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Introduction to the General Agreement on Trade in Services
David Hartridge
Hanoi, VietnamAugust 5-6, 2003
General Agreement on Trade in Services: Objectives
Expansion of services trade
Progressive liberalization through
successive rounds of negotiations
Transparency of rules and
regulations
Increasing participation of
developing countries
GATS Provides Policy Flexibility
GATS is commonly said to be the most development-friendly of WTO Agreements because of its great flexibility:
Freedom to decide the scope and pace of liberalisation, through national schedules and “bottom-up” scheduling
Freedom to regulate services, and introduce new regulations, to meet national policy objectives
Special flexibility for developing countries in scope and speed of liberalisation
Services Trade and Development: General Expectations
“The gains from liberalizing services may besubstantially greater than those from liberalizingtrade in goods, because current levels ofprotection are higher and because [there wouldbe] spillover benefits from the required movementof capital and labour.” (World Bank, 2001).
Infrastructural services such astelecommunications, finance and transport arecrucial determinants of overall economic efficiencyand growth.
Services Trade and Development Figures
Services have been the fastest growing segment of world trade between 1980 and 2000, at average annual rates of over 9 per cent (vs. 8.2 per cent for goods trade).
The share of developing countries in world services exports increased from 20 to 26 per cent (1990 –
2000).
Developing countries that liberalized telecommunications and financial services sectors grew about 1.5 per cent faster than others.
Share of Services in Production (GDP, 2000)
0%10%20%30%40%50%60%70%80%90%
100%
Services Industry Agriculture
Source: World Bank, World Development Report 2002
GATS: Comprehensive Scope and Coverage
Measures Affecting Trade in Services at All Government Levels
All Services Covered (except governmental services and air traffic rights)
Four Modes of Supply• Cross-border supply (e.g. international telephony)• Consumption abroad (e.g. international tourism)• Commercial presence (e.g. establishment of foreign bank)• Movement of natural persons (e.g. doctor working abroad)
The Economic Importance of individual Modes?
The share of individual modes in world servicestrade has been roughly estimated at:
40 per cent each for modes 1 and 3;
20 per cent for mode 2 (mainly tourism); less than 2 per cent for mode 4.
Mode 3 trade, mostly combined with foreign direct investment, has been the most dynamic component in recent years.
GATS: Sectoral Coverage
Business Services
Communication
Construction
Distribution
Education
Environmental Services
Health-Related Services
Financial Services
Tourism
Recreation, Culture & Sport
Transport
Other Services
Governmental Services Excluded
Excluded from coverage are “services provided in the exercise of governmental authority” which, in turn, are defined as services that are supplied “neither on a commercial basis, nor in competition with one or more service suppliers.” (Article I:3)
Typical examples:Police, fire protection, monetary policy operations, tax and customs administration, universal health and education systems, etc.
General Provisions Applying to All Services
Most-Favoured-Nation (MFN) Treatment (Art II): Treat services from all trading partners equally – no discrimination
Transparency (Art III): Publish relevant laws and regulations
Domestic regulation (Art VI): Administer laws reasonably, objectively and impartially
Monopolies (Art VIII): Do not allow abuse of monopoly position
Exceptions (Art XIV): Permit breach of rules for overriding needs, e.g. health, security, public morals
Special Rules (GATS Annexes)
Annex on Financial Services allows prudential measures to protect investors, depositors etc. and ensure integrity of banking system. Excludes from GATS key operations of governments – e.g. monetary, exchange rate, social security policy.
Annex on Telecommunications requires access to and use of public telecoms networks by suppliers of scheduled services on reasonable and non-discriminatory terms and conditions.
Air Transport Annex excludes traffic rights and all services directly related to them.
Most-Favoured-Nation (MFN) Treatment
“… each Member shall accord immediately andunconditionally to services and service suppliers
of anyother Member treatment no less favourable than
that itaccords to like services and service suppliers of
anyother country” (Article II:1)
Exemptions may be negotiated during accession for a period not exceeding ten years in principle.
Specific Commitments
The GATS requires each Member to submit a Schedule of Specific Commitments that lists the sectors in which it grants Market Access and National Treatment.
There is huge variation in the coverage of Members’ schedules. New Members usually havewide coverage (more liberal than many current Members) due to accession negotiations.
Market Access Commitments
Article XVI forbids the following types of market-access limitations unless scheduled (no other limitations are possible under this Article):
Number of suppliers Value of service transactions Number of operations or quantity of output Number of natural persons Type of legal entity Foreign equity participation
National Treatment and Additional Commitments
Article XVII - Obligation to treat foreign services and service suppliers no less favourably than your own like services and suppliers in scheduled sectors.
Any kind of limitation in favour of nationals can be maintained if it is listed in the schedule.
Article XVIII - Additional commitments go beyond market access and national treatment – e.g. the reference paper on telecommunications services.
Meaning of “Limitations”
Scheduling a service does not mean it must be fully liberalized in all modes. Commitments can be made in one, two, three or four modes.
And commitments can be limited:
“unbound” = no commitment in that mode “none” = no limitation (full commitment) Specific limitations can be scheduled.
How to Prepare a Schedule: Two Steps
STEP 1: Select sectors and sub-sectors for inclusion
Relevant considerations [underlying objectives]: e.g., attract foreign investment [employment], foster competition [efficiency], broaden product choice [consumer welfare], etc.
STEP 2: Consider need for limitations or modal exclusions
Relevant considerations [type of limitation]: e.g., prevent market congestion [quantitative access restrictions], promote technology transfer [joint venture requirements], prevent market disruption [phase-in commitments], etc.
How Schedules of Commitments are Structured: India/Health
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons
Sector or subsector
Limitations on market access
Limitations on national treatment
Additional commitments
8. HEALTH RELATED AND SOCIAL SERVICES A. Hospital Services (CPC 9311)
1) Unbound 2) Unbound 3) Only through
incorporation with a foreign equity ceiling of 51 per cent
4) Unbound except as
indicated in the horizontal section
1) Unbound 2) Unbound 3) None 4) Unbound except as
indicated in the horizontal section
Must Commitments Be Respected at All Costs?
NO.
The GATS allows Members to renegotiatetheir commitments against compensation(Article XXI), override them for health andother public policy reasons (Article XIV) orsecurity concerns (Article XIVbis), andintroduce restrictions to protect the Balance ofPayments (Article XII).
Relationship Between Commitments and Actual Market Conditions:
Commitments guarantee minimum levels of market access and National Treatment.
Many Members in fact permit higher levels of market access than those scheduled - but must observe the MFN principle in doing so.
Commitments may be upgraded at any time to reflect improved market-access conditions.
Measures/Policies Not Affected by Commitments
Non-discriminatory domestic regulation (standards, licensing requirements, etc.)
Government procurement
Private commercial actions, which are beyond the scope of GATS. There is no private recourse to dispute settlement under the WTO.
Domestic Regulation
Existing Obligation: In committed sectors, all measures affecting trade must be administered in a reasonable, objective and impartial manner (Article VI:1).
Negotiating Mandate: Further disciplines to ensure that standards, licensing requirements, etc. are:
based on objective and transparent criteria; not more burdensome than necessary to ensure quality; and not in themselves a restriction on the supply of a service
(licensing procedures).
« Built-in Agenda » Negotiations After the Uruguay Round
Domestic Regulation (Article VI:4)
Emergency Safeguard Measures (Article X)
Government Procurement (Article XIII)
Subsidies (Article X)
These negotiations are still under way
The New Services Round
Article XIX of GATS – Basic Mandate: Successive rounds of negotiations, starting January 2000, with a view
to achieving a progressively higher level of liberalization
Due respect for national policy objectives and levels of development
Flexibility for developing countries to liberalize fewer sectors and types of transactions
Article IV:1: Facilitate increasing participation of developing countries in world trade
Annex on Article II Exemptions: Negotiation of existing MFN Exemptions
The Timetable
Submission of initial requests by 30 June 2002
Submission of initial offers by 31 March 2003
Conclusion not later than 1 January 2005(Doha Ministerial Declaration)
One law firm around the world One law firm around the world One law firm around the world One law firm around the world
Introduction to the General Agreement on Trade in Services
David Hartridge
Hanoi, VietnamAugust 5-6, 2003