1. When did the
General Agreement on Trade in Services (GATS) come into
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
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
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
Consumer Choice: There is strong evidence in
many services, e.g. Telecom that liberalization leads
to lower prices, better quality and wider choice for
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
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
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
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
(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
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
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
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
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
11. Can commitments be introduced
or improved upon outside the context of multilateral
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
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
15. What principles underlie the
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
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
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
20. What is India's strategy
to achieve greater liberalisation in Movement of Natural
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
[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.