Patricia Hewitt's GATS response

GENERAL AGREEMENT ON TRADE IN SERVICES

I am writing in response to our discussion towards the end of last year about the General Agreement on Trade in Services (GATS). I am sorry that it has taken me some time to get back to you. I would like to respond to the points you have made in the order you set out. However, I think I should say al the outset that there have been a number of misconceptions over the GATS and the likely effects of what might or might not be agreed in the current negotiations.

"GATS will limit Government and Local Authority regulatory powers"

This claim has been much exaggerated. The GATS does not prevent governments from regulating. Indeed, it is essential that services can be regulated properly. Unlike unmerchantable quality goods, you can't take back poor services, so governments have to protect consumers in the most appropriate way, which may mean prior regulation

The GATS work on domestic regulation disciplines is in fact quite narrow. It covers qualification requirements and procedures, technical standards and licensing procedures. The aim is to find a balance between guaranteeing quality of service while not making regulation so onerous that, for example, it becomes impossible for qualified professionals to practice in other countries. There is no intention to prevent WTO Members from regulating for domestic policy objectives.

The sovereign right of governments to regulate, and to introduce new regulations on, the supply of services within their territories in order to meet national policy objectives is specifically recognised by the introduction to the GATS. WTO Members, especially developing countries, have ensured this is further emphasised in the Negotiating Guidelines and Procedures and in the Doha Development Round Declaration.

"GATS commitments are dangerously open-ended"

GATS commitments are negotiated on the basis that Members can choose in which sectors and to what extent they wish to liberalise. This is known as the bottom-up approach and allows individual Members to deal with sectors sensitive for them in accordance with their own political priorities. The GATS specifically allows members to apply measures necessary to protect human, animal or plant life or health provided that such measures are not applied in such a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade in services.

"The 'Public Service' exemption is vague and open to challenge"

The GATS specifically excludes from its coverage "services supplied in the exercise of governmental authority". We have accepted that the definition of such services is ambiguous. We would support a clarification if WTO Members could agree upon one, so long as this did not open up new areas of uncertainty. However, I should stress that WTO Members can maintain services provided publicly if they choose to. Equally important, nothing in the general GATS aim of progressive liberalisation can alter this - nor indeed is any Member State seeking to do so. The UK - as part of the EU - has already made commitments in the area of privately funded services, but these have not, and will not jeopardise public services. (As you know, in the UK as in many other countries all foreign owned privately funded services operate in addition to the services supplied under the state service).

"The business organisations behind GATS have a privatising agenda"

GATS would not force the state services to be privatised. What the GATS aims to do is to ensure that any services that may be provided by the private sector are provided on a non- discriminatory basis. If, however, a WTO Member allows privately funded services to be set up, another WTO Member might ask it to make commitments to allow foreign competition too. We do not see the concept of trading in privately funded services (long done well before the GATS was thought of) is in any way incompatible with the important principle of quality public service. I can assure you that the UK Government has no intention of making any commitments that would call into question the provision of public services through the UK's state system.

"GATS will allow private firms to cherry-pick profitable industries"

Nothing in the GATS allows private firms to cherry-pick profitable industries. One of the outcomes of the telecommunications negotiations was to ensure that where competing telecommunications operators need to interconnect to a monopolistic or dominant operator to be able to supply their service, they should be able to do so at reasonable rates.

GATS is designed to be irreversible

There have been claims that GATS commitments are irreversible. Commitments are not irreversible, although reversal is discouraged. As with reducing tariffs on goods, countries pursuing trade liberalising policies are better able to reap the benefits of liberalisation if they give trading partners greater certainty that market access will not be made more restrictive in the future. This is particularly important in the services area for countries wishing to encourage foreign companies to establish in their markets. That said, there may be situations in which a country might want to modify or withdraw a commitment (none has arisen so far since the GATS came into force), and GATS Article XXI provides for this. Again, as with goods, any Member affected by such a modification or withdrawal is allowed to negotiate compensation for any lost benefit. Where a claim might be made against a developing country, the latter would almost certainly rely on the flexibility built into Article IV of the GATS to argue for lesser compensation than if it were a developed country. That said, in practice a country is unlikely to make a binding commitment in an area of experimental liberalisation, and certainly not without consulting Parliaments. For example, the Brazilian Parliament did not ratify Brazil's offer to liberalise her telecoms sector following the negotiations concluded in 1997.

The Bolivian and other water privatisation schemes, which regrettably failed to deliver benefits to the poor, are frequently quoted examples in correspondence on the GATS. However, these failures to ensure a properly competitive market cannot be blamed on the GATS. No GATS Member government has made any commitments under the GATS about the supply of water. In the case of Bolivia, it seems that privatisation could have benefited from better accompanying regulation, for example a requirement for private suppliers to supply water under a universal service obligation, or perhaps a golden share.

Questions On GATS

I hope that this letter has already answered some of the questions you have posed. However, I hope the following answers the remaining points.

The official texts of the WTO Member's current commitments (including the EU's) are available on the WTO website at http://docsonline.wto.org/gen home.asp. To view each WTO Member's individual commitments click on "search", then type GATS/SC/* in the "document symbol" box for an index of all countries commitments or, for specific countries, type GATS/SC/ and click on the "?"" symbol against "countries". Similarly, for official texts of WTO Member's lists of Article II (MFN) exemptions repeat the process but type GATS/EL/* in the "document symbol" box (To print, download the documents by following the instructions given.)

Currently, more than 100 negotiating proposals have been tabled by WTO Members. These are being discussed in a Special Session of the WTO Council for Trade in Services (see below). The negotiating proposals are all publicly available on the internet at http://www.wto.org/english/tratop_e/serv_e/s_propnewnegs_e.htm". Earlier background documents by the WTO Secretariat to the individual sectors now under negotiation were prepared in 1999 for an Information Exchange Programme that preceded the current negotiations. These are also available from the WTO Public Documents website.

There have been a number of calls for an assessment of the likely future impact of the GATS on developing countries. The Government is certainly not against such an assessment in principle. There has already been a considerable amount of activity on this issue. There was an extensive information exchange in 1999 and a services statistics seminar during summer 2000 which was in acknowledgement of the lack of comprehensive services trade data. But the problem remains how best to carry out the assessment. Looking back at the commitments made by Members under the GATS during the Uruguay Round it is clear that most reflected, or were less than, the actual prevailing level of market access for foreign service suppliers. The impact on developing countries resulting from their existing GATS commitments must, therefore, be quite limited. Partly for this reason, WTO Members decided collectively in March 2001 while agreeing the negotiating guidelines and procedures, that the assessment (called for by the GATS) should be on-going and conducted in tandem with the market access negotiations, but with the results of the assessment being fed into the negotiations. Assessment has therefore become a standing item on the WTO Services Council agenda. Developing countries have since said quite openly that their main concern is to ensure a balance of market opening in sectors where they have an export interest. At the meeting of the Council in Special Session in October, the Chairman concluded that Members should begin to draw up case studies using the information contained in Trade policy Reviews and other materials. These could conceivably cover environmental and economic impacts. A further broad-ranging seminar is planned for March this year. It was also decided that the WTO Secretariat working with UNCTAD should draw up a blueprint for what might be covered by an assessment workshop.

Proceedings and minutes of the Article 133 Services Committee are not generally made available to industry representatives. The purpose of the Article 133 Services Committee is to co-ordinate the EU's position before it is presented to the WTO. Neither the minutes of that Committee or the papers tabled at it are made generally available as to do so could undermine the negotiating positions that are being developed. However, sometimes input is needed from outside government to ensure that all UK interests are fully reflected in the negotiations. On such occasions, my officials may seek advice from those sectors, whichever they be, that are best placed to provide the required analysis and advice.

My reply to this letter
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