Abstract
The chapter surveys NAFTA’s approach to protecting public services with a view to drawing some conclusions regarding its costs and benefits. The chapter first discusses the scope of NAFTA’s application to public services, focussing on the obligations relating to trade in services and investment and the relevant reservations taken by each NAFTA party state. This is followed by an examination of how the specific NAFTA obligations relating to financial services, telecommunications services, energy, government procurement, and competition as well as the treaty’s exceptions provisions address public services. Finally a synthesis is provided of NAFTA’s approach to public services with a view to identifying its costs and benefits in relation to the approach in GATS and EU trade agreements.
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Notes
- 1.
Krajewski 2011a. See e.g. European Community–CARIFORUM Economic Partnership Agreement (2008).
- 2.
Houde et al. 2007.
- 3.
Although the final text of the Comprehensive Economic and Trade Agreement between Canada and the EU has not been agreed to, it is reported that it will be the first EU negative list agreement: Council of the European Union, EU Canada Comprehensive Economic and Trade Agreement—landing zones, Note by the Commission, DS 1744/12, 6 November 2012. Apparently, the Parliament has said that this should not be considered a precedent for future agreements, see Krajewski 2011a, p. 9.
- 4.
Of course, this may change for treaties concluded after the Treaty on the Functioning of the European Union [TFEU] came into force on December 2009. The Comprehensive Trade and Investment Agreement between Canada and the EU may be the first EU treaty with comprehensive investment obligations.
- 5.
Canada and, to a lesser extent, the US has followed the same approach in its investment treaties.
- 6.
- 7.
- 8.
This commitment was expressed repeatedly by former trade Minister Pierre Pettigrew (e.g. Canada 2000).
- 9.
TFEU, Articles 14, 106, and Protocol No. 26 on Services of General Interest.
- 10.
Charter of Fundamental Rights of the European Union, Article 36.
- 11.
Arguments have been made regarding entitlements to certain public services under Canada’s Charter of Rights, e.g. Jackman and Porter 2008. Some public service issues have been addressed in Canadian intergovernmental agreements: Agreement on Internal Trade—Consolidated Version, available at http://www.ait-aci.ca/en/ait/ait_en.pdf, accessed 14 January 2014, and the New West Partnership Agreement entered into by the provinces of British Columbia, Alberta and Saskatchewan, see Compendium of the New West Partnership Agreements available at http://www.gov.sk.ca/nwp, accessed 14 Jan 2014. Under these agreements, most obligations do not apply to government regulation taken for a legitimate purpose. Each agreement goes on to list what legitimate purposes are.
- 12.
The Social Protection Committee was created in accordance with Article 160 of the TFEU, through Decisions of the European Council in 2000 and 2004. The Committee facilitates cooperation between Member States and the European Commission on social inclusion, health care and long-term care, including pensions.
- 13.
E.g. European Commission, Commission Staff Working Document, 3rd Biennial Report on Social Services of General Interest, SWD(2013) 40 final, 20 February 2013, p. 40.
- 14.
Concerns about how investor-state tribunals were interpreting the balance between investor-protection and state’s right to regulate caused Canada and the US to adopt an interpretation of indirect expropriation that better protected the right to regulate in subsequent US and Canadian trade and investment agreements. Krajewski notes that many investor-state cases have dealt with public services, especially public water services, but the issues have been characterized as human rights issues rather than public services issues, see Krajewski 2012.
- 15.
United Parcel Service of America Inc. v. Government of Canada, UNCITRAL Arbitration, Award on the Merits, 24 May 2007, discussed below.
- 16.
GATS, Articles I.3(b) and (c).
- 17.
NAFTA, Article 102. This approach to interpretation was adopted in In the Matter of Cross-Border Trucking Services, USA-Mex-98-2008-01, Final Report of the Panel, 6 February 2001.
- 18.
NAFTA, Articles 1201(1) and 1213(2). NAFTA also has a separate chapter setting out commitments regarding the temporary entry of business persons (Chapter 16).
- 19.
NAFTA Chapters 10 and 14 respectively.
- 20.
NAFTA, Article 1201(2).
- 21.
Krajewski 2011b, p. 14. There are no obligations in GATS that are tailored to subsidies. Subsidies disciplines were left for future negotiations (GATS, Article XV). Nevertheless, general GATS obligations apply, including national treatment for services listed in national schedules of commitments. For this reason, many countries have included provisions in their schedules preserving their ability to subsidize in a discriminatory way. E.g. European Communities and their Member States, Schedule of Specific Commitments (the European Communities are not bound in relation to subsidies in the public sector), and Canada, Schedule of Specific Commitments (Canada is not bound to grant national treatment in relation to “[t]he supply of a service, or its subsidization, within the public sector” or “[s]ubsidies related to research and development”).
- 22.
NAFTA, Article 1139. “[E]nterprise” is defined broadly to mean “any entity constituted or organized under applicable law, whether or not for profit, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, sole proprietorship, joint venture or association” (NAFTA, Article 201).
- 23.
NAFTA, Article 1139.
- 24.
The investment chapter provides that if the investor is an enterprise constituted or organized under the laws of a NAFTA Party state but is owned or controlled by persons who are investors of a state or states not party to NAFTA and the enterprise has no substantial business activities in the territory of the NAFTA Party state under whose law it is constituted or organized, the NAFTA Party state complained against may deny that investor the benefits of the agreement, including access to investor-state dispute settlement (NAFTA, Article 1113). In order to deny benefits to such an investor, notification to the NAFTA Party state under whose laws the enterprise is constituted or organized is required in accordance with Article 1803. The NAFTA Party state notified may request consultations under Article 2006. A NAFTA Party state may also deny access in certain other circumstances. The services chapter has a provision (NAFTA, Article 1211(2)) that is identical to Article 1113.
- 25.
The investor-state dispute settlement process is described in VanDuzer 2002, pp. 51–71. This right to seek compensation is also available in relation to certain provisions of Chapters 14 and 15.
- 26.
- 27.
A similarly worded provision describing states right to act to protect the environment (Article 1114(1)) has been interpreted as an interpretive direction only (Kinnear et al. 2008).
- 28.
NAFTA, Article 1204.
- 29.
NAFTA, Articles 1202 and 1203.
- 30.
NAFTA, Article 1205.
- 31.
NAFTA, Articles 1102, 1103, and 1104. Chapter 11 clarifies that the national treatment obligation means that requirements of a NAFTA Party that its nationals hold a minimum level of equity in a NAFTA investor are prohibited and NAFTA investors cannot be required to sell their investments simply because of their nationality (NAFTA, Article 1102(4)).
- 32.
In the case of measures of a state or province, the national treatment obligation is modified. States and provinces are only obliged to grant treatment no less favourable than the most favourable treatment accorded, in like circumstances, to investors and investments of the Party of which it forms a part (NAFTA, Article 1102(3)).
- 33.
See US Model Bilateral Investment Treaty, Articles 3 and 4 and Canadian Model Foreign Investment Promotion and Protection Agreement, Articles 3 and 4. Also investors eligible for protection are defined to include persons seeking to make an investment (Canadian Model Foreign Investment Promotion and Protection Agreement, Article 1; US Model Bilateral Investment Treaty, Article 1). Pre-establishment rights are also found in some Japanese and Australian investment treaties.
- 34.
These obligations go beyond the requirements of the WTO Agreement on Trade-related Investment Measures, (1994).
- 35.
Again, this obligation may be subject to reservations as discussed below.
- 36.
NAFTA, Article 1106(1)(g).
- 37.
NAFTA, Article 1106.
- 38.
NAFTA, Article 1108(7).
- 39.
An example would be discrimination against foreign education services suppliers.
- 40.
NAFTA, Article 1108(8). These exceptions provide that certain of the prohibitions do not apply to government procurement, requirements to qualify for export promotion programs, foreign aid programs or preferential tariffs or quotas.
- 41.
NAFTA, Articles 1206(1)(c) and 1108(1)(c). For financial services, reservations are permitted under Articles 1409(1) and (4).
- 42.
- 43.
It is not clear why this is not an Annex II reservation, since it applies to an area of activity rather than a specific measure.
- 44.
Exchange of Letters between Canada, the U.S. and Mexico (29 March 1996), cited in de Mestral 1998.
- 45.
NAFTA, Articles 1206(1)(a)(iii) and 1108(a)(iii).
- 46.
Johnson 2002.
- 47.
Krajewski 2011b, p. 41. This is also noted by the European Commission in European Commission, A Quality Framework for Services of General Economic Interest in Europe, COM(2011) 900 final, 20 December 2011.
- 48.
Though they take many forms, most public/private partnerships provide a service through a partnership with one or more private parties and a government entity. Typically, the private party undertakes some financial or operational risk related to the provision of the service.
- 49.
Though NAFTA Annex II is not clear as to whether it applies to measures by governments below the national level, it appears to be understood as applicable to such measures: Johnson 1994, p. 309.
- 50.
NAFTA, Canada’s Schedule to Annex II, Sector: Social Services.
- 51.
Canada’s Annex I and II reservations regarding national treatment and most favoured nation treatment are deemed to apply to the financial services obligations in Articles 1405 and 1406 (NAFTA, Article 1409(4)). Additional reservations are permitted under Article 1409.
- 52.
Letter from John Weekes dated 31 January 1995 to the provinces and Letter from Douglas Waddell dated 22 September 1995 to the provinces, quoted in Schwartz 1997. Professor Schwartz also cites some criticism of this interpretation from the government of Ontario.
- 53.
USTR 1995. In effect, the USTR’s interpretation appears to be close to the governmental services exception defined in GATS, Article 1.3.
- 54.
This is consistent with the approach in In the Matter of Cross-Border Trucking Services, USA-Mex-98-2008-01, Final Report of the Panel, 6 February 2001, where the Panel refused to consider the subjective intent of the United States in relation to its moratorium on Mexican trucking operations in the US (at para 214). In limited circumstances, statements by WTO Members regarding the meaning of certain provisions have been held by dispute settlement panels to be relevant for interpreting a Member’s obligations. In United States—Sects. 301-310 of the Trade Act of 1974, Report of the Panel, WT/DS152/R, statements made in a panel proceeding by persons with authority to bind the state and intending to bind the state were held to be relevant.
- 55.
There is no NAFTA case on this precise issue. In European Communities—Customs Classification of Certain Computer Equipment, Report of the Appellate Body, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, the WTO Appellate Body refused to adopt an interpretation of “automatic data processing equipment” that the UK had relied on in its negotiations with the US, even in the face of US argument that the meaning adopted in negotiations had informed its expectations. The Appellate Body ruled that the interests of all Members in being able to rely on the text of an agreement meant that interpretation had to be grounded in the text alone. See Maki 2000, pp. 354–356, Lennard 2002, pp. 72–73.
- 56.
This view is consistent with how the WTO Members have agreed to interpret the exclusion for services in the exercise of governmental authority (see Krajewski 2011a, p. 29, citing WTO Council for Trade in Services, Report of the Meeting Held on 14 October 1998, Note by the Secretariat, S/C/M/30, 12 November 1998, para 22(b)). Such an approach, however, is not consistent with WTO case law holding that there is no distinctive approach to interpreting exception provisions like GATT Article XX. In European Communities—Measures Concerning Meat and Meat Products (Hormones), Report of the Appellate Body, WT/DS26/AB/R, WT/DS48/AB/R, para 104, the Appellate Body said that “merely, characterizing a treaty provision as an ‘exception’ does not by itself justify a ‘stricter’ or ‘narrower’ interpretation of that provision that would not be warranted…by applying the normal rule of treaty interpretation.” See generally, Newcombe 2011, p. 361.
- 57.
This is also the conclusion of Schwartz 1997.
- 58.
Oxford English Dictionary 2009: “A public purpose has for its objective the promotion of the public health, safety, morals, general welfare, security, prosperity, and contentment of all the inhabitants or residents within a given political division, as, for example, a state, the sovereign powers of which are exercised to promote such public purpose or public business.” http://www.oed.com. Accessed 14 January 2014.
- 59.
The Appendix to this chapter summarizes the Parties’ reservations under Annex II.
- 60.
This reservation does not apply to providers of enhanced or value-added services whose underlying telecommunications transmission facilities are leased from providers of public telecommunications transport networks.
- 61.
Mexico reserves to itself the provision of services and investment in electricity “supplied as a public service” (NAFTA, Annex 602.3(1)(c)).
- 62.
VanDuzer et al. 2013, p. 408.
- 63.
VanDuzer et al. 2013, pp. 410–415.
- 64.
NAFTA, Article 1210(1).
- 65.
GATS, Article VI. There is also an annex to the services chapter that obliges that NAFTA parties to encourage professional bodies in each country to develop mutually acceptable licensing standards for professionals (Annex 1210.5).
- 66.
- 67.
NAFTA, Articles 1207, 1208. Federal level restrictions must be listed by each party in its Schedule to Annex V of NAFTA. Local government restrictions do not have to be notified (Article 1207(3)). Market access for investors is guaranteed through the pre-establishment operation of the national treatment and MFN obligations, subject to the exceptions and reservations in NAFTA, including the Annex I and Annex II reservations described above.
- 68.
GATS, Article XVI.
- 69.
NAFTA, Article 1105.
- 70.
- 71.
This approach has been more common in investor-state arbitration awards interpreting similar obligations in other investment treaties. E.g. Tecnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para 154; CME Czech Republic B.V. v. Czech Republic, UNCITRAL Arbitration, Final Award, 14 March 2003, para 601; Occidental Exploration and Production Company v. Republic of Ecuador, LCIA Case No. UN 3467, Final Award, 1 July 2004, para 190.
- 72.
- 73.
NAFTA, Articles 1110(1), (2) and (3). Certain other obligations are also imposed in Chapter 11, which are not subject to reservations. NAFTA Article 1109 requires each NAFTA Party to permit all financial transfers, like profits, fees, dividends and loan repayments relating to an investment freely and without delay. Exceptions permit Parties to prevent transfers where they are applying their laws in areas like bankruptcy, such as to prevent preferences to be given to investors to the prejudice of other creditors.
- 74.
E.g. Fireman’s Fund Insurance Company v. United Mexican States, ICSID Case No. ARB(AF)/02/1, Award, 17 July 2006, para 176(f).
- 75.
E.g. Chemtura Corporation v. Government of Canada, UNCITRAL Arbitration, Award, 2 August 2010.
- 76.
E.g. Hoffman 2008, p. 165.
- 77.
UNCTAD identifies the adoption of such an approach as a “clear trend” (UNCTAD 2012a, p. 86).
- 78.
US Model Bilateral Investment Treaty (2012), Annex B.
- 79.
For an example of the chilling effect that investment protections can have in this regard, see Sinclair 2014, fn 32.
- 80.
There is also a debate over whether the formulations adopted are different from what customary international law would require in any case (VanDuzer et al. 2013, pp. 253–255).
- 81.
Robert Azinian, Kenneth Davitian, & Ellen Baca v. United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, 1 November 1999 (waste collection and disposal); Metalclad v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000 (toxic waste disposal facility); Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB (AF)/00/3, Award, 30 April 2004 (waste collection and disposal); S. D. Myers Inc. v. Government of Canada, UNCITRAL Arbitration, Partial Award, 13 November 2000 (toxic waste remediation).
- 82.
Bayview Irrigation District et al. v. The United Mexican States, ICSID Case No. ARB(AF)/05/1, Award, 19 June 2007 (water distribution).
- 83.
United Parcel Service of America Inc. v. Government of Canada, UNCITRAL Arbitration, Award on the Merits, 24 May 2007 (postal services).
- 84.
E.g. Melvin J. Howard, Centurion Health Corporation & Howard Family Trust v. Government of Canada, PCA Case No. 2009-21, Order for the Termination of the Proceedings and Award on Costs, 2 August 2010 (health services).
- 85.
E.g. ADF Group Inc. v. United States of America, ICSID Case No. ARB(AF)/00/1, Final Award, 9 January 2003 (government procurement), Mondev International Ltd v. United States of America, ICSID Case No. ARB(AF)/99/2, Award, 11 October 2002 (government procurement).
- 86.
United Parcel Service of America Inc. v. Government of Canada , UNCITRAL Arbitration, Award on the Merits, 24 May 2007. The main benefit was to subsidize the distribution of Canadian magazines and other periodicals by Canada Post (paras 137–181). Other alleged benefits consisted of preferential treatment by Canada’s national customs agency, including the provisions of certain services for free. The alleged benefits are listed in para 80. The tribunal found that any preference related to mail service as opposed to courier service was not relevant. The tribunal also found that fee-based services provided by one branch of government to another constituted government procurement and so was exempt from the NAFTA investment obligations.
- 87.
United Parcel Service of America Inc. v. Government of Canada, UNCITRAL Arbitration, Award on the Merits, 24 May 2007, para 142. The tribunal discussed the mandate of Canada Post under the Canada Post Corporation Act, Revised Statutes of Canada 1985, c C-10.
- 88.
United Parcel Service of America Inc. v. Government of Canada, UNCITRAL Arbitration, Award on the Merits, 24 May 2007, para 175.
- 89.
NAFTA, Articles 1101(3) and 1201(2)(a). “[F]inancial service” is defined as a “service of a financial nature, including insurance.” NAFTA, Article 1416.
- 90.
GATS Annex on Financial Services; and European Communities–CARIFORUM Economic Partnership Agreement (2008), Title 2, Chapter 5, Section 5.
- 91.
European Commission, A Quality Framework for Services of General Economic Interest in Europe, COM(2011) 900 final, 20 December 2011.
- 92.
Financial institution is defined in terms of the scheme of financial services regulation in each Party, rather than a discrete list of activities. It means “a financial intermediary or other enterprise that is authorized to do business and regulated or supervised as a financial institution under the law of the Party in whose territory it is located.” NAFTA, Article 1416.
- 93.
A financial institution of another Party is one that is controlled by persons of the other Party and is located in the territory of that other Party (NAFTA, Article 1416).
- 94.
NAFTA, Article 1401(1).
- 95.
NAFTA, Article 1416.
- 96.
See also NAFTA, Article 1410(3).
- 97.
NAFTA, Articles 1405(1), (2) and (4).
- 98.
NAFTA, Article 1405(3).
- 99.
NAFTA, Article 1406(1).
- 100.
As discussed in more detail below, prudential measures include those designed to protect depositors and others dealing with financial institutions.
- 101.
NAFTA, Articles 1406(2), and (3).
- 102.
NAFTA, Article 1407(1). The Parties agreed that they would permit financial institutions of another Party to provide any new financial services that develop on the same basis as domestic institutions.
- 103.
NAFTA, Article 1407(1).
- 104.
NAFTA, Article 1401(2) incorporates by reference Articles 1109 (transfer of funds), 1110 (expropriation), 1111 (special formalities and information requirements), 1113 (denial of benefits), and 1114 (environmental measures). The denial of benefits provision is also carried over from Chapter 12 (Article 1211).
- 105.
NAFTA, Articles 1414 and 1415. Article 1401(2) incorporates by reference the dispute settlement provisions (Articles 1115–1138) of Chapter 11 into Chapter 14.
- 106.
NAFTA, Article 1409(4). Reservations in Schedules to Annexes III and IV are also incorporated.
- 107.
See VanDuzer 2004. Categories of non-conforming measures that are listed by each Party in their schedule to Annex VII are also excluded, though none of these relate to public services. Existing local government measures are also excluded.
- 108.
See Malloy 2004, p. 231.
- 109.
NAFTA, Article 1412 (Financial Services Committee), Article 1415 (procedure for dealing with claim that prudential exception applies).
- 110.
NAFTA, Article 1411(5).
- 111.
Johnson 2002, p. 328.
- 112.
NAFTA, Article 1310.
- 113.
Telecommunications Services 1996. GATS Annex on Telecommunications only commits members to providing access to public telecommunications networks and services.
- 114.
NAFTA, Article 1307. One implication of this is that the reservations in Chapters 11 and 12 do not prevail over any obligation in Chapter 13 (Johnson 2002, p. 327).
- 115.
NAFTA, Article 1310.
- 116.
NAFTA, Article 1301(1). Chapter 13 does not deal with the distribution of television or radio programs except to require that persons operating broadcast stations and cable systems be given access to public telecommunications networks (NAFTA, Article 1301(2)).
- 117.
NAFTA, Article 1301(3)(b).
- 118.
NAFTA, Article 1302(3). Cross-subsidization between public services is permitted.
- 119.
NAFTA, Articles 1302(5) and (6).
- 120.
Mexico—Measures Affecting Telecommunications Services, Report of the Panel, WT/DS204/R.
- 121.
A tariff, meaning rates to be charged, may be required if the provider is a monopoly or the tariff is needed to remedy an anticompetitive action (NAFTA, Article 1303(3)).
- 122.
NAFTA, Article 1304.
- 123.
NAFTA, Article 1305.
- 124.
Johnson 1994, p. 330. The wording of these reservations is not identical.
- 125.
These goods are defined with reference to specific classes of goods in the Harmonized System (NAFTA, Article 602). Consistent with the Mexican Constitution, Mexico reserves to itself the right to carry on most activities in the energy sector, including exploring for, exploiting, refining, processing and trade in petrochemical products and the supply of electricity as a public service. Private investment is not permitted and the services obligations in Chapter 12 only apply to the extent that the government grants a private party a right to perform services related to energy (NAFTA, Annex 602.3).
- 126.
- 127.
NAFTA, Article 602. This provision excludes the application of the Parties’ protocols of provisional application. One implication of this is that, for NAFTA purposes, the provision in Mexico’s protocol that permitted Mexico to rely on the exception in GATT Article XX(g) based on “social and development needs” does not apply (see Johnson 1994, p. 204).
- 128.
NAFTA, Article 603(2). There is some uncertainty regarding whether the GATT requires this (Johnson 1994, pp. 204–205).
- 129.
NAFTA, Article 604.
- 130.
I.e. the exceptions in GATT Articles XI:2(a), XX(g), (i), or (j). NAFTA, Article 607 also imposes limitations on the Parties’ ability to rely on the national security exception in GATT XXI. These limitations do not apply to Mexico or to Canada and the United States in relation to Mexico.
- 131.
Energy production and distribution in Mexico is reserved to the Mexican state. This is expressly provided for in Article 27 of the Mexican Constitution, see also Articles 25 and 28.
- 132.
WTO Agreement on Government Procurement (1994).
- 133.
E.g. European Communities–CARIFORUM Economic Partnership Agreement (2008), Title IV, Chapter 3.
- 134.
These obligations have been expanded in accordance with the Canada-US Agreement on Government Procurement of 2010, which resulted in some reciprocal provincial and state commitments under the WTO Agreement on Government Procurement.
- 135.
NAFTA, Article 1001(1)(c). As between Canada and the US, the lower threshold agreed to in the Canada-United States Free Trade Agreement (1989) applies to procurements of goods by some entities: US$25,000 (Annex 1001.2c). These categories were expressed with reference to a classification system established in NAFTA.
- 136.
NAFTA, Chapter 10, Schedule B.
- 137.
The exceptions are discussed below. GATS contains identical exceptions (Article XXIII).
- 138.
NAFTA, Article 1018(2). A national security exception is also provided (NAFTA, Article 1018(1)).
- 139.
NAFTA, Article 1501.
- 140.
Designation includes the expansion of existing monopolies, such as a public monopoly health care provider being authorized to provide new categories of health services exclusively (NAFTA, Article 1505).
- 141.
GATS, Article VIII provides that each WTO member will ensure that any monopoly service supplier acts consistently with the MFN obligation in GATS and the member’s specific commitments. Where a monopoly competes outside the monopoly in a sector in which the member has made specific commitments, the member shall ensure that the monopoly does not abuse its monopoly position in a manner inconsistent with its commitments. Notification is required for any new monopoly. Where a member authorizes a small group of exclusive service suppliers and substantially prevents competition among them, the same obligations apply. If a member makes a market access and national treatment commitment by listing a sector, subsequent designation of a monopoly supplier would require a member to withdraw the concession and negotiate compensation under GATS.
- 142.
NAFTA, Article 1502(2). Article 1502(2) refers to the benefits listed in Annex 2004. The Annex does not list the obligations under Chapters 11 (investment) or 14 (financial services). Any impact on rights protected under these chapters does not have to be taken into account under this provision. The effect on rights protected under Chapter 12 (trade in services) would have to be considered. The investment and financial services obligations would still apply however.
- 143.
Even if such a characterization were accepted, however, Canada would not have to worry about this obligation in relation to US or Mexican insurance companies based on the obligations in Chapter 14 (financial services) because the benefits of Chapter 14 are not among those protected against nullification and impairment under Article 1502(1) as a result of not being listed in Annex 2004. Nevertheless, the obligations in Chapter 14, including the prohibition on expropriation without compensation incorporated by reference from Chapter 11, would still apply.
- 144.
Non-discriminatory means the better or national or MFN treatment (NAFTA, Article 1515).
- 145.
This last obligation is broadly similar to GATS, Article VIII. Where a Member authorises a monopoly service supplier to operate, such as a single provider of telecommunications services, and the services supplier competes in the supply of a service that is outside the scope of its monopoly rights and in a sector listed in the Member’s schedule, the member must ensure that the monopoly supplier does not abuse its monopoly position (GATS, Article VIII). Abuse would include, for example, subsidising its activities in the competitive market with its monopoly profits. Members are also obliged to ensure that monopoly service suppliers do not undermine access commitments undertaken in national schedules of commitments (GATS, Article VIII.1).
- 146.
State specific definitions of state enterprises are set out in NAFTA Annex 1505. The obligation on monopolies in Article 1502(3)(a) and state enterprises in Article 1503 can be the subject of an investor-state claim if they are breached in a way that breaches an investor-protection obligations in Chapter 11. NAFTA, Articles 1116(1)(b), 1117(1)(b). This basis for an investor-state claim is excluded for Mexico in Annex 1120.1.
- 147.
NAFTA, Article 1503.
- 148.
Johnson 1994, p. 409.
- 149.
NAFTA, Article 2102.
- 150.
NAFTA, Article 1501.
- 151.
NAFTA, Article 2103(4). National treatment and MFN in Chapter 11 relating to investments apply to certain taxation measures and the national treatment obligations in Chapters 12 and 14 apply to income and capital gains tax as well as some other taxes.
- 152.
NAFTA, Article 2103(6).
- 153.
NAFTA, Article 2101.
- 154.
Under GATS, measures are excluded if they are necessary “to protect public morals or to maintain public order” or “to protect human, animal or plant life or health.” As well, GATS provides an exception for the enforcement of laws relating to privacy. As an example of an EU agreement, see the European Communities–CARIFORUM Economic Partnership Agreement (2008), Articles 184 and 221.
- 155.
E.g. European Communities—Measures Affecting Asbestos and Products Containing Asbestos, Report of the Appellate Body, WT/DS135/AB/R.
- 156.
NAFTA, Article 105. Each Party commits to “take all necessary measures” to give effect to the provisions of the agreement, “including their observance, except as otherwise provided, by state and provincial governments.” The international law rules of state responsibility regarding treaty obligations that relate to matters within the jurisdiction of subordinate state actors are clear: a state is internationally responsible for their actions that are not in compliance with the state’s international obligations. A state cannot invoke any internal constitutional rules that allocate jurisdiction to subordinate levels of government as an excuse for non-compliance: Vienna Convention on the Law of Treaties (1980), Article 27; International Law Commission 2001, Article 3.
- 157.
E.g. European Communities–CARIFORUM Economic Partnership Agreement (2008), Article 129.
- 158.
- 159.
The similarly worded exemption in Article 51 Treaty on the Functioning of the European Union has been interpreted by the European Court of Justice.
- 160.
Krajewski 2011a, p. 23.
- 161.
European Communities and their Member States, Schedule of Specific Commitments (1994).
- 162.
European Communities and their Member States, Schedule of Specific Commitments (1994).
- 163.
Krajewski 2011a, p. 30.
- 164.
As noted, the main categories of Annex II reservations that implicate public services are set out in the Appendix to this chapter.
- 165.
Annex I and Annex II reservations are not symmetrical.
- 166.
Krajewski 2011a, p. 28.
- 167.
If a state were to begin supplying a service directly that was the subject of specific commitment in its national schedule of commitments certain other GATS obligations might apply. If the state became the exclusive supplier, for example, GATS Article VIII.4 would require the state to give notice to the Council for Trade in Services. In such a case, at the request of any Member, the state would be required to enter into negotiations to agree on a compensating adjustment of its trade concessions. Any such adjustment would have to be extended on a most favoured nation basis to all WTO Members (GATS, Article XXI).
- 168.
European Commission, Commission Proposal for the Modernization of the Treatment of Public Services in EU Trade Agreements, TRADE.B.1/SC/am D(2011) 1146318, 26 October 2011.
- 169.
The comparable provision in the EC-CARIFORUM EPA expressly denies the exclusion when a party’s domestic law permits those activities to be carried out by financial service suppliers in competition with public entities or private institutions. See also European Union-Korea Free Trade Agreement (2011), Article 7.44; European Communities–CARIFORUM Economic Partnership Agreement (2008), Article 108. Decision No. 2/2001 of the EU-Mexico Joint Council of 27 February 2001 implementing Articles 6, 9, 12(2)(b) and 50 of the Economic Partnership, Political Coordination and Cooperation Agreement, OJ 2001 L 70/7, Article 26. The same approach is taken in the Canada-Europe Comprehensive Economic and Trade Agreement (CETA), consolidated text of 26 September 2014, available at http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf.
- 170.
E.g. European Communities–CARIFORUM Economic Partnership Agreement (2008), Article 129, European Union-Korea Free Trade Agreement (2011), Article 11.4, cited in Krajewski 2011a, p. 21. Special rights mean that the state has limited competition to the enterprises with special rights or confers advantages on the enterprises with special rights that affect the ability of other enterprises to compete.
- 171.
Krajewski 2011b.
- 172.
European Commission, Commission Proposal for the Modernization of the Treatment of Public Services in EU Trade Agreements, TRADE.B.1/SC/am D(2011) 1146318, 26 October 2011. The Commission proposed that in its future trade agreements, the EU would reserve “the right to adopt or maintain any measure that is not inconsistent with its obligations under Article XVI of the General Agreement on Trade in Services with respect to limiting the number of suppliers through the designation of a monopoly or by conferring exclusive rights to private operators, for services of general economic interest which are subject to specific public service obligations imposed by public authorities on the provider of the service in order to meet certain public interest objectives”.
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Appendix: NAFTA Annex II Reservations Relevant to Public Services
Appendix: NAFTA Annex II Reservations Relevant to Public Services
Country | Sector | Obligations reserved against |
|---|---|---|
Canada | Aboriginal peoples | National Treatment (Articles 1102, 1202) |
Most-Favored-Nation Treatment (Articles 1103, 1203) | ||
Local Presence (Article 1205) | ||
Performance Requirements (Article 1106) | ||
Senior Management and Boards of Directors (Article 1107) | ||
Air Transport | National Treatment (Article 1102) | |
Most-Favored-Nation Treatment (Article 1103) | ||
Senior Management and Boards of Directors (Article 1107) | ||
Mexico | Postal services | Most-Favored-Nation Treatment (Article 1203) |
Local Presence (Article 1205) | ||
Energy services | Most-Favored-Nation Treatment (Article 1203) | |
Local Presence (Article 1205) | ||
Rail transport | Most-Favored-Nation Treatment (Article 1203) | |
Local Presence (Article 1205) | ||
Air traffic, navigation and related telecommunications | National Treatment (Articles 1102, 1202) | |
Most-Favored-Nation Treatment (Articles 1103, 1203) | ||
Local Presence (Article 1205) | ||
All three countries (note the specific terms of these reservations vary by country) | Public law enforcement and correctional services, and the following services to the extent they are social services established or maintained for a public purpose: income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care. | National Treatment (Articles 1102, 1202) |
Local Presence (Article 1205) | ||
Senior Management and Boards of Directors (Article 1107) | ||
(Canada and US only) | ||
Most-Favored-Nation Treatment (Article 1203) (Canada only) | ||
Marine transport | National Treatment (Articles 1102, 1202) | |
Most-Favored-Nation Treatment (Articles 1103, 1203) | ||
Local Presence (Article 1205) | ||
Performance Requirements (Article 1106) Canada only | ||
Senior Management and Boards of Directors (Article 1107) (Canada and US only) | ||
Socially or economically disadvantaged minorities | National Treatment (Articles 1102, 1202) | |
Local Presence (Article 1205) | ||
Performance Requirements (Article 1106) Canada only | ||
Senior Management and Boards of Directors (Article 1107) (Canada and US only) | ||
Telecommunications networks and services | National Treatment (Articles 1102, 1202) | |
Most-Favored-Nation Treatment (Articles 1103, 1203) | ||
Local presence requirements (Article 1205) | ||
Senior Management and Boards of Directors (Article 1107) (Canada and Mexico only) |
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VanDuzer, J.A. (2015). NAFTA’s Approach to Protecting Public Services: Fragmentary, Asymmetrical, Rigid and Limited. In: Krajewski, M. (eds) Services of General Interest Beyond the Single Market. Legal Issues of Services of General Interest. T.M.C. Asser Press, The Hague. https://doi.org/10.1007/978-94-6265-063-3_5
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