General Agreement on Trade in Services: What is it and Why is it Important?
The General Agreement on Trade in Services (GATS) is a multi-lateral agreement negotiated under the World Trade Organization (WTO) that aims to promote global trade in services by reducing restrictions and increasing transparency. Services such as banking, telecommunications, healthcare, and transportation are some of the sectors covered under this agreement. GATS seeks to ensure that countries follow transparent and non-discriminatory rules while liberalizing their services sector.
The GATS is considered a significant agreement because the services sector plays a crucial role in the global economy. According to the World Bank, services account for over 70% of global economic activity and employment. Thus, liberalizing trade in services can significantly contribute to economic growth, job creation, and poverty reduction.
The GATS covers four modes of service delivery: cross-border supply, consumption abroad, commercial presence, and presence of natural persons. Cross-border supply involves the provision of services between countries via electronic or virtual channels. Consumption abroad, on the other hand, refers to the acquisition of services by foreign consumers while they are in another country. Commercial presence involves setting up a foreign service provider in another country, while presence of natural persons means sending employees from one country to provide services in another.
By reducing trade barriers, GATS creates an enabling environment for service providers to access new markets, expand their operations, and improve the quality of their services. Besides, countries can benefit from the expertise and knowledge of foreign service providers and introduce competition, leading to greater efficiency and innovation.
However, GATS has faced some criticism, including concerns over national sovereignty and the possible negative impact on developing countries that may not have the capacity to compete with developed nations. Additionally, some critics argue that the agreement can undermine social and environmental standards as deregulation and privatization of services may result in reduced quality and affordability.
Despite these criticisms, GATS remains an essential agreement in promoting trade in services and contributing to economic growth. It ensures that countries engage in fair and transparent trade practices, creating a level playing field for all service providers regardless of their country of origin. Therefore, it is crucial for countries to continue working together to improve and strengthen the agreement to maximize the benefits of trade in services.