General Agreement on Trade in Services

General Agreement on Trade in Services GATS Presentation to Artists 2005 WTO member nations can challenge as an ―illegal trade barrier‖ any national or local policy of another WTO country, bringing charges before a WTO tribunal comprised of three trade officials who meet behind closed doors. WTO has managed to intervene in domestic policies all over the planet   India: Like many countries, once had a ban on patenting of seeds and medicines to make them broadly accessible. A WTO challenge claiming that India had failed to implement the required 20-year patenting system resulted in India reversing the banthreatening to deprive millions of people of life-giving resources Guatemala: Implementation of the UNICEF-WHO Code on the labeling of infant formula was gutted after a WTO threat. WTO has managed to intervene in domestic policies all over the planet   Europe: Consumers and producers in Europe face $116.8 million per year trade sanctions because the EU has not implemented a WTO order to import beef containing artificial hormones – WTO ruled that Europe‘s standards provide too much consumer protection. Europe: US WTO case forced the EU to eliminate a program that had set aside a small market share for bananas from former Caribbean colonies, leading to the ruin of thousands of small family farms in several island nations. WTO has managed to intervene in domestic policies all over the planet   Canada: Policies aimed at ensuring the continued existence of some Canadian news magazines in the face of massive US magazine imports were abolished after a successful US WTO case. USA: USA saw its gasoline cleanliness standards weakened after a WTO assault on Clean Air Act regulations by several countries. WTO has managed to intervene in domestic policies all over the planet   USA: Even though the USA signed the global environmental treaty called the Convention on International Trade in Endangered Species, American rules requiring shrimp fishers not to kill sea turtles were diluted after a WTO challenge. Maryland: US State Department, lobbying about how a state law might violate WTO, pressured Maryland legislators to drop a procurement policy aimed at promoting human rights in Nigeria. WTO has managed to intervene in domestic policies all over the planet  Canda: The Canadian 'Auto Pact' is designed to encourage companies selling vehicles locally to invest in, purchase parts from, and create employment in Canada. In 1999, European and Japanese vehicle manufacturers challenged the Auto Pact. The World Trade Organisation (WTO) dispute panel ruled that it fell foul of a number of WTO agreements including GATS. WTO has managed to intervene in domestic policies all over the planet  Thailand: Whilst bringing cheaper products and more variety to consumers, multinational supermarket chains such as Tesco, Carrefour, and Royal Ahold brought disaster to the thousands of small and medium-sized local retail shops who went out of business, and made many people unemployed. This led the Government to draft new regulations (e.g. "Retail Business Act―) aiming to protect the livelihoods of the small-scale retailers. If the retail sector is placed under GATS this will not be possible. EU wants Thailand and other countries to place its retail sector under GATS rules. In WTO forum, global commerce takes precedence over everything – democracy, public health, equity, access to essential services, the environment, food safety and more We will be able to change presidents… but not policies GATS further shrinks domestic policy space GATS: The 1st Page of Introduction  Multilateral trade agreement for goods was extended to cover services with the introduction of GATS  Countries come under GATS when they become members of WTO and when they offer sectors GATS: The 1st Page of Introduction  Active only when foreign trade is within the country  Foreign investment could challenge any domestic policy or a law claiming it to violate GATS rules for FREE TRADE GATS: The 1st Page of Introduction  The guideline for rules is the protection of FREE TRADE is the WTO Tribunal that take the final decision  It GATS: The 1st Page of Introduction  WTO member countries are bound to accept the verdict of the Tribunal and make necessary changes to domestic policy and law, accordingly or have to face trade sanctions GATS: The 1st Page of Introduction  WTO’s expansive new rules encroach into areas traditionally considered the realm of domestic policy and effectively shift many decisions from democratically elected domestic bodies (e.g. parliaments, provincial councils, etc) to WTO tribunals. GATS: The 1st Page of Introduction  WTO and GATS promote a world where free trade stays as the only guideline and value overriding diverse worldviews and development models of different civilizations, cultures, countries and communities…. GATS Framework Coverage  4 Modes of Trade in Services  Rules (Horizontal and non-horizontal)  Tribunal  Threats outside GATS framework  Coverage a. No human activity remains outside the purview of GATS b. Human activity from birth (health care) to death (funeral services) c. The fluidity of the definition of `services‘ extends the scope even further (e.g. Banana was considered service in US-EU WTO banana case) Coverage d. e. Policies and actions of all levels, federal, state and local (GATS Article I-3-a-i) Actions of non-governmental bodies in the exercise of powers delegated by any level of the government (GATS Article I-3-a-ii) Government policies directly regulating services as well as measures affecting trade in services including those not specific to services (GATS Article I-1) f. 4 Modes of Trade in Services a. b. c. d. Cross-border trade in services Use of services abroad Establishment of a service business in another country Movement of natural persons Commitments       Most Favored Nation Commitment (MFN) National Treatment Commitment Commitments ensuring irreversibility Commitments prohibiting domestic controls Commitments promoting more liberalization of service sector (Nullification and Impairment) Commitments on Domestic Regulation MFN Commitment Selected countries are not allowed to be given special treatment over others National Treatment Commitment i. A member country should treat domestic and foreign services and providers the same (GATS Article XVII) ii. When setting taxes and regulatory requirements, governments cannot promote domestic or local providers (GATS Article XVII) iii. A policy that may unintentionally could have such effects (as of i. and ii) can considered to be GATS-illegal even if it does not actually affect service trade flows (GATS Article XVII-3) Commitments Ensuring Irreversibility i. If a sector is offered any further attempt to expand the role of state or return from partial privatization to an exclusively public system run against GATS and involved with paying compensation to all member countries whose service providers are affected to make up for the withdrawn opportunities (GATS Article XXI-2-a). New monopolies cannot be established without compensation and these monopolies include government as well as domestic private and also monopolies not only at the national level but also at the local level (GATS Article VIII-4, GATS Article XXI-2-b). ii. Commitments prohibiting domestic controls GATS Article XVI ban countries from certain limits on market access for any sector offering for GATS coverage (unless a country listed them in 1993 schedules) i. limits on the number of service suppliers ii. limits on total value of service transactions and assets iii. limits on the total number of service operations iv. limits on the total number of natural persons employed in a particular service sector v. policies which restrict or require specific type of legal entry vi. limits on foreign ownership as % Commitments promoting more liberalization of service sector Under “nullification and impairment” commitment a member country can challenge another member country and take to WTO tribunal even when no specific rule is actually violated but for failing to guarantee anticipated benefits of service liberalization as a result of any measure taken by the accused country (GATS Article XXIII3) Commitments on Domestic Regulation In GATS article VI-4 on domestic regulation contain a commitment to undertake negotiations to develop “necessary disciplines” to ensure that “measures relating to qualification requirements and procedures, technical standards and licensing procedures do not constitute unnecessary barriers to trade in services”. This means NOT ONLY qualifications required and procedures, technical standards and licensing procedures, but also ―measures relating‖ to them are included. Sports Illustrated Vs Canadian Content      Half of Canadian English-language magazines are from abroad. Split—run magazines: Foreign editorial content + space for domestic advertising. From 1965 there is a special tariff on split-run magazines: This was to protect smaller Canadian-owned publications from loosing advertising revenue to larger US magazines. Time Warner‘s Sport Illustrated started beaming its magazine into Canada via satellite to avoid tariff. To counter this Canada amended 1965 law to impose an 80% excise tax on split-run magazines in 1995. Sports Illustrated Vs Canadian Content  In 1996 US launched a WTO challenge against i. 80% excise tax ii. 1965 tariff on split-run magazine iii. policy of subsidizing postal rates for domestic magazines (to address the challenge of information distribution to a population that is widely dispersed geographically and is called as ―Canadian Heritage‖) Debate: (Canada Vs USA)   US: The crux of the US challenge was National Treatment Commitments under GATT, that prohibited treating domestic and foreign ―like products‖ differently for regulatory and tax purposes. Canada: Canadian magazines are not ―like products‖ so the differential tax treatment did not constitute a National Treatment issue. Debate: (Canada Vs USA)  US: Canadian content does not differentiate the product and stay contrary to WTO (WTO: Canada certain measures concerning periodicals WT/DS31/AB/R) The issue from the US side was the protection of international `fair‘ trade under GATT but not other interests such as protecting culture and heritage of Canada. Debate: (Canada Vs USA)  Canada: Advertising revenue from US edition more than covered the publication cost of the Canadian Edition. Hence Sports Illustrated was selling advertising in Canadian edition in very low rates so that advertising in smaller Canadian publications are threatened. This under pricing amounted to ―dumping offense‖. (selling goods below the cost of their production in order to dominate the market). From the Canadian perspective the issue was the disappearance of Canadian content and writing. Sports Illustrated Vs Canadian Content  WTO ruling (in March 1997): – 80% excise tax is contradiction with National Treatment Commitment in GATT – provisions of 1965 tariff code is a violation of WTO rules - grants to Canada Post for Canadian magazines is an illegal subsidy Sports Illustrated Vs Canadian Content  Canada took new steps to introduce new legislation to regulate sales of ―advertising services‖ rather than regulating magazines as products. Sports Illustrated Vs Canadian Content  US reacted: – threatened $4 billion worth of imports sanctions – suspension of favorable tariffs accorded to Canada under NAFTA – formally challenged Canada‘s new policy before the WTO Appellate Body. Sports Illustrated Vs Canadian Content  Canada‘s response: Because Canada has made no commitments in the advertising sector under GATS, the policy should be allowed. Sports Illustrated Vs Canadian Content  WTO ruling: WTO ruled against all of the Canadian measures. – In this instance advertising is both a good and a service. Therefore the absence of GATS advertising commitment is irrevalent (Because ads appear in magazines, they are also parts of the contents of a good) - Financial subsidy from Canada Heritage was not a direct subsidy of cultural producers permitted Sports Illustrated Vs Canadian Content In May 1999 Canada abandoned the new legislation…………… WTO Tribunal   WTO‘s Dispute Resolution Understanding (DSU) was established during the Uruguay Round. Once a WTO tribunal has declared a country‘s law WTO-illegal, the country must change its law or face trade sanctions. WTO Tribunal   When the record of WTO is scrutinized by topic, rather than by country, nearly every health, food safety or environmental law challenged at the WTO has been declared a barrier to trade (Wallach & Woodall, 2004) WTO‘s expansive new rules encroach into areas traditionally considered the realm of domestic policy and effectively shift many decisions from democratically elected domestic bodies (e.g. parliaments, regional councils, etc) to secretive WTO tribunals. WTO Tribunal “while the FSC tax subsidy may be bad tax policy, it is our tax policy – a policy arrived at through the elected representatives of the people of this Nation. The ability of some international bureaucracy to effectively impose punitive taxes or tariffs on American goods should offend us all” - In a senate floor debate on a WTO ruling against Foreign Sales Corporation (FSC) tax break, Senator Russ Feingold WTO Tribunal   WTO disputes are heard by tribunals composed of three panelists. WTO tribunals are comprised of trade experts with the WTO Secretariat nominating panel members for each dispute from a roster. (These qualifications promote the selection of panelists with a stake in the existing system and rules, eliminating potential panelists who do not share an institutionally derived philosophy about international commerce and the primacy of the WTO system) WTO Tribunal   A panel are allowed, but not required to, to seek information and technical advice form outside individuals and expert bodies The only recourse after a WTO panel ruling is to appeal to the WTO Appellate Body which is a standing committee of seven trade experts with three selected to hear each appeal. WTO Tribunal    WTO dispute panels operate in secret. Documents are restricted to the countries in the dispute. Press and the public are excluded. The WTO lower panels and Appellate Body meet in closed sessions and the proceedings are confidential. WTO Tribunal   All documents are also kept confidential unless a government voluntarily releases its own submissions to the public No outside appeal to a WTO ruling is available. (WTO, Understanding on Rules and Procedures Governing the Settlement of Disputes at Article 14 and Appendix 3, paras. 2 and 3). WTO Tribunal  Under the rules of conduct, discovery of panelists‘ background is based on selfdisclosure, leaving it up to the individual panelist to decide which aspects of his or her past should be known. WTO Tribunal  GATT contained the typical sovereignty safeguards found in almost every international agreement: consensus was required to bind any country to an obligation. Unlike GATT, WTO panel rulings are automatically binding and only the unanimous consent of all WTO nations can halt their adaptation. WTO Tribunal  Contrary to the majority of court hearings, opinions expressed in the final WTO panel reports by individual panelists remain anonymous. Threats outside GATS framework The implications of GATS cannot be understood by just going through the officially declared procedures. How GATS negotiations happen in real world should also be taken in to account to understand the real impacts. Threats outside GATS framework When considered with the complicated nature of pressure tactics used by powerful developed countries to arrive `consensus’, the GATS statement ―Governments can choose the services in which they make market access and national treatment commitments and they can limit the degree of market access and national treatment they offer‖ has little meaning. Threats outside GATS framework    Pressure tactics / arm twisting within WTO negotiations: a. Public and private attacks on the developing country groupings: b. `Divide and Rule’ policy by the USA and EU IFIs also exert pressure on developing countries to commit on GATS and other WTO trade agreements Corporate lobby groups enjoy immense influence over the trade policies of WTO members such as the USA, EU and Japan. Public and Private Attacks  At the end of the Cancun Ministerial Grassley (Chair of the US Senate‘s Finance Committee) issued a statement saying, ―Let me be clear. I‘ll use my position …….. to carefully scrutinize the positions taken by many WTO members during this Ministerial. The US evaluates potential partners for free trade agreements on an ongoing basis. I‘ll take note of those nations that played a constructive role in Cancun, and those nations that didn‘t‖ Public and Private Attacks   Tanzania and Kenya were among countries threatened in the run-up to Cancun (e.g. loss of trade preferences, the cancellation of market access preferences, etc.). There were personal attacks to dismiss ‗troublesome‘ ambassadors from their positions, as was the case with Dominican Republic‘s ambassador at the WTO, Dr Frederico Cuello. Public and Private Attacks   EU‘s chief negotiator Pascal Lamy acknowledged to European NGOs prior to the Cancun Ministerial that ―arm-twisting and blackmailing practices‖ take place at the WTO. ―How do you get some kind of agreement that 146 countries can sign on to, given they all have different views? In that process, people will get their arms twisted. If you want more textiles in my market, I may twist your arm to get more investment. There are trade-offs, arm-twisting, bulling and all the rest of it going on‖ - Richard Eglin, Director of the Trade and Finance Division Public and Private Attacks   In September 2003 in an attempt to intimidate Brazil, Senator Chuck Grassley asked the US Department Agriculture to launch an investigation into Brazilian farmers‘ alleged planting of genetically modified soybeans without paying licensing fees to US companies – allegations disputed by the Brazilian government. Immediately before the General Council meeting in Geneva, US trade representative, Robert Zoellick, especially warned the G90 group of developing countries to be flexible. Public and Private Attacks  In Cancun, developing countries were put in a position where they had to agree to the text or risk the collapse of negotiations. `Divide and Rule‘ policy  After being threatened Guatemala, Peru, Ecuador, Colombia and Costs Rica all left the G20 in the weeks following Cancun According to Latin American delegates, the threat to their countries was direct and explicit. In words of one Ambassador; ―The US said: ‗You still want to negotiate with us? Then get out of the G20‘‖.  `Divide and Rule‘ policy     El Salvador and Guatemala had been offered expanded export quotas by the USA if they would agree to abandon the G20. US held series of bilateral meetings with Arab countries early in the Cancun Ministerial in an effort to prevent them from joining G20. EU engaged in persuading Caribbean and Pacific (ACP) states not to join the G20 Philippines came under intense pressure to distance itself from both the G20 and G33. `Divide and Rule‘ policy   EU reportedly pressing individual African states to keep away from G20 and G33. The EU was accused of trying to undermine developing country unity during the Ministerial by spreading rumors that West African countries might be open to WTO negotiations on the Singapore issues in return for a deal on cotton at Cancun. `Divide and Rule‘ policy   US president George Bush had personally telephoned the heads of state of Brazil, India, Pakistan, South Africa and Thailand on the eve of the Ministerial , putting pressure on them to abandon the G20‘s strong stance on agriculture. The inclusion of Brazil and India by US, EU and Australia to form the Five Interested Parties (G5) after Cancun IFIs pressure on developing countries There are several ways IFIs exert pressure. i. Pressure coming as loan conditionality ii. Providing loans to developing countries to compensate impacts of trade liberalization iii. Providing technical assistance to develop country schedule of commitments iv. Working closely with WTO on a common agenda by compelling poor countries to liberalize services. IFIs pressure on developing countries  ―We strongly believe that a successful conclusion of the Doha round is essential for the world economy and will benefit all countries…. We are therefore working to package our support, building on what we are already doing in order to help countries to implement commitments they make as the Doha Development Agenda proceeds….. We are examining ways to use and tailor our lending authority to respond to the specific challenges posed by Doha Agenda. Such lending could take place at the project, sector and country levels. In the context of coherent country financing plans, we also aim to provide support in mobilizing donor resources‖ - The letter submitted by IMF and World Bank on 20th August 2003 to the WTO Director General, Supachai IFIs pressure on developing countries  Supachai also angered African negotiation after Cancun by circulating another letter from the IMF and World Bank heads to WTO missions in Geneva. Dated 11 November 2003, the letter promised loans to countries willing to show flexibility to re-enter the negotiations. IFIs pressure on developing countries ―The World Bank and the IMF were urging countries to get talks back on the table. If countries went back to negotiations, they would be given lending facilities to meet the adjustment costs. Obviously developing countries felt extremely offended by that. Why should I loose revenue that I now collect (e.g. by making commitments to reduce tariffs), and be given a loan? I would rather collect revenue, especially if my tariffs are much lower than others. There is no way we are going to take on deeper commitments in the WTO and get deeper into debt. It doesn‘t make sense. Also, what can we use to repay the loans if there is no revenue to collect? The DG sent us copies of this letter. This is very weird. I‘m telling you, this organization is crazy‖ - One African official Corporate lobby groups’ influence   In the words of David Hartridge, former director of the WTO‘s services division: ―Without the enormous pressure generated by the American financial services sector, particularly companies like American Express and Citicorp, there would have been no services agreement‖ At the forefront of the campaign demanding the expansion of negotiations to cover `Singapore Issues‘ were the major international business lobbies such as International Camber of Commerce (ICC). Corporate lobby groups’ influence  The ICC met President Chirac in May 2003, prior to G8‘s Evian summit, and handed over a statement calling for the WTO‘s negotiating agenda to be expended into the new areas of investment, government procurement and trade facilitation. This was duly accommodated. The agribusiness lobby enjoyed unprecedented access to the US delegation to Cancun, which had around 70 corporate advisers.  Corporate lobby groups’ influence   The Business Round Table announced that it would be launching a multi-million dollar promotional campaign in June 2003 to win support for the successful conclusion of the Doha round of WTO negotiations. USA‘s rejection of the West African call for the elimination of cotton subsidies stemmed directly from its concern not to antagonize the powerful cotton lobby especially on the eve of an election year. Corporate lobby groups’ influence  The close relationship between the developed country negotiators and the corporate lobby groups was exemplified in an EU briefing session during the Ministerial, where the representative of one European business federation openly asked EU trade negotiators what action they were taking to break up the G20, and what the business community could do to help. Corporate lobby groups’ influence  NGOs have challenged the US system of trade advisory committees, the majority of which are filled exclusively by industry representatives. When NGOs won the right to have a - seat on one of the trade advisory committees, however, the committee did not meet for two years thereafter. Corporate lobby groups’ influence  According to Ugandan delegates at Cancun, President Museveni was asked by Zoellick to remove NGO representatives from Uganda‘s delegation in an attempt to close down transparency of the negotiations yet further. Proposals…….   Do not offer market access to water and electricity sectors (agriculture, health, education and other essential service sectors) under GATS Join G20 (especially on agriculture) and G90 (covers the whole range of issues related to WTO) and work within those developing country alliances to defend the rights of public in the developing world Proposals…….  Make sure the following is done within Sri Lanka before the consideration of offering services for GATS a. introduce mechanisms to ensure wider stakeholder consultation and national consensus on GATS b. make independent sectoral and overall assessment of service liberalization (collectively with UNCTAD, UNDP) with the involvement of representatives of the Sri Lankan public. Request to all public, private, CS organisatons operating in each service sector…..  To study and assess the wide range of implications on particular service sectors if they are offered under GATS