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 local businesses.


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" agenda.

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 ultimate goal."

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.


GATS Negotiations

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 peoples.

World Trade Organization (WTO)

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