GATS: The WTO’s Framework for Services Trade

The General Agreement on Trade in Services (GATS) was agreed by WTO members at the conclusion of the Uruguay Round in 1994. It was hailed at the time as one of the most significant extensions in trade rule-making. Negotiations subsequent to the Uruguay Round led to additional agreements (“protocols”) on respectively, financial services, basic telecommunications, and the movement of natural persons.

The GATS did indeed contain a number of innovations. Building on the work of two Australian economists, Gary Sampson and Richard Snape, and one Indian economist, Jagdish Bhagwati, the drafters of the GATS identified four “modes” of services supply: cross-border supply; consumption abroad; commercial presence; and the movement of natural persons. The inclusion of commercial presence in effect brought investment (in services) under the purview of trade rules, a significant point of departure from rules on goods trade.

WTO members were required to accept a general MFN obligation for all services. They were authorised to specify a limited number of exemptions, in principle on a time-limited basis. The other main GATS obligations relate to market access and to national treatment (the latter requiring that foreign service and suppliers not be treated less favourably than domestic ones). For these, WTO members were allowed the flexibility to select the services sectors and modes of supply for which they were to make commitments (a positive list approach).

As far as market access was concerned, the GATS listed six types of restrictions members were not allowed to maintain unless they specifically stated they would for a particular sector and mode of supply. The six restrictions included four quantitative restrictions on service suppliers, one on the legal form of the supplier and one on foreign equity.

For national treatment, WTO members are required to list limitations that they wish to maintain by mode of supply and sector. To facilitate the process of scheduling, members were encouraged to make horizontal commitments i.e. commitments on market access and limitations that applied across all sectors. If a member wishes not to maintain any limitation for a particular mode of supply in a particular sector (e.g. market access limitations on commercial presence in telecommunications), they inscribe “none” in the relevant part of the schedule. If they wish not to make any liberalisation commitment, they enter “unbound”.

For all its innovations, the actual liberalising effects of the GATS were relatively limited. The commitments in the schedules are best seen as providing minimum guarantees of liberalisation. In practice, members apply a significantly lower level of restrictions than actually scheduled. The gap between commitments and practice can be seen as representing the scope for policy reversals. Services provisions in regional trade agreements have largely focused on reducing this gap.

The GATS allows members to negotiate regional trade agreements in services, on condition that these are comprehensive in their scope and do not increase barriers to service suppliers of other WTO members. The GATS also allows members to bilaterally enter into mutual recognition agreements regarding, for instance, qualifications, certification or licensing requirements, creating scope for further liberalisation notably in professional and technical services. The UK is already able to enter into such arrangements – in 2017 it signed such agreements with Chile and Colombia on degrees and qualifications.

Conscious of the fact that the original GATS regulations were relatively limited, the drafters of the GATS built in a provision for further negotiations to commence by the end of 2000. These duly got under way and were rolled into the Doha Round of trade negotiations that began in 2001. Limited progress was made on further liberalisation, prompting a subset of WTO members to launch, in 2012, separate negotiations under the Trade in Services Agreement (TISA). Over 20 rounds of negotiations were held between then and 2016, when the talks were put on hold, partly as a consequence of the hostile position taken by the new US administration to trade talks of any stripe.

The difficulties in negotiating services liberlisation within the GATS framework, or those that draw on it, provide some food for thought for the UK.  Through its membership of the EU, it has been able to participate in the most far reaching services liberalisation exercise that has taken place anywhere in the world. Replicating, or even approaching, that level of liberalisation with non-EU partners is likely to be challenging indeed.