Non-Tariff Barriers in Services Trade

Non-tariff barriers in international trade in services are rules or restrictions other than customs duties that make it harder for foreign suppliers to sell services. They may limit entry into a market, increase compliance costs or disadvantage foreign suppliers compared with domestic firms. However, regulation serving legitimate public purposes is not automatically an unjustified trade barrier.

How services cross borders

The General Agreement on Trade in Services (GATS) distinguishes four modes of supplying services. Barriers differ according to whether the service, consumer, business or individual supplier crosses the border.

• Mode 1, cross-border supply, occurs when a service crosses the border without the supplier or consumer moving, as with remotely delivered consultancy.
• Mode 2, consumption abroad, occurs when a consumer travels abroad to obtain a service, as with tourism.
• Mode 3, commercial presence, involves a foreign supplier establishing a business in another country, such as a bank branch.
• Mode 4, presence of natural persons, involves individuals entering another country temporarily to supply services; it does not cover permanent migration or general access to its employment market.

Main forms of non-tariff barriers

Services often require authorisation, professional qualifications or a local establishment. Restrictions attached to these requirements can obstruct foreign participation even when no tariff is imposed.

• Market-access restrictions include limits on the number of suppliers, the value or volume of transactions, foreign equity participation, or permitted forms of business establishment.
• Discriminatory treatment occurs when foreign services or suppliers receive less favourable treatment than comparable domestic services or suppliers.
• Licensing and qualification requirements can become obstacles when procedures are opaque, unnecessarily burdensome or fail to recognise relevant foreign qualifications.
• Restrictions on temporary entry, including visa requirements and limits on permitted stays, can hinder the movement of professionals supplying services.
• Requirements to employ local personnel or maintain a local presence can raise costs and constrain how foreign suppliers operate.

Economic effects and the regulatory balance

Such barriers can reduce competition, increase costs and limit export opportunities. Because services such as finance, transport and communications support other industries, barriers can also weaken participation in global value chains.

• Domestic regulation can legitimately protect consumers, maintain professional standards and safeguard financial stability.
• Reform should distinguish necessary safeguards from protectionist or unnecessarily burdensome restrictions, using transparent procedures and appropriate recognition of qualifications.
• Under GATS, market access and national treatment obligations depend on the commitments undertaken for particular sectors and modes, including stated limitations.