FDI Aspects of existing WTO agreements

GATS

The General Agreement on Trade in Services (GATS) was concluded in the Uruguay Round. Because services can often not be physically transported like goods, the Agreement defines four different ways of providing international services:

1. Cross-border supply: services supplied from one country to another;
2. Consumption abroad: consumers, firms or goods making use of a service in another country (e.g. tourism, repair);
3. Commercial presence: foreign companies setting up subsidiaries or branches to provide services in another country;
4. Presence of natural persons: individuals travelling from their own country to supply services in another.

The third mode of supply, commercial presence, refers to Foreign Direct Investments. All elements of the GATS agreement therefore also apply to FDI in the service sector. The most important elements of GATS are the following:

• GATS covers all services. The Most-Favoured Nation (MFN) principle should apply to all these services. This means that equal opportunities should be given to all foreign service providers from WTO member countries. There are some temporary exceptions to the MFN principle, but these exceptions can only be made once and will normally last no more than ten years.

• In contrast to goods, the National Treatment (NT) principle (i.e. national and foreign firms or persons are treated equally), only applies to services for which a country has made specific commitments. Even in sectors where a country has made commitments, exceptions are possible.

• The commitment of individual countries to introduce foreign competition in a service sector and the extent are the outcomes of negotiations. Once commitments are made, they cannot be modified or withdrawn, unless this can be negotiated with affected countries. The Commitments are thus "bound".

• Regarding domestic regulations that apply in services sectors, GATS states that this regulation should be reasonable, objective and impartial. In addition, all relevant laws and regulations have to be published to enhance transparency. Changes in laws and regulations have to be notified to the WTO.

• When governments conclude an agreement that recognises each other’s qualifications, other WTO members should also have the possibility to negotiate comparable recognition pacts. Recognition agreements must be notified to the WTO and must not be discriminatory.

• Governments must not restrict money transfers out of the country as payments for services supplied in that country once they have opened a sector up to foreign competition.

Document Download - Complete GATS text
	General agreement on Trade in Services

TRIMs Agreement

The Punta del Este Ministerial Declaration, which launched the Uruguay Round, included a proposal to limit and avoid trade-restrictive and trade-distorting effects of investment. The negotiations were not intended to deal with multilateral rules on investment itself but rather with the trade effects of investment. During the negotiations it became clear that there was strong disagreement between the participants about the nature and coverage of possible new multilateral rules. The resulting Trade Related Investment Measures (TRIMs) Agreement is limited to the GATT provisions on national treatment for imported goods (article III: 4) and on quantitative restrictions on imports and exports (article XI: 1). It only covers goods and not services. Because the Agreement only deals with the trade aspects of foreign investment, the issue of entry and treatment of foreign investment is not governed by the Agreement. However, the Agreement does not contain a definition of trade-related investment measures, but only an illustrative list of measures that are inconsistent with the above mentioned GATT provisions. This list contains two categories: local content requirements and trade balancing requirements.

All TRIMs that are not in conformity with the Agreement have to be notified to the Council for Trade in Goods. These measures have to be eliminated within a period of two years for developed countries, five years for developing countries and ten years for least developed countries. The Committee on TRIMs examines the implementation of the Agreement and monitors the elimination of TRIMS after they have been notified. In the future, the TRIMs Agreement may be supplemented with provisions on competition and investment policy.

Document Download - Complete TRIM text
	Agreement on Trade-Related Investment Measures