The GATS is the first
ever agreement of multilateral, legally-enforceable rules covering international trade in
services. It was negotiated in the Uruguay Round. GATS has three elements: the main text
containing general obligations and disciplines; annexes dealing with rules for specific
sectors; and individual countries specific commitments to provide access to their
markets, including indications of where countries are temporarily not applying the
most-favoured-nation principle of non-discrimination. These commitments
like tariff schedules for trade in goods are an integral part of the agreement. So
are the temporary withdrawals of most-favoured-nation treatment.
General obligations and disciplines back to top
The agreement covers
all internationally-traded services for example, banking, telecommunications,
tourism, professional services, etc. The agreement also defines four ways of trading
- services supplied from
one country to another (e.g. international telephone calls), officially known as
- consumers or firms
making use of a service in another country (e.g. tourism), officially known as
- a foreign company
setting up subsidiaries or branches to provide services in another country (e.g. foreign
banks setting up operations in a country), officially commercial presence
- individuals travelling
from their own country to supply services in another (e.g. fashion models or consultants),
officially presence of natural persons
Favour one, favour
all. MFN means treating ones trading partners equally on the principle of
non-discrimination. Under GATS, if a country allows foreign competition in a sector, equal
opportunities in that sector should be given to service providers from all other WTO
members. (This applies even if the country has made no specific commitment to provide
foreign companies access to its markets under the WTO.)
MFN applies to all
services, but some special temporary exemptions have been allowed. When GATS came into
force, a number of countries already had preferential agreements in services that they had
signed with trading partners, either bilaterally or in small groups. WTO members felt it
was necessary to maintain these preferences temporarily. They gave themselves the right to
continue giving more favourable treatment to particular countries in particular services
activities by listing MFN exemptions alongside their first sets of
commitments. In order to protect the general MFN principle, the exemptions could only be
made once; nothing can be added to the lists. They will be reviewed in 2000, and will
normally last no more than 10 years.
market access and national treatment
countries commitments to open markets in specific sectors and how open those
markets will be are the outcome of negotiations. The commitments appear in
schedules that list the sectors being opened, 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 (whether some rights granted to
local companies will not be granted 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 licences it will
issue, then that is a market access limitation. If it also says foreign banks are only
allowed one branch while domestic banks are allowed numerous branches, that is an
exception to the national treatment principle.
These clearly defined
commitments are bound: like bound tariffs for trade in goods, they can only be
modified after negotiations with affected countries. Because unbinding is
difficult, the commitments are virtually guaranteed conditions for foreign exporters and
importers of services and investors in the sector to do business.
GATS says governments
must publish all relevant laws and regulations. Within two years (by the end of 1997) they
have to set up inquiry points within their bureaucracies. Foreign companies and
governments can then use these inquiry points to obtain information about regulations in
any service sector. And they have to notify the WTO of any changes in regulations that
apply to the services that come under specific commitments.
objective and reasonable
regulations are the most significant means of exercising influence or control over
services trade, the agreement says governments should regulate services reasonably,
objectively and impartially. When a government makes an administrative decisions that
affect a service, it should also provide an impartial means for reviewing the decision
(for example a tribunal).
When two (or more)
governments have agreements recognizing each others qualifications (for example, the
licensing or certification of service suppliers), GATS says other members must also be
given a chance to negotiate comparable pacts. The recognition of other countries
qualifications must not be discriminatory, and it must not amount to protectionism in
disguise. These recognition agreements have to be notified to the WTO.
payments and transfers
Once a government has
made a commitment to open a service sector to foreign competition, it must not normally
restrict money being transferred out of the country as payment for services supplied
(current transactions) in that sector. The only exception is when there are
balance-of-payments difficulties, and even then the restrictions must be temporary and
subject to other limits and conditions.
The Uruguay Round was
only the beginning. GATS requires more negotiations, the first to begin within five years.
The goal is to take the liberalization process further by increasing the level of
commitments in schedules.
The annexes: services are not all the same back to top
International trade in
goods is a relatively simple idea to grasp: a product is transported from one country to
another. Trade in services is much more diverse. Telephone companies, banks, airlines and
accountancy firms provide their services in quite different ways. The GATS annexes reflect
some of the diversity.
Movement of natural
This annex deals with
negotiations on individuals rights to stay temporarily in a country for the purpose
of providing a service. It specifies that the agreement does not apply to people seeking
permanent employment or to conditions for obtaining citizenship, permanent residence or
Instability in the
banking system affects the whole economy. The financial services annex says governments
have the right to take prudential measures, such as those for the protection of investors,
depositors and insurance policy holders, and to ensure the integrity and stability of the
financial system. It also excludes from the agreement services provided when a government
exercising its authority over the financial system, for example central banks
services. Negotiations on specific commitments in financial services continued after the
end of the Uruguay Round and ended in late 1997.
sector has a dual role: it is a distinct sector of economic activity; and it is an
underlying means of supplying other economic activities (for example electronic money
transfers). The annex says governments must ensure that foreign service suppliers are
given access to the public telecommunications networks without discrimination.
Negotiations on specific commitments in telecommunications resumed after the end of the
Uruguay Round. This led to a new liberalization package agreed in February 1997.
Under this annex,
traffic rights and directly related activities are excluded from GATSs coverage.
They are handled by other bilateral agreements. However, the annex establishes that the
GATS will apply to aircraft repair and maintenance services, marketing of air transport
services and computer-reservation services.
On-going work: even before the next round back to top
At the end of the
Uruguay Round governments agreed to continue negotiations in four areas: basic
telecommunications, maritime transport, movement of natural persons, and financial
services. Some commitments in some of these sectors had been made in the Uruguay Round
agreements. The objective of continuing with the negotiations was to improve the package.
This was an area where
governments did not offer commitments during the Uruguay Round essentially because
the privatization of government monopolies was a complex issues in many countries.
Sophisticated value-added telecommunications services, which are more commonly provided on
a private basis, were, however, included in many of the original GATS schedules. The
negotiations on basic telecommunications ended in February 1997 with new national
commitments due to take effect from January 1998.
negotiations were originally scheduled to end in June 1996, but participants failed to
agree on a package of commitments. The talks will resume with the new services round due
to start no later than 2000. Some commitments are already included in some countries
schedules covering the three main areas in this sector: access to and use of port
facilities; auxiliary services; and ocean transport.
Movement of natural
natural persons refers to the entry and temporary stay of persons for the purpose of
providing a service. It does not relate to persons seeking permanent employment or
permanent residence in a country. Some commitments are already included in the schedules
but it was agreed that negotiations to improve commitments would take place in the six
months after the WTO came into force. These only achieved modest results.
Financial services is
another area where further negotiations were scheduled to improve on the commitments
included in the initial Uruguay Round schedules. Officially the first set of talks ended
in July 1995, but the governments decided that more could be achieved if further talks
could be held. These latest negotiations ended in December 1997.
several more issues for future negotiation. One set of negotiations would create rules
that are not yet included in GATS: rules dealing with subsidies, government procurement
and safeguard measures.
Another set of
negotiations would seek rules on the requirements foreign service providers have to meet
in order to operate in a market. The objective is to prevent these requirements being used
as unnecessary barriers to trade. The focus is on: qualification requirements and
procedures, technical standards and licensing requirements.
As part of this task,
governments tackled the accountancy sector first. The result of these discussions emerged
in December 1998 when the Services Council adopted disciplines on domestic regulations for
the accountancy sector. The disciplines do not have legal effect yet. Governments are
continuing their work to develop general disciplines for all professional services and,
where necessary, additional sectoral disciplines. All the disciplines developed by the
governments will be integrated into the GATS and become legally binding before the end of
the forthcoming round of services negotiations.