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
