NEW WTO NEGOTIATIONS AA guideguide toto thethe GATSGATS debatedebate Scott Sinclair and Jim Grieshaber-Otto Canadian Centre for Policy Alternatives A guide to the GATS debate Scott Sinclair and Jim Grieshaber-Otto Canadian Centre for Policy Alternatives 2002 Copyright © 2002 Canadian Centre for Policy Alternatives and the authors. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechani- cal, including photocopying, or by any information storage or retrieval system, without permission in writing from the pub- lisher or the author. National Library of Canada Cataloguing in Publication Data Sinclair, Scott Facing the facts : a guide to the GATS debate Includes bibliographical references. ISBN 0-88627-278-5 1. General Agreement on Trade in Services (1994) 2. Service industries—Government policy. 3. World Trade Organization. 4. Organization for Economic Cooperation and Development. I. Grieshaber-Otto, Jim II. Canadian Centre for Policy Alterna- tives. III. Title. HF1379.S557 2002 382'.45 C2002-900954-5 Printed and bound in Canada Published by Canadian Centre for Policy Alternatives Suite 410, 75 Albert Street Ottawa, ON K1P 5E7 Tel 613-563-1341 Fax 613-233-1458 http://www.policyalternatives.ca [email protected] CAW 567 OTTAWA Contents Acknowledgements ...................................................................... i Summary: The growing GATS debate ................................... iii The scope of the GATS is immense.............................................................. iv Does the GATS cover public services? ......................................................... v Just how flexible is the GATS? ....................................................................... vi The policy implications of GATS rules ...................................................... viii Conclusion........................................................................................................... xii Chapter 1: The growing GATS debate .................................... 1 Chapter 2: GATS scope and coverage .................................... 9 The breadth and diversity of services ....................................................... 10 The “top-down” features of the GATS......................................................... 12 The “bottom-up” features of the GATS ...................................................... 25 The GATS general exceptions ....................................................................... 35 Chapter 3: GATS policy implications .................................. 41 The right to regulate in the GATS preamble ........................................... 41 Most-Favoured-Nation Treatment (Article II) .......................................... 44 National Treatment (Article XVII) ................................................................. 48 Market Access (Article XVI) ............................................................................ 52 Monopolies and exclusive service suppliers (Article VIII) ................... 58 Domestic Regulation (Article VI) ................................................................. 63 Chapter 4: Conclusions ............................................................ 71 Endnotes ....................................................................................... 81 Appendix 1: List of acronyms............................................... 105 Appendix 2: Glossary of key GATS terms ......................... 107 Facing the Facts i Acknowledgements The authors wish to thank Patricia Arnold, Bruce Campbell, Tony Clarke, John Dillon, Murray Dobbin, Ed Finn, Kerri-Anne Finn, Ellen Gould, Paul Mably, Karen Philp, David Price, Mathew Sanger, Noel Schacter, Steven Shrybman, Michelle Swenarchuk, Ken Traynor, Elisabeth Tuerk and members of the CCPA Trade and Investment Research Project, who have provided suggestions, com- ments and other invaluable support. Any errors or omis- sions that remain are the sole responsibility of the authors. We are also very grateful to the many organizations that made this book possible by providing financial assistance to the Trade and Investment Research Project. The inspi- rational efforts on GATS issues of a growing number of researchers, organizations and citizens around the world are also gratefully acknowledged. Finally, we thank our families for their unstinting support, steadfast encourage- ment and deep generosity. ii Canadian Centre for Policy Alternatives Facing the Facts iii Summary: The growing GATS debate Shrouded in obscurity when the last round of World Trade Or- ganization (WTO) negotiations were concluded in 1994, the General Agreement on Trade in Services (GATS) is only now beginning to receive the public scrutiny that it deserves. As non-governmental organizations have examined this ex- ceptionally broad treaty, they have expressed growing concern about its potentially far-reaching impacts. In re- sponse, GATS proponents recently issued two official works contesting GATS critics: “GATS: Fact and Fiction” by the WTO Services Secretariat and “Open Services Mar- kets Matter” by the Trade Policy Committee of the Or- ganization for Economic Cooperation and Development (OECD). Both tracts challenge critics’ arguments, the former characterizing them as “scare stories.” A challenge for those in the public, media and politics trying to sort out the GATS debate is that the different sides sometimes seem to be saying directly contradictory things about the same agreement. At other times, one side gives the impression of disagreeing sharply with the other while seeming to say much the same thing in a slightly different way. This analysis seeks to tease apart some of the most important GATS issues and to dispel the confu- sion that often exists even for the most discerning observ- ers. This analysis provides a detailed critique of official WTO and OECD rebuttals, documenting numerous instances where they provide simplistic or misleading assurances. It examines the growing controversies over GATS coverage of public services, GATS flexibility, governments’ right to regulate, iv Canadian Centre for Policy Alternatives and the policy impact of the most important GATS rules It also examines the key concerns of critics—that the GATS threatens public services systems and public interest regula- tion—and concludes that these concerns are, in fact, well- founded. For these reasons, the GATS, together with the negotiations now underway to expand the treaty, is slated to become a lightning rod for growing debate and controversy. Agreeing on the point of departure: The scope of the GATS is immense Both proponents and critics agree that the scope of the GATS is very broad. Its extraordinary breadth derives from the incredible diversity of services, the architecture of the agreement, and the expansive way the GATS de- fines key terms. The subject matter of the GATS—services—is almost un- imaginably broad. Services range from birth (midwifery) to death (burial); the trivial (shoe-shining) to the critical (heart surgery); the personal (haircutting) to the social (primary education); low-tech (household help) to high- tech (satellite communications); and from our wants (re- tail sales of toys) to our needs (water distribution). The GATS applies to all measures affecting “trade in services,” broadly defined. It covers measures taken by all levels of gov- ernment, including central, regional, and local governments. It also applies to professional associations, standards-set- ting bodies, and boards of hospitals, schools and univer- sities, where these bodies exercise authority conferred upon them by any level of government. In other words, no government action, whatever its purpose—protecting the environment, safeguarding consumers, enforcing labour stand- Facing the Facts v ards, promoting fair competition, ensuring universal service or any other end—is, in principle, beyond GATS scrutiny and potential challenge. As a former director general of the WTO has correctly noted, the GATS extends “into areas never before recog- nized as trade policy.” Not limited to cross-border trade, it extends to every possible means of providing a service internationally, including investment. While this broad application does not mean all services-related measures violate the treaty, it does mean that any regulatory or leg- islative initiative in any WTO-member country must now be vetted for GATS consistency or risk possible challenge. The treaty covers “any service in any sector” with only limited exceptions; no service sector is excluded a priori. This all-inclusive framework binds member governments to certain GATS rules that already apply across all sec- tors—even those where no specific commitments have been made. It also means that all service sectors are on the table in ongoing, continuous negotiations. Does the GATS cover public services? Nowhere are GATS proponents on shakier ground than when they claim that the GATS fully protects public serv- ices through its so-called governmental authority exclu- sion. For example, WTO Director General Michael Moore has asserted that “GATS explicitly excludes services sup- plied by governments”—a bald statement that is clearly untrue. This controversial exclusion only applies to those governmental services which are provided neither on a commercial nor a competitive basis. These critical terms are left undefined. The GATS governmental authority exclu- sion—which proponents claim protects public services — is, at vi Canadian