the general agreement on trade in services

The General Agreement on Trade in Services (GATS)

Saravanan APhD Candidate

RGSOIPL

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Outline: Historical Background Definition Measures affecting Trade in Services Different modes of supply General Obligations and Disciplines General Exceptions and Security Exceptions Specific Commitments Additional Commitments Dispute Settlement India’s Commitments on GATS Trade in Legal Services in India

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Introduction: Services sector is largest and fastest growing sector of world

economy Services- most dynamic segment of international trade

Providing more than 60% of global output Also larger share of employment Developing countries strongly participated in that growth Share of individual modes in world services trade covered by

GATS, less than 30% for mode 1 close to 15% for mode 2 over 50% for mode 3, and some 1 or 2 % for mode 4

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Historical Background: First Multilateral trade agreement

To cover trade in services Uruguay round of negotiations- 1986-93 Need for GATS has long been questioned? Traditionally:

From Hotels to personal services- domestic activities Telecom, Rails – Govt ownership and control Health, education and basic insurance services- Govt

responsibilities, and tightly regulated Paradigm Shift

Emergence of internet helped to create internationally tradable product in two decades

From e-banking, tele-health and distance learning It reflects change in basic attitudes

Traditional framework proved inappropriate

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GATS: Given continued momentum of world services trade, need for

internationally recognized rules became pressing GATS is a complex web of rights, obligations, exemptions and

specific commitments Broad scope of application of most measures imposed by Govt at

three levels Also covered certain exception of services General obligations apply to all measures affecting trade in services

MFN and Transparency Other key obligation such as market access and national treatment

apply only when and if member decided to make specific commitments

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Preamble of the GATS: As stated in its Preamble, the GATS is

intended to contribute to trade expansion "under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners and the development of developing countries"

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GATT v GATS: To a considerable degree drafters of GATS took inspiration from

GATT W.r.t terms and concepts already been tested for decades in trade It includes MFN, NT,

There are notable differences in scope and content between these two

a) Unlike the GATT, the GATS covers measures affecting both the product (service) and the supplier

b) The definition of services trade covers not only cross-border supply, but three additional forms of transaction (“modes of supply”)

c) While quota-free entry (“market access”) and national treatment are generally applicable obligations under the GATT, they apply under the GATS on a sector-by-sector basis and only to the extent that no qualifications (“limitations”) have been scheduled

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Outline of the GATS:Part I (Article I): Outlines the scope of the Agreement, its sectoral coverage and defines trade in

servicesPart II (Articles II–XV): General obligations, the existence of specific commitments Part III (Articles XVI–XVIII): Specifies scope of specific commitments governing market access and national

treatment Any additional commitments which Members may undertake in scheduled sectorsPart IV (Articles XIX–XXI): Provides a framework for future services rounds, and specifies the structure of

schedules The procedures governing modification or withdrawal of commitmentsPart V (Articles XXII–XXVI): Clarifies institutional and procedural issues, including the mandate of the GATS

Council for Trade in Services, and recourse to dispute settlementPart VI (Articles XXVII–XXIX): Includes final provisions and definitions.

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Definition of Services: Art I.3 (b) “services” includes any service in any sector except

services supplied in the exercise of governmental authority;

Service supplied in the exercise of governmental authority (Art I.3(c)) , means any service which is supplied neither on a commercial basis nor in competition with one or more service suppliers

Eg: Govt owned and operated state monopoly in Health care, education, police or fire protection would be exempted from GATS

Meaning of this important exception has not tested by WTO-DSB till today

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Scope and Application: Art I.1: GATS applies to measures by Members affecting trade

in services

Art XXVIII defined, includes measures in respect of the purchase, payment or use of a service; the access to and use of, in connection with the supply of a service,

services which are required by those Members to be offered to the public generally;

the presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member

This definition only gives some examples, but it is not an exclusive list

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Measures by Members: Art I.3(a) defines ‘measures by Members’ taken by,

Central, regional or local government level, and authorities; and

Non-governmental bodies exercising delegated powers

Art XXVIII defines “measure” means any measure by a Member; whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form;

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Affecting Trade in Services: Interpreted by AB in Canada- Autos stated that, “two key

issues must be examined to determine whether a measure is one ‘affecting trade in services ‘ “

Those issues are: … first, whether there is “trade in services” in the sense of

Article I:2; and, … second, whether the measure in issue “affects” such trade

in services within the meaning of Article I:1.5

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Trade in Services: (Art I.2) It defined as the “the supply of a service”, Para (a) of Art I.2: from the territory of one Member into the

territory of any other Member (Mode 1 -Cross border trade) Supply of service across the border E.g. Bank, ISD Callings,

Source: http://www.intechopen.com/

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Cont… Para (b) of Art I.2: in the territory of one Member to the

service consumer of any other Member (Mode 2- Consumption abroad)

Consumer of service travels to other country in order to consume the services

E.g. Tourism, Education, medical treatment


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Cont… Para (c) of Art I.2: by a service supplier of one Member,

through commercial presence in the territory of any other Member (Mode 3- Commercial presence)

Service provider has established a commercial presence in other country

E.g. Financial or banking services, Branch office of US bank operating within India Foreign law firms in India??


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Cont… Para (d) of Art I.2: by a service supplier of one Member,

through presence of natural persons of a Member in the territory of any other Member (Mode 4- movement of natural persons)

Service provider of one Member travels to another country in order to supply the service

E.g. Indian doctor travels to US in order to perform surgery American Lawyer travels to India in order to provide legal service


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Core Service Sectors: For purpose of structuring their commitments:

Members have used classification system comprising 12 core services sectors

1. Business services (including professional services and computer services)

2. Communication services3. Construction and related engineering services4. Distribution services5. Educational services6. Environmental services7. Financial services (including insurance and banking)8. Health-related and social services9. Tourism and travel-related services10. Recreational, cultural and sporting services11. Transport services12. Other services not included elsewhere These sectors are further subdivided into a total of some 160 sub-sectors

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Cont… Members have listed service sectors and sub-sectors to the

Services Sectoral Classification List Refers to more detailed UN Central Product Classification System (CPC)

Service sectors may be included in a member’s schedule of commitments with specific market access and national treatment obligations

Each Member has to submit such a schedule (Art XX.1) Only one sector-specific exception to GATS, Air Transport Services,

Only measures affecting aircraft repair and maintenance services, selling and marketing of air transport services and computer reservation system services

Measures affecting air traffic rights and directly-related services are excluded

Another blanket exemption applies to "services supplied in the exercise of governmental authority” (Article I:3b)

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General Obligations and Disciplines:

Scope of GATS is very broad, only few key substantive obligations have general application to all measures

Those obligations are contained in Part II General Obligations and Disciplines Important being MFN treatment This part also establishes certain transparency obligations

This provision is allowing the restrictions to be imposed In the event of BoP crisis or external financial difficulties General exceptions & Security exceptions

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MFN Treatment: (Art II) Member is required to

“accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country”

MFN generally applies to all modes of supply Except where it has been inscribed in a Member’s List of MFN

exceptions Exemptions not exceeding a period of ten years in principle 90 Members currently maintain such exemptions The sectors predominantly concerned are road transport and

audiovisual services, followed by maritime transport and banking service

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MFN: In EC Bananas III, the AB clarified that MFN obligation in

Art II of GATS applies for both de jure as well as de facto discrimination

de jure - it is clear from reading the text of the law, regulation or policy that it discriminates among services or services suppliers of different countries

de facto- the measure does not appear on the face of the law, regulation or policy to discriminate

To determine the discrimination (b/w Country A & B), necessary to examine,

Origin of services and/or service suppliers The services and/or service suppliers of Country A & B are ‘like’

There is no clear interpretation of terms ‘like services’ and ‘like service suppliers’ unlike GATT 1994

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General Transparency and Good Governance obligations: (Art III)

Each Member should publish promptly all measures pertaining to or affecting the operation of the GATS

Members also required to notify the Council for Trade in Services promptly or at least annually

Regarding introduction of any new, or any changes to existing, laws, regulations or administrative guidelines

No requirement to disclose confidential information (Article IIIbis).

Members have an obligation to establish an enquiry point to respond to requests from other Members

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Increasing participation of Developing Countries: (Art IV)

The special needs to be given to developing countries relating to,

Strengthen domestic services capacity, efficiency and competitiveness, access to technology, access to distribution channels, and liberalization of market access

Special priority to be given to least-developed countries

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Domestic Regulation: (Art VI) It protects the legitimate right of Members to regulate in

order to meet certain public policy E.g. of public policy that might require regulatory support:

Equitable access, regardless of income or location, to a given service; Consumer protection (including through information and control); Job creation in disadvantaged regions; Labour market integration of disadvantaged persons;

Sectors: potentially all service suppliers beyond a certain minimum size Policies: obligation to employ a certain percentage of handicapped persons

Reduction of environmental impacts and other externalities; Sectors: road transport; tourism Policies: prohibition of weekend or night traffic; zoning laws; environment related

standards Macroeconomic stability; Avoidance of market dominance and anti-competitive conduct; Avoidance of tax evasion, fraud and so on

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Cont… Each member is obliged to ensure all measures are

“administered in a reasonable, objective and impartial manner” (VI .1)

Members are required to maintain or establish judicial, arbitral or administrative tribunals or procedures for seeking an appropriate remedy in event of any conflict arises ( VI .2)

Service suppliers in all sectors must be able to use national tribunals or procedures in order to challenge administrative decisions affecting services trade (Article VI:2a).

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Recognition: (Art VII) Members to enter into mutual recognition

for purpose of recognizing the education or experience achieved, or standards, licenses or certification granted in particular countries

There shall be no discrimination between countries Members also encouraged to work in cooperation with NGO

for establishment of common international standards and criteria for recognition

Negotiation are underway…..

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Restrictions to Safeguard the BoP:(Art XII)

Like GATT, GATS also permits their Members to adopt certain restrictions on trade in services

It has to taken specific commitments in event of BoP crisis and financial difficulties

These restrictions must, Not discriminate among its Members Be consistent with AoA of IMF Avoid unnecessary damage to commercial, economic and financial

interests of other Member Be temporary and be phased out progressively as the situation improves

Member shall not apply these restrictions on international transfers and payments

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General Exceptions and Security Exceptions: (Art XIV)

Many similarities with Art XX of GATT with some differences The main essence of the exceptions are to protect specified public

policy goals Such measures are not applied in a manner,

Necessary to protect public morals or to maintain public order Necessary to protect human, animal or plant life or health Necessary to secure compliance with laws which are not inconsistent with,

Prevention of deceptive and fraudulent practices Protection of privacy of individuals and protection of confidentiality of

individual records and accounts Safety

Ensuring the collection of direct taxes in respect of services or service suppliers of other members

Agreement on avoidance of double taxation in any other international agreement is bound

The burden of proof is on the party seeking to invoke it

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Part III: Article XVI Market Access Article XVII National Treatment Article XVIII Additional Commitments It does not apply generally to all measures

Triggered by specific commitments These commitments are set out in the

respective column of each Member’s Schedule

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Market Access: (Art XVI) Art XVI provides: Each member to undertake market access

commitments relating to specific service sectors by inscribing them in its schedule

In contrast with general obligations- which apply to all services and service suppliers

Members not subject to any commitments w.r.t sectors not included in its schedule

Para 1 of Art XVI- Each Member to accord market access through modes of supply ,

Treatment no less favourable than the terms, limitations and conditions agreed and specified in the schedule

Member binds itself to the minimum or lowest possible treatment

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Cont… Para 2: describe how market access commitments operate For the service sectors listed in the schedule

Members are not to adopt any limitations or restrictions on market access specified in six sub-paras of Art XVI (2)

Unless the Member has indicated otherwise in the schedule Those six forms of measures restricting market access are, a) Limitations on the number of service suppliers

in forms of quotas, monopolies, exclusive service suppliers or requirements of economic needs test

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Cont… (b) Limitations on the value of service transactions or assets

in forms of quotas or requirements of economic needs test

(c) Limitations on total number of service operations or total quantity of output

In terms of designated numerical units in form of quotas or requirements of economic needs test

(d) Limitations on the total number of natural persons employed in particular service

(e) Measures which restrict specific types of legal entity or joint venture

(f) Limitations on the participation of foreign capital In terms of percentage limit on foreign share holding Total value of foreign investment

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National Treatment: (Art XVII)

Unlike Art XVI, however Art XVII does not set out a definitive list of measures

Rather it stipulates in sectors inscribed in its schedule, subject to any conditions and qualifications set out that Schedule

Whether or not foreign services and suppliers are treated in a formally identical way to their national counterpart

Member cannot maintain or impose a measure - a law, regulation, policy or practice –

which discriminates against foreign services or service suppliers

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Cont… NT under GATS in far more limited in Scope compared to

GATT Reason is particular nature of services trade Universal national treatment for goods does not necessarily imply

free trade Virtually no Member may be ready to fully liberalize

services trade across all sectors and modes of supply

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Additional Commitments: (Art XVIII)

Members can negotiate ‘additional commitments affecting trade in services not subject to scheduling under Articles XVI and XVII’

Such commitments may include but are not limited to, Undertakings with respect technical standards, qualifications,

licensing, requirements or procedures, Other domestic regulations not covered by Articles VI, VIII and IX of

GATS Members are required to inscribed in a Schedule

Eg: Telecommunications sector- 70 members incorporated in their schedules

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Schedules of Specific Commitments: (Art XX)

Part III of GATS apply to individual service sectors only by referring to the inscriptions in Schedule

Schedules are annexed to the GATS and forms an integral part of the Treaty text

Schedules takes the form of items arranged in four columns (diff modes)

W.r.t sectors each Schedule shall specify, terms, limitations and conditions on market access; conditions and qualifications on national treatment; undertakings relating to additional commitments; where appropriate the time-frame for implementation of such

commitments; and the date of entry into force of such commitments

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How Schedules are structured?

Schedule is a complex document A schedule of commitments contains at least eight

entries per sector Two parts-

Part I: Horizontal Commitments : Entries that apply across all sectors that have been scheduled,

List of commitments and limitations apply generally to all scheduled sectors Mostly it relates to derogations from market access and NT obligations

regarding particular modes of supply

Part II: Sets out commitments on a sector-by-sector basis

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Different levels of commitments: Inscribed separately for each of four modes of supply Full commitment:

‘None’ (no limitations) is inscribed under relevant mode Means, Member agrees to accord full market access or NT, with no

conditions or qualifications, to services and service suppliers Commitment with limitations:

Member inscribes the specific limitations, conditions or qualification that limit the scope of its market access and NT commitments

No commitment: ‘Unbound’ (no commitments) is inscribed under the relevant mode It indicates that, Member remains free to maintain or establish any

measures inconsistent with market access or NT No commitment technically feasible:

If any specific sector is in question, supply of the service cannot occur under one of the modes

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Modification of Schedules: (Art XXI) Members may modify or withdraw any specific commitment

in its Schedule At anytime after 3 yrs from the date of EIF

Incase, if any other Member affected by the proposed modification may request to the Member seeking for modification

Both must enter into negotiations and to reach agreement The negotiation should not be less favourable than the commitments

provided prior to such negotiations If incase, any compensatory adjustments agreed it must be made on

MFN basis It may refer to arbitration , incase no agreements has reached

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Dispute Settlement and Enforcement: (Art XXIII)

If a Member failed to carry out its obligations or specific commitments under GATS,

These are called ‘violation claims’ Member has violated the rules

The aggrieved Member may take this matter to DSU for mutual settlement Remedy- withdrawal or modification of inconsistent measures

‘Non-violation claims’- in such cases special and additional rules apply

Remedy- mutually satisfactory adjustment Few disputes have been brought related to GATS- 23 till to date

https://www.wto.org/english/tratop_e/dispu_e/dispu_agreements_index_e.htm?id=A8



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The Challenges ahead: GATS remains a ‘work in progress’ Nov 2001, Ministerial Conference in Doha confirms

Services Negotiating Guidelines

Two working parties : The Working party on Domestic Regulation The Working Party on GATS Rules has three negotiating

mandates 1) Emergency safeguard measures (Art X)

Temporary suspension of market access, NT and additional commitments

2) Government procurement (Art XIII) Market access, NT and additional commitments will not apply Scope of GP is currently under Plurilateral Agreement

3) Subsidies (Art XV)

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India’s Commitments on GATS:

http://commerce.nic.in/trade/international_trade_general_agreementof_tsss_commitments_5.asp



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Trade in Legal Services in India: Laws regulate legal services sector in India

The Advocates Act, 1961 The Bar Council of India Rules, 1975

BCI constituted

World’s 2nd largest legal profession with more than 6 L lawyers Legal services can be provided only by natural persons

Who are citizens of India Who are on the rolls of advocates in the States Bar Council

Eligibility for enrollment as an advocate, Candidate has to be citizen of India Hold degree in law from an institution/university recognized by BCI Atleast 21 yrs of age

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Cont… During Uruguay Round 58 countries made commitments in

Legal Services sector India has not undertaken any commitment in legal services

sector during Uruguay round FDI is not permitted in this sector Foreign law firms are not allowed to establish office in India

Many countries made requests to India US, EC, Aus, Sing, Jap, China, Switz, NZ and Brazil

Opening up legal sector in India is still a debated issue

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Cont… Bombay HC in Lawyers Collective v. Bar Council of India and

others (MANU/MH/1467/2009) Whether foreign law firms can practice in non-litigious matters ?

Persons practicing in litigious matters, it covers non- litigious matters as well

Result of decision Ashurst Morris Crisp firm decided to close its office in India

Instead of entry - many foreign firms have tie-ups and associate office in India

Legal profession in India suffered monopoly Still dominated by few large firms and few lawyers which creates anti-

competitive structure

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Recent Developments: In 2010, writ petition filed in the Madras High Court against entry of

foreign law firms the Madras HC ruled against the practice of foreign law firms in India without

enrolling with the BCI under the Advocates Acts. However, it allows the foreign lawyers to ‘fly in and fly out’ on a temporary basis

In 2012, BCI appealed to SC against the Madras HC Ruling In 2014, the apex court stated that,

foreign lawyers should be allowed to work on arbitrations in India to make domestic arbitration more attractive, and to unburden the courts

On Jan 2015, Inter-Ministerial Group on Services consider a road map for legal reforms in India

It had proposed a two phased road map, First phase- removing restrictions on domestic law firms over permitting them

to issue publicity brochures, open websites, and facilitate easier access to bank finance

Second phase- allowing foreign lawyers to practice in international arbitration and mediation services in the country

Opening up of non-litigious services in Indian law for foreign firms

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References: A Handbook on the GATS Agreement, A WTO Secretariat Publication

Prepared by the WTO Trade in Services Division, (CUP, 2005) UNCTAD, Dispute Settlement, WTO, 3.13 GATS:

(UNCTAD/EDM/Misc.232/Add.31) 2003 Mary E. Footer and Carol George, The General Agreement on Trade in

Services, The World Trade Organization: Legal, Economic and Political Analysis International Trade Law Center eds. Arthur E. Appleton, Michael G. Plummer (Springer, 2007)

The General Agreement on Trade in Services: Doomed to Fail? Does it Matter? Bernard Hoekman, J Ind Compet Trade (2008) 8:295–318

Liberalizing Legal Services in India Under General Agreement on Trade in Services, Bindu Ronald, available at <http://ssrn.com/abstract=2009675>

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Thank You…