CHAPTER 1

1.1 INTRODUCTION

The WTO was formed in 1995 and has 157 member countries working together to supervise

and liberalize international trade. The WTO provides a framework for negotiating and

formalizing trade agreements, and a dispute resolution process aimed at enforcing

participants' obedience to WTO agreements signed by representatives of member

governments. The General Agreement on Tariffs and Trade (GATT) preceded the WTO, but

after about 40 years, its members concluded that it was straining to adapt to a new globalizing

world economy. As a result, in 1994 members agreed to create the WTO at in the last round

of GATT negotiations in Uruguay.

The World Trade Organization was officially formed on January 1, 1995 under the Marrakesh

Agreement, with the goal of supervising and liberalizing international trade between

participating countries. The WTO supports negotiating and formalizing trade agreements, and

a dispute resolution process aimed at enforcing participants' obedience to WTO agreements

signed by representatives of member governments. The organization is attempting to

complete negotiations on the Doha Development Round, which was launched in 2001 with an

explicit focus on addressing the needs of developing countries. As of June 2012, the future of

the Doha Round remains uncertain.

The WTO has 157 member countries and only 14 without any association to the organization.

The WTO has managed international trade negotiations among its members since 1995. The

General Agreement on Tariffs and Trade was established after World War II in the wake of

other new multilateral institutions dedicated to international economic cooperation Well

before GATT's 40th anniversary, its members concluded that the GATT system was straining

to adapt to a new globalizing world economy. As a result, the WTO was formed in the final

Uruguay Round of GATT in 1994. The WTO has supervision over the GATT.

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The WTO runs about 60 different agreements which have the status of international legal

texts. Such as General Agreement on Trade in Services was established in 1995 to extend the

multilateral trading system to service sector, in the same way as the General Agreement on

Tariffs and Trade provided such a system for merchandise trade. And Agreement on Trade-

Related Aspects of Intellectual Property Right sets down minimum standards for many forms

of intellectual property (IP) regulation.

The most important functions of the WTO is to oversee the implementation, administration,

and operation of the covered agreements. To provide a forum for negotiations and for settling

disputes. To review and propagate national trade policies. To ensure the coherence and

transparency of trade policies through surveillance in global economic policy-making. To

assist in developing, least-developed, and low-income countries in transition to adjust to

WTO rules and disciplines through technical cooperation and training. To regularly assess

the global trade picture in its annual publications and research reports. To cooperate closely

with the IMF and the World Bank.

WTO members do not have to be full sovereign nation-members. Instead, they must be a

customs territory with full autonomy in the conduct of their external commercial relations.

Iran is the biggest economy outside the WTO. Most observers must start

accession negotiations within five years of becoming observers. Fourteen states and two

territories so far have no official interaction with the WTO.

The conflict between free trade on industrial goods and services, but retention

ofprotectionism on farm subsidies to the domestic agricultural sector (requested by developed

countries) and the substantiation of the international liberalization of fair trade on agricultural

products (requested by developing countries) remain the major obstacles. These points of

contention have hindered any progress to launch new WTO negotiations beyond the Doha

Development Round.

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1.2 Objectives of Study

1. To understand the Origin and Objects of WTO.

2. To examine the Role of TRIPs.

3. To analyse Role of GATs.

1.3 Methods of Research

This information is been collected from Secondary source such as Reference Book and E-

data.

1.4 Significance of Study

This study helps us to understand the functioning and impact of formation of these rights

which focuses on patents, copyrights and global trade. It also helps to analyse the trends in

technological advancement of countries. It gives an overview of the formation, development

and implications of these policies.

1.5 Chapters Schemes

This study consists of following chapters -

Chapter 1. Introduction

Chapter 2. TRIPs (objectives, advantages and disadvantages and obligation)

Chapter 3. GATs (features, objectives, implication and structure)

1.6 Limitations

The study of TRIPS and GATS is comprehensive and vast. Only limited part of it is covered

in this study and detailed briefly.

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CHAPTER 2

TRIPs

2.1 CONCEPTUAL FRAMEWORK

The Agreement on Trade related Aspects of Intellectual Property Rights of the WTO is

commonly known as the TRIPS Agreement or simply TRIPS. Agreement on Trade Related

Aspects of Intellectual Property Rights (TRIPS) is an international agreement between the

member nations of World Trade Organization (WTO). TRIPS Agreement is aimed at

harmonizing the Intellectual Property (IP) related laws and regulations worldwide. The TRIPS

Agreement accomplishes this motive by setting minimum standards for protection of various

forms of IP. The nations that are signatory to the TRIPS Agreement have to abide by these

minimum standards in their national laws related to IP.

The TRIPS Agreement generally sets out the minimum standards regarding the grant of rights

to the owner of IP, enforcement requirements in the national laws, and settlement of disputes

and remedies to those whose IP rights get infringed. The coverage of the TRIPS Agreement

encompasses the various areas of IP including patents, trademarks, copyrights, geographical

indications, industrial designs, etc. The objective of the TRIPS Agreement is to ensure the

protection and enforcement of Intellectual Property Rights (IPR) to contribute to the

promotion of technological innovation, transfer and dissemination of technology, mutual

advantage of producers and users of technological knowledge in a manner that is conducive to

social and economic welfare, and balance of rights and obligations, worldwide.

TRIPS is one of the main agreements comprising the World Trade Organisation (WTO)

Agreement. This Agreement was negotiated as part of the eighth round of multilateral trade

negotiations in the period 1986-94 under General Agreement on Tariffs and Trade (GATT)

commonly referred to as the Uruguay Round extending from 1986 to 1994. It appears as

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Annex 1 C of the Marrakesh Agreement which is the name for the main WTO Agreement.

The Uruguay Round introduced intellectual property rights into the multilateral trading

system for the first time through a set of comprehensive disciplines. The TRIPS Agreement is

part of the “single undertaking” resulting from the Uruguay Round negotiations. This implies

that the TRIPS Agreement applies to all WTO members, mandatorily. It also means that the

provisions of the agreement are subject to WTO dispute settlement mechanism which is

contained in the Dispute Settlement Understanding (the “Understanding on Rules and

Procedures Governing the Settlement of Disputes”). The TRIPS Agreement is one of the most

important agreements of the WTO.

2.2 HISTORY & BACKGROUND

In 1944, for the first time an international agreement was reached upon to govern the

international monitory policy. This was called the Bretton Woods Agreement. The Bretton

Woods Agreement created two institutions to govern the international monitory policy:

International Bank for Reconstruction and Development (IBRD, the World Bank) in 1945 and

the International Monetary Fund (IMF) in 1946. These were called the Bretton Woods

Institutes. Subsequently, the General Agreement on Tariffs and Trades (GATT) was

established in 1947 to harmonize the trade between various nations. GATT was the only

multilateral instrument governing international trade from 1948 until the establishment of

WTO in 1995. In all, eight rounds of negotiations were held under GATT. These rounds were

held for refining the international trade and tariff rules. The first five rounds exclusively

concentrated on the tariffs. The sixth round included discussion on anti-dumping measures as

well which included provisions for member nations to control the dumping of goods into their

territory by other nations which can affect the member nation’s economy. Further, the seventh

round discussed tariff and non-tariff measures. The last GATT round was the Uruguay Round

(1986-1994). The Uruguay Round, for the first time introduced discussions on trade related to

agriculture, services and IPR. After long discussions and complex negotiations, finally in

1994, WTO was established.

WTO became effective from 1st January 1995. All the 123 nations that participated in the

Uruguay Round became the members of WTO. India also became the member of WTO. At

present WTO has 153 members i.e. almost 90% of World’s nations. WTO deals with the rules

of trade between nations at a global or near-global level. The objective of WTO is to provide

the common institutional framework for the conduct of trade relations among its member

nations in matters related to the agreements and associated legal instruments. WTO is

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responsible for negotiating and implementing new trade agreements, and is in charge of

monitoring member countries' adherence to all the WTO agreements, signed by the majority

of the world's trading nations. Under the provisions of WTO, many new agreements,

regulations, treaties and conventions were introduced to provide the framework for

implementation, administration and operation of the multilateral trade

agreements between member nations.

All these agreements, treaties, conventions and regulations were based on two principles,

namely:

a) Most Favored Nation treatment: Equal treatment for nationals of all trading partners in the

WTO;

b) National Treatment: Treating one’s own nationals and foreigners equally.

One of the important agreements among all of WTO Agreements is the TRIPS Agreement.

The TRIPS Agreement has emerged as the most widely impacting agreement post WTO

leading to harmonization of IP related laws and regulations among member nations. The

TRIPS agreement came into force on 1st January, 1995. Taking into consideration the

disparities in economic and technological developments among different member nations,

WTO provided for different transition time periods in different member nations for

application of these rules.

2.3 SALIENT FEATURES

The main features of the WTO TRIPs agreement are -

1. To ensure that government of each member country provides some minimum standards

of protection to the IPRs of its fellow members.

2. To ensure that government of every member country takes important steps at domestic

level for the enforcement of IPRs.

3. To settle disputes between WTO members.

4. All developing countries have a transition period of five years to give effect to the

provision of TRIPs agreement.

5. The protection available for patents is for a time period of 20 years while that for

copyrights it is 50 years.

6. In Dec 1999, a bill providing protection to service mark was introduced.

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7. The Department of Industrial Development prepared a bill in respect of Industrial

Designs.

2.4 AIMS & OBJECTIVES

The general goals or objectives of the TRIPS Agreement are contained in the Preamble of the

Agreement. These goals include the reduction of distortions and impediments to international

trade, promotion of effective and adequate protection of intellectual property rights, and

ensuring that measures and procedures to enforce intellectual property rights do not

themselves become barriers to legitimate trade.

The Agreement is the first agreement under WTO under which the member nations are

required to establish relatively detailed norms within their national legal systems, as well as to

establish enforcement measures and procedures meeting minimum standards. The three

important features of the Agreement are:

Standards

Enforcement

Dispute Settlement

2.5 ADVANTAGES

TRIPs agreement is of such importance in strengthening the protection of IPR that, if

effectively applied, it should create a radical change in the international transfer of

technologies, thus influencing the growth of countries involved in cross-border trade.

The issue of international transfer of technologies has become of crucial importance not

only for growth, but also to direct all the countries towards development according to a

more environmental sustainable pattern

After the TRIPs agreement came into force we may observe, in developing countries, a

greater increase of patents application of residents: in just twelve years this variable

increased by almost five times. The per-capita income, however, did not grow at the

same rate: the average increase of the per capita income in the less wealthy countries is

in fact, for the same period, a little greater than in developed economies.

Surprisingly, after the TRIPs agreement became current, the data for the period from

1995 to 2006 show that the gross domestic product per capita and patents application of

residents ratio, for developing countries, became lower than that of wealthy nations.

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This means that the TRIPs have promoted technological discovery in the less developed

economies.

2.6 DISADVANTAGES

Transfer of technology

Several developing countries have voiced their concerns in relation to the access to

technology, which they feel is growingly difficult to obtain from commercial sources.

Such concerns are justified: while developing countries have been required to expand and

enhance their intellectual property regimes, very little is in the WTO agreements to effectively

facilitate and promote the access to technology. The distribution of the capabilities to generate

science and technology gives rise, in fact, to the most dramatic North-South asymmetry.

According to Reichman, "there is a growing perception that the benefits of higher intellectual

property protection may be very unevenly distributed, at least in the short and medium terms,

even though all developing countries must bear its transactions costs"

World R&D expenditures are very asymmetrically distributed: developing countries, on the

most recent estimates, only account for about 4 per cent of global R&D expenditures. These

expenditures are growingly concentrated in a few countries and firms, and though the

apparent "globalization" of R&D activities has created some expectations as to the transfer of

R&D capabilities to developing countries, decentralization of R&D is only or mainly taking

place in other developed countries. In addition, large firms of developed countries have been

able to develop a complex network of cooperation in technology through “strategic alliances”,

which further enhance their dominant role in technology generation and use.

As developing countries reach higher levels of technological development, they have a more

sophisticated demand for technologies which have not yet reached the "maturity" stage.

Unlike mature technologies, which are relatively easy to acquire, technology which is still

changing and profitable is increasingly more difficult to be obtained.

2.7 IMPLICATIONS ON TRIPS AGREEMENT

Positive Implications

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Patents - The TRIPs Agreement gives protection to patented products. The firms from

developed and developing nations obtain patents for number of products. The patented

products get exclusive marketing rights for a certain period. Only the company that hold

patent can produce and market such product. Therefore, the TRIPs Agreement gives boost to

research and development.

Public Health - At the Doha Conference in 2001, the member nations agreed that the

developing nations such as Brazil, India and China and so on can produce certain patented

medicines and sell in their country and/or third world countries at lower price in the interest of

public health.

Geographic Indication Status (GIS) - WTO also provides (GIS) certain items, which are

unique to a particular country. Once a country obtains GIS, the firms from only that country

can use the Generic Brand Name.

For instance, India has obtained GIS for Darjeeling Tea and also for other products. This

means, firms from India can use this tea brand, which indicates that the Darjeeling Tea

produced in India is unique.

Negative Implications

Developed Nations - The TRIPs Agreement favours the developed countries as compared to

the developing countries. Under the TRIPs agreement protection is given to intellectual

property rights such as patents, trademarks, layout designs etc. The TRIPs agreement favors

the developed nations as they hold a large number of patents.

Agriculture - The TRIPs Agreement is also applicable to agriculture. The firms from

developed countries patent a variety of seed, plants, etc and sell in developing countries at a

higher price. For instance, the Monsanto Chemicals (world’s largest firm in agricultural

chemicals) sells the BT Cotton seeds in India at a very high price.

Micro-organisms - The TRIPs Agreement is applicable to the development of micro-

organisms. The micro-organisms are increasingly used in pharma, agriculture, and bio-

technology. The MNCs from developed countries develop and patent a variety of micro-

organisms, which they sell in developing countries at a very high price.

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2.8 Agreement on Trade Related Aspects of Intellectual Property Rights

(TRIPs)

The TRIPs Agreement covers seven categories of intellectual property. They are:

i. COPYRIGHT AND RELATED RIGHTS

Copyright protects literary works and other forms of works that constitute expression of ideas,

like painting, etc. Under the provision of Article 10, Computer Programs, whether in source

or object code, are protected as literary works under the Berne Convention (1971). The term

of protection for such kind of works under the Agreement is calculated based on the life of a

natural person. Term of protection for copyright is not less than up to 50 years from date of

end of calendar year of making of such a work. The related rights regarding protection of

performers, producers of phonograms (Sound Recordings) and broadcasting organizations

mentioned in Article 14 grants the producers of phonograms the right to authorize or prohibit

the direct or indirect reproduction of their phonograms. These rights grant the broadcasting

organizations the rights to prohibit the fixation, the reproduction of fixations, and the

rebroadcasting by wireless means of broadcasts, as well as the communication to the public of

television broadcasts of the same.

ii. TRADEMARK

Any sign, or any combination of signs, capable of distinguishing the goods or services of one

undertaking from those of other undertakings, is capable of constituting a trademark. Such

signs, in particular words including personal names, letters, numerals, figurative elements and

combinations of colours as well as any combination of such signs, are eligible for registration

as trademarks. Where signs are not inherently capable of distinguishing the relevant goods or

services, member nations may make registrability to depend on distinctiveness acquired

through use. Member nations may require, as a condition of registration, that signs be visually

perceptible. For initial registration, and each renewal of registration of a trademark a term of

protection is no less than seven years. The registration of a trademark is renewable

indefinitely.

A trademark is a sign or mark that is used to distinguish the goods or services of one

enterprise from those of another enterprise. It can be any distinctive word, letter, numeral,

drawing, picture, shape, colour, sound, smell, logotypes, or any combination of these that may

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be used for distinguishing goods and services, of any given business. A trademark is used

extensively by an enterprise to reach customers by enabling customers to identify and locate

the product. A trademark is issued by a national office and is granted for a period of 10 years

and may be renewed indefinitely.

The criteria for the grant of a trademark are:

The selected mark should be capable of being represented graphically (that is in the

paper form).

It should be capable of distinguishing the goods or services of one undertaking from

those of others.

iii. GEOGRAPHICAL INDICATIONS

As per the Agreement, Geographical Indications are indications which identify certain goods

as originating in the territory of a member nation, or a region or locality in that territory.

Geographical Indications are used to protect those goods whose quality, reputation or other

characteristics are essentially because of their geographical origin.

Under the provisions of the Agreement, a member nation can prohibit other member nations

from the use of any designation or presentation of any goods that indicates or suggests that

those goods originate from a geographical area other than the true place of origin in a manner

which misleads the public. The term of protection for Geographical Indication is eternal.

iv. PATENTS

Patents provide property rights to inventions. An 'invention' may be defined as a novel idea

which permits in practice the solution of a specific problem in a field of technology. Patents

are available for any invention, whether products or processes, in all fields of technology,

provided that they are new, involve an inventive step and are capable of industrial application.

Thus, the TRIPS Agreement stipulates that countries shall grant patents for inventions in all

fields of technology and for both:

Products, and

Processes, including those used in manufacturing products.

Article 27 of the Agreement deals with patentable subject matter. The patentable subject

matter according to the Agreement constitutes any inventions, whether products or processes,

in all fields of technology, provided that they are new, involve an inventive step and are

capable of industrial application. However, the member nations may exclude from

patentability, diagnostic, therapeutic and surgical methods for the treatment of humans or

animals. Further, plants and animals other than micro-organisms, and essentially biological

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processes for the production of plants or animals other than non-biological and

microbiological processes may also be excluded from patentability.

Under the provisions of the Agreement the member nations have to provide protection for

plant varieties either by patents or by an effective sui generis system or by any combination

thereof. The term of protection available is usually twenty years counted from the filing date

of the patent application. Under provisions of Article 21 of the Agreement, member nations

may provide limited exceptions to the exclusive rights conferred by a patent, provided that

such exceptions do not unreasonably conflict with a normal exploitation of the patent and do

not unreasonably prejudice the legitimate interests of the patent owner, taking account of the

legitimate interests of third parties. Article 31 of the Agreement has provisions for allowing

the grant a compulsory license for pharmaceuticals by the government of a member nation

without the consent of the patentee in certain conditions.

Compulsory license may be allotted particularly in following conditions: Normally the person

or company applying for a license has to have tried to negotiate a voluntary license with the

patent holder on reasonable commercial terms. Only if that fails can a compulsory license be

issued, and Even when a compulsory license has been issued, the patent owner has to receive

payment; the TRIPS Agreement says “the right holder shall be paid adequate remuneration in

the circumstances of each case, taking into account the economic value of the authorization”,

but it does not define “adequate remuneration” or “economic value”. Compulsory licensing

must meet certain additional requirements as well. For example, it cannot be given

exclusively to licensees (e.g. the patent-holder can continue to produce), and it should be

subject to legal review in the country.

A patent is granted by a national patent office or by a regional office that does the work for a

number of countries, such as the European Patent Office and the African Regional Industrial

Property Organization. Under such regional systems, an applicant requests protection for the

invention in one or more countries, and each country decides as to whether to offer patent

protection within its borders. The WIPO-administered Patent Cooperation Treaty (PCT)

provides for the filing of a single international patent application which has the same effect as

national applications filed in the designated countries. In India, the Controller General of

Patents, Designs and Trademarks is responsible for the administration of the Patents Act,

1970 through the Patent Offices located at Kolkata, Mumbai, Delhi and Chennai.

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v. INDUSTRIAL DESIGNS

Design is another intellectual property right and refers to external features of shape,

configuration, pattern, ornamentation or composition of lines or colours applied

to any article, whether in two or three dimensional (or both) forms. Design does not include

any mode or principle of construction or anything which is mere mechanical device. It also

does not include any trade mark or any artistic work The IPR of Design is covered by the

Designs Act, 2000. This means only the features of shape, configuration,

pattern, ornament or composition of lines or colours applied to any article whether in two

dimensional or three dimensional or in both forms, by any industrial process or means,

whether manual, mechanical or chemical, separate or combined, which in the finished

article appeal to and are judged solely by the eye; but does not include any mode or principle

of construction or anything which is in substance a mere mechanical

device, and does not include any trade mark as defined in clause (v) of sub-section (1) of

section 2 of the Trade and Merchandise Marks Act, 1958 or property mark as defined in

section 479 of the Indian Penal Code or any artistic work as defined in clause (c) of section 2

of the Copyright Act, 1957 43 of 1958. The important aspects in Indian Design Act 2000 are:

Identification of non-registerable designs

Introducing a classification system (Locarno classification)

Elimination of secrecy period of two years for a registered design

Provision of public inspection after notification

Introduction of rights of registered proprietor of design

Initial term of protection is 10 years followed by another 5 years on request

Provision of restoration of lapsed design.

Member .nations have to provide for the protection of independently created

industrial designs that are new or original. Member nations may provide that

designs are not new or original if they do not significantly differ from known

designs or combinations of known design features. Member nations may provide

that such protection will not extend to designs dictated essentially by technical or

functional considerations. The term of protection for industrial designs is 10 years

from the creation of the industrial design.

vi. INTEGRATED CIRCUITS

Under the provisions of the Agreement, member nations are obliged to provide protection to

the layout-designs (topographies) of integrated circuits in accordance with the Treaty on

Intellectual Property in Respect of Integrated Circuits. The member nations have to provide

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for protection of not less than 10 years from the date of filing of application for lay-out

designs, however, member nations may limit the duration of protection up to fifteen years

from the date of creation of the lay-out design.

vii. TRADE SECRETS

These are having commercial value shall be protected against breach of confidence. The test

data submitted to governments (in order to obtain marketing approval for pharmaceuticals

and agricultural chemicals) shall be against unfair commercial use.

2.9 IMPACT OF TRIPS ON INDIAN LEGISLATION

To meet international obligations under the TRIPS, various existing domestic IPR laws have

been amended from time to time. For example, in the area of patents, the Indian Patent Act

1970 was amended in order to make it conform to TRIPS. The first amendment to the Patent

Act 1970 was effected through the Patents (Amendment) Act, 1999 that was brought into

force retrospectively from 1st January, 1995.

The amended Act provided for filing of applications for product patents in the areas of drugs,

pharmaceuticals and agro chemicals even though such patents were not allowed. However,

provision was made that such applications were to be examined only after 31-12-2004. This

was necessitated in view of the transitional arrangements allowed under the TRIPS

Agreement. Under the transitional arrangements, a grace period was allowed to developing

country members to make their laws TRIPS-compatible provided they met certain conditions.

One such condition was that to avail of 10 year grace period (till 1st January 2005) under

TRIPS, a 'mail-box' of applications would have to be created in which all product-patent

application would be placed for subsequent examination on merits from January 2005. In the

intervening period, the applicants were to be allowed Exclusive Marketing Rights (EMR) to

sell or distribute these products in India, subject to fulfilment of certain conditions.

The second amendment to the 1970 Act was made through the Patents (Amendment) Act,

2002. This Act came into force on 20 May 2003 with the introduction of new Patent Rules,

2003 by replacing the earlier Patents Rules, 1972. With these amendments, India met all its

obligations relating to patent protection that it was required to meet by the year 2000 under

the TRIPS Agreement. It also brought the Patents Act in conformity with the requirements of

the Patent Cooperation Treaty of WIPO as modified until 2001. The third amendment to the

Patents Act 1970 was introduced through the Patents (Amendment) Ordinance, 2004 with

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effect from 1st January, 2005. This Ordinance was later replaced by the Patents (Amendment)

Act 2005 (Act 15 of 2005) on 4th April, 2005 which was brought into force from 1-1-2005.

This amendment obliged India to grant product patents to drugs and medicines and food and

chemical products. This final amendment brought India in full compliance with its TRIPS

obligations. Similarly, in the case of trademarks, the governing law in India now is Trade

Marks Act, 1999 brought into force with effect from September 15, 2003 to bring it in

compliance with TRIPS by repealing the Trade and Merchandise Marks Act, 1958.

The Copyright Act, 1957 today is compliant with most international conventions and treaties

in the field of copyrights. India is a member of the Berne Convention of 1886 (as modified at

Paris in 1971), the Universal Copyright Convention of 1951 and TRIPS. Though India is not a

member of the Rome Convention of 1961, the Copyright Act, 1957 is fully compliant with the

provisions of this Convention. Two new treaties, collectively termed as Internet Treaties, were

negotiated in 1996 under the auspices of the World Intellectual Property Organization

(WIPO). These treaties are the 'WIPO Copyrights Treaty (WCT)' and the 'WIPO

Performances and Phonograms Treaty (WPPT)'. These treaties were negotiated essentially to

provide for protection of the rights of copyright holders, performers and producers of

phonograms in the Internet and digital era. India is not a member of these treaties. However,

the current set of amendments placed by the Government before the Parliament seeks to bring

the law in conformity with these treaties as well.

2.10 GENERAL OBLIGATIONS

The TRIPS Agreement provides that Members shall ensure that enforcement procedures are

available under their law so as to permit effective action against any act of infringement of

intellectual property rights (Article 41(1)).

This provision does not does not impose any obligation on Members to put in place a special

judicial system for the enforcement of intellectual property rights, and Members may use their

ordinary judicial system to deal with intellectual property rights infringement cases.

Further, the TRIPS Agreement provides that procedures concerning the enforcement of

intellectual property rights shall be fair and equitable. They shall not be unnecessarily

complicated or entail unreasonable time-limits or unwarranted delays (Article 41(2)).

2.11 DISPUTE PREVENTION AND SETTLEMENT

Ensuring transparency

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In order to prevent disputes from arising between countries as much as possible, and also to

ensure the transparency of internal laws, the TRIPS Agreement provides that Members must

publish their internal laws and regulations and notify these to the Council for TRIPS (Article

63).

Dispute settlement

The TRIPS Agreement provides that when an actual dispute arises as to the application of the

TRIPS Agreement, Members shall settle it using the new WTO dispute resolution procedures

and shall not take unilateral action (Article 64).

2.12 CONCLUSION

Technology plays a growing role in the creation of competitive advantages and in any

development strategy. The generation of technology is overwhelmingly concentrated in

developed countries and privately-held.

Developing countries reluctantly accepted to enter into negotiations of an agreement on IPRs

during the Uruguay Round. Their concerns, particularly with respect to the access to

technologies necessary for development, were dismissed at that time. The proponents of an

international agreement anticipated benefits for such countries in terms of increased flows of

capital and technology, which do not seem to materialize.

Developing countries seem to cautiously approach possible negotiations on the TRIPS

Agreement. While they seem more eager to review the TRIPS Agreement than the developed

countries, the developing countries’ proposals generally aim at balancing the agreement rather

than at questioning its basic foundations. Any future action concerning technology transfer

within WTO should recognize the strong linkages existing between the transfer and local

technological capacity building, which remains a main responsibility of host countries.

Developing countries seem to be better prepared for future negotiations on IPRs than they

were on occasion of the TRIPS negotiations. IPRs issues, for which their most part were new

and generally unknown for trade negotiators of developing countries during the Uruguay

Round, have become an important part of their concerns and negotiating strategies.

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CHAPTER 3

GATS

3.1 CONCEPTUAL FRAMEWORK

The General Agreement on Trade in Services (GATS) is among the World Trade Organization's

most important agreements. The accord, which came into force in January 1995, is the first and only

set of multilateral rules covering international trade in services. It has been negotiated by the

Governments themselves, and it sets the framework within which firms and individuals can operate.

The GATS has two parts: the framework agreement containing the general rules and disciplines; and

the national “schedules” which list individual countries’ specific commitments on access to their

domestic markets by foreign suppliers.

Trade liberalization, and even economic growth, are not ends in themselves. The ultimate aim

of Government is to promote human welfare in the broadest sense, and trade policy is only

one of many instruments Governments use in pursuing this goal. But trade policy is

nevertheless very important, both in promoting growth and in preventing conflict. The

building of the multilateral trading system over the past 50 years has been one of the most

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remarkable achievements of international cooperation in history. The system is certainly

imperfect—that is one of the reasons why periodic negotiations are necessary—but the world

would be a far poorer and more dangerous place without it.

In January 2000, WTO Member Governments started a new round of negotiations to promote

the progressive liberalization of trade in services. The GATS agreement specifically states

that the negotiations “shall take place with a view to promoting the interests of all participants

on a mutually advantageous basis” and “with due respect for national policy objectives and

the level of development of individual Members”. The pace and extent of these negotiations

are set by the WTO’s over 140 Member Governments themselves according to their different

national policy priorities. Recently, however, the negotiations and the GATS itself have

become the subject of ill-informed and hostile criticism. Scare stories are invented and

unquestioningly repeated, however implausible. It is claimed for example that the right to

maintain public services and the power to enforce health and safety standards are under threat,

though both are explicitly safeguarded under the GATS. How have serious people come to

believe what is, on the face of it, out of the question? Why should any Government, let alone

over 140 Governments, agree to allow themselves to be forced, or force each other, to

surrender or compromise powers which are important to them, and to all of us?

Decision-making in open societies presupposes informed public discussion. It must be based

on fact rather than fiction. The purpose of this booklet is to contribute to this discussion and to

a greater public understanding of the GATS by correcting statements made in some recent

publications which we believe are misleading the public and undermining support for

international economic cooperation. It must not be assumed that because we have disputed

some allegations we accept that others are well-founded these are merely examples.

GATS allows WTO Members to choose which service sectors to open up to trade and

foreign competition. To date, only 50 WTO Members have made some type of

commitment on health services under GATS, much less than in financial services (100

Members). Liberalization of financial services may have implications for health systems

through its impact on health insurance.

Individual Members' commitments to open markets in specific sectors - and how open

those markets will be - are the outcome of negotiations. The commitments appear in

“schedules” that list the sectors being opened, the extent of market access offered in those

18

sectors (e.g. whether there are any restrictions on foreign ownership), and any limitations

on national treatment (whether some rights granted to local companies will not be granted

to foreign companies). For example, a Member could require all foreign-owned hospitals

to provide 25% of beds to care for the uninsured, but this would have to be scheduled as a

national treatment limitation (if it were not already a requirement for locally-owned

hospitals).

The extent to which GATS will have an impact on public services such as health and

education is controversial. GATS comes into the equation when countries decide to allow

foreign private suppliers to provide services.

Opponents of GATS are convinced that it will limit a state's sovereign powers to protect

human health, and ensure provision of good quality, affordable health services.

Specifically, they fear that progressive liberalization of services under GATS will force

WTO Members to privatize health care currently provided by governments, and that these

changes will be irreversible. They are also concerned that the capacity of states to

regulate health-related services will be eroded.

The counter-argument stresses that GATS allows WTO Members to decide for

themselves which sectors will be liberalized and to define country-specific conditions on

the form that liberalization will take. Some WTO Members have already indicated they

will not be requesting or offering commitments on health services in the current

negotiations. Those states that do proceed are not obliged to respond positively to any

particular request. Nor is there any requirement for reciprocity. Moreover, the Doha

declaration specifically reaffirmed the right of Members to regulate or introduce new

regulations on the supply of services. Defenders of GATS therefore argue that national

control over policy and practice has been enhanced.

The political dynamic around GATS may be somewhat different from that affecting the

Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. Many

developing countries are keen to welcome foreign direct investment and to secure access

in the north for their professionals. Many developed countries, on the other hand, are

nervous about the political and economic effects of liberalization on publicly-funded

health services.

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GATS is a complex treaty and it does not lay down minimum standards as TRIPS does.

Rather, it takes shape through the process of negotiation. Overall, there is lack of

empirical data on the level of international trade in health-related services, as well as on

the effects of liberalization in specific countries. Finally, trade in services is increasing in

any case (often through bilateral negotiations), thus making attribution to GATS very

difficult.

3.2 HISTORY & BACKGROUND

The General Agreement on Trade in Services (GATS) is the first multilateral trade agreement

to cover trade in services. Its creation was one of the major achievements of the Uruguay

Round of trade negotiations, from 1986 to 1993. This was almost half a century after the entry

into force of the General Agreement on Tariffs and Trade (GATT) of 1947, the GATS'

counterpart in merchandise trade.

The need for a trade agreement in services has long been questioned. Large segments of the

services economy, from hotels and restaurants to personal services, have traditionally been

considered as domestic activities that do not lend themselves to the application of trade

policy concepts and instruments. Other sectors, from rail transport to telecommunications,

have been viewed as classical domains of government ownership and control, given their

infrastructural importance and the perceived existence, in some cases, of natural monopoly

situations. A third important group of sectors, including health, education and basic

insurance services, are considered in many countries as governmental responsibilities, given

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their importance for social integration and regional cohesion, which should be tightly

regulated and not be left to the rough and tumble of markets.

Nevertheless, some services sectors, in particular international finance and maritime transport,

have been largely open for centuries - as the natural complements to merchandise trade. Other

large sectors have undergone fundamental technical and regulatory changes in recent decades,

opening them to private commercial participation and reducing, even eliminating, existing

barriers to entry. The emergence of the Internet has helped to create a range of internationally

tradeable product variants - from e-banking to tele-health and distance learning - that were

unknown only two decades ago, and has removed distance-related barriers to trade that had

disadvantaged suppliers and users in remote locations (relevant areas include professional

services such as software development, consultancy and advisory services, etc.). A growing

number of governments has gradually exposed previous monopoly domains to competition;

telecommunication is a case in point.

This reflects a basic change in attitudes. The traditional framework of public service

increasingly proved inappropriate for operating some of the most dynamic and innovative

segments of the economy, and governments apparently lacked the entrepreneurial spirit and

financial resources to exploit fully existing growth potential.

Services have recently become the most dynamic segment of international trade. Since 1980,

world services trade has grown faster, albeit from a relatively modest basis, than merchandise

flows. Defying wide-spread misconceptions, developing countries have strongly participated

in that growth. Whereas in 1980 their share of world services exports amounted to 20%, in

2004 it was 24% on a Balance of Payment (BOP) basis.

Given the continued momentum of world services trade, the need for internationally

recognized rules became increasingly pressing.

3.3 SALIENT FEATURES

Salient Features of GATS covers all internationally traded services with two exceptions:

services provided to the public in the exercise of governmental authority, and, in the air

transport. Sector, traffic rights and all services directly related to the exercise of traffic

rights. The WTO Secretariat has divided all services into following sectors:

1. Business Services (including professional and computer services).

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2. Communication Services.

3. Constructing & Engineering Services.

4. Distribution Services (e.g. Commission agents, wholesale & retail trade and franchising).

5. Education Services.

6. Environmental Services.

7. Finance (including finance and banking) Services.

8. Health Services.

9. Tourism & Travel Services.

10. Recreational, Cultural & Sporting Services.

11. Transportation Services.

12. Other Services not elsewhere classified.

3.4 AIMS & OBJECTIVES

The GATS is a multilateral agreement under the WTO that was negotiated in the Uruguay

Round and came into effect in 1995. It was essentially inspired by the same objectives as the

General Agreement on Tariffs and Trade (GATT), which is its counterpart in merchandise

trade:

Creating a credible and reliable system of international trade rules

Ensuring fair and equitable treatment of all participants (principle of non-

discrimination)

Stimulating economic activity through guaranteed policy bindings

Promoting trade and development through progressive trade liberalization

3.5 ADVANTAGES

The growing economic significance of services and their cross-border trade had required a

legal framework specifically adjusted to services in order to yield sustainable increases in 22

prosperity. At least formally, this task has been fulfilled with the establishment of the GATS.

In that respect, setting up a multilateral framework in an area that has not been subject to

internationally accepted rules before must be seen as a success by itself.

Potential advantages related to the GATS-rules can be classified into three broad categories:

1. Increased Competition

Services liberalization can contribute to economic development (only) if it results in

competition and a more efficient supply of services. Competition in open service markets

tends to create a more efficient service infrastructure that may serve as an engine for

growth for the whole economy. Competition and growth normally result in lower

consumer prices, better quality, wider choice, faster innovation and more efficient

processes. It is generally acknowledged that an efficient service sector is a decisive

prerequisite for a positive development of all industrial branches.

2. Improved Market Access

For service companies, open markets provide an opportunity to capitalize on their

competitive strengths, to generate economies of scale and thus to become more profitable.

The WTO promotes this aspect as a key element for the development strategies of

developing countries.

3. Predictability and Transparency

“GATS commitments have real value in providing secure and predictable conditions of

access to markets, which benefits traders, investors, and, ultimately, all of us as consumers.”

Transparent, foreseeable and reliable conditions in foreign markets may encourage foreign

direct investment. That in turn could enhance technology transfer and might have positive

impacts for many other economic branches.

Apart from these 3 major issues, the “built-in agenda” of the agreement ensures that at

least attempts for extending the scope of service liberalization are undertaken. Given a certain

willingness of the WTO members, that should be a clear opportunity for continuous, dynamic

improvements and the amendment of the rules in case of unintended adverse impacts.

3.6 DISADVANTGES

Despite these numerous at least good-looking advantages, GATS has remained the most

controversial contract of the WTO. In the judgement of economists and experts in 23

international law, it is seen as especially complicated and in certain areas yet uncompleted and

provisional. From a formal point of view, GATS cannot be considered as a complete set of

rules that automatically results in continuous liberalization effects. It rather contains simply

the commitment of the contracting parties to further liberalization talks. Thus, it is only the

very first step towards a free flow of services. The layout of the agreement as a combination

of general rules, individual commitments and exemptions by country have led to greater

individual flexibility with respect to liberalization efforts on the one hand, but on the other to

an erosion of the relevance and credibility of the GATS: The principle of national treatment is

no general obligation that applies to all services. Its validity in the service sector is rather

dependent upon the commitments made by each particular country in its schedule. From that

perspective, the high flexibility of countries in determining independently which sectors to

open (which very often serves as an argument in favour of the GATS) has become a setback

of the agreement. On top of that, the national treatment principle only applies to services

explicitly mentioned in the country schedules. Other, more recent and innovative types of

services are not automatically included, but further and further negotiations are required. For

this reason, several critics have stated, GATS is no real tool for continuous liberalization, it

just locks in the current status quo.

Similarly, the MFN rule is penetrated by several exemptions many countries have insisted on

in an attempt to protect domestic service industries. How can an efficient, fair and free

international trade in service be achieved with all these exceptions and limitations? This

“flexibility” in connection with the broad definition of commercial services via the four

modes of supply has left plenty of space for protectionist measures. In the GATS, labour

intense services are nearly as highly protected as labour intense goods used to be in the GATT

- the burden of that lies at the side of the developing countries whose major services export is

labour.

Until today, with some exception in the areas of telecommunications and financial services,

the impact of GATS is not as material as it was promised. Even the WTO implicitly admits

while the negotiations succeeded in setting up the principle structure of the agreement, the

liberalizing effects have been relatively modest, most schedules have remained confined to

confirming status quo market conditions in a relatively limited number of sectors.

3.7 IMPLICATIONS OF GATS AGREEMENT

Positive Implications

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1. Increase in Services Exports

Member nations of WTO – developed and developing – have benefited from the GATS

Agreement. As a result there has been considerable growth in the services sector of

developing countries in terms of employment, contribution to GDP and contribution to

exports.

2. Improvement in Customer Service

The GATS Agreement has resulted in improvement in customer service. For Instance, in the

pre-reform period (GATS Agreement was not applicable), customers were getting poor

services from public sector units like telecom, insurance, banking and so on. But in the WTO

regime, the quality of customer service has drastically improved due to the professional

approach adopted by private sector including the foreign firms.

3. Expansion of Service Sectors

GATS Agreement has made it possible the entry of private and foreign firms in the services.

The entry of foreign firms resulted in competition between the public sector and private

sector. Due to competition, corporate firms are making all efforts to expand their business.

Negative Implications

1. Problems of Competition

Critics point out that the GATS agreement has resulted in stiff competition between the

domestic firms and foreign firms. The domestic firms that have to tie up with the foreign

firms find it difficult to compete with foreign firms. This is because foreign firms

aggressively promote their businesses due to their advantage in terms of capital, expertise and

technology.

2. Outflow of Foreign Exchange

Critics point out that foreign remit dividends, interest and profits to the investors in foreign

countries. This results in outflow of foreign exchange. The outflow of foreign exchange may

adversely affect BOP position. But this criticism is not justified as foreign firms bring foreign

exchange by way of investments in developing nations.

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The GATS is a multilateral agreement under the WTO that was negotiated in the Uruguay

Round and came into effect in 1995. It was essentially inspired by the same objectives as the

General Agreement on Tariffs and Trade (GATT), which is its counterpart in merchandise

trade:

Creating a credible and reliable system of international trade rules

Ensuring fair and equitable treatment of all participants (principle of non

discrimination)

Stimulating economic activity through guaranteed policy bindings

Promoting trade and development through progressive trade liberalization.

GATS consists of three parts

the framework, containing the general principles and rules.

national schedules, which list a country’s specific commitments on access to their

domestic market by foreign providers.

Annexes, in which specific limitations for each sector can be attached to the schedule

of commitments.

Through negotiating rounds, countries choose the sectors and modes of services trade they

wish to include in their schedules as well as the limitations to market access and national

treatment they wish to maintain. It is only by reference to the individual country schedules

that one can know not only the service sector(s) that will be committed, but also the extent of

commitment a country is prepared to make. There is no minimum requirement as to its

coverage, so that WTO members are free to leave entire sectors out of their GATS

commitments, or they may choose to grant market access only in specific sectors, subject to

the limitations they wish to maintain. Moreover governments may limit commitments to one

or more of the four recognized modes of supply. Commitments may also be withdrawn or

renegotiated.

The agreement contains a number of general obligations for all services, the most important of

which is the Most Favoured Nation (MFN) rule. Apart from these obligations each member

state defines its own obligations through the commitments undertaken in its schedule. Market

access and national treatment obligations for instance apply only to the sectors in which a

country chooses to make commitments.

3.8 FOUR modes of supply of services under GATS

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Cross Border Trade: Provision of a service where the service

crosses the border.

(Example: Medical transcription and telemedicine)

Consumption abroad: Provision of the service involving the movement

of the consumer to the country of the supplier.

(Example: Person travelling abroad for

Medical treatment or Education)

Commercial presence: The service provider establishes or has presence of

commercial facilities in another country

in order to render service.

Presence of Natural Persons: Persons travelling to another country in order to provide

service.

The overall aim of GATS is to liberalize trade in services. The agreement covers four

different modes (modes 1-4 trade in services) all of which affect health:

Mode 1 Cross-border supply. Health services provided from the territory of one Member

State in the territory of another Member State. This is usually via interactive audio, visual

and data communication. The patient therefore has the opportunity to consult with

physicians in a different country, as do local doctors. Typical examples include Internet

consultation, diagnosis, treatment and medical education. This form of supply can bring

care to under-served areas, but can be capital intensive and divert resources from other

equally pressing needs.

Mode 2 Consumption abroad. This usually covers incidents when patients seek treatment

abroad or are abroad when they need treatment. This can generate foreign exchange, but

equally can crowd out local patients and act as a drain on resources when their treatment

is subsidized by the sending government.

Mode 3 Foreign commercial presence. Health services supplied in one Member State,

through commercial presence in the territory of another Member State. This covers the

opening up of the health sector to foreign companies, allowing them to invest in health

operations, health management and health insurance. It is argued that, on the one hand,

FDI can make new services available, contribute to driving up quality and create

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employment opportunities. On the downside, it can help create a two-tier health system

and an internal brain-drain - and thus exacerbate inequity of health provision.

Mode 4 Movement of natural persons (individuals rather than companies). The temporary

movement of a commercial provider of services (for example, a doctor) from their own

country to another country to provide his or her service under contract or as a member of

staff transferred to a different country. This is one of the most contentious areas for

health, as there is concern that it will increase the brain drain of health personnel from

poor to rich countries. However, GATS is concerned only with health professionals

working in other countries on a temporary basis. Brain drain refers to the emigration of

educated, qualified, and skilled people from poorer countries to richer countries. WHO's

Human Resources for Health initiative aims to increase individual countries' pools of

qualified health staff.

3.9 Why is the liberalization of services important?

It is impossible for any country to prosper today under the burden of an inefficient and

expensive services infrastructure. Producers and exporters of textiles, tomatoes or any other

product will not be competitive without access to efficient banking, insurance, accountancy,

telecoms and transport systems. In markets where supply is inadequate, imports of essential

services can be as vital as imports of basic commodities.

The benefits of services liberalization extend far beyond the service industries themselves;

they are felt through their effects on all other economic activities. The production and

distribution of services, like any other economic activity, is ultimately destined to satisfy

individual demand and social needs. The latter element—social needs—is particularly

relevant in sectors like health or education which in many, if not all, countries are viewed as a

core governmental responsibility. They are subject to close regulation, supervision and

control. Although social policy concepts—including equity and universal access—do not

necessarily imply that Governments also act as producers, public facilities have traditionally

been, and continue to be, the main suppliers of services such as health and education in most

countries.

In 1999, the value of cross-border trade in services amounted to US$1350 billion, or about

20% of total cross-border trade. This understates the true size of international trade in 28

services, much of which takes place through establishment in the export market, and is not

recorded in balance-of-payments statistics. For the past two decades trade in services has

grown faster than merchandise trade. Developing countries have a keen interest in many

services areas including tourism, health and construction. According to the World Travel

and Tourism Council, tourism is the world’s largest employer accounting for one in ten

workers worldwide. According to IMF data for 1999, tourism exports, estimated at US$443

billion, were 33% of global services exports and 6.5% of total exports. The liberalization of

trade in goods, which has been promoted through negotiations in the GATT over the past 50

years, has been one of the greatest contributors to economic growth and the relief of poverty

in mankind's history. Following the catastrophic experience of the first half of the 20th

century, Governments deliberately turned away from the policies of economic nationalism

and protectionism which had helped to produce disaster, and towards economic cooperation

based on international law. Growth in this period was not uniformly shared, but there is no

doubt that those countries which chose deeper involvement in the multilateral trading system

through liberalization benefited greatly from doing so.

There was no parallel movement of multilateral liberalization of services trade until the

negotiation of the GATS and its entry into force in 1995. Since the services sector is the

largest and fastest-growing sector of the world economy, providing more than 60% of global

output and in many countries an even larger share of employment, the lack of a legal

framework for international services trade was anomalous and dangerous—anomalous

because the potential benefits of services liberalization are at least as great as in the goods

sector, and dangerous because there was no legal basis on which to resolve conflicting

national interests.

3.10 Six benefits of services 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.

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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.

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3.11 The GATS and investment

The fact that under GATS WTO Members can make commitments allowing foreign suppliers

to establish in their markets has led to criticism from some anti-WTO activists who opposed

the negotiations for a Multilateral Agreement on Investment in the Paris-based Organisation

for Economic Co-operation and Development. The GATS has been said to be an attempt to

resurrect the MAI. Scott Sinclair of the

Canadian Centre for Policy Alternatives has said that "The GATS investment restrictions

demolish industrial policy whether primarily aimed at goods or services, closing off the path

to development taken by most advanced countries to other countries." What these activists

have failed to say is that it can be used by Governments, if they so decide, to attract foreign

investment into sectors where it is needed. The GATS guarantees the conditions which

provide policy stability for potential investors. But there is no obligation to make

commitments under the GATS.

Presumably Mr. Sinclair is stating that the GATS prevents Governments from applying

restrictions to foreign service providers operating in the market. This is fundamentally untrue.

If commitments are made, they can be subject to the six types of limitations specified in the

agreement, which include, besides quantitative limits, restrictions on the share of foreign

capital and on the type of legal entity permitted.

In addition, any type of national treatment limitation—conditions applying only to foreign

suppliers—can be scheduled. The GATS bears no resemblance to the MAI—not surprisingly,

since the OECD has 30 member Governments and the GATS over 140, three quarters of

which are developing countries or economies in transition. Moreover, the GATS allows

Governments to impose on foreign service providers any conditions they wish, including

those pertaining to local employment or technology transfer.

3.12 Structure of the GATS

The GATS is the first and only set of multilateral rules and commitments covering

Government measures which affect trade in services. It has two parts—the framework

agreement containing the rules, and the national schedules of commitments in which each

Member specifies the degree of access it is prepared to guarantee for foreign service suppliers.

The GATS covers all services with two exceptions—i.e. services provided in the

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exercise of governmental authority and, in the air transport sector, air traffic rights and all

services directly related to the exercise of traffic rights. Notwithstanding this very broad

scope, the Agreement and the negotiations taking place under it are one of the least

controversial areas of current work in the WTO. This is because of its remarkable flexibility,

which allows Governments, to a very great extent, to determine the level of obligations they

will assume. There are four main elements of flexibility:

Member Governments choose those service sectors or subsectors on which they will

make commitments guaranteeing the right of foreign suppliers to provide the service.

Each Member must have a schedule of commitments, but there is no minimum

requirement as to its coverage—some cover only a small part of one sector;

For those services that are committed, Governments may set limitations specifying the

level of market access and the degree of national treatment they are prepared to

guarantee;

Governments were able to limit commitments to one or more of the four recognized

"modes of supply" through which services are traded. They may also withdraw and

renegotiate commitments;

In order to provide more favourable treatment to certain trading partners,

Governments may take exemptions, in principle limited to 10 years’ duration, from the

MFN principle, which is otherwise applicable to all services, whether scheduled or

not.

The Agreement contains a number of general obligations applicable to all services, the most

important of which is the MFN rule. But apart from these each Member defines its own

obligations through the commitments undertaken in its schedule. Because it is a basic

principle of the Agreement that developing countries are expected to liberalize fewer sectors

and types of transactions, in line with their development situation, the commitments of

developing countries are in general less extensive than those of more industrialized countries.

It was this flexibility in the scheduling of commitments which put an end to the north-south

controversy over services which marked the early years of the Uruguay Round.

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3.13 The GATS and public funding

It has been suggested by some NGOs with a special interest in the area of public services – for

example, by Education International and Public Services International in a joint publication of

June 1999 – that the implementation of the GATS might result in the abolition of public

funding for national institutions, on the ground that it undermines free trade. Such concerns

are unfounded. There has never been any proposal, or even debate, in the WTO services

context concerning the abolition of public funding: WTO Members could certainly never

agree to that. (In their subsequent publication, dated September 2000, PSI made no reference

to this issue. We very much appreciate the cooperation with PSI which made it possible to

clarify this point.)

In so far as subsidies are concerned, at present the GATS contains no specific rules. However,

a country providing a subsidy to national but not to foreign suppliers of a service committed

in its schedule must have entered a national treatment limitation to that effect. The GATS has

no implications for the funding or subsidy of services provided in the exercise of

governmental authority. Negotiations are under way on subsidies "with a view to developing

the necessary multilateral disciplines" to avoid distortive effects on trade. Whatever

disciplines are developed will not apply to governmental services, because these are simply

outside the scope of the GATS.

3.14 Total coverage of GATS

The agreement covers all internationally traded services in the 14 different service sectors.

Included are all the different ways of providing an international service, as follows:

Services supplied from one country to another, not requiring the physical movement

of the consumer (e.g. distance education, e-learning, virtual universities), also known

as “cross-border supply”;

Consumers or firms making use of a service in another country (e.g. students who go

to another country for their studies), which is called “consumption abroad”;

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A foreign company setting up subsidiaries or branches to provide services in another

country (e.g. twinning partnerships, local branch or satellite campuses, franchising

arrangements with local institutions), officially “commercial presence” ;

Individuals travelling from their own country to supply services in another (e.g.

professors, teachers, researchers working abroad), known as “presence of natural

persons”.

3.15 OBLIGATIONS

This includes transparency, most favoured nation treatment, dispute settlement and

monopolies and apply to all service sectors.

Most Favoured Nation treatment (MFN)

• Among the general commitments, perhaps the most important one is the Most

Favoured Nation (MFN) Treatment

• This requires equal and consistent treatment of all foreign trading partners. It means:

• Providing equal opportunities in that sector for all foreign service providers.

• mutual exclusive treatment for all service providers

MFN means treating one’s trading partners equally. Under GATS, if a country allows foreign

competition in a given sector, equal opportunities in that sector should be given to service

providers from all other WTO members. This applies even if the country has made no specific

commitment to provide foreign companies access to its markets under the WTO and it applies

moreover to mutual exclusion treatment. E.g. if one country chooses to exclude another

country from providing a certain service, all WTO members should be excluded. MFN applies

to all services, but some special temporary exemptions have been allowed.

National treatment

This is not the same as MFN. National Treatment requires equal treatment for foreign

providers and domestic providers.

Once a foreign supplier has been allowed to supply a service in one’s country there

should be no discrimination in treatment between the foreign and domestic providers.

The Agreement does not however, as in case of goods, impose this obligation to be

applied across the board in all service sectors. It requires countries to indicate in their

34

schedules of concessions the sectors in which and conditions to which such treatment

would be extended.

This principle means treating one’s own nationals and foreigners equally. In services, this

means that once a foreign company has been allowed to supply a service in one’s country

there should be no discrimination between the foreign and local companies. Under GATS, a

country only has to apply this principle when it has made a specific commitment to provide

foreigners access to its services market. It does not have to apply national treatment in sectors

where it has made no commitment. Even in the commitments, GATS does allow some limits

on national treatment.

Transparency

Transparency of regulations; members are obligated to publish all domestic regulatory

measures affecting services trade and to establish inquiry points from which members

countries can obtain information affecting trade in services.

In order to guarantee transparency, governments must publish all relevant laws and

regulations. Inquiry points within their administrations should help foreign companies and

governments obtain information about regulations in any service sector. Moreover

governments have to notify the WTO of any changes in regulations that apply to the services

that come under specific commitments.

Measures

Measures to be taken to liberalize trade, including those securing the greater participation of

developing countries. These include all laws, regulations and practices from national, regional

or local governments that may affect trade; this term applies to all sectors.

Conditional obligations

There are a number of conditional obligations attached to national schedules, e.g. market

access and national treatment. These apply only to commitments that are listed in national

schedules and whose degree and extent is determined by country.

Market access

The lists of market access commitments (along with any limitations and exemptions from

national treatment) are negotiated as multilateral packages, although bilateral bargaining

sessions are needed to develop the packages. The commitments therefore contain the

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negotiated and guaranteed conditions for conducting international trade in services. If a

recorded condition is to be changed for the worse, then the government has to give at least

three months’ notice and it has to negotiate compensation with affected countries. But the

commitments can be improved at any time.

Progressive Liberalization

In GATS, it is the intention that with each round of negotiations further liberalization of trade

in service is realized. This involves two aspects - more sectors are covered and more trade

limitations are removed.

Bottom-up and Top-down approach

In the context of GATS, a bottom-up approach means that each country determines the type

and extent of its commitments for each sector. Top down refers to the main rules and

obligations as well as the progressive liberalization agenda, there will be increasing pressure

to remove trade barriers.

Specific commitments

Individual countries’ commitments to open markets in specific sectors — and how open those

markets will be - is the subject of negotiations. The commitments appear in “schedules” that

list the sectors being opened, the extent of market access being given in those sectors (e.g.

whether there are any restrictions on foreign ownership), as well as any limitations on national

treatment (whether some rights granted to local companies will not be granted to foreign

companies).

These commitments are “bound”: like bound tariffs, they can only be modified or withdrawn

after negotiations with affected countries — which would probably lead to compensation.

Because “unbinding” is difficult, the commitments are virtually guaranteed conditions for

foreign exporters and importers of services and investors in the sector to do business.

3.16 AN OVERVIEW OF KEY AREAS OF GATS

There are 14 different areas of GATS. They are as follows:

1. Education services

2. Energy services

a. Oil and gas services

3. Environmental services

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4. Express delivery services

5. Financial services

6. Health and social services

7. Legal services

8. Logistics and related services

9. Postal and Courier services

10. Professional services

11. Sporting services

12. Telecommunications

13. Tourism services

14. Transport services:

a. Air transport

b. Land transport

c. Maritime transport

d. Services auxiliary to all modes of transport

3.17 CONCLUSION

The GATS is supposed to be a development-friendly Agreement because it should bring much

needed foreign investment to developing country service sectors. However, UNCTAD

concludes: “There is no empirical evidence to link any significant increase in FDI flows to

developing countries with the conclusion of GATS.” 17 Moreover, especially in the service

sector, the quality of investment is more important than the quantity if it is to aid development

and benefit poor communities.

GATS restricts governments’ ability to ensure that foreign investment will benefit local

people, while the potential costs are all too apparent. It is difficult to see what benefits GATS

brings to developing countries, which, in any case, are free to liberalise service sectors

independently of GATS. The real winners will be multinational companies. With disarming

candour the European Commission has admitted, “The GATS is not just something that exists

between governments. It is first and foremost an instrument for the benefit of business”. And

more recently that, “The EU agenda is to seek better access for European services exporters in

foreign markets.” In the final analysis, GATS has more to do with governance than with trade.

Over the past century, financial regulation in the US has oscillated from periods of strict

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financial controls over banking and capital markets following the Great Depression to periods

of deregulation in the 1980s and 1990s. GATS locks in the status quo at a time of

unprecedented financial liberalization.

International trade agreements could make it extremely difficult to reverse the trend toward

deregulation of financial services that has occurred over the past two decades. GATS could

lock future generations into a dangerous level of financial deregulation, and constrain future

policy choices regarding consumer protection, health care, and social security.

BIBLIOGRAPHY

BOOKS:

1. Palle Krishna Rao, 2005, WTO text & cases, 1st Edition, Anurag Jain for Excel Books, New

Dehli.

2. Board of Editors, ICFAI, 2002, International Trade-An Introduction, ICFAI PRESS, 52,

Nagarjuna Hills, Hyderabad, India.

3. Hoekman Bernard, Mattoo Aditya, 2002, Development Trade & the WTO-A Handbook,

World Bank, Washington DC.

Website links till 26th September, 2014

1. TRIPS

http://www.wto.org/english/docs_e/legal_e/27-trips.pdf

http://www.ipproinc.com/admin/files/upload/5638424eba1ffe6d201d715e91034b8b.pdf

http://kalyan-city.blogspot.com/2011/03/wto-trips-trade-related-intellectual.html

2. GATS

http://www.wto.org/english/docs_e/legal_e/26-gats.pdf

http://www.slideshare.net/jaykay_npti/world-trade-organization

www.wto.org/english/tratop_e/serv_e/gsintr_e.doc

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http://www.esb-business-school.de/fileadmin/_research/dokumente/Workingpaper/

WP_2005_03_GATS_Oliver_Hilger.pdf

http://www.actionaid.org.uk/sites/default/files/doc_lib/49_1_gats.pdf

http://www.wto.org/english/tratop_e/serv_e/1-scdef_e.htm

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