Slide1: THE GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) - AN INTRODUCTION - Dr. Benjamin Parameswaran International Max Planck Research School for Maritime Affairs, Hamburg, Germany Maritime Transportation Services under the GATS Agreement, Challenges for Viet Nam Hanoi, 24 October 2005 Hai Phong, 26-28 October 2005


Contents of Speech: Contents of Speech The economic importance of trade in services The WTO Services Agreement GATS: Main Features Negotiating Services under GATS: The Scheduling of Commitments Summary


Contents of Speech: Contents of Speech The economic importance of trade in services The WTO Services Agreement GATS: Main Features Negotiating Services under GATS: The Scheduling of Commitments Summary


Slide4: Liberalization of Trade in Goods Since World War II YEAR ROUND PARTICIPANTS 1947 Geneva 23 1949 Annecy 13 1951 Torquay 38 1956 Geneva 26 1960/61 Dillon Round 26 1964/67 Kennedy Round 62 1973/79 Tokyo Round 102 1986/93 Uruguay Round 123 (Creation of GATS) … why?


Services: Economic importance: Services: Economic importance Share in Production and Employment Between 30 and over 70 per cent, depending on resource structure and level of development of an economy Share in Total World Trade Some 20 per cent (BOP-basis)


Slide6: Chart I: Share of services in production Source: World Bank, World Development Report 2002, Washington D.C.


Slide7: Developments in services trade: Some figures* Services have been the fastest growing segment of world trade between 1980 and 2000. Since 1990, services exports from developing countries grew over 3 percentage points faster (per annum) than developed countries’ exports. The share of developing countries in world services exports increased from 20 to 26 per cent (1990 - 2000) Travel and tourism account for over 60 per cent of developing countries’ services exports. *Source: WTO Secretariat; BOP data.


Slide8: Chart II: World exports of goods and services (1980 - 2000)


Slide9: Chart III: Services exports of developed and developing countries, 1990-2000 (Average annual percentage change)


Slide10: Chart IV: Services exports by economic groups, 1990-2000 (Average annual change) 80% 20% 1990 Developed Developing countries 1995 Developed Developing countries 2000 Developed Developing countries 25% 75%


Slide11: Chart V: Structure of commercial services exports of economic groups, 2001 (Percentage share)


Slide12: Services trade and development: Expectations Gains from liberalizing services may be substantially greater than those from liberalizing trade in goods. Why…? Because current levels of protection are higher and because of spillover benefits from the required movement of capital and labour. - Infrastructural services such as telecommunications, finance and transport are crucial determinants of overall economic efficiency and growth.


Slide13: Services trade and development: Some estimates Lack of competition in maritime transport (cargo reservation, restrictions on port services, collective rate setting, etc.) can increase freight rates up to 25 per cent on certain routes. Countries that fully liberalized investment in telecom and financial services grew about 1.5 per cent faster over the past decade than others. Services liberalization in developing countries could provide as much as US$6 trillion in additional income between 2005 and 2015. Source: World Bank, 2001.


Contents of Speech: Contents of Speech The economic importance of trade in services The WTO Services Agreement GATS: Main Features Negotiating Services under GATS: The Scheduling of Commitments Summary


The GATS...: The GATS... is the first multilateral services agreement. is legally binding on all 148 WTO Member States. today covers from its scope and membership over 90 per cent of all international trade in services.


Slide16: GATS: Objectives Expansion of services trade Progressive liberalization through successive rounds of negotiations as a means of promoting growth and development Transparency of rules and regulations Increasing participation of developing countries


Slide17: GATS: Basic Structure- 3 Pillars Framework Articles (I - XXIX) Schedules of Specific Commitments (one Schedule for each WTO Member State) Annexes and Ministerial Decisions covering certain sector- or policy-related issues


Slide18: GATS: Structure of Pillar 1 The Framework Agreement Part I (Art. I): basic definition of services trade and scope of GATS agreement Part II (Arts. II-XV): general obligations that generally apply to all services and all Member States (e.g. MFN treatment) Part III (Arts. XVI-XVIII): Provisions on Market Access and National Treatment …


Slide19: GATS: Structure of Pillar 1 The Framework Agreement Part IV (Arts. XIX-XXI): Provisions on Progressive Liberalization Part V (Arts. XXII-XXVI): Institutional Provisions Part VI (Arts. XXVII-XXIX): Final Provisions


Slide20: MEASURES AFFECTING TRADE IN SERVICES AT ALL GOVERNMENT LEVELS ALL SERVICES (except governmental services and air traffic rights) FOUR MODES OF SUPPLY Cross-border supply Consumption abroad Commercial presence Movement of natural persons GATS: Scope, coverage, definition (Part I, Art. I)


Slide21: GATS: Sectoral coverage Business Services Communication Construction Distribution Education Environmental Services Health Related Services Financial Services Tourism Recreation, Culture, Sports Transport Other Services


What measures are covered by GATS?: What measures are covered by GATS? All measures taken by Member States‘ central, regional or local governments and authorities and non-governmental bodies exercising delegated powers which affect the buying, selling, using of, and accessing to services. It does not matter whether the measure takes the form of a law, regulation, rule, procedure, administrative action or any other form.


GATS Agreement‘s Concept on Trade in Services: GATS Agreement‘s Concept on Trade in Services Underlying Assumption: Trade in goods is simple! Why? Goods cross the border, no direct interaction needed between seller and buyer. Trade in services is complex! Why? Services usually cannot be traded as easily as goods; in most cases, proximity between supplier and consumer is required.


“Trade in Services“ under GATS...: “Trade in Services“ under GATS... is defined in terms of four different modes of supply. If any service is provided through one of the four modes, the GATS provisions apply. The four modes are: Cross-border supply (Mode 1) Consumption abroad (Mode 2) Commercial presence (Mode 3) Movement of natural persons (Mode 4)


GATS: Definition of services trade: GATS: Definition of services trade


Slide26: The economic importance of individual modes? The share of individual modes in world services trade has been roughly estimated at: - over 25 per cent for mode 1; - less than 15 per cent for mode 2 (mainly tourism); - close to 60 per cent for mode 3; - less than 1 per cent for mode 4. Mode 3 trade, mostly combined with foreign direct investment, has been the most dynamic component in recent years.


GATS: General Obligations (Part II, Arts. II-XV): GATS: General Obligations (Part II, Arts. II-XV) Other than the specific liberalization commitments on market access and national treatment (Part III), the general obligations apply to all measures affecting trade in services and to all WTO Members. Most important general obligations: Most Favoured Nation (MFN) Treatment (Art. II) Transparency (Art. III)


Most-Favoured-Nation (MFN) Treatment: Most-Favoured-Nation (MFN) Treatment “… each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country” (Art. II:1) or in simple words: Favour one, favour all. MFN is a direct obligation to all WTO Members to extend all trade preferences granted in favour of any country to all other Members.


Most-Favoured-Nation (MFN) Treatment…: Most-Favoured-Nation (MFN) Treatment… generally applies to any measure in any service sector in any Member State. forbids both de jure and de facto discrimination. MFN-exemptions can be sought once at the time of joining the GATS and must be listed (Art. II:2) in the Annex on Art. II Exemptions. In the listed cases, MFN does not apply.


Most-Favoured-Nation (MFN) Treatment – Practical Example: Most-Favoured-Nation (MFN) Treatment – Practical Example Brazil and Argentina have concluded bilateral treaty granting benefit regarding commercial presence in e.g. health services. Consequence: Benefit is automatically extended through MFN to all WTO Members. But not if Brazil and Argentina have entered a specific MFN derogation in the Annex. That they can only do once at the time of joining WTO/GATS and only for max. 10 years.


Transparency obligation, Art. III…: Transparency obligation, Art. III… applies to all services and all Member States. crucial because services trade is often hampered by reluctance of governments to properly inform foreign providers. acknowledges close link between information on economic conditions and prospects for getting involved in services trade. duty to publish all measures of relevance to services trade; inform about introduction of new measures or changes; promptly respond to inquiries and set up inquiry points.


Specific Liberalization Commitments (Part III, Arts. XVI-XVIII): Specific Liberalization Commitments (Part III, Arts. XVI-XVIII) General obligations (Part II), esp. MFN, crucial but not enough for efficient competition; MFN no obligation to treat foreign suppliers like own nationals. Specific Commitments Market Access (Art. XVI) National Treatment (Art. XVII) Note: Specific Commitments must be inscribed in so-called schedules!


Slide33: Market Access and National Treatment: Main elements MARKET ACCESS (Article XVI) Absence of quota-type and similar restrictions NATIONAL TREATMENT (Article XVII) Non-discrimination with regard to all measures affecting the supply of a service. Any limitations must be inscribed in Schedules under the relevant mode(s).


Slide34: Market Acess and National Treatment Market Access and National Treatment obligations are incurred only: in scheduled sectors; and to the extent that no limitations have been inscribed.


Market Access and National Treatment (Part III, Arts. XVI, XVII): Market Access and National Treatment (Part III, Arts. XVI, XVII) The GATS requires each Member to submit a Schedule of Specific Commitments that lists the sectors in which it grants Market Access and National Treatment. General obligations apply in addition.


Slide36: Schedules of Specific Commitments: Structure Schedules specify the extent of liberalization a Member guarantees in designated sectors. General layout:


Meaning of “limitations”?: Meaning of “limitations”? Scheduling of a sector does not imply that trade (i.e. market access and national treatment) must be liberalized for all modes. Rather, commitments may vary within a spectrum between: “unbound” = no commitment “none” = no limitation (full commitment)


Slide38: How Schedules of Commitments are structured: Example India/Health


Contents of Speech: Contents of Speech The economic importance of trade in services The WTO Services Agreement GATS: Main Features Negotiating Services under GATS: The Scheduling of Commitments Summary


Slide40: Preparing a schedule: Two steps Select sectors and sub-sectors for inclusion Relevant considerations [underlying objectives]: Attract foreign investment [employment], foster competition [efficiency], broaden product choice and improve quality [consumer welfare], etc. Consider need for modal exclusions or limitations Relevant considerations [type of limitation]: Promote know how transfer [joint venture requirements (mode 3)], protect domestic employment [quantitative limitations (modes 1,2,4), subsidies], prevent market disruption [phase-in commitments], etc.


Contents of Speech: Contents of Speech The economic importance of trade in services The WTO Services Agreement GATS: Main Features Negotiating Services under GATS: The Scheduling of Commitments Summary


Summary of Findings: Summary of Findings Services are of huge economic importance in terms of production, investment and international trade. GATS offers possibility to further economic growth by liberalizing trade in services through the principles of MFN, transparency, market access and national treatment. Scheduling of commitments is influenced by a variety of micro- and macroeconomic factors.