general agreement tariffs trade

General Agreement on Trade in Services

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

All members of the WTO are signatories to the GATS. The basic WTO principle of most favoured nation (MFN) applies to GATS as well.

Historical background

Before the WTO's Uruguay Round negotiations began in 1986, services were not included in international trade agreements. Most services have traditionally been classed as domestic activities difficult to trade across borders. Some service categories have been viewed as domains for government ownership and control, given their infrastructural importance and susceptibility to national monopolies. A third important group of sectors, including health, education and water services are considered in many countries as governmental responsibilities to be tightly regulated and not left to the vagaries of markets.

Nevertheless, some service sectors—in particular, international finance and maritime transport—have been largely open for centuries, as necessary components of merchandise trade. Other large sectors have undergone fundamental technical and regulatory changes in recent decades, opening them to private commercial participation and reducing barriers to entry. The development of information technologies and the internet have expanded the range of internationally tradeable service products to include e-banking, 'telemedicine', distance learning, as well as international remote gambling, 'spam' and pornography. Governments are increasingly being influenced by business to open up publicly-owned, publicly accountable services to international market forces. At the same time, powerful countervailing arguments and civil-society movements have been pressing for fuller accountability and legislative restriction of potentially unethical market and corporate behaviours.

Four Modes of Supply

The GATS agreement covers four modes of supply for the delivery of services in cross-border trade:

Criteria Supplier Presence
Mode 1: Cross-border supply Service delivered within the territory of the Member, from the territory of another Member Service supplier not present within the territory of the member
Mode 2: Consumption abroad Service delivered outside the territory of the Member, in the territory of another Member, to a service consumer of the Member
Mode 3: Commercial presence Service delivered within the territory of the Member, through the commercial presence of the supplier Service supplier present within the territory of the Member
Mode 4: Presence of a natural person Service delivered within the territory of the Member, with supplier present as a natural person
Note: From the document MTN.GNS/W/124, available on the World Trade Organization Website, posted courtesy of ISTIA

Members can, in principle, freely decide where to liberalize sector by sector, including which specific mode of supply they want to cover for a given sector. Yet the goal of the GATS, as expressed in its preamble, is progressively higher levels of liberalization. Members' commitments are governed by a "ratchet effect" meaning that commitments are one-way and cannot be wound back once entered into. The ratchet effect was one of the objectionable features of the failed MAI treaty.

Sectors addressed

Services Sector Classifications addressed in the GATS are defined in the so-called " W/120 list", which provides a list of all sectors which can be negotiated under the GATS. The title refers to the name of the official WTO document, MTN.GNS/W/120.

Criticisms

The GATS document has been criticized for tending to substitute the authority of national legislation and judiciary with that of a GATS Disputes Panel conducting closed hearings. WTO member-government spokespersons are obliged to dismiss such criticism because of prior commitment to perceived benefits of prevailing commercial principles of competition and 'liberalisation'. While national governments have an option to exclude any specific service from liberalisation under the GATS, they are also under international pressure, from business interests, to refrain from so excluding any service "provided on a commercial basis". However, important public utilities including water and electricity supply most commonly involve purchase by consumers and are thus demonstrably "provided on a commercial basis". The same may be said of many health and education services which are sought to be 'exported' by some countries as profitable industries.

The most notorious privatisation of a public utility occurred in January 2000 when the government of Bolivia gave control over the water supply of the city of Cochabamba to a Bechtel Corporation subsidiary, a deal which resulted in a steep price increase, widespread public protest and the shooting of protesters by troops. When the corporation was forced to give up, it filed a multimillion-dollar legal demand in a World Bank tribunal against the government for its loss of potential profits. After persistent international criticism over several years,

On January 19, 2006 Bechtel and Abengoa representatives traveled to Bolivia to sign an agreement in which they abandoned the ICSID case for a token payment of 2 bolivianos (30 cents). This is the first time that a major corporation has ever dropped a major international trade case such as this one as a direct result of global public pressure.
See also Wikipedia article Cochabamba protests of 2000.

References

Further reading

  • Clift, R. Background Paper on the General Agreement on Trade in Services and Post-Secondary Education in Canada

See also

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