Canada: Canada Submits Revised GATS Offer

This article was originally published in Blakes Bulletin on International Trade, July 2005

Article by: Prakash Narayanan and Navin Joneja, ©2005, Blake, Cassels & Graydon LLP

To further the GATS negotiations, revised market access offers have been made by Canada and other WTO members. It remains to be seen whether the persuasiveness of these revised offers will achieve a binding undertaking among members before the next ministerial conference in December — the outlook is not promising.

On May 18, 2005, Canada submitted its revised General Agreement on Trade in Services (GATS) market access offer to the World Trade Organization (WTO). This offer revises and improves the initial offer of market access commitments that Canada, along with other WTO Members, submitted in 2003.

Offers of market access commitments form the basis for negotiations between WTO Members as to the extent of further liberalization of the services sector. In 1994, the Uruguay Round of negotiations included, for the first time, an agreement on trade in services. Since then, WTO Members have been incrementally liberalizing trade in services. Canada’s revised offer was made pursuant to the WTO General Council Decision of August 1, 2004 under which WTO Members were required to submit revisions of their initial offers by May 2005.

The services sector plays a significant role in the economy of most countries, accounting for the majority of their Gross Domestic Product (GDP), and is estimated by the World Bank to be the fastest growing sector of the economy in low and middle income countries. The GATS negotiations, therefore, continue to be of considerable relevance as trade in services becomes an increasingly important part of global trade.

In its revised GATS offer, Canada has proposed to improve its market access offer in the following areas:

Professional Services. Canada’s revised offer entails removal of certain provincial residency and commercial presence requirements with regard to accountancy and engineering services. In relation to legal services, commitments were offered for the temporary licensing of foreign legal consultants in Manitoba.

Financial Services. The revised offer provides banks the option of establishing more than one form of establishment (e.g., a subsidiary, a lending branch or a full service branch) at the same time, instead of requiring banks to choose only one form among several forms of establishment. Direct ownership of foreign-owned subsidiaries has been made less restrictive by imposing such ownership and control requirements only where required under the Bank Act, rather than under all circumstances. The offer includes the removal of, in a number of provinces, certain residency requirements for trading in securities and commodities futures, and providing auxiliary financial services.

Other Services. In relation to courier services, the revised offer eliminates almost all market access limitations. With regard to transport services, most revisions relate to maritime transport, where the offer was revised to follow more closely the maritime model schedule initially discussed by WTO Members during the Uruguay Round. In addition, a ship registration restriction on cross-border trade of these services has been removed. In the rail transport sector, a "cabotage" limitation on the cross-border supply of rail transport services and a provincial residency requirement for boards of directors has been removed.

Temporary Movement of Business People. The revised offer includes a new category of intra-corporate transferees to facilitate the temporary entry of individuals who enter Canada for career development purposes. In addition, certain limitations on entry of information technology professionals have been removed, and management consultants have been added to the list of professions covered by Canada’s initial offer. Liberalization of the rules relating to the movement of natural persons has been a priority for developing countries.

Commercial Presence. The revised offer includes permitting foreign services suppliers to acquire land in certain provinces, and imposing less restrictive provincial residency requirements for members of the boards of directors of companies.

Exemptions to the Most Favourable Nation (MFN) Principle. The MFN principle under Article II of GATS requires that all WTO Members receive treatment no less favourable than that accorded to the services and service suppliers of any other country. Any exemptions from this principal are to be specifically listed. Canada’s revised offer eliminates three of these exemptions that had been enumerated in its initial offer, including two federal exemptions that allowed for preferential treatment of the United States in relation to maritime salvage, and a Québec exemption for the preferential treatment of loan and investment companies incorporated in the United Kingdom and Ireland.

The GATS negotiations commenced in 2000, and while a number of countries submitted initial offers of liberalization by 2003, the initial negotiating deadline of January 1, 2005 was missed. At the end of the last "Services Cluster" meetings of the WTO Council for Trade in Services and its various committees held in February 2005, WTO officials noted that the services negotiations were not progressing. Since then, a number of other countries have submitted revised offers and a few countries have also submitted initial offers. While this might seem encouraging, a number of countries still do not perceive much benefit in opening up their services industry, as is demonstrated by the fact that a significant number of WTO members have not even submitted initial offers. While both the U.S. and the E.U. claim to have addressed a number of concerns of the developing countries through their revised offers, particularly with regard to the movement of natural persons, it remains to be seen how developing countries receive these revised offers, and whether their own revised offers indicate a greater willingness to liberalize the services sector.

Liberalization of the services sector is likely to be a contentious issue at the next WTO Ministerial Conference scheduled for December 2005, unless sufficient progress is made with the negotiations before then. Despite the revised market offers received (including Canada’s), and the growing importance of the services sector to the global economy, this seems unlikely.

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