The General Agreement on Trade in Services (GATS), which was negotiated during the Uruguay Round of trade talks and finalized in 1994, established a framework for liberalizing international trade in services for the first time. It extended to services the approach historically applied to trade in manufactured goods and commodities under the GATT, the General Agreement on Tariffs and Trade. The World Trade Organization (WTO) administers both the GATS and the GATT agreements.

The scope of the original GATS was limited. It provided for a general "standstill" agreement under which WTO members agreed not to implement any new tariffs, quotas or other restrictions on the international trade of services. It authorized negotiations among subgroups of WTO member-governments to liberalize trade in specific service sectors – a provision that resulted in two 1997agreements covering the financial services and telecommunications sectors. And it mandated further rounds of negotiations to liberalize service sector trade, the first of which was to begin no later than the year 2000.

These mandated negotiations, the so-called GATS 2000 round, were launched in February of this year. The collapse of the WTO’s ministerial conference in Seattle last December and its failure to launch a broader round of trade negotiations covering agricultural products and manufactured goods has not deterred the GATS 2000 process.

In trade agreements such as the GATS, member-countries negotiate "schedules" in which they "commit" to limit tariff levels and to apply certain principles of free trade to specific sectors. Among these principles are: the right of foreign enterprises to engage in commercial activities in a country’s market (the right of establishment); equal treatment of foreign and national enterprises under domestic law (national treatment); and nondiscrimination in the treatment of enterprises from all WTO member-nations (most-favored nation or MFN treatment).

Each WTO member-nation decides which sectors are covered by or exempted from their GATS commitments and each nation decides the degree of liberalization embodied in its commitment schedules for the sectors covered. But the overriding purpose of the GATS is to liberalize the trade of services and to promote effective market access to all sectors for business enterprises of all nations.

In the commerce sector, less than a third of the WTO’s member-nations scheduled commitments during the Uruguay Round. Most of these were industrialized countries. Specifically, among the general categories that make up the distribution services sector:

• 33 countries scheduled commitments on retail services;
• 34 countries scheduled commitments on wholesale services;
• 23 countries scheduled commitments on franchising; and
• 21 countries scheduled commitments on commercial agents.

In many instances, the scheduled commitments allow for high tariff levels and provide for broad exemptions from the MFN and National Treatment principles. Among the goals of the GATS 2000 round is to expand the number of countries willing to liberalize in the commerce sector and to deepen the commitments of those that have already scheduled commitments.

The Multinational Dimension in the Commerce Sector

Among the strongest advocates of the drive to further liberalize trade in distribution services are multinational companies based in the most developed countries. Multinationals from North America and the European Union are pressing governments around the world to open their retail and wholesale distribution markets. Companies such as Wal-Mart, Home Depot, Ahold, Carrefour, Metro, Tesco and Ikea are seeking global dominance in their sectors and wish to eliminate any and all barriers to trade and investment in the commerce sector.

The definition of trade barriers employed by these advocates goes far beyond traditional tariffs and quotas. They have targeted a large range of domestic laws, regulations and policies that inhibit the ability of global distribution companies to expand. These include:

• Advertising regulations that limit how retailers promote their products;
• Zoning laws which restrict the location and size of retail establishments;
• Protections for "cultural industries" (film & publishing, incl. video, music and bookstores);
• Restrictions on foreign ownership and control of distribution firms;
• Regulations on shop opening hours;
• Rules on competition policy and trademark protection;
• Regulations governing the development of electronic commerce; and
• Exceptions to commitments to liberalize based on "economic needs tests."

In short, the sovereignty of nations to regulate domestic commercial affairs is threatened by the negotiations to expand the GATS agreement.

The GATS Agenda and Distribution Services

The immediate agenda for the GATS negotiations was set at the May 2000 meeting of the Council for Trade in Services, the WTO committee charged with facilitating the negotiations. A "roadmap" agreement set a negotiation schedule and called on member-nations to conclude work on technical matters by March 2001. These matters include changes in the classification system used to define various service industries and guidelines for conducting the negotiations. The guidelines – the main focus of the Council meetings held in July – will outline the scope and objectives of the talks, establish the modalities for conducting the negotiations and set a deadline for concluding the GATS 2000 round. (A deadline of December 2002 has been proposed.)

So far, the distribution sector has not been discussed in the GATS negotiations. However, the Committee on Specific Commitments, a subsidiary body of the Council for Trade in Services, is expected to address its classification in a future meeting. And the Working Party on Domestic Regulation, another subsidiary body, is attempting to develop a set of "horizontal disciplines" that could apply to the regulation of distribution and commercial services.

The model for such a set of disciplines is a Reference Paper adopted as part of the WTO Agreement on Basic Telecommunications. It defined rules on the transparency of regulations and established a test for deciding whether regulations are more trade-restrictive than needed. It also addressed the equitable application of regulations to alternative modes of supply and advanced the development of international standards for regulators. The activities of the Working Party are central to the multinationals’ agenda to liberalize the commerce sector by targeting the types of laws and regulations outlined in the bullet points above.