Challenging GATS

The World Development Movement is at the forefront of the international campaign against the General Agreement on Trade in Services. The group's Director, Barry Coates, explains why.

"The rising tide of the global economy will create many economic winners, but will not lift all boats. [It will] spawn conflicts at home and abroad... [its] evolution will be rocky, marked by chronic financial volatility and widening economic divide. [Those] left behind will face deepening economic stagnation, political instability and cultural alienation. They will foster political, ethnic, ideological and religious extremism, along with the violence that accompanies it."

The source of this gloomy prognosis? Noam Chomsky? Samir Amin? Antonio Gramsci?

No, the CIA.

It shows that concern over globalisation has reached deep into the establishment. Yet all too often debates have been conducted in a virtual world of soundbites and symbols, in which it is all too often unclear what is contested or agreed. The proponents are reviled as 'economists' or in the pocket of corporations. Critics are labelled anti-globalisation, Luddites, idealists or protectionists. These characterisations help create straw men that are easy to demolish on media interviews, but are a poor guide to policy-making.

There has obviously been extensive public concern expressed, evidenced by hundreds of thousands of people who go on a march and or attend public meetings about Third World debt, trade and corporate scandals. Less visible is the huge social movement in the developing world, particularly the millions of people protesting against the impacts of liberalisation policies on their communities (see States of Unrest II at www.wdm.org.uk/cambriefs/debt/unrest). The massive rise in these social movements has largely been ignored by the mainstream media.

Nor have the public debates entered the political arena – the policies of economic liberalisation have remained unchallenged since the so-called Washington consensus was formed in the 1980s. The result is that UK politics looks ever more parochial, ignoring the wider forces that are shaping economies, governments and people's lives. It is little wonder that many young people express frustration at the lack of real political debate.

A serious political debate is urgently needed. The British government is playing an aggressive role in international negotiations that would accelerate liberalisation and deregulation in all countries. During this Parliament, it is likely that governments will take far-reaching decisions that will be effectively irreversible. They are negotiating international agreements to lock in rules that will apply not only in the current Parliament but all future Parliaments; not only in our lifetimes, but for future generations. These rules will fundamentally alter the balance of rights and responsibilities between the State and corporations.

Globalisation is not inevitable and governments are not powerless

Proponents have often presented globalisation as an unstoppable force. The role of government is limited to, on one hand making the economy as attractive as possible to investors, and on the other avoiding the most serious social consequences through safety nets and redistributive policies.

However, these claims need closer scrutiny. As the Secretary-General of UNCTAD, Rubens Ricupero has explained, "Globalisation is by no means an inevitable phenomenon – it is, at least in part, a work of deliberate construction." The nature of the global economy is not only determined by technology and cheap transport, but by the policies of governments, particularly through international institutions such as the World Bank, IMF and World Trade Organisation. These institutions are not so much adapting to globalisation as shaping it.

When conceding that globalisation is not inevitable, proponents often argue that there is a choice – onward to modernity by embracing globalisation or backwards to a lost utopia by rejecting globalisation. For example, recent speeches by Jack Straw and Clare Short have argued that the only alternative to further liberalisation is autarky, citing North Korea. To suggest that there is a simple choice – either globalisation or closed societies – is a familiar story, reminiscent of the defence of Reaganite/Thatcherite policies by warning of the dangers of communism. It does not bear close scrutiny.

It ignores that even within the post-war period, there have been a wide range of economic systems, ranging from the Roosevelt New Deal, Britain's Keynesian demand management, the Scandinavian mixed economy and the much-maligned industrial policy employed by much of the developing world in the 1960s and 1970s. There are other policy alternatives than the extreme form of liberalisation currently under negotiation in the WTO.

It is true that the critics of globalisation do not always agree on the policy alternative, but that is also true of other policy debates. Within the diversity of views are two strands of analysis that provide a strong unifying thread:
• the rules on the global economy are oriented to benefit multinational corporations;
• the decisions about these rules are taken through the exercise of power by the strong over the weak.

These issues are best illustrated through examination of specific international agreements. Perhaps the most far-reaching of these is the General Agreement on Trade in Services (GATS).

At your services

The US does not grow many bananas. Yet under a virtually unknown trade agreement, it won a case against the EU over their support for small Caribbean banana producers. The dispute was initiated under the General Agreement on Trade in Services (GATS), after pressure from banana multinationals and following a large donation from Chiquita to the Democratic Party. Bananas need to be distributed and distribution is a service under GATS.

GATS was included as one of the agreements in the Uruguay Round, signed in 1993. Although there were few commitments under this 'framework agreement', it was hailed by the then Director-General of the WTO as the most important trade agreement since the establishment of the post-WWII trade system.

The range of sectors covered by GATS is vast – from health care, education, water supply and other necessities; to transport, energy services, communications and other infrastructure; to media, broadcasting and entertainment; to retail, wholesale and distribution; and tourism. Some of these sectors are culturally important, environmentally sensitive or subject to domination by monopolies. The use of a standard set of WTO rules is questionable when they are applied to such a vast range of services, across many different countries, with different social and cultural histories and at different stages of development. Most worryingly, some of the sectors constitute the basic services that are essential for the poor and for development. Under the GATS, these are merely economic commodities, to be bought, sold and traded.

There are two other important points. GATS does not just apply to the external barriers such as tariffs and quotas, but potentially restricts national and local governments' powers to use internal laws and regulations to protect and promote the public interest.

Further, GATS has been called the world's first investment agreement. Historically, there has been a tension between the rights of societies to determine the rules that govern all companies established within their borders, and the rights of companies. GATS sets international legal precedents in assigning sweeping new rights to foreign companies, ensuring they have access to the market with no "unnecessary" barriers or conditions imposed by governments.

Whose rules rule?

As the EU states on its website, "GATS is first and foremost an agreement for the benefit of business." The multinationals that stand to benefit were deeply involved in the negotiations to establish GATS. According to David Hartridge, Director of the WTO 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..." Lobbying by groups such as the US Coalition of Service Industries and the European Services Forum has kept up the pressure. Perhaps unsurprisingly, one of the corporations most active in pushing the GATS agenda was Enron. Its demise provides a useful lesson not only about the exercise of corporate influence, but also the results of liberalisation of energy services, one of the key sectors likely to be included in GATS negotiations.

The influence of corporate lobbyists became evident when confidential minutes were accidentally left of the website of a UK lobby group (available from www.gatswatch.org). The LOTIS committee of International Financial Services London is headed by the former European Commissioner for Trade, Lord (Sir Leon) Brittan. It also includes the former Director of Trade Policy for DTI, Christopher Roberts and a former GATS negotiator for the DTI, Alistair Abercrombie. Such is the revolving door between government and business.

As of May 2001, the list of members of this lobby group included civil servants from DTI, Foreign Office, Treasury and the Financial Services Authority. It is clear from the minutes of the meetings that the government and business were acting as if the British government's interests were the same as multinational service companies. For example, on 22 February 2001, the Foreign Office official welcomed the private sector's help in countering the anti-GATS arguments, specifically the campaign by the World Development Movement.

Such a relationship between business and government extends well beyond the type of consultation that the DTI has with civil society. The minutes provide a fascinating insight into the degree to which British trade policy is predominately mercantilist. This is the dirty secret of trade negotiations. Although countries talk about trade as if the aims are to promote development of the poorest countries or to protect public health and the environment, in reality the negotiations aim to give as much advantage as possible to each nation's business interests. This is generally defined as the interests of the few multinationals that dominate government lobbying.

This was evident when a draft of the European Union's GATS requests were leaked in April 2002. The European Commission identified service sectors for liberalisation, based on a wish list from EU service businesses. It included key public utilities such as postal services, electricity distribution, telecommunications and water supply. Such a list calls into question assurances from the British government that the GATS negotiating process would not aim to open up public services in other countries.

Commitments to GATS are apparently voluntary, but few developing countries have the capacity to participate fully in the negotiations, let alone undertake the research that would be required to promote their national interest over decades into the future. Nor has any country encouraged public and parliamentary scrutiny and consultation with those who will be affected, particularly the poor and vulnerable groups in society. In addition, the need for assessment prior to further negotiations is written into GATS – despite repeated calls from developing countries, it has not been undertaken.

Developing countries will inevitably come under huge pressure to open up their service sectors. As is the case with most other WTO agreements, it is proposed that negotiations take place bilaterally, behind closed doors. At the last WTO Ministerial meeting in Doha, there were repeated allegations of threats and inducements used by the rich nations to get a deal in their interests. Over the next two and half years, during which GATS will be negotiated, the main pressure on the developing world will come from a proposed trade- off between agriculture and services. Developing country governments are being told that the much-reviled Common Agriculture Policy – which effectively bars developing countries' farmers from the European market – will not be reformed without benefits for the EU. That means GATS.

However, a massive campaign is building on GATS internationally concerned not only about the impact on the world's poor, but also about the impacts on public services, the rights of government to regulate in the public interest and the powers of local government. A growing coalition of development, environment, health care, education and other NGOs, trade unions, churches, women's organisations and local authorities is challenging the underlying approach of GATS and calling for wider public debate.

Re-orienting the trade system

The one-size-fits-all trade liberalisation model represented by GATS is not working, even according to its own criteria of stimulating economic growth. The record of those countries that have undertaken rapid trade liberalisation is mixed. The most coherent explanation of recent macroeconomic data is provided by Professor Dani Rodrik of Harvard University who argues that successful economies should open up to trade, but that there is no evidence to suggest that opening up to trade will result in economic growth.

Coherent alternatives to the pro-corporate rules have been repeatedly proposed. However, they are rejected because it is deemed to be impractical to change the fundamentals of the trade system. There are three key principles that underlie WDM's proposals:

• The rules of trade should be oriented to achieve the aims of poverty reduction and sustainable development (not the maximisation of trade, removal of governments' right to intervene in the public interest and the rights of companies to trade freely). This would mean flexibility for countries, particularly the poorest, to promote development as a priority, including using the types of government intervention used in the past by the East Asian 'tiger' economies.

• Governments and international institutions should be fully accountable for the rules that are agreed at the international level, and new mechanisms should be developed to open up policy making to public and parliamentary scrutiny.

• A new international mechanism is required to regulate international companies, to ensure that they compete fairly (prohibiting tax evasion, monopolies, restrictive business practices, bribes and undue political influence) and abide by international standards (such as the UN agreements on core labour standards, human rights and the environment).

This is obviously not all that needs to be done in order to make the international economic system work for the many and not the few. But these are feasible changes that could be made if there was the vision to tackle the fundamental problems of the trade system, and the political will to act in the public interest, rather than the corporate interest.

Civil society is playing a major part in generating this political will.

Placed on Fabian Global Forum, May 2002.