GATS - WHAT IS FACT AND WHAT IS FICTION?

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A Civil Society Response
to the WTO's Publication "GATS - Fact and Fiction"

Released: 25 May 2001

In mid-March 2001, the WTO Secretariat released a paper entitled GATS - Fact and Fiction in an attempt to pre-empt a meeting and a news conference of a global network of civil society groups expressing concern about the GATS and its impact on social, environmental and economic regulatory policies. The Secretariat's paper is also part of larger, increasingly hostile campaign by some governmental and WTO officials and business leaders aimed at the global campaign to Stop the GATS Attack.

In this document representatives of some of the groups involved in the March 2001 meeting and press conference react to the WTO paper. Although this document does not react to all the points brought forward by the WTO Secretariat, it should not be assumed that the authors do accept other parts or the entire approach of the WTO paper.

Missing 'Facts'...

As one leading developing country negotiator put it, "GATS -- Fact and Fiction" is yet another WTO Secretariat document which "presents the facts but not all the facts". We find this to be true concerning the Secretariat's presentation of civil society's critiques, as well as the political reality in which GATS rules operate.

... about civil society's concerns...

Civil society's concerns relate not only to the existing agreement, but also and more importantly to proposals being discussed as part of new negotiations aimed at expanding the agreement. However, the WTO Secretariat's paper continually refers to the current, existing GATS rules as its only defense against civil society critiques of the proposals now being discussed to change the current rules. By focusing on the agreement as it stands today, the WTO Secretariat fundamentally misses the point of the arguments of GATS critics.

... and about the context of GATS:

Dismissing concerns about an agreement which locks into place policies which are yet to be assessed in terms of environmental and social impacts, or the overall benefits they bring to a country, is highly irresponsible and of great concern to environmental and social justice campaigners. As experience around the world is demonstrating there is an ongoing debate about the benefits and problems associated with service liberalization. GATS exists in the context of this debate and must consider this work.

Political realities of GATS negotiations

The services economy is heavily dominated by Northern transnationals who are actively engaged in corporate lobby groups that set the agenda for the big WTO players (EU, US, Canada and Japan). These countries have also made it clear that GATS is about expanding their export opportunities benefiting economies' ever more reliant on the services sector. Nowhere in "Facts and Fiction" are the political realities of international trade negotiations acknowledged.

Removing the 'right to regulate'

Throughout "Fact and Fiction", the WTO continually claims that the 'right to regulate' is protected under GATS. Yet the ability to regulate depends on governments knowing how, and when, to make exceptions and impose limitations when they commit sectors to liberalization. This requires an unrealistic level of foresight and capacity. Furthermore, the purpose of the current GATS negotiations is to remove any exceptions and limitations on commitments governments have scheduled so far through "progressive liberalization of services" (see Art. XIX GATS). A key reason for the agreement is said to be to reassure potential foreign investors that the regulatory climate will not change, which is why it is so difficult for countries to reverse the decisions.

What benefits of services liberalization?

This is not a neutral agreement, it is an agreement that presupposes the benefits of service liberalization, and locks countries in with a liberalization ratchet. Over a decade ago the WTO promised developing countries an assessment of service liberalization. No such assessment is taking place.

Creating 'Fiction'

The WTO Secretariat's remarkable understanding of 'fact' and 'fiction' is illustrated by its use of (mis)quotes. In the first version of the paper released in March a number of NGOs were misquoted. We will point to some examples of this in our rebuttal. The Secretariat later corrected those quotes in a second version of the paper released in April and apologized to those NGOs misquoted. Nevertheless, we wonder why a paper full of misquotes was released to journalists right before the March press conference of GATS critics. It is unlikely that the journalists who received the first version, ever went back to WTO homepage and got the second version to check if there were any changes. "Honi soit qui mal y pense" (Evil to him who evil thinks) ...

Let the real debate begin !

The WTO and its defenders have developed an unfortunate habit of dismissing their critics as anti-trade, anti-investment, anti-rules and generally anti-progress. The groups writing this paper have always made it clear that we believe that a rules-based trading system is the best way to defend and promote the interests of developing countries. Our concern is that the current WTO rules have increased rather than reduced the imbalance between rich and poor and have restrained rather than promoted governments' ability to meet the needs of their citizens.

This WTO's bunker mentality may be an effective way to avoid real debate but it is a very poor way of dealing with the widely acknowledged need for fundamental reform of the WTO. The 'commit now - ask questions later' approach is highly irresponsible. The groups who met in Geneva in March 2001 called for a moratorium on negotiations so GATS can be properly scrutinized and assessed. It is time for the WTO and its champions to climb out their bunkers - let the real debate commence.

The Authors

This note and the detailed rebuttal have been written by Clare Joy (World Development Movement, UK), Lori Wallach (Public Citizen, US) and Vicente Paolo B. Yu III (Friends of the Earth International) with editorial assistance of Markus Krajewski (AG Handel, Forum Umwelt und Entwicklung, Germany). Comments were provided by Elisabeth Türk (Center for International Environmental Law Europe) and Erik Wesselius (Corporate Europe Observatory, Netherlands).

 

GATS -- FACT AND FICTION

The WTO's publication

GATS -- FICTION OR FACT?

The response

Introduction

The General Agreement on Trade in Services (GATS) is among the World Trade Organization's most important agreements. The accord, which came into force in January 1995, is the first and only set of multilateral rules covering international trade in services. It has been negotiated by the Governments themselves, and it sets the framework within which firms and individuals can operate. The GATS has two parts: the framework agreement containing the general rules and disciplines; and the national 'schedules' which list individual countries' specific commitments on access to their domestic markets by foreign suppliers.

 

The WTO's paper starts with the usual WTO defensive mantra: "It has been negotiated by the Governments themselves..." WTO documents often attack NGO critiques as illegitimate because WTO terms were 'negotiated and agreed' by governments. First, this argument ignores the fact that the GATS terms were negotiated between a few powerful governments in 'green room' processes which excluded most nations' representatives during the Uruguay Round and most governments were told to sign up to the done deal or be left out of the trading system. Second, it presumes away the enormous role of corporate interests in shaping the 'official' position of the governments who did have a seat at the table.

Each WTO Member lists in its national schedule those services for which it wishes to guarantee access to foreign suppliers. All commitments apply on a non-discriminatory basis to all other Members. There is complete freedom to choose which services to commit. In addition to the services committed, the schedules limit the degree to which foreign services providers can operate in the market. For example, a country making a commitment to allow foreign banks to operate in its territory may limit the number of banking licenses to be granted (a market access limitation). It might also fix a limit on the number of branches a foreign bank may open (a national treatment limitation).

As will be explained in more detail below, a country generally may only set limits on its commitments when it first negotiates terms under GATS (see below). If new circumstances develop which require a different approach, a country can only set new limits if it was able to negotiate compensations with other WTO members (see below). Furthermore, some GATS disciplines apply to all sectors not only those listed in national schedules (see below).

Coverage and 'modes of supply'

The GATS covers all internationally-traded services with two exceptions: services provided to the public in the exercise of governmental authority, and, in the air transport sector, traffic rights and all services directly related to the exercise of traffic rights. The GATS also defines four ways in which a service can be traded, known as 'modes of supply':

  1. services supplied from one country to another (e.g. international telephone calls), officially known as 'cross-border supply';
  2. consumers from one country making use of a service in another country (e.g. tourism), officially known as 'consumption abroad';
  3. a company from one country setting up subsidiaries or branches to provide services in another country (e.g. a bank from one country setting up operations in another country), officially known as 'commercial presence'; and
  4. individuals traveling from their own country to supply services in another (e.g. an actress or construction worker), officially known as 'movement of natural persons'.

 

It is not at all clear what, if any, "services provided to the public in the exercise of governmental authority" are actually excluded from GATS coverage. As will be discussed below, the language in GATS Article I can be interpreted in such a way as to drag almost any service a government is providing that is also being provided in the private sector under GATS disciplines (see below).

Trade liberalization, and even economic growth, are not ends in themselves. The ultimate aim of Government is to promote human welfare in the broadest sense, and trade policy is only one of many instruments Governments use in pursuing this goal this goal this goal this goal. But trade policy is nevertheless very important, both in promoting growth and in preventing conflict. The building of the multilateral trading system over the past 50 years has been one of the most remarkable achievements of international cooperation in history. The system is certainly imperfect -- that is one of the reasons why periodic negotiations are necessary -- but the world would be a far poorer and more dangerous place without it.

We will discuss below that trade liberalization is not always promoting 'human welfare'. Absent a real assessment of the effects of GATS and services liberalization on social and economic development the claims about positive impact of trade policies remain unsupported.

In January 2000, WTO Member Governments started a new round of negotiations to promote the progressive liberalization of trade in services. The GATS agreement specifically states that the negotiations "shall take place with a view to promoting the interests of all participants on a mutually advantageous basis" and "with due respect for national policy objectives and the level of development of individual Members". The pace and extent of these negotiations are set by the WTO's 140 Member Governments themselves according to their different national policy priorities.

In late March 2001, after months of wrangling and four drafts, WTO Member governments agreed to negotiating guidelines. Despite developing country demands and despite the language noted here regarding respect for all nations' interests, the guidelines reject a priori exclusions of any modes of service trade or service sectors. In addition, language in the guidelines leaves open the option for the 'cluster' approach of service negotiations in which a country is effectively forced to open an array of service sectors if it seeks to negotiate in any related sector.

Recently, however, the negotiations and the GATS itself have become the subject of ill-informed and hostile criticism. Scare stories are invented and unquestioningly repeated, however implausible. It is claimed for example that the right to maintain public services and the power to enforce health and safety standards are under threat, though both are explicitly safeguarded under the GATS.

This is a standard WTO line: if you critics only knew what you were talking about you would agree with us. In fact, our criticisms of GATS negotiations are based on analysis of the proposals of nations including the U.S., European Union and Canada and on reports from within GATS meetings by developing country negotiators. Leaked Documents, which explicitly enumerates many of our concerns, verify the reports we have from negotiators.

How have serious people come to believe what is, on the face of it, out of the question? Why should any Government, let alone 140 Governments, agree to allow themselves to be forced, or force each other, to surrender or compromise powers which are important to them, and to all of us?

The canard about governments is replayed again here with reference to the impossibility that our critiques could be correct because if so, no government would agree to such things

Decision-making in open societies presupposes informed public discussion. It must be based on fact rather than fiction. The purpose of this booklet is to contribute to this discussion and to a greater public understanding of the GATS by correcting statements made in some recent publications which we believe are misleading the public and undermining support for international economic cooperation. It must not be assumed that because we have disputed some allegations we accept that others are well-founded: these are merely examples.

We believe in informed public discussion. However, we challenge the WTO's underlying assumption that it may rule on what qualifies as informed public discussion. Debates must be based on facts, but on all the facts.

Why is the liberalization of services important?

[...]

 

The liberalization of trade in goods, which has been promoted through negotiations in the GATT over the past 50 years, has been one of the greatest contributors to economic growth and the relief of poverty in mankind's history.

In the past fifty years, rich countries became richer as poor countries became poorer, in relative terms: The distance between the incomes of the richest and poorest country was about 35 to 1 in 1950 and 72 to 1 in 1992. The richest fifth of the world's people have over 80 per cent of the world's income while the poorest fifth share just one per cent. (UNDP, Human Development Reports 1999, 2000).

Many countries that managed to become industrialized (i.e. Japan, Korea, Singapore, Taiwan, Western Europe, Australia, or New Zealand) did so by using protectionist economic regimes that nurtured domestic industries, and only started liberalizing once domestic industries became strong enough to penetrate foreign markets and compete effectively against new foreign entrants in the domestic market. Benefits from liberalization accrued only to countries whose industries can gain trading advantage over foreign competitors due to strong domestic base.

Following the catastrophic experience of the first half of the 20th century, Governments deliberately turned away from the policies of economic nationalism and protectionism which had helped to produce disaster, and towards economic cooperation based on international law. Growth in this period was not uniformly shared, but there is no doubt that those countries which chose deeper involvement in the multilateral trading system through liberalization benefited greatly from doing so.

These are common arguments of proponents of the GATT/WTO system:

  1. The system is about free trade. (So ignore WTO's many corporate managed trade terms such as TRIPS protectionism).
  2. The system guarantees peace and the absence of such a system caused W. W. II and Nazism. (Please ignore numerous bloody wars involving GATT nations over the past 50 years).
  3. The world would be poorer absent the GATT/WTO system (An unknowable, if grandiose, claim often joined by a claim that a U.S. tariff bill (Smoot-Hawley) passed in the middle of the 1930s depression caused the depression).

There was no parallel movement of multilateral liberalization of services trade until the negotiation of the GATS and its entry into force in 1995. Since the services sector is the largest and fastest-growing sector of the world economy, providing more than 60% of global output and in many countries an even larger share of employment, the lack of a legal framework for international services trade was anomalous and dangerous—anomalous because the potential benefits of services liberalization are at least as great as in the goods sector, and dangerous because there was no legal basis on which to resolve conflicting national interests.

The importance of the services sector for international trade is overstated: The figure of 60% refers to the production of services, not to trade in services. Trade in services accounts for only one fifth of total world trade and about 5 % of global output (WTO, International Trade Statistics, 2000 and World Bank, World Development Indicators, 2001)

Apart from misleading figures, it needs to be stressed that so far there has not been a true assessment of services liberalization because of the lack of relevant data: Before the WTO's meeting in Seattle in November 1999, UNCTAD prepared a series of papers entitled "A Positive Agenda for Developing Countries". In this they note the lack of research assessing the impact of liberalized trade in services (as advocated by GATS) on the growth and transformation of developing countries.

A true assessment should not just focus on macro-Feconomic factors, but on social and environmental implications as well. This is necessary prior to any further GATS negotiations, because an assessment is needed for WTO members to design their trade policies and negotiating proposals accordingly.

Six benefits of services liberalization

 

GATS is not a neutral agreement, it is an agreement that presupposes the benefits of service liberalization. In the same vein, the WTO paper assumes that service liberalization is good for developing countries. The assumption that services liberalization generally increases public welfare remains disputed. There are many examples where service liberalization has not worked. It has undermined universal access to essential services, not improved overall service delivery and not contributed to a country's overall economic well-being. In the examples of the six benefits of service liberalization, the Secretariat engages is an exercise of misinformation.

1. More competition

Opening domestic markets to foreign services suppliers increases competition, which brings many benefits. It tends to improve efficiency in the short and long term, lowering prices, improving service quality, increasing consumer choice and encouraging productivity gains. It is also often a more effective means of curbing the monopoly power of dominant suppliers than regulation or break-up.

1. 'More competition'

The international services economy and international trade in services is heavily dominated by European and US transnationals. These companies will gain from increased global market opening in the area of services. For many developing countries, a further opening up of their services economy could mean the ruin of domestic companies that are struggling to become established but do not yet have the resources and experience to compete with major global companies. Current developing country experience in the telecommunications, electric utilities and to a lesser extent in the water utilities, has shown that in the move towards liberalization, domination by state-owned monopolies is replaced by domination by foreign corporations who can use their power to limit competition. Liberalization often leads to global oligopolies and not to more competition.

2. Lower prices

The evidence that services liberalization leads to lower prices is compelling. In Britain, prices in the long-distance call market plummeted after British Telecom's monopoly was abolished. In the local residential call market, where there is still little competition, prices have fallen much more slowly. In the US, call prices fell dramatically after AT&T was broken up in the 1980s. A study by Macquarie University in Australia found that the entry of foreign banks into the Australian market led to lower interest rates and banking charges.

2. 'Lower Prices'

The example of UK telecoms is a rather unfortunate one for the Secretariat to use and demonstrates their limited analysis of service liberalization. They cite the 'compelling' evidence that the cost of long-distance calls in Britain has plummeted flowing liberalization in the telecommunications sector. They fail to acknowledge the equally compelling evidence that in the UK (and elsewhere), that while the cost of business calls and long-distance calls may fall, the cost of home connections and local calls actually increases. Technological advances may have so far shielded consumers from the full effect of these increases. At the same time, many workers lost their jobs because of the telecoms liberalization.

3. Faster innovation

Countries with liberalized services markets have also seen greater product and process innovation. The explosive growth of the Internet in the liberalized US market is in marked contrast to its slower take-off in many Continental European markets where monopoly telecoms firms still dominate. Similar contrasts can be drawn in financial services and information technology. Because these sectors are the backbone of the economy, this innovation spills over rapidly into efficiency gains for the economy as a whole.

 
4. Higher employment

Economists are generally wary of claiming that trade liberalization creates jobs, but in the services sector there is strong evidence that this is the case. A study of telecoms reforms in 26 Asian and Latin American countries by the International Telecommunications Union and the World Bank, prepared in 1990-94, found that employment in telecoms rose by 20% in markets where competition was allowed, but by only 3% in monopolized markets. In the UK, after an initial fall in employment following the demonopolization of British Telecom, employment in the sector has risen substantially as more than 40 new suppliers have entered the market.

4. 'Higher Employment'

This also questions the idea that service liberalization actually leads to higher employment. There are many examples of job losses through liberalization in the service sector, such as the banking sector in the EU. Trade unions have deep concerns about declining labor standards, especially the 'right to organize' which can accompany liberalization. For example, in El Salvador, trade unionists have accused France Telecom of "balatantly and arrogantly violating workers' rights". It entered the El Salvador market in 1999, buying a majority stake in the newly privatized state telecommunications corporation. The France Telecom controlled CTE company has subsequently refused reinstate 72 trade union leaders dismissed from the corporation. A CTE manager said the workers "threatened the privatization process".

5. Greater transparency and predictability

A country's commitments in its WTO services schedule amount to a legally binding guarantee that foreign firms will be allowed to supply their services under stable conditions. This gives everyone with a stake in the sector—producers, investors, workers and users—a clear idea of the rules of the game. That allows everyone to plan for the future with greater certainty, which encourages long-term investment.

5. 'Greater transparency and predictability'

Legally binding guarantees for stable regulatory conditions are constraints on future governments to change or reverse a liberalization process if they realize that economic and social policies need a change. GATS effectively prevents governments from doing this and therefore poses a threat to democracy.

6. Technology transfer

Services commitments at the WTO help to encourage foreign direct investment (FDI). Such FDI typically brings with it new skills and technologies that spill over into the wider economy in various ways. Domestic employees learn the new skills (and spread them when they leave the firm). Domestic firms adopt the new techniques. And firms in other sectors that use services-sector inputs such as telecoms and finance benefit too.

6. 'Technology Transfer'

Back in 1987, EEC negotiators recognized that developing countries would only benefit from GATS if there was an obligation on service providers to transfer technology. Although they recognized that enforcing this would be almost impossible. Along the same lines, Article IV of the agreement (Increasing Participation of Developing Countries) recognizes the development needs of many countries in this area. However, much evidence points to the fact that when companies engage in overseas operations, they do not engage in technology transfer: For example, in Africa and in many Asian countries too, the US financial service suppliers have written into their employees' domestic contracts of service a common US practice under which to 'protect the employer's 'commercial secrecy and confidentiality', an employee leaving a job cannot join a domestic or rival firm for a fixed period of time – thus ensuring here is no spillover of skills, and certainly no technology transfer (see Ragavan 2001).

The GATS and investment

The fact that under GATS WTO Members can make commitments allowing foreign suppliers to establish in their markets has led to criticism from some anti-WTO activists who opposed the negotiations for a Multilateral Agreement on Investment in the Paris-based Organisation for Economic Co-operation and Development. The GATS has been said to be an attempt to resurrect the MAI.

 

Part of the new defense strategy of GATS protagonists is to stress the difference between the GATS and the collapsed Multilateral Agreement of Investments (MAI). The WTO Secretariat's paper seems to cry out: "Call Us Any Name, but Please Not MAI!!" However, the WTO Secretariat obscures the fact that investment rights are conferred when a nation submits a sector to GATS coverage. Agreeing to market access via 'Mode 3' (commercial presence) might have the same effect as guaranteeing a 'right of establishment'. This is a right to set up or acquire a service sector business in another WTO Member country.

Scott Sinclair of the Canadian Centre for Policy Alternatives has said that "The GATS investment restrictions demolish industrial policy whether primarily aimed at goods or services, closing off the path to development taken by most advanced countries to other countries."

This section of the Secretariat's paper includes an example of the misquotation mentioned in the introduction of our rebuttal: The March version attributed the quote by Scott Sinclair about GATS investment restrictions to the World Development Movement (WDM). Following WDMs investigations through a journalist, WDM received a personal note from David Hartridge, senior staff member of the WTO in charge of GATS.

What these activists have failed to say is that it can be used by Governments, if they so decide, to attract foreign investment into sectors where it is needed. The GATS guarantees the conditions which provide policy stability for potential investors. But there is no obligation to make commitments under the GATS. Presumably Mr. Sinclair is stating that the GATS prevents Governments from applying restrictions to foreign service providers operating in the market. This is fundamentally untrue. If commitments are made, they can be subject to the six types of limitations specified in the agreement, which include, besides quantitative limits, restrictions on the share of foreign capital and on the type of legal entity permitted. In addition any type of national treatment limitation—conditions applying only to foreign suppliers—can be scheduled. The GATS bears no resemblance to the MAI—not surprisingly, since the OECD has 30 member Governments and the GATS 140, three quarters of which are developing countries or economies in transition. Moreover, the GATS allows Governments to impose on foreign service providers any conditions they wish, including those pertaining to local employment or technology transfer.

GATS rules also restrict how governments regulate foreign investors seeking to establish: Note the moment of candor in the Secretariat's text: GATS "guarantees the conditions which provide policy stability for potential investors", meaning it locks in limits on government regulation. Deceptively, the WTO Secretariat claims that nations can set any rules or limits in service sectors. First, the Secretariat is arguing that because current GATS rules allow freedom for all domestic regulation (a claim many nations' GATS negotiators contest given ambiguity about how broadly GATS disciplines currently apply), concerns about negotiations to expand and deepen constraints on domestic regulation should not trouble us.

Second, all limits and exceptions must be set when a country initially offers a sector. A nation only can set later new limits on the number of investors or how they operate in a GATS-covered sector if the nation can negotiate compensation with all countries who have a right to enter that market (see Art. XI GATS). Thus, if you did not numerically limit hotels or regulate a limit on beach front development in your initial GATS offer and circumstances change, you must ask to 'pay' for the right to do so later (see below).

Third, the Secretariat's paper declares assuringly that countries can take numerous exceptions at will, including to service sector most-favored-nation requirements. What is not mentioned is that the GATS states that such exemptions should not exceed 10 years in duration (see Annex on Art. II Exemptions, para. 6, see below.

Finally, the WTO Secretariat fails to mention the very purpose of the current negotiations, which is "progressive liberalization of trade in services" (see GATS preamble and Art. XIX). Those familiar with the tone and focus of the current GATS negotiations process would hardly recognize the Secretariat's emphasis on how nations can avoid progressive service sector opening.

Structure of the GATS

The GATS is the first and only set of multilateral rules and commitments covering Government measures which affect trade in services. It has two parts—the framework agreement containing the rules, and the national schedules commitments in which each Member specifies the degree of access it is prepared to guarantee for foreign service suppliers.

The GATS covers all services with two exceptions—i.e. services provided in the exercise of governmental authority and, in the air transport sector, air traffic rights and all services directly related to the exercise of traffic rights. Notwithstanding this very broad scope, the Agreement and the negotiations taking place under it are one of the least controversial areas of current work in the WTO. This is because of its remarkable flexibility, which allows Governments, to a very great extent, to determine the level of obligations they will assume. There are four main elements of flexibility:

 

Official assurances about countries "being able to chose both the sectors in which, and the extent to which, they are able to liberalize further" carry little long-term weight given that the aim of GATS is to make services tradable. The flexibility of GATS is challenged by the requirement of 'progressive liberalization' under GATS Art. XIX and the review of exceptions and commitments every five years.

Perhaps more importantly, the Secretariat paints a naïve if not deliberately misleading representation of the way GATS works in practice. EC officials have acknowledged that pressure from larger countries on smaller countries is a fact of life: In his speech at the European Services Forum (ESF) conference in November 2000, EC Trade Commissioner, Pascal Lamy made a point of noting that EU negotiators are seeking greater market access in 'third' countries. When stating that, EC GATS negotiators are seeking to "preserve legislative priorities… in areas linked to state provision, such as energy, postal services, education, culture and health", he added that, "(A)t the same time we are seeking fair and negotiated access for our service providers to such sectors in third countries, where market-based, and there is no contradiction in this."

Indeed, during the next two years of GATS negotiations, the pressure on developing countries to liberalize their services will be immense. While this is not caused by GATS itself, it is the political context in which GATS negotiations are taking place.

Member Governments choose those service sectors or subsectors on which they will make commitments guaranteeing the right of foreign suppliers to provide the service. Each Member must have a schedule of commitments, but there is no minimum requirement as to its coverage—some cover only a small part of one sector;

For those services that are committed, Governments may set limitations specifying the level of market access and the degree of national treatment they are prepared to guarantee;

The so-called 'flexibility' of the GATS can effectively only be used by Member Governments if they have a clear understanding of the impact of services liberalization on local communities, universal access to services and a country's economic well-being. As already pointed out above (page 7 and 8) absent an adequate impact assessment of GATS there is no clear understanding of these impacts.

Governments may limit commitments to one or more of the four recognized "modes of supply" through which services are traded. They may also withdraw and renegotiate commitments;

What the WTO Secretariat does not say is that withdrawal of commitments is a stringent and difficult procedure under the GATS. Modifying or backtracking on the commitments (i.e. should a country wish to make its services regulatory regime more strict) can only be done: (a) after 3 years from entry into force of those commitments; and (b) negotiate and provide compensatory adjustments (i.e. liberalized commitments in other sectors) to its trading partners (GATS Art. XXI(1) and (2))

In order to provide more favorable treatment to certain trading partners, Governments may take exemptions, in principle limited to 10 years' duration, from the MFN principle, which is otherwise applicable to all services, whether scheduled or not.

The Agreement contains a number of general obligations applicable to all services, the most important of which is the MFN rule. But apart from these each Member defines its own obligations through the commitments undertaken in its schedule. Because it is a basic principle of the Agreement that developing countries are expected to liberalize fewer sectors and types of transactions, in line with their development situation, the commitments of developing countries are in general less extensive than those of more industrialized countries. It was this flexibility in the scheduling of commitments which put an end to the north-south controversy over services which marked the early years of the Uruguay Round.

Paragraph 6 of the Annex to Article II requires that the MFN exemption listed by a country in its schedule of specific commitments "in principle … should not exceed a period of 10 years" but that "in any event, they shall be subject to negotiation in subsequent trade liberalizing rounds." This means that the Uruguay Round MFN exemptions listed by countries in 1994 will automatically be subject to renegotiation in the current GATS 2000 negotiations – 5 years after such exemptions were taken and well before the 10 years' expiration period thereof. This has been restated in the negotiating guidelines.

Most favoured-nation (MFN) treatment

[...]

 

Misunderstandings and scare stories

A report published by the World Development Movement in November 2000 included the statement that "the aim of this Agreement (the GATS) is to remove any restrictions and internal governmental regulations in the area of services delivery that are considered 'barriers to trade'". It went on to pose and answer a series of rhetorical questions, as follows: "Should governments be able to demand that foreign building contractors use locally-trained architects? Should governments be able to oblige tour companies to use local caterers? Should governments have the right to demand that foreign companies transfer technical expertise to local industries? According to the GATS national treatment rule the answer is no."

This is quite wrong. According to the GATS national treatment rule (Article XVII) the answer is that the imposition of any of these conditions when making a commitment would be perfectly legitimate. An unqualified national treatment commitment is an undertaking that foreign suppliers will be treated in the same way as nationals, but there are in fact no restrictions on the number or types of conditions which may be attached to national treatment commitments.

 

In refuting WDM's (and other critics) concerns, the document focuses on member's ability during negotiations to place limitations when committing a sector the GATS market access and national treatment rules. There are three inherent misrepresentations about this:

First, placing these limitations demands an enormous degree of capacity and foresight by Members at the point of making a commitment, which simply not available to many developed countries let alone highly overstretched developing country negotiators. Negotiators literally would have to be able to see into the future and the kinds of policies required years, even decades from now.

Second, the members' limitations can become targets for removal by other members in future rounds of negotiations. Even when a country files a limitations, this is not a permanent restriction. "The negotiations on specific commitments should aim, in accordance with Article XIX (Progressive Liberalization) at progressively higher levels of liberalization, through commitments across a fuller range of sectors and through the reduction or elimination of limitations." (WTO Document S/CSS/M/1) Considering that GATS Article XIX(1) requires that successive rounds of GATS negotiations should achieve "a progressively higher level of liberalization", WTO members are effectively obliged to provide commitments that would relax or make less restrictive their current market access and national treatment limitations and their listed MFN exemptions.

Third, the selection of limitations of specific commitments are, is a one-time exercise made at the signing of the Uruguay Round Final Act or by a country with other WTO Members during its WTO accession negotiations. Once such limitations have been specified, or if no limitations were specified (i.e. the 'None' option), a country can no longer, in the future, impose any market access or national treatment limitations that would modify the conditions of competition in favor of domestic as opposed to like foreign services and service suppliers, unless such country is willing to compensate for such modified conditions in other ways

A requirement that foreign banks wishing to establish in the country should set up branches in every village, for example, would also be perfectly legitimate, though perhaps self-defeating.

The last part of this sentence unmasks the true agenda of the allegedly 'neutral' WTO secretariat's: Government regulations are legitimate, but self-defeating. This translates into: "If governments are stubborn enough to regulate economic behavior, the miracles of economic liberalization will not come to their countries and they simply have to remain poor."

National treatment limitations are simply conditions which apply to foreign suppliers but not to nationals. If the service is not scheduled the national treatment principle does not apply anyway. Article XIX specifically provides that developing countries may attach to their market opening commitments conditions designed to increase their participation in services trade—for example on the transfer of technology.

It must be stressed that national treatment limitation only allow restrictions on foreign direct investments if the sector is not opened at all (i. e. 'unbound'). Current GATS negotiations aim precisely at those 'unbound' sectors. If governments decide to open a sector, they must list positively the restrictions and limitations they want to keep. In general terms, governments are not free to impose any restrictions they want to.

The WDM report went on: "Should a government be allowed -- for social or conservation reasons -- to limit the number of golf courses being developed in an area? Under the GATS market access rules the answer is no ... The market access rules ... could effectively stop governments from limiting the number of hotels in scenic or historic areas to protect the value of a tourist site. They could prevent local jurisdictions saying no to the expansion of waste dumps."

None of this is true. Market-access commitments do not affect the right to regulate services and they do not imply an obligation to permit the entry of unlimited numbers of services suppliers.

They can include limitations on the number of suppliers, the total value of transactions, the number of services operations, the number of persons to be employed, the types of legal entity permitted and the share of foreign capital. The entry "none" in a schedule is an undertaking that limitations of these kinds will not be imposed. But even in such cases, where no limitation has been scheduled, 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.

Market access commitments provide the parameters within which foreign services and service suppliers gain market access to a country's services sectors. Provided a country listed market access restrictions in its Schedule, market access can be as restrictive or as liberal as the country wishes. However, as pointed out above, listing of such restrictions in its Schedule is a one-time exercise done during the WTO accessions negotiations phase prior to a country's entry into the WTO.

This has already proved problematic for South Africa whose telecommunications legislation has been taken to task by the US government. South Africa has been trying to enforce regulations on foreign capital for value added network licenses which are ultimatively tied at its broader network ownership policy. The US government is arguing that the South African government did not schedule such a limitation on market access in its GATS telecommunications commitments.

Under GATS Art. XVI(2), if a country, for any reason, fails to specify a market access limitation or indicates that there are no limitations with respect to market access in any or all modes of by indicating 'None' in the Market Access Limitations column on its Schedule, it can no longer impose market access limitations or impose any regulation that would limit market access later on if it finds that imposing such limitation or regulation would be necessary for its people's or economy's welfare.

The Secretariats admits itself that when 'none' is entered into a country's schedule, limiting regulations may not be imposed on the sector in the future. This is exactly what WDM was suggesting in the campaign briefing. The Secretariat acknowledges that a government maintaining the right to impose limitations is the exception and not the rule. Therefore this does not refute WDM's campaign position.

Any domestic regulation (not necessarily limited to the six limitations identified in GATS Art. XVI(2)(a) to (f)) which would have the effect of restricting market access and making the conditions for such access 'less favorable' than those provided for in the restrictions indicated in the Schedule could be a violation of GATS Art. VI or give raise to a non-violation complaint. Note that in the EC Bananas Case, the WTO Appellate Body stated that the GATS is intended to have a 'broad reach' and that there is "no legal basis for an a priori exclusion of measures ... from the scope of the GATS."

Furthermore, Footnote 8 to GATS Art. XVI(1) itself prohibits a country from imposing specific restrictions or regulating the transfer of capital when such country made market access commitments on the supply of a service under Modes 1 ('cross-border' provision of service) and 3 (provision of service across borders through establishment of 'commercial presence' or foreign direct investment). This means that financial regulatory action restricting the free flow of capital across borders in relation to foreign service suppliers obtaining domestic market access under Mode 1 or Mode 3 market access commitments is effectively prohibited. Considering that the Asian financial crises in the late 1990s was triggered precisely by unhindered capital flows, restrictions on financial regulatory actions can hamper a country's ability to protect its economy from adverse capital flows.

"The new round of services negotiations will force WTO member countries to open all their services sectors to foreign competition"

This is quite untrue. There is no obligation on any WTO Member to allow to allow to allow foreign supply of any particular service—nor even to guarantee domestic competition, since it is possible to maintain a monopoly supplier, whether public or private, of any service.

Governments are free to choose those services on which they will make commitments guaranteeing access to foreign suppliers. Each Member must have a national schedule of commitments, but there is no rule as to how extensive it should be. Some least-developed Members have made commitments only on tourism, for example, and in general there is great variation in the coverage of schedules, reflecting national policy objectives and levels of economic development. There is agreement among all Governments that in the new round of negotiations the freedom to decide whether to liberalize any given service and the principle of progressive liberalization will be maintained.


 
 

Again, the WTO is presenting facts, but not all the facts: Maintaining a monopoly supplier is only possible, if this is scheduled in the market access commitments, as clearly indicated in the WTO's scheduling guidelines.

As pointed out already, GATS Art. XIX(1) creates an internal dynamic among delegations to provide increased sectoral liberalization commitments. Furthermore, negotiating pressure from Northern countries on developing countries to liberalize market access and provide national treatment in specific sectors may cause individual developing countries to open up sectors that they otherwise would not have liberalized.

The dynamic and scope of GATS is aimed at opening as many services sectors as possible. This can be shown by some unofficial proposals for requests and will be obvious once official requests have been tabled. If GATS was not about opening all services to foreign competition, what would be the point of a services agreement in the WTO?

GATS and public funding

Education International and Public Services International, in a joint publication dated June 1999, said that "the issue of subsidies was one of the most hotly disputed throughout the round of talks. What was at stake was nothing less than the abolition of public funding for national institutions under pretext that this undermined free trade!" This is untrue. The abolition of public funding -- for any purpose whatever -- was never proposed or debated during the Uruguay Round or in any subsequent negotiation under the GATS. It is surely obvious that WTO Members could never agree to it.

In their subsequent publication, dated September 2000, PSI made no reference to the subsidies issue. We appreciate the co-operation with PSI which made it possible to clarify this point.

 

This section is another example of the Secretariat's unique approach to fact and fiction: In the March version of the paper, the 1999 quote of EI and PSI was attributed to a publication dated 16 January 2001. Only in the April version of the WTO publication was this error corrected. Even though we too appreciate the WTO Secretariat's efforts to clarify this point, we wonder how the WTO can possibly challenge NGO claims if it doesn't get the facts right.

[...]

 

The WTO is not after your water

In an information sheet titled "Don't let the WTO get hold of our water" the "Alliance for Democracy" expresses much concern about the implications of the GATS negotiations for water distribution services. It says that progressive liberalization under the GATS "means moving towards privatization of all services, including public services. It also means deregulation of services at the local, State and national levels and subjecting them to the WTO's global rules for the benefit of transnational corporations."

The GATS does not require the privatization or deregulation of any service. In respect of water distribution and all other public services, the following policy options, all perfectly legitimate, are open to all WTO Members:

  1. To maintain the service as a monopoly, public or private;
  2. To open the service to competing suppliers, but to restrict access to national companies;
  3. To open the service to national and foreign suppliers, but to make no GATS commitments on it;
  4. To make GATS commitments covering the right of foreign companies to supply the service, in addition to national suppliers.

The number of Members which have so far made GATS commitments on cold water distribution is zero. If such commitments were made they would not affect the right of

Governments to set levels of quality, safety, price or any other policy objectives as they see fit, and the same regulations would apply to foreign suppliers as to nationals. A foreign

supplier which failed to respect the terms of its contract or any other regulation would be subject to the same sanctions under national law as a national company, including termination of the contract. If termination of a contract were involved, the existence of a GATS market-access commitment would be irrelevant. A GATS commitment provides no shelter from national law to an offending supplier. It is of course inconceivable that any Government would agree to surrender the right to regulate water supplies, and WTO Members have not done so.

 

This passage of the WTO's text clearly shows that the WTO does not take civil society's concerns seriously: Nobody has ever claimed that any current GATS commitments have been scheduled on water distribution. What we are concerned about is water distribution liberalization in current negotiations and possible future disciplines applying to the water sector. We anticipate requests for market access and national treatment in the water sector in the GATS 2000 negotiations. There has been an EC proposal concerning water collection and there is a push to privatize water supply in many countries. It would be surprising if water liberalization would not become an issue in the current negotiations.

"The services negotiations mean that all public services will have to be open to foreign competition"

Many public services are not provided on a commercial or competitive basis and are t subject to the GATS. The first Article of the Agreement excludes from its coverage all services provided in the exercise of governmental authority, which are defined as those supplied neither on a commercial basis nor in competition with other suppliers. These services are not subject to any GATS disciplines, they are not covered by the negotiations and commitments on market access and national treatment do not apply to them. This is a principle to which all Member Governments attach great importance and which none has sought to reopen. Because no question has been raised by any Member about services supplied in the exercise of governmental authority there has been no need for interpretation of this phrase. The issue could only arise if a specific measure which had been challenged in dispute settlement were to be defended on the ground that it applied only to services supplied in the exercise of governmental authority and was therefore outside the scope of the GATS. There is no requirement to notify such services.

Those services which are provided on a commercial or competitive basis are covered by the GATS, but there is nothing in the Agreement which requires that they should be privatized or liberalized. Governments are free to decide whether or not to make commitments on them, as on all other services. If they make no commitments the implications of GATS coverage are minimal: monopoly suppliers, whether public or private, can be maintained, established or reestablished, for example; limitations of any other kind can be imposed on foreign supply. If they do make commitments they can exclude from them any activity where foreign competition is unwanted and can schedule limitations on the level of market access and national treatment committed.

In virtually all countries the public provision of services like education and health coexists with private-sector provision, and Governments recognize that to ensure the universal availability and the quality of these essential services is among their primary responsibilities.

Governments which make commitments to allow foreign suppliers to provide education or health services in their markets are not undertaking to privatize public healthcare or education systems. Nor are they compromising standards: they can enforce the same standards for the protection of the public on foreign suppliers as on nationals, and can indeed impose additional requirements on foreigners if they so choose.

As of February 2001, less than 50 of the WTO's 140 Members have made commitments on education or health, no doubt reflecting the fact that in many countries these are regarded as essentially functions of the State. In its proposal for negotiations on higher education services, dated 18 December 2000 and publicly available, the United States recognizes that "education to a large extent is a government function, but that most countries permit private education to co-exist with public education. The proposal therefore envisions that private education and training will continue to supplement, not displace public education systems. ... It seeks to supplement public education systems, affording opportunities for suppliers to make their services available to students in other countries."


 
 

GATS Art. I(3)(c) defines "a service supplied in the exercise of governmental authority" as "any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers." This definition is ambiguous and crafted as to provide the exception created by the definition with very limited scope. A possible understanding of this definition would be that, any service provided by government in the exercise of its authority – i.e. protection of private property through the presence of police, education, provision of water services, sanitation and waste disposal – in which: (a) the fees charged by the government agency for such service is on a commercial or market rate basis (as opposed to purely cost-recovery); or (b) there are concurrent private sector suppliers for such service – i.e. private security agencies, private schools, private water companies, private sanitation and waste disposal companies, will make such service no longer, by definition, be a "service supplied in the exercise of governmental authority." The effect of this is that the general obligations of MFN (GATS Art. II) and transparency in regulations (GATS Art. III) will be applicable to the service concerned, even in the absence of any specific market access or national treatment commitments thereon.

Even if one does not agree with such a narrow definition, the ambiguity of this text is widely acknowledged: In November 1999, the WTO's Council for Trade in Services debated the application of this article to health services, and members seemed to agree that exceptions provided for in Article 1.3 of the Agreement needed to be 'interpreted narrowly' and did not cover the whole sector.

In the background note on health and social services (S/C/W50, 18 September 1998), the WTO Secretariat has argued that for services to be covered by this exception they should be provided free. It pointed out the inconsistencies when governments have tried to protect health services for example, using this exception. "The hospital sector in many countries is made up of government-owned and privately-owned entities which both operate on a commercial basis, charging the patient or his insurance for the treatment provided. Supplementary subsidies may be granted for social, regional and similar policy purposes. It seems unrealistic in such cases to argue for continued application of Article 1.3 and/or maintain that no competitive relationship exists between the two groups of service suppliers."

The WTO Secretariat openly admits that the scope of Article I:3 (b)(c) GATS is not entirely clear in the background note on environmental services: "(...)[T]he question does arise of when public service functions fall within the scope of GATS disciplines and when they do not. A key issue is whether sales are made on a commercial basis. To begin with, it is not completely clear what the term 'commercial basis' means."

While some Government replies interpret the exception in GATS to "exclude public services such as health and education", a statement received by WDM supporters from Richard Caborn, UK Minister for Trade says that "... even if the GATS were found to apply to these services, the Agreement operates on the basis of a 'bottom-up approach', that is to say the government is able to chose the sectors in which, and the extent to which, it is prepared to further liberalise." [emphasis added]. Thus the meaning of the referred to exception is obviously far from clear, even within the UK Government.

The problematic scope of the GATS exception for public services is further shown by the comparison between Article I:3 GATS and Article 45 (55 old version) EC-Treaty used by the EC in the WTO. The exception in the ECT, however, has never successfully provided protection for any service: There have been eight challenges taken to the European Court of Justice and every one of them has been successful in challenging a service governments were trying to say was still under its authority using the official authority exemption.

Finally, the WTO's claim about the necessity of an interpretation of Article I:3 GATS is a contradictio in se: The 'need for interpretation' arises simply because of the possibility of a challenge of a national measure in a dispute settlement. If it wasn't for dispute settlement we could not care less about the definition.

"Liberalization under GATS means deregulation of services"

The right to regulate is one of the fundamental premises of the GATS. The objective of the GATS is to liberalize services trade, not to deregulate services, many of which are closely regulated for very good reasons. The GATS specifically recognizes "the right of Members to regulate, and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives".


 

Service sectors as a whole are governed by complex regulatory regime, often government imposed and involve direct government intervention in either directly delivering the service or setting conditions on companies operating in the sector. These are the so-called 'barriers to trade' in the services sector. Since the purpose of the GATS is progressive liberalization of services, it is quite clearly aimed at removing governments ability to regulate.

Much of the concern expressed about the implications of the GATS for regulation derives from the fact that Article VI of the GATS provides for disciplines on qualification requirements and procedures, technical standards and licensing requirements with a view to ensuring that they "do not constitute unnecessary barriers to trade in services".

Disciplines of this kind have been drawn up for the accountancy sector, and can be read on the WTO website (www.wto.org). They provide the best insight currently available as to the likely outcome of further work in this area. They do not set standards for the accountancy sector nor do they provide for the review of national standards. national standards. national standards. national standards. Their main purpose is to increase transparency, meaning access to information about regulations, standards and procedures for licensing or obtaining qualifications. The objective is to ensure that applicants are treated with fairness and are given a chance to compete on an equal footing. It has been agreed that the accountancy disciplines—which will come into force at the end of the current round of negotiations—will only apply to countries which make commitments on accountancy services.

The accountancy disciplines say nothing about the level of professional qualifications or standards for accountants except that they should not be more trade-restrictive than is necessary to achieve the legitimate objective they seek. This means that if two or more measures exist which can achieve the same objective, one should choose the measure with the least restrictive impact on trade.

It does not mean that Governments would have to compromise the level of quality or consumer protection they are seeking to achieve through the regulation in question. WTO Member Governments and dispute settlement panels have consistently held that it is for Governments to choose the level of protection they want to achieve (for instance when regulating for the protection of public health or the environment) and that this prerogative is not open to challenge.

The issue of regulation is not only relevant when making specific commitments. The 'right' to regulate will be even less secure if proposed changes are made to Article VI on 'domestic regulation'. This concerns specifically changes relating concerning the introduction of a further 'necessity test':

Various WTO agreements include necessity tests (GATT, GATS, SPS, TBT) which may limit the ability of governments to achieve their chosen level of protection in relation to the promotion of legitimate non-trade policy objectives. The following questions arise in the context of a 'necessity test': Are the measures in pursuit of legitimate objectives (i.e. those objectives listed in the exceptions)? Is it the measure least trade restrictive amongst the ones reasonable available? Can the measures be scientifically justified and Scientific justifiability, especially with respect to SPS, TBT and GATT Art. XX(b), which means that the regulatory measure must be based on scientific principles and/or be backed by scientific evidence or data? Social or cultural considerations (such as lack of community consent, violation of community traditions, etc.) would not be considered as sufficient 'scientific justification' to allow countries to justify restrictions on imports. Neither does 'scientific justifiability' leave much scope within the context of the GATS or GATT exceptions for the application of the precautionary principle or approach.

Furthermore, the necessity test effectively create a freezing and self-review and self-regulatory effect on national regulatory actions. Why would governments impose measures that do not comply with the necessity test, knowing that such measures can be brought before the WTO's dispute settlement process, be declared non-compliant, and run the risk of having to pay compensation or have authorized retaliatory trade sanctions imposed on its exports?

The WTO secretariat itself has made it perfectly clear what a necessity test in the context of Art. VI GATS is about: Balance two potentially conflicting objectives: trade liberalization and regulation. If even according to the WTO these objectives potentially conflict, can anyone honestly dismiss our concern that trade liberalization can effectively make legitimate regulation impossible?

It is often alleged that the WTO will start to "review" standards and "outlaw" those considered to restrict trade more than necessary. It has been suggested that the results of this work will include, for example, "reviewing the qualifications we require of doctors, engineers and other professionals to ensure they're not too high", and even that the WTO itself will set standards. Professional qualifications will not be reviewed in the WTO. The GATS does not involve setting standards in any context and Member Governments are not required to submit any legislation or regulation for review by their trading partners.

The only circumstances in which a country could be asked to demonstrate that a given measure is not more trade-restrictive than necessary would be in the event of a dispute with another Member. Only then could the necessity or the trade restrictiveness of a measure become an issue.

The fact that the necessity or the trade restrictiveness could become an issue in a dispute is the main problem. The claim that governments are not required to submit their legislation for review is simply false considering that such legislation or other regulatory measures may become subject of WTO dispute settlement: Dispute settlement procedures, once invoked, result in the 'review' of the national legislation or regulation in question for purposes of WTO-consistency.

Furthermore, paragraph C(ii) of Annex 3 to the WTO Agreement -- setting up the Trade Policy Review Mechanism (TPRM) -- states that "the trade policies and practices of all Members shall be subject to periodic review" at intervals of every 6 years for developing countries and 2-4 years for bigger economies. Although Paragraph A(i) of Annex 3 indicates that the review is not "intended to serve as a basis for the enforcement of specific obligations under the Agreements or for dispute settlement procedures, or to impose new policy commitments on Members", the fact remains that Members' legislation or regulations are required to be reviewed under the TPRM.

In various WTO dispute settlement cases, the measures or regulations that have been decided as falling within the scope of various WTO agreements have not been purely trade policies, regulations, or measures, but included measures that affect the 'conditions of competition' between domestic and like foreign goods, services, or service suppliers. Hence, the scope of the TPRM will apply to all regulations and measures that will impact on the conditions of competition between domestic and like foreign goods, services, or service suppliers.

The Lancet on 9 December 2000, published an article entitled "Rewriting the regulations: how the WTO could accelerate privatization in health-care systems". In addition to many other inaccuracies, the article says that:

"Article VI.4 of the GATS is being strengthened with the aim of requiring Member States to show that they are employing least trade-restrictive policies. The legal tests under consideration would outlaw the use of non-market mechanisms such as cross-subsidization, universal risk pooling, solidarity, and public accountability in the design, funding and delivery of public services as being anti-competitive and restrictive to trade."

This is a false account of the work on domestic regulation, seriously misleading in three respects. First, Member Governments will not have to submit regulations to the WTO for approval. Nor will they have to show that they are employing least-trade-restrictive practices, unless asked to justify a specific regulation in the event of a dispute with another Government. Second, none of the measures said to be at risk of being "outlawed" has ever been considered or even mentioned in the Article VI:4 negotiations. This is not surprising since the negotiations under Article VI.4 are confined to qualification requirements and procedures, technical standards and licensing requirements. The "legal tests" applicable to these are that they should be based on objective and transparent criteria, should be not more burdensome than necessary to ensure the quality of the service and, in the case of licensing procedures, that they should not in themselves be a restriction on the supply of the service. None of this applies to the measures cited, and there are no disciplines in the GATS on subsidies beyond that mentioned on page 7 above. Third, services supplied in the exercise of governmental authority are in any case outside the scope of the Agreement, and no disciplines which might be developed on domestic regulations would apply to them.

[…]

We have already commented on the Secretariat's arguments in its rebuttal to the Lancet article: First, governments will have to submit their regulations to the WTO in the event of a dispute settlement procedure. Second, a necessity test is about balancing trade liberalization and regulation not specifying what kind of regulation and finally, the scope of Article I:3 GATS is unclear and can be read very broadly. In addition, concerning the current negotiations under Article VI:4, it is important to remember the dynamic of any negotiations in the WTO regime. Nobody can predict the outcome of these negotiations and all of the measures mentioned in the Lancet Article could become an issue.

The WTO and Internet privacy

[...]

 

"Once made, GATS commitments are irreversible"

Governments are always free to liberalize unilaterally without making commitments in the GATS. However, GATS commitments have real value in providing secure and predictable conditions of access to markets, which benefits traders, investors, and, ultimately, all of us as consumers. This is why so many Governments have chosen to make binding commitments in the GATS framework, where they are intended to be legally secure.


 

The WTO Secretariat admits in the first paragraph of this section is that GATS commitments and disciplines are about binding governments in order to benefit "traders and investors".

Nevertheless, GATS commitments, like tariff bindings, are not irreversible. There are three ways in which a country can modify, or even withdraw, a commitment if it finds that to be necessary.

Any commitment may be withdrawn or modified after it has been in force for three years. On request, "compensation" may need to be negotiated with Members whose trade is affected. This does not mean monetary compensation, as some have alleged, but merely the replacement of the commitment withdrawn by another of equivalent value. This process is similar to the renegotiation of tariff bindings under the GATT, which has been in use for 50 years.

In this section, the Secretariat paints an unrealistic picture of the possibilities to reverse commitments:

Regarding the negotiations of compensations, it is difficult if not impossible to see such a possibility work. What worked for "50 years" under GATT, does not have to work under the complex GATS and WTO regimes.

Secondly, in case of need the General Exceptions in Article XIV of the GATS can be invoked, where it is necessary to act to protect major public interests, including safety, human, plant or animal life or health, national security or public morals. These exceptions override all other provisions in the Agreement, entitling a Government to violate or withdraw its own commitments if necessary.

The necessity test in GATS Art. XIV restricts the utility of these exceptions to only those measures which: (a) are in pursuit of legitimate objectives (i.e. those objectives listed in the exceptions); (b) do not or only minimally (relative to other reasonable alternative measures) restrict trade; (c) can be scientifically justified; and (d) do not discriminate against like foreign services, or service suppliers. The trend of WTO dispute settlement cases have placed a high bar on governments in order to meet this test.

Furthermore, the absence of a GATT Art. XX(g) exception in GATS – allowing the adoption or enforcement of measures "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption"; – which provision does not impose the necessity test (as GATT Art. XX(b) or GATS Art. XIV(b) does), makes it more difficult for countries to adopt and justify an environmental or natural resources measures that restricts trade in environmental or natural resources services in violation of its GATS commitments if the measure is brought to the WTO dispute settlement process.

In any event, the chapeau (introductory paragraph) of GATS Art. XIV creates an additional barrier to the adoption and enforcement of measures that violate a country's GATS commitments by requiring that such measures must not be "applied in a manner which would constitute a means or arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services." This means that even if the measure has met the necessity test, if it does not also meet the requirements of the chapeau, such measure will still be considered GATS-inconsistent and the country will still be liable to change the measure or else pay compensation or suffer retaliatory sanctions.

Furthermore invoking the general exception of Article XIV GATS involves a burden of proof problem: When resorting to the general exception, a member government is already 'stigmatized' by having violated core WTO obligations and sometimes faces difficulties to prove that it had the right to do so.

Thirdly, under the WTO Agreement Governments may seek a temporary waiver from any obligation. In addition, negotiations are now in progress under the GATS on the question of developing an Emergency Safeguard Measure, whose purpose would be to permit the suspension of a commitment in case of damage or the threat of damage to a domestic industry.

It is also possible for a Government to suspend commitments in the event of serious balance-of-payments difficulties.

Seeking a temporary waiver is merely a theoretical possibility given the difficulties set out in the WTO agreement for obtaining a waiver. Waivers must be approved by at least three-fourths (3/4) of the WTO Members – i.e. 105 out of the current 140 WTO Members. The procedure laid out in Art. IX:3(a) and (b) of the WTO Agreement must be observed in the consideration and granting of the waiver request. The decision to grant the waiver must state the 'exceptional circumstances' that justify the waiver, its terms and conditions, and its termination date. Waivers must be reviewed every year by the Ministerial Conference (or the General Council).

[...]

 

GATS negotiations are secretive and anti-democratic

It is frequently stated by WTO critics that the organization is undemocratic, and that negotiations take place in secret.

It is true that the GATS 2000 negotiations, like other negotiations in the WTO, are taking place between Governments and that meetings are not open to the press, the public or industry. But Governments are the representatives of their countries' interests as a whole, and have a legitimacy that the self-appointed spokespersons of special interests can never have.


 

Following the collapse of WTO talks in Seattle in November 1999, caused mainly by developing countries objecting to power-based (rather the rules-based) decision making, a need for reform of WTO decision making was widely acknowledged. However, no such reform has taken place and GATS negotiations continue to be non-transparent and behind closed doors.

The role played by service multinationals in this context is particularly problematic: Through lobby groups such as the US Coalition of Service Industries (CSI) and the European Services Forum (ESF), key service companies have effectively set the agenda for the GATS 2000 negotiations. The list of US CSI members helps explain the priorities set at GATS meetings since the agreement was signed in 1994. For example, the decision on Basic Telecommunications commitments (adopted by the WTO Services Council in 1996) corresponds to the interests of US telecoms companies such as AOL, AT&T and MCI, all CSI members. In addition, the decision on commitments in Financial Services (adopted by the WTO Services Council in December 1997) reflects the interests of CSI members such as American Express, Chubb, Visa, Chase Manhattan and New York Life.

There is frequent communication between the European Commission (EC) and the European Services Forum about the GATS negotiating agenda. The EC says on its website that GATS is "not just something that exists between governments, but it is first and foremost an instrument for the benefit of business."

Moreover, great efforts are made to publicize what takes place in negotiations. Every negotiating session is followed by a briefing to inform journalists, and through them the whole world. Representatives of non governmental organizations receive regular briefings as well, from the WTO secretariat. Most importantly, the records of all meetings, the texts of all decisions and the proposals made by Governments are available to the public, over 65% immediately. For example, the negotiating proposals on services made by the EU, Japan and the United States in December 2000 were all made publicly available immediately. They are posted on the WTO website, which contains over 11,000 pages of information and receives roughly 250,000 visits every month.

There is a vast body of public information, constantly expanding, about the work of the WTO and the Secretariat is always ready to respond to enquiries. A telephone call would have sufficed to correct the misunderstandings which underlie most of the scare stories described in this booklet.

The Secretariat's reference to the many documents on its website is misleading: Recent documents -- the ones most relevant -- are often missing and it is difficult, if not impossible to get them.