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General Agreement on Trade in
Services (GATS)
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Barriers to trade in services
- The
GATS - Release of documents?
- EC Requests
- Link between requests and offers?
- GATS and public services
- Health and Education?
- Terms of the Exclusion in Article I:3
ambiguous?
- Review of Article I:3?
- Water?
- GATS and domestic regulation
- GATS and the assessment of trade
- Role of UK interest groups
- GATS and democratic process
- GATS and developing countries
Consultation on the WTO General Agreement on Trade in Services
(GATS) - Government Response
On
18 December 2003 the Government published a response to the DTI's
consultation document "Liberalising trade in services - a
new consultation on the World Trade Organisation GATS negotiations".
Our response
addresses the many issues raised in nearly 800 submissions and
explains how they have been and will continue to be taken into
account when negotiations resume in the WTO in the New Year.
GATS
 (274kb)
Front cover
(21kb)
Barriers
to trade in services
The UK is among the world's top services
exporters, second only to the USA and the fourth largest importer.
Although our own markets are largely open to foreign service suppliers,
many markets around the world have significant barriers to trade
in services - more so than for goods. Unlike goods, for the most
part these barriers are mainly found in countries’ domestic regulation
rather than at the border. While countries remain – and should
remain – free to regulate for national policy objectives, the
purpose of trade negotiations in services is to avoid regulation
that is more trade restrictive than necessary to achieve a domestic
policy objective, thereby freeing up trade and enhancing wealth
creation for the benefit of all countries – developed and developing.
The GATS
The UK, through its membership of
the World Trade Organisation (WTO), has taken on the obligations
of the GATS. This agreement, which came into force in 1995, sets
out a framework of legally-binding rules governing the conduct
of world trade in services. It is supported by a number of schedules
of specific commitments undertaken by individual WTO Members.
These commitments bind Members not to introduce more restrictive
rules which could have an adverse effect on trade. Under successive
rounds of negotiations, aimed at progressive liberalisation, Members
individually choose in which sectors to make binding commitments,
and in which not to. This is known as a "positive listing", or
"bottom-up", approach. Negotiations proceed on the basis of requests
and offers; that is, countries request each other to consider
liberalisation in particular sectors, and respond with offers.
Agreement to liberalise is not reached until all participating
Members – including developing countries – are satisfied with
the total package being offered. There are no plans to change
this approach. This does not prevent any country from making commitments
unilaterally at any time.
The GATS includes special provisions
reflecting the interests of developing countries. In considering
progressive liberalisation, the GATS provides that there shall
be appropriate flexibility for individual developing country Members
(especially least-developed countries) for opening fewer sectors,
liberalising fewer types of transactions, progressively extending
market access in line with their development situation and, when
making access to their markets available to foreign service suppliers,
attaching to such access conditions aimed at:
(a) the strengthening of their domestic
services capacity and its efficiency and competitiveness, inter
alia through access to technology on a commercial basis;
(b) the improvement of their access
to distribution channels and information networks; and
(c) the liberalisation of market
access in sectors and modes of supply of export interest to them.
Release
of documents?
The requests are not public documents.
The detail is a matter between the Community and its trading partners.
Just as other WTO Members are doing in relation to their own requests,
the Community is protecting its negotiating position. However,
a summary is available.
In the same way that the EC requests
are not public documents, other Members’ requests made of us have
been provided on a confidential basis. Trading partners are concerned
that the public release of their requests could harm their overall
negotiating position. However, while respecting this confidentiality,
our consultation document provides a summary of the requests received
by the EC.
EC Requests
The Community has made requests to
109 of the 144 WTO Member States. The approach has, however, been
graduated to take account of the development and capacity levels
of developing countries. The most ambitious requests are aimed
at developed countries and a few key developing and emerging economies.
In the case of least developed countries,
requests are generally limited to between 3 and 5 service sectors
which are identified as being most likely to contribute to that
country’s development. The focus is mainly on business, financial,
telecoms and transport services. This is broadly consistent with
a developing country proposal for "modalities" for the treatment
of developing countries in the negotiations.
We have made clear that our requests
in no way seek the dismantling of public services nor the privatisation
of state owned companies in other WTO member countries. We have
also made clear that the EC recognises the importance of liberalisation
being underpinned by domestic regulatory frameworks designed to
ensure the achievement of public policy objectives.
Link between
requests and offers?
Due to the bottom up approach whereby
WTO Members can choose in which sectors and to what extent to
liberalise, there is no linkage whatsoever between the Community’s
requests and what we may be prepared to offer in the negotiations
in respect of increased access to the already very liberal UK
services market.
GATS and public
services
GATS to force the privatisation
of public services?
No. The GATS cannot force privatisation
of public services. Governments may choose to privatise of their
own accord, but that is, and will remain, a domestic policy decision
for governments quite separate from the WTO process. Even where
governments have chosen to privatise a public service there is
no GATS requirement to open that service to overseas competition.
Where governments do choose to provide
guarantees of market access for foreign service suppliers, they
can also set limitations or conditions on such access. For example,
when WTO Member governments bound their liberalisation of basic
telecommunications services in the 1997 WTO agreement, they emphasised
their right to define their own universal service obligations.
Health and
Education?
The Secretary of State for Trade
and Industry said in the House on 14 November 2001 that the UK
has no intention of making any commitments that would call into
question our ability to maintain public services such as health
and education.
There is no threat to these services
from other WTO Members. We believe them to be excluded from the
GATS but in any case our ability to maintain public health and
education services is guaranteed by the fact that governments
can choose in which sectors and to what extent to make commitments
(the bottom up approach). The aim of GATS to progressively liberalise
trade in services does not lock in countries to liberalise in
sectors they do not choose to.
Where other WTO Members have submitted
requests, they seem to have done so in order to be able to supply
private services alongside existing public services, rather than
seeking their privatisation.
The Community has made one request
in the education sector to the US for the supply of privately
funded education services mirroring the commitments already taken
by the vast majority of Community member states during the Uruguay
Round.
Department of Health statements about
increased private sector involvement in the health service are
a matter of domestic policy unconnected to the GATS.
Terms of the Exclusion
in Article I:3 ambiguous?
We agree that the terms of the exclusion
(in Article I:3 of the Agreement) could be ambiguous and accept
that they have not been tested in WTO jurisprudence. But it does
not appear that our interpretation is likely to be challenged.
There is no evidence that any Member country of the WTO is seeking
a different interpretation; the right to maintain publicly funded
governmental services is vital to all WTO Members, and questioned
by none.
Review of
Article I:3?
The government has no objection in
principle to considering a clarification of Article I:3. But informal
contacts with other WTO Members in Geneva has shown that there
is no appetite generally to do so for fear of opening up new grey
areas of interpretation.
Boundaries of private and public
services blurred?
Even where there are elements of
private funding contributing to the supply of a public service
(e.g. hospital Private Finance Initiatives) in the UK, the service
to the citizen remains a public service.
Water?
Since 1989, UK water companies in
England and Wales have been in the private sector and some are
now foreign owned. We have not made any GATS commitments. However,
we have asked whether the UK should agree to bind our current
water regime in the GATS on the understanding that such commitments
would not prevent the supply of water to UK households.
The Community has invited developed
and a number of developing countries to consider taking commitments
on the liberalisation of water collection, purification and distribution
services. However the EC’s requests make clear that they in no
way seek the dismantling of public services nor the privatisation
of state owned companies. And they exclude access to resources
(ie ownership of the water itself) and any cross-border transportation
by pipeline or other means.
As with all sectors, nothing in the
GATS forces any country to liberalise water supply – and to date
no Members have made commitments in this sector. Nevertheless,
the Government believes that developing countries should be able
to choose the most effective way of delivering water services
to their people. And we recognise that this may in some cases
involve the private sector. If the private sector is involved
we see it as vital (and we have said so in the EC’s requests)
that it is properly regulated to ensure that affordable water
services are delivered to poor people. Nothing in the GATS can
prevent countries regulating in this way or pressure them into
a specific public or private services delivery model.
The World Summit on Sustainable Development
Working Group on water has estimated that global investment in
the water sector will need to increase from $70-80bn annually
to some $180bn if the 2015 target on water (to halve the proportion
of people without sustainable access to safe drinking water) is
to be reached. Private sector involvement may have a role in bringing
the expertise and efficiency gains that enhance the delivery of
clean water. It may also assist governments in the financing of
water investment.
Unsuccessful water privatisations,
wherever they have occurred so far, cannot be blamed on the GATS.
What was lacking in these instances was accompanying legislation
to ensure universal supply and limit the cost to consumers. The
right to regulate for such public policy objectives is enshrined
in the GATS.
Metropolitan Manila Water and Sewerage
System (MWSS) is an example of effective private sector involvement.
In 1997 performance was extremely poor under public ownership.
Service levels were low and losses of water were high. Private
sector participation was introduced through two geographically
separate 25-year concessions. The immediate gains from the concessions
have been dramatically reduced tariffs for customers, a reduction
of over 20% in total manpower, and improved leakage control and
billing. In the longer term, coverage levels for both water and
sewerage are contracted to rise (universal service for water,
83% for sewerage) with approximately $7 billion of new investment
expected over the duration of the concession.
GATS and domestic
regulation
GATS removes the right / ability
to regulate?
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 limited to 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 EC holds the view that a measure should
not be considered more burdensome than necessary if it is proportionate
to the objective pursued. This is intended to make clear that
the degree of necessary trade restrictiveness will depend on,
and be assessed against, the technical and economic context of
a specific domestic policy objective, but would not question its
central validity or rationale.
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 and the assessment
of trade
Assessment of trade not carried
out?
The UK is positive about the assessment
process. The Government recognises the importance of assessment
(it is supporting research by the World Bank in this area) but
no detailed conclusions can be drawn quickly.
Assessment of trade is a standing
agenda item for the Special Session. There was an extensive information
exchange in 1999 and a services statistics seminar last summer
and there was a further assessment seminar in March 2002.
The problem is how and what to assess.
Commitments made by WTO Members during the Uruguay Round at best
reflected, or were less than, the prevailing level of market access
for foreign suppliers at the time. The impact resulting from them
must therefore be quite limited. Obtaining comprehensive data
is also a problem. For these reasons WTO members agreed collectively
in March 2001 that the assessment should be conducted as negotiating
proposals are discussed and the results fed into the negotiations.
The idea that developing countries
should conduct an assessment of the impact of further liberalisation
in every sector in advance of the start of negotiations was seriously
flawed. It ignored their limited resources and capacity constraints.
It is clearly better that developing countries target their resources
to assess those sectors where requests are received. In the case
of the EC we have generally limited our requests to the least
developed countries to between 3 and 5 sectors.
The UK through the Department for
International Development (DfID) is considering how best to support
developing countries conduct their assessments with other Community
member states, the WTO Secretariat and other international agencies
such as UNCTAD and the World Bank.
Role of UK
interest groups
Multinationals have too big a
say in the negotiations?
The GATS is a government-to-government
agreement but naturally economic operators in the services sectors
have a big interest in the negotiations and as a consequence lobby
hard. We will also take into account the views of other interest
groups including trades unions and civil society. We are not about
to make any commitment as a result of any lobbying that goes against
the overall best interests of the UK.
GATS and democratic
process
Lack of democracy in decision-making?
Any changes or improved market access
negotiated as part of a trade round would be finally determined
by a future WTO Ministerial Conference by consensus. To be acceptable
there will need to be a balance of overall interest to all WTO
Members. In the European Union the Council of Ministers will first
have to give assent to the Agreement on the basis of a proposal
from the European Commission. In the UK, the terms of that proposal
would have had first to go through the Parliamentary scrutiny
process.
Current Negotiations need Parliamentary
Approval?
Parliament approved the objective
of progressive liberalisation under the GATS as part of its support
for the results of the Uruguay Round.
GATS and developing
countries
Developing countries’ interests
ignored?
No. A great deal of emphasis is being
placed on the need for a trade round that provides a balanced
outcome, especially with developing countries in mind. The Negotiating
Guidelines and Procedures are evidence of this. Services are potentially
a significant source of economic growth for developing countries.
But, if any developing country did not wish to attract foreign
participation in a particular sector, despite the clear evidence
that open markets contribute to development, the negotiating process
could not force it to do so. Despite remarks to the contrary developing
countries broadly support the progressive liberalisation of trade
in services as a means of promoting development and economic growth.
Benefits of liberalisation unproven?
We are convinced of the benefits
of liberalisation of services for developing countries. Economic
growth has been greater in those countries that have opened their
markets than in those that have remained closed. Research undertaken
by a number of organisations including the World Bank and the
UN into the effects of liberalisation on developing countries
have shown that liberalisation in infrastructural service sectors,
such as those requested by the EC, often lead to significant increases
in economic growth. Without such economic growth sustainable poverty
reduction cannot be achieved. We see it as important that the
GATS negotiations deliver benefits to developing countries not
just through their own liberalisation but also as a result of
other WTO Members making commitments in areas of export interest
to developing countries.
Negotiations beyond capacity of
Developing Countries?
Most developing countries (the majority
of WTO members) view the negotiations positively and see real
opportunities for sectors of export interest such as tourism and
temporary movement of persons where they have been actively engaged
in tabling papers. However, we recognise that some do have capacity
constraints and the UK (through DfID) is funding a project involving
UNCTAD to provide a person in Geneva to work closely with developing
countries to provide help where it is most needed to allow them
participate effectively in and benefit from the GATS negotiations.
Developing Countries unable to
pull back from existing commitments?
GATS commitments are not made lightly.
They have to be binding to ensure predictability for economic
operators wishing to enter a market under the terms set out by
a WTO Member in its Schedule of Commitments. However, a WTO Member
government may notify its intention to modify or withdraw any
commitment in its schedule at any time after three years have
elapsed from the date on which the commitment entered into force.
In the absence still of a safeguard mechanism that period is reduced
to 1 year where the need can be shown to be pressing. Since the
GATS entered into force in 1995 no Member has sought to reverse
any commitment.
Any Member government whose benefits
under the agreement may as a result be affected can request negotiations
with a view to agreeing compensatory adjustments or failing that
seek arbitration. We would expect developing countries to seek
to invoke the flexibility built into the GATS for developing country
members to argue for lesser compensation to be due than if they
were developed countries.
Contacts:
Mike
Kenny
Tel: 020 7215 8420
Fax: 020 7215 4252
Email: mike.Kenny@dti.gsi.gov.uk
Georgina
Hamilton
Tel: 020 7215 4248
Fax: 020 7215 4252
Email: georgina.hamilton@dti.gsi.gov.uk
Last
revised on 17 December 2003
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