Position Paper on WTO Negotiations for Liberalizing Trade in Services

General Remarks

The Importance of Service Industries

Service industries are growing in importance as the basic infrastructure for the economic activities of corporations and consumers, not only in developed countries but also in the developing world. These efficient and highly productive service industries help to strengthen the competitiveness of the mining, manufacturing, and agricultural industries, and contribute to improvements in the quality of life.
Trade in services has played an important role in the development of efficient and highly productive service industries in every country. In particular, the General Agreement on Trade in Services (GATS), which entered into force in 1995, laid the groundwork for the promotion of trade in services. However, the history of GATS is very brief, and in many countries, there unfortunately remain various barriers to service-related business activities.
Based on this situation, we strongly support negotiations for the liberalization of trade in services within the WTO. It is fervently hoped that through such negotiations, trade in services amongst member countries will be further liberalized, and efforts will be made towards strengthening WTO rules.
However, as an increasing number of countries would not benefit sufficiently from services negotiations alone, there are concerns that such negotiations will not gain strong enough momentum. Consequently, the early launch of a new round of WTO negotiations, which encompasses a comprehensive agenda and incorporates services negotiations, has become an urgent issue. In particular, within the new round of negotiations, it is important that developed countries make efforts to improve market access for products from developing countries, and that discipline is strengthened in order to prevent the arbitrary imposition of restrictive trade policies such as anti-dumping measures.

Towards the Promotion of Negotiations

1. The importance of practical guidelines for negotiations
   In order to facilitate services negotiations, it is expected that every country by the end of the year will actively make proposals to promote the further liberalization of trade in services, based on the Roadmap for the Negotiations adopted in May 2000.
   Also, in conjunction with these activities, it will be important to draft the Negotiations Guidelines. In order to serve as a foundation for future negotiations, the Guidelines must be practical and take into consideration the viewpoints of and benefits to all WTO member countries. In particular, at the outset of negotiations, the current schedule of commitments should serve as a basis, and sufficient credit should be given to previously independent liberalization efforts should they be bound in the schedule.
   Furthermore, references in the Guidelines to final deadlines for services negotiations are thought to be premature in consideration of continuing efforts towards launching a new round of negotiations.

2. Consideration Towards Developing Countries
   The proactive participation of developing countries in services negotiations is an essential factor in their success. Consequently, it is important that the negotiations accurately reflect the needs of developing countries and make the utmost cooperative efforts to meet these demands.
   In conjunction, it is necessary for developed countries to strengthen technical assistance towards capacity-building in developing countries.

Our Position on All Services Negotiations

It is considered particularly important for the services negotiations to abolish or relax discriminatory regulations over business activities conducted by foreign corporations, and to improve the transparency of services-related systems. The construction of an institutional framework to support the sound development of electronic commerce and the guarantee of free movement of persons are also issues of concern for us. The following is a summary of our thoughts on some of the major issues currently under discussion in the WTO.

Handling of the Most-Favored Nation (MFN) Exception

MFN status is a basic principle of the WTO, but unfortunately, many countries, including the U.S. and European nations, register MFN exemptions. The MFN Review Meetings held recently are appreciated as the first step towards abolishing the exemptions. In the future, it is imperative that all countries continue to make efforts towards the early abolition of MFN exemptions, which run contrary to the fundamental spirit of the WTO.

Greater Transparency of Domestic Regulations, etc.

1. Basic concept
   Domestic regulations exercise great influence over services negotiations. We welcome the fact that the transparency and necessity of regulations is being discussed in the Working Party on Domestic Regulation. Furthermore, it is expected that this Working Party will review not only "measures relating to qualification requirements and procedures, technical standards and licensing requirements" stipulated in Article 6.4 of the General Agreement on Trade in Services (GATS), but will investigate all service-related regulations. In particular, it is considered important to create rules regarding the transparency of cross-sectional domestic regulations. Furthermore, it will be necessary to exchange views with the regulating authorities in creating these rules.

2. Greater transparency of regulations
   Companies face various hurdles to conducting services-related business in foreign countries, such as incomplete and opaque legal systems, sudden changes, arbitrary operation, and opaque and unreasonable licensing requirements and procedures (licensing criteria and fees, for example).
   Fundamentally, it is preferable to ensure transparency in all aspects of domestic regulations, including 1) the process of establishing the regulations, 2) the regulations themselves, and 3) actual application of the regulations.
   However, considering the administrative burden on each country, the realization of greater transparency of the legal system (including the availability of all laws and ministerial ordinances; establishment and announcement of investigation criteria for permits; and documentation of oral guidance) will be a necessary first step. Furthermore, as there have been cases of developing countries with no established legal system governing businesses, such as bankruptcy laws, it is desirable that developed countries provide technical assistance for the establishment of such a legal system.
   The second step is to create rules to correct the excessive discretion of regulatory authorities regarding permission and approval. Specifically, it is important to establish legal systems and regulations for administrative procedures (such as the obligation to initiate investigations; the establishment and announcement of standard process timeframe; and the disclosure of reasons in cases where permission or approval is denied).
   Furthermore, if possible, the introduction of so-called "public comment system" related to the establishment, revision, and abolition of regulations through national laws and ministerial ordinances should be considered.

3. The necessity of regulations
   The concept of "not more burdensome than necessary" and "unnecessary barriers to trade in services" should be clarified in the discussions on the "necessity" of domestic regulations held by the Working Party on Domestic Regulation, thereby being reflected in the improvement of systems in of each country.

Electronic commerce

1. Basic concept
   The sound development of electronic commerce depends on keeping government regulations to the bare minimum and developing a framework based on the voluntary efforts of private industrial circles. In particular, the following points are of importance: 1) To avoid establishment of unnecessary regulations and barriers for the protection of electronic commerce; 2) To ensure that in cases where regulations are necessary, they are non-discriminatory and non-restrictive to trade to the greatest extent possible; 3) To ensure sufficient transparency in related regulations; and 4) To ensure international harmonization in the improvement of various systemic aspects, such as electronic certification, settlements, consumer protection, privacy, intellectual property rights, taxation and competition policies.
   Regretfully however, since the Seattle Ministerial Conference, work pertaining to electronic commerce in the WTO has stagnated and no substantial results have been attained. With this situation, the resumption of the "Work Programme on Electronic Commerce" is welcomed and it is necessary from now for member countries to accelerate their work relating to electronic commerce.

2. Towards negotiations on electronic commerce
   Electronic commerce, characterized by its wide-ranging nature and cross-sectoral aspects and rapid progress, is having a sizable effect on international society. It is therefore wholly inappropriate to conduct negotiations on electronic commerce only within the scope of the trade in services negotiations. What is necessary is to conduct negotiations from some kind of horizontal viewpoint, on themes that are common to the WTO as a whole, including the General Agreement on Trade and Tariffs (GATT) and Trade-Related Aspects of Intellectual Property Rights (TRIPS).
   In addition, for the promotion of international harmonization of the wide range of systemic aspects, the role that should be played by the WTO and the role to be played by the existing special international organizations should be coordinated in order to ensure that the WTO does not take on too much responsibility for the process.

3. Negotiations in the WTO

   (i) Improvement of market access

   For the improvement of market access related to electronic commerce, it is necessary to liberalize both the infrastructure fields relevant to electronic commerce and the content of trade.

   1. Clusters Approach
      Concerning the method of progressing with negotiations on liberalization of the infrastructure field of electronic commerce, there is one train of argument that calls for the adoption of a cluster approach, with which a number of industry sectors are gathered together to be negotiated. For example, telecommunications and finance have been cited as one industrial field in which a cluster could be created, and of these, each one comprises one main service industry, which is in actual fact the target sector of the current services negotiations.
      When and whether to adopt the so-called clusters approach of package negotiations should be based on considerations of the ease of proceeding with negotiations, and the creation of an environment in which many countries can proactively participate. From this perspective it is therefore thought to be effective to adopt the cluster approach as something of a negotiation checklist from the aspect of a cross-sectoral viewpoint.
      
   2. Modes of supply
      With regard to contents, due to the rapid progress of electronic commerce, while there are currently many services which can be supplied only through mode 3 (foreign commercial presence) and mode 4 (movement of natural persons), electronic means are now making possible the supply of services. There are still many cases for these services, where it is written in schedules of commitment that "unbound due to technical feasibility." However, it if necessary for all countries in the future to press forward with active commitments to liberalization aiming to further promote electronic commerce. In this connection, it is therefore of importance to sufficiently coordinate modes with electronic commerce (especially mode 1 and mode 2).
      
   3. Classification
      In cases where digital contents, such as music software, originally traded in a format such as CD are now being traded by electronic means, it is necessary to apply the existing GATT disciplines. In addition, in cases where services are provided by electronic means that already come under provisions of the rules of the General Agreement on Trade in Services (GATS), then these rules should be applied regardless of the means of provision.
      Further, for example, with regard to new services such as Application Services Providers, in order not to create needless new classifications, further review should be made as to whether the classification meets the needs of reality, including application of the existing GATS classifications.
      

   
   

   (ii) Domestic regulations

   Domestic regulations have a significant effect on electronic commerce and as such it is necessary to secure the transparency of related domestic regulations through WTO review, in order that domestic regulations are not in actual fact camouflaged trade restriction measures.
   
   

   (iii) Continuation of the moratorium on customs duties

   It is important that member countries come to a decision on the continuation of the moratorium on customs duties for digital transmissions. Until then, the status quo should be maintained.

4. Support for developing countries
   When considering the international expansion of electronic commerce and the development of IT and the Internet, it is of urgency to bring WTO negotiations to a prompt and successful conclusion and to promote the development of systems and cultivation of an environment in developing countries whereby utilization of electronic commerce could be promoted.
   In addition, it is also important to review the modalities of support for developing countries in this area by developed countries.

Ensuring the Free Movement of Personnel

When enterprise perform trade in services (particularly mode 3), it is important that the dispatch of company personnel (managers and persons with expertise and technical skills) abroad be conducted smoothly. However, in many countries companies are facing problems such as: 1) acquiring visas and labor permits; 2) residency requirements for company executives and employees; and 3) obligations to employ local personnel.
Each country should, through improvement of its schedule of commitments aim to realize the securing of the free movement of business-related personnel. In addition, it is also hoped that discussions can be made on achieving clarification and simplification of visa and labor permit procedures, and of requirements, while at the same time shortening the process of issuance of visas and permits.

Safeguards

1. Basic concept
   Japanese industry does not feel any particular need for the imposition of safeguard measures. On the other hand, as developing countries move forward with liberalization, cases could be anticipated where safeguards need to be imposed in order to alleviate the sudden impact of such liberalization on domestic society. However, since trade in services is an area in which statistics have not been sufficiently developed, clear and objective rules therefore need to be formulated in GATS in order that they are not arbitrarily imposed, if regulations are to be organized for safeguard measures.

2. Necessity for objective rules
   To this end, firstly, it is therefore necessary that detailed discussions be undertaken on what these clear objective rules or standards should be.
   In addition, since safeguard measures are primarily aimed at the protection of domestic industries, the stopping or limiting of activities in enterprises which have already established a presence in the supply of services (mode 3), or limitations on the establishment of new branch offices and increase in capital, should, in principle, not be permitted. If it were the case that such limitations were to be placed, then they should only be place under non-discriminatory conditions with other domestic enterprises.
   In the same way as Article XIX of the GATT, it is necessary to incorporate conditions for the imposition of safeguard measures where domestic industry has been damaged or could be damaged" as a result of unforeseen developments".

3. Prompt withdrawal of measures
   Safeguards are emergency measures and as such should only be permitted over a given duration that is necessary in order to stop or prevent serious damage. In order to avoid extensive application of the measures, the duration and review of safeguard measures such as Article 7.4 of the Agreement on Safeguards should be included. Room must also be left for such restrictive measures to be withdrawn or relaxed, reflecting economic/social changes in the country.

Position on Sector Specific Liberalization Negotiations

Negotiation Approach

In liberalization negotiations, Japanese industry expects that, through improvement of national schedules, among others the following will be realized: 1) limitations on foreign ownership restrictions; 2) abolition of nationality and residency requirements for directors and employees; and 3) the abolition of domestic and industry practices that discriminate between domestic and foreign industries.
Currently, various negotiation approaches are being discussed, and each approach has its merits and demerits. In the future, while discussions will be based on a request-offer approach, it is still necessary to cast light on the characteristics of each sector, and conduct individual specific review into whether model schedules or the cluster approach can be complimentarily applied.

Financial Services

1. Basic concept
   The WTO Financial Services Agreement of 1997, made a large contribution to the stable development of the financial markets by heightening the stability of the financial measures of each country and investor predictability. The progress of liberalization has brought about merits for both foreign enterprises investing inwards and domestic enterprises, and it is therefore important that all countries proceed with the steady implementation of their national schedules in accordance with the WTO Financial Services Agreement of 1997.

2. Domestic regulations

   1. Objectivity and transparency in regulations should be ensured. For example, it is important to address oral explanations of new regulations and the lack of legal precedents, and have regulations announced in written form, so as to control sudden regulatory changes. In addition, it is vital to secure the objectivity and transparency of issuance requirements and procedures for business licenses, and the abolition of a number of restrictions on the issuances of business licenses.
   2. Systemic obstructions should be abolished such as foreign ownership restrictions; restrictions on the establishment of branches and subsidiaries; nationality and residence requirements for executives and employees; obligation of reinsurance to state reinsurance agencies; foreign remittance regulations, etc.; the monopoly of domestic or government-affiliated companies over certain areas of insurance; and discriminatory tax treatment of foreign companies, etc.

3. MFN exemptions
   Regarding the case of the individual exemption of most favored nation status, it is expected that appropriate negotiations will be taken on reduction and abolition, in accordance with the provisions of the Annex on Article II exemptions.

4. Grandfathering
   With regard to the grandfathering clause, from the perspective of ensuring fair and competitive conditions, cases need to be carefully and individually judged. It is to be hoped that rights acknowledged in the grandfathering clause can be enjoyed by all member nations on an MFN basis.

5. Measures for Prudential Reasons
   With regard to measures for prudential reasons based on Paragraph 2 of the GATS Annex on Financial Services, member countries should seek to harmonize the necessary measures they take under the scheme of international institutions, which have more expertise and technical skills rather than in WTO negotiations.

Maritime Transport Services

1. Basic concept
   Despite the importance of maritime transport services, the Uruguay Round Negotiations on maritime transport did not reach an agreement, leaving this area outside GATS coverage. With the start of the services negotiations, the Extended Negotiations should be resumed.

2. Areas for negotiation
   Under the recognition that competitive marine transport services contribute to the development of international trade, it is necessary that in addition to abolishing restrictions on the establishment of local entities and the scope of their work, and the abolition of policies for the protection of national maritime transport industries, debate must be advanced aimed at the liberalization of international maritime transportation services (international shipping). In conjunction with this, liberalization should be actively progressed with regard to auxiliary services (maritime agency services, freight-forwarding services, etc.), and port services (pilotage, towing and tug, water supplies, fuel supplies).

Air Transport Services

1. The three "soft rights" areas
   There are many countries which have only yet committed themselves to partial liberalization under the following three areas in framework of the GATS rules, the so-called "soft rights" areas: the selling and marketing of air transport services with the exception of price setting; computer reservation system (CRS) services; and aircraft repair and maintenance.
   Based on the review of the Annex on Air Transport Services that is currently underway, liberalization should be promoted in the area of the three "soft rights" in each country.

2. Expansion of the scope of GATS
   There would be significance in reviewing on a case-by-case basis the liberalization of those services which currently do not fall under the scope of GATS, such as ground handling and airport management.

3. Problems associated with "hard rights"
   Concerning the liberalization of services directly related to transportation rights (hard rights), bilateral agreements should be advanced, bearing in mind the various situations in each country.

Energy Services

1. Basic concept
   Liberalization negotiations in the energy sector must be advanced on the basis of a balance between public interest (ensuring security, harmony with the environment, the provision of universal services, high supply credibility) and greater efficiency.

2. Problems of classification
   In energy service negotiations it is necessary to review classifications, having first clarified the items targeted for negotiation.

   1. Target items: Production of energy is considered to be the production of goods as applicable under the scope of the GATT, but not to be included in energy services. In addition, with regard to items which are additional services in the energy sector and are covered under other classifications in the national schedule of commitments, should be placed outside the scope of energy services.
   2. Method of classification: Classification should reflect the situation in the energy industry of each country. In particular, from the point of view of increasing efficiency, many countries have a vertically integrated system run by domestic operators and this might make detailed classification inappropriate.

Other Important Sectors

1. Telecommunications
   In order to ensure the smooth entry into the market of new companies, it is necessary to review the implementation status of national schedules of commitments on basic telecommunications, in addition to achieving an actual expansion of the number of countries that submit national schedules and a qualitative improvement in the content of the commitment. It is of particular importance to abolish or alleviate restrictions on foreign ownership, and improve transparency and clarification of the conditions and procedures for the granting of business licenses.

2. Construction
   Construction services are provided primarily through establishment of a local base, and the following improvements, among others, are called for: 1) Improvement in restrictions on foreign ownership; 2) improvement in restrictions on business modes; 3) improvements in domestic and business regulations which discriminate against foreign business; and 4) favoring local companies and qualification restrictions in regard to public works.

3. Distribution
   A relaxation is called for in such areas as restrictions on foreign ownership of import, retail sales and after-sales service industries, and restrictions on the establishment of business premises and the use of these in some developed countries.