GATS

Introduction

The round of negotiations launched in Doha in 2001 – known as the Doha Development Agenda (DDA) - within the framework of the World Trade Organisation (WTO) also include talks on further liberalisation of trade in services. If the DDA is completed it will include a ‘chapter’ that will remove a range of barriers to trade in services. Progress was made at the sixth Ministerial Conference in Hong Kong (December 2005) where agreement was reached on a range of issues. A final date for concluding negotiations has not been set.

A good number of observers are concerned at the prospect of multilateral negotiations on services because they feel that the principle of free provision of public services to all may be undermined and that this process may lead to the privatisation of essential services such as health care and education. Belgium, which continues to work within the European Union to maintain public services that operate well and which are accessible to all, supports the negotiations currently underway. Belgium believes that the General Agreement on Trade in Services (GATS), which regulates liberalisation of trade in services, contains sufficient guarantees to maintain effective provision of public services.

Why do we need a multilateral agreement on trade in services?

Over the last two decades, the global economy has changed in several ways with the result that the sector for services to the economy is developing rapidly in all countries. The following trends have emerged.

  1. The swift development of telecommunications and information technology has produced a range of new related services such as IT services, electronic banking, e-learning, telemedicine and so forth. This development makes a certain number of services more widely accessible and quicker to access but these services also need to be regulated adequately.
  2. The move towards privatisation in a certain number of countries has led to the break-up of large state conglomerates and monopolies, for example in the communications and energy sectors, which has given rise to a whole range of new services companies.
  3. Rapid economic growth and dynamic commercial expansion in recent decades have directly resulted in significant growth in logistics services, such as financial services, transport, shipping and many other corporate services such as consultancy, legal advice or surveillance.

As a result of these changes, the services sector is now a key link in the economy providing more than 70% of added value and jobs in most EU countries. By contrast, however, services only represent around 20% of international trade, but this share continues to grow.

Given the increasing importance of the services sector in all global trade, the international community has become aware of the need for regulations to ensure that the development of trade in services would be more predictable and based on a legal framework. This is why there was an attempt during the Uruguay Round to draw up a framework for trade in services similar to the agreement for trade in goods. It was finally concluded that it would be better to negotiate an entirely new agreement that would take better account of the specific nature of trade in services.

Regulation and liberalisation of the services sector requires a different approach to the approach followed for the goods sector. Barriers to trade in the services sector are not tariffs or customs regulations but rather a collection of rules that limit access for foreign service suppliers. GATS therefore aims, as far as possible, to give foreign service providers the same opportunities to access markets as national companies. GATS does not therefore aim to deregulate the sector because the legislator retains its independence at this level. GATS essentially seeks to eliminate all discrimination based on nationality.

GATS also concerns developing countries, which see it as an instrument that will allow them to attract investment or expertise, in particular to sectors that form the basic structure of their economies, for example, telecommunications, financial services or IT. On the other hand, more developed countries see GATS as an instrument that will allow them to operate on a larger scale by investing in third countries. GATS provides a framework that will allow this movement of services to take place in a stable and predictable manner. Negotiations on services are therefore an integral component of the Doha Development Agenda.

GATS and the WTO

The General Agreement on Tariffs and Trade (GATT) was signed in 1947 and entered into force in 1948. It should have been part of a process to create an International Trade Organisation (as a specialist United Nations agency alongside the World Bank and International Monetary Fund) but this objective never came to fruition. However, this did not prevent the GATT itself from developing into an international organisation which primarily achieved significant tariff reductions for industrial goods during seven trade rounds. The main trade rounds were the Kennedy Round (1964-67), the Tokyo Round (1973-79) and the Uruguay Round (1986-94). The Uruguay Round led to the creation of the World Trade Organisation (WTO) at the ministerial meeting in Marrakech in April 1995.

The WTO headquarters and secretariat are based in Geneva. Its supreme decision-making body, the Ministerial Conference, meets once every two years.

One level below the Ministerial Conference is the General Council (with representatives from the 153 countries that are currently WTO members) followed by several subsidiary bodies:

  1. Council for Trade in Goods;
  2. Council for Trade-related aspects of intellectual property (TRIPS);
  3. Council for Trade in Services which meets for two weeks every other month in Geneva.

The EU member states are individual members of the WTO but under the terms of regulations governing European trade policy (Article 133 of the Treaty establishing the European Community) the European Commission leads negotiations on behalf of the European Union and acts as the Union’s sole spokesperson in Geneva.

The General Agreement on Trade in Services (GATS) is a set of legally binding multilateral rules that aim to regulate international trade in services and progressively liberalise trade in services in order to promote economic growth amongst all trade partners. It includes a general framework, eight sector annexes, lists of specific commitments made by each member state and lists of exceptions granted by members under the most favoured nation clause (see below).

The preamble to the agreement establishes a link between economic growth and a strong services sector: regulation and liberalisation under GATS are not goals in themselves, but should promote economic growth for all trade partners.
GATS contains legally binding provisions which were negotiated during the Uruguay Round (and therefore negotiated again during the DDA). The agreement, along with the schedules of specific commitments made by each member state, was signed at the ministerial meeting in Marrakech in 1994 and then ratified by all WTO member states. In Belgium, this means that the agreement was approved by the Federal Parliament and by all of the parliaments in the regions and communities.

Which services are covered?

GATS covers not only services that are part of a country’s basic economic infrastructure,  for example transport services (sea, land and road transport), financial services (banking and insurance activities), telecommunications services, postal services and express delivery services and energy services but also ‘upstream’ services, such as construction, environment, distribution, tourism and professional services and social services, for example education, health care, social services, recreation services and cultural services.

In principle, public services or services provided in the exercise of governmental authority do not fall under the scope of GATS.

The following areas are not covered by GATS either:

  • immigration regulations (for temporary movement of service suppliers);
  • budget policy, fiscal measures and exchange rate policy; 
  • air rights and traffic rights.
     

One feature of services is that they can also be provided in different ways. This explains the GATS provisions covering the four different ways in which services can be supplied:

  1. Cross-border supply of services (Mode 1) - for example communication of consultancy advice from country A to country B, without any physical travel by either of the two parties. Electronic commerce has significantly expanded trading opportunities.
  2. Consumption abroad (Mode 2) - when a consumer in country B travels to country A to use the service, for example tourism or sending ships to a port in another country for repairs.
  3. Commercial presence (Mode 3) - for example a company from country B sets up a subsidiary in country A.
  4. Temporary movement of service providers (Mode 4) - for example engineers from country B are temporarily hired to complete a contract in country A.

The main GATS principles

The two most important principles are the most favoured nation rule and the transparency rule.

The most favoured nation rule (MFN) is the basic rule for the multilateral trade system. This means that the most favourable treatment that a country grants to a WTO trade partner must be granted to all other WTO trade partners. Any discrimination between service suppliers from other WTO partners is therefore prohibited.

There are a few exceptions to the rule:  

  •  A country may include sectors where it does not wish to apply the most favoured nation principle on a list of exceptions to the rule. In this case, it does not have to grant the benefits accorded to certain trade partners to third parties. These exceptions are in principle valid for ten years and need to be renegotiated after that date. The most well-known exception was the exception adopted by the EU for the audiovisual sector. 
  •  Mutual trade advantages granted under an extensive regional integration agreement do not need to be accorded to third country partners. This is the case, for example, for preferential measures applied to trade in services between EU member states.
  • Certain agreements including mutual recognition provisions, for example recognition of degrees or professional qualifications, do not need to be automatically extended to third country partners. GATS only stipulates that third countries must be granted a fair chance to negotiate their adhesion to these types of agreements.
    The second main principle of GATS is the transparency rule. GATS requires WTO member states to publish all relevant measures connected with trade in services and to set up information points on legislation on trade in services. In Belgium, the Federal Public Service for the Economy carries out this task. To support developing countries, the more developed countries have also set up a system of contact points that individual exporters in developing countries can contact for explanations of rules on trade in services.
    Within GATS, further negotiation is still required on issues such as subsidies, public procurement and the creation of emergency safeguard measures. The latter point would give countries the right to take temporary corrective measures in the event of an unexpected or too rapid increase in services from abroad.
    Further negotiation is also required on certain issues such as procedures and instructions for recognition of professional qualifications, technical standards and procedures for obtaining licenses. The rules drawn up in this regard will prevent domestic regulations from being applied so restrictively that they constitute a de facto trade barrier and cancel out commitments that the member states have made in these sectors.

Specific commitments

Three kinds of specific commitments can be negotiated under GATS:

  1. Commitments connected with market access: nationals from third countries are granted the right to provide services on national territory. However, market access can be limited under GATS: for example quantitative limits may be imposed by country and these may be included in GATS schedules of commitments, for example, the number of service suppliers, the type of services that may be supplied or the type of company or participation structure. Market access can vary depending on the way in which the service is supplied. For example, a company may offer wide market access to services suppliers in the construction sector for services supplied by foreign companies that have a local subsidiary (mode 3) but not to individual service suppliers who come to the country temporarily to carry out construction work (mode 4). Limitation of market access can also be horizontal, i.e. for all sectors. For example the EU has mentioned in these lists that public monopolies exist in public utility sectors and in a certain number of social services sectors. This, therefore, is a form of market access limitation that corresponds with the structure of our society.
  2. Commitments connected with national treatment: in addition to market access, the majority of countries also usually apply national treatment in the same sectors, i.e. treatment equal to that granted to their own services or service suppliers. Clear limitations may also be listed here.
  3. Commitments related to domestic regulation: in sectors where a country has made specific commitments it can ensure that all rules (laws, regulations, administrative decisions etc.) are applied in a reasonable, objective and impartial manner. GATS positions on domestic regulation are only rules of procedure and do not cover the contents of the regulation. GATS recognises member states’ rights to regulate services on their territories in line with national policy objectives.

What about provision of public services?

The term "public services" does not appear in GATS. Under the terms of Article I.3, services supplied "in the exercise of governmental authority" are excluded from GATS as long as these services are not supplied "on a commercial basis, nor in competition with one or more service suppliers ". Is this definition precise enough to be able to provide decent public services? It can be assumed that GATS offers enough flexibility to also protect public services which would not be directly covered by the definition provided by Article I.3 because:

  • The preamble to GATS includes a clear reference to the right of member states to regulate in line with their national policy objectives.
  • The bottom-up approach, which is unique to GATS (member states have the right of initiative), means that each member country  can decide to open up certain sectors to international competition that it has already opened up to internal competition.
  • Monopolies and sole suppliers of services are incompatible with GATS (Art. VIII).
  • Article XIV permits exceptions to GATS rules, for example to protect public morals or maintain public order, to protect human, animal or plant life or to protect privacy or safety. 
  •  Under Article XVIII of GATS, member states may, in exchange for certain guarantees of competition, inscribe in their schedule a ‘universal service’ requirement. A precedent of this kind exists for telecommunications services (see below).

GATS therefore contains a range of instruments that aim to protect certain sensitive services and sectors. In its schedules of commitments, the EU has inscribed a certain number of a wide-ranging exceptions which constitute the very instruments that aim to guarantee accessibility to a certain number of services:

as regards subsidies in horizontal commitments:

  • subsidies may be limited to legal persons established on the territory of an EU member state or one of its geographical sub-divisions;
  • the EU will not sign any commitment concerning subsidies for research and development;
  • where subsidies are granted to natural persons, their availability may be limited to nationals of an EU member state or of the European Union.

for national and local monopolies: in its schedule of horizontal commitments, the EU has indicated that the services considered public services at national or local level may be provided by public monopolies or be subject to sole rights reserved for private suppliers.
The scope of this exception is clearly defined in an explanatory note: "Public utilities exist in sectors such as related scientific and technical consulting services, R&D services on social sciences and humanities, technical testing and analysis services, environmental services, health services, transport services and services auxiliary to all modes of transport. Exclusive rights on such services are often granted to private operators, for instance operators with concessions from public authorities, subject to specific service obligations. Given that public utilities often also exist at the sub-central level, detailed and exhaustive sector-specific scheduling is not practical."

Finally, a universal service requirement can be imposed through regulations. Belgium was the only EU member state to clarify this possibility further in the EU’s schedule of commitments for telecommunications services.

When, in spring 2003, it was time to formulate the EU’s proposal for new commitments to open the market, Belgium was one of the countries which successfully campaigned for the retention, and even strengthening, of all of the aforementioned guarantees. The new schedule does not contain any commitments that are likely to endanger the operation of services of general interest. A revised schedule was drafted in June 2005 in the same spirit.

Belgium’s position within GATS

Belgium develops its position through dedicated structures of committees that adopt Belgium’s position within the EU and which are organised by the Federal Public Service for the Economy. Every effort was made, especially during preparation of the new EU proposal in spring 2003, to also involve civil society in these discussions without overstepping confidentiality requirements imposed by the European Commission.

These committees and consultations allowed negotiators to draw the European Commission’s attention to Belgium’s specific interests. Belgium was therefore (as had already been the case for the Uruguay Round commitments) able to actively make use of the possibility of inscribing or maintaining national exceptions in the schedules of commitments. These are often motivated by the desire to guarantee the principle of universal service, for example in mail delivery services. Other exceptions are more specific and concern, for example, certain protected professions, the distribution of pharmacies and large department stores, the availability of hospital beds or harbour operations.

Belgium also continued to reject any new commitments in the education, culture, public health care, provision of social services sectors and supported the existing exclusion of the audiovisual sector by means of an exception to the most favoured nation principle.

Finally, for mode 4 (temporary movement of contractual workers), Belgium has always been concerned about the risk that its social model could be ‘unpicked’ and has ensured that this concern has been noted on numerous occasions.