The Multilateral Trading System Basic Elements

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THE GENERAL AGREEMENT ON TRADE IN SERVICES
(GATS) - AN INTRODUCTION -
Dr. Benjamin Parameswaran International Max
Planck Research School for Maritime Affairs,
Hamburg, Germany Maritime Transportation
Services under the GATS Agreement, Challenges for
Viet Nam Hanoi, 24 October 2005 Hai Phong, 26-28
October 2005
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Contents of Speech

• The economic importance of trade in services
• The WTO Services Agreement GATS Main Features
• Negotiating Services under GATS The Scheduling
  of Commitments
• Summary

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Contents of Speech

• The economic importance of trade in services
• The WTO Services Agreement GATS Main Features
• Negotiating Services under GATS The Scheduling
  of Commitments
• Summary

4
Liberalization of Trade in Goods Since World War
II
YEAR ROUND PARTICIPANTS 1947 Geneva
23 1949 Annecy
13 1951 Torquay 38 1956 Geneva
26 1960/61 Dillon Round
26 1964/67 Kennedy Round
62 1973/79 Tokyo Round
102 1986/93 Uruguay Round 123
(Creation of GATS) why?
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Services Economic importance

• Share in Production and Employment
• Between 30 and over 70 per cent, depending on
  resource structure and level of development of an
  economy
• Share in Total World Trade
• Some 20 per cent (BOP-basis)

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Chart I Share of services in production
Source World Bank, World Development Report
2002, Washington D.C.
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Developments in services trade
Some figures

• Services have been the fastest growing segment
  of
• world trade between 1980 and 2000.
• Since 1990, services exports from developing
  countries
• grew over 3 percentage points faster (per
  annum) than
• developed countries exports.
• The share of developing countries in world
  services
• exports increased from 20 to 26 per cent
  (1990 - 2000)
• Travel and tourism account for over 60 per cent
  of
• developing countries services exports.
• Source WTO Secretariat BOP data.

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Chart II World exports of goods and services
(1980 - 2000)
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Chart III Services exports of developed and
developing countries, 1990-2000 (Average annual
percentage change)
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Chart IV Services exports by economic groups,
1990-2000 (Average annual change)
1990
1995
Developing
Developing
20
countries
countries
25
80
75
Developed
Developed
Developing
2000
countries
Developed
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Chart V Structure of commercial services
exports of economic groups, 2001 (Percentage
share)
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Services trade and development Expectations

• Gains from liberalizing services may be
  substantially greater than those from
  liberalizing trade in goods.
• Why?
• Because current levels of protection are higher
  and because of spillover benefits from the
  required movement of capital and labour.
• - 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 per cent on certain routes.
• Countries that fully liberalized investment in
• telecom and financial services grew about
  1.5
• per cent faster over the past decade than
  others.
• Services liberalization in developing countries
  
• could provide as much as US6 trillion in
  additional
• income between 2005 and 2015.
• Source World Bank, 2001.

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Contents of Speech

• The economic importance of trade in services
• The WTO Services Agreement GATS Main Features
• Negotiating Services under GATS The Scheduling
  of Commitments
• Summary

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The GATS...

• is the first multilateral services agreement.
• is legally binding on all 148 WTO Member States.
• today covers from its scope and membership over
  90 per cent of all international trade in
  services.

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GATS Objectives

• Expansion of services trade
• Progressive liberalization through
  successive rounds of negotiations as a means
  of promoting growth and development
• Transparency of rules and regulations
• Increasing participation of developing
  countries

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GATS Basic Structure- 3 Pillars

• Framework Articles (I - XXIX)
• Schedules of Specific Commitments (one
  Schedule for each WTO Member State)
• Annexes and Ministerial Decisions covering
  certain sector- or policy-related issues

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GATS Structure of Pillar 1 The Framework
Agreement

• Part I (Art. I) basic definition of services
  trade and scope of GATS agreement
• Part II (Arts. II-XV) general obligations that
  generally apply to all services and all Member
  States (e.g. MFN treatment)
• Part III (Arts. XVI-XVIII) Provisions on
  Market Access and National Treatment

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GATS Structure of Pillar 1 The Framework
Agreement

• Part IV (Arts. XIX-XXI) Provisions on
  Progressive Liberalization
• Part V (Arts. XXII-XXVI) Institutional
  Provisions
• Part VI (Arts. XXVII-XXIX) Final Provisions

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GATS Scope, coverage, definition (Part I, Art.
I)

• MEASURES AFFECTING TRADE IN SERVICES AT ALL
  GOVERNMENT LEVELS
• ALL SERVICES (except governmental services and
  air traffic rights)
• FOUR MODES OF SUPPLY
• Cross-border supply
• Consumption abroad
• Commercial presence
• Movement of natural persons

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GATS Sectoral coverage

• Business Services
• Communication
• Construction
• Distribution
• Education
• Environmental Services

• Health Related Services
• Financial Services
• Tourism
• Recreation, Culture, Sports
• Transport
• Other Services

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What measures are covered by GATS?

• All measures taken by Member States central,
  regional or local governments and authorities and
  non-governmental bodies exercising delegated
  powers which affect the buying, selling, using
  of, and accessing to services.
• It does not matter whether the measure takes the
  form of a law, regulation, rule, procedure,
  administrative action or any other form.

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GATS Agreements Concept on Trade in Services

• Underlying Assumption
• Trade in goods is simple! Why? Goods cross the
  border, no direct interaction needed between
  seller and buyer.
• Trade in services is complex! Why? Services
  usually cannot be traded as easily as goods in
  most cases, proximity between supplier and
  consumer is required.

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Trade in Services under GATS...

• is defined in terms of four different modes of
  supply. If any service is provided through one of
  the four modes, the GATS provisions apply.
• The four modes are
• Cross-border supply (Mode 1)
• Consumption abroad (Mode 2)
• Commercial presence (Mode 3)
• Movement of natural persons (Mode 4)

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GATS Definition of services trade
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The economic importance of individual modes?
The share of individual modes in world services
trade has been roughly estimated at - over 25
per cent for mode 1 - less than 15 per cent for
mode 2 (mainly tourism) - close to 60 per cent
for mode 3 - less than 1 per cent for mode
4. Mode 3 trade, mostly combined with foreign
direct investment, has been the most dynamic
component in recent years.
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GATS General Obligations (Part II, Arts. II-XV)

• Other than the specific liberalization
  commitments on market access and national
  treatment (Part III), the general obligations
  apply to all measures affecting trade in services
  and to all WTO Members.
• Most important general obligations
• Most Favoured Nation (MFN) Treatment (Art. II)
• Transparency (Art. III)

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Most-Favoured-Nation (MFN) Treatment

• each Member shall accord immediately and
  unconditionally to services and service suppliers
  of any other Member treatment no less favourable
  than that it accords to like services and service
  suppliers of any other country (Art. II1)
• or in simple words Favour one, favour all.
• MFN is a direct obligation to all WTO Members to
  extend all trade preferences granted in favour of
  any country to all other Members.

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Most-Favoured-Nation (MFN) Treatment

• generally applies to any measure in any service
  sector in any Member State.
• forbids both de jure and de facto discrimination.
• MFN-exemptions can be sought once at the time of
  joining the GATS and must be listed (Art. II2)
  in the Annex on Art. II Exemptions. In the listed
  cases, MFN does not apply.

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Most-Favoured-Nation (MFN) Treatment Practical
Example

• Brazil and Argentina have concluded bilateral
  treaty granting benefit regarding commercial
  presence in e.g. health services. Consequence
• Benefit is automatically extended through MFN to
  all WTO Members.
• But not if Brazil and Argentina have entered a
  specific MFN derogation in the Annex. That they
  can only do once at the time of joining WTO/GATS
  and only for max. 10 years.

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Transparency obligation, Art. III

• applies to all services and all Member States.
• crucial because services trade is often hampered
  by reluctance of governments to properly inform
  foreign providers.
• acknowledges close link between information on
  economic conditions and prospects for getting
  involved in services trade.
• duty to
• publish all measures of relevance to services
  trade
• inform about introduction of new measures or
  changes
• promptly respond to inquiries and set up inquiry
  points.

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Specific Liberalization Commitments (Part III,
Arts. XVI-XVIII)

• General obligations (Part II), esp. MFN, crucial
  but not enough for efficient competition MFN no
  obligation to treat foreign suppliers like own
  nationals.
• Specific Commitments
• Market Access (Art. XVI)
• National Treatment (Art. XVII)
• Note Specific Commitments must be inscribed in
  so-called schedules!

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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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Market Acess and National Treatment

• Market Access and National Treatment obligations
  are incurred only
• in scheduled sectors and
• to the extent that no limitations have
• been inscribed.

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Market Access and National Treatment (Part III,
Arts. XVI, XVII)

• 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.
• General obligations apply in addition.

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Schedules of Specific Commitments Structure
Schedules specify the extent of liberalization a
Member guarantees in designated sectors.
General layout
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Meaning of limitations?

• Scheduling of a sector does not imply that
  trade (i.e. market access and national treatment)
  must be liberalized for all modes. Rather,
  commitments may vary within a spectrum between
• unbound no commitment
• none no limitation (full commitment)

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How Schedules of Commitments are structured
Example India/Health
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Contents of Speech

• The economic importance of trade in services
• The WTO Services Agreement GATS Main Features
• Negotiating Services under GATS The Scheduling
  of Commitments
• Summary

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Preparing a schedule Two steps

• Select sectors and sub-sectors for inclusion
• Relevant considerations underlying
  objectives
• Attract foreign investment employment,
• foster competition efficiency, broaden
  product
• choice and improve quality consumer
  welfare, etc.
• Consider need for modal exclusions or
  limitations
• Relevant considerations type of
  limitation
• Promote know how transfer joint venture
• requirements (mode 3), protect domestic
  employment
• quantitative limitations (modes 1,2,4),
  subsidies,
• prevent market disruption phase-in
  commitments, etc.

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Contents of Speech

• The economic importance of trade in services
• The WTO Services Agreement GATS Main Features
• Negotiating Services under GATS The Scheduling
  of Commitments
• Summary

42
Summary of Findings

• Services are of huge economic importance in terms
  of production, investment and international
  trade.
• GATS offers possibility to further economic
  growth by liberalizing trade in services through
  the principles of MFN, transparency, market
  access and national treatment.
• Scheduling of commitments is influenced by a
  variety of micro- and macroeconomic factors.