Part II sets out “general obligations and disciplines”. These are basic rules that apply to all members and, for the most part, to all services. Many of the key provisions of the GATS have a close equivalent in this part of the GATT.
Most Favoured Nation (MFN) Clause and Its Exemptions:
This provision of Article II states that the treatment accorded to any service or its suppliers from any country will not be less favourable than the treatment being accorded to that service or its suppliers from any other country.
Exemptions:
However, exemptions were granted from the application of this MNF clause:
ADVERTISEMENTS:
(a) Under Listed Conditions:
A country could ask for exemptions-from the application of this clause under certain conditions. Every country was allowed to ask for the exemptions it wanted and no new exemptions were allowed. Some listed exemptions were subject to stated time limits. Even the remaining exemptions were to end by 2004.
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(b) Exemptions under Regional Blocs Arrangements:
ADVERTISEMENTS:
Apart from services specified in individual MFN exemption lists, only those countries are permitted exemption from MFN treatment which is members of regional trading arrangements. It is noteworthy that the entire drafting of GATS relating to this portion of exemptions is highly involved and circuitous.
It is designed to help developed service-providing countries while binding the developing ones into fresh obligations. For example, it allows lowering of trade barriers on services supplied by members of a regional group to each other provided such barriers for non-members are not raised higher than what they already happen to be, a patently unfair proposition.
Transparency:
In effect, existing rules and regulations of member governments governing trade in services are highly complicated. This is due to several reasons. Trade in services is itself a complex phenomenon.
The member governments had the opportunity to formulate their individual policies and, in doing so, they tried to take into account the multiplicity of objectives and other considerations.
ADVERTISEMENTS:
However, GATS is based upon the assumption that absence of transparency (that is, incomplete information and presence of discretionary powers and discrimination) is a hurdle in international trade in services.
Moreover, policies governing international trade in services have an inherent tendency to be intermixed with domestic regulations.
For this reason, GATS requires each member country to publish promptly “all relevant measures of general application” (that is, measures other than those which involve only individual service suppliers) that affect operation of the agreement.
Members must also notify the Council for Trade in Services of new or changed laws, regulations or administrative guidelines that affect trade in services covered by their specific commitments under the agreement. In addition, each member was to make arrangements whereby other members could get relevant information.
Other Rules:
Other rules in Part II are intended to ensure that benefits under the GATS are not blocked by domestic regulations. These rules relate to the actual application of domestic laws relating to trade in services. They also provide for a mechanism for appeal against such laws and rules.
There must also be tribunals or other procedures to which service suppliers can apply for a review of administrative decisions affecting their trade. The Council for Trade in Services can be called on to develops rules to ensure that no unnecessary barriers are created in the name of qualifications for service suppliers, technical standards or licensing etc.
State Trading:
GATS covers the issue of state trading and state or other monopolies in providing some services and provides some safeguards against it.
Balance of Payments:
GATS permits members in serious balance-of-payments difficulties (or threatened by such difficulties) to restrict trade in services for which it has undertaken commitments.
Developing countries, or countries in transition to market-oriented economies (such as countries forming part of the erstwhile Union of Soviet Socialist Republics), may take benefit of this provision.
However, such restrictions must not discriminate among members, cause unnecessary damage to the interests of other members or be more restrictive than necessary in the circumstances, and must be temporary and phased out as the situation improves. Priority may be given to essential services, but the restrictions must not be adopted or maintained to protect a particular sector.
Government’s Purchases:
Purchase of services by a government for its own use is exempt from the basic GATS obligations. However, it is also provided that within a reasonable time, governments would negotiate to include purchases from Foreign Service suppliers also.
General and Security:
GATS also provides exceptions for general and security purposes, such as vthe protection of public morals and human, animal or plant life or health. Exceptions can also be applied for prevention of deceptive and fraudulent practices, the protection of individual privacy in the handling of personal data, and equitable and effective taxation.
For example, there are many ways in which a country’s taxation practices may treat foreigners differently from its own nationals.
Similarly, GATS does not require a member to give any information, or take such action that could jeopardize its essential security, military establishments, etc.
However, these exceptions are subject to the condition that they would not be used for “arbitrary or unjustifiable discrimination between countries where like conditions prevail, or as a disguised restriction on trade in services.