Ubiquitous Uncertainty: The Overlap between Trade in Services and Foreign Investment in the GATS and EU RTAs

Abstract:

At both the multilateral and bilateral level, the existence of conceptual and regulatory overlaps between trade in services and investment is evident. The extent of these (evolving) overlaps is, however, rarely clear-cut.

By examining the services and investment provisions in the General Agreement on Trade in Services (GATS) and several European Union (EU) regional trade agreements (RTAs), this article sheds light on the entanglement of these two domains of international economic law.

At the multilateral level, the relationship between investment and services supplied under the GATS seems relatively settled: assuming that investment is ‘foreign’ and ‘for the purpose of supplying a service’, services supplied through GATS Mode 3 entirely fall under the notion of investment, while services supplied through GATS Mode 4 partially do so.

At the bilateral level, however, EU RTAs have irrevocably abandoned the classical GATS approach: GATS Modes 1 and 2 are merged into one mode of cross-border supply of services and the definitions of ‘commercial presence’ and ‘temporary presence’ are broadened to non-services sectors. Despite these commonalities, the regulation of services supplied through ‘commercial presence’ in EU RTAs remains unsettled.

How should the technical issue of regulatory gaps and overlaps between trade in services and investment created by international trade agreements, bringing along legal uncertainty, inconsistency and unpredictability be dealt with?

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