Four Modes of Services under GATT

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  Four Modes of Services under GATT Mode 1 Cross border trade, which is defined as delivery of a service from the territory of one   country into the territory of other country; Mode 2 Consumption abroad – this mode covers supply of a service of one country to the service   consumer of any other country; Mode 3 Commercial  presence  –  which  covers  services  provided  by  a  service  supplier  of  one   country in the territory of any other country, and Mode 4 Presence of natural persons – which covers services provided by a service supplier of one   country through the presence of natural persons in the territory of any other country

 

 

 

 

 

 

 

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The General Agreement on Trade in Services (GATS) is a multilateral agreement that sets rules for international trade in services. It was negotiated during the Uruguay Round of multilateral trade negotiations and came into effect in 1995. The GATS covers all services except those that are specifically excluded, such as services provided in the exercise of governmental authority.

The GATS is based on four “modes of supply”:

  • Cross-border supply: This mode of supply occurs when a service is delivered from the territory of one Member to the territory of another Member without the movement of either the supplier or the consumer of the service. For example, a telecommunications company in one country may provide telephone services to customers in another country.
  • Consumption abroad: This mode of supply occurs when a consumer of a service moves from his or her country to another country to receive the service. For example, a tourist may travel to another country to receive medical treatment.
  • Commercial presence: This mode of supply occurs when a service supplier establishes a commercial presence in the territory of another Member, such as a branch or a subsidiary. For example, a bank may establish a branch in another country to provide Banking services.
  • Presence of natural persons: This mode of supply occurs when a natural person moves from his or her country to another country to supply a service. For example, a doctor may move to another country to provide medical services.

The GATS provides for the progressive Liberalization-2/”>Liberalization of trade in services. This means that Members are committed to removing or reducing barriers to trade in services, such as tariffs, quotas, and licensing requirements. The GATS also provides for the establishment of a framework for the negotiation of further liberalization of trade in services.

The GATS has been successful in promoting trade in services. The value of world trade in services has increased significantly since the GATS came into effect. The GATS has also helped to improve the quality of services and to increase competition in the services sector.

The GATS has been criticized for not going far enough in liberalizing trade in services. Some critics argue that the GATS does not do enough to address the problem of subsidies in the services sector. Others argue that the GATS does not do enough to address the problem of government procurement in the services sector.

Despite these criticisms, the GATS remains an important instrument for promoting trade in services. The GATS has helped to increase the flow of services between countries and has improved the quality of services available to consumers. The GATS is likely to continue to play an important role in promoting trade in services in the years to come.

The GATS has been successful in promoting trade in services, but it has also faced some challenges. One challenge is that the GATS is a complex agreement, and it can be difficult for countries to understand and implement its provisions. Another challenge is that the GATS is not always effective in addressing the specific needs of developing countries.

Despite these challenges, the GATS remains an important instrument for promoting trade in services. The GATS has helped to increase the flow of services between countries and has improved the quality of services available to consumers. The GATS is likely to continue to play an important role in promoting trade in services in the years to come.

Here are some frequently asked questions about the Four Modes of Services under GATT:

  1. What are the Four Modes of Services under GATT?

The Four Modes of Services under GATT are:

  • Mode 1: Cross-border supply of services. This occurs when a service is supplied from one country to another without the movement of either the service supplier or the consumer. For example, a US company providing customer service to a UK customer over the phone.
  • Mode 2: Consumption abroad of services. This occurs when a consumer moves from their home country to another country to consume a service. For example, a UK citizen visiting the US to see a doctor.
  • Mode 3: Commercial presence. This occurs when a service supplier establishes a commercial presence in another country, such as a branch office or subsidiary. For example, a US company opening a call center in the UK.

  • Mode 4: Movement of natural persons. This occurs when a natural person moves from their home country to another country to supply a service. For example, a US doctor working in the UK.

  • What are the benefits of liberalizing trade in services?

There are many benefits to liberalizing trade in services, including:

  • Increased economic Growth. Liberalizing trade in services can lead to increased economic growth by increasing competition, efficiency, and innovation.
  • Increased EMPLOYMENT. Liberalizing trade in services can lead to increased employment by creating new jobs and opportunities.
  • Increased consumer choice. Liberalizing trade in services can give consumers more choice and better quality services.

  • Increased Investment. Liberalizing trade in services can attract more investment, which can lead to economic growth and job creation.

  • What are the challenges of liberalizing trade in services?

There are also some challenges to liberalizing trade in services, including:

  • The need to protect sensitive sectors. Some sectors, such as healthcare and Education, may be considered sensitive and may need to be protected from full liberalization.
  • The need to address regulatory differences. Different countries have different regulations governing services, which can make it difficult to liberalize trade in services.

  • The need to address the movement of natural persons. The movement of natural persons to supply services can be a sensitive issue, and countries may need to take steps to address this issue.

  • What are the future prospects for trade in services?

The future prospects for trade in services are positive. The global market for services is growing rapidly, and there is potential for further growth in the future. However, there are also some challenges that need to be addressed, such as the need to protect sensitive sectors and the need to address regulatory differences.

Question 1

Which of the following is not a mode of supply of services?

(A) Cross-border supply
(B) Consumption abroad
(C) Commercial presence
(D) Presence of natural persons

Answer
(B) Consumption abroad

Explanation
The four modes of supply of services are:

(A) Cross-border supply: This mode of supply occurs when a service is delivered from one country to another without the movement of the consumer or the supplier. For example, a US company providing consulting services to a client in the UK.
(B) Consumption abroad: This mode of supply occurs when a consumer moves from their home country to another country to consume a service. For example, a US citizen visiting a UK hospital for medical treatment.
(C) Commercial presence: This mode of supply occurs when a service supplier establishes a commercial presence in another country. For example, a US company opening a branch office in the UK.
(D) Presence of natural persons: This mode of supply occurs when a natural person moves from their home country to another country to provide a service. For example, a US citizen working as a nurse in the UK.

Question 2

Which of the following is not a principle of the General Agreement on Trade in Services (GATS)?

(A) Most-favored nation treatment
(B) National Treatment
(C) Transparency
(D) Reciprocity

Answer
(D) Reciprocity

Explanation
The four principles of the GATS are:

(A) Most-favored nation treatment: This principle requires that each member country must treat services and service suppliers of other member countries no less favorably than it treats its own services and service suppliers.
(B) National treatment: This principle requires that each member country must treat services and service suppliers of other member countries no less favorably than it treats its own services and service suppliers in like circumstances.
(C) Transparency: This principle requires that each member country must publish all laws, regulations, and administrative procedures that affect trade in services.
(D) Reciprocity: This principle is not a principle of the GATS.

Question 3

Which of the following is not a sector that is covered by the GATS?

(A) Financial services
(B) Telecommunications
(C) Tourism
(D) agriculture

Answer
(D) Agriculture

Explanation
The GATS covers 12 sectors of services, including:

(A) Financial services
(B) Telecommunications
(C) Tourism
(D) Transport
(E) Distribution
(F) Professional services
(G) Construction and engineering
(H) Maintenance and repair services
(I) Environmental services
(J) Postal and courier services
(K) Audiovisual services
(L) Other services not included elsewhere

Agriculture is not one of the 12 sectors that are covered by the GATS.

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