Download - General Agreement on Trade in Services (GATS
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General Agreement on Trade
in Services (GATS)
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The Importance of Services Sector in
the World EconomyServices currently account for 60 percent of global production
and employment but they represent no more than 20percent of total trade.
Many services which have long been considered genuine
domestic activities, have increasingly becomeinternationally mobile.
This trend is likely to continue and grow owing to theintroduction of new transmission technologies such aselectronic banking tele-health or tele-education services,
opening up of state monopolies such as in telephone andpostal services sectors, and regulatory reforms in somehitherto tightly regulated sectors such as transportcombined with changing consumer preferences.
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List of Sectors included in Services
Business Services and Professional Services:
o Accountancy services
o
Advertizing serviceso Architectural and engineering services
o Computer and related services
o Legal services
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List of services (cont.)
Communication Services:
o Audiovisual services
o Postal and courier, express mail services
o Telecommunications
Construction and Related Services
Distribution Services
Education Services
Energy Services
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List of services (cont.)
Environmental Services
Financial Services
Health and Social Services
Tourism Services
Transport Services
o Air transport services
o Maritime transport services
o Services auxiliary to all modes of transportation
Movement of Natural Persons
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The Agreement
GATS is a treaty of the WTO that entered into
force in January 1995 as a result of the
Uruguay Round negotiations.
The treaty was created to extend the trading
system to Services sector in the same way the
GATT provides such a system for merchandise
trade.
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The Principle
The basic WTO principle of Most Favored Nation
(MFN) applies to GATS as well.
However, upon accession, members may
introduce temporary exemptions to this rule.
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The Purpose
The purpose of GATS is to create a credible and
reliable system of international trade rules;
ensuring:
fair and equitable treatment of all participants
(principle of non-discrimination);
Stimulating economic activity; and
Promoting trade and development through
progressive liberalization of service sector.
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Historical Background
Before the Uruguay Round negotiations began in 1986,public services such as:
Healthcare
Postal services Education
Water supply and sewerage system etc.
were not included in international trade agreements as
most of these services were classed as domesticactivities and difficult to trade across borders.Education was the exception.
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Historical Background (Cont.)
The reason for Servicesnot being included in GATT:
By definition, depending upon their infrastructural andsocial importance, these services have been thedomain of Government ownership, funding, and
control.Further, such services are being funded by the local
taxpayers.
So, in most countries these services have been
considered as the responsibility of the governmentand therefore need not be left to the vagaries (businessfluctuations) of markets and private companies whosemain interest is to earn profit than public interest.
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Historical Background (cont.)
Some service sectors such as internationalfinance and maritime transport have been openfor centuries as necessary components of
merchandise trade. The development of information technologies
and the internet have expanded the range ofinternationally tradable service products.
These include a range of commercial activitiessuch as medicine, distance learning, engineering,architecture, advertising, and freight forwarding.
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Historical Background (Cont.)
Members obligation:
While the overall goal of the GATS is to remove barriers to trade inservices, members are free to choose which sectors are to beprogressively liberalized.
Though commitments once made are not generally withdrawn,Article XXI allows members to withdraw commitments.
So far two members have used this option (USA and EU)
In November 2008, Bolivia notified that it will withdraw its healthservices commitments
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Four Modes of Supply for Delivery of
Services
The GATS agreement covers four modes of
supply for the delivery of services in cross-
border trade:
1. Cross-border trade
2. Consumption abroad
3. Commercial presence, and
4. Presence of natural persons
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Modes of services supply (cont.)
1. Cross-border supply is defined to cover
services flows from the territory of one
member into the territory of another member
such as banking or architectural services
transmitted via telecommunications or mail.
For such services presence of service supplier
within the territory of the member is notnecessary or needed.
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Modes of service supply (cont.)
2. Consumption abroad refers to situations where aservice consumer moves into another membersterritory to obtain a service such as tourist or
patient.3. Commercial presence implies that a service
supplier of one member establishes a territorialpresence, either through ownership or lease of
premises, in another members territory toprovide a service such as domestic subsidiaries ofinsurance companies or hotel chains.
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Modes of service supply (cont.)
4. Presence of natural persons consists of
persons of one member entering the territory
of another member to supply a service e.g.
accountants, doctors, or teachers etc. In such
case, service providers remain free to operate
measures regarding citizenship, residence or
access to the employment market on apermanent basis.
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Criticism on GATS
1. The GATS document has been criticized for
tending to substitute the authority of national
legislation and judiciary with that of a GATS
Disputes Panel conducting closed hearings.
However, member government spokespersons may
dismiss such hearings because of prior
commitments to perceived benefits of prevailingprinciples of competition and liberalization.
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Criticism (cont.)
2. While national governments have an option
to exclude any specific service from
liberalization under the GATS, they are also
under the international pressure, from
business interests, to refrain from so excluding
any service provided on a commercial basis.