Services:

Services sector  is covered by  the General Agreement on Trade in Services (GATS).  This  subject came into  the  multilateral trading system  in the beginning of 1995,  as mentioned earlier.  It had been introduced at the initiative of  the developed  countries that perceived significant benefits to their economies by liberalisation of services import in the world.

The  GATS  is  centred around liberalisation  of  services,  which  entails curtailment of the functions of government  to regulate  the entry and operation of foreign services and service providers in the country. There are two broad categories  of  obligation on  liberalisation: (i) general obligations that are applicable  to all services  sectors  and (ii)  specific commitments  of liberalisation in specific services sectors.

The examples of general obligations are: the principle of non-discrimination, MFN,  which has been  explained earlier  in section 5.2.1 and also the rules regarding recognition of qualifications  and standards for supply of service. The obligations  on specific sectoral commitments are  in terms of the modes of supply of service. Four modes of supply have been envisaged:

Mode 1:  supply of service from one country  to another country, for example, supply of a software programme or an engineering design of a machine by a persodfirm from one country to a persodfirm in another country;

Mode 2:  provision of service in a country  to the consumer of another country, for example, providing medical treatment in a country  to a person of another country;

Mode 3:  supply of service by  the service supplier of one country  to another country  through commercial presence in that country, for example, supply of financial service by a banking firm by opening a branch in another country; and 

Mode 4:  supply of service  by one country to another country through presence of natural persons there, for example, providing advice or repairing a machine in another country  by an expert travelling to that country.

By specific  sectoral commitment a country undertakes the obligation to allow the provision of service  in the particular sector by a foreign service provider.  A country chooses the  sectors in which  to  allow  import, i.e.,  the provision of service by a foreign supplier. The choice is technically with the country that makes it; but  in actual practice, the  countries  enter  into  negotiations  to persuade one another  to liberalise their respective service sectors. With a wide gap between the opportunities of the developed and developing countries, an  agreement  on  the  framework for liberalisation of  import of services  is  ab initio  unbalanced. 

Because of  the widely differing supply capacity  between the developed counties and the developing countries, there will naturally be a big difference in the potential export benefits. The GATS, however, includes some intent and objectives for  the benefit of the developing countries. For example, it includes the objective of strengthening the domestic service capacity of the developing countries  and liberalisation  in sectors of export interest to the developing .countries.  It also permits them to have liberalisation in  fewer sectors and  fewer transactions in line with their development situation. The GATS  envisages progressive liberalisation in services sectors through negotiations from time to time. The first set of negotiations took place during the Uruguay Round. Now another round of negotiations is going  on as a part of the Doha Work Programme.