1 International Trade Service SERVICES TRADE UNDER THE GATS

Trade in Services refers to the sale and delivery of an intangible product, called a service, between a producer and consumer. Trade in services takes place between a producer and consumer that are, in legal terms, based in different countries, or economies, this is called International Trade in Services.intangible 2

International trade in services is defined by the Four Modes of Supply of the General Agreement on Trade in Services (GATS). General Agreement on Trade in Services 3

(Mode 1) Cross border trade, which is defined as delivery of a service from the territory of one country into the territory of other country; (Mode 2) Consumption abroad - this mode covers supply of a service of one country to the service consumer of any other country; 4

(Mode 3) Commercial presence - which covers services provided by a service supplier of one country in the territory of any other country (Mode 4) Presence of natural persons - which covers services provided by a service supplier of one country through the presence of natural persons in the territory of any other country. 5

A "Natural person" is a human being, as distinct from legal persons such as companies or organisations. Countries can freely decide where to liberalize on a sector-by-sector basis, including which specific mode of supply they want to cover for a given sector.Natural person The tourism sector, the financial services sector and the telecommunications services sector are examples of services sectors.tourismtelecommunications 6

During the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services was drafted, and became enshrined (to place) as one of the four pillars of the international treaty comprising the World Trade Organization Agreement in General Agreement on Tariffs and TradeWorld Trade Organization 7

Regional trade in services agreements are also negotiated and signed between regional economic groupings such as CARICOM, North American Free Trade Agreement (NAFTA) and ASEAN. CARICOMNorth American Free Trade AgreementASEAN Some examples of trade in service would be: banking, check-ups done by a doctor and IT (information technology). 8

9 STARTING POINT: INTERNATIONAL SERVICES TRADE – IMPLICATIONS FOR DEVELOPMENT

10 A Priori Expectations “The gains from liberalizing services may be substantially greater than those from liberalizing trade in goods, because current levels of protection are higher and because [there would be] spillover benefits from the required movement of capital and labour.” (World Bank, 2002). Infrastructural services such as telecommunications, finance and transport are crucial determinants of overall economic efficiency and growth.

11 Services trade and development: Some estimates Lack of competition in maritime transport (cargo reservation, restrictions on port services, collective rate setting, etc.) can increase freight rates up to 25 % on certain routes. Economies that fully liberalized investment in telecom and financial services grew about 1.5 % faster over the past decade than others. Services liberalization in developing economies could provide as much as US$6 trillion in additional income between 2005 and Source: World Bank, 2002.

12 Services trade and development: Necessary conditions n Appropriate sequencing of reforms [(re-)regulation/liberalization/privatization] Contestable markets (effective competition) to prevent private rent-seeking n Effective regulation, including prudential rules, to protect consumers and the public interest Note: The Preamble of GATS expressly recognizes “the right of Members to regulate and to introduce new regulations… to meet national policy objectives”.

13 The GATS: A latecomer in the multilateral system...

14 Services in the Multilateral System: Since 1995 YEARROUND PARTICIPANTS 1947 Geneva Annecy Torquay Geneva /61Dillon Round /67Kennedy Round /79Tokyo Round /93Uruguay Round 123 (Creation of GATS)

15 The traditional view ● Services = intangible = non-tradable ● Services = government monopolies ● Services = rich countries’ playfield ● Services = unsuited for GATT-type disciplines

16 Challenges during the Uruguay Round ● Sector coverage? ● Types of transactions? ● Role of Most-Favoured-Nation (MFN) principle? ● Permissible policy instruments? ● Need for GATT-type trade remedies and regulatory disciplines?

17 GATS: Main Features

18 1 st Observation THE GATS IS FAR WIDER IN COVERAGE THAN CONVENTIONAL TRADE AGREEMENTS....

19 n MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS nALL SERVICES (except governmental services and measures affecting air traffic rights) nFOUR MODES OF SUPPLY - Cross-border supply- Consumption abroad - Commercial presence- Presence of nat. persons nAPPLICATION TO SERVICES AND SERVICE SUPPLIERS GATS: Scope, coverage, definition

20 GATS: Modal structure

21 Mode 4: who is in and who is out? CoveredNot covered Employees of foreign service suppliers in host country (ICTs) Employees of foreign service suppliers abroad to fulfill a contract (CSS) Natural persons as independent service suppliers fulfilling a contract (CSS) Also: Business Visitors Employees in the goods sector Employees of host country firms Persons with citizenship, permanent residence and/or work permit

... with interesting ramifications Test question: What modes are involved? (The patient and the nurse are foreigners, the hospital is foreign-owned, and ‘SURGERY.COM’ is based abroad.)

23 2 nd Observation... BUT THE GATS IS EXTREMELY FLEXIBLE IN APPLICATION

24 Relevance for individual sectors Three possible Scenarios: I.Not covered: Governmental services and large segments of air traffic II.Covered - but no access obligations III.Access obligations (“Specific Commitments”)

25 Scenario I: Status of Governmental Services Excluded from coverage are “services provided in the exercise of governmental authority” which, in turn, are defined as services that are supplied “neither on a commercial basis, nor in competition with one or more service suppliers”. (Article I:3) Financial services: Competition as the sole criterion (Annex on Financial Services)

26 Scenario II: What minimum obligations are incurred in sectors falling under GATS (“unconditional obligations”)?

27 Unconditional obligations Most-Favoured-Nation (MFN) Treatment Transparency requirements Some other “good governance” provisions (availability of legal remedies, opportunity for consultations, etc.) Note: There is no obligation to open markets!

28 Scenario III: What are the implications of “Specific Commitments”?

29 Specific Commitments – Three basic concepts Market Access National Treatment (Additional Commitments) Plus: Unconditional and Conditional Obligations

30 Market Access and National Treatment: Main elements MARKET ACCESS (Article XVI) Absence of quota-type and similar restrictions n NATIONAL TREATMENT (Article XVII) Non-discrimination with regard to all measures affecting the supply of a service Any limitations must be inscribed in Schedules under the relevant mode(s).

31 Schedules of Specific Commitments: General Structure

32 How Schedules of Commitments are structured: Case A. *Unbound due to lack of technical feasibility NOTE: “unbound” = no commitment (full policy discretion) “none” = no limitation (full commitment) “The number of... “ = partial commitment

33 Specific Commitments – Where? How? When? Selection of sectors Inscription of limitations (i) Less than status quo? (ii) Status quo? (iii) More liberal? - With immediate effect? - Pre-commitment?

34 Art. III:3 (add. transparency requirements) Art. VI:1 (administration of measures) Art. VI:5 (regulatory disciplines) Art. VIII (compliance of monopolies) Art. XI:1 (current transactions) Art. XI:2 and fn 8 to Art. XVI (capital transfers) Annex on Telecommunications Conditional obligations

35 Application of GATS obligations across the services economy

36 Must GATS obligations (and commitments) be respected at all costs? No. Members may intervene for overriding health and other policy reasons (Article XIV, ‘prudential carve-out’ in financial services), because of security concerns (Article XIVbis) or to protect the Balance of Payments (Article XII). Also, they may want to re-negotiate commitments (Article XXI) or seek a waiver (Article XIX:3 of WTO Agreement).

37 Four negotiating mandates Domestic Regulation (Article VI:4) Emergency Safeguards (Article X) Government Procurement Article XIII) Subsidies (Article XV)

38 THE END