General Agreement on Trade in Services (GATS)

The Importance of Services Sector in the World Economy

Services currently account for 60 percent of global production and employment but they represent no more than 20 percent of total trade. Many services which have long been considered genuine domestic activities, have increasingly become internationally mobile. This trend is likely to continue and grow owing to the introduction of new transmission technologies such as electronic banking tele-health or tele-education services, opening up of state monopolies such as in telephone and postal services sectors, and regulatory reforms in some hitherto tightly regulated sectors such as transport combined with changing consumer preferences.

List of Sectors included in Services

Business Services and Professional Services: o Accountancy services o Advertizing services o Architectural and engineering services o Computer and related services o Legal services

List of services (cont.)

Communication Services: o Audiovisual services o Postal and courier, express mail services o Telecommunications Construction and Related Services Distribution Services Education Services Energy Services

List of services (cont.)

o o o Environmental Services Financial Services Health and Social Services Tourism Services Transport Services Air transport services Maritime transport services Services auxiliary to all modes of transportation Movement of Natural Persons

The Agreement
GATS is a treaty of the WTO that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the trading system to Services sector in the same way the GATT provides such a system for merchandise trade.

The Principle
The basic WTO principle of Most Favored Nation (MFN) applies to GATS as well. However, upon accession, members may introduce temporary exemptions to this rule.

The Purpose
The purpose of GATS is to create a credible and reliable system of international trade rules; ensuring: fair and equitable treatment of all participants (principle of non-discrimination); Stimulating economic activity; and Promoting trade and development through progressive liberalization of service sector.

Historical Background
Before the Uruguay Round negotiations began in 1986, public services such as: Healthcare Postal services Education Water supply and sewerage system etc. were not included in international trade agreements as most of these services were classed as domestic activities and difficult to trade across borders. Education was the exception.

Historical Background (Cont.)

The reason for Services not being included in GATT: By definition, depending upon their infrastructural and social importance, these services have been the domain of Government ownership, funding, and control. Further, such services are being funded by the local taxpayers. So, in most countries these services have been considered as the responsibility of the government and therefore need not be left to the vagaries (business fluctuations) of markets and private companies whose main interest is to earn profit than public interest.

Historical Background (cont.)

Some service sectors such as international finance and maritime transport have been open for centuries as necessary components of merchandise trade. The development of information technologies and the internet have expanded the range of internationally tradable service products. These include a range of commercial activities such as medicine, distance learning, engineering, architecture, advertising, and freight forwarding.

Historical Background (Cont.)

Members obligation: While the overall goal of the GATS is to remove barriers to trade in services, members are free to choose which sectors are to be progressively liberalized. Though commitments once made are not generally withdrawn, Article XXI allows members to withdraw commitments. So far two members have used this option (USA and EU) In November 2008, Bolivia notified that it will withdraw its health services commitments

Four Modes of Supply for Delivery of Services

The GATS agreement covers four modes of supply for the delivery of services in crossborder trade: 1. Cross-border trade 2. Consumption abroad 3. Commercial presence, and 4. Presence of natural persons

Modes of services supply (cont.)

1. Cross-border supply is defined to cover services flows from the territory of one member into the territory of another member such as banking or architectural services transmitted via telecommunications or mail. For such services presence of service supplier within the territory of the member is not necessary or needed.

Modes of service supply (cont.)

2. Consumption abroad refers to situations where a service consumer moves into another members territory to obtain a service such as tourist or patient. 3. Commercial presence implies that a service supplier of one member establishes a territorial presence, either through ownership or lease of premises, in another members territory to provide a service such as domestic subsidiaries of insurance companies or hotel chains.

Modes of service supply (cont.)

4. Presence of natural persons consists of persons of one member entering the territory of another member to supply a service e.g. accountants, doctors, or teachers etc. In such case, service providers remain free to operate measures regarding citizenship, residence or access to the employment market on a permanent basis.

Criticism on GATS
1. The GATS document has been criticized for tending to substitute the authority of national legislation and judiciary with that of a GATS Disputes Panel conducting closed hearings. However, member government spokespersons may dismiss such hearings because of prior commitments to perceived benefits of prevailing principles of competition and liberalization.

Criticism (cont.)
2. While national governments have an option to exclude any specific service from liberalization under the GATS, they are also under the international pressure, from business interests, to refrain from so excluding any service provided on a commercial basis.