WTO: agreement on trade in services

KEY POINTS

The General Agreement on Trade in Services (GATS) is the first set of rules agreed at multilateral level to govern international trade in services. It consists of 3 elements:

• a general set of rules containing fundamental requirements for all World Trade Organization (WTO) members;
• lists of specific commitments concerning access to the market of each WTO member; and
• annexes laying down special conditions to be applied to different sectors.

GENERAL RULES

The GATS agreement applies to all services in all sectors except public authorities’ services. It also applies to all measures applicable to services taken at all levels of government (central, regional, local, etc.). The agreement defines 4 methods of supplying a service:

• supplying a service from the territory of one member into the territory of any other member (e.g. international telephone calls);
• supplying a service in the territory of one member to a consumer of any other member (e.g. tourism);
• supplying a service through commercial presence of a member in the territory of any other member (e.g. banking services);
• supplying a service through individuals from one member country staying temporarily and working in the territory of any other member (e.g. construction projects, fashion models, consultants).

The agreement is based on the principle of most-favoured-nation treatment (MFN), according to which each member country treats businesses of another member country no less favourably than its own or those from any other countries. However, there are exceptions for specific service activities which are included in a list of exemptions from the MFN requirement. In fact, each government could set out limits for access of foreign firms to its market.

Moreover, members entering into a free trade agreement or a customs union may liberalise trade in services between them without having to extend the agreement to the other GATS members. Their bilateral or regional agreement must however have substantial sectoral coverage and must aim to reduce or avoid discrimination.

In order to ensure maximum transparency, the agreement requires governments to publish all relevant laws and regulations. These measures must be administered in a reasonable, objective and impartial manner.

The bilateral agreements concluded between governments on the recognition of qualifications must be open to other members who wish to join these agreements. In addition, each member must ensure that monopolies and exclusive service suppliers do not abuse their position. Similarly, members must consult on ways to eliminate business practices that may restrain competition.

International transfers and payments for current transactions relating to specific commitments entered into under the GATS must not be restricted, except in cases of balance-of-payments difficulties and under certain circumstances.

Specific commitments

The rules on market access and national treatment are not general requirements but specific commitments included in schedules annexed to the GATS and they form an integral part of the agreement. These schedules identify the services and service activities for which market access is guaranteed and set out the conditions governing this access. Once consolidated, these commitments can only be modified or withdrawn following negotiation of compensation with the country concerned.

Thus, each member must treat services and service suppliers of any other member no less favourably than under the terms stated in its schedule.

The agreement is also based on the principle of national treatment. In fact, in the sectors stated in each member’s schedule, and subject to its conditions, each member country treats products of another member country no less favourably than its own national products.

Progressive liberalisation

The GATS provides for negotiations, beginning within 5 years, to achieve a higher level of liberalisation of trade in services. This liberalisation will be aimed at enhancing the commitments in the schedules and reducing the adverse effect of measures taken by governments.

Sectoral questions

A number of annexes relating to different service sectors form part of the GATS. These annexes were designed to take account of certain specific characteristics of the sectors in question.

• The annex on movement of natural persons authorises governments to negotiate specific commitments applying to the temporary stay of persons in their territory for the purpose of supplying services. The agreement does not apply to permanent employment, nor to measures regarding citizenship or residence.
• The annex on air transport services excludes from the scope of the GATS traffic rights and services related to these rights (mainly bilateral agreements on air services that grant landing rights). The GATS does apply, however, to aircraft repair and maintenance services, the selling and marketing of air transport services and computer reservation system services.
• The annex on financial services (particularly banking services and insurance services) recognises a government’s right to take measures to protect investors, depositors and insurance policyholders. The agreement excludes from its scope services supplied by central banks. It should be noted that when the Uruguay Round concluded in 1994, it was only possible to include the financial services sector on a temporary basis in GATS. It was for this reason that Council Decision 1999/61/EC was adopted in 1998 approving the inclusion of the sector on a permanent basis in GATS.
• Lastly, the annex on telecommunications stipulates that governments must accord any service supplier of any other member access to public telecommunications networks on reasonable and non-discriminatory terms and conditions.

IMPLEMENTATION OF THE AGREEMENT

Institutional rules

These rules relate, in particular, to consultations and dispute settlement and to the establishment of a Council for Trade in Services.

Continuation of negotiations

At the end of the Uruguay Round, the governments agreed to continue negotiations in 4 areas:

• basic telecommunications;
• maritime transport;
• movement of individuals; and
• financial services.

Further negotiations were to be held on subsidies, government procurement and safeguard measures.