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Unit 8: World Trade Organization

Modes of Supply: The GATS sets out four modes of supplying services: notes
1. Mode 1: Cross border trade

2. Mode 2: Consumption abroad
3. Mode 3: Commercial presence
4. Mode 4: Presence of natural persons
General Principles: These are basic rules that apply to all members for all services
1. MFN Treatment: This means that “Each member shall accord immediately and
unconditionally to services and service suppliers of any other member, treatment no less,
than it accords to like services and service suppliers of all other country.” However a
member is permitted to maintain a measure inconsistent with the general MFN agreement
if it has established an exception.
All exceptions are subject to review and in principle and do not last longer that 10 years.

2. Transparency: The GATS require each member to publish promptly all relevant measures
of general application that affect operation of agreement
Specific Obligations: These requirements apply only to scheduled sectors:
1. Market Access: The GATS also sets out different forms of measures affecting free market
access that should be applied to a service provider or its supplier only after clear provisions
have been made in the member scheduled.
The market access limitations include:
(a) Limitation on the number of service suppliers,
(b) Limitation on the total value of service transactions or assets,
(c) Limitations on the total number of service operations or the total quantity of service
output, and
(d) Percentage limitations and the participation of foreign capital or the limitations on
the total value of foreign investment.
2. National Treatment: Each member should treat to foreign services and service suppliers
if measures affecting supply of services, no less favourably than to its own services and
suppliers.
Exemptions: Members in specified circumstances are allowed to introduce or maintain measures
in contravention of their obligations under the agreement, including the MFN requirement or
specific commitments. These circumstances cover measures necessary to protect public morals
or maintain public order, protect human, animal or plant life or health or secure compliance
with laws or regulations not inconsistent with this Agreement including among others, measures
necessary to prevent deceptive or fraudulent practices.
Irreversible Commitments: Member governments are always free to liberalise unilaterally without
making commitments in the GATS. Nevertheless, GATS commitments like tariff bindings are not
irreversible.

Regional Trading Arrangements: Apart from services provided in individual MFN exemption
lists, the only permitted departure from most favoured-nation treatment under the GATS is among
countries that are members of regional trading arrangements. The GATS rules on ‘Economic
Integration’, in Article V, are modelled on those in Article XXIV (‘Territorial Application-Frontier
Traffic-Customs Unions and Free Trade Areas’) of the GATT, although the absence of a services’
equivalent to import duties means that there is no distinction comparable to that between customs
unions and free trade area.

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