AFFILIATE POLICY BRIEFING General Agreement on Trade in Services (GATS) Date 5 April 2001 Circular No 053/01 Contact Ines Newman Summary This briefing provides information on the current round of the World Trade Organisation's negotiations on the General Agreement on Trade in Services (GATS) and the implications for local authorities. It suggests that local authorities inform themselves fully on this issue and consider what action is required, adopting a similar approach to action taken on the Multilateral Agreement on Investment (MAI) in 1998. Introduction There are huge implications for local authorities of the extension of GATS on the further opening up of many areas of service provision to international commercial competition. This briefing seeks to outline the current state of the negotiations; highlight those areas of concern to local authorities and trade unions; and make suggestions as to action that can be taken to influence the outcome before the finalisation of the current round of negotiations next year. What is GATS? The General Agreement on Trade in Services (GATS) was agreed as part of the Uruguay Round in 1994. New talks to extend the GATS agreement are currently taking place, which has resulted in a new international campaign against any extension. In the UK, this campaign is being led by the World Development Movement. The original agreement is one of 28 World Trade Organisation (WTO) agreements. It covers 160 service sectors. It is also significant as it covers issues that were not previously thought of as trade. GATS has four definition of trade: cross border supply, which is usual trade; consumption abroad or services supplied in one country to the consumers of another country, such as tourism; commercial presence, which covers services provided through foreign investment in a company in another country; and services for one country employing foreign workers from another country. It is the third aspect of trade that makes it very like the Multilateral Agreement on Investment, which many local authorities protested about in the late 1990s and which was finally vetoed by the French in 1998. The WTO describes GATS on its website in the following way: "The GATS is the first multilateral agreement to provide legally enforceable rights to trade in all services. It has built-in commitment to continuous liberalisation through periodic negotiations. And it is the world's first multilateral agreement on investment since it covers not just cross-border trade but every possible means of supplying a service, including the right to set up a commercial presence in the export market". GATS was agreed by all countries in the WTO as it contains an important clause that enables States to opt into the agreement for each of the 160 service sectors. How does GATS set rules on services? The GATS has two key components: general obligations (rules which apply to all services) and specific commitments (rules which only apply to the services that governments commit of their own accord). The latter contains a strict set of rules on service liberalisation, referred to by the WTO as national treatment and market access. When committing a service sector to these GATS, a country is allowed a list of limitations on specific commitments. However, these limitations are likely to be attacked by other countries. It is difficult to predict years or even decades ahead what limitations may be required in future. Although GATS does not force any country to commit a sector, each country that does commit can request sectors from other countries in exchange for offering their own. The overall agreement by all countries to continuous liberalisation through negotiation will mean that pressure is exerted to commit sectors and reduce limitations. Why is there concern now? The failures of WTO negotiations in Seattle in November 1999 and of the MAI, have focused the international corporate lobby's attention on GATS. The negotiations in Geneva, which restarted in February 2000, did not require a Ministerial gathering to reach decisions as they are seen as continuing liberalisation under an existing agreement. The USA want these negotiations to be completed by the end of 2002 and there is a Ministerial WTO conference scheduled for November 9-13, 2001 in Qatar, so the next six months to one year provides an important window of opportunity to raise concerns. There is a WTO GATS working party on domestic regulation. This is trying to tighten up Article 6.4 of the Agreement that covers the ability of governments to maintain or create environmental, health, consumer protection and other public interest standards through limitation on commitments. New proposals include a "necessity test" whereby governments would bear the burden of proof in demonstrating that any of their countries' laws and regulations are "not more burdensome than necessary" (in other words, the least trade restrictive). The WTO would be the judge and jury as to whether the country's laws were more burdensome than necessary. Secondly the new negotiations seek to impose conditions on the use of government funds for public works, municipal services and social programmes. By imposing WTO's National Treatment rules on both government procurement and subsidies, the new negotiations seek to require governments to make public funds allocated for public services directly available to foreign-based, private service corporations. The new negotiations are also seeking to open up new services to market access more quickly and to allow corporate service providers to provide services in all sectors including education and health. In the UK, we have been subject to EU competition law but the GATS' extension is still an issue of concern for the following reasons: 1.Irreversibility Magnifying all the problems associated with GATS is the fact that commitments made are effectively irreversible. There will be future negotiations on emergency safeguards in the GATS to allow governments to temporarily reverse commitments that have produced catastrophic consequences. But these must be temporary measures only. In theory a country can withdraw a commitment after three years have elapsed from the date on which that commitment entered into force. However, it must give three months notice at the end of three years, pay compensation and/or it must come up with substitute commitments that compensate for the reversal and are satisfactory to all WTO members. This clearly can make it very difficult to reverse a commitment. 2.GATS will affect more services The government has said that GATS will not affect health and education, as these are universal state services provided to all. But there is great scepticism that they will be able to hold this line. The actual article from GATS on services provided in the exercise of governmental authority states: In fulfilling its obligations and commitments under the Agreement, each Member shall take such reasonable measures as may be available to it to ensure their observance by regional and local governments and authorities and non-governmental bodies within its territory; (b) "services" includes any service in any sector except services supplied in the exercise of governmental authority; (c) "a service supplied in the exercise of governmental authority" means any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers While both health and education are supplied in the exercise of government authority, the private sector is already involved in both these services. Services are supplied on a commercial basis in PFI deals in both health and education; in City Academies; and in residential care which under the current Health and Care Bill will be absorbed into NHS Care Trusts. There is significant pressure to "unbundle" public services and to reduce cross subsidisation. The privatisation of cleaning and catering services in schools and hospitals was the first step. Local Management of Schools has led to 'unbundling' of local education authority service provision. In health, bed spaces and clinical services have been purchased from the private sector to reduce waiting lists. The IPPR Public Private Partnership Commission has raised, in their consultation, the issue of whether barriers between the public and private sector and public private partnerships should be extended to allow such deals to cover the delivery of clinical services in hospitals and teaching services in schools by the private sector. It could be a short step from this agenda to a future request from the WTO that clinical and education services are opened up to competitive tendering from multinational companies. The problem with this 'unbundling' and progressive privatisation is that public services become inefficient as cross subsidisation is prevented and that universal services become more difficult to provide. Resources are not allocated on the basis of need, but increasingly go towards market opportunity. Inequality in service access tends to grow. While GATS is only part of this problem, it reinforces the tendency to see public services as products, to be commercialised if possible. 3.There is an interest in the corporate sector of the EU to extend GATS The UK negotiates on GATS on all services (except audio, visual, health, education and social services) through Pascal Lamy, the European Commissioner with the responsibility for trade in the European Commission. The EU has always supported free trade and, with an increasing service economy, attention is now focusing on GATS. There are several European countries with large multinational companies that stand to benefit from the GATS agreement, particularly in accessing markets in developing countries. The UK has an important telecommunications sector and a growing education sector delivering distance learning. The Netherlands has privatised their postal service. The two French water companies, Suez-Lyonnaise and Vivendi, have 53% of the world water business between them. In return, the EU will be expected to make concessions. USA multinationals are targeting publicly funded health and education services. Pascal Lamy has said "if we want to improve our hard won access to foreign markets, then we can't keep our protected sectors out of the sunlight." The European Parliament has called for an impact analysis of GATS, but has no jurisdiction in this area. 4.Environmental issues With the USA withdrawing from the Kyoto Treaty the environmental threat becomes more serious. There is the concern about the irreversibility mentioned above. In tourism, in particular, there is concern about the shift in burden of proof in limitations on foreign investment. Generally, like the MAI, it will be difficult to stop inward investment on environmental grounds. Exhaustion of natural resources is not on the list of exceptions that can apply in placing a limitation on trade under GATS. GATS is an inflexible framework: once a country opts into a service the full set of rules on service liberalisation apply unless the country can get the WTO to accept a limitation. Finally there is no suggestion that negotiations should be proceeded by environmental impact assessments and services are defined as end of pipe services rather than services for conservation. 5.Impact on local authorities. Richard Caborn has written to WDM members saying that "Our interpretation is that this [article 1.3] is intended to exclude public services such as health and education." However, the "interpretation" of a country when signing up to a WTO agreement is not what carries weight when, later on, a government's action is challenged by another WTO-member. As already quoted under point 2 above, the exemption referred to in the government's response does not cover services supplied on a commercial basis, or in competition with one or more service supplier. The application of Article 1.3 to health services was debated at the WTO's Council for Trade in Services in November 1999. At this meeting, members decided that the exception provided for in the Article needed to be "interpreted narrowly" and did not cover the whole health sector. They also noted "increasing possibilities for private participation, whether domestic or foreign, in various health and social-related activities". This is particularly significant given that WTO Council minutes can be used by dispute panels to settle differences in interpretation when WTO challenges are brought. It is by no means clear what impacts GATS may have on the delivery of services by local authorities and on how it effects best value. There has so far been no research undertaken and no consultation on the issues under negotiation or the commitments that the British government has already entered into on behalf of local government (the government has previously consulted industry on the regulations in other countries that they wish to see removed). What can be done next? WDM has worked with MPs to get an Early Day Motion (EDM 260) on GATS tabled which calls on the government "to ensure that there is an independent and thorough assessment of the likely impact of the extension of the GATS on the provision of key services both in the UK and internationally, particularly on the poor in developing countries". Some 228 MPs have now signed this motion. Local authorities could contact their MP with regard to this motion. Contact the World Development Movement to get their "MP briefing" on GATS. Look at their website for their more detailed report "In Whose Service" http://www.wdm.org.uk Local authorities can choose to sign up to an international sign-on statement opposing the extension of GATS. This is being organised by Public Citizen's Global Trade Watch, www.tradewatch.org As of 9 March it had 214 organisations in 41 countries who had signed it. It is an organisational, not an individual, sign-on statement and to sign up an email subject - "GATS Attack signatory" has to be sent to: polarisinstitute@on.aibn.com Raise the issue with the LGA. Conclusion While this issue may seem very abstract it could have real implications for local government public services and for the economic, social and environmental well-being of communities. It is important that, as a minimum, these implications are understood and that independent research is carried out for local government on the potential impact of GATS. INES NEWMAN Head of Policy This briefing has been circulated to Management Committee Representatives, Leaders and Chief Executives. Email distribution category: All It can also be found on the Web in the following three categories: PFI, Partnership, Consumer Protection and Rights From the 1 January 2001, LGIU Publications (for sale) will be distributed from Central Books Ltd., 99 Wallis Road, London E9 5LN. 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