Explain the Main Features of GATS.

The main features of General Agreement on Trade in Services (GATS):

Members:

All WTO members over 130 countries at present are members of the GATS.

Services Covered:

The GATS has covered a wide range of economic activities in the category of tradable services. The WTO secretariat has divided these divergent activities into the following 12 sectors which have been, further sub-divided into 155 sub-sectors. The 12 service sectors are as follows:

  1. Business including professional and computer services.
  2. Communication services.
  3. Construction and engineering services.
  4. Distribution services.
  5. Educational services.
  6. Environmental services.
  7. Financial (insurance and banking) services.
  8. Health services.
  9. Tourism and travel services.
  10. Recreational, cultural and sporting services.
  11. Transport services.
  12. Other services not included elsewhere.

Modes of Supply of Services Covered:

GATS provides four alternative modes of supplying services:

Cross border Movement: Cross border movement of services means separated services. Under this alternative, services are supplied from the territory of one country (say India) into the territory of another country (say Pakistan). Example of such services are credit cards, telephone, broadcasting, television, consultancy, etc. In this case customer and service organization transact business at arms length. It includes the services that can be transmitted through telecommunications or services embodied in a consultant report or a software on a diskette.

Movement of Consumers: This category of services is characterized by the movement of consumers to service organization. This entails supply of services in the territory of one country (country of service provider) to the service consumer of any other country. For example, tourism, theater, transport.services across national borders.

Commercial Presence Abroad: This category of services means supply of services by a service organization of one country through commercial presence in the territory of any other country. For example, banking.

Natural Presence Abroad: This category of services is characterized by the presence of natural persons of the country in the territory of any other country. For example, an Indian engineer working in USA, or an Indian, going to abroad to provide medical services.

Basic Obligations in the GATS categorized into two groups:

  1. General obligations.
  2. Specific commitments.

General obligations comprise the following:

MFN Treatment:

Article II of GATS provides that each of the member countries of WTO shall apply Most Favored Nation (MFN) treatment to the service products and the service suppliers from different countries. This means that a country shall not discriminate against the service products or suppliers of services from different countries.

The GATS, however, has allowed the countries to continue with the preferential arrangements which they already have with other Countries under the regional or bilateral co-operation agreements for a period of 10 years from the date of implementation of this agreement.

Transparency:

Article III of GATS provides for transparency in the rules and regulations of the services which are very vital to the growth of the trade in services. Lack of transparency of such rules poses very serious problems for the services suppliers.

Realizing the need for transparency, the GATS provides that each member country shall establish one or more inquiry points so that the service suppliers from other countries can obtain the information as regards rules and regulations affecting the trade in service sector of their interest. The Agreement also imposes an obligation on the developed countries to establish the contract points to promote the export of services from the developed countries.

The main functions of the contact points as provided under the Agreement are to provide information on request, to the service providers as regards:

  • The availability of service technology.
  • Commercial and technical aspects of the supply of services.
  • Registering, recognizing and obtaining professional qualifications.

It was agreed under the Agreement that the member countries shall establish these inquiry and the contact points within two years from the date of implementation of the GATS, i.e., before 1.1.97.

Specific commitments comprise the following:

Market Access:

Under articles XVI and XIX, GATS member countries have agreed to make commitments to liberalize market access for the service providers and service products. Generally, the countries impose restrictions in regard to the following aspects relating to trade in services:

Maximum foreign ownership limitations for instance, a maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment.

  • Restrictions on the establishment of some kind of local representatives.
  • Limitations on the total number of service operations or on the, total quantity of service output.
  • Limitations on the total number of service personnel that may be employed in a particular service sector.
  • Restrictions on the ability of service suppliers to choose the form of business ownership in which they want to operate.
  • Limitations on the overall number of service suppliers allowed to operate in the market, because of a quota system or a monopoly situation.

The member countries have agreed to make commitments with regard to providing greater access for the service products and providers of services.

National treatment:

In any sector included in its schedule of specific commitments, a member is obliged to grant foreign services and service suppliers treatment no less favorable than that extended to its own like services and service suppliers.

A member has to abstain from measures which are liable to modify the conditions of competition in favor of a member’s own service industry. Members are entitled to make the extension of national treatment in any particular sector. GATS does not impose the obligation to assume market access or national treatments in a particular sector.

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