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by
Ellen Gould & Susan George
The GATS Negotiations: defining a corporate future for social
services and social development
“In pursuance of the objectives of this Agreement, Members shall
enter into successive rounds of negotiations, beginning not later
than five years from the date of entry into force of the WTO Agreement
and periodically thereafter, with a view to achieving a progressively
higher level of liberalization.”
Article XIX, the General Agreement on Trade in Services
The Washington Consensus may be in
doubt in some circles, but at the institution that has the legal
mechanisms and powers of enforcement to put liberalization policies
in place for all time, there is not a hint of loss of faith. Negotiations
currently taking place at the WTO on the General Agreement on Trade
in Services (GATS) are claimed to be a sign of the “resilience”
of the WTO after the failure of the Seattle Ministerial. In fact,
lobbyists for transnationals who are intimately involved in drafting
new proposals say progress in negotiations is so rapid it is as
though Seattle never happened.
With the creation of the GATS, transnational
service corporations succeeded in getting a mechanism that not only
continuously opens up markets for them, but ensures that they will
be able to operate freely in these markets with regulations that
are written in their interests.
The powers behind the GATS are pushing to get proposals in by the
end of this year, with the confident expectation that thereafter
the neoliberal universe will unfold as it should.
Ripe
for liberalization
Negotiations will focus on liberalizing
sectors such as health and education that largely escaped bindings
under the GATS when it came into being as part of the WTO in 1995.
The European Commission’s representative at the talks has described
health and education as “ripe for liberalization.” In
addition, negotiators are currently drafting new obligations that
could mean all service sectors will have to follow suit.
The U.S. Trade Representative has made liberalization of services
a primary focus of American efforts at the WTO. The Director of
the WTO Services Division, David Hartridge, in fact credits American
finance transnationals for the very existence of the GATS, stating:
“without the enormous pressure generated by the American financial
services sector, particularly companies like American Express and
CitiCorp, there would have been no services agreement and therefore
perhaps no Uruguay Round and no WTO.”
In order to get agreement through
the WTO, those promoting it had to overcome opposition by allowing
governments considerable leeway in how much they had to commit under
the agreement. Governments were allowed to:
-
choose which service sectors would be subject to the agreement’s
most forceful provisions
- set
limitations on the application of the agreement within committed
sectors
-
take exemptions from certain provisions that applied across the
board.
Politicians, challenged to explain how they could permit what is
taking shape at the GATS negotiations, repeatedly point to this
flexibility in the agreement. They try to deflect concerns by saying
governments retain the right to liberalize only those sectors they
choose.
The
illusion of flexibility
What these politicians either don’t
know or won’t say is that any flexibility the agreement had
when it was initially signed is continuously eroded by the overarching
requirement to achieve “a progressively higher level of liberalization.”
Furthermore, all of the provisions that allow governments to liberalize
services at their own pace are systematically being attacked in
the current round of negotiations.
 The
stakes are particularly high in the GATS negotiations for a number
of reasons. Services were traditionally viewed as non-tradable as
they involve face-to-face contact between consumers and suppliers.
However, rather than limit the agreement to services where cross-border
delivery was possible, negotiators extended its scope to cover not
only cross-border trade, but also foreign direct investment and
the supply of a service or its consumption in a foreign country.
In other words, the difficulties inherent in trading services across
borders essentially served as an excuse to say the GATS had to cover
investment.
Because the GATS is, to use the WTO’s
own description, “the world’s first multilateral agreement
on investment”, it has become the instrument of choice for
those who had backed the Multilateral Agreement on Investment (MAI)
and still want to see its goals realized. Services encompass about
two thirds of the economies of industrialized nations, so expansion
of the GATS investment provisions over all services could mean effectively
getting an MAI with less risk of provoking public opposition. The
advantage of the GATS according to one OECD official is that it
does not have the same political visibility and, as an existing
agreement, “is more difficult to oppose than a full blown negotiation
in a ‘new’ policy area.”
When countries make services completely
subject to the “national treatment” provisions of the
GATS, they cannot:
-
set any performance requirements for foreign investment
- make
foreign corporations establish joint partnerships with local people
- require
them to hire or train local staff
- ask
for technology to be transferred.
In
other words, they cannot retain any regulations intended to ensure
their citizens actually benefit from foreign investment. Unless
they submitted exemptions at the time they signed the agreement,
countries have to provide “immediately and unconditionally”
all WTO members with the best treatment that they accord any country.
With these powerful rules defining the treatment of foreign investment,
it is not surprising the U.S. is currently pushing to have energy,
normally defined as a good, to be reclassified as a service.
But the GATS goes far beyond such
“national treatment” and “most favoured nation”
provisions that are the core of most trade agreements. Making service
sectors subject to the “market access” provisions of the
GATS requires governments to change the legislative framework for
these services even when foreign and domestic suppliers are treated
exactly the same. GATS proponents highlight the impact on domestic
policy: “the GATS article on market access extends beyond traditional
concerns of access for foreign service suppliers to encompass all
policies which restrict access to a market. This is a major extension
of multilateral trade disciplines into the realm of domestic policy.”
A massive and irreversible invasion into domestic policy
The extent of the intrusion is hard
to grasp. Where they have made full commitments, governments cannot
impose limits on the number of service suppliers – foreign
or domestic – operating in an area. Such limits are often a
means used by governments to restrain costs in sectors like heath
and education. The ability to limit the number or scale of commercial
operations is also a critical public policy tool to prevent damage
to ecologically sensitive areas. In addition to being barred from
setting these kind of limits, under market access disciplines governments
cannot specify that services have to be delivered by a particular
type of legal entity, such as a non-profit organization or an agency
with a board that includes representation from minorities.
Once made, commitments are designed
to be locked in forever. In a speech to international bankers, David
Hartridge talked about the deregulatory achievements of the GATS
and said: “The GATS can and will speed up the process of liberalization
and reform, and make it irreversible.” In theory, after three
years countries can modify their commitments – if they compensate
all WTO members. In reality, as the WTO services director and WTO
materials emphasize, commitments under the GATS are intended to
be permanent to provide certainty for investors.
The GATS, unlike the GATT, contains
no emergency safeguard measure. Countries of the South have asked
for the development of such a measure to allow temporary reprieve
from unforeseen and catastrophic impacts resulting from making a
commitment. They are unlikely to get such a safeguard, as it is
opposed by the WTO’s dominant members. Progress is frustrated
by endless hours in committee debating semantics, like what “unforeseen”
might mean, even though a ready-made model for an emergency safeguard
measure could be borrowed from the GATT.
The essentially irreversible character
of the GATS leaves no room for error. Unfortunately, extensive errors
have been made. The WTO Secretariat identifies 1400 mistakes governments
made in scheduling their market access commitments alone, and has
cautioned that such errors will become more significant as governments
undertake challenges using the GATS. Even countries that would seem
to have, in contrast with countries of the South, the extensive
resources required to get their commitments right can seem hopelessly
incompetent. Canada lost a WTO challenge on the Auto Pact, a longstanding
trade agreement that laid the foundation for domestic car production,
at least partly because it had made mistakes in scheduling its commitments
under the GATS.
The South in Northern harness
The ambiguous and complex nature of the GATS gives ample room to
interpret its most powerful provisions to maximize their impacts.
GATS provides that for each new negotiating round members will agree
on an appropriate structure for the negotiations. This provision
is now used as a lever to curtail the flexibility countries have
in making commitments. Countries of the North, over objections from
a number of countries from the South, are proposing negotiations
should adopt “horizontal” or “formula” approaches,
compelling countries to liberalize all services in particular ways
at the same time. The U.S. wants energy and the EC wants environmental
services dealt with as “clusters” to speed up liberalization
in these sectors. In addition, the U.S. is saying the starting point
for the negotiations should be countries’ existing levels of
liberalization, not their existing GATS commitments – an approach
that would hit countries of the South particularly hard.
The minutes from the Services Council’s
meetings indicate how the predominantly public character of health
and education services is under threat. Seeking the break down of
the classification of services in health and education, the U.S.
hopes that components of these sectors can then be hived off from
the public sector. The governmental exemption within the GATS for
certain kinds of public services is also in serious jeopardy, despite
assurances being given publicly about the reliability of this exemption.
A few key battle grounds:
 Investor-state:
the big stick:
The investor-state provision was one
of the elements that killed the MAI, but such provisions exist in
regional agreements like the North American Free Trade Agreement
(NAFTA). These highly-controversial provisions provide the basis
for multi-billion dollar lawsuits by corporations against foreign
governments, with, in the case of NAFTA, very secretive procedures.
Incredibly, countries do not know
if their Most Favoured Nation (MFN) obligations under the GATS mean
they have to extend any “investor-state” rights they have
negotiated in regional agreements to investors from all WTO members.
Some countries have listed MFN exemptions for their investor-state
commitments, while others have not.
These inconsistencies have not gone unnoticed. Japan in particular
is suggesting if countries believe investor-state rights promote
foreign investment, then these rights should be extended to investors
in all countries on a most favoured nation basis. Such an interpretation
would go a long way towards effectively creating an MAI.
Subsidies:
The Working Party on GATS Rules is developing disciplines on “trade
distortive subsidies”. One Secretariat suggestion is staged
decreases in subsidies for services similar to those sought in agriculture.
Another proposal is to completely eliminate certain kinds of service
subsidies. In the Education Sector, for example, the Secretariat
identifies “high subsidization of local institutions”
as a potential barrier to trade.
Domestic Regulation:
The GATS already binds countries to
limit regulations over licensing and standards so that they are
“no more burdensome than necessary to ensure the quality of
the service.” Now the Working Party on Domestic Regulation
is focusing on “necessity”– the concept that regulations
need to be proven to be necessary and not an undue restriction on
trade. Tests of necessity in other agreements are recognized as
significant constraints on the right of governments to regulate.
Regulations often define the boundary
between public and private, between profit and non-profit. Requiring
governments to choose the least “trade-restrictive” means
of regulating services could mean that rather than making non-profit
status a requirement for a hospital, for-profit operators would
have to be allowed and subsidies provided for the poor to access
their services.
Markets
first. Public interest far behind:
The Secretariat’s papers on social
services, health care, and education are instructive. In its analysis
of health care, for example, the Secretariat accepts that some parts
of the population may not benefit from increased competition in
the sector. It acknowledges that private firms can take the “cream”
of the market, leaving the public sector to serve high-risk and
low-income people, and that private clinics can also attract the
best staff away from public hospitals. The Secretariat concludes,
however, “These examples do not argue against market-based
reforms.”
A Potential Way Out
Of course, while the GATS may seem
like some kind of liberalizing automaton, there is nothing preordained
about what directions negotiations will take. Development of an
emergency safeguard measure, as mentioned above, is going nowhere
despite the fact that Article X of the GATS calls for negotiations
on this question.
In reality, the very basis for a new
round of negotiations is open to interpretation. The agreement does
specify a new round of negotiations has to take place in the year
2000. But it also requires an assessment of trade in services to
shape negotiating guidelines, with special consideration given to
developing countries.
Countries of the South are demanding
this assessment. However, they are opposed by Japan, the European
Commission, Canada and the U.S who claim the assessment requirement
has already been fulfilled. The U.S. produced its own series of
papers assessing services trade by sector, yet these papers amount
to little more than a recitation of articles of faith in neo-liberalism.
For example, in the health sector, the U.S. paper makes the highly
contestable claim: “Liberalization of trade in health and social
services provides a wide array of choices and lower prices for consumers
of those services.”
The Secretariat reports that statistics
on trade in services are inadequate for a comprehensive assessment.
The statistics the Secretariat has gathered, though, demonstrate
that since the GATS came into being, the U.S. has enjoyed an enormous
surplus of exports over imports, whereas Egypt, the Philippines,
and other countries of the South have seen imports grow much faster
than exports.
Countries of the South have called
for a balanced assessment of the actual effects of liberalization
as a condition for further negotiations. India has had to intervene
a number of times to insist that assessment papers by the Secretariat
consider the drawbacks as well as the benefits of liberalization.
The lack of balanced assessment only
highlights the more profound problem with the GATS; that public
policy over the critical area of services is being set in stone,
foreclosing the possibility of democratic change. That may be why
the current negotiations are running on secrecy, rushed deadlines,
and lack of communication to elected officials of the full implications
of the talks. This is the same formula used for the MAI and Seattle,
and will produce similar results.
Susan
George, lives in France where she is president of l’Observatoire
de la Mondialisation and vice-president of ATTAC. The most recent
of her nine books is “The Lugano Report: On Preserving Capitalism
in the 21st Century”.
Ellen Gould is a researcher with the Transnational Institute
References
WTO minutes of meetings and working papers on the GATS,
WTO Document Dissemination Facility,
http://www.wto.org/wto/ddf/ep/public.html
Sapir, Andre – “The General Agreement on Trade
in Services: From 1994 to the Year 2000”
Journal of World Trade 33(1): 51-66, 1999
Copyright 1999 Kluwer Law International
Sauve, Pierre and Stern, Robert M. eds.
GATS 2000: New Directions in Services Trade Liberalization
Brookings Institution, Washington, D.C.
Copyright 2000
Sinclair, Scott – “GATS: How the World Trade Organization’s
new ‘services’ negotiations threaten democracy”
Canadian Centre for Policy Alternatives
September, 2000
http://www.policyalternatives.ca
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