Revisiting the Liberalizing Impact of the GATS

Recent advances in quantifying the effect of services sector bindings in trade agreements based on the extent of reduction of “water in the GATS” – measured as the difference in openness under applied services trade regimes as measured by the Services Trade Restrictiveness Index (STRI) and under the parties’ trade commitments under the General Agreement on Trade in Services (GATS) in the form of the “GATS Trade Restrictiveness Index” (GTRI) – invite a revisit to the liberalizing effect of the GATS itself. Contemporary opinion at the end of the Uruguay Round was that the GATS did not achieve much in terms of liberalization, notwithstanding that some value was acknowledge to the extensive binding that was achieved in the GATS. A growing body of work in the context of modern heterogeneous firms trade theory concludes that uncertainty about the terms of future market access significantly inhibits engagement in trade, both in goods and in services. This note makes a prima facie empirical case that the GATS did indeed boost trade in services significantly through the binding effect, as theory would suggest, adding to the literature on the impact of uncertainty on trade