The service sector was once considered a non-tradeable sector. Under the World Trade Organization (WTO), however, the General Agreement on Trade in Services (GATS) has established, for the first time, global rules on trade and investment in services. One justification for the inclusion of services as tradeable is the growth of services over the last two decades. But this is more so for the developed countries than for developing countries.
Services output reached 70 percent of combined GDP for North America and Australasia in 1995, while it stood at 56 percent of GDP for Latin America and 47 percent for Southeast Asia. Services account for more than 70 percent of the GDP of the US and more than 22 percent of world trade.
Trade in services potentially includes all economic activities with outputs other than tangible goods (with the exception of government services). These include:
Services include but are not limited to advertising, audio-visual services, banking and finance, communications, construction, data processing, education, environmental services, health care services, insurance, professional services, retail and wholesale trade, transportation, and tourism.
Under the universal most-favoured-nation (MFN) rule of the WTO, GATS requires every government to "treat services and service suppliers of other members no less favourably than its own like services and service suppliers" Although governments can declare certain services sectors as exempt from this MFN rule, such exemptions can, in principle, be taken for only ten years and are subject to review after five years.
Apart from the exemptions, every government is required to submit a schedule list that identifies the services and service activities for which market access is guaranteed. When a country lists a sector in its schedule and makes a specific commitment in its schedule, that country agrees to allow foreign service suppliers to enter its market to provide a service (market access) and agrees to treat foreign suppliers under the same terms and conditions as it treats its domestic suppliers (national treatment). Extended negotiations have just been completed or are currently going on in five specific services sectors: financial services, movements of natural persons, basic telecommunications, maritime and tourism.
The liberalisation of services is an issue of much significance to developing countries. In the post-Colonial era following the Second World War, it was a matter for a pride for the newly independent nations to fill job positions and provide services through the development of national resources. GATS directly reverses this trend.
This situation will impact significantly on women’s opportunities for employment and entrepreneurship. Many women benefited from the nationalisation of the job market in developing economies, which enabled them to fill positions that were previously filled by expatriates. Even so, the existing job market in most economies is still gender segregated, with women concentrated in lower-paid jobs in particular sectors and with a "glass ceiling" limiting their upward mobility to a certain point. Through the liberalisation of services, women’s disadvantaged position is likely to be exacerbated by an increase in the number of competitors for scarce and desirable jobs. Furthermore, many women entrepreneurs have small and medium enterprises in the services sector. They are likely to be disadvantaged on a level playing field for all service suppliers - big and small, local and foreign.
However, there is an important omission in GATS. The liberalisation of trade in services under GATS applies only to certain categories of people - specifically, an "Intra-Company Transferee" category and a "Professional" category. Both of these categories are also privileged in the North American Free Trade Agreement (NAFTA).
GATS thus excludes workers who are not employed by a trans-national company or who are not professionals with recognised qualifications. In the massive labour migration that currently exists on a global scale, many workers fall outside of these narrow categories. Indeed, it has been noted that GATS includes "provisions that constrain the future migration policies of at least some of their contracting parties"
In its convoluted language, GATS is said to apply only to
natural persons who are service suppliers of a Member, and natural persons of a Member who are employed by a service supplier of a Member, in respect of the supply of a service. The Agreement shall not apply to measures affecting natural persons seeking access to the employment market of a Member, nor shall it apply to measures regarding citizenship, residence or employment on a permanent basis" (Annex on Movement of Natural Persons Supplying Services under the Agreement).
In the massive labour migration that currently exists on a global scale, many workers fall outside of these narrow categories. There are currently 125 million people residing outside their country of birth, a large proportion of whom are labour migrants.
According to the WTO's Annual Report 1996, available foreign investment data show that the majority of foreign investments in both the Asia - Pacific region and the Western Hemisphere are now directed at service industries. By the early 1990s, some one-half of the global stock of investment was in services, with service industries now accounting for over 60 percent of annual foreign direct investment inflows in many economies. As the elimination or lowering of trade barriers for goods have by now been mostly completed with substantial success, the focus of future negotiations in the market access area will certainly be on lowering barriers to trade in services and in service-related investment. Each country is subject to further negotiations within five years to bring in "progressive liberalisation".