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Fog in GATS Commitments – Boon Or Bane?

Working paper by Adlung, Rudolf, Morrison, Peter, Roy, Martin, Zhang, Weiwei, 2011

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The creation of the General Agreement on Trade in Services (GATS), in the Uruguay Round, and its entry into force in 1995 marked a new stage in the history of the multilateral system. It was motivated essentially by the rapid expansion of international services trade within an increasingly open environment in many countries. Given the peculiarities of services trade, including the intangible nature of the products concerned and the need for direct contact between supplier and user in many cases, the Agreement contains a variety of conceptual innovations, including its extension to modes of supply beyond conventional cross-border trade (consumption abroad, commercial presence, and presence of natural persons) and its coverage, and legitimization, of various types of non-tariff restrictions. In turn, the new concepts needed time to be absorbed by the ministries and agencies involved in services trade. Further, the positive-list, or bottom-up, approach to scheduling trade commitments under the GATS meant that great flexibility was given to Members in selecting the sectors concerned and specifying the levels of access provided under individual modes. Thus, not surprisingly, the schedules that emerged from the Uruguay Round, which still account for the majority of current commitments, contain a variety of unclear or superfluous entries that may cause interpretation problems. Their solution could contribute significantly to the clarity and comparability of access obligations across sectors and WTO Members. The scheduling conventions agreed for the Doha Round thus provide specifically for the possibility of technical refinements that leave the substance of commitments unchanged. However, not only was this possibility used more sparingly to date than might have been expected, but additional flaws would be introduced if some current offers were to enter into effect. The following discussion, with a focus on a particular group of entries (market access via commercial presence), tries to explain the scope for such refinement and develop a clearer picture of the areas where further action might be needed.


Staff Working Paper ERSD-2011-04 Date: 31 March 2011







World Trade Organization
Economic Research and Statistics Division










FOG IN GATS COMMITMENTS – BOON OR BANE?







Rudolf Adlung, Peter Morrison, Martin Roy, Weiwei Zhang


World Trade Organization



Manuscript date: 31 March 2011












Disclaimer: This is a working paper, and hence it represents research in progress. This paper
represents the opinions of the authors, and is the product of professional research. It is not meant to
represent the position or opinions of the WTO or its Members, nor the official position of any staff
members. Any errors are the fault of the author. Copies of working papers can be requested from the
divisional secretariat by writing to: Economic Research and Statistics Division, World Trade
Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by
number and title.






Rudolf Adlung, Peter Morrison, Martin Roy, Weiwei Zhang* 31.03.11




If FOG were non-existent, all lines would appear equally and indistinguishably clear;
and this is actually the case in those unhappy countries in which the atmosphere is
perfectly dry and transparent.
Abbott, Edwin A. (1884), Flatland - A Romance in Many Dimensions.




FOG IN GATS COMMITMENTS – BOON OR BANE?








ABSTRACT



The creation of the General Agreement on Trade in Services (GATS), in the Uruguay Round, and its


entry into force in 1995 marked a new stage in the history of the multilateral system. It was motivated
essentially by the rapid expansion of international services trade within an increasingly open
environment in many countries. Given the peculiarities of services trade, including the intangible
nature of the products concerned and the need for direct contact between supplier and user in many
cases, the Agreement contains a variety of conceptual innovations, including its extension to modes of
supply beyond conventional cross-border trade (consumption abroad, commercial presence, and
presence of natural persons) and its coverage, and legitimization, of various types of non-tariff
restrictions. In turn, the new concepts needed time to be absorbed by the ministries and agencies
involved in services trade. Further, the positive-list, or bottom-up, approach to scheduling trade
commitments under the GATS meant that great flexibility was given to Members in selecting the sectors
concerned and specifying the levels of access provided under individual modes. Thus, not surprisingly,
the schedules that emerged from the Uruguay Round, which still account for the majority of current
commitments, contain a variety of unclear or superfluous entries that may cause interpretation
problems. Their solution could contribute significantly to the clarity and comparability of access
obligations across sectors and WTO Members. The scheduling conventions agreed for the Doha Round
thus provide specifically for the possibility of technical refinements that leave the substance of
commitments unchanged. However, not only was this possibility used more sparingly to date than
might have been expected, but additional flaws would be introduced if some current offers were to
enter into effect. The following discussion, with a focus on a particular group of entries (market access
via commercial presence), tries to explain the scope for such refinements and develop a clearer picture
of the areas where further action might be needed.




Keywords: GATS, trade in services, schedules of commitments

JEL Classification: F13, F53, F59



__________________
* The authors gratefully acknowledge the technical assistance provided by Martin Chudej in safely
navigating through large patches of FOG.






2


I. INTRODUCTION

The existence of vague or flawed entries in the access commitments scheduled under the
General Agreement on Trade in Services (GATS) has been widely ignored in the literature to date.
The only publication, to the authors' knowledge, dealing with entries that cannot be associated with
any of the relevant provisions of Article XVI (market access) or Article XVII (national treatment) of
the GATS dates from 2005.1 It refers to four catch-all categories of such measures: national treatment
limitations erroneously scheduled under market access, a residual category of 'other' market access
limitations that cannot be associated with any of the relevant GATS provisions (Article XVI:2(a) -
(f)), a similar category of restrictions under national treatment that do not seem to fall within the
relevant definitions (Article XVII), and market access limitations inscribed under national treatment.
The respective shares are quite impressive. For example, 'other' market access limitations were found
to represent over one-quarter of all limitations WTO Members had put into the relevant column of
their schedules of specific commitments.

The inscription of vague (or 'foggy') entries may be due, to some extent, to the novelty of the
Agreement and Members’ inexperience with a framework of trade obligations that is essentially non-
tariff based.2 GATS schedules of commitments guarantee the absence, in full or in part, of numerical
limitations, restrictions on the form of legal incorporation, foreign-equity barriers and other departures
from national treatment for specified sectors and forms of transaction (modes of supply). This is
without equivalent in the tariff-only regime governing conventional merchandise trade, cross-border,
as covered by the General Agreement on Tariffs and Trade (GATT): a tariff is a tariff is a tariff…

By the same token, the existence of FOG in service schedules contravenes one of the basic
purposes of undertaking commitments, i.e., to ensure transparency, predictability and stability of trade
and investment conditions and, thus, promote international economic integration.3 Tellingly, 'foggy'
entries played a key role in at least one out of a handful of services disputes adjudicated by WTO
Panels to date, Mexico - Telecoms.4 In other GATS-related disputes, such as US – Gambling and
China – Audiovisual Services, findings hinged on determining the meaning of sectoral entries that
departed from the widely used classification system, contained in document MTN.GNS/W/120,
without the schedules concerned providing alternative definitions.5

The existence of scheduling problems, and the need for amendments, was acknowledged by
WTO Members when they set up, in 2002, the drafting conventions for the services offers to be
submitted in the Doha Round. The relevant explanatory document explicitly provides for the
possibility – in addition, inter alia, to the inclusion of new subsectors (or segments thereof),
inscriptions of new commitments, and improvements to existing commitments – to inscribe "other
technical refinements that do not alter the scope or substance an existing commitment". The
importance of ensuring clarity, certainty and coherence in the scheduling and classification of
commitments, including through adherence to the commonly adopted Scheduling Guidelines, was



1 Adlung and Roy (2005), p. 1177 and 1181f.
2 Similar reasons may explain the absence of studies discussing the scope, nature and implications of


‘foggy’ commitments under the GATS.
3 The Preamble to the GATS refers to Members' wish "to establish a multilateral framework of


principles and rules for trade in services with a view to the expansion of such trade under conditions of
transparency and progressive liberalization … "


4 See below n 30.
5 Appellate Body Report, United States - Measures Affecting the Supply of Cross-Border Gambling


Services (US – Gambling), WT/DS285/AB/R, adopted 20 April 2005, and China – Measures Affecting Trading
Rights and Distribution Services for Certain Publications and Audiovisual Products (China – Audiovisual
Services), WT/DS363/AB/R, adopted 19 January 2010. The so-called W/120 is annexed to the Scheduling
Guidelines, circulated as WTO document S/L/92 of 28 March 2001. See also below n 10.






3


also stressed in the Hong Kong Ministerial Declaration (WTO document WT/MIN(05)/DEC of 22
December 2005, Annex C, para 1(f)).

A cursory glance at current offers shows that the situation would not improve significantly if
these entered into effect. The removal of some existing flaws, through technical refinements or
deletion of existing limitations, would almost be offset by the inscription of new problematic entries
(Chart 1). However, corrections are still possible. The 71 initial services offers submitted so far in the
Doha Round, followed by revised offers in 31 cases (as of end-April 2011), are only steps in an on-
going process that is ultimately expected to culminate in the submission, and adoption, of final draft
schedules.6 Thus, there is still ample scope for additional refinements. This paper is intended to
contribute to this process.

The following section starts with an overview of key GATS provisions governing the
scheduling of commitments in order then to discuss why FOG has emerged and what could or, rather,
should be done in the interest of clarity and transparency. The third section tries to identify main
categories of FOG and other scheduling flaws that can be found across, and tend to blur the contours
of, a significant number of services commitments. The focus will be on the commercially most
meaningful commitments, i.e., those governing market access under mode 3. This is complemented,
in the fourth section, by a closer look into current GATS schedules and Doha Round offers with a
view to assessing the relative importance of different types of FOG. The concluding fifth section
summarizes main findings and policy proposals.

II. FOG IN SERVICES SCHEDULES: CAUSES, CONSEQUENCES AND REMEDIES

A. The GATS: A Complex Structure

Among the defining features of the GATS is its particularly broad coverage, if compared to
its counterpart in merchandise trade, the General Agreement on Tariffs and Trade (GATT). The
GATT’s focus on cross-border trade, mode 1 in GATS' speak, was widened to include three more
modes of supply: consumption abroad (mode 2), commercial presence (mode 3, mostly involving
foreign direct investment), and mode 4 (presence of natural persons, essentially consisting of the
services supplied by foreign professionals in a host market).7 Reflecting this modal extension, the
Agreement’s disciplines apply not only to the treatment of foreign-originating products, but also to the
treatment of suppliers. Otherwise, given the continued need for direct interaction between suppliers
and consumers in many services transactions, despite the rapid expansion of e-commerce, the GATS
would have been of very limited economic importance. Tellingly, mode 3 is estimated to account for
55 to 60 per cent of the transactions covered by the Agreement, followed by mode 1 with some 25 to
30 per cent (2007).8

In turn, given the diversity of trade and investment conditions across WTO Members, the
GATS’ extension in scope needed to be matched by a high degree of flexibility to allow governments
to accommodate country-specific policy conditions. This starts with the most-favoured-nation (MFN)
obligation, the centrepiece of WTO law. In services trade, Members were afforded the possibility, at
the entry into force of the GATS, to list exemptions for non-conforming measures with a view to
maintaining these during a loosely defined ten-year period.9 Moreover, the key trade obligations of



6 The number of offers is lower than the number of WTO Members since the EU submitted one offer


for 25 member States. In Chart 1 several of these are still included under recently acceded Members.
7 For a more detailed presentation of the Agreement’s modal structure, see Adlung and Mattoo (2008).
8 Maurer and Magdeleine (2011).
9 This particular possibility existed only at the date of the Agreement’s entry into force in 1995 or, for


new Members, the date of accession. There are some further provisions in the GATS allowing for departures, in






4


the GATS, in terms of market access (Article XVI) and national treatment (Article XVII), apply only
to the subsectors for which a Member has undertaken specific commitments and only to the extent
that no exclusions or qualifications ('limitations') have been inscribed under one or more of the modes
of supply. Pursuant to Article XX:1, each WTO Member is required to submit a schedule specifying
the sectors in which it undertakes such commitments and the respective levels of market access and
national treatment. However, the Agreement is silent concerning the scope of commitments, i.e., the
type and range of the services selected, and their content, i.e., the levels of access provided. This is
widely referred to as the positive-list, or bottom-up, approach to undertaking commitments whereby
no sector is subject to access obligations unless specifically included.

Article XVI contains an exhaustive list of six types of restrictions that, in scheduled sectors,
may be employed if inscribed under the relevant mode of supply. In other words, once a sector has
been selected, the Member concerned needs to specify the market access-inconsistent measures it
might want to continue or introduce in future. If the Member seeks to maintain full policy discretion,
it would inscribe 'unbound' under the mode concerned, while the absence of any limitation ('full
commitment') would be indicated by 'none'. The same goes for the national-treatment obligation.

Market access limitations can be discriminatory or non-discriminatory. Four of the six types
of measures listed in Article XVI:2 are quantitative in nature, concerning limitations on: (a) the total
number of service suppliers; (b) the total value of service transactions or assets; (c) the total number
of service operations or total quantity of service output; and (d) the total number of natural persons
that may be employed in a particular service sector or that a service supplier may employ. Relevant
measures may consist not only of numerical quotas or, in the case of XVI:2(a), of monopolies and
exclusivity arrangements, but include the requirement of an economic needs test. Minimum
thresholds, such as minimum size or minimum capital requirements, are not covered.10 In addition,
Article XVI:2(e) captures measures which restrict or require specific types of legal entity or joint
venture, while XVI:2(f) relates to limitations on foreign-equity participation in terms of maximum
percentage limits on foreign shares or the value of foreign investment.

In contrast, the national treatment obligation pursuant to Article XVII is open-ended and
captures any measure, even if it does not formally discriminate, that "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" (Article XVII:3).11

The intention of the drafters to cover both discriminatory and non-discriminatory restrictions
under Article XVI:2(a)-(d) is reflected in the terms chosen. Only XVI:2(e) and (f) explicitly refer to
national-treatment inconsistent measures, i.e., joint-venture requirements and restrictions on the
participation of foreign capital, respectively. In contrast, the numerical limitations falling under
XVI:2(a)-(d) are couched in neutral terms. Had the intention been to confine the scope of these
limitations to the number of foreign service suppliers or the value of the foreign services provided,
etc., this certainly would have been indicated in the same way as under (e) and (f). Further, the
question arises what useful function the market access obligation under Article XVI would perform if

specified circumstances, from the Agreement’s MFN obligation for which no equivalent exist under the GATT.
See Adlung and Carzaniga (2009).


10 This intention of Members is also confirmed in the Scheduling Guidelines, WTO document S/L/92
of 28 March 2001, para 11 (Annex Table). A previous version of the Guidelines was circulated in documents
MTN.GNS/W/164 and Add. 1 of 3 September and 30 November 1993, respectively. Both versions were adopted
by Members. The Guidelines constitute supplementary means of interpretation within the meaning of Article 32
of the Vienna Convention, confirmed by the Appellate Body in para 196 of US - Gambling For a discussion of
the legal status of the Guidelines, see Leroux (2007), 759-61.


11 An Annex to the Scheduling Guidelines lists national treatment limitations that have been used
particularly frequently, including discriminatory subsidies and tax measures, discriminatory fees and charges,
nationality requirements, residency requirements, and the like.






5


it were confined to measures that are fully within the scope of Article XVII. Finally, Article XX:2
explicitly stipulates that "[m]easures inconsistent with both Articles XVI and XVII shall be inscribed
in the column relating to Article XVI. In this case the inscription will be considered to provide a
condition or qualification to Article XVII as well". Again, this clearly points out the relevance of
Article XVI:2(a)-(d) also for non-discriminatory measures; Article XX:2 would otherwise serve no
reasonable purpose. In the same vein, the Scheduling Guidelines (S/L/92, para 8) explicitly confirm
not only that the list of market access limitations in Article XVI:2 is exhaustive, but also that "all
measures falling under any of the categories listed ... must be scheduled, whether or not such
measures are discriminatory according to the national treatment standard of Article XVII" (Annex
Table). The Guidelines further reiterate that “any discriminatory measure scheduled in the market
access column is also to be regarded as scheduled under Article XVII and subject to the provisions of
that Article” (para 18).12



B. The Origins of FOG

It would certainly be difficult to claim, in Abbott's language, that all current commitments
appear "equally and indistinguishably clear". Indeed, there is FOG. As indicated before, its existence
may be attributed, inter alia, to the novelty of the Agreement and its conceptualization of services
trade as well as a lack of experience and, possibly, orientation on the part of the administrations
finalizing the original Uruguay Round schedules.13 It is true that relevant information was already
available in the form of an early version of the Scheduling Guidelines that the then GATT Secretariat
had developed in 1993.14 However, the full scope of the new Agreements, in services and many other
areas, was certainly difficult to digest within a relatively short period at the end of the Round. What
was on the table at the time might have been difficult to digest by all administrations involved.

Some Members might have also felt that vague entries would afford them leeway in
interpreting their commitments. FOG might have appeared preferable to ensuring "dry and
transparent" conditions. Why firmly tie your hands and, possibly, compromise scope for future action
under an Agreement that has not yet been tested in practice? Similar considerations might have caused
more than a dozen Members not to use classification numbers in specifying the sectors inscribed in
their schedules, despite a clear recommendation in the Scheduling Guidelines.15 However, the Panel
and Appellate Body in US – Gambling did not lend support to such expectations; they found that the
omission of classification numbers was insufficient to ensure the flexibility that might have been
sought by the United States.16 It may also be worth noting in this context that, as confirmed by Panel
and Appellate Body in EC – Computer Equipment and EC – Chicken Cuts, a Member's unilateral
object and purpose for the conclusion of a (tariff) commitment cannot form the sole basis for its
interpretation.17 Commitments, whether for goods or services, reflect the common intention of the
Membership.



12 The same provisions were already contained in the 1993 version of the Guidelines (see also above n


10).
13 Note that there is not even universal acceptance in the academic community concerning the


application of Article XVI to quotas and similar measures that are applied on a non-discriminatory basis. For
example, Mavroidis (2007) proposes an interpretation of the GATS that would confine the scope of Article XVI
to discriminatory restrictions only. For a broader discussion of this issue see de Meesters (2010), p. 184-192.


14 See above n 10.
15 See para 23 of document S/L/92 (Annex Table). The same recommendation was already contained in


the Guidelines' earlier version of 1993.
16 See above n 5.
17 Appellate Body Report, European Communities – Customs Classification of Certain Computer


Equipment (EC – Computer Equipment), WT/DS62AB/R, WT/DS67AB/R and WT/DS68AB/R, adopted 22
June 1998; and Appellate Body Report, European Communities – Customs Classification of Frozen Boneless
Chicken Cuts (EC – Chicken Cuts), WT/DS269/AB/R and WT/DS286/AB/R, adopted 27 September 2005.






6


Another factor contributing to 'foggy' entries may relate to the absence of benchmarks in the
GATS as to the level of access that should be granted through schedules. Whereas negative-list type
agreements (e.g., the North American Free Trade Agreement (NAFTA) and many other preferential
trade agreements in services) largely provide that commitments undertaken reflect the restrictions
applied in practice18, GATS commitments need not reflect the status quo. The additional flexibility to
schedule limitations or completely avoid bindings for individual modes, on a pre-emptive basis, may
have affected precision and clarity. Further, unlike in merchandise trade, competencies for services
trade are not vested in a small number of national administrations, in particular those in charge of
trade, industry and agriculture. Rather, competencies tend to be scattered across a multitude of
ministries and agencies, responsible for finance, transport, communication, construction, justice,
education and so forth, each of which possibly has as much political clout, if not more, than the
coordinating ministry. The officials concerned might have insisted, as a condition for accepting
commitments in 'their' sectors, on relevant legislation being duly reflected in the national services
schedule, regardless of what the GATS or the Scheduling Guidelines might say.19

Acceding countries are confronted with particular challenges. First, faced with requests from
20 or more interested Members, they tend to commit a far higher number of subsectors, some 100 on
average, than Uruguay-Round participants at comparable levels of development. This necessarily
complicates inter-ministerial coordination. Second, unlike the Uruguay Round schedules of 1993/94,
which were essentially a first attempt at undertaking bindings in a limited number of services,
accession schedules reflect a negotiating outcome. There are certainly cases in which the parties have
sought to bridge substantive differences about the commitments to be made with linguistic
compromises that do not pay particular attention to relevant terms of the Agreement.

Nevertheless, despite these challenges, it is interesting to see that, on average, the acceded
Members' schedules contain significantly less FOG than the DDA offers submitted by the original
WTO Members since 2003 (Chart 1). The relative clarity of the 25 schedules concerned (as of end-
March 2011) might be due to a combination of factors, including the pressure on the administrations
in charge, confronted with ambitious requests from 'old' Members in a multi-annual negotiating
process, to familiarize themselves particularly closely with relevant GATS provisions. Further, given
the large number of subsectors subjected to full commitments, the risk of technical flaws in these
schedules was more limited in any event; their share of full commitments is more than twice as high
as in the DDA offers submitted by original Members. Nevertheless, there is a clear indication of
improved 'technical language' as well: the ratio of properly scheduled partial commitments to those
containing FOG, 49 to 9 per cent, is also significantly higher than for other groups of Members
(Chart 1).



C. Remedial Action



As indicated before, 'foggy' commitments could come at a cost – not necessarily in the short
term, but possibly over the (open-ended) life of a schedule. Given the momentum of many services
markets, driven by technological and commercial innovations, ill-specified commitments might
ultimately prove surprisingly expensive. For example, had the United States understood some ten year
ago that its commitments on recreational services needed renegotiation, pursuant to Article XXI of the
GATS, to ensure the exclusion of gambling and betting activities, the adjustments required to
compensate potentially affected Members, through improved commitments in other areas, might have
been far less significant than today. The situation is different, however, for the problems discussed in
this paper. Even a cursory look at current commitments and DDA offers reveals obvious



18 In negative-list agreements, parties have to list existing non-conforming measures in a first annex. A


second annex, more limited, contains reservations for any future non-conforming measures.
19 In the words of Joseph Conrad (Victory: An Island Tale, 1915): "It is not the clear-sighted who lead


the world. Great achievements are accomplished in a blessed, warm mental FOG ..."






7


inconsistencies with the scheduling standards set out in the Agreement and the Scheduling Guidelines
(S/L/92).

Governments should normally be interested, therefore, in modifying dubious entries before
trade frictions actually arise. It would be easier, in a non-confrontational setting, to argue that
envisaged changes are intended to clarify existing commitments, rather than reduce these in scope. A
simple certification procedure, to be completed after a waiting period of 45 days, would be available if
no objections are raised by potentially disadvantaged Members.20 This procedure has been used in
four instances to date to correct editorial flaws in schedules.21 However, in no case has a Member
sought to address problems of the type discussed in this paper, i.e., inconsistencies between
scheduling language and relevant GATS provisions. In turn, this may be due to reasons internal to the
administrations concerned – it might prove difficult to mobilize all entities concerned in the absence
of outside pressure – and to latent doubts about trading partners' willingness to accept proposed
amendments without an excessive dose of suspicion. Such doubts might prove easier to overcome in
comprehensive trade negotiations, as in the DDA context, when all WTO Members are offered the
opportunity to schedule technical refinements as one option in preparing their offers.

As noted before, the drafting conventions agreed for the current Round explicitly provide for
the possibility of technical refinements that do not change the scope of an existing commitment. Any
such refinements should be identified as such in the offers submitted. Nevertheless, it is not too
difficult to find scheduling flaws that have remained unchanged. Some 16 per cent of the sector
commitments offered in the DDA contain one or more elements of FOG, with a significant share
being due to problematic limitations in the horizontal section that apply across all scheduled
subsectors (Charts 1 and A1). Moreover, patches of new FOG have been introduced in the form of
new commitments at the sectoral level. A closer look also reveals that the percentage of 'foggy'
commitments is significantly higher among the newly included subsectors than the average share of
9 per cent across all subsectors contained in the offer (Chart A1.C(ii)).22 This is not necessarily
indicative of a (further) deterioration in scheduling literacy, however. It could be a temporary
phenomenon only – some Members might have wanted to retain 'negotiating coinage' for subsequent
stages – or reflect specificities of those services that are relatively well represented among the newly
offered commitments (e.g., postal and courier services, environmental services, education, and
maritime transport).



Several factors might explain the persistence of scheduling problems in particular among the


original WTO Members:


First, the relative weakness within the governmental machinery of the coordinating ministries
or agencies. If the acceptance of GATS-inconsistent scheduling language was a pre-condition
for other ministries' acceptance of commitments in 'their' sectors, the coordinators might have
preferred, in the absence of external prodding, to condone such language. In the same vein,
the introduction of new FOG might thus have been a condition, in certain instances, for
broadening the sectoral and modal coverage of some Uruguay Round schedules. By
comparison, the coordinating entities in acceding countries tend to be in a stronger position
insofar as the attainment of WTO membership, a commonly shared objective across all
government levels, adds political impetus to their efforts.



20 WTO document S/L/84 ('Procedures for the Certification of Rectifications or Improvements to


Schedules of Specific Commitments') of 18 April 2000.
21 See WTO documents S/C/W/208, 216, 260 and 262 of 16 April 2002, 9 October 2002, 17 August


2005 and 26 August 2005, respectively.
22 A precise number cannot be provided, however, since it is not straightforward to establish for the


newly acceded EU members which subsectors have been included as a result of their EU accession and which
have been offered as a genuine contribution to the DDA.






8



Second, certain existing flaws might have developed a life of their own, through repetition in


the preferential agreements concluded by an ever increasing number of WTO Members.
Many of these agreements, following a GATS-type scheduling approach, are essentially based
on the signatories' GATS schedules. Governments might simply be deterred by the
administrative burden involved in modifying, without immediate need, an ever expanding
number of treaties and re-submitting them to the competent bodies. They may also be
concerned that deviating from the language used in the original GATS schedules could create
uncertainty, with differences in wording be taken to indicate different levels of access
guaranteed.


Third, while scheduling problems might prove easy to identify, it could be far more difficult
for Members to agree on the implications. Strictly speaking, the point could be made, as noted
below, that mere references in schedules to existing national legislation or licensing and
qualification requirements – often inscribed in the form of horizontal limitations – do not
provide legal cover for measures a Member might want to maintain under relevant laws and
regulations. A rigid interpretation would thus undermine the relevance of the concept of
"technical refinements that do not alter the scope or substance an existing commitment". If
there was no substance in the first place, nothing short of a full commitment might be deemed
equivalent. Thus, in assessing whether a proposed change constitutes a technical refinement
only or, rather, reduces the substance of an existing commitment, potentially affected trading
partners would need to deliver a sound dose of pragmatism. However, not everybody might
want to bet on that.



III. A CLOSER LOOK AT FOG AND OTHER SCHEDULING FLAWS

A. Overview

The examination of scheduling problems in this paper focuses on commitments concerning
market access under mode 3 (commercial presence). This was done essentially for two reasons. First,
denials of market access, whether discriminatory or not, tend to be more economically significant than
'pure' denials of national treatment. In particular, numerical limitations are more restrictive, in all
likelihood, than discriminatory taxes, subsidies, licensing conditions and the like. Second,
representing more than one-half of all services trade under the GATS, commercial presence clearly is
the economically dominant mode of supply.23

The following observations do not deal with compliance problems that might arise from
commitments that are more ambitious than actual market conditions ('over-commitments'). It would
certainly not be possible to address such problems via technical refinements in schedules. The only
viable solutions would be policy reforms or, if not within reach, renegotiations of existing
commitments under Article XXI of the GATS.24 Also excluded from the discussion are obvious
scheduling errors, such as inconsistent cross-references between sectoral and horizontal entries, that
would simply need to be corrected.25


23 Maurer and Magdeleine (2011).
24 An intermediate solution could consist of a waiver, pursuant to Article IX:3 of the Marrakesh


Agreement, that would extend the implementation date of a commitment for a specified period. However, this
presupposes the existence of "exceptional circumstances"; waivers granted for periods of more than one year are
subject to annual review. The only waiver approved in a services-related case to date concerned the
postponement of a phase-in commitment on international voice telephony by one year. It was granted to Albania
in 2004 (WTO document WT/L/567, 7 June 2004).


25 For example, there are instances, though relatively rare, where certain sectoral commitments
explicitly refer back to restrictions contained in the horizontal section (e.g., "none except for horizontal
limitations"), while commitments in other sectors fail to do so. It is true that the Scheduling Guidelines, para 36






9



In a similar vein, in the interest of a focused discussion, no particular attention is given to
classification issues. Ignoring a recommendation in the Scheduling Guidelines (Table A1, para 23),
some schedules are partly or, in more than a dozen cases, completely without references to the UN
Provisional Central Product Classification (CPC) or other classification systems or definitions.
Moreover, 14 Members have undertaken a total of 25 commitments on not-further-specified
categories of 'other services' that are contained in the mostly CPC-based Classification List the then
GATT Secretariat had developed in the early 1990s (W/120) without providing further guidance.26 It
is conceivable in these cases that the scheduling Member's interpretation of the breadth of a
commitment differs from that of a trading partner and, possibly, a WTO dispute panel. Since the
borderlines are not "equally and indistinguishably clear", to use Abbott's language, there is definitely
scope for technical refinement. Indeed, most of those Members that had omitted CPC numbers in their
original schedules acted accordingly and used their DDA offers to insert these numbers. No similar
efforts can be found in relation to non-specified 'other services'. Yet, this is understandable insofar as
the transformation of a residual category into a clearly circumscribed subsector might prove more
difficult to associate with a technical refinement that does not alter the scope of a commitment than
the addition of CPC numbers to an existing sector name.27

A particular scheduling problem – non-specified economic needs tests (ENTs) – is up for
negotiation. Among other objectives, Annex C of the Hong Kong Ministerial Declaration calls for
removing or substantially reducing the ENTs inscribed under modes 3 and 4 and ensuring that any
remaining tests adhere to the Scheduling Guidelines (S/L/92). Indeed, contrary to a clear
recommendation in the Scheduling Guidelines (Table A1, para 9), of the over 250 ENTs, scheduled
by 90-odd Members, a vast majority does not provide any criteria.28 Moreover, some tests fail to
indicate to which market access limitations under Article XVI:2 (a)-(d) they actually apply. The
elimination or clarification of such tests would not constitute a simple technical refinement, but
undoubtedly improve the quality – or more precisely, the commercial content – of the commitment
concerned. They are thus not further discussed in this paper.

The assessment of four types of FOG in the following section is complemented by a brief
discussion of other scheduling flaws in section III.C.29 Apart from ill-assigned national-treatment

(Annex Table), provide that horizontal commitments apply to trade in all scheduled sectors unless otherwise
specified, but this is of little guidance in such a situation.


26 Document W/120 contains various categories for which no classification numbers, whether CPC
codes or others, are given. Such 'other sectors' exist under professional services, communication services
(overall and specifically under telecommunication services and audiovisual services), distribution services,
environmental services, financial services, health related and social services, tourism and travel related services,
recreational cultural and sporting services, and transport services. Similar uncertainties may arise from the
scheduling of CPC categories that themselves are defined as residuals. Cases in point are 'other computer
services n.e.c.' (CPC 8499) and 'other business services n.e.c. (CPC 87909) which are defined to include,
respectively, 'other computer services not elsewhere classified, e.g. training services …' and 'services generally
provided to businesses, not elsewhere classified … ' (see Provisional Central Product Classification, UN
Department of International Statistical and Social Affairs, Statistical Papers, Series M, No. 77, 1991).


27 Interestingly, the sector specifications in some of the most ambitious bilateral investment treaties
(BITs) are even more vaguely defined. For example, exclusions from the scope of the BITs concluded by the
United States typically refer to 'banking' or 'telephone and telegraph' services, etc., without any further guidance.
At the same time, the dispute settlement procedures of these treaties can have significantly more bite than those
of the WTO insofar as they allow affected investors to seek monetary compensation for damages suffered via
investor-to-state arbitration. Adlung and Molinuevo (2008), p. 373.


28 According to a recent Secretariat Note, market access under mode 3 represents the preponderant part,
some 150 in total, of the ENTs listed. WTO document S/C/W/314, 7 April 2010, p. 21 ("Mode 3 – Commercial
Presence", Background Note by the Secretariat).


29 The distinction in this paper between FOG and other scheduling flaws also explains why the shares
of 'foggy' limitations in Chart 1 are lower than the percentage of 'other' measures provided by Adlung and Roy






10


limitations, these are superfluous entries that should not cause FOG-type interpretation problems.
Cases in point are simple references to GATS provisions that would apply in any event, including the
prudential carve-out in financial services.

B. Types of FOG - and Potential Implications

FOG has been defined in a conservative manner in the context of this paper so as not to
include all entries that may lack clarity or precision. Rather, the scope of 'foggy' limitations has been
limited to four categories, which appear particularly pernicious insofar as they could create the
impression or, rather, illusion in the administrations concerned of being effectively protected from
legal challenge. However, as argued before, there is a serious risk of inconsistency with a trading
partner's interpretation of the same commitment and, possibly, of a Panel or the Appellate Body. Of
course, this risk materializes only to the extent that a Member actually employs measures that fall
within the foggy patches contained in its schedule.

(i) Non-specified licensing and qualification requirements

As noted before, Article XVI:2 contains an exhaustive list of measures that must not be
maintained in scheduled sectors unless inscribed as limitations on market access. The Scheduling
Guidelines unequivocally confirm that approval procedures or licensing and qualification
requirements should not be scheduled under this Article as long as they do not contain any of those
limitations (Annex Table).30 Otherwise, the relevant limitations - rather than an implementing
licensing mechanism - ought to be inscribed.



The Panel Report in Mexico – Telecoms confirms this reading. For various telecommunication
services, Mexico's schedule provides, under market access for mode 3, that a permit issued by the
competent regulator is required. According to the Panel, this language "does not indicate that Mexico
maintains a quantitative limitation 'on the number of suppliers'. On the contrary, it suggests that any
supplier who is set up in accordance with Mexican law is eligible for a permit". In other words, in
view of the Panel, the inscription of a non-specified approval requirement serves no legal purpose
under Article XVI of the Agreement.



(ii) References to laws and regulations

Quite a number of schedules contain entries indicating that market access is provided "in
accordance with existing legislation", with "relevant investment regulations" and similar
qualifications. However, the Scheduling Guidelines are as unambiguous with regard to such entries as
they are in the case of non-specified licensing requirements: "According to the agreed scheduling
procedures, schedules should not contain general references to laws and regulations as it is understood
that such references would not have legal implications under the GATS" (Annex Table, para 38). This
is because an entry should "describe each measure concisely, indicating the elements which make it
inconsistent" with market access or national treatment (para 9). It appears unlikely that a Panel or the
Appellate Body would arrive at different conclusions.31



(2005). The latter captured all entries under market access, mode 3, that could not be associated with any of the
six types of limitations listed in Article XV:2.


30 See also the discussion in the Panel Report, Mexico – Measures Affecting Telecommunications
Services (Mexico – Telecoms), WT/DS204/6, adopted 1 June 2004. In particular, the Panel refers to Article
XX:1 which, in its view, "provides useful context" for the interpretation of Article XVI:2 (para 7.359). Article
XX:1 states that " [e]ach Member shall set out in a schedule the specific commitments it undertakes under Part
III of the Agreement. With respect to sectors where such commitments are undertaken, each schedule shall
specify: (a) terms, limitations and conditions on market access; ... ".


31 See also below n 32.






11



The same might be said of references to specified pieces of legislation. Entries such as
"according to Investment Law [title] of [date]" are by no means rare. In the abstract, it is difficult to
assess the implications, however. For example, even if a measures provided for under a particular law
were deemed to be covered, what would happen if this law was modified at a later date: Would the
original entry prove completely irrelevant from that date or only to the extent that the new law departs
in scope and content?32

(iii) Inconsistencies with Part II of the GATS

In various instances, scheduled entries seem to depart from the General Obligations and
Disciplines as established in Part II of the GATS. Two types of inconsistencies were found in the
context of this paper: The inscription of foreign exchange restrictions which, in scheduled sectors, are
inconsistent with Article XI:1 of the GATS, and of measures in contravention with the Most-
Favoured-Nation requirement of Article II:1. The latter entries are typically targeted at suppliers
whose home-country policy regimes or educational systems do not ensure conditions similar to those
of the scheduling Member. In turn, such 'limitations' are not only (potentially) inconsistent with
Article II of the GATS33, but also with Article XVI which obliges each Member to 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" (emphasis added). As noted
before, the range of admissible limitations is exhaustively listed in Article XVI:2(a)-(f).

Similar inconsistencies between scheduled measures and general treaty obligations have been
examined in the context of at least one dispute under the GATT. In a 1989 case concerning the United
States’ sugar regime, the Panel found that the scheduling of measures that are inconsistent with other
provisions of the Agreement does not permit contracting parties to qualify their obligations under
these provisions. Consequently, the Panel ruled that reference to quantitative restrictions, inconsistent
with GATT Article XI (General Elimination of Quantitative Restrictions), in the US tariff schedule
could not justify their use.34

(iv) Additional cases of FOG: Membership requirements, exhortatory language, minimum capital


requirements

Some entries relating to professional services require suppliers, whether foreign or national,
to be members of the competent professional association. In certain regards, such limitations might be
compared to non-specified licensing requirements, with the main distinction, however, that it is
possibly not the government, but a delegated body that calls the tune, i.e., defines the relevant
membership conditions. The authors are aware of cases where these conditions even include MFN-
inconsistent reciprocity requirements: foreigners are accepted only if the competent associations of
their home countries accept foreign participants as well.

Quite a number of limitations use soft language in defining the numerical quotas, forms of
legal incorporation or foreign equity limits that "should" be respected or "may not" be ignored. Are


32 It should be noted, however, that the possibility remains that any references to laws and regulations,
whether specified or not, would be dismissed by a Panel or the Appellate Body in the light, for example, of
Article XX:1 (op cit) and the Scheduling Guidelines, para 9 ("With regard to market access limitations, such as
numerical ceilings or economic needs tests, the entry should describe each measure concisely indicating the
elements which make it inconsistent with Article XVI". See Annex Table).


33 The relevant provisions require each Member to "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 supplier of any other country".


34 Panel Report, United States – Restrictions on Imports of Sugar (US – Sugar Imports), L/6514 -
36S/331, adopted on 22 June 1989, para 5.7.






12


such recommendation-type entries actually binding, nevertheless? On various occasions, Panels and
the Appellate Body have sought to specify the levels of flexibility implied by the use of such soft
terms in lieu of 'shall' and other conceivable options. For example, in US – Foreign Sales
Corporations, the Appellate Body opined that "many binding legal texts employ the word 'should'
and, depending on the context, the word may imply either an exhortation or express an obligation".35
Obviously, the precise meaning can be established only case-by-case.

According to the Scheduling Guidelines (Annex Table, para 11), minimum capital and similar
non-discriminatory regulatory requirements do not fall under Article XVI and, therefore, should not
be scheduled as market access limitations. Some of those Members that have done so, nevertheless,
might have sought protection from legal challenges under potentially relevant GATS provisions,
including regulatory disciplines under Article VI:5. Again, however, the US – Sugar Imports case
suggests that scheduling such a limitation, that was inconsistent with a GATS provision, would not
survive a challenge before a Panel or the Appellate Body.

C. Other Scheduling Flaws

As indicated before, there are further entries in schedules that may warrant closer attention in
the current context, although they should not normally create FOG-type interpretation problems.
Particularly frequent is the use of superfluous language that cannot be associated with limitations
falling under Articles XVI:2 as well as the inscription of national-treatment limitations in the market
access column. Not surprisingly, given the very nature of FOG, the borderline between the four types
of entries discussed before and the following scheduling flaws is blurred in some cases.

Explanatory language that essentially replicates provisions of the Agreement is a more
frequent occurrence in schedules than any of the types of FOG discussed before. Typical examples are
simple references to the existence of prudential regulations in financial services, universal service
requirements in telecommunications or, typically in the horizontal section, the exclusion of
'governmental services' from the scope of commitments. It is difficult to see what would be lost if
such entries were to be dropped since the underlying measures are compatible with full commitments
under Article XVI as well as with other potentially relevant GATS provisions. (For example, pursuant
to Article I:3 of the GATS, services that are supplied "in the exercise of governmental authority" are
excluded per se from the definitional scope of the Agreement.) The elimination of superfluous
language could improve a schedule's clarity and internal consistency, and avoid any possible doubts
about the situation in sectors without similar entries.

Almost equally widespread are descriptions of domestic regulatory or institutional conditions
that do not seem to restrict market access in the sense of Article XVI. Again, it is difficult to see what
would be lost if such 'limitations' were removed. Cases in point are entries explaining that the
employees of a supplier must be qualified professionals in the sector concerned, the level of
qualification must be in accordance with relevant domestic legislation, juridical persons are legally
independent from their owners, or the issuance of licences is subject to fees. There are even cases
where the relevant licensing fees are actually specified, for an indefinite future, possibly creating
misperceptions (?) of the binding effects that might be involved.

A third, relatively frequent scheduling problem consists of the inscription of national-
treatment limitations in the market-access column.36 This is understandable insofar as Article XX:2
explicitly requires Members to inscribe measures that are inconsistent at the same time with Articles



35 Appellate Body Report, United States – Tax Treatment for 'Foreign Sales Corporations',


WT/DS108/AB/R, adopted 20 March 2000, footnote 124 to para 111.
36 According to Adlung and Roy (2005), 18 per cent of all entries under market access related to


measures inconsistent with national treatment.






13


XVI (Market Access) and XVII (National Treatment) under Article XVI only; see Section II.A. It
might thus be tempting for the authorities concerned, in cases of doubt, to prefer scheduling under
Article XVI since inconsistencies with Article XVII appear to be covered in any event. While
possibly not the optimal solution in all cases, this is unlikely to create FOG-type problems of
interpretation as long as the measures themselves are properly specified.

IV. ACTUAL PATTERNS OF FOG



As indicated before, the following assessment of the extent of FOG is based on the market-
access commitments different groups of WTO Members have scheduled under mode 3 of the GATS.
Chart 1 presents the main results, distinguishing between four types of entries per subsector: full
commitments (i.e., commitments without any limitations ('none'); (b) no commitments ('unbound'); (c)
commitments with limitations containing one or more elements of FOG as described in section III.B;
and (d) commitments with limitations not containing FOG.37

Results in Charts 1 and A.1 are presented for three groups: Members that joined the WTO
after the Uruguay Round ('recently acceded Members'), original Members that have not made services
offers so far in the DDA, and original Members that have made offers in the DDA. For the latter
category, results are presented for existing schedules of commitments and for offers. Chart 1 includes
horizontal limitations, while Chart A.1 (Annex) solely takes into account sector-specific entries. They
show that, in particular in the schedules of original WTO Members, there are significant proportions
of FOG: on average, about one-fifth (or more precisely: 21and 18 per cent) of the limitations in
committed subsectors contain one or more elements of FOG as defined in section III.B. As already
mentioned before (section II.B), instances of FOG are rarer in the schedules of acceded Members,
discernible in 9 per cent of the limitations made, which is due in part to the higher share of full
commitments undertaken by these Members, but also to improved 'scheduling techniques'.

The importance of FOG is further evidenced if only partial commitments are taken into
account, thus ignoring entries, whether 'none' or 'unbound', that are necessarily clear and transparent.
For original Members without offers, 29 per cent of the scheduled partial commitments contain FOG,
as compared to 24 per cent for the partial commitments scheduled by original Members that have
made offers.

When ignoring horizontal limitations (Chart A.1), which apply equally across all committed
subsectors and modes, the proportion of FOG is naturally lower overall, given that more commitments
are then without limitations. However, the incidence of FOG among partial commitments has
remained essentially unchanged: 27 per cent for original Members without offers, 24 per cent for
those that have made offers, and 10 per cent for the recently acceded Members. A comparison of
Charts 1 and A.1 highlights the contaminating effect associated with ‘foggy’ horizontal limitations
and underscores the importance, in refining schedules and offers, to pay particular attention to these
limitations.



37 These Charts are based on the subsectors as contained in the Services Sectoral Classification List


(W/120), taking due account of the Annex on Financial Services, the Annex on Air Transport Services, and the
Maritime Model Schedule. The group of original WTO Members with DDA covers the EU member States
individually, except for those that have joined the WTO (and EU) since 1995, which are included among the
recently acceded WTO Members.






14


Chart 1: FOG in GATS schedules (commitments on Market Access, Mode 3),
by groups of Members


A. Recently acceded Members
(Accession schedules)


49%


9%
3%


39%


B. Original Members without DDA
offers


51%


23%


5%


21%








C. Original Members with DDA offers


(i) Existing commitments


19% 57%


6%


18%


(ii) DDA offer


59%


11%


14%


16%






Legend:


Full commitments Unbound

Partial commitments ::: Partial commitments with FOG



(a) Average
(b) Range (lowest - highest number of commitments per schedule)

Note: Horizontal limitations are treated as if they had been scheduled in each subsector.



Number of Members: 43
Subsectors committed: 22a / 1 – 111b


Number of Members: 85
Subsectors committed: 61a /10 – 115b


Number of Members: 25
Subsectors committed: 104a / 37 – 147b


Number of Members: 85
Subsectors committed: 88a / 10 – 146b






15


Somewhat surprisingly, the share of FOG in DDA offers has not shrunk significantly
compared to the same Members' existing commitments: from 18 to 16 per cent of the subsectors
committed or from 24 to 21 of the limitations made (Charts 1 and A.1 (C (i) and (ii)). While some
FOG would be cleared by way of technical refinements, although in relatively few cases, and the
reduction or elimination of existing limitations, new patches would be introduced by the limitations
attached to the newly offered subsectors (see also section II.C).38

Non-specified licensing and qualification requirements clearly are the dominant category of
FOG across all groups of Members, whether recently acceded countries, original Members without
DDA offers or original Members that have submitted DDA offers (Chart 2). However, there is a
significant degree of variation. While some two-thirds of the entries scheduled as sectoral limitations
by the latter Members consist of such non-specified requirements, the respective share for the recently
acceded countries comes close to 90 per cent. The second most frequent category of FOG in the
schedules of original Members, whether with or without DDA offers, are references to existing laws
and regulations that provide no guidance as to the limitations covered.

Entries inconsistent with obligations under Part II of the GATS are virtually absent in the
schedules of acceded Members, but more frequent among the original Members, in particular those
that have submitted DDA offers (11 per cent of all entries inscribed as sectoral limitations, see Chart 2
(C(i) and C(ii)). In most cases, access is made contingent on the existence of certain institutional or
regulatory conditions in a foreign suppliers' home market which in the context of this paper have been
treated as being inconsistent with the MFN obligation under Article II:1 of the GATS. The share of
'additional cases', which were found to consist mostly of exhortatory language ('should', 'may', etc.)
whose binding nature remains uncertain, varied between nil for the original Members without DDA
offers and 6 per cent for the post-Uruguay Round accession countries.

There are remarkable inter-sectoral variations in the incidence of FOG. Chart A2 provides an
overview, based on the sectoral limitations contained in the currently existing schedules of the
Members that submitted DDA offers, excluding the EU member States (EU 25). It is somewhat
surprising that the 'foggiest' commitments are to be found in a sector - tourism and travel related
services - that does not appear to pose major scheduling challenges, in particular if compared to
sectors such as financial or telecommunication services. One possible explanation is the fact that
tourism is the most frequently committed of all service sectors and that the lion’s share of the
commitments dates from the early 1990s when many participants, out of inexperience, might have
been excessively cautious in formulating their schedules. In contrast, the commitments on
telecommunications and financial services are somewhat more limited in number, though still
significant, and date mostly from the Uruguay Round extended negotiations concluded in February
and December 1997, respectively. Also, there seems to be an inverse relationship between the
existence of FOG and other scheduling flaws, such as simple references to existing GATS provisions,
including the prudential carve-out, and descriptions of domestic regulatory or institutional conditions
(section III.C). Such flaws are particularly frequent in health-related and social services, professional
services, and financial services.



38 The authors refrained from counting the various technical refinements that are explicitly identified as


such in current offers since, for understandable reasons, Members were tempted to label as many changes as
possible as improvements over existing commitments rather than as mere technical modifications.






16


Chart 2: Categories of FOG in GATS schedules – sectoral limitations only


A. Recently acceded Members
(Accession schedules)


89%


4%
6% 1%


B. Original Members without DDA
offers


21%


7%


72%






C. Original Members with DDA offers


(i) Existing commitments


66%


20%


3%


11%


(ii) DDA offers


62%


24%


3%


11%








Note: For information on the number of Members and commitments per group, see Chart 1.






Legend: Non-specified licensing and qualification requirements


References to laws and regulations, rather than measures


Inconsistencies with Part II of GATS


::: Additional cases: Membership requirements in professional associations, 'exhortatory language' (e.g.,
'should' or 'may') and minimum capital requirements.






17


V. CONCLUSIONS

Abbott's praise of FOG, and his sense of pity for "those unhappy countries in which the
atmosphere is perfectly dry and transparent", reflects the situation of people living in a two-
dimensional world. Without a natural sense of distance, on a completely level surface ('Flatland'),
FOG comes as a blessing. It helps inhabitants to distinguish between more remotely situated, and
therefore less clearly visible objects, and others located in their proximity they must steer clear of in
order to avoid potentially painful collisions. This is distinctly different, however, from the situation of
a government that undertakes commitments, with a view to defining the country's trade regime, in the
four-modal world of the GATS. The creation of FOG in such circumstances might be instrumental in
achieving consensus at the scheduling stage, administration-internal, with potentially affected
domestic industries and with interested trading partners, but this comes at a longer-term risk. If
challenged, foggy entries might prove of dubious legal value. In the end, if all commitments were
"equally and indistinguishably clear", to use Abbott's language, the Members concerned may well be
happier than those engulfed in FOG.

Nevertheless, an overview of existing commitments and DDA offers is sobering in two
regards: First, if current offers were to enter into force, significant patches of the FOG would remain.
And this is due not only to many Members apparently hesitant recourse to the option of technical
refinements, but also to the possible introduction of new FOG in the subsectors that are proposed for
inclusion. Second, those Members whose schedules would benefit mostly from technical refinements
have remained on the side-lines: The schedules of original Members without DDA offers, mostly
least-developed countries, contain relatively more FOG than those of the recently acceded WTO
Members and the original Members with DDA offers. However, LDCs are explicitly exempt, in the
Hong Kong Ministerial Declaration (para 26) from the expectation to undertake new commitments in
the DDA. While this certainly does not amount to an invitation for LDCs to refrain from correcting
technical scheduling problems by way of an offer, it likely has the effect of taking attention away
from this opportunity. Could this turn out to be a poisoned chalice? Of course, the risk of being
confronted with a WTO legal challenge, whether over 'foggy' commitments or otherwise, is very
remote for these countries.39 However, they might squander an opportunity to bring their schedules
into better shape and harness any associated benefits in terms of trade and investment promotion.

In addition to the uncertainties created for trading partners and interested suppliers, FOG also
blurs the view of external observers. For example, to what extent is it possible in empirical studies to
compare, with reasonable precision, Members' applied regimes with their GATS commitments? Such
comparisons may serve, for example, to assess the amount of 'water' contained in current schedules
and, accordingly, the scope for improved bindings within the existing regimes.40 Yet, what measures
are covered by 'foggy' references to licensing requirements or investment laws that account for about
one-fifth of the market access limitations scheduled by the original WTO Members?

It is important to reiterate that the focus of the preceding discussion was only on one possible,
though highly economically relevant, manifestation of FOG: GATS commitments on market access
under mode 3 (commercial presence). Yet, there a certainly more 'foggy' spots in schedules that might
warrant attention, including vague or deficient sector definitions. Two GATS-related disputes, US –
Gambling and China – Audiovisual Services, should be warning enough. Another unexplored area are
the commitments undertaken in preferential trade agreements. It can hardly be expected that these
have been more carefully scheduled and classified than those undertaken under the GATS. Rather, the
expanded sectoral coverage of many PTAs41, compared to the signatories' GATS commitments, might
entail additional risks.



39 Bown and Hoekman (2008).
40 See, for example, Gootiiz and Mattoo (2001).
41 See Marchetti and Roy (2008).






18



Of course, Members are free at any time to clear their schedules of FOG. As noted before,
existing commitments can be rectified under a relatively simple certification procedure, if no
objections are raised by Members that consider themselves to be adversely affected.42 However, the
relevant provisions have not been used to date to remove the types of FOG discussed before. This is
understandable insofar as administrations are normally ill-equipped to identify latent scope for
conflict and take pre-emptive action. Who would earn laurels by drawing his/her superiors' attention
to what seems to be a low-profile issue which, nevertheless, could take an unexpected turn should
another Member object to an envisaged technical change?


The situation in the DDA is somewhat different, however. All schedules are open for change,
that is for the inclusion of new sectors, the improvement of existing commitment and technical
refinements. This means, first, that it should be easier within individual administrations to co-ordinate
than it would be in a non-negotiating context. Second, the discussion in this paper suggests that many
Members have something to gain, since the main types FOG identified in section III can be found in
very many schedules. It is thus less likely that governments start bickering over whether proposed
technical refinements might involve elements of backtracking.



To further facilitate the review of 'foggy' commitments, Members might agree, tacitly at least,
on how to deal with such cases. Concerning the two main categories of FOG – non-specified licensing
requirements and general references to national legislation – a common understanding could provide,
for example, that relevant entries might be replaced by limitations under Article XVI:2 as long as
these remain confined to what would have been needed at the time of the commitment. Of course, in
quite a number of cases, it might be possible to delete 'foggy' entries altogether, without replacement,
since the Members concerned do not envisage maintaining measures in the sense of Articles XVI or
XVII of the GATS. Nevertheless, the proposed understanding would require a considerable dose of
good faith and pragmatism in order not to deter those who might actually benefit from technical
refinements, but are afraid of critical questions or even legal challenges.

In particular, purists might argue in quite a number of cases that the introduction of actually
enforceable limitations, in lieu of FOG, would be difficult to associate with the basic negotiating
objective of progressive liberalization. Yet, this is not the only relevant perspective. Tellingly, the
Preamble to the GATS refers to the expansion of services trade under conditions of transparency and
progressive liberalization. The clarification of 'foggy' (i.e., non-transparent) entries is thus more than a
secondary consideration, but deserves equivalent attention. In this regard, the DDA provides an ideal
opportunity to improve the legal quality of commitments, in line with basic provisions of Agreement
and common guidelines, and thus achieve more sustainable and transparent trading conditions.
Whatever the precise perspective, however, there is still a lot to be done …



42 See also above n 20.






19



ANNEX




Chart A1: FOG in GATS schedules (commitments on Market Access, Mode 3),
by groups of Members – sectoral limitations only




A. Recently acceded Members
(Accession schedules)


69%


26%


2% 3%


B. Original Members without DDA
offers


50%


12%


32%


6%







C. Original Members with DDA Offers


(i) Original schedule (2000)


48%


25%


8%


19%


(ii) DDA offer


55%


22%


9%


14%







Legend:


Full commitments Unbound

Partial commitments ::: Partial commitments with FOG



(a) Average
(b) Range (lowest - highest number of commitments per schedule)


Number of Members: 85
Subsectors committed: 61a / 10 – 115b


Number of Members: 85
Subsectors committed: 88a / 10 – 146b


Number of Members: 25
Subsectors committed: 104a / 37 – 147b


Number of Members: 43
Subsectors committed: 22a / 1 – 111b






20


Chart A2: Share of 'foggy' entries by sector (Market Access, Mode 3)*


33.3


28.7
27.1 25.6 25.4


24.7
21.8 21.6


20.0
18.4


17.4
14.8


12.5
10.8


0


5


10


15


20


25


30


35


Tourism and Travel Related


Educational


Transport


Telecommunication


Distribution


Construction and Related Engineering


Other Business


Recreational, Cultural and Sporting


Postal and Courier


Environmental


Audiovisual


Professional


Financial


Health Related and Social


* As per cent of all measures inscribed as sectoral limitations in the current schedules of those
Members that have submitted DDA offers, excluding EU 25.






21


Table A1: What the Scheduling Guidelines say


WHAT ITEMS SHOULD BE SCHEDULED?
3. Since schedules, including footnotes, headnotes and attachments, are a record of legal commitments, nothing
should appear in them which a Member does not intend to be legally binding. [...] (Emphasis added.)

LIMITATIONS ON MARKET ACCESS
8. A Member grants full market access in a given sector and mode of supply when it does not maintain in that
sector and mode any of the types of measures listed in Article XVI. […] The list is exhaustive and includes
measures which may also be discriminatory according to the national treatment standard (Article XVII). In
other words, all measures falling under any of the categories listed in Article XVI:2 must be scheduled, whether
or not such measures are discriminatory according to the national treatment standard of Article XVII.
9. With regard to market access limitations, […], the entry should describe each measure concisely indicating
the elements which make it inconsistent with Article XVI. Numerical ceilings should be expressed in defined
quantities in either absolute numbers or percentages; regarding economic needs tests the entry should indicate
the main criteria on which the test is based […]. (See also paras. 39 and 44.)
10. Approval procedures or licensing and qualification requirements, such as financial soundness or
membership in a professional organization, are frequently stipulated as conditions to obtain a licence. If they
are of a non-discriminatory nature, and therefore to be applied equally to nationals and foreigners, they should
not be scheduled under Article XVII. Nor should they be scheduled under Article XVI as long as they do not
contain any of the limitations specified in Article XVI. [...] If approval procedures or licensing and qualification
requirements contain any of the limitations specified in Article XVI, they should be scheduled as market access
limitations.
11. [...] Minimum requirements such as those common to licensing criteria (e.g. minimum capital requirements
for the establishment of a corporate entity) do not fall within the scope of Article XVI. If such a measure is
discriminatory within the meaning of Article XVII and, if it cannot be justified as an exception, it should be
scheduled as a limitation on national treatment. If such a measure is non-discriminatory, it is subject to the
disciplines of Article VI:5. Where such a measure does not conform to these disciplines, and if it cannot be
justified as an exception, it must be brought into conformity with Article VI:5 and cannot be scheduled.
18. A Member may wish to maintain measures which are inconsistent with both Articles XVI and XVII.
Article XX:2 stipulates that such measures shall be inscribed in the column relating to Article XVI on market
access. Thus, while there may be no limitation entered in the national treatment column, there may exist a
discriminatory measure inconsistent with national treatment inscribed in the market access column. However,
in accordance with Article XX:2, any discriminatory measure scheduled in the market access column is also to
be regarded as scheduled under Article XVII and subject to the provisions of that Article. […]
(Emphasis added.)

HOW TO DESCRIBE COMMITTED SECTORS AND SUBSECTORS
23. The legal nature of a schedule as well as the need to evaluate commitments, require the greatest possible
degree of clarity in the description of each sector or sub-sector scheduled. In general the classification of sectors
and sub-sectors should be based on the Secretariat's Services Sectoral Classification List Each sector contained
in the Secretariat list is identified by the corresponding Central Product Classification (CPC) number. [See,
however, above n 26.] Where it is necessary to refine further a sectoral classification, this should be done on the
basis of the CPC or other internationally recognised classification (e.g. Financial Services Annex)". (Emphasis
in the original.)


HOW TO RECORD COMMITMENTS
38. To the extent that domestic laws of general application contain measures which constitute limitations, and if
the Member wishes to maintain them, the commitment should describe the measures concisely. According to the
agreed scheduling procedures, schedules should not contain general references to laws and regulations as it is
understood that such references would not have legal implications under the GATS.

HORIZONTAL COMMITMENTS
36. A horizontal commitment applies to trade in services in all scheduled sectors unless otherwise specified.
[...]
Source: WTO document S/L/92, 28 March 2001.






22



REFERENCES



Adlung, Rudolf and Martin Roy (2005), 'Turning Hills into Mountains? Current Commitments under
the General Agreement on Trade in Services and Prospects for Change', Journal of World Trade,
39(6).

--- and Martin Molinuevo (2008), 'Bilateralism in Services Trade: Is there Fire behind the (BIT-)
Smoke?', Journal of International Economic Law, 11(2).

--- and Aaditya Mattoo (2008), 'The GATS', in A Handbook on International Services Trade, edited
by Aaditya Mattoo, Robert M. Stern and Gianni Zanini, 48-83. Oxford: Oxford University Press.

--- and Antonia Carzaniga (2009), 'MFN Exemptions under the General Agreement on Trade in
Services: Grandfathers Striving for Immortality?', Journal of International Economic Law 12:2, 357-
92.

Bown, Chad P. and Bernard Hoekman (2008), 'Developing Countries and Enforcement of Trade
Agreements: Why Dispute Settlement is not Enough', Journal of World Trade, 42(1).

De Meester, Bart (2010), The Interaction Between European and International Liberalisation of
International Trade in Banking Services, Dissertation, Katholieke Universiteit Leuven Faculteit
Rechtsgeleerdheid.

Gootiiz, Batshur and Aaditya Mattoo (2009), 'Services in Doha - What's on the Table?', Journal of
World Trade, 43(5).

Leroux, Eric H. (2007), 'Eleven Years of GATS Case Law: What Have We Learned?', Journal of
International Economic Law, 10(4).

Maurer, Andreas and Joscelyn Magdeleine (2011), 'Measuring Trade in Services in Mode 4', in
Reforming Services for Inclusive and Sustainable Development of Asia and the Pacific, edited by Mia
Mikic, Gloria Pasadilla and Pierre Sauvé. Asian Development Bank Institute and ARTNeT. Bangkok:
United Nations (forthcoming).


Marchetti, Juan A. and Martin Roy (2008), Opening Markets for Trade in Services - Countries and
Sectors in Bilateral and WTO Negotiations, WTO, Cambridge University Press

Mavroidis, Petros C. (2007), 'Highway XVI re-visited: the road from non-discrimination to market
access in GATS', World Trade Review, 6(1), 1-23.










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