TRADE IN SERVICES One member's obligation is another member's right

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GATS: The Agreement 

The General Agreement on Trade in Services (GATS) is the first and only set of multilateral rules governing international trade in services. The agreement covers all internationally-traded services – for example: banking, telecommunications, tourism, and professional services such as accountancy, architectural, legal services, among others.

Governmental services are explicitly left out of the agreement and there is no legal obligation to force a government to privatize services industries. Nor does the agreement outlaw government or private monopolies. Governmental services are defined in the agreement as those that are not supplied commercially nor in competition.

Under the GATS, even if a government decides to open its domestic public services market to foreign suppliers it still retains the right to set qualification requirements (e.g. for doctors or lawyers), to set standards to ensure consumer health and safety, and to introduce new regulations to pursue any other policy objective. The key principle is that the host government must not treat any foreign supplier more favourably than other competing foreign suppliers.

The agreement also defines four ways (“modes”) of delivering or trading a service:

  • Mode 1 is where services are supplied from one country to another (e.g. international telephone calls), officially known as “cross-border supply”;
  • Mode 2 is where consumers or firms make use of a service in another country (e.g. tourism) officially known as “consumption abroad”;
  • Mode 3 is where a foreign company sets up subsidiaries or branches to provide services in another country (e.g. foreign banks setting up operations in a country) officially known as “commercial presence”; and
  • Mode 4 is where individuals travel from their own country to supply services in another country (e.g. fashion models, architects or consultants) officially known as “movement of natural persons ”.


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Negotiations to liberalize international trade in services are being conducted along two concurrent tracks:

  • bilateral bargaining (known as “request-offer”) between governments to improve market access opportunities (known as “specific commitments”) in each other’s market, the results of which will be applied to all trading partners; and
  • multilateral negotiations among all governments to establish any necessary rules and disciplines which will apply to the whole WTO membership, with certain special provisions for developing and least-developed countries.


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Market access negotiations 

The “request-offer” negotiating method:

Negotiations to improve market access in services are conducted through a request-offer procedure. Governments send requests to each other indicating what market access opportunities they are seeking for their national services suppliers; the governments in receipt of such requests reply by submitting their initial offers specifying how and to what extent they are willing to consider opening their domestic markets in response to these requests. This sets in motion a series of bilateral bargaining sessions. Regardless of which country submits a request, the final offer from the responding country applies to all trading partners. The negotiations are considered successfully concluded only when all the governments assess that the latest offers represent a commercially meaningful package of opportunities for their national services suppliers. These final offers then become legally-binding commitments specifying the conditions under which market access is granted.

The commitments appear in “schedules” that list the sectors being opened, specifying the extent of market access being given in those sectors (e.g. whether there are any restrictions on foreign ownership), and any limitations on national treatment (e.g. whether some privileges given to local companies will not be given to foreign companies). So, for example, if a government commits itself to allow foreign banks to operate in its domestic market, that is a market-access commitment. And if the government limits the number of licenses it will issue, then that is a market-access limitation. If it also says that foreign banks are subject to higher minimum capital requirements than domestic banks, that is a national-treatment limitation.

Brief summary of market access talks:

So far, 93 governments have submitted initial offers, of which 53 have revised or improved their offers as a result of bilateral negotiations. However, delegations widely acknowledge that the overall quality of initial and revised offers remains unsatisfactory; few, if any, new commercial opportunities will result from current offers. A number of delegations recognize that the request-offer method on its own is not producing the desired result. Many delegations maintain that negotiators should explore all negotiating methods available within the parameters of the negotiating mandate of the GATS – i.e. bilateral, plurilateral and multilateral approaches. The role of possible indicators to measure and promote progress has been raised by some delegations, while others have expressed concern that these would undermine the negotiating flexibility granted by the GATS. Negotiators continue to discuss possible negotiating methods complementary to the request-offer method, and possible means of intensifying the request-offer process.

Each government’s offer covers several services sectors and specifies how the service will be delivered under the various modes.

So, for example, in the financial services sector, one country has offered to eliminate a 51% foreign equity limitation for asset management companies which want to establish a “commercial presence” by setting up subsidiaries or branches (i.e. under Mode 3). Also under this mode of commercial presence, a country has offered to increase the number of licenses for foreign banks from 12 to 20. Another offer proposes to allow locally established insurance companies to reinsure themselves abroad without having to establish a company there so as to provide a cross-border service under Mode 1. Yet another country has offered to allow its citizens to purchase financial advisory services abroad – this is defined as “consumption abroad” under Mode 2. Under Mode 4, where individuals travel from their own country to supply services in another country, there is an offer to allow foreign financial institutions the transfer of CEOs and other staff.

Below are brief extracts from an assessment made by the chairman of the services negotiations, including his summary of some of the views of the negotiators.

  • Legal services 17 offers propose improvements in the legal services sector. Delegations have indicated their expectation that the following barriers would be addressed in the negotiations: citizenship requirements, partnership/association restrictions, and restrictions on employment of locally-qualified lawyers. Some delegations have observed that the offers on legal services were limited in scope and did not lead to effective market access.
  • Other professional services Other than legal services, 15 offers have been made in accounting, auditing and bookkeeping services, 14 in architectural services, and 16 in engineering services.
  • Computer and related services 32 offers have been made in these services. They are one of the priority areas emphasized by delegations that aim to improve commitments on cross-border supply, given the sector’s importance as a cross-border export and as a facilitator of access.
  • Postal and courier services 14 offers have been made. A number of delegations characterized postal and courier services as a top priority. Some expressed interest in commitments on all postal or courier service no longer subject to monopoly, others put particular emphasis on courier or express delivery service.
  • Telecommunications services 34 offers have been made in this sector, in which virtually all developed-country delegations as well as a number of developing-country delegations have expectations for progress.
  • Financial services 32 offers have been made with respect to insurance and insurance-related services and 30 offers have been made with respect to banking and other financial services. A number of delegations expressed disappointment since many offers did not capture existing levels of liberalization.
  • Maritime transport services 24 offers have been made in maritime transport services. A group of delegations expressed dissatisfaction at the limited number of quality offers.
  • Other transport services 14 offers have been made in the three air transport subsectors that fall under the GATS, 13 in road transport services, and 9 in rail transport services.


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Rules negotiations 

Article 6 of the GATS mandates negotiations to develop any necessary disciplines on domestic regulation. The following types of domestic regulations are mentioned: transparency provisions; licensing requirements and procedures; qualification requirements and procedures; and technical standards. It is commonly understood among delegations that the outcome of the negotiations will not affect the right to regulate but ensure that regulations are not unnecessarily trade-restrictive.

GATS does not require any service to be deregulated. Commitments to liberalize do not affect governments’ right to set levels of quality, safety or price, or to introduce new regulations to pursue any other policy objective. Governments retain the right to set qualification requirements (e.g. for doctors or lawyers), and to set standards to ensure consumer health and safety. The GATS says that governments should regulate services reasonably, objectively, impartially, and in a transparent manner.

Several delegations emphasized that disciplines in domestic regulation should facilitate mode 4 commitments, ensuring that technical standards and licensing procedures were not unnecessarily burdensome, and establishing effective mechanisms to recognize foreign qualifications.

On emergency safeguard measures, subsidies and government procurement, no tangible progress has been achieved to date. Several delegations continue to stress the importance of an emergency safeguard mechanism, while others maintain their longstanding concerns revolving around, inter alia, such a mechanism.