What is General Agreement on Trade in Services (GATS)?

Snapshot

  • The GATS is the service trade rules of the WTO
  • Service trade has tremendous trade potential for India as it has a skilled labour force.
  • At the same time, countries are putting restrictions on service trade and there amidst low tradability of services.
  • GATS define services in four modes.

What is GATS?

GATS envisage the objective of establishing a sound multilateral framework or principles and rules for trade in services. Many countries directly have laws, which restrict entry of foreign services enterprises in areas like finance, media, communications, transport etc.

The GATT looks upon these regulations relating to investment in the service sector as distorting factors affecting free trade. Hence these distortions have to be eliminated or minimized. The GATS Agreement covers all services (there are 161 tradable services under GATS) – financial services (banking insurance etc), education, telecommunications, maritime transport etc.

Service trade expansion has big prospects though countries are in general reluctant to liberalise it. According to the WTO, “while services currently account for over 60 percent of global production and employment, they represent no more than 20 per cent of total trade (BOP basis).”

The Four Modes of Services Supply

The GATS define services in four ‘modesof supply: cross-border trade, consumption abroad, commercial presence, and presence of natural persons.

Mode 1: Cross Border

Services which themselves cross-frontiers from one country to another e.g. Distance learning, consultancy, BPO services.

Mode 2: Consumption abroad

Services, which are made available within a country for foreign consumers’, e.g.: tourism, educational students for students, medical treatment etc.

Mode 3: Commercial Presence

Services supplied by an entity of one country, which is commercially pressed in another e.g.: banking, hotel etc.

Mode 4: Movements of natural persons

This is a foreign national providing services like that of doctor, nurse, IT engineer etc. functioning as a consultant, employee, from one country to another.

Services given by governments are exempted from GATS. These are services provided on a non-market basis (e.g. Social security schemes, health Education etc). Besides, Air Transport Services are also exempts from coverage that affects traffic rights. GATS divides services liberalization commitments into two – general obligations and specific obligations.

The GATS is basically a primary step towards service trade that was reached at the Uruguay Round. Service trade liberalization under it is at the entry level stage. As a Multilateral rule making and trade liberalization regime, the GATS has to be expanded by making further discussions.

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