Devices being proposed to prevent governments from regulating services

In the current negotiations on services, the industrialised countries are seeking to maximise WTO rules over services, thereby restricting the power of governments to intervene in the public interest.

Chakravarthi Raghavan

THE new round of negotiations at the WTO/GATS for liberalisation of trade in services, and the modalities being pushed therein by the major industrialised countries are aimed at leveraging greater GATS coverage for the benefit of TNCs and reducing the ability of governments to interfere for public purposes.

Scott Sinclair’s new study GATS: How the WTO’s New ‘Services’ Negotiations Threaten Democracy has pointed out that the ‘extraordinarily broad’ remit of GATS, and the pivotal role it plays in several important WTO disputes (to open up markets in the areas of goods and services by viewing the WTO agreements as creating cumulative obligations), highlight the many underlying tensions between the expansive business agenda being promoted by TNCs and the wider principles and priorities of the public and the balancing of interests by national governments.

The talks on services at the WTO - at sessions of the Council for Trade in Services and its bodies and, for the new round of negotiations, special sessions of the Council - are held in private, with sparse information relayed to the public by trade officials, often on a background basis.

In the talks, on behalf of the predominantly Northern-based TNCs, the Quad countries (Canada, the EU, Japan and the US) are pushing for guaranteed irreversible access to Southern markets and have been proposing a variety of approaches such as classification of services to affect interpretation of existing commitments and maximise GATS coverage, narrowing descriptions of excluded sub-sectors with fewest commitments, disaggregating services, ‘clustering’ services, and generally manipulating nominally neutral classifications of services to skew results in favour of greater GATS coverage and disciplines, warns Sinclair.

Another approach for expanding the coverage of GATS is through so-called ‘horizontal negotiating modalities’ - negotiation of cross-cutting commitments that would apply across Members, sectors and/or modes of supply. This might include developing new horizontal rules or strengthening rules that already apply horizontally.

It might also include so-called ‘formula approaches.’ Formula approaches do not aim to develop new rules to be incorporated into the GATS text but are binding negotiating guidelines: for example, an agreement to make commitments in every sector or to eliminate all performance requirements in certain sectors.

‘These are very potent means of leveraging greater GATS coverage,’ says Sinclair. The Quad pressed hard for this approach once it became clear that adopting a wholesale ‘top-down’ approach to GATS was not politically feasible.

Constraints on domestic regulation

Further negotiations on the controversial GATS provisions on domestic regulation pose one of the agreement’s most dangerous threats to democratic decision-making. Article VI:4 of GATS calls for the development of any ‘necessary disciplines’ to ensure that ‘measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade.’ The Working Party on Domestic Regulation was formed to fulfil this mandate and negotiations are well underway in Geneva.

The proposed restrictions would cover a wide swathe of government regulatory measures. The provisions would apply to all service sectors, not just those in which Member governments have made commitments. They would extend, among other matters, to measures pertaining to professional accreditation and certification of competency, to broadcast licences, university accreditation, hospital licensing and waste disposal permits, and to all technical standards for performing services, including those aimed at ensuring the quality of a service.

Under the proposed constraints on domestic regulation, governments would be compelled to demonstrate, firstly, that non-discriminatory regulations were ‘necessary’ to achieve a WTO-sanctioned legitimate objective and, secondly, that no less commercially restrictive alternative measure was possible. This would hugely expand the authority of the WTO to interfere in the exercise of governmental authority. It would mean transferring the delicate responsibility for balancing the public interest with commercial considerations from elected government representatives to appointed tribunals or WTO panels.

‘Rule-making’ negotiations

GATS 1994 mandated the further negotiation of rules in three specific areas: emergency safeguards to provide temporary protection to domestic service suppliers, further constraints on subsidies, and government procurement of services.

The safeguards discussions are scheduled to conclude by December 2000, but there is no formal deadline for completing work on subsidies or procurement.

These so-called ‘rule-making’ negotiations will proceed in parallel with the market access negotiations and will provide an opportunity for negotiators to overcome obstacles encountered in the main negotiating stream. The interconnectedness of the various negotiating topics, combined with the usual lack of transparency in WTO negotiations, will make it especially challenging for outsiders, and even for many developing countries, to keep abreast of all GATS issues and developments.

Safeguards, emergency actions intended to provide temporary protection against ‘fairly traded’ products that cause or threaten to cause serious injury to domestic producers, are permitted under the GATT rules on goods but would be a new concept under GATS. Developing countries have been the main proponents for GATS safeguard rules, arguing that greater flexibility is required to give them the comfort to agree to further restrictions in GATS.

Such temporary safeguards could conceivably be part of a progressive agenda to reform GATS to reflect a more balanced approach to sustainable development and human security. However, developed-country negotiators have strongly resisted safeguard provisions and continue to consign them to negotiating backwaters.

[In fact, some of the safeguards proposals of developing countries and any belief these would provide a balanced approach may be illusory: lack of reliable data on trade in services makes it difficult for the developing countries to prove their case for safeguards. There are also inherent difficulties in taking safeguard actions against service enterprises which are already ‘established’ by investment in the host countries and which, under applicable national laws, may gain ‘equality’ of treatment with the very domestic enterprises that are being jeopardised by the foreign competition.]

Subsidies are already covered by GATS national-treatment and most-favoured-nation provisions, creating many thorny practical problems for governments that GATS negotiators appear to downplay or brush off even while acknowledging the need for them to be sorted out. GATS renegotiation to develop further restrictions on subsidies is potentially the most significant and controversial of the three rule-making areas. It could be possible for GATS rules on subsidies to be revised to provide much-needed protection for subsidies, grants and other advantages related to the provision of universal public services. However, for now, the pressure exerted by international corporate lobby groups is all in the direction of further restrictions promoting commercialisation and privatisation.

Government procurement is the least active area of the GATS negotiations on rule-making. The principal negotiations on government procurement are occurring elsewhere in the WTO. A Working Group on Transparency in Government Procurement, set up under the auspices of the Council for Trade on Goods, is currently trying to negotiate an agreement on transparency which, if adopted, would apply to government procurement of both goods and services. For now, further procurement negotiations mandated within GATS have taken a backseat.

The US has been the chief proponent of an agreement on transparency in government procurement and had pushed for it to be adopted as an ‘immediate deliverable’ at the failed Seattle WTO Ministerial meeting. The broader transparency initiative has, however, run into determined opposition from key developing countries. If the transparency initiative covering both goods and services continues to founder, the GATS mandate may receive fresh impetus from those countries wishing to expand WTO restrictions on government procurement.

Agenda of expansion

When GATS 1994 was signed, almost no one other than its negotiators and a small but influential group of corporate supporters appreciated its scope or significance. It has stealthily moved multilateral trade law restrictions further ‘behind the border’ than ever before.

Most citizens and even elected officials still do not comprehend the full extent or implications of the existing GATS. Yet, despite this accountability gap and the serious misgivings expressed at Seattle, negotiators are already out of the starting blocks and running ahead to realise their ambition of an expanded GATS. Citizens, non-governmental organisations and concerned elected officials have a lot of catching up to do.

Powerful international commercial interests have directly shaped the GATS agenda. Much behind-the-scenes preparation has already occurred without the benefit of broader public debate. Not surprisingly, what has emerged is an immoderate, even extreme, agenda that must rely upon the secrecy that traditionally blankets such negotiations to succeed. This is a brash expectation that is becoming increasingly untenable.

While public awareness of GATS and its policy impacts is still modest, it is rising. Citizen concern about the public policy impacts of GATS will almost certainly grow as the profound significance of the agreement becomes more widely understood outside business and trade circles.

GATS exposes virtually any government action affecting services to WTO oversight and potential challenge. Any government action, whatever its policy objective, that arguably alters the conditions of competition in favour of domestic service providers or in favour of some foreign service providers over others, is exposed to be challenged under a very tough test of de facto discrimination.

GATS prohibits certain types of public policies, absolutely diminishing democratic governmental authority. It is designed to enable TNCs, in collaboration with foreign (home) governments, to attack general, non-discriminatory public interest regulations as unnecessary or burdensome.

The GATS is hostile to public services, treating them as, at best, missed commercial opportunities and, at worst, unfair competition or barriers to entry for foreign services and suppliers.

GATS investment restrictions demolish industrial policy whether primarily aimed at goods or services, closing off to other countries the path to development taken by most advanced economies.

While these implications of the current agreement are disturbing enough, the potential effects of the current negotiations to broaden and deepen the agreement go even further. Some observers may believe that the drive and resources of international business interests, working in close collaboration with government officials, make an expanded GATS inevitable. According to this pessimistic view, the most that citizens can expect by collective intervention is to turn back only the most extreme proposals for GATS expansion.


However, recent events provide support for a more optimistic scenario. In late 1998, the proposed Multilateral Agreement on Investment (MAI), an agreement that shared GATS’ excessive reach and whose proponents exhibited a similar overweening ambition, suffered a stunningly unexpected defeat largely at the hands of a well-informed, sophisticated and organised international citizenry. In Seattle in late 1999, deep-seated public opposition was a critical factor in turning back plans by the WTO to launch a new ‘Millennium Round’ of comprehensive trade negotiations.

Seattle and the failed MAI could represent a turning point beyond which expansive deregulation and severe restrictions on democratic governance effected under the guise of trade liberalisation can no longer succeed. But citizens and activists who wish to fulfil this promise in the case of GATS have much to do before negotiators reach the expected deadline of 31 December 2002.

Negotiators are already working to narrow differences on their approaches to key rules, including those restricting domestic regulation. Governments are committed to tabling market access requests and offers by the end of this year. A ‘stock-taking’ exercise to kick off the critical market access phase of the GATS negotiations is scheduled for March 2001. Then, if the negotiations follow past practice, governments and the public will be presented in roughly two-and-a-half years with a fait accompli, a ‘take-it-or-leave-it’ GATS package.

This mould of high-stakes brinkmanship - where corporate dollars and lobbying resources can be concentrated on securing approval in each country without legislators or the public having any real opportunity to change or influence the terms of the final package - can, and must, be broken. A first task is to understand the existing agreement, and, particularly, to spell out the potential impacts of GATS coverage sector by sector. When those with a hands-on, practical knowledge of sectors - regulators, administrators, practising professionals, union representatives, workers in the field and independent analysts - discern the concrete impacts of broadly worded and abstract GATS provisions, the results are invariably illuminating, disturbing and politically energising. Sectoral studies of GATS impacts, based on intimate knowledge of the targeted sectors, are urgently required. Within Canada, some of the most important candidates are health, post-secondary education, kindergarten to grade 12 (K-12) education, energy services, water, postal services and culture.

Once the implications of coverage under the existing GATS framework are better understood, attention must then turn to the implications of the new areas under negotiation. The most critical are the new rules proposed to restrict ‘domestic regulation.’ If adopted, their impact would cut across many sectors. The task here is to analyse the impacts on types of public interest regulation: including environmental protection, consumer protection and industrial policy, among others. Such research is an obvious candidate for international collaboration.

Another important area for dialogue and collaborative research is the potential GATS impact in the South, particularly on Southern countries’ development priorities. The GATS 2000 agenda clearly calls for a vigorous, progressive research agenda to dissect its policy implications and to counter its ultimate aim: the commercialisation of every services sector in every WTO Member country.

The tasks still ahead are: to analyse, and widely publicise, the sectoral implications of existing GATS provisions; to provide analytical support to citizens’ efforts to stall and then to reverse the current momentum to broaden, deepen and expand GATS; to push fundamental structural reform of GATS on to the international negotiating agenda; and to provide supporting arguments for work to roll back the most pernicious features of what is, from a progressive policy perspective, a deeply flawed and threatening agreement.

The recent experiences of Seattle and of the defeated MAI have demonstrated the vitality of well-organised citizens’ movements committed to strengthening democracy. There is good  reason  to  be  optimistic  that, once this power is brought to bear on GATS, an essential victory can be achieved.            

The above article first appeared in the South-North Development Monitor (SUNS - issue no. 4756), of which Chakravarthi Raghavan is the Chief Editor.