EU-LDC Themes - WTO - Research
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Trade in Services
GATS
Research on GATS
Relevant links
Trade in services
Over the last two decades, economic literature
has increasingly paid attention to the topic of trade in services.
An important distinction between trade in goods and trade in services
is that services are by their very nature intangible, and therefore
often non-tradable in a conventional sense. As a result, trade in
services is more broadly defined, comprising more than only cross-border
trade. In the WTO, four ways of trade are distinguished, generally
referred to as the modes of supply:
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Mode 1: cross border supply. This refers to
conventional trade: services are supplied from one country to
another (e.g. a telephone call).
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Mode 2: consumption abroad. This refers to
the movement of consumers or his/her property to another country
to obtain a service (e.g. tourism, repairs).
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Mode 3: commercial presence. This implies that
foreign companies set up subsidiaries or branches in another
country to supply a service (e.g. hotel chains).
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Mode 4: presence of natural persons. This refers
to persons travelling from their own country to another country
to provide a service (e.g. accountants).
Regulatory reform, liberalisation and developments
in information and communication technologies have increased the
tradability of services. As a result, trade in services has become
increasingly important over the last years, although it is still
only a relatively small part of total trade (around 20 percent on
the basis of Balance of Payments statistics). Because of this increased
importance of services trade, there was a call for multilateral
disciplines on services. In the Uruguay Round, the General Agreement
on Trade in Services (GATS) was concluded, which entered into force
on 1 January 1995.
The
General Agreement on Trade in Services (GATS)
The General Agreement on Trade in Services (GATS)
is Annex 1b of the Agreement establishing the World Trade Organisation
(also called the Final Act of the Uruguay Round). The GATS consists
of 29 articles, 8 annexes, 8 ministerial declarations and an understanding.
According to the preamble of the agreement, the
general goal of the GATS is "to establish a multilateral framework
of principles and rules for trade in services with a view to the
expansion of such trade, under conditions of transparency and progressive
liberalisation and as a means of promoting the economic growth of
all trading partners and the development of developing countries."
GATS operates on three levels: the main text containing
general principles and obligations; annexes dealing with rules for
specific sectors; and individual countries’ specific commitments
to provide access to their markets.
Coverage
The GATS applies to measures by WTO members which
affect trade in services. It covers all services, except those supplied
in the exercise of governmental authority, which is defined as services
not supplied on a commercial basis nor in competition with other
service suppliers. Another category that is excluded is, in the
air transport sector, air traffic rights and all services directly
related to the exercise of traffic rights. All other services are
covered by the agreement. Trade in services is defined following
the four modes of supply (see above).
General obligations and principles
A number of general obligations and principles
apply to all member countries and all services. Many of these general
obligations and principles are similar to those made in the General
Agreement on Tariffs and Trade (GATT). Two important general principles
in the GATS are Most-Favoured-Nation (MFN) Treatment and transparency.
It must be noted, however, that exemptions to MFN treatment are
possible under some conditions. The transparency principle is important
for services, because the sector is characterised by a relatively
high level of laws and regulations, and this could impede trade
in services. Countries are therefore required to establish an enquiry
point, to provide other members with information on this.
Specific commitments
An important aspect of the GATS is that governments
can determine the level of commitment with respect to liberalisation
of service sectors. Countries can choose for themselves those service
sectors or subsectors on which they will make commitments and there
are no minimum requirements. For those sectors that governments
are willing to open up, commitments are defined in terms of market
access and national treatment (i.e. equal treatment for domestic
and foreign services (providers)). These commitments are in turn
defined by the four modes of supply (see above). This implies there
are eight opportunities for countries to avoid full application
of market access/national treatment. In addition to the specific
commitments (i.e. by sector), countries can also make horizontal
commitments (i.e. applying to all sectors). So, an important difference
with the GATT is that under GATS national treatment only applies
to sectors where a country has made specific commitments.
While countries can choose for themselves if they
want to make commitments in a certain sector, once commitments are
made, they are binding and set out a minimum. Countries can also
make additional commitments, for example in the field of required
qualifications. All commitments are listed in the schedules of commitments
of each member in the Appendix of the Agreement.
Progressive liberalisation
When the GATS was concluded, the sectoral coverage
of most members was very limited, and the commitments that were
made were often only binding the statutory and regulatory status
quo. An important part of the original GATS is therefore the understanding
that periodic negotiations will be undertaken to progressively liberalise
trade in services. Article XIX commits members to start a new round
of negotiations on services in 2000. These negotiations are referred
to as the built-in agenda.
Developing countries: specific provisions
In the Preamble of the GATS, reference is made
to developing countries. The desire is to facilitate the increasing
participation of developing countries in trade in services and the
expansion of their service exports, inter alia through strengthening
of their domestic services capacity and its efficiency and competitiveness,
and also to take into account the difficult situation of least developed
countries.
Article IV of the GATS calls for increasing participation
of developing countries. This should be facilitated through negotiated
specific commitments relating to: strengthening of their domestic
services capacity and its efficiency and competitiveness, improvement
of their access to distribution channels and information networks,
the liberalisation of market access in sectors and modes of supply
of export interest to them. To facilitate access of developing country
Members' service suppliers to information, related to their respective
markets, developed countries will establish contact points with
information on commercial and technical aspects of the supply of
services, registration, recognition and obtaining of professional
qualifications; and the availability of services technology.
In part IV of the agreement, on progressive liberalisation,
article XIX states that there shall be appropriate flexibility for
individual developing country members for opening fewer sectors,
liberalising fewer types of transactions, and progressively extending
market access in line with their development situation.
Annexes and ministerial decisions
The GATS contains eight annexes that are an integral
part of the Agreement. There are six annexes that deal with specific
sectors: one on air transport, two on financial services, one on
maritime transport services and two on telecommunications. One annex
is on the possible exemptions under article II, the most-favoured
nation treatment. Finally, there is an annex on the movement of
natural persons (mode of supply 4).
In addition to the annexes, there are eight ministerial
decisions that relate to services, which were adopted on the same
day the GATS was signed. Finally, there is an understanding on commitments
of financial services, that is attached separately to the Uruguay
Round Final Act.
The complete texts of the GATS agreement is available
at the WTO website here.
The Agreement can also be downloaded as a pdf file
here.
After the Uruguay Round
In the first years after the Uruguay Round, agreement
was reached on negotiations in specific sectors. There were negotiations
in four areas: financial services, basic telecommunications, movement
of natural persons, and maritime services. Only in the first three
areas agreement was reached. These agreements are referred to as
protocols and are attached to the GATS.
These protocols are available on the WTO website
here.
The new round of services negotiations was officially
launched on 25 February 2000. These negotiations comprise two phases:
the "rules-making" phase, during which Members will negotiate
new rules for services on subsidies, safeguards and government procurement,
and the "request and offer" phase, where Members will
negotiate further market access. On 28-30 March 2001, agreement
was reached on the negotiating guidelines and procedures and negotiations
entered into the second phase.
In Doha it was agreed that all requests for market
access should be tabled before 30 June 2002, and all offers for
market access should be tabled before 31 March 2003. There will
be a stock taking of all requests and offers at the next WTO Ministerial
Meeting in Mexico in 2003.
All proposals made so far can be found on the WTO
website here.
Research issues
The main issues that are subject of research are
the following:
Relevant links
GATS
info-point
Website of the European Commission’s DG Trade designed
to help European service operators to provide their services around
the world. It contains a complete guide to the General Agreement
on Trade in Services (GATS), news about world trade in services,
a link to the Market Access Database and a means to inform the Commission
of any barriers or restrictions to trade.
GATSwatch
A joint project of the Corporate Europe Observatory
and the Transnational Institute. The website provides links to key
organisations and institutions as well as to key documents on GATS
and the GATS 2000 negotiations. It brings together the growing body
of NGO and academic critique on GATS as well as official government
position papers and documents of the corporate GATS proponents.
WTO-GATS
material on the WTO website
News, legal text of the GATS, explanation of the
agreement, information on ongoing negotiations (including Doha),
mandate and analysis and publications.
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