Content of the WTO's General Agreement on Trade in Services (GATS)

I. What is GATS?

GATS, short for the General Agreement on Trade in Services, is an agreement within the WTO framework, established in 1995, that sets out the rules for trade in services. The principles in this Agreement are mandatory for all WTO Members. However, these are only general principles for trade in services. The specific obligations of each member country in opening its service market (for services and service providers from other WTO member countries) are stated in its own Service Commitment Schedule (This Schedule is the result of negotiations to open the service market of that country when joining the WTO).

II. What are the Principles of GATS?

Trade in services, in general, must follow the basic principles of the WTO for trade in goods but with flexible application for developing countries and the economic and social characteristics of each country. The basic principles of the WTO include:

- The principle of non-discrimination includes two regulations: Most-Favored-Nation Treatment (members must grant non-discriminatory treatment to goods and services from different WTO countries) and National Treatment (each member country must treat goods, services from member countries (after completing tariff obligations) no less favorably than their own domestic goods and services.

- The principle of market access includes two aspects: First, member countries open markets to each other through gradual tariff and non-tariff barrier reductions, moving towards the elimination of tariff and non-tariff barriers, paving the way for trade development; second, trade policies and regulations must be made public, timely, and transparent so that the trade environment and prospects can be predicted.

- The principle of fair competition requires WTO member countries to eliminate protection through non-tariff measures because it distorts trade, such as quotas, licenses, import quantity restrictions, etc., and only use the only tool is tax, but the tax schedules must be gradually reduced during the integration process.

- The principle of applying emergency actions when necessary, allowing member countries to refuse a certain obligation or take urgent, necessary actions recognized by other member countries to protect domestic production and markets when threatened by excessive imports or discriminated against, causing harm to that country.

- The principle of preferences for developing and least developed countries is to create conditions for these countries to gradually adapt to WTO institutions, such as extending the time or reducing the level of implementation of commitments.

III. What are the Basic Contents of GATS?

3.1) Regarding the method of applying services:

The "negative approach" method is a commitment in the form of "doing everything that is not restricted." The "positive approach" method is a commitment in the form of "only doing what is allowed."

The WTO uses a positive approach when determining the scope of commitments, i.e., the services included in the Service Commitment Schedule. Accordingly, the committing party only commits to opening the market for the services listed in the Schedule. For services not listed in the Schedule, the committing party has no obligation.

3.2) Regarding the method of providing services:

GATS stipulates four methods of providing services, including 1) cross-border supply, 2) consumption abroad, 3) commercial presence, and 4) presence of natural persons.

The cross-border supply method (referred to as Method 1) is the method by which services are provided from the territory of one Member to the territory of another Member, i.e., there is no movement of the service provider and consumer to each other's territory. For example, consulting services can be provided in this way.

The consumption abroad method (referred to as Method 2) is the method by which a Member's consumer travels to the territory of another Member to consume services. For example, foreign tourists come to Vietnam.

The commercial presence method (referred to as Method 3) is the method by which a service provider of a Member establishes forms of presence, such as a 100% foreign-owned company, joint venture company, branch, etc., in the territory of another Member to provide services. For example, a US bank establishes a branch to do business in Vietnam.

The presence of natural person method (referred to as Method 4) is the method by which a natural person providing services of a Member travels to the territory of another Member to provide services. For example, foreign artists come to Vietnam to perform.

3.3) Commitment level

Since the conditions used in each Member's Commitment Schedule will create legally binding commitments, it is necessary to be accurate in expressing whether or not there are restrictions on market access and national treatment. Depending on the level of restriction that each Member can impose, there are usually four cases:

3.3.1) Full commitment:

Members do not impose any restrictions on market access or national treatment for one or more services or for one or more methods of providing services. In this case, Members will express the phrase "No Restrictions" in their Commitment Schedule in the appropriate columns and service delivery methods. However, the restrictions listed in the general commitment section still apply.

3.3.2) Commitment with restrictions:

Members agree to open the market for one or more service industries but list in the corresponding columns of the Commitment Schedule the restrictive measures applied to foreign service providers. In this case, Members will express in their Commitment Schedule phrases such as "No restrictions, except ...." or "Not yet committed, except ...". Based on the principle of choosing - discarding, if only measures are listed without including one of the two phrases above, it is naturally understood as "No restrictions, except ..".

3.3.3) No commitment:

Members may maintain the ability to impose all measures restricting market access and national treatment for one or more specific service delivery methods. In this case, Members will express the phrase "Not yet committed" in the Commitment Schedule. In this case, the commitments listed in the general commitment section still apply.

3.3.4) No commitment due to technical infeasibility:

In some cases, a service delivery method may be technically infeasible. For example, house-building services are provided across borders. In this case, Members will express the phrase "Not yet committed" but note that "due to technical infeasibility."

 

The information contained in this article is general and intended only to provide information on legal regulations. DB Legal will not be responsible for any use or application of this information for any business purpose. For in-depth advice on specific cases, please contact us.

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