6:34 AM Sep 17, 1993

SERVICES TEXT DISCUSSIONS CONTINUE

Geneva 16 Sep (Chakravarthi Raghavan) -- Consultations have been continuing this week in a small informal group (open to any interested participant) on some of the issues in the draft text of the framework agreement on services (the GATS) in the efforts to settle some of the outstanding questions and seal the text.

Participants however said that the target set, namely finalising the text by Friday, is unlikely to be met.

Among the questions discussed this week include those relating to preferential agreements within integration groupings, questions relating to tax treatment, and rules of origin for service providers and problems of operators of shipping services where ships are registered under flags of convenience.

The definition of 'trade in services' and the scope of the application of rights and obligations under the GATS necessarily apply among Parties to the agreement, and to services supplied from the territory of one Party into territory of another Party, in the territory of one Party to the service consumer of any other Party, through the presence of service providing entities of one Party in the territory of another and by natural persons of one Party in the territory of any other.

In the case flags of convenience shipping, the owners are by and large in the industrialized countries and investors like those in Hong Kong. But for the trade in shipping services, the flag of the ship or the operator of the service would determine the rights and obligations if any.

While the US, EC enterprises and others are all using flags of convenience, they have taken a low profile on this but Canada has been striving to get recognition for 'rights' to investors and owners of a Party, even if the ship's nationality is determined by the flag it flies. But this has been rejected by others.

Another problem relates to the question of taxation.

Art XVII of the GATS provides for 'national treatment', subject to any conditions or qualifications set out by any Party in its schedule of concessions, as between domestic and foreign service providers.

But an important general exception (under Art XXIV) relates to tax treatment.

Art XXIV (d) enables a Party to adopt measures, inconsistent with the national treatment article, insofar as the difference in treatment is aimed at ensuring equitable or effective imposition or collection of taxes on income of service suppliers of other Parties that, under the Party's tax laws, are not deemed to reside in the Party's territory. Another provision, XXIV (e) enables exception to the most-favoured-nation treatment (say as between two foreign service suppliers) in respect of tax treatment arising out of an international agreement on double taxation.

The United States has been trying to ensure that its foreign service suppliers in a market should be able to enjoy the same tax treatment as a domestic supplier even if its supplier is a "non-resident" -- a category which in most tax jurisdictions are subject to separate tax treatment and higher levies.

This has also not found support.

While negotiators have been looking at these issues, and going through the motions of bilaterals in the market access negotiations, everything is really in a state of suspense, and awaiting how the agriculture issue and the disputes over Blair House within the EC and between the EC and US would be resolved.

The EC's "Grand Conseil" (of foreign, trade and agriculture ministers) are meeting on 20 September and, ahead of that there has been a confusing cacophony of views about "reopening", "renegotiating" and "flexible interpretation" of the details of the accord to satisfy France.

EC Commission sources here have been telling their trading partners that they don't expect any settlement of the issue on 20 September either, and perhaps not even by 4-5 October when another meeting of the Council of Ministers (foreign ministers) has been set.

The most likely outcome could be neither a decision in favour of France nor one overruling it and the Commission could be left to struggle along and make the best of it in negotiations, one observer noted.

But the outcome would be more uncertainty.

Meanwhile the report that the US and EC textile and clothing industry have agreed on a tariff reduction exercise (so far resisted by the US) of peak tariffs, and trying to make the implementation of the Draft Final Act on Textiles and Clothing dependent on countries like India, Pakistan and Turkey open up their markets have not elicited official reactions from some of the concerned countries.

India, for example, which has been pressing for adequate and faster integration of the textiles and clothing trade, and resisting US demands on tariff cuts in textiles, has been unwilling to comment without seeing details, and its presentation by the negotiators of US and EC.

But negotiators say it is unlikely to make these countries yield to the demands of the US and EC industries which, for nearly 40 years, have got GATT derogation for discriminatory safeguards to keep imports from these countries (without paying the normal GATT price for safeguards) and now want the very same countries to pay a price to get the discriminatory restrictions lifted and eased.