TRADE IN SERVICES - World Trade Organization

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Did you know?Over the past 20 years, trade in serviceshas become the most dynamic segmentof world trade, growing more quicklythan trade in goods. Developingcountries and transition economies haveplayed an increasingly important rolein this area, increasing their share inexports of world services from a quarterto one-third over this period.Figure 1: Share of developing economies1 in worldexports of services, 1995-20146,0004,0003,0002,0001,000World1Including transition economies in the Commonwealth of Independent States.Source: WTO-UNCTAD-ITC trade in services dataset14132012201120102009Developing 209819971996191995019USD billion5,000

General Agreement on Trade in ServicesThe WTO’s General Agreement on Trade in Services (GATS) entered into forcein 1995. It remains the only set of multilateral rules covering international tradein services. The Agreement reflects the gradual transfer of responsibility formany services from government-owned suppliers to the private sector andthe increased potential for trade in services brought about by advances ininformation and communication technology.The GATS acknowledges that in many instances suppliers and consumers haveto be in physical proximity for services to be traded. It identifies four differentways, or “modes”, of supplying services (see page 4).Services covered by the GATS are not automatically opened to competition. WTOmembers guarantee access to their markets only in those sectors and modes ofsupply specified in their “schedules of commitments”, subject to any “limitations”they wish to maintain. These schedules provide legally binding commitments.The only obligation that applies across all services covered by the GATS is themost-favoured-nation (MFN) principle, meaning suppliers of services from allcountries are treated in the same way.The GATS covers all services (see Box 1), with the exception of “servicesprovided in the exercise of governmental authority” and the bulk of air transportservices.Box 1: Main services sectorsBusiness and professional services,including: Accountancy services Advertising services Architectural and engineering services Computer andrelated services Legal servicesCommunication services Audiovisual services Postal and courier services TelecommunicationsConstruction and related servicesDistribution servicesEducational servicesEnergy servicesEnvironmental servicesFinancial servicesHealth and social servicesTourism servicesTransport services3

How are services traded?The GATS defines trade in services interms of modes of supply: Mode 1 covers services suppliedfrom one country to another (forexample, call centre services). Mode 2 covers consumers or firmsmaking use of a service in anothercountry (for example, throughinternational tourism). Mode 3 covers a foreign companysetting up subsidiaries or branchesto provide services in anothercountry (such as a bank setting upa branch overseas). Mode 4 covers individualstravelling from their own countryto supply services in another (forexample, a consultant travellingabroad to provide an IT service).Mode 2 is by far the most liberalizedmode in terms of commitmentsby WTO members. This is mostlydue to governments being lesslikely to restrict the movements ofcitizens outside domestic borders(e.g. tourists). Mode 1 is not oftencommitted, mostly because it isimpossible for many services to besupplied remotely (e.g. constructionservices), while mode 3 is more open,reflecting its crucial role in drivingthe international supply of services,transferring know-how and improvingthe capacity of economies toparticipate in global value chains.4Mode 4 has the lowest depth ofcommitments, probably due to anumber of sensitivities involved withthe movement of foreign workers.In 2014, trade in services totalled USD4,800 billion, representing 21 per centof world trade in goods and services.However, this total does not coverservices delivered via foreign affiliates(i.e. essentially mode 3). The totaltrade in services is therefore estimatedto be much larger, even twice as large,as mode 3 represents 55 per cent oftotal services trade (see Figure 2).Figure 2: Share of servicestrade, by mode of supply 5%Mode 1Mode 230%55%10%Source: WTO Secretariat.Mode 3Mode 4

GATS commitmentsThe sector most commonly includedin WTO members’ schedules ofFigure 3: Average numberof committed sectors, bygroup of WTO members1104829104embe AllrsDeec veon loom peie desin co Decl no vud m eloin ie pg s ( inL n gLe DC otsco asun t-d )tr evie es lo(L pth EcoDC ede ns)W oTO misi es jnc oe ini19 ng9552mOut of a total of approximately 160service sectors, WTO members have,on average, listed about 50 in theirschedules of commitments, pledgingsome degree of market opening(see Figure 3). Developed countrieshave commitments in nearly fourtimes as many sectors (some 110)as least-developed countries (LDCs).But economies that have joined theWTO since 1995 have committedto a significantly higher number ofsectors than the “original” membersat similar levels of development.Unlike in the General Agreementon Tariffs and Trade (GATT), wheretariffs are the only permissiblerestrictions, the limitations attached toWTO members’ GATS commitmentscover a broad range of measures,including numerical quotas, limits onforeign ownership, and discriminatorysubsidies.Source: WTO Secretariat.commitments is tourism, followedby infrastructure services (financialservices, business services, andtelecommunications). The sectors leastfrequently included in commitmentsare education and health services,reflecting the high levels of directgovernment provision in these services(see Figure 4).160140120100806040200Ttr ouav rel ismre ala otherntranspcoorRe mmtcruea nic Ottioat heian nal on rd ,csp ulor turEntin sportEducatHeioalnan th rd elaso teci dalNumber of membersFigure 4: Number of WTO members with commitments,by sectorSource: I-TIP Services database, June 2015.5

Extending commitments through sectoralnegotiationsAt the end of the Uruguay Roundin 1994, members agreed thattheir commitments in financialservices, telecommunications,maritime transport and mode 4 wereunsatisfactory and decided to extendnegotiations in these areas. Thesenegotiations resulted in enhancedcommitments by some 70 WTOmembers in telecommunications andfinancial services in 1997. The talksachieved more limited success inmode 4 but no agreement could bereached in maritime transport services.Negotiations in telecommunicationsand financial services were conductedamong a subset of members. But theresulting commitments were on a6“most-favoured nation” basis, meaningthey were extended to the benefit ofall WTO members.The negotiations in telecoms alsoled to the adoption of a “ReferencePaper” setting out regulatoryprinciples to reinforce the opening upof the telecoms market. The paperspecifies best practice in telecomsregulation, covering areas such asthe independence of the regulator,interconnection safeguards, licensingprocedures and universal serviceobligations. It also spells out howcompetition in the telecoms sectorshould be safeguarded, providingan international blueprint fortelecommunications reform.

Improving information on trade in servicesIn response to the growing demand for information on trade in services, the WTOand the World Bank joined forces to establish the Integrated Trade IntelligencePortal for services (I-TIP services). Launched in 2013, I-TIP services is a setof databases listing services commitments by WTO members in the GATS andregional trade agreements, the measures they have actually applied and relatedservices statistics. The aim is to assist policy-making and analytical work. TheWorld Bank and the WTO are currently working to substantially increase thelevel of information provided on services trade policies and regulations currentlyapplied by WTO members.For more information, visit I-TIP services at:

SummaryServices represents the most dynamic segment of international trade. Aswell as being important in its own right, the services sector provides keyinputs into the production and trade of all products, playing an importantrole in global value chains and economic development. The WTO’sGeneral Agreement on Trade in Services (GATS) provides the legalground rules for international trade in services, allowing WTO membersthe flexibility to open their markets to foreign competition to the extent oftheir choosing.Further informationWTO publications can be purchased from the WTO online bookshop and from aworldwide network of distributors.http://onlinebookshop.wto.orgA Handbook on the GATSAgreementA Handbook on ReadingWTO Goods and ServicesSchedulesOpening Markets for Tradein Services: Countries andSectors in Bilateral andWTO NegotiationsTrade in services information on the WTO website: credit – page 6: iStockphoto /Meinzahn8

In 2014, trade in services totalled USD 4,800 billion, representing 21 per cent of world trade in goods and services. However, this total does not cover services delivered via foreign affiliates (i.e. essentially mode 3). The total to be much larger, even twice as large, as mode 3 represents 55 per cent of total services trade (see Figure 2).

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General Agreement on Trade in Services (GATS) in the World Trade Organization (WTO) in 1994, and in past U.S. free trade agreements, all of which contain significant provisions on market access and rules for liberalizing trade in services. Trade negotiations involving trade in services currently under discussion include the following:

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López Austin, Alfredo, “El núcleo duro, la cosmovisión y la tradición mesoamericana”, en . Cosmovisión, ritual e identidad de los pueblos indígenas de México, Johanna Broda y Féliz Báez-Jorge (coords.), México, Consejo Nacional para la Cultura y las Artes y Fondo de Cultura Económica, 2001, p. 47-65. López Austin, Alfredo, Breve historia de la tradición religiosa mesoamericana .