New services talks threaten democracy

The WTO’s General Agreement on Trade in Services (GATS), which is designed to facilitate international business by constraining democratic governance, is a threat to democracy, says a trade policy specialist.

Chakravarthi Raghavan

THE new talks underway at the World Trade Organisation (WTO) under its General Agreement on Trade in Services (GATS) will radically restructure the role of governments worldwide and subject an ever-greater degree of governmental decision-making to oversight by the WTO, according to a new publication.

The publication, GATS: How the WTO’s New ‘Services’ Negotiations Threaten Democracy, is a study by a Canadian trade policy specialist, Scott Sinclair, and is published by the Canadian Centre for Policy Alternatives (CCPA) <>,  based in the Canadian province of British Columbia.

In the study, Sinclair says that ‘despite the breakdown in global trade talks in Seattle in December 1999, negotiations are now underway at the WTO to radically restructure the role of government worldwide - subjecting an ever-greater degree of governmental decision-making to oversight by the WTO.’

These negotiations are aimed at expanding GATS, a framework agreement adopted as part of the Uruguay Round of multilateral trade talks in 1994. ‘Essentially unknown to the public, the agreement is designed to facilitate international business by constraining democratic governance,’ and the talks ‘are taking place behind closed doors in close consultation with international corporate lobbyists,’ he charges.

‘The agreement is designed to help transnational service corporations constrain and over-ride democratic governance ... and its ultimate purpose is to commercialise every service sector in every WTO Member country - including essential public services, such as education, water and health care,’ Sinclair adds.

‘Extraordinarily broad’ coverage

GATS, Sinclair points out, is ‘extraordinarily broad,’ dealing with every service imaginable and applying to measures of all governments, whether federal, First Nation, provincial, state, regional or municipal. It employs both ‘top-down’ and ‘bottom-up’ approaches to covering measures and sectors. It is not confined to cross-border trade in services, and an expanded GATS threatens domestic and international regulations to protect the environment, conserve natural resources and provide universal public service.

GATS is also playing a ‘pivotal role’ in several important WTO disputes. ‘The rulings in these cases show that GATS can be used to challenge an almost unlimited range of government regulatory measures that even indirectly or unintentionally affect the conditions of competition of international services suppliers,’ Sinclair adds.

The current round of GATS negotiations, in which every service is on the negotiating table, is only the first in a series of successive rounds planned to broaden and deepen the agreement. This expansion is to be achieved by increasing the specific commitments of Members, through re-classifying services to maximise GATS coverage, and by inserting new ‘horizontal’ provisions that apply across the board to all Members, services, sectors and modes of supply. Additional constraints on ‘domestic regulation’ are among the most serious new threats to democracy posed by the round, targeted for completion by 31 December 2002.

The GATS negotiations highlight many underlying tensions between the expansive business agenda being promoted by international corporations and the democratic principles and priorities embraced by the global citizenry. Public concern about the impacts of GATS will almost certainly grow as the agreement becomes more widely understood outside business and trade circles.

‘The recent experiences of Seattle and of the defeated Multilateral Agreement on Investment (MAI) demonstrate the vitality of well-organised citizens’ movements committed to strengthening democratic authority. A similar movement can be expected to mobilise around the GATS negotiations and there is good reason to believe that another essential victory can be achieved,’ says Sinclair.

‘Services’ are associated with everything the public need and everything they elect governments to do. Broadly defined, a service is a product of human activity aimed to satisfy a human need and which does not constitute a tangible commodity. There are many types of services, ranging from heart surgery to road construction, electricity transmission to education, and childcare to water purification.

Services affect virtually all aspects of people’s lives from birth to death. Countless people deliver services vital to our daily lives and in turn, many jobs are directly tied to the provision of services to others. More broadly, the delivery of vital services, and at affordable prices and universally accessible, ‘is a fundamental aspect of how we govern ourselves.’

Global business interests are seeking binding, global and irreversible rules on services. It should come as no surprise that transnational corporations, as they expand and extend their global reach, increasingly have a strong interest in reducing the cost of complying with the regulations they face in different countries. They also benefit by reducing competition from domestic, sometimes publicly owned, firms and from the privatisation and commercialisation of public enterprises, which allows them to expand their market share.

Promoting commercialisation of services

‘Adopting global rules to reduce or eliminate constraints placed by governments on their international commercial activity is understandably a key priority of many global corporations operating in the service sectors ... Many developed country service negotiators and WTO staff appear to be ardent, even fervent, advocates of promoting commercialisation, privatisation and deregulation of services through an expanded GATS. These officials, together with some influential government and business representatives, may also perceive an opportunity to salvage the WTO’s shaken post-Seattle credibility by delivering an expanded, stand-alone agreement on services.’

GATS is an extraordinarily ambitious and quite complex agreement, with several levels of obligations that apply, and with an overarching commitment to successive future negotiations to increase coverage and expand the agreement. It contains general rules, such as most-favoured-nation treatment and commitments to transparency, that apply to all services. GATS also contains specific commitments to market access and national treatment that apply only to those services listed by countries in their schedule to the agreement. Finally, GATS contains sectoral annexes that set out rules for particular sectors such as telecommunications and financial services.

Significant features

Some of the most significant features of the existing GATS include:

* coverage of practically all government measures, including laws, regulations, guidelines and even unwritten practices, such as subsidies and grants, licensing standards and qualifications, limitations on access to markets, economic needs tests and local-content provisions. No government measure ‘affecting trade in services,’ whatever its aim - environmental protection, consumer protection, enforcing labour standards, promoting fair competition, ensuring universal service, or any other goal - is, in principle, beyond GATS scrutiny.

* covers all service sectors and all modes of supply. Certain obligations apply to all sectors without exception, and all sectors without exception are on the table in future negotiations. The agreement also covers not just cross-border trade but every possible means of supplying a service, including through electronic commerce, international travel and foreign investment. GATS uses a hybrid approach to the coverage of sectors and measures, combining features of both a ‘top-down’ agreement (which covers all sectors and measures unless they are explicitly excluded) and a ‘bottom-up’ agreement (which covers only sectors and measures that are specifically identified).

* covers most public services. Services ‘provided in the exercise of governmental authority’ are excluded from the agreement. However, these are defined so narrowly that the exclusion has very limited practical value. All governmental services provided on a commercial basis are subject to GATS provisions. Similarly, governmental services supplied in competition with any other suppliers are also subject to GATS. This exclusion does not appear to protect most aspects of public education, social services, Medicare and other services provided through a mix of public and private delivery and funding.

* extends beyond trade and beyond ‘non-discrimination.’ GATS is far more than a simple ‘trade’ agreement; it is designed to cover all government measures which affect the supply of a service having some international component. The agreement prohibits ‘discrimination’ (treating like services or service suppliers from one country more favourably than those from another country, or treating like domestic services and service suppliers more favourably than their foreign counterparts) in sectors specified by individual Members. But the agreement goes further, by absolutely prohibiting certain types of non-discriminatory government measures.

* its most significant constraints apply only to sectors covered by Member governments. The most powerful and intrusive GATS provisions, such as national treatment and market access, currently apply only to those sectors that are specifically listed in a Member government’s country schedule. However, the coverage of these provisions is intended to become increasingly comprehensive through successive rounds of future negotiations.

* most protection provided in the agreement, a variety of exemptions and exclusions, is uncertain and temporary. The effectiveness of most exceptions and limitations on coverage for existing and future measures is untested and remains an open question. In the cases to date, the WTO dispute settlement bodies have made clear that they will interpret exemptions narrowly. Moreover, any protection that is now afforded to even vital public policy measures must be seen as temporary because it is a target for eventual removal in repeated renegotiation sessions.

GATS is designed for ever-increasing expansion. Ratchet-like tightening of constraints on government regulatory authority is built into the very structure of the agreement, as Members have committed to expanding GATS through ‘successive rounds of negotiations ... aimed at achieving a progressively higher level of liberalisation.’

Public policy implications

GATS is the first such agreement of its type, and its scope, architecture and many of its provisions are innovative and complex. When GATS was signed, therefore, many of its provisions lacked a body of legal precedent, making it very difficult to assess clearly its likely impact. There are still many remaining unanswered questions and issues.

However, even though many GATS provisions have still not been fully adjudicated, there is a growing body of rulings and mounting evidence that the existing agreement has significant public policy implications.

These initial cases confirm that the broadly worded legal obligations in GATS will be interpreted forcefully and that the agreement can be used to challenge an almost unlimited range of government measures regulating goods, services and investment that, even indirectly, affect the conditions of competition of international service suppliers. ‘Moreover, the decisive victories of the initial complainants in these recent cases almost guarantee that GATS will be used much more frequently in the future to frustrate government policies, practices and programmes that allegedly adversely affect foreign commercial interests in services.’

While in its early stages, the GATS 2000 negotiations are now well underway. In late May 2000, the WTO Council for Trade in Services adopted an ambitious agenda for future work, calling for Members to submit initial market access proposals by December 2000, followed by a ‘stock-taking exercise’ in March 2001. If all goes according to the Council’s plan, negotiations will then accelerate. While the real trade-offs and arm-twisting may only take place in the latter stages of negotiations, the collective decisions made by negotiators in this early ‘rule-making’ phase of the talks could profoundly affect the scope and coverage of any revised GATS package that emerges from this negotiating round.

Broadening and deepening GATS

The programme to broaden and deepen GATS can be said to encompass three main areas. The negotiating approaches used in each are intended to maximise GATS coverage. Many of them can be viewed as negotiating artifices, or traps, designed to pressure governments to go further than they otherwise would and to ensure that the arguments of domestic interests concerned about further GATS entanglement are defeated.

The core of the new round of GATS negotiations will be pressuring governments to fully cover more of their domestic services, thereby constraining their regulatory authority in services. This will include the push to expand the number and extent of specific commitments in national schedules, to remove existing limitations within already committed sectors, and to bind more new and existing commitments so that future governments cannot reverse them. These tasks will likely absorb most of the negotiators’ effort and attention.

The process of expanding governments’ specific commitments will focus on their national treatment and market access commitments and exceptions. GATS has a very tough standard for national treatment that extends well beyond the conventional notions of non-discrimination and applies to government measures that merely alter the conditions of competition in any manner that might disadvantage a foreign service or supplier. The agreement’s market access provisions are even more intrusive, eliminating many policy options altogether, absolutely and unconditionally diminishing democratic governmental authority.

On behalf of predominantly Northern-based transnational corporations (TNCs), the US, Japan, the European Union and Canada, the so-called Quadrilateral governments, will be pressing developing countries for guaranteed, irreversible access to Southern markets. They will also seek from each other more privatisation and commercialisation of public services such as education and health care, and further deregulation of publicly regulated sectors such as media, publishing, telecommunications, energy, transport, financial, postal and other services. The Quad Members will also be pressing for new negotiating approaches that they believe will lead to more significant changes than the incremental coverage that would result from the traditional ‘request-offer’ approach to negotiation.

Classification issues are currently a major focus of work in Geneva. Decisions about how to classify services could affect the interpretation of existing commitments and definitely will shape how future commitments are made. The emphasis will be on maximising GATS coverage. This could be achieved in many ways, including:

* narrowing the description of excluded sub-sectors in which Member governments have made the fewest commitments, and broadening the description of those sub-sectors where Members have generally undertaken the greatest commitments;

* disaggregating services, splitting off sub-sectors targeted for liberalisation by transnational service corporations from other sectors to make it easier for countries to demand and to offer to cover the targeted sub-sector;

* ‘clustering’ services to ensure subsequent commitments apply to an entire cluster of commercially targeted services;

* classifying new services so they are ‘read into’ previous commitments of governments or are included in an already covered sector.

In each case, nominally neutral classification issues can be manipulated to skew the results in favour of greater GATS coverage, says Sinclair. Negotiations over these apparently technical issues are also proceeding entirely behind closed doors, making them difficult for citizens to monitor and scrutinise. As a result, these technical devices could be used to expand GATS coverage by stealth - evading public accountability and public and parliamentary debate.

The above article first appeared in the South-North Development Monitor (SUNS - issue no. 4755), of which Chakravarthi Raghavan is the Chief Editor.