By Peter Ungphakorn
POSTED FEBRUARY 7, 2023 | UPDATED FEBRUARY 9, 2023
India and South Africa are questioning the right of 62 World Trade Organization (WTO) members to implement their agreement to streamline domestic regulation in services, but experts question whether the two can prevent the deal from becoming legal.
The deal was concluded in December last year. Since then, most of the participants have submitted what they have each agreed to do, in the form of draft revised “schedules” (or lists) of commitments in services.
Altogether there are 35 schedules of commitments covering the 62 members (counting the EU as 28), meaning 8 of the 70 participants have not yet sent in theirs. (See details below.)
Estimates by the WTO and Organization for Economic Cooperation and Development (OECD) suggest the agreement could potentially save trade costs by about US$150bn annually. The 62 WTO members that have submitted new draft schedules account for about 89% of world services trade — 92.5% if all 70 are counted, WTO Deputy Director-General Anabel González says.
By putting the deal in individual members’ schedules of commitments, the participants have avoided the need for consensus approval by the whole WTO membership.
To achieve this, two important principles are needed.
First, no new rules will be added to the WTO rulebook. To do so would require consensus from all members. Instead, the new disciplines on domestic regulation in services are in the form of a “reference paper”. Each revised schedule of commitments simply says the member or members will comply with that paper. The WTO rulebook stays unchanged.
Second, the commitments have to apply to the relevant services from all other WTO members equally — known as the “most-favoured-nation” principle. That means all non-participants are free riders. And this, experts say, is why India and South Africa are unlikely to be able to block the deal.
Continue reading or jump to:
Main story: No loose ends | The challenge
Additional information: More details | The WTO Secretariat’s explanation | The status of the UK’s schedule of services commitments
‘No loose ends’
Deals among subsets of the WTO membership are called “plurilateral” agreements, whereas those involving the full membership are “multilateral”. (An explainer on all the WTO plurilaterals is here.)
The main reason behind the current plurilateral initiatives is the difficulty of finding consensus agreement among the full membership in a wide range of negotiations. Instead, plurilaterals are talks among the willing when some are immovably unwilling, an alternative to full WTO negotiations when consensus is elusive.
This agreement on domestic regulation in services is one of several that began as joint statements from groups of members, the “joint-statement initiatives (JSIs)”.
I hope proponents invest the time and effort in taking this forward because it will affect the overall attitude towards JSIs, in the broader context of WTO reform discussions
— Hamid Mamdouh
“This is the first outcome of any of the JSIs,” says Hamid Mamdouh, former director of the WTO Secretariat’s Trade in Services Division and a leading expert on services trade.
And now non-participants India and South Africa are challenging the revised commitments on domestic regulation in services. (Details are below.)
“I’m glad that domestic regulation is the first case to fight over,” Mamdouh says. “It is the most straightforward case in terms of how to legally integrate an outcome into the WTO treaty system because it is done through the modification of schedules.”
This method has been used before, for example when members agreed to scrap import duty on information technology products, he points out.
“It is also a case where there are agreed legal procedures to be followed and, if taken to its conclusion, there will be no loose ends,” he says.
“Participants could eventually give legal effect to their new commitments despite the objections, if they follow the procedures.”
The procedures for revised schedules of commitments aim for “certification” that the commitments are legal documents. The participants have already started this by circulating their commitments. (The procedures are in WTO document S/L/84. For more details of the procedures see “WTO explanation”, below.)
If there are no objections, the schedules of commitments are considered to be certified. If there are objections — such as those raised by India and South Africa — then the members concerned consult each other.
If no agreement is reached and objections are sustained, the process moves to negotiations under Article 21 of the General Agreement on Trade in Services, which is about “modification of schedules” — the new commitments modify existing schedules.
If one member’s modification (for example China’s) puts another member’s trade (for example India’s) at a disadvantage, then the negotiations would aim to compensate the disadvantaged country through an adjustment in the challenged schedule (a “compensatory adjustment”).
If the two sides still cannot agree, arbitration is allowed to determine the compensation. (This procedure is set out in WTO document S/L/80.) But since the purpose of the new domestic regulation agreement is to reduce barriers to services trade, India and South Africa should also benefit without having to make any commitments of their own.
“It would be impossible for India to make a case for what ‘compensation’ it is owed in return for more commitments undertaken by others,” Mamdouh says.
The bottom line is that if JSI [joint-statement initiatives] proponents assert their legal rights in this case, they would prevail
— Hamid Mamdouh
“The modifying Members would go ahead and implement the modifications to their schedules.
“There are further boring details to unpack here, but the bottom line is that if JSI [joint-statement initiative] proponents assert their legal rights in this case, they would prevail.
“I hope they invest the time and effort in taking this forward because it will affect the overall attitude towards JSIs, in the broader context of WTO reform discussions, notwithstanding the specificities of each of them.”
Other experts have made similar arguments.
For now, India and South Africa are pressing ahead with their challenge, using more or less identical words, and referring to their previous objections to negotiations among sub-groups of the WTO membership.
They are calling for more information in order to assess both the legal situation and what effect the new commitments might have:
“[India/South Africa] considers that further information and clarifications are required in order to assess the legal basis and the effect of the proposed modifications, particularly their interaction with Members’ existing rights and obligations under the General Agreement on Trade in Services and the Marrakesh Agreement Establishing the WTO.
“Accordingly, [India/South Africa] hereby notifies its objection to the certification of the schedules of specific commitments of [the relevant member or members]. This objection should be read in conjunction with the paper WT/GC/W/819/Rev.1 circulated at the request of India, South Africa, and Namibia. [India/South Africa] notes that further clarifications may be needed on other aspects of the schedules submitted for certification by the Members concerned, and therefore reserves the right to seek such clarifications.
In that paper (WT/GC/W/819/Rev.1 from 2021), India, South Africa and Namibia argue that plurilateral agreements contradict the fundamental principles of the WTO — multilateralism (all members involved), decisions by consensus (nobody objects), and the rules on amending WTO agreements.
“WTO Director General Ngozi Okonjo-Iweala is encouraging the members concerned to talk to each to other and find a solution as quickly as possible,” González says. “She will be following these consultations closely and is ready to assist in any way members consider appropriate.”
Co-incidentally, Russia is also challenging Britain’s draft schedule (restricted document S/L/463). Russia is a participant in the domestic regulation agreement and its own draft is being challenged by India and South Africa.
Moscow’s problem is based on a long-standing challenge about the legality of extracting the UK’s proposed commitments on services (and a correction) from the EU’s, first raised in January 2019 (documents S/L/423 and S/L/424). (See also explanation below.)
Some observers have suggested that the challenge from India and South Africa could lead to participants taking their agreement on domestic regulation outside the WTO completely, further weakening the beleaguered organisation.
But if Mamdouh and other experts are right, the latest challenge could lead to a lot of work over a long period of time and still result in the participants going ahead as they intended anyway.
After all, taking a plurilateral agreement based only on individual WTO members’ commitments out of the WTO has disadvantages.
Within the WTO, existing structures can be used to monitor and share information on how the commitments are being implemented — in the Services Council and its subsidiary bodies on specific commitments and domestic regulation, and with WTO Secretariat support.
Dispute settlement is also available for any legal challenges even though controversy over appeals is handicapping the system.
Outside the WTO, separate structures would have to be created or participants would have to settle for a weaker deal.
The same might not be said about a plurilateral agreement that requires formally altering the WTO rulebook. But for now that question has not yet arisen.
India has circulated 35 documents, one for each challenged schedule of commitments. South Africa’s 35 challenges are in a single document. (This is India’s challenge to US commitments, and this is South Africa’s document.)
There are 35 challenged schedules from 62 WTO members (counting the EU as 28):
Albania, Argentina, Bahrain, Canada, Chile, China, Costa Rica, European Union (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden), Georgia, Hong Kong, Iceland, Japan, Kazakhstan, Korea Republic, Liechtenstein, Mauritius, Mexico, Moldova, Montenegro, Nigeria, North Macedonia, New Zealand, Norway, Paraguay, Peru, Singapore, Switzerland, Chinese Taipei, Thailand, Ukraine, United Arab Emirates, United Kingdom, United States, Russia, Saudi Arabia.
A list of 35 schedules of new commitments that had been circulated by February 7, 2023 can be seen here although the documents are not public.
The eight that are still processing their documents are:
Australia, Brazil, Colombia, El Salvador, Israel, Philippines, Türkiye and Uruguay
Participants with draft schedules in December 2021 were 68 WTO members (see also this official document), with two joining later bringing the total to 70:
Albania; Argentina; Australia; Austria; Bahrain; Belgium; Brazil; Bulgaria; Canada; Chile; China; Colombia; Costa Rica; Croatia; Cyprus; Czech Republic; Denmark; El Salvador; Estonia; European Union; Finland; France; Germany; Greece; Hong Kong; Hungary; Iceland; Ireland; Israel; Italy; Japan; Kazakhstan; Korea, Republic; Latvia; Liechtenstein; Lithuania; Luxembourg; Malta; Mauritius; Mexico; Moldova; Montenegro; Netherlands; New Zealand; Nigeria; North Macedonia; Norway; Paraguay; Peru; Philippines; Poland; Portugal; Romania; Russia; Saudi Arabia; Singapore; Slovak Republic; Slovenia; Spain; Sweden; Switzerland; Chinese Taipei; Thailand; Türkiye; Ukraine; United Kingdom; United States; Uruguay. (Georgia and UAE joined in June 2022)
The EU wants to be counted as 27 WTO members for this agreement even though it is actually 28 WTO members — the 27 member states and the EU itself.
So the WTO counts the number of members that have submitted schedules for certification as 61 and the total number of participants as 69.
The WTO Secretariat’s explanation
Between December 2022 and January 2023, 62 WTO members (counting the EU as 28) circulated their new “schedules” (or lists) of commitments in services, designed to streamline their own domestic regulations so that foreign service providers can obtain licences and other authorisation more easily. The official number is 61 since for this purpose the EU is counted as only 27.
Then, on February 3, 2023, India and South Africa exercised their right to challenge the new schedules and block their certification, at least temporarily.
Asked about what happens next, below is what WTO Deputy Director-General Anabel González told this blog.
Her reply refers to two 45-day periods.
One is for non-participants to challenge the draft commitments. Most were circulated on December 20, 2022. That 45-day period expired on February 3, 2023.
After the challenges were circulated on February 3, the members concerned have another 45 days to negotiate a resolution — to March 20. They can also extend the period.
This is what González said:
Certification procedure started
“At the moment, 61 of the 69 participants of the Joint Initiative on Services Domestic Regulation have launched certification procedures for the commitments that they negotiated among themselves on services domestic regulation.
“This comes from commitments in the declaration they issued at the end of the negotiation [‘Declaration on the Conclusion of Negotiations on Services Domestic Regulation’ documents WT/L/1129, December 2, 2021 and WT/L/1129/Add.1, June 13, 2022].
“The participants that have started certification procedures comprises account for about 89% of world services trade. If we include those that have not yet started procedures, all the initiative’s participants cover 92.5% of world services trade.
“Eight of the participants have not yet started the WTO certification procedure. They are: Australia, Brazil, Colombia, El Salvador, Israel, Philippines, Türkiye and Uruguay.
“They say they are still working to complete the necessary internal procedures and intend to launch WTO certification as soon as possible.
“The certification requests are about improving services domestic regulation.”
“On February 3, 2023, India and South Africa notified their objections to all the certification requests that have been submitted so far.
“They have asked for clarifications about the legal implications of the proposed modification to schedules, under the General Agreement on Trade in Services (GATS) and the Marrakesh Agreement Establishing the WTO.
“India and South Africa also want their official objections to be read together with their paper submitted in 2021 — also with Namibia — raising questions about the legal status of these negotiations (‘The legal status of the Joint Statement Initiatives and their negotiated outcomes’, document WT/GC/W/819/Rev.1, April 30, 2021).
“That paper has been discussed at several General Council meetings over the past two years.
“Every WTO member has the right to modify its schedule of specific commitments.
“Under the auspices of the Council for Trade in Services, members developed procedures for any member to modify the commitments it has made in its services schedule. The procedures are contained in document S/L/80 and S/L/84.
“In this case — the new plurilateral agreement on services domestic regulation — the participants have followed the ‘Procedures for the Certification of Rectifications or Improvements to Schedules of Specific Commitments’, in document S/L/84, in order to give legal effect to their improved commitments, adding them to their existing services schedules.
“Under the S/L/84 procedure, when a certification request is circulated, all other WTO members are given 45 days to review the proposed modifications to the schedules. They can assess whether these indeed ‘consist of new commitments, improvements to existing ones, or rectifications or changes of a purely technical character that do not alter the scope or the substance of the existing commitments’. The other WTO members may raise objections if they disagree or requires further clarifications.
“Since objections have been raised, both sides now have 45 days to consultation each other. They ‘shall endeavour to reach a satisfactory solution of the matter’, according to the S/L/84 procedure,
Arbitration if no agreement after 45 days
“If the two sides cannot resolve their differences, the modifying member may invoke the procedure on ‘Modification of Schedules’ (S/L/80). This is normally used when a member wants to withdraw or reduce one of its commitments.
“Under this procedure, any member that considers that its ‘interests are affected’, may seek ‘compensation’ from the modifying member in the form of new or improved commitments in other sectors.
“If no compensation can be agreed — for example, if in the present case if the change to the schedule does not constitute a withdrawal or reduction of the commitments of the modifying member — the ‘affected member’ (India or South Africa) may invoke arbitration.
“If they do not seek arbitration, the modification proceeds. If they seek arbitration, and the arbitrators do not establish a need for compensation, the modification also proceeds.
“WTO Director General Ngozi Okonjo-Iweala is encouraging the members concerned to talk to each to other and find a solution as quickly as possible. She will be following these consultations closely and is ready to assist in any way members consider appropriate.
‘Real’ and ‘solid’ reforms
“The outcome on services domestic regulation, which responds to a long-standing request by the international services business community, consists of a set of rules aimed at improving the regulatory environment to enable services suppliers to obtain licences and authorisations to supply services in foreign markets.
WTO and OECD research has estimated that implementing the agreement could potentially save trade costs by about US$150bn annually and help countries participate more in services trade and global value chains.
“Members representing 92.5% of world services trade have already started implementing the substance of this outcome in their domestic regulatory systems. Many have already passed laws and regulations to cut red-tape which hampers in particular micro, small and medium-sized enterprises (MSMEs) and women-led businesses.
“These reforms are real. They are solidly based on the important outcome on services domestic regulation that was achieved at the WTO in December 2021.”
The status of the UK’s schedule of services commitments
Meanwhile, Russia is also challenging Britain’s draft schedule (restricted document S/L/463). Russia is a participant in the domestic regulation agreement and its own draft is being challenged by India and South Africa.
Moscow’s problem is based on a long-standing challenge about the legality of extracting the UK’s proposed commitments on services from the EU’s. Russia first raised its objection in January 2019 (documents S/L/423 and S/L/424). The objection still stands
The UK’s services commitments were originally in the EU’s schedule of specific commitments. After Brexit, the UK submitted a draft schedule for certification in 2018 (document S/C/W/380, and Corr.1) to separate its GATS commitments from those of the European Union.
Russia argues that at present no UK schedule exists, and that the UK can therefore not certify improvements to a UK schedule. Russia is itself a participant in the joint statement initiative on services domestic regulation, and therefore says it does not have substantive problems with the domestic regulation disciplines, only the legal situation with the UK’s schedule.
This is what Russia says in document S/L/463:
“The Russian Federation notes that modifications to schedules can be made only to the authentic texts of schedules that have entered into force. As acknowledged in the footnote to the certification request (document S/C/W/416), ‘the process of certification of the United Kingdom of Great Britain and Northern Ireland’s schedule has not yet concluded’ so the referred draft schedules (S/C/W/380 and S/C/W/380/Corr.1) legally cannot be modified.
“For this reason, the Russian Federation considers that, at present, it would not be possible nor appropriate to proceed with giving legal effect to the additional commitments on services domestic regulation as improvements to the UK Schedule of Specific Commitments.
“The Russian Federation expresses its openness to work addressing the aforementioned concerns and readiness to withdraw its objection upon reaching a satisfactory resolution of the matter.”
February 9, 2023 — adding Anabel González’s explanation at the end, and a separate item on Russia’s challenge, and some quotes from them in the main body of the story
February 8–9, 2023 — minor editing, corrected totals of participating members, and revised concluding paragraphs on the implications of taking the deal outside the WTO (above the “Some details” subheading)
Main photo (typewriter) | Mark Winkler, Unspalsh licence