2 January 2003

The aim of the General Agreement on Trade in Services (GATS) is to remove restrictions and government regulations in the area of service delivery that are considered 'barriers to trade'. Many of the regulations that this will eliminate are government policies designed to protect against corporate power, to ensure universal access to basic services irrespective of people's ability to pay and policies to encourage protection of the environment.

The extent of private provision and ability of the government to regulate the market in these areas is currently the subject of fierce public and parliamentary debate in the UK. GATS negotiations could bypass these debates by binding the UK to a set of effectively irreversible liberalisation rules at the WTO.

GATS rules govern the extent and nature of the involvement of foreign companies in the delivery of services and place strict limits on the ability of governments to regulate the market in service sectors. The EC's website describes GATS as "first and foremost an instrument for the benefit of business." The WTO Secretariat has described GATS commitments as "effectively irreversible".

The Green Party of England and Wales (GPEW) has a general and fundamental concern with the negative social, environmental and democratic costs of economic liberalisation (locally and

globally) - of which GATS is but the latest manifestation. We fear that GATS negotiations will bypass controversies concerned with the regulation of markets, hence the extent of private sector provision,

by binding the UK to a set of irreversible WTO stipulations.

While the Green Party welcomes the opportunity to respond to this consultation we would like to make it clear that we believe the actual process of consultation is utterly inadequate. It is partial, biased and inaccurate. Yet the decisions made on the basis of this will be effectively irreversible.

The scope of the consultation is disappointingly limited, particularly given the level of input that the service industry is having.

Since the UK signed up to GATS in 1994 it has not produced a single document fully explaining either what the UK is committed to or the implications of its commitments. The documentation excludes consideration of the liberalisation requests the EU has already made of developing countries. The DTI document contains only a summary of requests made to the UK with a partial attempt to explain what the UK has already signed up to and numerous unsupported statements about the benefits of services liberalisation.

This agreement reaches further into domestic policy-making than any other trade agreement and should therefore be of concern to almost every civil society organisation in the UK. However, we doubt that more than a handful of NGOs will have the capacity to respond to this consultation The limited capacity of civil society organisations to respond fully to this important document will result in a very limited consultation. Issuing an 82-page consultation document and announcing it on the DTI website is simply not an adequate method of generating debate and considered responses from the vast range of civil society organisations who may have a stake in these negotiations. As the consultation only lasts until 3 January 2003, it provides only a limited amount of time to respond to the extremely complicated, technical issues involved.

The negotiations have continued with no national or European parliamentary scrutiny. The consultation document contains only a partial statement of the commitments that the Government has already made under the GATS. While this information is contained in the UK's official GATS schedules, these are difficult to read and interpret. We understand that the European Commission intends to present a first draft of the initial offers to EU member states in mid-January 2003. It seems unlikely that such a timetable will allow for adequate scrutiny by the UK Government of the responses to this consultation, nor opportunities for parliamentary discussion and public feedback, nor more detailed impact assessments. This suggests that the outcome of this consultation may not be central to the formation of British Government policy or EU policy on the GATS. In November, the European Commission announced its own consultation, asking for responses by 10 January 2003 - giving even less time to incorporate responses into official negotiating positions.

The major elements that concern The GPEW at present are:

GATS is an international agreement being negotiated by unelected officials in the European Commission, led by Pascal Lamy. Citizens of the UK have had no input into these discussions and have no right of access to papers or negotiating positions. This is in complete contrast to the open access given to chief executives of large companies and business interest groups of the continent's most powerful corporations.

The Government has made little attempt to inform the public or parliamentarians about the GATS agreement and has failed to produce research on the UK's existing commitments and the potential impact of future commitments. From the documentation provided it appears that there is no accountability to UK citizens in relation to who is making the decisions, the timetable for decisions, what decisions will be made and no enshrining of rights for citizens or protection for the environment.

It appears that the EU's position on offers is already under consideration within the EU's 'Article 133 Committee'. We believe this demonstrates a lack of commitment to transparency and accountability at the outset, which does not bode well for the future.

In order to ensure a vibrant democracy it is vital that unbiased information is freely available to all citizens through a broad education and from a variety of differentially owned and funded media.

However, the UK has been following in the steps of the US by increasing the involvement of the private sector in education. This threatens to bring about a tiered and inequitable education system. Consequently GATS rules may effectively prevent government subsidies from being selectively applied to schools needing greater support in broader educational terms. The provision of business focused education for profit threatens the long term sustainability of cultural and linguistic diversity. It may bring about a redefinition of education as a profit generating product which would focus educational priorities solely on profit, on the production of a compliant workforce and to create willing consumers.

The media should not be wholly owned by the private sector, as solely private sector provision is likely to ensure a message is given that again meets the needs of business only, without meeting the needs of the citizens. The Campaign for Press and Broadcasting Freedom (CPBF) noted; "It is now clear that many of the rules of GATS are incompatible with public service broadcasting. The Government has kept us in the dark about this far-reaching and potentially damaging agreement. The Communications Bill marks the biggest ever shake-up of how the media is governed. GATS is a crucial part of the liberalisation jigsaw, yet it is entirely absent from the current debate. This must change before the UK signs up to something it regrets but is unable to reverse." For example, the World Development Movement (WDM) has pointed out that "The Communications Bill aims to liberalise and deregulate UK broadcasting and media, opening the sector to increased foreign ownership and reducing public service obligations. This will be locked in and made 'effectively irreversible' if the UK Government concedes to pressure by other countries and media multinationals to sign-up the broadcasting and communication sectors to the free market rules of GATS. We know that the UK communications and broadcasting sector is a major target for the USA in these negotiations." WDM said that measures, seen by many as crucial to delivering high quality public service broadcasting, could be challenged under GATS rules. These include: Local content and regional production rules, limits on cross media ownership, restrictions on foreign media ownership, public service obligations and rules on the maximum number of commercial radio stations licensed in a region. This would leave the UK with the choice of facing trade sanctions or scrapping these rules. Public service broadcasting regulations, such as these, left out of a Communications Act could not be introduced at a later date even if a future government deemed them necessary. The DTI consultation reveals that the UK has received a request to "remove discriminatory subsidies" in the sector. WDM is concerned that this is a reference to the BBC - though the DTI is refusing to release the full text of the request and has made no attempt to explain the full implications of GATS.

The GATS can guarantee and lock-in access to markets, therefore they are effectively irreversible. When a government fully commits a service they are given a one-off 'right to regulate'. But this can only be exercised at the point of making a commitment. This demands an unrealistic level of knowledge. Negotiators must know all the possible regulations that exist across a broad range of services, even though they are trade rather than social policy experts. This 'one-off' right has a particularly worrying impact on future democratic decision-making, as negotiators must also predict what policies governments may want to implement in the future. Secondly, even if limitations are made, they are not secure, they become targets for removal in future rounds of negotiations.

Article XXI 'Modification of Schedules' identifies an irreversibility procedure where a commitment can be withdrawn after three years, from the date at which that commitment entered into force. However there is no agreement on when that commitment came into force. More importantly, even once the three year time limit has elapsed, reversing a commitment appears to be almost impossible. There will be a protracted negotiation where the government must come up with substitute commitments that compensate for the reversal and are satisfactory to all WTO members. The arbitration procedure can be used to its fullest extent, drawing out the process even longer.

The commitments can be altered under General Exceptions Article XIV 'where it is necessary to act to protect public interests, including safety, human, plant or animal life or health, national security or public morals'. These exceptions override all other provisions entitling a government to violate or withdraw its own commitments. In order to alter a commitment the 'necessity test' will be applied through the 'dispute settlement procedure', a long, expensive and difficult procedure. Previous cases brought under GATT have shown how difficult it is for members to meet the requirement for the necessity test.

Thus a country may be encouraged to provide market access to a particular sector without being aware of all the future implications for their policy choices. Having agreed to that commitment, they will be virtually unable to withdraw or change it. In order to do so they will have to provide evidence sufficient to pass a vague 'necessity test'. This procedure will be arbitrated by a secretive, non-elected panel of trade experts, who tend to be heavily lobbied by corporations. Often they are lawyers who have little knowledge or understanding of the wider political, environmental and human rights issues involved and who will generally not be able to refer to them anyway.

GATS is first and foremost an agreement designed to reduce regulation. As the WTO secretariat notes in its background note on Application of the Necessity Test (WTO Job no. 5929), there are "two potentially conflicting priorities: promoting trade expansion versus protecting the regulatory right of government".

Trade officials point to one sentence in the preamble of the GATS - "Recognizing the right of Members to regulate, and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives" - as though this would keep local government regulation safe from a challenge. Trade officials are counting on local government representatives not to have the time to read this statement in its context or not to know how preambles are treated in international trade law.

In Canada's intervention in one trade dispute, the Attorney General of Canada's own lawyer explained why preambles to trade treaties should not be used in the way trade officials are currently using the preamble to the GATS. He cited the relevant rules of international trade law to underline that while the purposes of a treaty set out in the preamble may be considered in interpreting a treaty, "interpretation must be based above all on the text of the treaty." It is only when an interpretation of the text is "ambiguous or obscure" that the preamble needs to be referred to (Joseph de Pencier, Counsel for the Attorney General of Canada, paragraphs 37 - 40 of "Respondent outline of argument of intervenor Attorney General of Canada" in the BC Supreme Court review of the NAFTA Metalclad case). Similar conclusions about the role of preambles have appeared in WTO rulings.

The preamble to the GATS includes both a recognition of the right of governments to regulate and a commitment to expand trade in services. If a dispute panel had difficulty interpreting the meaning of text of the agreement, they would use both of these stated goals as guidance. The right to regulate would have to be balanced against the commitment to expand trade.

But there is no reason a dispute panel would need to refer to the GATS preamble to interpret a necessity test if negotiators insert one into the agreement. There is already a track record of WTO rulings clarifying what necessity tests mean. In addition, WTO staff have given negotiators extensive briefings on how these tests work in other WTO agreements. A dispute panel could reasonably conclude that since they changed the agreement to include a necessity test, WTO members thought domestic regulation needed to be restricted even more than it already is by the other provisions in the GATS.

Article VI.4 on domestic regulation exposes possibly the single most controversial item on the negotiating agenda and poses an enormous threat to democracy. It is not clear whether the rules being developed will apply to all service sectors or only those where specific commitments have been made.

Many of these regulations are designed by local governments to meet social and environmental objectives and they remain outside of GATS articles related to specific commitments (Article XVI, Market Access and Article XVII, National Treatment). They escape the GATS rules because they neither discriminate against foreign suppliers nor impose quantitative restrictions. The regulations in question include those associated with qualification requirements and procedures, technical standards and licensing requirements, as outlined in Article VI.4.

None of the above terms are precisely defined in GATS. Yet WTO Secretariat reports shed light on how such regulations can be considered 'trade restrictive'. Licensing requirements could include authorisation regulations for the setting up of retail stores (often affected by zoning and planning regulations). Technical standards could, for instance, apply to quality regulations in the water industry.

To deal with such regulations, Article VI.4 negotiations are developing a 'necessity test'. Under this, WTO member states would first have to prove their regulations were necessary in order to achieve a WTO sanctioned legitimate objective. Second they would have to show that no alternative measure was available that was less trade restrictive. In some countries for example, companies face regulations on the use of ozone depleting chemicals. This is a technical standard regulating the way they perform their service. However, industry might argue that a greater emphasis on economic incentives rather than government controls would be a less trade restrictive way of achieving the same environmental objective – such as an emissions fee requiring firms to pay a tax on their pollution equal to the level of external damage. This is deeply problematic as there is almost always the possibility of there being a less trade restrictive alternative to a policy choice. These may not always to be most effective way of meeting the policy objectives as, for example, a firm may continue polluting if it is a price worth paying.

Trade officials have ridiculed the notion that a WTO challenge would ever be taken as a result of a local planning decision. Yet an insider trade journal reports that the major transnational retail companies are keenly interested in this round of GATS negotiations, and that the GATS will help deal with the "troublesome and excessive domestic regulation" that impedes their global ambitions. ("Large Retailing and Wholesaling Firms Expect to See the So-Far Neglected Distribution Services Sector a Priority in GATS 2000", World Trade Agenda, No. 11, June 5, 2000).

Evidence of this interest is demonstrated by the list of examples WTO members have submitted for what needs to be "disciplined" by new GATS constraints on domestic regulation. "Zoning and hours of operation" appears on this list, as well as many other items in municipal jurisdiction (See "examples of measures to be addressed by disciplines under GATS Article VI:4" excerpted from an unreleased WTO document.) There are clearly WTO members, acting on behalf of their domestic retail industry, who view planning regulations as a problem and want new legal grounds to be able to challenge them. So it is entirely realistic to think that once new grounds are established in the GATS to challenge zoning regulations, we will see these challenges emerge.

Generally GATS rules could limit the ability of government to provide public services and regulate in the public interest by banning laws or regulations to:

· Stipulate a not-for-profit service provider.

· Limit private sector involvement in a service sector or enforce a public monopoly.

· Discriminate in awarding subsidies to public bodies.

· Discriminate in favour of UK companies over those from another country.

The GPEW is gravely concerned that one of the main purposes of the GATS is to remove government regulations which might be regarded by global corporations as "unnecessary barriers to trade." Examples of such barriers have been identified as:

· giving preference to local employment;

· using procurement decisions to promote the local economy;

· placing environmental/sustainability conditions on contracts.

The UK/EC have received requests for liberalisation in a wide range of service sectors that impact upon citizens and their communities: professional services, research & development services, business services, postal & courier services, audio-visual services, distribution services, education services, environmental services, health services, tourism and travel-related services, energy services, and recreational, sporting and cultural services.

The GPEW is not in a position to comment on the implications of liberalisation in each of these sectors, but is concerned at the possible implications of many of the requests that are listed in the document, for example:

· services connected with agriculture, forestry and fishing;

· radio and television services, including removal of subsidies to domestic providers;

· retail (notably food) services;

· relaxation of zoning regulations and restrictions on shop opening times;

· higher and adult education services;

· water services;

· hospital and social services.

For example, because of commitments Canada has already made, Canadian municipalities may currently be in violation of the agreement and vulnerable to a WTO challenge. Therefore, when they make zoning decisions some Canadian municipalities limit new retail development by taking into consideration potential negative impacts on existing stores. A WTO challenge to these policies might succeed because the federal government has already committed all Canadian governments not to limit retail development in this way.

They could be challenged by the question "is it the least burdensome or the least trade restrictive means of achieving their objective that is reasonably available" to them. This could mean that rather than curtailing new retail development, municipalities might be restricted to assisting small shops by improving shopping area features, like park benches or landscaped medians. Rather than being able to require fixed amounts of green space, they might be obligated to accept alternatives like payment from developers towards recreational facilities. Rather than ruling out high-traffic generating land uses, they might have to allow development if noise abatement measures were taken. Rather than requiring high density development for efficient transit, they might have to consider transit options designed to serve low density development.

If elected representatives are uncertain what the WTO means by saying regulations have to be necessary, the organisation's Appellate Body has already cleared this up. The WTO interprets "necessary" as tending to mean "indispensable." This does not bode well for local government regulatory authority if a necessity test is inserted into the GATS. For example, is it likely that a WTO panel would conclude the measures local governments take to protect the character of neighbourhoods are "indispensable"?

We also know, contrary to what trade officials claim, that the WTO now not only gets to make judgements about the way governments go about achieving their objectives, but also on the worthiness of these objectives themselves. There have been two WTO rulings that have said the trade restrictiveness of a government measure has to be justified in relation to the importance of its underlying objective. (The WTO Appellate Body has ruled in both "Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef" and "European Communities Measures Affecting Asbestos and Asbestos Containing Products" that they can pass judgements about the importance of government regulatory objectives.)

Although it never hit the front pages of newspapers, the WTO Appellate Body ruling in one of these cases has been described by an international trade expert as "breathtaking" because "it constitutes a significant shift toward a greater role of the Appellate Body in weighing regulatory values against trade values." (Joel Trachtman, "Lessons for GATS Article VI from the SPS, TBT and GATT Treatment of Domestic Regulation", p. 31, January 29, 2002). If a local authority decides to zone an area to forbid unsightly activities, this could be viewed as extremely trade restrictive because it is an outright ban on certain kinds of commercial investment. Would a panel of trade lawyers consider the underlying objective - to maintain a pleasing urban environment - justification enough for what would be viewed as a significant restriction on trade?

The only objectives currently recognised as legitimate exceptions to the GATS (Draft disciplines on accounting regulations have their own list of legitimate objectives) could be used only in extreme cases for measures to protect life or national security. Objectives like maintaining the character of neighbourhoods or reducing traffic noise would have very little chance of meeting this high standard. Negotiators considered coming up with an expanded list of objectives to be accepted as legitimate under a necessity test, but have already abandoned this effort.

As noted at the recent meeting on GATS of the Trade Policy Consultative Forum, the Government has long acknowledged the lack of clarity in the wording of Article I:3 of GATS, where the exclusion from GATS disciplines granted to services "supplied in the exercise of governmental authority" is qualified by the requirement that such services be supplied "neither on a commercial basis, nor in competition with one or more service suppliers". In addition to the problems caused by the absence of any further elucidation of these terms, it was noted that the increased involvement of the private sector in the delivery of public services in the UK over the eight years since the signing of GATS makes it even more uncertain as to whether the Article I:3 exclusion would still apply. The WTO Secretariat's background notes explicitly suggest that the involvement of the private sector as exclusive or monopoly providers on a temporary basis (as in PFI projects, for example) may well expose public services to GATS disciplines.

The horizontal limitation entered by the EU in its schedule of specific commitments is intended precisely to protect those public utilities which are subject to public monopolies or to exclusive rights granted to private operators from that risk of exposure to GATS which lack of clarity in Article I:3 generates, the limitation remains important today because without it there is indeed the possibility that such public utilities will fall under GATS.

Yet it is precisely this horizontal limitation which has been requested for removal in the WTO's current services negotiations. Were the UK to agree to such a request and allow the EU to offer up the limitation for removal, it would contradict the Government's repeated assurance that it will not make commitments which could expose public services to GATS. The GPEW is extremely concerned that this limitation has been requested for removal in the current negotiations.

Among the possible implications for UK public services or public interest legislation are:

• bringing rail maintenance and repair services back under some form of public ownership would breach the UK's existing GATS commitments.
• planning regulations affecting the expansion of large retail outlets could be ruled an 'unnecessary barrier to trade' and overly 'burdensome' on business.

The government's 'modernisation' agenda for public services could remove their protection from GATS rules provided by a public services exemption clause, leaving them unprotected against large foreign corporations. It singles out the creation of Foundation Hospitals and increasing private sector involvement in education as particularly worrying. Consequently almost any service would be covered by GATS, because usually at least some price is paid for the service.

Considering the ambiguities and potential for GATS to restrict policy choices, it would be highly dangerous to leave decisions about the exact scope of GATS to the WTO's disputes settlement system.

Given the huge amount of uncertainty surrounding Article I:3 and public services in the GATS, we believe that the Government should not make any further commitments in sectors where public services exist.

Unfortunately there is no definition for what supplying a service on a "commercial basis" is. Some local authorities supply refuse services to other authorities and get paid for it. Does this mean they are supplying a service on a commercial basis? There is no definition for what it means to supply a service "in competition". Does the fact that no matter what the service, there is always some example of a private firm supplying it mean that there is competition for virtually all services? No one knows for sure. Even though there is some recognition that all this ambiguity is a problem, GATS negotiators have so far refused to make the agreement any more clear. They have effectively decided to let these issues be decided by WTO dispute panels.

Contracting out a service to a private firm might be considered exempt from the GATS as "government procurement", but then it might not be. If it is not exempt from GATS commitments, then governments could be challenged if they make a contract with an exclusive supplier. WTO countries have no common definition for procurement, and it is never defined in any WTO agreement. The GATS says procurement involves services purchased for "governmental purposes" and not for "commercial resale." Neither of these terms is defined.

It is not as though WTO negotiators don't discuss the problems of a lack of definition for procurement or whether procurement covers situations like contracting out of public services to private firms, design-build-operate contracts, and public-private financing initiatives. They discuss all of these cases in depth, but always come up with the same answer - there is no agreement on what procurement involves.

The GPEW believes that it is vitally important for public welfare that policies should be developed to ensure the well being of small businesses, local economies, rural areas and sustainability. Increasing our reliance on opening up our markets to large multinational corporations who are purely profit driven, mean we will be unable to carry out those policies. Through the GATS it is even more likely that local authorities and the national government will not be able to regulate to support these objectives. Often it may only be as the result of a threat of a referral to the disputes panel.

Already we are witnessing, at the local level, authorities capitulating to the power of large companies who threaten legal action over planning decisions they do not like. This means the cash strapped authority provides results beneficial to the companies, often at a cost to the wishes of their local citizens.

The GPEW is very concerned at the lack of real consultation over such an important issue. There has been a total lack of transparency in both the GATS negotiations and inevitably in this flawed consultation process. Under GATS there will be no accountability because it takes control over legal and political decision-making, taking it away from the local and national levels. The GATS is a fundamental attack on democracy, transferring power to corporations and away from communities and elected politicians.

The impacts of the GATS are likely to be more severe for poorer countries, whereby increased trade liberalisation under GATS threatens the realisation of the Millenium Anti-Poverty goals -

something which Clare Short's department always focuses on. The key issues the Agreement raises are, however, similar for people in more developed and less developed countries:

· the uncertainty surrounding how the GATS applies to public services;

· the potential impacts on national and local government regulation;

· the degree of foresight required by governments to carve out appropriate regulatory exemptions;

· the requirement to continue liberalising ad infinitum;

· the irreversibility of GATS commitments;

Far from starting negotiations with a clean slate the UK has already made substantial commitments under GATS. The Government is preparing to hand over much, much more without any real debate, by-passing MPs and without properly explaining the agreement or its effects to the public.

GATS commits countries to engage in progressive rounds of liberalisation negotiations. Even if the UK Government were to commit, for instance, broadcasting to GATS with limitations and exemptions this time round, these will be targeted for removal in a future round.

Therefore The GPEW is calling for

• an immediate halt to GATS negotiations;
• a complete assessment of the impacts of GATS so far;
• an amendment to the GATS to the effect that a government' right to regulate is enshrined in the GATS, by being placed in the body of the GATS text where it is legally binding, rather than in the preamble, where it is not;
• a fundamental rethink of the aims of trade rules generally.

ENDS