GATS Notes

General Agreement on Trade in Services (GATS)

Objectives

• Understand the building blocks of the GATS.
• Evaluate whether a measure is covered by the GATS.
• Identify each of the four modes of supply of services.
• Explain the different obligations under the GATS.

Existing Multilateral Disciplines on Trade in Services

• The GATS is the first agreement of multilateral and legally-enforceable rules aimed at the liberalisation of trade in services.

GATS - Scope and Definition

• Article II:1 of the GATS states that it applies to “any measure covered by this Agreement”.
• In Canada – Autos case, the Appellate Body (AB) stated that a threshold question for a panel is whether the measure is within the scope of the GATS by examining whether it is a measure “affecting trade in services” within the meaning of Article I of the GATS.

Trade in Services

• The GATS does not provide a precise meaning to the phrase “measures by Members affecting trade in services”.
• Article I:3(a) of the GATS defines “measures by Members” broadly:
  • “measure” means any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form.
• Article XXVIII provides some examples of measures within the scope of the GATS, but the list is not exclusive.
• Article I:2 of the GATS defines “trade in services” as “the supply of a service” within one of four defined “modes of supply”.

Modes of Supply

• Cross-border supply (mode 1): Services supplied from one country to another (e.g., international telephone calls).
• Consumption abroad (mode 2): Consumers or firms making use of a service in another country (e.g., tourism).
• Commercial presence (mode 3): A foreign company setting up subsidiaries or branches to provide services in another country (e.g., foreign banks).
• Presence of natural persons (mode 4): Individuals travelling from their own country to supply services in another (e.g., teachers or consultants).

Affecting Trade in Services

• In Canada – Autos, the AB stated that two key issues must be examined to determine whether a measure is one ‘affecting trade in services’:
  • Whether a service is supplied through one of the modes of supply listed in Article I:2.
  • Whether the measure in issue “affects” such trade in services.
• The AB has not explained exactly what is meant by the term “affecting” in relation to the supply of services.

General Obligations and Disciplines

• Key substantive obligations that generally apply to all measures by Members affecting trade in services:
  • Most-Favoured-Nation (MFN) treatment (Art.II).
    • Annex on Article II exemptions.
    • Economic Integration (Article V).
  • National Treatment (Art. XVII).
    • Requires members to treat foreign services and service suppliers no less favorably than domestic ones.
    • Relevant Case: China – Electronic Payment Services (2012): The panel examined China’s treatment of foreign service suppliers and whether it violated market access and national treatment commitments.
  • Transparency (Article III): publication, notification, enquiry points.
  • Increasing Participation of Developing Countries (Art. IV): Negotiated best endeavour clause - “shall be facilitated through negotiated specific commitments”.

Most Favored Nation (MFN)

• Members are to provide MFN treatment, that is, to provide services and service suppliers of any other Member treatment no less favorable than the Member accords to like services and service suppliers of any other country.
• The term “services” is defined broadly in Article I:3(c) of the GATS to include “any service in any sector except services supplied in the exercise of governmental authority”.
• Governmental services: those that are not supplied commercially and do not compete with other suppliers – e.g., distinction between private security firms engaged to protect government offices and state police services.

MFN cont.

• In EC – Bananas III, the Appellate Body clarified that the MFN obligation in Article II of the GATS applies both to de jure as well as to de facto discrimination.
• To determine whether services or service suppliers of different countries are discriminated against, it is necessary to examine:
  1. The origin of the services and/or the service suppliers; and
  2. Whether the services and/or service suppliers are “like”.

MFN…

• Canada-Autos: in order to determine whether services or services suppliers of one Member have been treated less favorably than services or service suppliers of another country, a panel must analyze whether the measure has altered, or has the potential to alter, the conditions of competition between the services or service suppliers of one Member as compared with like services or like service suppliers of another country.

Exceptions to MFN under GATS

• Art II:2 of GATS – a member may maintain a measure inconsistent with paragraph 1 provided such a measure is listed in and meets the conditions of the Annex on Article II Exemptions.
• Art V provides for Economic Integration Agreements which provide for deviations from MFN provided that their statutory requirements have been met.

Transparency

• “publish promptly” “all relevant measures of general application which pertain to or affect the operation of” the GATS
• inform the Council for Trade in Services of the introduction of any new, or any changes to existing, laws, regulations or administrative guidelines which “significantly affect trade in service covered by its specific commitments” under the Agreement
• respond promptly to all requests from other Members for specific information on any of their measures of general application, and also
• to establish enquiry points to provide such specific information to other Members.
• General Obligation in Article III of the GATS.

Increasing Participation of Developing Countries

• Article IV of the GATS recognizes the special needs of developing and especially LDCs.
• The increasing participation of developing country Members in world services trade is to be facilitated through negotiated specific commitments, by different Members, in their Schedules, relating to:
  • the strengthening of developing countries’ domestic services capacity, efficiency and competitiveness, including through access to technology;
  • the improvement of developing countries’ access to distribution channels and information networks; and
  • the liberalization of market access in sectors and modes of supply of export interest to developing countries.

Domestic Regulation

• It is specifically recognized in the Preamble to the GATS that Members have “the right to regulate, and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives”.
• Article VI sets out several general disciplines designed to protect the legitimate right of Members to regulate in order to meet certain public policy objectives while ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade.

International Payments and Transfers Obligations

• Once a government has made a commitment to open a service sector to foreign competition, it must not normally restrict money being transferred out of the country as payment for services supplied (“current transactions”) in that sector.
• The only exception is when there are balance-of-payments difficulties, and even then, the restrictions must be temporary and subject to other limits and conditions provided in Art XII.

General Exceptions

• Article XIV provides for exceptions from the obligations and commitments under the GATS for any measures of a Member that are necessary to protect or maintain certain specified public policy goals.
• These exceptions are subject to the general requirement in the chapeau that such measures must not be “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”.

Key Differences Between GATS and GATT

Panel Reports

• US – Gambling (2005): Clarified the scope of commitments under specific schedules. Highlighted the importance of transparency and the role of national policy objectives in regulating services.
• China – Publications and Audiovisual Products (2009): Examined restrictions on foreign service suppliers and whether these violated GATS commitments. Provided insights into balancing regulatory autonomy with market access.
• India – Solar Cells (2016): Discussed how national treatment obligations under GATS can impact government incentive schemes in service-related industries.

Zambia's Commitments Under GATS

• Zambia’s commitments are limited and focused on sectors such as financial services and telecommunications.
• Like many developing countries, Zambia has taken a cautious approach to liberalization, balancing economic growth with protecting domestic industries.
• Challenges Zambia Faces with GATS
  • Capacity Constraints: Zambia faces challenges in negotiating and implementing GATS commitments due to limited technical expertise and institutional capacity.
  • Regulatory Framework: Many service sectors lack robust regulatory frameworks, making it difficult to meet obligations under GATS (e.g., transparency and domestic regulation).
  • Market Access Barriers: Zambian service providers, particularly SMEs, may struggle to access foreign markets due to high standards or lack of competitive capacity.
  • Limited Use of Mode 4: Zambia has not effectively utilized Mode 4 commitments to facilitate labor mobility for its skilled professionals.