is the main purpose of the GATS? back to top
The creation of the GATS was one
of the landmark achievements of the Uruguay Round, whose results entered
into force in January 1995. The GATS was inspired by essentially the
same objectives as its counterpart in merchandise trade, the General
Agreement on Tariffs and Trade (GATT): creating a credible and reliable
system of international trade rules; ensuring fair and equitable
treatment of all participants (principle of non-discrimination);
stimulating economic activity through guaranteed policy bindings; and
promoting trade and development through progressive liberalization.
While services currently account
for over 60 percent of global production and employment, they
represent no more than 20 per cent of total trade (BOP
basis). This — seemingly modest — share should not be underestimated,
however. Many services, which have long been considered genuine
domestic activities, have increasingly become internationally mobile.
This trend is likely to continue, owing to the introduction of new
transmission technologies (e.g. electronic banking, tele-health or
tele-education services), the opening up in many countries of
long-entrenched monopolies (e.g. voice telephony and postal services),
and regulatory reforms in hitherto tightly regulated sectors such as
transport. Combined with changing consumer preferences, such technical
and regulatory innovations have enhanced the “tradability”
of services and, thus, created a need for multilateral disciplines.
2. Which countries participate? back to top
All WTO Members, some 140
economies at present, are at the same time Members of the GATS and, to
varying degrees, have assumed commitments in individual service sectors.
3. What services are covered? back to top
The GATS applies in principle to
all service sectors, with two exceptions.
Article I(3) of the GATS
excludes “services supplied in the exercise of governmental
authority”. These are services that are supplied neither on a
commercial basis nor in competition with other suppliers. Cases in
point are social security schemes and any other public service, such
as health or education, that is provided at non-market conditions.
Further, the Annex on Air
Transport Services exempts from coverage measures affecting air
traffic rights and services directly related to the exercise of such
4. Is it true that the GATS not only applies to cross-border flows
of services, but additional modes of supply? back to top
The GATS distinguishes between
four modes of supplying services: cross-border trade, consumption
abroad, commercial presence, and presence of natural persons.
Cross-border supply is
defined to cover services flows from the territory of one Member into
the territory of another Member (e.g. banking or architectural
services transmitted via telecommunications or mail);
Consumption abroad refers
to situations where a service consumer (e.g. tourist or patient) moves
into another Member's territory to obtain a service;
implies that a service supplier of one Member establishes a
territorial presence, including through ownership or lease of
premises, in another Member's territory to provide a service (e.g.
domestic subsidiaries of foreign insurance companies or hotel chains);
Presence of natural persons
consists of persons of one Member entering the territory of another
Member to supply a service (e.g. accountants, doctors or teachers).
The Annex on Movement of Natural Persons specifies, however, that
Members remain free to operate measures regarding citizenship,
residence or access to the employment market on a permanent basis.
5. Why was it necessary to introduce, apart from the traditional
concept of cross-border trade, three additional modes of supply? back to top
The supply of many services is
possible only through the simultaneous physical presence of both
producer and consumer. There are thus many instances in which, in order
to be commercially meaningful, trade commitments must extend to
cross-border movements of the consumer, the establishment of a
commercial presence within a market, or the temporary movement of the
service provider himself.
6. Does the GATS affect a Member's ability to pursue national policy
objectives and priorities? back to top
The GATS expressly recognizes the
right of Members to regulate the supply of services in pursuit of their
own policy objectives, and does not seek to influence these objectives.
Rather, the Agreement establishes a framework of rules to ensure that
services regulations are administered in a reasonable, objective and
impartial manner and do not constitute unnecessary barriers to trade.
7. What are the basic obligations under the GATS? back to top
Obligations contained in the GATS
may be categorized into two broad groups: General obligations, which
apply directly and automatically to all Members and services sectors, as
well as commitments concerning market access and national treatment in
specifically designated sectors. Such commitments are laid down in
individual country schedules whose scope may vary widely between
Members. The relevant terms and concepts are similar, but not
necessarily identical to those used in the GATT; for example, national
treatment is a general obligation in goods trade and not negotiable as
under the GATS.
(a) General obligations
MFN Treatment: Under
Article II of the GATS, Members are held to extend immediately and
unconditionally to services or services suppliers of all other Members
“treatment no less favourable than that accorded to like services
and services suppliers of any other country”. This amounts to a
prohibition, in principle, of preferential arrangements among groups
of Members in individual sectors or of reciprocity provisions which
confine access benefits to trading partners granting similar
Derogations are possible in the
form of so-called Article II-Exemptions. Members were allowed to
seek such exemptions before the Agreement entered into force. New
exemptions can only be granted to new Members at the time of accession
or, in the case of current Members, by way of a waiver under Article
IX:3 of the WTO Agreement. All exemptions are subject to review; they
should in principle not last longer than 10 years. Further, the GATS
allows groups of Members to enter into economic integration agreements
or to mutually recognize regulatory standards, certificates and the
like if certain conditions are met.
Members are required, inter alia, to publish all measures of general
application and establish national enquiry points mandated to respond
to other Member's information requests.
Other generally applicable
obligations include the establishment of administrative review and
appeals procedures and disciplines on the operation of monopolies and
(b) Specific Commitments
Market Access: Market
access is a negotiated commitment in specified sectors. It may be made
subject to various types of limitations that are enumerated in
Article XVI(2). For example, limitations may be imposed on the
number of services suppliers, service operations or employees in the
sector; the value of transactions; the legal form of the service
supplier; or the participation of foreign capital.
National Treatment: A
commitment to national treatment implies that the Member concerned
does not operate discriminatory measures benefiting domestic services
or service suppliers. The key requirement is not to modify, in law or
in fact, the conditions of competition in favour of the Member's own
service industry. Again, the extension of national treatment in any
particular sector may be made subject to conditions and
Members are free to tailor the
sector coverage and substantive content of such commitments as they
see fit. The commitments thus tend to reflect national policy
objectives and constraints, overall and in individual sectors. While
some Members have scheduled less than a handful of services, others
have assumed market access and national treatment disciplines in over
120 out of a total of 160-odd services.
The existence of specific
commitments triggers further obligations concerning, inter alia,
the notification of new measures that have a significant impact on
trade and the avoidance of restrictions on international payments and
8. What information is contained in services “schedules”?
back to top
Each WTO Member is required to
have a Schedule of Specific Commitments which identifies the services
for which the Member guarantees market access and national treatment and
any limitations that may be attached. The Schedule may also be used to
assume additional commitments regarding, for example, the implementation
of specified standards or regulatory principles. Commitments are
undertaken with respect to each of the four different modes of service
Most schedules consist of both
sectoral and horizontal sections. The “Horizontal Section”
contains entries that apply across all sectors subsequently listed in
the schedule. Horizontal limitations often refer to a particular mode
of supply, notably commercial presence and the presence of natural
persons. The “Sector-Specific Sections” contain entries that
apply only to the particular service.
All schedules are available on
the WTO website.
9. When did Members' specific commitments enter into force?
back to top
The majority of current
commitments entered into force on 1 January 1995, i.e. the date of entry
into force of the WTO. New commitments have since been scheduled by
participants in extended negotiations (see below) and by new Members
that have joined the WTO.
10. Can commitments be introduced or improved outside the context
of multilateral negotiations? back to top
Yes, any Member is free to
expand or upgrade its existing commitments at any time.
11. Can specific commitments be withdrawn or modified? back to top
Pursuant to Article XXI, specific
commitments may be modified subject to certain procedures. Countries
which may be affected by such modifications can request the modifying
Member to negotiate compensatory adjustments; these are to be granted on
an MFN basis.
12. Are there any specific exemptions in the GATS to cater for important
national policy interests? back to top
GATS permits Members in specified circumstances to introduce or maintain
measures in contravention of their obligations under the Agreement,
including the MFN requirement or specific commitments. The relevant
Article provides cover, inter alia, for measures necessary to:
public morals or maintain public order;
human, animal or plant life or health; or
compliance with laws or regulations not inconsistent with the
-Agreement including, among others, measures necessary to prevent
deceptive or fraudulent practices.
the Annex on Financial Services entitles Members, regardless of other
provisions of the GATS, to take measures for prudential reasons,
including for the protection of investors, depositors, policy holders
or persons to whom a fiduciary duty is owed by a financial service
supplier, or to ensure the integrity and stability of the financial
in the event of serious balance-of-payments difficulties Members are
allowed to temporarily restrict trade, on a non-discriminatory basis,
despite the existence of specific commitments.
13. Are there special provisions for developing
countries? back to top
country interests have inspired both the general structure of the
Agreement as well as individual Articles. In particular, the objective
of facilitating the increasing participation of developing countries in
services trade has been enshrined in the Preamble to the Agreement and
underlies the provisions of Article IV. This Article requires
Members, inter alia, to negotiate specific commitments relating
to the strengthening of developing countries' domestic services
capacity; the improvement of developing countries' access to
distribution channels and information networks; and the liberalization
of market access in areas of export interest to these countries.
the notion of progressive liberalization is one of the basic tenets of
the GATS, Article XIX provides that liberalization takes place
with due respect for national policy objectives and Members'
development levels, both overall and in individual sectors. Developing
countries are thus given flexibility for opening fewer sectors,
liberalizing fewer types of transactions, and progressively extending
market access in line with their development situation. Other
provisions ensure that developing countries have more flexibility in
pursuing economic integration policies, maintaining restrictions on
balance of payments grounds, and determining access to and use of
their telecommunications transport networks and services. In addition,
developing countries are entitled to receive technical assistance from
the WTO Secretariat.
14. What is the so-called “built-in agenda” of
the GATS? back to top
GATS, including its Annexes and Related Instruments, sets out a work
programme which is normally referred to as the “built-in” agenda.
The programme reflects both the fact that not all services-related
negotiations could be concluded within the time frame of the Uruguay
Round, and that Members have already committed themselves, in
Article XIX, to successive rounds aimed at achieving a
progressively higher level of liberalization (see below). In addition,
various GATS Articles provide for issue-specific negotiations intended
to define rules and disciplines for domestic regulation
(Article VI), emergency safeguards (Article X), government
procurement (Article XIII), and subsidies (Article XV). These
negotiations are currently under way.
the sectoral level, negotiations on basic telecommunications were
successfully concluded in February 1997 and negotiations in the area
of financial services in mid-December 1997. In these negotiations,
Members achieved significantly improved commitments with a broader
level of participation.
15. Are the results of the extended sectoral
negotiations in telecommunications and financial services legally
different from other sector-specific commitments? back to top
The results of sectoral negotiations are new specific commitments and/or
MFN exemptions related to the sector concerned. Thus, they are neither
legally independent from other sector-specific commitments nor
constitute agreements different from the GATS. The new commitments and
MFN exemptions have been incorporated into the existing Schedules and
Exemption Lists by way of separate Protocols to the GATS.
16. Why was a new services round necessary? back to top
services, the Uruguay Round was only a first step in a longer-term
process of multilateral rule-making and trade liberalization. Observers
tend to agree that, while the negotiations succeeded in setting up the
principle structure of the Agreement, the liberalizing effects have been
relatively modest. Barring exceptions in financial and telecommunication
services, most schedules have remained confined to confirming status quo
market conditions in a relatively limited number of sectors. This may be
explained in part by the novelty of the Agreement and the perceived need
of Members to gather experience before considering wider and deeper
commitments. Moreover, many administrations needed time to develop the
necessary regulation — including quality standards, licensing and
qualification requirements — that ensures that external liberalization
is compatible with, and conducive to, core policy objectives (quality,
equity, etc.) in socially or infrastructurally important services.
than ten years have passed since the Agreement's inception, and the
economic importance of services — in terms of production, income,
employment and trade — has continued to rise. There thus appears
ample scope for new and/or improved commitments in new negotiations.
17. What has been achieved to date in the new
services round? back to top
Article XIX, Members are (self-)committed to launch successive rounds
of services negotiations with a view to achieving a progressively
higher level of liberalization. The first such round was to begin no
later than five years from the date of entry into force of the
Agreement and, accordingly, started in January 2000. The initial focus
was mainly on the built-in agenda with a view to creating a sound
basis for the negotiations of new specific commitments. During a
stock-taking session in March 2001, Members agreed on the Negotiating
Guidelines and Procedures for the new round (document
S/L/93) and discussed a first series of sector proposals which had
been submitted by individual countries; the Guidelines
and all proposals are available on
the WTO Web Site.