1. SERVICES TRADE UNDER THE GATS
GATS Main Features
February 2007
SERVICES TRADE UNDER THE GATS
- An Introduction I -
Rolf Adlung
Trade in Services Division
WTO

2. GATS Main Features
February 2007
STARTING POINT: INTERNATIONAL SERVICES TRADE – IMPLICATIONS FOR DEVELOPMENT

3. 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.

4. 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 2015.
Source: World Bank, 2002.

5. Services trade and development: Necessary conditions
Appropriate sequencing of reforms
[(re-)regulation/liberalization/privatization]
Contestable markets (effective competition) to
prevent private rent-seeking
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”.

6. The GATS: A latecomer in the multilateral system ...
GATS Main Features
February 2007
The GATS: A latecomer in the multilateral system ...

7. Services in the Multilateral System: Since 1995
YEAR ROUND PARTICIPANTS
Geneva
Annecy
1951 Torquay
1956 Geneva
1960/61 Dillon Round
1964/67 Kennedy Round
1973/79 Tokyo Round
1986/93 Uruguay Round
(Creation of GATS)

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

9. 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?

10. GATS Main Features
February 2007
GATS: Main Features

11. GATS Main Features
February 2007
1st Observation
THE GATS IS FAR WIDER IN COVERAGE THAN CONVENTIONAL TRADE AGREEMENTS ....

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

13. GATS: Modal structure

14. Mode 4: who is in and who is out?
Covered
Not 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

15. ... 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.)

16. 2nd Observation
... BUT THE GATS IS EXTREMELY FLEXIBLE IN APPLICATION

17. Relevance for individual sectors
GATS Main Features
February 2007
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”)

18. Scenario I: Status of Governmental Services
GATS Main Features
February 2007
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)

19. GATS Main Features
February 2007
Scenario II: What minimum obligations are incurred in sectors falling under GATS (“unconditional obligations”)?

20. Unconditional obligations
GATS Main Features
February 2007
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!

21. Scenario III: What are the implications of “Specific Commitments”?
GATS Main Features
February 2007
Scenario III: What are the implications of “Specific Commitments”?

22. Specific Commitments – Three basic concepts
GATS Main Features
February 2007
Specific Commitments – Three basic concepts
Market Access
National Treatment
(Additional Commitments)
Plus: Unconditional and Conditional Obligations

23. Market Access and National Treatment: Main elements
MARKET ACCESS (Article XVI)
Absence of quota-type and similar restrictions
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).

24. Schedules of Specific Commitments:
General Structure

25. 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

26. Specific Commitments – Where? How? When?
GATS Main Features
February 2007
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?

27. Conditional obligations
GATS Main Features
February 2007
Conditional obligations
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

28. Application of GATS obligations across the services economy

29. 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).

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

31. THE END