Division 1 Modes of supply breakdown

Services supplied internationally can be broken down by the following four modes of supply:

Mode 1: Cross-border supply – it takes place when a service is supplied ‘from the territory of one country into the territory of any other country’. This is similar to trade in goods where the product is delivered across borders and the consumer and the supplier remain in their respective territories.

Mode 2: Consumption abroad – it takes place when the service is supplied ‘in the territory of one country to the service consumer of any other country’, which means that either the consumer or his property is abroad. Tourist activities such as visits to museums and theatres, and travel abroad to receive medical treatment or follow language courses, are typical examples. Services such as ship repair abroad, where only the property of the consumer moves, or is situated abroad, are also covered.

Mode 3: Commercial presence – it takes place through supply of a service ‘by a service supplier of one country, through commercial presence in the territory of any other country’. It is often necessary for services suppliers to establish a commercial presence abroad to ensure closer contact with the consumer at the various stages of production, distribution, marketing, sale and delivery as well as into context of after-sales services. Commercial presence in a market abroad covers not only juridical persons in the strict legal sense, but also legal entities that share some of the same characteristics, such as representative offices and branches. Relevant in this context are, for example, financial services provided by a branch or subsidiary of a foreign bank, medical services provided by a foreign-owned hospital and courses offered by a foreign-owned school.

Mode 4: Presence of natural persons – it takes place when an individual is temporarily present in the territory of an economy other than his own to provide a commercial service. Mode 4 is defined as the supply of a service ‘by a service supplier of one country, through presence of natural persons in the territory of any other country’. Mode 4 is generally understood as covering:

• Contractual service suppliers, whether employees of a foreign service supplier or self-employed;

• Intra-corporate transferees and foreign employees directly recruited by foreign established companies;

• Service sellers who enter the host country to establish contractual relationships for a service contract, or persons responsible for setting up commercial presence.