General Agreement on Trade in Services (GATS)

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Relevant Extracts With Commentary

All references by default relate to [1]. Generally of the form [xx.yy] which indicates article xxx, paragraph yy. Note that this is not intended to provide a complete summary of the agreement (if this is wanted one should simply read it since it is not that long) but to highlight specific areas.

One of the most publicized issues with respect to the GATS is its potential effect on government provision of public service. Opponents claim that the GATS will force the government to privatize services such as education, and in myriad other ways will limit the ability of government to pursue an agenda different from so-called neoliberalism. Two main issues become apparent in this debate:

  1. What is trade in services? What are the services actually covered by the GATS? For example does education (and in what form - public vs. private) come under the auspices of the GATS.
  2. If a particular area is covered by GATS what does that entail?

The Scope of GATS

The following is [I.1-3] (all emphasis is added)

  1. "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.
    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;" [I.1-2]
  2. 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.
  3. Definitions of Specific Terms: See [XXVIII]. For example: "'measure' means any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form;" [XXVIII.a]
  4. Remarks:
    1. Note that the agreement relates to trade in services. No domestic service provider could take action against its own government using this agreement since no trade would have taken place.
    2. However this is not to say a government's behaviour is only important when directly related to trade. The relative treatment of domestic and foreign service providers in the domestic market will be very relevant (see below). That is why points I.3.b and I.3.c are introduced and it is important to establish what exactly the phrase "on a commercial basis" and "in competition with one or more service suppliers" mean. For example some countries have a public education system open to all (and free). At the same time there are often a number of private schools that charge for the education they provide. Thus a) Is the public education in competition with these private 'suppliers'? b) Is the public education provided on a commercial basis? The answer to a) is not clear, and to answer it one would need to provide a clear definition of at the very least the relevant market (public education is provided to all throughout the country on a non-discriminatory basis). The answer to b) seems to be obviously no, though one could certainly argue that public education is only apparently free in the sense that it is funded by taxes. What would happens if the government semi-privatized schools by making them into independent trusts that were provided with a subsidy subject to being government regulated. Or the government allowed schools to levy a fixed charge and then provided subsidies to poor parents (effectively what is being done anyway). Would it then be the case that a foreign 'provider' of education could ask for the same treatment as these schools.
      While from these examples the subtleties can be seen it does appear likely that most full-scale public education system could not be forced into privatization under the wording of the agreement (it would be difficult for a foreign service provider to claim that it was being offered on a commercial basis.) Similar arguments apply to other public services be they utilities (e.g. water supply) or healthcare. Nevertheless absent a clarificatory directive from the WTO this will only be completely decided once case law comes into existence.

Obligations in Affected Areas

It is emphasized that this is only a summary and therefore selective. Obligations divide into two categories:

General Obligations
  1. No MFN (most favoured nation) treatment (see glossary for definition of MFN). [II]
  2. Transparency and Harmonization:
    1. "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." [III.1]
    2. "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." [VI.3]
    3. "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." [VI.4]
  3. Payments, Transfers and The Balance of Payments:
    1. "Except under the circumstances envisaged in Article XII, a Member shall not apply restrictions on international transfers and payments for current transactions relating to its specific commitments." [XI.1]
    2. "In the event of serious balance-of-payments and external financial difficulties or threat thereof, a Member may adopt or maintain restrictions on trade in services on which it has undertaken specific commitments, including on payments or transfers for transactions related to such commitments. It is recognized that particular pressures on the balance of payments of a Member in the process of economic development or economic transition may necessitate the use of restrictions to ensure, inter alia, the maintenance of a level of financial reserves adequate for the implementation of its programme of economic development or economic transition." [XII.1] (various regulations regarding the form and method of these restrictions follow in [XII.2-6]
  4. Exceptions: (XIII-XIV)
    1. "Articles II, XVI [Market Access] and XVII [National Treatment] 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." [XIII.1]
    2. "Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures:
      (a) necessary to protect public morals or to maintain public order;
      (b) necessary to protect human, animal or plant life or health;
      (c) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to:
           . . .
          (iii) Safety" [XIV]
    3. XIV bis contains further exceptions relating to security matters (for example government military procurement).
    4. There are also special concessions and exceptions relating to developing countries. [IV, XIX] For example: "The process of liberalization shall take place with due respect for national policy objectives and the level of development of individual Members, both overall and in individual sectors. There shall be appropriate flexibility for individual developing country Members for opening fewer sectors, liberalizing fewer types of transactions, progressively extending market access in line with their development situation and, when making access to their markets available to foreign service suppliers, attaching to such access conditions aimed at achieving the objectives referred to in Article IV." [XIX.2]
Obligations Relating to Specific Commitments

Part 4 of the GATS provides precise details of what Schedules should contain how they may be modified etc. In particular Schedules not only list areas subject to Part 3 of the GATS ([XVI-XIX] described below) but also allow the Schedules to provide modifications (Note 1). Details of the Schedules entered into by individual countries may be found in reference [2]

  1. Market Access:
    1. "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;
      . . . . . . .
      (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." [XVI.1]
    2. Rmk: Note how this could impact on regulations relating to zoning/planning. Consider this example. A country has a coastal area that is being developed for tourist industry. In order to control development and ensure the area is adequately planned the (local) government might well impose regulations governing the number of hotels that can be build in a particular location. Would this count as a numerical quota, or the imposition of an economic needs test? One finds it difficult to imagine that the drafters intended this since many, many countries have a system of building permits and town planning. Nevertheless it is a possibility that must be considered.
  2. National Treatment: "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." [XVII.1]

References

(See documents page unless otherwise stated)

  1. GATS Agreement.
  2. Schedules of Specific Commitments. Available through the WTO Trade in Services Database.
  3. Zdouc_1999.

Notes

Note 1

  1. Article XX: Schedule of Specific Commitments states:
    "Each Member shall set out in a schedule the specific commitments it undertakes under Part III of this Agreement. With respect to sectors where such commitments are undertaken, each Schedule shall specify:
    (a) terms, limitations and conditions on market access;
    (b) conditions and qualifications on national treatment;
    (c) undertakings relating to additional commitments;
    (d) where appropriate the time-frame for implementation of such commitments; and
    (e) the date of entry into force of such commitments."
  2. Clearly the GATS does limit the government in various ways, but that is precisely the aim of an agreement such as this (Note 1). The question should be: How much freedom is relinquished? What are the benefits?Just as in the case of the laws of a state we relinquish liberty in the hope of certain compensations. For example that others will not now do things that we would not wish (steal from us, kill us etc). Moreover their are many areas where cooperation will be mutually beneficial but often to secure this cooperation one must provide a framework so that the system does not break down in the face of selfish behaviour and the cooperative equilibrium is maintained.


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Last Updated: 2003-Jan-31
Created: 2002-Oct-21
Copyright R Pollock