Comparative Guide Chile - U.S. FTA and DR - CAFTA - Chapter 11: Cross-Border Trade in Services

A Comparative Guide to the Chile-United States Free Trade Agreement and the
Dominican Republic-Central America-United States Free Trade Agreement


Chapter Eleven: Cross-Border Trade in Services


Table of Contents

In both the Chile-U.S. FTA and DR-CAFTA, the Chapter on Cross Border Trade in Services covers modes 1 and 2 of services trade, namely cross-border services transactions and consumption abroad (when the service consumer travels to another country to purchase the service). The supply of services through investment (which includes mode 3, or commercial presence), is covered in Chapter Ten on Investment in both Agreements, while mode 4, or the Temporary Entry for Business Persons, is covered in Chapter Fourteen (Chile-U.S. FTA).

In the Chapter on Cross Border Trade in Services there is a great deal of similarity as between the two Agreements with respect to the substance of the main Articles in the text. However, there are also a few notable differences, particularly in the depth of obligations for professional service providers, as well as some structural differences in the treatment of annexes to the Chapter.

Both Agreements contain the same eleven core Articles on Scope and Coverage, National Treatment, Most-Favored Nation Treatment, Local Presence, Non-conforming Measures, Market Access, Transparency in the Development and Application of Regulations, Domestic Regulation, Mutual Recognition, Implementation, Denial of Benefits and Definitions. DR-CAFTA contains an additional Article on Transfers and Payments.

In both Agreements there is an Annex on Professional Services to the Cross-Border Trade in Services Chapter, which includes provisions on the development of professional standards, temporary licensing and review. Additionally, in the Chile-U.S. FTA, this Annex includes specific sections on Foreign Legal Consultants and Temporary Licensing of Engineers. In both Agreements there is text on Express Delivery Services, which takes the form of an Article in DR-CAFTA and an additional annex in the Chile-U.S. FTA.

In total, the Chile-U.S. FTA contains twelve Articles plus two Annexes in the Cross Border Trade in Services Chapter, while the DR-CAFTA text contains fourteen Articles and two Annexes. The similarities between the two Agreements are more important than the differences.

Scope and Coverage: set out in identical terms in both texts (Art.11.1 in both Agreements), defining which measures are covered within the scope of the cross-border Chapter. In both cases the coverage of measures extends to those maintained by central, regional, or local governments and authorities. Exempted from the scope of the Chapter are:

· financial services (which are covered in the Chapter on Financial Services)
air transport services (other than aircraft repair and maintenance services and specialty air services)
procurement (covered in the Chapter on Procurement)
subsidies or grants.

In both Agreements there is an Article indicating that the provisions on Market Access (Art.11.4), Transparency in Development and Application of Regulations (Art.11.7) and Domestic Regulation (Art.11.8) also apply to services supplied by an investor as defined in the Chapter on Investment.

The Chapter does not apply to services provided by governments on a non-commercial, non-competitive basis. Nor does it cover any aspects of employment or access to labor markets.

National Treatment: identical in both Agreements (Art.11.2), sets out the requirement to accord service suppliers of the other Party treatment “no less favorable than it accords, in like circumstances, to its own service suppliers”. This covers treatment of service suppliers both at the time that they enter the market as well as after they have entered within a national territory. Unlike the WTO General Agreement on Trade in Services (GATS) this obligation is of generalized application and unconditional.

Most-Favored-Nation Treatment: identical in both Agreements (Art.11.3), sets out the requirement to accord to service suppliers of the other Party treatment “no less favorable than that it accords, in like circumstances, to service suppliers of a non-Party”.

Market Access: identical in both Agreements (Art.11.4), sets out four types of quantitative measures which Parties are not allowed to maintain against service suppliers from other Parties, as well as a specific type of legal measure which Parties are not allowed to use to restrict service suppliers from other Parties. These five measures are the same as those found in Article XVI of the WTO GATS.

Local Presence: identical in both Agreements (Art.11.5), sets out a prohibition on the establishment of maintenance of a requirement to establish a commercial presence (in the form of a representative office or enterprise) as a condition to provide services on a cross-border basis. This effectively guarantees the freedom of cross-border trade in services.

Non-conforming Measures: identical in both Agreements (Art.11.6), allows for the maintenance of non-conforming measures (or reservations to the core disciplines of the Cross-Border Trade in Services Chapter as set out in Arts. 11.2, 11.3, 11.4 and 11.5). Such non-conforming measures may be maintained at:

· the central level of government
the regional level of government
the local level of government.

Non-conforming measures maintained at the first two levels of government must be specified in an annex to the Agreements (Annex I of Chile-U.S. and Annex I of DR-CAFTA), while non-conforming measures maintained at the local level of government do not need to be set out in an annex.

An additional category of non-conforming measures (to which the core disciplines of the Agreement do not apply) may be set out in another annex (Annex II of Chile-U.S. and Annex II of DR-CAFTA). These latter measures that may apply to sectors, sub-sectors or services activities, effectively constitute permanent exceptions to the Agreement.

Transparency in Development and Application of Regulations: identical in both Agreements (Art.11.7), sets out various procedural requirements with respect to the process for developing and applying regulations. These include the requirement for each Party to respond to enquiries regarding their regulations, to address in writing the comments received on proposed regulations at the time of their adoption, and a reasonable period of time between the publication of regulations and their application.

Domestic Regulation: identical in both Agreements (Art.11.8), reproduces part of the text of the WTO GATS Article VI on Domestic Regulation (paragraphs VI.3 and VI.4) with some adjustments. The Article requires Parties to provide information concerning the status of an application waiting on authorization to provide a service, as well as the requirement that any such measures that a Party adopts or maintains are based on “objective and transparent criteria”, and are “not more burdensome than necessary to ensure the quality of the service”.

Mutual Recognition: identical in both Agreements (Art.11.9), sets out the possibility for Parties to recognize the “education or experience obtained, requirements met, or licenses or certifications granted in a particular country”. Such recognition may be realized through harmonization, through mutual Agreement, or accorded autonomously. Parties must also give the opportunity to each other to try and meet the requirements established in mutual recognition Agreements with third countries.

Implementation: similar in both Agreements (Chile-U.S. FTA Art.11.10 and DR-CAFTA Art.11.11), commits the Parties to consult annually to review the implementation of the Cross-Border Trade in Services Chapter, and other issues of mutual interest. In the Chile-U.S. FTA, there is an additional paragraph which is not found in the DR-CAFTA text that obliges the Parties to consult on the feasibility of “removing any remaining citizenship or permanent residency requirement for the licensing or certification of each other’s services suppliers”.

Transfers and Payments: provision found only in the DR-CAFTA text (Art.11.10), obliging all Parties to allow transfers and payments relating to the cross-border supply of services to be effected freely and without delay and in a freely usable currency. A similar but not identical Article on Transfers (Art.10.8) is found in the Investment Chapter in both Agreements.

Denial of Benefits: similar provision found in both Agreements (Chile-U.S. FTA Art.11.11 and DR-CAFTA Art.11.12), the Article sets out the conditions under which service suppliers from the Parties can benefit from the Agreement. This is similar to a provision on rules of origin for trade in goods. Basically, benefits can be denied when:

· the service is supplied by an enterprise that is owned or controlled by persons of a non-Party, and
the enterprise has no substantial business activities in the territory of that other Party.

Additionally, benefits can be denied when the service is supplied by a enterprise owned or controlled by persons of a non-Party when the denying Party does not maintain diplomatic relations with the non-Party or has in place measures that do not allow for transactions to be conducted by enterprises of the non-Party.

Definitions: nearly identical in both Agreements (Chile-U.S. FTA Art.11.12 and DR-CAFTA Art.11.14), sets out the same definitions for the following terms:

· cross-border trade in services or cross-border supply of services
enterprise of a Party
professional services
service supplier of a Party
specialty air services

Annex on Professional Services: similar in both Agreements (Annex 11.9), sets out provisions which are specific to professional services in the areas of:

· development of professional standards
temporary licensing

The purpose of these provisions is to facilitate the development of mutually acceptable standards and criteria for licensing and certification of professional service providers from the other Parties. A review of the implementation of these provisions is to occur in both instances at least once every three years.

Additionally, the Chile-U.S. FTA contains text that does not appear in DR-CAFTA that requires the Commission on Services to review as well any differences in regulatory approaches between the Parties and to raise issues connected with the development of international standards for professional services.

The Chile-U.S. FTA also contains two sections on Foreign Legal Consultants and on the Temporary Licensing of Engineers within this Annex that do not appear in DR-CAFTA. These sections aim to facilitate the practice of these two professional services in the territory of the other Party. Work programs are to be established in order to develop common procedures for the authorization of Foreign Legal Consultants and for the temporary licensing of foreign Engineers. The relevant professional bodies are to be consulted and involved in this process.

The Chile-U.S. FTA also contains an Appendix to Annex 11.9 on Professional Services specifying that the rights set out in the section on Engineers apply to Civil Engineers in Chile and to any other engineering specialties that Chile may designate.

Express Delivery Services: similar in both Agreements but different in form. In the Chile-U.S. FTA this text is set out as Annex 11.6 (entitled Express Delivery), while in DR-CAFTA it is included as Article 11.13 (entitled Specific Commitments, with a sub-title on Express Delivery Services). The text brings Express Delivery Services explicitly under the scope of the Agreement, defines such services, and requires the Parties to maintain open market access for these services.

Further provisions confirm the intention of the Parties not to direct revenues from their postal monopolies to benefit express delivery services. DR-CAFTA contains additional text (Article 11.13.1.(d)) that requires Parties with monopoly suppliers of postal services, not to abuse their monopoly positions when competing in the supply of express delivery services outside of their monopoly rights. Specific commitments in this regard are contained in the Schedules of the Parties to DR-CAFTA.

Annex 11.13 on Specific Commitments: the DR-CAFTA Chapter on Cross-Border Trade in Services contains an Annex of Specific Commitments (Annex 11.13) with sections relevant to Costa Rica (Section A) and to the Dominican Republic (Section B) in which these two countries formalize their commitment to repeal an existing regime in the area of contract law and to enact a new legal regime applicable to contracts of representation, distribution, or production (in the case of Costa Rica) or to any covered contract signed after the date of entry into force of the Agreement (for the Dominican Republic). For Costa Rica, this concerns Law No. 6209 and Law No. 3284, and for the Dominican Republic this concerns Law No. 173. The new regime in each country must conform to certain specific conditions set out in the Annex.

Chapter 10 Chapter 12

Table of Contents