De facto Discrimination Under Gats National Treatment: Has the Genie of Trade Liberalization Been Let Out of the Bottle?

Abstract:

The purpose of the General Agreement on Trade in Services (GATS) national treatment rule is to prevent discrimination between domestic and like foreign services and service suppliers. It covers both overt (de jure) and origin-neutral (de facto) discrimination. While the identification of de jure discrimination is relatively easy, the exact meaning of de facto discrimination remains unclear.

Taken literally, origin-neutral measures that favour domestic services and service suppliers over their foreign counterparts include a wide range of domestic regulations. A broad interpretation extends the scope of national treatment and could significantly infringe upon the regulatory autonomy of Members of the World Trade Organization in ways that were unanticipated by GATS negotiators – raising the question of whether the genie of trade liberalization has been let out of the bottle? Most commentators believe that this is the case, and have proposed mechanisms to safeguard discriminatory measures with legitimate regulatory purposes.

In Argentina – Financial Services, the Appellate Body rejected these mechanisms, leaving the question of the broad interpretation of the national treatment open. Against this background, this article argues that de facto discrimination should be interpreted narrowly, and the question of the legitimacy of the regulatory purpose should only be analysed under Article XIV (General Exceptions).