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 exploiting their comparative advantage in many service sectors, such as financial services, telecommunications, transportation, computing, and professional services, by extending the ambit of the multilateral trade regime 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 had previously supported the view services markets were largely domestic. These assumptions 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 more 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, in the telecommunications or transportation sectors), regulatory reform movements in many countries during the 1970s and 1980s resulted in the privatization or deregulation of many service sectors, exposing all or large segments of them to domestic competition, and hence raising further potential for international...
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