GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

Ambassador Nathan Irumba

StructureStructure1. Introduction • Background to the GATS• Differences between trade in services and trade in goods and their

modes of supply and protection.

2. Main elements of the GATS– MFN– National Treatment– Other important general obligations– Exceptions for government services– Some concerns highlighted with regard to GATS

3. Doha Round WTO negotiations update– The Mandate:

• GATS agreement article xix• The Doha Ministerial Declaration• The 1st August 2004 Council decision.• The Hong Kong Ministerial Declaration

What is the GATSWhat is the GATS

• The General Agreement on Trade in Services (GATS) was negotiated under the Uruguay Round in the Context of single undertaking.

• It lays down rules and disciplines covering multilateral international trade in services.

• The Agreement came into effect in 1995 and is part and parcel of the WTO agreements.

• The Agreement also provided in Artcle XIX a built in Agenda for further negotiations in Services.

• Provides for Most favoured nation and national treatment

What is a Service

Service covers a wide range of economic activities and WTO secretariat has categorized this into twelve sectors which are in turn are subdivided 155 sub-sectors.

The twelve sectors include the following:

• Business (including professional and computer) services

• Communication services

What is a Service cont….• Constructional and engineering services

• Distribution services

• Education services

• Environmental services

• Financial (insurance and banking) services

• Health services

• Tourism and travel services

• Recreational, cultural and sporting services

• Transport services

• Others services not included elsewhere

Difference Between Services and Goods

• Goods are tangible and visible while service are mainly intangible and invisible.

• The economist stated that “anything sold in trade that could not be dropped on your foot” is a service.

• There are also differences in modes in which the transactions are carried out.

• International trade in goods involve physical movement of goods from one country to another for most international service transactions, the time and place of consumption cannot be separated.

Modes of Services Trade• Services are traded internationally through one or

a combination of the following modes:• Mode1: Cross-border supply. Similar to the

traditional notion of “imports” for goods trade. Occurs when a service crosses a national border e.g. the purchase of insurance or computer software by a consumer from a producer located abroad.

• Mode2: Consumption abroad. Services supplied in the territory of one country to the consumers of another e.g. tourism, education or health services.

Modes of Services Trade Cont….

• Mode 3: Commercial presence. Services supplied through a foreign-owned company e.g. establishing a branch or a subsidiary company.

• Mode 4: Temporary movement of natural persons to another country, in order to provide the service there.

Protection in the Service sectors• Another difference between service and

goods is the protection is given by government to domestic industries.

• GATS rules require that goods be protected by tariffs.

• As services are normally intangible protection cannot be provided through border measures. Services are normally protected through domestic regulations on FDI, and participation of foreign suppliers to domestic industries.

Main Elements of the GATS Agreement

• As indicated above a General Agreement on Trade in services provides basic disciplines and a framework for negotiations on liberalisation of services sectors.

• The agreement does not define the services but provides that the term service covers any service in any service sectors including their production, distribution, marketing, sales and delivery according to the four modes (Article 1.3).

• GATS also covers government measures affecting services which are provided on a commercial basis.

Main Elements of the GATS Agreement Cont…

• Its Provisions apply to all modes in which international trade services takes place, viz.

• Mode1: Cross-border trade: – Trade takes place from the territory of country A into that of B

• Mode2: Consumption Abroad – Services consumed by nationals of a country A in territory of country B.

• Mode 3: Commercial Presence – A service supplier of country A crosses the border to establish and provide a service in country B.

• Mode 4: Movement of Natural Persons – Temporary movement from country A to country B to supply a service.

Service Disciplines

• The Agreement has broadly two types of disciplines. One general, applying to all service sectors and second, sectoral commitments i.e. disciplines applying to specific sectors.

• The general commitments are included in the text of the main Agreement while the specific for sectoral commitments emerge out of the negotiations between countries and are included in country’s schedules of specific commitments.

• In specific commitments a country may put down terms and limitations and conditions under which services may be allowed to their market.

Most Favoured Nation (MFN)• Among the general commitments, perhaps

the most important one is the Most Favoured Nation (MFN) Treatment

• This requires equal and consistent treatment of all foreign trading partners. It means:

• Providing equal opportunities in that sector for all foreign service providers.

• mutual exclusive treatment for all service providers

National Treatment

• This is not the same as MFN. National Treatment requires equal treatment for foreign providers and domestic providers.

• Once a foreign supplier has been allowed to supply a service in one’s country there should be no discrimination in treatment between the foreign and domestic providers.

• The Agreement does not however, as in case of goods, impose this obligation to be applied across the board in all service sectors. It requires countries to indicate in their schedules of concessions the sectors in which and conditions to which such treatment would be extended.

OTHER IMPORTANT GENERAL OBLIGATIONS

Other important general obligations of members are:

(1) Transparency of regulations; members are obligated to publish all domestic regulatory measures affecting services trade and to establish inquiry points from which members countries can obtain information affecting trade in services.

(2) Mutual recognition of qualifications required for service suppliers. The agreement urges members to enter into bilateral or plurilateral arrangements for mutual recognition of qualifications for obtaining authorisation.

OTHER IMPORTANT GENERAL OBLIGATIONS CONT….

(3) Rules governing monopolies and exclusive service suppliers and other business practices restraining competition. Members are under obligation to ensure that service suppliers do not abuse their monopoly or exclusive rights or act in a manner inconsistent with their general or specific obligations under the agreement.

(4) Measures to be taken to liberalize trade, including those securing the greater participation of developing countries.

(5) The Agreements puts obligations on countries, inter alia, not to apply restrictions on international transfer and payments in sectors where they have made specific commitments except when they are in balance of payments difficulties

EXCEPTIONS FOR GOVERNMENT SERVICES

• if a service is either supplied on a commercial basis, or supplied in competition with one or more service suppliers then the governmental services exemption is NOT applicable.

• It seems therefore to be an over simplification to say that: “all public services aren’t covered by GATS because they’re protected by the governmental services exemption…”

EXCEPTIONS FOR GOVERNMENT SERVICES CONT . . .

• there are very few services that are neither supplied on a commercial basis, nor in competition with private suppliers.

• Even among public agencies, there is often a commingling of commercial and competitive service delivery.

•the private sector is expanding into areas previously occupied solely by public service providers

Trade Barrier Examples

• Foreign services providers– Special taxes or tariffs– Outright bans– Long approval delays– Complex accreditation/licensing rules

• Personnel– Restrictions on foreign personnel– Hiring quotas for locals

• Instructional resources– Customs restrictions on materials– Limits on technical infrastructure

CONCERNS highlighted…• MORE PRIVILEGE WITH NO RESPONSIBILITY FOR BIG BUSINESS:

GATS is fundamentally about opening up new markets – either in new countries or in new areas like water – for transnational corporations. As the European Commission website on GATS states, “The GATS is not just something that exists between governments. It is first and foremost an instrument for the benefit of business.”

• VAST AND TOO FAST : The GATS negotiations seek to cover too many areas in too short an amount of time. As a result they favor rich countries which have the capacity to deal with rapid and complex negotiations. The speed of the negotiations also prevents genuine public consultation and input.

• BINDING AND IRREVERSIBLE : GATS effectively ‘locks in’ all future governments to the agreement, regardless of changes in political outlook, technological advances, or newly available information. Governments have only one chance to stipulate which areas of the sector are not covered by the commitment, and once made, commitments are extremely difficult to reverse.

• MIRROR OF WTO DYSFUNCTIONALITY : The GATS reflects the many problems of the WTO such as the systematic exclusion of many developing countries’ perspectives through exclusive and undemocratic negotiating processes;

Concerns cont…

• Most countries make commitments under GATS with the hope of attracting Foreign Direct Investment.

• What has been gained from commitments made so far??

• In Africa the provision of services goes beyond bringing the services to the people-infrastructure need to be in place

Updates on Doha Round Negotiations

Mandate of negotiations:• Doha Ministerial Decision Para 16 which also

reaffirms the guidance and procedures which were adopted in 2001 as basis for negotiations

• The July 2004 Decision – Re-affirming the commitment of members and calling on them to speed up progress of the negotiations.

• Hong Kong Ministerial Declaration

Updates on Doha Round Negotiations Cont…

Overall State of Play:• Negotiations Affected by the impasse on NAMA

and Agricultural modalities.• Difficulty to gauge progress as negotiations

based on offer on bilateral and plurilateral negotiations.

• Chairman of Negotiating group on Services circulated a draft containing some elements of for further negotiations

Updates on Doha Round Negotiations Cont…

Elements of the Chair’s Draft:• Reiteration that negotiations shall be intensified and proceed

in accordance with the objectives and approached set out in Annex C of the Hong Kong Ministerial Declaration (HKMD)

• Request-offer approach, main approach. Prior to HKMD had been pursued bilaterally, but thereafter, also plurilaterally.

• 21 collective requests submitted; 21 related plurilateral groups convened 4 rounds of meetings. Since Hong Kong Ministerial Conference, 6 Rounds of bilateral requests-offers meetings convened.

Updates on Doha Round Negotiations Cont…

Elements of the Chair’s Draft Cont…:• Indications of possible new commitments might be reflected in next round

of revised offers exchanged

• Some considered that progress in negotiations was satisfactory, others felt it fell short and that services was essential for overall balance in DDA negotiations.

• Members should to maximum extent possible respond to bilateral and plurilateral requests by offering deeper/wider commitments

• Such responses, where possible should reflect current levels of market access and national treatment and provide new market access, in particular in sectors and modes of supply of interest to developing countries: mode 1,4

• commitments to be commensurate with development levels, regulatory capacity and national policy objectives of individuals Developing countries

Updates on Doha Round Negotiations Cont…

1. How Hong Kong Ministerial declaration modified the modalities for negotiations of requests and offer.

• ii) Compromise proposals by the Chairman of the services negotiating group

• iii) LDC modalities and their implementation• iv) Signalling Conference for services as part of

Lamy’s triangle of issues to clinch the Doha Round Deal:

• July 2008 signalling Conference outcome was considered positive

Implementation of LDC Modalities • In 2003, pursuant to article xix:3; modalities were

established • Special priority was provided to LDCs in order to provide

effective Market Access in sectors and modes of supply of export interest

• It stipulates that members develop appropriate mechanism with a view of fully implementing GATS article IV:3 and facilitating “effective access” of LDCs’ services and service suppliers to foreign markets.

• Commitments could include programmes to promote investment in LDCs with a view to building the domestic services capacity and enhancing their efficiency and export competitiveness.

• Access in mode 4: technical operation review by CTS-SS

Implementation of LDC Modalities Cont…

• Proposals by LDCs • Focuses on mechanism that establishes an obligation on part of

developed members to grant permanent, non-reciprocal, special priority, solely to LDCs

• Consistency with GATS article II-MFN obligation• EC et al proposal• Focuses on a reporting and assessment mechanism by members in

the CTS-SS • Each non LDC member to submit (by date before final offers) report

indicating how its current ODA offer provide special priority to LDC interests.

• Report to be circulated for comments and questions by LDCs• Three options for proposals produced by secretariat at request of

CTS-SS; waiver amendment or interpretation.

Implementation of LDC Modalities Cont…

• Members are of the view that a waiver; available to all members, from article II offers most satisfactory outcome.

• Members to strive to complete negotiations on specific principles and characteristics of such a waiver before revised offers are submitted.

• Impact of mechanism to other developing countries to be taken into account in negotiating the principles and characteristics of the waiver.

Services Signalling Conference• Held on 24th July 2008 amongst 30 or so ministers, chaired by the

Director General.• Some members required “comfort” in other areas under the single

undertaking as members advanced towards establishment of modalities in Agriculture and NAMA with a view of moving the DDA to final stage.

Overall Assessment of the Services Signalling Conference

• According to Lamy there was overall positive signalling conference.

• Several expression of willingness to close the gap between applied regimes and existing commitments in a number of sectors

• Several signals that involve new market opening beyond status quo conditions

• Several expressions of satisfaction with progress achieved in implementation of the modalities for the treatment of LDCs

INTERFACE BETWEEN DOHA ROUND AND THE

ECONOMIC PARTNERSHIP AGREEMENT

• Requirement of article (v) of GATS on Regional Trade Agreements which EPAs must conform to if there are to be binding rules.

• Possibilities of WTO plus rules

Thank You for Listening