general agreement on trade in services (gats

7/31/2019 General Agreement on Trade in Services (GATS

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General Agreement on Trade

in Services (GATS)


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The Importance of Services Sector in

the World EconomyServices currently account for 60 percent of global production

and employment but they represent no more than 20percent of total trade.

Many services which have long been considered genuine

domestic activities, have increasingly becomeinternationally mobile.

This trend is likely to continue and grow owing to theintroduction of new transmission technologies such aselectronic banking tele-health or tele-education services,

opening up of state monopolies such as in telephone andpostal services sectors, and regulatory reforms in somehitherto tightly regulated sectors such as transportcombined with changing consumer preferences.


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List of Sectors included in Services

Business Services and Professional Services:

o Accountancy services

o

Advertizing serviceso Architectural and engineering services

o Computer and related services

o Legal services


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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


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List of services (cont.)

Environmental Services

Financial Services

Health and Social Services

Tourism Services

Transport Services

o Air transport services

o Maritime transport services

o Services auxiliary to all modes of transportation

Movement of Natural Persons


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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.


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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.


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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.


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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 domesticactivities and difficult to trade across borders.Education was the exception.


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Historical Background (Cont.)

The reason for Servicesnot being included in GATT:

By definition, depending upon their infrastructural andsocial importance, these services have been thedomain 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 governmentand therefore need not be left to the vagaries (businessfluctuations) of markets and private companies whosemain interest is to earn profit than public interest.


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Historical Background (cont.)

Some service sectors such as internationalfinance and maritime transport have been openfor centuries as necessary components of

merchandise trade. The development of information technologies

and the internet have expanded the range ofinternationally tradable service products.

These include a range of commercial activitiessuch as medicine, distance learning, engineering,architecture, advertising, and freight forwarding.


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Historical Background (Cont.)

Members obligation:

While the overall goal of the GATS is to remove barriers to trade inservices, members are free to choose which sectors are to beprogressively 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 healthservices commitments


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Four Modes of Supply for Delivery of

Services

The GATS agreement covers four modes of

supply for the delivery of services in cross-

border trade:

1. Cross-border trade

2. Consumption abroad

3. Commercial presence, and

4. Presence of natural persons


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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 notnecessary or needed.


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Modes of service supply (cont.)

2. Consumption abroad refers to situations where aservice consumer moves into another membersterritory to obtain a service such as tourist or

patient.3. Commercial presence implies that a service

supplier of one member establishes a territorialpresence, either through ownership or lease of

premises, in another members territory toprovide a service such as domestic subsidiaries ofinsurance companies or hotel chains.


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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 apermanent basis.


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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 prevailingprinciples of competition and liberalization.


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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.

general agreement on trade in services (gats

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