Chapter 15 is one of the key chapters of the USMCA, as it establishes rules and obligations to facilitate cross-border trade in services among the Parties. While a few aspects of Chapter 15 remain as compared with the NAFTA, important differences exist in between the two, which were designed to positively impact cross-border services and ensure the growth of international business in the USMCA region.
II. EXECUTIVE SUMMARY.
The USMCA’s Chapter 15 on Cross-Border Trade in Services replaces Chapter 12, Part 5 of the NAFTA. While a few areas such as the scope, National Treatment, and Most Favored Nation (MFN) treatment remain the same, significant differences can be found with respect to modernization, expanding market access for labor in the services industry, and certain cultural protections. It is important to note that Chapter 15 does not cover the treatment of financial services, government procurement, subsidies, grants, domestic land and air transportation services or services provided in the exercise of government authority.
III. LEGAL DISCUSSION
As noted, USMCA Chapter 15 regulates cross-border trade in services, also known as cross-border supply of services, which can be summarized as the supply of a service: a) from the territory of one Party into the territory of another Party; b) in the territory of a Party by a person of that Party to a person of another Party; and c) by a national of a Party in the territory of another Party.
Chapter 15 retains the principles of National Treatment and MFN found in the NAFTA, meaning that each Party must give services and service providers from the other Parties treatment no less favorable than that which it affords to its own services and services providers. Furthermore, the local presence rule in Chapter 15 prohibits a Party from requesting a service supplier of another Party to establish or maintain a representative office or be a resident in its territory, so that such supplier is able to render cross-border trade in services in that Party’s territory.
Notwithstanding the above principles, the Parties may impose certain measures on services and services providers of another Party. However, keep in mind that such measures are subject to the specific rules set forth in Article 15.8, as explained below:
- The Party imposing any general measure must ensure that the same is administered reasonably, objectively and impartially.
- Any measure relating to licensing requirements and procedures affecting trade in services must be objective and transparent. Also, the Party applying the measure must ensure that the competent authority reaches its decision independently, that the procedure does not prevent the fulfillment of a requirement, and that an applicant is not required to approach more than one authority.
- If a Party requires an authorization for the supply of a service, said Party must ensure that its competent authority complies with the following: a) an application may be submitted at any time within a reasonable time period; b) allowing a reasonable amount of time for applicants to answer any request for additional information and/or documentation; c) providing the status, indicative timeframes, and avoiding delays in reviewing the applications; d) in case of denial, provide details of the reason for such decision and the procedures to appeal or resubmit the application; and e) in general terms, grant the authorizations without delay or limitations.
- Any fees charged for the granting of an authorization and/or permit must be reasonable, transparent, and not burdensome to the applicant.
- Moreover, each Party must ensure that services suppliers are provided with the necessary information in order to comply with the procedures related to obtaining, maintaining, amending and renewing their respective authorizations and/or permits.
Another important provision to consider in Chapter 15 is Article 15.9, which provides that when a Party is deciding whether to grant an authorization to a foreign services supplier, such Party may take into consideration the experience and education of said foreign supplier in the territory of another Party. This provision is generally believed to be helpful with respect to movement of labor and trade facilitation; however, its actual use in practice remains in question.
With respect to small and medium-sized enterprises (SMEs), Article 15.10, with a view towards enhancing commercial opportunities for SMEs, provides that the Parties must endeavor to develop cross-border trade in services of SMEs by facilitating measures, enabling business models (such as direct selling services) and protecting such entities from fraudulent practices.
Notwithstanding the above provisions aimed at promoting trade, a Party may deny all the benefits provided in Chapter 15 to certain services providers. In general, the Parties may deny these benefits to companies owned and/or controlled by a person from any country that is not a party to the USMCA.
In connection with payments and transfers derived from cross-border trade in services, under Article 15.12, each Party must permit all transfers and payments related to the cross-border supply of services to be made freely and without delay into and out of their territory. Nevertheless, such payments may be prevented or delayed in cases where local laws or rules apply, such as in cases of bankruptcy, insolvency, financial reporting or criminal matters. Moreover, such payments may be prevented or delayed in order to comply with any juridical or administrative order or resolution.
In addition to the general rules described above, certain specific rules will apply to some service sectors. For example, Annex 15-A, on delivery services, provides that with respect to postal services, each Party may maintain a postal monopoly if the scope of the monopoly is defined based on objective criteria.
Another important sector covered by Annex 15-B is transportation, pursuant to which, the Parties agree to establish a Committee on Transportation Services (composed of government representatives of the relevant trade and transport-related national authority of each Party) for purposes of discussing issues that may arise in the implementation of the applicable rules of Chapter 15 governing transportation services. The Committee on Transportation Services is required to meet within one year of the date the USMCA enters into force, and, thereafter, as necessary, at the place, manner, and time as the Parties decide. The Committee on Transportation Services must report to the Commission all activities undertaken by the Parties pursuant to Annex 15-B.
Finally, the other important sector specifically regulated pursuant to Annex 15-C is the professional services sector. In relation to such sector, the Parties have established rules and guidelines to facilitate negotiations so that the Parties may enter into mutual recognition agreements for this specific sector.
The importance of Chapter 15 is noteworthy, given that its main purpose is to facilitate cross-border trade in services by establishing protections and providing opportunities to services suppliers to operate and render services in the territories of the other Parties and/or in favor of clients from the other Parties. In generally, Chapter 15 differs from its NAFTA predecessor in that it seeks to, among other goals, modernize and expand market access for labor in the services industry. Furthermore, Chapter 15 contains significant advancements for SMEs by creating protective measures to foster their growth, and for the transportation industry, by creating a Committee on Transportation Services to lead discussions on how to facilitate and boost the international land transportation and motor carrier industries. Nevertheless, it will be necessary to see how these provisions will be used in practice as the USMCA Parties move forward with implementing the new agreement.
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