Briefing on the
FREE TRADE AREA OF THE AMERICA
CRITICAL ANALYSIS AND ALTERNATIVES
April 9, 2001
ALLIANCE FOR DEMOCRACY
Two statistics will help place services in the context of the overall
economy. First, services make up about 70% of the U.S. economy and more than 60%
of the global economy.
Second, services make up approximately 25 percent of world exports of goods
and services. From this we can see that trade in services lags well behind the
value of domestically provided services.
It is important to think about the difference between trade in goods and
trade in services. From birth to death, services are a vital part of our lives.
Some services are provided without compensation--birthing in traditional
societies, parenting, care of the sick, care of the dying. When these basic
human services are brought into the market economy, we speak of their
We should keep in mind that the service sector goes far beyond the low-paid
service employees about which much has been written. It includes international
bankers, nurses and doctors, teachers, lawyers, accountants, ministers,
reporters, Congressional staff, tourist guides, even employees of municipal
sewer and water departments. The service sector extends its reach even further
because the production of goods depends on services like sales, transportation,
energy supply, and engineering.
Most of these services require some kind of human contact. They cannot just
be put in a shipping crate and trucked across the border. Further, while
historically under the General Agreement on Trade and Tariffs (GATT), the
primary focus was on reducing barriers to trade by reducing the tariffs on
goods, barriers to trade take on a whole different meaning when we talk about
HISTORY OF SERVICE TRADE AGREEMENTS
The GATT was expanded to include the General Agreement on Trade in Services
(GATS) as part of the Uruguay Round of negotiations which were concluded in
1994. This was followed by NAFTAs Chapter 12 on Services the following year.
These two agreements provide the foundation on which the FTAA chapter on
services can be expected to be built. Since the countries negotiating the FTAA
are already signed on to GATS, this provides a floor for the negotiations.
Meanwhile further negotiations on GATS are taking place to pursue
"progressive liberalization" of services.
The fundamental goal of all these trade agreements is "progressive
liberalization" of trade. This meaning is clear if one is just talking
about lowering tariffs for goods, but when one gets into the realm of
"non-tariff barriers" the ultimate objectives become much more murky
and, frankly, worrisome from the perspective of democratic decision-making
regarding the nature of our society. Yet the San Jose Ministerial clearly laid
out the goal of the FTAA: "to progressively eliminate, tariffs, and non
tariff barriers, as well as other measures with equivalent effects, which
restrict trade between participating countries."
Id like to review some of the key elements of GATS and the NAFTA services
chapter in relation to what we know of the U.S. negotiating position on the FTAA
based on our countrys published summary position.
KEY ELEMENTS OF GATS with COMPARISON TO NAFTA AND U.S. PROPOSALS ON FTAA
Bottom-Up vs. Top-Down Approach. Countries would only agree to GATS if
they could use a "bottom up" approach where they would choose which
services would be covered by the agreement. So while GATS creates legally
enforceable obligations backed up by trade sanctions, some rules only apply to
those services countries choose to include on their schedule of commitments. But
GATS is a one-way street: once commitments are made, countries cannot
realistically turn back.
FTAA. The U.S. Summary Negotiating Position calls for a "top down"
or negative list approach which requires countries to negotiate a reservation
for a particular service or measure. Not only is this a major step away from the
flexibility of the GATS bottom-up approach, but the requirement to negotiate as
opposed to just listing its exceptions places a great deal of pressure on
NAFTA follows the top down negative list approach but does not require the
negotiation of such listings.
Modes of Supply. GATS covers services provided in four ways:
1) Cross Border Supply "from the territory of one Member into the
territory of any other member" -- for instance long-distance learning
across borders using the internet.
2) Consumption Abroad by people from one member country traveling to
another member country where the service is provided -- for instance foreign
students studying at a U.S. university.
3) Commercial Presence by investors developing a commercial presence
in another member country in order to supply a service -- for instance, a U.S.
university setting up a branch in another country. This includes all
service-related foreign direct investment.
4) Presence of Natural Persons covers workers entering a member
country in order to provide a service -- for instance, a faculty member from
another country coming to the U.S. to teach.
FTAA. Following the structure of NAFTA, the U.S. would exclude commercial
presence from coverage in the FTAA services chapter and instead have it covered
in the investment chapter. This would provide the primary mode for the supply of
services, foreign direct investment, with the performance requirements laid out
in the investment chapter (e.g., no requirements for local content or transfer
of technology) and potentially give service providers and investors the highly
beneficial "investor-to-state" dispute resolution which is part of
NAFTAs investment chapter.
Level of coverage. GATS covers measures taken by "central, regional
or local governments and authorities" and by "non-governmental bodies
in the exercise of power delegated by [such]... authorities."
NAFTA by contrast excludes local coverage and allows countries to take
exception for any existing non-conforming measure maintained by a state or
FTAA. The U.S. Summary Position uses the same language as GATS thus including
Government Services. Services "supplied in the exercise of
government authority" are exempted in Article I of GATS. But Article I goes
on to say that to qualify for the exemption such services must not be supplied
"on a commercial basis, nor in competition with one or more service
suppliers." If a government agency charges a fee, is it providing a service
on a commercial basis? If a town has a private school as well as public schools,
is there competition? Since none of this is further defined in GATS, the
exception provides little assurance that government services are in fact
FTAA. The U.S. Summary Position adopts the same troublesome language.
NAFTA makes no mention of government services.
Most Favored Nation (MFN). GATS requires that "each Member shall
accord immediately and unconditionally to services and service suppliers of any
other Member treatment no less favorable than that it accords to like services
and service suppliers of any other country." GATS applies MFN to all
services whether or not in the schedule of commitments, but allowed for
time-limited country exceptions at the time GATS was first adopted.
FTAA. The U.S. adds that MFN should apply whether or not a country is a party
to the FTAA, e.g., if the U.S. signs a bilateral agreement with a non-FTAA
country, any favorable treatment accorded that country will apply to all FTAA
member countries. The U.S. also wants to use the phrase "in like
circumstances" which is the phrase used in NAFTA.
National Treatment. Under GATS, if a country puts a service on its
schedule of commitments, then the foreign service supplier has to be given
"national treatment" which means the foreign service supplier must be
treated at least as favorably as domestic companies. This provision prevents
governments from promoting local service businesses.
FTAA. The U.S. wants National Treatment to apply to all services using the
"top down" or negative list approach which requires countries to
negotiate a reservation for a particular service or measure. places a great deal
of pressure on countries.
Market Access/Non-discriminatory Measures. In GATS, if a country puts a
service on its schedule of commitments, then the service is also subject to
"market access" rules which apply to its entire territory or any
regional subdivision and which are not based on principles of discrimination.
These rules forbid any limit on the number of service suppliers, an economic
needs test, a requirement that a service shall be supplied through a joint
venture with a local supplier, or any limit on the participation of foreign
capital. Thus a community may have a system for trash collection which is quite
adequate, but cannot prevent a foreign corporation from coming and offering the
same service and cannot require any kind of partnership with the local supplier.
Under NAFTA, all quantitative restrictions at the national or
state/provincial level are to be listed in an annex and then subject to
continuous liberalization/removal. Further, under an article titled
"Liberalization of Non-Discriminatory Measures," NAFTA calls for
"commitments to liberalize quantitative restrictions, licensing
requirements, performance requirements or other non-discriminatory measures
relating to the cross-border provision of a service." Quantitative
restrictions are defined to include the number of service providers, the number
of operations by service providers, or an economic needs test.
FTAA--The U.S. seeks additional market access provisions to complement MFN
and national treatment and to ensure that a "full liberalization package is
achieved." The U.S. says it will draw on GATS and Western Hemisphere trade
agreements. Market access would presumably also be subject to the top-down
Domestic Regulation. GATS requires that domestic regulations "do not
constitute unnecessary barriers to trade in services" and are "not
more burdensome than necessary to ensure the quality of the service." This
section can be used to overturn local, state or federal regulations even if
there is no discrimination based on National Treatment or Most Favored
Nation. The U.S. delegation in Geneva has told us that it is yet to be settled
whether this section applies to all services or just those on the schedule of
commitments. In the present negotiations on GATS, there is much discussion about
elaborating the rules under domestic regulation.
NAFTA just focuses on licensing and certification of nationals of another
Party, saying, among other things, that any such measure should not be
"more burdensome than necessary to ensure the quality of a service."
But NAFTA goes further than GATS in requiring parties to " eliminate any
citizenship or permanent residency requirement for the licensing and
professional service providers in its territory."
FTAA--The U.S. simply states that domestic regulations is important and that
further consideration will be given to what provisions might be appropriate.
"This will involve close consultation with all U.S. interested
parties." Have they consulted with you or your boss or your constituencies?
Transparency. GATS requires that each member publish all relevant
measures pertaining to the agreement no later than when they enter into force.
FTAA-- In both the FTAA and GATS negotiations, the U.S. wants all member
countries and their political subdivisions to publish their PROPOSED regulations
to solicit comments from interested parties in other member countries. This
could be a very significant burden on local communities who would have to
consider such comments from around the world before adopting, for instance, a
change to their regulations for recycling or water treatment. And who would
comment? Most likely the TNCs who have the resources to keep track of how
such proposed regulations would impact their business interests.
To sum up, under GATS, and presumably under the FTAA, rules relating to
market access, domestic regulation and transparency apply even when there is no
discrimination between foreign or between foreign and domestic service
providers. Further the U.S. proposal for the FTAA would make it difficult for
countries to exempt specific services from the national treatment and market
access provisions. Finally, the U.S. proposes to go beyond NAFTA by including
The rules written into GATS and anticipated under the FTAA benefit global
corporations and investors at the expense of local communities and democratic
government authority and put local service providers at a disadvantage. Such
rules also diminish the power of nations and local communities to shape local
economic development, promote local culture, provide public services, or advance
the rights of women, minority populations and indigenous peoples.
Critics of these service agreements are particularly concerned about the
impact of the drive toward liberalization on human and cultural services such as
health care, education, locally-produced media. What local, state, federal
regulations will be found to be "more burdensome than necessary"? How
will publicly-provided services be effected? Will these service agreements give
further impetus to the privatization of water services and supplies already
being promoted by the IMF and World Bank in developing countries and by giant
corporations like Suez Lyonnais des Eaux which is taking out full page ads in
ALTERNATIVES TO THE DOCTRINE OF SERVICE LIBERALIZATION
By contrast the Hemispheric Social Alliance is developing a very different
set of guiding principles set forth in "Alternatives for the
Americas." These principles point out that many basic services are
"public goods" and further that many services are bound to the
cultural identity, national security, or political cohesion of a given country.
The principles begin with the assumption that:
Individual countries shall assume the responsibility to guarantee their
populations, in their entirety, the provision of basic services and public
utilities. These countries shall, therefore, agree to carry out legitimate
regulatory objectives, including consumer protection and universal access to
The principle is elaborated by the specific objective which states
The right of residents/consumers to access affordable basic services
shall be guaranteed by the FTAA member
The principles further emphasize that
The democratic process must prevail over the "market access"
principle. Due to pressure from the more powerful countries of the Western
Hemisphere, it is clear that the crux of negotiations lies in the expansion
of specific governmental commitments on national treatment and market
access. The "market access" principle expands the frontiers of
free trade not only by opening local service markets to foreign businesses,
but also by restricting or prohibiting governmental policies which seemingly
interfere with the market. This principle causes foreign trade rules to
invade the field of domestic policies.
They express concern that
Disciplines on environmental laws and market access requirements in some
service sectors-energy, transport, water, tourism and waste disposal-could
result in serious environmental problems. The FTAA must ensure that services
are used to protect the environment and not to harm it.
And they emphasize that
Transparency in all negotiations is essential. The FTAA negotiations are
taking place behind closed doors, under corporate pressure, and beyond the
reach of the media and public scrutiny despite the fact that this adversely
affects the vast majority of the inhabitants of the hemisphere.
To this, many of us would add that health, education and drinking water
should be carved out of any trade agreement on services.
Supporters of trade liberalization often assert, as Maggie Thatcher first
stated, that "there is no alternative." The Alliance for Democracy and
the Alliance for Responsible Trade not only believe there are alternatives, but
are committed to working with our colleagues through the Hemispheric Social
Alliance to begin to articulate the principles on which true democracies can