Thursday, January 29, 2015

USTR Says It Will Seek To Cover New Services In Plurilateral Agreement

Posted: January 16, 2013

The Office of the U.S. Trade Representative yesterday (Jan. 15) formally notified Congress that it intends to begin negotiations for a plurilateral services agreement within the next 90 days. In its notification, USTR outlines several key objectives, including negotiation of a deal that covers services "that have yet to be conceived" and the inclusion within a services deal of rules making regulatory processes in participating countries more transparent.

Concerning the first point, USTR Ron Kirk wrote in separate letters to House Speaker John Boehner (R-OH) and Senate President Pro Tempore Patrick Leahy (D-VT) that a services agreement "must … permit comprehensive coverage of all services, including services that have yet to be conceived. U.S. service companies are diverse and constantly innovating. We cannot afford to conclude an agreement that is obsolete on the day it is signed."

Many Washington-based observers were somewhat confused by this part of the notification. On the one hand, U.S. companies represented by the Coalition of Service Industries (CSI) have long argued that it is important to capture new service sectors that may arise in the future within the confines of trade agreements being negotiated now. Partly for that reason, CSI favored the use of a "negative list" approach in the plurilateral services talks.

Under that approach, all services sectors are covered by trade agreement disciplines except those that a country specifically exempts. As it is impossible to exempt a service sector that has not even been conceived yet, the negative list approach ensures that "new" services that emerge in the future are subject to trade agreement disciplines. But this is not the negotiating approach on which the U.S. and others working on a plurilateral services agreement have agreed.

Instead, Washington-based observers noted, trading partners involved in the plurilateral talks have settled on a "hybrid" framework that features a "positive list" approach for scheduling market access commitments. It is unclear if, under this framework, services that have "yet to be conceived" would automatically be covered because the positive list approach only subjects to market access commitments those sectors a partner specifically signs up.

When it comes to market access, observers said this approach would create a de facto exclusion of any services that have "yet to be conceived" because those sectors could not be specifically listed at the time of negotiation. Of course, the "hybrid" framework also commits all negotiating partners to agree to national treatment disciplines across-the-board, regardless of whether market access commitments are made in a given sector.

This means that any "new" service sectors to emerge would also be subject to these national treatment disciplines. But national treatment disciplines – which require trading partners to treat foreign firms that are allowed to compete in their market the same as domestic ones – would be of little use in a new service sector if a country simply does not grant any market access opportunities for foreign firms in that sector in the first place.

One observer this week said that USTR has assured U.S. stakeholders that the "hybrid" framework being used in the plurilateral talks would allow participants to include market access disciplines for services that are "yet to be conceived," although this observer said it was unclear how this would be accomplished. This source speculated that there could be a process for updating commitments after an initial deal is inked.

"They ought to build in a procedure that allows for modernization of schedules on a fast track basis that doesn't require consensus of all the members," this observer argued. Such an approach would appear to be in line with the USTR notification this week, which states only that a plurilateral deal must "permit" coverage of services that are yet to be conceived. However, the notification does not state that a deal must require such coverage.

In another notable part of the notification, Kirk wrote that the U.S. will also push plurilateral partners to more closely follow current U.S. practice when it comes to providing advance notice and an opportunity to comment on new regulations affecting services trade. This is an objective that the U.S. is also pursuing in the context of the Trans-Pacific Partnership (TPP) negotiations.

"The agreement must seek to secure greater transparency and predictability from our trading partners regarding regulatory policies that present barriers to trade in services and hinder U.S. exports," Kirk wrote. "To address this challenge, we will seek agreement on practices like providing the public with advance notice and an opportunity to comment on proposed regulations consistent with current U.S. practice."

Article III of the General Agreement on Trade in Services (GATS) already requires World Trade Organization members to publish relevant regulations promptly and, at the latest, by the time of their entry into force. But an observer said the U.S. demand in the plurilateral arena seeks to go beyond this GATS discipline by also requiring trading partners to provide an opportunity for private-sector comments on proposed regulations.

The USTR notification also stresses that an agreement must address "new issues arising in the global marketplace and changes in the way we trade." As an example, USTR highlights the increase in Internet usage and the importance of developing appropriate provisions to support services trade through "electronic channels." Sources expect USTR to push for enforceable disciplines requiring countries to permit the free flow of data across borders, as it has in the TPP context.

The letter does not specifically mention whether USTR will pursue another relevant new issue it is also seeking in the TPP -- establishing disciplines on state-owned enterprises (SOEs). However, one industry source said the notification likely does not provide an exhaustive list of the "new issues" that USTR will seek to address in the services talks. This source said USTR is still consulting on which trade disciplines it will seek to include.

U.S. Coalition of Services Industries (CSI) President Peter Allgeier has said he is confident that USTR will push for SOE disciplines in a plurilateral services agreement (Inside U.S. Trade, Dec. 21). House Ways and Means Ranking Member Sander Levin (D-MI) said in a Jan. 15 press release that it would help if an agreement establishes "new rules to address critical emerging issues, such as the trade-distorting actions of state-owned enterprises."

Overall, the notification states that USTR will seek disciplines providing for non-discrimination against providers based on nationality -- an apparent reference to the across-the-board national treatment disciplines to which services negotiators have already agreed. It also says that it will make efforts to ensure that trading partners still have adequate policy space to regulate on services.

In his letter, Kirk states that USTR will intensify its consultations with Congress ahead of the formal launch of negotiations in Geneva, including by holding public hearings and publishing a Federal Register notice seeking public comment. One source said USTR is expected to hold public hearings sometime in mid-February, and expected that the Federal Register notice could come out soon.

With the 2007 expiration of Trade Promotion Authority, USTR is not legally required to formally notify Congress of its intent to enter into trade negotiations, but has made a point to continue to follow the requirements in the law. USTR followed the same process before it entered into negotiations for the Trans-Pacific Partnership, sources said.

Assuming real negotiations in Geneva do kick off within 90 days – as stated in the USTR letter – one industry source said plurilateral members could start making initial market access offers as soon as mid-April. This is broadly in line with the anticipated schedule of Geneva meetings; for instance, negotiators are slated to meet late this month on technical issues, and some observers say the first text-based negotiations could begin at a subsequent March meeting.

However, the earliest that market access offers could be discussed would be a meeting tentatively scheduled for May, although even that timing may be a bit ambitious, Geneva sources have said (Inside U.S. Trade, Dec. 14).

However, the 20 other participants in the plurilateral talks must also fulfill their own domestic procedures for beginning a new trade negotiation. As a result, some sources said full negotiations may not begin until after mid-April, given the need for all these processes to play out. For instance, it may take time for the European Commission to obtain a mandate from the 27 EU member states to take part in formal negotiations, sources said.

Preliminary talks for a plurilateral have been taking place for nearly a year already in Geneva, and participants last month agreed on a rough framework for the discussions. In addition to the U.S. and EU, the plurilateral group includes Australia, Canada, Chile, Taiwan, Colombia, Costa Rica, Hong Kong, Iceland, Israel, Japan, South Korea, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, Switzerland, and Turkey.

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