The General Agreement on Trade in Services (GATS)

Dr. Utpal Kumar Raha

Assistant Professor
Xavier Law School
PhD., Indian Institute of Technology Kharagpur

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 Different Parts of Discussion
⚫ Definition and Scope of Services

⚫ Obligations of the Members

⚫ Customized Commitments (Schedule & Annex)

⚫ Exceptions

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 ⚫ GATS is one of the major achievements of the Uruguay Round of

trade negotiations, from 1986 to 1993.

⚫ While services currently account for over two-thirds of global

production and employment, they represent no more than 25 percent

of total trade.

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⚫ Holds an immense potential in terms of further expansion of world trade:

⚫ By 2050 the world services exports would exceed merchandise

⚫ In case of USA this situation would come much earlier- 2037

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 The General Agreement on Trade in Services (GATS)
⚫ Introduction

⚫ GATT and GATS share similar objectives of promoting progressive liberalisation and creating a
credible and reliable system of international trade,

⚫ the two disciplines also bear certain differences.

⚫ First,

⚫ trade in services is wider than trade of goods. GATS includes trade in services and supply of
services whereas GATT applies on the products. trade in services remains multi-dimensional

⚫ GATS applies on consumer movements and factors flows such as movement of investment
and labour.

⚫ Second,

⚫ GATS approves more flexible approaches to the MFN and NTO than GATT. Unlike the
GATT, there does not exist a wholesale ban on using quantitative restrictions under GATS.

⚫ the GATS on a sector-by-sector basis and only to the extent that no qualifications (“limitations”)
have been scheduled.
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 GATS : built-in-agenda
⚫ Unlike trade in goods which is a uni-dimensional process, trade in services remains

multi-dimensional.

⚫ Liberalisation of services under GATS requires development of necessary frameworks in respect of

recognition of quality, licensing and qualification requirements of service providers from different

jurisdictions, as well as social and infrastructure developments.

⚫ The domestic regulatory frameworks of developing countries were largely at an evolutionary stage,

⚫ GATS would be an on-going process as countries would have the flexibility to accommodate policy

regimes affecting trade in services and gradually open relevant modes of their sectors.

⚫ This is also known as the „built-in-agenda‟ of GATS.

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 GATS Scheme
⚫ Agreement

⚫ Annex on Article II – Exemptions

⚫ Annex on Movement of Natural Persons

⚫ Annex on Air Transport Services

⚫ Annex on Financial Services

⚫ Annex on Telecommunications

⚫ Annex on Negotiations on Maritime Transport Services

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 Structure of the GATS agreement

⚫ The GATS consists of two main parts:

⚫ (i) the text of the Agreement (comprising of a Preamble, 29 articles arranged in six Parts

and various Annexes); and

⚫ (ii) a schedule of specific commitments and exceptions to MFN for each WTO Member.

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 Article I : Scope and Definition
1. This Agreement applies to measures by Members affecting trade in services.

2. For the purposes of this Agreement, trade in services is defined as the supply of

a service:

(a) from the territory of one Member into the territory of any other Member;

(b) in the territory of one Member to the service consumer of any other Member;

(c) by a service supplier of one Member, through commercial presence in the territory of any other

Member;

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 Article I : Scope and Definition

⚫ Definition

⚫ Scope of the GATS

⚫ Measures by Members

⚫ Trade in Services

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 Service Sector Classification

⚫ UN Central Product Classification

⚫ Sub-divided in to 160 Sub-sectors

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 12 Core Service Areas – 161 Services
1. Business services (including professional services and
computer services)
2. Communication services
3. Construction and related engineering services
4. Distribution services
5. Educational services
6. Environmental services
7. Financial services (including insurance and banking)
8. Health-related and social services
9. Tourism and travel-related services
10.Recreational, cultural and sporting services
11.Transport services
12.Other services not included elsewhere

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 Scope of GATS Agreement
⚫ The GATS applies in principle, to all service sectors, with the following

⚫ Two exceptions:
⚫ Article 1(3)(b) of the GATS excludes “services supplied in the exercise of governmental
authority.” (Police, fire protection, monetary policy operations, mandatory social security, and
tax and custom administration).

⚫ Article I(3)(c) as those that have been supplied neither on a commercial basis nor in competition
with one or more service suppliers. Both conditions have to be fulfilled for the service to be
exempted.

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

⚫ But includes:
⚫ Aircraft repair and maintenance services;

⚫ Computer reservation system services;

⚫ Selling and Marketing of air transport services.

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 Article I(3) “measures by Members”

GATS extends to measures by all levels of government, as well as those of

“non-governmental bodies” acting with delegated powers.

However, purely private measures are outside the scope of the Agreement.

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 Measures affecting trade in Services

⚫ The main body of the Agreement outlines Members‟ obligations concerning their use of
measures affecting trade in services.
⚫ These measures may be in the form of
⚫ laws,
⚫ rules,
⚫ regulations,
⚫ procedures,
⚫ decisions or administrative actions.

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 Article I(2) defines “trade in services”

⚫ Four “Modes of Supply”

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 Modes of Service

⚫ Cross-border supply is defined to cover services flows from the territory of one

Member into the territory of another Member (e.g. banking or architectural services

transmitted via elecommunications or mail, consultancy or market research reports,

tele-medical advice, distance training.

⚫ Consumption abroad refers to situations where a service consumer (e.g. tourist or

patient, students) moves into another Member's territory to obtain a service;

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 Modes of Services
• Commercial presence implies that a service supplier of one Member establishes a territorial presence,

including through ownership or lease of premises, in another Member's territory to provide a service (e.g.

domestic subsidiaries of foreign insurance companies or hotel chains or construction companies ); and

• Movement of natural persons consists of persons of one Member entering the territory of another

Member to supply a service (e.g. accountants, doctors or teachers).

• The Annex on Movement of Natural Persons specifies, however, that Members remain free to operate

measures regarding citizenship, residence or access to the employment market on a permanent basis.

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 Obligations under GATS
⚫ Part II & Part III

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 Classification of Obligations
⚫ These obligations essentially fall into two main groups:

⚫ (i) “unconditional obligations” that must be adhered to by all Members in all sectors

covered by the GATS, e.g. MFN obligation and

⚫ (ii) “conditional obligations” whose scope is confined to those sectors and modes for

which a Member has undertaken specific commitments, e.g. Market Access and NT

obligation. GATS Schedule of Commitments which determine the nature and scope of

these conditional obligations

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 Obligations
⚫ General obligations, which apply directly and automatically to all Members and services

sectors,

⚫ Commitments concerning market access and national

⚫ Treatment in specifically designated sectors

⚫ Such commitments are laid down in individual country schedules whose scope may

vary widely between Members

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 General Commitments

⚫ Article II : MFN Treatment

⚫ Article III : Transparency

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 Special 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).

⚫ National Treatment

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 Conditional Obligations
PART III SPECIFIC COMMITMENTS

⚫ Article XVI Market Access

⚫ Article XVII National Treatment

⚫ Article XVIII Additional Commitments

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 Market Access Obligations
Article XVI:2 provides an exhaustive list of six categories of restrictions that must
not be maintained, unless scheduled as a market access limitation in a country’s
Schedule of Commitments :
a. the number of service suppliers;

b. the value of service transactions or assets;

c. the number of operations or quantity of output;

d. the number of natural persons supplying a service;

e. the type of legal entity or joint venture;

f. the participation of foreign capital.

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 The first four restrictions (a to d) are quantitative as they deal with quota-type

limits.

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 US – GAMBLING (DS285)
Antigua and Barbuda v US

⚫ the Appellate Body decision in US-Gambling, a complete ban on importation of

services (betting and gambling in this case) has been interpreted as zero quota

⚫ Covered by Article XVI:2(a) and XVI:2(c) of GATS.

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Article XVI (a) to (e) no distinction between National and Foreign

A measure may state that in the banking sector licenses will be issued for a

maximum of six banks with no nationality criteria specified.

It is non-discriminatory, still a restriction in the sense of Article XVI and would

need to be scheduled if it is to be maintained

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 Finally,

⚫ the six types of restrictions under Article XVI are exhaustive.

⚫ Only measures that fall under these categories are subject to scheduling

⚫ Other restrictions on market access may be allowed.

⚫ instance, a high non-discriminatory tax on a particular service may act as a

barrier to entry, but it is not a restriction which falls under any of the categories

listed under Article XVI.2. Allowed

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 Article XVII : National Treatment Obligation

⚫ NT simply requires a Member to accord to services and service suppliers of any other

Member, in respect of all measures affecting the supply of services, treatment ‘no less

favourable than that it accords to its own like services and service suppliers’.

⚫ Fundamental is whether ‘conditions of competition have been modified as a result of the

measure. Or not’.

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 Illustrations Violating NT Obligations
Discriminatory measures include :

⚫ restrictions on foreign land ownership,

⚫ tax benefits only for nationals,

⚫ training requirements imposed only on foreign suppliers, or

⚫ language requirements that are not directly relevant to the exercise of a profession

⚫ A measure may require a services supplier to have prior residency in order to apply

for a licence. Although the measure applies to both domestic and foreign service

suppliers, de facto foreign service suppliers are treated less favourably

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 Part IV : GATS Schedule of Commitments
⚫ Part IV : Article XX : Schedules of Specific Commitments

⚫ A schedule to GATS prescribes limitations on member’s obligations under Article XVI,

Article XVII & XVIII.

⚫ How the GATS operates, especially with respect to the conditional obligations, i.e. Market
Access and National Treatment.

⚫ in precise,

⚫ what limitations, if any, it wishes to maintain on market access (Article XVI);

⚫ what limitations, if any, it wishes to maintain on NT (Article XVII); and

⚫ what additional commitments, relating to measures affecting trade in services not

subject to scheduling under Articles XVI and XVII, it wishes to undertake under
Article XVIII.

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 Unconditional Obligations
⚫ Article II MFN

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 Article II

⚫ Most-Favoured-Nation Treatment in trade in services across the national frontier

⚫ Example :

⚫ Member may have chosen not to commit its private education sector since it wishes

to keep the sector closed to foreign services and service suppliers. In such a case, in

order to be consistent with Article II, it cannot subsequently decide to open the

market to providers of some Members but not to others

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 Article II : MFN
MFN Principle
• 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.

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Article II : MFN in GATT & GATS and exceptions
⚫ GATT covers only ‘like products’, whereas GATS both ‘like services’ and ‘like service
providers’.

⚫ For GATT MFN

⚫ Obligation is paramount and has no exception, except in limited cases (such as Article XX of
GATT).

⚫ For GATS MFN –

⚫ where GATS offers some flexibility in its operation of MFN.

⚫ The Annex on Article II Exemptions under GATS,

⚫ not exceeding a period of ten years in principle.

⚫ be reviewed every five years and are subject to negotiations in subsequent trade rounds.

⚫ At present, exemptions are maintained for over 500 measures concerning sectors including,
road transport and audiovisual services, followed by maritime transport and banking services.

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 Exceptions under GATS

⚫ under Article XX of the GATT,

⚫ GATS Article XIV covers a list of exceptions.

⚫ Article XIV bis GATS

⚫ US Gambling : designed “to protect public morals or to maintain public

order” within the meaning of Art. XIV(a) of GATS.

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 India and GATS

Indian Commitment
India’s Service Sector

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 Services Industry in India- 2021-22
• 20.19 % - Agriculture
• Contributes 53.89 % Services
• Industry – 27.92 %
• Major areas:
• 1. Tourism
• 2. Information Technology
• 3. Banking and Insurance
• 4. Hotel and Restaurant
• 5. Consultancy, legal, and other professional services.

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 Major Services Industry in India

Major Areas:

1. Tourism

2. Information Technology

3. Banking and Insurance

4. Hotel and Restaurant

5. Consultancy, Legal and Other Professional Services

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