Four Modes of Supply under General Agreement on Trade in Services (GATS)

The General Agreement on Trade in Services (GATS) is a World Trade Organization (WTO) agreement that outlines the rules and commitments made by WTO members in regards to trade in services. GATS is a crucial agreement as it affects a wide range of services, from financial and telecommunication services to professional and environmental services.

One of the key components of the GATS agreement is the classification of services into four modes of supply. These modes of supply define the way services are traded between countries and the obligations of WTO members in relation to each mode.

Mode 1: Cross-border Supply

• Mode 1 refers to the supply of a service from one country to another without the need for the service provider to be physically present in the country of consumption. This mode of supply is most commonly associated with services that can be delivered electronically, such as telecommunication and financial services.
• Under GATS, WTO members must ensure that their regulations and policies do not discriminate against foreign service providers supplying services through this mode. This means that foreign service providers must be given the same treatment as domestic service providers and must not be subject to any restrictions that would limit their ability to trade services across borders.

Mode 2: Consumption Abroad

• Mode 2 refers to the consumption of a service in a foreign country by a person of that country. This mode of supply is most commonly associated with tourism services, such as hotel stays, restaurant visits, and cultural attractions.
• Under GATS, WTO members must ensure that their regulations and policies do not discriminate against foreign service providers supplying services through this mode. This means that foreign service providers must be given the same treatment as domestic service providers and must not be subject to any restrictions that would limit their ability to trade services across borders.

Mode 3: Commercial Presence

• Mode 3 refers to the presence of a service provider in a foreign country through a commercial presence, such as a subsidiary or branch office. This mode of supply is most commonly associated with services that require a physical presence, such as construction and engineering services.
• Under GATS, WTO members must ensure that their regulations and policies do not discriminate against foreign service providers supplying services through this mode. This means that foreign service providers must be given the same treatment as domestic service providers and must not be subject to any restrictions that would limit their ability to trade services across borders.

Mode 4: Presence of Natural Persons

• Mode 4 refers to the presence of a natural person in a foreign country to supply a service. This mode of supply is most commonly associated with services that require a highly skilled professional, such as consulting and management services.
• Under GATS, WTO members must ensure that their regulations and policies do not discriminate against foreign service providers supplying services through this mode. This means that foreign service providers must be given the same treatment as domestic service providers and must not be subject to any restrictions that would limit their ability to trade services across borders.

The four modes of supply defined by the GATS agreement are essential to understanding the way services are traded between countries. Each mode has specific implications for businesses looking to trade services globally and for policymakers looking to make informed decisions about trade in services.

We note here that while GATS sets out the rules and commitments made by WTO members in regards to trade in services, it is up to each individual member to implement these rules and commitments within their own borders. This means that there may be variation in the level of liberalization and openness to trade.