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SERVICES TRADE UNDER

THE GATS

- An Introduction I -

Rolf AdlungTrade in Services Division

WTO

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STARTING POINT: INTERNATIONAL SERVICES TRADE – IMPLICATIONS FOR DEVELOPMENT

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A Priori Expectations

“The gains from liberalizing services may be substantially greater than those from liberalizing trade in goods, because current levels of protection are higher and because [there would be] spillover benefits from the required movement of capital and labour.” (World Bank, 2002).

Infrastructural services such as telecommunications, finance and transport are crucial determinants of overall economic efficiency and growth.

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Services trade and development: Some estimates

Lack of competition in maritime transport (cargo reservation, restrictions on port services, collective rate setting, etc.) can increase freight rates up to 25 % on certain routes.

Economies that fully liberalized investment in telecom and financial services grew about 1.5 % faster over the past decade than others.

Services liberalization in developing economies could provide as much as US$6 trillion in additional income between 2005 and 2015.

Source: World Bank, 2002.

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Services trade and development: Necessary conditions

Appropriate sequencing of reforms [(re-)regulation/liberalization/privatization]

Contestable markets (effective competition) to prevent private rent-seeking

Effective regulation, including prudential rules, to protect consumers and the public interest

Note: The Preamble of GATS expressly recognizes “the right of Members to regulate and to introduce new regulations… to meet national policy objectives”.

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The GATS: A latecomer in the multilateral system ...

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Services in the Multilateral System: Since 1995

YEAR ROUND PARTICIPANTS1947 Geneva 231949 Annecy 131951 Torquay 381956 Geneva 261960/61 Dillon Round 261964/67 Kennedy Round 621973/79 Tokyo Round 1021986/93 Uruguay Round 123

(Creation of GATS)

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The traditional view

● Services = intangible = non-tradable

● Services = government monopolies

● Services = rich countries’ playfield

● Services = unsuited for GATT-type disciplines

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Challenges during the Uruguay Round

● Sector coverage?

● Types of transactions?

● Role of Most-Favoured-Nation (MFN) principle?

● Permissible policy instruments?

● Need for GATT-type trade remedies and regulatory disciplines?

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GATS: Main Features

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1st Observation

THE GATS IS FAR WIDER IN COVERAGE THAN CONVENTIONAL TRADE AGREEMENTS ....

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MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS

ALL SERVICES (except governmental services and measures affecting air traffic rights)

FOUR MODES OF SUPPLY- Cross-border supply - Consumption abroad- Commercial presence - Presence of nat.

persons

APPLICATION TO SERVICES AND SERVICE SUPPLIERS

GATS: Scope, coverage, definition

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GATS: Modal structure

MODE EXAMPLE (Health)

Cross-border Trade Tele-diagnosis from Country Binto Country A

Consumption Abroad A's resident obtains hospitaltreatment in B

Commercial Presence Hospital operator from B hassubsidiary in A

Presence of NaturalPersons

Physician from B practices in A

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Mode 4: who is in and who is out?

Covered Not covered

• Employees of foreign service suppliers in host country (ICTs)• Employees of foreign service suppliers abroad to fulfill a contract (CSS)• Natural persons as independent service suppliers fulfilling a contract (CSS)• Also: Business Visitors

• Employees in the goods sector• Employees of host country firms• Persons with citizenship, permanent residence and/or work permit

... with interesting ramifications

Test question: What modes are involved? (The patient and the nurse are foreigners, the hospital is foreign-owned, and ‘SURGERY.COM’ is based abroad.)

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2nd Observation

... BUT THE GATS IS EXTREMELY FLEXIBLE IN APPLICATION

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Relevance for individual sectors

Three possible Scenarios:

I. Not covered: Governmental services and large segments of air traffic

II. Covered - but no access obligations

III. Access obligations

(“Specific Commitments”)

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Scenario I:Status of Governmental Services

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)

Financial services: Competition as the sole criterion (Annex on Financial Services)

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Scenario II:

What minimum obligations are incurred in sectors falling under GATS (“unconditional obligations”)?

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Unconditional obligations

• Most-Favoured-Nation (MFN) Treatment

• Transparency requirements

• Some other “good governance” provisions

(availability of legal remedies, opportunity

for consultations, etc.)

Note: There is no obligation to open markets!

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Scenario III:

What are the implications of “Specific Commitments”?

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Specific Commitments – Three basic concepts

• Market Access• National Treatment• (Additional Commitments)

Plus: Unconditional and Conditional Obligations

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Market Access and National Treatment: Main elements

MARKET ACCESS (Article XVI) Absence of quota-type and similar restrictions

NATIONAL TREATMENT (Article XVII) Non-discrimination with regard to all measures affecting the supply of a service

Any limitations must be inscribed in Schedules under the relevant mode(s).

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Schedules of Specific Commitments: General Structure

Sector Limitations onMarket Access(four modes of

supply)

Limitationson NationalTreatment

(four modesof supply)

AdditionalCommitments

(Optional)

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How Schedules of Commitments are structured: Case A.

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

Medical and Dental Services (CPC 9312)

1) Unbound 2) None 3) The number of new

foreign doctors registered each year may be limited depending on the total supply of doctors

4) Unbound except as indicated in the horizontal section

1) None 2) None 3) None 4) Unbound

*Unbound due to lack of technical feasibility

NOTE: “unbound” = no commitment (full policy discretion)

“none” = no limitation (full commitment)

“The number of ... “ = partial commitment

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Specific Commitments – Where? How? When?

• Selection of sectors• Inscription of limitations

(i) Less than status quo?(ii) Status quo?(iii) More liberal?

- With immediate effect?- Pre-commitment?

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• Art. III:3 (add. transparency requirements)

• Art. VI:1 (administration of measures)

• Art. VI:5 (regulatory disciplines)

• Art. VIII (compliance of monopolies)

• Art. XI:1 (current transactions)

• Art. XI:2 and fn 8 to Art. XVI (capital transfers)

Annex on Telecommunications

Conditional obligations

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All Other Services Governmental

Services & Air Traffic Rights

Not Scheduled

Scheduled

Unconditional obligations (MFN!)

▬ + +

Conditional obligations

▬ ▬ + MA ▬ ▬ ± NT ▬ ▬ ±

Specific Commitments

AC ▬ ▬ ?

Application of GATS obligations across the services economy

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Must GATS obligations (and commitments) be respected at all costs? No. Members may intervene for overriding health and other policy reasons (Article XIV, ‘prudential carve-out’ in financial services), because of security concerns (Article XIVbis) or to protect the Balance of Payments (Article XII). Also, they may want to re-negotiate commitments (Article XXI) or seek a waiver (Article XIX:3 of WTO Agreement).

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Four negotiating mandates

• Domestic Regulation (Article VI:4)

• Emergency Safeguards (Article X)

• Government Procurement Article XIII)

• Subsidies (Article XV)

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THE END