Over the past decades, the world economy has undergone a number of changes, which have been leading to a fast development of the service sector in all countries. The service sector has become an important part of the global economy (accounting for approximately 24% of world trade). In light of the growing importance of this sector, the need was felt to establish rules in order for this trade in services to take place in a more predictable way and with a legal basis. For this reason, an attempt was made during the Uruguay Round (1986-1994) of negotiations within the World Trade Organisation (WTO) to establish a suitable framework for the trade in services, in analogy with what already existed for the trade of goods. This led to the signing of the GATS agreement (‘General Agreement on Trade in Services’), a whole of legally binding multilateral provisions to govern international trade in services and achieve a progressive liberalisation of the trade in services. The agreement, which comprises specific commitment lists for each member state, was signed during the WTO Ministerial Conference in Marrakesh in 1994 and later ratified by all WTO members. The agreement entered into force in January 1995.
During the WTO Ministerial Conference in Doha in November 2001, the service negotiations were made part of the ‘Doha Development Agenda’ (DDA). Therefore, when the DDA is closed, it will contain a chapter clearing a number of obstacles to trade in services. The Doha round of negotiations has not yet been completed.
Why a multilateral agreement on trade in services?
The regulation and liberalisation of the service sectors require a different approach than that of the goods sectors. Trade obstacles in the service sectors do not consist in customs tariffs or customs regulations, but in a set of rules that govern the access of foreign service providers. The aim of GATS is to grant foreign service providers – to the extent possible – the same market opportunities as national suppliers. GATS wants to eliminate discriminating and protectionist measures, but at the same time guarantee the preservation of countries’ right to regulate.
GATS comprises a general framework, eight sectoral annexes, lists containing specific commitments of each member, and lists of exemptions granted by the members. Members can decide for each sector whether they will liberalise it, and according to which model.
Which service sectors are involved?
Nearly all service sectors are involved (155 service sectors in total), e.g. transport services (maritime transport, road transport), financial services (banking, insurance), telecommunications services, postal and courier services, energy services, ‘downstream’ services, such as construction, environmental, distribution, tourist and professional services, as well as services of a social nature, such as education, health, social, recreational and cultural services. An exception applies to public services and services provided under public contracts.
A typical characteristic of service trade is that services can be provided in different ways. For this reason, the provisions of the GATS agreement refer to the four modes of supply identified in the agreement, concretely:
- Cross-border supply: a supplier from country A provides services in the territory of the consumer in country B (without any physical movement of either of the parties) (Mode 1), e.g. the sending of consultancy advice from country A to country B, e-banking, e-commerce.
- Consumption abroad: the consumer from country B receives the service in question in the territory of the service provider in country A (Mode 2), e.g. (medical) tourism.
- Commercial presence of the service provider in the country where the service is provided (Mode 3), e.g. the establishment of a branch office by a company from country A in country B.
- Temporary movement of service providers: the supplier from country A travels to the territory of the consumer in country B to provide the service (Mode 4), e.g. engineers from country A who are temporarily employed in country B to repair a machine.
The main principles of GATS
The main principles are:
- national treatment: the principle that foreign suppliers receive the same treatment as national suppliers. This principle results in the elimination of discriminatory measures. Nevertheless, GATS provides for the possibility for countries to maintain their right to regulate. Countries are entitled to specifically include certain limitations to the GATS commitment lists.
- market access: the elimination of certain quantitative limitations, such as quotas or monopolies. Here as well, GATS provides for the possibility for countries to maintain their right to regulate. This way, quantitative limitations can be specified per country in the GATS commitment lists, for instance with respect to the number of service providers, the type of services which can be provided and the legal form or shareholder structure of the company.
- Horizontal rule: Most Favoured Nation (MFN): the Most Favoured Nation rule is the basic rule of the multilateral trade system. It implies that the most favourable treatment agreed with a WTO trade partner must also be given to all other WTO trade partners. In other words, discrimination of service providers from other WTO partners is not allowed.
There are a few exceptions to the MFN rule:
- Countries have the possibility to include sectors in which they do not wish to apply the MFN provision in a list of MFN exceptions. In such case, the benefits granted to certain trade partners do not have to be granted to third parties. The most well-known example is that of the exceptions established by the EU for the audiovisual sector.
- Mutual trade benefits granted in the framework of a far-reaching regional integration agreement do not have to be granted to third-party partners. This is the case, for instance, for advantageous measures relating to the trade in services between EU countries.
- Agreements which imply mutual recognition, e.g. the recognition of diplomas or professional qualifications, do not automatically have to be extended to third-party partners. GATS stipulates only that third countries should be given a fair opportunity to negotiate their accession to such agreements.
The transparency measure is another fundamental GATS principle: GATS imposes the obligation on WTO member states to publish all relevant measures referring to trade in services and to create information points to explain the legislation. In Belgium the FPS Economy fulfils this task.
Trade in Services Agreement (TiSA)
The ‘Trade in Services Agreement’ (TiSA) is a new multilateral trade agreement for the liberalisation of service provision which is currently being negotiated by 23 WTO members (Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, the EU, Hong Kong, Iceland, Israel, Japan, Korea, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, Switzerland, Turkey and the US). Together, these 23 WTO members represent nearly 70% of world trade in services.
In order to break the deadlock in the DDA, it was decided during the 8th WTO Ministerial Conference in December 2011 to continue negotiations in certain areas in which a consensus can be reached. Australia and the US assumed control in the negotiation of a stand-alone service agreement with a number of WTO members who wished to progress. The objective of TiSA is to guarantee market access and improve the rules in areas such as financial services, internal regulations, e-commerce and telecom, logistical services (maritime, air and road transport, distribution services), mode 4 (temporary stay of service providers) and professional services, energy and environmental services. The proposals from the members are based on the models of their best free trade agreements.
The talks started in March 2013 and the participants reached agreement on a basic text in September 2013. By the end of 2013 the majority of participants had indicated which service markets they wished to open up, and to what extent. By the end of 2014 ten negotiation rounds had taken place already. No end date for the conclusion of the negotiations has been specified.
TiSA does not intend to be an alternative to GATS, but rather a way to achieve further multilateralisation in the future. TiSA is based on the GATS architecture and is open to other WTO members. TiSA could become part of the WTO system if sufficient WTO members subscribe to it. The main GATS provisions (scope, definitions, market access, national treatment and exceptions) can be found in TiSA as well.
Definition of the Belgian position
Belgium, which is represented in the negotiations by the European Commission, jointly with the other EU Member States, assumes that GATS will offer sufficient guarantees to enable countries to preserve an efficient public service provision. In addition, Belgium has made active use of the possibility to include national exceptions in the GATS commitment lists. Many of these refer to efforts to protect the principle of universal public service provision, for instance in the postal service. Other exceptions refer to, for instance, protected professions, the distribution of pharmacies and supermarkets, the availability of hospital beds, port activities etc. Belgium also refuses any new commitment in the areas of education, culture, public health care and social service provision, and insists on maintaining the current exclusion of the audiovisual sector.
With respect to TiSA, Belgium also guards against sensitive sectors being affected, such as public services, water distribution, health care, education and audiovisual services.