A Guide to the GATS

           Why should business care about the GATS?

GATS: basic rules for trade in services

The GATS reflects the basic belief of its Members in open economies, deregulation, fair market rules and the protection of the consumer

　　The GATS is a government-to-government agreement, but is of direct relevance to firms. It lays down the framework of international rules within which firms operate around the globe. By giving more freedom to companies to supply their services and by creating greater international competition, the GATS should encourage innovation, price competitiveness and high quality services.

　　First and foremost, businesses should look at the GATS because it covers virtually every aspect of providing services to foreign customers. It covers:

　　• the vast majority of services;
　　• almost all the major world markets;
　　• all the different means by which a service can be supplied to a foreign customer;
　　• and a series of issues related to the establishment of commercial operations in foreign markets.

　　The GATS is the services element of the World Trade Organisation (WTO), a relatively new global trade regime which, since its creation at the end of 1993, has already begun to have a liberalising effect on markets for services both at home and abroad. In addition to the initial provisions of the original Agreement, the last couple of years have seen the GATS enhanced with multilateral deals to open the world markets for telecoms and financial services.

　　The Agreement establishes a basic set of rules for world trade in services, a clear set of obligations for each Member country and a legal structure for ensuring that those obligations are observed. This allows companies to identify which markets are open to foreign service providers and to be sure that that same market will remain open in the future. If the market in question turns out to not to be as liberal as provided for under the GATS, the Agreement provides for each country the possibility to obtain for their own national service suppliers the treatment to which they are entitled.

　　In short, the GATS should be one of the key reference texts used by any corporate planner seeking to do business on a world level, and the next round of GATS market-opening talks GATS 2000 should be a key focus for action by business.

Which Services are included in the GATS?

　　The Agreement and its general rules in principle cover all commercially traded services, although a few services are the subject of specific annexes which limit the coverage. Under the system of specific commitments, Members are also able to identify exactly in which services they guarantee an open market to foreign service suppliers and which restrictions they wish to maintain in relation to those sectors.
The largest and most developed trading economies have identified very long lists of sectors that they wish to liberalise, while others, such as the developing countries, have tended to make more modest commitments taking into account that their services sectors are often at an earlier stage of development and are not ready to be totally liberalised. Companies can check exactly what each Member has committed itself to by looking in that country's schedule of specific commitments these lists are available from the WTO and many are also available on-line in the European Commission's own GATS-Info website.

How does the GATS remove Discrimination in Foreign Markets?

　　Membership of GATS is very broad. The current Members of the GATS (around 130 of them) account for well over 90% of world trade in services. Most other major economies have applied to join the GATS, including Russia, the CIS countries, China and Taiwan, and once they accede, virtually 100% of trade in services will be taking place between GATS Members.

　　In terms of accessing these markets, firms can rely on the GATS to ensure, as a basic rule of thumb, that they are treated the same way as any of their foreign counterparts. The most-favoured nation rule means that each Member of the GATS must treat firms from all the others in an identical way.

　　But more importantly perhaps, the Agreement also contains rules designed to eliminate discrimination between foreign service providers and their domestic counterparts. If unfair discrimination does exist in the regulation of a market which leaves the foreign service supplier in a less favourable position than a domestic one, the onus is upon the Member to declare the discrimination openly in their schedule of specific commitments so that it is clearly visible to everyone.

　　Crucially, under the definition set out in the Agreement, even giving exactly the same treatment to foreign and domestic service suppliers can sometimes be considered discriminatory if this effectively puts the domestic counterpart in a stronger position. For example a requirement that a service supplier should be resident in a country before supplying a service should be declared by a Member in their schedule as it is puts the domestic supplier who is already resident in a more favourable position.

　　Again, companies can check whether Members have maintained discriminatory measures in the different services sectors by checking the relevant Members' schedule of specific commitments.

How does the GATS relate to the day-to-day Business of Supplying a Service?

　　The GATS covers all the major ways in which service suppliers serve their clients the so-called modes of supply. This means that countries have to say whether or not:

　　• they allow a foreign company to deal with clients in their market from across the border;
　　• they allow their citizens to travel abroad to the supplier in order to buy a service;
　　• they allow foreign service suppliers to establish companies in their market;
　　• or they allow a supplier to enter the country in person to do business.

　　This allows companies to know where they stand in foreign markets and in relation to their dealings with foreign clients and if companies come across barriers with regard to doing business by any of these means, they can check quickly whether the GATS Member concerned has made legal commitments and decide whether that Member is contravening those commitments. If it is felt that another GATS Member is breaking one of its obligations, any other Member may use the terms of the GATS to begin a dispute settlement procedure.

　　Of all the modes, the most significant in terms of investment is the establishment of a company or subsidiary in the foreign market. As part of their commitments in each services sector that they open-up, Members must say whether there are any limitations on the legal form or ownership of the new establishment.

　　Linked to the issue of establishment is the question of the entry of service suppliers in person the fourth mode of supply, the presence of natural persons. Many Members have committed themselves to permitting the entry of key personnel where those persons are involved in establishing a subsidiary or commercial presence on their territory. Companies can check the details of each countries' schedule of specific commitments to find out whether or not the Member they are interested in has liberalised in this respect.

　　In all, the GATS is a broad and comprehensive agreement which gives both guidance and enforceable guarantees to service suppliers who are seeking to supply services to foreign clients. Whatever the service sector, whatever the means of supplying the service and whatever the market which is targeted, the provisions of the GATS are likely to be of relevance. When in doubt about their rights in a foreign market, or when seeking to clarify the opportunities open to them, the GATS should be a first port-of-call for all service suppliers.

Why was the GATS set up?

The GATS establishes the first world-wide liberalisation rules for trade in services

　　The Uruguay Round of international trade negotiations took place within the framework of the General Agreement on Tariffs and Trade (GATT), which is based in Geneva, Switzerland. It was launched at Punta del Este, Uruguay, in September 1986 by the Trade Ministers of 100 countries. By the time the negotiations were formally concluded in Marrakesh, Morocco, in April 1994 there were 125 participating countries.

　　The success of fifty years of trade negotiations on goods under the auspices of GATT had provided a powerful example for governments. Material reductions in tariffs applied progressively had stimulated major growth in world merchandise trade, which had outstripped the parallel increase in world income: world average tariffs have gone down from 35 % at the end of World War II to around 5 % today, and average trade growth has outpaced World economic growth by no less that 2 % a year. In addition, the development of GATT international trade law had improved the predictability of the world merchandise trading regime. Trade in services had been ignored because services were considered to be ancillary to goods trade and production. Many services are highly regulated to protect both consumers and the domestic economy, and some are public monopolies.

　　Targeting national regulations as impediments to trade and embarking on international negotiations was, therefore, often perceived as a threat to national sovereignty.

　　However, in the mid-1980s many western governments were faced with fears of a world-wide recession, continuing inflation and increasing unemployment. They noted the growing importance of international trade in services as technology improved tradeability. They concluded that by removing obstacles to international trade in services, and by offering services exporters legal predictability for their international trade and investment, export momentum could be stimulated for services too. In turn, this would assist non-inflationary growth at home and ease the problems of dealing with the structural adjustments necessary to move into the age of the Information Society and switch to a more knowledge-intensive economy.

　　The clear aim was to improve upon the prior pattern of bilaterally negotiated treaties, which often included only scant coverage for services. A multilateral agreement on services, under the auspices of the GATT, would address such deficiencies.

　　Thus it was agreed at the launching of the Uruguay Round negotiations in 1986 to include trade in services in the negotiations as part of the single undertaking, in the belief that this would improve the world trade system as a whole.

　　These considerations resulted in the Uruguay Round negotiations being both ambitious and complex. Indeed, the mandate given by Ministers at Punta del Este in 1986 included a very wide range of subjects with an impact on world trade. The Round aimed at reducing tariff and non-tariff barriers to goods, and at extending multilateral disciplines to the agriculture sector, and to textiles and clothing. It also set the objective of creating a more liberal trading regime for trade in services by devising a framework of trade principles and rules. With the inclusion of trade in services, a serious gap in the multilateral trade rules was filled.

　　The Uruguay Round negotiations also improved the dispute settlement system, and generally overhauled the institutional basis of the various trade Multilateral Trade Agreements. The rule of law now extends to virtually every aspect of world trade, administered by the WTO, a permanent international organisation.

What has been achieved to date?

Results of the Uruguay Round

Since the Uruguay Round established the foundation for the liberalisation of trade in services, two major liberalisation negotiations have been concluded in telecommunications and financial services

　　As a result of the Uruguay Round negotiations, trade in services is covered for the first time ever by a global trade agreement.

　　This agreement the GATS brings trade in services into a multilateral framework of rules and disciplines broadly comparable to that provided for trade in goods by the GATT. Members of the GATS make obligations and commitments that are subject to enforcement through a considerably strengthened (and binding) dispute settlement mechanism under the auspices of the newly established World Trade Organisation (WTO). Once commitments on specific services have been undertaken, they cannot be withdrawn without compensating the other Members. The fact that a country has become a member of the GATS does not, however, mean that it has made far-reaching commitments to open its markets in all sectors and/or for all measures affecting the supply of services. The strength of the commitments can and do vary substantially among WTO Members.

　　During the Uruguay Round, negotiations concentrated mainly on the basic rules and principles which would govern the multilateral liberalisation of services. Because of a lack of experience with the liberalisation of trade in services, which was traditionally done on a bilateral and reciprocal basis, complex and time consuming negotiations had to take place. This meant that WTO Members had less time to negotiate real liberalisation commitments with all their trading partners on all services sectors. Nonetheless, as a result of the Uruguay Round negotiations, many countries did abandon their right to grant access to their markets on a reciprocal basis, and rolled-back nationality conditions.

　　They now have to comply with the MFN obligation, which in itself generates more liberalisation and market access opportunities in a wide range of countries, and certainly in those with whom the EC has major trade interests. The fact that many Members have made a standstill commitment means that they cannot reverse liberalisation without compensating for it.

　　By the time of the signature of the Final Act of the Uruguay Round, on 15 April 1994 in Marrakech, 95 Members had submitted schedules of specific commitments in services and 61 of them had submitted lists of exemptions from the MFN principle.

　　All these elements are positive, but this does not mean that the EC is of the view that there is no room for improvement. This was already recognised at the time of the conclusion of the negotiations where it was agreed to continue certain sectoral negotiations and to elaborate some further disciplines in order to strengthen the GATS. Above all, the GATS is built upon the principle of progressive liberalisation. Members are mandated to undertake periodic negotiating rounds to improve the commitments and thus achieve a progressively higher level of liberalisation.

　　Although it is fair to say that most developed countries have covered most sectors, much remains to be achieved. Indeed, too many countries became Members of the GATS while making commitments in a few sectors only.

　　In services sectors which are vital for an efficient economy, such as distribution and telecommunication, far too few countries made commitments at the end of the Uruguay Round.

　　In some other services sectors, liberalisation in developed countries has only just started; the next logical step is that these markets should be opened to other trading partners.

　　In a small number of services sectors, Members have been extremely reluctant to make any multilateral commitments: in audio-visual services, only 12 WTO Members have made commitments; while in maritime transport, although traditionally a sector governed by open sea policies, only 30 countries made commitments.

　　With the end of the Uruguay Round, a very solid basis was created, upon which further liberalisation can be built. The potential to achieve further liberalisation is possible in all the services sectors since nothing has been carved out from the GATS, with the exception, for the time being, of hard rights in air transport. It is thus all a question of further negotiations.

What has been achieved since the Uruguay Round?

　　At the time of the conclusion of the Uruguay Round negotiations, it was agreed that negotiations had to continue on a number of services sectors.

　　This was the case for financial services, movement of natural persons supplying services, maritime transport and basic telecommunications. The need to elaborate further rules and disciplines was identified for the procurement of services, subsidy measures with a trade distortive effect and the possible need for an emergency safeguard clause. There is also a built-in programme for developing more detailed disciplines on domestic regulation: GATS recognises the fundamental right to regulate the supply of a service but says that in doing so, one should not discriminate or regulate in a way that its more burdensome than necessary. The first area which is being examined in more detail is accountancy services.

　　Negotiations on basic telecommunications were successfully concluded in February 1997 and on financial services a major liberalisation result was achieved on 12 December 1997. The outcome of both negotiations are related in more detail in specific chapters.

　　In June 1995, Members concluded negotiations on movement of natural persons supplying services and the EC contributed substantially to this negotiation by adding specific commitments for so-called contractual services suppliers service suppliers working on the basis of a contract in a number of professional and business services.

　　On accountancy, the Working Group on Professional Services has made substantial progress and aims to recommend the adoption of more detailed disciplines to ensure that Members apply licensing conditions and other regulatory measures in the least trade-restrictive manner possible and with a view to creating maximum transparency.

　　The negotiations on maritime transport, which were due to be concluded by 30 June 1996, have been suspended and should resume no later than the year 2000. The impossibility so far of concluding a satisfactory deal in the maritime transport sector, where trade takes traditionally place on the basis of liberal and non-discriminatory principles, is an anomaly which should be corrected. Efforts to secure multilateral liberalisation in this sector will no doubt continue.

　　Finally, discussions have started on the impact on trade in services of environmental measures: our objective is to ensure that States can adopt and enforce reasonable measures necessary to protect the environment and promote sustainable development, while at the same time to prevent the use of environmental measures as a disguised means to protect domestic markets. We also want to use the coming GATS round to focus on greater freedom for worldwide trade in all-important services designed to enhance environmental protection.
The General Agreement on Trade in Services

Importance of trade in services

How significant are services to the world economy, trade and investment?

　　World trade in commercial services, measured on a balance of payments basis, accounted for around one-fifth of world exports of goods and services, which reached $6.5 trillion in 1997. Total exports of commercial services in the world were estimated to be $1.3 trillion in 1997 when intra-EU trade between the fifteen Member States is included. It is estimated that trade in services through commercial presence could be at least as large as cross-border trade, so that the balance of payments figures only account for half the actual total.

　　In 1996, the European Union was the world's largest exporter of commercial services, accounting for 26 % of total global services' transactions, (43 % if Intra-EU exports of services are included), compared to a share of 22 % for the USA and 7 % for Japan.

World Exports of Commercial Services

　　In 1996, services took a 25.3 % share of the EU's total exports, compared to a share of 27.7 % in the total for the US, and 14.5% in that of Japan. Trade in services expanded approximately at the same rate (8.7 %) as trade in goods (8.1 %) between 1986 and 1996.

　　Over 46% of the EU's workforce is now employed in market services (that is services excluding government occupations), and this sector now accounts for over 52% of GDP. In the European Union, employment in these market services is now more than double that in manufacturing.

　　Research reveals that the value-added provided by services, as a share of the total value of high-tech products, can be as high as 70 %. Furthermore, overall, developed economies today derive some 70 % of both output and employment from services related activities.

　　The importance of the service sectors to developing economies is also considerable. The fact that services represent a smaller proportion of the economy in developing countries is due to their lesser developed financial and business services sectors. In both the OECD and the developing countries, the aggregate of construction, distribution, hotels and restaurants, transport and communication amounts toaround 30 % of total value added in GDP.

　　Investments in the services field account for over half the total stock of investment abroad, and can be assumed to have earned income of a similar magnitude to the figure for cross-border trade. Global FDI outflows have expanded at about 30 per cent a year which is considerably faster than world exports and world output. The total stock of FDI was about $500 billion in 1980: by 1990 it had tripled to $1.5 trillion, and in 1996 it had reached $3 trillion (at book value). This stock generates sales by foreign affiliates estimated in 1996 at about $6.5 trillion in global sales - the value of goods and services produced by the 280.000 foreign affiliates of the world's 44.000 parent firms - compared with world exports that year of $5 trillion (of which, in turn, about one third constitutes intra-firm exports). Close to 60 % of total FDI flows are today directed towards services activities.

　　Between 1992 and 1995, the portion of the European Union's FDI outflows fluctuated considerably between the services sector and the manufacturing sector. Apart from in 1994, the services sector has taken the largest share of the EU's FDI capital. Manufacturing and services were relatively evenly balanced in 1992 (42 % vs. 53 %), but the gap widened in 1993 with services increasing its share to 56 %, while investments into manufacturing fell to 31 %. In 1995 Foreign Direct investment outflows amounted to ECU 44.4 billion, of which 53 % was invested into services and 37 % into manufacturing.

　　Inflows of FDI into the EU between 1992 and 1995 were dominated by investments into the services sector, which increased its share from 54 % in 1992 to 62 % in 1994. In 1995 foreign direct investment inflows into the EU stood at ECU 37.7 billion of this 47 % was invested in services and 43% in manufacturing.

To what does the GATS apply?

　　GATS disciplines apply to all services, both present and future. However, the degree of openness that countries offer is not set automatically and must be the subject of negotiations. Whereas some GATS disciplines such as the Most Favoured Nation obligation and transparency apply across the board to all services sectors, the provisions concerning market access and national treatment apply only insofar as countries have made a commitment in a given sector. The degree of sectoral coverage of Members varies greatly, and no Member has made commitments in all service sectors.

　　The GATS disciplines applies to any measures, adopted at any level of Government, of Member countries that affect trade in services. The term measure is a broad one, and covers: any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form.

　　Measures include those taken by central, regional or local governments and authorities and by non- governmental bodies in the exercise of powers delegated by central, regional or local governmental authorities.

Modes of Supply for Services

　　The GATT agreement for trade in goods had only to consider products crossing the border as the sole form of supply. In the GATS a new approach has been formulated to take account of the different nature of services, and the fact that supply takes various forms or modes.

　　The four modes of supply are defined on the basis of the origin of the service supplier and consumer, and the degree and type of territorial presence that they have at the time that the service is delivered. These modes are:

　　Cross-border: where the trade takes place from the territory of one Member into that of another. Only the service itself crosses the border, without the movement of persons such as information and advice passing by means of fax or E-mail, or cargo transportation. The service supplier does not establish any presence in the territory of the Member where the service is consumed.

　　Consumption abroad: this relates to services consumed by nationals of a Member , in the territory of another Member where the service is supplied. Essentially, the service is supplied to the consumer outside the territory of the Member where the consumer resides. This is typical of tourism, and also where the property of the consumer crosses the border to make use of services abroad, such as when ships go for repair in another country.

　　In the financial services sector there is a specific provision contained in an Understanding which defines this mode of delivery in a broader form: it considers that this mode of delivery covers all cases where a resident in a country purchases a financial service in another country. Therefore, there is no requirement to consume or supply the service abroad.

　　Commercial presence: where the service supplier crosses the border to have a commercial presence abroad through which the service is provided. This presence can take the form of any type of business or professional establishment including incorporation, branches, representative offices, joint ventures and so on.

　　Presence of natural persons: this mode of supply applies to natural persons only, when they stay temporarily in the market, for example the self-employed and the employees of services suppliers. The main purpose of defining the supply of a service according to these modes of supply is to facilitate the identification of regulations affecting them. Meaningful market access can only be achieved if commitments are made on a combination of the relevant modes. The relationship between the cross-border mode, commercial presence, and the presence of natural persons for instance, can be of particular importance where the service supplier has a personal role in the supply of a service. This is particularly the case for professional services, and when establishment is taking place with the presence of key company personnel.

　　These four modes of supply feature in the market access and national treatment commitments inscribed in country schedules.

What has not, or not yet, been covered in the GATS?

　　Although the scope of the GATS is very wide, dealing with "all measures affecting trade in services", some matters of importance to services suppliers lie outside the GATS disciplines, provided that measures adopted in these matters are not used by a Member as a means to circumvent its obligations:

　　• immigration rules;
　　• services supplied under Government Authority;
　　• fiscal policy and taxation measures there are disciplines to ensure that taxation is applied on a Most-Favoured Nation (MFN) basis, and is not unduly distortive;
　　• customs systems the import of equipment necessary for the supply of a service;
　　• certain aspects of investor protection, concerning the movement of capital;
　　• exchange rate management the WTO will work with the IMF and World Bank to create conditions of greater economic stability, including exchange rate management (e.g. by setting interest rates);
　　• privatisation forms of ownership as such are not addressed, but there are disciplines for state-owned trading entities and monopolies.

Other matters have been put into the GATS future work programme:

　　• safeguard measures,
　　• rules for government procurement,
　　• disciplines on subsidies,
　　• disciplines for domestic regulations.

　　Yet other matters constitute the new issues to be discussed by the WTO, as was decided in the WTO Ministerial Conference in Singapore in December 1996:

　　• trade and the environment,
　　• trade and investment,
　　• trade and competition policy,
　　• labour standards related to trade.

　　What are the legal obligations of governments vis-a-vis foreign service suppliers?

　　The GATS is the first multilateral legally enforceable agreement to cover trade and investment in services. It creates a framework for the conduct of services trade and starts the process of liberalisation. It aims to end arbitrary regulatory intervention, and assure predictability of laws, to generate growth in trade and investment.

　　Each Member country has made at least some commitments to guarantee access to parts of its services market. These are shown in its individual schedule of specific commitments attached to the GATS. The GATS itself sets rules for the imposition of government regulations which affect trade and the presence of foreign suppliers in any way. The rules result not so much in a level playing field in the style of the European Single Market, but more in a road with standardised signs, indicating limitations and restrictions to be observed. The GATS also can be considered to set out the traffic management code that these governments must abide by when painting in the road markings and positioning the signs.

The Most Favoured Nation Clause (MFN)

　　A key principle of international trade, on which the GATT is based, is contained in the Most Favoured Nation clause. This principle obliges Member countries to give the most favourable treatment accorded to any of their trading partners, to all other WTO Members immediately and unconditionally. Discrimination between third countries is thereby forbidden. For over forty years the principle has provided the basis for unprecedented world-wide liberalisation of trade in goods.

　　The GATS incorporates the same principle:

　　With respect to any measure covered by this Agreement, 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.

　　This obligation is applicable to any measure affecting trade in services, and in all sectors, whether specific commitments have been made or not. Most favourable treatment is defined as the best treatment granted to any third country, irrespective of whether or not the country is a WTO Member.

　　The GATS application of the MFN principle seeks to emulate the successful liberalisation of trade in goods, by applying it to the largest possible number of countries and over the complete range of service sectors. Members accord trade concessions to one another, not based on a narrow sector-by-sector assessment, but on the basis of the overall trade benefits which will accrue to them across all sectors and all countries. Some feared this would unfairly encourage free-riders, countries which accept concessions whilst giving nothing in return, but in practice MFN has been very effective in producing liberalisation. It is important therefore that the principle of non-discrimination, which is embodied in MFN, remains at the core of any multilateral approach to liberalisation.

　　The MFN obligation has been recently interpreted by the WTO Appeals Body as prohibiting not only de jure discrimination (i.e. discrimination specifically set out in regulations), but also de facto discrimination (i.e. discrimination which results from regulations or measures that are not formally discriminatory).

　　Are Exemptions to the MFN Rule Permitted?

　　The GATS provision for the possibility of exemptions to the application of the MFN obligation. This is designed to give Members some flexibility in developing their bilateral trade relations, whilst at the same time preserving the general principle of non-discrimination between foreigners.

　　The GATS Annex on MFN Exemptions permitted a once only opportunity for Members to take exemptions from the MFN obligation before the GATS entered into force. The measure for which the exemption is taken has to be described in a country's MFN Exemption list, indicating to which country the more favourable treatment applies, and specifying its duration. In principle, the exemption should not last longer than ten years, and will be subject to negotiation in future rounds. A review of the conditions which created the need for the exemption takes place every five years.

　　Now that the GATS is in force, it is much more difficult for Members to obtain an exemption because approval is necessary from three-quarters or more of Members, and the justification for the inconsistent treatment is subject to annual review under the waiver procedure. Countries acceding to the WTO in future will have the same once and for all opportunity as the Uruguay Round participants to take MFN exemptions. The same terms and conditions prevailing in the Uruguay Round will apply and the countries will negotiate the MFN exemptions as part of the negotiations on their specific commitments.

　　Importantly, all the commitments inscribed in a country's schedule have to be granted on an MFN basis. An MFN exemption does not justify granting certain countries treatment which is less favourable than that specified in a Member's schedule of commitments. The MFN exemption can only be used to grant more favourable treatment than that provided for in the schedule of commitments, and only to the Members or countries specified in the exemption.

Transparency

　　Transparency is another key principle to achieve multilateral liberalisation. It helps Members and businesses to identify restrictions and protectionism. The main obligations are prompt publication, notification, the maintenance of enquiry points, and fair judicial review.

　　All relevant measures of general application which pertain to or affect the operation of the GATS should be published promptly and at the latest by the time of their entry into force. Where a government belongs to International agreements pertaining to or affecting trade in services these are covered too. Publication can be anywhere, or by any means, including reference to any measures taken at the regional level, or by local authorities.

　　Besides the obligation to publish all relevant measures, Members have an obligation to inform promptly, and at least annually, the Council for Trade in Services on the introduction of any new laws, regulations or administrative guidelines (or changes to them) in sectors or sub-sectors where specific commitments have been made. Governments also undertake to respond promptly to all requests for specific information by other governments on such measures, and to set up enquiry points.

The substantive liberalisation rules: national treatment, market access and domestic regulations

　　Access to the services market of a GATS Member results from the application of two basic provisions. The commitments made by each Member set out how these provisions are to be implemented on their territory. The two provisions are:

　　• National treatment: this establishes that once firms have been permitted to enter, in mine with the conditions laid down, they cannot be discriminated against within the market.

　　• Market access: this establishes that foreign companies can provide cross-border services into a foreign country without establishment there, they can also establish a commercial presence and transfer key personnel to the foreign establishment, and can also provide services in their country to non-residents from other countries.
In addition to these basic rules, for sectors where market access and national treatment commitments are made, GATS establishes that domestic regulations applied by a Member to foreign service suppliers must be administered in a reasonable, objective and impartial manner. In other words, Members must not impose unreasonable or disproportionate burdens on foreign companies which would foreclose their access to the market.

Market Access

　　The Market Access provision covers the four modes of delivery, and provides that a Member shall accord services and services suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its schedule. This prohibits obstacles to market access that are not authorised by the GATS, and ensures that the same conditions must apply to all services and suppliers.

　　The services sectors are often governed by complex regulatory regimes. This is rather different to the situation with goods where simple tariffs are the main instrument of protection. This meant that it was desirable to build the concepts of market access and progressive liberalisation directly into the GATS, although a precise definition of either term is not given. Unlike the GATT for products, there is no general obligation in the GATS to grant entry into the market by any one of the four modes of delivery. Access of any sort to a market depends on the specific commitments made by a country and inscribed in the Market Access column of its schedule. In that case, a Member is entitled to enforce some limitations on market access. The market Access provision contains an exhaustive, yet short list of such limitations, and all those enforced by Members must fall within that defined ambit. These quantitative and legal limitations include limits on:

　　• the number of service operations
　　• the value of service transactions or assets
　　• the number of operations or quantity of output
　　• the number of persons supplying a service
　　• the participation of foreign capital, and also any requirements for specific types of legal entities such as limiting presence only to a branch or a joint venture.

　　These measures need not be discriminatory in nature to be contrary to the Market Access provision. Even if they apply to domestic service suppliers, these measures still act to control the presence of a foreign service supplier. The first four quantitative measures listed above can alternatively take the form of economic needs tests. As the GATS does not provide a definition of an economic needs test or indicate the criteria that may be taken into account, their application can be rather restrictive and arbitrary and result in making market access unpredictable.

　　A country is deemed to have granted full market access if it has not negotiated the right to impose any of the above limitations. It can then inscribe none in its schedule of commitments in the market access column, indicating that there are no limitations in the sector concerned. If a particular form of market access is inscribed by a country in its schedule, it has to be granted on an MFN basis. A country is then no longer allowed to change its regulations in a way that would make access more difficult in any way. Any capital movements in connection with the supply of a service as permitted in the country schedules, also have to be permitted. In the case of cross-border supply, capital movements in or out of the Member's territory have to be allowed if they are an essential part of the service provided, such as payment of an insurance claim. In the case of supply through a commercial presence, the necessary capital flows directly related to the establishment also need to be permitted.

National Treatment

　　Within a market, national treatment in the GATS crucially embodies the principle of non-discrimination between foreigners and locals. Compared with the GATT, where the obligation related to trade in goods, the GATS form of national treatment is a more powerful tool as it also covers the supplier of the service itself, albeit as a negotiated specific commitment.

　　The wording in question states that each Member shall accord to services and services suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers. The GATS national treatment thus applies to both the imported services and also to the service suppliers in the market.

　　There are three layers of test specified to ensure the absence of discrimination:
　　(a) It is recognised that it may not be possible to grant foreigners exactly the same legal treatment as nationals, but this should be the normal practice.
　　(b) It is also recognised that even in cases where foreigner service suppliers are granted identical legal treatment to that offered to their domestic counterparts, this de jure treatment could in fact disadvantage them. Thus either formally identical treatment or formally different treatment is permitted provided that it does not result in a less favourable treatment.
　　(c) If the type of treatment is challenged for not meeting this no less favourable criterion, a further test may be applied which states that the treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member.

　　The benchmark is therefore the de facto treatment resulting from the application of the measures. It is a concept close to that of equality of competitive opportunity, and this new concept is the second element which considerably strengthens the GATS national treatment principle.

　　This is justified because national treatment has a more important role to play for services than it does for goods. Trade in goods tends to be restricted mostly at the border1, whereas services are subject to greater internal domestic regulation affecting supply within the market.

　　The GATS obligation not to discriminate against foreign services or service suppliers is not to be construed as requiring a Member to compensate for any inherent competitive disadvantages which result from the foreign character of the relevant services or service suppliers. This covers situations where nationals prefer not to buy foreign services for personal psychological, cultural, political, religious, or other reasons. The WTO panels are likely to interpret this exception very narrowly.

　　Governments have to inscribe in their schedules any conditions and qualifications on their granting of national treatment. The national treatment column in a schedule of specific commitments is intended to show any discriminatory qualitative restrictions, whereas any measure that affects both market access considerations and national treatment inextricably, should appear in the market access column.

　　Once specific commitments have been made, GATS bans discrimination between foreigners and nationals, and all forms of quantitative restrictions, unless a country has reserved the right to maintain the application of a restrictive measure. Such reservations should, in principle, be removed as a result of successive rounds of negotiations.

Proportionality of Domestic Regulations

　　Many services are regulated by governments to ensure their orderly supply for the protection of consumers. GATS recognises the sovereign right of Member governments to regulate their domestic services. GATS is therefore only concerned with conditioning those aspects of domestic regulation that affect international trade in services. Firstly, it aims to ban discrimination between foreigners, and between foreigners and nationals, and secondly, it aims to promote openness (known as transparency).

　　The domestic regulation article establishes the principles that domestic measures must be administered in a reasonable, objective and impartial manner. Foreign suppliers must be able to challenge administrative decisions and be informed if an application for authorisation is rejected.

　　Where authorisation is required for the supply of a service on which a specific commitment has been made, decisions have to be made within a reasonable period of time after the submission of an application considered complete under domestic laws and regulations.

　　Upon request the competent authority has to provide information concerning the status of the application.

　 In particular qualification requirements and procedures, technical standards and licensing requirements must not constitute unnecessary barriers to trade in services. The GATS intends to develop disciplines with the aim of ensuring that these requirements are: based on objective and transparent criteria, such as competence and the ability to supply the service; not more burdensome than necessary to ensure the quality of the service; and, in the case of licensing procedures, not in themselves a restriction on the supply of the service.

Other provisions

　　The GATS establishes other complementary provisions, destined to accompany the process of progressive liberalisation that it has set in motion. It provides for rules concerning the need for Members to allow the necessary payments and transfers to take place whenever market access is granted, or to allow the temporary stay of natural persons supplying services in the market. Other provisions allow the conclusion of economic integration agreements providing for free trade in services, subject to conditions designed to avoid trade distortion that would undermine the multilateral liberalisation; the conclusion of agreements providing for the mutual recognition of regulations so that differences between criteria and standards applied by various governments when licensing, certifying, and authorising services, do not act as barriers to trade in services.

　　The GATS also contains a general exceptions clause enabling Members to adopt measures for legitimate public policy objectives. GATS does not, however, give Members a blank cheque as such measures are subject to a test of proportionality and are not excluded from the application of the dispute settlement provisions. It does not allow a country to change its commitments unilaterally either, without providing adequate compensation.

　　Finally, the GATS provides for the elaboration of specific provisions on:
　　• Emergency safeguard measures, for which the deadline is June 1999;
　　• Government procurement, to which except in the case of financial services for the major industrialised countries the provisions of national treatment and most favoured nation do not apply;
　　• Subsidies.

Consultation and dispute settlement

How can a firm obtain redress when subjected to unfair or discriminatory treatment contrary to the obligations assumed by a country under GATS?

　　The GATS is an agreement which records contractual obligations between its member governments. If a firm based in the EU considers that a foreign regulation, administrative decision, or other barrier breaches either the letter of the GATS or its liberalising intent, then it should report the situation to its government, or to the European Commission. There is no direct access for private sector operators to the WTO dispute settlement system.

　　It is possible for a company or a sector to bring an issue which it considers could be subject to dispute settlement to the attention of the Commission, through the procedure established by the Trade Barriers Regulation TBR - (3286/94) which entered into force on 1 January 1995. However, the TBR procedure is subject to the criterion of the interest of the Community, both in respect of opening an investigation and in launching WTO dispute settlement. Hence, it is not possible for the private sector to decide on its own to pursue a trade problem through the Dispute Settlement System.

　　Disputes at GATS are between governments, and arise if a Member considers that another Member has not conformed to its obligations under the WTO and GATS, whether on substantive or procedural matters. The "WTO Understanding on Rules and Procedures Governing the Settlement of Disputes" (DSU) applies to all disputes under the GATS. The DSU contains precise rules on procedures and timing for each step in the dispute settlement process.

　　The fundamental objective of this process is to obtain a mutually satisfactory solution to a dispute through consultations between the interested Members. Rights and obligations under the WTO define market access, as it has been negotiated among the Members. Non-respect of a commitment upsets this balance. The first objective, therefore, is to find a solution which re-establishes the negotiated balance.

　　If no solution is agreed, the complaining Member can request the establishment of a panel, which is normally composed of three qualified government and non-government individuals. The Secretariat maintains a roster of panellists proposed by Members. Panellists selected for a dispute must have the "necessary expertise relevant to the specific services sectors" for the case in dispute.

　　A panel examines the case in the light of the rights and obligations resulting from the GATS. Two types of situations are identified, where either:

　　a) a Member fails to carry out its obligations or specific commitments (the so-called violation case), and
　　b) a measure does not conflict with the GATS' provisions, but a Member considers that a benefit it could reasonably have expected to accrue under a specific commitment is being nullified or impaired (the so-called non-violation case).

　　A panel normally has six months in which to issue a report, and it may include recommendations to the parties. For this purpose, the panel must work in close co-operation with the parties to the dispute, and can request information and seek advice from experts. In order to ensure impartiality and objectiveness, panel deliberations are kept confidential.

　　Panel reports have to be adopted by the Dispute Settlement Body (DSB) to become binding. The recommendations and rulings made by the DSB have to aim at achieving a satisfactory settlement of the matter. Members are recommended to bring their inconsistent measures and regulations into conformity with their GATS obligations. If a Member fails to do so within a reasonable period, any party invoking the dispute settlement procedure can request negotiations, with a view to reaching a satisfactory adjustment through compensation, for example by offering another, new commitment. If no satisfactory compensation has been accepted within a given period, the complainant can request authorisation from the DSB to suspend concessions previously granted to the offending party.

　　The level of suspension authorised by the DSB must be equivalent to the level of injury, and can continue only until such time that the measure at issue has been made consistent. The role of the DSB is to monitor any suspension of concessions to ensure they are not made arbitrarily, and that no unilateral action is taken. The aim of a suspension is to redress the balance of benefits among Members, and must not be exercised as a trade sanction.

　　A Member should first seek to suspend concessions in the sector under dispute. To the extent that this is not possible, it may choose to suspend concessions in any other area. This is known as cross-retaliation. Accordingly, if a Member has violated its GATS rights, but it is not practicable or effective to retaliate against it under the GATS, the suspension of concessions could take place under the either the GATT or the TRIPS Agreement. By the same token, retaliation can be made in the GATS. To the extent possible, retaliation should not upset acquired rights of established services suppliers.

　　To ensure the effective resolution of disputes, the DSB enforces prompt compliance with its recommendations and rulings. The recourse to compensation and suspension of concessions is only made available as a last resort.
　　Members have a right to lodge an appeal against a Panel decision with a standing Appellate Body, the decision of which is final. This is a new feature of the WTO which the GATT 1947 lacked.

The functioning of the WTO Dispute settlement system

　　Strengthening the WTO dispute settlement system was one of the main objectives of the European Community in the Uruguay Round. The establishment of such a system through the inclusion of the relevant provisions in the Uruguay Round Agreements, and in particular the introduction of the DSU, were therefore considered a major success at the end of the Uruguay Round.

　　But how has the system worked in reality? Have the expectations been met that a more efficient dispute settlement system would create more legal security, prevent trade problems and attract Members to solve their disputes through it without resorting to unilateralism?

　　Up to now, it is possible to say that the functioning of the new Dispute Settlement system has been a success. The best indication for that is that WTO members have intensively used it. While the number of dispute settlement consultations averaged 6 a year under the old system, and not even 3 panels on average were initiated per year, a very large number of disputes, over 120, has already been brought within the new Dispute settlement procedures. Over twenty panels have already been established, and the reports already issued have been appealed before the Appellate Body, which has issued rulings for a number of cases.

　　The fact that only around 20 cases have reached the stage of the panel has to do with the fact that a large number of cases, around half of all procedures initiated, have been solved through an amicable solution found after the procedure had been initiated. It seems that the risk of losing a panel is enough incentive for countries to make an effort and try to find ways to solve problems which could not be solved in a purely bilateral context.

　　An additional sign that countries rely on it to solve their trade problems and have an interest in the good functioning of the system is that, until now, all the parties which have lost in dispute settlement proceedings have indicated their intention to comply with the rulings of the Appellate Body. This is of particular importance if we take account of the fact that it has been the main trading partners who have mainly been involved in dispute settlement proceedings, both as complainants and as defendants.

　　The existence of an Appellate Body to which appeals on legal interpretations by panels can be made is one of the most positive features of the new system. The quality of its decisions so far is considered acceptable. However, the fact that no specific only GATS case has gone through the dispute settlement system up to the Appellate Body makes it a bit early to assess legal implications of GATS jurisprudence.

　　However, there has been a very significant case on GATT, GATS and other WTO agreements with far reaching GATS implications, concerning the UE import regime for bananas. The Appellate Body reached two conclusions which are relevant and will have an influence on future GATS cases:

　　(i) GATT-GATS overlap: the Appellate Body concludes that any measure that has an effect on trade in services falls under the scope of GATS, and that it is the particular nature of the measure at stake that determines whether GATT and GATS apply simultaneously or not.
　　(ii) Banana Operators as service suppliers: the AB concludes that any operator involved in providing wholesale trade services, and therefore reselling merchandise, is a service supplier under the GATS, even in the event only their buying?/?importing activity is considered. This means that distribution commitments gain importance because of the close involvement of goods with the distribution sector.

Unilateral action by governments

　　One of the major objectives of the Uruguay Round negotiations was to strengthen the multilateral system. Members of the WTO have therefore agreed to address disputes (on any matter it covers) exclusively through the multilateral dispute settlement procedures. In its Article 23, the DSU explicitly states that a Member shall not unilaterally:

　　• determine that another Member has violated its WTO obligations, or
　　• determine the amount of the injury, or
　　• announce its intention to retaliate, or in effect, to take sanctions.

　　As a result, any unilateral action relating to the enforcement of WTO obligations is outlawed. Enforcement can henceforth only be made through multilateral procedures.

　　The World Trade Organisation (WTO) and the GATS

　　The WTO is a new global inter-governmental treaty that entered into effect on 1 January 1995. It incorporates in its annexes the three principal multilateral accords resulting from the Uruguay Round negotiations the GATT, the GATS and the TRIPS Agreements.

　　The WTO constitutes a single institutional framework for these three agreements, with a common dispute settlement system. The purpose of the WTO is to develop an integrated, more viable and durable multilateral trading system, and to provide a forum for negotiations on trade relations, with a view to achieving greater coherence in global economic policy making. In practice this will involve close co-ordination with the policies of the International Monetary Fund and the World Bank.

　　The GATT practice of decision-making by consensus will be continued, and where on certain issues voting involves fixed majorities, each Member has one vote, with the EC having as many votes as there are Member States2. The individual Member States of the EU are Members of WTO, but negotiations are carried out by the European Commission on behalf of the EU as a whole, which is a Member without a vote.

　　Consensus is required to amend the WTO decision making process, as well as certain fundamental obligations of the GATT, GATS and TRIPS Agreements.

　　The WTO is headed by a Ministerial Conference meeting at least once every two years, and a General Council oversees its operations. Each Member has a seat on the Council. The Council acts as the Dispute Settlement Body, and operates the Trade Policy Review Mechanism. Three subsidiary Councils deal respectively with goods, services, and trade-related intellectual property rights. In turn, they can establish subordinate bodies.

　　The GATT 1994 for goods, which is the GATT 1947 modified, includes agreements for agricultural products, textiles and clothing, trade-related investment measures (TRIMS), technical barriers to trade, subsidies, countervailing measures, rules of origin, pre-shipment inspection and safeguards.

　　The TRIPS Agreement relates to copyrights, trade marks, industrial designs, patents and trade secrets, and includes provisions for their enforcement. Since it also relates to rights on services products, the Agreement is of importance to services exporters.

　　The Uruguay Round results constitute a single package, and a country wishing to become a Member of the WTO has to fulfil the conditions of all the Multilateral Trade Agreements. There is no opting out from any of the Agreements:

　　those countries wishing to benefit from the other elements of the Uruguay Round have to adhere to the GATS also. As part of the WTO package, an Integrated Dispute Settlement mechanism and institutional provisions applicable to all Agreements have been set up. This "single undertaking" reflects the globalisation of world trade and the interdependence between different parts of the economy.

　　There are also four plurilateral Agreements which have been re-negotiated as part of the Uruguay Round results. Of these, only the Government Procurement Agreement covers services. These plurilateral Agreements are limited in membership, and are only binding amongst those countries which have become members. They do not create rights or obligations for those WTO Members that have not signed them.

　　The WTO has a Secretariat located in Geneva. It is headed by a Director-General, and WTO officials may not accept instructions from Member governments or other bodies. Members' contributions to its budget will continue to relate to their goods trade values for the first year and possibly until dependable figures for services trade can be included, or another formula agreed. A two-thirds majority can adopt annual budgets.
 (to be continued)