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Eyes on Trade

Public Citizen's Global Trade Watch blog on globalization and trade


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Public Citizen's Lori Wallach and EU Trade Commissioner Pascal Lamy Sound Off on GATS

Public Citizen's Lori Wallach and EU Trade Commissioner Pascal Lamy Sound Off on GATS

Public Citizen News: Trade Negotiators Push Agreement on Health Care, Education, and Other Services by Chris Slevin

European Voice: Lamy puts US critics straight on services
European Voice, Volume 9 Number 23, 19 June 2003

Public Citizen's Lori Wallach responds

Public Citizen News: Trade Negotiators Push Agreement on Health Care, Education, and Other Services by Chris Slevin

Not too long ago, the word “trade” conjured up images of ships, laden with sacks of coffee beans, steel beams, shoes, cars and other goods steaming across oceans, ferrying goods between nations. Trade agreements generally focused on softening or eliminating protectionist measures such as import quotas or tariffs.

That’s when trade was, by dictionary definition, “the business of buying and selling commodities: commerce.” 

Today’s trade agreements cover so much more — and that’s the point that so many journalists, politicians and policymakers still don’t fully appreciate. Instead of trade pacts, countries have signed onto complex international commercial agreements like the 1993 North American Free Trade Agreement (NAFTA) and the 1994 General Agreement on Tariffs and Trade, which created the World Trade Organization (WTO).

These new commercial agreements go far beyond trade to set rules on food and environmental standards, access to medicine and more — and have been used to undermine cherished domestic laws. But few realize that these agreements also push the United States and other nations toward the privatization and corporate control of essential services, such as hospitals, drinking water systems and energy services.

The General Agreement on Trade in Services (GATS) is the latest alphabet soup agreement to shatter the boundaries of trade. It is intended to set rules for trade in “services,” as opposed to commodities like pork bellies or corn. One easy definition of services is everything you cannot drop on your foot: commercial activities such as retailing, banking, insurance, energy, telecommunications, construction, mining, toxic waste processing, tourism and food preparation. The GATS also covers “essential public services,” such as education, hospitals, Social Security, mail delivery, police, prisons, sewage systems and bulk water.

It was established in 1995 as one of 23 agreements enforced by the WTO. Having less to do with trade, it writes new rules for foreign corporations seeking to establish service businesses within the United States, promotes privatization of public services and encourages the elimination of government regulation in the service sector. All WTO countries are required to make their federal, state and local laws conform to the WTO’s rules.

A stark example of the back-door attack on vital public interest policies posed by the GATS and other trade agreements is the threat to the new corporate accounting law passed this past summer in the wake of scandals at Enron, WorldCom and numerous other corporations.  The Sarbanes-Oxley corporate accountability law was designed to sever the cozy relationship between businesses and accounting firms and end the fraudulent accounting schemes prevalent in many large companies. It was a significant step toward preventing the  Enron-like accounting scams that cost investors and workers trillions of dollars while corporate executives walked away with unfathomable wealth.

Though the U.S. Constitution gives Congress the right to pass laws, the accounting reforms could be undone by the GATS. The chief architect of the corporate reform bill, Democratic U.S. Sen. Paul Sarbanes of Maryland, in late July received a letter from Frits Bolkestein, commissioner of the European Union (EU). It wasn’t a note of congratulations. Instead, Bolkestein informed Sarbanes that the reform bill could pose conflicts in trade relations between the European Union and the United States. Specifically, Bolkestein complained about Section 106 of the bill, which seeks to prevent conflicts of interest by prohibiting corporations from entering into lucrative consulting contractors with their auditors. It requires foreign auditors, accountants and legal consultants to meet the same standards as U.S. firms when employed by companies listed on the U.S. stock exchanges and creates duplicative regulatory systems that the EU claims would be impossible for European firms to meet. The language in the section, the letter says, “would have the effect either of extending the [Security and Exchange Commission’s] current authority in a manner which from an EU point of view would be unjustifiable or indeed of chilling an important area of transatlantic trade.”

While Bolkestein’s letter politely conveys the EU’s concerns, under the GATS, the EU could challenge the Sarbanes bill as a “trade barrier” and gut the reforms.

“By adding the service sectors to WTO’s realm, almost no human activity remains outside the WTO’s rules, from health care to funeral services,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

One Size Fits All

The basic notion underlying GATS is that one-size-fits-all global rules for all services should and could be imposed upon nations that join the WTO. For instance, GATS requires that countries refrain from creating or enforcing existing domestic regulations that might leave foreign companies at a competitive disadvantage. The GATS rules also limit domestic regulations in the service sectors to those that do not “nullify or impair” new rights for foreign investors to establish service businesses in the United States. With no public participation or democratic accountability — and under multinational corporations’ heavy influence — the GATS rules are biased toward maximizing short-term corporate profits and against protecting the public interest.

The WTO secretariat has described GATS commitments as “effectively irreversible.” During negotiations among nations to implement GATS, countries offer specific service sectors to be opened to private competition. Under existing GATS rules, for instance, a U.S. state would be prohibited from reversing failed privatization experiments in sectors covered by GATS unless it is able to negotiate terms to compensate every other WTO country for the change. So, if California sought to reverse its failed electricity deregulation scheme and re-regulate the power utility sector, or create a nonprofit government service provider, under GATS rules it could do so only if the United States agreed to compensate all other WTO member countries for the lost business opportunity.

In effect, the trade regime becomes a backdoor tool for corporations to weaken public policy standards that were developed under democratic principles — and there is no way for the public to appeal. If a country violates the GATS rules, other nations can file challenges before trade tribunals composed of international trade experts who are not accountable to the public. Losing countries either pay massive trade sanctions or change their laws to comply with the GATS.

“Many of our most fundamental consumer, environmental and health protections, laws that Americans take for granted, are threatened by the GATS negotiations,” said Public Citizen President Joan Claybrook. “In addition, our fights for single-payer healthcare, public access to water and corporate fraud reform are threatened by these new, complex international commercial negotiations.”

GATS 2000 Secret Talks

The United States and EU also have pushed talks to expand the GATS by tightening the limits on domestic regulation and adding more sectors to the agreement. Talks to further expand the scope of GATS have been under way in Geneva since 2000. The so-called GATS 2000 negotiations seek “progressive liberalization” by bringing all service sectors under expanded GATS disciplines. The United States has already proposed negotiations to privatize and deregulate education, health care, energy, banking, telecommunications, environmental services (such as waste disposal and water filtration) and tourism. Details are sketchy because these bilateral negotiations have been conducted in secret; however, a draft of the EU’s “requests” was leaked in the spring of 2002 and it revealed to the public for the first time the massive scope of market access commitments sought by trade negotiators at the WTO in a number of service sectors.

“A stunning array of the essential services we rely on daily are being dragged onto trade negotiating tables as if they were widgets or steel beams,” Wallach said.

The document lists the EU’s requests for new rights for European companies to compete with public services, especially targeting the 60,000 municipal water systems for takeover by several large European water corporations. The document also lists an assortment of federal, state and local public interest regulations in service industries such as energy, legal, engineering and tourism, and demands to eliminate residency requirements for federal small-business loans. The EU also requests that state regulation of the insurance industry be replaced by a single federal agency to ease operations of European companies. In addition, the EU requests include removing residency requirements for engineering services and architecture services, and breaking open the state-run and very lucrative banking and insurance service sectors. Moreover, the EU requests full commitments from the United States for market access to U.S. postal services while also requesting the opening of alcohol distribution, which is subject to state regulation, to foreign competition.

The office of the U.S. Trade Representative will make its “offers” in response to the demands by the EU and other WTO countries by March 31 — possibly offering vital essential service sectors for increased liberalization. Early this year, Public Citizen will launch a public education campaign on the state and local level to inform lawmakers, the media and the general public about the GATS and the threat it poses to democratic accountability and domestic regulatory reforms, especially corporate reforms like the Sarbanes law.

The full European Union request document can be viewed here.   

European Voice: Lamy puts US critics straight on services
European Voice, Volume 9 Number 23, 19 June 2003

PASCAL Lamy, the trade commissioner, has hit back at "sensational" and "misleading" American claims that the EU is pushing for the mass privatization of key public services, such as water and post.

The trade chief's comments follow stinging articles in mass-circulation American consumer magazine Public Citizen, which also warn that the EU's stance in ongoing World Trade Organization (WTO) talks is a threat to global democracy by undermining government policies aimed at protecting public services.

The magazine is the publication of the group of the same name founded in the 1970s by iconic green and consumer issues campaigner Ralph Nader - who ran for president in the 2000 elections.

But Lamy retorted: "The Commission is aware that Public Citizen has made a number of sensational and misleading claims about the Community's request to the US.

"The critique is based on two misconceptions about the General Agreement onTrade in Services, namely that it promotes privatization and that the agreement is a threat to governments' ability to regulate in the public interest."

The French commissioner insisted that the EU merely wanted to ensure its firms got a chance to bid for public service contracts when governments had already opened up areas to private sector firms or where competition can actually improve performance without harming public service. For example, the current US  commitments in waste water services only cover "services contracted by private industry".

The Union has asked for an extension of this commitment to allow EU service providers to bid when municipalities contract these services out to private companies.

"This does not mean privatization of municipal sectors, as has been suggested, but if a municipality already uses or intends to use private contractors, there seems to be little reason to exclude Union service providers," he adds.

At the same time Lamy rejected claims that the Union's requests, tabled at the WTO in Geneva, "imply the abolition of rules protecting consumers, the environment or democratic decision-making by elected representatives".

The EU has "no intention of seeking the deregulation of services", he said. Moreover, Lamy said the EU had already opened up many of the areas which the magazine is targeting, such as post and telecoms, to foreign competitors.

Public Citizen's Lori Wallach responds

Dear Editor:

Mr. Lamy claims that U.S. consumer and environmental organization Public Citizen is incorrect in its warnings that the WTO negotiations to expand the services agreement -the GATS - are about privatization. (EV Volume 9 Number 23 19 June 2003) We wish Mr. Lamy's assertions were true, but his view is contradicted by the words of EC negotiators and by what is clearly stated in writing in the EC negotiating requests in these services talks.

The EC has asked in its formal negotiating requests for unlimited private sector opportunities to deliver public sector services.  If countries concede to the EC request for this unlimited access, they will be obligated under WTO rules to guarantee private companies access to "markets" that are now exclusively served by public agencies.  Under the EC demands, services that are currently delivered in the public sector will have to opened up to private sector delivery.  This is privatization.

Mr. Lamy's own negotiators have confirmed that when a nation make GATS commitments to open up a service sector to foreign competition, that commitment requires them to allow private entry into public services even if these are currently delivered by public monopolies. They have pointed out the obvious, which is that public service 'monopolies' are 'fundamentally incompatible with GATS commitments.'

In the ongoing negotiations, the EC could have asked for commitments limited to areas already privatized. It did not. Instead, both the EC and the U.S. have made requests of each other and other WTO member nations that explicitly would permit privatization and corporate acquisition of public services. Just two specific examples: the U.S. asked the EC to lift its exemption for public energy monopolies so that U.S. energy companies can enter that market and the EC has asked the U.S. to lift its exemption for public sewage systems.

All nations and their provincial and local governments have ongoing, often heated debates regarding the pros and cons of privatization.  However, under WTO services rules, once a country allows competition from foreign service providers for public service contracts, privatization becomes a binding, nearly irreversible decision requiring compensation to WTO countries if a country seeks to return a service to the public sector. The EC is entering into and biasing a debate about public services that needs to be determined locally.

Mr. Lamy's response points out one of two things: either how much GATS negotiators are operating in the dark, disagreeing on the fundamentals about what the agreement means or how worried negotiators are if the public learns what truly is at stake. Mr. Lamy has stated that despite what the EC requests actually say, the EC is actually only interested in areas where governments have already decided to contract out services, such as municipal water supply. In contrast, U.S. and Canadian negotiators have repeatedly stated that such contracts are exempt from the GATS because they fall under the category of "government procurement." Thus, even the key nations promoting the GATS negotiations cannot agree on what the consequences of the negotiations will be.

Mr. Lamy's second claim, that GATS has nothing to do with deregulation, is simply not credible. The official guide to the GATS that the EC has published for the European business sector specifically states that the GATS reflects the belief of WTO members in  "deregulation."

In fact, the GATS in its current state already contains provisions (ARTICLE XVI) that would allow challenges to public interest regulation of private sector services for a variety of reasons. Furthermore, the EC is the initiator of new proposals to add limits to domestic regulation in the GATS that would allow licensing, standards and qualifications to be declared WTO violations if they are deemed by a WTO trade panel as not "necessary." The EC has rejected other WTO countries' proposals to ensure safeguards are included in these new deregulatory provisions to protect public interest objectives, such as universal access to services.

Lori Wallach
Public Citizen's Global Trade Watch
Washington, DC



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