UNDERSTANDING THE WTO: THE AGREEMENTS
Services: rules for growth and investment
The General Agreement on Trade in Services (GATS) is the first and only set of multilateral rules governing international trade in services. Negotiated in the Uruguay Round, it was developed in response to the growth of the services economy and the increasing importance of services in world trade.
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Services represent the fastest growing sector of the global economy and account for over two thirds of global output and nearly 20 per cent of global trade. In value-added terms, services account for approximately 50 per cent of world trade.
When the idea of bringing rules on services into the multilateral trading system was floated in the early to mid-1980s, a number of countries were sceptical. The agreement that was developed, however, allows a high degree of flexibility, both within the framework of rules and also in terms of the market access commitments.
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The General Agreement on Trade in Services (GATS) has three elements: the main text containing general obligations and disciplines; annexes containing provisions on specific sectors; and individual members' specific commitments to provide guarantees of access to their markets and non-discriminatory treatment
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General obligations and disciplines
Scope The agreement covers all internationally traded services — for example, banking, telecommunications, tourism, professional services, etc. The only services excluded from the scope of the GATS are “services provided under governmental authority” and air transport services, except for aircraft repair and maintenance, the selling and marketing of air transport services, and computer reservation system (CRS) services.
It also defines four ways (or “modes”) of trading services:
services supplied from one member to another (e.g. international telephone calls), officially known as “cross-border supply” (in WTO jargon, “mode 1”)
services supplied to consumers of one member in the territory of another member(e.g. tourism), officially “consumption abroad” (“mode 2”)
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” (“mode 3”)
individuals travelling from their own country to supply services in another (e.g. fashion models or consultants), officially “presence of natural persons” (“mode 4”)
Most-favoured-nation (MFN) treatment (Article II): Favour one, favour all. MFN essentially means treating one’s trading partners equally on the principle of non-discrimination. Under the GATS, if a country allows foreign suppliers 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 the Agreement allowed members, at the date of entry into effect of the Agreement, to list exemptions to protect certain practices inconsistent with Article II. The Agreement provides that these exemptions should, in principle, not exceed a period of 10 years. More than 90 members currently maintain such exemptions.
Commitments on market access and national treatment (Articles XVI and XVII) Individual members’ commitments to open markets to foreign competition in specific sectors — and how open those markets will be — are the outcome of negotiations. The commitments appear in “schedules” that list the sectors to which the obligations of market access and national treatment will apply, and the extent to which measures inconsistent with “market access” and "national treatment" may be used in different modes of supply (e.g., limitations on foreign capital participation).
All services are covered by GATS
Most-favoured-nation treatment applies to all services, except the one-off temporary exemptions
National treatment applies in the areas where commitments are made
Transparency in regulations, inquiry points
Regulations have to be objective and reasonable
International payments: normally unrestricted
Individual countries’ commitments: negotiated and bound
Progressive liberalization: through further negotiations