Lecture 7 ib 404 institutional framework for international business

Lecture 6: WTO Agreements
GENERAL AGREEMENT ON
TRADE IN SERVICES (GATS)

What is Trade in Services
• International Trade can be split into two
categories: trade in goods and trade in
services
• International trade in goods involves the
movement of objects between countries and
across borders. A good is tangible object.
• International Trade in Services- which
cannot be seen or touched. Like Banking
Services, tourism services or
telecommunication services.

General Agreement on Trade in
Services (GATS)
• GATS was agreed under URUGUAY round of
multilateral trade negotiations and came into
being in 1995
• It sets out a framework of legally binding rules
governing the conduct of world trade in services.
• It is supported by a number of specific
commitments undertaken by individual
countries
• These commitments STOP WTO member
countries from changing domestic law to
introduce new barriers to entry into these
specific markets or modes.

GATS- basic essence.
• For the purpose of of trade negotiations in services countries
have to remove unnecessary regulations
• Thus, making the domestic and foreign companies to do
business and will encourage economic growth in all countries-
developed and developing.

GATS: Definitions
• Sole International Agreement responsible for governing
multilateral liberalisation of trade in services.
• The Agreement defines services against delivery modes
from the Territory of one Member into the Territory of
any other Member: (Art 1:2).

6
The GATS: Objectives
• Expansion of trade as a means for development.
• Achievement of progressively higher levels of
liberalization through successive Rounds.
• Due respect to national policy objectives.
• Respect for the right to regulate to meet
national policy objectives.
• Facilitation of the increasing participation of
Developing Countries in international trade in
services .

Universal Coverage of Services
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 Includes all services
except:
– Services supplied in the
exercise of government
authority.
– But only if these are not
supplied on a commercial
basis or in competition with
other service suppliers
 Covers all measures
– including those of local and
regional governments and
non-governmental bodies
exercising delegated authority
Sectors:
 Business and professional
 Communications, all types
 Construction
 Distribution
 Education
 Environment
 Insurance and financial
 Health and social
 Tourism
 Recreation & cultural
 Transport, all types
 Other

Modes of Supply
• Trade in Services accounts for over 20% of world
trade
• Trade in services is a more difficult concept than
trade in goods.
• The GATS has identified four modes of supply for
services- which represents different forms of
international trade
• Cross-boarder ( e-commerce, telecoms)
• Consumptions abroad (tourism)
• Commercial presence ( setting up firm in another country)
• Movement of natural persons ( nationals working overseas
for temporary period)

Trade = Modes of Supply
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Defined Examples
Cross border Service supplier not
present in the territory
where services are
delivered
Delivery of any services via
telephone, fax, Internet, or the
post
Consumption
abroad
Consumers purchase
services outside their
country of residence
Tourism, Repair of a ship in
another country, Going to a
hospital abroad for surgery
Commercial
presence
Service supplying
entities present in the
territory to deliver
services
Establishing a bank branch or
subsidiary
Any foreign direct investment
Presence of
natural
persons
Entry and temporary
stay of individual
persons to supply
services
1. Consultant services,
Professional or business travel
2. Also, foreign employees of a
firm supplying services

Article I: Scope and Definition
1. This Agreement applies to measures by Members affecting
trade in services.
2. For the purposes of this Agreement, trade in services is
defined as the supply of a service:
a) from the territory of one Member into the territory of any other
Member;
b) in the territory of one Member to the service consumer of any other
Member;
c) by a service supplier of one Member, through commercial presence
in the territory of any other Member;
d) by a service supplier of one Member, through presence of natural
persons of a Member in the territory of any other Member.
10

Article I: Scope and Definition
3. For the purposes of this Agreement:
(a)"measures by Members" means measures taken by:
(i) central, regional or local governments and authorities; and
(ii) non-governmental bodies in the exercise of powers delegated by central,
regional or local governments or authorities;
•In fulfilling its obligations and commitments under the
Agreement, each Member shall take such reasonable measures as
may be available to it to ensure their observance by regional and
local governments and authorities and non-governmental bodies
within its territory;
(b) "services" includes any service in any sector except services supplied
in the exercise of governmental authority;
(c) "a service supplied in the exercise of governmental authority" means
any service which is supplied neither on a commercial basis, nor in
competition with one or more service suppliers.
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Article II: Most-Favoured-Nation
Treatment
1. 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.
2. A Member may maintain a measure inconsistent with
paragraph 1 provided that such a measure is listed in, and
meets the conditions of, the Annex on Article II Exemptions.
3. The provisions of this Agreement shall not be so construed as
to prevent any Member from conferring or according
advantages to adjacent countries in order to facilitate
exchanges limited to contiguous frontier zones of services
that are both locally produced and consumed.
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Article III: Transparency
• Each Member shall publish promptly and, except in emergency
situations, at the latest by the time of their entry into force, all
relevant measures of general application which pertain to or affect
the operation of this Agreement. International agreements
pertaining to or affecting trade in services to which a Member is a
signatory shall also be published.
• Where publication as referred to in paragraph 1 is not practicable,
such information shall be made otherwise publicly available.
• Article III bis: Disclosure of Confidential Information
• Nothing in this Agreement shall require any Member to provide
confidential information, the disclosure of which would impede law
enforcement, or otherwise be contrary to the public interest, or
which would prejudice legitimate commercial interests of
particular enterprises, public or private.
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Article IV: Increasing Participation of
Developing Countries
1. The increasing participation of developing country Members
in world trade shall be facilitated through negotiated specific
commitments, by different Members pursuant to Parts III
and IV of this Agreement, relating to:
a) the strengthening of their domestic services capacity and its
efficiency and competitiveness, inter alia through access to
technology on a commercial basis;
b) the improvement of their access to distribution channels and
information networks; and
c) the liberalization of market access in sectors and modes of supply
of export interest to them.
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Article IV: Increasing Participation of
Developing Countries
2. Developed country Members, and to the extent possible other
Members, shall establish contact points within two years from
the date of entry into force of the WTO Agreement to facilitate
the access of developing country Members' service suppliers to
information, related to their respective markets, concerning:
a) commercial and technical aspects of the supply of services;
b) registration, recognition and obtaining of professional qualifications;
and
c) the availability of services technology
3. Special priority shall be given to the least-developed country
Members in the implementation of paragraphs 1 and 2.
Particular account shall be taken of the serious difficulty of the
least-developed countries in accepting negotiated specific
commitments in view of their special economic situation and
their development, trade and financial needs.
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Article V: Economic Integration
1. This Agreement shall not prevent any of its Members from
being a party to or entering into an agreement liberalizing trade
in services between or among the parties to such an agreement,
provided that such an agreement:
(a) has substantial sectoral coverage, and
(b) provides for the absence or elimination of substantially all
discrimination, in the sense of Article XVII, between or among the
parties, in the sectors covered under subparagraph (a), through:
(i) elimination of existing discriminatory measures, and/or
(ii) prohibition of new or more discriminatory measures,
• either at the entry into force of that agreement or on the basis
of a reasonable time-frame, except for measures permitted
under Articles XI, XII, XIV and XIV bis.
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• 2. In evaluating whether the conditions under paragraph 1(b) are met,
consideration may be given to the relationship of the agreement to a wider
process of economic integration or trade liberalization among the countries
concerned.
• 3. (a) Where developing countries are parties to an agreement of
the type referred to in paragraph 1, flexibility shall be provided for
regarding the conditions set out in paragraph 1, particularly with
reference to subparagraph (b) thereof, in accordance with the level of
development of the countries concerned, both overall and in individual
sectors and subsectors.
• (b) Notwithstanding paragraph 6, in the case of an agreement
of the type referred to in paragraph 1 involving only developing countries,
more favourable treatment may be granted to juridical persons owned or
controlled by natural persons of the parties to such an agreement.
• 4. Any agreement referred to in paragraph 1 shall be designed to
facilitate trade between the parties to the agreement and shall not in
respect of any Member outside the agreement raise the overall level of
barriers to trade in services within the respective sectors or subsectors
compared to the level applicable prior to such an agreement.
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• 5. If, in the conclusion, enlargement or any significant
modification of any agreement under paragraph 1, a Member
intends to withdraw or modify a specific commitment
inconsistently with the terms and conditions set out in its
Schedule, it shall provide at least 90 days advance notice of
such modification or withdrawal and the procedure set forth in
paragraphs 2, 3 and 4 of Article XXI shall apply.
• 6. A service supplier of any other Member that is a juridical
person constituted under the laws of a party to an agreement
referred to in paragraph 1 shall be entitled to treatment
granted under such agreement, provided that it engages in
substantive business operations in the territory of the parties
to such agreement.
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• 7. (a) Members which are parties to any agreement referred to in
paragraph 1 shall promptly notify any such agreement and any
enlargement or any significant modification of that agreement to
the Council for Trade in Services. They shall also make available
to the Council such relevant information as may be requested by
it. The Council may establish a working party to examine such an
agreement or enlargement or modification of that agreement and
to report to the Council on its consistency with this Article.
• (b) Members which are parties to any agreement referred to in
paragraph 1 which is implemented on the basis of a time-frame shall
report periodically to the Council for Trade in Services on its
implementation. The Council may establish a working party to examine
such reports if it deems such a working party necessary.
• (c) Based on the reports of the working parties referred to in
subparagraphs (a) and (b), the Council may make recommendations to
the parties as it deems appropriate.
• 8. A Member which is a party to any agreement referred to in
paragraph 1 may not seek compensation for trade benefits that
may accrue to any other Member from such agreement.
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Article V bis: Labour Markets
Integration Agreements
• This Agreement shall not prevent any of its Members from
being a party to an agreement establishing full integration of
the labour markets between or among the parties to such an
agreement, provided that such an agreement:
• Typically, such integration provides citizens of the parties
concerned with a right of free entry to the employment
markets of the parties and includes measures concerning
conditions of pay, other conditions of employment and social
benefits.
• (a) exempts citizens of parties to the agreement from requirements
concerning residency and work permits;
• (b) is notified to the Council for Trade in Services.
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Article VI: Domestic Regulation
• 1. In sectors where specific commitments are undertaken,
each Member shall ensure that all measures of general
application affecting trade in services are administered in a
reasonable, objective and impartial manner.
• 2. (a) Each Member shall maintain or institute as soon
as practicable judicial, arbitral or administrative tribunals or
procedures which provide, at the request of an affected service
supplier, for the prompt review of, and where justified,
appropriate remedies for, administrative decisions affecting
trade in services. Where such procedures are not independent
of the agency entrusted with the administrative decision
concerned, the Member shall ensure that the procedures in
fact provide for an objective and impartial review.
• (b) The provisions of subparagraph (a) shall not be
construed to require a Member to institute such tribunals or
procedures where this would be inconsistent with its
constitutional structure or the nature of its legal system.
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• 3. Where authorization is required for the supply of a service on which a
specific commitment has been made, the competent authorities of a
Member shall, within a reasonable period of time after the submission of
an application considered complete under domestic laws and regulations,
inform the applicant of the decision concerning the application. At the
request of the applicant, the competent authorities of the Member shall
provide, without undue delay, information concerning the status of the
application.
• 4. With a view to ensuring that measures relating to qualification
requirements and procedures, technical standards and licensing
requirements do not constitute unnecessary barriers to trade in services,
the Council for Trade in Services shall, through appropriate bodies it may
establish, develop any necessary disciplines. Such disciplines shall aim to
ensure that such requirements are, inter alia:
• (a) based on objective and transparent criteria, such as competence and the
ability to supply the service;
• (b) not more burdensome than necessary to ensure the quality of the service;
• (c) in the case of licensing procedures, not in themselves a restriction on the
supply of the service.
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• 5. (a) In sectors in which a Member has undertaken specific
commitments, pending the entry into force of disciplines developed in
these sectors pursuant to paragraph 4, the Member shall not apply
licensing and qualification requirements and technical standards that
nullify or impair such specific commitments in a manner which:
• (i) does not comply with the criteria outlined in subparagraphs 4(a), (b) or (c);
and
• (ii) could not reasonably have been expected of that Member at the time the
specific commitments in those sectors were made.
• (b) In determining whether a Member is in conformity with the obligation
under paragraph 5(a), account shall be taken of international standards of
relevant international organizations applied by that Member.
• 6. In sectors where specific commitments regarding professional services
are undertaken, each Member shall provide for adequate procedures to
verify the competence of professionals of any other Member.
• The term "relevant international organizations" refers to international
bodies whose membership is open to the relevant bodies of at least all
Members of the WTO.
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Article VIII: Monopolies and
Exclusive Service Suppliers
• 1. Each Member shall ensure that any monopoly supplier of a
service in its territory does not, in the supply of the monopoly
service in the relevant market, act in a manner inconsistent with
that Member's obligations under Article II and specific
commitments.
• 2. Where a Member's monopoly supplier competes, either directly
or through an affiliated company, in the supply of a service outside
the scope of its monopoly rights and which is subject to that
Member's specific commitments, the Member shall ensure that
such a supplier does not abuse its monopoly position to act in its
territory in a manner inconsistent with such commitments.
• 3. The Council for Trade in Services may, at the request of a
Member which has a reason to believe that a monopoly supplier of
a service of any other Member is acting in a manner inconsistent
with paragraph 1 or 2, request the Member establishing,
maintaining or authorizing such supplier to provide specific
information concerning the relevant operations.
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Article VIII: Monopolies and
Exclusive Service Suppliers
• 4. If, after the date of entry into force of the WTO Agreement, a
Member grants monopoly rights regarding the supply of a
service covered by its specific commitments, that Member shall
notify the Council for Trade in Services no later than three
months before the intended implementation of the grant of
monopoly rights and the provisions of paragraphs 2, 3 and 4 of
Article XXI shall apply.
• 5. The provisions of this Article shall also apply to cases of
exclusive service suppliers, where a Member, formally or in
effect, (a) authorizes or establishes a small number of service
suppliers and (b) substantially prevents competition among
those suppliers in its territory.
25

Article IX: Business Practices
• 1. Members recognize that certain business practices of service
suppliers, other than those falling under Article VIII, may
restrain competition and thereby restrict trade in services.
• 2. Each Member shall, at the request of any other Member,
enter into consultations with a view to eliminating practices
referred to in paragraph 1. The Member addressed shall
accord full and sympathetic consideration to such a request and
shall cooperate through the supply of publicly available non-
confidential information of relevance to the matter in question.
The Member addressed shall also provide other information
available to the requesting Member, subject to its domestic law
and to the conclusion of satisfactory agreement concerning the
safeguarding of its confidentiality by the requesting Member.
26

Article XIII: Government
Procurement
• 1. Articles II, XVI and XVII shall not apply to laws, regulations
or requirements governing the procurement by governmental
agencies of services purchased for governmental purposes and
not with a view to commercial resale or with a view to use in
the supply of services for commercial sale.
• 2. There shall be multilateral negotiations on government
procurement in services under this Agreement within two
years from the date of entry into force of the WTO Agreement.
27

Article XV: Subsidies
• 1. Members recognize that, in certain circumstances, subsidies
may have distortive effects on trade in services. Members shall
enter into negotiations with a view to developing the necessary
multilateral disciplines to avoid such trade-distortive effects. The
negotiations shall also address the appropriateness of
countervailing procedures. Such negotiations shall recognize the
role of subsidies in relation to the development programmes of
developing countries and take into account the needs of Members,
particularly developing country Members, for flexibility in this
area. For the purpose of such negotiations, Members shall
exchange information concerning all subsidies related to trade in
services that they provide to their domestic service suppliers.
• 2. Any Member which considers that it is adversely affected by
a subsidy of another Member may request consultations with that
Member on such matters. Such requests shall be accorded
sympathetic consideration.
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Article XVI: Market Access
• 1. With respect to market access through the modes of supply
identified in Article I, each Member shall accord services and
service 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.
• 2. In sectors where market-access commitments are undertaken,
the measures which a Member shall not maintain or adopt either
on the basis of a regional subdivision or on the basis of its entire
territory, unless otherwise specified in its Schedule, are defined as:
• (a) limitations on the number of service suppliers whether in the form
of numerical quotas, monopolies, exclusive service suppliers or the
requirements of an economic needs test;
• (b) limitations on the total value of service transactions or assets in the
form of numerical quotas or the requirement of an economic needs test;
• (c) limitations on the total number of service operations or on the total
quantity of service output expressed in terms of designated numerical
units in the form of quotas or the requirement of an economic needs test
29

Article XVI: Market Access
• (d) limitations on the total number of natural persons that may be
employed in a particular service sector or that a service supplier
may employ and who are necessary for, and directly related to, the
supply of a specific service in the form of numerical quotas or the
requirement of an economic needs test;
• (e) measures which restrict or require specific types of legal entity
or joint venture through which a service supplier may supply a
service; and
• (f) limitations on the participation of foreign capital in terms of
maximum percentage limit on foreign shareholding or the total
value of individual or aggregate foreign investment.
30

Article XVII: National Treatment
• 1. In the sectors inscribed in its Schedule, and subject to any conditions
and qualifications set out therein, each Member shall accord to services
and service 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.
• 2. A Member may meet the requirement of paragraph 1 by according to
services and service suppliers of any other Member, either formally
identical treatment or formally different treatment to that it accords to its
own like services and service suppliers.
• 3. Formally identical or formally different 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.
• Specific commitments assumed under this Article shall not be construed to
require any Member to compensate for any inherent competitive disadvantages
which result from the foreign character of the relevant services or service
suppliers.
31

Article XXVII: Denial of Benefits
• A Member may deny the benefits of this Agreement:
• (a) to the supply of a service, if it establishes that the service is
supplied from or in the territory of a non-Member or of a Member
to which the denying Member does not apply the WTO Agreement;
• (b) in the case of the supply of a maritime transport service, if it
establishes that the service is supplied:
• (i) by a vessel registered under the laws of a non-Member or of a
Member to which the denying Member does not apply the WTO
Agreement, and
• (ii) by a person which operates and/or uses the vessel in whole or in
part but which is of a non-Member or of a Member to which the denying
Member does not apply the WTO Agreement;
• (c) to a service supplier that is a juridical person, if it establishes
that it is not a service supplier of another Member, or that it is a
service supplier of a Member to which the denying Member does
not apply the WTO Agreement.
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ANNEX ON MOVEMENT OF NATURAL PERSONS
SUPPLYING SERVICES UNDER THE AGREEMENT
1. This Annex applies to measures affecting natural persons who are service
suppliers of a Member, and natural persons of a Member who are employed
by a service supplier of a Member, in respect of the supply of a service.
2. The Agreement shall not apply to measures affecting natural persons
seeking access to the employment market of a Member, nor shall it apply to
measures regarding citizenship, residence or employment on a permanent
basis.
3. In accordance with Parts III and IV of the Agreement, Members may
negotiate specific commitments applying to the movement of all categories
of natural persons supplying services under the Agreement. Natural
persons covered by a specific commitment shall be allowed to supply the
service in accordance with the terms of that commitment.
4. The Agreement shall not prevent a Member from applying measures to
regulate the entry of natural persons into, or their temporary stay in, its
territory, including those measures necessary to protect the integrity of, and
to ensure the orderly movement of natural persons across, its borders,
provided that such measures are not applied in such a manner as to nullify
or impair the benefits accruing to any Member under the terms of a specific
commitment.
• The sole fact of requiring a visa for natural persons of certain Members and
not for those of others shall not be regarded as nullifying or impairing
benefits under a specific commitment.
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Lecture 7 ib 404 institutional framework for international business

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Lecture 7 ib 404 institutional framework for international business