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Trade in Services in US FTA with Jordan

The multilateral trading system of the WTO does not cover only trade in goods but it also covers trade in services. Parallel to the WTO discipline on trade in services, the US-JO FTA includes a provision for trade in services in article 3. As the report of the Office of Economics within the USITC indicated there is low level of trade, including trade in services, between the U.S. and Jordan. However, as the two parties expect that the FTA would expand trade, it was important to insure that trade in services flows freely between the two countries. Therefore, this provision will serve to insure that the current trade barriers faced by the services suppliers of either party in the market of the other will be reduced, any new barriers will not be instituted, and the preferential treatment afforded to the service suppliers of the other party, if any, will be secured. The FTA might spur the exports of services by Jordanian firms. In addition, it might encourage joint ventures between U.S. and Jordanian firms, thus it will increase foreign direct investment (“FDI”) through commercial presence.

In the US-Israel FTA, article 16 covers trade in services. It provides a general rule, rather than a detailed provision. It states “the parties recognize the importance of trade in services and the need to maintain an open system of services exports which would minimize restrictions on the flow of services between the two nations. To this end, the parties agree to develop means for cooperation on trade in services pursuant to the provisions of a [Declaration] to be made by the parties”. This short language reflects the still not yet developed comprehensive coverage of trade in services before the launch and conclusion of the Uruguay Round.

The “declaration” between the U.S. and Israel for trade in services, made according to article 16 of the US-Israel FTA, is not legally binding. The rules in the declaration of trade in services are “best endeavors”. This means that any violation of rules of the services declaration will not be subject to the dispute settlement mechanism under the US-Israel FTA. Moreover, the declaration is limited to one mode of supplying services. It defines trade in services as a trade that takes place when a service is exported from the supplier nation and is imported into the other nation. Moreover, the commercial banking services, under the US-Israel FTA, are limited to the activities of representative offices. Thus, it excludes commercial presence by establishing branches, agencies, or subsidiaries. The declaration encompasses national treatment whereby no preferential treatment will be afforded to domestic supplier of services but not extended to foreign supplier of services. It also encompasses transparency whereby all domestic laws and regulations affecting trade in services will be made public and notified to the other party and each party will provide to the nationals and companies of the other party reasonable access to established domestic review and judicial proceedings relative to regulations on trade in services.

On the other hand, the US-JO FTA provides for a legally binding commitment in the four modes of supply identified in article 1 of GATS in terms of market access and national treatment. These modes of supply are cross-border supply, consumption abroad, commercial presence, and temporary presence of natural persons. According to subparagraph 2.a of article 3 of the US-JO FTA, each party will accord to the service and service suppliers of the other party treatment no less favorable than it agreed to in its services schedule. Moreover, no limitation will be imposed on the service supplier of the other party, unless such limitation is reserved in its services schedule. These quantitative and qualitative limitations are inscribed in article XVI.2.a-f of GATS related to the number of service suppliers, the total value of service transactions, total number of service operations, total number of natural persons, measures that restrict or require specific types of legal entity, and limitation on the participation of foreign capital. In other words, these limitations must be recorded in either Jordan or the U.S. service schedule, otherwise either party cannot impose such limitations later on time.

The purpose of the service provision in the US-JO FTA is to prevent discriminatory treatment between foreign suppliers of services and like domestic suppliers of services. Moreover, it ensures that there is a minimum threshold of treatment below which a party cannot treat the service provider of the other party. In other words, a U.S. firm will operate in Jordan by marketing its services under the same conditions required for a Jordanian firm that market like services. The national treatment principle does not cover only measures taken that on “their face” treat services and service suppliers of the other party no less than its own services and service supplier. It covers also measures that on their face might seem neutral but on the subsurface they discriminate against the other’s party services and service suppliers. For example, trade officials in Jordan might devise a scheme in which at first glimpse seems origin neutral but closer examination reveals that the scheme in question discriminates against U.S. service suppliers. Moreover, it does not matter whether the measure has trade effect on the U.S. service supplier or not. The purpose of the national treatment sacred principle is to protect the opportunities or expectations of a competitive relationship.

The first sentence of article 3 reads “This article applies to measures by a Party affecting trade in services between the Parties”. It does not define what these measures are. However, the word “measures” should be read as broadly as possible so as to cover any measure taken by either party that may run afoul of its obligation under article 3 of the FTA. Of course, such a violation will depend on whether that the party invoking such a measure has taken a commitment in the service sector in question and in what mode of supply it is committed. This reading of article 3.1 of the FTA is supported by the subparagraph 3.4.a. Since subparagraph 3.4.a makes clear reference to GATS, our guide is article XXVIII (Definitions) of GATS. Measure, in article XXVIII of GATS, is defined as “any measure” by a member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form. Moreover, the phrase “measures by members affecting trade in services” is defined to “include” measures in respect of the purchase, payment or use of service, the access to and use of, in connection of with the supply of a service, services which are required by those members to be offered to the public, the presence, including commercial presence, of persons of a member for the supply of a service in the territory of another member. This list is exemplary and is not meant to be exhaustive as the use of the word “include” hints.

Additionally, subparagraph 3.1 of the FTA does not define “services”. However, the determinative factor on which one should judge how to define this term is by examining the services schedule of the party to see whether it has taken commitment in the service sector in question.

Any commitment taken by Jordan or the U.S. in market access and national treatment will give rise to rights and obligations as if that commitment was inscribed under GATS. The subparagraph then proceeds to specify which GATS’ article is incorporated within the FTA that give rise to rights and obligations. These are GATS article III bis (disclosure of confidential information), VI (domestic regulation), VII (recognition), VIII (monopolies and exclusive service suppliers), IX (business practices), XI (payments and transfers), XII (restrictions to safeguard the balance of payment), XIII (government procurement), XIV (general exceptions), XV (subsidies), XVI (market access), XVII (national treatment), XX (schedule of specific commitments), and XXVII (denial of benefits). This affirms the legally binding nature of the services commitments under article 3 of the US-JO FTA. However, this subparagraph has a footnote in which both parties agree that the U.S. commitments in the financial services sector are the same as the commitments taken under the WTO understanding on commitments in financial services. It seems that the U.S. did not want to liberalize further its commitments in the financial services sector.