This is a guest post by trade lawyer Adarsh Ramanujan:
“Treatment no less favourable” –Article II:1, GATS and Article 2.1, TBT
Pursuant to Simon’s earlier post about the appeal filed by Panama in Argentina – Financial Services, I noticed that one of the grounds of appeal relates to the interpretation and application of the term "treatment no less favourable" in the Articles II:1 and XVII of the GATS. There are several interesting aspects to the Panel Report, though this one caught my attention first.
In terms of the actual test to be applied under Article II:1, GATS, the Panel had otherwise determined that the test from Article XVII, GATS could be borrowed – modification of conditions of competition (para. 7.220). On the specific question of how relevant regulatory aspects would be in making this assessment, the following quote captures the Panel’s conclusion:
7.212 As we have just stated, the "treatment no less favourable" obligation in Article II:1 of the GATS concerns both like services and service suppliers…Their intangible nature, and the relationship established between the consumer and the supplier of the service and, in turn, between the service and its supplier, give services some very special features which differentiate them from goods and which, in our opinion, have a decisive influence on their production, marketing and use. In our view, this immediate context afforded by the actual text of Article II:1 of the GATS, in the light of the special features of services and the importance given to suppliers of services, appears to indicate that the regulatory framework in which service suppliers operate may in certain circumstances be relevant in the context of the GATS since it has a direct impact on the service through the natural or legal person supplying the service. In this respect, it appears to us that the determination of the specific aspects of the regulatory framework to be considered when examining "treatment no less favourable" can only be made on a case‑by‑case basis. (Emphasis added in bold)
Does this mean that regulatory justifications would play the same role as it does in the context of Article 2.1, TBT – where one of the elements to be analysed is if the detrimental impact on imports stems exclusively from a legitimate regulatory distinction rather than reflecting discrimination against the group of imported products? Not exactly. The Panel observed that there are some similarities and differences between GATS and the TBT Agreement (paras. 7.228-7.231):
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Similarities |
Differences |
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Both agreements recognize Members’ right to regulate in their preamble |
TBT only deals with products and not producers; the GATS, however, deals with both services and service suppliers. |
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TBT contains no rules of exception, unlike Article XIV, GATS |
The Panel finally decides that in view of these differences, it would not be appropriate to transpose the TBT interpretation to the GATS. So, in other words, one need not assess whether the alleged differential treatment of certain imported services stem exclusively from legitimate regulatory distinctions, but they need to be considered somewhere in the analysis – to paraphrase the Panel, when the “the relevant regulatory aspects concerning service suppliers [sic] have an impact on the conditions of competition” (para. 7.232).
A comparison with the factual application of this principle to one of the 8 measures under challenge gives a better understanding of how this is to be applied. Argentina had engaged in differential treatment between “cooperating countries” and “non-cooperating countries” and regulatory context for this classification was Argentina’s access to tax information on foreign suppliers. Based on evidence, the Panel more or less rejected Argentina’s arguments in all cases simply because of one fact – the classification between “cooperating countries” and “non-cooperating countries was actually not based on whether there was access to tax information; even countries from whom Argentina had no actual tax information were grouped under “cooperating” simply because they were currently negotiating a treaty to that extent (Panama itself was one such example) and at the same time, not all countries who were presently undertaking such negotiation were considered “cooperating”. One can refer to paras. 7.283-292 in this respect on the Panel’s analysis of measure 1 and one can trace similar factual analyses for the remaining measures as well.
When I think over the application of the law to the facts of the case – I fundamentally don’t see how this differs from the Panel assessing whether the differential treatment stems exclusively from regulatory distinctions. On the contrary, it appears that in these facts, because the differential treatment was not applied consistently and exclusively based on the actual access to tax information (legitimate regulatory distinction), Argentina’s justification were rejected.
In summary, specifically on the aspect of the relevance of regulatory aspects in assessing “treatment no less favourable”, I believe the Panel’s analysis Article II:1, GATS resembles that of Article 2.1, TBT Agreement.
Another interesting point though is making its observations on the relevance of regulatory aspects in assessing “treatment no less favourable”, I believe the Panel’s analysis Article II:1, GATS, the Panel makes no distinction between de jure and de facto classification. On the other hand, I believe there is a school of thought that regulatory aspects are irrelevant under Article 2.1, TBT Agreement for cases of de jure classification
I am looking forward to some clarification in the AB’s Report. Any thoughts anyone?
