Service Economy Gets the WTO Treatment
by Ruth Caplan
Alliance for Democracy
50 Years Is Enough newsletter, April 2001
Historically international trade agreements focused on promoting
trade in goods by lowering tariff barriers between countries.
This was to change dramatically when, at the behest of American
Express, the U.S. lobbied successfully to have services included
in the Uruguay Round of trade negotiations, which were concluded
in 1994. Thus the General Agreement on Trade in Services (GATS)
came into being. The world was about to change in dramatic ways.
Now for the first time trade rules would reach into every
aspect of our lives. Services include nurses and doctors, teachers,
lawyers, accountants, ministers, reporters, tourist guides, even
employees of municipal sewer and water departments. Altogether
services make up about 70% of the U.S. economy and more than 60%
of the global economy.
At the same time, under "neoliberal" economic thinking,
local, state and national laws and regulations which would hinder
trade were defined as barriers to trade. Any regulation pertaining
to services that could be viewed as "more burdensome than
necessary" was now subject to challenge under GATS.
The Uruguay Round also created the World Trade Organization
(WTO) to enforce the agreements. Under the WTO, trade tribunals
are given the authority to determine whether national, state and
local laws are WTO illegal. Previously, such decisions required
the consensus of all member countries. Today 140 countries are
members of the WTO, with others such as China awaiting entry.
Every WTO member is part of the GATS agreement.
The GATS regime fits in nicely with the IMF and World Bank's
agenda to promote privatization of public services.
How GATS Works
Other countries resisted having their services come under
international rules promoting "progressive liberalization."
They would only agree to GATS if they could use a "bottom
up" approach where they would choose which services would
be covered by the agreement. So while GATS creates legally enforceable
obligations backed up by trade sanctions, some rules only apply
to those services countries choose to include on their schedule
of commitments. GATS is a one way street: once commitments are
made, countries cannot realistically turn back.
Investors in foreign countries are covered by the GATS. In
fact, the WTO has called GATS the first multilateral agreement
on investment. Anyone involved in the successful campaign to defeat
the Organization for Economic Cooperation & Development (OECD)
treaty called the Multilateral Agreement on Investment (MAI)-knows
how much power such agreements give to investors. The GATS states
in a footnote: "if the crossborder movement of capital is
an essential part of the service itself, that Member is thereby
committed to allow such movement of capital."
If a country puts a service on its schedule of commitments,
then the service is subject to "market access" rules
which apply to its entire territory or any regional subdivision.
These rules forbid: 1 ) any limit on the number of service suppliers;
2) any economic needs test; 3) any requirement that a service
shall be sup
plied through a joint venture with a local supplier; and 4)
any limit on the participation of foreign capital. Thus a community
may have a system for trash collection which is quite adequate,
but cannot prevent a foreign corporation from coming and offering
the same service and cannot require any kind of partnership with
the local supplier. Further, the foreign service supplier has
to be given "national treatment," which requires that
foreign corporations be treated at least as favorably as domestic
companies. This provision prevents governments from promoting
Will GATS Reduce Government Services?
When the concern is raised that GATS will lead to the privatization
of government services, the WTO says not to worry, since services
"supplied in the exercise of government authority" are
exempted in Article 1. But in fact Article I goes on to say that
to qualify for the exemption, such services must not be supplied
"on a commercial basis, nor in competition with one or more
service suppliers." If a government agency charges a fee,
is it providing a service on a commercial basis? If a town has
a private school as well as public schools, is there competition?
Since none of this is further defined in GATS, the exception is
so full of holes that it is almost impossible to say with certainty
what local, state or federal government services are exempted.
As a result, public services are likely to be forced into
constant competition with the corporations leading to slashing
of labor costs (including wages) and services to the poor.
Take health care. Since the IMF and World Bank imposed structural
adjustment on Latin American countries, U.S.-based insurance companies
such as Aetna International, Cigna lnternational and the American
lnternational Group (AIG) have profitably entered the Latin American
market with "managed care" programs by appealing to
the healthy segments of the population. The poor are left to rely
on a defunded public sector. The prestigious New England Journal
of Medicine lays out the corporate agenda quite clearly in "The
Export of Managed Care to Latin America:
"As for-profit managed-care plans expand in the United
States, the rate of profit begins to fall and the market becomes
increasingly saturated [...]. Under these circumstances, corporations
seek new markets abroad [....].The executives of corporations
that have entered the managed-care market in Latin America have
reported substantial revenues relative to expenditures. They have
predicted strong profit margins in the next several years and
have expected high rates of return for investors [...]."
(Karen Stocker, et. al. - April 8, 1999).
No wonder the U.S. wanted GATS so badly.
More Trouble Ahead
Now big changes are in the works to extend the reach of GATS.
Negotiations on GATS are going forward even though the "WTO
millennium round" of negotiations came to a screeching halt
in Seattle. Why? The original GATS agreement requires further
negotiations to pursue "progressive liberalization"
beginning in January 2000. lt's called the "built-in"
The service industry corporations see a real opportunity here.
J. Robert Vastine, President of the U.S. Coalition of Service
lndustries, stated in 1999:
"The overarching objective of the global business community
in the coming negotiations should be both to broaden and deepen
countries' GATS liberalization commitments. A contestable, competitive
market in every sector and in every WTO member country is the
Meanwhile, 34 countries in the Western Hemisphere are negotiating
the Free Trade Area of the Americas (FTAA) in order to further
the neo-liberal trade agenda. Not only would the FTAA extend NAFTA
throughout the Western Hemisphere, it would begin where WTO agreements
like GATS leave offin "liberalizing" trade in services.
Water. GATS negotiators have been working on the re-classification
of certain services so that they will be more easily included
in countries' schedule of commitments. Of particular concern is
the attempt by the European Union to include collection and distribution
of drinking water. This can lead to commodification of water in
two ways -- bulk sales and privatizing municipal systems.
With no quantitative restrictions allowed under market access
and no definition of what "collection" means, the collection
of water could easily lead to unlimited withdrawal of surface
and ground water for commercial sale. Rebecca Mark, speaking as
CEO of Enron's water division, Azurix, said her goal is to fully
privatize the global water market. She estimates its worth to
be approximately $300 billion. (The World Bank places the value
at closer to $800 billion.)
In Bolivia, under pressure from the World Bank, the government
passed a law which led to the privatization of the water system
in Cochabamba. The city signed a contract with a private consortium
in which Bechtel Corporation had a majority interest. Water bills
quickly became unaffordable. Cooperative distribution systems
were dismantled. People first refused to pay, then took to the
streets to protest. In the end, after police violence, the people
won and the contract was terminated. If Bolivia had put water
in its schedule of commitments under GATS, there would have been
no turning back.
Transparency. The U.S. negotiators want all member countries
and their political subdivisions to publish their proposed regulations
to allow for public comment from other member countries. This
could be a very significant burden on local communities who would
have to consider such comments from around the world before adopting,
for instance, a change to their regulations for recycling or water
treatment. And who would comment? Most likely the transnational
corporations which have the resources to keep track of how such
proposed regulations would impact their business interests. This
"unfunded mandate" is not really about democracy; it
is about corporate power.
The FTAA may go even further in establishing corporate rule
by applying NAFTA's "investor-to-state" provision to
services. This would allow corporations to sue member countries
when their right to profit from services is violated.
The rules written into GATS and anticipated under the FTAA
benefit global corporations and investors at the expense of local
communities and democratic government authority. Such rules also
diminish the power of nations and local communities to shape local
economic development, promote local culture, provide public services,
or advance the rights of women, minority populations and indigenous
Trade Organization (WTO)