BACKGROUND DOCUMENT ON THE GATS (1)

The purpose of this paper is to provide background information on the General Agreement on Trade in Services (GATS). It addresses the GATS disciplines and structure as well as the role played by the agreement within the World Trade Organisation (WTO) framework.

1)  Organisational elements

During the Uruguay Round negotiations, which began in 1986 under the auspices of the GATT, new sectors were added to the multilateral framework and underwent liberalisation. The sectors subject to multilateral liberalisation, hitherto restricted to goods, were extended to include services. The GATS constitutes the legally binding outcome of these negotiations on services, which were finalised in April 1994 with the adoption of the Marrakech Final Act. Like the sectors of agriculture and investment, the international property sector was also included in the extension of multilateral liberalisation and is covered by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In addition to the Uruguay Round sectoral achievements, the World Trade Organisation (WTO) was set up in January 1995 in order to give a general structure and framework to the sectoral agreements referred to above. The Organisation's main tasks are to manage the results of the multilateral trade negotiations, organise further negotiations on trade liberalisation and, with the help of the common dispute settlement mechanism, resolve any disputes arising between Members.

All the multilateral agreements adopted at the conclusion of the Uruguay Round must be accepted as a "single undertaking", i.e. membership of the WTO is open only to those countries which have accepted all the agreements, particularly in order to reinforce the reciprocity of the commitments made by the countries.

The WTO is headed by a Ministerial Conference, composed of representatives from all the Members, meeting at least every two years. The General Council, also composed of representatives from all the Members, is responsible for carrying out the functions of the WTO in the periods between meetings of the Ministerial Conference. It has three main duties:

• to act as the dispute settlement body when such a body is required by the dispute settlement mechanism;

• to carry out the responsibilities of the trade policy review body;

• to establish three specialised councils and supervise their operation: the Council for Trade in Goods (GATT), the Council for Trade in Services (GATS) and the Council for TRIPS.

The WTO is managed by the WTO Secretariat, which is headed by a Director-General.

2)  The GATS and the WTO

As a result of the above developments, the GATS takes account of the special features of the services it covers; however, these services are also subject to the general rules and disciplines enshrined in the WTO, particularly dispute settlement mechanisms.

The GATS consists of the framework agreement - the Articles - and its Annexes. The main body of the agreement contains general rules, applicable to all GATS services without any restrictions. Such rules are notably transparency, economic integration, domestic regulation and subsidies. They impose clear obligations on the parties to the agreement.

It also includes the schedules of specific commitments relating to the two disciplines of market access and national treatment as well as the lists of exemptions from the Most Favoured Nation (MFN) clause submitted by the parties to the agreement. The schedules of commitments and exemptions are integral parts of the agreement. When the Final Act of the Uruguay Round was signed on 15 April 1994, 95 schedules of specific commitments concerning services and 61 lists of exemptions from the MFN principle were submitted and agreed upon.

The logic behind the GATS is twofold:

• First, the GATS is based on the application of two disciplines – market access and national treatment – on a voluntary basis, i.e. through the parties' schedules of commitments. These two essential liberalising principles entail the following obligations. The market access principle (Article XVI) obliges the Members to open their domestic markets to all service suppliers from all the other Members. The national treatment principle (Article XVII) obliges the Members to grant all services suppliers, whatever their nationality, the same treatment as domestic services suppliers. Discrimination of any kind in the domestic market between national and foreign services suppliers is therefore forbidden. The scope of application of these two basic GATS principles is established by each Member's "schedule of specific commitments". In this respect, only the services mentioned and described in these schedules are subject to the application of these disciplines. This schedule lists the only possible limitations to these general rules and thus lays down the level of liberalisation offered by each Member in each service area.

• Secondly, the general MFN principle applies by default to all sectors, irrespective of the content of the schedules of commitments. In order to exempt certain services from the application of the MFN principle, the parties to the agreement must specify these services in the list of exemptions.

Therefore, it is only by referring to a country's schedule, and where relevant to its MFN exemption list, that it can be seen to which services sectors and under what conditions the basic principles of the GATS – market access, national treatment and MFN treatment – apply within that country's territory. The schedules are complex documents in which each country identifies the services sectors to which it will apply the market access and national treatment obligations of the GATS and any exceptions from those obligations it wishes to maintain.

The services sectors covered by the schedule are set out one by one in the left-hand column of each country’s schedule of specific commitments. The CPC numbers refer to a list drawn up by the United Nations (the Central Product Classification) which defines the different services sub-sectors in detail (2). In the column marked "Limitations on Market Access", the Member must show any limitations concerning access to its market by foreign service suppliers for the services sector concerned. In the column marked "Limitations on National Treatment", the Member must enter any limitations concerning the treatment of foreign service suppliers which puts them in a less favourable position than their domestic counterparts. In the column marked "Additional Commitments", the Member must enter any commitments over and above those listed elsewhere – for example, if the Member is prepared to improve the treatment it offers to foreign service suppliers in the future by liberalising a services sector from a later date, it can enter this undertaking in the additional commitments column.

The commitments are categorised according to the means by which the service is supplied. Under the GATS, services can be supplied in any of four ways:

Mode 1: "Cross-border supply" – this is the supply of a service from the territory of one Member to a consumer in the territory of another. Some services requiring the physical presence of a service supplier – such as restaurants and hotels, or construction – cannot physically be remotely supplied across a border, in which case no binding commitment can be made.

Mode 2: "Consumption Abroad" – this is where the consumer of the service travels to the service supplier, which is particularly important in the case of tourism where the consumer is a tourist using accommodation and other services abroad.

Mode 3: "Commercial Presence" – this is where the service supplier establishes itself in the foreign market as a legal entity in the form of a subsidiary or a branch.

Mode 4: "Presence of Natural Persons" – this covers cases where a foreign service supplier can travel in person to a country in order to supply a service. General immigration rules continue to apply and the rules on entry and residence are usually strict, but many countries have nevertheless undertaken to allow certain types of service supplier, particularly intra-corporate transferees, to enter their markets on a temporary basis.

The level of commitment of a given country is reflected in its schedule of commitments by the use of specific GATS terminology outlined below. "Unbound" means that a country has not undertaken any obligations in respect of a particular sector or mode of supply; in fact, it has made no commitment either to open up its market or to keep it as open as it was at the time of accession to the WTO. This does not mean that the market is necessarily closed to foreigners, but does mean that the country is not bound by any commitment to maintain a certain level of openness in the future. As mentioned under "mode 1" above, a sector must sometimes be "unbound" for technical reasons. "None" means that a country is committing itself to ensuring that there are no restrictions which are inconsistent with the GATS rules covering participation in the market by foreign service suppliers. In the market access column, "none" means that foreign service suppliers are free to enter the market, while in the national treatment column "none" means that the foreign service supplier is guaranteed the same level of fair treatment as domestic counterparts.

As mentioned above, the Most Favoured Nation (MFN) treatment is a general obligation that applies to all measures affecting trade in services. However, it has been agreed that particular measures which are inconsistent with the MFN obligation can be maintained - in principle for not more than ten years and subject to review after not more than five years. Such measures must have been specified in a list of MFN exemptions submitted by the end of the Uruguay Round of multilateral trade negotiations or by the conclusion of extended negotiations on certain sectors for which the delayed submission of related exceptions was expressly authorised. Subsequently, requests for exemptions from Article II (MFN) can only be granted under the waiver procedures of the Marrakech Agreement.

In contrast to the complex nature of the schedules of commitments, these lists are sufficiently self-explanatory and are structured in a straightforward manner. In order to ensure a complete and precise listing of a country's MFN exemptions, each country is required to provide five types of information for each exemption:

(i) Description of the sector or sectors to which the exemption applies;

(ii) Description of the measure, indicating why it is inconsistent with Article II;

(iii) The country or countries to which the measure applies;

(iv) The intended duration of the exemption;

(v) The conditions creating the need for the exemption.

It is a basic principle of the agreement that specific commitments are applied on a MFN basis. Where commitments are undertaken, therefore, a MFN exemption can only permit that the country to which the exemption applies is treated more favourably than all the other Members. Where there are no commitments, however, a MFN exemption can also permit less favourable treatment. It is not necessary to list the measures providing for preferential liberalisation of trade in services among Members of economic integration agreements, such as free trade areas; preferential treatment of this kind is permitted under Article V of the GATS and must meet the criteria laid down in that Article.

• The other relevant topics are, first and foremost, the GATS rules which have a general scope, i.e. which are applicable to all services covered by the GATS. This concerns subsidies in particular (Article XV of the GATS) and domestic regulation (Article VI of the GATS) to a certain extent.

• Both subjects are addressed by a working party or particular committee in order to clarify and, where necessary, adapt the provisions of the GATS. Discussions on domestic regulation and on subsidies are relevant to all services sectors.

With regard to subsidies, the aim of the negotiations is to introduce disciplines, where necessary, in order to avoid the trade distortions which subsidies can cause.

The objective of the work on domestic regulation is to draw up GATS rules which seek to clarify the national measures in relation to the regulations and procedures on qualifications, technical standards and regulations on licences so that they do not pose an unnecessary obstacle to trade in services. In fact, the application of some of these national measures can, for instance, weaken a country's GATS commitments. Hence, the object of the exercise is to agree on a set of rules to which the Member countries are bound when applying national measures of this kind.

Both areas of discussion are particularly relevant to cultural and audiovisual services in view of the role played by the public policies developed in these sectors at national and Community levels in regulating these services and providing them with financial support.

• Secondly, and taking into account the development of new technologies and the questions raised by e-commerce – especially in the services area – the WTO has been developing a work programme on electronic commerce for over a year. The WTO General Council has mandated the subsidiary bodies, such as the Council for Trade in Services (CTS) for the GATS, to study the applicability of existing WTO Agreements to electronic commerce. The objective of this work programme is to establish which WTO rules (GATT, GATS and TRIPS) apply to e-commerce activities.

Following the Declaration on E-commerce adopted in May 1998, the specialist bodies began their research into e-commerce, as defined in the work programme, at the end of 1998. The aim is to examine the implications of e-commerce for the existing WTO agreements. For the purposes of this exercise, the term "e-commerce" refers to the production, distribution, marketing, sale and delivery of goods and services by electronic means.

It has not been possible, in the course of this work programme, to achieve a consensus on a number of principles, particularly on the classification of certain e-commerce activities (particularly on-line sales of content services). The present work programme is therefore continuing. Although this exercise is independent of the GATS 2000 negotiations and the launch of a new round of negotiations in the WTO, the discussions conducted and agreements achieved have an impact on the negotiations on services. The positions taken by the EU and its Member States during the work programme in 1999 are detailed in Annex (b) of this document. The main element of this position is the affirmation of the applicability of GATS to all electronic deliveries – these being services within the meaning of the GATS. The EU also affirmed its support for the principle of technological neutrality, i.e. that the GATS rules, including commitments, apply to the services concerned, irrespective of the technology used to deliver such services.

4) Definitions

The overall structure and functioning of the GATS are based on a certain degree of flexibility granted to the parties in the definition of activities for which they wish to make commitments or take exemptions. Contrary to other agreements where the parties must agree on definitions beforehand, the GATS can accommodate the fact that the parties use different definitions - the overall objective of liberalisation taking precedence over agreement on harmonised definitions. Thus the SSCL classification used in the GATS is only indicative, as is the one used by the UN (CPC classification) (3).

This flexibility means that the type of activities subject to a commitment or an exemption must be clearly defined. This must be taken into account during the present consultation process.

 Footnotes:
(1) The Commission has set up a special website on the GATS, which provides more detailed information, particularly on countries' schedules of commitments: http://gats-info.eu.int/
(2) See Annex (a) for  the classification of cultural services
(3) Idem