Comments to the EU-LDC Network Conference on the WTO Agreement and Negotiations in Trade in Services (GATS) and its Contribution to Poverty Alleviation
Myriam Vander Stichele
SOMO, 31 May 2001
The comments are put in the form of critical questions based on concerns that the macro-economic theoretical assumptions which underpin the GATS negotiations do not match the realities and practice of present day markets and policy. The WTO's services negotiations should be looking at the problems in the market and attempt to solve them in a way which promotes sustainable development and poverty eradication. Below, please find three categories of questions which should be asked in relation to the GATS negotiation process. These are questions which need be debated among the general public, parliament, and the negotiators. Some questions might be biased due to my recent research into the financial and water sectors.
1. Trade: how it operates in the world market
1.1. The objectives of the services industry is to increase shareholder value and competition. This results in more and more pressure for shorter term profits, which in turn influences the way the service industry operates:
a. Targeting the rich segments of the market ("cherry picking") and providing less services to the poor. If in such cases the government subsidises the poor, it allows transnational corporations (TNCs) to make profits out of the market of rich clients and leave the services to loss making clients and to the tax payers' money.
b. Is it always the case that prices go down? That is not always the case: for example, the privatisation and liberalisation of the water sector has led to increased prices.
c. What guarantees that TNCs will fulfill universal access for services, even if required by law?
d. Foreign service providers do not always provide the guarantee for long term establishment: for example, ABN Amro drastically reduced its retail banking abroad.
e. Due to increased competition, services companies take many risks, which contributes to the instability of the services market: for example, banks have taken a lot of risk which has contributed to the financial crisis in 1997 in Asia. Moreover, in the search for markets, speculative financial products are being promoted which leads to more financial instability.
1.2. How much concentration is there in the different service sectors? As a result of liberalising the world market, will the same top five companies be competing for all markets? How will (poor) consumers be able to get the lowest prices?
a. How much competition is being increased on the world market after liberalisation? Many TNCs use the strategies of take-overs, mergers and acquisitions, often resulting in big lay offs: what is the result on employment? and poverty eradication?
b. TNCs that have been able to develop and grow in large domestic markets are easily able to capture developing country markets where the services industry of the same sector was not able to develop in the same way and is thus easily outcompeted or taken over.
1.3. How much investment do foreign service providers bring in? Are there other possibilities, other than take-overs, privatisation and sell -offs to foreign service providers in order to improve services and provide more cooperation between local water authorities?
a. How much "trade in services"consists of mergers and acquisitions, i.e. no green field investment, in order to acquire markets? How much benefit is there for developing countries? Green field investment requires the building of new factories or investing additional money in business operations.
b. How much do foreign service providers lend from local banks in developing countries, making credit more expensive and not bringing in much needed new money?
c. How many promises about new investments in non-polluting technologies are kept after foreign companies have taken over privatised public services?
d. Why are bank loans necessary for privatisation operations as privatisation is meant to bring money to the treasury and not add costs (at the expense of public services budgets for the poor)?
2. Regulation and liberalising trade in services
2.1. How much can governments regulate beforehand and know what to regulate or restrict when they are liberalising during GATS negotiations? A services sector can be complex and new services that are entering a developing country can be very new for the host authorities. How much insight do host authorities have on foreign service companies? are branches of foreign banks being supervised by the Central Bank of the home country?
2.2. How much external pressure is being put on the authorities?
a. GATS rules give priority to the least trade restrictive options.
b. GATS eliminates quantitative restrictions: how much flexibility is being taken away from governments that might be needed for reducing poverty?
c. GATS provides reviews by foreign TNCs of administrative decisions: what pressure does this provide on the authorities and how much possibilities and capacity does civil society (esp. poor people) have to review the administrative decisions (e.g. to privatise) of their authorities?
d. GATS makes it difficult/costly to reverse liberalisation commitments under GATS even if they are to the benefit of poor people.
e. GATS rules are being negotiated with high pressure and strong lobbying of services TNCs: this might not be balanced by internal pressure by citizens and poor groups of people who might be affected by the progressive liberalisation of services.
2.3. During the contract dealing in cases of privatisation:
a. How much bargaining power do governments of developing countries have as they have to privatise under SAPs (and cannot wait for the best option?): for example, the water companies which are bidding for the privatised water distribution services in Ghana have a larger turn over than the country's GDP-
b. How much can contracts or laws force foreign companies to provide services in a certain way (access for all, low prices, etc.) ?
c. How much pressure do foreign service providers exercise on the government to forego or not design legislation to protect the environment and labour standards?
3. Balance between trade and non-trade concerns:
How do the GATS negotiations and the member countries balance the need of foreign services traders ("binding rules which gives a country credibility to attract FDI') with the needs of the poor and societies as a whole ("non-trade concerns")? There is a need to balance non-trade and trade concerns because the GATS takes foreign companies to the heart of the functioning of a society, since it impacts vital services such as transport, telecommunications, energy and financial services.
3.1. How is democracy undermined by GATS negotiations and rules? To what extent can citizens and parliaments still set the objectives and priorities of services? How much can they ensure that society and especially the poor benefit directly from services? How much democracy is undermined by the lobbying activities of foreign service providers?
3.2. How is universal access to basic services being guaranteed and how are the special needs for poor people being provided for?
3.3. How are cultural objectives being met and balanced with commercial interests in the areas of the media, film distribution, books, radio programmes, and tourism? Who dominates the dynamic forces of cultural development and who benefits? Is there a need for protection and how can it be implemented?
3.4. How are aspects of environment and sustainable development being included in the concrete proposals made during the GATS negotiations: for example, the EC has not included aspects of sustainable development in its current proposals.
a. How will consumption and pollution be reduced even if efficiency is being increased (which is not sufficient to compensate for the additional consumption)?
b. How will the Kyoto protocol commitments be met while transport and energy sectors are being liberalized? How much will companies in these sectors increase unsustainable levels of production in order to conquer new markets?
Copyright 2001 SOMO
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