General Agreement on Trade in Services

The General Agreement on Trade in Services (GATS) is a multilateral treaty of the World Trade Organization (WTO) that establishes a global framework for international trade in services. It entered into force in January 1995 following the conclusion of the Uruguay Round of multilateral trade negotiations (1986–1994). GATS was created to extend the principles of the multilateral trading system, previously applied primarily to trade in goods under the General Agreement on Tariffs and Trade (GATT), to the tertiary or services sector of the global economy. All members of the WTO are parties to the agreement.

Objectives and Rationale

The agreement recognises the growing importance of trade in services for global economic growth and development. Services such as finance, telecommunications, transport, education, tourism, and health account for a substantial and increasing share of world economic activity and employment. GATS aims to create a transparent, predictable, and rules-based multilateral framework governing trade in services, while respecting national policy objectives and levels of development.
A central objective of GATS is the progressive liberalisation of services trade through successive rounds of negotiations. This process is intended to expand market access, enhance participation by developing countries, and promote their service exports. Particular attention is given to the needs of least developed countries, acknowledging their economic constraints and development priorities in trade and finance.

Core Principles

GATS is built upon several foundational principles of the WTO system. One of the most significant is the Most-Favoured-Nation (MFN) principle, which requires members to treat services and service suppliers of one WTO member no less favourably than those of any other. This principle applies across all service sectors, regardless of whether specific commitments have been undertaken. However, upon accession, members may list temporary MFN exemptions, allowing limited departures from this rule.
Another key principle is transparency, which obliges members to publish relevant laws, regulations, and administrative guidelines affecting trade in services. Members are also required to establish enquiry points to provide information to other WTO members.
Unlike trade in goods, GATS does not impose automatic liberalisation. Instead, it operates on a positive list basis, meaning that members choose which service sectors to liberalise, the extent of liberalisation, and the conditions under which foreign services and suppliers may operate.

Structure of the Agreement

GATS consists of three main components:

• The Framework Agreement, setting out general obligations and disciplines
• National Schedules of Commitments, specifying sector-specific market access and national treatment commitments
• Annexes, addressing particular sectors or issues, such as financial services, telecommunications, air transport, and the movement of natural persons

The agreement forms Annex 1B of the Marrakesh Agreement establishing the WTO. Within the European Union, the European Economic Community ratified the Uruguay Round agreements within the scope of its competencies, enabling GATS to apply across member states.

Modes of Supply

A distinctive feature of GATS is its definition of four modes of supply, which describe how services are traded internationally:

• Mode 1: Cross-border supply – services supplied from the territory of one member into another (e.g. online consultancy)
• Mode 2: Consumption abroad – consumers travel to another country to obtain services (e.g. tourism, international education)
• Mode 3: Commercial presence – a foreign supplier establishes operations in another country (e.g. foreign bank branches)
• Mode 4: Movement of natural persons – individuals temporarily move to supply services in another country

The Annex on the Movement of Natural Persons clarifies that Mode 4 applies only to temporary movement for service provision and does not cover access to permanent employment markets.

Services Sector Classification

Service sectors covered under GATS are defined by the Services Sectoral Classification List, commonly known as the W/120 list, based on a WTO document issued in 1991. This classification identifies twelve broad service sectors, subdivided into numerous subsectors:

• Business services
• Communication services
• Construction and engineering services
• Distribution services
• Education services
• Environmental services
• Financial services
• Health-related and social services
• Tourism and travel-related services
• Recreational, cultural, and sporting services
• Transport services
• Other services not included elsewhere

Members negotiate commitments using this classification as a reference point, although they may adapt it to national circumstances.

Liberalisation and Commitments

While the overall goal of GATS is to reduce barriers to services trade, members retain significant flexibility. They determine which sectors to liberalise, which modes of supply apply, and what limitations are maintained. Commitments are subject to a ratchet effect, meaning that once a sector is liberalised, commitments cannot easily be reversed.
However, Article XXI of GATS allows members to modify or withdraw commitments, provided they negotiate compensation with affected members. To date, this provision has been used sparingly, notably by the United States, the European Union, and Bolivia, which notified the withdrawal of its health services commitments in 2008.

Development Dimension

A stated objective of GATS is to increase the participation of developing countries in global services trade. The agreement recognises asymmetries in economic capacity and provides for flexibility in commitments, longer implementation periods, and technical assistance. Developing countries are encouraged to strengthen domestic service sectors and gradually integrate into the global market at a pace consistent with national development strategies.
Supporters argue that GATS enhances legal certainty and predictability, which can help attract foreign investment and reduce corruption associated with opaque regulatory barriers. Critics, however, question whether developing countries possess sufficient regulatory capacity to manage liberalisation without adverse social effects.

Criticisms and Controversies

GATS has been the subject of sustained criticism from civil society organisations, trade unions, and some academic commentators. Critics argue that the agreement may undermine national regulatory autonomy, transferring authority from domestic legislatures and courts to WTO dispute settlement panels, which operate through confidential proceedings.
Concerns have been raised about the potential impact of GATS on public services. While the agreement allows governments to exclude services supplied in the exercise of governmental authority, this exclusion applies only to services provided neither on a commercial basis nor in competition with other suppliers. As many public utilities, such as water, electricity, health, and education, involve user payments or mixed provision, critics argue that they could fall within the scope of GATS.
These concerns were articulated in statements such as the 2003 GATSwatch declaration, supported by hundreds of organisations worldwide, warning that GATS could accelerate privatisation and marketisation of essential public services. Similar arguments were advanced by academic and professional bodies, including opposition to the inclusion of post-secondary education services in national commitments.
Supporters of GATS counter that no country is obliged to liberalise any service sector, and that governments retain the right to regulate in pursuit of public policy objectives. They argue that the agreement primarily promotes transparency and non-discrimination rather than mandatory privatisation.