Annex 1 Is Divided Into Three Sections

I.  INTRODUCTION

The Agreement Establishing the WTO has four Annexes. Annexes 1, 2, and 3, are called "Multilateral Trade Agreements" because they apply to all the WTO Members.

§  Annex 1 is divided into three sections:

§  Annex 1A (The Multilateral Agreements on Trade in Goods);

§  Annex 1B (General Agreement on Trade in Services (GATS)); and,

§  Annex 1C (Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)).

Now we will focus on Annex 1B – the GATS.

In this Module, we will start by presenting a brief overview of the historical background of the GATS and the basic principles of the Agreement. Then we will introduce the Members' obligations contained in the text of the Agreement, its Annexes, and Members' Schedules of Specific commitments. Finally, we will introduce briefly the concepts and issues involved in the ongoing negotiations on services market access and rules.

The Council for Trade in Services (CTS) is the WTO body in charge of overseeing the functioning of the GATS.

II.  in brief: TRADE IN SERVICES

Services represent the fastest growing sector of the global economy, accounting for about 60 per cent of world production and employment and nearly 20 per cent of world trade.[1] The rules on trade in services are contained in the GATS, which is the first multilateral agreement on trade in services. The main objectives of the GATS are to establish a multilateral framework of principles and rules for trade in services, to expand trade under conditions of transparency and progressive liberalization as a means of promoting the economic growth of all trading partners and the development of developing countries. The benefits of services liberalization do not extend only to the service industries themselves, but to all other economic activities which need access to efficient services.

The GATS covers any measure applied by a WTO Member affecting trade in services (includes any action taken at any level of government and by non-governmental bodies). Trade in services is defined as the supply of a service through any of the four modes of supply (cross-border supply[2] , consumption abroad[3] , commercial presence[4] and presence of natural persons[5]). The GATS explicitly excludes services provided in the exercise of governmental authority and measures affecting air traffic rights.

A WTO Member's obligations under the GATS are defined by: (i) the Agreement itself; (ii) annexes addressing the particular policy concerns or the particularities of individual services sectors and modes; and, (iii) Members' Schedules of specific commitments specifying market access and national treatment commitments per sector and mode of supply, as well as additional commitments, if any.

The GATS includes rules on MFN treatment (applies to any measure, except where a departure is allowed by the GATS), transparency (e.g. publication of measures), domestic regulation (e.g. qualification requirements and procedures) and provisions directed to increase the participation of developing countries and LDCs.

As with Members' Schedules of tariff concessions for goods, each WTO Member is required under the GATS to submit a Schedule for trade in services, which contains market access and national treatment commitments, as well as any additional commitments. By scheduling commitments, a Member guarantees other Members minimum conditions of access on an MFN basis, comparable to a tariff binding under the GATT 1994. Since these are ceiling bindings, Members are not prevented from being more 'generous' (or less discriminatory) in practice. Schedules may vary widely in their sector scope and the levels of commitments implied, reflecting Members' national policy objectives and constraints. Similarly to the Schedules on tariff concessions for goods, commitments can only be withdrawn or modified after negotiations and agreement on any compensatory adjustment with affected Members. The modifications of commitments must be implemented on an MFN basis.

The GATS approach to scheduling is knows as "positive list" approach since each individual Member decides which sector and modes to commit, and how much market access and national treatment to provide. There is a common format consisting of four columns: (i) description of the sector; (ii) limitations on market access (ArticleXVI); (iii) limitations on national treatment (ArticleXVII); and, (iv) additional commitments (ArticleXVIII), if any. Members are free to inscribe six specified types of limitations on market access and any departures from national treatment under the four modes of supply. Domestic regulations not falling under ArticlesXVI or XVII must not be scheduled; however, they are nevertheless subject to certain disciplines set out in the GATS.

An Overview of a WTO Member's Schedule
Modes of supply: 1) Cross-border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons.
Sector or sub-sector / Limitations on market access / Limitations on national treatment / Additional commitments
I. HORIZONTAL COMMITMENTS
"All sectors included in this Schedule" or kept blank / Covering only those modes for which horizontal limitations are inscribed. / Covering only those modes for which horizontal limitations are inscribed. / Optional
(kept blank when no additional commitment).
II. SECTOR-SPECIFIC COMMITMENTS
SECTOR DESIGNATION / 1)
2)
3)
4)
Covering all four modes in each service sector or sub-sector identified in column 1. / 1)
2)
3)
4)
Covering all four modes in each service sector or sub-sector identified in column 1.

Table 1: An overview of a WTO Member's schedule

Commitments in a Schedule are organized by sector and by mode of supply. For each sector or sub-sector inscribed, the Schedule must indicate, with respect to the four modes of supply set out in ArticleI, any limitations on market access or national treatment which may be maintained. Most Schedules are divided in two parts. Part I (''horizontal commitments'') contains limitations which apply to all service sectors included in the Schedule. The purpose of having such a section is to avoid repeating the same entry many times in the Schedule. Part II presents the sector-specific commitments.

Entries in Schedules tend to conform to uniform conventions. ''None'', when used in the sector-specific part of the Schedule, means that there are no limitations specific to this sector under the relevant mode except the conditions set out in the horizontal section. ''Unbound'' means that a Member remains free in a given sector and mode of supply to introduce or maintain measures inconsistent with market access or national treatment. In cases where a commitment is made with limitations, the entry should describe concisely the elements which make it inconsistent with ArticlesXVI (market access) and ArticleXVII (national treatment).

The GATS mandates Members to enter into successive rounds of negotiations in services with a view to achieving a progressively higher level of liberalization. In addition, it provides for continued negotiations in four-rule making areas (known as "built-in agenda"): development of disciplines on domestic regulation, emergency safeguards, subsidies and government procurement. These negotiations form part of the Doha Round of Negotiations.

III.  HISTORICAL BACKGROUND OF THE GATS

IN BRIEF

The GATS is a relatively new agreement compared to the General Agreement on Tariffs and Trade (GATT), which entered into force in 1948. For almost half a century, the multilateral rules on international trade dealt only with trade in goods.
The GATS is the first multilateral trade agreement to cover trade in services. Its creation was one of the major achievements of the Uruguay Round of trade negotiations, from 1986 to 1993. All Members of the World Trade Organization (WTO) are signatories to the GATS and have to assume the resulting obligations.

III.A.  WHY AN AGREEMENT ON TRADE IN SERVICES?

The need for a trade agreement in services has long been questioned. Large segments of the services economy, from hotels and restaurants to personal services, have traditionally been considered as domestic activities. Other sectors, from rail transport to telecommunications, have been viewed as classical domains of government ownership and control, given their infrastructural importance and the perceived existence, in some cases, of natural monopoly situations. A third important group of sectors, including health and education, are considered in many countries as governmental responsibilities, which should not be left to the rough and tumble of markets.

Nevertheless, some services sectors, in particular international finance and maritime transport, have been largely open for centuries — as the natural complements to merchandise trade. Other large sectors have undergone fundamental technical and regulatory changes in recent decades, opening them to private commercial participation and reducing or eliminating barriers to entry. The emergence of the Internet has helped to create a range of internationally tradable services — from e-banking to distance learning — that were unknown only two decades ago. Distance-related barriers that had previously disadvantaged suppliers and users in remote locations have been reduced or even eliminated. A growing number of governments has gradually exposed previous monopoly domains to competition (e.g. telecommunication).

Services represent the fastest growing sector of the global economy, currently accounting for about 60 per cent of world production and employment and nearly 20 per cent of world trade. Not surprisingly, the world's largest and most advanced economies, including the United States, Japan and most European Union (EU) Member States, are among the most important suppliers and importers of services. However, an increasing number of developing countries have also built up export-oriented services industries, capitalizing for example on their comparative advantage in tourism or on growing demand in adjacent countries for financial and other infrastructural services.

This reflects a basic change in attitudes. The traditional framework of public service increasingly proved inappropriate for operating some of the most dynamic and innovative segments of the economy. Given the continued momentum of world services trade, the need for internationally recognized rules became increasingly pressing.

Why is the Liberalization of Services Important?
It is impossible for any country to prosper today under the burden of an inefficient and expensive service infrastructure. Producers and exporters of any product need access to efficient banking, insurance, telecommunications and transport systems in order to be competitive. In markets where supply is inadequate, imports of essential services can be as vital as imports of basic commodities. Therefore, the benefits of services liberalization extend far beyond the service industries themselves; they are felt through their effects on all other economic activities.
To know more about the benefits of service liberalization, see:
http://www.wto.org/english/tratop_e/serv_e/gats_factfiction3_e.htm

To know more... Distinguishing between Trade in Goods and Trade in Services

In face of the increasing need for internationally recognized rules on services trade, one would wonder whether the GATT rules governing goods trade could simply be extended to services. The answer tends to be in the affirmative as far as some basic principles are concerned, including non-discrimination or the concept of bound conditions of access, but is negative if some inherent differences of services, and services trade, are taken into account:
§  Goods are storable and the production and consumption of goods normally take place at different times. In contrast, services are not normally storable and the production and consumption of services often take place simultaneously. As a consequence, the supply of services normally requires much more producer-user interaction than goods do.
§  Many services are heavily regulated. Governments are involved, for example, to ensure compliance with social policy objectives (health, education), to guarantee access to basic networks (pipelines, rails), and to enforce necessary prudential rules (banking, insurance).
§  Market access for goods is generally restricted by tariffs. However, access conditions for services are mainly determined by non-tariff barriers such as domestic regulations or quotas.
§  Goods are tangible while services are not. Many domestic regulations focus on the service providers rather than on the services themselves (e.g. in the form of licensing and qualification requirements).

IV.  THE GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

IV.A.  BASIC PURPOSE OF THE GATS

The Preamble of the GATS sets out three main objectives:

Main Objectives of the GATS
§  to establish a multilateral framework of principles and rules for trade in services;
§  to expand trade under conditions of transparency and progressive liberalisation;
§  to promote the economic growth of all trading partners and the development of developing countries.

The GATS not only aims to liberalize international trade in services, but also recognizes Members' right to maintain and develop new regulations to meet national policy objectives, and the particular need of developing countries to exercise this right.

Requiring compliance with technical standards or qualification requirements, which may be intended to ensure the quality of the service or the protection of public interest, are legitimate forms of domestic policy intervention. Thus, the GATS does not entail deregulation.

IV.B.  SCOPE OF APPLICATION OF THE GATS

IV.B.1.  BROAD COVERAGE

ArticleI:1 of the GATS sets out the scope of the Agreement. Coverage is broad as the Agreement applies to any measure applied by a WTO Member "affecting" trade in services. "Affecting" means that the scope of the Agreement encompasses not only measures designed to regulate trade in services directly, but also any other measures that might incidentally affect the supply of a service. The term ''measure'' is defined to include:

(i) any action taken at any level of government as well as by non-governmental bodies to which regulatory powers have been delegated (ArticleI:3(a)); and,

(ii) any form of measure including a law, regulation, rule, procedure, decision, administrative action, or any other form (ArticleXXVIII of the GATS).

According to the Appellate Body, there are two things that must be assessed before consideration is given to the consistency of a measure with the provisions of the GATS: (1) whether there is "trade in services" in the sense of ArticleI:2 (see below) and (2) whether the measure at issue "affects" such trade in services within the meaning of ArticleI:1 (Canada – Auto, Appellate Body Report, para. 155). Thus, no measures are excluded a priori from the scope of the GATS.

IV.B.2.  MODES OF SUPPLY

The GATS does not define ''services'', ArticleI:2 defines ''trade in services'' as the supply of a service through any of the four modes of supply:

Modes of Supply of Services / Examples
Mode 1 - CROSS-BORDER SUPPLY (a type of transaction analogous to trade in goods): from the territory of one Member into the territory of any other Member.
Service provided without the movement of either the service provider or the service receiver / A user in country A (service receiver) receives services from abroad (service provider in country B) through its telecommunications or postal infrastructure. Such supplies may include consultancy or market research reports, telemedical advice, distance training, or architectural drawings.
Mode 2 - CONSUMPTION ABROAD: in the territory of one Member to the service consumer of any other Member (consumer moves to the territory of another country and buys services there).
Service provided through the movement of the service receiver to the country where the service provider locates / Nationals of country A (service receiver) have moved abroad (service provider in country B) as tourists, students, or patients to consume the respective services.
Mode 3 - COMMERCIAL PRESENCE: by a service supplier of one Member, through commercial presence, in the territory of any other Member.
Service provided through the establishment of a commercial presence by the service provider in the service receiving country / Service provider in country B establishes a commercial presence in the territory of country A. The service is provided within country A by a locally-established affiliate, subsidiary, or representative office of a foreign-owned or - controlled company (bank, hotel group, construction company, etc.).
Mode 4 — PRESENCE OF NATURAL PERSONS: by a service supplier of one Member, through the presence of natural persons of a Member in the territory of any other Member.
Service provided through the movement of the individual service provider to the country where the service receiver locates / A foreign national of country B provides a service within A as an independent supplier (e.g., consultant, health worker), contractual service supplier, intra-corporate transferee of a transnational company, or employee of a locally established foreign service supplier (e.g. consultancy firm, hospital, construction company). Business visitors and services salespersons are not directly engaged in the delivery of a service but are often also included in Members' mode 4 commitments.

As we will see latter on, for purposes of structuring their commitments, WTO Members have generally used a classification system comprised of 12 core Service Sectors: