by Terrie Templeton
Terrie Templeton is a Brisbane physiotherapist and the coordinator of World Trade Organisation Watch Qld. WTO Watch Qld is a grass roots organisation that questions where the policies of free trade, as embodied in the World Trade Organisation, are leading us. Email: gumbus@powerup.com.au
Revision submitted for publication 20 January 2002.

Introduction

The General Agreement on Trade in Services (GATS) is one of the 28 free trade agreements of the World Trade Organisation (WTO). GATS is part of the ‘built in’ agenda agreed to in 1994 when the WTO was set up. A commitment was taken at that time to begin negotiations on the GATS in 2000 and now that a new WTO round has been successfully launched in Qatar, negotiations on the GATS will continue together with negotiations in other areas.

As a result of these negotiations the scope of the GATS will expand. GATS is unique among WTO Agreements in that it requires members to return to the negotiating table on a regular basis and expand their GATS commitments. Members are committed to ‘progressively deregulate’ their service sectors. In this way, GATS goes far beyond other WTO agreements and like the other agreements, GATS can be enforced. The WTO is the only international body with the power to enforce its policies. Through the rulings of its dispute resolution panel the WTO can impose trade sanctions against non-complying members.

GATS is not a neutral agreement. It presupposes benefits from the deregulation of trade in services . GATS covers 160 service sectors, ranging through road building, water delivery, transportation and environmental services. It includes health and education. In essence, anything that you can’t eat, wear or drop on your foot is a service.

The main objective of the GATS is to open up all service sectors to international competition. The Global Services Network, an international group of private service suppliers, says ‘The WTO negotiations on services should be used to achieve a contestable, competitive market in every service sector in every member country.” 1 The WTO expressly states that the Agreement will help its members overcome “domestic resistance to change” and that it will facilitate “more ambitious reforms ....than would be attainable on a national basis alone.” 2

During GATS 2000 talks, US negotiators have made health care a special target:

“The United States is of the view that commercial opportunities exist along the entire spectrum of health and social care facilities, including hospitals, outpatient facilities, clinics, nursing homes, assisted living arrangements, and services provided in the home.” 3

The US Coalition of Service Industries (CSI) is calling for majority foreign ownership of all public health facilities to be allowed:

“We believe we can make much progress in the [GATS] negotiations to allow the opportunity for US businesses to expand into foreign health care markets . . . Historically, health care services in many foreign countries have largely been the responsibility of the public sector. This public ownership of health care has made it difficult for US private-sector health care providers to market in foreign countries.” 4

Although these objectives have not been achieved in the 2000 GATS negotiations, it is early days. Unlike trade in goods where the barriers to trade are largely tariffs, the barriers to trade in services are government rules and regulations, and government funding.

GATS identifies four different ‘modes of supply’ for trade in services:

1) cross border supply - where only the service itself crosses the border from one country into another e.g. international telephone calls, telemedicine;
2) consumption abroad - where individuals travel to another country to make use of a service there e.g. tourists, patients travelling abroad to make use of health services of another country;
3) commercial presence - where a foreign company sets up a subsidiary or branch within another country e.g. banks, water companies or health care providers; and
4) presence of natural persons - where individuals travel to another country to provide a service temporarily e.g. nurses, engineers.

In practical terms, the GATS is effectively irreversible. In order to withdraw commitments already made, countries must offer compensation in the form of other service sectors. This is only possible three years after the initial commitment is made and must be deemed satisfactory to all other WTO members.

Government Obligations

Under GATS, governments are required to remove those regulations on services which are deemed to be barriers to trade. Any future regulations will have to be the least trade restrictive possible.

The former WTO Director General Renato Ruggiero says, “The GATS extends into areas never before recognized as trade policy.” (June 2, 1998) The WTO confirms that the requirements of GATS “will from the beginning necessarily influence national domestic laws and regulations”. 5 The commitments which governments are required to make under GATS fall into two categories.

1) General Obligations These apply automatically across all service sectors and to all members. They include the central WTO principles of transparency (all relevant laws and regulations governing domestic services industries must be published) and ‘most favoured nation’ treatment (i.e. no country to be given more favourable treatment than any other country)

2) Specific Obligations These apply only to sectors which governments have agreed to open to foreign competition and include the requirements of ‘national treatment’ and market access. National treatment requires that all service suppliers operating within a sector within a country be treated no less favourably than domestic suppliers. The GATS standard for ‘national treatment’ extends well beyond conventional notions of non-discrimination between domestic and foreign companies. It applies to any measure from any level of government - national, state or local - that alters the conditions of competition in any way that might disadvantage a foreign service or supplier.

The WTO’s Council for Trade in Services, the permanent body responsible for GATS, has discussed restrictions on large-scale retail outlets, shop opening hours, zoning and planning laws, controls on land use, building regulations, building permits, registration of contractors and professionals, regulation of professional fees, environmental regulations, worker health and safety regulations, local content and employment policies, urban planning rules and environmental protection policies.

Even legislation to ensure that a country benefits from foreign investment - a minimum number of local jobs or content, for instance - could be considered trade restrictive. No government measure 6 or practice, whatever its aim, is beyond GATS scrutiny if it might affect trade in services. Countries could thus use GATS to “frustrate government policies, practices and programs that allegedly adversely affect foreign commercial interests in services”. 7

Whilst all members are committed to the full range of general obligations by virtue of their membership, they will now come under increasing pressure to commit more of their service sectors to specific obligations as well.

The negotiations are now moving into the request-offer phase where member states submit proposals on sectors to be opened for deregulation. Negotiations will continue until at least December 2002.

GATS and Health

To establish a trade in services, as GATS aims to do, there has to be a market in services - services have to be bought and sold. Until recently, however, many countries have not had markets in health care, education, water, sewerage or energy. All have, by and large, been provided by government or non-profit organisations. The state has established hospitals and schools, and trained and paid their staff.

Markets are now being created by enabling entities other than the state to provide services. Privatisation of ownership, for instance selling off water supplies, is an obvious means. Other means are more hidden and gradual: privatisation of service provision (by requiring contracting out, leasing or competitive tendering); privatisation of finance (charging users of the service, private capital, private health insurance) and the introduction of internal markets (dividing purchasers from providers of services).

Health care services have not generally been explicitly privatised. Instead, there has been an incremental process of government retraction accompanied by private sector enlargement as the services have been commercialised. Markets - and thus the potential for trade - have crept in through the back door.

Concerned citizens and non-government organisations around the world fear that, sooner or later, the GATS will mean the end of publicly funded services and have called for a moratorium until some assessment of the possible impacts can be made. Others call for the abolition of the WTO and all its agreements.

The GATS threat comes from a number of sources.

1) GATS and Public Services

Are public services (including public health) covered by the GATS? This is the trillion dollar question.

The WTO says ‘no’ because Article 1.3(b) of the GATS states that “services includes any services in any sector except services supplied in the exercise of government authority.” The Department of Foreign Affairs and Trade (DFAT) and the Federal Government support the WTO’s claim. However, what the WTO and DFAT neglect to mention is that the very next article 1.3(c) states “a service supplied in the exercise of governmental authority” means “any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers.” 8

The government of British Columbia has done extensive research on the GATS and has concluded that:

“in order for a public service to be excluded, both criteria must apply .That is, in order for the exclusion to apply, a service must be supplied on a non-commercial basis and its delivery must not be in competition with another service supplier. The number of public services excluded according to this definition is very small.” 9

The presence of private suppliers in the Australian health care sector means the private sector could be seen as providing a service in competition with the state. The WTO itself contends that “It seems unrealistic in such cases to argue for continued application of Article 1.3 and/or maintain that no competitive relationship exists between the two.” 10 Thus it is by no means certain that public services, including public health, are automatically excluded from the GATS.

2) Progressive Deregulation

Even if public services are excluded at the outset, the progressive nature of the negotiations means that sooner or later, they are certain to be sucked in. As Canadian trade and investment researcher Ellen Gould has pointed out, “under the GATS, deregulation could just keep on going and going, presumably until negotiators run out of sectors to open up to foreign competition and ownership”. 11, 12

3) Subsidies

The WTO sees public sector monopolies as barriers to the extension of the trade in services and public funding as a subsidy. The GATS already covers subsidies as part of the most favoured nation and national treatment provisions. If a government provides a subsidy to a local service provider (including a public one), in theory it has to provide the same subsidy to a foreign-based service supplier as well. As WTO research staff have said, this requirement is a powerful argument for abandoning the subsidy altogether. In practice, it would eliminate public services and encourage privatisation.

4) No Exceptions

According to the GATS negotiating guidelines adopted on March 28, 2001, all services without exception are on the table: “There shall be no a priori exclusion of any service sector...”. 13

DFAT has stated that all services, including public services, are on the table. No exceptions have been made at this stage. This is portrayed by DFAT as being a ‘negotiating strategy.’

5) Changes To The Rules

The US, European Union (EU), Japan and Canada (known as the Quadrilateral or “Quad” governments) are pushing hard to:

• increase the services and ways of supplying services that WTO member countries agree to open up to foreign competition (market access)
• re-classify services to get around some countries’ reluctance to open them up to foreign competition;
• insert new rules and restrictions that apply to all members, services, sectors of services and ways in which services are supplied, irrespective of whether countries have agreed to open such services to competition;
• place new constraints on domestic regulation.

They are seeking more access to Southern markets, to each other’s public services and further deregulation of services already in private hands but publicly-regulated, such as media, publishing, telecommunications, energy, transport, financial and postal services. Northern countries are interested in service deregulation by Southern countries in many sectors: construction and engineering; distribution; education; environmental, health and social services; and recreational and cultural services.

These revisions, if agreed upon, could mean that the voluntary nature of GATS - under which a country decides which services to list as open to foreign competition - would be meaningless. It could be irrelevant whether a country offers up its services or not, if other rules apply to all services. Any guarantees from the DFAT that the government has no intention of offering to privatise public health care or education under the GATS 2000 negotiations would have little force.

Despite the requirement for “transparency” in GATS, these renegotiations are taking place between government representatives behind closed doors in close consultation with international corporate lobbyists. Few of the results of discussions are made publicly available by the WTO or individual countries. It is next to impossible for citizens’ organisations to find out the current state of negotiations while access to many background documents is restricted. Thus, negotiations on apparently technical issues such as reclassification of services are evading public accountability and public and parliamentary debate.

6) Regulating Governments, Not Corporations

Article VI of the GATS covers domestic regulation. Its aim is to encompass any regulation that affects services but is not covered by other GATS obligations.

Its fourth clause aims to ensure that “qualifications requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services”. Although undefined in GATS, technical standards could encompass most types of government control. The WTO Agreement on Technical Barriers to Trade defines technical standards as “product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory.”

Thus in the context of services, ‘technical standards’ could apply to the processes and methods of producing services, including administration, its funding and delivery and any reimbursement under mandatory (public or private) insurance schemes.

A huge range of government regulations would be covered by this fourth clause. A few examples are legislation accrediting professionals as competent to practise, licensing hospitals and giving university status to academic institutions.

So that these national requirements and standards do not constitute an ‘unnecessary barrier’ to trade in services, Article VI.4 states that they should be ‘not more burdensome than necessary’ and should not restrict the supply of the service.

A Working Party on Domestic Regulation has been drawn up to discuss ‘reform’ of domestic regulation. This involves drafting a ‘necessity test’. This is a legal formula which could be used to assess the level of trade restrictiveness of a measure. DFAT claims that a necessity test would protect the right of governments to regulate in the public interest. However, as a member of this working party, DFAT has submitted a paper proposing that the ‘necessity test’ be as strong a possible.

Necessity tests also appear in other WTO agreements. The defence of ‘necessity’ has been used twelve times as a defence against a challenge to a government regulation. In eleven of the twelve challenges, a WTO dispute resolution panel has ruled against the defence of ‘necessity.’

The working party has considered importing into the Article VI.4 the definition of ‘least burdensome’ (i.e. ‘pro-competitive’) from a GATS Annex on Telecommunications.

The EU has gone further and identified ‘anti-competitive practices’, including ‘cross-subsidising by monopoly providers of network infrastructure and services’. It argues that this practice restricts competing suppliers from being able to provide services in a market. Clearly, according to this interpretation, the provision of public health services in Australia is an ‘anti-competitive practice’.

Governments that currently use non-market mechanisms, such as risk pooling, social insurance funds, block contracts and cross-subsidising to deliver public services to as much of their populations as possible, could find such practices challenged as anti-competitive.

Article VI.4 (unlike all the other sub-sections of Article VI) could be construed as applying to all services, not just those which a country has agreed to deregulate. If these proposals were adopted, all domestic regulations would have to be ‘pro-competitive’. A WTO disputes panel could require countries to ‘unbundle’ a public monopoly such as health care and substitute competing service providers or competing health care insurers. This ‘would transform the WTO from a body combating protectionism to a global agent of privatisation.’

In essence, the aim of the GATS is to regulate governments, not corporations. The additional power of a GATS article on domestic regulation is that many governments may censor themselves by not instituting legislation or public policy objectives which could be interpreted as being against WTO rules. GATS sets in place a framework which governments could use in future to challenge other countries’ domestic regulations.

7) The Final Threat

The work of the working party on domestic regulation (and other working parties) is not completed. Yet, despite the fact that no-one knows what the recommendations will be, negotiations are going full steam ahead, enthusiastically embraced by the Federal Government and DFAT.

A fundamental problem with the GATS text as it stands is that governments cannot really know what they are signing up to. The wording is open to a different interpretation by WTO dispute panels at a future time.

The WTO Secretariat states that “the fact that the GATS rules are still necessarily untested, and that the services schedules are much more complex than those for goods, adds to the difficulty of assessing exactly what rights and obligations WTO members have assumed under the services package.” 5 By moving forward without determining precisely what they are committing to, governments are allowing themselves to be persuaded by the WTO into outcomes very different to those they thought they were signing up to.

It has proved very difficult to ascertain exactly what the Australian government’s position is with regard to whether or not public services in this country will be subject to the GATS. The government, through DFAT, says that public services are excluded from the GATS despite all the evidence to the contrary. DFAT further states that all services have been placed ‘on the table’, yet says that this is merely a negotiating strategy. DFAT has further stated that it does not believe that any Australian government would be brave enough to make public health subject to the GATS. It has not at this stage been possible to get any commitment as to what may happen in the future. This must be cause for concern.

The recently elected Howard government has clearly stated its belief in ‘choice’. This policy of ‘choice’ has translated into a massive shift of public money away from public health and education and into the private sector. This is not a situation which inspires much confidence in the present government’s commitment to keeping the provision of public health and public education out of the GATS. The Australian government’s willingness to be subjected to WTO disciplines (including GATS disciplines) is based firstly on an ideological commitment to ‘free trade’ and secondly on a desire to open foreign markets to our agricultural exports. It is based on the flawed view that roughly 75% of Australian agricultural produce is exported. The facts are that at best, 30% of Australian agricultural produce is exported (based on Australian Bureau of Statistics figures). 14

McGovern makes the following point: “In seeking to increase its $16b [agricultural] exports Australia has allowed much greater access to a $55b market. The wisdom of this, particularly under recent and current market conditions, must be questioned”. 14 In other words, we are exposing much of our $55b agricultural sector to foreign penetration in exchange for increasing our $16b export market and subjecting Australia to WTO disciplines. The rationality of such an approach must be questioned. In the new round of WTO negotiations which has now begun, will the government be tempted to allow access to our health and education sectors to foreign service suppliers in exchange for market access for our agricultural produce?

The New Universalism

The central principle which has underpinned public service provision in Australia is the principle of universalism. Under this all citizens are guaranteed access to public services according to need, not according to their ability to pay. This has been of particular importance to health and education but applies across many other sectors too.

The model of ‘new universalism’ promoted by bodies such as the World Bank and the WTO is based not on state provision but on the free market, with government ensuring a level of market regulation. Instead of risk pooling, the new model is based on capitation (payment on the basis of a head count and individual risk) plus targeted subsidies. Instead of cross-subsidising, the new model of universalism requires the ‘unbundling’ of public services, typically including a separation of the infrastructure (network) from actual service delivery. The effect of this ‘unbundling’ is to render the public service inefficient, as it is no longer able to spread risk across society and subsidise high cost elements of service provision through low cost.

The trend is toward something like the United States’ health care system, which has become dominated by for-profit organisations over the past decade and where up to 55 million Americans cannot afford health insurance. In the US, tacit cross-subsidies are being eliminated and hospitals treated more and more as businesses. Researcher Robert Kuttner observes:

“Temporary losses are defensible only as investments in future profits, so cross-subsidy must be avoided ... There is no place for uncompensated care, unprofitable admissions, research, education, or public health activities - all chronic money losers from a strictly business viewpoint”. 15

A revised GATS could not only reduce equitable access to health care services. It could also undermine mechanisms for containing the costs of public sector health care. It could override national regulations governing health care and affect the kind of services provided, restricting rather than enlarging people’s choice of services and of the places in which they are provided. With reduced public expenditure on health and social services, families will increasingly have to take up the slack and nurse the sick who cannot find or afford health care. Via GATS, private companies could prise open for themselves public funding for services. In the Organisation for Economic Cooperation and Development (OECD) countries, public expenditure on health services and education accounts for more than 13 per cent of gross domestic product. Much of this spending now goes to public or voluntary bodies but could end up being channelled to for-profit groups. Nearly 50 per cent of UK tax revenue now goes to profit-making companies.

It is argued that the privatisation of public services brings more competition, more private finance to lessen public expenditure, less bureaucracy, more flexibility, greater opportunities for the workforce and more modern management practices. In practice, however, cartels develop and corruption is rife. Public money provides guarantees for private companies which simply avoid competition from the public sector. There is little or no accountability or regulation and job cuts or reduced conditions of work are common.

Business Objectives in GATS 2000 Negotiations

As with other WTO agreements, the main beneficiaries of this process of deregulation are multinational companies. In the words of David Hartridge, Director of WTO’s Services Division “Without the enormous pressure generated by the American financial services sector, particularly American Express and Citicorp, there would have been no services agreement.”

The secrecy of the GATS negotiating process, combined with GATS’s obscure, bureaucratic, arcane and technical terminology, make it difficult for policymakers, let alone the general public, to grasp the significance of the Agreement. But statements from US and EU industry associations indicating what they want out of the current negotiations give a much clearer picture. The president of the US CSI, Robert Vastine, has said that his “most salient criticism” of GATS is that countries have specified so few services to be opened up to liberalisation. He argues that:

“the new negotiations must secure commitments to national treatment, market access, and cross border services in as many sectors as possible. Current scheduled exceptions are too broad, and must be honed”. “[US negotiators must] propose broad commitments to liberalization in areas such as the right to establish a business presence in foreign markets (commercial presence), the right to own all or a majority share of that business, and the right to be treated as a local business (national treatment).” 4

Vastine is adamant that the WTO: “must... provide that the entire new ‘round’ be completed by 31 December 2002, in order to force closure on the existing agenda, reap what gains can be garnered, and begin again with a fresh agenda that could include items like investment.” 4

The EU has been actively reaching out to companies. It declares that:

“GATS is not just something that exists between Governments. It is first and foremost an instrument for the benefit of business, and not only for business in general, but for individual services companies wishing to export services or to invest and operate abroad.”

In short, it concludes “the GATS should be one of the key reference texts used by any corporate planner seeking to do business on a world level.” 16 The European Services Forum says that “foreign investors should have the same access to domestic markets as domestic companies” and that barriers such as nationality or residency requirements should not apply to the posting of key personnel. 17

Conclusion

Australia has had a public health system the envy of countries throughout the world. Increasing numbers of Australian individuals and organisations throughout are now concerned that the economic rationalist policies of successive governments and our participation in the GATS negotiations is putting that health service at risk.

References

1 Global Services Network, Statement on WTO negotiations on Services, November 1999:1
2 WTO, The GATS: Objectives, Coverage and Disciplines, www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm
3 Kuttner, R. (1999) “The American Health Care System: Wall Street and Health Care”, New England Journal of Medicine, 340: 664-68.
4 Website: www.uscsi.org.
5 WTO Secretariat (1999): An Introduction to the GATS: 1.1
6 The term “measure” covers any law, regulation, rule, procedure, decision or administrative action taken by central, regional or local governments and authorities and non-governmental bodies exercising powers delegated to them by these governments and authorities. i.e.GATS could restrict government use of subsidies and grants; nationality requirements; labour standards; residency requirements; licensing standards and qualifications; registration agreements; performance measurements; technology transfer provisions; local content or employment provisions; economic quotas or needs tests; licensing or training requirements; restrictions on ownership of property or land; limitations on access to markets; environmental and consumer protection measures; and some tax measures.
7 Sinclair, S., (2000) GATS: How the World Trade Organization’s New “Services” Negotiations Threaten Democracy, Canadian Centre for Policy Alternatives, Ottawa, September 2000: 1, 6, 40.
www.policyalternatives.ca; email: ccpa@policyalternatives.ca.
8 www.wto.org/english/tratop_e/serv_e/1-scdef_e.htm
9 Report at: http://members.iinet.net.au/~jenks/GATS_BC2001.html
10 WTO Secretariat (1998) Health and Social Services: Background Note by the Secretariat S/C/W50”, 18 September 1998.
11 Gould, E. (1999) The Next MAI, Council of Canadians, www.canadians.org, accessed 25 October 2000.
12 WTO Secretariat (1999): “The GATS rules are not quite complete, and are largely untested. The process of filling the gaps will require several more years of negotiations . . . Among the most important elements in the GATS package is the promise that successive rounds of negotiations will be undertaken to continue opening up world trade in services”.
13 WTO Document Symbol: S/L/93
14 McGovern, M. (1999) “On the Unimportance of Exports to Australian Agriculture”, Australian Journal of Regional Studies, 5(2): 229-252.
15 Kuttner, R. (1996) “Columbia/HCA and the Resurgence of the For-Profit Hospital Business”, New England Journal of Medicine, 335 (5): 362-367.
16 European Union Opening World markets: Which Sectors are Covered By the GATS? http://gats-into.eu.int/
17 European Services Forum, Set of Principles, 26 January 1999 www.esf.be/f_e_abou.htm

Material also drawn from the following sources:

• The report of a seminar on the GATS held by the World Development Movement: http://www.wdm.org.uk/campaigns/GATS.htm
• Sexton, S. (2001) Trading Health Care Away-GATS, Public Services and Privatisation Cornerhouse Briefing Paper 23, 15 July 2001 www.cornerhouse.icaap.org/briefings/23.html
• Pollock, A.M.&Price, D. “Rewriting the Regulations” The Lancet 9 Dec. 1999
• World Trade Organisation website: www.wto.org
• The GATS available at: www.wto.org/english/tratop_e/serv_e/gatsintr_e.htm

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