Overview of Trade in Services and the GATS

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Importance of Trade in Services –The Overall Picture

• 2000-2003, 16% total trade of developing countries (expanding at par with trade in goods)

• Services provide essential functions (water, health education, economic activity tourism), and interconnectivity with other sectors (distribution, manufacturing, logistics)

• Growth in contribution to GDP

• About 50% of workers in East Africa are employed in services sector.

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Importance of Trade in Services –The Overall Picture

• Ever increasing importance to human development e.g health, education

• 2000-2010: growth of economically active population outside agriculture will outpace agriculture (UNCTAD LDC Report 2006). Services to be a lead scorer

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Importance of Trade in Services -The East African Picture

• GDP share for Uganda is at 42.1%, 60% in Kenya, and TZ growing fast)

• Services offer employment and increase social welfare:

– Key sectors in Uganda being tourism (growth at annual rate of 21% since 1992, contributing 60% of services inflows annually)

– Key sectors in East Africa: Education and training, transport, management consultancy, health related and social services , and data processing.

GATT and GATS

GATS: Definitions• Sole International Agreement responsible for governing

multilateral liberalisation of trade in services.

• The Agreement defines services against delivery modes from the Territory of one Member into the Territory of any other Member: (Art 1:2).

Mode 1. Cross Border Trade

– Trade in the territory of one Member to the service consumer of any other Member

Safari Com in Kenya supplying mobile telephone services in Uganda. Safari com is based in Kenya

but its service crosses the border to Uganda.

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GATS: Mode 1.Cross Border Trade

GATS: Mode 2

Consumption Abroad

Trade by a service supplier of one Member, through Commercial Presence, in the territory of any other Member.

Nationals of Malawi going to South Africa as students, or patients to consume the respective services in South Africa.

GATS: Mode 3Commercial Presence

Trade by a service supplier of one Member, through the presence of natural persons of a Member in the territory of any other Member.

The service is provided within Swaziland by a locally established affiliate, subsidiary or

representative office of a foreign owned and controlled company.

Commercial Presence – Mode 3

GATS: Mode 4Movement of Natural Persons

By a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member.

Independent movement of People from Tanzania to United Kingdom to supply

services as consultants, cleaners, nurses etc.

Movement of Natural Persons: Mode 4.

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The GATS: Objectives

• Expansion of trade as a means for development.

• Achievement of progressively higher levels of liberalization through successive Rounds.

• Due respect to national policy objectives.

• Respect for the right to regulate to meet national policy objectives.

• Facilitation of the increasing participation of Developing Countries in international trade in services .

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Scope of the GATSArticle I

• Measures by Members affecting trade in services taken by central, regional or local governments and

authorities taken by non governmental bodies in the exercise of ‑

powers delegated by central, regional, or local governmental authorities (Art.I: 3 (a)

• Services include any service in any sector except services supplied in the exercise of governmental authority, – i.e any service supplied neither on commercial basis or in

competition with one or more suppliers. (Art.I: 3 (b) and (c)

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Scope of the GATSSectoral Coverage

• Services sectoral classification list (MTN.GNS/W/120)

• Sectors included are:Business services, Communication services, Construction

and related services, Engineering services, Distribution services, Educational services, Environmental services, Financial

services, Health related servcies, Social services, Tourism and Travel related services, Recreational, Cultural and Sporting services, Transport services and other services not included above.

• All these are further broken down to sub-sectors (Ref. W/120)

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Key Principles: Most Favored Nation• Each Member to accord immediately and unconditionally to

services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country. (Article II)

• MFN exemptions are permitted provided they:– Are listed, (GATS Art. II:2)– Do not, in principle, last more than 10 years, (Para 6, Annex on

movement of natural persons)– Are subject to future Rounds of trade liberalization

• Any new MFN exemptions have to follow the waiver process in Article IX:3 of the Marakesh Agreement.

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Market Access: Article XVI

• Article XVI locks members to terms and conditions committed to in their schedules.

• The following Measures cannot be restricted save if they are provided in the schedule:

limitations on the number of suppliers, limitations on the total value of transactions,measures which restrict or require specific types of

legal entity,limitations on the participation of foreign capital.

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Negotiation of Specific Commitments: Article XIX

• Each successive Round of negotiations is aimed at achieving progressively higher levels of liberalisation– XIX:2 Flexibility for developing countries

• Negotiations to take bilateral, plurilateral or multilateral approaches. Art.XIX:4

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Schedules of Specific Commitments:Article XX

• Members to lay out the scope of their commitments including: terms, limitations and conditions on market

access; conditions and qualifications on national

treatment; undertakings relating to additional

commitments;

• Schedules of specific commitments are considered an integral part of the GATS.

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Example of a Schedule: Health Services, Singapore

Sector or Sub Sector

Limitations on Market Access

Limitations on National Treatment

Additional Commitments

Medical services 1) Unbound*

2) None

3) None, other than the number of foreign registered each year may be limited depending on the total supply of doctors.

4) Unbound, except as indicated in the horizontal section

1) None

2) None

3) None

4) Unbound

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Uganda’s Commitments in the GATS

Uruguay Round commitments: Telecommunication and Tourism.

Telecomm:

• Uganda has market access unbound except for the duopoly major license holders (mode 1), until 1998 (mode 3)(MTN, Celtel)

• technically, market still closed to two at WTO level, until Uganda lists none.

• (rev1 includes ref. to pre-existing licence holders according to terms of their licenses.

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Uganda commitments: Telecom cont’d

• Mode 4 is unbound except for technical personnel. Where Ugandans are available they are priority.

• No limitations on National treatment for Modes 1,2 3, which means equal treatment for services and services suppliers for whom market access is open.

• Uganda undertook under additional commitments obligations in the Telecom reference paper which covers deeper commitments containing definitions and principles on the regulatory frame work for basic telecomm- which creates additional regulatory obligations for Uganda.

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Uganda - Tourism and Travel related services

• Uganda has full market access commitments for hotels and restaurants, travel agencies in modes 1 and 2. Implication? Market is fully open.

• For Mode 3, investment authority approval is required.

• Mode 4 is unbound except for technical experts.

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Additional Commitments: Article XVIII

• Commitments that go beyond market access and national treatment, including qualifications, standards or licensing matters are permitted.

• E.g. Telecom Reference Paper commitments of Uganda.

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Modificaiton of schedules: Article XXI• No commitment can be modified or withdrawn until at least 3 years

after it entered into force.

• 3 months' notice must be given of the proposed change.

• Modifying Member must compensate any WTO member affected by the change – normally settled by negotiation.

• If all goes well, agreement is reached on new commitments to offset those being withdrawn, but the general level of commitments between countries concerned is no less favourable to trade than before.

• If no agreement, recourse can be made to arbitration.

• Compensatory adjustments are to be applied on an MFN basis.

Exercise

1.Imagine that your country intended to schedule banking and rail transport services in its Schedule of Specific Commitments. What could be an example of a market access restriction in these sectors?

2.When can existing specific commitments be modified?

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National Treatment: Article XVII

• In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, treatment no less favorable than that it accords to its own like services and service suppliers.

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Transparency

• Prompt publishing of all relevant measures of general application that affect the operation of the agreement, including international agreements that affect the GATS.

• Members must notify the Committee for Trade in Services of new or changed laws, regulations or administrative guidelines that affect trade in services covered by their specific commitments under the GATS.

• Each member should establish an enquiry point, to respond to requests from other Members for information on these matters.

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Increasing Participation of Developing Countries: GATS Article IV

Calls for facilitation of Developing Country trade through negotiated specific commitments relating to:

• strengthening their domestic services sectors• improvement of their access to distribution channels and information

networks• the liberalization of market access in sectors and modes of supply which

are of export interest to Developing Countries.

Developed countries shall establish contact points to provide Developing Country service suppliers with information on:

• Commercial and technical aspects of the supply of services• Registration, recognition and obtaining of professional qualification• The availability of services technology

Special priority for LDCs on implementing the above provisions.

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Economic Integration:GATS Article V

Economic integration agreements must fulfill thefollowing criteria:

• Provide for the absence or elimination of substantially all discrimination, in national treatment terms among the parties

• Have substantial sectoral coverage.

• Must not in respect of any Member outside the Integration raise the overall level of barriers to trade in services (Art.V:1)

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Domestic Regulations: GATS Article VI

• Measures of general application affecting trade in sectors committed must be administered in a reasonable, objective and impartial manner.

• Members must maintain administrative, judicial or arbitral tribunals to review, and provide remedy for administrative decisions affecting trade in committed sector.

• Members to ensure that measures relating to quantitative restrictions, and technical standards are not unnecessary barriers to trade.

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Recognition: Article VII

• WTO Members may recognize the education or experience obtained, requirements met, or licenses or certifications granted of other Members.

• Such recognition can be achieved:- through harmonization or otherwise,- can be based upon an agreement or arrangement

with the country concerned,- may be accorded autonomously

• Members party to such agreement must afford others interested the opportunity to join such Agreement.

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Restrictions to Safeguard BOP Issues: Article XII

In the event of serious BOP and external financial difficulties or threat, a Member may adopt or maintain restrictions on trade in services on which it has undertaken specific commitments.

Such restrictions must: not discriminate among Members;

avoid unnecessary damage to the commercial, economic and financial interests of any other Member;

not exceed those necessary to deal with the circumstances in question;

be temporary and be phased out progressively as the situation improves.

Any restrictions shall be promptly notified to the WTO General Council

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Government Procurement: Article XIII

• Government Procurement involves services purchased for governmental purposes, without aim of commercial resale or for use in supply of services for commercial resale.

• Note existence of the WTO Plurilateral Agreement on Government Procurement.

• MFN and National Treatment principles shall not apply to Government Procurement.

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General Exceptions: Article XIV

Provided measures are not used as an unnecessary barrier to trade, some exceptions are permitted: necessary to protect public morals or to maintain public

order;

necessary to protect human, animal or plant life or health;

necessary to secure compliance with laws or regulations which are not inconsistent with the GATSe.g., relating to prevention of deceptive and fraudulent practices,

protection of the privacy of individuals in the processing and dissemination of personal data, and safety.

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Subsidies: Article XV

• Negotiators are mandated to develop necessary multilateral disciplines to avoid trade distortive effects of subsidies in services and the appropriateness of countervailing procedures

• Negotiators also need to recognize the role of subsidies in relation to the development programmes of Developing Countries.

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Dispute Settlement

• Recourse where members breach obligations on specific commitments.

• Where a member feels there is nullification or impairment of benefits, it may have recourse to the DSU.

US – Measures Affecting Cross – Border Supply of Gambling and Betting Services.

• Antigua and Barbuda challenged US laws which prohibited the supply of gambling services from any WTO Member to the US on a cross border basis.

• In its Schedule of Commitments however, USA had taken commitments on recreational services except sporting, with no limitation on supply via Mode 1, (cross border supply). That is, US had undertaken to allow other WTO Members to supply recreational services into its territory on a cross border basis.

• The Panel found that by writing “none” in the market access column, the US had made full market access commitment for gambling and betting , which were recreational services that did not fall in the category of sporting.

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State of Play in GATS Negotiations

• The Doha Ministerial Declaration (2001, November)

• Hong Kong Ministerial Declaration (December 2005)

• Suspension of the Negotiations (August 2006)

• Soft and formal resumption of negotiations

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Market Access Negotiations

• No significant commercially meaningful openings– Difficulty of assessing quality & depth of commitments

• emphasis on modes and sectors which currently dominate schedules

• relatively few changes in sensitive sectors & Mode 4• One form of limitation replaced by another

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Market Access: The Plurilaterals

• 23 plurilateral requests.

• Sectors covered include:Architectural, Engineering & Integrated Engineering; Legal; Computer & Related Services; Energy; Environmental; Financial; Maritime Transport; Telecommunications; Audiovisual; Logistics; MFN Exemptions (Audio-visual Services); Mode 3; Mode 4; Postal & Courier, including Express Delivery; Cross Border Supply; Air Transport; Distribution; Private Education; Services Related to Agriculture; Construction.

• Meetings scheduled for April on plurilaterals

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Annexes to the GATS- Annex on Article II Exemptions- Annex on Movement of Natural Persons Supplying Services under the Agreement- Annex on Air Transport Services- Annex on Financial Services- Second Annex on Financial Services- Annex on Negotiations on Maritime Transport Services- Annex on Telecommunications- Annex on Negotiations on Basic Telecommunications

TAKE HOME ASSIGNMENT

• Trade in services has attracted increased attention. Why is this so and what makes this trade different from trade in goods?

• In your opinion, why is the GATS necessary?