Briefing on FTAA and Alternatives
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Briefing on the
FREE TRADE AREA OF THE AMERICA
CRITICAL ANALYSIS AND ALTERNATIVES

April 9, 2001

2247 Rayburn

 

 

RUTH CAPLAN

ALLIANCE FOR DEMOCRACY

 

INTRODUCTION

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 commodification.

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 services.

 

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 NAFTA’s 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."

I’d 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 country’s 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 countries.

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 NAFTA’s 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 province.

FTAA. The U.S. Summary Position uses the same language as GATS thus including local jurisdictions.

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 exempted.

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 approach.

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 certification of

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 TNC’s 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 local jurisdictions.

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 U.S. newspapers?

 

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 services.

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 countries.

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 proudly stand.

 


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