Definition of Trade in Services: A Critical Analysis

The General Agreement on Trade in Services (GATS) is a relatively new agreement. It entered into force in January 1995 as a result of the Uruguay Round negotiations to provide for the extension of the multilateral trading system to services. With a view to achieving a progressively higher level of liberalization, pursuant to Article XIX of the GATS, WTO Members are committed to entering into further rounds of services negotiations. The first such round started in January 2000. The definition of services trade under the GATS is four-pronged, depending on the territorial presence of the supplier and the consumer at the time of the transaction. International trade in services is defined by the Four Modes of Supply of the General Agreement on Trade in Services (GATS). (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. The present paper critically examines these four modes of supply and evaluates the merits of the definition of services contained in the GATS Agreement.