12 Colum. J. Eur. L. 1 (2005 – 2006)

Fiona Smith, Lecturer, Faculty of Laws, University College, London, United Kingdom.

Lorna Woods, Professor, Solicitor, School of Law, University of Essex, United Kingdom.

In many legal systems distinctions are made between “goods” and “services” with different regimes applying. The underlying issue is how to determine where the boundary between the two lies. Different imperatives drive this decision at the national and international level. At the national level, policy concerns may not be problematic because the rationale for the decision can be imposed by the “state.” The legitimacy of the state in this context rarely arises therefore. This is not the case at the international level, where the perception of those subject to the rules, or, in the context of an international organization, its members, is as relevant as the rule structure. Interpretation of international rules is therefore driven by the underlying rationale of the rule drafters and by the need to ensure the continued legitimacy of the rules themselves.

Broader implications follow from the recognition that the boundary decision is fulfilling more than just a pragmatic legal role. In particular, disagreement over the classification of products creates tension between members, so that the determination of the boundary between goods and services must try to accommodate the policy imperative of the organization while simultaneously addressing the concerns of its members. Not addressing such concerns may lead to calls for the decision to be devolved to the members instead of being retained by the organization itself

This Article argues that defining the boundary between goods and services is particularly problematic in the World Trade Organization (WTO) as it is unclear from the jurisprudence when the panels and Appellate Body will apply the rules on goods in the GA7T or the rules on services from the GATS. Although the European Union Court of Justice’s treatment of the boundary in its jurisprudence on free movement of goods and services appears to provide an obvious source of assistance on this issue, this Article suggests that this is not in fact the case. The case law only reveals further disparity between the categorization of products and good or services.

The Article therefore explores the distinction between goods and services at a generic level to provide a fixed reference point that can be used to pinpoint factors used by other jurisdictions to differentiate goods from services. This comparison allows us to identify those decisions, whether within the WTO or the European Union, which are based on the inherent characteristics of goods and services, those which reflect differences in the structures of the two legal orders, and those which seem to suggest mere inconsistency of approach. Such decisions also reveal factors that appear irrelevant to both the WTO and the European Union’s boundary decision.

Based on the natural language and economic literature, two concepts underpin the distinction between trade in goods and services: tradability and tangibility. These concepts are linked by the function of the product, that is, the way in which the product is to be used. The function is often defined by the legal relationship, whether contractual or regulatory. Function is also linked to the idea that what we are looking at is not necessarily the product itself but the national rules that may infringe either the WTO agreements or the Treaty of Rome. Tradability and tangibility serve as a series of filters, containing both objective and subjective criteria. Tradability first acts to distinguish between products that are bought and sold and which therefore fall within the economic sphere addressed by the rules in bodies such as the WTO and the European Union. In practice, few transactions fall outside the scope of these treaties. Tangibility then constitutes a rebuttable presumption that intangible items are services while tangible items constitute goods. The product’s function, in combination with tradability, then acts as the determining factor. To form the subject matter of a trade transaction, ownership must be transferred from the producer to the consumer. Following the transfer of ownership, the consumer gains possession of the product, such that they are able to exercise control over it. Whether a product is goods or services depends on whether the consumer needs the product per se or whether they need it to gain access to the product which forms the subject matter of the transaction.

While these criteria form a framework for making decisions, it is clear that in some cases the boundary will remain contested. The benefit, however, of using a consistent framework for analysis is that it allows for greater transparency in the decision-making process, thus minimizing the risk of inconsistencies and arbitrary decisions and thereby supporting the legitimacy of those decisions.