The general obligations and disciplines of the WTO Agreement on Trade in Services (GATS) contain many of the same principles that are the cornerstones of the multilateral trading system as a whole. These include non-discrimination among Members (Most Favoured Nation treatment) and making public the relevant government measures (transparency). The GATS general obligations and disciplines do not, in themselves, create any obligation to open markets. The commitments on market opening and liberalisation are expressed in the schedules to the Agreement.
There are two types of general obligations:
- those applying to all services regardless of whether they are scheduled in the commitments; and
- those that only apply to a service or sector listed in a schedule by the Members concerned.
Examples of obligations that apply across the board are: MFN, transparency, portions of the provisions on domestic regulation, mutual recognition agreements, and some of the rules on monopolies and other restrictive business practices.
MFN TREATMENT
The Most-Favoured-Nation (MFN) principle (Article II of the GATS) is one of the cornerstones of the multilateral trading system. It guarantees that the best access conditions that have been conceded to suppliers from one country are automatically extended to all other participants in the system. It applies regardless of whether a market-opening commitment has been undertaken for that particular sector. In short, it means trade without discrimination between foreigners.
In the context of the GATS, the MFN obligation guarantees that all WTO Members will be granted the best treatment that a WTO Member accords to any of its trading partners, WTO Member or not, with respect to any measure affecting trade in a service or service sector covered by the Agreement. Importantly, this means that MFN applies even to preferences extended by a Member in its bilateral or regional arrangements, unless a related MFN exemption was taken, or the arrangement satisfies the GATS disciplines governing economic integration agreements.
Although in principle, your firm and the services you supply should be guaranteed non-discriminatory treatment by virtue of this obligation, there are certain exceptions that should be kept in mind when trading in another market. Three possible exemptions can be found in the GATS: 1) Annex on Article II Exemptions, 2) Article V(b) (Economic Integration), and Article VII (Recognition).
Under the GATS, Members were permitted to list one-time exemptions to the MFN obligation at the time of the acceptance of the Agreement. For acceding countries, MFN exemptions are permitted on a one-time basis on the accession date. Articles V and VII are not considered to be exemptions per se. Rather they provide flexibility and can not be used to accrue trade benefits to one Member or Members over another. How exemptions are listed in a Member’s schedule will be discussed on a subsequent page.
TRANSPARENCY
Transparency is fundamentally important in order for traders to take advantage of a rule-based system for international trade. Transparency helps Members and businesses to identify restrictions, as well as opportunities.
The principle of transparency under the GATS can be seen to have two parts. First, Members are required to publish, or at least make publicly available, all relevant measures which pertain to or affect the operation of the Agreement. Second, Members are required to notify the WTO of any regulatory changes that significantly affect trade in services sectors where specific commitments have been undertaken.
Members are also required to establish enquiry points to provide information, upon request to other Members. Developed country Members should also establish contact points to facilitate the access of service suppliers from developing countries regarding information related to their respective markets.
Contact details for these enquiry and contact points can be found on the WTO website. It is possible, but not required that the same point of contact might be used for both obligations.
DOMESTIC REGULATIONS
Many different national laws and regulations affect the way you may do business. Admittedly, many services, such as the professions, telecoms, and banking, have long been heavily regulated. The GATS seeks to strike a balance between a government's need to regulate in order to achieve "legitimate" non-protectionist policies and its aim to secure more open markets for trade in services. To these ends, the GATS attempts to categorize certain measures as trade restrictions (e.g. quotas on services or their suppliers or discrimination), which it aims to progressively eliminate, and other measures such as "domestic regulation" (e.g. licensing, technical standards). The latter, i.e. measures not formally defined as trade barriers, are subject to what may be seen as "good government" provisions on "Domestic Regulation" (Article VI). The aim is to ensure that the potential, and perhaps inadvertent (i.e. not intentionally protectionist) trade restrictive effects of regulation may be kept to a minimum. Indeed, businesses often feel that a fair, transparent and predictable regulatory environment offers a more conducive arena in which to trade.
Reasonable and objective treatment
The first provision under Article VI requires Members to ensure that measures are administered in a "reasonable, objective and impartial manner" (Article VI:1). This requirement applies only to committed sectors. This means that businesses operating or planning to operate in the market, in sectors where the Member has made a commitment, should not encounter unfair or arbitrary administrative practices or procedures.
Seeking redress for administrative decisions
Another of the Article VI provisions is an across the board obligation that Members must have in place procedures for the review of administrative decisions affecting trade in services (Article VI:2). As a result, if a business operating in another WTO Member State would like to request a review or appeal of an administrative decision, the government should have such a mechanism available.
Licensing: Your right to know
Regarding licensing or any other form of authorization, there is an obligation to “inform the applicant of the decision” within a reasonable period of time (Article VI:3). The provision also entitles the supplier to receive information on the status of the application. This requirement applies only in sectors where commitments exist.
Licensing, standards & qualification requirements: Work in progress
Recognizing that qualification requirements and procedures, technical standards and licensing requirements can have considerable impact on trade, another provision on domestic regulation sets out principles to govern their use (Art VI:4). It directs the Council on Trade in services to consider possible disciplines to ensure that among other things these measures are:
- based on objective and transparent criteria;
- are not more burdensome than necessary to ensure the quality of the service; and
- in the case of licensing procedures, not in themselves a restriction on the supply of the service.
While a work program was set up, the work has not yet been completed. Meanwhile, in committed sectors, and pending entry into force the results of the work program, governments are required to observe the above three principles when enacting new laws, regulations, decrees, etc that relate to licensing, standards or qualification requirements (Article VI:5).
When “specific commitments regarding professional services are taken” Members are obligated to ensure that verification procedures for professionals of other Members are available (Art. VI:6).
Related articles:
- Part 1: Introduction to the General Agreement on Trade in Services - GATS
- Part 2: Defining Trade in Services