GATS HANDBOOK
(WTO’s General Agreement on Trade in Services)
By: RUTH CAPLAN
ALLIANCE FOR DEMOCRACY
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National Office 681 Main Street, Waltham, MA 02451 888-466-8233 www.thealliancefordemocracy.org

 

What is GATS?

The General Agreement on Trade in Services (GATS) is one of 15 agreements adopted as part of the Uruguay Round of trade negotiations concluded in 1994 which greatly expanded the 1947 General Agreement on Tariffs and Trade (GATT). The Uruguay Round also created the World Trade Organization (WTO) to enforce the agreements. Today 139 countries are in the WTO. Every country in the WTO is part of the GATS agreement.

Services cover everything from McDonald’s hamburger flippers to international bankers. Health care, education, lawyers, accountants, advertising, media, travel, even municipal services like sewer and water, are all services which today makes up about 70% of the U.S. economy.

The goal of bringing services into the WTO is to make sure they are "liberalized." This means promoting privatization of public services like education. 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 (TNCs).

The U.S. pushed very hard to have services included in the Uruguay Round negotiations, but did not succeed in requiring the inclusion of all services. Countries resisted the threat to privatization of their public services and would only agree to GATS if they could choose which services to include in the agreement. So GATS has country-specific schedules of commitments which detail which services are covered. Nonetheless, GATS creates legally enforceable obligations backed up by trade sanctions.

The WTO says:

GATS is the first multilateral agreement to provide legally enforceable rights to trade in all services. It has built-in commitment to continuous liberalization through periodic negotiations. And it is the world’s first multinational agreement on investment, since it covers not just cross-boundary trade but every possible means of supplying a service including the right to set up a commercial presence in the export market.

This sets out rights without responsibilities for corporations, including the right for U.S. corporations to set up operations in other countries immune from U.S. laws.

The "Built-in" Agenda

Now big changes are being proposed. GATS is part of the "built-in agenda." Negotiations are going forward even though the "millennium round" of new WTO negotiations came to a screeching halt in Seattle. This is because the original GATS agreement requires negotiations to recommence at the beginning of 2000 in order to pursue "progressive liberalization."

The service industry corporations see a real opportunity here. To quote J. Robert Vastine, President of the U.S. Coalition of Service Industries, speaking in Tokyo on May 13, 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."

The end result of this scenario would be government of the corporations, for the corporations, and by the corporations. What public services remained would be forced into constant competition with the corporations leading to slashing of labor costs and services to the poor.

How does GATS operate?

The trade ministers of WTO member countries meet in regular and, when negotiating, in special session. Countries also appoint representatives to the Council on Trade in Services which meets more frequently to do the legwork for the ministers. The WTO provides staffing through its Secretariat located in Geneva. The U.S. Trade Representative’s office (USTR) is the lead U.S. agency, which also maintains staff in Geneva.

If a member country believes another member country has violated GATS and they cannot resolve their disagreement, the aggrieved country can bring its claim to the WTO's Dispute Settlement Body, which has not been receptive to environmental, health and other public concerns. This panel meets in closed session, acting like a secret tribunal. Decisions are enforced by the winning country imposing economic sanctions on the losing country until it comes into compliance.

How Will GATS Impact Our Lives?

Privatization of services impacts how our kids get educated, the elderly are cared for, workers are treated, even how we obtain water to drink. GATS rules will accelerate a trend toward privatization of human services already underway in the United States. In a democracy, people should be able to decide what human services they want the government to provide.

Under GATS, once a country agrees to put a service into its "schedule of specific commitments," it is very difficult to change course. A country has a three-year window in which to withdraw a commitment and must agree "on any necessary compensatory adjustment" for the withdrawal. Also, at the time the U.S. makes a commitment, it can exempt existing state laws, but once the commitment is made no states can pass similar laws without violating GATS.

Education Already corporations have made major inroads into our educational system. High schools are contracting with private businesses for guidance counselors; text books are using corporate logos in their exercises; Zap Me! is offering schools free computer equipment in return for displaying a constant stream of advertisements on the screens; and Coke made a deal with Colorado Springs schools to provide $8.4 million in funding over 10 years in exchange for the schools contracting to sell 70,000 cases of Coke products to students every year.

According to David Kearns, the U.S. Chair of Xerox, "Business will have to set the agenda...a complete restructure driven by competition and market discipline, unfamiliar grounds for educators."

When knowledge becomes privatized, it is no longer a common heritage to be used for the common good. Maude Barlow writes in The Ecologist: "The intellectual property provisions of NAFTA and GATT treat knowledge as a commodity and as the exclusive property of the company that takes a patent or holds a copyright on it." The inclusion of education under GATS would accelerate this process and make it harder for citizens to turn it around.

Health Care "...it is not health which makes money but ill health," states Agnes Bertrand in The Ecologist. The WTO staff says countries should reconsider the "depth and breadth of their commitments" on health and social services, which are "trailing behind other sectors." This means more privatization, deregulation and competition by foreign suppliers.

Privatization of public health services increases inequity. The WTO acknowledges that "private health insurers competing for members may engage in some form of ‘cream skimming’...private clinics may well be able to attract qualified staff from public hospitals without...offering the same range of services to the same population groups...." According to Public Services International: "The elite will be able to access private TNC-controlled care; the rest will have to make do with the shrinking public system." U.S. managed care corporations are doing just this in Latin America.

As mobility of health care professionals is encouraged, there will be pressure for a downward leveling of standards for medical training and qualification resulting in a reduction in health quality standards. Further, health service providers may encourage rich foreign clients while ignoring poorer clients in their own area as is already happening in northern Mexico. Finally, "privatization brings with it a view of labour as a cost, rather than an investment in skills," notes the PSI report, leading to use of less skilled labor to replace more skilled labor performing the same tasks.

Water With water scarcity becoming widespread, partly due to the pollution and misuse of water by corporations, companies like Bechtel and Enron want to profit from this scarcity by supplying water in bulk to those who can afford it. While water itself is a commodity, the operation of water pipelines and ships to supply bulk water is a service.

The local distribution of drinking water is also a service. In the U.S. this is primarily a municipal function. But today, TNC’s want to privatize these systems, as has already been done in countries such as France and Great Britain.

Rebecca Mark, speaking as CEO of Enron’s water subsidiary Azurix, said she would not rest until all the world’s water has been privatized. Contrast this with the words of Vandana Shiva: "Privatization and commodification of water are a threat to the right to life."

The threat is at our doorstep. In California, the state constitution guarantees that the people have the right of ownership of the water, but tragically the people are losing control of this right to agribusiness, private land companies, and water speculators like Azurix. Since 1992, some companies, operating as federal contractors, have been given the right to sell some of California’s water on the open market. In 1995, the state also gave its contractors the right to sell water.

The European GATS negotiators want to be sure that drinking water is included in the GATS agreement because they have large TNC’s like Suez Lyonnaise des Eaux and Generale des Eaux, a division of Vivendi SA, which are involved in privatizing municipal water services around the world, including the city of Indianapolis.

Now the U.S. negotiators are figuring out how to respond. They know there is controversy in the U.S. about having GATS cover water. U.S. corporations would like limited coverage in areas where they are competitive with the European corporations. Advocates for environment and justice don’t want water covered in GATS at all. The U.S. is looking for a compromise position. They are willing to propose that GATS "carve out," i.e., exclude, transportation of bulk water across international borders by private companies. This would be good from the perspective of citizens and organization who believe water is a RIGHT not a need to be supplied by the market for profit.

But the U.S. is considering a more compromised position on water services within a country such as water treatment, distribution, and sewage treatment. They have suggested limiting the application of GATS in the U.S. to commercial applications. Unfortunately, this approach does not deal with the fact that other countries might have a harder time resisting the pressure from TNC’s to put public water systems on their schedule of commitments. If a country does this and later realizes it made a mistake, it could be too late to change course.

Encouraging the private sector to supply water for commercial uses could lead to less water being available for public uses like public drinking water and wildlife protection. Also, if big commercial users get water from private sources, public water supplies will have to carry more of the public infrastructure costs, leading to higher rates. This is another form of cream skimming.

Finally, GATS fits in nicely with the IMF and World Bank’s agenda to promote privatization. In Bolivia, under pressure from these institutions, the government passed a law which led to the privatization of water in its major city of Cochabamba. The city signed a contract with a private consortium in which Bechtel 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.

Prisons The trend in the United States toward privatization of prisons has been quite dramatic over the last decade. According to AFSCME, there are now 193 for-profit prisons in operation or under construction in 30 states with 43 in Texas and 24 in California. Altogether they account for 7% of the prison population. Profits passed the $1 billion mark in 1998.

The two largest private prison corporations in the US are Wackenhut and Corrections Corporation of America. These corporations have already become transnationals. CCA alone manages 82 prisons with 73,000 beds in 26 states, Puerto Rico, Great Britain, and Australia. Wackenhut extends its reach to South Africa and Canada.

Not only are prisons being privatized, but 36 states allow corporations to set up factory production in prisons where wages are low and workers forced to be compliant. The New York Times reports: "Private sector programs, which exist in 36 states and employ 3,500, have doubled in size since 1995 after years of almost no growth." (3/19/00, p. 22)

Recent studies report that minorities are being targeted by the judicial system: "black men are sent to state prisons on drug charges at 13 times the rate of white men" even though five times as many whites use cocaine; minorities are given longer sentences and treated more harshly than whites. These three trends -- private prisons, private sector production in prisons, and a judicial system which targets minorities -- are creating a system tantamount to slave labor.

Workers and Unions GATS is likely to accelerate the use of cheaper labor abroad facilitated by use of the internet in providing many services. Privatization of government services will allow for replacement of public sector unions with non-unionized workers. This loss of worker power will further accelerate the race to the bottom in wages.

There cannot be justice at home or abroad when human services are taken out of the public sector and given over to profit-driven corporations. This trend is being promoted by the overall goal of privatization of all services through GATS. How much will be achieved in this round of negotiations remains to be seen.

Aren’t Government Services Excepted?

The United States Trade Representative’s office and the WTO Secretariat say not to worry. All government services are excepted under GATS Article I, section 3 (b) and (c). But is this really true? It is important to understand just what these sections say.

Section (b) says "'services’ includes any service in any sector except services supplied in the exercise of governmental authority." Sounds fine, right? Read on. Section (c) says "'a service supplied in the exercise of governmental authority’ means any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers."

Now it just so happens that "commercial basis" is not defined in GATS. The USTR staff say they cannot provide a definition, nor can the WTO staff. Member countries would have to agree on the definition. Meanwhile, if a dispute arises over whether a government service is covered, it would be left up to the dispute settlement procedures to decide the meaning.

"Competition" is also used without any further explanation. If there is one private school in a community, does that mean there is competition and the public system is not exempted? If one community is totally public, but the next has a private school which will accept students from both communities, is there competition? Again, the USTR and WTO staff cannot provide the definition.

In sum, this exception is so full of holes that it is almost impossible to say with certainty what local, state or federal government services are covered. One thing is for sure, the police and military are exempted from GATS under the "public safety" general exception.

Government Procurement

GATS Article XIII calls for "multilateral negotiations on government procurement in services under this Agreement within two years from the date of entry into force of the WTO agreement." Six years after GATS was signed, these negotiations are still ongoing. There is, however, a government procurement agreement under GATT which only covers goods.

What Exactly Are the Provisions of GATS?

Some of the GATS provisions will be familiar to anyone involved in the fight against the Multilateral Agreement on Investment (MAI). Under GATS some of these apply to all sectors whether or not they are included in a country’s schedule of commitments. Others apply only to those sectors included on the schedule.

Most Favored Nation Treatment (Article II) All WTO countries must treat services and service suppliers from any member country no less favorably than service suppliers in any other member country. This applies to ALL services, whether or not they are on a country’s list of commitments. The only exception is government procurement of services (see above). However, at the time the agreement was signed, countries were allowed to take one-time only temporary exceptions which are now up for review.

National Treatment (Article XVII) Services and service suppliers of member countries must receive treatment no less favorable than that given to domestic services and service suppliers. This provision only applies to the sectors included in a country’s schedule of commitments. As with the MAI, a country could treat foreign corporations more favorably than domestic ones. Take prisons for example. Once the U.S. puts this sector on its schedule, it would be WTO illegal for communities to pass an ordinance which restricts the building of private prisons to domestic corporations.

Transparency (Article III) All member countries are to publish all "measures" relevant to GATS. Measures include those by "central, regional or local governments and authorities; and non-governmental bodies in the exercise of powers delegated by central, regional or local governments or authorities." The full implementation of this provision is a top priority for the U.S. which wants to go even further and require proposed regulations to be published (see below).

Every law or regulation even in your local community relating to services is subject to scrutiny under GATS. However, corporations are protected from the government disclosing confidential information "which would prejudice legitimate commercial interests of particular enterprises."

Domestic Regulation (Article VI) This requires that domestic regulations "do not constitute unnecessary barriers to trade in services." The disciplines developed under this section can be used to overturn local, state or federal regulations even if there is no discrimination based on National Treatment or Most Favored Nation.

General Obligations. Article VI could also become a vehicle for setting "general obligations" which would not be limited to country-specific commitments, a position already taken by the WTO Secretariat. This could be a major intrusion on national, state and local sovereignty.

More 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 TNC’s who 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.

Necessity. The Council for Trade in Services is given the authority to "develop any necessary disciplines" to ensure that such regulations are "not more burdensome than necessary to ensure the quality of the service" and are "based on objective and transparent criteria, such as competence and the ability to supply the service." Currently countries are interpreting this to mean they have to demonstrate the necessity of their regulations. This potentially gives the Council much leeway to create international regulations that can trump domestic regulations.

The Working Party on Domestic Regulation, established by the Council, is looking at legitimate objectives which do not have to meet the necessity test. The European Communities (EC) has submitted a paper covering "necessity" which lists proposed legitimate objectives which has some appealing entries such as "protection of consumers," "protection of the environment," "promotion of welfare, including public policy objectives," and "ensuring pluralism and a media system based on free and democratic principles and including a public service broadcast system."

The WTO Secretariat has responded with its own list: economic efficiency, promoting competition, administrative efficiency, and economic development. If these were to be adopted, it would be a major assault on domestic environment, consumer protection and human health regulations. Think about how this might impact health care, education, treatment of prisoners, provision of drinking water. Fortunately, the U.S. negotiators are opposed to adopting a list of "legitimate objectives," since there is a significant risk that we would end up with the WTO’s list.

Tribunals. To top it all off, Article VI has a domestic version of the investor-to-state provision that has caused such folly in NAFTA and was slated to be part of the MAI. GATS calls for each country to set up its own tribunals where service suppliers can take their grievances and expect appropriate remedies.

It is no surprise that powerful corporate lobbies like the US-based Coalition of Service Industries and the European Services Forum have put expanding the GATS domestic regulation provisions on the top of their agendas.

General Exceptions (Article XIV) Here at least measures "necessary to protect human, animal or plant life or health" are excepted from GATS altogether ....except that the preamble has a caveat large enough to drive a truck through. Such measures cannot be "a disguised restriction on trade in services." It is just this language which has led the WTO tribunals to come down against environmental regulations in cases brought before them.

While Article XIV is generally parallel to Article XX of the General Agreement on Tariffs and Trade (GATT), it omits any mention of natural resources included in the GATT general exceptions. But, as we have seen in the case of water, natural resources can come under GATS. If the operation of a pipeline is a service, then is not the operation of a coal train a service or the operation of a lumber truck a service? By not exempting such services, could not GATS undercut the exemption contained in GATT?

Schedules of Specific Commitments (Article XX) The member countries’ schedules of specific commitment were annexed to the GATS agreement at the time of its adoption. Now the pressure is on countries to further "liberalize" their service sector by increasing their commitments. If a country fails to state a limitation on national treatment or market access when their schedule is committed, they are just out of luck. This includes conditions and qualifications on national treatment for states or provinces and communities as well as for the whole country.

Conclusion: It’s Time for Action

By promoting the privatization and deregulation of all services, GATS represents a major restructuring of the global economy and a loss of sovereignty at the local, state and federal levels. When Renato Ruggiero boasted "We are writing the constitution of a single global economy" that "we" he was referring to is the trade ministers in bed with the corporations, not us.

It is essential that citizens in the U.S. and around the world come together in a massive movement to stop further deregulation and privatization of these services. There is much that can be done locally to build this movement. Here are a few ideas.

* Let the USTR negotiators know that you don’t want water included in GATS at all. Write to U.S. Trade Representative Charlene Barshefsky with a copy to Chris Rosetti, Director, Multilateral Services and Investment Affairs. Send your letter to : USTR, 600 17th Street, NW, Washington, DC 20508

* Get your city/town council to pass a resolution on GATS. A model resolution will be available shortly from the Alliance. Contact Ruth Caplan in the DC office 202-244-0561 rcaplan@igc.org 

* Sign the WTO "Shrink It or Sink It" letter which calls for gutting GATS, saying "areas such as health, education, energy and other basic human services must not be subject to international free trade rules." Contact Margrete Strand <mstrand@citizen.org> for a copy.

* Join Alliance list serves on GATS topics -- water, health, education, prisons -- for information and action alerts. E-mail rcaplan@igc.org

* Read and discuss reports on privatization. For starters, we recommend WATER Blue Gold (from IFG 415-229-9350); PRISONS Mother Jones May/June 2000; EDUCATION The Nation 9/27/99; HEALTH "The WTO and the GATS: What is at stake for public health?" Public Services International, http://www.world-psi.org . The Alliance also has Action Packets available on each of these topics available from the national office.

* Study the pattern of corporatization of services in your community. What changes have taken place in the ownership and management of water, school, health, and prison facilities? What have been proposed? Are any of the corporations headquartered outside the U.S.?

* After you identify the hot issues in your community, hold a community forum to look at the problems from both a local and global perspective, including the added threat which further "liberalization" under GATS poses. Select materials from the Action Packets to use as handouts.

* Join with other organizations in your community to develop a campaign around your local issues, linking them with the expansion of GATS.

For more information, contact Ruth Caplan, Co-chair, Campaign on Corporate Globalization/Positive Alternatives, Washington DC office, 3407 34th Place NW, Washington, DC 20016   rcaplan@igc.org

Phone 202-244-0561; fax 202-537-6045


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