WTO, GATS and Modes of Supply

WTO, GATS and Modes of Supply
© WTO/OMC

GATT and WTO in short Havana Conference (ITO) – First Round (23) 1947
The GATT enters into force 1948 Annecy (33) 1949 Torquay (34) 1950 Geneva (42) 1956 “Dillon Round” (45) “Kennedy Round” (60) “Tokyo Round” (99) “Uruguay Round” (123) (Creation of GATS) Marrakesh Conference (signature of the Final Act) 1994 WTO enters into force © WTO/OMC

1986-93: Uruguay Round “Final Act”
WTO : Uruguay Round “Final Act” Marrakesh Agreement (Establishing WTO) Annex 1 1A: Agreements on Trade in Goods (GATT …) 1B: GATS (Trade in Services) 1C: TRIPS (Intellectual Property Rights) Annex 2: Dispute Settlement Understanding Annex 3: Trade Policy Review Mechanism Annex 4: Plurilateral Agreements Decisions and Declarations © WTO/OMC

What is the WTO? (1/2) Independence from the United Nations system
Member-driven (153 Members) Decision-making by consensus Support from an independent Secretariat Budget: 180 million Swiss francs (2007) Headquarters in Geneva (no permanent presence in the field) © WTO/OMC

Trade flow as freely as possible
WTO What is the WTO? (2/2) Deal with rules of trade WTO agreements: contracts between Members Agreements negotiated and signed by Members Help producers of goods and services, exporters and importers Trade flow as freely as possible © WTO/OMC

Objectives Raising standards of living Ensuring full employment
WTO Objectives Raising standards of living Ensuring full employment Growth (income and demand) Growth in output and trade (goods and services) … optimal use of the world’s resources (sustainable development) © WTO/OMC

Functions Administering WTO trade agreements Forum for negotiations
Handling trade disputes Monitoring national trade policies Technical assistance and capacity building Co-operation with other international organizations (coherence) © WTO/OMC

Basic principles of the multilateral trading system
WTO Basic principles of the multilateral trading system Most-Favoured Nation (MFN) National treatment Prohibited use of quantitative restrictions Respect of the bindings © WTO/OMC

Current negotiations: DDA
WTO Fourth Ministerial Conference in Doha Launch of new round of negotiations “Doha Development Agenda” Includes Services negotiations initiated in 2000 Doha Ministerial Declaration Work programme for negotiations Original deadline: 1 January 2005 “July package” (1 August 2004) Hong Kong Ministerial Conference “July 2008 package” © WTO/OMC

Ministerial Conference
WTO Ministerial Conference Appellate Body Negotiating Group Special Sessions TPRB General Council DSB Panels Trade Negotiations Committee Goods Council Services Council CTD (Development) CTE (Environment) CRTA (Regionalism) BOP WG (Investment) WG (Competition) WG (Transparency – Government Procurement) Accessions Budget Committees Committees TRIPS Council Director-General Secretariat © WTO/OMC

Services: Most important activity in many countries of the world
Services and TIS Services: Most important activity in many countries of the world Single largest source of employment Most rapidly growing sector Universal inputs for many other sectors – services are everywhere © WTO/OMC

Services Intangible output of a production process PRODUCTS GOODS
Services and TIS Services Intangible output of a production process PRODUCTS GOODS (tangible) SERVICES (intangible) USER’S NEED PRODUCTION Key role in the economy transport, telecommunications… long term benefits - environmental, educational services… Services value added = 2/3 Global GDP © WTO/OMC

Infrastructure services as a key to economic activity
Services and TIS Infrastructure services as a key to economic activity Other Services Agriculture/commodities Industrial goods Transport Banking & Insurance Computer & Software Business Services Telecommunications Energy © WTO/OMC

Some Characteristics of Trade in Services
Services and TIS Some Characteristics of Trade in Services Services: 20% of world trade but 2/3 of world GDP Intangible → non-tradable and non-storable Simultaneity of production and consumption Role of local establishment Strong government involvement Public service obligations, infrastructural importance (transport, telecom, etc.) Conventional trade statistics do not cover all international trade in services Services delivered by foreign affiliates > conventional international trade in services. © WTO/OMC

Services are supplied in conjunction with goods (finance,
Services and TIS Certain services - international transport and communication - have been traded for centuries Services are supplied in conjunction with goods (finance, insurance, marketing, etc.) Services have become tradable as a result of: technical progress (e-banking, tele-medicine, distance learning) government retrenchment market liberalization and regulatory reform © WTO/OMC

GATS framework Legal text GATS defines:
Trade in services (4 modes of supply) Service supplier / consumer Commercial presence Juridical persons / natural persons Commitments made from the imports perspective © WTO/OMC

GATS: Scope, Coverage, Definition
MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS ALL SERVICES (except air traffic rights and services supplied in the exercise of governmental authority) FOUR MODES OF SUPPLY Cross-border supply Consumption abroad Commercial presence Presence of natural persons APPLIES TO PRODUCT (SERVICE) AND PRODUCER/ DISTRIBUTOR (SERVICE SUPPLIER) © WTO/OMC

The GATS Pillars and Commitments
Set of general obligations and disciplines Countries schedules of specific commitments Annexes on specific issues Commitments under GATS By modes of supply By services sectors © WTO/OMC

The Services Sectoral Classification List GNS/W/120
GATS The Services Sectoral Classification List GNS/W/120 1. Business services 2. Communication services 3. Construction and related engineering services 4. Distribution services 5. Educational services 6. Environmental services 7. Financial services 8. Health-related and social services 9. Tourism and travel-related services 10. Recreational, cultural and sporting activities 11. Transport services 12. Other services not included elsewhere © WTO/OMC

GATS Classification What is the GNS/W/120? MTN. GNS/W/120 of July 1991 divides sectors into 12 groups Altogether ~ 160 sub-sectors identified Results from consultations with member countries Relevant sectors and sub sectors with respect to national services regulations Negotiating list Statistical classification © WTO/OMC

Description of Sectors
GATS Classification Description of Sectors Need for precise definition of sectors as defines scope of commitments GNS/W/120 may evolve and negotiators may use other classifications Corresponding code of the Central Product classification (CPC), Provisional version CPC is a tool, Members may describe sectors by using other definitions © WTO/OMC

GNS/W/120 – Provisional CPC (1/2)
GATS Classification GNS/W/120 – Provisional CPC (1/2) © WTO/OMC

GNS/W/120 – Provisional CPC (2/2)
GATS Classification Description in CPC prov: Hierarchy Section: 7 - Transport, storage and communications services Division: 72 - Water transport services Group: Transport services by sea-going vessels Class: Freight transportation Breakdown: This Class is divided into the following Subclasses: Transportation of frozen or refrigerated goods Transportation of bulk liquids or gases Transportation of containerized freight Transportation of other freight © WTO/OMC

The 1st Mode of Supply Member A Member B Service consumer Service
MODES The 1st Mode of Supply Member A Member B Supply of a service from the territory of one Member into the territory of any other Member Service consumer Service supplier © WTO/OMC

The 2nd Mode of Supply Member A Member B Service supplier Service
MODES The 2nd Mode of Supply Member A Member B Supply of a service in the territory of one Member to the service consumer of any other Member Service supplier Service consumer © WTO/OMC

$ The 3rd Mode of Supply Member A Member B Service supplier Service
MODES The 3rd Mode of Supply Member A Member B Supply of a service by a service supplier of one Member, through commercial presence in the territory of any other Member $ Service supplier Service consumer © WTO/OMC

The 4th Mode of Supply Member A Member B Service supplier Service
MODES The 4th Mode of Supply Member A Member B Supply of a service by a service supplier of a Member, through presence of natural persons of a Member in the territory of any other Member Service supplier Service consumer © WTO/OMC

The 4 modes of supply: health services (example)
Mode 1: Tele-diagnosis Mode 2: Hospital treatment abroad Mode 3: Foreign-owned clinic Mode 4: Short-term movement of foreign nurses or physicians © WTO/OMC

The Movement of Natural Persons in GATS
MODE 4 The Movement of Natural Persons in GATS Relevant framework GATS’ main text: mode presence of natural persons GATS’ Annex movement of natural persons Description of Mode 4 in GATS’ Annex in terms of Purpose of stay Fulfilling a service contract, whether as a service supplier (self-employed) or as an employee Temporary: Measures regarding citizenship, migration, residence and permanent employment are not covered Duration of stay © WTO/OMC

Does not exclude any level of skill
MODE 4 Which natural persons? Self-employed of Member A Employed by a service supplier of Member A: the employee is sent to Member B in respect of the supply of a service Member A has commercial presence in Member B and sends its employee to its affiliate in Member B (intra-corporate transferees) or directly recruits a foreigner Does not exclude any level of skill © WTO/OMC

The Annex on Movement of Natural Persons
MODE 4 The Annex on Movement of Natural Persons GATS does NOT apply to measures affecting natural persons seeking access to the employment market regarding citizenship, residence or employment on a permanent basis GATS does not define “temporary” © WTO/OMC

The Annex on Movement of Natural Persons
MODE 4 The Annex on Movement of Natural Persons Commitments can be scheduled by categories of natural persons Governments are free to regulate entry and temporary stay, provided these measures do not nullify or impair the commitment footnote 1: differential visa requirements, not to be regarded as nullifying or impairing benefits under a specific commitment © WTO/OMC

Who is in and Who is out? Falling under Mode 4
Not falling under Mode 4 Supply of services (Definition of particular services?) All skill levels Intra-corporate transferees or foreigners directly recruited by foreign affiliate Contractual service suppliers Self-employed Employees of foreign service supplier Also: Services sellers, etc. Temporary movement Employees in the “goods” sector Employees of host country firms Permanent migration © WTO/OMC

Mode 4 and Current Commitments
Supply of services All skill levels Intra-corporate transferees Contractual serv. suppliers Services sellers/ setting up commercial presence Temporary movement Mainly horizontal commitments Mostly high-level Intra-corporate transferees (~70%) Contractual serv. suppliers (~10%) Services sellers/ setting up commercial presence (~20%) 3-5 years: Intra-corp. transferees < 1 year: Contractual serv. suppliers < 3 months: Service sellers etc. © WTO/OMC

Mode 4 and Existing Classifications
Basis for classifying services as product of economic activity, including services delivered through Mode 4 UN CPC Distinguishes categories of employment: can facilitate linkages statistics/negotiations ISCO-88 Industrial classification: relevant if statistics by occupation are not available UN ISIC Status in employment: identifies « independent service providers » ICSE-93 © WTO/OMC

Mode 4 Information needs
Value of trade: Balance of Payments services trade Contractual service suppliers as employees of service supplier sent abroad to fulfill a contract between his employer and consumer Self-employed going abroad to fulfill service contract (independent professionals) Number of persons (flows and stocks): Tourism and Migration statistics Contractual service suppliers as employees Self-employed Intra-corporate transferees, employees of foreign affiliates Service sellers / persons responsible for setting up commercial presence © WTO/OMC

Main Issues for Measuring Mode 4
Mode 4 in MSITS The Manual on Statistics of International Trade in Services (MSITS) recognises that a statistical framework needs to be developed for measuring Mode 4 Annex in MSITS as a first step Main statistical issues Determining the coverage of Mode 4 Only fragmentary indicators available Determining the indicators to measure Mode 4 © WTO/OMC

In what modes are the following services supplied?
Examples In what modes are the following services supplied? Temporary presence of independent professional accountant to provide accounting services in country B Establishment of a branch in B of an insurance company from country A Services consumed by a business traveller of A while travelling abroad Provision of medical advice by an expert team in country A to physicians carrying out by-pass surgery in country B A dentist from B offers treatment in a practice he owns in A © WTO/OMC

In what modes are the following services supplied?
Examples In what modes are the following services supplied? Architect from A designs a construction project and delivers it to its client in B through the Internet, but makes occasional visits to B at the implementation phase A computer specialist from C employed by a computer services company of B and sent to work in a branch located in B An airline company from A has its plane repaired while stationed in country B. The crew stays in a hotel in B while the plane is being repaired. A cook from A opening his own restaurant in country B © WTO/OMC

GATS: Statistical information needed
Statistics GATS: Statistical information needed By service sectors By modes of supply Mode 1: Cross-border trade Mode 2: Consumption abroad Mode 3: Commercial presence Mode 4: Presence of natural persons By partner © WTO/OMC

GATS: statistical considerations
Statistics GATS: statistical considerations Territorial presence vs. residency Temporary vs. 1 year guideline Modes of supply vs. transactions Services sectors vs. CPC/EBOPS/ICFA Cross-classifications (mode 4) © WTO/OMC

Trade in services between residents/nonresidents
Statistics Trade in services between residents/nonresidents Measured in the balance of payments, within the current account Does not cover the whole of trade in services or show separately (for example, mode 3 or mode 4?) Need for more detail in terms of service sectors (EBOPS) Not allocated by modes of supply Need for statistics broken down by partner © WTO/OMC

Statistics FATS statistics Usefulness for measuring Mode 3 (commercial presence) and to understand globalisation Focus on the operations of majority-owned foreign affiliates Five basic variables, and additional variables Attributed by partner country Classified as a priority on the basis of the primary activity of the foreign affiliate (ICFA – focus on services) © WTO/OMC

.... But other indicators of interest for analysis
Statistics .... But other indicators of interest for analysis Mode 3 and Foreign Direct Investment statistics (stocks and flows, important complement to FATS) Other FATS variables (number of service suppliers, employees, value of assets) Sectoral statistical frameworks: tourism , health Supplementary information from BPM6 linked to the movement of mode 4 persons Production, quantitative, employment indicators © WTO/OMC

The four modes of supply: statistical simplified criteria
Statistics The four modes of supply: statistical simplified criteria © WTO/OMC

What’s the problem with measuring the value of GATS Modes of Supply?
Statistics What’s the problem with measuring the value of GATS Modes of Supply? ? ? ? Intermodal linkages Services may be delivered through several modes of supply Mode 4 Mode 1 Mode 3 Mode 2 A single service transaction through different modes © WTO/OMC

The GATS Modes of Supply (1/2)
Statistics The GATS Modes of Supply (1/2) COUNTRY A COUNTRY B Mode 1: Cross-border BOP commercial services (excl. travel and construction) Service supply Service supplier Consumer The service crosses the border Mode 2: Consumption abroad BOP travel + part of transportation Service supply Service supplier The consumer is abroad Consumer Consumer Mode 3: Commercial presence FATS + BOP construction Service supply Establish commercial presence $ $ $ $ $ Direct investment Commercial presence Consumer Company Consumer in C © WTO/OMC

The GATS Modes of Supply (2/2)
Statistics The GATS Modes of Supply (2/2) COUNTRY A COUNTRY B Mode 4: Presence of natural persons BOP commercial services (excl. travel) Service supply An independent goes to country A Consumer Natural person An employee is sent by a company of country B Mode 3 trade Service supply Consumer intra-corporate transferee or directly recruited Juridical person Commercial presence Consumer C © WTO/OMC

Allocation of BOP/EBOPS Services Items to Modes of Supply (1/2)
Statistics Allocation of BOP/EBOPS Services Items to Modes of Supply (1/2) As a first step, MSITS proposes a simplified approach: Items deemed to be predominantly delivered through one mode Transportation (except supporting and auxiliary services to carriers in foreign ports), Communications services Insurance services Financial services Royalties and license fees Mode 1 Travel (excluding purchases of goods) Supporting and auxiliary services to carriers in foreign ports Mode 2 © WTO/OMC

Allocation of BOP/EBOPS Services Items to Modes of Supply (2/2)
Statistics Allocation of BOP/EBOPS Services Items to Modes of Supply (2/2) Simplified approach (continued): Items for which significant elements of 2 modes of supply are involved Mode 1 ? Mode 4 Computer and information services Other business services Personal, cultural and recreational services Mode 3 ? Construction © WTO/OMC

Commercial services exports by mode of supply, 2002
Singapore Commercial services exports by mode of supply, 2002 Statistics Mode 2 Mode 4 Mode 1 Source: WTO Secretariat estimates derived from Singstats, Singapore's International Trade in Services: New Statistical Estimates and Analysis, March 2000 and Singapore's Balance of Payments: Methodological Improvements and New Reporting Format for the Services Account, December 2003. © WTO/OMC

Economic Variables for FATS
Statistics Economic Variables for FATS Sales (turnover) and/or output Employment Value added Exports and imports of goods and services Number of enterprises Basic FATS variables (minimum recommended by MSITS) Assets Compensation of employees Net worth Net operating surplus Gross fixed capital formation Taxes on income Research and development expenditures Additional FATS variables © WTO/OMC

Commercial services exports
Statistics Australia Commercial services exports by mode of supply, Source: WTO calculations based on Trade in Services, Australia , Australian Department of Foreign Affairs and Trade (2005) and ABS (2007), International Trade in Services by Country, by State and by Detailed Services Category, Financial Year, © WTO/OMC

Australia, exports of services by mode of supply, 2002-03
Statistics Australia, exports of services by mode of supply, Source: WTO calculations based on ABS (2007), International Trade in Services by Country, by State and by Detailed Services Category, Financial Year, © WTO/OMC

Sales of services by Australia Breakdown by main partner, all modes, 2002-03
Statistics Source: Trade in Services, Australia , Australian Department of Foreign Affairs and Trade (2005). © WTO/OMC

Mode 4 measurement The size of mode 4 trade? Small compared to total trade, and to other modes of trade in services Importance varies across countries and sectors Mobility for skilled workers increasing and facilitated by special programs Both developed and developing countries are traders where mode 4 can be involved © WTO/OMC

Mode 4 and “Temporary” GATS does not define “temporary”
Mode 4 measurement Mode 4 and “Temporary” GATS does not define “temporary” In WTO Members’ schedules of commitments Varies between about 3 months (service sellers) and 2 to 5 years (intra-corporate transferees) In international statistical standards (BPM5, SNA, migration, tourism) One-year rule distinction between residents/non-residents Statistics on residents also include Mode 4 service suppliers + in GATS: nationality © WTO/OMC

BOP and Mode 4 BOP Items Relevance Limitations
Mode 4 measurement BOP and Mode 4 BOP Items Relevance Limitations Services (especially computer & information, other business, personal cultural & recreational, and construction services) Service contracts with the importer Include other modes of supply © WTO/OMC

Migration Statistics and Mode 4
Mode 4 measurement Migration Statistics and Mode 4 Relevant framework UN Recommendations on Statistics of International Migration Why relevant? Which categories could be relevant? Include temporary migrations for the purpose of work But... Mode 4 very small within these categories © WTO/OMC

FATS and Mode 4 Relevant variables Employment
Mode 4 measurement FATS and Mode 4 Relevant variables Employment Compensation of employees Why relevant? How could it help? Many commitments relate to intra-corporate transferees Separate identification of foreign non-permanent employment, of which intra-corporate transferees © WTO/OMC

Intra-corporate transfers in selected OECD countries (thousands)
Mode 4 measurement Intra-corporate transfers in selected OECD countries (thousands) Source: OECD (2007), International migration outlook: SOPEMI 2007 Edition. © WTO/OMC

Tourism Statistics and Mode 4
Mode 4 measurement Tourism Statistics and Mode 4 Relevant frameworks International recommendations on Tourism Statistics Tourism Satellite Accounts: Recommended Methodological Framework Why relevant? Which categories could be relevant? Include short-term visits for business and professional purposes But... How detailed are these statistics? © WTO/OMC

Mode 4 measurement Arrivals for business and professional purposes, selected economies, 2006 (thousands) Source: UNWTO(2008); * Excluding Mexico ** Excluding Hong Kong, China, Chinese Taipei and Macao and overseas Chinese. © WTO/OMC

Data Sources Mode 4 measurement Statistics on the number and type of work permits granted (e.g. by duration / occupation) Information from social security systems / health insurance schemes in which foreigners may be distinguished Statistics on arrivals and departures from migration or tourism authorities (origin/destination, length of stay, purpose of stay...) Household, enterprise, labour-force surveys Border/passenger surveys Population censuses © WTO/OMC

Improving Mode 4 Related Statistics
Mode 4 measurement Improving Mode 4 Related Statistics Main difficulty in measuring Mode 4 Identify in available statistics the relevant subset of services and workers/visitors Indicators on the value of Mode 4 services Identify Mode 4 in services sub-items but little seems feasible at present Migration/labour statistics Sounder ground for improvement for detailed information However not in short-term, and GATS Mode 4 not translated in precise statistical requirements © WTO/OMC

REMEMBER Mode 4 measurement
Supply of services, all skill levels, temporary movement Categories of persons: Contractual service suppliers (self-employed or employee of the foreign contractual service supplier) Intra-corporate transferees and directly recruited by affiliate Service sellers/persons responsible for setting up commercial presence Manual provides a first step Framework currently developed in revised Manual Value of services trade for contractual service suppliers Number of “ mode 4” persons moving and staying abroad © WTO/OMC

Distribution of imports by modes of supply?
Examples Distribution of imports by modes of supply? Source: WTO calculations based on IMF BOP database (2008) and Hong Kong Census and Statistics Department. © WTO/OMC

Assessment of imports by modes of supply BOP basis
Examples Assessment of imports by modes of supply BOP basis © WTO/OMC

US Sales of Services to APEC economies 2006, million USD
Examples © WTO/OMC Source: US Bureau of economic analysis (2007)..

New Chapter in revised 2010 Manual
More on services delivery compared to BOP services transactions Chapter on modes of supply/mode 4: Scope of chapter Defining modes of supply Mode 4 and relevant information for measuring Allocation by mode of supply for measuring value Additional indicators for analysis: number of persons Revision 2010 © WTO/OMC

WTO, GATS and Modes of Supply

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