Issues covered by the WTO’s committees and agreements

Misunderstandings and scare stories: The GATS and investment

The fact that under GATS WTO Members can make commitments allowing foreign suppliers to establish in their markets has led to criticism from some anti-WTO activists who opposed the negotiations for a Multilateral Agreement on Investment in the Paris-based Organisation for Economic Co-operation and Development. The GATS has been said to be an attempt to resurrect the MAI. Scott Sinclair of the Canadian Centre for Policy Alternatives has said that "The GATS investment restrictions demolish industrial policy whether primarily aimed at goods or services, closing off the path to development taken by most advanced countries to other countries."

What these activists have failed to say is that it can be used by Governments, if they so decide, to attract foreign investment into sectors where it is needed. The GATS guarantees the conditions which provide policy stability for potential investors. But there is no obligation to make commitments under the GATS. Presumably Mr. Sinclair is stating that the GATS prevents Governments from applying restrictions to foreign service providers operating in the market. This is fundamentally untrue. If commitments are made, they can be subject to the six types of limitations specified in the agreement, which include, besides quantitative limits, restrictions on the share of foreign capital and on the type of legal entity permitted. In addition, any type of national treatment limitation—conditions applying only to foreign suppliers—can be scheduled. The GATS bears no resemblance to the MAI—not surprisingly, since the OECD has 30 member Governments and the GATS over 140, three quarters of which are developing countries or economies in transition. Moreover, the GATS allows Governments to impose on foreign service providers any conditions they wish, including those pertaining to local employment or technology transfer.

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