GATS: From Public Services to Commodities

By Christoph Kletzer

[This 2001 article from the Attac anti-globalization movement is translated from the German on the World Wide Web,
www.attac.de/rundbriefe/sandimgetriebe08_01.php…]

International agreements and instruments of free trade pretend to a value- and goal neutrality or inevitability. They are presented as a rational means for reaching an apolitical goal – the welfare of everyone. However the current negotiations on the eve of the ministerial conference in Katar reveal a hidden agenda of particular interests. What is central is establishing a basic rights agenda for multinational corporations, the degradation of the citizen to a consumer and the state to a service provider.

On first view the General Agreement on Trade with Services (GATS) seems harmless. The GATT logic will be expanded to services. Services “in the exercise of sovereign authority” are exempted. Every member state determines the speed of the specific obligations according to its own judgment. The far-reaching effects of this agreement felt by every citizen first appear on closer examination. With GATS the nation-states have delegated the question about their core tasks and regulative authorities in broad areas to a trade arbitration board.

The question about “more or less” GATS does not merely involve the technocratic negotiation of a further step in the lively world trade caroussel. Rather basic questions of the creation and survival of every particular solidarity community are involved, questions of fundamental political relevance.

Historical Survey

The WTO and the GATS agreement go back historically to GATT, 1947. GATT represented the free trade regime installed worldwide after the war. Part of the planned International Trade Organization (ITO) never came into existence on account of the internal resistance of the US. With GATT, import tariffs on goods were successively lowered and as a result a protectionism unfavorable for worldwide economic development restrained. However a “new” protectionism started through non-tariff measures (technical trade barriers, subsidies, anti-dumping regulation) that threatened to subvert the whole GATT system. The developed states could be hindered by rigid anti-dumping laws. The economic survival of many developing countries dependent on export could be impeded through technical regulations.

As a reaction to this unsatisfactory situation, the World Trade Organization (WTO) was created in a twelve-year negotiation process (Uruguay round). The most different interests and demands were played off against one another (developing countries receive limitation on non-tariff trade barriers from the industrial countries, GATS and TRIPS etc). The most different and conflicting interests were reflected in the emerging agreement of the WTO. One partial result of this wild haggling is GATS.

The WTO as a reaction to the “new” protectionism represents an instrument that on one hand goes much too far and on the other hand does not go far enough. In a word, the WTO is a dangerously imbalanced agreement. On one side a new protectionism arose (the industrial states find ways again and again to protect their markets against imports from developing countries simply by not implementing the agreement or finding legal loopholes like agricultural subsidies). On the other side agreements like GATS and TRIPS interfere far too much in the core areas of state political action.

What are services? What makes them so special?

Services are usually understood as immaterial goods: health care, education, telecommunications, banks, insurance, energy- and water supply etc. In the US, the service sector amounts to 70 percent of the economy, in Germany and in Austria 65 percent, in Brazil only 49, India 41 and Cambodia 34 percent. The interest of industrial nations in liberalizing this area of the economy is obviously great.

Strangely enough, GATS does not define the term “services”. A precise definition is hardly possible on account of the complexity of the term. Immateriality, transcience, synchronicity of production and consumption and to a certain degree locational bonds are distinguishing characteristics. This last characteristic of limited transportability has been increasingly undermined in the last years. Technical advances in the sector of telecommunications today make possible trade with services.

Unlike trade with material goods regulated in GATT, GATS implies an entirely new and more far-reaching idea of trade. On account of the simultaneity of production and consumption, the term trade goes beyond means of production (labor and capital). The purely economic regulation of this circumstance and the purely economic observance of rules are deep encroachments in national decision-making. Internal legal- and social systems attained democratically in many countries are replaced de facto by sterile GATS rules.

What is Public Service?

The German language lacks a correlate to the French service public or the English public service. Public service means there are areas in human relations involving financial expenditures that are excluded from regulation by the market on account of expected or experienced market failure and there fore are provided from the public treasury. This concept is closely connected with the concept of public good since the market cannot provide the necessities of all market participants. While pious, belief in the invisible hand of the market is inadequate for many essential interests… A student isn’t a consumer of educational commodities and a heart patient isn’t a consumer of health commodities. Both are citizens whose welfare serves all citizens and whose well-being is a task of the community. Thus public service concerns the question about the core tasks of the state, about the goals of the state and therefore depends only on internal will. Through GATS those states that have agreed democratically on these state goals run the risk of seeing their autonomous choices invalidated by inscrutable agreements and biased arbitration boards.

GATS and Public Service

Whether or not the state fulfillment of democratically determined core functions falls in the purview of GATS and under a progressive liberalization duty via services as for example education, health care or water supply cannot be known on the basis of the agreement’s text using normal interpretation methods. Article 1.3b says that the agreement covers all services not rendered “in the exercise of sovereign authority”. Art 1.3c specifies spitefully that services are only rendered in the exercise of sovereign authority when they are not offered
- for commercial purposes
- or in competition

These characteristics are cited cumulatively. When only one is absent, the service in question can no longer be qualified as public and therefore falls in the GATS regime.

What does this mean? If a service falls in the GATS regime, the horizontal obligations like most favored nation preference (a preference granted one state must be guaranteed to all other states) and transparency (states must publicize their legislative acts internationally). Moreover this service comes under the progressive liberalization duty, the “in-built commitment” of Art 19. In other words, the state is legally obligated to ease market access in further rounds of negotiation.

Whether the public health system, the education system etc. falls under GATS or not cannot be decided according to the text of the agreement. On one hand, the WTO continuously issues propaganda (“GATS – Facts and Fiction”) in which it seeks to dispel all civil society objections by declaring that services in the education- and health care areas are excluded from the GATS regime. However these statements cannot withstand a strict legal examination. On the other hand, the WTO secretariat says that an exception of the hospital sector from the GATS regime would be “unrealistic” (S/C/W50, September 18, 1998). The substantive distinction between colorful brochures and mouse-colored internal reports is striking.

In any case the uncertainty whether Austria may maintain its education- and health systems under the present legal rules represents a scandal as well as the expected intensified burdens on the autonomous regulation of services.

The Example of Water: Bolivia and How Water Flows Uphill into Money

“WTO steals our water” could be a headline of the Kronen newspaper. However the reality is even more problematic. The worldwide consumption of drinking water doubles every twenty years, that is twice as fast as the population. According to the United Nations, more than a billion people presently have no access to fresh water. If the present trend continues, the demand for water will be 56 percent higher in 2025 than the available drinking water resources.

Profit beckons where there is demand. A regular rain of money is possible where even life is at stake. Robert Farley of Monsanto, a pharmaceutical company that now specializes in water supply, says bluntly: “What we can see here is the consolidation of the whole food chain, not only the consolidation of seed companies. Monsanto tries to establish its control over water since water is central for food production and life is impossible without water. In 1999, Monsanto planned to establish a new water business beginning with India and Mexico since a water shortage is imminent for both of these countries.” Monsanto expects to rake in $420 million in sales and a profit of $63 million by 2008. It is estimated that approximately 2.5 billion people will have no access to drinking water by 2010. “Water is the last infrastructure challenge for private investors”, said John Bastin of the European Bank for Reconstruction and Development.

Bolivia under pressure from the World Bank privatized the public water supply of the Cochabamba region. This supply was purchased by the US Bechtel corporation and the price of water doubled within weeks. In a short time Bolivian families had to spend a twentieth of their monthly income for their water supply. Shutting off their water supply was threatened upon non-payment. This action was only cancelled on account of a mass strike and continuous protests of the population. Now Bechtel is suing Bolivia for compensatory damages.

As a water-drinker, the Bolivian farmer depends on corporations for his or her existence. When he doesn’t want anything from the western world and can’t demand anything because he has nothing, he should at least be forced to buy what he really needs. Above everything else, Western industries must produce “consumers”.

Why should the service agreement GATS be involved here? Water in itself is a material good that comes under the GATT agreement. However the water supply also represents a service and in many states is a classical example for a public service. Since a regulation is built into GATS that commits all service sectors to a progressive liberalization, this agreement makes it easier for multinational corporations and economic lobbyists interlocked worldwide to exert pressure on their governments and gain an advantageous solution at the end.

Thus the WTO wrongly takes our water. The WTO together with the World Bank and the IMF is a willing collaborator with several corporations that seek to draw a profit from basic needs vital for survival.

Example: The Health Care Industry and the Shattering of the European Health System

Before the crash in Seattle, the US trade representative proclaimed loudly that the US would end the European health care system that unnecessarily resists American trade interests by means of the WTO. The WTO could be another spear in the foreign policy arsenal of the US. Seattle ran aground. However the interests of the American lobby and their executive organ (the government) have changed as little as their means (WTO-round). We can assume that the US will do everything to extend its health care system to Europe.

The figures are well-known and shocking. In the US, the share of health spending in the gross domestic product is 13.2% compared to 8.3% in Austria which has far better care. According to studies (Liebowitz 1994), America will have to spend all (!) of its GDP for health care alone in 2062 if the long-lasting trend continues. Thanks to the WTO. Europe is threatened with the obligatory importation of these sub-optimal structures.

Example: Education – When the Education Industry Sharpens its Knife

Like health care, education is an enormous business. Investors of English-speaking universities press on the European market. In a study, the business advisory service Merrill Lynch estimated the worldwide education market of 2002 at $2.2 trillion annually. If the (practical-) privatization of the European educational system occurs, the university understood for a long time as a place of teaching, learning and research, of social coherence, tension and fundamental criticism may be gone. Whatever doesn’t benefit the market will not exist any more.

Is the State the Victim?

Quite the contrary! This analysis should not lead people to believe that the nation-state is a victim of the WTO. Some nation states use the cries of doom about their disempowerment to vigorously enforce certain policies by shifting them to the international plane and selling them to their own population as inevitable or unavoidable. The WTO is an instrument of particular internal interests. While the state in the past had a basic universal competence and declared itself competent for employee protection questions, the WTO now offers unsuspected possibilities. The WTO only treats trade questions. In other words, it can shift the practical connection of trade questions with human rights-, employee protection and environmental problems to other international institutions (ILO, UNCTAD etc.). This splintering of international institutions makes possible hasty unbalanced solutions that cannot solve the challenge of a sustainable development of the world economy.

Conclusions and Demands

- Education, health care, water supply and culture are not commodities. They cannot be merely traded in the economic sense and therefore are nothing in a pure trade regime.

- The vague area of authority of GATS must be made precise by means of a change in the agreement or interpretation so that autonomously chosen areas of state provision are exempted without doubt and completely untouched by the agreement.


- Every nation-state must be forced by civil society groups to bring its negotiating intentions out of the twilight of diplomacy and into the daylight of the public.
- An international concert of civil society groups in a Resistance Internationale is necessary to coordinate regional and national conduct.