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General Agreement on Trade in Services

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Brief Overview

In the history of the World Trade Oranization and its evolution from the General Agreement of Tariffs and Trades (GATT), it is interesting to note that the original premise on which the GATT was signed was for reducing tariffs on a portion of the world’s trade. Only after acceptance did the scope of the GATT grow to include many other international issues such as trade in services and intellectual property (through the final Uruguay round of revisions). Eventually the GATT was incorporated into the World Trade Organization in 1995. The WTO included, in addition to the original GATT, many other international agreements, including GATS - General Agreement of Trade in Services.

The General Agreement of Trade and Services (GATS) attempts to level the playing field on the international market. It aims to reduce discrimination against outside companies from entering into a new market. However, Rikowski (2003) describes that it is still a mystery if the actual Agreement includes public services under its scope, or not. Either way, the powers in control win and the public sector loses and cannot come out on top due to the confusion. The loophole is presented in that GATS applies to even publicly funded institutions that have any private capital involved (like a library or food services). There are less and less schools that would qualify as totally publicly funded and thus not subject to effects by GATS and thus affected by international marketization of education. The argument is one of a double edge sword in that the schools who are solely publicly funded and thus not subject to GATS are not on an international playing field. But, by accepting private funds and being subject to GATS, they risk losing autonomy and local identity because of the “fairness” of the structure set out for the international participants.

Formal Definition

The General Agreement on Trade in Services (GATS) is a relatively new agreement. It entered into force in January 1995 as a result of the Uruguay Round negotiations to provide for the extension of the multilateral trading system to services. With a view to achieving a progressively higher level of liberalization, pursuant to Article XIX of the GATS, WTO Members are committed to entering into further rounds of services negotiations. The first such Round started in January 2000. All Members of the World Trade Organization are signatories to the GATS and have to assume the resulting obligations. So, regardless of their countries' policy stances, trade officials need to be familiar with this Agreement and its implications for trade and development. These implications may be far more significant than available trade data suggest.

The definition of services trade under the GATS is four-pronged, depending on the territorial presence of the supplier and the consumer at the time of the transaction. Pursuant to Article I:2, the GATS covers services supplied

(a) from the territory of one Member into the territory of any other Member (Mode 1 - Cross border trade);

(b) in the territory of one Member to the service consumer of any other Member (Mode 2 – Consumption abroad);

(c) by a service supplier of one Member, through commercial presence, in the territory of any other Member (Mode 3 - Commercial presence); and

(d) by a service supplier of one Member, through the presence of natural persons of a Member in the territory of any other Member (Mode 4 - Presence of natural persons). (Summarized from the WTO official website. (http://www.wto.org/english/tratop_e/serv_e/serv_e.htm)

Detailed Description

The GATS is designed

1. to decrease or eliminate government measures that prevent services from being provided across national borders or that discriminate against foreign-owned service producers in their market;

2. to offer a legal framework for addressing barriers to trade and investment in services;

3. to provide a vehicle for further negotiations to open services markets around the world and progressively liberalize conditions for trade.

The general obligations, the framework agreement containing the general rules and disciplines of the GATS, and the national schedules, which list individual countries specific commitments on access to their domestic markets by foreign suppliers, provide the structure in which nations are able to understand the GATS and their ability to create proposals and commitments to the GATS that are in their best interests.

The GATS is not like other bilateral or multilateral trade agreements. It is an embedded agreement, which means that nations must specify in their schedule which industries will be included, when, and to what extent. If an industry is not included, then that industry is not subject to any of the principles or regulations of the GATS. The national schedules are the mechanisms that each nation has to indicate what and how industries are open for expansion within the scope of the GATS. It is with an understanding of the flexibility provided by the national schedule idea that the general obligations and principles of the GATS are best examined.

GATS Principles:

There are four major principles within the general obligations---most favored nation (MFN) status, transparency, market access, and national treatment. MFN and Transparency are principles that are also broad obligations to which all members must obey. Market access and national treatment are applicable only to those service areas that a member nation lists in its national schedule for liberalization.

Most favored nation:

The MFN obligation means that a country will treat the service suppliers of another member no less favorably than it does the service suppliers of any other member. MFN is to ensure that there is not a situation of discrimination in an industry, regardless of national origin if the providers are from a member nation.

Transparency:

The Transparency obligation is to ensure that all any and all barriers to trade, including concerns like legal statutes, international agreements, taxes, etc., must be clear and easily comprehensible to anyone looking to engage in that trade concern. Transparency provides a core of understanding among all member nations, that industrial leaders and other interested parties will have real access to all pertinent and relevant info regarding trade in any particular country.

Market Access:

The commitments of market access are developed by member nations within their liberalization schedules. Member nations determine which industries are being included in their proposals to the GATS and specify which levels of market access will be available to trading nations. It establishes the parameters of operations for all providers-foreign and domestic-within the market for an industry.

National treatment:

While a nation may develop any regulations and conditions to operations that it wishes, foreign suppliers in that industry must be held to the same standards and national suppliers if an industry is scheduled to be included in a country’s GATS proposal. Once included, that industry is required to treat foreign and national providers the same. The goal of establishing national treatment protections in the GATS was to provide protection again discrimination again foreign suppliers to the benefit of domestic ones (Bassett, 2006)

Recommended Reading

Rikowski, G. (2003). Schools and the GATS Enigma. Journal for Critical Education Policy Studies, 1 (1).

Bassett, Roberta Malee (2006). The WTO and the University, Globalization, GATS, and American Higher Education. Routledge, New York.

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