The World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS) was first established as one of the agreements to be enforced by the WTO in 1995. Rules about actual trade in services across borders is only a small element of GATS. The WTO labelled the GATS the world’s first multilateral investment agreement because GATS rules cover every conceivable way that a service might be delivered, including granting foreign corporations the right to buy or establish new service-sector companies within the territories of other countries and by sending people across borders to perform services.(Click here for more on the GATS in Brief.)
Negotiations are now underway at the WTO to expand GATS coverage and requirements. In May 2005, the United States released its negotiating proposal for these on-going GATS talks. This “2005 United States Revised Offer” document includes the list of service sectors that the United States previously committed to comply with GATS’ extensive rules, as well as additional services that U.S. negotiators are now offering to subject to GATS rules. (Click here for an explanation of GATS rules.)
“Each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.” Agreement Establishing the WTO, Article XVI.4
The potential effects of the 2005 Revised Offer on federal, state and local authority to regulate services are enormous. Understanding the potential multifaceted impacts of the GATS is particularly vital for state and local officials, because the GATS text mandates consecutive new rounds of negotiations geared towards “progressive liberalization” – in other words, greater market access for foreign firms to our public sector, and deeper coverage in service sectors regulated by state and local governments.Public Citizen set up this online GATS Directory to help highlight some of the potential challenges the GATS poses to public interest regulation in covered service sectors. The Directory is a work in progress. To analyze the impact of GATS rules on a particular service sector, it takes specialized knowledge of trade rules and jurisprudence, as well as specialized knowledge of complex areas of domestic regulation such as electricity, telecommunications and higher education.
“Virtually every normative provision of the GATS is interesting and even novel. Some of these provisions are so obviously problematic that they cry out for substantive renegotiation.” Former USTR negotiator Jeffrey Lang, Georgetown University Law Center, January 21, 2000.
If you are a specialist in a service sector implicated in the GATS negotiations, let’s talk. Your expertise could help others become better informed. We ask that you review the U.S. service-sector commitments in light of your expertise. Are there limitations placed on the number of people or companies that can operate in the service sector with which you are familiar? Are there limits on the size of the operation or on the type of legal entity that can provide the service? Are foreign suppliers treated any differently from American ones, such as in decisions over who receives government grants? Do foreign firms complain that federal, state or local regulations in your service sector are unnecessarily burdensome? If so, then these rules or regulations may be violations of the GATS, and should be reflected in the Directory’s list of concerns. We are open to making changes in the Directory that will accurately reflect both the current status of the GATS negotiations and the risks posed to domestic regulations in covered service sectors. Due to their complexity, the U.S. offers on postal services and financial services have not been covered in this analysis, with the exception of insurance. Nor have we included many aspects of the U.S. horizontal schedule or U.S. most favored nation exemptions. That said, the GATS Directory contains a great deal of information on the potential effects on sectors with significant implications for federal, state and local regulatory authority.
For citation purposes: The GATS Directory is a work product of Public Citizen’s Global Trade Watch. It was made available to the public on March 22, 2006. Ellen Gould, contractor, and Mary Bottari of Public Citizen are responsible for the content. Special thanks to Saerom Park, James Meehan, and Sara Johnson of Public Citizen for their important contributions to this project.
- Getting Started
- Explanation of the Directory (how to search, definition of terms)
- Important Issues for Understanding the Directory
You may first want to read:
- Public Citizen’s GATS Backgrounder
- 2005 Revised Services Offer of the United States
- The text of the WTO GATS agreement
Explanation of the Directory
How to Search
You can search the GATS Directory in three ways: by service sector, by issue and by keyword.
- “Search by service sector” will take you to a list of all service sectors included in the Directory, where you can check off a service sector of interest to see an analysis of that sector.
- “Search by issue” allows you to choose one or more pre-defined issues (such as “environment” or “offshoring”) to see many sectors in the Directory with analyses related to that issue.
- “Search by keyword” is less precise than “search by issue,” but allows you to search the entire database for the presence of a particular word or term in the discussion section.
How to read the Sector-Specific Analysis
Once you check off a service sector and pull up the sector-specific analysis, the GATS Directory follows this format:
- Service Sector – At the top of the page you will see the name of the service sector and further language from the 2005 Revised Offer defining that sector. You can distinguish old (1995) commitments from new, because text changed or added in the 2005 offer is in italics. Sector names that are both bold and italicized (such as Education Services > Higher Education) are those sectors in which the United States is proposing to make new commitments.
- Notes on Commitments – The limitations the United States has placed on its commitment, if any, are briefly summarized here. “Completely committed” signifies that the United States has not placed any limitations on how GATS rules will apply, except for its across-the-board (horizontal) limitation on foreign service workers working in the United States (defined in the GATS as “Mode 4”).
- UN Definition of Sector (CPC Provisional Code) – This list explains what the U.S. commitment involves according to the classifications provided by the UN Statistics Division, and you can link to these categories for additional explanatory notes. For the first time in the GATS negotiations, the United States is supplementing its own description of its commitments with the standardized UN classification code commonly used by most WTO members. These codes can change the meaning of previous U.S. commitments by defining them in a way that was not originally intended by U.S. negotiators. Where the U.S. revised offer does not relate commitments to this code, the concordance prepared in 1997 by the U.S. International Trade Commission is cited.
- Discussion and Concerns – This section briefly notes some of the potential ramifications of subjecting the listed service to GATS rules. Special attention is given to public interest policies that potentially violate GATS market access or national treatment rules.
- Bargaining Requests – This list notes some of the known requests that other WTO Members are making of the United States. This is not an exhaustive list because governments have refused to make these requests public. Bargaining requests made to the United States by the European Commission are the only ones that have been leaked. Requests from other countries are inferred from their publicly available position papers.
Important Issues for Understanding the Directory
The “Discussion and Concerns” section of the analysis touches on some of the key, problematic aspects of the GATS that may impact the U.S. commitment. This discussion may reference the following issues:The WTO Appellate Body’s 2005 ruling in the U.S.-Gambling case. One of the most important WTO rulings concerning GATS was on a challenge to U.S. Internet gambling policy. Although the United States succeeded in convincing the WTO Appellate Body that U.S. laws banning Internet gambling could be justified under the “public morals” General Exception to the GATS (with the exception of the Interstate Horse Racing Act), the United States lost three significant aspects of its case that have broad implications:
- The United States Committed Gambling: U.S. trade lawyers argued that they did not intend to subject gambling services to GATS authority when they signed up “recreational services” to the GATS in 1995. However, over the strenuous objections of the U.S. government, the WTO Appellate Body declared that the United States had committed gambling to the GATS, because “gambling” is a subsector of “recreational services” in the UN concordance of goods and services definitions used by most WTO members to make their GATS commitments. Because of this ruling, all federal, state and local laws governing gambling must comply with GATS rules. GATS rules prohibit certain limits on the number of service suppliers (e.g. on the number of casinos), prohibit monopolies (e.g. monopolistic state lotteries) and prohibit exclusive service provider arrangements (e.g. Indian gaming compacts). The United States is now vulnerable to additional WTO challenges against these common state policies.
- Regulatory Bans Violate Commitments: The WTO Appellate Body also ruled in the gambling case that a regulatory ban in a GATS-covered service sector constitutes a “quota of zero” – in violation of GATS market access rules that prohibit numerical limits on service operations. Thus, policies criminalizing certain acts or banning certain activities, even if they treat domestic and foreign companies alike, are now presumptively WTO-illegal if a government has made unconditional GATS commitments in a particular service sector. This implicates not only the complete and partial gambling bans held by some states and localities, but also the regulatory bans in other service sectors that the United States has signed up, or is intending to sign up, to the GATS. The United States so far has made no effort to review its past commitments to protect regulatory bans in covered areas, implicating innumerable policies. For instance, the United States has not moved to qualify its existing “advertising services” commitment to protect common state and local bans on billboard advertising, even though this was an example the U.S. lawyers raised in the gambling case, when they unsuccessfully argued that equating a regulatory ban with a “quota of zero” would undercut numerous existing policies.
- Ambiguity in the Schedules Can Be Hazardous: The gambling example illustrates that a lack of clarity in the schedules can be hazardous to the public interest and state sovereignty. So far, the United States has made no effort to bring its gambling laws into compliance with the WTO ruling, and also has ignored calls by 29 state Attorneys General to withdraw the gambling sector altogether from U.S. GATS commitments. The WTO Appellate Body ruled that it is the responsibility of a WTO member country making a GATS commitment to clear up ambiguity about what its services commitments cover. In its 2005 Revised Offer, the United States has attempted to increase clarity by incorporating UN service classifications. But problems remain because: a) the United States has not done this consistently; b) the UN code has severe flaws – for instance, “services incidental to fishing” may mean only a few services related to fishing or all activities involved in fishing if they are done under contract; c) the United States continues to rely on footnotes of dubious legality, and other methods of limiting its commitments, that may or may not stand up in the event of a challenge in the WTO dispute system.
GATS text on government services means many public services could be required to comply with GATS terms. Simple proclamations by GATS proponents that government services are “exempt” from the GATS are highly misleading. GATS Article I has a poorly-written clause excepting services “supplied in the exercise of governmental authority.” However, to qualify for the exception, public services cannot be supplied “on a commercial basis” or “in competition with one or more service suppliers.” Neither of the latter terms is defined, so it is not known when a governmental service crosses the line to become covered by a GATS commitment. If fees are charged for the service or if there are private firms providing these same services on a local, regional or national basis, the public service may not be protected by GATS Article I.
Since GATS rules prohibit monopolies and exclusive service providers, public services (for instance, municipal transportation services or libraries) signed up to the market access and national treatment rules of the GATS may have to be opened up to competition to foreign for-profit service providers. Public subsidies and grants may have to be shared with for-profit firms on a nondiscriminatory basis unless otherwise specified. In its 2003 GATS offer, U.S. negotiators did take steps to protect certain public services and public funds. For instance, the U.S. had limited commitment of libraries and museums by stating: “except non-profit, public, and publicly-funded entities,” but it has removed this language in its 2005 offer. U.S. negotiators appear to be gambling that GATS Article I will protect public services and public funds without further clarifying language, but this may be a risk that few states and localities would be willing to take. Unfortunately, they have not been consulted on this or any other GATS issue in a meaningful fashion.
Certain types of government procurement are covered under the GATS. GATS Article XIII contains language that exempts some “government procurement” activities from the application of commitments. To be exempted, however, the services purchased have to be “for governmental purposes” and “not with a view to commercial resale or with a view to use in the supply of services for commercial sale.” These latter terms are not defined. WTO members are divided in their interpretation of this article. Even if this poorly-written language is interpreted narrowly, there are significant commitments in the U.S. schedule that may not qualify for the government procurement exception. For instance, under the category of construction, the U.S. committed sports stadiums. Stadiums clearly qualify as government procurement “with a view to use in the supply of services for commercial resale,” as they become giant commercial operations that benefit the home team.
Other WTO members have differing interpretations of GATS Article XIII. The European Commission appears to be negotiating on the basis that whenever governments contract out services in a service sector covered by the GATS, then foreign firms should be allowed to bid for those contracts. If a nation does not want to open up these contracts to foreign firms, they must specifically indicate this in their schedules. If this interpretation is correct, federal, state and local governments that procure legal services, architectural services, computer services, business services, telecommunications services, construction, engineering, environmental or transport services (a sample list from the U.S. schedule) may be required to advertise their procurement contracts in a manner transparent to international bidders, and give adequate time and due consideration to bids from foreign service providers. As there is no threshold for these procurement contracts as there are in other trade agreements, even the smallest contracts may have to be opened up in this manner. Certain “buy local” policies and procurement rules prohibiting the offshoring of state service contracts could be GATS violations. It is notable that the United States limited its commitment for wastewater and refuse disposal services with the term “contracted by private industry.” This language excludes wastewater and refuse disposal services contracted out by local units of government. However, nowhere else in the schedule did the U.S. take similar steps to exclude public-sector procurement from GATS rules.
New rules on domestic regulation pose hazards for state and local governments. As part of the WTO “Doha Round,” negotiations are taking place under GATS Article VI.4 to establish new constraints on the domestic regulation of services that would apply not only to GATS-covered service sectors, but across the board to all service sectors. The proposed “disciplines on domestic regulation” could severely limit the regulatory authority of all levels of government. Nondiscriminatory service-sector regulations applied by federal, state, and local governments could be challenged on a variety of new grounds. The mandate of the WTO Working Party on Domestic Regulations is to restrict WTO signatory countries’ qualifications and licensing requirements as well as technical standards to those that are not unnecessarily burdensome. A WTO tribunal would be the ultimate arbiter of what constitutes “a burden” to commercial interests. Many WTO members are advocating for the application of a “necessity test” for domestic service regulation, which would require nations to prove that challenged regulations are both necessary and least trade restrictive. (In the 12 WTO cases where the necessity of measures has been challenged, the defending nation has won only two cases.) The domestic regulations rules may also contain requirements for global harmonization of qualification and standards, as well as provisions for recognizing other countries’ professional licenses (for accountants, lawyers, engineers and potentially many others). Any final disciplines on domestic regulations would also apply to government procurement at the federal and subfederal level as provided for in GATS Article XIII.