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TRADE IN SERVICES
The work programme and the current negotiations

Overview of current work back to top

The WTO’s General Agreement on Trade in Services (GATS) contains separate mandates for a heavy work programme covering a wide range of subjects. Work on some of the subjects started in 1995, as mandated, soon after the GATS came into force in January 1995. Work on other subjects, including the negotiations to further liberalize international trade in services, started in 2000, also as mandated. All these subjects come under the current work programme, some of which involves negotiations and some calls for study and review. As yet, no deadlines have been set for conclusion of work on any of these subjects — with one exception: the negotiations on safeguards (see below GATS rules).
 

Negotiations to further liberalize trade in services (Articles XIX and IV.3)

Negotiations to further liberalize international trade in services started in early 2000 as mandated by the GATS (Article XIX). Now in their second year, the negotiations are continuing actively with the full commitment by all members.

The first phase of the negotiations concluded successfully in March 2001 when members agreed on the guidelines and procedures for the negotiations. Agreement on the guidelines marks the fulfilment of a key element in the negotiating mandate as laid down in the GATS. By agreeing these guidelines, members have not only set the objectives, scope and method for the negotiations in a clear and balanced manner, but also unequivocally endorsed some of the fundamental principles of the GATS — i.e. members’ right to regulate and to introduce new regulations on the supply of services in pursuit of national policy objectives; their right to specify which services they wish to open to foreign suppliers and under which conditions; and the overarching principle of flexibility for developing and least-developed countries. The guidelines, therefore, reflect great sensitivity towards the public policy concerns in relation to important sectors such as health-care, public education and cultural industries, while stressing the importance of achieving higher levels of liberalization and ensuring effective market access.

Since March 2001, the negotiations have moved into a more intensive phase of discussing specific proposals. So far, around 100 proposals have been submitted by 50 members covering a wide range of services sectors, the movement of natural persons and other issues such as the treatment of small and medium-sized enterprises, transparency of regulations, classification issues and MFN exemptions. members have agreed to review progress in March 2002.
 

Work on GATS rules (Articles X, XIII, and XV)

Negotiations started in 1995 and are continuing on the development of possible disciplines that are not yet included in the GATS: rules on emergency safeguard measures, government procurement and subsidies. Work so far has concentrated on safeguards, where members have agreed to conclude the negotiations by March 2002. But the results will come into effect at the same time as the results of the current services negotiations — for which no deadline has been fixed as yet. Rules on safeguards will define the procedures and disciplines under which a member can introduce temporary measures to limit market access in situations of market disruptions.

 
Work on domestic regulations (Article VI.4)

Work started in 1995 to establish disciplines on domestic regulations — i.e. the requirements foreign service suppliers have to meet in order to operate in a market. The focus is on qualification requirements and procedures, technical standards and licensing requirements. By December 1998, members had agreed disciplines on domestic regulations for the accountancy sector. Since then, members have been engaged in developing general disciplines for all professional services and, where necessary, additional sectoral disciplines. All the agreed disciplines will be integrated into the GATS and become legally binding by the end of the current services negotiations.
  

Review and negotiations concerning MFN exemptions (Annex on Article II)

Work on this subject started in 2000. When GATS came into force in 1995, members were allowed a once-only opportunity to take an exemption from the MFN principle of non-discrimination between a member’s trading partner. The measure for which the exemption was taken is described in a member’s MFN exemption list, indicating to which member the more favourable treatment applies, and specifying its duration. In principle, these exemptions should not last for more than ten years. As mandated by the GATS, all these exemptions are currently being reviewed to examine whether the conditions which created the need for these exemptions in the first place still exist. And in any case, they are part of the current services negotiations.
  

Treatment of autonomous liberalization (Article XIX)

The negotiating guidelines and procedures agreed by members in March 2001 (see above) also stated that, based on multilaterally-agreed criteria, account shall be taken and credit shall be given in the negotiations for autonomous liberalization undertaken by members since previous negotiations and that members shall endeavour to develop such criteria prior to the start of negotiations on specific commitments. Members are continuing their discussions on various issues including the relationship between credit and binding of commitments, how to assess the value of the liberalization measures and hence of the credit to be granted, and multilateral versus bilateral treatment of autonomous liberalization.
 

Assessment of trade in services (Article XIX)

Preparatory work on this subject started in early 1999. The GATS mandates that members conduct an assessment of trade in services with reference to the objectives of the agreement, including those related to increasing the participation of developing countries in services trade. The negotiating guidelines also restate this mandate, make this a standing item on the members’ agenda, and state that the negotiations shall be adjusted in the light of the results of the assessment. Members have generally acknowledged that the dearth of statistical information and other methodological problems make it impossible to conduct an empirical assessment of trade in services. However, they are continuing their discussions with the assistance of several papers produced by the Secretariat.
 

Review of air transport services (Annex on Air Transport Services)

At present, most of the air transport sector — traffic rights and services directly related to traffic rights — is excluded from the coverage of the GATS. However, the GATS mandates a review by members of this situation. The purpose of the review, which started in early 2000, is to decide whether additional air transport services should be covered by the GATS. The review could develop into a negotiation in its own right, resulting in an amendment of the GATS itself by adding new services to its coverage and by adding specific commitments on these new services to national schedules.

Explanation of GATS back to top

The GATS is the first ever agreement of multilateral, legally-enforceable rules covering international trade in services. It was negotiated in the Uruguay Round. GATS has three elements: the main text containing general obligations and disciplines; annexes dealing with rules for specific sectors; and individual countries’ specific commitments to provide access to their markets, including indications of where countries are temporarily not applying the “most-favoured-nation” principle of non-discrimination. These commitments — like tariff schedules for trade in goods — are an integral part of the agreement. So are the temporary withdrawals of most-favoured-nation treatment.
 

General obligations and disciplines

Total coverage

The agreement covers all internationally-traded services — for example, banking, telecommunications, tourism, professional services, etc. The agreement also defines four ways of trading services:

• services supplied from one country to another (e.g. international telephone calls), officially known as “cross-border supply”

• consumers or firms making use of a service in another country (e.g. tourism), officially known as “consumption abroad”

• a foreign company setting up subsidiaries or branches to provide services in another country (e.g. foreign banks setting up operations in a country), officially “commercial presence”

• individuals travelling from their own country to supply services in another (e.g. fashion models or consultants), officially “presence of natural persons”

Most-favoured-nation (MFN) treatment

Favour one, favour all. MFN means treating one’s trading partners equally on the principle of non-discrimination. Under GATS, if a country allows foreign competition in a sector, equal opportunities in that sector should be given to service providers from all other WTO members. (This applies even if the country has made no specific commitment to provide foreign companies access to its markets under the WTO.)

MFN applies to all services, but some special temporary exemptions have been allowed. When GATS came into force, a number of countries already had preferential agreements in services that they had signed with trading partners, either bilaterally or in small groups. WTO members felt it was necessary to maintain these preferences temporarily. They gave themselves the right to continue giving more favourable treatment to particular countries in particular services activities by listing “MFN exemptions” alongside their first sets of commitments. In order to protect the general MFN principle, the exemptions could only be made once; nothing can be added to the lists. They are currently being reviewed as mandated, and will normally last no more than ten years.

Commitments on market access and national treatment

Individual countries’ commitments to open markets in specific sectors — and how open those markets will be — are the outcome of negotiations. The commitments appear in “schedules” that list the sectors being opened, the extent of market access being given in those sectors (e.g. whether there are any restrictions on foreign ownership), and any limitations on national treatment (whether some rights granted to local companies will not be granted to foreign companies). So, for example, if a government commits itself to allow foreign banks to operate in its domestic market, that is a market-access commitment. And if the government limits the number of licences it will issue, then that is a market-access limitation. If it also says foreign banks are only allowed one branch while domestic banks are allowed numerous branches, that is an exception to the national treatment principle.

These clearly defined commitments are “bound”: like bound tariffs for trade in goods, they can only be modified after negotiations with affected countries. Because “unbinding” is difficult, the commitments are virtually guaranteed conditions for foreign exporters and importers of services and investors in the sector to do business.

Transparency

GATS says governments must publish all relevant laws and regulations, and set up enquiry points within their bureaucracies. Foreign companies and governments can then use these inquiry points to obtain information about regulations in any service sector. And they have to notify the WTO of any changes in regulations that apply to the services that come under specific commitments.

Regulations: objective and reasonable

Since domestic regulations are the most significant means of exercising influence or control over services trade, the agreement says governments should regulate services reasonably, objectively and impartially. When a government makes an administrative decision that affects a service, it should also provide an impartial means for reviewing the decision (for example a tribunal).

When two (or more) governments have agreements recognizing each other’s qualifications (for example, the licensing or certification of service suppliers), GATS says other members must also be given a chance to negotiate comparable pacts. The recognition of other countries’ qualifications must not be discriminatory, and it must not amount to protectionism in disguise. These recognition agreements have to be notified to the WTO.

Once a government has made a commitment to open a service sector to foreign competition, it must not normally restrict money being transferred out of the country as payment for services supplied (“current transactions”) in that sector. The only exception is when there are balance-of-payments difficulties, and even then the restrictions must be temporary and subject to other limits and conditions.

The Uruguay Round was only the beginning. GATS requires more negotiations, which began in early 2000. The goal is to take the liberalization process further by increasing the level of commitments in schedules.
 

The annexes: services are not all the same

International trade in goods is a relatively simple idea to grasp: a product is transported from one country to another. Trade in services is much more diverse. Telephone companies, banks, airlines and accountancy firms provide their services in quite different ways. The GATS annexes reflect some of the diversity.

Movement of natural persons

This annex deals with negotiations on individuals’ rights to stay temporarily in a country for the purpose of providing a service. It specifies that the agreement does not apply to people seeking permanent employment or to conditions for obtaining citizenship, permanent residence or permanent employment.

Instability in the banking system affects the whole economy. The financial services annex says governments have the right to take prudential measures, such as those for the protection of investors, depositors and insurance policy holders, and to ensure the integrity and stability of the financial system. It also excludes from the agreement services provided when a government is exercising its authority over the financial system, for example central banks’ services. Negotiations on specific commitments in financial services continued after the end of the Uruguay Round and ended in late 1997.

The telecommunications sector has a dual role: it is a distinct sector of economic activity; and it is an underlying means of supplying other economic activities (for example electronic money transfers). The annex says governments must ensure that foreign service suppliers are given access to the public telecommunications networks without discrimination. Negotiations on specific commitments in telecommunications resumed after the end of the Uruguay Round. This led to a new liberalization package agreed in February 1997.

Under this annex, traffic rights and directly related activities are excluded from GATS’s coverage. They are handled by other bilateral agreements. However, the annex establishes that the GATS will apply to aircraft repair and maintenance services, marketing of air transport services and computer-reservation services. Members are currently reviewing the annex.