Letter to Tony Colman MP from Barry Coates,
Director, World Development Movement
Thank you for raising the issue of the General
Agreement on Trade in Services (GATS) at the IDC hearing on the
Globalisation White Paper. I thought, in view of the Secretary
of State's dismissive response, that I should provide some examples
of our concerns. There are many, including constraints on universal
access to basic services by the poor. In view of your interest
in sustainable development, I will use three environmental examples.
1. Under market access provisions, governments
would not be allowed to impose some restrictions on service sectors,
whether or not they are discriminatory against foreigners. Some
examples of restrictions that governments might wish to impose
include limits on the carrying capacity of ecosystems, for example,
the number of boats allowed to dive on coral reefs (such restrictions
are widely used to promote sound management of most of the major
However, GATS would view such restrictions as
a limit on trade or investment in services (tourism is defined
as a service under GATS). Other examples of restrictions that
may be applied include restrictions on tourists visiting sites
where turtles are laying their eggs or limits on the number of
golf courses where there are constraints on water supply (a controversial
issue in Thailand).
2. Under national treatment provisions,
the very basis of modern conservation is threatened. If there
is one thing that conservationists have learned, it is that local
people will play a stewardship role if they are given an economic
stake in the management and use of their natural resources. This
has become the dominant conservation practice over the past two
Yet, according to GATS, this is discrimination
against foreign companies (conservation schemes will reserve rights
to local people, give them a financial interest or give them preferences).
National treatment under GATS states that the foreign service
supplier must be treated at least as well as the domestic supplier
(it can be better, and due to subsidies paid to attract foreign
investment, frequently isbut it cannot be worse). Many
examples of local benefit sharing could be ruled out.
For both of the above examples, the government's
response would be that developing countries sign up to these agreements
and have the right to make exceptions. This may theoretically
be true, but in the real world, it is impossible for most developing
countries, with few staff, little expertise in trade policy and
little consultation between trade ministries and other departments
to make the proper scheduling. Already under GATS there have been
1,400 scheduling errors, many by countries such as Canada.
Further, there are new environmental issues
that arise that cannot be anticipated at present. It is worth
asking what developing countries would have been able to anticipate
in terms of their environmental problems 20 years ago. And GATS
is effectively irreversible, as the government concedes.
Even if developing countries did not make specific
exceptions in the sectors outlined above, it may be argued that
the government of that country could make the case that the regulation
was allowable under GATS because it is a "necessary"
restriction. However, as pointed out below, this is contested
under GATT and WTO case law. In addition, the uncertainty over
whether or not such a measure would be allowed would act as a
"chilling" effect, and mean that many governments (particularly
the poorest countries) would decide not to implement environmental
regulations to avoid risking a WTO challenge.
3. It is not widely understood that GATS
is not entirely a "bottom-up" agreement. Beyond the
"voluntary commitments", there are "general obligations"
that apply to all sectors, whether or not they are scheduled
by governments. The most controversial of these are provisions
related to domestic regulation. These may have significant effects
in the rich world as well as the developing world. An example
from the Canadian researcher, Ellen Gould, refers to the UK's
proposals to impose new standards on water companies to conserve
the environment. The same issues would apply to developing countries
with similar regulations.
Under Part VI of GATS, governments are prohibited
from imposing regulations that are "unnecessary". There
are several criteria under current negotiation to enforce this
standard. It is likely that the tests will include provisions
that the regulation must be necessary to achieve the objective,
be proportionate, not be more burdensome than necessary and must
be least trade restrictive.
The WTO's case law on necessity does not inspire
confidence. Of the 11 GATT and WTO cases that have examined necessity
provisions, including cases on dolphin by-catches, turtle conservation
and air pollution regulation, in only one has the necessity test
been upheld (and that, the recent asbestos case, is under appeal).
Perhaps the most important issue is that these
cases will be decided according to trade law and adjudicated by
a panel of trade lawyers. The criteria will not look at whether
these are, for example, the most effective environmental measures.
Rather, the criteria will be tests such as whether the water regulations
are necessary, not more burdonsome than necessary, proportional
and least trade restrictive.
Would the UK's water regulations withstand such
a challenge? The government may contend that they are necessary,
but the WTO case law example raises doubts as to whether they
would withstand a challenge. The foreign water companies could
claim that the regulations are more burdensome than necessary
(eg the government could pay them subsidies instead).
If there is any doubt about whether regulations
are allowed under GATS in a country with a well-developed regulatory
regime, such as the UK, then there will be far many more such
concerns in most developing countries. The danger is that, as
in the Asian financial crisis, liberalisation precedes the establishment
of a strong regulatory system, with damaging consequences.
There are many more examples. WDM has published
research reports and briefings for MPs that summarise some of
the concerns. I really believe that GATS is a very serious issue
that demands very serious examination. The WTO Secretariat calls
it probably the most important trade agreement since 1948. To
my knowledge, there has been no debate on it in the House of Commons.
Negotiations are about to reach a crucial stage.
It is therefore frustrating when concerns over
GATS are dismissed by the Secretary of State for International
Development as "misinformed and misleading". Our meetings
with UK Department of Trade and Industry officials give us little
confidence that they are able to look beyond the perceived interests
of British multinational service companies to examine the full
range of issues at stake.
So far, we have not been able to meet with Ministers
on GATS. We would particularly appreciate a chance to discuss
these issues with the Secretary of State for Trade and Industry,
Stephen Byers. During the Seattle conference, we were impressed
by the time he devoted to listen to NGOs and some developing country
governments. We remain disappointed that his calls for "fundamental
and radical change" of the WTO have gone unheeded.
We hope that some members of the government
and Parliamentarians will take the time to read and understand
the agreement, examine its implications through an independent
and rigorous assessment, and then debate what this country and
the developing world should be signing up to. WDM is calling for
MPs to sign EDM 260, calling for assessment and debate on GATS.
Barry Coates, Director
World Development Movement