International Trade Service
SERVICES TRADE UNDER
THE GATS
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• Trade in Services refers to the sale
and delivery of an intangible product,
called a service, between a producer
and consumer. Trade in services takes
place between a producer and
consumer that are, in legal terms, based
in different countries, or economies, this
is called International Trade in Services.
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• International trade in services is defined
by the Four Modes of Supply of the
General Agreement on Trade in
Services (GATS).
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• (Mode 1) Cross border trade, which is
defined as delivery of a service from the
territory of one country into the territory
of other country;
• (Mode 2) Consumption abroad - this
mode covers supply of a service of one
country to the service consumer of any
other country;
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• (Mode 3) Commercial presence - which
covers services provided by a service
supplier of one country in the territory of
any other country
• (Mode 4) Presence of natural persons which covers services provided by a
service supplier of one country through
the presence of natural persons in the
territory of any other country.
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• A "Natural person" is a human being, as distinct
from legal persons such as companies or
organisations. Countries can freely decide
where to liberalize on a sector-by-sector basis,
including which specific mode of supply they
want to cover for a given sector.
• The tourism sector, the financial services sector
and the telecommunications services sector are
examples of services sectors.
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• During the Uruguay Round of the
General Agreement on Tariffs and
Trade (GATT), the General Agreement
on Trade in Services was drafted, and
became enshrined (to place) as one of
the four pillars of the international treaty
comprising the World Trade
Organization Agreement in 1995.
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• Regional trade in services agreements
are also negotiated and signed between
regional economic groupings such as
CARICOM, North American Free Trade
Agreement (NAFTA) and ASEAN.
• Some examples of trade in service
would be: banking, check-ups done by a
doctor and IT (information technology).
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STARTING POINT:
INTERNATIONAL
SERVICES TRADE –
IMPLICATIONS FOR
DEVELOPMENT
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A Priori Expectations
“The gains from liberalizing services may be
substantially greater than those from liberalizing trade
in goods, because current levels of protection are
higher and because [there would be] spillover benefits
from the required movement of capital and labour.”
(World Bank, 2002).
Infrastructural services such as telecommunications,
finance and transport are crucial determinants of
overall economic efficiency and growth.
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Services trade and development:
Some estimates
 Lack of competition in maritime transport (cargo
reservation, restrictions on port services, collective
rate setting, etc.) can increase freight rates up to
25 % on certain routes.
 Economies that fully liberalized investment in
telecom and financial services grew about 1.5 %
faster over the past decade than others.
 Services liberalization in developing economies
could provide as much as US$6 trillion in additional
income between 2005 and 2015.
Source: World Bank, 2002.
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Services trade and development:
Necessary conditions
 Appropriate sequencing of reforms
[(re-)regulation/liberalization/privatization]
 Contestable markets (effective competition) to
prevent private rent-seeking
 Effective regulation, including prudential rules,
to protect consumers and the public interest
Note: The Preamble of GATS expressly recognizes “the right of
Members to regulate and to introduce new regulations…
to meet national policy objectives”.
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The GATS: A
latecomer in
the multilateral
system ...
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Services in the Multilateral System:
Since 1995
YEAR
1947
1949
1951
1956
1960/61
1964/67
1973/79
1986/93
ROUND
PARTICIPANTS
Geneva
23
Annecy
13
Torquay
38
Geneva
26
Dillon Round
26
Kennedy Round
62
Tokyo Round
102
Uruguay Round
123
(Creation of GATS)
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The traditional view
● Services = intangible = non-tradable
● Services = government monopolies
● Services = rich countries’ playfield
● Services = unsuited for GATT-type disciplines
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Challenges during the Uruguay
Round
●
Sector coverage?
●
Types of transactions?
●
Role of Most-Favoured-Nation (MFN) principle?
●
Permissible policy instruments?
●
Need for GATT-type trade remedies and
regulatory disciplines?
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GATS: Main
Features
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1st Observation
THE GATS IS FAR WIDER IN
COVERAGE THAN CONVENTIONAL
TRADE AGREEMENTS ....
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GATS: Scope, coverage,
definition

MEASURES AFFECTING TRADE IN
SERVICES AT ALL GOVERNMENT LEVELS

ALL SERVICES (except governmental services
and measures affecting air traffic rights)

FOUR MODES OF SUPPLY
- Cross-border supply - Consumption abroad
- Commercial presence - Presence of nat. persons

APPLICATION TO SERVICES AND SERVICE
SUPPLIERS
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GATS: Modal structure
MODE
EXAMPLE (Health)
Cross-border Trade
Tele-diagnosis from Country B
into Country A
A's resident obtains hospital
treatment in B
Hospital operator from B has
subsidiary in A
Physician from B practices in A
Consumption Abroad
Commercial Presence
Presence of Natural
Persons
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Mode 4: who is in and who is out?
Covered
Not covered
• Employees of foreign
• Employees in the goods
service suppliers in host
country (ICTs)
• Employees of foreign
service suppliers abroad
to fulfill a contract (CSS)
• Natural persons as
independent service
suppliers fulfilling a
contract (CSS)
• Also: Business Visitors
sector
• Employees of host
country firms
• Persons with citizenship,
permanent residence
and/or work permit
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... with interesting ramifications
Test question: What modes are involved?
(The patient and the nurse are foreigners, the hospital is
foreign-owned, and ‘SURGERY.COM’ is based abroad.)
2nd Observation
... BUT THE GATS IS EXTREMELY
FLEXIBLE IN APPLICATION
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Relevance for individual sectors
Three possible Scenarios:
I.
Not covered: Governmental services
and large segments of air traffic
II.
Covered - but no access obligations
III.
Access obligations
(“Specific Commitments”)
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Scenario I:
Status of Governmental Services
Excluded from coverage are “services provided in
the exercise of governmental authority” which, in turn,
are defined as services that are supplied “neither on a
commercial basis, nor in competition with one or
more service suppliers”. (Article I:3)
Financial services: Competition as the sole criterion
(Annex on Financial Services)
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Scenario II:
What minimum obligations are
incurred in sectors falling
under GATS (“unconditional
obligations”)?
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Unconditional obligations
• Most-Favoured-Nation (MFN) Treatment
• Transparency requirements
• Some other “good governance” provisions
(availability of legal remedies, opportunity
for consultations, etc.)
Note: There is no obligation to open markets!
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Scenario III:
What are the implications of
“Specific Commitments”?
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Specific Commitments –
Three basic concepts
• Market Access
• National Treatment
• (Additional Commitments)
Plus: Unconditional and
Conditional Obligations
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Market Access and National
Treatment: Main elements
 MARKET ACCESS (Article XVI)
Absence of quota-type and similar restrictions
 NATIONAL TREATMENT (Article XVII)
Non-discrimination with regard to all measures
affecting the supply of a service
Any limitations must be inscribed in Schedules under
the relevant mode(s).
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Schedules of Specific
Commitments:
General Structure
Sector
Limitations on Limitations
Additional
Market Access on National Commitments
(four modes of Treatment
(Optional)
supply)
(four modes
of supply)
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How Schedules of Commitments
are structured: Case A.
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or
subsector
Medical and
Dental Services
(CPC 9312)
Limitations on
market access
Limitations on
national treatment
1) Unbound
1) None
2) None
2) None
3) The number of new
foreign doctors
registered each year may
be limited depending on
the total supply of
doctors
4) Unbound except as
indicated in the horizontal
section
3) None
Additional
commitments
4) Unbound
*Unbound due to lack of technical feasibility
NOTE: “unbound” = no commitment (full policy discretion)
“none” = no limitation (full commitment)
“The number of ... “ = partial commitment
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Specific Commitments –
Where? How? When?
• Selection of sectors
• Inscription of limitations
(i) Less than status quo?
(ii) Status quo?
(iii) More liberal?
- With immediate effect?
- Pre-commitment?
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Conditional obligations
• Art. III:3 (add. transparency requirements)
• Art. VI:1 (administration of measures)
• Art. VI:5 (regulatory disciplines)
• Art. VIII (compliance of monopolies)
• Art. XI:1 (current transactions)
• Art. XI:2 and fn 8 to Art. XVI (capital transfers)
Annex on Telecommunications
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Application of GATS obligations
across the services economy
Governmental
Services & Air
Traffic Rights
Unconditional
obligations (MFN!)
Conditional
obligations
MA
Specific
Commitments NT
AC
All Other Services
Not
Scheduled
Scheduled
▬
+
+
▬
▬
+
▬
▬
▬
▬
▬
▬
±
±
?
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Must GATS obligations (and
commitments) be respected at all
costs?
No. Members may intervene for overriding health
and other policy reasons (Article XIV, ‘prudential
carve-out’ in financial services), because of
security concerns (Article XIVbis) or to protect the
Balance of Payments (Article XII).
Also, they may want to re-negotiate commitments
(Article XXI) or seek a waiver (Article XIX:3 of
WTO Agreement).
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Four negotiating mandates
•
•
•
•
Domestic Regulation (Article VI:4)
Emergency Safeguards (Article X)
Government Procurement Article XIII)
Subsidies (Article XV)
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THE END
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