Further Reply to Patricia Hewitt on GATS

July 12 2003

Patricia Hewitt MP, Secretary of State, DTI

Dear Patricia

Thank you for finding time for frank and informal discussion with local representatives of the Trade Justice Movement (TJM). This helped to clarify areas where TJM agrees with the Government (e.g. about the disastrous effect on the Third World of rich country agricultural subsidies and dumping) and areas where the two sides are sharply opposed (e.g. about the pace and extent of GATS liberalisation measures, and the danger of adding new issues such as investment to an already overloaded programme). It was, however, good to hear from you that ever-greater liberalisation is not a panacea, and that the Government's position on new investment rules is still flexible.

Thank you also (belatedly again, I'm afraid) for your letter of July 8 2002 concerning GATS. Since then there have been new developments and new concerns, and I would like to raise some of these with you. I am writing in a personal capacity, although I am, as you know, a supporter of the Trade Justice Movement and a member of WDM and the Green Party.

You will be aware of the statements made recently by two former ministers, your predecessor Stephen Byers and the former Home Office Minister Michael Wills. Both had access to government documents and briefings and both were obliged to follow the party line while in office.

Michael Wills points out that EU agricultural subsidies (measured in Euros) are now nearly twice what they were in 1992 and thirteen times what they were in 1975, and that even under the latest compromise there will be no reduction in the overall cost of the CAP. "While rich Europe preaches market liberalisation to the world's poorest, it indulges in the mother of all protectionist boondoggles." (Guardian, July 12 2003).

Decades of stated good intentions have been largely ineffective against rich world vested interests, and Stephen Byers now argues the case for a transitional period before third world markets are opened up. "Otherwise, open markets just benefit multinationals, and not people like the sugar farmer in Kenya" (impoverished by the dumping of subsidised European sugar). "So let's put in place a system of managed trade, and open up at the right time for local people." (Christian Aid News No. 21, Summer 2003). He is scathing about the role of the IMF and World Bank in using loan conditions to blackmail poor countries into opening their markets regardless. "If the IMF and World Bank do want conditions, then they should be about strengthening the local economy, and that may mean protecting the markets rather than opening them up." Has there been any change under this Government in UK input to the policy development of these bodies?

The New Investment Proposals

Five NGOs (Oxfam, CAFOD, WDM, Save the Children and Christian Aid) have jointly written a paper analysing the rationale given for liberalising investment under the WTO in same way that it is liberalising trade in goods and services ("Unwanted, Unproductive and Unbalanced: six arguments against an investment agreement at the WTO", June 2003). Most significantly, the authors conclude that "investment liberalisation does not lead to greater investment levels " and that "there is no causal link between foreign investment and poverty reduction". According to a World Bank study, "the overall additional stimulus of multilateral rules that apply to new investment over and above unilateral reforms would probably be small and virtually nonexistent for low-income developing countries" ("Global Economic Prospects and the Developing Countries 2003: Investing to Unlock Global Opportunities").

Investment should be at the discretion of elected governments, and the NGO document states that "it is vital that governments retain the policy flexibility to maximise the benefits and minimise the costs. An investment agreement in the WTO, based on provisions of progressive liberalisation and national treatment, would aim to prohibit many of these discretionary policies used by OECD countries and Asian tiger economies in the past". Moreover, the emphasis of the new proposals is more on the rights of investing companies than on their obligations, and "the proposed new trade rules on investment say nothing about holding companies and their host governments responsible for company misdemeanours".

According to a joint paper by WDM and Friends of the Earth ("Investment and the WTO Busting the Myths", June 2003), investment liberalisation could lock in bad environmental practice. "Many countries have raced to liberalise their mining laws, for example, in an attempt to get this short-term foreign exchange with little room to consider the longer term impacts. If they are pressured, through a WTO agreement, to 'lock-in' this liberalisation preventing them from changing policies in future, this will help consolidate the process."

Most developing countries (by about 22-3) are against introducing a new investment round while previous changes are still undigested. The main proponent appears to be the EU itself.

Locking in Privatisation

You say in your July 2002 letter that "the EC is not seeking in any way the dismantling of public services nor the privatisation of state owned companies". This is not the impression given by a leaked document listing the sectors the EU asked 29 of its major trading partners to open to EU service suppliers. "Among its more prominent demands are the total privatisation of postal services, and the liberalisation of large chunks of environmental services, energy, transport and scientific research." (Susan George, Red Pepper, Jan 2003).

Even if this document has been misconstrued, there certainly is strong pressure for privatisation from other sources such as the IMF. Once a service has been privatised, contracted out to foreign-owned companies and bound into GATS, it is very difficult to take that service back into public ownership or control. GATS stipulates that all parties must be satisfied with the terms offered for any withdrawal of commitment, and foreign service providers (or their governments) must know that they will be able to name their own price for letting go.

According to recently leaked documents, the EU "is requesting full liberalisation of water in some of the poorest countries in the world including Namibia, Kenya, Tanzania and Bangladesh" and "wants to see the liberalisation of services in countries where civil society has been protesting against private services provision and where protests have been met with government-sponsored violence. This includes South Africa and Colombia, where people are engaged in bitter struggles against foreign companies over electricity and telecommunications because of price hikes, job losses and poorer quality." (http://www.wdm.org.uk/action/takeaction.htm).

Other EU requests in the leaked documents include the elimination of Chile's requirement for foreign investors to retain capital in the country for at least three years from the date of entry which helped to insulate the country from the currency fluctuations of the mid-90s. ("Investment and the WTO - Busting the Myths", WDM/FoE, June 2003). Did the UK Government support the inclusion of this request, which would benefit currency speculators but not the Chilean economy? If it is accepted, then future Chilean governments will have lost the right to regulate destabilising currency flows in this way.

Threats to UK public services

On the other hand, one of the "horizontal" requests made to us by other countries and listed in the DTI GATS consultation document (October 2002) is to "remove monopoly or exclusive rights granted to private operators supplying public utility services". It has been suggested by WDM that this is actually a request for the removal of the EU's limitation that "services considered as public utilities at a national or local level may be subject to public monopolies or to exclusive rights granted to private operators".

The number of exclusively public monopolies is already small and growing smaller, so the removal of this limitation, even if it only applies to "exclusive rights granted to private operators", could mean the effective end of the public sector. And there are particular implications for several of our public institutions.

Rail Transport

Could the already existing commitment of UK railway track maintenance to GATS be one reason for the Government's unwillingness to consider full-scale renationalisation of the railways? "The UK has made GATS commitments to give full market access in 'rail maintenance and repair'. After the Potters Bar and Hatfield rail disasters, many questioned the wisdom or desirability of contracting out rail maintenance to private companies with tight profit margins. But under its existing GATS commitments, the Government couldn't renationalise these functions even if it wanted to. It couldn't even rule that rail maintenance contracts must only be given to not-for-profit companies. Companies - both foreign and domestic - now have a 'right' to supply this service and any attempt to curtail this right could be challenged by another World Trade Organisation member country." (Nick Cohen, New Statesman, Dec 2002).

The BBC

According to the DTI GATS Consultation document, under "audio-visual services", the UK is being asked to
1. "remove discriminatory subsidies and publicise objectives and criteria for subsidies";
2. "remove differential withholding tax treatment of audio-visual works";
3. "inscribe in Schedule measures necessary for maintenance of cultural identify [sic] or cultural diversity";
4. "eliminate quotas on number of imported motion pictures and hours of projection and quotas on broadcasting of motion pictures and video tapes".

What are the implications of these requests?
Under items 1 & 3 above, might future subsidy objectives or "cultural identity or diversity" provisions if not set down in writing at the time these measures were ratified be ruled illegitimate by a WTO dispute panel?
Under item 2, might a tax concession offered to a public service broadcaster such as the BBC have to be offered to all other providers of supposedly competing services - i.e. all broadcasters?
Under item 4, might the elimination of quotas on imported material help to bring about - say - a diet of wall-to-wall imported soap operas on some television channels?

The Post Office

Regarding the postal service, one of the requests made of the UK under the current request-offer round is that it should "take measures to address cross-subsidisation of express delivery services by revenues derived from government-granted monopoly services, such as first class letter carriage." Could not the removal of the right to cross-subsidise services further weaken the Post Office's viability by opening the way to "cherry-picking" by private operators, leaving it to supply to the public only a rump of commercially unattractive services?

WTO limits on freedom to legislate

Even where there is doubt over the WTO's remit, the Government itself (wearing a different hat) has used the WTO as a bogy-man, as when it rejected MEPs' call for a complete EU ban on animal-tested cosmetic products, claiming that any such ban might be declared unlawful under the World Trade Organisation's rules.

In the retail sector, according to your GATS consultation paper, requests have been received that the UK should "take an additional commitment under Article XVIII to provide transparency in rules and procedures relating to zoning and providing opportunity for prior meetings between service suppliers and regulatory authorities / local Councils". The word "transparency" appears to have a somewhat idiosyncratic meaning in WTO documents, one that is associated with restrictions on a government's right to legislate and regulate.

We are told that "the United States has tabled a request to all WTO Members, calling for the adoption of GATS disciplines on transparency in domestic regulation of services". This harmless-sounding request has potentially huge implications for central and local government, especially where it involves relations between small legislative authorities and large transnational corporations that have the backing of powerful foreign governments.

The document adds that the request would require "meaningful opportunities for comments and questions by interested parties" before any change in regulatory provision. If "interested parties" include all local and foreign-owned business, it is likely to make regulatory activities lengthier, more expensive and more open to high-pressure lobbying. The discussion paper is right to be cautious on this issue, commenting as it does that "the proposal would seem to give foreign governments, and perhaps businesses, a legal right under the GATS to be consulted on national regulation proposals. Many developing countries say they do not provide for this in their constitutions".

Lack of full transparency

You say that "we continue to be as open and transparent as possible" but add that "in the context of complex international negotiations it would be damaging to reveal our negotiating positions". Does this mean that the full commitments asked and offered will not be open to public scrutiny until the negotiations are completed and irrevocable? I hope you can assure me that this is not so. The requests made by the EU to other countries have been revealed only through leaks.

You refer to Pascal Lamy's statement that "the EU is not seeking the dismantling of public services" in any country. Last October, Commissioner Lamy claimed MEPs had "full access" to the EU's negotiating papers and reiterated that public services were not threatened by GATS. But according to Caroline Lucas MEP: "Commissioner Lamy is deliberately misleading parliament when he claims these negotiations are subject to any kind of serious democratic scrutiny. He initially agreed to show some of the documents only to the president and vice-presidents of the trade committee under conditions of strict secrecy. Fortunately committee president Carlos Westendorp decided to pass copies to one representative of each political group but only subject to the same draconian measures designed to deny MEPs any ability to subject the process to political scrutiny. How can Mr. Lamy claim to have granted full access to MEPs when I am not allowed to tell anyone - even fellow MEPs - what the documents say? On the contrary, I have been instructed to keep the papers in a locked safe, to refrain from copying or emailing them, and to shred them after reading." (http://www.carolinelucasmep.org.uk/news/GATSLamyletter_131102.htm). It is disturbing that under recent changes in EU rules Commissioner Lamy has been given greater discretion to negotiate on behalf of the EU on trade and investment matters, without having to refer back to elected or appointed national representatives.

Many legislators in central and local government even now haven't even heard of GATS, or haven't been made aware of its full implications. Meanwhile, civil servants and business leaders in the LOTIS committee have been conferring on how best to "spin" the process and counter the allegations of WDM and others. (http://www.wdm.org.uk/campaign/GATSlotis.htm).

Some of us would say that an enterprise requiring such secrecy, and forcing such constraints on future government at all levels, should be entered into only in extreme necessity and that increased commercial opportunities for a few British-based service-providing companies doesn't represent such a necessity.

Best wishes

Brian Fewster

P.S. You made no objection when I said that I would like to publish our earlier exchanges on my website, and unless I hear otherwise I will assume that this is still the case.

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