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FOUR MODES OF WTO

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations.

The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

All members of the WTO are signatories to the GATS. The basic WTO principle of most favoured nation (MFN) applies to GATS as well. However, upon accession, Members may introduce temporary exemptions to this rule.

HISTORICAL BACKGROUND

While the overall goal of GATS is to remove barriers to trade, members are free to choose which sectors are to be progressively "liberalised", i.e. marketised and privatised, which mode of supply would apply to a particular sector, and to what extent liberalisation will occur over a given period of time.

Members' commitments are governed by a "ratchet effect", meaning that commitments are one-way and are not to be wound back once entered into.

FOUR MODES OF SUPPLY

 Modes Criteria Supplier Presence

Mode 1: Cross-border supplyService delivered within the territory of the Member, from the territory of another Member

Service supplier not present within the territory of the member

Mode 2: Consumption abroad

Service delivered outside the territory of the Member, in the territory of another Member, to a service consumer of the Member

Mode 3: Commercial presence

Service delivered within the territory of the Member, through the commercial presence of the supplier Service supplier present within the

territory of the Member

Mode 4: Presence of a natural person

Service delivered within the territory of the Member, with supplier present as a natural person.

MODE 1 - CROSS BORDER TRADE

• Buying and Selling of goods and services between businesses in different countries, with the seller being in one country and the buyer in the other country

• Services through its telecommunications or postal infrastructure

• Supplies may include consultancy or market research reports, tele-medical advice, distance training, or architectural drawings

• Mode 1 contributes to 35% of services trade internationally

• Measures affecting Mode 1 Trade:

- Commercial Presence Requirements, Residency Requirements, Citizenship Requirements, Authorization and/or Licensing Requirements, Limitations on insurance

MODE 1 - CROSS BORDER TRADE

India and France negotiations on declaration of Data Adequacy Status

• Create a trustworthy environment

• Avoid unnecessary barriers to cross-border information flows

• Interoperability of data becomes easier

• Smooth transfer of data without multiple safeguards

• The bilateral trade between India and France stood at over US $9.4 billion in 2012

• Uruguay and New Zealand added to the data adequacy list

CBT in financial services

• Establishment of branches and subsidiaries in a host country benefit consumers by contributing to more competitive and efficient markets

• Promotes economic growth and development.

Liberalization - an important policy objective in removing anti-competitive restrictions

 

MODE 2: CONSUMPTION ABROAD

Service delivered outside the territory of the Member, in the territory of another Member, to a service consumer of the Member

In other wordsConsumers or firms making use of a service in another country (e.g. tourism) is officially “consumption abroad” (“mode 2”)

Supplier Presence - Service supplier not present within the territory of the member

This mode of supply requires that the consumer of services move abroad.

EDUCATION SERVICES AND CONSUMPTION ABROAD

Possible Barriers to Trade in Education in Mode 2:

Visa Requirements

Recognition of Prior Qualifications

Foreign Currency and Exchange Requirements

Quota on Numbers of International Students

Restrictions on Employment while Studying

Recognition of new qualification by other countries

MODE 3: COMMERCIAL PRESENCE

Services supplied by a service supplier of one Member, through commercial presence, in the territory of any other Member  

In other words

locally-established affiliate, subsidiary, or representative office of a foreign-owned and — controlled company (e.g. Banks) is

officially “Commercial presence” (“mode 3”)

Supplier Presence - Service supplier is present within the territory of the member through a subsidiary or representative.

This mode of supply does not require the consumer of services to move abroad.

Measured mainly through instruments like FDI, values of assets, etc.

MODE 4: THE PRESENCE/MOVEMENT OF

NATURAL PERSONS IN GATSRelevant framework

• GATS’ main text: presence of natural persons

• GATS’ Annex :movement of natural persons

Description of Mode 4 in main text and annex Purpose of stay

Fulfilling directly a service contract, whether as a service supplier (self-employed) or as an employee

Indirectly: Presence instrumental to supply of service: through commercial presence or supply at a later stage

Duration of stay Temporary: Rules regarding citizenship, migration, residence and

permanent employment are not covered

MODE 4 CATEGORIES IN STATISTICAL FRAMEWORK?

Contractual service suppliers

– Self-employed (independent) service suppliers

– Employees of foreign service suppliers

Intra-corporate transferees and persons directly recruited by the foreign affiliate

Services sellers / Persons responsible for setting up commercial presence

Areas of uncertainty

• difference between employment and service contract

• what does constitute a service?

• many commitments currently focus on highly-skilled workers

THE SIZE OF MODE 4 TRADE?

• Small compared to total trade, and to other modes of trade in services (is the most restricted)

• Importance varies across countries and sectors

• Mobility for skilled workers increasing and facilitated by special programs

• Both developed and developing countries are traders where mode 4 can be involved

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