International Peer-Reviewed Journal  
Vishal Acharya*  
Services are a major component of global gross domestic product and employment, and a rising  
component of global trade and investment flows. This is the largest sector of the Indian economy  
contributing significantly to economic growth and foreign investment flows. India is among the top  
ten World Trade Organization member countries in trade in services, and the country has a positive  
trade balance in services. However, global trade in services faces a number of barriers at the  
border and behind the border, which makes it difficult for service providers from developing  
countries such as India to access key markets in their preferred modes of services trade. Given  
this background, this paper examines how trade in services can be liberalized within the WTO  
framework. It presents some of the recent estimates of trade costs related to barriers to trade in  
services, and examines why it is difficult to measure trade facilitation in services.  
Keywords : services, trade facilitation, trade costs, trade agreements, WTO, India.  
Services are a key rising component of global Gross Domestic Product (GDP) and employment. In  
015, the services sector contributed approximately 69 per cent to the global GDP. The contribution  
of services to the GDP is even higher for developed countries. For example, in the United States  
US), services account for 80 per cent of the GDP. In 2015, services contributed to 50.9 per cent to  
global employment.  
Services are also a growing component of global trade and investment. Globalization, reforms,  
liberalization, technological development, greater mobility of people, development of new business  
models (such as business process outsourcing, etc.), among others have enhanced the growth of  
international trade in services, which increased from USD 2,905 billion in 2001 to USD 9,502 billion in  
016. In the same year, according to the World Trade Organization (WTO), commercial services  
accounted for approximately 22.8 per cent of total world trade (WTO, 2017).  
Focusing specifically on India, service sector is a key component of India’s GDP, employment, trade  
and foreign direct investment (FDI) flows. It accounted for approximately 53.1 per cent in India’s  
gross value added (GVA) in 2015-16, making it the single largest contributor to India’s overall value  
addition. The contribution of service sector in India’s GVA has increased from 49 per cent in 2011-12  
to 53.1 per cent in 2015-16.The service sector is the second largest employer after agriculture, and  
according to the Economic Survey of India (2016-17), it employed around 28.6 per cent of the total  
workforce in 2016.  
Trade in Services and GATS  
Given the importance of services in global trade and FDI flows, the Uruguay Round (1986- 1994) of  
WTO negotiations for the first time introduced services into multilateral trading system. The GATS, in  
principle, covered all service sectors except services supplied in the exercise of government authority,  
and aimed to progressively liberalize trade in services through successive rounds of negotiations.  
The GATS classified services trade into four different modes as  
International Peer-Reviewed Journal  
1. Cross Border Supply: This includes all the services supplied from the territory of one member  
into the territory of another member. For example, an economic consultant providing her services  
overseas from her country  
2. Consumption Abroad: This includes consumption in the territory of a member by a service  
consumer of another member. For example, consumption of services by international tourists.  
3. Commercial Presence: This includes the presence of service provider in the territory of another  
member. For example, joint venture of a Foreign Service provider with a domestic business.  
. Movement of Natural Person: This includes provision of services through the presence of natural  
persons of a member in the territory of another member. For example, doctors of one nation  
travelling to another nation to provide their services.  
The GATS contain two kinds of provisions  
General obligations – some of these are applied to all service sectors (for example, transparency)  
and some only to scheduled specific commitments (for example, Article XI: Payments of Transfers)  
Specific Commitments – these are negotiated undertaking particular to each GATS signatory  
To ensure transparency, GATS Article III requires each member country to publish all measures  
of general applications which pertain to or affect the operation of the Agreement. Countries are  
also required to publish international agreements pertaining to or affecting trade in services. In  
other words, the Council of Trade in Services will have to be informed, at least annually, of the  
introduction of any new, or any changes to existing laws, regulations and administrative guidelines.  
WTO member countries can make a request regarding specific information, which the concerned  
country will have to provide promptly. Article III requires member countries to establish enquiry  
points to provide specific information to other members.  
Barriers to Trade in Services  
A number of studies have shown that trade in services is subject to a number of across-the border  
and behind-the-border barriers. With regard to market access barriers, GATS Article XVI presents the  
following six limitations on  
The number of service suppliers  
Total value of service transaction or assets  
Total number of service operations/quantity of output  
Type of legal entity  
Number of natural persons supplying the service  
Participation of foreign capital  
Commitments under the GATS primarily address market access and national treatment related barriers.  
It is possible for WTO member countries to make additional commitments in regulatory areas such as  
International Peer-Reviewed Journal  
licensing, qualifications and standards, which are outside the scope of market access and national  
treatment as defined in the GATS. In the case of telecommunications sector there is a Reference  
Paper based on which WTO members took additional commitments on procedural and administrative  
matters. Trade Facilitation in services is precisely concerned with removal of procedural and  
administrative bottlenecks. It is expected to make the market access commitments more transparent,  
predictable and clear and reduce delays and cumbersome procedures.  
Trade Facilitation in Services in India  
The WTO defines trade facilitation as the process of “simplification and harmonization of international  
trade procedures” including the “activities, practices and formalities involved in collecting, presenting,  
communicating and processing data and other information required for the movement of goods in  
international trade.” In December 2013, the WTO Members concluded negotiations on a landmark  
TFA at the Bali Ministerial Conference. The TFA contains provisions for expediting the movement,  
release and clearance of goods, including goods in transit. It sets out measures for effective cooperation  
between customs and other appropriate authorities on trade facilitation and customs compliance  
issues, and contains provisions for technical assistance and capacity building. Services such as  
logistics services are key components of the TFA.  
A number of studies have shown the benefits of a TFA in goods. For example, according to the OECD,  
the implementation of the TFA could reduce worldwide trade costs by between 12.5% and 17.5%.  
Countries which implement the TFA in full will reduce their trade costs by between 1.4 and 3.9  
percentage points more than those that do only the minimum that the TFA requires. The opportunities  
for the biggest reductions in trade costs are greatest for low and lower middle-income countries.  
Technological innovation is increasingly making services exportable at low prices and thus causing a  
shift in a 60-year-old economic paradigm about tradable versus non-tradeable sectors. In that countries  
do not need to build a domestic market or invest in a manufacturing sector, but rather to exporting  
services. In such a case, service globalization new hope for countries at various stages of economic  
development. Growing tradability of services may help with the strategies for resource-rich countries  
and low-income countries that are highly concentrated exporters. For advanced economies, harnessing  
the trade in services will likely remain a key factor to retaining their global competitive edge that  
powers the internet, and high value components in global value chains.  
Arnold, J. M., Javorcik, B., Lipscomb, M. &Mattoo, A. (2016). Services reform and manufacturing  
Dash, R. K. &Parida, P. C. (2012). Services trade and economic growth in India: An analysis in the  
post-reform period. International Journal of Economics and Business Research.  
Mukherjee, A. (2008). Services liberalization in PTAs and the WTO.  
PhD Research Scholar , Department of Commerce, University of Mumbai, Mob No.: 09867715855  
E-mail Id: [email protected]