General Agreement on Trade in Services (GATS)

- Barriers to trade in services
- The GATS - Release of documents?
- EC Requests
- Link between requests and offers?
- EU tables revised services offer in Doha Round negotiations
- 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 (2,751kb) "Liberalising trade in services - a new consultation on the World Trade Organisation GATS negotiations".

Consultation document front cover (138kb)

Copies are being sent to all who sent us their comments. 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.

EU tables revised services offer in Doha Round negotiations - 2 June 2005

The European Commission has transmitted to the WTO the EU’s revised services offer in the Doha Development Agenda (DDA) negotiations. The revised offer outlines how the EU is prepared to open further access to its services market in exchange for improved access to other WTO Members’ markets.

Mr Ian Pearson, Minister for Trade and Foreign Affairs, welcomes the EU announcement of extensive commitment to open access to the EU services market in exchange for improved opportunities for EU service providers from other WTO members. "This represents a huge opportunity for enhancing commercial opportunities and responds to the interests expressed by developing countries. It is essential that other WTO Members respond to the strong leadership demonstrated by the EU and seek to match the level ambition and scope of the revised European offer".

The following documents are available for download

Full Communication from the European Communities and there Member States - Conditional revised offer (Will appear within the next few days).

Summary of the EU’s revised services offer in the Doha
negotiations (55kb).

Press release: EU tables revised services offer in Doha Round negotiations (35) .

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:

John Forrest
Tel: 020 7215 4409
Fax: 020 7215 4512
Email: john.forrest@dti.gsi.gov.uk