SERVICES TRADE UNDER THE GATS GATS Main Features February 2007 SERVICES TRADE UNDER THE GATS - An Introduction I - Rolf Adlung Trade in Services Division WTO

GATS Main Features February 2007 STARTING POINT: INTERNATIONAL SERVICES TRADE – IMPLICATIONS FOR DEVELOPMENT

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.

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.

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”.

The GATS: A latecomer in the multilateral system ... GATS Main Features February 2007 The GATS: A latecomer in the multilateral system ...

Services in the Multilateral System: Since 1995 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)

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

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?

GATS Main Features February 2007 GATS: Main Features

GATS Main Features February 2007 1st Observation THE GATS IS FAR WIDER IN COVERAGE THAN CONVENTIONAL TRADE AGREEMENTS ....

GATS: Scope, coverage, definition 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: Modal structure

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.)

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

Relevance for individual sectors GATS Main Features February 2007 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”)

Scenario I: Status of Governmental Services GATS Main Features February 2007 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)

GATS Main Features February 2007 Scenario II: What minimum obligations are incurred in sectors falling under GATS (“unconditional obligations”)?

Unconditional obligations GATS Main Features February 2007 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!

Scenario III: What are the implications of “Specific Commitments”? GATS Main Features February 2007 Scenario III: What are the implications of “Specific Commitments”?

Specific Commitments – Three basic concepts GATS Main Features February 2007 Specific Commitments – Three basic concepts Market Access National Treatment (Additional Commitments) Plus: Unconditional and Conditional Obligations

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).

Schedules of Specific Commitments: General Structure

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

Specific Commitments – Where? How? When? GATS Main Features February 2007 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?

Conditional obligations GATS Main Features February 2007 Conditional obligations 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

Application of GATS obligations across the services economy

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).

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

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