Urgent need for EU transparency in trade talks on services:
What the EC needs to understand

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A reply to the EC ‘Reaction to the leaks of the EC draft requests’, 24 April 2002

The leak

On 16 April 2002, draft European Commission negotiating proposals on the General Agreement on Trade in Services (GATS) were leaked. The drafts contained proposals to 29 WTO member countries requesting they apply the GATS free-trade rules to a wide range of their service sectors which includes water, energy, transport, tourism, construction and distribution services.

Following the publication of the draft proposals on various NGO websites and in several newspaper articles, the European Commission has issued a reaction to the leaks. In this reaction, the Commission accused NGOs of publishing confidential papers, influencing the negotiation process and spreading ‘scare stories’. Corporate Europe Observatory (CEO), Friends of the Earth Europe (FoEE) and the World Development Movement (WDM) explain in this short statement why the documents were made public, why closed door negotiations are unacceptable, what must happen now and what the real GATS debate is about.

DAMNING EVIDENCE: 'Confidential reflection and discussion' with European service corporations

Following the leak of the draft documents and the EC's reaction, further evidence has emerged exposing the intense collaboration between the EC and European services multinationals.

On 22 October 2001, in a letter to Pascal Kerneis, Managing Director of the European Services Forum (European industry services lobby organisation), the Commission notes "(W)e would very much welcome industry's input to this exercise, both in terms of finding out where the problems currently lie and in making specific requests. Without ESF input the exercise risks becoming a purely intellectual one..."

The Commission follows this up with a memo on the 14 January 2002, where they "stress the importance to provide within the following days any input you may have, as we are currently finalising the draft requests that will be transmitted to Member States very soon."

This later letter highlights the enormous opportunity that business has been given to steer to EC's negotiating positions and points to a sequence of events where business input is prioritised over individual Member State reflections. Furthermore, there has been no comparable input by civil society groups. Nor has the Commission responded to the broad range of concerns raised since GATS negotiations re-started in February 2000.

Democratising trade policy: An urgent need for transparency

The decision to release of the leaked documents by groups around the world was not taken lightly. The hand of NGOs has been forced by the fact that the EU:

  • Has made no attempt to assess the impacts of past services liberalisation – as called for in the GATS itself.
  • Has made no progress in assessing the impacts of proposed services liberalisation.
  • Is pushing an agenda whereby countries will commit to greater levels of service liberalisation and lock this into a WTO agreement.
  • And despite the public interest in the GATS, has conducted negotiations behind closed doors with an unacceptable level of industry involvement.

The draft proposal documents were circulated to generate public discussion and democratise trade policy, particularly at the EU level. This is important with the onset of the intense request-offer phase of negotiations – where WTO members will request service liberalisation from other WTO member states.

So far, the Commission has made it clear to NGOs that proposals would not be made publicly available. Recently the head of the Cabinet of Pascal Lamy, Pierre Defraigne, stated that the EU requests ‘can and WILL NOT be made public’.1 With parliaments also in the dark, we are deeply concerned that important negotiating proposals are being decided by the Commission, Member State trade experts (within bodies such as the Committee 133) and industry lobby groups such as the European Services Forum with little transparency and public oversight.

NEXT STEPS

The demand for transparency has always been a key element of our work on GATS. This will be even more important as, following the 30 June 2002, the EU will be formulating its own offers for further services trade liberalisation in response to requests from other WTO members. This EU list of 'offers' should be completed by 31 March 2003.

  • We call for request lists from the EU to other WTO members to be made publicly available in the European Parliament and national parliaments before being presented to the GATS negotiating process.
  • We call on the Commission and Member States to make available the list of requests that comes to the EU from other WTO Members.

To this end we continue to call for an independent and thorough economic, social and environmental assessment of the GATS before negotiations continue any further.

The GATS Debate: Addressing the European Commission’s response

In its reaction to the leaked documents, the Commission notes that it will not ‘comment in detail on the drafts’ but make a few general points ‘in response to some of the more exaggerated claims that have been made in the press’. These ‘general points’ offer nothing new to those familiar with the GATS debate.2 They simply repeat the common GATS defence. GATS critics have responded to these points on several occasions. However, as is demonstrated in the following rebuttal, the arguments used by the EC in support of the GATS are contradicted by the very content of the leaked draft proposals under discussion. In the face of this, the EC’s reaction appears even more disingenuous than their previous pro-GATS statements.

The EC’s claims fall into five familiar categories:

1. The provision of basic services

‘The expressed concerns that future GATS negotiations may undermine the provision of public services… for example by forcing privatisation of such sectors or by prohibiting public funding or subsidies for them are completely wrong.’

  • With the list of draft GATS proposals for 29 specific WTO members now available, observers can see for themselves the services in named countries that have been targeted by the EC for GATS coverage. This includes basic services such as water delivery (listed as ‘water for human use and wastewater management’) and energy services.
  • In its drafts, the EC is asking countries to make ‘full’ GATS commitments to GATS disciplines in these sectors. This means applying GATS free-trade rules to the sectors in question. While the groups presenting these arguments have never claimed that ‘GATS forces privatisation’, even GATS supporters have acknowledged that ‘opening service markets to foreign providers [which is what GATS is designed to do] is self-evidently inconsistent with retaining public monopolies’.3

2. GATS is a flexible agreement

‘The GATS is the most flexible agreement in the WTO system. Each country determines the list of activities for which it is prepared to offer market access and national treatment to foreign service providers.’

  • The flexible negotiating structure should indeed be emphasised (often referred to as a ‘bottom-up’ agreement). From the beginning, introducing services into a WTO agreement was controversial. Therefore without a more flexible negotiating structure, it is unlikely that developing countries would have ever agreed to its inclusion in the WTO.
  • The EC’s defence lacks political realism. To rely on the agreement’s structure is inadequate as it gives a misleading impression of how GATS works in practice. EC officials have acknowledged that pressure from the EU and US on developing countries is a fact of life. This is the political context in which the current negotiations are taking place.
  • The purpose of GATS is for WTO members to ‘progressively liberalise’ service sectors. Under Article XIX, governments ‘enter into successive rounds of negotiations... with a view to achieving a progressively higher level of liberalisation.... directed towards increasing the general level of specific commitments undertaken by Members under this Agreement.’4

3. Maintaining the ability to regulate

‘WTO members maintain the sovereign right to regulate economic and non-economic activities within their territory in pursuance of public policy objectives.’

  • The WTO has made the link between GATS and deregulation clear, ‘because the large share of trade in services takes place inside national economies… its requirement will, from the beginning, necessarily influence national domestic laws and regulation in a way that has been true of the GATT5 only in recent years.’6
  • The EC fails to mention that countries’ ability to protect regulations depends on them listing such requirements at the time of committing services to the GATS. This demands a level of foresight and capacity unavailable to most WTO members, not least as it requires an awareness of both current and future regulations. Developing countries are especially disadvantaged in this respect.
  • In their reaction the EC seems to fail to understand the conflict between their negotiating objectives and the ability of countries to regulate investment. By targeting the restrictions that countries did manage to place on their previous GATS commitments, the EC is requesting the removal of regulations that countries place on foreign investors in order to achieve certain development priorities. For example, limits that Malaysia places on foreign banks operating in its territory, or South Africa's limit on the amount of local money that majority foreign owned companies can borrow.
  • The ‘right’ to regulate is likely to be even less secure when negotiations on Article VI.4 on ‘Domestic Regulation’ are concluded.

. Service liberalisation and development

  • The much vaunted benefits of service liberalisation for development are based on very limited evidence. There has been no adequate assessment (comprising economic, social and environmental aspects) of the impact that services liberalisation has on sustainable development.
  • The EC response does not recognise the reality of liberalisation in many service sectors. It is easy to blame ‘flawed reform programmes’ but one of the principle difficulties with market liberalisation in key service sectors such as water, transport and energy sectors, is the preponderance of natural monopolies. These have led to an increase in market power among a few multinationals, rather than increased competition.7
  • While the EC accepts that there needs to be ‘appropriate institutional and regulatory framework[s]’ in place when countries embark on liberalisation, this is not reflected in their draft proposals. They are clearly targeting sectors in countries where this framework does not exist. In these countries the failure of weak regulatory bodies to be able to stand up to multinationals becomes all the more important when services like water are necessities and not luxuries.

5. Provision of development assistance

  • Increasing their Trade Related Technical Assistance (TRTA) and Capacity Building (CB) funding demonstrates that the EC is aware of the sheer magnitude of the capacity problems faced by many developing countries at the WTO. Whatever recognition there is, however, is flatly contradicted by the EC’s aggressive and complex negotiating proposals as represented in the leaked drafts.
  • The EC must recognise that in order for its assistance programmes to be effective, they must be fully demand-driven by recipients, based on their specific country situation, rather than driven by the EC’s negotiating interests and agenda.
  • The focus of this assistance must allow countries to develop policies that deliver the best outcome for the majority of their people, especially the impoverished. There is no proof that liberalisation policies such as those in the GATS can achieve this. In fact much evidence suggests the reverse. Assistance must not be attached to the implementation of trade rules with an ideological presumption that liberalisation benefits the world’s poor and the environment.

Notes

  1. Pierre Defraigne, e-mail to Susan George, 3 April 2002.
  2. For a more detailed response to these points see: The GATS Debate: A response to common arguments used against the critics of the General Agreement on Trade in Services, World Development Movement, May 2001.
  3. The Case for Liberalising International Trade in Services, International Financial Services London (IFSL), 1 May 2002.
  4. General Agreement on Trade in Services, 1995.
  5. GATT = General Agreement on Tariffs and Trade.
  6. An Introduction to the GATS, WTO Secretariat, Trade in Services Division, October 1999. [Emphasis in original]
  7. See chapter 5 of: GATS: A Disservice to the Poor - the high costs and limited benefits of the General Agreement on Trade in Services, World Development Movement, January 2002.

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