A research paper by Erik Wesselius
The United Kingdom is home to a particularly influential services industry lobby, which operates through an organisation called "International Financial Services, London (IFSL)".1 Two IFSL working groups, the LOTIS2 Committee and the High-Level LOTIS Group, aim at influencing ongoing negotiations on the liberalisation of trade in services in the World Trade Organisation (WTO).
The LOTIS Committee and High-Level LOTIS Group are more than just another corporate pressure group. These two bodies constitute a veritable corporate state alliance in which senior UK government officials3 sit together with their business 'counterparts'.
"The strength and effectiveness of the LOTIS Committee derives from the open and co-operative interface which exists in its work between its private sector members and the British government officials who are involved in the negotiating process in Brussels and Geneva. This enables the UK position on financial and related professional services interests to be represented in the most direct way possible."4
This paper is largely based upon minutes of meetings of the LOTIS Committee and High-Level LOTIS Group that were recently uncovered by Corporate Europe Observatory5. These minutes, covering a period between April 1999 and February 2001, give an unprecedented insight in the day-to-day working of the LOTIS corporate state alliance. Within the LOTIS Committee and High-Level LOTIS Group, the distinction between public and private has become completely blurred. The LOTIS structures provide a private forum where government and business discuss strategies for ongoing WTO negotiations on liberalisation of trade in services. This allows the UK financial services industry an unjustified control over large parts of the UK trade policy agenda.
The minutes also reveal that government officials have allied with business in planning a campaign to defeat civil society opposition against the WTO services negotiations. At a LOTIS Committee meeting in February 2001, Mr. Malcolm McKinnon of the Department of Trade and Industry, warned his corporate LOTIS fellows that the case for liberalisation in services was "vulnerable when the NGOs asked for proof of where the economic benefits of liberalisation lay."6 As part of a public private counter-offensive, a research project was to be commissioned to provide case studies highlighting 'benefits' of trade in services liberalisation for developing countries. Media access was ensured: a high-level Reuters official promised that his company would be "most willing to give publicity".7
While it is useful and justified for governments to take business concerns into account when formulating trade policy, privileged co-operative arrangements between business and government as embodied in IFSL/LOTIS do not belong in a truly democratic policy-making process. Considering the facts presented in this paper, the UK government should immediately discontinue its involvement in International Financial Services London and its LOTIS Committee and High-Level LOTIS Group. Similar corporate-state alliances in other policy areas should be dismantled, while existing UK trade policies would have to be reassessed and geared towards sustainable development. High priority should be given to the development of balanced and truly democratic mechanisms for civil society input in trade policy preparation.
Introducing GATS and lobbying by the services industry
The breakdown of the World Trade Organisation's (WTO) 1999 Ministerial Conference in Seattle thwarted corporate dreams of a broad push for global trade and investment liberalisation. No WTO Millennium Round was launched in Seattle. But government negotiators, backed by active corporate lobby groups, managed to salvage part of the Millennium Round agenda. In the beginning of the year 2000, WTO negotiations on extended liberalisation of trade in services, nicknamed 'GATS 2000', were launched.
Corporate lobbying was decisive for the coming into being of the General Agreement on Trade in Services (GATS), one of the so-called Marrakesh agreements concluded at the end of the GATT Uruguay Round in 19948. According to David Hartridge, former director of the WTO Services Division, "without the enormous pressure generated by the American financial services sector, particularly companies like American Express and CitiCorp, there would have been no services agreement."9
As a result of this corporate influence GATS is geared towards serving the interests of transnational service industries, instead of being for the general benefit. This has been expressed very clearly by the European Commission: "The GATS is not just something that exists between Governments. It is first and foremost an instrument for the benefit of business."10
The 1994 GATS Agreement covers a wide range of economic activities (including services as diverse as banking, water supply or catering). Compared with the other WTO/GATT agreements, GATS is a relatively flexible, 'bottom-up' agreement: it allows signatory countries to choose which sectors to liberalise and to what extent.
For the services industry, the 1994 GATS Agreement was only a first step towards full-blown market opening for trade in services. Although GATS provides a potentially far-reaching framework of liberalisation disciplines, it has so far only led to a limited opening of services markets, especially in developing countries. The services industry from the EU, the US, Japan and other developed economies has huge economic interest in opening up new markets in developing countries. The recent row between the EU and US insurance industry over the accession of China to the WTO gives an indication of what is at stake.11
In a speech at a conference organised by the European Services Forum12, EU Trade Commissioner Pascal Lamy explained the interests at stake: "For the EU services are central. We are number one in the world: 26% of world trade. Services account for two thirds of EU GNP. Against this background, just 25% of our total exports are services: so there is a gap between the importance of trade in services in our economy and its importance in terms of our trade. We of course want to reduce this gap, because our services industry is very competitive, and that means jobs, jobs, jobs."13
The corporate-driven agenda of the GATS 2000 negotiations is being confronted with a rapidly mounting opposition. Citizens' groups around the world see the WTO services negotiations as the greatest threat to democracy to come from an international economic agreement since the Multilateral Agreement on Investment, defeated in October 1998.14 The proposed GATS disciplines on domestic regulation, for example, threaten to subordinate social and environmental policy goals to the commercial advantage of transnational corporations. And there is considerable concern that GATS rules could in future be applied to public goods such as education, health and water -- key services which should be kept outside the scope of the WTO's free trade agenda.15
Pro-GATS lobbyists and critics agree that the outcome of the upcoming Ministerial Conference of the WTO in Doha (9-13 November 2001) will be decisive for the progress of the GATS 2000 negotiations. If no New Round is launched at Doha, GATS 2000 would most probably continue as stand-alone negotiations. Developing countries have little to gain by such free-standing negotiations on liberalisation of services. The supply capacity in services differ widely between the North and the South. Developed countries are not willing to make substantial concessions on the issue of labour mobility, while they are demanding better access for their service providers to developing countries markets. Therefore, trade-offs between developed and developing countries in sectors outside services seem a precondition for market opening in services, and it comes as no surprise that major services industry lobbies like the European Services Forum, the US Coalition of Service Industries and the Japan Services Network are demanding an ambitious WTO Round with a broad agenda to be launched at the WTO Ministerial in Doha.
LOTIS and the UK trade policy agenda
Within the UK government, the Department for Trade and Industry (DTI) is most actively involved in the IFSL/LOTIS corporate-state alliance. While IFSL is relatively open about the involvement of government officials in its efforts to promote the liberalisation of trade in services,16 the DTI maintains a total radio silence on this point. On its web site, the DTI writes about the importance of "taking into account the interests and wishes of all sectors of society"17 and how that is being implemented through the so-called Trade Policy Consultative Forum:
"The UK Government has established regular contact with Non Governmental Organisations (NGOs) through the Trade Policy Consultative Forum. This group meets about once a month to discuss important trade-related issues, and brings together NGOs such as development charities, business associations, trades unions and consumer groups. The Forum provides an opportunity to share information, gather views and clarify certain issues."18
The DTI web site remains completely silent on the department's involvement in IFSL and its subsidiary LOTIS bodies. This silence is explained by the controversial content of the recently uncovered minutes of LOTIS Committee and High-Level LOTIS Group meetings. In the period covered by the minutes (April 1999 - February 2001), officials from several UK government departments - in particular from the DTI, Treasury and Foreign & Commonwealth Office - participated actively in LOTIS Committee and High-Level LOTIS Group meetings, sharing information and discussing strategy with their corporate 'partners'. The fact that DTI officials were discussing a joint public-private effort to counter growing opposition against GATS in the UK at a LOTIS Committee meeting in February 2001 (see below), raises serious doubts over the DTI's true intentions with the Trade Policy Consultative Forum.
"There was a time when international trade negotiations in the GATT rounds were very much left to government officials. The Uruguay Round began to change that, in particular because trade in services posed more complex problems when it came to liberalisation. Private sector views on issues and priorities became important inputs for government negotiators."
The origins of the Liberalisation of Trade in Services (LOTIS) Committee date back to the early 1980s.20 Right from the start there have always been close links between the LOTIS Committee and the UK government.21 The US Coalition of Service Industries, a similar grouping (though not so closely connected to the US Administration), was founded around the same time as the LOTIS Committee. In the run-up for the Uruguay Round, both groups campaigned for the inclusion of trade in services in the multilateral GATT framework of free trade rules. When IFSL's precursor British Invisibles was founded in 1986,22 the LOTIS Committee was integrated in the new organisation as a working committee.
LOTIS Committee meetings are held every 2-3 months, with an average attendance of 15 private sector representatives and 5 public servants from the Treasury (HMT), Department of Trade and Industry (DTI), Foreign and Commonwealth Office (FCO), Bank of England (BoE) and Financial Services Authority (FSA).23 During the period covered by the minutes, LOTIS Committee meetings offered a public-private forum for information exchange, discussion of draft position papers and general strategy discussion.
LOTIS moves to a higher level
In April 1999, the LOTIS Committee was supplemented with a so-called High-Level LOTIS Group, consisting of "17 chairmen or chief executives from banking, insurance, the securities industry, law, accountancy, information and shipping [... and] also boast[ing] a strong Whitehall presence in the form of senior figures from the Treasury, the Department of Trade and Industry and the Foreign & Commonwealth Office."24 The High-Level LOTIS Group was set up by Andrew Buxton, then Barclays Bank Chairman and President of the British Bankers Association. As Buxton commented: "With the establishment of High-Level LOTIS, the City will be able to put its views at the highest level - and with the added punch [...] It is an important building block in ensuring maximum private sector input to the forthcoming [i.e. GATS 2000, E.W.] negotiations."25
Since its launch in April 1999 the High-Level LOTIS Group has met five times.26 In comparison to LOTIS Committee meetings, less time is spent on information exchange, while the focus lies on strategy discussion.
The Buxton-Brittan link
The High-Level LOTIS Group was modelled on a very successful prototype. In the Spring of 1996, Andrew Buxton (Barclays Bank) and Ken Whipple (Ford Financial Services) has set up the so-called Financial Leaders Group, comprising over forty Chief Executive Officers (CEOs) of major banks, investment banks, insurance companies, and trade associations, predominantly from the EU and the US.27 The Financial Leaders Group (FLG) was to provide momentum to the deadlocked negotiations on a WTO Financial Services Agreement. The Financial Leaders Group, which is still active, is being assisted by a group of sherpa's. This Financial Leaders Working Group, takes care of drafting position papers and other practical work. The crucial role of the Financial Leaders Group in the WTO Financial Services negotiations, especially during the final phase in December 1997, has been widely recognised.28
EU Trade Commissioner Sir Leon Brittan, who had been negotiating the WTO Financial Services Agreement on behalf of the European Union, was very excited by the Financial Leaders Group's role in bringing the WTO Financial Services negotiations to a successful conclusion.29 In 1998 he invited Andrew Buxton to create a similar structure, to involve European services industry leaders in (preparations for) the upcoming GATS 2000 services negotiations.30 The European Services Network,31 consisting of a European Services Leaders Group and a working level Policy Committee, was launched at an official meeting hosted by the European Commission. in Brussels, in January 1999.32
All three high-level pressure groups, formed by Andrew Buxton - the Financial Leaders Group, the European Services Forum and the LOTIS Committee and High-Level LOTIS Group - worked closely together in the run-up to the 1999 Seattle WTO Ministerial:
"The working committees of all three groups expect to work closely together ahead of, and during, the negotiations. BI's Sir Nicholas Bayne, who chairs the LOTIS Committee, also acts as Andrew Buxton's representative on the ESN [now ESF, E.W.] and as a conference call moderator for the FLG's working group discussions, which take place every four to six weeks."33And finally, in March 2001, it was announced that former EU Commissioner Sir Leon Brittan, now Lord Brittan of Spennithorne and vice-chairman of investment bank UBS Warburg, would succeed Andrew Buxton as chairman of the High-Level LOTIS Group.34 As Lord Brittan commented on that occasion: "When I was the EU Commissioner responsible for trade negotiations I invited business leaders to become more involved. [...] Now that I am in the private sector myself, I am especially pleased to take on the Chairmanship of the High-Level LOTIS Group."35 LOTIS: a public-private hybrid In the LOTIS Committee and High-Level LOTIS Group, relations between public and the private sector officials have become so close, that even insiders sometimes lose sight of the distinction between public servants and corporate lobbyists:
"IFSL provides the link - in the case of the WTO, the LOTIS Committee - between practitioners expert in the technicalities of trade barriers and the government departments engaged in international negotiations and other lobbying to break them down and open global markets for financial services."36 [emphasis added]
Such confusion is not accidental. It is brought about by the hybrid structure of LOTIS (and its parent organisation IFSL). Government officials account for more than a fifth of the membership of both the LOTIS Committee and the High-Level LOTIS Group.37 LOTIS Committee meetings are regularly held in government buildings.38 At least three persons have combined being a civil servant with an IFSL staff position.39 The most prominent of this trio, LOTIS secretary and IFSL Director of Trade Policy Mr. Alistair Abercrombie, is (or has been until recently) "on a two-year secondment to BI40 from the Department of Trade and Industry."41 Mr Abercrombie belonged to the DTI's Uruguay Round negotating team. He also participated in subsequent sectoral liberalisation talks in the WTO, including those on financial services.42 In the Department of Trade and Industry's consultative document on GATS 2000, Alistair Abercrombie was listed as one of DTI's 'lead services negotiators', together with LOTIS Committee Member Malcolm McKinnon.43
The former boss at the DTI of both Mr. Abercrombie and Mr. McKinnon, Mr. Christopher Roberts, is currently chairman of the LOTIS Committee and vice-chairman of the High-Level LOTIS Group. Before Mr. Roberts moved to international law firm Covington and Burling, where he advises clients on international trade issues, he was Director-General of Trade Policy at the DTI from 1987-97. During the Uruguay Round he was the chief trade negotiator for the UK.44 So much for the intimate connections between the DTI and IFSL/LOTIS.
Privileged access for LOTIS
The close links with key trade people in the UK government provides the LOTIS Committee with privileged access to information and the policy-making process itself. At a regular LOTIS Committee meeting, UK government officials or, occasionally, European Commission officials provide corporate LOTIS members with information on recent developments within the EU's Article 133 Committee (Services), the Council for Trade in Services and the services-related Working Groups at the WTO in Geneva. Internal EU papers and draft papers submitted to Committee on Trade in Services by other WTO Members are distributed among LOTIS members on a regular basis.45
Such privileged access to information cannot be overrated. The EU's Article 133 Committee, which prepares decisions of the EU's General Council, is well-known for its secrecy. The only information coming out of this secretive EU body are draft agenda's, published a few days in advance.46 Whereas even Members of the European Parliament have to guess the outcome of Article 133 Committee discussions, the LOTIS minutes testify how the London financial services industry lobby is briefed in detail by UK negotiators.47 And the access reaches even further: through the European Services Forum, LOTIS Committee members have been able to attend Article 133 Committee meetings in person.47
LOTIS and the Seattle WTO Ministerial
The 1999 WTO Ministerial Conference in Seattle was supposed to deliver negotiating guidelines and modalities for the GATS 2000 negotiations. Thus, the months leading up to the Seattle Ministerial were a busy time for key service industry lobbyists like Andrew Buxton. As co-chair of the Financial Leaders Group, chairman of the European Services Leaders Group and chairman of the High-Level LOTIS Group, Buxton grabbed every opportunity to convey the corporate demands for GATS 2000 to government negotiators.
In the fringe of the World Services Congress in Atlanta (1-3 November 1999), "the Financial Leaders Group met with government negotiators from the USA and EU", while "European FLG/FLWG members led by Andrew Buxton" had a "breakfast meeting [...] with John Mogg, Michel Servoz and John Richardson of the European Commission".48 At the High-Level LOTIS Group meeting of 15 November 1999, Buxton announced that "he was going to Geneva on 16 November for a meeting with Mike Moore (the WTO Director General) and that the following week there would be a meeting in Brussels with the Finnish chairman of the ministerial group going to Seattle.49 And just a week before Seattle, on 23 November, a delegation of the High-Level LOTIS Group made a call on the Minister for Trade, Richard Caborn.50
Despite all these efforts, the Seattle Ministerial was not exactly the lobbying success that Buxton and his LOTIS fellows had hoped for. But they were quick to pick up the pieces. In December 1999, Buxton wrote a letter to UK Trade Secretary Stephen Byers, in which he asked the government to argue for a quick start of the GATS 2000 negotiations "without waiting for movement in other areas."51 In his letter, Buxton assured Mr. Byers that he would "persuade members of the European Services Forum (ESF) [...] to adopt such a line" and use existing links with services lobby groups like the US Coalition of Service Industries and the Japan Services Network "to get them to exert influence on their governments in the same direction."52
"Byers replied that he was keen to ensure that the »next GATS negotiations can make strong advances in its objective of progressive liberalisation.« He said that some WTO members would still try to link services and agriculture and, in the absence of a wider round, would be »less forthcoming«. It was therefore essential to press for the launch of a comprehensive round of trade talks as soon as possible."53
In response, Andrew Buxton offered Stephen Byers the private sector's help "to encourage progress towards liberalisation of services", by "mobilis[ing] the arguments in favour of liberalisation" and by "contributing to capacity-building in emerging countries".54
These matters were further discussed at the first post-Seattle meeting of the LOTIS Committee meeting on 25 January 2001. Malcolm McKinnon of the Department for Trade and Industry gave a detailed account of the latest developments in Geneva and in Brussels, explaining that while services negotiations had "legally started [...] nothing had happened in practice".55 He described the positions in Geneva as "fluid" and stressed the UK's wish for a quick start of GATS 2000 negotiations, a position that the UK had also defended in the EU Article 133 Committee on Services meeting earlier that month.56 Nicholas Bayne, chairing his last LOTIS Committee meeting, concluded that "the UK services sector wanted to see services negotiations properly started" and that "the procedural fog in Geneva was unwelcome".57
These corporate demands were soon to be fulfilled. At a Special Session of the WTO Council for Trade in Services on 25 February 2000, the GATS 2000 talks were launched, without any direct linkage to the parallel WTO negotiations on agriculture. These developments made Buxton's proposals for a pro free trade campaign and capacity building in developing countries less relevant to LOTIS members.59 With the GATS 2000 negotiations taking off in Geneva, the LOTIS Committee focused on giving direct input for the discussions in Geneva and Brussels.60
Business and government collude in campaign against GATS critics
The first post-Seattle LOTIS Committee meeting also saw Charles Haswell, a "career diplomat on secondment from the Foreign and Commonwealth Office",60 presenting an outline for an IFSL campaign "to get the message across more effectively about the benefits of free trade." Mr. Haswell stressed the necessity of "a very wide ranging campaign and a combined effort between government and private sector. Not all NGOs would be turnable and this was enabling certain governments with protectionist tendencies to hide behind them."61
But with the start of GATS 20000 negotiations this proposal seems to have fallen into the background. The issue of waging a counter-offensive against NGO campaigns only resurfaced during the LOTIS Committee meeting of 8 December 2000. The minutes of that meeting show how LOTIS members were updated on "NGO anti-GATS campaigning" in the UK. LOTIS Committee chairman Christopher Roberts singled out the two main opponents: World Development Movement and Christian Aid.62
The subsequent discussion is a must-read:
"Elaine Drage [DTI] said the DTI had recently embarked on a lengthy dialogue with the World Development Movement who had been under the misapprehension that the services negotiations were coming to a conclusion. Matthew Goodman [Goldman Sachs International] asked why sectors like health, education, water and energy were being singled out. Elaine Drage said that it was because they were seen as basic services which people had a right to receive from their governments. The WDM had, usefully for them, been able to point to some examples in the developing world where consumers had been given a bad deal as a result of privatisation. She said that we would be right to take this campaign very seriously. The Chairman [Christopher Roberts] asked whether the WDM was open to persuasion. Elaine Drage was doubtful."63
This passage suggests that until then, most corporate LOTIS Committee members had more or less ignored the mounting NGO campaign on GATS. Matthew Goodman, working for investment bank Goldman Sachs International, shows himself to be completely ignorant of the potential impact of seemingly clean and abstract corporate GATS demands (like horizontal disciplines on domestic regulation) on people's lives, and obviously never considered health care, education or water provision to be in anyway different to accountancy services. Such a tunnel vision being allowed to dominate the political agenda is one of the main dangers associated with corporate political power.
Concrete plans for "Anti-GATS Counter-measures"64 were discussed at the next LOTIS Committee meeting, on 22 February 2001. The Committee decided to publish the "Questions and Answers" part of a paper on "the 'civil society' NGOs campaign against the GATS", prepared by LOTIS secretary Alistair Abercrombie, on the IFSL web site.65 Decisions on the exact strategy - "particularly the identification of opportunities for business leaders to engage in the exercise" - were left to the first High-Level LOTIS Group meeting under the chairmanship of Lord Brittan on 8 May 2001.66
The notes of the discussion at the LOTIS Committee meeting of 22 February reveal a most controversial collusion between UK government officials and corporate LOTIS Committee members in the planning of "anti-GATS counter measures":
"Matthew Lownds [Foreign & Commonwealth Office] welcomed the private sector's help in countering the anti-GATS arguments. He noted that the campaign by the World Development Movement in particular was leading to a broadening of concerns. If business was to help convince the public, a case was needed based on the development-related benefits which the GATS can bring. He also pointed to the "need to coordinate business responses to the NGOs allegations. Malcolm McKinnon [Department of Trade and Industry] said that the pro-GATS case was vulnerable when the NGOs asked for proof of where the economic benefits of liberalisation lay. Christopher Ehrke [Linklaters & Alliance]said that his firm was very willing to be involved in the exercise. He felt that some of the points made in the IFSL paper needed to be more punchy and floated the idea of creating a sub-group to take the work forward. Matthew Goodman [Goldman Sachs International] said that the exercise should be taken forward in close consultation with the WTO Secretariat, which had already produced some useful material on the matter. Pete Maydon [HM Treasury] undertook to circulate a recent Finnish paper about the economic benefits of liberalisation, on which the LOTIS paper could draw. He felt that developing countries should be encouraged to refute the arguments put forward by the NGOs. In particular, if every member of the WTO could sign up to the counter-arguments produced by the Secretariat, this would have the broadest impact. Action Pete Maydon."67
True success for such a campaign requires access to the media. But, as it turns out, that poses no problem for LOTIS: the media are in the plot:
"Henry Manisty [Reuters] wondered how business views could best be communicated to the media. In that respect, his company would be most willing to give them publicity. Perhaps Lord Brittan68 could be involved in his capacity of Chairman of the High-Level LOTIS Group? John Cooke considered that the Committee needed to think further as to whether business wanted to coordinate a proactive approach to the exercise."69
As the excerpt from the discussion shows, LOTIS members were clearly aware of the problem that "the pro-GATS case was vulnerable when the NGOs asked for proof of where the economic benefits of liberalisation lay". Plans were made to repair this weak spot. LOTIS secretary Neil Jaggers presented a proposal for an IFSL research project that was intended to "counter the NGOs anti-GATS campaign and partly to convince developing countries to open their markets". The idea was to spend between £50,000 and £70,000 on a series of case studies "exploring the economic benefits for developing countries of services liberalisation".70 The minutes indicate that the project was to be commissioned to Professor John Dunning of the Economist Advisory Group. The current status of this project is unknown.
Having no access to minutes of LOTIS meetings after February 2001, it remains unknown what happened with these plans for LOTIS 'anti-GATS counter measures'. The planned pro-GATS media campaign has not yet materialised. But with the crucial WTO Ministerial Conference in Doha (9-11 November 2001) rapidly approaching, one may expect LOTIS and its 'partners' in government to launch a pro-GATS offensive within the next few weeks.
The close links and close co-operation between business and government in International Financial Services, London and its LOTIS Committee and High-Level LOTIS Group, as described in the preceding pages, explains why UK government policy on trade in services, and in particular the preparations for the GATS 2000 negotiations, are so biased towards a corporate market-opening agenda.
While it is useful and justified for governments to take business concerns into account when formulating trade policy, privileged co-operative arrangements between business and government does not belong in a truly democratic policy-making process.
Therefore, the UK government is urged to: