The General Agreement on Trade in Services commenced in 1995, simultaneously with the establishment of the World Trade Organisation. The new GATT and the General Agreement on Trade-Related Aspects of Intellectual Property Rights commenced at the same time.
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.
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.
The Framework Agreement provides the same general exceptions and security exemptions as GATT. There is an exception which seeks to ensure that direct taxes can be effectively collected on services. An exception to the Most Favoured Nation Principle may be allowed to avoid double taxation.
The agreement (in the broadest sense) covers trade in all services except those in the 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 Framework Agreement deals with and defines four types of modes of provision of service.
- cross-border supply without movement by the supplier or consumer (e.g. electronic communications),
- supply of a service where the consumer goes to the supplier (e.g. some personal services)
- services supplied by the supplier from one state by means of commercial presence (e.g. permanent establishment) in the host state
- services supplied by the temporary presence of natural persons in the host state.
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, in turn, is divided into sub-sectors.
The Most Favoured Nation Principle and the Transparency Principle apply to all members of WTO under GATS. The Most Favoured Nation principle requires that states accord immediately and unconditionally to services and service suppliers of other states no less favourable treatment than it accords to similar service and service suppliers of other states. Therefore, where one state is granted a privilege, this must be extended to all WTO member states.
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. 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 did so in 2008.
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.
States must observe the Market Access and National Treatment Principle. Market Access must give service suppliers treatments no less favourable than the members’ schedule. National Treatment must give service suppliers treatment no less favourable than the member grants its own service providers.
The agreement permits developed and developing states to enter negotiations for a series of preferences similar to those on the GATT side with the objective of improving the capacity efficiency and competitiveness of developing member states.
The GATS encourages regional free trade areas to cover services. Such agreements between states are required to have substantial coverage across sectors and provide for the elimination of all or most discrimination. States must notify the Council for Trade in Services of their agreements which review and confirms compliance with the requirements for the purpose of exception from the general MFN rule.
Member’s Trading Rules
GATS’s obligations are general and specific. Member states must comply with specific obligations only to the extent that it opens their market to international access.
Member states of GATS must ensure their domestic rules are administered objectively and impartially. 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.
State monopolies must not be allowed to act inconsistently with the Most Favoured Nation Treatment or other specific commitments. Other practices that restrain competition in international trade in services may require consultation by the member state at the request of any other, with a view to the eventual elimination of the practices.
There may not be restrictions on payments for current transactions in relation to the parties’ commitments. 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 and cause unnecessary damage to another’s economic interest. They must conform to IMF requirements and must not be excessive. They must be temporary and progressively removed as the purpose is achieved.
GATS seeks to open up specific service sectors on a service-by-service basis. After negotiation on its own initiative, a 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
- the total value of transactions and assets,
- the total quantity of service output,
- number of persons that may be employed,
- type of legal entity permissible,
- participation of foreign capital.
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. The provisions of GATS do not apply to measures with respect to a person seeking employment or measures in connection with residence, citizenship, or employment on a permanent basis.
The parties commit to future multilateral negotiations on various issues. This includes proposals on safeguarding measures, government procurement and distorting subsidies.
GATS aims to encourage states to open as many services as possible to international market access. States are to enter into successive rounds of negotiation periodically with a view to achieving progressively higher levels of liberalisation.
They are to be directed towards the reduction or elimination of the adverse effects of measures on trade in services and promoting effective market access. 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 negotiations with a view to appropriate compensatory adjustments.
GATS is overseen by a Council for Trade in Services. It comprises representatives of all the WTO members. There are several bodies beneath this, including committees for different sectors.
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 one-third of services, while developed countries have opened up about two-thirds.
Annexes and supplementary instruments, including decisions and understandings, supplement GATS. There is an annex covering the movement of natural persons supplying services.
The annex on air transport is applicable to certain sectors, including aircraft repair, the selling and marketing of air transport services and computer reservation systems. It is supplemented by bilateral and multilateral agreements.
The annex on international services provides that states may adopt potential measures to protect investors, depositors, and policyholders. It may take the steps necessary to protect its financial system. There are also annexes dealing with maritime transport services and telecommunications.