General Agreement on Trade in Services (GATS
The Uruguay Round commencing in 1986, sought to extend the scope of the GATT to include an international multilateral Agreement on Trade in Services. This ultimately resulted in the General Agreement on Trade in Services (GATS), which commenced in 1995.
GATS applies to measures by state members affecting trade in services. It covers measures taken by central, regional and local governments and by authorities and non-governmental bodies in the exercise of delegated powers from them.
GATS consists of principles and rules applicable to all measures in trade in services, principles and rules applicable to certain sectors and the member states’ schedules. It is not as thoroughgoing or wide-ranging as GATT/ WTO.
GATS consists of three related elements, the Framework Agreement annexes dealing with particular sectors and schedules of national commitments which each member has agreed to take.
The Framework Agreement deals with its scope and the definition of obligations of the member states including specific commitments, schedules for progressively liberalising trade in services, and structures for implementing the agreement.
Services and Modes of Supply
The agreement (in the broadest sense) covers trade in all services except those in exercise of governmental functions. Services cover an act or work done for another. The GATS rules do not apply to an employee as such, other than those involved in temporarily providing a service, nor to employment laws in states. This definition can extend to public service “provided on a commercial basis”
The sectors covered in GATS are defined in the W/120 list, which provides a list of all sectors which can be negotiated under the GATS. The sectors covered by the GATS are
Business; Communication; Construction and Engineering; Distribution; Education; Environment; Financial; Health; Tourism and Travel; Recreation, Cultural, and Sporting; Transport; Other. Each are in turn, are divided into sub-sectors.
The Agreement defines four methods of the supply of international trade in services:
- cross-border supply from the territory of one state to another;
- consumption abroad in the territory of one state by the consumer of another state member;
- commercial presence, where a service supplier of one state member operates through a commercial presence in the territory of another member;
- presence of natural persons, where a service supplier of one state member operates through the presence of natural persons of a member in the territory of another.
The Agreement does not apply to measures affecting a natural person who seeks access to the employment market of a member state. It does not apply to matters affecting citizenship, residence, or employment on a permanent basis. The Agreement does not apply to services supplied in the exercise of governmental authority, which is supplied neither on a commercial basis nor in competition with other service suppliers.
In common with GATT, the agreement provides commitments for ongoing review and development with periodic negotiation for further sectoral expansion and liberalisation.
The dispute settlement provisions of the Dispute Settlement Understanding apply to GATS. Panels are to be empanelled for settlement of disputes under GATS, who have expertise in relation to the service sectors.
There is an annex covering the movement of natural persons supplying services. Entry and temporary residence of natural persons within the WTO member may be regulated by the state unless it makes a commitment to the contrary.
Most Favoured Nation Principle
Every state member party to the agreement shall accord immediately and unconditionally to services and service suppliers of other members, treatment not less favourable than that it accords to like services and service suppliers of any other country.
The principles are not as thoroughgoing as with goods. WTO states were entitled to submit a list of exemptions to the application of the principles. A member may maintain a measure inconsistent with this general principle, if it is listed in and meets the conditions set out in an Annex to the Agreement.
Later exemptions may be permissible in accordance with the WTO waiver procedure. The initial exemptions were to be limited for a period of time and subject to further review in the context of further rounds of trade liberalisation.
Generally, members’ commitments are one-way and are not to be wound back once entered into. However, Article XXI allows members to withdraw commitments and the US and EU dd so in 2008.
Under the Agreement, the Council for Trade in Services is to review exemptions in force for more than five years to decide whether the basis and need for them is still justified. They are not to exceed 10 years. They are to be the subject of negotiation in later liberalising rounds.
Market Access Commitments
Each state must submit a schedule of specific commitments regarding services that it has opened up for international market access. The schedule must set out the terms, limitations, conditions of access, qualification for national treatment undertakings and commitments, timeframe and commencement.
States need not open all of their sectors. In broad terms, developing states have opened up approximately 30% of services while developed countries have opened up about two-thirds.
There is no automatic national treatment principle. Instead there are commitments for market access and national treatment on an opt-in basis. They must be scheduled under the Agreement. They may be sectoral and subject to conditions.
Where market access commitments are made, the following measures shall not be undertake whether federally or at local government level, unless provided for in its schedule.
- limitation on numbers of service suppliers,
- limits on the total number of service transactions or assets,
- limitations on the total number of service operations;
- limitations on the total quantity of service outputs;
- limitation on total numbers of natural persons that may be employed in a sector or by a supplier of services;
- measures that restrict or require specific types of entity or joint venture through which a supplier may provide a service;
- limitations on the participation of foreign capital in relation to maximum percentage limits of shareholdings or value of individual shareholdings.
The commitments by state members in relation to market access and national treatment may be made subject to conditions. States may make full or limited commitments regarding the services and service supplies of any other state which require treatment no less favourable than that enjoyed by its domestic service providers.
State members may be prepared to make commitments in relation to full or qualified market access in negotiations on a reciprocal basis in relation to services sectors, on the basis of commitments by other states in the same or other sectors.
In the sectors covered 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, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers.
A Member may meet this requirement by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member.
Market access or national treatment commitments given in the schedules may be modified or withdrawn within three years. However, other state members affected may enter negotiations with a view to reaching agreement on necessary compensatory adjustments in relation to other trade measures.
If no agreement is reached, a member who is affected may refer the matter to arbitration to determine the appropriate compensatory adjustment. If the modification is implemented and does not comply with the arbitration, members who are affected may withdraw or modify substantially similar benefits.
GATS seeks to open up specific service sectors on a service-by-service basis. After negotiation on its own initiative, state may undertake a schedule of commitments to be annexed to GATS. These cover the trade sectors which are open to market access. It may also set limitations which may be applied to the sector. There are six categories of limitations which must be specified to apply or not to apply.
- number of service suppliers allowed
- total value of transactions and assets,
- total quantity of service output,
- number of persons that may be employed,
- type of legal entity permissible,
- participation of foreign capital.
States must observe the Market Access and National Treatment Principle. Market Access must give service suppliers treatments no less favourable than the members’ schedule allows. Subject to this, national Treatment must give service suppliers treatment no less favourable than the member grants its own service providers.
States are to enter into success of rounds of negotiation periodically with a view to achieving progressively higher levels of liberalisation. The process is to take place with the view to promoting the interest of all participants on a mutually advantageous basis with an overall balance of rights and obligations.
Commitments given in the schedules of commitments may be withdrawn. A notice must be given to the Council for Trade in Services a certain period in advance. States affected by the change may require participation in negotiations with a view to appropriate compensatory adjustments.
The Transparency principles apply to all members of WTO under GATS.
The Transparency Principle requires states to publish in advance national measures and international agreements that affect their obligations under the agreement. They must notify the Council for Trade in Services of changes in the measures or agreements at least once a year. They must respond to other states’ requests for information.
Member states of GATS must ensure their domestic rules are administered in an objective and impartial way. Licensing qualifications and technical standards must not be burdensome, restrictive or non-transparent. Once the Council on Trade in Services adapts harmonisation guidance, the practice must be brought into compliance with the guidelines.
Barriers to Trade
Where services are covered by the commitments given under the Agreement, measures of general application which affect them, must be administered in a reasonable objective and impartial manner. There is to be prompt and impartial review of judicial or administrative decisions affecting trade in services. There are to be objective and transparent criteria for licences and technical qualifications.
Article VI provides that with a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall through appropriate bodies, that it may establish, develop any necessary disciplines.
Discipline shall aim to ensure that any such requirements are:
- based on objective and transparent criteria such as competence and ability to supply the service;
- not more burdensome than necessary to ensure the quality of the service;
- in the case of licensing procedures, not in themselves a restriction on the supply of the service.
These disciplines are controversial in that they may significantly limit the scope for domestic regulation of services. The disciplines have not yet been developed.
State may enter mutual recognition agreements in relation to educational qualifications and licenses. They must afford other interested parties an opportunity to negotiate accession to the agreement or to enter a comparable agreement.
State agree to publish all relevant measures of general application in relation to trade in services. They shall give notice of proposed changes to the Council on Trade in Services.
There are a number of general exceptions. Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in GATS is to to prevent the adoption or enforcement by any Member of such measures.
There are exceptions relating to
- relating to economic integration,
- measures to safeguard the balance of payments,
- measures necessary to protect public morals or maintain public order where there is a genuine and sufficient threat;
- the prevention of deceptive or fraudulent practices;
- measures to deal with default on service contracts;
- the protection of privacy of individuals in relation to personal data;
- the protection of confidentiality of records, and accounts;
- national security exceptions.
Measures may be adopted and maintained if necessary to deal with serious balance of payments’ difficulties particularly in developing states. Restrictions must not be discriminatory or cause unnecessary damage for another’s economic interest. They must conform with IMF requirements and must not be excessive. They must be temporary and progressively removed as the purpose is achieved.
Monopoly Providers and Competition
Article VIII provides that a monopoly service supplier in a state member shall not act in a manner inconsistent with the member’s obligations under the agreement and the specific commitments it enters.
Where the monopoly supplier competes either directly or indirectly through an associated company in the supply of service outside the scope of the monopoly rights which are subject to the state’s commitments, the member shall ensure the supplier does not abuse his position in a manner inconsistent with its commitments.
The Council for Trade in Services may, at the request of a Member which has a reason to believe that a monopoly supplier of a service of any other Member is acting in a manner inconsistent with the above oblisations, request the Member establishing, maintaining or authorizing such supplier to provide specific information concerning the relevant operations.
Article IX provides that certain business practices of service suppliers may restrain competition and restrict trade in service. Each state member shall, at the request of the other members, enter discussions with a view to eliminating such practices.
State members agree to enter multilateral negotiations in relation to emergency safeguard measures that may exist. They are to be entered on the basis of non-discrimination.
The Agreement does not apply to government procurement or to procurement by agencies of the government of services for governmental purposes which are not with a view to commercial resale or for use in the supply of services for commercial sale. States members commit themselves to multilateral negotiations on government procurement services.
States agree to enter negotiations with a view to developing multinational disciplines in order to avoid the distortive effects of subsidies on trade and to address the appropriateness of countervailing measures.
An agreement in relation to the WTO Basic Telecommunications Agreement 1997 involves commitments by many state members to liberalise trade in international telecommunications services including satellite services, leased lines, long-distance services and voice services. They involve the relaxation of restrictions on foreign ownership or control of telecommunications services and facilities.
Commitments are made in relation to regulatory principles in a Reference Paper. They require state members to establish measures to prevent anticompetitive practices by large-scale suppliers. They include
- misuse of information obtained from creditors for anti-competitive purposes,
- failure to make technical information about essential facilities and commercially relevant information necessary to provide services available to other service suppliers at all or on a timely basis
Interconnection with a major supplier must be provided on a non-discriminatory basis. There are provisions in relation to transparency and in an independent regulatory regime.
The 1997 Agreement on Financial Services involves commitments by many state members to permit the commercial presence of foreign financial service suppliers. This is effected through the elimination of or relaxation of limitations on foreign ownership. The agreements apply to the insurance securities and banking sectors. There are numerous reservations and limitations.