In order to achieve this objective it is necessary to examine the meaning of financial instruments within the GATS and determine whether emissions units may be classified accordingly. It suggested that emissions units display qualities that enable their inclusion within the category of financial products. For this reason the contention within this article is that the GATS provisions that are applicable to financial services will extend to ETSs.
There have been significant reforms to Australia's financial sector since the GATS was introduced. These reforms have been motivated by efficiency gains and increased competition2. The Australian commitments specific to the financial services sector within the GATS are based on the
This paper is presented in four substantive parts, which reflects the methodology employed in this research. The first part considers ETSs generally and contrasts the tradable units introduced by the schemes with a specific focus on the Australian CPM. Following this, this paper provides an overview of the GATS. Specifically, the structure of the GATS is important to understand before undertaking analysis using its provisions. The third and most substantial part of this research examines the financial services provisions of the GATS, and considers how ETSs, in particular the Australian CPM, may be regulated by these provisions. Finally, the GATS exceptions are considered to determine whether any potential breaches of the WTO rules may be justified accordingly.
ETSs are set to become more common throughout the world, as a consequence of the global acceptance of the necessity to limit GHG emissions. As Garnaut (2011) recognised, “more than half of the population of the developed world [already] lives in countries with ETSs”. Certainly, ETSs represent one of the most popular instruments for pricing GHG emissions. This popularity may be related to the knowledge that these frameworks enable nation states to include the GHG units and GHG credits created by the international climate change regime flexible mechanisms in their domestic strategies to reduce GHG emissions. For this reason, it is important to consider the broader implications of these new markets and their impacts on global economic circumstances.
By imposing a cost on entities that emit GHGs, ETSs operate by encouraging regulated parties to reduce their GHG emissions when the cost of doing so is less than the cost the scheme imposes ( Lyster, 2007, p. 452 ). To facilitate this outcome, ETSs harness market forces by enabling the price of GHG emissions, represented by a prescribed unit, to be traded on an open market ( Lefevere, 2005, p. 104 ). While this approach is designed to encourage least-cost abatement of emissions, it may result in barriers to trade. These units and the markets associated with their trade have not yet been sufficiently considered in the context of international trade.
The European Union (EU) introduced the first regional GHG emissions trading scheme in 2005. Since then national schemes have been introduced in New Zealand and Australia. More recently governments in Asian nations are turning to ETSs to address their escalating GHG emissions inventories. China introduced its first regional trading scheme in Shenzhen in June 2013 ( Combet, 2013 ). Chinese authorities will implement another six regional schemes before 2015, which will collectively represent the world's second largest ETS ( Combet, 2013 ). In addition to this, South Korea has plans to launch its nationwide emissions trading scheme in January 2015 ( White Paper, 2013 ).
The emissions trading scheme that is the subject of the analysis of this paper is the Australian CPM. The CPM is a hybrid emissions trading scheme ( Garnaut, 2008, p. 310 ). It displays a number of similarities to both the EU ETS and the NZ ETS. However, the design of the CPM also contains a number of unique features that have not previously been exhibited in other emissions trading legislation. The framework for the CPM in Australia creates a system to:
Article 1.1 of the GATS defines the scope of the agreement. This article states that “this agreement applies to
[…] at least two key legal issues must be examined to determine whether a measure is one “affecting trade in services”: first, where there is “trade in services” in the sense of Article I:2; and, second, whether the measure in issue “affects” such trade in services within the meaning of Article I:18.
“Service” is not strictly defined within the GATS, although there exists a variety of commonly understood definitions. For example, a definition of “services” is provided by Morrison (1997) , who notes that:
A service is essentially an act, even though the result of the service may be embodied in a person, thing or data. A good on the other hand, is clearly a thing even though it results from an act (its production).
Article XXVIII(b) of the GATS clarifies that “
In our view, the use of the term “affecting” reflects the intent of the drafters to give a broad reach to the GATS. The ordinary meaning of the word “affecting” implies a measure that has “an effect on”, which indicates a broad scope of application. This interpretation is further reinforced by the conclusions of previous Panels that the term “affecting” in the context of Article III of the GATT is wider in scope than such terms as “regulating” or “governing”12.
The reasoning in EC – Bananas III demonstrates that for a measure to have an effect on a service it is not necessary for the measure to govern or regulate the service itself ( Van Den Bossche, 2008, p. 339 ). It also appears that the object or intention of a measure need not be to affect the trade in services in order to be subject to the GATS ( Martin, 2007, p. 453 ). In this regard, Article XXVIII(c) of the GATS provides a non-exhaustive list of the measures that may have an effect on the supply of services. This list includes measures in respect of: