The 2001 GATS Negotiations: the Political Challenge Ahead
by Ellen Gould
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In his book, The Selling of ‘Free Trade’, John MacArthur describes politicians as people who "are paid to pretend the world is different from what it really is."[1] The first months of the year 2001 will demonstrate whether MacArthur’s cynicism is justified. It is the critical period when politicians around the globe will be asked to take a stand on whether the WTO’s General Agreement on Services (the GATS) should be expanded. GATS negotiators have scheduled a "stocktaking" exercise for the end of March, essentially to assess whether they have the political green light to forge ahead.

What concrete impacts would an extension of WTO rules over the services sector have? The short answer is they would entrench privatization and deregulation worldwide, largely for the benefit of American and European transnational corporations. They would impose profound, permanent constraints on democratic policy-making. For citizens of the North, valued public services and regulations are at risk. Citizens of the South are facing the prospect of having IMF/World Bank-style structural adjustment locked in place for all time.

It is important, though, to grasp a longer version of the answer because the WTO is currently engaged in an effort to cast the negotiations in nonthreatening terms. They are essentially trying to get NGO concerns about the GATS dismissed by politicians on a series of technicalities. While original GATS documents afford ample justification for these concerns, the sheer aggressiveness of WTO denials may give politicians excuses to pretend there is nothing to be concerned about in the GATS negotiations.

Corporate Interests Gave Birth to the GATS

After the spectacular failure of the Seattle ministerial, the GATS negotiations seemed like a kind of non-controversial life raft where trade officials could regroup and garner momentum for a new trade round.

In a memo he wrote for the Seattle chair of the services negotiations, WTO Director of Services David Hartridge said:

"Services is the major part of the built in agenda; less difficult and less visible politically than agriculture but very much larger in economic importance and potential. It is also the least controversial element of the Seattle agenda."[2]

Negotiations to expand the GATS had a life of their own and did not need any new political mandate since a clause within the agreement initiated talks automatically in the year 2000. An intense round of meetings were going on pretty much unnoticed until media stories and publication of a book critical of the GATS[3] began to ignite public opposition.

The response from WTO defenders has been strong. Former WTO Director of Information David Woods has said opposition to the GATS is "the biggest public relations threat to the launch of a new round next year." But he characterizes GATS critics as being lying, malicious demagogues circulating garbage, nonsense and scare stories. Woods is so incensed with the opposition to the GATS that he attacks politicians who do not take it on for being "limp-wristed." [4]

So here is what supporters of the GATS say about the agreement. They say that the very idea for a trade agreement covering services originated twenty years ago with a small group of American transnational corporations [5]. They say that the GATS would never have even been signed in 1994 if it had not been for pressure from American Express and Citicorp [6]. They say that the key US corporate lobby group on services had a major role in actually shaping the original agreement [7]. They say that the GATS is the world’s first multilateral agreement on investment [8] but has the political advantage of not attracting as much NGO attention and not being as easy to oppose as a whole new set of negotiations on investment. [9] They say that the GATS is first and foremost an instrument for the benefit of business [10]. They say that the GATS can encourage more privatization, particularly in the field of health care [11]. They say that the agreement reflects WTO members’ basic belief in deregulation.[12]

It is possible that all of these advocates of the GATS are wrong. Maybe the negotiations are not about pursuing the corporate interest in deregulation and privatization. Fortunately, though, it is not necessary to rely on what is said about the GATS agreement and ongoing negotiations. WTO documents speak for themselves.

Deregulation and the GATS

"The claim that liberalization means deregulation, or loss of governments' right to regulate, is simply false." David Hartridge, Director of Trade in Services Division, WTO Secretariat. EUROPEAN SERVICES FORUM Conference on the GATS 2000 Negotiations

The term "simply false" seems designed to intimidate politicians from raising concerns about the deregulatory implications of the GATS. However, a paper prepared by David Hartridge’s own division in the WTO, originally titled "The Benefits of Deregulation and Liberalization of Services Markets"[13], argues that precisely because services "have long been tightly regulated", that the benefits from liberalization in this sector could be particularly high. WTO staff state that unless market-driven reforms are implemented, the regulatory control of government will expand with the growth of the services sector. They also point out that "There is nothing in the GATS - or in the GATT - that would oblige governments to sacrifice any reasonable level of technical or commercial regulation. The GATS imposes constraints, however, on the use of unnecessarily restrictive or discriminatory requirements in scheduled sectors. Governments may thus be required to complement market-opening measures with a review of domestic regulation." [14]

Policy-makers should sit up and take notice when trade officials assure them they still have permission to maintain a "reasonable" level of regulation as long as it is not "unnecessarily restrictive or discriminatory." In the event of a dispute, what is reasonable and what is unnecessarily restrictive will be determined by panels of trade, not social policy, experts.

The New Deregulatory Threat Posed by the GATS Negotiations

The GATS so far has not gained the same regulation-destroying notoriety of other WTO agreements because negotiators did not finish negotiations on its domestic regulation section at the end of the Uruguay Round. That is what negotiators are working on now, importing a "test of necessity" from other agreements, a test that has produced some of the most controversial decisions WTO dispute panels have ever made.

How would this test of necessity work in practice? Take, for example, Britain’s current initiatives to improve its water supply regulations, setting new conditions for the operations of water companies [15]. Under the proposal, utilities would be obligated to conserve water and prevent damage to wildlife and the environment. At the same time as Britain’s environment minister is developing these new regulations, though, European Commission GATS negotiators are drafting rules that could make them vulnerable to challenge.

Water supply is a service covered by the GATS, and the European Commission is actually at the forefront of efforts to see it liberalized as one of a "cluster" of environmental services.[16] The EC is also among those promoting the idea that regulations over services should be subjected to a test of necessity.

Would the new British water regulations pass this test? First they would have to be judged to serve a "legitimate" objective. Would a trade panel regard a requirement to prevent damage to wildlife as a "legitimate" obligation for a government to place on a water utility? Or are they more likely to see it as overly burdensome and a barrier to companies wanting to enter the market? And even if a panel allowed that the new requirements served "legitimate" objectives, the onus would be on the British government to prove that it could not have met its conservation goals in a way that was less trade restrictive.

In announcing his proposal, British Environment Minister Michael Meacher stated "I believe that these proposals will put the interests of customers and the environment first."[17] With the new disciplines on government regulation being built into the GATS, though, Meacher could not "put the interests of customers and the environment first"" He would also have to take into account the interests of potential investors in the British water market. His difficulties could be compounded by the fact that the GATS is actually worse than the WTO agreement on goods, the GATT, in terms of its environmental language. While the GATS, borrowing a clause from the GATT, provides an exception for measures "necessary to protect human, animal or plant life or health", it drops the key GATT exception for measures "relating to the conservation of exhaustible natural resources..."

Trading Away the Right to Regulate

According to a WTO Secretariat paper on the new GATS disciplines on domestic regulation "The necessity test - especially the requirement that regulatory measures be no more trade restrictive than necessary - is the means by which an effort is made to balance between two potentially conflicting priorities: promoting trade expansion versus protecting the regulatory rights of governments." [18] The Secretariat states that while the right to regulate is part of the preamble to the GATS, this right is counterbalanced by the other commitments governments have made in the preamble to expand trade in services.

Why would Britain be pushing for rules at the WTO that would tend to conflict with efforts by its environment minister to introduce new regulations in favor of greater consumer and environmental protection? Trade negotiators focus on the "offensive" interests of domestic corporations seeking overseas markets, enlisting their involvement in drafting negotiating proposals. British water corporations are aggressively pursuing inroads into water services in countries of the South, with Chile and Brazil being particular targets. AWG is currently seeking two water contracts in Rio de Janeiro pending privatization legislation. Both AWG and Thames Water already operate privatized water treatment plants in Chile as part of a planned expansion in South America. Under the "least trade restrictive" and "pro-competitive" regulatory obligations the European Commission is promoting at the GATS negotiations, established utilities would have to allow competitors access to their basic infrastructure.

To make a long story short, WTO representatives can technically get away with saying that the new GATS provisions being negotiated would not immediately force governments to deregulate or take away their right to regulate services. The new rules would, though, create legally binding obligations - enforceable through the WTO dispute system - to weigh any regulatory objective against possible impediments to trade and investment. They would create enormous uncertainty for legislators about whether any regulation might be judged not the least trade restrictive measure they could possibly have undertaken. They would combine pressures to get rid of regulations that could be interpreted as unnecessarily burdensome to business with an obligation to implement new, market-oriented regulations.

Privatization and the GATS

Concerns raised about the privatizing impacts of the GATS negotiations are also provoking fierce denials, as though trade officials take offense at the very notion that their work could result in privatization. They show no such distaste, however, behind closed doors during WTO trade policy reviews where they repeatedly tell countries they should step up the pace of privatization. Bangladesh, for example, got grilled by the U.S. at its trade review over why it had not privatized its banks.[19] Trade representatives also demand that countries trying to join the WTO submit detailed privatization reports, and sharply criticize them when these reports are deemed inadequate.

In the same speech to the European business lobby where he denied the GATS negotiations would promote deregulation, David Hartridge stated "The charge that GATS will undermine public services, or the right to maintain them, is also false..." However, the GATS is founded on a commitment that countries will negotiate continuously to eliminate or reduce "adverse" measures in order to provide "effective market access."

What does increasing effective market access for private firms mean in a sector where services are predominantly delivered by government? The WTO Secretariat itself explains in its report on the health sector that "institutional constraints (monopoly and exclusivity arrangements)" have in the past discouraged foreign commercial presence. However, the Secretariat claims the picture is "brightening" because "regulatory regimes in various countries have been moving towards stronger market orientation - opening space for increased private involvement, domestic and foreign..."[20]

Imposing "Market-friendly" Regulations

What is going on at the GATS negotiations in terms of locking in and expanding market-oriented domestic regulation is a threat to all public services. Health policy analysts Allyson Pollock and David Price, writing in the December 9, 2000 issue of Lancet, have described the current GATS agenda as introducing a "new era of compulsion in international trade law." They detail how the regulatory foundation of public service health care is fundamentally incompatible with a requirement to maintain only those regulations that are the least trade restrictive.

In addition, the so-called "pro-competitive" rules being developed could be used to attack public utilities. A key proposal at the GATS negotiations would mean governments not only had to deregulate, they would also have to "reregulate" in market-oriented ways.

GATS rules already set out so-called "pro-competitive" regulations governments have to put in place when they make commitments in the telecommunication sector. The GATS regulatory regime for telecommunications is no mere voluntary guideline. American telecom giants AT and T and WorldCom have successfully used these rules to force changes in the already privatized Mexican telecommunications sector, and the US is holding the threat of a GATS challenge over Mexico’s head to force yet more changes sought by its transnationals.

Obviously public utilities will be weakened when they are forced to give private competitors access to their infrastructure. For example, in its GATS negotiating proposal on energy, the U.S. is calling for "non-discriminatory third- party access to and interconnection with energy networks and grids, where they are dominated by government entities or dominant suppliers." [21] Without being able to maintain control over their transmission grids, public utilities lose much of their ability to guarantee reliable energy supplies to the citizens they were set up to serve.

The Double Threat from the GATS to Public Services

Public services as a whole are in jeopardy with the proposed across-the-board application of new GATS regulatory obligations. In addition, public services can be chipped away through the GATS obligations to "progressively liberalize", to repeatedly make more market access and "national treatment" commitments in specific sectors in successive rounds of negotiations. The GATS market access provisions ban exclusive service suppliers. The GATS national treatment provisions bar governments from "discriminating" between domestic and foreign suppliers, even in the granting of government subsidies.

The minutes of the GATS meeting where trade representatives discussed liberalizing health care are very instructive. Trade representatives present acknowledged extensive governmental involvement in health but concluded that did not mean the whole sector was outside the reach of the GATS. They said that the exemption in the GATS for governmental services "should be interpreted narrowly." [22] That would be the same exemption that politicians are currently claiming provides an absolute safeguard for public services.

Making Privatization and Deregulation Irreversible

Privatization and deregulation are not news for citizens either of the South or the North. What is distinctive about their imposition through a WTO regime like the GATS is that they become irreversible. Once made, a commitment under the GATS is essentially permanent. In the Secretariat’s words, "bindings undertaken in the GATS have the effect of protecting liberalization policies, regardless of their underlying rationale, from slippages and reversals..."[23] As well, the new regulatory disciplines now being inserted into the GATS would add an additional layer of constraint on what all future politicians can do.

The rationale given for this fundamental undermining of democracy is that investors need certainty. The Secretariat stated in its on-line course on the GATS, "By guaranteeing that investment and trading conditions will not be changed against their interests, a commitment in the GATS provides the security which investors need." It should however be noted that in its periodic reports on trends in services trade, the Secretariat states it cannot provide any evidence of a connection between a country making GATS commitments and improvements in trade.

The minutes to Kenya’s WTO trade policy review [24] provide a striking example of the triumph of ideology over reason occurring at the WTO. Trade representatives praise Kenya for its privatization initiatives, its lowering of tariffs, and the opening up of its domestic markets. Comments are made about how puzzling it is that despite this admirable behavior, Kenya is experiencing low levels of growth and foreign investment and decreased exports. Kenya promises to continue in its liberalization path but reports that it has had to cut health and education programs and there has been an increase in poverty.

The response of the trade representatives to the misery Kenyans are suffering through? Kenya should make new sweeping commitments to liberalize under the GATS. Perhaps this paints the best picture of why politicians have to intervene and put a halt to what is going on at the GATS negotiations.


Footnotes

1. John R. MacArthur, The Selling of "Free-trade": NAFTA, Washington, and the Subversion of American Democracy , p. 49, FSG/Hill and Wang, 2000

2. Memo from David Hartridge, WTO Services Division Director, to H.E. Mr. Hylton and H.E. Mr. Malie, the chairs of the services negotiations at the Seattle WTO Ministerial.

3. Scott Sinclair, GATS: How the WTO's new "services" negotiations threaten democracy, Canadian Centre for Policy Alternatives, 2000

4. David Woods, "Lies, damn lies, and what the GATS really says", commentary in the newsletter, "World Trade Agenda", Dec. 2000: http://www.tradeagenda.com/files/commentaries/wta0023c.html 

5.‘The General Agreement on Trade in Services: From 1994 to the Year 2000’, Andre Sapir, Journal of World Trade, 33(1) p.52, 1999.

6. David Hartridge, speech entitled ‘What the General Agreement on Trade in Services can do’, speech by David Hartridge" to the conference ‘Opening markets for banking worldwide: The WTO General Agreement on Trade in Services’, 8 January 1997, London. (Organized by British Invisibles and the transnational law firm, Clifford Chance).

7. "About CSI", on the Coalition of Service Industries’ Internet site:

 

8. John R. Irwin, Chair of the International Association of Drilling Contractors, speech in 2000 to the 32nd Annual Offshore Technology Conference

9. Pierre Sauve and Christopher Wilkie, GATS 2000: New Directions in Services Trade Liberalization, Pierre Sauve and Robert Stern ed., Brookings, 2000

10. International Investment and Services Directorate, Industry Canada, "The Canadian Construction Industry: A Consultation Paper in Preparation for WTO GATS Negotiations", 2000.

http://services2000.ic.gc.ca

11. Dean O’Hare, Chair of the Coalition of Services Industries, to the House Committee on Ways and Means "Hearing on the United States Negotiating Objectives for the WTO Seattle Ministerial Meeting", August 5, 1999

12. European Commission, "Opening World Markets for Services - A Guide to the GATS: What GATS Means to Business":

 

13. WTO Council for Trade in Services, Report of the Meeting Held on 25 July, 1997, WTO document symbol S/C/M/20:

http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/S/C/M20.WPF.HTM

14. WTO Secretariat, "Economic Effects of Services Liberalization", October, 1997, WTO document symbol S/C/W/26:

http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/S/C/W26.WPF.HTM

15. "U.K. plans environmental fines for water firms", Reuters News Service, November 7, 2000

16. WTO Committee on Specific Commitments, Communication from the European Committees, "Classification Issues in the Environmental Sector", 28 September, 1999, WTO document symbol S/CSC/W/25:

http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/S/CSC/W25.WPF.HTM

17. "U.K. plans environmental fines for water firms", Reuters News Service, November 7, 2000

18. WTO Secretariat, "Application of the Necessity Test: Issues for Consideration" 2 May, 2000,

WTO Document Job No. 5929

19. WTO Trade Policy Review Body, "Trade Policy Review - Bangladesh", 14 June, 2000, WTO document symbol WT/TPR/M/68:

http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/WT/TPR/M68.DOC.HTM

20. WTO Secretariat, "Health and Social Services, 18 September, 1998, WTO document symbol S/C/W/50:

http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/S/C/W50.DOC.HTM

21. Council for Trade in Services Special Session, Communication from the United States: Energy Services, 18 December 2000, WTO document symbol S/CSS/W/24: http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/S/CSS/W24.DOC.HTM

 

22. Council for Trade in Services, Report of the Meeting Held on 14 October 1998, WTO document symbol S/C/M/30: http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/S/C/M30.DOC.HTM

23.WTO Secretariat, "Recent Developments in Services Trade", 9 February 1999, WTO document symbol S/C/W/94 http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/S/C/W94.DOC.HTM

24. WTO Trade Policy Review Body, Trade Policy Review - Kenya, 29 February 2000, WTO document symbol WT/TPR/M/64:

http://docsonline.wto.org:80/GEN_viewerwindow.asp?D:/DDFDOCUMENTS/T/WT/TPR/M64.DOC.HTM


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