General Agreement On Trade In Services

Published Apr 29, 2024

Definition of General Agreement on Trade in Services (GATS)

The General Agreement on Trade in Services (GATS) is a treaty within the World Trade Organization (WTO) framework, established in 1995, that aims to regulate international trade in services. It was created to extend the multilateral trading system to the service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. GATS is founded on the principles of progressive liberalization, transparency, and most-favored-nation (MFN) treatment, and encompasses all internationally traded services with few exceptions.

Example

To illustrate the application of GATS, consider the case of telecommunications services. Countries that are members of the WTO and have made specific commitments under GATS agree to allow service providers from other member countries to offer telecommunications services within their borders. These commitments can specify limitations on the number of service providers, the total value of service transactions or assets, the types of legal entities through which a service can be provided, and the level of foreign ownership allowed.

For example, Country A might commit under GATS to allow up to three foreign companies to provide mobile phone services within its borders. These foreign companies would then have the right to enter Country A’s market, subject to the terms agreed upon in the GATS schedules of commitments.

Why GATS Matters

The importance of GATS in the global economic framework cannot be understated. By setting agreed rules and standards for international trade in services, GATS facilitates a more predictable and secure trading environment, encouraging investment and the development of efficient services industries globally. Services constitute a significant portion of the world economy and are integral to manufacturing and other economic sectors, making their streamlined international trade key to economic growth and development.

As economies become increasingly service-oriented, GATS plays a crucial role in ensuring openness and competitiveness in sectors ranging from telecommunications to financial services, environmental services, and beyond. This agreement helps to remove barriers to trade in services and ensures that national regulations are administered in a reasonable and objective manner, thereby promoting international economic cooperation and growth.

Frequently Asked Questions (FAQ)

What are the main principles of GATS?

The main principles of GATS include the obligation of most-favored-nation (MFN) treatment, which requires that any advantage given to a service provider from one member country must be extended to all other member countries. Transparency in regulations relating to services is another principle, designed to ensure that all measures affecting the trade in services are made publicly available. Progressive liberalization, a key goal of GATS, involves negotiations among member countries to open more service sectors to competition over time.

Does GATS cover all types of services?

GATS covers all internationally traded services with four modes of supply: cross-border supply, consumption abroad, commercial presence, and presence of natural persons. However, there are exceptions, such as services provided in the exercise of governmental authority, which are services neither on a commercial basis nor in competition with other service suppliers.

How do countries make commitments under GATS?

Countries make specific commitments in their schedules of commitments, which are annexes to the GATS treaty. These commitments are negotiated and bound, meaning they are legally enforceable promises to allow market access and national treatment in specific service sectors and sub-sectors. Each member’s schedule specifies the sectors committed to liberalization, limitations on market access, and conditions on national treatment.

Can obligations under GATS be modified or withdrawn?

Yes, a WTO member can modify or withdraw its commitments after a negotiation process with other members, typically involving compensation for any adverse effects on trade. The process for modification or withdrawal of commitments is outlined in the GATS agreement, ensuring that changes are transparent and do not undermine the stability and predictability of the international trading system.

By fostering international trade in services, GATS contributes to economic diversification, innovation, and the overall growth of the global economy, making it a cornerstone of the multilateral trading system alongside the GATT for goods.