Since domestic regulations are the most significant means of exercising influence or control over services trade, the agreement says governments should regulate services reasonably, objectively and impartially. Disciplines are prescribed in respect of the following aspects:
Review of decisions: A Member must establish an administrative or judicial procedure for the review of administrative decisions affecting trade in services. If a service supplier is dissatisfied with an administrative decision, recourse to such a review should be possible for an objective and impartial consideration of the issues.
Authorization for supply of service: In case any authorization is needed for the supply of a service for which specific commitments have been made, the decision of the authorities has to be conveyed within a reasonable period of time to avoid trade barriers caused by unnecessary delays.
Qualification, standards and licensing: Members are required, in sectors where they have scheduled specific commitments, to ensure that measures relating to qualification requirements (necessary qualifications of the service supplier), technical standards ( of the service) and licensing requirements and procedures (for providing the service in a Member country) do not constitute unnecessary barriers to trade in services. For this purpose, a Member must ensure that:
· qualification requirements are based on objective and transparent criteria;
· technical standards are not more burdensome than necessary to ensure the quality of the service;
· licensing procedures are not in themselves a restriction on the supply of service.
Recognition process: Members are expected to adopt criteria or standards for the authorization, licensing or certification of service suppliers. Such recognition may be granted through harmonization, may be based on a mutual recognition agreement or an arrangement with other countries, or may be accorded autonomously. Different level of qualifications means different treatment granted to service suppliers, wherever the suppliers come from. When two (or more) governments have agreements recognizing each other’s qualifications (for example, the licensing or certification of service suppliers), GATS says other members must also be given a chance to negotiate comparable pacts, or to join such harmonization agreements. The recognition of other countries’ qualifications must not be discriminatory, and it must not amount to protectionism in disguise.
In order that there be at least some degree of harmonization among these standards and criteria, GATS provides that a Member may recognize:
· the education or experience obtained in another country,
· the requirement met in another country,
· the licenses or certifications granted in another country.
· Balance-of-payment provision
If there is a situation of serious BOP difficulties and external financial difficulties, or if there is a threat of such difficulties, a Member may adopt or maintain restrictions on trade in service on which it has undertaken specific commitments and adopt or maintain restrictions on payments or transfers for transactions related to such commitments. Such measures have to be non-discriminatory, temporary, avoid unnecessary damage to the commercial, economic and financial interests of other Members and must be phased out progressively.
Monopoly suppliers of service
In some cases, governments regulate certain service activities (usually services constituting inputs to other service activities) by granting monopoly or exclusive rights to certain entities to supply the service. Or sometimes a government establishes or provides authority to a small number of service suppliers, and substantially prevents competition among those suppliers in the country. GATS does not prohibit the maintenance of such monopoly right, but the behavior of such service suppliers must be consistent with the general obligations and specific commitments of the Member concerned.
Requirements in respect of monopoly suppliers of service:
· A Member has to ensure that a monopoly supplier of service of its territory does not act in a manner inconsistent with the obligations of the Member regarding MFN treatment and specific commitments;
· When such a supplier competes for the supply of a service outside the scope of the monopoly and yet in a sector covered by the obligations of the Member, the Member has to ensure that the supplier does not abuse it monopoly position to act in a manner inconsistent with the commitments of the Member.
· A new monopoly right in the area of trade in service granted after 1 January 1995 has to follow the procedure for modification of a Member’s commitments.
Cases of monopoly: telecommunications, financial services, insurance, railway transport service
For example, if a telecommunications monopoly allows interconnection to suppliers of value-added telecommunications, it should do so without discrimination between suppliers of other Members. If the Member concerned has undertaken a national treatment commitment in value-added services, it must ensure that its telecommunications monopoly provides interconnection to service suppliers of other Members on a national treatment basis.
Competition-restrictive practices
If a Member considers that the business practices of a service supplier are restraining competition and are thereby restricting trade in services, it may request consultation with the Member concerned. The other Member has to enter into consultation with a view to eliminating these practices.
Economic integration
A Member may enter into an agreement of integration for liberalizing trade in services among parties to the agreement, whether the parties are Members or not. Such an agreement must have substantial sectoral coverage. A Member may also enter into an agreement providing for full integration of labor markets among parties to the agreement, such as free entry into the employment markets of the parties.
International payments and transfers
Capital transaction and international transfers and payments for current transactions relating to services activities covered by specific commitments should not be restricted by Members.
If a Member has undertaken a commitment of market access through the cross-border mode of supply of service and if cross-border movement of capital is an essential part of the service itself, the Member, in such a case, is committed to allowing such movement of capital. Further, in the case of a commitment of market access through the mode of commercial presence, a Member is committed to allowing related transfers of capital into its territory.
Once a government has made a commitment to open a service sector to foreign competition, it must not normally restrict money being transferred out of the country as payment for services supplied (“current transactions”) in that sector. The only exception is when there are balance-of-payments difficulties, and even then the restrictions must be temporary and subject to other limits and conditions.
General exceptions: The GATS permits Members in specified circumstances to introduce or maintain measures in contravention of their obligations under the Agreement, including the MFN requirement or specific commitments. The relevant Article provides for measures necessary to:
· protect public morals or maintain public order;
· protect human, animal or plant life or health; or
· secure compliance with laws or regulations not inconsistent with the measures necessary to prevent deceptive or fraudulent practices or to protect privacy of individuals and safety.
Security exceptions: A Member has the flexibility to take measures which it considers necessary for the protection of its essential security interests and those which it takes in pursuance of its obligations under the UN Charter for the maintenance of international peace and security.
Government procurement: The obligations of MFN treatment, specific market access commitments and specific national treatment commitments will not apply to laws, regulations or requirements governing procurement by government agencies for governmental purposes. This exception does not extend to government procurement for commercial resale or for use in the supply of services for commercial sale.
Moreover, 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.
Finally, in the event of serious balance-of-payments difficulties Members are allowed to temporarily restrict trade, on a non-discriminatory basis, despite the existence of specific commitments.
In services, the Uruguay Round was only a first step in a longer-term process of multilateral rule-making and trade liberalization. Observers tend to agree that, while the negotiations succeeded in setting up the principle structure of the Agreement, the liberalizing effects have been relatively modest. Barring exceptions in financial and telecommunication services, most schedules have remained confined to confirming status quo market conditions in a relatively limited number of sectors. This may be explained in part by the novelty of the Agreement and the perceived need of Members to gather experience before considering wider and deeper commitments. Moreover, many administrations needed time to develop the necessary regulation — including quality standards, licensing and qualification requirements — that ensures that external liberalization is compatible with, and conducive to, core policy objectives (quality, equity, etc.) in socially or infrastructurally important services.
More than six years have passed since the Agreement's inception, and the economic importance of services — in terms of production, income, employment and trade — has continued to rise. There thus appears ample scope for new and/or improved commitments in new negotiations.
International trade in goods is a relatively simple idea to grasp: a product is transported from one country to another. Trade in services is much more diverse. Telephone companies, banks, airlines and accountancy firms provide their services in quite different ways. The GATS annexes reflect some of the diversity.
This annex deals with negotiations on individuals’ rights to stay temporarily in a country for the purpose of providing a service. It specifies that the agreement does not apply to people seeking permanent employment or to conditions for obtaining citizenship, permanent residence or permanent employment.
Financial services
Instability in the banking system affects the whole economy. The financial services annex says governments have the right to take prudential measures, such as those for the protection of investors, depositors and insurance policy holders, and to ensure the integrity and stability of the financial system. It also excludes from the agreement services provided when a government exercising its authority over the financial system, for example central banks’ services. Negotiations on specific commitments in financial services continued after the end of the Uruguay Round, ended in late 1997 and entered into force 1 March 1999.
Telecommunications
The telecommunications sector has a dual role: it is a distinct sector of economic activity; and it is an underlying means of supplying other economic activities (for example electronic money transfers). During the Uruguay Round, many governments made commitments in value-added telecommunication services, however very few offered commitments on basic telecommunications. The annex says governments must ensure that foreign service suppliers are given access to the public telecommunications networks without discrimination. Negotiations on specific commitments in telecommunications resumed after the end of the Uruguay Round. This led to a new liberalization package agreed in February 1997.
Under this annex, traffic rights and directly related activities such as the carriage of passengers or freight are excluded from GATS’s coverage. They are handled by other bilateral agreements. However, the annex establishes that the GATS will apply to aircraft repair and maintenance services, marketing of air transport services and computer-reservation services.
Maritime transport negotiations were originally scheduled to end in June 1996, but participants failed to agree on a package of commitments. The talks have resumed with the new services round which started in 2000. Some commitments are already included in some countries’ schedules covering the three main areas in this sector: access to and use of port facilities; auxiliary services; and ocean transport.
1. Does the GATS define "service" as a legal term?
2. When is e-commerce a service, when is it trade in goods?
3. Consider the economic role of services in developed and developing countries as it evolved since the end of World War II. Why has the liberalization of trade in services not surfaced earlier?
4. What kind of services are tradables and non-tradables?
5. Why do you think there have never been tariffs levied on the cross-border provision of services? Consider reasons of historical coincidence, but also aspects of practicability.
6. Consider the nature of regulatory restrictions which impede the cross-border provision of services. Think of typical examples in professions you know where specific licenses, diplomas etc. are required for the lawful exercise of a professional activity
7. Look up those provisions of the GATS which relate to competition and investment. Are such rules more important in the context of services than in connection to goods?
8. Why does the GATS highlight the importance of “domestic regulation” so much?
1. John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (2nd ed., Cambridge, MA: MIT Press, 1997). p. 247-277.
2. Jackson/Davey/Sykes, 666-756, 757-814, 815-843.
3. OECD Secretariat. 2004. “Services Trade Liberalisation Opportunities & AMP.”
4. Trading into the Future – WTO, 3rd edition, Revised August 2003
5. www.wto.org see Trade topics; Trade in Services; GATS
World trade organization
Ideas and knowledge are an increasingly important part of trade. Most of the value of new medicines and other high technology products lies in the amount of invention, innovation, research, design and testing involved. Films, music recordings, books, computer software and on-line services are bought and sold because of the information and creativity they contain, not usually because of the plastic, metal or paper used to make them. Many products that used to be traded as low-technology goods or commodities now contain a higher proportion of invention and design in their value — for example brand-named clothing or new varieties of plants. Creators can be given the right to prevent others from using their inventions, designs or other creations. These rights are known as “intellectual property rights” (IPRs).
Ideas and knowledge are an increasingly important part of trade. Most of the value of new medicines and other high technology products lies in the amount of invention, innovation, research, design and testing involved. Films, music recordings, books, computer software and on-line services are bought and sold because of the information and creativity they contain, not usually because of the plastic, metal or paper used to make them. Many products that used to be traded as low-technology goods or commodities now contain a higher proportion of invention and design in their value — for example brand-named clothing or new varieties of plants. Creators can be given the right to prevent others from using their inventions, designs or other creations. These rights are known as “intellectual property rights” (IPRs).
Intellectual property rights are the rights given to persons over the creations of their minds: inventions, literary and artistic works, symbols, names, images, and designs used in commerce. They usually encourage and reward creative work, and give the creator an exclusive right over the use of his/her creation for a certain period of time.
Intellectual property rights play an important role in an increasingly broad range of areas, ranging from the Internet to health care to nearly all aspects of science and technology and literature and the arts. They take a number of forms. For example books, paintings and films come under copyright; inventions can be patented; brand names and product logos can be registered as trademarks. These forms can be classified as follows: