Overview of the WTO's General Agreement on Trade in Services (GATS) in relation to sustainable development strategies and government policy options in South Africa

01 October 2005

This paper is based on a presentation made at a workshop on 'Trade and Environmental Linkages' by the Institute for Global Dialogue, in Midrand 1-2 September 2005.
In a workshop dedicated to debating the policy and practical/operational relationships - and tensions - between international trade agreements and multilateral environmental agreements, and their implications in relation to "national objectives and principles, and equitable and sustainable development" for this country, and the region, it is necessary to analyse the General Agreement on Trade in Services (GATS)(1) . This entails unpacking
  • the systemic sources and forces impelling the outward expansion or 'trade' rights of 'service providers' throughout the world ; because it is these that are driving
  • the formulation and interpretation of the complex, frequently ambiguous - and as yet incomplete - legal/technical terms within the text of this WTO agreement; and because
  • the formal 'negotiations' - driven by access 'requests' from proactive governments, and requiring market opening 'offers' from others - are also subject to a myriad of other actions and interventions by key political and economic forces driving 'trade in services'; and, if successful, it is these that will shape
  • the focus, outcomes and impact of the current GATS negotiations upon the policy options of all participating governments, including the South African government of course, in a wide range of domestic sectors, and affecting a range of policy issues, and hence carrying significant implications for stable and sustainable development perspectives for the future.
Systemic sources and forces It is essential to underscore that the insertion of an unprecedented agreement on 'trade in services' into the Uruguay Round of GATT (1986-1994) reflected major - and even epochal - structural changes taking place in the most highly industrialised economies during the 1980s and above all from the 1990s. This included the rise to dominance in their economies of the services sectors; such that today services amount to some 72% of their GDPs and about 70% of their national employment rates (2). Furthermore, average growth rates in service 'exports' by the developed countries increased from 4% per annum during the period 1995-2000 to 7% per annum during the period 2000-2003. Europe almost doubled its services trade surplus in these years, and a threefold increase in services trade surpluses was registered in North America. Thus, services constitute a major portion of the economies of the industrialised economies and their major sphere of national employment, and are also significant contributors to their international trade profiles. Services 'exports' from such countries are invariably situated at the more advanced technological levels. But the export of services is not only highly profitable and significant, in itself. It is also important where and in-so-far-as countries experience deficits in merchandise trade - as in the case, above all, of the US. Most fundamentally, however, the national growth and international expansion of their array of service 'industries' are not only currently and quantitatively important, but qualitatively and strategically significant to these economies. Faced with growing competition in the manufacturing sectors from newly industrialising countries, the more advanced industrialised economies are shifting strategically towards becoming what are dubbed 'post-industrial' economies (3). Their highly developed services sectors and highly competitive service corporations provide the bases, and means, for these countries to maintain their global economic and technological - and their political/military - dominance. At a different level, service companies in the more advanced economies have their own more immediate motivations for pressing their governments to ensure that all economies are opened up to their business operations. The most significant of these services include telecommunications and transport, energy, construction and engineering and a host of other technical services, but above all a wide range of financial 'services'(4) . Another services area that is set to become increasingly important relates to natural resource management and environmental services, which under GATS includes water and accompanying services. The growing transnational service companies in and from the industrialised economies are also targeting sectors that have hitherto been considered to be domestic and (largely) public social services such as water and sanitation, environmental and waste-management services, health and education, welfare and even correctional (prison) services, and so on. Driven by the imperatives for constant growth, service companies like all others businesses under the intensely competitive conditions of advanced and globalised capitalism, have not only to stimulate ever-expanding consumption of their products and services in their home markets but also secure their own expansion out of their base markets. This means expanding their spheres of operation or 'exporting' their services into other countries (5). Whether they are already gigantic global corporations, national companies or small group or individual service 'providers' or 'consultants', they are increasingly requiring that they be given 'market access' into what are vast but largely 'untapped markets' throughout the developing world. Separately and together, developing countries have huge populations but generally weak or weakened service sectors. With regard to international trade in goods, the main impediments exporters face into other countries are national tariffs regimes. However, with regard to trade in services, the crucial 'barriers' they identify are governmental regulations on their right of entry into, and the terms and conditions set on their operations within other countries. Whether these terms entail certain financial restrictions, specific economic/development conditionalities, geographical or sectoral exclusions/limitations, labour, gender and other social requirements, health and environmental considerations, cultural and other demands, such governmental regulations are considered to be 'barriers'. In simplistic business calculations and in neo-liberal theory they are portrayed as 'distortions' in the 'efficient functioning of the markets'. Thus, such internationally ambitious service companies are putting self-serving demands to their home governments to press for the reduction or removal of such regulatory barriers to their 'market access rights' in/to all sectors and in/to all countries. The WTO provides an excellent instrument to secure such market access, and in fact was deliberately designed for the purpose. Because all countries need trade - of the more traditional kind - to one degree or another, their own (perceived) need by developing countries for improved access for their merchandise exports into the rich consumer markets of the more advanced countries, provides the latter with a powerful lever to pressurise and even compel such countries to 'reciprocate' by opening up their markets to the exports of the more advanced economies, in turn. This is now also - and increasingly - focused on the export of their services. These are the powerful systemic dynamics and business imperatives that are driving GATS. It is these motivations that, from the outset, produced the very conceptualisation of services as 'trade-able' items, and that promoted the formulation of GATS. It is these forces - in WTO jargon called the 'demandeurs' - that are constantly extending the coverage of 'trade in services', persistently trying to influence the nature and directions of negotiations and impose their own (re)interpretations of the terms and modalities set out within the GATS agreement. All the arguments - or rationalisations - presented by the promoters of GATS about the 'win-win' nature of trade in services, and the equal importance of services both for the exporters and recipients of such 'trade', must be situated and evaluated in this light ….. and appropriate negotiating stands in the WTO, and proactive counter-strategies formulated in this context. Offensive demands …. and constraints on governmental policy options As intended by the demandeurs, the terms of GATS pose strong challenges against the rights of governments to set their own policy frameworks for the entry and operations of foreign service providers within their jurisdictions. And, despite some seeming accommodations to national rights and roles, close analysis of the GATS text exposes subtle qualifiers and caveats on many key clauses.
  • For a start, although apparently excluding "services supplied in the exercise of government authority" from the obligation to open up under GATS, this is limited to those government services "supplied neither on a commercial basis nor in competition with one or more service suppliers" [Article I, 3 ii (b) (c)]. In the narrowest of definitions, such as by the US administration, 'governmental authority' is taken to refer essentially to military and security services (6); whereas services provided by governments in most countries in the world are very much broader. However, under the sway of the neo-liberal paradigm worldwide, there are virtually no (formerly/solely) government services that are not now (at least partly) privatised. This means that there invariably is "competition" between the (still) public and the (more recently) privatised services, as well as other established private sector operators. Thus governmental provisions in all such sectors do come under GATS terms and can be subject to liberalisation demands. There is, furthermore, a lack of clarity as to whether services are considered to be supplied "on a commercial basis" where governments now charge 'user fees' based on 'cost recovery' criteria, as prescribed in IMF and World Bank programs, and under the currently dominant 'market' paradigm. On these terms, many parastatal and formally public service entities in South Africa are now extensively corporatised and operate on the basis of commercial criteria per se, even if not all (yet) in direct competition with fully private companies. In all cases, however, it is made clear in GATS Article I that its terms cover all levels of government - central and regional, and local/municipal authorities - and even non-governmental organisations to which governmental authorities have delegated service delivery responsibilities.
  • With regard to the rights of governments to set regulations for service provision within their countries, GATS Article VI on Domestic Regulation requires that these should be "administered in a reasonable, objective and impartial way" - however those terms may be interpreted . But this article also makes it clear that measures such as qualification requirements, procedures, technical standards and licensing requirements must "not constitute unnecessary barriers to trade in services …[and must not be] … more burdensome than necessary to ensure the quality of the service”. As has been pointed out by legal analysts, the term "necessary" is extremely vague. And, as is obvious to development policy analysts and policy makers, regulations considered unnecessary within narrow business calculations may, to the contrary, be highly necessary, and in fact essential, in broader economic, political, social, health and environmental terms. But under GATS terms, governments are going to have to 'prove' such necessities. Furthermore, these differences and tensions within GATS will, in practice, have to be dealt with in the context of the bilateral, government-to-government 'requests' for market access. These tensions will also be integral to the 'offers' being required of individual member governments of the WTO. As is also obvious, individual governments engage in such negotiations at very different levels of capacity and power. In this patently politically imbalanced context, and with such legally ambiguous and contestable terms, multilateral clarification of the rights and role of Domestic Regulation have, at the very least, to be a fundamental precondition before any further bilateral negotiations on services liberalisation can be considered with any degree of security.
  • In point of fact, extreme limitations on the rights of governments to set terms and conditions on foreign services providers are already set out very clearly in GATS Article XVI on Market Access. Duly decoded, what this article requires is that there shall be no limitations on the number of service suppliers or on the number of persons that may be brought in to a country to deliver a service. There shall be no limitations on the total value of service transactions or assets, and no economic needs tests or quotas applied. Above all - in contrast to much current practice in many developing countries - there shall explicitly be no imposition of “measures which restrict or require specific types of legal entity or joint venture through which a service supplier must supply a service”. And there shall be no limitations on “the participation of foreign capital in terms of maximum percentage on foreign share-holding or the total value of individual or aggregate foreign investment”. Furthermore, the accompanying Article XVII on National Treatment goes beyond what governments shall not do (as above) and requires that a government shall "give treatment [to foreign service providers] no less favourable than that it accords to its own like services and service suppliers". The immediate question, therefore, concerns the specifically tailored and targeted - existing and possible future - national policies that governments will be allowed to apply to promote domestic service companies/providers. Or will these local service providers, under conditions of 'national treatment' for foreign companies, simply have to compete 'on equal terms' with all such - invariably more competitive -foreign service providers in their countries? And if so, what are their chances of progressing or even surviving? The South African government argues that it does not have to, and does not necessarily intend to grant such 'national treatment' to foreign services companies allowed to operate in this country. However, since Articles XVI and XVII are multilateral 'horizontal' rules applying across all sectors and constituting the overall framework for all 'bilateral' negotiations, a fundamental question is posed as to the respective weight and the relationship between the specific bilateral terms (yet) to be negotiated between WTO member states, on the one hand, and on the other hand the multilateral conditionalities already inscribed in GATS. Clearly, full clarification of this ambiguity is imperative before governments can confidently proceed with 'offers' allowing foreign service providers into their countries, even if initially these are not provided under national treatment terms .
  • On the basis of Articles XVI and XVII, alone, it is widely argued that GATS contains a (barely disguised) charter of rights for foreign investors. This is even clearer when considered together with Article XI on Payments and Transfers. This requires that governments "shall not apply restrictions on international financial transfers, and payments for current transactions relating to its specific commitments". In this context, "commitments' refers to governmental commitments to the rights of entry of foreign service companies within their countries. As above, this clause in a multilateral agreement such as GATS could be used to challenge, evade or erode, existing national financial regulations, and even what might be considered to be carefully designed bilateral investment treaties (BITs) undertaken outside of the WTO. There are some provisions in Article XII taking into account "serious balance of payments and external financial difficulties" of specific countries/governments. However, any emergency financial measures introduced by a government must conform to IMF requirements, must be temporary and "shall avoid unnecessary damage to the commercial, economic and financial interests of any other Member '. This last proviso is yet another ill-defined and open-ended clause within GATS and it will act as a further inhibiting constraint on governments' future financial options or interventions, foreseeing possible legal challenges within the WTO disputes system, and with the threat of possible sanctions hanging over them. This underscores the necessity, before any further commitments can be made under GATS, for full clarification, confirmation and, as deemed necessary, extension of the rights of governments to invoke Emergency Safeguard Measures, as required within their own jurisdictions and according to internally determined - and changing - domestic considerations .
  • Further constraints apply to governmental rights to utilise subsidies and cross-subsidisation in the supply of services to deprived/disadvantaged social sectors and different regions of their countries. According to GATS Article XV on Subsidies, such subsidies "may have a distortive effect on trade in services" and must therefore, within the GATS logic, be avoided . As with other similar formulations elsewhere in GATS, this article includes an apparent recognition of "the role of subsidies in relation to development programs…[and] the needs of developing country Members for flexibility in this area". But this is with the added proviso that such subsidy policies must not adversely affect other Member countries. Thus this article, too, is open to widely differing interpretations and possible dispute cases in the WTO. For these reasons alone, the proposal within this article for further work on "multilateral disciplines to avoid such trade distortive effects”, must be taken up within the WTO working group on subsidies. However, more importantly, this is has to be undertaken with a view to strengthening the necessary policy flexibilities, entrenching the developmental role of subsidies, and confirming the priority and precedence of such aims over their alleged 'trade distorting' effects. And, once again, this process has to be pursued and clarification made on these terms before any bilateral commitments can be undertaken within the GATS framework.
Clearly, faced with such ambiguities, on the one hand, and clear restrictions, on the other, responsible governments cannot possibly view GATS as an agreement conducive to their own policy-making rights. The implications of all of these GATS stipulations must, furthermore, be assessed within three other fundamental aspects of this agreement.
  1. Firstly, the entire thrust and very purpose of GATS is expressed throughout the text from the opening Preamble "desiring the early achievement of progressively higher levels of liberalisation of trade in services" … to Article XIX on Progressive Liberalisation, making provision for "successive rounds of negotiations [towards] achieving progressively higher levels of liberalisation. Thus, whatever the nature and extent of the current 'requests' that are being received, governments must be clearly aware that these are but the mere beginning of continuing processes and the thin end of the wedge of ongoing demands, as the EU's confidential 'request' sent to South Africa makes very clear (7).
  2. This applies also to the supposed options and choices allowed to governments - ostensibly through the so-called Positive List approach This, in principle, entitles any governments to adopt a self-selective approach in their own 'offers' and, through specific bilateral negotiations, to determine which sectors they are prepared to open up, and to which specific countries. This allowance, however, is directly contradicted by GATS Article II on Most Favoured Nation (MFN) Treatment. This stipulates that every member of the WTO "shall accord immediately and unconditionally to services and service suppliers of any other Member, treatment no less favourable than that it accords to like services and service suppliers of any other country". Reiterated in Article VII(3), this clause in effect stipulates that any national opening, wherever it may start and however limited it may be intended to be in direction and application, cannot and will not be limited to only one specific country and its companies. In WTO terms, opening up to one country/company entails opening up to all 'like' countries and companies, if they so demand.
  3. Thirdly, governments must be (made) strongly aware that whatever the extent of the openings into their services sectors that they may decide to make under GATS, they will then have their hands tied and their options further restricted….permanently. This is because Article XXI on Modifications states that, although members may, under certain conditionalities, alter or withdraw a commitment, this can only be done on the basis of 'due notice' etc, and by making "necessary compensatory adjustments" to all those affected. This compensation may be in monetary terms, as at present, which would be bad enough. But the terms of GATS indicate that these compensations must be in other related/similar areas and must "not be less favourable" than the terms already provided for. Furthermore, they must apply to all equivalent countries/service suppliers as well. This means that while governments are, in principle, permitted to make some adjustments within their commitments under GATS, they are in practice locked into the overall levels of liberalisation already undertaken.
However, even before full impact assessments on the effects of commitments already made or being required, and even if only on the basis the legal terms within GATS, SA government policy makers cannot be unaware of the extreme limitations, complications and risks to which they would expose their own policy-making rights and responsibilities. Furthermore, if such policy makers and decision-takers continue to harbour the conviction that there are other clauses within GATS that provide significant developmental exceptions and protections for them, these too must be subject to rigorous analysis. Defensive exceptions …. and accommodations Even at the time of the introduction of GATS during the UR, developing country members of the WTO perceived the broad implications of the global 'opening up' of services being proposed. Most developing country governments knew, from their own experience, the vital importance of public services in their national development programs; whether these services were infrastructural or social services or, as in most cases, a combination of both. African countries, in particular, saw the parallels between such a broadened scope for international pressures/penetration into their countries through GATS and their hard experiences of trade liberalisation and the commercialisation/privatisation of their services under IMF/World Bank structural adjustment programs. These have had drastic effects upon their national economies, in the weakened functioning and narrowed popular access to services, and in the deterioration of crucial social indicators amongst their populations. Development NGO and trade union analysts and researchers throughout the world, North and South (8) have similarly identified both the legal contradictions, and the economic and social developmental and environmental implications of GATS (9). Although unprepared for this latest strategic thrust by the developed country governments, enough developing countries intervened during the Uruguay Round (10) to secure the inclusion of some modifying clauses in the proposed GATS agreement in order to try to ensure, at least, that their national development rights were acknowledged through various exceptions and qualifications inserted in this direction. However, these provisions are weak and frequently contradicted by other accompanying clauses. For a start, GATS opens with a recognition of "the right of members to regulate and to introduce new regulations on the supply of services within their territories in order to meet national policy objectives". This seems clear enough …. but it is only in the preamble and is not legally binding. What is more, it is preceded by the commitment of all participants to "progressively higher levels of liberalisation of trade in services through successive rounds of multilateral negotiations". As is amply demonstrated above, it is this latter aim rather than the former formalistic acknowledgment that dominates GATS.
  • Developing country governments nonetheless continue to refer to other 'development friendly' clauses which they managed to insert into GATS. They constantly invoke Article IV on the Increasing Participation of Developing Countries - stressing the importance of the liberalisation of other countries' markets "in sectors and modes of supply of export interest to them". This suggests that weaker developing countries actually have the capacity to export services, or can readily be empowered to develop meaningful service export capacities. In this connection, even the added provision for their improved access to technology "on a commercial basis" will be ineffectual. Not only is the latter proviso of limited help in itself, but it is not even expressed as a direct condition, as it should be, for the entry of global service companies into their countries. Whereas the assumed - not the required - transfer of technology is argued by the justifiers of GATS to be an intrinsic and even automatic effect of the entry and operations of such services companies [see also pages 11 and 12 below].
  • Developing country governments also constantly refer to Article XIX within Part IV on Progressive Liberalisation due to the added proviso that this "shall take place with due respect for national policy objectives and the level of development of individual Members, both overall and in individual sectors". This allows such countries, on the face of it, to open fewer sectors and fewer types of transactions to foreign service suppliers, as they see fit. However, in so doing, this concedes the principle of the inevitability of liberalisation. It also opens them up to the cumulative or combined pressures from different governments. Each of these can justifiably demand access to its own selected "fewer" sectors. But, whether, by design or not, such selected foreign government 'requests' can together amount to very extensive services liberalisation in any specific country. Although this clause does permit the attachment by developing country governments of "access conditions aimed at achieving their objectives" ….. these objectives are simply defined as in Article IV above, namely the (largely hypothetical) possibilities for developing countries to, in turn, export services into the developed countries.
  • The other clause in Article XIX that developing country governments routinely refer to is on special treatment for LDCs. This, however, is immediately followed by yet another requirement for "progressive liberalisation …advanced in each round through bilateral, plurilateral or multilateral negotiations directed towards increasing the general level of specific commitments undertaken by Members under this agreement". Such bilateral negotiations between strong(er) and weak(er) countries are intrinsically highly imbalanced, and made even more so by the well-known recourse to 'informal' pressures and even back-stage arm-twisting of the weak by the strong to get their way. This is facilitated by the marked economic, financial, political and even 'psychological' dependence of many developing country governments on their Northern trade, aid and donor 'partners'. On the other hand, plurilateral negotiations are notorious for invariably involving only the stronger and better prepared countries, whose deliberations and decisions generate further pressures in the general processes and set the patterns and parameters for all others to later follow [see also page 10 below].
  • Another area where it is - again wrongly - assumed that GATS makes provisions for the aims and needs of developing countries is in Article V on Economic Integration. In defense of their regional cooperation and integration aims, especially in Africa, developing country governments managed to insert into GATS the provision that “consideration may be given to the relationship of the agreement to wider processes of economic integration or trade amongst the countries concerned”. In WTO language, the use of the term ‘may’ denotes that such ‘consideration’ is not obligatory and would have to be fought for. However, any such qualifying sub-clauses that could possibly support regional development strategies are countered and contradicted by the GATS injunction - using the imperative ‘shall’ - that agreements designed to facilitate trade between parties to any regional agreement “shall not, in respect of any Member outside of the agreement, raise the overall level of barriers to trade in services within the respective sectors or sub-sectors [within GATS] compared to the level prior to such an agreement” . This is the usual WTO formula (as in the increasingly-contested Article XXIV) to prevent countries within regional groupings from formulating their own intra-regional preferential trade agreements that might ‘raise barriers’ that ‘discriminate’ against countries or companies from outside that region. In this instance, the term 'commitments' refers to foreign service providers. In effect, if any member(s) in a regional grouping have already opened up any of their own service sectors to external agencies, any subsequent collective services agreement negotiated with other regional partners may not reduce or negate such pre-existing concessions. Thus, whatever has already been opened up ‘autonomously’ under IMF/WB SAPs, or whatever might in the near future be offered bilaterally under GATS by any single country, will place severe constraints and have negative implications with regard to further or future intra-regional services agreements. As an essential component of any regional cooperation, let alone future integration, such intra-regional agreements in the services sector(s) - such as joint energy, or water and other cross-border natural resources services - have to have very different characters, modalities and developmental aims than the market-driven and corporate-serving processes being promoted through GATS.
Despite all the above limitations and contradictions, the governments of African and Caribbean members of the WTO, and especially the Least Developed Countries led by Bangladesh, have repeatedly invoked the so-called 'development friendly' terms within GATS in their joint positions on GATS. These governments have, however, also collectively put forward various proactive demands around their technological and developmental needs (11) . A practical aspect of the defensive tactics adopted by developing countries is that some 55 of them have not made any new offers in the current Doha Round. Out of the total WTO membership of 144, about 68 countries have so far tabled offers to other countries. However, the abstention or apparent 'passive resistance' by many developing countries is not being taken lying down by the aggressive demandeurs. Having had to repeatedly postpone the 'final deadlines' set since 2001, and again during 2003 and 2005, for new or 'improved' offers to be submitted, the major governments - over and above the constant WTO pressures on their behalf exerted on other members - have more recently intensified their own pressures and manipulations. They are now attempting to change the very framework of negotiations on services agreed during the UR. The majors' interventions ….. and latest manipulations The major forces driving GATS are the governments of the US and the EU, and the individual service corporations and collective service organisations pushing them. They have consistently ignored the concerns about GATS expressed by developing and especially Least Developed Countries, and have charged ahead with their 'requests', notwithstanding (12). To date, about 71 countries have sent requests to other WTO members. Only four African countries - Mauritius, Gabon, Kenya and Egypt - seem to have made such requests (13). South Africa has reportedly prepared its schedule of requests but the lead SA department in relation to the WTO, the DTI, reports that these have not yet been formally submitted to the targeted countries. Because there is a notable lack of transparency in the GATS processes, it is difficult to ascertain the numbers, the country/sectoral targets and, even more so, the quality and nature of the requests sent out or received by any of these countries. The one major exception is the case of the EU's extensive schedule of requests sent to 109 countries, of which 94 are developing or 'transition' countries, including even 29 LDCs. This was not, however, made public with the EU Commission's agreement; having been somehow 'obtained' (?) by NGO's and exposed to public scrutiny on the internet. This is a highly revealing document, in itself, in terms of the kind of demands that the EU is sending out to developing and even least developed countries across a much wider range of sectors than these countries, themselves, identified in the UR for possible future negotiations (14). These demands are also much wider than European Commission spokespersons admit to under public pressure from their own civil society organisations. But the EU demands also carry some indications as to what the US government - always less 'restrained', or subtle, than the EU - has probably sent out throughout the world. Despite much agitation by civil society organisations throughout the world, there has been minimal public information about these or any other governments' 'confidential' requests. Some governments, however, are more open about their offers. These reveal that, in most cases, the more developed countries are now 'offering up', under GATS, service sectors that are, in fact, already highly liberalised. Furthermore, their own service companies are already so large and/or highly competitive that they have little to fear from the entry of other, and especially developing country, service companies, into their domains [see also pages 12-13 below]. At the same time, this does not deter such countries from excluding from their offers certain sectors that they consider sensitive from their own national points of view. The US government is even narrowing some of the earlier commitments that it made during the UR. All these features and facts, from the very outset, make the request-and-offer exchanges between developed and developing countries even more grossly imbalanced and misleading, and the supposed 'win-win scenarios for all' thoroughly deceptive and even fraudulent. More immediately significant within the current negotiations, is that the drivers of GATS are insisting on pushing ahead with the bilateral request-and-offer processes, despite the fact that the WTO working groups and multilateral negotiations on the clarification of GATS rules - which are actually provided for in the agreement - have barely made any progress. It is reported that
  • The working group on Safeguards is still being tied up with interventions from developed countries, especially the US, questioning the feasibility and very 'desirability' of such measures. Even reaching an intermediate solution is proving highly contentious.
  • The working group to clarify the use of Subsidies - namely, their importance in addressing development, human rights and social equity in developing countries, as against their purported 'trade distorting' effects - is still dragging along without agreement. One of the reasons for this is that weaker governments are arguing that their more basic problem is that under SAPs they haven't the financial resources and aren't allowed to use subsidies, anyway.
  • The working group on Government Procurement - which carries major implications for governmental choices in the award of services contracts - has not even begun its work to clarify the implications of terms such as National Treatment in this regard. Even the tactical amendment by the majors - that their only interest in this sphere is to secure 'transparency' in the official processes - does not convince many developing country governments that this is anything more than another prying ploy, or wedge, to enable global companies to get into the enormous markets that government contracts provide in the developing world.
  • However, it is the working group on Domestic Regulations that is most crucial. The fundamental imperatives and the strengthened definition of the scope of 'domestic' governmental regulatory rights should be the aim and outcome of this working group. And the scope and coverage of these regulatory rights have to be much broader than mere trade concerns. They have to embrace fundamental economic and social development, and political cultural and environmental considerations that are essential to sustainable and equitable development. It is the principles thus established that would and must provide the framework for all the other working group discussions and negotiations on GATS rules.
Unsurprisingly, the tactic of the developed countries is to divert attention to the minutiae of the current GATS terms, and away from the fundamental principles and essential purposes of governmental regulations. And they are manifestly employing delaying tactics in the multilateral discussions, while the bilaterals are pushed ahead. However, disturbed by the 'low quality' of offers being made even by those governments that have responded, the majors have recently launched a new initiative to change the very nature and focus of the negotiation processes. Claiming that the bilateral request-and-offer approach is not working and that the sectoral coverage of GATS is too broad, they aim to substitute the bilateral with a selective plurilateral approach, involving only some members of the WTO which are willing to move forward decisively. This could very effectively split the ranks of the developing countries - some of which seem to be convinced that they have some gains to make from their own service exports (15). The plurilateral approach is also suspect in that it sets precedents that then become the benchmarks for all other countries. In fact, 'bench-marking' or setting 'common base lines' is now being pushed by the EU in order to keep the momentum on GATS going and services liberalisation alive. This approach prioritises those service sectors that are of greatest importance for the expanding corporations of the developed countries, namely finances, telecommunications, transport and energy. But, most seriously of all, this is a direct attack on the so-called Positive List approach. This latter modus operandi inscribed within GATS supposedly allows all governments to decide on the particular sectors and specific offers that they may or may not choose to make on the basis of their own internal impact assessments and consultations, and the anticipated effects, both positive and negative, of opening up their services sectors to foreign operators. Anticipated effects, existing experiences ….. and further implications The importance of unpacking and understanding these legal terms, and the necessity to challenge and change them are not ends in themselves. The significance of such legal terms is how they relate to the fuller economic, political, social, environmental and cultural implications of the limitations imposed by GATS on government policy-making rights in all these areas. However, evidence and insights into the effects and foreseeable implications of the market liberalisation and deregulation entailed in the application of GATS derive also from economic, social and environmental analyses that are not located within or driven by the assumptions of the neo-liberal trade and investment paradigm underpinning GATS. I. The first assumption promoted by the business and governmental players framing and driving GATS is that international service providers enter foreign markets merely to carry out their business operations and, in the process, coexist with established domestic service providers. The reality is that the inherent business raison de'tre of such operators requires that they compete with the local providers with a view to over-taking them… or taking them over. Possessing much more advanced technological and financial resources - over and above their management, marketing and related skills - international service providers that are already large enough and competitive enough to expand beyond their home markets, will inevitably absorb ('merge with'), sideline, or oust the invariably smaller and less competitive domestic companies. Able to draw on their vast global resources, giant transnational companies can also have recourse to aggressive marketing practices - such as sub-economic pricing tactics and forms of cross-subsidisation between their different global operations. In these ways they can outflank and oust their local rivals which do not enjoy access to such international resources and (disguised/intra-firm) subsidisation. In the specific context of current discussions in South Africa on the implications of GATS in relation to national environmental aims, and the related role and operations of domestic environmental goods and services suppliers, clearly these too will be placed under severe - and unfair - competitive pressures by international service providers. This will prevail even where the local companies/consultants have more relevant experience and skills and have, or can develop, more appropriate techniques and technologies for South African and wider African environmental, social and economic conditions. The financial and technological dominance of international environmental service companies, once they are admitted into South Africa, could even prevail over public environmental entities and authorities in this country. II. Alternatively, where they are faced with large public or parastatal companies in developing countries, the more usual approach of such internationally expanding service corporations is to get access through privatisation programs. Such programs may already be underway under the aegis of the IMF and World Bank. But privatisations are also actively promoted in the interests of global corporations through requirements set by their home governments within bilateral trade agreements, or as conditionalities for aid, or debt 'forgiveness' etc. In any event, global corporations enter into economic and political/ideological terrains within most developing countries in which governments are already opening up or selling off their large and highly attractive public service sectors, such as telecommunications, transport, energy and water, to foreign investors/owners. Or, at the very least, they are drawing them into public-private partnerships (PPPs). As has been experienced in many parts of the world, such PPPs enable the private 'partners', whether national or international, to benefit from enormous past and continuing public investment on the 'hard' side, that is the provision of the infrastructures, while the private participants take on the easier and more profitable 'management' aspects. Similarly, it is the public or governmental side that has to deal with the labour aspects of such arrangements, including shouldering the broader national education and specific technical training of personnel - which private enterprise are not obliged to undertake but can then take advantage of, and profit off such public education and training. In the context of broader national discussions within South Africa on the role of resource-based industrial development, on the beneficiation of our rich mineral, flora and fauna resources, and on regional strategies for sustainable cross-border development and utilisation of these resources, particularly scarce water resources, the impact and implications of the outright privatisation and/or the private management of such resources raise crucial challenges in relation to sustainable and equitable national and regional development strategies. The complexities of formulating such national and regional natural resource, environmental and overall sustainable development programs are rendered even more difficult where foreign service providers have already been given rights under GATS to operate on their own account in these spheres [see also pages 7-8 above]. III. Another direct consequence of the penetration of national economies and their service sectors by foreign operators is the increased outflow of financial resources from the host economies. Such financial gains are, of course, the very purpose and aims of all companies and foreign investors everywhere. Thus the terms of GATS are deliberately framed so as to ensure that the financial transfer rights of international service operators are protected. Such financial outflows will add to the many other forms of financial transfers and the established net financial transfers from developing to developed countries. Furthermore, the needs of national companies having to compete with a growing number of foreign service suppliers in their countries will exacerbate these capital outflows. Increased expenditures abroad will be required by domestic service providers, whether public or private. In order to compete with, and resist being ousted by their foreign/global rivals operating within their countries, they too will inevitably have to acquire the same costly technical equipment and import up-to-date technology from the highly industrialised countries. This will add further pressures onto their countries’ external balance of payments. The added irony is that such more sophisticated and expensive equipment may have to be obtained from international conglomerates that include the very same service corporations that they are having to compete with at home (16) . IV. The further arguments put forward by the promoters of the globalisation of service provision, and the justifications put forward by national trade 'technical' negotiators, including in South Africa (17), are that, despite the increased financial costs to host economies, the entry and operations of international service companies bring the benefits of 'technology transfers'. The reality, however, is that such companies determinedly guard their technological advantages as a central component of their global competitiveness and they actively avoid technology transfer. The transmission hoped for does not happen unless legally required and effectively imposed, which GATS does not do. Even the positive influences of technology ‘contacts’ and emulation will depend to a very high degree on the pre-existing levels of human and other technical capacities in host countries in order to be capable of adopting and applying higher level technology. And that, in turn, would require active governmental educational/technical and technology promotion, and preferential employment of, or even protection policies towards local providers. This is how the newly industrialised countries of East Asia managed, in the past, to move up the technological and economic ladder. However, such policies are now precisely the kind of 'trade distorting' governmental 'interference' that GATS terms will be used to restrict or prevent. Thus, once global corporations penetrate relatively less developed economies, the possibilities for these latter to organically develop their own internal technological capacities and companies will become much more difficult; and will even be pre-empted by GATS' restrictive terms. V. The other 'compensatory' claims made about the operations of global service companies is that they bring the advantages of international competition and greater 'choice' for consumers in the host economies. This is a superficial but persuasive argument for people frustrated at poor and declining levels of public services provision under conditions of reduced government budgets imposed by IMF/WB prescriptions and the adoption of neo-liberal theories in general, as in South Africa; as well as other financial burdens such as external debt servicing. However, 'the' consumers to be benefited are generally minor sections of host populations. In the first place, it is 'uneconomic' for big international companies to provide services for the majority populations in the more remote and largely inaccessible rural areas in developing countries. On the basis of much experience throughout the world, such global companies operate in areas, at levels and at prices that put their services out of the reach of the majority of 'the public'; that is the poor, whether in underdeveloped rural areas or in the burgeoning slums of the urban areas in developing countries. It is the better-off sectors of consumers - that is, the privileged elites - that benefit from such international/privatised services, and this adds to the already widening social inequalities in many developing countries, including South Africa. Access to services, such as water, health, education, transport and housing are and have to be treated as human rights, and not commercial or trade-able commodities. Under the conditions of developing countries, including South Africa, social services and essential infrastructural provisions have to be seen as the responsibility of public authorities, in order to deliver on social rights and pressing social needs, and to pursue national development goals. The operations of foreign service providers in these spheres, their pressures upon public provision and towards commercialisation and privatisation have to be viewed, evaluated and dealt with in this light. VI. But possibly the most persuasive argument in support of GATS, and the most unrealistic hope of those seeking justifications - or compensations - for opening up their national services markets, reside in the supposed possibilities for developing countries themselves to 'export' their own services, in turn, into the developed countries. The reality is that there are very few companies in the South that have the necessary market information, experience, skills and technology, or financial resources, for effective positioning and direct competition in the North. This explains why, despite much urging from the SA government, so few SA service companies - including even the much lauded banks - have evinced interest in having the SA government submit market access requests of their behalf to the governments of the highly developed and competitive economies of the US and the EU, for example. It is also significant that many of the most industrialised country governments, such as the US, Japan and Switzerland, state quite unabashedly that they have opened up and are opening up their service sectors where they already have unassailable advantage (18). Furthermore, where this is not the case, they will continue to protect key services according to their own national interests (19). Even those relatively few service companies from the South that may be able to penetrate the markets of the North will, on current experience, come up against a myriad of covert devices to prevent ‘free’ and ‘open’ competition with Northern counterparts. The hope of some countries in the South that they, too, might ‘export’ some services to the North and compete with advanced corporations on their home ground underestimates the fact that these latter did not reach the point at which they are now simply on the basis of ‘market’ processes. They have, over many years, received direct and indirect governmental supports - such as highly lucrative government contracts to deliver services within their own vast home markets and abroad. There have always been wide-ranging and publicly funded ‘r&d’ (research and development) supports, and other more hidden public subsidies - particularly for national military and security purposes and aims such as pursuing external wars. These supports and these roles have assisted Northern corporations, particularly in the new 'high-tech' service industries, to reach their current virtually invincible status. There are two further questions with respect to the ‘export’ of services from the South to the North. The first is whether this is the best area of application or usefulness of such service providers, given the many and varied needs and insufficiencies in much service delivery at home. For many service providers in South Africa, and elsewhere in Africa and the South, it is also on their home grounds that they could both contribute more effectively to higher levels of self-sustaining development in their countries …. and develop more successfully and effectively themselves. Such growth and development would be even more marked if such domestic providers could be judiciously promoted and encouraged by government measures to play such roles. However, such targeted policies to foster selected domestic service providers or service sectors is now explicitly prohibited under GATS Article 12.3 [see page 5 above]. Another problem within GATS liberalisation arises from its Mode 4 which promotes the 'movement of natural persons' to deliver services in other countries (20). The easier movement of skilled services personnel from South Africa, and even more so from the rest of Africa, to work in the highly developed countries would, on the one hand, reinforce the existing heavy brain drain of scarce skilled personnel out of South/Africa. On the other hand, there is no guarantee of compensatory financial returns to their home countries from the outflow of such skilled professionals. This is quite different to the long-existing movements of semi-skilled and unskilled workers from the poorer countries of Southern Africa to South Africa, since these have been forced to migrate for lack of employment opportunities in their own countries, and their motivation to work elsewhere is precisely in order to remit their earnings to support their families back home. Finally, on the question of the export of services from South Africa, the obvious market where SA service companies and individual consultants have highly relevant skills and experience to offer would be in the rest of Africa, especially in the environmental services and natural resource management sectors. It is also in such markets that SA service providers would have both comparative and competitive advantages compared to overseas service providers. The major question, however, is whether, or why, such SA service suppliers into the rest of Africa should be promoted through a remote and highly questionable multilateral agreement, carrying many adverse implications for the hosts to such service providers. In fact, South Africa must not use GATS against the rest of Africa. What Africa and SA need to pursue are bilateral and, better still, regional agreements, negotiated amongst themselves according to their own cooperative criteria and development aims within the complexities and diversities of the region ….. and outside of the mere commercial considerations and legal conditionalities of GATS and the WTO altogether. Some fundamental questions on South Africa's approach to GATS In addition to the above, there are undoubtedly many other questions on detail that can be posed to the SA government about the sectors and nature of the specific services 'offers' and the 'requests' that it is preparing to make. And full public information and consultation on what government is considering in any/all sectors is an urgent imperative. In order for such 'consultation' to be real and effective, the other basic requirement is full public understanding of the legal framework within which any such offers/requests are being contemplated. But the challenges facing the SA government and the challenges to be posed to the SA government must go beyond the legal terms of GATS towards dealing with the underlying systemic forces driving GATS and other such global liberalisation instruments. Above all, public consultation must engage seriously with the socio-economic effects and developmental implications of GATS. In this light, and in conclusion, the following are the key challenges to be posed to the SA government: SA policy makers can be under no illusion that GATS is anything but a highly tendentious and self-serving offensive by the most advanced countries and their companies. And no amount of searching around for some services that SA could in turn 'export', will make the nature and effects of GATS anything but another highly imbalanced process and imposition from the North. GATS cannot create a 'win-win situation for all' when neither the qualitative or the quantitative capacities, nor the numbers of service providers in the respective services sectors of the highly developed and the developing countries are in any way comparable. South African legal analysts and trade, environment and other policy-makers can be in no doubt that GATS' terms are full of ambiguities, inconsistencies and insufficiencies. And going any further with bilateral negotiations on such terms could both expose this country to many foreseeable economic, social, environmental and other risks, as well as unforeseeable dispute cases in the WTO. As within the broader WTO processes, whether such legal challenges materialise or not, the potential threats have a constant 'chilling effect' on possible government economic initiatives and policy innovations. It would also be totally irresponsible for SA to make any bilateral offers before the multilateral terms within GATS have been fully clarified; and, more important still, before SA has made every effort to render these terms more conducive to the interests and needs of this country and other developing countries. This is an absolutely fundamental precondition. The fact that some developing country governments are, nonetheless, willing to proceed on the basis of the current incomplete and highly questionable terms, must not precipitate the South African government into making similarly premature and extremely risky decisions. South African policy-makers may argue that SA is already a considerably liberalised 'open' economy, and that many concessions to other countries and foreign companies have already been made. However, the challenges and the difficulties of agreements or contracts undertaken 'autonomously' are totally different to such undertakings being bound in a multilateral agreement in a powerful global institution. As is already evident, the pressures and dangers, and the nature and virtual irreversibility of concessions committed within a global agreement are qualitatively different to agreements drawn up and undertaken by governments within their own terrains whether unilaterally or bilaterally. Above all, while SA has in recent years been following a strongly market-based neo-liberal economic model, the government now appears to be adjusting its positions and perspectives towards the necessary role of an active developmental state in creating appropriate policy frameworks and programs for dealing with this country's complex and deep problems. This governmental role has to include the huge array of services that are so essential both for social 'delivery' and for economic development in this country. SA negotiators on GATS must be (made) very aware that they may be tying the hands of SA policy strategists in this regard and permanently pre-empting essential policy flexibilities and changes, and future policy options for this country. More generally, it is strategically short-sighted for the South African government to be making any further binding political commitments under GATS - or indeed through other multilateral agreements in the WTO - in a period of highly significant changes unfolding and new challenges emerging in the global economy and inter-state system. Even if the serious macro-economic imbalances in the world's currently dominant economy, the US, are handled in a way to achieve what mainstream analysts are hoping will be a 'soft landing' for the US and the rest of the world ….. there are even greater potential 'instabilities', or rather shifts underway in the global system of economic relations and the future distribution of political power. South Africa must be assessing and preparing to (re)position itself - together with the rest of Africa - in these emerging and fundamentally changing global economic and political dynamics. Finally, there are even more fundamental instabilities threatening not only the global economy but the entire planetary eco-system, and thus there are unprecedented practical and paradigmatic challenges facing the whole of humanity. South Africa, like all other countries, cannot respond to these profound issues with the banalities of 'business-as-usual' notions. Faced with the convergence and combination of these emerging and extremely complex economic and environmental challenges, it is seriously incumbent on the SA government to be strategically prudent and apply a political form of the 'precautionary principle' in all its national and international decisions …… while these epochal ecological, economic, political and paradigmatic dynamics unfold. And, of course, South Africa should be contributing to the international political and paradigmatic debates and decisions - within the WTO and much more broadly - in ways that are responsible to its people, to the rest of Africa, to all of humanity and to our common planetary home. Notes (1) In addition to other key URAs. This refers not only to the more clearly environment-linked Trade Related Aspects of Intellectual Property Rights (TRIPs) but also to other relevant WTO agreements that impinge upon domestic development programs/processes and constrain the national policy options of governments. These include agreements such as Trade Related Investment Measures (TRIMs), Non-Agricultural Market Access (NAMA), and the agreements on agriculture, subsidies and many others. (2) UNCTAD Commission on Trade in Goods and Services, and Commodities, "Trade in Services and Development Implications", TD/B/COM.1/71, Geneva, January 2005. (3) Of course they are not entirely 'post-industrial' at home but are rather moving ever more into the higher tech and highest value-added industrial sectors; and much of their lower tech and lower value-added economic activities are and will continue to be carried out by their TNCs overseas. (4) Services are now listed under a dozen sectors in GATS and include more than one hundred identified sub-sectors (5) Reservation is expressed in this paper about the validity of the term 'export' of services as, in many ways, GATS plays the role of a disguised investment agreement [see also page 4. below]. (6) Although somewhat ironically, under the pressures of conducting numerous overseas wars, even such services are being privatised or outsourced by the US military to outside 'service providers'. (7) see D.Keet, "GATS - from forcing liberalisation to reinforcing privatisation; from the further 'opening up' of all economies to furthering recolonisation", AIDC, Cape Town, August 2003. (8) Some of these non-governmental legal experts include Scott Sinclair and the team of researchers at the Canadian Center for Policy Alternatives; Tony Clarke and the team of GATS researchers at the Polaris Institute in Ottawa, Canada; John Hardstaff in the World Development Movement, London ; US trade lawyer Lori Wallach in Public Citizen, Washington; US legal expert on GATS Ellen Gould, and Rosalina Muroyi and Riaz Tayob of SEATINI. (9) See D.Keet, footnote 9 above, sections 7 and 8. (10) Actually mainly by India, assisted by UNCTAD. The role of the latter, already under considerable neo-liberal pressures, may explain the cautious nature of the development provisos and the accommodation to the inevitability of services liberalisation. (11) See D Keet, footnote 9 above, section 10 (12) ibid , sections 10.3, 10.4 and 11.3 (13) UNCTAD Briefing "Services in the WTO" to the Africa Trade Network workshop in Accra, 16-19 August 2005. (14) See D Keet, op cit, sections 10.3 and 11.3 (15) The current Indian government, increasingly responsive to its internationally ambitious TNCs, being the most active in this respect amongst the developing countries. (16) An example would be local water companies having to buy equipment from the vast French transnational corporation, Compagne des Eaux (Vivendi), in order to be able to compete with the Suez-Vivendi water company which is part of the conglomerate. (17) See footnote 9 above, section 11. (18) Wall Street Journal, 1/07/2003. (19) See D.Keet, footnote 9 above, section 11.4. (20) See D.Keet, footnote 9 above, pages 5-8.
Dot Keet is a research Associate of the Alternative Information and Development Center, Cape town, South Africa, and Fellow of the Transnational Institute.