GATS TRAINING MODULE: CHAPTER 2

Main Building Blocks: Agreement, Annexes, and Schedules

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2.1 Basic Structure of the GATS

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The GATS forms part of the Marrakesh Agreement Establishing the World Trade Organization. It establishes a rules based framework for international trade in services, specifies the obligations of Members within that framework, and delineates a legal structure to ensure compliance. The Marrakesh Agreement includes two other multilateral agreements — GATT 1994, and the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) — as well as a few plurilateral agreements. Of these, the Agreement on Government Procurement is also of relevance to services trade.

The GATS consists of the text of the Agreement (a Preamble, 29 Articles arranged in six Parts (see Box B), and various Annexes) and a schedule of commitments for each WTO Member. In essence, there are four types of content:

A) The text of the Agreement

  1. Preamble

  2. The Preamble states the main intentions that inspired the drafting of the Agreement. These include the concept of trade expansion as a means of promoting growth and development and the objective of progressive trade liberalization through successive rounds of negotiations. Further, the Preamble explicitly confirms Members’ right to regulate, and to introduce new regulations, to meet national policy objectives. The two final considerations refer to the objective of facilitating the increasing participation of developing countries in world services trade as well as to the special economic situation of least-developed countries and their development, trade and financial needs.

  3. A framework of principles

  4. The main body of the Agreement outlines Members’ obligations concerning their use of measures (laws, rules, regulations, procedures, decisions or administrative actions) affecting trade in services. These principles will be discussed further in Sections 2.2, 2.3, and 2.4 below.

  5.  Annexes covering sector- or policy-related issues

Annex on Article II Exemptions

The Annex lays downs the conditions under which Members could have been exempted, at the entry into force of the Agreement (for newly acceding Members: date of accession), from the basic obligation to MFN treatment. Such exemptions should not exceed ten years in principle.

Annex on Movement of Natural Persons

The Annex clarifies that the scope of the GATS does not extend to measures affecting persons seeking access to the employment market nor to measures governing citizenship, residence or permanent employment. The right of Members to control entry or temporary stay through visa requirements etc. remains unaffected.

Annex on Air Transport Services

International air transport services are for the most part governed by arrangements negotiated under the Chicago Convention. The Annex thus excludes measures affecting air traffic rights and services directly related to their exercise from the scope of GATS. By the same token, it provides that measures affecting aircraft repair and maintenance services, the selling and marketing of air transport services, and computer reservation systems (CRS) services are covered. Further, there is a clause requiring the Council for Trade in Services to review at least every five years developments in air transport with a view to considering the possible extension of GATS to this sector.

Annex on Financial Services

Given the crucial role of the financial sector for overall economic stability, governments throughout the world closely regulate banks, insurance companies and other financial service providers. The Annex is intended mainly to clarify some core GATS provisions as they apply to financial services. One of the central elements is the so-called “prudential carve-out”. In essence, it confirms “notwithstanding any other provisions of the Agreement” that WTO Members are free to take prudential measures to protect 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 system. The Annex also specifies the scope of the governmental-service carve-out in Article I:3b in financial services and contains various definitions relevant to the sector.

Annex on Telecommunications

The Annex takes into account the particular role of telecommunications as a transport medium in virtually all sectors, and delineates the conditions governing access to and use of public telecommunications networks and services. Whenever a sector is listed in a Member’s schedule, all foreign suppliers in that sector must be treated on a “reasonable and non-discriminatory” basis in their use of all public telecom services, such as telephone, leased lines and data transmission.

Among other things, the Annex spells out the rights of foreign telecommunication users in a committed sector. These include the right to buy or lease the equipment needed to connect to the public network, to connect private circuits with the public system or with other circuits, and to use the public network to transmit information. The Annex also allows Members to place reasonable conditions on access and use in specific circumstances. Developing countries may depart from Annex obligations if necessary to strengthen the domestic infrastructure and service capacity, so long as such conditions are specified in the GATS schedule. Other provisions seek to promote technical cooperation with and between developing countries and lend support to international standardization to ensure compatibility and interoperability of networks and services.

Annex on Negotiations on Maritime Transport Services

The Annex provided for the continued non-application of the MFN obligation in maritime transport for those Members that have not undertaken specific commitments in this sector. Following the suspension of the negotiations on maritime transport in 1996, the Council for Trade in Services took a decision to the same effect (document S/L/24).

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