Category: International Trade Sub-category: International Trade Organisation
Document type: article


GATS refers to the General Agreement on Trade in Services. This WTO treaty,signed  by all member nations,came into force after the Uruguay Round negotiations in January 1995 was created to include the service sector like tourism,financial services, telecommunications services,banking,check-ups done by a doctor and IT (information technology) etc into international trade agreement.

International trade in services (sale and delivery of a service between individuals based in different countries at legal terms)  is defined by the Four Modes of Supply of the General Agreement on Trade in Services (GATS).

 * (Mode 1) Cross border trade, which is defined as delivery of a service from the territory of one country into the territory of other country; (e.g. banking or architectural services transmitted via telecommunications or mail)

* (Mode 2) Consumption abroad - this mode covers supply of a service of one country to the service consumer of any other country; (e.g. tourist or patient)

 * (Mode 3) Commercial presence - which covers services provided by a service supplier of one country in the territory of any other country, (e.g. domestic subsidiaries of foreign insurance companies or hotel chains)

 * (Mode 4) Presence of natural person (human being, as distinct from legal persons such as companies or organisations)-which covers services provided by a service supplier of one country through the presence of natural persons in the territory of any other country. (e.g. accountants, doctors or teachers).

The basic aim of GATS is creating a credible and reliable system of international trade rules; ensuring fair and equitable treatment of all participants (principle of non-discrimination); stimulating economic activity through guaranteed policy bindings; and promoting trade and development through progressive liberalization.

The GATS applies in principle to all service sectors, with two exceptions.

 * The “services supplied in the exercise of governmental authority”. These are services that are supplied neither on a commercial basis nor in competition with other suppliers. Cases in point are social security schemes and any other public service, such as health or education, that is provided at non-market conditions.

 * Further, the Annex on Air Transport Services exempts from coverage measures affecting air traffic rights and services directly related to the exercise of such rights.

Most-Favoured-Nation Treatment

The most-favoured-nation (MFN) principle is a cornerstone of the multilateral trading system conceived after World War II.It seeks to replace the frictions and distortions of power-based(bilateral) policies with the guarantees of a rules-based framework where trading rights do not depend on the individual participants’ economic or political clout. Rather,the best access conditions that have been conceded to one country must automatically be extended to all other participants in the system. This allows everybody to benefit, without additional negotiating effort, from concessions that may have been agreed between large trading partners with much negotiating leverage.

In the context of the GATS, the MFN obligation (Article II) is applicable to any measure that affects trade in services in any sector falling under the Agreement, whether specific commitments have been made or not. Exemptions could have been sought at the time of the acceptance of the Agreement (for acceding countries: date of accession). They are contained in country-specific lists, and their duration must not exceed ten years in principle.

Obligations contained in the GATS may be categorized into two broad groups: 

(a) General obligations

MFN Treatment: Under Article II of the GATS, Members are held to extend immediately and unconditionally to services or services suppliers of all other Members “treatment no less favourable than that accorded to like services and services suppliers of any other country”. This amounts to a prohibition, in principle, of preferential arrangements among groups of Members in individual sectors or of reciprocity provisions which confine access benefits to trading partners granting similar treatment.

Derogations are possible in the form of so-called Article II-Exemptions. Members were allowed to seek such exemptions before the Agreement entered into force. New exemptions can only be granted to new Members at the time of accession or, in the case of current Members, by way of a waiver under Article IX:3 of the WTO Agreement. All exemptions are subject to review; they should in principle not last longer than 10 years. Further, the GATS allows groups of Members to enter into economic integration agreements or to mutually recognize regulatory standards, certificates and the like if certain conditions are met.

Transparency: GATS Members are required, inter alia, to publish all measures of general application and establish national enquiry points mandated to respond to other Member's information requests.
Other generally applicable obligations include the establishment of administrative review and appeals procedures and disciplines on the operation of monopolies and exclusive suppliers.

(b) Specific Commitments

Market Access: Market access is a negotiated commitment in specified sectors. It may be made subject to various types of limitations that are enumerated in Article XVI(2). For example, limitations may be imposed on the number of services suppliers, service operations or employees in the sector; the value of transactions; the legal form of the service supplier; or the participation of foreign capital.

National Treatment: A commitment to national treatment implies that the Member concerned does not operate discriminatory measures benefiting domestic services or service suppliers. The key requirement is not to modify, in law or in fact, the conditions of competition in favour of the Member's own service industry. Again, the extension of national treatment in any particular sector may be made subject to conditions and qualifications.

Members are free to tailor the sector coverage and substantive content of such commitments as they see fit. The commitments thus tend to reflect national policy objectives and constraints, overall and in individual sectors. While some Members have scheduled less than a handful of services, others have assumed market access and national treatment disciplines in over 120 out of a total of 160-odd services.

The existence of specific commitments triggers further obligations concerning, inter alia, the notification of new measures that have a significant impact on trade and the avoidance of restrictions on international payments and transfers.