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1 SERVICES TRADE UNDER THE GATS - An Introduction I - Rolf Adlung Trade in Services Division WTO.

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Presentation on theme: "1 SERVICES TRADE UNDER THE GATS - An Introduction I - Rolf Adlung Trade in Services Division WTO."— Presentation transcript:

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2 1 SERVICES TRADE UNDER THE GATS - An Introduction I - Rolf Adlung Trade in Services Division WTO

3 2 STARTING POINT: INTERNATIONAL SERVICES TRADE – IMPLICATIONS FOR DEVELOPMENT

4 3 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.

5 4 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 Source: World Bank, 2002.

6 5 Services trade and development: Necessary conditions n Appropriate sequencing of reforms [(re-)regulation/liberalization/privatization] Contestable markets (effective competition) to prevent private rent-seeking n 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.

7 6 The GATS: A latecomer in the multilateral system...

8 7 Services in the Multilateral System: Since 1995 YEARROUND PARTICIPANTS 1947 Geneva Annecy Torquay Geneva /61Dillon Round /67Kennedy Round /79Tokyo Round /93Uruguay Round 123 (Creation of GATS)

9 8 The traditional view Services = intangible = non-tradable Services = government monopolies Services = rich countries playfield Services = unsuited for GATT-type disciplines

10 9 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?

11 10 GATS: Main Features

12 11 1 st Observation THE GATS IS FAR WIDER IN COVERAGE THAN CONVENTIONAL TRADE AGREEMENTS....

13 12 n MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS nALL SERVICES (except governmental services and measures affecting air traffic rights) nFOUR MODES OF SUPPLY - Cross-border supply- Consumption abroad - Commercial presence- Presence of nat. persons nAPPLICATION TO SERVICES AND SERVICE SUPPLIERS GATS: Scope, coverage, definition

14 13 GATS: Modal structure

15 14 Mode 4: who is in and who is out? CoveredNot 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

16 ... 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.)

17 16 2 nd Observation... BUT THE GATS IS EXTREMELY FLEXIBLE IN APPLICATION

18 17 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)

19 18 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)

20 19 Scenario II: What minimum obligations are incurred in sectors falling under GATS (unconditional obligations)?

21 20 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!

22 21 Scenario III: What are the implications of Specific Commitments?

23 22 Specific Commitments – Three basic concepts Market Access National Treatment (Additional Commitments) Plus: Unconditional and Conditional Obligations

24 23 Market Access and National Treatment: Main elements MARKET ACCESS (Article XVI) Absence of quota-type and similar restrictions n 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).

25 24 Schedules of Specific Commitments: General Structure

26 25 How Schedules of Commitments are structured: Case A. *Unbound due to lack of technical feasibility NOTE: unbound = no commitment (full policy discretion) none = no limitation (full commitment) The number of... = partial commitment

27 26 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?

28 27 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

29 28 Application of GATS obligations across the services economy

30 29 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).

31 30 Four negotiating mandates Domestic Regulation (Article VI:4) Emergency Safeguards (Article X) Government Procurement Article XIII) Subsidies (Article XV)

32 31 THE END


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