JOB(05)/194
19 September 2005
Council for Trade in Services
Special Session
DISTRIBUTION SERVICES
Information Note by the Secretariat1
I.
INTRODUCTION
1.
While distribution is a sector where many negotiating proposals had been put forward in the
initial phase of the negotiations, it has been the subject of limited multilateral discussions since then.2
2.
As observed in many negotiating proposals, a relatively low number of Members has
commitments in distribution services (52 schedules covering 63 Members), which contrasts with the
sector's economic importance. Several delegations remarked that distribution companies provide the
necessary link between producers and consumers, within and across borders, and are vital to the
functioning of a market economy. The efficiency of the sector is crucial to ensuring that consumer
welfare is maximised, i.e., enabling access to a wide variety of goods at competitive prices. Efficient
distribution services provide producers with the necessary information to tailor their products to
consumer demand. The relatively large contribution of the sector to domestic production and
employment was emphasized, as well as its role in relation to electronic commerce, and its link to
international trade in goods.
3.
Despite the overall benefits of liberalization, especially if progressive and accompanied by
proper regulatory frameworks, the incidence of some adjustment costs resulting from increased
international competition has been noted by some delegations, especially with regard to traditional
small retailers. Others felt that the difficulties of smaller retailers were principally attributable to slow
adjustment to structural changes in the market. The importance of regulatory efforts in accompanying
liberalization was also referred to, for example non-discriminatory zoning regulations, appropriate
competition rules, and government programs to increase competitiveness of small retailers through
training on modern managerial skills and marketing techniques.3
II.
CLASSIFICATION ISSUES
4.
Classification issues were not extensively discussed during the phase of the negotiating
proposals. One delegation remarked that cross-border electronic commerce in goods was in principle
covered by distribution service commitments under modes 1 and 2, and observed that the delimitation
of distribution services was not always easy, for example in the light of the fact that some restaurant
1
This note has been prepared upon a request by Members at the meeting of the Special Session of the
Council for Trade in Services held on 1 July 2005. Its aim is to assist delegations and capital-based officials in
their assessment and consideration of sector- and mode-specific issues raised in the negotiations. It has been
agreed that the scope of the note should exclude analysis of existing commitments and of offers submitted in
current negotiations, nor should it contain additional information from external sources or from the Secretariat.
The content should not be used in dispute settlement proceedings.
The document has been prepared under the Secretariat's own responsibility and without prejudice to the
positions of Members and to their rights and obligations under the WTO.
2
This Note does not consider distribution services when raised in the context of the discussion of other
sectors, for example logistics services.
3
Regarding the latter points, see in particular: TN/S/W/4; TN/S/M/3, section A; TN/S/M/4, para. 2229; TN/S/M/13, para. 35.
05-4114
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chains sold take-out food.4 Some delegations also raised issues regarding the scope of activities
comprising distribution services, observing either that commitments in the sector should also cover
foreign-invested manufacturers which carried out distribution services with respect to the goods they
produced or that distribution services involved sales both from a fixed location and away from a fixed
location, e.g., direct selling.5 Further, one delegation noted that CPC 613 (retail sales of motor fuel)
should also correspond to the sub-sector of retailing services; other delegations expressed diverse
views on this.6
5.
More recently, in informal discussions in the CSC on classification issues, Members
mentioned a number of issues relating to distribution. Pursuant to a suggestion by the Chairperson,
Members discussed the incongruence between the sub-sector wording and the corresponding CPC
numbers in the Services Sectoral Classification List (i.e., W/120). While, in the W/120, commission
agents' services were said to correspond to CPC 621, CPC categories 61111 and 6113 also related, in
part, to such services. While the W/120 suggested that wholesale trade services corresponded to
CPC 622, CPC categories 61111, 6113 and 6121 also related, in part, to this sub-sector. Regarding
retailing services, the W/120 identified CPC categories 631, 632, 6111, 6113 and 6121. It was noted
that the last three of these corresponded to retailing only in part (e.g., 61112 rather than 6111).7 A
delegation also suggested that CPC 6121 (Sales of motorcycles and snowmobiles and related parts
and accessories) be added to 4.A, Commission agents' services and that CPC 613 (Retail sales of
motor fuel) be added to 4.C, Retailing services. Delegations that took the floor during this informal
discussion on classification agreed that Members' attention should be drawn to the lack of precision
regarding the CPC correspondence in Sector 4 of the W/120. However, it was noted that the existing
correspondence in the W/120 was not so much a problem of legal certainty as one of clarity and userfriendliness.8
6.
Additional questions were raised by Members, although not extensively discussed. In
response to a question on the category to which "direct selling" and "sales away from a fixed location"
belonged within distribution services, a delegation said that such activities were understood to be a
channel for the distribution of products within the retailing sector. Another delegation asked what
activities were covered under sub-sector 4.D Franchising (CPC 8929). A delegation noted that the
headnote to section 6 of the CPC suggested that all sales to professional business users were
wholesaling services, whereas sales for personal or household consumption fell under retailing
services, but considered that this did not conform to the common understanding of retailing as sales to
the ultimate consumer, regardless of whether the consumer was a business or household. In reaction,
a delegation said that it was comfortable with the CPC headnote. A delegation also noted that certain
products were not mentioned in the CPC descriptions or the referrals to the goods section of the CPC.9
7.
Potentially relevant issues:
(a)
4
Given the incongruence between the sub-sector wording and corresponding CPC
numbers in the W/120, how might Members best describe the sector in offers?
S/CSS/W/77, para. 6.
S/CSS/M/10, para. 246 and 250.
6
S/CSS/W/37. See also the relevant section of S/CSS/M/10.
7
Annotated Agenda by the Chairman designate, Informal Discussion on Classification Issues:
Construction and Related Engineering Services; Distribution Services; Education Services, Committee on
Specific Commitments, 14 June 2005, Part II.
8
Summary by the Chairman, Informal Discussion of Classification Issues on 21 June 2005, Committee
on Specific Commitments, 11 July 2005, para. 5.
9
ibid., para. 12; Summary by the Chairman, Informal Discussion of Classification Issues on
19 July 2005, Committee on Specific Commitments, 12 September 2005, para. 3-4.
5
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Should Members be encouraged to specifically refer to "retail sales of motor fuel"
when undertaking commitments on retailing services?10
(b)
Can anything be learned from subsequent practices of Members in the classification
of the sector? In the schedule of one acceding Member, franchising, for example, is
further defined through an annex and a range of services subordinated to distribution
are listed. Would such clarifications be useful for other Members' commitments?
III.
SCHEDULING ISSUES
8.
No scheduling issue specific to distribution services has been raised.
IV.
ISSUES RELATING TO ARTICLES XVI AND XVII
9.
Many of the negotiating proposals lamented the low number of Members with commitments
in the sector. The proposals mentioned a number of prevailing restrictions, which significantly
affected trade in the sector and which should be addressed in the course of negotiations. Often, these
were specific to mode 3, although some related to modes 1 and 4. Barriers mentioned included:
foreign equity limitations; economic needs tests on establishment and expansion of stores (especially
non-specified ones); limitations on the type of legal entity, including joint-venture requirements;
limitations on the scope of operations (e.g., number of outlets, geographical areas); discrimination
against franchises or direct selling as opposed to other forms of business; discriminatory taxes and
subsidies; discriminatory limitations on the purchase or rental of specific assets such as real estate and
land (often listed in the horizontal section of schedules); citizenship/residency requirements; and
performance requirements on the marketing of domestically produced goods.
10.
In relation to mode 4, one proposal called for commitments to be made regarding the
movement of both qualified and unqualified staff and proposed that these be complemented by
facilities for the granting of temporary work permits to recruited foreigners.11 Another delegation
lamented the lack of means to facilitate temporary entry of specialized, skilled personnel.12 With
respect to mode 1, a delegation called for commitments not limited by commercial presence
requirements.13
11.
Several of the negotiating proposals seek a reduction or elimination of the product exclusions
found in the schedules of several Members, e.g., with respect to agricultural raw materials and live
animals, pharmaceutical goods, tobacco, arms, and alcohol. A group of Members considered that
sectoral exclusions were the main barrier to trade in distribution services, especially when relating to
products of vital importance to developing countries, such as agriculture and textile products. They
felt that prohibitions on the establishment of a commercial presence by intermediaries or distributors
of agricultural products, for example, prevented developing countries from implementing
comprehensive export strategies for products and services of interest to them, from promoting their
exports adequately, and from establishing alliances and networks to gain access to external markets. 14
One delegation said that there might be justification for a very limited number of extremely sensitive
products and that specificities of certain products should be taken into account,15 while another said
that product exclusions should be limited to what was strictly necessary.16
10
On this question, see also the information note on energy services.
S/CSS/W/120.
12
S/CSS/W/22.
13
S/CSS/W/57.
14
S/CSS/W/80; S/CSS/M/9, para 232; S/CSS/M/10, para. 242; S/CSS/M/13, para. 226; TN/S/M/1,
para. 337.
15
S/CSS/W/37; S/CSS/M/9, para. 238.
16
S/CSS/M/10, para. 243.
11
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12.
While various delegations viewed economic needs tests as a key type of restriction in the
sector and called for their elimination, a delegation suggested that they might be justified if clearly
defined and non-discriminatory.17
13.
A delegation emphasized the importance it attached to the liberalization of after-sales
services, such as maintenance of electric appliances, given the strong link of such activities with
retailing.18 Another delegation believed that wholesale trade and commission agents' services could
be largely liberalized as restrictions because they were aimed at a sophisticated clientele.19 A
delegation supported facilitating greater liberalization by allowing Members to phase-in
commitments; a method for doing so could be agreed upon and should be explored further.20
14.
In more recent discussions, various Members indicated that the sector was an area of
importance in the negotiations and called for greater progress. One delegation stressed the importance
of this infrastructure service for economic development and said that a priority was in relation to
better access under mode 3 in wholesale trade and retailing services. Another delegation underlined
its dissatisfaction with product exclusions in schedules and attached significant importance to mode 3,
in particular regarding the removal of foreign equity limitations. A delegation said that commitments
in all four sub-sectors of distribution services were key; product exclusions should be narrowed and
no significant limitations should remain in modes 1 to 3. In assessing the current situation, many
observed the low number of existing commitments and the dearth of quality offers. One participant
reported that only 8 per cent of its requests had been met in full or in part.21
15.
V.
Potentially relevant issues:
(a)
Given the relatively low number of commitments in the sector, what are the particular
problems faced by Members that prevent them from undertaking bindings in the
different sub-sectors of distribution?
(b)
What types of GATS-related restrictions are applied in relation to products excluded
from coverage?
REGULATORY ISSUES (INCL. PROPOSALS RELATING TO ARTICLE XVIII)
16.
Various Members highlighted in their negotiating proposals the importance of regulatory
barriers in this sector. A delegation proposed that Members consider additional commitments relating
to regulation in this sector, in particular with respect to transparency and administration of
regulations. Such commitments could, for example, ensure that information on zoning requirements
was readily made available, and guarantee that service providers were given an opportunity to meet
with local officials and community representatives to discuss location of facilities. Other regulatory
barriers raised as obstacles included overly burdensome regulation of telephone and electronic media
marketing, prohibitions on the offering by service providers of incentives, rewards, and other
promotional programs, excessive fees and/or taxes on currency transactions, and denial of access to,
and use of, services essential to this sector (e.g., highways, airports, railroads) on reasonable and nondiscriminatory terms and conditions.22
17.
Several delegations called for greater transparency regarding domestic regulation in the
sector. Some noted the lack of transparent procedures for licensing, as well as the absence of
objective criteria. More specifically, a delegation said that its suppliers encountered barriers in the
17
S/CSS/W/37. See also the relevant section of S/CSS/M/9 and S/CSS/M/10.
S/CSS/W/42, para. 43; S/CSS/M/9, para.244; S/CSS/M/10, para. 24; JOB(01)/96/Add.5, para. 12.
19
S/CSS/W/77; S/CSS/M/13, para. 230.
20
S/CSS/W/57.
21
TN/S/20, para. 40-41.
22
S/CSS/W/22; relevant sections of S/CSS/M/9 and S/CSS/M/10.
18
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form of a lack of transparency in domestic town planning regulations and in licensing regulations
owing to the absence of clearly established and objective criteria. It proposed to devise specific
disciplines on domestic regulations for this sector, in conformity with the provisions of Article VI:4. 23
Another negotiating proposal drew attention to onerous and unnecessary procedures and
documentation requirements.24
18.
Potentially relevant issues:
(a)
What are the key regulatory barriers in this sector and to what extent might additional
sector-specific disciplines be relevant?
VI.
OTHER RELEVANT ISSUES AND QUESTIONS RAISED IN NEGOTIATING
PROPOSALS
19.
To the knowledge of the Secretariat there are no other relevant issues or questions.
_______________
23
24
S/CSS/W/120.
S/CSS/W/85.
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ANNEX
Main Documents Used
Negotiating proposals on distribution

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S/CSS/W/22, Distribution Services, Communication from the United States,
18 December 2000.
S/CSS/W/37, GATS 2000: Distribution, Communication from the European Communities,
22 December 2000.
S/CSS/W/57, Initial Negotiating Proposal on Distribution Services, Communication from
Canada, 14 March 2001.
S/CSS/W/77, GATS 2000: Distribution Services, Communication from Switzerland,
4 May 2001.
S/CSS/W/80, Distribution Services, Communication from Mercosur, 4 May 2001.
S/CSS/W/85, Negotiating Proposal for Distribution Services, Communication from the
Republic of Korea, 11 May 2001.
S/CSS/W/120, Distribution Services, Communication from Colombia, 27 November 2001.
S/CSS/W/136, Negotiating Proposal: Distribution Services, Communication from Australia,
7 March 2002.
Negotiating proposals in various sectors, including distribution


S/CSS/W/42, The Negotiations on Trade in Services, Communication from Japan,
22 December 2000.
S/CSS/W/88, The Negotiations on Trade in Services, Communication from Chile,
14 May 2001
Report of meetings
Special Session
 S/CSS/M/8, Council for Trade in Services – Special Session, Report of the Meeting held on
28 to 30 March 2001, Note by the Secretariat.
 S/CSS/M/9, Council for Trade in Services – Special Session, Report of the Meeting held on
14 to 17 May 2001, Note by the Secretariat, para. 231-245.
 S/CSS/M/10, Council for Trade in Services – Special Session, Report of the Meeting held on
9 to 12 July 2001, Note by the Secretariat, para. 242-250.
 S/CSS/M/13, Council for Trade in Services – Special Session, Report of the Meeting held on
3 to 6 December 2001, Note by the Secretariat, para. 225-230.
 TN/S/M/1, Council for Trade in Services – Special Session, Report of the Meeting held on
19 to 22 March 2002, Note by the Secretariat, para. 332-339.
Committee on Specific Commitments
 Annotated Agenda by the Chairman designate, Informal Discussion on Classification Issues:
Construction and Related Engineering Services; Distribution Services; Education Services,
14 June 2005, Part II.
 Summary by the Chairman, Informal Discussion of Classification Issues on 21 June 2005,
11 July 2005, para. 5.
 Summary by the Chairman, Informal Discussion of Classification Issues on 19 July 2005,
Committee on Specific Commitments, 12 September 2005, para. 3-4.
__________