Brief responses to some of the arguments central government will probably give in defence of GATS

Government says: "GATS is bottom up - countries only make GATS commitments at a rate they are comfortable with..."

• "The GATS [the General Agreement on Trade in Services] can and will speed up the process of liberalization and reform, and make it irreversible." - David Hartridge, former Director of WTO Services Division
• The preamble of the text states "Desiring the early achievement of progressively higher levels of liberalization of trade in services through successive rounds of multilateral negotiations", which challenges the government line that commitments are made "at leisure..."
• Liberalisation is the raison d'ętre of GATS...to pretend otherwise is disingenuous
• WTO members who are generally perceived to be reticent in their commitments will be targeted in later rounds of negotiations
• Countries laws can be (effectively) overturned if a WTO Dispute Panel rules that a law or measure is a GATS violation:- otherwise crippling trade sanctions ensue
• Countries are under pressure to "offer" the opening of their own service sectors so that they might win export opportunities in other countries' markets. Between now and the end of June 2002, countries will table what they want from other countries. Between July 2002 and the end of March 2003, countries will then table WHICH SECTORS THEY ARE WILLING TO OPEN. At that point a process of "bargaining" will take place - thus, sectors will be opened for reasons other than the public interest (e.g. strategic gain)
• The Directorate General for Trade (DG Trade), the arm of the European Commission that negotiates for the EU at the WTO (as a bloc), is extremely keen on GATS. Pascal Lamy, Commissioner for Trade, has infamously said (when speaking to industry representatives):- "If we want to improve our own access to foreign markets then we can't keep our protected sectors out of the sunlight. We have to be open to negotiating them all if we are going to have the material for a big deal. In the US and the EU, that means some pain in some sectors but gain in many others, and I think we both know that we are going to have to bite the bullet to get what we want".
• There is considerable pressure from the corporate sector for an aggressive GATS strategy, owing to the expansive export gains they hope to make. Central government has a very close relationship with industry on GATS negotiations, e.g. the shadowy LOTIS Committee.
• Though it is possible to "carve-out" protection for certain laws and regulations at the time a sector is committed, it is virtually impossible thereafter to make changes i.e. it is a "one-shot" process. In other words, governments are being required to see into the future when they make GATS commitments...how can they possibly know which regulations will be required in the future, or what measures a completely different government will wish to pursue? This is why GATS is described as a "ratchet", or "lock-in" agreement.

Government says: "Planning is an issue of domestic regulation..."

• The WTO says, "...it is absurd to suggest that a Government or local authority would have to set aside planning rules because a foreign company wanted to open a hotel, set up a golf course or expand a waste dump. These are questions of domestic regulation, not market access, and foreign suppliers operating on the basis of a market-access commitment are subject to exactly the same domestic regulations as national suppliers; they have no right to exemption from planning or zoning rules, or any other kind of regulation."
• HOWEVER. BEFORE YOU THINK THERE ISN'T A PROBLEM...READ THE INTRODUCTION OF THIS DOSSIER.
• Article VI.4 of GATS covers Domestic Regulation, so though these are "questions of domestic regulation" this is not to say that they are not covered by GATS in some way!
• The Working Party on Domestic Regulation (WPDR) is an on-going body designed to expand/refine disciplines on domestic regulation.
• Leaked minutes have shown talk of introducing a "necessity test", so that governments accused of having excessively "onerous" qualifications, licensing requirements, technical standards may have to demonstrate that such regulations are necessary, proportionate, the "least trade-restrictive", "no more burdensome than necessary." The problem with this is that are almost always less trade-restrictive regulatory techniques available, but often the downside is that they fail to serve the public in quite the same way. For example, the US government was threatened with penalties (under NAFTA) because a ban by the state of California on the chemical MBTE (for health reasons) was considered not 'the least trade restrictive'. The development of Article VI.4 has been described by one WTO delegate as "dynamite", such is its capacity to take international trade law beyond the border and into the regulatory heart of a country
• Contrary to the WTO's defence, issues of planning/zoning have been discussed in the context of being "barriers to trade", often overlapping with issues of "discrimination":-
• The EU negotiating document (S/CSS/W/36) has observed that, "Controls on land use, building regulations and technical requirements, building permits and inspection, registration of proprietors, contractors and professionals, regulation of fees and remunerations, environmental regulations ... Even if the same measures are applied to all suppliers, domestic or foreign, they may be found to be more onerous to foreign suppliers."
• "...limitations on the number of outlets in chain store operations..." (see the US negotiating position: S/CSS/W/27)
• "...urban planning regulations..." (see the Swiss negotiating position: S/CSS/W/77)
• "...restrictions on the geographical areas for and size and number of stores..." (see the Korean negotiating position: S/CSS/W/85)
• Furthermore, it is well known that corporations often adversely affected by local planning jurisdiction are keen on using international trade law to further their aims. The following statement of intent from Wal-Mart is not explicitly addressing GATS but nonetheless reads uncannily similar to GATS disciplines on Market Access and National Treatment:-
• The company seeks an agreement that "...prohibit[s] a Party maintaining or adopting measures that would: limit the number of service suppliers or operations, restrict the types of juridical persons or joint ventures through which a service supplier may supply a service, or limit the participation on foreign capital in terms of the maximum percentage limit on foreign share holding or total value of foreign investments. Wal-Mart also would like to see a restriction on Party's ability to impose local equity restrictions, limitations on repatriation of foreign direct investment, investment screening, and competitive needs testing."
• The paper "Trading Health Care Away" by CornerHouse, notes that "...the GATS Council has discussed, in terms of the national treatment, restrictions in countries on large-scale retail outlets, shop opening hours, zoning and planning laws, controls on land use, building regulations, building permits, registration of contractors and professionals, regulation of professional fees, environmental regulations, worker health and safety regulations, local content and employment policies, urban planning rules and environmental protection policies. Even laws to ensure that a country benefits from foreign investment - minimum number of local jobs or content, for instance - could be considered trade restrictive. No government measure or practice is beyond GATS scrutiny."

Government says: "GATS commitments often do no more than formalise levels of liberalisation that a country has already undergone internally..."

• This is not so. If we examine the EU's current GATS commitments [the Commission negotiates on behalf of all EU member states] we see that their full impact, if (and when) realised, could be immense. Particularly in sectors such as environmental services and tourism services...local governments are almost certainly violating GATS already in these areas. Governments acknowledge that the inscription of "None" (no limitations) in a GATS schedule is extreme, but plead innocence...why would we do such a thing? Yet this is precisely what has been done in the above sectors, and often in the sensitive, investment-related "commercial presence" mode of delivery.
• The WTO knows this full well...former WTO Director General Renato Ruggiero has commented that neither governments nor industry have yet realised the full significance of existing GATS commitments
• Even so, existing GATS commitments are not yet considered "ripe": many GATS proponents argue that this "only commit to the extent you've liberalised internally" strategy is a flaw which will be remedied in the new round of GATS negotiations, through harder / more ambitious bargaining etc.
• We can therefore have little confidence that forthcoming EU GATS commitments (as part of the GATS2000 renegotiations) will respect local concerns.
• GATS is "effectively irreversible" and unprecedented in a number of ways (see other points)

Government says: "Nothing in GATS to adversely effect sustainable development..."

• GATS contains no exemption for measures deployed "in the public interest" or "for the purpose of environmental sustainability."
• GATS stands in direct opposition to many of the policy mechanisms widely acknowledged to be necessary to ensure (environmentally and economically) sustainable development. For example, a local government might choose to limit the number of operators in an area to prevent market saturation. Or stipulate that a multinational investing in the area employ a certain number of local staff. Or use a certain % of local sub-contractors, or use a certain % of local resources. Or subject economic activity in a certain area to an economic needs test, to prevent an overemphasis on one geographical area (for example.) Or offer subsidies to local, not-for-profit service providers so they might stand a chance against multinationals with their economies of scale. Or limit the number of tourist buses in an area because of complaints from local residents. These are just some of the measures, which are clearly useful for both stimulating and protecting small economies (and their surroundings), that GATS is designed to preclude.

Government says: "There is nothing in the agreement which challenges a government's right to regulate..."

• This is a severe half-truth.
• The preamble of the GATS text mentions the right to regulate, but in international trade law the preamble is over-ridden by the much more onerous GATS disciplines in the body of the text
• Where a government, for whatever reason, has failed to table the relevant exemptions, it is prevented from deploying any of the following regulatory mechanisms:-
• IT CANNOT (FOR EXAMPLE):
• • Limit the number of companies operating in a particular sector i.e. no quotas, monopolies, exclusive supplier concessions
  • Stipulate that "setting up shop" is conditional on an economic needs test
  • Limit the amount of activity (e.g. transactions, output) in a service sector
  • Limit the number of people working in a sector
  • Stipulate that "setting up shop" is conditional on the venture being of a particular form (e.g. not for profit, minimum % local shareholding etc.)
  • Stipulate that companies source raw materials or sub-contracts locally, employ a certain % local people, have a certain % local shareholders and so on...
  • Employ any mechanism that discriminates against foreign competition
  • Employ any mechanism that is applied equally to both local and foreign companies, BUT IS EXPERIENCED MORE HARSHLY BY FOREIGN COMPANIES...even "de facto" discrimination is outlawed!
  • Offer subsidies to local companies and not to foreign companies
• Clearly, when GATS is used as it is intended, it closes down a large number of policy options. To suggest that the "right to regulate" is preserved ignores the massively onerous disciplines described above.
• ALSO, this does not take into account the threat posed by the development of Article VI.4, which may or may not end up applying "horizontally", that is, to service sectors irrespective of whether they've been committed. Even if they only apply to committed sectors, this will still commit authorities to ensuring that technical standards, licensing, qualification requirements are the "the least trade-restrictive" and so on. More excitable critics have called Article VI.4 "the post-democratic Magna Carta."

Government says: "It's not really any different to (for example) existing EU Competition Law..."

• Not true.
• GATS is unprecedented in its scope.
• Through Mode 3 (Commercial Presence), GATS essentially gives investment rights to foreign corporations. Until recently GATS proponents described GATS as "...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." This quote was removed once people started arguing that, in this respect, it was like the defeated MAI (Multilateral Agreement on Investment), which many local authorities around the globe opposed
• GATS is progressive - it is designed to deepen liberalisation.
• Under the National Treatment rules of GATS, de-facto discrimination is outlawed...that is, even if a measure is applied to a local and foreign company equally, but the foreign company is affected "more harshly", this is also a GATS violation.
• GATS goes further than virtually any other multilateral trade agreement in that it removes the international trade component and reaches deep inside a country's regulatory structure…
• For example, Market Access commitments (the ones that prevent governments introducing quantitative restrictions on, amongst other things, the number of service operators operating in a sector) are binding even if they apply equally to local and foreign companies, or if (even more extreme) there is no foreign commercial interest! The WTO's justification for this is that "...internal market opening and services trade liberalisation go hand in hand."
• Also, the aforementioned disciplines on Domestic Regulation are an unprecedented intrusion into internal qualifications, licensing, and technical standards.
• Under EU Competition Law a nation may be able to salvage ruled-against legislation (on the grounds that it should be exempted on, for example, public health grounds) if a national court rules the measure to be proportionate. Under the WTO, the ultimate arbiter is a small panel of trade bureaucrats in Geneva. There is no recourse to national courts, or any body other than the WTO.
• Former WTO Director General Renato Ruggiero has observed that, "...the right of establishment and the obligation to treat foreign services suppliers fairly and objectively in all relevant areas of domestic regulation extend[s] the reach of the Agreement into areas never before recognised as trade policy."

Government says: "Government procurement is exempt from GATS disciplines..."

• Article XIII:1 refers to "procurement by governmental agencies of services purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of services for commercial sale..."
• But! The Agreement contains no further definition of these terms, nor has any interpretation been provided by competent WTO bodies.
• The WTO has said that the boundaries between government procurement, services provided in the exercise of governmental authority and services covered by GATS disciplines are not clear.
• Thus - it is not yet clear what local government's obligations are under even existing commitments, let alone future commitments. Should the UK/EU be challenged and found in violation central government will be forced to ensure compliance
• And! WTO members have a mandate (through the Working Party on GATS Rules) to develop new disciplines that will bring government procurement under GATS.

Government says: "GATS contains Article XIV, General Exceptions, which allows measures 'necessary to protect human, animal or plant life or health'"...

• There is no General Exception for measures deployed "in the public interest", or "to ensure sustainable resource use."
• At any rate, governments who claim that Article XIV is a carve-out for socially and environmentally responsible legislation are being economical with the truth:- it is no small matter to claim that an (alleged) violation of GATS is justified by its inclusion under Article XIV. As Law Professor Robert House pointed out in the Financial Times last year:-
• "...Contrary to what you suggest, members cannot simply "suspend" their liberalisation commitments for health and safety reasons - they must be prepared to make a strict justification for any such departure, which may or may not be accepted by WTO dispute settlement organs. Withdrawal of commitments, while possible, may require the payment of compensation to trading partners on a most favoured nation (MFN) basis - the experience of the General Agreement on Tariffs and Trade is that this sort of safeguard is not very effective..."

Government says: "No other WTO member would bother challenging another WTO member over local government GATS violations..."

• This is another half-truth.
• Firstly, remember that local government is not exempt from GATS...there are no "de minimis" exemptions:- whatever commitments central government makes apply equally to local government. This should be particularly worrying given the lack of consultation with local government. (And is why the Federation of Canadian Municipalities, the equivalent of the LGA, is demanding municipalities be exempted from GATS.)
• There have already been several examples where a WTO member has been found "guilty" of violating WTO law, because of legislation being enacted in sub-national levels of government.
• In such cases the national government is effectively obliged to enforce compliance on the offending local government, or face crippling trade sanctions
• GATS contains clauses which (when developed) may require national government to put in place mechanisms to monitor and ensure local government compliance with GATS commitments
• There is a real danger that the drawing of power away from local government will be accelerated by GATS:- it is much easier for a national government to ensure GATS compliance at all levels if the functions most likely to trigger a violation are assimilated into central government jurisdiction
• Other possibilities include the filing of a complaint against a member state on the grounds that local governments across the whole of the country are violating GATS in some way, through a piece of widespread, "best-practice" legislation for example.

Government says: "GATS commitments can be withdrawn under Article XXI..."

• GATS commitments are described by David Hartridge, former Director of WTO Services Division, as "effectively irreversible"
• Commitments can only be reversed 3 years after implementation, with at least 3 months notice, and on the understanding that governments make compensatory liberalising commitments to the satisfaction of all other WTO members
• In other words, GATS cannot simply be switched "on and off": the MAI-esque Commercial Presence mode of delivery is designed to create a secure, low-risk investment environment for foreign service corporations. As the WTO Director General has said, "Bindings undertaken in the GATS have the effect of protecting liberalization policies, regardless of their underlying rationale, from slippages and reversals."

Government says: "It is our firm belief that public services are exempt: why would we put them at risk (etc.)..."

• Very few public sector bodies are convinced by this...
• The GATS alarm bell was originally rung because of claims from industry such as "GATS can encourage more privatisation...particularly in the field of healthcare"
• The alleged exemption of public services (Article I.3) is unclear, ambiguous, and critics fear that the co-existence (in almost all service sectors) of private and public operators renders this Article useless
• Government is staunch in its defence of Article I.3's ability to protect public services. But the WTO has said that the exemption must be "interpreted narrowly."
• As mentioned earlier, in many cases it is not clear where government procurement, "services provided in the exercise of governmental authority" (i.e. public services) and the main GATS disciplines start and stop
• Article I.3 has not been tested...the government has said that this is one reason why we shouldn't be worried...yet it means the actual meaning of Article I.3 will ultimately rest with the precedent of a WTO Dispute Panel
• Given that GATS covers 160 service sectors, many of them not obviously a "public service" but essential to their smooth operation, there is a danger public services will be "peeled away" from the extremities
• Politically, there are concerns that (even if public services exempted in the short-term) GATS is embarking on an economic model which will only put them under increasing pressure
• In April 2001 the Government of British Columbia released a research paper which concluded that,
• "The General Agreement on Trade in Services (GATS) contains an exclusion that, at first, appears to broadly protect public service systems and the authority of member governments to regulate such systems. However, this exclusion for "services provided in the exercise of governmental authority" is defined very narrowly. As a result, the GATS appears to bring many public service systems -- and their regulation -- within the sphere of WTO authority."
• In May 2001 CIEL (Centre for International Environmental Law) released a legal research paper by Markus Krajewski which concluded that Article I.3 failed to offer convincing protection of public services.

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Co-ordinator: Steven Kelk, 72 Brunswick Street, Leamington Spa, CV31 2EQ
skelk@dcs.warwick.ac.uk, 01926 773808