Basic Purpose and Concepts

1.7 Conditional Granting of Market Access and National Treatment

The GATS is a very flexible agreement that allows each Member to adjust the conditions of market entry and participation to its sector-specific objectives and constraints. Two sets of legal obligations — governing, respectively, Market Access and National Treatment — are relevant in this context. As already noted, Members are free to designate the sectors, and list them in their schedules of commitments, in which they assume such obligations with regard to the four modes of supply. Moreover, limitations may be attached to commitments in order to reserve the right to operate measures inconsistent with full market access and/or national treatment.

The market access provisions of GATS, laid down in Article XVI, cover six types of restrictions that must not be maintained in the absence of limitations. The restrictions relate to

1. the number of service suppliers
2. the value of service transactions or assets
3. the number of operations or quantity of output
4. the number of natural persons supplying a service
5. the type of legal entity or joint venture
6. the participation of foreign capital

These measures, except for (e) and (f), are not necessarily discriminatory, i.e. they may affect national as well as foreign services or service suppliers.

National treatment (Article XVII) implies the absence of all discriminatory measures that may modify the conditions of competition to the detriment of foreign services or service suppliers. Again, limitations may be listed to provide cover for inconsistent measures, such as discriminatory subsidies and tax measures, residency requirements, etc. It is for the individual Member to ensure that all potentially relevant measures are listed; Article XVII does not contain a typology comparable to Article XVI. (Examples of frequently scheduled national treatment restrictions are given in Attachment 1 to document S/L/92 (40 pages, 178KB)). The national treatment obligation applies regardless of whether or not foreign services and suppliers are treated in a formally identical way to their national counterpart. What matters is that they are granted equal opportunities to compete.

The purpose of commitments, comparable to tariff concessions under GATT, is to ensure stability and predictability of trading conditions. However, commitments are not a straitjacket. They may be renegotiated against compensation of affected trading partners (Article XXI); and there are special provisions that allow for flexible responses, despite existing commitments, in specified circumstances. Under Article XIV, for example, Members may take measures necessary for certain overriding policy concerns, including the protection of public morals or the protection of human, animal or plant life or health. However, such measures must not lead to arbitrary or unjustifiable discrimination or constitute a disguised restriction to trade. If essential security interests are at stake, Article XIVbis provides cover. Article XII allows for the introduction of temporary restrictions to safeguard the balance-of-payments; and a so-called prudential carve-out in financial services permits Members to take measures in order, inter alia, to ensure the integrity and stability of their financial system (Annex on Financial Services, para.2).

Commitments must not necessarily be complied with from the date of entry into force of a schedule. Rather, Members may specify in relevant part(s) of their schedule a timeframe for implementation. Such “pre-commitments” are as legally valid as any other commitment.

  

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Food for Thought:

Imagine that your country intended to schedule the following services: telecommunications, banking, and rail transport.

1. What could be an example of a market access restriction in these sectors?
    
2. What could be an example of a national treatment restriction?
    

Possible reply:

1. Existence of exclusive or monopoly operators. Prescribed forms of legal incorporation (e.g. joint stock companies). Quantitative restrictions on presence of natural persons.
    
2. Restrictions on foreigners’ participation in company boards. Prohibition of foreign land ownership. Discriminatory minimum capital or minimum reserve requirements.