Select Committee on International Development Appendices to the Minutes of Evidence


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 coral reefs).

  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 decades.

  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 is—but 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

February 2001

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