can be traced by way of contrast to the WTO rules. The first peculiarity appears in the EU-Algeria FTA, which makes a distinction between commercial presence and cross-border trade and it dedicates a separate provision for each. These provisions introduce MFN treatment and national treatment commercial presence and MFN treatment with regard to cross-border trade. In particular, with regard to cross-border supply of services by Community service suppliers into the territory of Algeria, Algeria commits to grant treatment to Community service suppliers no less favourable than that accorded to companies of any third country (Article 31). This provision introduces GATS MFN into this agreement with regard to cross-border supply (mode 1 and 2). With regard to establishment, Algeria commits to provide for the establishment of Community companies in its territory treatment no less favourable than that accorded to companies of any third country (Article 32). Algeria shall grant to subsidiaries and branches of Community companies, established in its territory in accordance with its legislation, in respect of their operations, treatment no less favourable than that accorded to its own companies or branches, or to Algerian subsidiaries or branches of companies of any third country, whichever is the better. This provision introduces GATS MFN and national treatment into the EU-Algeria agreement with regard to establishment (GATS mode 3). Therefore, it seems that the parties have not used the GATS structure as guidance for their commitments since one of the contracting parties is not a member of the WTO. This has allowed the members to differentiate, by allowing different degree for services liberalisation for cross-border supply of services and different for establishment. With regard to degree of liberalisation of services, the fact that national treatment is not awarded to cross-border supply of services implies that the services trade between EU-Algeria is more restricted than in the bilateral relations established by the other FTAs examined in this survey, where national treatment and market access provisions apply to cross-border supply of services. Another peculiarity can be found in the EU-South Korea FTA, which is structured in a different way compared to previous FTAs. The agreement on EU-South Korea provides for a separate section for cross-border trade and a separate one for establishment. The structure of the EU South Korea FTA is different compared the previous agreements discussed, to the extent that the general rules of services in the other agreements apply to all four modes of supply, as referred in the GATS. However, in this case, the section on cross-border trade includes special provisions for market access, national treatment, MFN treatment. The section on establishment has also tailored provisions for market access, national treatment and MFN treatment. In the EU-South Korea FTA, as in the EU-Canada FTA which is currently under negotiation and will be discussed below, there is a separate section on Cross-border supply of services (equivalent to mode 1 12 102-104, Antonovycha Street Tel.: +38044 581 55 83 03150, Kyiv, Ukraine

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and 2) and one chapter on establishment (equivalent to mode 3). Mode 4 commitments appear in the text of the agreement. It remains to be seen whether this would be detrimental for clear outcomes under mode 4, which tends to be a sensitive topic for the EU.15 It should be also noted that the EUSouth Korea structure is being followed in the draft EU-Canada FTA. The EU-South Korea FTA provisions on MFN, market access and national treatment and to what extent they go beyond the GATS commitments will be discussed in the separate sections below discussing the market access, national treatment and MFN provisions. As a general observation, however, it must be noted that the relevant provisions are worded in detail and this structure allows flexibility and differentiation on the degree of liberalisation among different modes of supply. In that sense, the new structure allows to easier negotiate higher degree of liberalisation in a certain provision in a particular mode of supply, compared to previous structure which followed the GATS model. 3.1.2. Market Access In the light of trade in services, market access barriers may take the form of restrictions to the number of service suppliers; the total value of service transactions and assets; the number of operations and quantity of output; the number of natural persons supplying a service; the type of legal entity or joint venture (JV); the participation of foreign capital. Market Access in the GATS GATS does not require an automatic and general prohibition of market access barriers. WTO Members are free to designate certain sectors and list them in their schedules of commitments where they allow market access. Limitations or conditions may be attached to commitments in order to reserve the right to operate measures inconsistent with full market access. GATS Article XVI on market access provides that: Each Member should accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule. In sectors where market-access commitments are undertaken, the measures which a Member will not adopt or maintain, unless otherwise specified in its Schedule:  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;  limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;  limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;  limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test; 

measures which restrict or require specific types of legal entity or joint venture through which

15 The EU's approach to Free Trade Agreements, Oxfan/ActionAid/Christian Aid, February 2008 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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a service supplier may supply a service; and ď&#x201A;ˇ 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.

In a nutshell, the FTA practice implies replication of the GATS terms providing that an EU counterpart is a WTO member, often striving for a higher degree of liberalisation (e.g. EU-Mexico, EU-Chile FTAs). If it is not a case, the partners seem less reluctant to open their markets (for instance, the EUAlgeria FTA does not provide for market access). Along with this, one may note some peculiarities (as with the EU-South Korea agreement) when the contracting partners differentiate market access for the cross-border supply and for the establishment. The EU-Mexico agreement includes a provision on market access, on the basis of which, in those sectors and modes of supply which will be liberalised, the Parties will not maintain or adopt any limitations on the number of services suppliers; limitations on the total value of service transactions or assets ; limitations on the total number of service operations or on the total quantity of service output; limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for the supply of a specific service; 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; and measures which require specific types of legal entities or joint ventures through which a service supplier of the other Party may supply a service.(Article 4) The EU-Chile FTA includes also a provision on market access, on the basis of which each Party will accord services and service suppliers of the other Party treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in the services schedule (Annex VII to the Agreement). In sectors where market-access commitments are undertaken, the Parties will not take or maintain limitations on the number of services suppliers; limitations on the total value of service transactions or assets, limitations on the total number of service operations or on the total quantity of service output, limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific services, measures which restrict or require specific types of legal entities or joint ventures through which a service supplier of the other Party may supply a service; and limitations on the participation of foreign capital. (Article 97) Arguably, the market access provisions in the EU-Mexico and EU-Chile agreements reaffirm the GATS commitments. To that extent, they do not introduce a higher degree of liberalisation than the GATS. One of the peculiarities in the FTAs examined in the present survey is the EU-Algeria agreement does not include any provisions with regard to market access. With regard to market access, the FTA does not reach the degree of services liberalisation introduced by the GATS. This can mainly be attributed to the fact that Algeria is not yet a member of the WTO and has not therefore reached the level of opening as the current Members. Another peculiarity can be found in the EU-Chile FTA, which includes a provision on the review of the chapter related to commitments to market access. In particular, the Parties committed to review the chapter related to services commitments three years after the entry into force of this Agreement, with a view to further deepening liberalisation and reducing or eliminating remaining restrictions (Article100). The Association Committee will examine the operation and will submit appropriate proposals to the Association Council. 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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Broadly speaking, this provision constitutes an active step to further liberalisation and deeper integration in the field of services. It gives a dynamic character to the agreement and to the services liberalisation process. And two factors speak for this statement. First, this is because there is an institutional set-up to review and propose further liberalisation, the Association Committee and the Association Council. Second, this is because it introduces a two-phase gradual approach to liberalisation and integration, initially with the entry into force of the agreement and later, a three-year period, with the review and proposals for eliminating the existing restrictions. Additional peculiarity can be traced in the EU-South Korea FTA, which includes separate market access provision for the cross-border supply of services and separate market access provision for establishment. With respect to market access through the cross-border supply of services, the FTA provides that the Parties will accord to services and service suppliers of the other Party treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in their specific commitments (Article 7.5). In sectors where market access commitments are undertaken, Parties will not adopt or maintain limitations on the number of service suppliers; imitations on the total value of service transactions or assets; and limitations on the total number of service operations or on the total quantity of service output expressed in the terms of designated numerical units in the form of quotas or the requirement of an economic needs test. Concerning establishment, the EU-South Korea FTA provides that each Party will accord to establishments and investors of the other Party treatment no less favourable than that provided for under the terms, limitations and conditions agreed in the specific commitments (Article 7.11). In sectors where market access commitments are undertaken, the Party will not adopt or maintain limitations on the number of establishments, limitations on the total value of transactions or assets, limitations on the total number of operations or on the total quantity of output, limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholdings or the total value of individual or aggregate foreign investment, measures which restrict or require specific types of legal entity or joint ventures through which an investor of the other Party may perform an economic activity; and limitations on the total number of natural persons, other than key personnel and graduate trainees that may be employed in a particular sector or that an investor may employ. To sum up, the provisions in the EU-South Korea FTA with regard to market access reaffirm the GATS commitments and therefore do not introduce a higher degree of liberalisation than the GATS. However, it is observed that they are drafted in a very specific and tailored manner, reflecting the particularities of cross-border supply of services compared to issues of establishment. The same pattern is followed in the draft EU-Canada agreement, however this is an unofficial draft and always subject to change. The fact that there are separate market access provisions clearly drafted for cross services and establishment allows, provides the basis for tailored provisions, which in future negotiations and FTAs could provide for more services liberalisation than the GATS.

3.1.3. National Treatment The national treatment principle is apparently conceived and expected to stimulate trade and investment between the trading parties. This principle guarantees non-discrimination. When stipulating it, the partners commit themselves not to put the service suppliers at a competitive disadvantage in relation to its own providers. In this regard, it should be noted that the beneficiaries of the national treatment are considered both â&#x20AC;&#x201C; the like services and the service suppliers. As to the measures, it applies to, these are "all measures affecting the supply of services" implying "any measure by a 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form". National Treatment (NT) in the GATS The NT obligation means that WTO Members must not discriminate against foreign service suppliers (GATS Article XVII). Foreign service suppliers should be treated the same as national service suppliers and have equal opportunities to compete. With regard to trade in services, the NT obligation does not automatically apply to all services. WTO Members are free to designate certain sectors and list them in their schedules of commitments, in which they assume NT obligations with regard to the four modes of supply. Limitations may be attached to commitments in order to reserve the right to operate measures inconsistent with national treatment. In the sectors described in its Schedule, and subject to any conditions and qualifications set out therein, each Member will accord to services and service suppliers of any other Member treatment no less favourable than that it accords to its own like services and service suppliers. The GATS article on national treatment provides that WTO Members must accord to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers. Formally identical or formally different treatment will be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member. Given impossibility of distinguishing between border measures and internal measures especially for the commercial presence regarded as a form of trade in services, GATS does not make national treatment a principle of general application but suggests its application once a specific commitment is made and set out in national schedules that makes a part of the Agreement. Therefore, there remains a potential for â&#x20AC;&#x153;the scope of the schedules is to be progressively enlarged through successive rounds of trade negotiations with a view to progressively higher levels of liberalisationâ&#x20AC;?.16 NT seems to be used as a starting reference point in the FTA practice. The EU-Mexico FTA in Article 6 of the decision and the EU-Chile FTA in Article 98 introduce the provisions on national treatment. Both these articles provide that each Party will grant to services and service suppliers of the other Party, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and services suppliers. A Party may meet this requirement by according to services and service suppliers of the other Party, either formally identical treatment or formally different treatment to domestic actors. Formally identical or formally different treatment will be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Party compared to like services or service suppliers of the other Party. As one may note, as regards the NT scope, requirements of competitive opportunities equalities and beneficiaries, the wording of the national treatment provisions merely repeats the relevant GATS provisions. The degree of liberalisation in these provisions, therefore, does not go further than the degree of liberalisation introduced by the GATS.

The Fundamental WTO Principles of National Treatment, Most-Favoured-Nation Treatment and Transparency, WT/WGTCP/W/114, 14 April 1999, para 15.

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The peculiarities on NT can be found in a number of FTAs to be analysed below: EU-Algeria, EUChile and EU-South Korea to name a few. To begin with, the EU-Algeria agreement provides for national treatment only with regard to establishment, whereby Algeria grants to subsidiaries and branches of Community companies, established in its territory in accordance with its legislation, in respect of their operations, treatment no less favourable than that accorded to its own companies or branches, or to Algerian subsidiaries or branches of companies of any third country, whichever is the better. (Article 32) This provision introduces GATS MFN and national treatment into the EU-Algeria agreement with regard to establishment (GATS mode 3). With regard to services liberalisation, it reaffirms the GATS commitments. It is considered a positive aspect that GATS provisions are included in this agreement, as they are considered to smooth Algeria's way on WTO accession. Another particularity can be traced in the EU-Chile provision on review of chapter related to commitments to national treatment, according to which the Parties committed to review the chapter related to services commitments three years after the entry into force of this Agreement, with a view to further deepening liberalisation and reducing or eliminating remaining restrictions (Article 100). The Association Committee will examine the operation and will submit appropriate proposals to the Association Council. Again, with regard to national treatment, this provision constitutes an active step to further liberalisation and deeper integration in the field of services. First, it introduces an institutional set-up to review and propose further liberalisation, the Association Committee and the Association Council. Second, it sets up a two-phase gradual approach on liberalisation and integration, initially with the entry into force of the agreement and later, on a three year period, with the review and proposals for eliminating the existing restrictions. Using the same pattern as described above, another particularity is the EU-South Korea FTA, which includes a separate national treatment provision for cross-border supply of services and a separate national treatment provision in the establishment section. With regard to the cross-border supply of services, the EU-South Korea FTA, in Article 7.6 provides that in the sectors where market access commitments are made, Parties will accord to services and suppliers of the other Party treatment no less favourable than that it accords to its own like services and service suppliers. This also applies in measures which require a service supplier of the other Party to have an establishment or to be resident in a Partyâ&#x20AC;&#x2122;s territory as a condition for the cross-border supply of services. A Party may meet the above requirement by according to services and service suppliers of the other Party, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers. However, formally identical or formally different treatment is considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of a Party compared to like domestic services or domestic service suppliers. Specific commitments assumed under this Article will not be construed to require any Party to compensate for any inherent competitive disadvantages which result from the foreign character of the relevant services or service suppliers. Regarding establishment, in the sectors where the Parties made commitments, each Party will accord to establishments and investors of the other Party treatment no less favourable than that it accords to its own like establishments and investors. (Article 7.12) This may be achieved through either formally identical treatment or formally different treatment. Formally identical or formally different treatment is considered to be less favourable if it modifies the conditions of competition in favour of domestic establishments or investors. 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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To summarise, the aforementioned provisions merely reaffirm the GATS commitments and do not go further. However, as it applies above in the market access provisions, they are drafted in a very specific and tailored manner, reflecting the particularities of cross-border supply of services compared to issues of establishment, as well as providing for revision of relevant commitments (e.g. EU-Chile agreement). The same pattern is followed in the draft EU-Canada agreement. If the same differentiation among cross-border supply provisions and establishment provisions is used in future FTAs, it provides a good basis for negotiations and tailored provisions, which could lead to more liberalisation of services compared to GATS.

3.1.4. Most Favoured Nation (MFN) Treatment Lying at the heart of stability and predictability of the multilateral trading regime, the MFN principle is designed to guarantee non-discrimination among a country's trading partners. Its economic rationale is “enabling each participating country to satisfy its import needs from the most efficient sources of supply (maximizing the scope for operation of the principle of comparative advantage)”.17

MFN in GATS All WTO Members have to respect the MFN obligation, according to which the best access conditions that have been granted to one country must automatically be extended to all other WTO Members. It actually means non-discrimination among different trading partners with regard to any measure affecting trade in services. Along with this, Members may agree upon a list of exemptions, subject to further revision. They may include economic integration agreements, air transport traffic rights and related services, and also prudential measures in the financial services regulation.18 The MFN rule of GATS (Article II of GATS) provides that each Member will accord immediately and unconditionally to services and service suppliers of any other Member, treatment no less favourable than that it accords to like services and service suppliers of any other country. While the no less favourable treatment refers to the conditions of competition.19 The FTA practice shows that, comparing to the national treatment, the MFN principle appears to be of general application. The EU-Algeria FTA recognises the MFN right in various provisions. In the reciprocal commitments, the EU commits to provide GATS MFN treatment to Algerian services and service suppliers (Article 30). In particular, with regard to cross-border supply of services by Community service suppliers into the territory of Algeria, the latter commits to grant treatment to Community service suppliers no less favourable than that accorded to companies of any third country (Article 31), while with regard to establishment, Algeria commits to provide for the establishment of Community companies in its territory treatment no less favourable than that accorded to companies of any third country (Article 32). Although the MFN provision in the EU Algeria agreement merely reaffirms the GATS MFN, it is considered to be a positive step in services liberalisation. Considering that Algeria is not yet a WTO 17

The Fundamental WTO Principles of National Treatment, Most-Favoured-Nation Treatment and Transparency, WT/WGTCP/W/114, 14 April 1999, para 40. 18 Annexes to GATS on Air Transport Services and Financial Services 19 Report of the Appellate Body on European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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member, the inclusion of GATS provisions in the FTA is assisting Algeria to smoothly enter into the multilateral negotiations and commitments. Analysing the MFN-related peculiar provisions in a number of agreements, it is getting easier to trace a higher degree of liberalisation at the bilateral level. One of the particularities appears in the EU-Mexico Agreement, whereby Article 5 of the decision provides that treatment accorded to services suppliers of the other Party should be no less favourable than that accorded to like services suppliers of any third country. Article 5 continues with a reference to other agreements concluded by one of the Parties with a third country and notified under Article V of GATS: It provides that the Party entering into such agreement must afford adequate opportunity to the other Party to negotiate the benefits granted therein. The MFN Treatment under the Article 5 of the decision is in principle the same as in the GATS, to the extent that it provides that treatment accorded to services suppliers of the other Party should be no less favourable than that accorded to like services suppliers of any third country. However, the special provision with regard to treatment granted under other agreements concluded by one of the Parties with a third country (notified under Article V of GATS) and the obligation to afford adequate opportunity to the other contracting Party to negotiate the benefits granted therein, it goes a step further in the liberalisation of services compared to GATS. This agreement has been negotiated and concluded before the policy shift marked with Global Europe in 2006, therefore it cannot be considered an example confirming the general trend recognised by policy makers towards more daring FTAs. However, it can be considered as a good example of a provision which allows a higher degree of services liberalisation than what agreed at multilateral level. Another peculiarity appears in the EU-South Korea Agreement. MFN Treatment in this section seems to imply higher degree of liberalisation in services than GATS, as any benefits arising from a regional integration agreement automatically apply to the other party, unless they are linked to a significantly higher level of obligations than the commitments agreed under this FTA. In particular, with regard to cross-border supply of services, the FTA provides that each Party must accord to services and service suppliers of the other Party treatment no less favourable than that it accords to like services and service suppliers of any third country in the context of an economic integration agreement signed after the entry into force of this Agreement. (Article 7.8) However, the provision goes further to clarify that treatment arising from a regional economic integration agreement granted by either Party to services and service suppliers of a third party shall be excluded from the obligation in paragraph 1, only if this treatment is granted under sectoral or horizontal commitments for which the regional economic integration agreement stipulates a significantly higher level of obligations than those undertaken in the context of this Section. Similarly drafted, MFN Treatment with regard to establishment is expressed by each Party according to establishments and investors of the other Party treatment no less favourable than what it accords to like establishments and investors of any third country in the context of an economic integration agreement signed after the entry into force of this Agreement.(Article 7.14) Exception only in cases of a regional integration agreement, where such treatment is granted under sectoral or horizontal commitments for which the regional economic integration agreement stipulates a significantly higher level of obligations than those undertaken within the context of this agreement. Therefore, the MFN Treatment in this section seems to imply higher degree of liberalisation in services than GATS, as the Parties will benefit automatically not only from economic integration agreements agreed with any third party, but also from any benefits arising from a regional integration agreement, which would normally be excluded under GATS Article V and will automatically apply to the other party, as long as the benefits in question are not linked to a significantly higher level of obligations 19 102-104, Antonovycha Street Tel.: +38044 581 55 83 03150, Kyiv, Ukraine

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than the commitments already agreed between the parties. This is an example where the EU and South Korea agree to go further, in terms of services liberation, than their GATS commitments. This provision confirms the policy shift towards more assertive FTAs. Further to this point, the draft EU-Canada agreement (CETA) can give some more peculiarities in terms of MFN approach. This paragraph should be read taking into account that the statements below are based on a draft text, which is subject to change. The MFN provision proposed in draft CETA provides that each Party shall accord to services and services suppliers of the other Party a treatment no less favourable than that it accords to like services and services suppliers of a major trading economy in the context of an economic integration agreement. It also defines the term 'major economy'. To conclude, this MFN provision creates a high degree of liberalisation in services, whereby the benefits of any agreement concluded with a major trading partner will be automatically conferred to the contracting parties. Compared to the EU South Korea MFN, however, the existing MFN seems to be more limiting, as it limits its scope to agreements signed with major trading partners. If this provision remains in the final text, it will constitute another example whereby the parties agreed to liberalise services further than their multilateral commitments go.

3.1.5. Domestic Regulation The key purpose of referring to the domestic regulation at multilateral level is to ensure it does not constitute unnecessary barriers to trade. In order to achieve this, the Member States are obliged to provide for and maintain appropriate remedies, as well as may follow the following WTO principles while developing its regulatory framework20: necessity; transparency; equivalence; acceptance of international standards; impartial application; proportionality; regular review process; and objective criteria, linked to international standards. Domestic regulation in GATS WTO Members must operate domestic mechanisms (judicial, arbitral or administrative tribunals and procedures) where service suppliers can seek legal redress. All Members must maintain practicable means which provide, at the request of an affected service supplier, for the prompt review of, and where justified, appropriate remedies for, administrative decisions affecting trade in services. Licensing requirements (such as licensing, technical standards and qualification requirements) should be objective and transparent and not unnecessarily burdensome, they should be based on objective and transparent criteria and will not in themselves constitute a restriction on the supply of the service. For this purpose GATS Article VI on Domestic Regulation provides that in sectors where specific commitments are undertaken, each Member must ensure that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner. It should be also recalled that GATS “applies to measures by Members affecting trade in services”, meaning “measures taken by: (i) central, regional or local governments and authorities; and (ii) nongovernmental bodies in the exercise of powers delegated by central, regional or local governments or authorities” (Article I:3). Where authorization is required for the supply of a service on which a specific commitment has been 20

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made, the competent authorities of a Member should inform the applicant of the decision concerning the application. At the request of the applicant, the competent authorities of the Member should provide, without undue delay, information concerning the status of the application. In sectors in which a WTO Member has undertaken specific commitments, the Member will not apply licensing and qualification requirements and technical standards that nullify or impair such specific commitments in a manner which does not comply with the criteria outlined above and could not reasonably have been expected of that Member at the time the specific commitments in those sectors were made. In determining whether a Member is in conformity with this obligation, account will be taken of international standards of relevant international organizations applied by that Member. In sectors where specific commitments regarding professional services are undertaken, each WTO Member will provide for adequate procedures to verify the competence of professionals of any other Member. On a practical ground, Member Governments are not thereby obliged to approve their regulations before the WTO, but may be requested to justify a specific regulation in the case of a dispute with another Government.21 The FTA practice contains a number of “regulatory carve-outs”, generally following the nondiscrimination provisions of GATS, found both in the general provisions and the provisions on sectoral services. For instance, the EU-Mexico agreement reaffirms the non-discrimination provisions of GATS, providing that parties should regulate the supply of services in its territory, without discriminating against services and service suppliers of the other Party (Article 8). The EU-Chile agreement includes provisions similar to the domestic regulation provisions and the provisions on recognition under GATS. In sectors where the Parties have undertaken commitments, they must ensure that any measure relating to the requirements and procedures of licensing and certification of service suppliers of the other Party does not constitute an unnecessary barrier to trade (Article 102). In particular, Parties will ensure that any such measure: is based on objective and transparent criteria, such as, inter alia, competence and the ability to provide the service; is not more trade-restrictive than necessary to ensure the achievement of a legitimate policy objective; does not constitute a disguised restriction on the supply of a service. Finally, the counterparts agreed to consult periodically with a view to determine “the feasibility of removing any remaining citizenship or permanent residency requirement for the licensing or certification of each other's service suppliers”. Furthermore, the EU-South Korea FTA includes a section on regulatory framework (section E), which includes a provision on domestic regulation. It provides that where an authorisation is necessary for the supply of a service or establishment on which a specific commitment has been made, the competent authorities will inform the applicant of the decision concerning the application or will provide information concerning the status of the application (Article 7.23). Each Party ensure the operation of judicial, arbitral or administrative tribunals or objective and impartial procedures which provide appropriate remedies. In order that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, such measures must be based on objective and transparent criteria, such as competence and the ability to supply the service; and in the case of licensing procedures, not in themselves a restriction on the supply of the service. It is provided that this article will be amended after consultations between the Parties, to bring under this 21

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Agreement the results of the negotiations pursuant to paragraph 4 of Article VI of GATS or the results of any similar negotiations undertaken in other multilateral form in which both Parties participate once they become effective. As one may conclude, the above provisions reaffirm the existing GATS commitments, and therefore do not provide for additional liberalisation on services compared to the multilateral rules. The provision on the EU-South Korea FTA, whereby it is provided that the above provision will be amended after consultations between the Parties, to bring under this Agreement the results of the negotiations pursuant to paragraph 4 of Article VI of GATS or the results of any similar negotiations undertaken in other multilateral form, constitutes a commitment to multilateralism and multilateral rule-making.

3.1.6. Mutual Recognition GATS provisions on recognition GATS Article VII provides the details with regard to WTO Members recognizing the education or experience obtained, requirements met, or licenses or certifications granted in a particular country. Such recognition, which may be achieved through harmonization or otherwise, may be based upon an agreement or arrangement with the country concerned or may be accorded autonomously. A Member that is a party to such an agreement or arrangement will afford adequate opportunity for other interested Members to negotiate their accession to such an agreement or arrangement or to negotiate comparable ones with it. Where Member State accords recognition autonomously, it must afford adequate opportunity for any other Member to demonstrate that education, experience, licenses, or certifications obtained or requirements met in that other Member's territory should be recognized. WTO Members must not accord recognition in a manner which would constitute a means of discrimination between countries in the application of its standards or criteria for the authorization, licensing or certification of services suppliers, or a disguised restriction on trade in services. Wherever appropriate, recognition should be based on multilaterally agreed criteria. In appropriate cases, Members will work in cooperation with relevant intergovernmental and non-governmental organizations towards the establishment and adoption of common international standards and criteria for recognition and common international standards for the practice of relevant services trades and professions.

In its Global Europe paper the EC looks to co-operation on regulatory issues as a strong tool for harmonisation. The EC generally does provide contact points for services exporters and foresees more general co-operation provisions in EPAs. These are as yet undefined. These features can be helpful for developing countries, if they help overcome the barriers to their servicesâ&#x20AC;&#x2122; exports. For example, mutual recognition of professional qualifications can help in facilitating the movement of service providers (mode 4). Cooperation can mean development assistance but can also mean help to address problems like access to technology or dealing with anti-competitive practices that stop developing country firms having access to essential reservation networks in the tourism

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sector. However, these can also place obligations on developing countries, limit their use of licenses and be a â&#x20AC;&#x153;softâ&#x20AC;? means to achieve changes in their regulations to suit European firms.22 FTAs rarely offer more than an expression of hope for mutual recognition but it would appear that the economic benefits might well be significant in areas where there is already a developing market. Recognition of qualifications of service providers is particularly problematic in service sector. Some agreements analyzed provide for a set of provisions on the mutual recognition on grounds of the GATS obligations. In particular, the EU-Mexico agreement provides for mutual recognition within the context of further and deeper liberalisation in the services sector on a later phase. Specifically, it was provided that within three years following the entry into force of the 2/2001 decision, the Joint Council shall prepare the negotiation of agreements for mutual recognition of requirements, qualifications, licenses and certification of service suppliers, in conformity with Article VII of GATS.(Article 9 of the decision). This provision introduced a dynamic element in the agreement, by providing for a gradual liberalisation process and by indicating the relevant institutional set-up to facilitate such process. The provisions of the EU-Chile agreement on mutual recognition is based on the GATS principles of domestic regulation and recognition. It goes beyond the GATS to the extent that it sets up the institution (Association Committee) to review and propose further liberalisation. Parties must ensure that their competent authorities, within a reasonable period of time after the submission by a services supplier of the other Party of an application for a licence or certification. Where the application is complete, make a determination on the application and inform the applicant of that determination; or where the application is not complete, inform the applicant without undue delay of the status of the application and the additional information that is required under the Party's domestic law. In order to enable service suppliers fulfil the criteria applied by each Party for the authorisation, licensing, accreditation, operation and certification of service suppliers and in particular professional services, relevant bodies provide recommendations on mutual recognition. The Association Committee decides whether a recommendation above is consistent with these provisions and, if that is the case, there will be an agreement on mutual recognition of requirements, qualifications, licences and other regulations to be negotiated by the competent authorities. Relevant bodies develop procedures for the temporary licensing of professional service suppliers of the other Party. The Association Committee is to review periodically, at least once every three years, implementation of this Article.23 In addition, the EU-South Korea FTA is characterised by the requirement to the natural persons concerning possession of the necessary qualifications and/or professional experience specified in the territory where the service is supplied, for the sector of activity concerned. The relevant representative professional bodies will jointly develop and provide recommendations to the Trade Committee on mutual recognition for the authorisation, licensing, operation and certification of service suppliers and investors in services sectors and professional services, including temporary licensing. The Trade Committee will decide accordingly. The Parties commit to negotiate an agreement on mutual recognition of requirements, qualifications, licences and other regulations. Any such agreement shall be in conformity with the relevant provisions of the WTO Agreement and, in particular, Article VII of GATS.24 As one may conclude, the above provisions they re-affirm the GATS obligations for mutual recognition. The institutional set-up for reviewing the article and finally conclude the mutual 22

http://aprodev.eu/files/Trade/EU%20FTA%20Manual%20fta4_services.pdf Article 103, EU-Chile Association Agreement 24 Article 7.21, EU-South Korea FTA 23

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recognition policy is interesting; the Joint Council in the EU-Mexico agreement, the Association Committee in the EU Chile FTA and the Trade Committee in EU South Korea FTA are positive factors towards future liberalisation. However, taking into account the fact that there are not any specific deadlines or obligations for concluding specific agreements, it is not possible to conclude that the existing provisions promote further liberalisation than the existing GATS article and therefore do not reaffirm a policy shift towards more ambitious FTAs. 3.1.7. Temporary Presence of Natural Persons for Business The movement of natural persons is one of the four ways through which services can be supplied internationally (known as “Mode 4”). GATS Modes of supply of services GATS provides for four modes of supply of services: 

from the territory of a Party into the territory of the other Party (Cross border trade, mode 1);

 in the territory of a Party to the service consumer of the other Party (Consumption abroad, mode 2);  by a service supplier of a Party, through commercial presence in the territory of the other Party (Commercial presence, mode 3); by a service supplier of a Party, through presence of natural persons in the territory of the other Party (Movement of natural persons, mode 4). The GATS Annex on Movement of Natural Persons Supplying Services under the Agreement contains two important limits on Mode 4. Paragraph 1 of the Annex states that the GATS does not apply to “measures affecting natural persons who are service suppliers of a Member nor… to measures regarding citizenship, residence or employment on a permanent basis”. The GATS is thus limited to temporary employment, although “temporary” is not defined and Members have taken a range of approaches. Paragraph 4 of the Annex notes that the GATS “shall not prevent a Member from applying measures to regulate the entry of natural persons into, or their temporary stay in, its territory, including those measures necessary to protect the integrity of, and to ensure the orderly movement of natural persons across, its borders, provided that such measures are not applied in such a manner as to nullify or impair the benefits accruing to any Member under the terms of a specific commitment”. Discriminatory visa requirements are not per se regarded as nullifying or impairing such benefits.25

GATS Annex on movement of natural persons supplying services under the Agreement 1. This Annex applies to measures affecting natural persons who are service suppliers of a Member, and natural persons of a Member who are employed by a service supplier of a Member, in respect of the supply of a service. 2. The Agreement shall not apply to measures affecting natural persons seeking access to the employment market of a Member, nor shall it apply to measures regarding citizenship, residence or employment on a permanent basis. 3. In accordance with Parts III and IV of the Agreement, Members may negotiate specific commitments applying to the movement of all categories of natural persons supplying services under the Agreement. Natural persons covered by a specific commitment shall be allowed to supply the service in accordance with the terms of that commitment. 4. The Agreement shall not prevent a Member from applying measures to regulate the entry of natural persons into, or their temporary stay in, its territory, including those measures necessary to protect the integrity of, and to ensure the orderly movement of natural persons across, its borders, provided that such measures are not applied in such a manner as to nullify or impair the benefits accruing to any Member under the terms of a specific commitment. 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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Commitments of WTO Members26 Most members' Mode 4 commitments have been undertaken on a horizontal basis, i.e. applicable without distinctions to all sectors inscribed in a member's schedule. Overall, the degree of Mode 4 access that has been bound is quite shallow. In most instances, members have scheduled an initial “unbound” (i.e. no binding of access conditions) and then qualified it by granting admission to selected categories of persons, with a marked bias towards persons linked to a commercial presence (e.g. intra-corporate transferees) and highly skilled persons (managers, executives and specialists). Right of labour mobility does not automatically entail the right to practice a certain profession, national regulations regarding licensing and recognition of qualifications are still applied and candidates must meet all criteria and conditions concerned. In this area only several FTAs contain provisions that go beyond the (mode 4) provisions of the GATS by providing for full national treatment and market access for service suppliers or special market access for certain groups. In particular, unlike the GATS, the EU-Mexico Agreement specifies regulations with regards to “work, labour conditions and establishment of natural persons” (Article 27 (Exceptions)). Access is limited to nationals of the parties (Article 3(f)). The other agreements analysed are in the majority fully in line with the GATS. Thus, the relevant provision of the EU Algeria Agreement complies with the GATS mode and concludes with a list of definitions and rules on temporary presence of natural persons.27 The EU Chile FTA provides that two years after the entry into force of this Agreement, the Parties will review the rules and conditions applicable to movement of natural persons (mode 4) with a view to achieving further liberalisation (Article 101). It is considered a distinctive feature of this agreement that, within a specific timeframe, the EU and Chile are to seek the additional liberalisation of the movement of natural persons (Mode 4), an area which most developed countries have been reluctant to liberalise.28 Also, the parties will consider broadening the current definition of natural persons as set out in Article 96 (g). It is also worth mentioning that the EU-South Korea FTA includes a separate section which provides for the temporary presence on natural persons for business (Section D). These provisions apply to measures of the Parties concerning the entry into, and temporary stay in, their territories of key personnel, graduate trainees, business services sellers, contractual service suppliers and independent professionals (Article 7.17). It includes definitions, conditions and time frames for transfer of key personnel and graduate trainees (Article 7.18), business service sellers (Article 7.19) and contractual service suppliers and independent professionals (Article 7.20). Finally, one can notice that the provisions on movement of natural persons reaffirm existing GATS commitments and discussions. The FTA provisions do not provide for services liberalisation on a higher degree than the GATS, and therefore these provisions do not really prove a policy shift towards more thorough ambitious FTAs.

http://www.wto.org/english/tratop_e/serv_e/mouvement_persons_e/mouvement_persons_e.htm Article 33 provides that an EU company or Algerian company established in the territory of Algeria or the Community respectively will be entitled to temporarily employ in accordance with the legislation in force in the host country of establishment, employees who are nationals of Community Member States and Algeria respectively, provided that such employees are key personnel as defined in paragraph 2, and that they are employed exclusively by such companies, subsidiaries or branches. The residence and work permits of such employees shall only cover the period of such employment. 28 Ullrich, H. Comparing EU free trade agreements : Services. (ECDPM InBrief 6C). Maastricht : ECDPM

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3.1.8. Miscellaneous Provisions - Institutional Issues The agreements reviewed above are of various degrees of depth and scope. One discernible trend is that, generally, the developing countries with less elaborate trade-related institutions and/or a less liberal trade and economic policy framework have accepted fewer detailed commitments on trade facilitation, while those whose trade-related institutions are relatively more developed and/or who are already engaged in substantial trade and economic reforms at home have accepted far deeper commitments. Some of the FTAs establish institutions to deal with the gradual or future trade liberalisation in the field of services. Such features add a dynamic element to the trade liberalisation in the field of services, where liberalisation steps are taken in different stages and after the signature of the agreement. These institutional elements make possible a potentially higher degree of liberalisation of services than the one achieved by the text of the agreement. The first example shall be the trade liberalisation provision of the EU-Mexico agreement. This provision starts with a general declaration for the commitment for services liberalisation. It sets down that the Parties agree to liberalise trade in services between themselves in conformity with GATS Article V (Article 7 of the decision). At the first phase, a standstill obligation is introduced. In particular, the parties agree that they will not adopt any new or more discriminatory measures against service suppliers of the other Party. The second phase is a phase of further and deeper liberalisation. Within three years after the entry into force of the decision 2/2001, the Joint Council will adopt a decision for eliminating discrimination which will contain a list of commitments establishing the level of liberalisation which the Parties agree to grant each other at the end of a transitional period of ten years; and a liberalisation calendar for each Party in order to reach at the end of the ten-year transitional period the agreed level of liberalisation. Once the Joint Council decides to postpone the adoption of the decision above, the decision must be adopted not later than one year after the conclusion of the negotiations mandated by Article XIX of GATS and in any event within a reasonable time frame before the end of the ten-year transitional period. This provision introduces a dynamic element in the agreement, by providing for a two-phase liberalisation process and by introducing the relevant institutional set-up to facilitate such process. Another pertinent example is Article 100 of the EU-Chile agreement, on the review of chapter related to commitments to market access and national treatment. The Parties committed to review the chapter related to services commitments three years after the entry into force of this Agreement, with a view to further deepening liberalisation and reducing or eliminating remaining restrictions. Further, the Association Committee will examine the operation and will submit appropriate proposals to the Association Council. Hence, this provision constitutes an active step to further liberalisation and deeper integration in the field of services. First, there is an institutional set-up to review and propose further liberalisation, the Association Committee and the Association Council. Second, there is a two phase gradual approach on liberalisation and integration, initially with the entry into force of the agreement and later, on a three year period, with the review and proposals for eliminating the existing restrictions. The final example of institutional arrangement can be found in the EU-South Korea agreement, which establishes the Committee on Trade in Services, establishment and electronic commerce (Article 7.3). The Committee will deal with the implementation of the services chapter, consider relevant issues and be a forum for exchange of information on prudential measures. This institutional arrangement gives a dynamic character to the agreement, where rules and issues in question can be addressed. In the examples above, where the FTA provides for a special institution to deal with the liberalisation of 26 102-104, Antonovycha Street Tel.: +38044 581 55 83 03150, Kyiv, Ukraine

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services, there is a potential created for continuous liberalisation after the signature of the FTA. This is a dynamic element which adds to services liberalisation. It must be noted that such institutions were found in earlier FTAs, they therefore are not linked to the policy shift towards more ambitious FTAs.

3.2. Financial Services This part will be devoted to provisions on financial services. First, all the GATS provisions on financial services will be set down. The reason this part is organised differently than the general provisions part is that in some cases of FTA, there is only one provision on financial services which corresponds to more than one thematic provision, while other FTA provisions on financial services are only found in one single FTA. In addition, as it will appear from the analysis below, all the FTA provisions on financial services reaffirm the existing GATS commitments. Therefore, for the time being, the EU conventional practice has not brought a higher degree of liberalisation in the trade of financial services. Financial services under GATS The details of WTO provisions on financial services are included in the GATS Annex on financial services and the Understanding on commitments in financial services. ANNEX ON FINANCIAL SERVICES29 Scope The GATS provisions on financial services cover the following activities: ď&#x201A;ˇ

Insurance and insurance-related services30;

ď&#x201A;ˇ

Banking and other financial services (excluding insurance)31.

Domestic regulation The annex on financial services lays down the right of parties, notwithstanding other provisions, to take prudential measures, including for the protection of investors, deposit holders and policy holders, and to ensure the integrity and stability of the financial system. However, a further understanding on financial services would allow those participants who choose to do so to undertake commitments on financial services through a different method.32 Recognition 29

http://www.wto.org/english/tratop_e/serv_e/10-anfin_e.htm Insurance and insurance-related services: direct insurance (including co-insurance), life and non-life, reinsurance and retrocession; Insurance intermediation, such as brokerage and agency; Services auxiliary to insurance, such as consultancy, actuarial, risk assessment and claim settlement services. 31 Banking and other financial services (excluding insurance): deposits, lending, financial leasing; all payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers drafts; Guarantees and commitments; Trading (any form of products such as money market instruments; foreign exchange; derivative products including, but not limited to, futures and options; exchange rate and interest rate instruments, including products such as swaps, forward rate agreements; transferable securities; other negotiable instruments and financial assets, including bullion; Participation in issues of all kinds of securities, including underwriting and placement as agent (whether publicly or privately) and provision of services related to such issues; Money broking; Asset management; Settlement and clearing services; Provision and transfer of financial information, and financial data processing and related software by suppliers of other financial services; Advisory, intermediation and other auxiliary financial services 32 http://www.wto.org/english/docs_e/legal_e/ursum_e.htm#mAgreement 30

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Any WTO Member may recognize prudential measures of any other country in determining how the Member's measures relating to financial services shall be applied (by means of an agreement, arrangement or maybe accorded autonomously). A Member that is a party to such an agreement or arrangement referred to above will afford adequate opportunity for other interested Members to negotiate their accession to such agreements or arrangements, or to negotiate comparable ones, under equivalent circumstances. Where a Member accords recognition autonomously, it will provide adequate opportunity for any other Member to demonstrate that such circumstances exist.

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UNDERSTANDING ON COMMITMENTS IN FINANCIAL SERVICES Cross-border Trade WTO Members permit non-resident suppliers of financial services to supply the following financial services, as a principal, through an intermediary or as an intermediary, and under terms and conditions that accord national treatment. Each WTO Member shall permit its residents to purchase in the territory of any other Member the financial services indicated above. Commercial Presence WTO Members will grant financial service suppliers of any other Member the right to establish or expand within its territory, including through the acquisition of existing enterprises, a commercial presence. A Member may impose terms, conditions and procedures for authorization of the establishment and expansion of a commercial presence in so far as they do not circumvent the above obligation and they are compatible with GATS. New Financial Services WTO Members will permit financial service suppliers of other Members established in their territory to offer in its territory any new financial service. Transfers of Information and Processing of Information WTO Members will allow transfers of information or the processing of financial information, including transfers of data necessary for the conduct of the ordinary business of a financial service supplier. However Members may still protect personal data, personal privacy and the confidentiality of individual records and accounts. The Understanding also includes a section on temporary entry of personnel and on nondiscrimination. As such provisions in financial services have not been found in any of the agreements analysed here, there is a mere reference to these provisions and not a summary of them. National Treatment Under terms and conditions that accord national treatment, each Member should grant to financial service suppliers of any other Member established in its territory access to payment and clearing systems operated by public entities, and to official funding and refinancing facilities available in the normal course of ordinary business. This provision is not intended to confer access to the Member's lender of last resort facilities. When membership or participation in, or access to, any self-regulatory body, securities or futures exchange or market, clearing agency, or any other organization or association, is required by a Member in order for financial service suppliers of any other Member to supply financial services on an equal basis with financial service suppliers of the Member, or when the Member provides directly or indirectly such entities, privileges or advantages in supplying financial services, the Member shall ensure that such entities accord national treatment to financial service suppliers of any other Member resident in the territory of the Member.33

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The EU FTAsâ&#x20AC;&#x2122; provisions on financial services are frequently very limited in scope compared to the GATS regime and do not therefore achieve an equal degree of services liberalisation as the multilateral rules. The scope of coverage of most agreements in terms of sectors and activities is the same as in the GATS. As regards the EU South Korea Agreement, the scope may be broader with regard to cross-border services, as the current agreement covers all financial services and is not limited to the ones mentioned in GATS. EU-Mexico Agreement can be marked with the high degree of liberalisation in financial services, which caused 4 largest Mexican banks are now owned by foreign finance corporations. For example, the EU Algeria Agreement includes only a provision discussing a general broad cooperation in the field of financial services. The provision on financial services (Article 57) describes the commitment of the parties for broader cooperation, with the aim of improvement and development of financial services. Cooperation will focus on the exchange of information concerning financial regulations and practices and training schemes, in particular with a view to the creation of small and medium-sized enterprises; as well as the support for the reform of Algeria's banking and financial system, including development of the stock market. Market Access for Financial Services There are some FTA provisions on market access in financial services which will be compared to the general GATS provisions, as the special GATS regime for financial services does not include an article on market access. In this respect special attention shall be paid to the EU-Chile agreement, which includes an article on market access in financial services, which is similar to the equivalent GATS provision. Article 118 provides that each Party commits to accord financial services and financial service suppliers of the other Party treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in the relevant schedule. In sectors where market-access commitments are undertaken Parties will not adopt or maintain any of the measures below: limitations on the number of financial services suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test; limitations on the total value of financial service transactions or assets; limitations on the total number of financial service operations or on the total quantity of service output; limitations on the total number of natural persons that may be employed in a particular financial service sector or that a financial service supplier may employ and who are necessary for, and directly related to, the supply of a specific financial service; measures which restrict or require specific types of legal entities or joint ventures through which a financial service supplier of the other Party may supply a financial service; and 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. The EU-Mexico agreement includes a provision on the establishment of financial service suppliers, which seems similar to the GATS market access provisions, as well as the provisions on commercial presence of the GATS Understanding on commitments on financial services, according to which there must be no impediments to establishment of financial service suppliers (Article 12 of the decision). However, such suppliers may need to incorporate under its own law or accept terms and conditions on establishment. Parties must not adopt new measures on establishment and operation which are more discriminatory than those applied on the date of entry into force of this decision. Parties must not maintain or adopt limitations on the number of financial service suppliers, limitations on the total value of financial service transactions or assets, limitations on the total number of service operations or on the total 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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quantity of service output; limitations on the total number of natural persons that may be employed in a particular financial service sector or that a financial service supplier may employ and who are necessary for the supply of a specific financial service; and limitations on the participation of foreign capital in the terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment. Finally, it appears that the provisions analysed above on market access and establishment reaffirm the existing GATS commitments. They therefore do not provide for a higher degree of services liberalisation and do not reaffirm a policy shift towards more ambitious FTAs. National Treatment for Financial Services The FTA provisions on national treatment reaffirm the national treatment provision described in the GATS Understanding on Commitments on Financial Services. In the EU-Mexico FTA there is a provision on national treatment in financial services, whereby each Party will grant to the financial service suppliers of the other Party treatment no less favourable than that it accords to its own like financial service suppliers with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of commercial operations of financial service suppliers in its territory (Article 14 of the decision). Where a Party permits the crossborder provision of a financial service, it will accord to the suppliers of the other Party treatment no less favourable than that it accords to its own suppliers with respect to this service. Similarly, in the EU-Chile FTA it is provided that in the sectors where the party has accepted commitments, each Party will accord to financial services and financial service suppliers of the other Party, in respect of all measures affecting the supply of financial services, treatment no less favourable than that it accords to its own like financial services and financial service suppliers (Article 119). Each Party may achieve the above obligation by according to financial services and financial service suppliers of the other Party, either formally identical treatment or formally different treatment to that it accords to its own like financial services and financial service suppliers. Formally identical or formally different treatment is considered to be less favourable if it modifies the conditions of competition in favour of national financial services or financial service suppliers. Therefore, in view of the abovementioned one may come to a conclusion, that, the relevant FTAsâ&#x20AC;&#x2122; provisions do not introduce a higher degree of liberalisation in financial services and do not reaffirm a policy shift towards more ambitious FTAs.

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Prudential Measures for Financial Services The FTA provisions on prudential measures follow the same lines with the provisions on domestic regulation and recognition found in the GATS Annex on financial services. In particular, the EU-Mexico agreement provides that Parties can always adopt and maintain reasonable measures for prudential reasons, for the protection of investors, depositors, financial market participants, policyholders, policy-claimants, or persons to whom a fiduciary duty is owed by a financial service supplier; the maintenance of the safety, soundness, integrity or financial responsibility of financial service suppliers; or in order to ensure the integrity and stability of a Party's financial system.(Article 19 of the decision) Such measures must not be more burdensome than necessary to achieve their aim nor must discriminate against financial service suppliers of the other Party. Furthermore, the EU-Chile agreement in Article 125 similarly provides that Parties will adopt or maintain measures for the protection of investors, depositors, financial market participants, policyholders, or persons to whom a fiduciary duty is owed by a financial services supplier; the maintenance of the safety, soundness, integrity or financial responsibility of financial services suppliers; and ensuring the integrity and stability of a Party's financial system. A Party may recognise prudential measures of the other Party in determining how the Party's measures relating to financial services shall be applied. Such recognition may be achieved through harmonisation, agreement or arrangement. A Party having agreed such an agreement or arrangement will afford adequate opportunity for the other Party to negotiate its accession to such agreements or arrangements, or to negotiate comparable ones with it, under circumstances in which there would be equivalent regulation, oversight, implementation of such regulation, and, if appropriate, procedures concerning the sharing of information between the Parties to the agreement or arrangement. Where Party accords recognition autonomously, it will afford adequate opportunity for the other Party to demonstrate that such circumstances exist. Parties may adopt or maintain measures for prudential reasons, for the protection of investors, depositors, policy-holders or persons to whom a fiduciary duty is owed by a financial service supplier; and in order to ensure the integrity and stability of the Partyâ&#x20AC;&#x2122;s financial system (Article 7.38). Such measures should not be more burdensome than necessary and they must not be used as a means of avoiding each Partyâ&#x20AC;&#x2122;s commitments or obligations. Parties may require registration of cross-border financial service suppliers of the other Party and of financial instruments. Parties may also recognise each others' prudential measures (Article 7.46). Such recognition, which may be achieved through harmonisation, may be based upon an agreement or arrangement or accorded autonomously. A Party that is a party to such agreement or arrangement with a third party, will afford adequate opportunity for the other Party to negotiate its accession to such agreements or arrangements, or to negotiate comparable ones with it, under circumstances in which there would be equivalent regulation, oversight, implementation of such regulation, and, if appropriate, procedures concerning the sharing of information between the parties to the agreement or arrangement. Where Party accords recognition autonomously, it shall afford adequate opportunity for the other Party to demonstrate that such circumstances exist. Finally, one should note that the analysed FTAsâ&#x20AC;&#x2122; provisions on prudential measures do not provide for a higher degree of liberalisation in the field of financial services than the one provided in WTO level and therefore do not reaffirm a policy shift towards more advanced conventional practice. Data Processing for Financial Services The FTA provisions on data processing reaffirm the paragraph on transfers of information and processing of information under the GATS Understanding on commitments on financial services. 32 102-104, Antonovycha Street Tel.: +38044 581 55 83 03150, Kyiv, Ukraine

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In line with this, the EU-Mexico provision on data processing provides that Parties will allow suppliers of the other Party to transfer information in electronic or other form, into and out of its territory, for data processing in the ordinary course of business (Article 22 of the decision). Regarding transfer of personal data, each Party shall adopt adequate safeguards to the protection of privacy and fundamental rights, and freedom of individuals (according to Article 41 of the Agreement). Similarly, the EU-Chile agreement includes a provision on data processing in the financial services sector, which repeats the principles of the provision on transfer and processing of information under GATS provisions on financial services. Each Party will permit a financial service supplier of the other Party to transfer information in electronic or other form, into and out of its territory, for data processing where such processing is required in the ordinary course of business of such financial service supplier. (Article 122) If such information contains personal data, such transfer will comply with domestic legislation for the protection of individuals of the Party out of whose territory the information is transferred. The EU-South Korea also includes a provision on data processing, which reaffirms to the GATS provision on transfer of information and procession of information. Within two years after the entry into force, each Party will permit a financial service supplier of the other Party established in its territory to transfer information in electronic or other form, into and out of its territory, for data processing where such processing is required in the ordinary course of business of such financial service supplier (Article 7.43) Parties will adopt adequate safeguards to the protection of privacy, in particular with regard to the transfer of personal data. The relevant provisions therefore do not provide for a higher degree of liberalisation in the field of financial services than the one provided at WTO level and do not reaffirm a policy shift towards more ambitious FTAs. Miscellaneous Provisions on Financial Services MFN In the light of MFN, it seems worth looking at the EU-Mexico Agreement section on financial services including a relevant provision, which actually repeats the MFN provision of the general services section, on the basis of which each Party will accord to financial service suppliers of the other Party treatment no less favourable than it accords to the like financial service suppliers of a non Party. If a Party enters into an agreement with a third party (notified under GATS Article V and excluded under this agreement) it will provide adequate opportunity to the other Party to negotiate the benefits granted therein. Thus, the financial services MFN provision of the EU-Mexico Agreement introduces a step further in the liberalisation of services compared to the GATS MFN, through the provision that the Parties have to afford adequate opportunity to the other Party to negotiate the benefits granted in a regional integration agreement with a third party. As this FTA has been negotiated and agreed prior to the policy shift marked with 'Global Europe' in 2006, it cannot be linked with it. Consultations In this respect, a special attention should be paid to the EU-Mexico Agreement, containing additional provision which guarantees openness and transparency, compared to the GATS provisions. Parties may request consultations and discuss the results with the Special Committee on Financial Services at its annual meeting. Parties may ask information from the relevant financial authorities. Payment and clearing systems 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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The provisions on payment and clearing system usually follow the same lines as the provisions on national treatment in financial services provided under GATS. For example, the EU-South Korea FTA includes a special provision on payment and clearing systems, on the basis of which under terms and conditions that accord national treatment, Parties will grant to financial service suppliers of the other Party established in its territory access to payment and clearing systems and to official funding and refinancing facilities (Article 7.41) To conclude, this provision does not provide for an additional step towards financial services liberalisation and does not reaffirm a policy shift towards more ambitious FTAs.

3.3. Information services

Computer services under GATS WTO refers to this sector as computer services, comprising of consultancy services related to the installation of computer hardware, software implementation services, data processing services, database services.34 Computer and related services are included in the new services negotiations, which began in 2000. Today there is not yet special annex or provisions in GATS on information or computer services. Therefore, for the purposes of the current exercise, it is not possible to compare the relevant provisions included in the FTAs with the GATS regime.

In view of the development of telecommunication services and rising significance of the information exchange in the modern world more attention is paid to this type of services in the recent agreements. To cite an example, one should keep in mind the EU–Mexico and EU–Chile agreements, containing more substantive and detailed provisions on telecommunications liberalisation, going to a certain degree beyond GATS requirements, than their predecessors. Hence, with regard to telecommunication services, the EU-Chile Association Agreement goes considerably beyond earlier EU FTAs and reflects the 1996 GATS Telecommunications Reference Paper leading to the Fourth Protocol to the GATS, that went came into force in 1998.35 The relevant FTA provision in the EU-Algeria agreement refers to both information society and telecommunications (Article 60). According to this general provision, cooperation in this field will focus on a dialogue on issues related to the different aspects of the information society; the exchange of information and provision of any technical assistance required on regulations and standardisation, conformity testing and certification of information technologies; the dissemination of advanced 34

http://www.wto.org/english/tratop_e/serv_e/computer_e/computer_e.htm Article 110 states that telecommunications regulatory agencies will be both independent of any supplier of basic telecommunications services as well as non-discriminatory. In the event that licences are required, the parties agree to make the terms and conditions and the expected date of a decision publicly available (Art. 111.1). Alternatively, if a request for a licence is rejected, the reasons will be provided to the applicant if requested (111.2).‘Appropriate measures shall be maintained’ to prevent anti-competitive practices among large telecommunication service-providers, including anti-competitive cross-subsidisation (Art. 112.2). Public suppliers of telecommunication transport networks or services must offer interconnection to other suppliers that are not discriminatory in terms of their rates, conditions and quality (Art. 113.2). Interconnection procedures and agreements must be publicly available (Art. 113.4). The Association Agreement grants each party the right to specify its universal service obligations as long as the provisions are ‘transparent, objective and nondiscriminatory’, as well as ‘neutral with respect to competition and no more burdensome than necessary’ (Article 115.2). 35

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information and telecommunication technologies, including satellite technology and information services and technologies; the promotion and implementation of joint projects for research, technical development or industrial applications in information technologies and information society; giving Algerian bodies the opportunity to participate in pilot projects and European programmes under the specific arrangements pertaining to them in the sectors concerned. In view of the aforementioned, itâ&#x20AC;&#x2122;s necessary to note that the GATS discussions in this field seem to cover a broader scope on computer services. Article 60 talks about general cooperation and technical assistance mainly in the field of telecommunication and there are no special provisions, as currently discussed at multilateral level, on computer services, consultancy services related to the installation of computer hardware, software implementation services, data processing services, database services. The general character of the FTA provisions reveals that the FTAs do not significantly promote services liberalisation in this field. As to the peculiarities traced while analysing the FTAs coverage of the computer services, one may note the following. Taking stock of specific provisions on computer services, laid down in the EU-South Korea agreement (subsection B (Article 7.25). All general provisions on services above apply accordingly. The scope of the sub-section covers computer and related services include consulting, strategy, analysis, planning, specification, design, development, installation, implementation, integration, testing, debugging, updating, support, technical assistance or management of or for computers or computer systems; computer programmes plus consulting, strategy, analysis, planning, specification, design, development, installation, implementation, integration, testing, debugging, updating, adaptation, maintenance, support, technical assistance, management or use of or for computer programmes; data processing, data storage, data hosting or database services; maintenance and repair services for office machinery and equipment, including computers or training services for staff of clients, related to computer programs, computers or computer systems, and not elsewhere classified. The Parties recognise that there is an important distinction between the enabling service such as web-hosting or application hosting and the content or core service that is being delivered electronically such as banking and that in such cases the content or core service is not covered by Central Product Classification 84. With regard to computer services, the scope of the latter FTA provisions is along the same lines as the ongoing WTO discussions and negotiations. Note that draft CETA Article 23 is similar to the EUSouth Korea provision on computer services. There has not been an additional step taken by the FTA, however, to promote particular conditions for additional liberalisation in this field. These provisions therefore do not reaffirm a policy shift towards more ambitious FTAs.

3.4. Liability of Intermediary Service Providers The liability of intermediary service providers (ISPs) has not been discussed in the EU FTAs with Algeria, Mexico and Chile. In contrast, in the FTA with South Korea (and, similarly, in the draft FTA with Canada) under the section on intellectual property (and not services) there are provisions limiting the liability of ISPs. In particular, in the EU-South Korea FTA Sub-section C Liability of online service providers, Articles 10.62 - 10.66 of the intellectual property section of the EU-South Korea FTA refer to the liability of intermediary service providers. These articles define the conditions of exemptions of liability of online/intermediary service providers for certain activities such as mere conduit, caching and hosting as such. 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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The Parties recognise (Article 10.62) that the services of intermediaries may be used by third parties for infringing activities. To ensure the free movement of information services and, at the same time, enforce intellectual property rights in the digital environment, each Party will provide for the measures for intermediary service providers where they are in no way involved with the information transmitted. With respect to mere conduit (Article 10.63) the Parties shall ensure that the service provider is not liable for the information transmitted, on condition that the provider does not initiate the transmission; does not select the receiver of the transmission; and does not select or modify the information contained in the transmission. With regard to caching (Article 10.64), the Parties will ensure that the service provider is not liable for the automatic, intermediate and temporary storage of that information, performed for the sole purpose of making more efficient the informationâ&#x20AC;&#x2122;s onward transmission to other recipients of the service upon their request, on condition that the provider does not modify the information; complies with conditions on access to the information; complies with rules regarding updating of the information, specified in a manner widely recognised and used by industry; does not interfere with the lawful use of technology, widely recognised and used by industry, to obtain data on the use of the information; and acts expeditiously to remove or to disable access to the information it has stored upon obtaining actual knowledge of the fact that the information at the initial source of the transmission has been removed from the network, or access to it has been disabled, or that a judicial or an administrative authority has ordered such removal or disablement. As to hosting, the Parties shall ensure that the service provider is not liable for the information stored at the request of a recipient of the service, on condition that the provider does not have actual knowledge of illegal activity or information and, as regards claims for damages, is not aware of facts or circumstances from which the illegal activity or information is apparent; or upon obtaining such knowledge or awareness, acts expeditiously to remove or to disable access to the information. This provision does not apply when the recipient of the service is acting under the authority or the control of the provider. The Parties must impose neither a general obligation on providers, when providing the above services to monitor the information which they transmit or store, nor a general obligation to actively seek facts or circumstances indicating illegal activity. The Parties may establish obligations for information society service providers to promptly inform the competent authorities of alleged illegal activities undertaken or information provided by recipients of their service, or to communicate to the competent authorities, at their request, information enabling the identification of recipients of their service with whom they have storage agreements. It should be noted that draft CETA includes identical provisions in Articles 29.1- 29.5 of the intellectual property section. These articles repeat Section 4 'Liability of intermediary service providers', articles 12-15 of Directive 2000/31/EC, which constitutes the basic legal basis for electronic commerce in the internal market.36 This seems to be the first legal instrument addressing the limitation of liability of intermediary service providers at EU level. They appear to constitute a mere copy of the EU acquis37 and aim to facilitate ecommerce between EU and South Korea. 36

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32000L0031:EN:HTML

Note that Directive 2000/31 is currently under review at EU level. A consultation is being held, where one of the topics addressed is also the chapter on liability of the intermediary service providers. (http://ec.europa.eu/internal_market/consultations/2010/ecommerce_en.htm) The results of the consultation be used for the preparation of a Commission communication on e-commerce, expected to come out in the first half of 2011. 37

Note discussions on the second paragraph, with regard to the omission on recital 43 http://www.euroispa.org/files/joint_industry_statement_on_eu_South Korea_fta.pdf 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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An overview of how this directive has been implemented in the Member States in terms of national legislation and how it has been interpreted by the various national courts forms a part of study on the Liability of Internet Intermediaries, describing the general trends in the EU and offering relevant recommendations.38 The key reason behind limiting the liability of ISPs at the EU level was to streamline the functioning of the internal market, enhance the development of cross-border services, and eliminate distortions of competition through the harmonization of national provisions concerning liability of ISPs acting as intermediaries (Directive 200/31, Recital 40). The impact of the limited liability provisions has been assessed as positive and as encouraging crossborder trade inside the EU market39. The willingness to further reinforce e-commerce with close trading partners who are not EU Members could be the reason why the provisions from internal EU legislation have inserted into the FTA text. It should be noted that such provisions have been also included in FTAs negotiated by the US, which could be another reason why the EU introduced similar provisions in its conventional practice. As a concluding remark, the provisions limiting liability of intermediary service providers are reinforcing e-commerce, they therefore can be considered to be an indication of more ambitious conventional practice.

http://ec.europa.eu/internal_market/e-commerce/docs/study/liability/final_report_en.pdf. Pages 16-19 of Study of the economic impact of the E-commerce directive, http://ec.europa.eu/internal_market/ecommerce/docs/study/ecd/%20final%20report_070907.pdf

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3.5. Transport Services Transport under GATS Air transport: GATS includes special provisions on air transport services40. The annex however excludes from the agreement the largest part of air transport services, traffic rights and services directly related to traffic. Maritime transport: With regard to maritime transport, it is also included in the new services negotiations which began in 2000.41 At the moment two separate plurilateral requests are being considered, with regard to the use of the so-called “maritime model schedule”, in particular: 

The elimination of cargo reservations, of restrictions on foreign equity participation and on the right to establish a commercial presence both for international freight transport and for maritime auxiliary services.



Additional commitments on access to/use of port services and multimodal transport services



Elimination of most-favoured nation (MFN) exemptions.

To date there has not yet been a conclusion to the negotiations above. Therefore, for the purposes of the current exercise, it is not possible to compare the relevant provisions included in the FTAs with the GATS regime.

It should be noted that in the FTAs examined there is no particular section on transport. These FTAs usually include an article on international maritime transport, which will be presented below. In the EU-Algeria FTA cooperation in the transport sector seems to be merely on issues of infrastructure rather than provision of services (FTA Article 59). The provision on transport describes a general commitment on cooperation to support the restructuring and modernisation of transport, with a particular focus on modernisation and management of road, rail, port and airport infrastructure, upgrading of technical equipment, inter-modal transport, technical assistance and training. FTA Article 34 provides specific rules on international maritime transport services. The EU-Algeria FTA provisions on transport are more restrictive than in the GATS, as the cooperation seems to be merely on issues of infrastructure rather than provision of services. In addition, any form of air transport seems to fall outside the scope of the agreement. Regarding the EU-Mexico FTA, the general provisions on services apply to the transport sector, with the exception of air services, including domestic and international air transportation services and related services in support of air services and computer reservation system (CRS) services; and maritime cabotage (See Article 2 of the decision). For the rest of the transport services, Article 24 of the Agreement provides for cooperation between the Parties in the transport sector, to support the restructuring and modernisation of transport systems and promote operating standards. Priority is information exchange, economic, legal and technical training programmes aimed at economic operators and senior public officials, information exchange on the Global Navigation Satellite System (GNSS) and technical assistance. 40 41

http://www.wto.org/english/tratop_e/serv_e/transport_e/transport_air_e.htm http://www.wto.org/english/tratop_e/serv_e/transport_e/transport_maritime_e.htm

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With regard to liberalisation of international maritime transport, Article 10 of the Agreement provides specific rules consisting of obligation for unrestricted access to markets on the basis of nondiscrimination, national treatment with regard to access to infrastructure and freedom of establishment. In the EU-Chile FTA the provision on transport is general and refers to a general cooperation obligation (Article 23). There is a general commitment for cooperation with the aim of restructuring and modernising Chile's transport systems, including exchanges of information on the Parties' policies, training programmes and cooperation projects for transfers of European technology in the Global Navigation Satellite System and urban public transport centres. National maritime cabotage and air transport services are excluded from the scope of the FTA. Note that the agreement includes a special chapter on international maritime transport (Articles 106-108), which provide for market access and national treatment, together with non discriminatory treatment in the field of establishment. Finally, the EU-South Korea FTA provides that domestic and international air transport services fall outside the scope of the EU-South Korea FTA. Sub-section F Article 7.47 includes special provisions on international maritime transport, consisting of obligation for unrestricted access to markets on the basis of non-discrimination, national treatment, not introducing administrative barriers, freedom of establishment, non-discriminatory treatment in relevant activities. In view of the aforementioned, the FTA provisions on transport mainly refer to broad cooperation and do not reflect a policy decision for higher degree of liberalisation. To that extent they do not differ from the treatment of the transport sector at WTO level. Addressing issues of international maritime transport in the FTA is in the same spirit as the ongoing WTO negotiations in the field of maritime transport. However, none of the FTAs has reinforced liberalisation in the transport sector and, therefore, such provisions cannot be used as examples for more ambitious FTAs.

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CONCLUSIONS Perceiving the international trade in global economic terms, its most tangible features â&#x20AC;&#x201C; more and more tightened interdependencies, trans-border ties, as well as irrevocable markets opening â&#x20AC;&#x201C; find their reflection in the world conventional practice. In particular, evolvement of the trade liberalisation process, that has been progressing gradually and still shows its potential to advance further, can be easily observed on the basis of the EU-third countries trade arrangements, especially in the light of free trade agreements. However, it is worth noting the trading partners` aspiration for fixing in written the complexity of trade modalities that constituted before mainly the implied and customary practice, convince of the parties` intention to nail down the precise frameworks of liberalisation admitted. The various FTA provisions explored infra, while reaffirming the existing WTO commitments, still appear diverse in terms of services liberalisation, either in depth or in scope. Most of the provisions assessed simply follow the GATS logic and there are no many examples of more advanced provisions for the liberalisation of services. Yet, a number of bilateral agreements also stipulate a future reassessment of commitments what is illustrated in the EuroMediterranean ones. Along with this, the analysis presented shows a trend that each more recent FTA introduces higher degree of liberalisation comparing to the previous ones. The most ambitious modalities in terms of liberalisation can be found in the EU-South Korea FTA. With respect to the precise subject-matters, the most far-reaching commitments can be traced in the general provisions concerning market access, most-favourite-nation as well as national treatments and so forth. Whereas, an analysis of the selected services sectors suggests that the FTAs reaffirm predominantly the GATS provisions on financial services, transport and computer services. However, some agreements as the EU-Mexico and the EU-Chile ones, have more substantive and detailed provisions going beyond GATS requirements, inter alia, in financial services and telecom liberalisation. According to the EUâ&#x20AC;&#x2122;s conventional practice and Global Europe statements, the Union seems likely to demand significant liberalisation concessions from its partners in, at least, the following sectors under examination: information and financial services. At the same time, the EU seeks exempting the key sensitive sectors from deep liberalisation in FTAs, namely the audiovisual and air transport services. In this regard, a special attention should be drawn to the financial services sector given its essential role for a country economic development. On a practical note, still many EU trading partners appear maintaining their restrictions on foreign participation in the financial sector due to its economic sensitivity. The degree of liberalisation of services, its depth and scope, can be attributed to the policy choices of the party to an agreement. This, to a certain extent, depends on the nature of the trading partner. For instance, if the trading partner is a WTO member, the agreements concluded are more intense in terms of liberalisation than in case the party does not belong to the WTO club. Apart from the engagement of a country at the international scene, other dimensions seem also worth examining. These may include purely economic rationale, such as existence of a comparative advantage (e.g. the EU feels itself competitive in rendering the financial services) and/or willingness to develop economies of scale. For instance, since the European Union, as any global and regional player, wishing to extend its financial market and finding more consumers for its bank services, tries to penetrate the overseas 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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markets by asking its trading partners to open relevant markets, as it is currently the case with India. On the other hand, through an advanced liberalisation of services under Mode 4, the EU itself might benefit, for example, from the professional IT specialists coming from this country. As a consequence, the trade instruments applied by the EU might appear offensive given its market access and raw material strategies, as well as such trade negotiation tools as the negative lists and an offensive approach to the presence of natural persons in their capacity of service providers. Addressing both import and export concerns the Union seems in parallel to take into account its geopolitical interests. Having already arranged the main trade terms with the EuroMed countries and currently concentrating on its Eastern Partnership peers, including Ukraine, the EU also moves progressively towards the free trade areas with Canada and ASEAN countries; the strengthened trade dialogue with China and other emerging markets. This proves that the new challenges, such as global sourcing and production, intellectual property protection and innovations, development of transatlantic trade relations, are under focus of Brussels as well. In the light of aforementioned, one may reveal so far one of the oldest international trade tensions, i.e. expansionism vs. protectionism. Yet, there remain another tension to be underlined under this survey â&#x20AC;&#x201C; the one between the multilateralism and the bilateralism. Since both levels produce influence on each other, it seems rather the interaction between GATS and the relevant FTA provisions on trade in services. Looking from the multilateral perspective, one may note this play ground serves as a backbone for regional and bilateral commitments in substance and, simultaneously, it serves the interests of expansionists in economic terms. Promoting expansionism, the WTO rules also appear to admit protection, all the time meticulously controlling it. In terms of drafting on trade in services, GATS sets down the general framework applied to all WTO Members including the EU. Nevertheless, over time one may observe a trade policy shift to bilateral rule-making due to reasons explored under the first section of this survey. What is equally noteworthy, this policy shift produced some effects on the EU conventional practice. First of all, it resulted in introduction of new elements in the FTAs, not only structural but also in terms of ambitions, already demonstrated by the EU-South Korea text.42 Taking into account that there is only one agreement concluded since the policy shift marked by Global Europe, from main focus to multilateral rule-making towards more ambitious FTAs, it seems too early to give practical examples confirming the said trend. Taking a closer look from the bilateral perspective, it is also important to highlight the actual and potential effects the EU FTAs have on the GATS and WTO negotiations. All things considered, one should be careful while concluding on the actual effect(s) of the shift in the FTA policy on the WTO negotiations. Currently, there is only one FTA recently signed, the EU-South South Korea one, which reflects this trend. And, although there are other FTAs under negotiation on similar terms, the parties concerned have not reached an agreement yet. Thus, the main undeniable trend is that the EU policy shift to more ambitious FTAs has not affected the EU commitment to multilateralism stated explicitly by the Union in its FTAs signed or negotiated. In addition, at the WTO level there has not been reported any shift in the negotiating strategy of the EU yet. By way of contrast, the potential effect(s) of the EU FTAs on GATS and WTO negotiations can be regarded as more traceable. For instance, in those cases when the EU negotiating partner does not belong to the multilateral trading system, the potential effect of their agreements can be more obvious 42

However, South Korea has also negotiated ambitious FTAs with other trading partners (e.g. the South Korea-US FTA). 102-104, Antonovycha Street 03150, Kyiv, Ukraine

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(as in a case of the FTA with Algeria which is not yet a WTO member). Given that this agreement has introduced the notions and principles GATS provides for, it can facilitate the way of Algeria to WTO membership and can have an overall positive effect on multilateral trade relations in general. All in all, in the light of international trade in services, the above multilateral and bilateral dimensions complement each other contributing to more predictable, transparent and sustainable conditions for doing business.

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