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Committee: Strategy and Finance Date of Meeting: Typed by: Mary Richardson Date required by
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General
Agreement on Trade in Services (GATS)
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Officer responsible |
Author |
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Director of Policy |
Mary Richardson x 8882 |
The purpose of this report is to provide
the Committee with information on the current General Agreement on Trade in
Services (GATS) negotiations at WTO and potential repercussions for local
government.
The current negotiations on the General
Agreement on Trade in Services (GATS) being conducted by the New Zealand
Government with other governments in the World Trade Organisation (WTO) could
have repercussions for local governments.
GATS rules are binding on all levels of
government and constrain the ability of central and local government to
regulate economic activity in pursuit of social or environmental goals. However, there has been little if any
consultation with local government about the negotiations and their
implications.
Previously the Christchurch City Council
has argued that policy regarding the regulation, funding and provision of
essential services should be made democratically by governments at the national
and local level, and that such services should not be included in trade
agreements.
Council has called for full transparency
and consultation on GATS with local government.
Recently a number of Australian local
authorities (including Melbourne City Council, Yarra Council and NSW Local Government Association and the
Australian National Local Government Association Conference[1])
and over seventy Canadian municipalities (including West Vancouver) have called
for the exclusion of public services from the GATS, particularly local
government community services and water services. They have requested that national governments fully consult with
local government about the implications of the GATS
The General Agreement on Trade in
Services (GATS) is an agreement signed in 1994 under the World Trade
Organisation (WTO) which administers the agreement. GATS rules apply to 160
service sectors, many of which are the responsibility, directly or indirectly,
of local government.[2]
They include
§
licensing the provision of services (food outlets)
§
regulations on services (waste disposal, building
control, transport)
§
planning permission/permits (including
discretionary powers to apply conditions or negotiate provision of social
housing)
§
discretionary powers in general (e.g. giving
preference to local employment, using procurement decisions to promote the
local economy, placing environmental/sustainability conditions on contracts).
The purpose of GATS is to encourage
freedom of international trade, and to promote competitive markets for all
goods and services including those which have previously been outside the
market sector. It aims to remove government regulations which are regarded as
“unnecessary” barriers to trade and inherently anti-competitive. By signing the GATS in 1994, governments are
committed to engaging in the current negotiation process which aims to achieve
”a progressively higher level of liberalisation” in the service sectors.[3]
GATS includes two different levels of
obligation:
§
General Obligations: rules which apply “horizontally” to all service sectors in a WTO member
country, including all government measures in the form of a law,
regulation, rule, procedure, decision, administrative action of any other form[4]
§
Specific Commitments: rules which apply only to those services which a
government chooses to include.[5] Each WTO Member lists in
its national schedule those services for which it wishes to guarantee market
access and non-discrimination (“national treatment”) to foreign suppliers.
GATS requires that countries make their
measures available (transparent) to others, and extend the same trade
advantages to all foreign companies that they extend to companies from any one
foreign country (the most favoured nation principle). Schedules may reserve the right to limit the degree to which
foreign services providers can operate in the market, for example limiting
commitments on market access (Articles 16 (2) (a) to (f)) or on national
treatment (Article 17). [6] However, all limits and exceptions must be
set when a country initially offers a sector. A nation only can set later new
limits on the number of investors or how they operate in a GATS-covered sector
if the nation can negotiate compensation with all countries who have a right to
enter that market (Article 11).
The GATS applies to measures taken by any
level of government. While negotiated exclusively by national governments, its
restrictions cover measures by “central, regional, or local governments and
authorities” (GATS Article I:3.a.i).
The
GATS also applies to “non-governmental bodies in the exercise of powers”
delegated by any level of government (Article I:3.a.ii). However, any dispute
would be lodged by one or more WTO member governments against the central
government whose local authorities’ measures were the subject of complaint;
that authority itself would have no right of representation in the hearing.
Negotiations are currently taking place
on the extension of GATS at WTO Headquarters in Geneva. By June 2002, all WTO members were to have
told other countries what sectors they wanted them to add to their existing
GATS commitments. By March 2003, WTO
members are to identify what they are prepared to give up in return. The public,
including elected local government representatives have
no right to this information and it can be withheld under New Zealand’s Official
Information Act. However, some
countries have been more forthcoming than New Zealand, which claims it must
treat all requests and offers as confidential. For example, the UK has posted on a
government website the service sectors for which it has received ‘requests’
without identifying the countries making the requests, and has called for
comment on the effects of opening these sectors – see
http://www.dti.gov.uk/worldtrade/service.htm.
Governments are being asked to increase
the range of services included in the GATS agreements. There are proposals to
reduce the right of governments to regulate and to provide and fund public services,
including proposals to change these rules and reduce the right of governments
to regulate by declaring the some regulations of services should be "least
trade restrictive" and introducing new necessity transparency agreements[7]
There is
considerable uncertainty about the exact implications of GATS for local
government services. GATS has some rules which recognise the right of
governments to regulate services and to provide and fund public services. However, ability to regulate depends on
governments knowing how, and when, to make exceptions and impose limitations
when they commit sectors to liberalisation.
There is uncertainly regarding the interpretations of “services supplied
in the exercise of government authority” (Article 1(3)(c)).
This section examines some
areas of particular concern to the Christchurch City Council.
Governments are
free to choose the services which they will make commitments guaranteeing access
to foreign suppliers [8] However,
recent studies by the Canadian Environmental Law Association identified areas
of local government services and regulation which could be affected by the GATS
negotiations[9]. The
services identified included
§ water and sewerage services,
§ waste
§ management,
§ zoning regulations,
§ library services,
§ community services, such as
childcare,
§ signage
For example, the European Union has
identified extensive additional commitments it wants to add to countries existing GATS commitments in its request
to other countries, including New Zealand[10]
Any additional services will be subject to the National
Treatment and Market Access rules.
National Treatment rule requires
governments to offer at least the best treatment given to domestic services (or
service providers) to like foreign services (or service providers). It is unclear if local government policy
which, for example, imposed limits to
conserve resources or protect the environment would be GATS-consistent.[11] Some examples of measures identified as
potentially modifying the conditions of competition in favour of domestic
services or service suppliers include:
§
Requirements that
retailers recycle packaging could be argued to constitute de facto discrimination
if the impact on cross-border, mail-order retailers were deemed more burdensome
than the impact on domestic retailers selling through local outlets. [12]
§
Requirements that
toxic waste be treated on-site or at a local facility could be argued to disadvantage
foreign industries or foreign waste treatment companies that have invested in facilities
outside the local region[13]
§
Requirements that
publicly-funded research and development produce benefits in the local or national
economy.[14]
Market Access -
GATS
Market Access rule prohibits governments from placing restrictions on the
number of service suppliers or operations; the value of service transactions;
the number of persons that may be employed in a sector; and, significantly, the
types of legal entities through which suppliers may supply a service. Article
16 also prohibits limits on foreign capital participation.
For example, if environmental services
were committed (as they are under the Singapore CEP), the Canterbury Waste Services
(etc) arrangement for the Kate Valley landfill would almost certainly be
GATS-illegal because it restricts the number of service providers which can
create landfills, and prescribes a certain type of legal entity for those that
can (the joint venture companies), among other things.
Limitations on the number of street
markets, and limitations as to their type of ownership, may well also be a
problem since the retail sector is committed. So might, for example, a limit on
the number of suburban malls (particularly since many are overseas owned).
Regulatory measures, whatever their form
or purpose, must conform with the GATS provisions in the main text and a member’s
specific commitments.[15] While the preamble of the Treaty contains a
clause that “recognizes the right of Members to regulate,” this language has
limited legal effect. It may not be construed as providing legal cover for
regulations that would otherwise be inconsistent with the substantive
provisions of the treaty. Governments
retain their freedom to regulate only to the extent that the regulations they
adopt are compatible with the GATS.
For example, GATS Article 6.4 specifies
that Members shall develop any “necessary disciplines” to ensure that “measures
relating to qualification requirements and procedures, technical standards and
licensing procedures do not constitute unnecessary barriers to trade in
services.” Sub-paragraph (b) of Article
6:4 further specifies that such disciplines shall aim to ensure that regulatory
measures are “not more burdensome than necessary to ensure the quality of the
service.”
“GATS
establishes a framework of rules and disciplines to ensure that Members
regulate their services sector in a manner which avoids that any ensuing trade
restrictions and distortions are more burdensome than necessary.” and
“Governments are free in principle to pursue any national policy objectives provided
the relevant measures are compatible with the GATS” (Moore 1999)[16]
There are reportedly WTO members who view
local regulations, such as hours of operation and zoning as a problem and seek
new grounds to challenge these (Gould 2002).
In discussing barriers to trade in the construction industry, the European
Community reportedly cited differences in building regulations as a problem.[17]
Changes to GATS
rules on regulation of services, now being negotiated in
Geneva, could mean that local councils face complaints about their regulations
through the WTO complaints system. GATS Working Party on
Domestic Regulations (WPDR) has developed proposals to expand restrictions on “domestic regulation” in ongoing
negotiations under GATS Article 6.4.[18]
Since
1999, the working party has been developing a “necessity test” to be applied to
licensing, standards, and qualification requirements set by governments at any
level. The test is intended to be a legally binding revision to the GATS. Such a revision to the GATS would be a
WTO-imposed requirement that would go far beyond its trade mandate, since
regulations judged to be not really “necessary” would become violations of the
GATS (Gould 2002).
Unfair treatment of foreign companies is
already prohibited under other sections of the agreement.[19]
This clause extension would impose an absolute constraint on regulation that
would apply even when foreign and local companies are treated exactly the same.
If these new restrictions on domestic
regulation were agreed to, they would constitute an extraordinary intrusion
into democratic policy-making. Under a
necessity test, local councillors would be required to:
§
Have an objective that a trade dispute panel would
accept as “legitimate”.
§
Choose the least burdensome or the least trade
restrictive means of achieving their objective that is “reasonably available”
to them.
§
Ensure the measures taken and the objectives they
are supposed to meet are an appropriate fit.
If a regulation was challenged a WTO
dispute panel would decide whether the objective was worthy[20]
and whether measures were not the least trade restrictive option, whether other
less burdensome options were “reasonably available”, and whether more effective
measures could have been taken to meet the objective.
Decision-making on such matters is
passing from democratically-elected governments (including local governments)
to appointed tribunals and dispute-settlement panels at the WTO in Geneva. It could be argued that a trade panel
determining the appropriateness of "regulations" from safety standards
for manufactured goods to the licensing of hospitals to public water quality
testing, is undermining governments’ sovereignty.
Governments can complain about the laws
or regulations of other governments to a panel of trade law experts. There is no right for local authorities to
complain or defend themselves in these situations. A local authority being challenged would have no right to
present to the panel its reasons for passing a particular regulation nor could
it comment on the practicality of “less burdensome” options.
GATS Article 8,
Monopolies and Exclusive Service Suppliers, is one of the GATS general
obligations that applies in principle across all sectors. The GATS imposes restrictions on monopolies
and exclusive service supplier arrangements. In fact, monopolies (such as in
postal services, electricity supply, health insurance, water distribution) and
exclusive supplier arrangements (common in post-secondary education, health
care and other social services) are inconsistent with GATS provisions and must
be listed as country-specific exceptions in covered sectors. Governments
wishing to designate new monopolies in listed sectors are required to negotiate
compensation with other member governments.
There are concerns that pressure is being
put on governments to privatise or liberalise public services. European Union, for example, is demanding
full-scale privatisation of public monopolies across the world as its price for
dismantling the common agricultural policy in the new round of global trade. [21]
Subsidies
Negotiation of ‘disciplines’ on non
‘trade-distorting subsidies’ are also underway (pursuant to Article XV). The position
on subsidies is slightly ambiguous. The New Zealand government tends to the
view that subsidies are not covered by the national treatment and market access
rules, even where a service has been included in the schedule. However this is contrary to the guidelines
to negotiators drafting the original GATS schedules and the OECD’s analysis of
the agreement in 1994. It is also inconsistent
with the negotiating guidelines agreed at the WTO in March 2001.[22] Specialist on GATS at the OECD Trade Dirrectorate,
Pierre Sauve, also identified that subsidies which have not been explicitly
reserved in a country’s schedules are covered by the agreement.[23]
GATS negotiations on government
procurement in services have also started.
GATS Article 13 excludes government procurement from the MFN, national
treatment and market access restrictions. However, the GATS does not clearly
and comprehensively define government procurement.
New Zealand is not a signatory to the WTO
Agreement on Government Procurement. But there are moves to broaden that
agreement, so it is worth anticipating a change of the government’s position on
signing this agreement – it may even become a compulsory part of the WTO, like
GATS itself.
Council
may wish to advocate that their procurement decisions and procedures not
be subject to GATS procurement restrictions. Council may wish to also urge trade
officials to ensure that New Zealand’s commitments under the WTO Agreement on
Government Procurement are not extended to cover local-level procurement
Procurement is used by local authorities
to support small to medium businesses, provide incomes to residents, or to promote
environmentally friendly products and services. Council may wish to seek assurance that any government procurement
clauses would preserve the freedom of government and the Council to continue to
exercise choice in order for decisions to be made in the best overall interests
of its community.
As stated earlier GATS applies to
measures taken by any level of government. While negotiated exclusively by
national governments, its restrictions cover measures by “central, regional,
or local governments and authorities” (GATS Article I:3.a.i). The GATS also applies to “non-governmental
bodies in the exercise of powers” delegated by any level of government
(GATS 14
Canadian Centre for Policy Alternatives Article I:3.a.ii).
There has been limited dialogue between
the national government and local governments which will be directly affected
by the commitments being made.
Commitments and limitations have not been
open for public consultation and debate.
The Christchurch City Council has
previously stated that it is inappropriate
that local authorities are constrained by an agreement to which local
government is not a party and has sought exemption from such agreements (April
1998, May 2001).
The Council has sought assurance that
that any government procurement clauses would preserve the freedom of the Council
to continue to exercise choice in order for decisions to be made in the best
overall interests of its community.
This has included a request for assurances that there will be no restrictions
on local governments rights regarding achieving social ends in procurement and
no restrictions regarding conditions on suppliers that would “encourage local
development or improve the balance of payments accounts by requiring domestic
content, licensing of technology, investment, counter-trade or similar requirements”
(September 2000, May 2001).
The Council’s
policies on preference for local suppliers are as follows: “That the Council
adopt a policy of active preference within a small financial cost for local
firms for the supply of goods and services, and actively seek out quotes form
local firms for all possible supplies” (25/6/90) and “That all future tender
documents be worded in such a way as to enable a comparison between New Zealand
and overseas produced goods, where relevant” (19/11/90).
In practice most tenders are from local
firms so the issue of giving them preference does not arise. The Council has adopted a balanced, pragmatic
approach, sometimes awarding a contract to a local supplier, sometimes
preferring an offer from an overseas company, and sometimes choosing a combination.
The Council has also noted that the
requirement to award a tender on the basis of “value for money” alone does not
even make good commercial sense (May 2001).
It also noted that increasing attention is being given in the theory and
practice of purchase and supply to building relationship, and formation of
partnerships, in business and between businesses and public agencies. There is a growing body of experience in the
commercial world showing that relationship contracting between buyers and
sellers produce significant economic and strategic benefits in the form of
lower costs of doing business and greater ability to meet strategic goals, and
to do both on a sustainable basis. The
shift in business practice is from managing contracts to managing relationships[24].
Comparative growth figures show that countries that followed more benign or
pragmatic policy regimes have fared much better economically and socially (reference
?).
NSW Local Government Association
Conference last month passed resolutions asking for local government exclusion
and for the Australian Federal Government to consult about the implications for
local government of the WTO
negotiations on Trade in Services (GATS).
Melbourne City Council and Yarra, Port Philip, Moreland Council in
Victoria and the Marrickville, Waverly and Leichhardt Councils in NSW have
passed resolutions critical of the possible impact of GATS on local government
services, and calling for full disclosure and information on the negotiations.
All Australian opposition parties,
Australian Labour Party ,Democrats and Greens now have policies critical of
GATS, calling for all the requests and offers in the GATS negotiations to be
made public, and supporting a Senate Inquiry into GATS.[25]
Seventy Canadian municipalities through
the Federation of Canadian Municipalities have made similar appeals to their
national government.
Officials from the Ministry of Foreign
Affairs and Trade were asked to comment on the issues raised in this
report. The Ministry response is
attached to this report (Appendix 1).
A letter which the Minister sent to LGNZ in September 2002 is also
attached. Council was not aware of this
letter prior to the Ministry response.
Professor Jane Kelsey from Auckland
University and Dr Bill Rosenberg were
also asked to comment on the issues raised in this report. Their comments are included in the discussion
regarding the MFAT response in Appendix 3.
Staff
Recommendation: That the Council write to the Minster for Trade
Negotiations stating that:
a) The Council believes that
it is inappropriate that local authorities be constrained by an agreement to
which local government is not a party.
b) The Council believes public policy regarding the
regulation, funding and provision of essential services should be made
democratically by governments at the national and local level;
c)
That Council believes that no restrictions should
be placed on local government’s rights regarding achieving social and
environment ends in procurement.
d) The Council requests that the Government support the clear exclusion
of public services at central and local levels from the GATS, including local
government community services, environment and water services;
e) The Council requests that the Government oppose
any proposals which would reduce the right of local government to regulate
services, including the application of a "least trade restrictive"
test to regulation;
f)
The Council requests
that the Government seek to eliminate the ability of WTO trade rules to overturn nation-state laws and
practices that protect health, the environment, development and human rights;
g) The Council requests that the Government seeks
1. an amendment to
the schedule, for example entering a reservation in the horizontal commitments
to exclude local government, or
2. a carve out for local
government by amending the GATS or
3. an interpretation or clarifying declaration by WTO Members that local governments are exempt from GATS
h) The Council requests that the Government
commission an independent retrospective
review on the WTO's impact on development, democracy, environmental
sustainability, health, and human rights
City Manager’s
Recommendations:
a)
That a copy of this report be forwarded to LGNZ
and other local authorities for their information and possible action
b)
That LGNZ advocate to central government on behalf of local government regarding the above concerns
Chairman’s
Recommendation: +
[1] These bodies have not only debated it themselves, but have written to the Federal Trade Minister raising their concerns and requesting consultation
[2] GATS was signed, by all 140 members of the then General Agreement on Tariffs and Trade (GATT) as part of the Uruguay Round of negotiations, in 1994. In 1995 GATT was succeeded by the World Trade Organisation (WTO). The former Director General of the WTO, Renato Ruggiero, has stressed that the scope of governments’ obligations under the GATT was extended considerably by the WTO. The new obligations “extend the reach of the Agreement into areas never before recognised as trade policy”. The General Agreement on Trade in Services (GATS): Possible Implications for Local Government An LGA/LGIB Briefing Paper
[3] World Trade Organization, Trade in Services Secretariat, (March 2001) GATS: Fact and Fiction, Geneva, available on the WTO web site at http://www.wto.org.
OECD, Working Party of the Trade Committee, (September 3, 2001) Open Services Markets Matter, TD/TC/WP(2001) 24/PART1/REV1.
[4] No government action, whatever its purpose (e.g. protecting the environment, safeguarding consumers, enforcing labour standards, promoting fair competition, ensuring universal service, or any other end) is, in principle, beyond GATS scrutiny and potential challenge.
[5] Governments commit service sectors to these specific commitments through a series of negotiations. First they submit ‘requests’ for service sectors they would like other countries to include under GATS; then they make ‘offers’, stating which of their own services they will allow to be covered by GATS rules. These discussions initially happen on a country-to-country or bilateral basis, but any agreement reached then applies across countries, or multilaterally. Following negotiations a deal is concluded, which is binding. Once a service is committed with GATS any government (and by extension local government) regulation which actually or potentially restricts the market and discriminates (even inadvertently) against foreign companies is open to challenge within the WTO rules. Legally binding guarantees for stable regulatory conditions are constraints on future governments to change or reverse a liberalization process if they identify that economic and social policies need a change - and therefore poses a threat to democracy.
[6] These can include limitations on the number of suppliers, the total value of transactions, the number of services operations, the number of persons to be employed, the types of legal entity permitted and the share of foreign capital. The entry "none" in a schedule is an undertaking that limitations of these kinds will not be imposed (World Trade Organization, Trade in Services Secretariat, (March 2001).
[7] (e.g. “Application of the necessity test: issues for consideration”, 8 October 1999, Job No.5929, Informal note by the WTO Secretariat; and “Market Access: Unfinished Business”, WTO, p,123, available on the WTO Website).
[8] Each Member must have a national schedule of commitments, but there is no rule as to how extensive it should be. There is agreement among all Governments that in the new round of negotiations the freedom to decide whether to liberalise any given service will remain. However, “the principle of progressive liberalization will be maintained.” World Trade Organization, Trade in Services Secretariat, (March 2001) GATS: Fact and Fiction, Geneva, available on the WTO web site at http://www.wto.org.
[9] Michelle Swenarchuk From Global to Local: GATS Impacts on Canadian Municipalities Canadian Centre for Policy Alternatives, Ottawa, 2002 http://www.policyalternatives.ca/
Sinclair, Scott, GATS How the World Trade Organizations’s new “services” negotiations threaten democracy, Canadian Centre for Policy Alternatives, Ottawa, 2000, http://www.policyalternatives.ca/
[10] A widely publicised leak of a near-final draft of the European Union request included requests to New Zealand to increase commitments in area of the professional sector (New Zealand has committed professional sector only partially); research and development sectors including natural science and social science; postal and courier services (New Zealand has not undertaken commitments in postal and courier services); telecommunications (New Zealand has only partially committed telecommunications) and goods and services (where New Zealand already has one of the most wide-ranging commitments of any WTO member). New Zealand has not undertaken GATS commitments in environmental services, although it did in the CEP with Singapore, which may indicate a government intention in GATS, and the negotiating agenda agreed at Doha has a specific focus on environmental services. EC requests New Zealand to commit the following subsectors; Water for human use & wastewater management; Solid/hazardous waste management; Protection of ambient air and climate; Remediation and cleanup of soil & water; Noise & vibration abatement; Protection of biodiversity and landscape (From AD HOC 133 COMMITTEE SERVICES MD : 044/02 GATS 2000 Request from the EC and its Member States (hereinafter the EC) To New Zealand) http://www.guardian.co.uk/globalisation/story/0,7369,685670,00.html
[11] Measures considered ‘necessary’ to protect animal or plant life or health and which are not considered ‘a means of arbitrary or unjustified discrimination’ may come within the General Exceptions Article XIV. But there is no reference to conservation or environmental protection per se.
[12] Scott Sinclair and Jim Grieshaber-Otto (2002) Facing the
Facts. A Guide to the GATS Debate and Michelle Swenarchuk From
Global to Local: GATS Impacts on Canadian Municipalities Canadian Centre
for Policy Alternatives, Ottawa, 2002.
[13] Scott Sinclair and Jim Grieshaber-Otto (2002) Facing the
Facts. A Guide to the GATS Debate and Michelle Swenarchuk From
Global to Local: GATS Impacts on Canadian Municipalities Canadian Centre
for Policy Alternatives, Ottawa, 2002.
[14] Drawn from non-conforming measures listed as limitations to national treatment in the Canadian
and US GATS schedules or from illustrations of inconsistent measures in the GATS scheduling guidelines (S/CSC/
W/19). (Sinclair and Grieshaber-Otto 2002)
[15] Regulations are clearly listed among the wide range of government measures restricted by the GATS.
[16]
“Liberalization? Don’t reject it just yet”, Mike Moore, Guardian, 26
February 2001.
[17] http://docsonline.wto.org/gen_search.asp for WTO Document Symbol: S/CSS/W/36)
[18] When the GATS was signed in 1994, negotiators had not completed the disciplines on domestic regulation. A specific group of trade officials (the GATS Working Party on Domestic Regulation) is drafting language to enable WTO members to challenge each others services regulations through the WTO dispute system.