Benefits of Service Liberalization

1. Economic performance

An efficient services infrastructure is a precondition for economic success. Services such as telecommunications, banking, insurance and transport supply strategically important inputs for all sectors, goods and services. Without the spur of competition they are unlikely to excel in this role – to the detriment of overall economic efficiency and growth. An increasing number of Governments thus rely on an open and transparent environment for the provision of services.

2. Development

Access to world-class services helps exporters and producers in developing countries to capitalize on their competitive strength, whatever the goods and services they are selling. A number of developing countries have also been able, building on foreign investment and expertise, to advance in international services markets – from tourism and construction to software development and health care. Services liberalization has thus become a key element of many development strategies.

3. Consumer savings

There is strong evidence in many services, not least telecoms that liberalization leads to lower prices, better quality and wider choice for consumers. Such benefits, in turn, work their way through the economic system and help to improve supply conditions for many other products. Thus, even if some prices rise during liberalization, for example the cost of local calls, this tends to be outweighed by price reductions and quality gains elsewhere. Moreover, governments remain perfectly able under the GATS, even in a fully liberalized environment, to apply universal-service obligations and similar measures on social policy grounds.

4. Faster innovation

Countries with liberalized services markets have seen greater product and process innovation. The explosive growth of the Internet in the US is in marked contrast to its slower take-off in many Continental European countries which have been more hesitant to embrace telecom reform. Similar contrasts can be drawn in financial services and information technology.

5. Greater transparency and predictability

A country's commitments in its WTO services schedule amount to a legally binding guarantee that foreign firms will be allowed to supply their services under stable conditions. This gives everyone with a stake in the sector—producers, investors, workers and users—a clear idea of the rules of the game. They are able to plan for the future with greater certainty, which encourages long-term investment.

6. Technology transfer

Services commitments at the WTO help to encourage foreign direct investment (FDI). Such FDI typically brings with it new skills and technologies that spill over into the wider economy in various ways. Domestic employees learn the new skills (and spread them when they leave the firm). Domestic firms adopt the new techniques. And firms in other sectors that use services-sector inputs such as telecoms and finance benefit too.

Main Purpose of the GATS

The creation of the GATS was one of the landmark achievements of the Uruguay Round. The GATS was inspired by essentially the same objectives as its counterpart in merchandise trade (GATT):

· creating a credible and reliable system of international trade rules;

· ensuring fair and equitable treatment of all participants;

· stimulating economic activity through guaranteed policy bindings;

· promoting trade and development through progressive liberalization.

While services currently account for over 60 percent of global production and employment, they represent no more than 20% of total trade (BOP basis). This seemingly modest share should not be underestimated, however. Many services, which have long been considered genuine domestic activities, have increasingly become internationally mobile. This trend is likely to continue, owing to the introduction of new transmission technologies (e.g. electronic banking, tele-health or tele-education services), the opening up in many countries of long-entrenched monopolies (e.g. voice telephony and postal services), and regulatory reforms in hitherto tightly regulated sectors such as transport. Combined with changing consumer preferences, such technical and regulatory innovations have enhanced the “tradability” of services and, thus, created a need for multilateral disciplines.

Frame of Commitments of GATS

GATS establishes a framework within which liberalization commitments in the area of services are to be undertaken and implemented. GATS provides a frame for initial commitments, and also for progressively increasing commitments through successive rounds of negotiations. There are broadly two types of obligations and commitments, i.e., general obligations and specific commitments. The general commitments are applicable to all Members and all sectors of services trade. The specific commitments in services sectors are those undertaken by individual Members in particular sectors. Some specific commitments had been negotiated by Members before 1 January 1995 when the Agreement went into effect; further specific commitments will be added through negotiations in the future.