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General Agreement on Trade in Services

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The General Agreement on Trade in Services (GATS) is the first multilateral trade agreement on services. The GATS covers all services except services supplied in the exercise of governmental authority. The sectoral classification generally used to schedule commitments under the GATS (document MTN.GNS/W/120) contains eleven main services sectors and one residual “other” category. These are business, communication, construction, distribution, educational, environmental, financial, health-related and social, tourism and travel-related, recreational cultural and sporting, and transport services. These sectors are further divided into sub-sectors and, in some cases, sub-sub-sectors.

Trade in services is defined in terms of four modes of supply: (1) Cross-border supply, whereby, for example, domestic consumers purchase telecommunications services from a supplier in another country; (2) Consumption abroad, whereby consumers consume services abroad, sometimes by physically moving to the location of the suppliers, as in the case of tourism services, or by sending their property abroad, as in the case of ship repair services; (3) Commercial presence, whereby, for example, a foreign bank or transport company establishes a branch or subsidiary in the territory of a country and supplies services; and (4) Movement of natural persons, whereby, for instance, natural persons supply consultancy or construction service in the territory of a foreign Member country.

The GATS aims at negotiating a legally binding set of commitments to enhance predictability and provide transparency under the principle of progressive liberalization. The GATS framework consists of: (i) rules and obligations laid down in the GATS; (ii) annexes on specific sectors and subjects including an annex on telecommunication services; and (iii) national schedules of market access and national treatment commitments and lists of MFN exemptions.

The most important of the general obligations under the GATS are MFN (most favored nation) (Article II) and transparency (Article III). They apply across the board to all services sectors, although exemptions to the MFN obligation in specific sectors were permitted at the time of entry into force of the agreement, and such exemptions, in principle, should not extend beyond 10 years. Specific obligations are related to market access and national treatment (Articles XVI and XVII, respectively). They apply only to services that are inscribed in the Schedules of Commitments of countries where specific commitments on market access and national treatment are listed in the form of limitations or measures applicable. Such limitations may be either horizontal (cross-sectoral) or sector-specific, and are listed for each of the four modes of supply. Moreover, Article XVIII offers the possibility for countries to inscribe additional commitments not dealt with under the two previous articles.

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