Modes of supply of services

Indian Economy glossary

Also called: GATS modes · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT

Meaning

The modes of supply are the four ways services can be traded across borders under the WTO's GATS (General Agreement on Trade in Services, 1995):

  • Mode 1, cross-border supply: only the service crosses the border.
  • Mode 2, consumption abroad: the consumer travels to the supplier's country.
  • Mode 3, commercial presence: the supplier sets up a business in the buyer's country.
  • Mode 4, movement of natural persons: professionals travel abroad for a short time to deliver the service.

Countries make separate commitments for each mode, so the mode decides which rules apply.

Example

For India:

  • Mode 1: IT and BPO exports.
  • Mode 2: medical tourism into India, and Indian students studying abroad.
  • Mode 3: foreign banks and insurers opening in India.
  • Mode 4: Indian engineers working in the US on H-1B visas.

Mode 4 is India's key demand, and visa curbs hurt it.

Don't confuse with

  • Mode 3 vs Mode 4: Mode 3 means a company sets up locally, often through FDI. Mode 4 means an individual travels for a short period, with no permanent business set up.

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