Page 272 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes Mode 1 : Services supplied from one country to another (e.g., international telephone calls), officially
known as ‘cross-border supply’
Mode 2 : Consumers or firms making use of a service in another country (e.g. tourism), officially
‘consumption abroad’
Mode 3 : A foreign company setting up subsidiaries or branches to provide services in another country
(e.g., foreign banks setting up operations in a country), officially ‘commercial presence’
Mode 4 : Individuals travelling from their own country to supply services in another (e.g., fashion
models or consultants), officially ‘presence of natural persons’
Most-favoured-nation treatment : MFN also applies to the service sector, wherein a member country’s
trading partners are to be treated equally on the principle of non-discrimination. Under GATS, if a country
allows foreign competition in a sector, equal opportunities in that sector should be given to service providers
from all other WTO members. This applies even if the country has made no specific commitment to
provide foreign companies access to its markets under the WTO. MFN applies to all services, but some
special temporary exemptions have been allowed to countries that already have preferential agreements
in services with their trading partners. Such exemptions are expected to last not more than 10 years.
Commitments on market access and national treatment : Individual countries’ commitments to
open markets in specific sectors and the extent of their openness has been the outcome of the Uruguay
Round negotiations. The commitments appear in ‘schedules’ that list the sectors being opened, the
extent of market access being given in those sectors (e.g., whether there are any restrictions on foreign
ownership), and any limitation on national treatment (whether some rights granted to local companies
will not be granted to foreign companies). For instance, if a government commits itself to allow
foreign banks to operate in its domestic market, that is a market-access commitment. And if the
government limits the number of licences it will issue, then that is a market-access limitation. If it also
says foreign banks are only allowed one branch while domestic banks are allowed numerous branches,
that is an exception to the national treatment principle.
These clearly defined commitments are ‘bound’—like bound tariffs for trade in goods, and they can
only be modified after negotiations with affected countries. Because ‘unbinding’ is difficult, the
commitments are virtually guaranteed conditions for foreign exporters and importers of services
and investors in the service sector.
Governmental services are explicitly carved out of the agreement and there is nothing in GATS that
forces a government to privatize service industries. The carve-out is an explicit commitment by WTO
governments to allow publicly funded services in core areas of their responsibility. Governmental
services are defined in the agreements as those that are not supplied commercially and do not compete
with other suppliers. These services are not subject to any GATS discipline, are not covered by the
negotiations, and the commitments on market access and national treatment do not apply to them.
Transparency GATS stipulates that governments must publish all relevant laws and regulations, as
set-up enquiry points within their bureaucracies. Foreign companies and governments can then use
these inquiry points to obtain information about regulations in any service sector. Further, the member
countries’ governments have to notify the WTO of any change in regulations that apply to the services
that fall under specific commitments.
Objectivity and reasonability of regulations : Since domestic regulations are the most significant
means of exercising influence or control over services trade, the agreement says governments should
regulate services reasonably, objectively, and impartially. When a government makes an administrative
decision that affects a service, it should also provide an impartial means for reviewing the decision
(e.g., a tribunal). GATS does not require any service to be deregulated. Commitments to liberalize do
not affect governments’ right to set levels of quality, safety, or price, or to introduce regulations to
pursue any other policy objective. A commitment to national treatment, e.g., would only mean that
the same regulations would apply to foreign suppliers as to nationals. Governments naturally retain
their right to set qualification requirements for doctors or lawyers, and to set standards to ensure
consumer health and safety.
Recognition : When two or more governments have agreements recognizing each other’s qualifications
(e.g., the licensing or certification of service suppliers), GATS says other members must also be given

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