Lalalia and Genovia Case

Lalalia and Genovia recently concluded negotiations on a comprehensive free trade agreement (FTA), which, once fully implemented, will eliminate tariffs on approximately 97% of the trade in goods between the two nations.  The FTA has just entered into force.
In the FTA, both nations agreed to commitments on trade in services which are well beyond their respective schedules of commitments under the General Agreement on Trade in Services (GATS).  They made commitments across all of the service sectors set out in the Services Sectoral Classification List, with the exception of the “Health-related and social services” sector. Neither country made commitments on health services in their GATS schedules and no commitments were concluded under the FTA.

The FTA between Lalalia and Genovia also includes commitments to promote and protect intellectual property rights, cooperate on environmental issues and strong commitments to labour rights protections.

Lalalia has a strong music industry.  Its musicians travel worldwide and have large global followings.  Lalalia also benefits from significant volumes of inbound tourism, with foreign visitors coming to see its performers at concerts and festivals.  Lalalia is keen to promote and protect its music industry as it creates significant revenue for the country. Under the terms of their FTA, Lalalia and Genovia agreed to extend copyright protection for the life of the author plus 70 years.

Genovia is a developed country with sophisticated health care services, however it also has very formal traditions and promotes family-based care.  Genovia actively promotes and provides incentives to its citizens to study and work in the field of health services, including as doctors, nurses, allied health service providers and aged care providers.  Genovia also invests heavily in preventative health care initiatives, promoting active, healthy lifestyles and in-home care services.

It claims its investment has led to the lowest levels of demand for chronic health care responses worldwide, such that its hospitals are well staffed and equipped to manage emergencies.  Genovia believes its investment in health promotion, as well as in strong staff recruitment, development and retention practices and incentives, will maintain its premium health services.  It actively monitors the market to try to dissuade its citizens from practicing or relocating abroad. While it actively promotes its own citizens to work in the health and related sectors, Genovia also has a number of foreign health providers who run small hospitals and clinics.

Genovia’s opposition has been criticising the government of Genovia because it believes the FTA will undermine Genovia’s excellent health care record.  Public sentiment seems to be aligned to the statements of the opposition. Surveys conducted after the FTA was negotiated indicated that Genovian citizens believed their health would be worse off once the FTA came into force.  In efforts at damage control, a week before the FTA commenced, the Genovian Health Minister made a public statement advising that Genovia has made no commitments on health or related services in the FTA with Lalalia.

The Health Minister also stated that Genovia will be able to continue to adopt legislative and policy positions to provide its citizens with world-leading health care and strong career prospects in the health sector.  The Health Minister further announced that providers of in-home care services and who employ ten or more Genovian citizens, will be entitled to a 5% reduction on the general services tax (the general services tax rate is 10%).

Lalalia and Genovia share a border.  The Ruby river runs along the border between the two countries.  To the south of Genovia is a small, developed country called Beglandia.  Beglandia is comprised of a number of small islands.  The majority of Beglandia’s population live on the largest central island of Morven.  Morven is well known for its many markets which sell cheap products, including art works from local Beglandian artists and music CDs by popular musicians from Lalalia.

Several years ago, the government of Beglandia provided some cash incentives for companies to set up health facilities abroad so that Beglandian citizens could work alongside leading health practitioners in other nations.  As a result, a number of large clinics were established in Genovia by The Happy Helpers, a Beglandian company.  Currently, the Happy Helpers operate clinics in 35 cities across Genovia.  The clinics provide a range of allied health services in one place and employ staff from both Beglandia and Genovia.

The clinics have been very popular with Genovian citizens who have been quoted as saying they like being able to access all their health and wellbeing needs in one central location.  The Happy Helpers pressured the Beglandian government to invest in residential housing nearby their clinics in Genovia.  The residential facilities were made available to Beglandian citizens, providing further incentive to work in the clinics, as the Beglandian employees would have easy access between work and home while living abroad in Genovia.  Most people from Beglandia do not drive, as cars are banned from the island of Morven.

Note: Lalalia, Genovia and Beglandia are fictional countries.  For the purposes of this problem scenario, assume they are all developed countries and members of the WTO.  Beglandia is not party to any FTA.  It has not made any commitments on trade in services beyond those in its GATS schedule and in relation to intellectual property rights, it applies the minimum obligations provided for in the TRIPS agreement.

Question 3 (10 marks)

Beglandia sends a notice to the WTO Dispute Settlement Body of its intention to request consultations with Genovia in relation to its claim that Genovia has breached its obligations under the GATS.  Genovia and Beglandia are unable to resolve the dispute via consultations and the matter proceeds to a panel hearing.

Question 3(a) (5 marks)

The panel established to hear the dispute concludes that Genovia has breached the GATS most favoured nation (MFN) obligation.

What options are available to Genovia if it disagrees with the panel’s decision?

Question 3(b) (5 marks)

The panel established to hear the dispute concludes that Genovia has breached the GATS MFN obligation.

Assume that the Dispute Settlement Body adopts the panel’s report and findings in relation to the breach.  What role does the Dispute Settlement Body have after it has adopted the panel’s report?

Complete Answer:

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