In September 1986, governments embarked on the longest and most ambitious multilateral trade negotiations held under the auspices of the GATT. They concluded the negotiations on April 15, 1994 with the signing of the Final Act of the Uruguay Round in Morocco. More than the end of a journey, however, the Marrakesh ceremony ushered in the beginning of a new era in international trade rules and the birth of the World Trade Organization (WTO).

In September 1986, governments embarked on the longest and most ambitious multilateral trade negotiations held under the auspices of the GATT. They concluded the negotiations on April 15, 1994 with the signing of the Final Act of the Uruguay Round in Morocco. More than the end of a journey, however, the Marrakesh ceremony ushered in the beginning of a new era in international trade rules and the birth of the World Trade Organization (WTO).

The venues for launching the negotiations (Punta del Este, Uruguay) and signing the Final Act (Marrakesh, Morocco) had more than a symbolic meaning. For the first time, a large number of developing countries were active participants in the multilateral negotiations. Increased involvement by developing countries in the GATT is explained by several factors: better understanding of the limits to “free riding” on the multilateral trading system; growing appreciation for market-oriented policies and an outward-oriented strategy of development; and, perhaps the leading factor, the realization that multilateral disciplines offer the best hope for curbing unilateral actions by large economies.

One of the major results of the Uruguay Round was the creation of a General Agreement on Trade in Services (GATS). The GATS establishes rules and disciplines on policies affecting access to service markets, greatly extending the coverage of the multilateral trading system. It is a landmark achievement in terms of creating multilateral disciplines in virgin territory. As discussed below, however, the amount of liberalization generated by the negotiations on services was limited. On a more positive note, it can be argued that the agreement paves the way for future multilateral liberalization and creates a mechanism through which countries may lock in their policies, thus reducing uncertainty for investors.

This chapter describes the main characteristics of the GATS and analyzes its implications for selected Arab countries—those that made offers on services. First, the terms of the debate that marked the negotiations on services are introduced, and the meaning of the concept of trade in services discussed. Subsequent sections present the basic framework of the GATS and analyze the content of the GATS offers, including offers made so far by Arab countries. The chapter concludes with some comments about the implications of the GATS for service importers and exporters in Arab countries.

Trade in Services: Terms of the Debate

Services, trade-related intellectual property rights (TRIPs), and trade-related investment measures (TRIMs) were the so-called new issues negotiated in the Uruguay Round. The demand for multilateral disciplines in these areas was driven by the growing globalization of economic activities and by the recognition that domestic policies were becoming increasingly relevant in determining international competitiveness. These were themes of particular interest to transnational corporations, and as such they were perceived as part of the negotiating agenda of industrial economies. Most developing countries, in turn, initially opposed the negotiations in these areas either because they believed that they did not enjoy comparative advantage in the relevant industries (services, high-tech goods) or because these negotiations were perceived to constrain their liberty in setting foreign direct investment policies and domestic laws. Moreover, from a negotiating perspective they were not eager to accept an expansion of the multilateral trade agenda while old issues that were more pertinent to them (for example, agriculture and textiles and clothing) continued to defy GATT disciplines.

At the beginning of the round, services were the most divisive topic on the negotiating agenda. Progress in the negotiations on services, however, occurred at a faster pace than most analysts predicted in 1986. Billed as the villain in Punta del Este, services were gradually replaced by TRIPs as the issue that symbolized the North-South divide and, even more important, by agriculture as the critical negotiating topic for the completion of the round.

International trade in services is not a new phenomenon. Transportation and travel, for example, have always been important economic activities. What is new is the rapid expansion of international service transactions during the past decade and the advent of new modes of supply, as in the case of services transmitted over electronic networks. The growth of trade in “long-distance” services, however, accounts for only part of the process of internationalization of services.

From a balance of payments perspective, a cross-border transaction refers to exchanges between residents and nonresidents, either firms or persons. Accordingly, international trade in services encompasses not only long-distance services, but also transportation and activities that require the temporary physical movement of the producer (as in the case of international consultants) or of the consumer (as in the case of tourism) across borders (Box 1). The concept of “commercial services” (GATT, 1989) has often been used to group the relevant items of the balance of payments to provide a proxy for international trade in services. Commercial services encompass transport (shipment and other transportation services), travel, and other private services. This last category includes brokerage, communication, nonmerchandise insurance, leasing and rental of equipment, technical and professional services, as well as income generated by the temporary movement of labor and property income (basically, royalties and license fees related to intellectual property).1

International Transactions in Services1

Sampson and Snape (1985) have focused on the need for physical proximity of providers and consumers as a way to classify service transactions. Their analytical scheme can be summarized by the following matrix:

article image

Type A transactions can occur in the case of “long-distance” services (for example, transborder data flows). Tourism, education, and health services are typical examples of type B transactions. Type C transactions, in turn, involve the international movement of conventional factors of production (capital or labor). Foreign direct investment and the temporary movement of labor (skilled or unskilled) provide the main modes of supply for this class of transactions. Finally, type D transactions constitute what is sometimes referred to as “footloose” services (for example, a tourist going to a hotel run by a transnational corporation in a third country). Some service transactions (for example, air transport) may be classified in different cells of the matrix “depending on the carrier’s traffic rights” (Weisman, 1990, p. 50). A type B transaction, for example, may occur when a tourist takes a domestic flight in a carrier of the country being visited, or a type C transaction when a resident flies a foreign carrier domestically.

The Sampson-Snape scheme also provides a convenient way to classify restrictions to international service transactions. These restrictions inhibit either service transactions per se (typically in the context of type A transactions, although restrictions on international transport can affect other categories), the movement of factors of production (transactions of types C and D), or the movement of service consumers (transactions of types B and D).

As shown in Table 1, over the past decade trade in commercial services has grown faster than trade in merchandise. The average annual growth rate of trade in commercial services over the 1980–92 period was 8.3 percent, compared with 5.5 percent for merchandise trade (in nominal terms). As a consequence, the share of commercial services in global trade (merchandise and commercial services) grew from 17 percent in 1980 to 22 percent in 1992. Preliminary information for 1993 confirms this trend, with global exports of commercial services surpassing the $1 trillion mark and continuing to grow faster than merchandise trade (GATT, 1994a). The relative importance of commercial services for Arab countries has also increased significantly over this period.2

Table 1.

Global Trade Flows

(In billions of U.S. dollars)

article image
Source: Compiled by the authors on the basis of IMF, Balance of Payments Statistics Yearbook (Washington, various years).Note: Only countries reporting to the IMF were considered in preparing this table. No estimates for missing data were used.

Mexico is included in the rest of the world.

Total trade = merchandise exports + commercial service exports.

Data for Arab countries are based on available information for Algeria, Bahrain, Egypt, Jordan, Kuwait, Libya, Morocco, Oman, Qatar, Saudi Arabia, and the Syrian Arab Republic.

It is well known that statistics on services have many deficiencies (Box 2). Part of the growth identified above, for example, reflects improvements in statistical practices in reporting countries. Moreover, changes in relative prices of services and goods have also influenced the trend in question, although the absence of constant-price data for services impedes definitive statements in this area. Still, it is clear that commercial services, and in particular “other private services,” have been a dynamic component of international trade during the past decade. Trade in other private services grew at an average annual rate of 10.1 percent in the period 1980–92. In this context, the share of “other private services” in global commercial service trade increased from 37 percent in 1980 to 44 percent in 1992.

Taking Service Statistics Seriously1

Balance of payments statistics provide the main source of information for international trade in services. The data, however, embody many weaknesses. Until recently, some large economies (for example, the former Soviet Union) did not report data on trade in services. The level of disaggregation is limited and varies significantly among countries. There are also inconsistencies in the methodologies used to report certain items (countries do not report exactly the same items, for example, under “port services”). Moreover, net recording is a common practice for some items (for example, insurance transactions are often recorded as premiums less claims). All of these factors contribute to generate a downward bias in the value of service trade reported at the balance of payments level.

Efforts are being made to improve the coverage, quality, and consistency of the data. The OECD and the European Union, for example, are cooperating with a view to foster better collection of statistics on trade in services in their member countries. The IMF, in turn, is now engaged in the implementation of the new classification of trade in services introduced in the fifth edition of its Balance of Payments Manual (IMF, 1993). As countries adopt this new reporting system, an improved statistical picture will emerge.

Unfortunately, given the difficulties in capturing all the dimensions of international trade in services, this picture will remain at best partial. Cross-border intrafirm service transactions are increasing at a fast pace as foreign direct investment expands and electronic networks become pervasive. Intrafirm financial and technical advice, for example, is increasingly exchanged internationally. Transnational corporations can now use their mainframe computers around the clock by exploiting time-zone differences between the home country and the host countries of their affiliates. In the off-peak periods in the home country, access to the mainframe is given to the affiliates for data processing and other activities (for example, software development). Such transactions are generally not captured in conventional balance of payments statistics.


Source: GATT (1989).

Table 2 provides an overview of the relative importance of these three main categories of trade for major country groups. Industrial countries dominate global exports in all three categories. This, however, does not imply that developing countries have little interest in trade in services. To the contrary, many developing countries are relatively specialized in exporting services. Table 2 illustrates this by providing information from revealed comparative advantage (RCA) indices constructed for selected country groups.3 Small countries (defined as those with populations of less than 1 million people) are the most specialized in exports of services. Moreover, their relative specialization increased significantly during the past decade. These countries have higher than average export intensities for all three services categories but are clearly most highly specialized in travel (that is, tourism). The relative importance of travel receipts was about twice the world average in 1980, rising to over three times the world average in 1992.

Table 2.

Shares in Global Service Exports and Relative Specialization

article image
Source: Compiled by the authors on the basis of IMF, Balance of Payments Statistics Yearbook (Washington, various years).Note: See note to Table 1.

Relative specialization is defined by means of revealed comparative advantage (RCA) indices, calculated as the ratio of exports of a product category to a country’s total exports of goods and services, divided by the same ratio for the world: RCA = [Xij/Yj]/[Xiw/Yw], where Xij are exports of product i by country j, Yj are total exports of goods and services by country j, and w stands for the “world” (the sum of all countries). The value of this index may range from zero to a very large number. If the index is greater than unity, this implies that the country is relatively specialized in the product concerned.

Arab countries can be classified in two different groups as far as trade in services is concerned. Those in the Middle East typically present a lower than average degree of specialization in service trade vis-à-vis developing countries in general. The opposite, however, holds for Arab countries in North Africa. Egypt, Tunisia, and Morocco, in particular, reveal a high level of specialization in service trade. Tourism, labor income (associated with temporary labor movement), and the fees of the Suez Channel (in the case of Egypt) explain this result.

The process of internationalization of services is not limited to the modes of supply identified with international trade (that is, cross-border trade, consumption abroad, and the presence of natural persons). Commercial presence abroad (in the context of foreign direct investment, representative offices or branches) remains the preferred mode of supply for many services. Despite the growing tradability of services, direct contact between the producer and the consumer continues to be the norm for many service transactions. It is also worth noting that trade in services tends to be complementary to foreign direct investment in general. As foreign direct investment occurs, transactions in long-distance services (communication services, technical advice, and the like) and movements of service providers (intracorporate transferees) expand.

In the 1980s, foreign direct investment flows increased at a much faster pace than global trade and production. Worldwide liberalization of foreign direct investment policies, economic integration in Europe, the emergence of new major outward-investor economies (such as Japan, Singapore, and Taiwan Province of China), as well as technological and financial innovations contributed to this process. Foreign direct investment in service industries was the most dynamic component of foreign direct investment flows in the 1980s. Privatization and deregulation of service industries, together with liberalization of market access, played an important role in this process. The members of the European Union were the main recipients of foreign direct investment in services (taking into account intra-European Union flows), reflecting the reorganization of service industries fostered by the liberalization set in motion by the Single Market program. Developing countries also experienced a sectoral shift of foreign direct investment flows in favor of services in the 1980s, even though this trend was not as dramatic as in high-income countries.

In the early 1990s, global foreign direct investment flows slowed down, reflecting the economic downturn in major home countries such as Germany, France, and, particularly, Japan. But foreign direct investment into developing countries continued to grow throughout this period, and as a consequence the share of developing countries in worldwide flows increased from 15 percent in 1990 to roughly 33 percent by 1993. Countries in the Middle East and in North Africa, however, have not been among the dynamic receivers of foreign direct investment inflows. Indeed, their share in total foreign direct investment flows to developing countries decreased from 8 percent in 1987–89 to 4 percent in 1990–92 (World Bank, 1993, p. 55).

The prospects for continuing internationalization of services through foreign direct investment are good. Demand for modern producer services is growing fast all over the world. Regulatory barriers to entry in service industries are being reduced, either through unilateral reforms or in the context of reciprocal negotiations. The most prominent attempt to reduce regulatory barriers to market access in a reciprocal fashion is, of course, the GATS. In the next section, we discuss how the GATS framework can be used to foster a program of liberalization in services (that is, a movement toward elimination of market access barriers and discrimination against foreign providers).4

The GATS in a Nutshell

The GATS consists of four main elements:5 (1) a set of general concepts, principles, and rules that apply across the board to measures affecting trade in services; (2) specific commitments on national treatment and market access that apply to those service sectors and subsectors that are listed in a member’s schedule, subject to sector-specific or cross-sectoral qualifications or conditions (if any); (3) an understanding that periodic negotiations will be undertaken to progressively liberalize trade in services; and (4) a set of attachments that include annexes that take into account sectoral specificities and Ministerial Decisions that relate to the implementation of the GATS.

The GATS applies to measures imposed by a member to the agreement that affect the consumption of services originating in other members (Article I). The agreement applies to all four modes of supply: (1) cross-border supply of a service (that is, not requiring the physical movement of supplier or consumer); (2) provision involving movement of the consumer to the country of the supplier; (3) services sold in the territory of a member by (legal) entities that have established a commercial presence there but originate in the territory of another member; and (4) provision of services requiring the temporary movement of natural persons (see Box 1). The agreement does not apply to services supplied in the exercise of governmental functions.

MFN, National Treatment, and Market Access

The core principle of the GATT is nondiscrimination, as reflected in its most-favored-nation (MFN) and national treatment rules. These rules apply generally in the GATT—that is, to all trade flows—except insofar as explicit allowance is made for their violation (for example, in the context of regional integration). MFN and national treatment are also key elements of the GATS, but in the GATS their reach is less all-encompassing. The coverage of MFN for each GATS member is subject to a negative list—it applies to all services except those listed by each member. The coverage of national treatment is determined by a “conditional” positive list approach—that is, it applies only to sectors listed in a country’s schedule, and then only insofar as existing measures are not exempted. In addition to the two central GATT principles, the GATS introduces a commitment not found in the GATT: a market access obligation. Its reach is determined by a positive listing of sectors by each GATS member.

Although MFN is a general obligation, the GATS contains an annex allowing countries to invoke an exemption to MFN. MFN exemptions may be made only upon the entry into force of the agreement. Once a country becomes a member, further exemptions can be sought only by requesting the Ministerial Conference of the WTO for a waiver (which must be approved by three-fourths of the members). MFN exemptions are in principle to last no longer than ten years and are subject to negotiation in future trade liberalization rounds, the first of which must take place within five years of the entry into force of the agreement.

The need for an annex on MFN exceptions in large part reflected a concern on the part of some industries that MFN allowed competitors located in countries with relatively restrictive policies to benefit from their sheltered markets while enjoying a “free ride” in less restrictive export markets. This concern was expressed vividly in GATS discussions on financial services and telecommunications, prompting industry representatives in relatively “open” countries to lobby for MFN exemptions as a way to force sectoral reciprocity. In the closing days of the Uruguay Round, it became clear that a number of participants were ready to invoke the annex on MFN exceptions for financial services, basic telecommunications, maritime transport, and, possibly, audiovisual services. Rather than allow a situation to develop where countries would withdraw already tabled commitments in these areas or exempt them from the MFN obligation, a compromise solution was reached under which negotiations on a number of these sectors were to continue without endangering the establishment of the GATS (and the WTO).

Negotiations on financial services, basic telecommunications, and maritime transport were restarted in the spring of 1994. Of the three, only those on financial services were to be concluded rapidly (within six months of the entry into force of the WTO). If negotiations were unsuccessful—that is, if the market access offers made by certain countries were not satisfactory to other “demandeur” countries—members would be free to withdraw conditional offers in this area (invoke an MFN exemption). Negotiations on basic telecommunications and maritime transport are to be concluded by end-April and end-June 1996, respectively. Until then, both the MFN requirement and the possibility of invoking an exemption shall not enter into force for these services, except to the extent that a member has made a specific commitment for a sector.

Over 60 GATS members submitted MFN exemptions. Three sectors in particular were affected: audiovisual services, financial services, and transportation (road, air, and maritime). Exemptions in the audiovisual area tended to be justified on the basis of cultural objectives, allowing for preferential coproduction or distribution arrangements with a limited number of countries. Exemptions for financial services were usually motivated by concerns for reciprocity: countries seeking the flexibility to retaliate against members that did not offer reciprocal access to financial service markets. Exemptions in the transport area often were motivated by the Liner Code of the United Nations Conference on Trade and Development (UNCTAD), a concern for many developing countries, or by the existence of bilateral or regional agreements.

As mentioned earlier, market access and national treatment are so-called specific commitments. These obligations apply only to services that are included in the schedules of members, and then only subject to whatever qualifications or conditions are listed. Six types of market access restrictions are in principle prohibited. These consist of limitations on (1) the number of service suppliers allowed; (2) the value of transactions or assets; (3) the total quantity of service output; (4) the number of natural persons that may be employed; (5) the type of legal entity through which a service supplier is permitted to supply a service (for example, branches versus subsidiaries for banking); and (6) participation of foreign capital in terms of a maximum percentage limit of foreign shareholding or the absolute value of foreign investment. National treatment is defined as treatment no less favorable than that accorded to like domestic services and service providers. However, such treatment may or may not be identical to that applying to domestic firms, in recognition of the fact that identical treatment may actually worsen the conditions of competition for foreign-based firms (for example, a requirement for insurance firms that reserves be held locally).

The introduction of a market access commitment reflects one of the distinguishing characteristics of service markets: their contestability is frequently restricted by nondiscriminatory measures. Because national treatment and market access are not general obligations in the GATS context, the schedules of commitments of members are very important in determining the extent of the market access opportunities resulting from the agreement. As discussed further below, these schedules are constructed in such a manner that the liberalization “dynamics” of the GATS may turn out to be weaker than those of the GATT.

Other Obligations and Disciplines

Other obligations address issues such as transparency, recognition of licenses and certification, payments and transfers, domestic regulation, and the behavior of public monopolies. Article III (Transparency) requires all members to establish inquiry points to provide specific information concerning any laws, regulations, and administrative practices with respect to services covered by the agreement. Article VI (Domestic Regulation) requires that members establish disciplines to ensure that qualification requirements, technical standards, and licensing procedures are based on objective and transparent criteria, are no more burdensome than necessary to ensure the quality of the services concerned, and do not in themselves constitute a restriction on supply (thereby possibly circumventing a specific commitment). Article XI requires members to refrain from applying restrictions on international transfers and payments for current transactions relating to their specific commitments. Article VII (Recognition) allows for the establishment of procedures for (mutual) recognition of licenses and education, or experience granted by a particular member. Article VII is noteworthy in requiring members to “afford adequate opportunity” for other members to negotiate their accession to an existing bilateral or plurilateral recognition agreement. Monopolistic or oligopolistic supply of services is allowed under the GATS, but governments are required to ensure that such firms do not abuse their market power to “nullify” any specific commitments relating to activities that fall outside the scope of their exclusive rights.

Many of the GATS framework’s rules and disciplines apply only to the extent that specific commitments are made. This is a serious shortcoming and is a consequence of the positive list approach taken for scheduling commitments. Clearly one would want—and expect—disciplines regarding payments and transfers to be general. To the extent that other parties are willing to allow a country to maintain restrictions, a negative list approach would have allowed for exemptions. But at least the principle would be general, not specific. Even worse is emphasis put in Article VI (Domestic Regulation) that the requirement that “all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner” applies only “in sectors where specific commitments are undertaken” (GATT, 1994b, p. 333; emphasis added).

The MFN, national treatment, and market access obligations of the GATS do not extend to government procurement of services. Negotiations on this issue are to be initiated within two years of the entry into force of the WTO.6 This greatly reduces the coverage of the GATS, since procurement typically represents a significant share of total demand for many services—for example, professional services, consulting engineering, and construction. The GATS also does not impose general disciplines on subsidy practices, only subjecting subsidies to the agreement’s general obligations (that is, transparency, MFN, and dispute settlement). Negotiations are also called for on this topic, the time frame to be determined by a future work program.

The GATS makes explicit allowance for preferential trade agreements, but—as in the case of the GATT—imposes conditions that must be met for an agreement to be consistent with the multilateral framework. Article V of the GATS is entitled “Economic Integration” and imposes the conditions on GATS members pursuing preferential arrangements: (1) the agreement must have “substantial sectoral coverage” in terms of number of sectors covered, volume of trade, and modes of supply affected; (2) the agreement should provide for the absence or elimination of substantially all discrimination (in terms of violation of national treatment) among participants in those sectors in which commitments were made at GATS level (this is to be accomplished by the elimination of existing discriminatory measures and/or the prohibition of new discriminatory measures at the moment of entry into force of the agreement or within a “reasonable” time period); and (3) it should not result in higher trade and investment barriers against nonmembers.

There are a number of articles of a “safeguard” nature, including Article X (Emergency Safeguard Measures), Article XII (Restrictions to Safeguard the Balance of Payments), Article XIV (Exceptions), and Article XXI (Modification of Schedules). Article X allowing for possible industry-specific safeguard actions is largely a shell, calling for further negotiations on this topic within three years from the entry into force of the WTO. The balance of payments provision only applies to those services for which specific commitments have been undertaken. It requires that such measures be nondiscriminatory, temporary, and phased out progressively as the invoking member’s balance of payments situation improves.7 Article XIV on exceptions is similar to what is found in the GATT, providing members with the legal cover to take measures to safeguard public morals, order, health, security, consumer protection, and privacy. It also allows for measures that violate national treatment if used to ensure equitable or effective collection of direct taxes, or that violate MFN if resulting from a bilateral double taxation agreement.8 The provision on modification of schedules allows “concessions” (specific commitments) to be withdrawn subject to negotiation and compensation. In the event that bilateral negotiations on compensation are unsuccessful, arbitration is foreseen. Retaliation will only be authorized in instances where a member does not comply with arbitration. Finally, the WTO’s Dispute Settlement Body (DSB) will be responsible for the GATS, as well as the GATT and TRIPs. It is noteworthy in this regard that retaliation from goods to services and vice versa is possible.

Provisions Specific to Developing Countries

The GATS contains no provisions similar to Part IV of the GATT on more favorable treatment of developing countries (special and differential treatment), or to the (unilateral) arrangements for tariff preferences that exist for merchandise trade flows (for example, the Generalized System of Preferences, GSP).9 Although Article XIX allows developing countries to offer fewer specific commitments than industrial nations, this is not a right (or obligation). No developing country (including least developed ones) has been allowed to become a member of the GATS without scheduling at least one service sector. Other provisions addressing developing country concerns include Articles III (Transparency), IV (Increasing Participation of Developing Countries), V (Economic Integration), and XV (Subsidies).

On transparency, industrial countries are to establish contact points to facilitate the access of developing country service suppliers to information relating to (1) the commercial and technical aspects of specific services; (2) requirements for registration, recognition, and obtaining of professional qualifications; and (3) the availability of service technology. Article IV states that increasing the participation of developing countries in world trade in services is to be facilitated through negotiated specific commitments relating to (1) access to technology on a commercial basis; (2) the improvement of access to distribution channels and information networks; and (3) the liberalization of market access in sectors of export interest to them. Article V:3 gives developing countries flexibility in complying with the conditions required for a preferential agreement to be GATS consistent. Moreover, it allows them to provide more favorable treatment to firms that originate in member countries of the agreement (that is, to discriminate against firms originating from nonmembers even if they are established in the region). Article XV, in turn, recognizes the role of subsidies in development programs of developing countries.

The Content of the GATS Offers

The core of the GATS is the specific commitments. To a very large extent, the impact of the GATS depends on the commitments that are made by members. Negotiators chose to pursue a “hybrid” of a positive and negative list approach to scheduling specific commitments. It is a positive list with respect to determining sectoral coverage of market access and national treatment commitments and a negative list with regard to the maintenance of measures that violate either national treatment or the market access disciplines. Each member first decides (negotiates) which service sectors will be subject to the GATS market access and national treatment disciplines. It then decides (negotiates) what measures will be kept in place for that sector that violate market access or national treatment, or both. Such limitations and exceptions must be specified by mode of supply. Because there are four modes of supply, there are eight opportunities for GATS members to avoid full application of market access or national treatment.

In addition to the specific commitments, countries also make “horizontal” commitments. These usually consist of a compilation of laws and policies that restrict the use of a mode of supply by foreign suppliers, independent of the sector involved. A policy that is often scheduled is an “economic needs” test—laws or regulations stipulating that foreign service providers may contest a market only if domestic providers do not exist or are unable to satisfy demand. Another example is a general licensing or approval requirement. In many instances such horizontal “headnotes” simply involve a restriction on the inward movement of natural persons. Table 3 illustrates the format of the schedules. An entry of “none” means a member binds itself not to have any measures that violate market access or national treatment for a specific combination of sector and mode of supply; “unbound” implies that no commitments are made for a particular mode of supply.10

Table 3.

Format and Example of a Schedule of Specific Commitments

article image
Source: Hoekman (1995).

Foreign direct investment.

For the GATS classification list, see Appendix 1.

Quantifying the Specific Commitments: Conceptual Issues

To assess the schedules, a quantitative measure is required that allows for cross-country comparisons. No attempt is made here to determine the restrictiveness or change therein of the policies affecting either scheduled or nonscheduled services. The focus is instead on scaling the sectoral commitments of GATS members with a view to “quantifying” two things: the extent to which measures have been bound, and the share of sectors where the binding relates to “free trade” (that is, absence of market restrictions combined with national treatment).

For purposes of evaluating the specific commitments, each GATS member’s specific commitments were entered into a spreadsheet (commitments made as of April 1994 were considered in this exercise). Because there are 155 nonoverlapping service sectors in the GATS classification list (see Appendix 1) and four modes of supply, this implies 620 possible commitments. Since commitments apply to national treatment and market access separately, there are 1,240 data cells for each member. Schedules were submitted by 96 members. Two country groups were created for comparison purposes, one for 78 “developing countries,” and one for 18 “high-income countries.” The latter group includes OECD members, the European Union (counted as one), Singapore, Hong Kong, and Korea.11 The developing country group includes countries with a wide range of per capita incomes and substantial variation in service market size (GDP). Because of their relatively low per capita incomes, this group includes a number of East European transition economies—the Czech Republic, Hungary, Poland, Romania, and the Slovak Republic. Appendix 2 lists GATS members that submitted schedules, defines the membership of the two groups, and reports the number of commitments by each member. Among the Arab countries, the following had submitted offers by April 1994: Algeria, Bahrain, Egypt, Kuwait, Morocco, and Tunisia. There are working parties for accession to the GATT and/or the WTO for Algeria, Jordan, Saudi Arabia, and Sudan. Moreover, Qatar and the United Arab Emirates are GATT members and are expected to present their services schedules.

Commitments were classified into three categories: (1) “none,” implying that no restrictions are applied on either market access or national treatment for a given mode of supply or sector; (2) “unbound,” meaning that no policies are bound for a given mode of supply or sector; and (3) “other,” which in practice implies that restrictions are listed for a mode of supply or sector. These limitations (policies) are bound. To allow calculation of the sectoral coverage of commitments, one of three numerical indicators (weights) was allocated to each of the cells of a member’s schedule: 1 in all instances where “none” was stated in the schedule for a sector or mode of supply (that is, full market access or national treatment is provided); zero in all instances where a member is listed as “unbound” for a sector or mode of supply; and 0.5 in all instances where specific restrictions or limitations are listed for a sector or mode of supply. The values of these indicators were chosen so as to allow aggregation across sectors and countries. The higher the number, the greater is the implied extent of openness-cum-binding.12 Scaling commitments of “unbound” as zero and scaling commitments implying maintenance of measures violating national treatment or market access as 0.5 reflect a perception that scheduling and binding have value, no matter how restrictive the policies that are maintained.

Measures of Sectoral Coverage of Specific Commitments

Market access and national treatment coverage ratios are reported in Table 4. For both market access and national treatment, three indicators were calculated. First, the number of sector or mode of supply combinations (cells) where a commitment was made. Second, the average coverage of the schedule, defined as the arithmetic mean of the scale factors allocated to each cell (zero for unbound, 0.5 for bound restrictions, and 1 for no restrictions). Third, the share of “no restriction” commitments in a member’s total commitments (count) and relative to the 155 possible sectors of the GATS classification list. The higher the number, the more “liberal” is the country. These ratios are conceptually similar to frequency and coverage indices for nontariff barriers.

Table 4.

Sectoral Coverage of Specific Commitments1

(In percent)

article image
Source: Compiled by the authors on the basis of GATT (1994c).

For the GATS classification list, see Appendix 1.

As defined by the GATS classification list of service sectors.

High-income countries made commitments of some kind for 53.3 percent of the GATS classification list, compared with 15.1 percent for developing countries. Commitments made by large developing countries, arbitrarily defined as those with GDP of $40 billion or more, were substantially higher than the developing country average, accounting for 29.6 percent of the GATS classification list, largely because many developing countries made very limited commitments. Indeed, over one-fourth of developing countries (22 out of 78 countries) scheduled less than 3 percent of the GATS list. Four of these countries (Algeria, Bangladesh, Fiji, and Tanzania) scheduled only one of the 155 service sectors identified on the GATS list; five others made commitments on only two subsectors. Countries in the developing country group with the highest number of specific commitments include the Czech Republic, Hungary, and the Slovak Republic, each with more than 300 sectors or modes of supply scheduled.

The average coverage of market access commitments for the group of high-income countries is 40.6 percent; for developing countries, 9.4 percent; and for large developing countries, 17.1 percent. If these figures are related to the simple count of the number of sectors where commitments were made, it can be observed that high-income countries tend to be more liberal. That is, the proportion of commitments implying either a 1 (no restrictions) or a 0.5 (some restriction, but bound) is higher than for developing countries. In Table 4 this can be seen in the third row of the first panel, which shows the average coverage of commitments divided by the count. This ratio for the large developing countries is almost 20 percentage points lower than for the group of high-income countries. Some 56 percent of the high-income countries’ commitments imply no restrictions, compared with 36.7 percent for the large developing countries. Although many developing countries made only a limited number of specific commitments, many of these involve “free” access: on average, 47.3 percent of commitments imply no restrictions. Table 4 also reports the importance of “no restriction” commitments relative to the GATS classification list (that is, the maximum possible). Such commitments by high-income countries account for 30.5 percent of the total. For developing countries as a whole, the figure is 6.7 percent; for the large developing countries, the number is 10.9 percent.

Identical ratios were calculated for national treatment commitments. A comparison of commitments on national treatment and market access reveals that most countries tend to be more liberal with regard to national treatment. There is, however, a very high correlation between commitments on market access and national treatment. Finally, in a memorandum item, Table 4 reports the magnitude of commitments where “no restrictions” applies to both market access and national treatment as a share of the total GATS classification. The figure for high-income countries is 28 percent, and that for the other countries, 6.4 percent. These numbers vividly illustrate how far away GATS members are from attaining free trade in services, and the magnitude of the task that remains.

With respect to the Arab countries, the offers of Algeria, Bahrain, and Tunisia were even more limited than the average offer of developing countries as a group. Egypt, Kuwait, and Morocco, however, presented offers that can be characterized as slightly more comprehensive than that of the average developing country. In this context, it seems that Arab countries have adopted a minimalist approach with respect to the GATS and the use of the negotiations to support a liberalization program for services.

The data reported in Table 4 do not take into account the relative importance of different service activities in GDP (that is, the size of the various service markets). Hoekman (1995) has shown that commitments by both high-income countries and developing countries were made in activities that are of “above average” importance in GDP terms. Accordingly, sectoral coverage indicators rise when the relative importance of service sectors is used to weight these offers. The results, however, continue to indicate the limited coverage of the offers—particularly in the case of developing countries.

Market access commitments by OECD countries tend be restrictive with respect to activities where developing countries have a comparative advantage—that is, both low- and high-skill labor-intensive activities that require either temporary entry or establishment or work permits. Most countries specified their commitments with respect to “presence of natural persons” in the horizontal section of their offers. Typically, these offers involve bindings only for the entry of intracorporate senior personnel, and economic needs tests and quotas are often imposed (see GATT, 1994c). Nothing is to be gained from a retaliatory policy stance, however. Most developing countries are simply too small to be able to influence market access policies of large traders. Nonliberalization by trading partners reduces the potential gains from liberalization, but it by no means eliminates them (as discussed further in the next section).

The Annex on the movement of natural persons—currently the only mode-of-supply-specific part of the GATS—requires only that natural persons who are service suppliers or are employed by a service supplier of a member be allowed to provide services in accordance with the terms of specific commitments relating to entry and temporary stay of such persons. The extent to which labor movement is allowed is therefore completely dependent on what is specified in the schedules. As already noted, individual schedules reveal an unwillingness to make commitments relating to the movement of people. Most members only allow for entry of specialists and higher-level management staff, significantly curtailing the scope for cross-border (non-establishment-related) trade in services. Similarly, a lack of general disciplines on discriminatory licensing practices involving citizenship or permanent residency requirements can be expected to weaken the GATS’ impact on trade in professional services. A Ministerial Decision taken in Marrakesh established a negotiating group on movement of natural persons to undertake negotiations on further liberalization of such movement for the purpose of supplying services, and to conclude its talks within six months of the entry into force of the WTO.

With respect to the sectoral coverage of the commitments, Table 5 reveals that there is a fair amount of variance in the offers. The fewest commitments by high-income countries were made in sectors such as land, water, and air transport; postal services; basic telecommunications; research and development; education; health and social services; and recreational and cultural services. Of these “sensitive” sectors, developing countries have a potential export interest in the last three, insofar as most “personal” services are included in these categories (none of which were scheduled). But the coverage of business services, computer-related services, and construction is quite high. These sectors cover many activities where developing countries have an export potential.

Table 5.

Commitments by Sector

article image
Source: Compiled by the authors.Note: “Arab countries” comprise Algeria, Bahrain, Egypt, Kuwait, Morocco, and Tunisia.

For the GATS classification list, see Appendix 1.

High-income countries.

The commitments of developing countries, in turn, are only substantial in the area of hotel and restaurant services (that is, tourism-related services). The Arab countries covered in Table 5 also follow this pattern, although it is worth noting that in construction and financial services these countries as a group scheduled a higher than average (compared with the developing country group) number of service activities in their offers.

Implications of the GATS for Arab Countries

In evaluating the benefits of being a GATS member, one can focus on the following types of effects: (1) the role of the GATS as an anchor for domestic policies; (2) the GATS as a mechanism to foster access to efficient services by the domestic economy; and (3) the benefits of liberalization for domestic service exporters. The first two effects are determined by the coverage and degree of liberalization of the offers made by the member country. The third effect, although influenced by the country’s offer, reflects the overall impact of the GATS agreement in reducing foreign market access barriers.

The “anchor” effect is a conventional by-product of participation in a multilateral agreement. By binding its policies in the GATS, a government is in a better position to resist demands from influential interest groups to alter these policies in the future. The GATS imposes costs on backsliding—that is, adopting more restrictive policies for services that are bound—by requiring countries to negotiate the withdrawal of specific commitments. In this context, even an offer to bind the status quo has a value to the extent that it improves the transparency of the regulatory regime and makes backsliding less likely.

Most of the potential gains for developing countries associated with GATS membership, however, will result from liberalizing access to their own markets. There is substantial evidence that many of the constraints that reduce the economic efficiency of service industries are home grown, in that governments have not always pursued the appropriate policies (UNCTAD and World Bank, 1994). Producer services (that is, services that support other business activities), in particular, play a crucial role in the development prospects of any nation. Losses of agricultural output owing to poor transportation, and the impact of substandard communication networks on the costs of doing business, are familiar examples in this context.

Efficient producer services are also fundamental for the pursuit of an outward-oriented strategy of development. In the case of manufacturing, for example, access to global networks in communications and transportation is becoming a necessary condition for international competitiveness. Products are becoming increasingly time-sensitive, both because of shorter product life cycles and because of the pervasive use of “just-in-time” production management techniques. Foreign buyers must be assured that a supplier can deliver to specification and on time. The latter requirement in particular may be difficult to meet if producer services are low in quality or high in cost. Monopoly provision of port and handling services, burdensome taxation arrangements, and high-cost insurance because of a lack of competition all inhibit export development.13 Liberalization of trade in services provides an effective way to promote efficiency in producer services.

The level and the degree of liberalization provided by the offers of the Arab countries (and most developing countries for that matter) suggest that they were not attracted by these benefits. Very little use was made of GATS to bind policies, and no liberalization occurred. In part, this may reflect the fact that many of the services in which these countries are likely to have or develop a comparative advantage require movement of labor. To the extent that this mode of supply was basically kept off the table by developed countries, the “mercantilistic” bargain typical of multilateral negotiations—with export-oriented industries supporting domestic liberalization in exchange for better market access abroad—was weakened in the case of services. But such mercantilist arithmetic is ill conceived, since nonliberalization is very costly to the domestic economy.

It also seems that Arab countries did not use the GATS negotiations to explore more liberal terms for trade in services delivered by movement of labor among themselves. Intraregional migration flows are extensive, being probably the most visible aspect of economic integration in the Arab world (Shafik, 1992). The commitments of the Arab countries, however, are not more liberal than the typical GATS offer with respect to this mode of supply. The schedule of Kuwait (a common destination for guestworkers), for example, makes explicit under its horizontal commitments that measures limiting market access or national treatment are unbound except those concerning the entry and temporary stay of managers, specialists, and skilled technicians.

This may simply reflect the existence of regional alternatives for negotiations on labor movement (for example, the Cooperation Council for the Arab States of the Gulf, GCC). But it again illustrates the lukewarm attitude of the Arab GATS members toward the negotiating process.

With respect to the benefits that Arab countries will enjoy by virtue of the GATS commitments made by the rest of the world, the following considerations are relevant: (1) as already noted, the lack of relevant liberalization with respect to movement of natural persons limits their potential export-led benefits in the near future; (2) the greater transparency of the regulatory regime for services in industrial countries, however, may help the outward orientation of some segments of the Arab service sector (for example, the banks of GCC countries); and (3) tourism will continue to be an important source of export revenues for some Arab countries, although these countries will be operating in an increasingly competitive environment.

Overall, the immediate implications of the GATS agreement for domestic service providers in Arab countries are quite limited. If one focuses, for example, on Egypt—the Arab country with the highest level of “no restrictions” applied on market access and national treatment (see Table 4)—it is clear that most offers consist of binding the status quo of protection for the sectors scheduled. The qualifications are extensive and include limitations on the share of foreign personnel in foreign-controlled enterprises (and even in the overall wage bill in the case of maritime transport); a maximum of 49 percent of foreign capital in several industries (construction and related engineering services, tourism projects in the Sinai region, and insurance); economic needs tests in the case of tourism, opening of branches by foreign banks, and insurance (for example, new companies should be able to work without “harmful” competition to existing companies); restrictions on the operations of representative offices; and so on (GATT, 1994c, Annex lb). In short, the cost of making specific commitments (in terms of new competitive pressures upon domestic service providers) is in most cases nil, given the scheduling of measures that violate national treatment or market access.

Finally, it is worth noting that Article V’s loose disciplines do not impose any significant constraint on preferential economic integration among Arab countries. It can be argued that the existing regional arrangements are GATS compatible, under the “special and differential treatment” provisions for developing countries that appear in the article in question.

Concluding Remarks

The GATS extends multilateral disciplines to the area of trade in services. Its immediate impact in terms of liberalization of trade in services is minimal. Much remains to be done to expand its coverage. On a more positive note, many offers at least involve a standstill promise with respect to protectionist policies toward services (that is, a commitment not to introduce new distortions), and the GATS agreement paves the way for future negotiations.14

For the Arab countries, the implications of the GATS are quite limited at this time. It is clear that these countries (as most participants in the negotiations) were not interested in using the GATS negotiations as a lever to promote reform in their service industries. Moreover, they adopted a minimalist approach with respect to the binding of their policies for services, as illustrated by the restricted coverage of their schedules. This defensive attitude does not bode well for economies that will be facing growing competitive pressures as the world economy becomes more integrated. The task ahead is to better explore the opportunities opened by the GATS in order to improve access to efficient services.

Appendix 1. GATS Classification of Services


    1. Professional Services

      1. Legal services

      2. Accounting, auditing, and bookkeeping services

      3. Taxation services

      4. Architectural services

      5. Engineering services

      6. Integrated engineering services

      7. Urban planning and landscape architectural services

      8. Medical and dental services

      9. Veterinary services

      10. Services provided by midwives, nurses, physiotherapists, and paramedical personnel

      11. Other

    2. Computer and Related Services

      1. Consultancy services related to the installation of computer hardware

      2. Software implementation services

      3. Data-processing services

      4. Database services

      5. Other

    3. Research and Development (R&D) Services

      1. R&D services on natural sciences

      2. R&D services on social sciences and humanities

      3. Interdisciplinary R&D services

    4. Real Estate Services

      1. Involving own or leased property

      2. On a fee or contract basis

    5. Rental/Leasing Services Without Operators

      1. Relating to ships

      2. Relating to aircraft

      3. Relating to other transport equipment

      4. Relating to other machinery and equipment

      5. Other

    6. Other Business Services

      1. Advertising services

      2. Market research and public opinion polling services

      3. Management consulting services

      4. Services related to management consulting

      5. Technical testing and analysis services

      6. Services incidental to agriculture, hunting, and forestry

      7. Services incidental to fishing

      8. Services incidental to mining

      9. Services incidental to manufacturing

      10. Services incidental to energy distribution

      11. Placement and supply services of personnel

      12. Investigation and security

      13. Related scientific and technical consulting services

      14. Maintenance and repair of equipment (not including transport equipment)

      15. Building-cleaning services

      16. Photographic services

      17. Packaging services

      18. Printing, publishing services

      19. Convention services

      20. Other


    1. Postal Services

    2. Courier Services

    3. Telecommunication Services

      1. Voice telephone services

      2. Packet-switched data transmission services

      3. Circuit-switched data transmission services

      4. Telex services

      5. Telegraph services

      6. Facsimile services

      7. Private leased circuit services

      8. Electronic mail

      9. Voice mail

      10. On-line information and database retrieval

      11. Electronic data interchange (EDI)

      12. Enhanced/value-added facsimile services, including store and forward, store and retrieve

      13. Code and protocol conversion

      14. On-line information and/or data processing (including transaction processing)

      15. Other

    4. Audiovisual Services

      1. Motion picture and video tape production and distribution services

      2. Motion picture projection services

      3. Radio and television services

      4. Radio and television transmission services

      5. Sound recording

      6. Other

    5. Other


    1. General Construction Work for Buildings

    2. General Construction Work for Civil Engineering

    3. Installation and Assembly Work

    4. Building Completion and Finishing Work

    5. Other


    1. Commission Agents’ Services

    2. Wholesale Trade Services

    3. Retailing Services

    4. Franchising

    5. Other


    1. Primary Education Services

    2. Secondary Education Services

    3. Higher Education Services

    4. Adult Education Services

    5. Other Education Services


    1. Sewage Services

    2. Refuse Disposal Services

    3. Sanitation and Similar Services

    4. Other


    1. All Insurance and Insurance-Related Services

      1. Life, accident, and health insurance services

      2. Non-life-insurance services

      3. Reinsurance and retrocession

      4. Services auxiliary to insurance (including brokerage and agency services)

    2. Banking and Other Financial Services (excluding insurance)

      1. Acceptance of deposits and other repayable funds from the public

      2. Lending of all types, including, inter alia, consumer credit, mortgage credit, factoring, and financing of commercial transaction

      3. Financial leasing

      4. All payment and money transmission services

      5. Guarantees and commitments

      6. Trading for own account or for account of customers, whether on an exchange, in an over-the-counter market or otherwise, of the following:

        • Money market instruments (cheques, bills, certificates of deposit, etc.)

        • Foreign exchange

        • Derivative products including, but not limited to, futures and options

        • Exchange rate and interest rate instruments, including products such as swaps, forward rate agreements, etc.

        • Transferable securities

        • Other negotiable instruments and financial assets, including bullion

      7. Participation in issues of all kinds of securities, including underwriting and placement as agent (whether publicly or privately) and provision of service related to such issues

      8. Money brokerage

      9. Asset management, such as cash or portfolio management, all forms of collective investment management, pension fund management, custodial depository and trust services

      10. Settlement and clearing services for financial assets, including securities, derivative products, and other negotiable instruments

      11. Advisory and other auxiliary financial services on all the activities listed in Article IB of GATT document MTN.TNC/W/50, including credit reference and analysis, investment and portfolio research and advice, advice on acquisitions and on corporate restructuring and strategy

      12. Provision and transfer of financial information, and financial data processing and related software by providers of other financial services

    3. Other


    (other than those listed under 1.A.h–j.)

    1. Hospital Services

    2. Other Human Health Services

    3. Social Services

    4. Other


    1. Hotels and Restaurants (including catering)

    2. Travel Agencies and Tour Operators’ Services

    3. Tourist Guides’ Services

    4. Other


    (other than audiovisual services)

    1. Entertainment Services (including theater, live bands, and circus services)

    2. News Agency Services

    3. Libraries, Archives, Museums, and Other Cultural Services

    4. Sporting and Other Recreational Services

    5. Other


    1. Maritime Transport Services

      1. Passenger transportation

      2. Freight transportation

      3. Rental of vessels with crew

      4. Maintenance and repair of vessels

      5. Pushing and towing services

      6. Supporting services for maritime transport

    2. Internal Waterways Transport

      1. Passenger transportation

      2. Freight transportation

      3. Rental of vessels with crew

      4. Maintenance and repair of vessels

      5. Pushing and towing services

      6. Supporting services for internal waterway transport

    3. Air Transport Services

      1. Passenger transportation

      2. Freight transportation

      3. Rental of aircraft with crew

      4. Maintenance and repair of aircraft

      5. Supporting services for air transport

    4. Space Transport

    5. Rail Transport Services

      1. Passenger transportation

      2. Freight transportation

      3. Pushing and towing services

      4. Maintenance and repair of rail transport equipment

      5. Supporting services for rail transport services

    6. Road Transport Services

      1. Passenger transportation

      2. Freight transportation

      3. Rental of commercial vehicles with operator

      4. Maintenance and repair of road transport equipment

      5. Supporting services for road transport services

    7. Pipeline Transport

      1. Transportation of fuels

      2. Transportation of other goods

    8. Services Auxiliary to All Modes of Transport

      1. Cargo-handling services

      2. Storage and warehouse services

      3. Freight transport agency services

      4. Other

    9. Other Transport Services


Source: GATT (1991).

Appendix 2. GATS Members: Number of Sectors Scheduled at the Mode of Supply Level

(Maximum number = 620; that is, 155 activities times 4 modes of supply)

article image
article image
Source: Hoekman (1995).


  • GATT, 1989, International Trade 1988-89 (Geneva).

  • GATT, 1991, “Services Sectoral Classification List,” MTN.GNS/W/120 (Geneva).

  • GATT, 1994a, “World Trade Growth Slowed in 1993,” GATT Press Communiqué (Geneva, March 30).

  • GATT, 1994b, The Results of the Uruguay Round of Multilateral Negotiations: The Legal Texts (Geneva).

  • GATT, 1994c, Uruguay Round of Multilateral Trade Negotiations: Legal Instruments Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations Done at Marrakech on 15 April 1994, Annex 1b (GATS) (Geneva).

    • Search Google Scholar
    • Export Citation
  • Hoekman, Bernard, 1995, “Tentative First Steps: An Assessment of the Uruguay Round Agreement on Services,” in The Uruguay Round and the Developing Economies, ed. by Will Martin and L. Alan Winters, World Bank Discussion Papers, No. 307 (Washington).

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 1993, Balance of Payments Manual, 5th ed. (Washington).

  • Primo Braga, Carlos A., P. Low, and P. Sorsa, 1994, “The Uruguay Round: A ‘Good Deal’ for Rich and Poor Countries,” Policy Focus Series, No. 7 (Washington: Overseas Development Council, September).

    • Search Google Scholar
    • Export Citation
  • Sampson, Gary, and Richard Snape, 1985, “Identifying the Issues in Trade in Services,” World Economy, Vol. 8 (June), pp. 17182.

  • Shafik, Nemat, 1992, “Has Labor Migration Promoted Economic Integration in the Middle East?” Middle East and North Africa Discussion Paper Series, No. 1 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • United Nations Conference on Trade and Development (UNCTAD), and World Bank, 1994, Liberalizing International Transactions in Services: A Handbook (Geneva).

    • Search Google Scholar
    • Export Citation
  • Weisman, Ethan, 1990, Trade in Services and Imperfect Competition: Application to International Aviation (Dordrecht, Netherlands: Kluwer).

    • Search Google Scholar
    • Export Citation
  • World Bank, 1993, World Debt Tables 1993-94 (Washington).


This chapter draws on Primo Braga, Low, and Sorsa (1994) and Hoekman (1995). Assistance and comments from A. Amjadi, F. Konigshofer, N. Shafik, and A. Yeats are gratefully acknowledged. The findings, interpretations, and conclusions herein are the authors’ own; they should not be attributed to the World Bank, its Board of Directors, its management, or any of its member countries.


The fifth edition of the IMF’s Balance of Payments Manual, in contrast to previous editions, explicitly identifies “services” as a standard component of the balance of payments. It is worth noting that labor income is not listed as a service by the IMF. For details, see IMF (1993).


Note that commercial services do not encompass worker remittances and migrant transfers. These items generated $10.5 billion for the Arab countries in 1992, underscoring the importance of labor-related revenues for some of these economies.


These are defined as the ratio of exports of a product category to a country’s total exports of goods and services, divided by the same ratio for the world: RCA = ij/Yj]/[χiw/Yw], where χij are exports of product i by country j, Yj are total exports of goods and services by country j, and w stands for the “world” (the sum of all countries). The value of this index may range from zero to a very large number. If the index is greater than unity, this implies that the country is relatively specialized in the product concerned.


The next section and the one following it draw heavily on Hoekman (1995).


For the complete text of the GATS, see GATT (1994b).


The revised GATT Government Procurement Agreement was expanded to include services. However, this is a plurilateral agreement that binds only signatories. There were 13 members, mostly OECD countries, at the beginning of the Uruguay Round (counting the European Union as one).


As in the GATT context, no recognition is expressed that import restrictions are second-best instruments to deal with balance of payments difficulties.


A Ministerial Decision included in the Final Act states that “since measures necessary to protect the environment typically have as their objective the protection of human, animal, or plant life or health, it is not clear that there is a need to provide for …” an explicit “environmental” exception. The Committee on Trade and Environment is given the tasks of determining whether there is such a need and examining the relationship between trade in services and the environment.


For a more detailed discussion, see UNCTAD and World Bank (1994, pp. 144–46).


Most members do not list horizontal restrictions on cross-border supply or consumer movement. It is not clear whether this implies that they have bound themselves. The GATS also allows for “additional commitments” going beyond national treatment and market access, but virtually no use was made of this option, and it will be ignored in what follows.


The intention was to include countries that are, or are expected soon to be, OECD members.


A value of 1 for a sector or mode of supply does not necessarily imply that foreign service providers can freely contest a specific market through a given mode of supply. This depends on the applicable horizontal commitments. In all cases where a reference to a horizontal commitment (restriction) is made under the temporary entry mode of supply, a value of 0.5 was entered.


It is interesting to note, for example, that Eastern Europe has been able to exploit subcontracting of manufacturing products for export to the European Union to a much greater degree than the Arab countries. Under just-in-time management practices, the availability of adequate service links (transport, harbor services, customs operations, telecommunications, and the like) is fundamental for the decision on where to outsource. Many Arab countries (particularly in North Africa) can become competitive locations for outsourcing by European companies once access to efficient producer services is made available.


See Hoekman (1995) for a discussion of the GATS architecture and the prospects for future liberalization of trade in services.