GATS establishes a framework within which liberalization commitments in the area of services are to be undertaken and implemented. GATS provides a frame for initial commitments, and also for progressively increasing commitments through successive rounds of negotiations. There are broadly two types of obligations and commitments, i.e., general obligations and specific commitments. The general commitments are applicable to all Members and all sectors of services trade. The specific commitments in services sectors are those undertaken by individual Members in particular sectors. Some specific commitments had been negotiated by Members before 1 January 1995 when the Agreement went into effect; further specific commitments will be added through negotiations in the future.
GATS applies to any measures by a Member, which affects trade in services. “Measure” covers any actions taken by any level of government as well as by authorized non-governmental bodies, and could take any form: a law, regulation, administrative decision or guideline. “Affect” means that the scope of GATS encompasses not only measures designed to regulate trade in services directly, but also any other measures that might be designed to regulate other matters but incidentally affect the supply of a service.
Modes of Service Supply
The mode of supply refers to the manner in which the service is supplied. Four modes of supply of service have been specified in the Agreement.
Box A: Examples of the four Modes of Supply (from the perspective of an "importing" country A)
Mode 1: Cross‑border
A user in country A receives services from abroad through its telecommunications or postal infrastructure. Such supplies may include consultancy or market research reports, tele-medical advice, distance training, or architectural drawings.
Mode 2: Consumption abroad
Nationals of A have moved abroad as tourists, students, or patients to consume the respective services.
Mode 3: Commercial presence
The service is provided within A by a locally-established affiliate, subsidiary, or representative office of a foreign-owned and – controlled company (bank, hotel group, construction company, etc.)
Mode 4: Movement of natural persons
A foreign national provides a service within A as an independent supplier (e.g., consultant, health worker) or employee of a service supplier (e.g. consultancy firm, hospital, construction company).
Specific commitments in services sectors are those undertaken by individual Members in particular sectors of services. Individual countries’ commitments to open markets in specific sectors — and how open those markets will be — are the outcome of negotiations. Each Member of the WTO is required to have a schedule. The commitments appear in the “schedules” that list the sectors being opened (i.e., market access), the extent of market access being given in those sectors (i.e., market access limitation, 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.)
As an 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 licenses 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, it is an exception to the national treatment principle.
These commitments are “bound”: like bound tariffs, they can only be modified or withdrawn after negotiations with affected countries — which would probably lead to compensation. However, new commitments and improvements to existing ones can be added at any time. 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. In each of the selected sectors of services, a Member will have taken commitments in three areas, i.e., market access, national treatment, and other commitments.
Market access is a negotiated commitment in specified sectors. In the frame of the Agreement, a Member has to select the sector in which it makes commitments and grants free market access. The sectors left out by the Member will not be granted any market access. Market access may be made subject to some terms, conditions and various types of limitations. Limitations may be imposed on:
· the number of services suppliers (e.g. annual quota on the establishment of branches of banks and licenses for new restaurants based on an economic needs test),
· the total value of transactions or the total assets of service transactions (e.g., limitation of the transactions or assets of branches of banks to a specified percentage of the total domestic transactions or assets of all banks),
· total number of service operations or the total quantity of service output (e.g., prescribing the maximum weekly duration of the telecast of films),
· total number of employees in the sector (e.g., in computer software service, only a prescribed maximum number of workers can be employed in a year),
· requirement regarding the type of the legal form of the service supplier (e.g., in a particular sector, commercial presence can only be in the form of a company in which the citizens of the country must have a majority shareholding),
· the participation of foreign capital.
The lists of market access commitments (along with any limitations and exemptions from national treatment) are negotiated as multilateral packages, although bilateral bargaining sessions are needed to develop the packages. The commitments therefore contain the negotiated and guaranteed conditions for conducting international trade in services. If a recorded condition is to be changed for the worse, then the government has to give at least three months’ notice and it has to negotiate compensation with affected countries. But the commitments can be improved at any time. They will be subject to further liberalization through the future negotiations already committed under GATS.
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. In this context, the treatment accorded by a Member to the services and service suppliers of any other Member must not be less favorable than what the Member accords to its own services and service suppliers. The key requirement is not to modify, in law or in fact, the conditions of competition in favor of the Member's own service industry.
National treatment is treated differently for services. For goods (GATT) and intellectual property (TRIPS) it is a general principle. 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. 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 made no commitment.
GATS allows some limits on national treatment. Again, the extension of national treatment in any particular sector may be made subject to conditions and qualifications. Members are free to tailor the sector coverage and substantive content of such commitments as they see fit. The commitments thus tend to reflect national policy objectives and constraints, overall and in individual sectors.
While some Members have scheduled less than a handful of services, others have assumed market access and national treatment disciplines in over 120 out of a total of 160-odd services. The existence of specific commitments triggers further obligations concerning, inter alia, the notification of new measures that have a significant impact on trade and the avoidance of restrictions on international payments and transfers.
Other/additional commitments: commitments relating measures other than those subject to scheduling under market access or national treatment, involving competition policy, or qualifications, technical standards or licensing in respect of trade in services.
Schedules of specific commitments
Normally, a Member offers low levels of commitments, expands its commitments through a series of bilateral and plurilateral (involving a limited number of Members) negotiations, and finally reaches a balance of costs and benefits and have an overall reciprocity among the Members as a whole.
Illustration
Box B: Sample Schedule of Commitments: Arcadia
Modes of supply: (1) Cross-border supply; (2) Consumption supply; (3) Commercial presence; (4) Presence of natural persons
| Sector or sub-sector | Limitations on market access | Limitations on national treatment | Additional commitments |
| I. HORIZONTAL COMMITMENTS | |||
| ALL SECTORS INCLUDEDIN THIS SCHEDULE | (4) Unbound, other than for (a) temporary presence, as intra-corporate transferees, of essential senior executives and specialists and (b) presence for up to 90 days of representatives of a service provider to negotiate sales of services. | (3) Authorization is required for acquisition of land by foreigners. | |
| II. SECTOR-SPECIFIC COMMITMENTS | |||
| 4. DISTRIBUTION SERVICESC. Retailing services (CPC 631, 632) | (1) Unbound (except for mail order: none).(2) None.(3) Foreign equity participation limited to 51%.(4) Unbound, except as indicated in horizontal section. | (1) Unbound (except for mail order: none).(2) None.(3) Investment grants are available only to companies controlled by Arcadian nationals.(4) Unbound. | |
“Unbound” means the Member has taken no commitment in respect of that mode of supply in this sector. In other words, the Member is free to impose any restriction on market access or national treatment in respect of that mode in this sector.
“None” means the Member will not put any limitation on market access or national treatment relating to this mode in this sector.
Special treatment of developing countries
· Due respect for national policy objectives and the level of development of developing Members
· Opening up fewer sectors and liberalizing fewer types of transactions
· Extend market access progressively in line with their development situation
· Strengthening domestic service capacity, access to technology and access to information channels and networks while allowing market access to foreign service suppliers
Modification of schedules
A Member may modify its schedule of specific commitments by offering alternative equivalent concessions three years after the application of the particular commitment. The modifying Member and the affected Member or Members may get into negotiations to reach an agreed compensatory adjustment which will be applicable to all Members. If no agreement is reached, the affected Members may refer the matter to arbitration and abide by its decision. Without compensatory adjustment in accordance with the findings of the arbitration, the affected Members may modify or withdraw substantially equivalent benefits from the modifying Member. With no agreement and no arbitration, the modifying Member is free to modify or eliminate its commitments as was proposed in its notice to the Council for Trade in Services.
Under Article II of the GATS, Members are held to extend immediately and unconditionally to services or services suppliers of all other Members “treatment no less favorable than that accorded to like services and services suppliers of any other country” (whether a Member or not). It is permissible to accord more favorable treatment to Members than to a non-Member. This amounts to a prohibition, in principle, of preferential arrangements among groups of Members in individual sectors or of reciprocity provisions which confine access benefits to trading partners granting similar treatment.
Favor one, favor 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. Derogations are possible in the form of so-called Article II-Exemptions.
· initial exemptions: Members were allowed to seek initial exemptions before the Agreement entered into force. Individual Members have listed their initial exemptions in their schedules after consultation with interested Members.
· New/ Later exemptions: New/ Later exemptions can only be granted to new Members at the time of accession or, in the case of current Members, by way of a waiver under Article IX:3 of the WTO Agreement. In the latter case, a request for such a waiver will be made to the Council for Trade in Services. The Ministerial Conference will decide on this issue. A waiver can be allowed only by a decision of three-fourths of the Members.
All exemptions are subject to review; they should in principle not last longer than 10 years. The obligation to apply MFN treatment does not prevent adjacent countries from exchanging advantages in order to facilitate exchanges of services limited to contiguous frontier zones where such services are locally produced and consumed. Further, the GATS allows groups of Members to enter into economic integration agreements or to mutually recognize regulatory standards, certificates and the like if certain conditions are met.
Illustration of a schedule of exemption
LIST OF ARTICLE II MFN EXEMPTIONS Switzerland (GATS/EL/83)
| Sector or Sub-Sector | Description of measure indicating its inconsistency with Article II | Countries to which the measure applies | Intended duration | Conditions creating the need for the exemption |
| Audiovisual services | To confer national treatment to audiovisual works covered by bilateral or plurilateral agreements on coproduction in the field of audiovisual works, in particular in relation to access to funding and to distribution | All countries with whom cultural cooperation may be desirable (at present agreements exist with member countries of the Council of Europe and with Canada) | Indefinite | Promotion of common cultural objectives |
| Measures granting the benefit of support programmes, such as MEDIA and EUruguayI-MAGES, and measures relating to the allocation of screentime which implement arrangements such as the Council of Europe Convention on Transfrontier Television and confer national treatment, to audiovisual works and/or to suppliers of audiovisual services meeting specific European origin criteria | European countries | Indefinite | Promotion of cultural objectives based on long-standing cultural links | |
| Concessions for the operation of radio or television broadcast stations may be granted, normally on the basis of bilateral agreements, to persons of countries other than Switzerland | All countries with whom cultural cooperation may be desirable | Indefinite | Promotion of common cultural objectives, and to regulate access to a market limited in scale (given the size of Switzerland) in order to preserve diversity of supply |
Source: Damien Géradin/David Luff (eds.), The WTO and Global Convergence in Telecommunications and Audiovisual Services, Oxford University Press 2003.
Transparency
Services activities are typically subject to heavy domestic regulation, which makes transparency even more important than in any other Agreements. GATS says governments must publish all relevant laws and regulations. If publication is not practicable, such information must be made available publicly. Within two years (by the end of 1997) they have to set up inquiry points within their bureaucracies to provide information on laws and regulations affecting trade in services. 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 Service Council of the WTO, at least annually, of any changes in regulations that apply to the services that come under specific commitments.