10 Trade in services
The GATT 1947 focused almost exclusively on international trade in goods. However, by the 1980s and 1990s, services accounted for 50 to 60 per cent of domestic GNP in many developed countries, and even higher in the USA, while international trade in services accounted for only about 20 per cent of total world trade. Hence, as comparative advantage in the production of many manufactured goods shifted to low-wage developing or newly industrializing countries, developed countries became increasingly concerned with enhancing their comparative advantage in many service sectors, such as financial services, telecommunications, transportation, computing, and professional services, by extending the ambit of the GATT to embrace the liberalization of international trade in services. In the Uruguay Round, beginning in 1986, negotiating a multilateral agreement on international trade in services became a priority for many developed countries and resulted in the General Agreement on Trade in Services (GATS) that came into force in 1995.
While the theory of comparative advantage, in principle, seems to apply equally to international trade in services as to international trade in goods, various assumptions that tended to view services markets as largely domestic increasingly came under challenge. First, as a result of technological advances, assumptions that most services required close physical proximity between service providers and consumers became increasingly questionable. Second, while in many countries through most of the post-war period, many important service sectors had been highly regulated, or maintained as state or private monopolies (for example,...
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