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FAQs
GATS

1. When did the General Agreement on Trade in Services (GATS) come into existence?

The General Agreement on Trade in Services(GATS) came into existence as a result of the Uruguay Round of negotiations and entered into force on 1 January 1995, with the establishment of the WTO.

The multilateral legal instruments resulting from the Uruguay Round were treated as a single undertaking. India also signed all the WTO agreements under the single undertaking rule and GATS is a part of this whole package.

2. What is the main purpose of GATS?

Prior to the Uruguay Round, services were considered to offer less potential for trade expansion than goods, thanks to existence of technical, institutional and regulatory barriers.However, the development of new transmission technologies facilitating the supply of services (e.g.
satellite communication, electronic banking, tele-education),the opening of monopolies in manycountries (e.g. voice telephony), and gradual liberalization of hitherto regulated sectors like transport, banking and insurance combined with changes in consumer preferences, enhanced the
"tradeability" of services. These developments increased international services flows and created a similar need for multilateral disciplines - as in the area of goods. Thus, the main purpose for the creation of the General Agreement on Trade in Services (GATS) was to create a credible and reliable system of international trade rules, which ensured fair and equitable treatment of all countries on the principles of non-discrimination.It aims at stimulating trade and development by seeking to create a predictable policy environment wherein the member countries voluntarily undertake to bind their policy-regimes relating to trade in services.

3. What is the importance of the services sector to the economy?

The importance of services sector can be judged from the fact that world trade in commercial services amounted to US$ 1440 billion in the year 2001 which is 23% of goods trade. In India, too,services accounted for 49% of GDP in 2000-2001 while agriculture accounted for 27% of GDP and manufacturing 23%.

The growth of trade in services is expected to lead to the following benefits:-

Economic performance: Presence of an efficient services infrastructure is a precondition for economic success. Services such as telecommunications, banking, insurance and transport, supply strategically important inputs for all sectors, both in goods and services.

Development: Access to world-class services help exporters and producers in developing countries to capitalize on their competitive strength,whatever goods and services they are selling.

Employment Opportunities: Growth in trade in services promotes employment within the country and, to a larger extent, growth in opportunities for professionals overseas.

Consumer Choice: There is strong evidence in many services, e.g. Telecom that liberalization leads to lower prices, better quality and wider choice for consumers.

Technology transfer: Services liberalization encourages, foreign direct investment (FDI). Such FDI generally brings with it new skills and technologies that spill over into the wider economy in various ways.

4. What services are covered under GATS and what areas are excluded ?

The GATS covers all internationally traded services with two exceptions: services provided to the public in the exercise of governmental authority, and, in the air transport sector, traffic rights and all services directly related to the exercise of traffic rights.

The WTO Secretariat has divided all services into the following 12 sectors.

1. Business services (including professional and computer services)
2. Communication services.
3. Construction and Engineering services
4. Distribution services (e.g. Commission agents, wholesale & retail trade and franchising)
5. Education services
6. Environment services
7. Finance (including insurance and banking)services
8. Health services
9. Tourism and Travel services
10. Recreation, Cultural and Sporting Services
11. Transportation Services, and
12. Other services not elsewhere classified.

These 12 areas are further divided into 161 sub-sectors.

5. How are the supply of services categorized under GATS?

GATS provides for four modes of supply of services: cross-border supply, consumption abroad, commercial presence, and presence/movement of natural persons.

Mode 1: Cross-border supply refers to a situation where the service flows from the territory of one Member country into the territory of another Member country. For example, an architect can send his architectural plan through electronic means; a teacher can send teaching material to
students in any other country; a doctor sitting in Germany can advise his patient in India through electronic means. In all these cases, trade in services takes place and this is equivalent to cross-border movement of goods.

Mode 2: Consumption abroad refers to a situation where consumer of a service moves into the territory of another Member country to obtain
the service. For example, a tourist using hotel or restaurant services abroad; a ship or aircraft undergoing repair or maintenance services
abroad.

Mode 3: Commercial presence implies that service suppliers of a Member country establish a territorial presence (a legal presence) in another Member country with a view to providing their services. In this case, the service supplier establishes a legal presence in the form of a joint venture/ subsidiary/representative/branch office in the host country and starts supplying services.

Mode 4: Presence or movement of natural persons (this only refers to export of manpower) covers situations in which a service is delivered through persons of a Member country temporarily entering the territory of another Member country. Examples include independent service suppliers
(e.g. doctors, engineers, individual consultants,accountants, etc.) However, GATS covers only temporary movement and not citizenship, residence or employment on a permanent basis in the foreign country.

Let us consider a specific example to distinguish between the four modes of supply. A particular firm in country 'X' establishes a subsidiary in country 'Y' to provide services. This is supply of services through Mode 3 i.e. Commercial Presence. An architect of the said firm sends blueprints over the Internet to another firm in country "Y"- this is Mode 1 i.e. Cross Border Supply. An Engineer from the said firm is deputed to work in the subsidiary firm established in country 'Y' for a limited period for managerial operations - this is Mode 4 i.e. Movement of Natural Persons. Certain trainees from the subsidiary in country 'Y' visit country 'X' and avail of both education and tourism services in country 'X' - this is Mode 2 exports i.e. Consumption Abroad for country 'X'

6. Do GATS commitments affect a Member's ability to pursue national policy objectives and priorities ?

The GATS recognizes the right of Members to regulate the supply of services in pursuit of their own national policy objectives. However, the GATS establishes a framework of rules to ensure that Members administer their services regulations in a manner which is reasonable, objective and impartial and does not constitute unnecessary barriers to trade. For example, a Member can decide upon the licensing conditions for grant of a Telecom license for Fixed/Mobile Services in accordance with the Commitments taken on Basic Telecommunication Services. Or a Member can decide the criteria for granting the right to practice the profession of Chartered Accountancy.

The Doha Ministerial Declaration reaffirms the right of members to regulate and to introduce new regulation on the supply of services.

7. What are the general obligations under the GATS?

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

(i) General obligations which apply directly and automatically to all Member countries of the WTO, regardless of the existence of commitments made for each sector;
(ii) Conditional obligations which apply to sectors where the Member country has assumed market access and national treatment obligations.

The general obligations include:

(a) Most Favoured Nation (MFN) Treatment: Favour one, favour all. MFN means treating one's trading partners equally. 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.

The only possible derogation/exclusion from the MFN principle exists in the form of a so-called Article II-Exemption. At the time of entry into force of the WTO Agreements, the member countries were allowed to schedule exemptions to the MFN principle, i.e. they could indicate their measures which they did not intend to multilateralise on an MFN basis to the WTO member countries. These MFN exemptions are subject to review and should,
in principle, not last longer than 10 years.

(b) Transparency : Member countries are required, inter alia, to publish all measures of general application and establish national enquiry points to respond to other Member's information requests.

(c) Other unconditional obligations : include the establishment of administrative review and appeals, procedures and disciplines on the operation of monopolies and exclusive suppliers.

8. What are the conditional obligations under GATS?

GATS follows a positive list approach under which each member is expected to undertake specific liberalization commitments through a process called "scheduling". Each Member identifies the service sectors/ sub-sectors and modes of supply in which it is willing to make commitments. Then the member inscribes the conditions under which it will allow services and service suppliers access to its market. This is done by indicating limitations it wishes to place on market access and national treatment while granting access. Thus national treatment is not mandatory in GATS but is negotiated on a sector to sector basis.

This contrasts with the way the national treatment principle is applied to goods - in that case, once a product has crossed a border and been cleared by customs it has to be given national treatment even if the importing country has not made any commitment under the WTO to bind the tariff rate.

Market Access : The granting of market access is a commitment undertaken by individual Members in specified sectors after negotiations.It may be made subject to one or more limitations.For example, limitations may be imposed on the number of services suppliers, service operations or employees in a sector, the value of transactions,the legal form of the service supplier, or the extent of participation of foreign capital.

National Treatment : National treatment means treating one's own nationals and foreigners equally. In services, it means that once a foreign company has been allowed to supply a service in one's country there should be no discrimination between the foreign and local companies.

Under GATS, a country only has to apply this principle when it has made a specific commitment to provide foreigners access to its services market. It does not have to apply national treatment in sectors where it has not made any commitment even though the service is permitted under liberalized regime. Even in the sectors where it has made commitment for market access, GATS does allow limitations on national treatment to be taken fully or partially.

9. What information is contained in services "schedules"?

Each WTO Member is required to have a schedule of specific commitments. It is a document which identifies the services sectors, sub-sectors or activities which are subject to Market Access and National Treatment obligations and any limitations attached to them. The necessary indications must be entered with respect to each of the four different modes of services supply.

Most schedules consist of a sectoral and a horizontal section. The limitation(s) indicated in the sectoral section apply only to the particular sector/sub-sector to which the section refers. For instance, in the sectoral commitments relating to banking services, India has indicated that only 12 foreign bank branches would be allowed to open in a year. This means that the commitment is limited only to the banking services. This commitment was made in 1997 but autonomously we are permitting 15 foreign bank branches in a year. On the other hand, the limitation(s) contained in the horizontal section would apply to all sectors/sub-sectors committed in the schedule. For example, if a member country undertakes a commitment in horizontal section that it will allow entry to business visitor(s) under Mode 4 for 90 days only, this will mean that the business visitor(s) belonging to all service sectors which has been committed in the schedule will be allowed entryfor 90 days.

The schedules of specific commitments of various countries can be accessed on line at the WTO website (http://www.wto.org.)

10. Can specific commitments be withdrawn or modified at any time?

As per Article XXI of the GATS, specific commitments may be modified not earlier than three years after their entry into force. However,countries which may be affected by such modifications may request the modifying Member to negotiate compensatory adjustments. This doesnot mean monetary compensation but the replacement of the commitment withdrawn by another of an equivalent value. Any such adjustments made are to be granted on an MFN basis.

11. Can commitments be introduced or improved upon outside the context of multilateral negotiations?

Yes, any commitment can be added or improved at any time autonomously by the member concerned but it becomes a binding commitment only if it is scheduled.

12. Are there any specific exemptions in the GATS to cater to important national policy interests?

Governments are free to pursue any national policy objectives provided the relevant measures are compatible with the GATS. More specifically, the GATS allows Members in specified circumstances to take or maintain measures in contravention of their obligations. This applies in particular to:

(i) measures in reaction to serious balance of payments and external financial difficulties;
(ii) measures necessary to protect public morals or human, animal or plant life or health; and
(iii) measures necessary to secure compliance with laws or regulations not inconsistent with the Agreement including, among others, measures necessary to prevent deceptive or fraudulent practices.

Further, the Annex on Financial Services entitles Members, regardless of other provisions of the GATS, to take measures for prudential reasons,including for the protection of investors, depositors,policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system.

13. Are there any provisions of interest to developing countries?

Article IV of GATS specifically provides that increasing the participation of developing countries in world trade shall be facilitated by different members through strengthening of their domestic services capacity, improvement of their access to distribution channels and information networks, and liberalisation of market access in sectors and modes of export interest to developing countries.The agreement also recognises that in the negotiations on liberalisation of trade in services, appropriate flexibility will be given to individual developing country members for opening fewer sectors, liberalising fewer types of transactions and attaching such access conditions which aim at achieving the objectives of Article IV while allowing foreign service suppliers access to their markets.

14. What is the present status of the WTO negotiations on Services ?

The GATS came into existence at the end of the Uruguay Round establishing the WTO in 1995. Under Article XIX of GATS, further round of negotiations for progressive liberalisation had been mandated to begin not later than 5 years from the date of establishment of WTO. Accordingly, negotiations have commenced from 1/1/2000. This negotiation is continuing and is scheduled to be completed by 1/1/2005 as decided in the Doha Ministerial Conference.

15. What principles underlie the Negotiations?

The underlying principles of the services negotiations are contained in the Guidelines and Procedures for Negotiations on Trade in Services (NGP) which member countries were required to finalise.

India played an instrumental role in finalisation of the NGP. India alongwith 22 other developing countries prepared and submitted a draft proposal on NGP entitled "Elements of Negotiating Guidelines and Procedures" for consideration of the WTO membership. The adopted NGP is largely based on India's proposal.

The main elements of the Negotiating Guidelines and Procedures, inter alia, are:

1) There shall be progressive liberalisation in trade in services with due respect to national policy objectives, the level of development and the size of economies.
2) The existing structure and principle of GATS shall be maintained including the right to choose the sectors and modes of supply while undertaking commitments.
3) The Request-Offer approach shall be the main method of negotiations.
4) The starting point for negotiations shall be the current schedules of commitment.
5) The negotiations shall aim to increase the participation of developing countries in the Trade in Services. There shall be flexibility for developing country members in making commitments and special priority shall be given to the least developed countries.

16. What Negotiating methods are to be adopted?

The main method of negotiations shall be the request and offer approach. In a request-offer approach at the initial stage countries would lay on the table their requests on other trading partners (i.e. their list of demands, seeking greater market access for their exports from them) and in turn also place their offers to other trading partners16 (i.e. the concession that they are willing to offer giving greater market access to imports of services from its trading partners). Subsequently, it will be followed by negotiations between countries either bilaterally or between Groups of Countries or multilaterally. Any commitments agreed to during this process with a particular country or a Group of countries or multilaterally will be made applicable in respect of other countries at the end of negotiations. The starting point of negotiations will be the existing schedules of specific commitments of the member countries.

17. What is the Calendar for Negotiations?

The Doha Ministerial Declaration mandates that members shall submit initial requests by June, 2002 and initial offers by March 2003. The Declaration also prescribes that the Negotiations shall close by 1 January, 2005. The submission of Requests and Offers is a continuous process which is likely to continue till 2005 or till the end of Negotiations.

18. What are the sectors of interests to developed countries?

The main sectors of interest to developed countries in the current negotiations are business services, telecommunication services, financial services, transport services, distribution services,energy services, environmental services and education services. The main mode of supply of17 particular interest to developed countries is Mode 3, i.e. commercial presence because they have the financial capability required for establishment of legal presence in the territory of the trading partner.

19 What are the sectors and modes of supply of particular interest to India and other developing countries?

The mode of supply of particular interest to India and other developing countries is Mode 4, i.e.the movement of natural persons. India, in particular, has a large pool of well-qualified professionals in the services sectors like computer and related services, education services,audiovisual services, accountancy services,architectural services, construction and engineering services, health services and consultancy services. India has fairly large comparative advantage over other Member countries with regard to supply of professional services in these service sectors. Besides, for India modes 1 and 2 are also important as via mode 1 it can deliver professional services electronically and via mode 2 it can provide services such as medical, educational and tourism services to the foreign patients, students and tourists visiting India.

20. What is India's strategy to achieve greater liberalisation in Movement of Natural Persons?

India is a proponent of liberalisation of trade in services through Mode 4. In order to promote the liberalisation of mode 4, India has submitted a proposal at the Special session of the Council for Trade in Services on "Liberalisation of Movement of Professionals" (S/CSS/W/12). The paper can be accessed at the Department of Commerce Website www.commin.nic.in [http://commin.nic.in/doc/ wtosn_papers.htm]. The salient features of the proposals are as follows :

i) The Indian proposal notes that the developed member countries have taken limited commitments in Mode 4, which is of significant interest to developing countries.These commitments are further reduced in scope on account of various measures taken by developed member countries.

ii) The Indian proposal suggests following strategy for improving trade in services through mode 4:-

a. Economic Needs Test (ENT): In order to reduce the scope for discriminatory practices in use of ENT, multinational norms need to be established.

b. Social security contributions need not be required to be made for temporary movement as contributors are not eligible for receiving benefits of such contributions. As it affects the comparative advantage of professionals,they should be exempted from such payments.

c. Administration of visa regimes may be made more transparent. Notion of a separate GATS visa for personnel covered by horizontal and sectoral commitments scheduled by a Member, different and less onerous from the normal immigration visa, may be considered.

d. Specific sectoral commitments in line with requirements of developing countries need to be taken. For this purpose, more detailed sub classification of categories of personnel and their inclusion in sectoral/horizontal commitments may be required.

e. Non-recognition of qualifications by developed countries often acts as a serious barrier to market entry. It would be necessary to work for the establishment of multilateral norms to facilitate Mutual Recognition Agreements (MRAs) among Member countries. There should be a mechanism to attend to specific problems being faced by developing countries regarding the mutual recognition of qualifications so as to ensure complete equity and fairness in recognition matters.

 

 

 
 
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