Model Answer
0 min readIntroduction
The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995. It represents a significant attempt to extend the multilateral trading system, previously focused on goods, to cover trade in services. Recognizing the growing importance of the service sector in global economies, GATS aims to create a predictable and transparent framework for international trade in services, promoting economic growth and development. It does so by establishing general principles relating to non-discrimination and increasing participation of developing countries.
Main Purpose of GATS
The primary purpose of the GATS is to:
- Liberalize trade in services: By progressively reducing barriers to trade in services among member countries.
- Promote economic growth: Facilitating the expansion of the services sector, which is a major contributor to economic growth in many countries.
- Ensure transparency: Making regulations governing trade in services more transparent and predictable.
- Provide a framework for negotiations: Establishing a platform for ongoing negotiations to further liberalize trade in services.
- Promote development: Recognizing the specific needs of developing countries and providing them with special and differential treatment.
Services Covered Under GATS
GATS covers a broad range of service sectors, categorized into twelve broad sectors. These are:
- Business Services: Including professional services (legal, accounting, engineering), computer and related services, telecommunications, and other business support services.
- Communication Services: Covering postal, courier, and telecommunications services.
- Construction and Related Engineering Services: Including architectural, engineering, and construction-related services.
- Cross-border Educational Services: Including the trade in educational services like student and teacher exchange programs.
- Financial Services: Including banking, insurance, and other financial services.
- Health Related and Social Services: Including healthcare, medical tourism, and social services.
- Tourism and Travel Related Services: Including hotel and restaurant services, travel agencies, and tour operators.
- Recreational, Cultural and Sporting Services: Including entertainment, cultural events, and sporting activities.
- Transport Services: Including air transport, maritime transport, and land transport.
- Energy Services: Including electricity, gas, and other energy services.
- Environmental Services: Including waste management, environmental consulting, and pollution control.
- Other Services: A residual category covering services not specifically listed elsewhere.
Modes of Service Supply
GATS defines four modes through which services can be supplied:
| Mode | Description | Example |
|---|---|---|
| Mode 1: Cross-border Supply | Service supplied from one country to another without physical movement of the service provider or consumer. | An Indian call center providing customer support services to a US company. |
| Mode 2: Consumption Abroad | Service supplied in one country to a consumer who has traveled to that country. | A tourist from Japan receiving hotel services in India. |
| Mode 3: Commercial Presence | Service supplied through the establishment of a commercial presence (e.g., a branch, subsidiary) in another country. | A foreign bank establishing a branch in India to provide banking services. |
| Mode 4: Movement of Natural Persons | Service supplied by a service provider of one country who temporarily moves to another country to provide the service. | An Indian software engineer working on a short-term project in Germany. |
Each mode presents unique challenges and opportunities for liberalization. Mode 1 and 2 are relatively easier to liberalize, while Mode 3 and 4 often face greater political and regulatory hurdles due to concerns about domestic employment and immigration.
Conclusion
The GATS agreement represents a landmark achievement in extending the multilateral trading system to the services sector. By establishing a framework for progressive liberalization, promoting transparency, and addressing the specific needs of developing countries, GATS aims to unlock the potential of the services sector as a driver of economic growth and development. However, ongoing negotiations and the complexities of different modes of supply continue to pose challenges to its full implementation and effectiveness. Future success hinges on balancing liberalization with the need to protect domestic interests and ensure equitable benefits for all member countries.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.