Concept of Commercial Equality and Trade Liberalization

Service trade is the largest and fastest-growing sector of the international trading activates now. According to WTO document, service trade provides more than 60% of the global output and employment.


Overview of the GATS.

The GATS is one of the most comprehensive agreements of the WTO (Richard Sanders, 2001). GATS contains several levels of obligations. First, the agreement contains successive future negotiations to increase coverage and expend the agreement. Second it includes general rules, such as most-favored nation treatment and transparency, which apply to all members. Third, it contains specific commitment, such as market access and national treatment. Specific commitments are an individual country's binding commitment or obligations undertaken by members to open markets in specific areas (V. Wijayaratnam 2002). Finally, the agreement also contains other rules for particular sectors. It is a general structure of the GATS.

The purpose of the essay.

With the development of the international service trade, more and more business sectors and countries realize the importance of GATS. This essay will analyze how GATS remove barriers to international trade in service. In another word how GATS liberalize the international service trade. And how liberalization of international service trade, which is guaranteed by GATS, promotes the whole international trade. In one word the aim of this essay is to analyze the effectiveness of GATS in the international trade.

The Effectiveness Of The GATS.

Improve the liberalization of international trade.

In the Uruguay Round, many countries made commitments in services. And an analysis of the commitment schedules indicates that most countries undertook very limited liberalization. Hoekman (1995) estimated that high-income countries (HICs) scheduled 45% of their service sectors and low and middle-income countries (LMICs) scheduled only 12% of service sectors (Rupa Chanda 2003, p2000). However, GATS frameworks make WTO members make a step toward liberalization. Liberalization means among other things, eliminating government policies whereby national providers are favored over foreign ones (Richard Sanders 2001). Because most trade in services occurs within a country, their barriers are not tariffs but internal domestic law, regulations and policies that may possibly discriminate against foreign service providers or even limit their profitability (Ralph Nader 2002). GATS in some degree eliminate the regulations, which prohibit foreign investors providing services in some area. The aim of the GATS is to liberalize "trade in service" among WTO members. Generally speaking it is effective for the GATS to advance the liberalization in the international service trade. And liberalization of GATS embodies two aspects --- one is non-discrimination and the other is less restriction.

First, non-discrimination is a noble concept of the GATS. Non-discrimination contributes a lot to create equal opportunities to WTO members in the international service trades. And equal opportunities will promote the whole economic performance and accelerate the development of the international service trades. From the provisions of most favored nation treatment (MFN) and national treatment (NT), we can get a clear idea about non-discrimination embodied in the GATS.

ArticleⅡ(1) Most-Favored-Nation Treatment (MFN) requires that "each member shall accord immediately and unconditionally to services and service suppliers of any other member, treatment no less favorable than that it accords to like services and service suppliers of any other country."

From this article we can find MFN eliminates discrimination among services or service supplier of other WTO member countries. And two exceptions of MFN give developing countries and countries in a union some place to develop their own industries.

Article XVII National treatment (NT) requires that a member be obliged to treat nationals of another WTO members and their products in the same way as its own national products (John Mo 2003).

From this article we can find NT gives an equal opportunities to both foreign parties and local parties and eliminate the discriminations between local parties and other foreign parties.

There are many other articles of GATS contribute to the concept of non-discrimination, but articles about MFN and NT are most obvious.

Second, the effectiveness of GATS in the liberalization of international trade makes the trade of services less restriction. And business could get most benefit from the GATS, for GATS reduce the barriers and regulations that block the international service trade. The provisions of GATS such as domestic regulation, economic integration and transparency all dampen the regulations and limitation of international services trade.

Article VI Domestic regulation requires that governments should regulate services reasonably and objectively (V.Wijayaratnam 2003). That means most of the domestic regulations should subject to the regulations of GATS. The liberalized trades are guaranteed by this article, which eliminates the domestic regulation blocked the international service trade.

Article V Economic integration allows for regional agreements liberalizing trade in service (V.Wijayaratnam 2003). That need members of WTO widen the sectoral coverage and eliminates substantially and discrimination in the sectors covered.

Article III Transparency requires members to make their laws, regulations and measures for the implementation of the GATS transparent, by publishing these laws and notifying the WTO of any changes (V.Wijayaratnam 2003). This will guarantee the foreign parties to make a long run plan about their investment without worrying about the suddenly change of other country's regulations.

From the three articles we can notice GATS makes an effort to let governments suit their regulations to the liberalization of international trade. On the one hand the WTO members should think twice about their decisions that affect a service. Their decisions should not object to the GATS. On the other hand the GATS pressures governments to widen the coverage of service sectors. It is not difficult to find that less restriction, which are embodied in the GATS, also enhance the liberalization.

The promotion of the international trade.

From the analysis above, it's no doubt for us to realize the effectiveness of the liberalization of international trade. The benefits of services liberalization extend far beyond the service industries, but these benefits will also affect other economic activities. It is impossible for any country to prosper today under the burden of inefficient and expensive infrastructure. Liberalization could help countries and business prosper by accessing to efficient service from abroad. That is the reason why GATS is so important and significant to promote the world trade.

First, GATS will improve the economic performance of WTO members. GATS provide relatively equitable surroundings for WTO members and at the same time it also enhance the competitive power of the service market (Wu Xingguang 2003). Without the spur of competition, the industries cannot excel. And an efficient services infrastructure is a precondition for economic success. Nowadays the prosperity of goods industries and other sectors depend on efficient services such as telecommunications, banking, insurance and so on. More and more governments rely on an open and transparent environment for the provision of services. As to a developed countries, they can benefit themselves from invest high technology service to developing countries. And for developing countries, they can not only get the high quality services, but also adopt the advanced technologies to stimulate their national productivity and home market.

Second, GATS will improve the whole environment of the international trade. The transparency and predictability of the regulations of countries will secure foreign firms to make investments. And it is possible to let everyone --- producers, investors workers and users --- have a clear idea of the rules of the game. The investors are able to make a long-run plan with greater certainty. Of course this kind of secure environment will attract more investment. At the same time non-discrimination and less restriction of the international service trade environment will promote the whole international market.

From the analysis above we can find the promotion of the international trade benefit from the liberalization of the international service trade. GATS is an effective accelerator of the liberalization of international service trade, which could promote the whole international trade.

The challenges of GATS.

As we know the GATS make a great contribution to the promotion and liberalization of international trade. But no things are perfect in the world, GATS also need to face some challenges. Many WTO members still think there are some problems existing in the GATS.

One of problem is that it is difficult to determine the actual scope of the GATS. Article I of the GATS states that "services provided in the exercise of governmental authority" are excluded from the agreement. However, according to Article 1:3 (c) of the GATS, "a service supplied in the exercise of governmental authority" means "any service which is supplied neither on a commercial basis nor in competition with one or more service suppliers." Very few public services would appear to be excluded by this definition. There is co-existence of public and private service suppliers in may social services (Rupa Chanda 2003). For example in the education area, government provides services that can also be obtained by private suppliers. Although the fees for private education are much higher, there are lots of people choose to get private education. Does this constitute a competitive relationship between the two segments? Sometimes it is difficult to define them. Most of the WTO members hope to use GATS to make profit for themselves. This will cause different members in different situations will have different interpretation of this ambiguousness. Developing countries do not like opening too much their local market; otherwise developed countries prefer developing countries to open a wide coverage of service sectors. This controversial point will dampen the liberalization of the international trade. Wu Xingguang (2003) said though GATS was established, the liberalization is still quite low. And because the ambiguousness of the GATS, this leaves the possibility for some countries to close off some particular service sectors to foreign countries by exercising the governmental authority in that sector (John Mo 2003).

An explicit example of China financial market.

China became the member of WTO in the year 2001. And before that year the government controlled most of the financial sectors. But now China is preparing to open this market. According to the commitment of China government, in the 5 years, China will gradually give the market access in the sectors about banking and insurance and so on (Yang Fei 2003).

The benefit of liberalization of this financial market is obvious. China could get more capital and resource from the investment of other countries. These reduce the total burden on government, helping them relocate governmental expenditure. Local business could adopt high quality management and technologies from foreign business. And consumers can enjoy the first class financial services. The drawback is whether our local financial sectors have the ability to compete with the sophisticated foreign business. However, generally speaking the benefits outweigh the drawbacks. That is the reason China want to become a member of WTO.


As the international trade become more and more important, GATS will make a greater contribution to the international trade. No one can stop the development of the liberalization and promotion of the international trade. And GATS embody and accelerate the tendency of this kind of liberalization. Although the challenges are existed in GATS, as the development of future negotiation among WTO members, I think GATS will give the convenience to the international trade for all WTO members.