General Agreement on Trade in Services

Overview

The General Agreement on Trade in Services (GATS) is a framework agreement of the World Trade Organisation (WTO) outlining the rules under which trade in services should occur. It includes annexes and schedules of commitments by individual countries as to which sectors they are opening to GATS rules. The idea is that nations should negotiate commitments to opening their service sectors to GATS. GATS is administered by a Council for Trade in Services, within the WTO.

GATS covers the following types of services:

• cross-border supply – services supplied from abroad such as international postal services, or e-commerce;
• consumption abroad – where citizens of a country travel overseas to consume the product such as education or tourism;
• commercial presence – where services are provided within a nation by transnational companies

through foreign investment and local branches such as banks or insurance services; and

• presence of natural persons – where personnel from overseas visit a country to supply the service such as accountancy or engineering.

Ongoing negotiations require countries to make requests for services to be opened to competition in other countries and then make offers of which services they themselves are willing to open up. Once commitments have been agreed they are not reversible and any privatization and liberalization that has already occurred or does occur in the sector cannot be reversed. This ensures that the interests of foreign investors are protected.

According to 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, and not only for business in general, but for individual services companies wishing to export services or to invest and operate abroad.'

Implications of GATS Rules

Under GATS rules, once a country decides to ‘liberalize’ its electricity or water it cannot put any limits on foreign ownership nor limit how much of the industry one company can own. Also a government is not allowed to favour local businesses, so that if it subsidizes renewable sources of electricity, such as hydroelectricity, and these subsidized sources are mainly owned by local companies, then that could be interpreted as discriminating against foreign service providers that use ‘dirty’ sources of power like oil and gas.

Also, if services such as health and education are committed to GATS then government subsidies would be seen as giving unfair advantage to local providers. And it is likely that governments would not be able to set price caps on the fees charged for essential services like water and electricity. Governments would therefore lose the ability to ensure that these services were affordable to their poorer citizens (unless sectors of the population are directly subsidized with taxpayer funds, which would be paid to the foreign companies).

GATS also prevents national governments from putting quantitative limits on services once a service sector has been committed to opening up. So if a government agrees to open up tourism services, for instance, it cannot then limit the number of beach resorts to protect the environment or the atmosphere of an area without being open to challenge under GATS rules.

GATS and National Regulations

GATS restrains governments from imposing standards that might hinder free trade in these services. Article VI of the GATS agreement only allows regulations where regulatory objectives are legitimate; the regulation is necessary; and the regulation does not restrict trade more than necessary. Illegitimate regulations might include professional standards, taxation policies, and other policies to achieve objectives such as preserving government services or providing employment.

Attempts within the WTO to establish a list of legitimate objectives for regulations has proven difficult. GATS requires that domestic regulations such as environmental regulations should be developed in accordance with international standards and this is one criteria against which necessity would be measured. That is, if regulations accord with international standards they would meet the necessity test.

GATS and Public Services

Defenders argue that GATS does not apply to ‘government-provided’ public services. However the definition of such services is very narrow and is confined to services supplied by governmental authority ‘neither on a commercial basis, nor in competition with one or more service supplier’. The proportion of public services provided by government monopolies on a completely non-commercial basis in these days of widespread free-market ‘reforms’ are few and far between. Government services all over the world have been opened up to competition and corporatized to operate on a commercial basis. Similar wording in the EU Treaty has not protected government services and in eight challenges, the government services have been deemed not to be covered by the exemption for government services.

Secret Negotiations

As part of the official offers and requests process, the European Commission (EC) has requested that other nations open up their water sectors, large parts of their energy sectors including electricity, and other sectors such as transport, to competition from abroad. These requests were not an outcome of democratic decision making in Europe but were kept secret until they were leaked.

There are ongoing efforts to keep GATS offers and requests secret and therefore to inhibit public debate and democratic input into decision-making. In January 2003, Pascal Lamy, the EC trade commissioner, advised governments that they would not be able to distribute copies of offers to their parliaments.

Backdoor Privatisation

The Corporate Europe Observatory argues that these requests show that the EC intends ‘to use the GATS talks to deregulate and de facto privatise essential services, particularly in the South’. According to the World Development Movement, any developing country escaping privatization of services under World Bank or IMF structural adjustment packages, or seeking to reverse them, ‘will feel a left hook coming in from the WTO’. It notes that if GATS negotiations are successful, ‘governments will be forced to privatise services and the sale will be irreversible’.

Moreover, GATS will provide an excuse for governments that want to privatize against the will of the people, for reasons of corruption or ideology or misconception. They can pass on responsibility for the decision to the WTO which has required it.

Source

Sharon Beder, Suiting Themselves: How Corporations Drive the Global Agenda, Earthscan, London, 2006, chapter 7.