Monday February 10, 2003

Government moves to calm fears over talks on international services

10.02.2003

By BRIAN FALLOW

Fast-forward 10 years. Might we see a story like this in the New Zealand Herald of February 11, 2013?

"Plans for the float of Auckland City Council's cemeteries and crematorium business look set to proceed after a landmark ruling by the World Trade Organization.

"The WTO ruled yesterday that the use of ratepayers' money to fund municipal cemeteries, where they compete with foreign-owned service providers, is a breach of General Agreement on Trade in Services (Gats) rules.

"New Zealand is among seven countries which have opened their funerary services markets to Gats disciplines.

"On Wall Street shares in EternalRest Inc rose 5.5 per cent on news of the WTO decision. Mayor Jan Bonks has identified the Denver-based funeral parlour giant as the preferred cornerstone shareholder if the controversial privatisation goes ahead."

That is, of course, a speculative flight of fantasy at this stage.

But it is a fear of having to read stories like that in the future which underlies an emerging groundswell of opposition to the Gats.

It is seen as furthering an agenda of deregulation, privatization and globalization, or at least as putting a ratchet under moves already made in that direction.

In a bid to mollify the concerns of the union movement, among others, the Government has published a set of 10 guiding principles it will follow in responding to the wishlist of concessions sought from New Zealand in services in current world trade talks.

"We need to be very clear we will not be offering up things that we consider are intrinsic to the New Zealand way of doing things," said Prime Minister Helen Clark last week.

"We are not aiming in this initial offer to change New Zealand's policy settings. We regard New Zealand's right to provide its public health and education services as it always has as fundamental."

Gats presents the Government with a dilemma.

On the one hand, New Zealand struggles to earn a First World living as a trading nation when the industries in which it has a comparative advantage, such as pastoral farming and plantation forestry, are bedevilled by protectionism.

The best hope for ridding us of that ball and chain, the argument goes, is the WTO's Doha trade round. And if Doha is to succeed the underlying deal will be concessions to the Europeans and other industrialized countries in services as a quid pro quo for progress on agricultural trade.

On the other hand, the scope of Gats is very wide. It covers not only what one might normally think of as trade in services, such as tourism or educating foreign students.

It also covers investment: the right of a services company from one country to set up shop in another and compete on fair terms with local firms.

And it covers rights of people working in a service sector to work in countries other than their own.

In New Zealand, as in other developed countries, most people earn their living providing services for one another rather than producing goods. Services comprise the lion's share of economic activity.

Any concessions or commitments it makes under the Gats will limit the Government's ability, and that of future governments, to regulate some aspects of that activity. Commitments once made would be difficult to claw back later, so 20:20 foresight is essential.

For instance, the present Government has found it cannot introduce compulsory local content quota in broadcasting because of commitments made, eyes open, by the National Government.

Many of the concerns raised about the Gats are hypothetical. They are about what might happen, or what this or that bit of ambiguous language could be taken to mean. It is a comparatively young agreement - it dates from 1995 - and has yet to yield much case law which its opponents could point to as perverse or unintended consequences.

Concerns about the implications of the Gats for public health or education, or water and wastewater services, are generally met with two lines of reassurance.

One is the general carve-out of Government services. The Gats definition of services excludes "services supplied in exercise of governmental authority" which are defined as those supplied neither on a commercial basis nor in competition with anyone else.

But Dr Jane Kelsey, whose book Serving Whose Interests? is a guide to the complexities of the Gats agreement and a warning about its potential fishhooks, says it is difficult to identify anything that falls into that carve-out.

In an age of private hospitals and colleges, part-charges and student fees, the frontier between public services and private enterprise is indistinct and moving.

"Because we have privatized so much, not only in terms of selling assets but in terms of blurring the boundary between the public and the private, whether it's in education or health or broadcasting, you have got serious problems of locking in that highly deregulated, market-driven approach," Kelsey said.

"Even if all our Government does this time round is lock in some of the deregulatory changes of the past 15 years or so, what happens if the market fails or we decide we want to do things differently and restore some public dimension to those services?"

The other reassuring factor for those worried about public services is that commitments under the Gats are voluntary. It is up to each WTO member country to decide which sectors it commits to open up and what reservations it attaches to those commitments.

If a sector is committed it means foreign service providers have to be treated at least as well as domestic ones. It also means that the Government is prohibited from having measures that limit the size or shape of the market.

"This could include, for example, attempts to limit the number of hotels in an historically sensitive area [or] the number of medical students being trained," Kelsey says.

"The rules also prohibit Governments from requiring joint ventures between foreign and national services firms or placing limits on the percentage stake a foreign company can have in a domestic firm."

NZ has opened its telecommunications markets, but reserved the right to maintain the Kiwi Share provisions limiting any single overseas entity to a 49.9 per cent stake in Telecom and requiring at least half of its directors to be NZ citizens.

Dropping those limitations is among the requests New Zealand has received in the present negotiations. But one of the guiding principles the Government spelled out last week puts Kiwi Share provisions off limits.

A generic concern about the Gats talks is the lack of transparency involved. Trade officials are understandably reluctant to have half the country looking over their shoulders and objecting as they negotiate.

The Government made public the requests New Zealand faces only a week ago, leaving just two months for consultations and decisions before the March 31 deadline of responding with its offers.

That is not nearly enough time to consider the ramifications, says Council of Trade Unions secretary Paul Goulter.

Trade Minister Jim Sutton last week emphasised the "essentially conditional and revocable" character of the initial offers to be tabled on March 31.

But, says Kelsey, "given the primacy of agriculture, in the Government's terms, any move to take anything out of the Gats commitments is going to be seen as New Zealand shifting its ground from being the pure free-trader.

"I would expect Sutton and others to say, 'We can't do that because it would undermine our position on agriculture and you would have the Europeans and others saying we had done it with services so they can do it with agriculture'."

Whether it proves a slippery slope or the best hope for traction in agricultural trade liberalization, the stakes in the Gats game could hardly be higher.

©Copyright 2002, NZ Herald