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Explain the Multilateral Trade Agreements regarding Trade in Service.

Explain the Multilateral Trade Agreements regarding Trade in Service.

Course: M.Com

1 Answer

Trade in Service (GATS):

The GATS defines services as the supply of a service from the territory of one member (country) into the territory of any other member in the territory of one member to the service consumer of any other member by a service supplier of one member, through commercial presence in the territory of any other member or by a service supplier of one member, through presence of natural persons of a member in the territory of any other member.

In short, the GATS covers four modes of international delivery of services:

  • Cross-border supply (trans-border data flows, transportation services).
  • Commercial presence (provision of services abroad through FDI or representative offices).
  • Consumption abroad (tourism).
  • Movement of personnel (entry and temporary stay of foreign consultants).

While industrial countries have offered market access commitment of some kind on over half (about 54 per cent) of their service activities, developing countries did so only on less that one-fifth (about 17 percent) of their service categories. Tourism and travel-related services are the only activities in which a substantial number of developing countries made commitments.


The framework of GATS includes basic obligation of all member countries on international trade in services, including financial services, telecommunications, transport, audio-visual, tourism, and professional services, as well as movement of workers. Among the obligations is a most favored nation (MFN) obligation that essentially prevents countries from discriminating among foreign suppliers of services.

Another obligation is the transparency requirements according to which each member country shall promptly publish all its relevant laws and regulations pertaining to services including international agreements pertaining to trade in services to which the member is a signatory. Further, each member shall also respond promptly to all requests for specific information, by any other member, pertaining to any aspect of the service covered by the GATS. Each member shall also establish one or more inquiry points to provide specific information to other members. However, no member needs to provide any confidential information, the disclosure of which would impede law enforcement, or otherwise be contrary to public interest, or which would prejudice legitimate commercial interests of particular enterprise, public or private.

The GATS lays down that increasing participation of developing countries in world trade shall be facilitated through negotiated commitments on access to technology, improvements in access to distribution channels and information networks and the liberalization of market access in sectors and modes of supply of export interest to them. With reference to domestic regulation, the agreement lays down that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner. There would be a requirement that parties establish ways and means for prompt reviews of administrative decisions relating to the supply of services.

It is recognized that particular pressures on the balance or payments of a member in the process of economic development or economic transition may necessitate the use of restrictions to ensure, inter alia, the maintenance of a level of financial reserves adequate for the implementation of its programme of economic development or economic transition.

A member country may, therefore, apply restrictions on international transfers and payments for current transactions under certain circumstances envisaged under the GATS. In the event of serious balance of payments and external financial difficulties or threat thereof, a member may adopt or maintain restrictions on trade in services on which it has undertaken specific commitments including on payments or transfers for transactions related to such commitments. The commitments of member countries under the GATS also include national treatment (that is, to treat foreign suppliers of services like domestic suppliers) and provision of market access. The Agreement on Trade in Services also establishes that basis for progressive liberalization of trade in services through successive rounds of negotiations, which also applies to other agreements under the final Act.

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March 13, 2019