The General Agreement on Trade in Services (GATS) was an integral part of the Uruguay Round, which was concluded in April 1994 in Marrakesh, Morocco. GATS consists of: (1) the Framework Agreement (Articles of Agreement); (2) annexes dealing with specific sectors (e.g. financial services, telecommunications); and (3) specific commitments by individual countries to keep markets open to foreign services and service providers. The specific commitments also contain lists of exemptions from most-favored-nation treatment (MFN) -- treating trading partners equally, a GATS requirement unless countries take an MFN exemption, which must be terminated after 10 years. The specific commitments (together with any MFN exemptions) determine the extent to which the basic principles of the GATS (market access, national treatment and MFN) apply to a particular WTO member.

Schedules are divided into two sections: (1) "horizontal" commitments which apply to all sectors included in the schedule; and (2) "sector-specific" commitments, which apply to trade in services in a particular sector (e.g. distribution services, educational services, professional services, financial services). There are a total of 12 sectors in the GATS schedules. A full evaluation of a member’s commitments must take into account both sectoral and horizontal commitments.

Commitments are entered with respect to four modes of supply:

1) Cross-Border Supply: opportunity for non-resident service suppliers to supply services cross-border into the member’s territory.

2) Consumption Abroad: opportunity for member’s residents to purchase services in territory of another member.

3) Commercial Presence: opportunity for foreign service suppliers to establish, operate or expand a commercial presence in a member’s territory (e.g. branch, agency, wholly-owned subsidiary).

4) Presence of Natural Persons: opportunity for entry and temporary stay in a member’s territory of foreign persons to supply a service.

The schedules contain two main columns: limitations on market access and limitations on national treatment, two of the cornerstone principles of the GATT and its successor, the WTO. "Market Access" refers to measures not to be taken unless specified in a Member’s schedules. In general, the market access column contains quantitative restrictions (e.g. quotas on number of service suppliers or amount of services provided, economic needs tests and equity limitations). Market access must be negotiated and countries may take exceptions in their schedules. "National Treatment" means that foreign services and service suppliers must be treated the same as domestic services and service suppliers. As with market access, national treatment must be negotiated and countries may take exceptions in their schedules. The last column in the GATS schedules is for "additional commitments", non-obligatory commitments in areas other than national treatment and market access, including standards and licensing matters.

A specific commitment in a schedule is an undertaking by a member to provide market access and national treatment for the service in question, on the conditions specified and for the four modes of supply. A WTO member binds the particular level of market access and national treatment and commits not to impose additional measures which restrict market entry or operation of the service. Commitments can only be withdrawn or modified after compensation is made to affected countries, and no withdrawals or modifications may be made until 3 years after entry into force of the GATS.

Thus, for each sector, a commitment consists of eight entries which indicate the presence or absence of market access or national treatment limitations with respect to each of the four modes of supply. Where there are no limitations on market access or national treatment in a given sector and mode of supply, the schedule reads: "NONE". This means there are no limitations specific to this sector. There may be limitations in the horizontal commitments section of the schedule, which affect all sectors. A thorough analysis of schedules involves a review of both horizontal and sector-specific commitments. Finally, if the schedule reads "UNBOUND", it means the member remains free in a given sector and mode of supply to introduce or maintain measures inconsistent with market access or national treatment. WTO members are permitted to adopt these measures as long as they are applied on an MFN basis. Finally, the schedules contain a section entitled "Article II (MFN) Exemptions", which allows a member to discriminate in its treatment of other WTO members in a particular sector, as long as the MFN exemption applies to all WTO members. MFN exemptions cannot be maintained for more than 10 years, and are subject to review after 5 years.

Prepared by: Sara E. Hagigh, International Trade Specialist, U.S. Department of Commerce, Office of Service Industries, Tel: (202) 482-1542; Fax:(202) 482-4806; email: Sara_Hagigh@ita.doc.gov.

September 16, 1999