1.3 Definition of Services Trade and Modes of Supply
The definition of services trade under the GATS
is four-pronged, depending on the territorial presence of the
supplier and the consumer at the time of the transaction. Pursuant
to
Article I:2, the GATS covers services supplied
from the territory of one Member into
the territory of any other Member
(Mode 1 — Cross border trade);
in the territory
of one Member to the service consumer of any other Member
(Mode 2 — Consumption abroad);
by a
service supplier of one Member, through commercial presence, in
the territory of any other Member
(Mode 3 — Commercial
presence); and
by a service
supplier of one Member, through the presence of natural persons of
a Member in the territory of any other Member
(Mode 4 —
Presence of natural persons).
The above definition
is significantly broader than the balance of payments (BOP) concept
of services trade. While the BOP focuses on residency rather than
nationality — i.e. a service is being exported if it is traded
between residents and non-residents — certain transactions falling
under the GATS, in particular in the case of mode 3, typically
involve only residents of the country concerned.
Commercial linkages
may exist among all four modes of supply. For example, a foreign
company established under mode 3 in country A may employ nationals
from country B (mode 4) to export services cross-border into
countries B, C etc. Similarly, business visits into A (mode 4) may
prove necessary to complement cross-border supplies into that
country (mode 1) or to upgrade the capacity of a locally established
office (mode 3).
Box A:
Examples of the four Modes of Supply (from the perspective of an
“importing” country A)
Mode 1: Cross-border
A user in
country A receives services from abroad through its
telecommunications or postal infrastructure. Such supplies may
include consultancy or market research reports, tele-medical advice,
distance training, or architectural drawings.
Mode 2: Consumption abroad
Nationals of A
have moved abroad as tourists, students, or patients to consume the
respective services.
Mode 3: Commercial presence
The service is provided within A by a
locally-established affiliate, subsidiary, or representative office
of a foreign-owned and — controlled company (bank, hotel group,
construction company, etc.).
Mode 4: Movement of natural persons
A foreign national provides a service
within A as an independent supplier (e.g., consultant, health
worker) or employee of a service supplier (e.g. consultancy firm,
hospital, construction company).
