AGENDA ITEM NO. TO: EXECUTIVE - 8 APRIL 2002 SUBJECT: GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) FROM: POLICY SERVICES _________________________________________________________________ _ 1 RECOMMENDATIONS 1.1 It is recommended that the Council write to the Minister of State for Trade and the Minister for Local Government: (1) to raise concerns about the possible impact of GATS on local authority freedoms in procurement, planning and other decision making, (2) to ask for further and formal opportunities to be consulted prior to any further GATS commitments being agreed (C) and to ask for clarification on key questions as follows : Which services does the EU and UK Government intend to offer to open up as part of the GATS negotiation what impact assessment has been done on this? Will additional public services be required to open up to global private sector markets? What assessment has been done on the impacts of GATS on the Planning System (does this impose inappropriate restrictions) and on the UK and local sustainable development strategies? Does the government intend to involve or consult with Local Government in developing its approach to GATS? 1.2 Write to the LGA to ask them to consider the effects of GATS on the provision of local services and to lobby to protect local authority freedoms in procurement, planning and other decision making 1. 3 Write to local MPs to urge them to take up concerns on the Council=s behalf 2. REASONS FOR RECOMMENDATIONS 2. 1 The Council considered a motion on GATS at its meeting on 27th February 2002. At that meeting it was agreed that further research be undertaken and a report be prepared to recommend the Council=s approach to GATS. 2.2 The leader of the Council has also received a letter from a local resident expressing concern about GATS and bringing some possible implications to our attention. 2.3 Since that time all members of the Council=s Executive have received a briefing note from Warwickshire GATS giving detailed and technical information on potential issues associated with GATS 2.4 The appendix to this report provides the background to GATS explaining what GATS is, why there is particular concern now, and how it affects Warwick. 2.5 The recommendations are made for the reasons set out in the appendix to this report 3. POLICY AND BUDGET FRAMEWORK 3. 1 There are no financial implications associated with this report. 3.2 GATS may impact on the Council Sustainability, procurement and economic development strategies . The recommendations of this report are therefore consistent with the Council=s policy framework Policy Services BACKGROUND PAPERS LGIU Affilitae Policy Briefing on GATS (see LGIU Website at info@lgiu.org.uk) Appendix to this report Areas affected in the district : All Executive Portfolio Area and Holder : All Scrutiny Committees : All Scrutiny Committees For further information about this report please contact: Contact Officers: Dave Barber Tel: (01926) 456065 (Direct Line) E-mail: epo@warwickdc.gov.uk APPENDIX 1 The General Agreement on Trade in Services Potential Impact for Warwick District Council 1. What is GATS? 1.1_ The General Agreement on Trade and Services is an International Treaty which governs international trade. It is designed to open up services in order that a Afree market@ can develop in the service sector. Potentially it covers virtually all services, even those which traditionally have not been associated with market principles. 1.2_ It operates by requiring those governments which sign up to it to comply with disciplines to avoid Atrade distorting@ measures. - i.e regulations and policies that confer an Aunfair@ advantage on domestic companies over foreign companies, or place quantitative restrictions on the amount of economic activity in a sector. 1.3_ GATS is already in existence and was agreed as part of the Uruguay trade round in 1994. It is one of 28 World Trade Organisation (WTO) agreements. But new talks to extend GATS are currently taking place. 1.4_ The WTO says of GATS on its website Ait has built in commitment to continuous liberalisation through periodic negotiations. It covers...every possible means of supplying a service, including the right to set up a commercial presence in the export market@ 1.5_ GATS identifies 160 service sectors, but a crucial factor in GATS at present is that it allows States to opt into or out of the agreement for each of these 160 service sectors. This flexibility puts the State in control of what is covered. 1.6_ GATS has two key components : General Obligations - rules which apply to all service sectors and specific commitments - rules which only apply to the services that governments commit to of their own accord. However, although, GATS does not require commitment to all sectors, it works by enabling countries to request commitments from others in return for them making a commitment - hence it leads to very complex negotiations which can lead to significant pressure on governments to commit sectors they would not otherwise agree to. 2. Why is there concern now? 2.1 Negotiations on the next round of GATS have already begun. WTO members have until the end of June 2002 to inform other member states of their requests (ie which service sectors they want to see other countries open up). WTO member states then have until the end of March 2003 to list their offers (ie which sectors they are willing to open up). An important window of opportunity now exists to raise concerns. 2.2 The current round of negotiations is considering 3 changes which could have an impact on service procurement by the Council. These are : 2.3 Part of the current round of negotiations is trying to tighten up on the section which allows States to create local regulations for environmental, health, consumer protection or other public interest reasons. New proposals include a Anecessity test@ whereby governments would have to prove that their laws and regulations are Anot more burdensome than necessary@ and Athe least trade-restrictive@, and the WTO would be the judge and jury on this test. It is possible this would mean that regulations to restrict who can tender for services would be illegal (i.e giving preference to local suppliers) 2.4 The new negotiations also seek to impose conditions on the use of government funds for public works, municipal services and social programmes. The new negotiations seek to impose the WTOs National Treatment rules on government procurement and subsidies, thus making public funds allocated for these services directly available to foreign based private service companies. 2.5 Thirdly the new negotiations are seeking to open up new kinds of services to markets including education and health. 2.6 In the UK we have been subject to EU competition law for some time, but according to the Local Government Information Unit (LGIU), the new negotiations on GATS is still of concern for the following reasons : Irreversibility : commitments made under GATS are irreversible GATS will affect more services : potentially including health and education There is an interest in the corporate sector of the EU to extend GATS : the UK negotiates on GATS through the EU. Many EU companies have much to gain through GATS and if the EU wants other states to open up markets to its companies, the EU will have to give something in return. Environmental Issues : With the USA withdrawing from the Kyoto Climate Change Treaty the environmental threat becomes more serious. GATS will make it difficult to stop inwards investment for environmental reasons - for instance exhaustion of natural resources is not on the list of exceptions. There is no suggestion that the negotiations should include an environmental impact assessment and services are Aend of pipe@ services rather than services for conservation. Impact on local authorities : The current negotiations are exploring the possibility for Aprivate participation, whether domestic or foreign, in various health and social-related activities@. However, it is not clear how GATS may impact on local authority services nor how it relates to best value. There has been no research on this and local authorities have not been consulted on the commitments the British Government has made so far on their behalf. 3. So how does GATS affect Warwick? 3.1 Clearly GATS raises some very real concerns. First and foremost amongst these s is that no-one really seems to know exactly what the impact on local authorities is likely to be. However, if the UK sign up to significant commitments under GATS, it seems possible (and maybe even probable) that the following impacts will result : 3.2 Restrictions on the powers of the Council to give preference to local suppliers. The draft Green Procurement Strategy does encourage preference for local suppliers and one of the issues arising from the Economic Best Value Review is how we can support companies within the local economy in successfully winning Council contracts. GATS may well undermine both these. 3.3 Liberalisation of social and regeneration services. The Council may be prevented from setting up companies to undertake services on its behalf without providing the opportunity for other companies to tender for this work. 3.4 Globalisation of trade in services. At present the Council is required to seek tenders from across the whole of Europe for significant contracts. Under GATS this may be extended to all Countries. 3.5 Impact on Best Value. Best Value requires Councils to look at competition to assess whether services could be provided more efficiently through outsourcing. GATS may require greater rigour in the process since it may be open to legal challenge from markets outside the UK. 3.6 Environmental and Sustainability Impact : The Council is committed to playing its part to tackle climate change and limit other global environmental impacts. GATS may undermine the scope of the Council to do this. 3.7 Impact on existing Council services : It is not clear whether GATS will require services such as planning, aspects of environmental health, legal and financial services etc, to be opened up to the global private market, but the definition of Aservices@ which is proposed suggests, this could be the case. 3.8 Questions have also been raised about whether aspects of the UK planning system impose Aanti-competitive@ restrictions. Information from Warwickshire GATS suggests there may be real concerns in this respect and that planning conditions on hours of opening or limiting some zoning restrictions may be seen as overly restrictive when applied to foreign companies. 4. What can the Council do? 4.1 If the Council sees these concerns as significant, then it can add its voice to those who have raised concerns by writing to the Minister of State for Trade and the Minister for Local Government, writing the LGA and write to local MPs to urge them to take up concerns on the Council=s behalf.