GATS and the Environment

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Vice Yu, David Waskow and Alexandra Wandel
Friends of the Earth Europe

Services are key factors in the transnational production chains that shape today's global economy. They touch nearly every aspect of the natural world and the environment, including energy extraction and production, transport, water, travel and tourism, construction, distribution, waste disposal and sewage. The activities of multinational service corporations - including oil companies, electricity producers, waste disposal businesses, private water companies and hotel chains - have major environmental impacts around the world.

Once the market access and national treatment provisions of GATS are applied to particular sectors (as they are intended to be under the current request-offer negotiations), the following kinds of regulatory actions to protect the environment could be found WTO-illegal:

  • limitations on the number of oil or gas extractive operations in a particular market or community;
  • restrictions on the volume or number of bulk surface or groundwater extractions by a water service operator;
  • requirements for the use of a certain percentage of renewable sources in electricity supply that disadvantage the cross-border provision of electricity from another country that does not use such renewable sources;
  • a ban on the use of nuclear energy in electricity supply that disadvantages a foreign nuclear power producer;
  • limitations on the number of diving boats allowed on coral reefs;
  • preferences for granting of resource extraction licenses (such as for fishing) to members of local or indigenous communities.

In addition, Article VI imposes restrictions on the domestic regulatory efforts of governments, including environmental laws and regulations affecting service operations. These restrictions currently apply to the particular sectors in which countries have taken commitments, but the current negotiations could expand the restrictions to all service sectors.

The Article VI criteria place restrictions on 'technical standards', which can include almost any type of environmental law or regulation. To be acceptable under Article VI, environmental protection must be "based on objective and transparent criteria" and must "not be more burdensome than necessary to ensure the quality of the service". That effectively means that a country must cross a number of hurdles to show that its environmental regulatory efforts are appropriate.

First, the country must prove to a WTO disputes panel, in the event of a challenge, that its environmental standards are objective. Under that requirement, panels might demand proof that the environmental standard is based on absolute evidence that the harm that will be caused is scientifically ascertainable. Such a requirement would depart from the standard precautionary approach, which requires scientific proof of environmental safety for a product or service and would allow for regulation even when there is a lack of full scientific certainty of possible harm. While environmental protection has traditionally rested on the principle of requiring producers to demonstrate safety, past WTO decisions have shifted much of the burden of proof to the regulators.

Second, in what has come to be known as the 'necessity test', a country must prove to a WTO disputes panel that its environmental protection rules are the least burdensome possible. In other words, a country cannot simply adopt a reasonable regulatory approach, but must instead identify a full range of alternative approaches and adopt the approach that will affect the economic interests of foreign service operators the least.

Such requirements under GATS can clearly hinder - if not entirely halt - reasonable efforts to protect the environment. Proposals in the current negotiations are aimed at extending the reach of these requirements to all service sectors. GATS requires that any disciplines needed to implement these domestic regulation requirements be adopted across all sectors, and negotiations are currently underway that would do just that. The adoption of a 'necessity test' across the board, as the European Union has proposed, would have a significant and chilling impact on domestic regulatory efforts.

The latest EU environmental services negotiations proposal also includes a major new area to be subject to GATS disciplines: water. Water supply is rapidly becoming a privatised sector, with large multinational companies increasingly collecting, extracting and distributing bulk and retail water (see 'GATS and Water', below). Estimates value the worldwide water and wastewater industry at between US$300 and US$800 billion annually. The EU proposal would expand the access of these water supply corporations by bringing water collection, purification and distribution under GATS disciplines.

Given increasing water scarcity in many communities, both in developing and developed countries, the proposed inclusion of water collection in GATS raises troubling concerns. Market access commitments, which prohibit quantitative restrictions, could limit the right of governments to restrict the amount of water taken from lakes, rivers and groundwater sources. The resulting increased pressure on water sources could lead to sustained environmental damage.

The GATS agenda is very similar to other efforts, such as the failed Multinational Agreement on Investment, to give greater rights to multinational corporate investors at the expense of democratic structures. If the GATS regime is broadened, these investors will have much easier access to foreign countries and powerful new tools to fight attempts to regulate their activities. Internationally mobile corporations - not citizens or the environment - will be the primary beneficiaries of an expanded GATS. Current negotiations should be put on hold until these critical environmental and social issues are addressed.

For further reading, see: A Disservice to the Earth: The WTO General Agreement on Trade in Services (GATS) and the Environment, Friends of the Earth US.

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