Introduction
The General Agreement on Trade in Services (GATS) is a landmark treaty of the World
Trade Organization (WTO) that came into force on January 1, 1995, following the Uruguay
Round of multilateral trade negotiations. It is the first and only set of multilateral rules
designed to govern international trade in services.
Prior to GATS, the global trade system under GATT focused almost exclusively on goods.
Services, however, presented a unique challenge as they are often described as "intangible,
ubiquitous, and difficult to define". Unlike goods, services are typically non-storable and
often require a simultaneous action between the service provider and the consumer. GATS
was created to extend multilateral trade principles to this complex and growing sector,
providing a framework for the "conduct of trade relations" among its members.
Key Objectives and Functions
The primary objective of GATS is to create a reliable and predictable framework for the
progressive liberalization of trade in services. It includes:
• Creating a predictable framework: It provides a common set of rules for the conduct
of trade in services among WTO members.
• Facilitating negotiations: It provides a forum for members to negotiate the reduction
of barriers and to liberalize service sectors.
• Ensuring transparency: It requires members to publish their regulations and establish
inquiry points to provide information.
• Resolving disputes: It provides a mechanism for securing solutions to trade disputes
in the services sector.
Scope and Coverage
The GATS agreement has a very broad scope, which is defined in Article I.1 as applying to
"measures by Members affecting trade in services".
1. "Measures"
This term is defined very broadly in Article XXVIII(a) to mean "any measure by a Member,
whether in the form of a law, regulation, rule, procedure, decision, administrative action, or
any other form".
2. "by Members"
This specifies who must take the measure. The agreement covers measures taken by:
• All levels of government: This includes central, regional, or local governments and
authorities.
• Non-governmental bodies: This includes measures by non-governmental bodies that are
exercising powers delegated to them by a government.
3. "Affecting Trade in Services"
• The WTO Appellate Body has emphasised that “affecting” has a broad meaning: it covers
measures that bear upon, have an effect on, or influence trade in services. But there must
still be a connection between the measure and trade in services.
• The agreement covers all service sectors, with the exception of services "supplied in the
exercise of governmental authority" (e.g., social security, public-funded education, etc.).
4. Coverage: The GATS and GATT Overlap
A key issue in defining GATS's coverage is its potential overlap with GATT, as many
measures can affect both goods and services.
The GATS and GATT 1994 are not mutually exclusive agreements. The Appellate Body has
clarified that, depending on the nature of the measure, there are three possible categories of
coverage:
• Measures Exclusively under GATT 1994: These are measures that fall within the scope of
GATT 1994 because they affect trade in goods as goods.
• Measures Exclusively under GATS: These are measures that fall solely within the scope
of GATS because they affect the supply of services as services.
• Measures under Both GATS and GATT 1994: This is the third category, which includes
measures that involve a service related to a particular good or a service supplied in
conjunction with a specific product. In these cases, the measure can be scrutinized under
both agreements.
An example of this overlap was seen in the EC-Bananas-III case. The issue involved the
distribution of banana import licenses (a service) to wholesale service suppliers. The EC
argued that the measure was about goods and couldn't be challenged under GATS, but the
Appellate Body held that the two agreements could overlap.
The Four Modes of Supply
A central feature of the General Agreement on Trade in Services (GATS) is that it does not
define "services," which are intangible and complex. Instead, it defines trade in services by
identifying four "Modes of Supply," which classify how a service can be traded. GATS
Article I:2 sets out four modes of supply for ‘trade in services’.
These four modes are based on the territorial presence of the service supplier and the service
consumer at the time of the transaction.
1. Mode 1: Cross-Border Supply
This is the supply of a service "from the territory of one Member into the territory of any
other Member".
• How it works: In this mode, only the service itself crosses the border. The service
provider and the consumer remain in their respective countries.
• Examples:
o Telecommunication services.
o The supply of education services through a distance education program.
o Business Process Outsourcing (BPO) and Legal Process Outsourcing (LPO). o A user in
one country receiving services from abroad through postal
infrastructure.
o Professional services or computer-related services provided remotely.
2. Mode 2: Consumption Abroad
This is the supply of a service "in the territory of one Member to the service consumer of any
other Member".
• How it works: In this mode, the consumer moves to the territory of the service
supplier.
• Examples:
o Students going abroad to attend a foreign university.
o Patients traveling to another country for medical treatment.
o Tourists traveling abroad and consuming services like hotels and restaurants. o A
company sending its property, such as a ship, abroad for repair.
3. Mode 3: Commercial Presence
This is the supply of a service "by a service supplier of one Member, through commercial
presence in the territory of any other Member".
• How it works: The service supplier establishes a "commercial presence," such as an
office, branch, or subsidiary, in the consumer's country to provide the service.
• Examples:
o The establishment of foreign universities or hospitals in a consumer's country. o A
foreign-owned bank, hotel group, or construction company setting up a
subsidiary in another country.
o Financial services or telecommunication services provided by a foreign-owned
affiliate.
4. Mode 4: Presence of Natural Persons
This is the supply of a service "by a service supplier of one Member, through presence of
natural persons of a Member in the territory of any other Member".
• How it works: An individual (a "natural person") temporarily travels from their own
country to the consumer's country to provide a service.
• Important Note: The GATS Annex on this mode specifies that it does not apply to
"measures affecting natural persons seeking access to the employment market" or
measures related to "citizenship, residence or employment on a permanent basis".
• Examples:
o Foreign doctors, engineers, managers, or consultants traveling to a consumer's
country to provide their services.
o An employee of a company (e.g., a consultancy firm or construction company)
sent on a temporary assignment to another country.
Obligations Under the Agreement
Obligations under the GATS are divided into two main categories: (i) specific commitments
and (ii) general obligations.
A. Specific Commitments
Specific commitments are obligations that apply only to the extent that a WTO Member has
explicitly agreed to undertake them in its "schedule of commitments". These commitments,
which cover market access and national treatment, are based on a "positive list" approach.
1. Schedule of Commitments
A Member's schedule is the central document for its specific commitments.
• Structure: While GATS uses a "positive list" approach (meaning obligations only
exist if specified), the schedules themselves are designed in "negative terms". A
Member first decides which service sectors to open and then lists the limitations (or
exceptions) to those commitments.
• Types of Entries:
• Full Commitment ("None"): If a Member enters "none" in its schedule for a
specific sector and mode of supply, it means it is fully committed and does not
seek to limit market access or national treatment.
• Commitment with Limitations: A Member may list specific limitations (e.g.,
"foreign equity limited to 51%"). In this case, the Member is bound to provide
market access and national treatment subject to those limitations, and it cannot
create new limitations not listed in the schedule.
• No Commitment ("Unbound"): If a Member enters "unbound," it indicates
that no obligation has been taken for that sector or mode of supply.
2. Market Access (Article XVI)
This commitment relates to a Member's rules for market access. Article XVI(2) provides an
exhaustive list of measures that are considered market access limitations. If a Member makes
a market access commitment, it cannot maintain these measures unless they are specified in
its schedule.
These limitations include:
• Limitations on the number of service suppliers (e.g., quotas or monopolies).
• Limitations on the total value of service transactions or assets.
• Limitations on the total number of service operations or quantity of service output.
• Limitations on the total number of natural persons who may be employed.
• Measures that require specific types of legal entities or joint ventures to supply a
service.
• Limitations on the participation of foreign capital, such as a percentage limit on
foreign shareholding.
3. National Treatment (Article XVII)
This is the second major specific commitment.
Definition: If a Member makes a national treatment commitment, it must accord to the
services and service suppliers of any other Member "treatment no less favorable" than it
accords to "its own like services or service suppliers".
"Less Favorable" Treatment: This is defined as treatment that "modifies the conditions of
competition" in favor of the Member's own domestic services or suppliers. This includes both
de jure (explicitly discriminatory) and de facto (facially neutral but discriminatory in effect)
treatments.
B. General Obligations
General obligations are found in Part II of the GATS and apply to all WTO Members and all
service sectors, regardless of whether a Member has made specific commitments in that
sector.
1. Most-Favored-Nation (MFN) Treatment (Article II)
This is the core general obligation.
Definition: Article II:1 requires that each Member "immediately and unconditionally"
provide "treatment no less favorable" to the "like services and service suppliers" of "any other
country".
Function: In simple terms, a Member cannot play favorites. If it gives an advantage to one
WTO Member, it must extend that same advantage to all other WTO Members.
2. Transparency (Article IV)
Members are required to:
• Publish Measures: Promptly publish all relevant measures of general application that
affect the operation of GATS.
• Inform Council: Inform the Council for Trade in Services at least annually of any
new measures adopted.
• Maintain "Inquiry Points": Each Member must maintain inquiry points to provide
specific information to other Members upon request.
3. Domestic Regulations (Article VI)
This obligation ensures that a Member's domestic rules do not undermine its commitments.
• Administration: All measures of general application must be administered in a
"reasonable, objective and impartial" manner.
• No Unnecessary Barriers: Measures relating to qualification requirements, technical
standards, and licensing must not be "more burdensome than necessary" to ensure the
quality of the service and must not constitute "unnecessary barriers to trade".
4. Recognition (Article VII)
Purpose: This article allows Members to recognize the education, experience, or
certifications granted in another country.
Obligation: Recognition should not be used as a means of "discrimination between
countries" or to create a "disguised restriction on trade". Members must also provide an
"adequate opportunity" for other Members to join such recognition agreements.
Exceptions to Obligations
GATS provides exceptions that allow Members to deviate from their obligations under
specific circumstances.
A. General Exceptions (Article XIV)
Article XIV provides general exceptions, similar to Article XX of the GATT. To use a
general exception, a Member must satisfy a "two-tier" test.
Tier 1: The Chapeau (Introductory Clause) First, the measure must not violate the
"chapeau" of Article XIV. The chapeau states that the measure must not be applied in a
manner that constitutes:
1. "Arbitrary or unjustifiable discrimination" between countries where the same
conditions prevail.
2. A "disguised restriction on trade".
Tier 2: The Specific Grounds If the measure passes the chapeau, it must be justified under
one of the specific paragraphs. The GATS provides fewer grounds than GATT. The most
common grounds are measures "necessary" for:
• The protection of public morals or the maintenance of public order.
• The protection of human, animal or plant life or health.
• Ensuring compliance with laws not inconsistent with GATS (e.g., preventing fraud
or protecting privacy).
Case Example: US-Gambling (WT/DS285)
The Case: The US prohibited the cross-border supply of internet gambling services, which
Antigua claimed violated the US's market access commitments.
• The Defense: The US invoked Article XIV(a), claiming the ban was "necessary" to
protect public morals (addressing money laundering, organized crime, and underage
gambling).
• The Ruling:
• Tier 2 (Grounds): The Appellate Body agreed with the US that the measure
was "necessary" and covered under Article XIV(a).
• Tier 1 (Chapeau): However, the measure failed the chapeau test. The Panel
and Appellate Body found that the US did permit remote betting for domestic
horse racing (under the Interstate Horseracing Act), but not for foreign
suppliers. This constituted "unjustifiable discrimination" and a failure to meet
the chapeau's requirements.
B. Security Exceptions (Article XIVbis)
This article corresponds to Article XXI of the GATT and provides exceptions for national
and international security.
• Scope: It allows a Member to take any action "it considers essential" for the
protection of its security interests.
• Key Issue: A major dispute has been whether this "it considers" language makes the
exception entirely "subjective" (meaning a Panel cannot review it) or whether its
necessity can be evaluated by a Panel. The document notes this issue was "hopefully
settled" by the panel decision in Russia-Transit.
Analyze the implications of GATS on Legal services in India. List out the arguments for
and against the liberalisation of legal services in India.
The GATS framework applies to legal services, which are often supplied via Mode 1 (LPO,
remote legal advice) and Mode 4 (lawyers traveling to advise clients). However, India has
historically maintained significant restrictions on this sector.
Implications and Current Status:
• Historical Barrier: The Advocates Act, 1961, has been the primary barrier, as it
mandates that only Indian citizens enrolled with a state Bar Council can practice law
in India.
• "Fly-in, Fly-out" Exception: For years, the only exception, affirmed by the Supreme
Court of India (BCI v. A.K. Balaji), was the "fly-in and fly-out" model. This allows
foreign lawyers to visit India temporarily to advise clients on foreign or international
law, but they are prohibited from setting up any office.
• Recent Liberalization (2023): In March 2023, the Bar Council of India (BCI)
introduced new rules to permit the registration of foreign lawyers and law firms.
However, this is a limited opening. Registered foreign lawyers can only practice in
non-litigious areas:
• Advising on foreign and international law.
• Representing clients in international commercial arbitration.
• They are explicitly banned from appearing in any Indian court or tribunal and
cannot advise on Indian law.
• GATS Context: This move is seen as a calibrated step by India to meet some of its
GATS-related pressures while protecting its domestic legal profession. The response
from foreign firms has been lukewarm, as many find the rules and registration fees
"onerous" and "cumbersome."
Arguments for Liberalisation:
• Client Demand: There is high demand from foreign investors and large Indian
corporations involved in cross-border transactions. They want a "one-stop shop" for
legal advice from the international firms they are familiar with.
• Increased Competition & Quality: Entry of foreign firms would force Indian firms
to improve their service quality, efficiency, and professional standards, ultimately
benefiting clients with more choice and competitive pricing.
• Gain Expertise: Indian lawyers working in or with foreign firms would gain valuable
"niche expertise" in complex areas of international law and transactions.
• Boost to LPO: A more open market would build trust and drive more high-value
work to India's successful Legal Process Outsourcing (LPO) sector.
• Arbitration Hub: Allowing foreign lawyers to practice in international arbitrations is
crucial for making India a more attractive hub for international dispute resolution.
• Reverse Brain Drain: The creation of high-paying jobs and world-class opportunities
in India could incentivize talented Indian lawyers currently working abroad to return.
Arguments against Liberalisation:
• Uneven Playing Field: The primary fear is that small and mid-sized Indian firms
cannot compete with the vast financial resources, brand recognition, and global
networks of large foreign law firms.
• Loss of Work: Many local practitioners fear that foreign firms will "poach" their
clients and talent, particularly the "best and brightest" lawyers.
• Regulatory Disadvantage: Indian law firms face domestic restrictions that foreign
firms do not, such as prohibitions on advertising, limitations on partnership size, and
an inability to form multi-disciplinary practices (e.g., with accounting firms).
• Sovereignty: The legal profession is often seen as a core part of national sovereignty
and the justice system, not just a "business" to be traded.
• Litigation vs. Transactional: There is a strong desire to protect the "litigation" side
of the profession, which is why the 2023 rules strictly limit foreign lawyers to "non-
litigious" work.
'The General Agreement on Trade in services under the WTO is a major step in
uncharted terrain of liberalizing trade in services.' Summarize with the help of relevant
provisions.
This statement is highly accurate. The GATS was a revolutionary and complex undertaking,
venturing into territory that trade negotiators had previously avoided.
Here is a summary supporting this claim:
1. Defining the Undefinable: Unlike goods, services are "intangible, ubiquitous, and
difficult to define". The negotiators had to create a new framework from scratch
because the existing GATT rules for tangible goods were unsuitable.
2. Overcoming Resistance: The very idea of including services was highly
controversial. Many developing countries resisted, fearing that liberalization would
"heavily curtail their sovereign regulatory power" and that their domestic providers
would be unable to compete.
3. A New "Positive List" Structure: To accommodate these fears, GATS uses a
"positive list approach" for its main obligations (Market Access and National
Treatment). This is the opposite of GATT's "negative list." Under GATS, a service
sector is not liberalized unless a member positively and explicitly lists it in its
"schedule of commitments". This flexibility was essential for getting members to
agree to the "uncharted terrain" by allowing them to control the pace and extent of
liberalization.
4. A "Framework Agreement": The GATS was concluded as a "framework
Agreement" precisely because it was so new. Negotiators were working "without
proper guidance" and lacked the statistical data to predict the repercussions.
5. A "Built-in Agenda": Because it was a first step, GATS left many of the most
difficult issues for future negotiations. The agreement includes a "built-in agenda" for
the Council for Trade in Services to develop rules for complex areas like safeguards
(Article X), subsidies (Article XV), and government procurement (Article XIII).
The fact that these foundational rules were not finished in 1995 underscores that
GATS was the start of a long journey, not the final destination.
