Patricia Hewitt's second GATS response
8 July 2002

Dear Brian

Thank you for your further letter of 3 June about the General Agreement on Trade in Services (GATS). Which revisits the issues you raised me with earlier to which I replied on 11 February.

The Government believes that GATS offers real benefits both to the UK, as the world's second largest exporter of services, and to developing country members of the World Trade Organisation (WTO). We all stand to gain from greater competition in service sectors, especially those such as banking, telecommunications, and transport, which underpin other economic activity. We believe that the progressive, properly managed, liberalisation of services can stimulate economic growth and help reduce poverty.

With regard to your concerns about the sovereign right to regulate, the preamble to the GATS is just one factor. Right to regulate is a recurring theme that is further emphasised in the Negotiating Guidelines and Procedures and in the Doha Development Round Declaration. As I said in my earlier reply the GATS does not prevent governments from regulating. Indeed, it is essential that services can be regulated properly. We have ensured that the Community's requests of other Members reflect the need for liberalisation to be underpinned by appropriate domestic regulatory frameworks.

With regard to your reference to the "least trade restrictive test of necessity", the form of any necessity test is still under discussion. GATS Article VI:4 in fact says that disciplines on domestic regulation shall aim to ensure that measures are "not more burdensome than necessary to ensure the quality of the service" And in respect of the general exceptions in Article XIV, to which you also refer, no specific necessity test is stipulated. Naturally if there were to be any dispute there would be consultation and ultimately referral to the Dispute Settlement Body. This is normal WTO practice. Panels are constituted to provide a balanced view.

I cannot accept that the "bottom up" approach is dangerously open ended as you suggest. Indeed this and the consensus-based nature of decision making in the WTO provide safeguards to ensure that countries (developing or otherwise) are not pressured into making commitments in any sector including, and notwithstanding the possible ambiguity of Article 1:3, in essential public services sectors. Mike Moore the Director General of the WTO has recently publicly rejected the misguided claims that public services are under threat from the GATS process. Additionally, Pascal Lamy the EU Trade Commissioner has also publicly stated that in making requests of other WTO members, the EC is not seeking in any way the dismantling of public services nor the privatisation of state owned companies. Such public assurances at this stage of the negotiations serve to re-enforce how widely the view is held that publicly provided services are excluded from the negotiations. The question of private sector participation in public services is a red herring since the supply of the service to the consumer remains a public service.

Developing countries acfively support the bottom up approach as they do the progressive liberalisation of trade in services as a means of promoting development and economic growth. We are very aware that developing countries may have capacity constraints and the government is providing funding through UNCTAD to ensure that they receive help 'where they most need it to allow them to participate fully in, and benefit from, the negotiations. Moreover we accept that developing countries should not agree to liberalisation before first undertaking an assessment of the likely impact of that liberalisation. Again, in recognition of developing country capacity constraints the UK is looking at ways to bring together various existing funding streams from the key agencies/donors and channel them in the most appropriate way possible to help this process.

The Government will continue discussions throughout the lengthy negotiating process with industry, unions and Civil Society. We continue to be as open and transparent as possible about our negotiating objectives for the new Trade Round, which are well known and communicated to Parliament. Public consultations on the GATS began in 1998 and remain open for comment on the DTI website (www.dti.gov.uk/worldtrade/service.pdf). Further public consultations on the requests that are made of us by other WTO Members will be held in the autumn. However, in the context of complex international negotiations, it could be damaging to reveal in detail our negotiating positions.

Best wishes

Patricia Hewitt

My reply to this letter

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