GATS BASICS: key rules and concepts

We recently announced a series of entrances in GlobalHigherEd on the World Trade Organization’s two controversial trade agreements launched in 1995 – the General Agreement on Trade in Services (GATS) and the Trade Related Intellectual Property Services (TRIPS). The series explores the relation between these two agreements and Higher Education sector. Our first entrance focused on the history of the World Trade Organization, and the GATS and TRIPS.

This entrance introduces some of the language and concepts used to describe the processes and instruments in order that readers might develop a better understanding of the GATS’ content and architecture.

The GATS is one of the main agreements of the WTO. In fact, this agreement has been described by the WTO itself as:

the most important event in the system of multilateral trade since GATT came into force in 1948.

In the preamble of the Agreement it is established that the core aim of the GATS is to promote trade liberalization of all kind of services. Specifically, the GATS contemplates the liberalisation of twelve services sectors, among which we find educational services.

Educational services are, in turn, divided into five sub-sectors:

  • primary education;
  • secondary education;
  • higher education;
  • adult education; and
  • other educational services.

One of the reasons for the complexity of GATS is related to the technical difficulties associated with the commercialization of services. We should take into account that services are usually consumed where they are produced and are both produced and consumed simultaneously.

So, how is it possible to ‘export’ services?

To solve these dilemmas, the agreement contemplates four modes of commercializing services (instead of the unique mode of trade in goods). These are:

  1. cross-border supply: provision of a service at a distance. In the case of education, this mode materializes in e-learning or, in general, in distance learning programs;
  2. consumption abroad: the consumer (in our case the student) travels to another country to access to the service;
  3. commercial presence: the service company sets up a subsidiary abroad. For example, a university sets up a branch campus in another country;
  4. presence of natural persons: a professional travels to a foreign country to provide a service.

All WTO member countries are supposed to adopt liberalization commitments on services by means of successive negotiation rounds (such as the Uruguay Round 1986-1994, and the Doha Round 2001-?). In these rounds, countries negotiate trade opening in relation to the different services sectors, to the different modes of supply and, more importantly, in relation to two main regulatory areas: National Treatment and Market Access.

The acquisition of commitments on liberalization in terms of National Treatment means accepting that foreign companies benefit from treatment ‘not less favorable’ than that given to domestic companies.

It implies that foreign suppliers cannot be discriminated against in relation to national providers and to certain policies such as subsidies, qualifications, licenses, standards and so on.

Image courtesy of Lorelyn Medina

The commitments on Market Access mean the elimination of barriers embedded in the national regulation of the sector that hinder the entrance of foreign service providers in the domestic market (for instance, limitations on the number of services suppliers which are allowed, specification of the legal personality of the providers suppliers or the percentage of foreign capital allowed).

Additionally, there are a series of general principles that are not subject to negotiation and that, consequently, have to be respected by all the countries. Probably, the most important one is the Most Favored Nation principle. This principle stipulates that each member will immediately and unconditionally assign service suppliers of a foreign country a treatment no less favorable than that given to service suppliers of any other WTO member country.

On paper, the GATS only obliges member countries to participate in negotiations; it does not oblige them, in the process of such negotiations, to establish liberalization commitments. It is also important to take note of the fact that once the countries have adopted liberalization commitments, they are very difficult to withdraw. The Agreement is viewed by some observers as a means of constitutionalizing pro-market and pro-trade rules in a binding set of rules which affects education and other services sectors at the supra-national level.

In following entrances we will deal with other basic GATS rules, the implications of liberalization commitments in the framework of the GATS, as well as with the passionate debate it has generated in the higher education field.

Toni Verger and Susan Robertson

8 thoughts on “GATS BASICS: key rules and concepts

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