Services: Deadline For ESM Extended, ASEAN Submits New ESM Proposal

18 March 2004

On 15 March -- the deadline for concluding negotiations on an emergency safeguard measure (ESM) in trade in services -- WTO Members agreed to extend the deadline indefinitely. Under the General Agreement on Trade in Services (GATS). The results of the ESM negotiations should, originally, have entered into effect by the end of 1997. However, after a series of extensions, Members decided in March 2002 to postpone the deadline for ESM negotiations until 15 March this year (BRIDGES Weekly, 19 March 2002). Related to the ESM debate, a group of Association of Southeast Asian Nations (ASEAN) members recently circulated a new proposal on establishing an ESM in services. This proposal is likely to be discussed at the upcoming meeting of the Working Party on GATS Rules on 24 March 2004.

New deadline for ESM negotiations

The notable feature of the 15 March Fifth Decision on Negotiations on the ESM (not yet derestricted) is that instead of linking the conclusion of the ESM negotiations to the end of the market access negotiations in services (i.e. 1 January 2005) -- as with other issues in services rules negotiations -- Members linked the end date to the current round of negotiations, and specifically to the time the agreements in the current round would enter into force. In other words, the ESM negotiations no longer face a specified deadline, and do not necessarily have to conclude when the round is finished if Members have not yet agreed on an outcome.

Members agreed at the end of the Uruguay round to undertake -- as part of the so-called built-in agenda of the GATS -- negotiations on establishing an ESM. Unlike in the case of goods, for which such a mechanism exists (WTO Safeguards Agreement), Members had been unable to agree on ESM rules by the end of the Uruguay Round. Many Members, mostly from the developing world, feel that the absence of an ESM has lad to the low level of commitments in the initial offers made by countries in services in the Doha round. Some countries, such as the US, Japan, and Switzerland, have expressed scepticism about the desirability (willingness) and feasibility (technical legal and economic means to issue a safeguard) of a services safeguards mechanism. They feel that the proponents of an ESM have failed to show how such a mechanism would work in practice, and stress that it might create legal uncertainty, scaring off foreign investment.

Many developing countries disagree, however. Leading the efforts for the establishment of an ESM are members of the ASEAN, excluding Singapore. They claim that an ESM would encourage developing countries to liberalise, as it would provide Members with a safety valve to tackle potentially negative, still unforeseeable, effects that increased services imports could have on domestic service providers.

ASEAN submits paper on ESM

As a contribution to the ESM debate, a group of ASEAN members recently circulated a new proposal on an ESM in services (not yet derestricted, downloadable at The new proposal slightly differs from an earlier ASEAN ESM proposal tabled in 2000 (S/WPGR/W/30). First, it strengthens the criteria for initiating a safeguard procedure; second, it links ESM applicability to injury incurred in the domestic industry of a country; third, it requests the submission of a report on the need of the safeguard to WTO Members; and, fourth, it shortens the period of application of a safeguard to three years.

The proposal responds to developed country concerns on services provision under Mode 3 (commercial presence) by indicating the possibility of not applying the ESM to domestic services providers (domestic services providers would imply foreign and national services providers established in the territory of the Members seeking the application of a ESM) but only to foreign "newcomers" (new investors under Mode 3).

From a procedural point of view, the ASEAN proposal suggests that the affected country should implement an ESM only after submitting a report as to why they need an ESM before the WTO Council for Trade in Services, though the right to make the determination on the need will rest on Members themselves. This suggestion is a response from ASEAN Members to an Australian proposal submitted in mid-2002 (BRIDGES Weekly, 12 June 2002) calling for the responsibility of a Member seeking the ESM to show "just cause" of the injury.

While the ASEAN trade representative said that multilateral consent would be best to prevent abuses by Members, he felt that too many countries wanted a simpler agreement. He also noted that some countries, including Thailand and Philippines, would not sign off on any services final offer/request agreement if an ESM proposal was not negotiated beforehand.

Regarding the duration of the safeguard, a trade source indicated that ASEAN Members considered that a three-year period would be the minimum necessary for a country to recover from an injury in the case of trade in services. This timeframe falls between the goods model, which allows for four years and the demand by developed countries for two years.

The new ASEAN proposal is likely to be discussed at the upcoming meeting of the GATS Working Party on GATS Rules on 24 March.

ICTSD reporting; "WTO Members Ok Indefinite Extension in Negotiations on Services Safeguards," WTO REPORTER, 16 March 2004.


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