About General Agreement on Trade in Services (GATS)

The term ‘services’ covers a wide range of economic activities. The WTO secretariat has divided these divergent activities into 12 service sectors. They are:

* Business including professional and computer services

* Communication services

* Construction and engineering services

* Distribution services

* Education services

* Environmental services

* Financial services

* Health services

* Tourism and travel services

* Recreational, cultural and sporting services

* Transport services

* Others not included elsewhere.

In the past trade in services was not included in any agreement. But the increase in service activities has compelled to take the sector into account. Trade in services is growing all over the world and currently accounts for almost half of all international trade. The General Agreement on Trade in Services (GATS), which was negotiated in the Uruguay Round, applies the basic rules on trade in goods to trade in services. However, for trade in services, trade in goods has been modified to take into account the difference between goods and services including the modes of international trade in services take place.

Let us first answer the basic points of how do services differ from goods? The main characteristic of services is that they are intangible and invisible, goods by contrast are tangible and visible. Further, services cannot be stored. The different characteristics of goods and services influence the modes in which international transaction takes place. In most cases transaction of goods entails cross border movement, while in cases of services only a few entails cross border movement. For example, transfer of money through banks or services embodied in goods (consultant’s technical report or soft wear). Bulk service transactions involved time and place of consumption and proximity between service provider and the consumers. Thus, unlike international transactions in goods which require a physical transit across a country’s borders, services are supplied internationally according to one or a combination of four modes of supply namely:

* Cross border movement of service products.

* Movement of consumers to the country of importation.

* The establishment up of a commercial presence (setting up a branch office) in the country where service is to be provided.

* Temporary movement of natural persons to another country in order to provide the service there.

Another major difference between goods and services lies in the way protection is granted by governments to domestic industries. Industries producing goods are generally protected by the imposition of tariffs or other border measures such as Quantitative Restrictions. GATT rules require countries to give protection via tariffs and discourage quantitative restrictions. Because of the intangible nature of services, service transactions do not involve cross border movements and thereby protection to service industries. Service industries are protected by mainly national domestic regulation on foreign investment and participation of foreign service suppliers in domestic industries. However, foreign service supplier is prohibited from investing or establishing a branch that is necessary for the supply of the services. Regulations may be applied on a discriminatory basis to natural persons providing services. They may be provided for dissimilar treatment of services from different countries on non-application of Most Favoured Nation (MFN) principles

Export of services currently account for more than a trillion dollar. Export trade in services is rising in importance not only in the newly industrialized countries (NICs), but in low income LDCs. Many developing countries are dependent on import of services. Productivity of industries is today closely linked with financial, computer, digital, and information services at reasonable costs. Enterprises looking for foreign markets spend money on research, advertisement and after sale services. Technological progress has taken place in communication for suppliers to operate internationally. Banks and Insurance companies now operate more quickly with support from fax, e-mail, CAD, CAM etc. are now at our doorsteps. Trade in Services is increasing and hopefully within the shortest time possible to overtake trade in goods.

The GATS applies to government measures affecting services provided on a commercial basis. However, services obtained by government departments for their own use are excluded from the purview of the Agreement. The term ‘services’ covers any service in any service sector noted below including their production, distribution, marketing, sales and delivery according to the four modes of described earlier.

When UR negotiations were concluded, it was visualized that it might not be possible to negotiate on trade liberalization on a number of sectors. Therefore, it was decided to complement the framework text with annexes which lay down additional rules on sector specifications and provide guidelines for further negotiations for liberalization of trade. All these annexes automatically become integral part of GATS.

Among the important general obligation imposed by the framework are those relating to:

* The extension of MFN treatment

* Transparency of regulation

* Mutual recognition of the qualification required for supply of services

* Rules governing Monopolies and Exclusive service suppliers and other business practices restraining competition.

* Measures to be taken to liberalize trade including those securing the greater participation of developing countries.

The GATS agreement further recognizes that there is asymmetry in the development of service industries in developed and developing countries and that situation will have to be taken into account in the negotiations for the liberalization of trade in services sector. For this it provides for a three-pronged approach:

i. It calls on countries to give priority to the liberalization of access in the modes of supply and service sector of export interest to developing countries.

ii. It recognises that in order to promote the growth of their service industries, developing countries may have to maintain higher level of protection, both overall and individual sector. It further provides that these countries should have flexibility to open few sectors to import competition and to liberalize fewer types of transaction.

iii. It provides that while committing for liberalization, developing countries could impose conditions for foreign suppliers interested to invest in service industry and to establish a subsidiary in their territory; to set up (i) set up joint venture and (ii) provide the local company to their technology or access to their information and distribution channel.

Conditional obligations

The agreement imposes certain additional provisions to general obligations that ensure full implementation of the commitments made by countries. Sector wise, where specific commitments are undertaken, these include the following obligations:-

i. To ensure that all domestic regulations of general application affecting trade in services are administered in a reasonable and objective way,

ii. To issue to foreign suppliers the authorization required for the provision of services within a reasonable period,

iii. Not to apply restrictions on international transfer and payments, except when the country is in serious balance of payment difficulties.

Commitments undertaken by countries in their sector schedules complement their horizontal commitments. Developed countries have included in their schedules all service sectors, developing countries have exercised certain degree of flexibility and have covered a limited number of sectors, deciding on their stages of development. However, developing countries have potential for export trade or for benefiting from import liberalization. For example:

i. Construction and related engineering services

ii. Health and social services

iii. Management consultancy services

iv. Financial services

Business Implications:

i. Assessment of benefits: Unlike trade in goods, trade in services cannot be quantified the potential impact of liberalization. However, liberalization which countries have undertaken does provide service sectors with new opportunities for trade in services. Liberalization of financial sector has allowed foreign banks, insurance companies, securities firms to set up in liberalized countries. Sectors like manufacturing companies and agricultural firms benefit from banking, insurance and other services such as telecommunication and information system.

ii. New opportunities for collaboration with foreign suppliers.

iii. Benefits of contact point: Improvement of knowledge of the commercial and technical services

iv. New export opportunities: Developing countries generally have a comparative advantage in services that are labour intensive or highly skilled technical one. The sectors or sub-sectors will have opportunities to develop trade taking into account the two factors (comparative advantage and labour intensive):- Business services (management consultancy, computer services, professional services, R&D services, rental services, communication, construction and engineering, distribution, educational services, tourism and travel, environmental services, financial services, health services, recreational, cultural sporting and transport services.)

v. Increased opportunities for natural persons to provide services

vi. Importance of allowing foreign technician and specialists to provide services and transfer of technology.

vii. Opportunities for expansion of trade among developing countries.

viii. In every sector Bangladesh has lot to learn and contribute to the development of the economy especially in the service sectors.

The writer is Former Director General, Export Promotion Bureau.