GATS and Public Services

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Markus Krajewski, World Economy, Ecology & Development (WEED)

There is an ongoing public debate about GATS and public services such as energy, water, health, education, communication (basic telecoms and postal) or transportation services supplied by public entities. GATS covers all services "except services supplied in the exercise of governmental authority", which are defined as services "supplied neither on a commercial basis, nor in competition with one or more service suppliers" (Article I.3). The central question is whether public services are excepted by Article I.3, or whether they fall within the scope of GATS.

While this question may seem rather technical, it is of great importance in the context of GATS and democracy. The supply of public services is often the necessary basis for a democratic and open policy-making process in a country, most obviously in the cases of education and communication. Access to services such as water or health care is often seen as a human right. Yet other public services are also supplied to ensure that certain basic needs of the entire population are met, such as transport or energy.

Given their central importance to democratic and social integrity, governments should be free to choose methods of supplying public services so that all members of society have access to them at affordable prices. The threat of GATS is that it may effectively limit policy choices or make the provision of public services more difficult.

If a service is one of the 160 covered by GATS, all horizontal disciplines (such as the Most-Favoured-Nation requirement) apply to it. In addition, if a member state makes specific commitments concerning market access and national treatment, GATS determines the scope of those commitments too. For example, a member state with specific commitments in the postal sector is unable to protect its national postal service against foreign express delivery services. Similarly, a member with a national treatment commitment in higher education might have to extend subsidising programmes in the higher education sector to foreign suppliers.

There is no agreed understanding of "services supplied in the exercise of governmental authority" among WTO members or even within the WTO Secretariat. The latter in particular seems to apply different approaches depending on the circumstances. In the 1998 Background Note on Health and Social Services (WTO document S/C/W/50), the Secretariat argued that in cases where private and government-owned hospitals coexisted, it would be "unrealistic... to maintain that no competitive relationship exists". Consequently the exception clause of Article I.3 would not apply.

Yet three years later, presumably as a result of growing public criticism, the WTO Secretariat did a complete U-turn. In its 2001 Special Study No 6 on Market Access (pages 123-124) the WTO Secretariat stated that "the existence of private health services in parallel with public services could not be held to invalidate the status of the latter as governmental services".

So what is the true meaning of Article I.3? At best it is unclear. However, based on generally accepted principles of international treaty interpretation one can also argue that GATS covers most public services. It could be held that supply 'on a commercial basis' means that a price is paid for the service, so that any service not supplied free of charge is thus supplied commercially. Consequently almost any public service would be covered by GATS, because usually at least some price is paid for the service.

Similarly, a service supplied 'in competition' could be understood as a situation where at east two service suppliers provide comparable services and target the same market. For example, it could be argued that public and private schools compete with each other, inasmuch as they both provide children of a certain age with a certain amount of general education and are targeting the same market.

Considering that GATS disciplines restrict policy choices, a broad scope of GATS could be detrimental to national economic, social and environmental policies. It would therefore be highly dangerous to leave decisions about the exact scope of GATS to the WTO's disputes settlement system. Rather, WTO members should take 'legislative' steps to exclude public services from GATS. Such steps could take the form of an amendment to GATS or an authoritative decision of the WTO Ministerial Conference or the WTO General Council. These legal instruments would have to clarify that according to the collective understanding of WTO members all public services are considered to be "supplied in the exercise of governmental authority", without further conditions attached.

For further reading, see: Public Services and the Scope of the General Agreement on Trade in Services, Markus Krajewski, CIEL Research Paper, May 2001.

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