WTO services treaty expanding into public services and domestic regulation, areas thought off-limits to international trade agreements

March 28, 2002

Unknown to most Canadians, senior government officials have just returned from a negotiating session in Geneva to expand the reach of the World Trade Organization's services agreement into areas usually considered the exclusive prerogative of domestic policy-making. On the table are public services such as education and health care, and public interest regulations such as tobacco control and environmental protection laws.

The GATS -- a global treaty on services adopted in 1994 as part of the new World Trade Organization -- has been described by its proponents as "perhaps the most important single development in the multilateral trading system since the GATT itself came into effect in 1948." As former WTO Director Renato Ruggiero correctly noted, GATS extends "into areas never before recognized as trade policy."

While still largely unknown to the general public, the binding treaty is deservedly controversial. Its subject matter -- services -- is almost unimaginably broad. The GATS affects how governments regulate services -- from water testing to heart surgery. It restricts actions taken by all levels of government, whether central, regional, or local. The treaty also has a built-in requirement for repeated rounds of negotiations to expand its reach. The current round began in early 2000 and was rolled into the new round of WTO negotiations that was recently launched in Doha, Qatar.

Stung by critical analyses from non-governmental organizations, and mindful that citizen opposition helped scuttle the Multilateral Agreement on Investment (MAI), the WTO and the Organization for Economic Cooperation and Development have both published official responses targeting several GATS critiques, including our own. The WTO characterizes them as "scare stories."

Both these documents suggest that public services are beyond the reach of the treaty. They are not. WTO Director-General Michael Moore wrote in a Globe and Mail article last year that the GATS "explicitly excludes services supplied by governments." This statement is false; it is clearly contradicted by the treaty's text.

The key GATS provision that purportedly excludes public services states that, where there is either a commercial or a competitive element, government services are covered. For many public services, including Medicare, which invariably mix public and private funding and provision, the controversial GATS exclusion is ineffective.

It does not protect, for example, against the extraordinary decision made during the last round of negotiations to cover Canadian health insurance under the GATS. Because of this reckless act, if Canadians now choose to expand Medicare to insure home care or drugs, then Canada is on the hook to make additional GATS commitments to compensate foreign governments whose private insurers lose market access. If foreign governments decide to play hard-ball, Canada could face punishing trade retaliation.

Both the WTO and OECD documents leave the impression that the GATS does not affect governments' ability to regulate in the public interest. This is also misleading. Governments retain their "right to regulate" only to the extent that their laws and regulations affecting services are fully consistent with the treaty.

Finally, the official rejoinders play down the significance of the current GATS negotiations on domestic regulation. These talks aim to ensure that public interest regulations affecting services are "not more burdensome than necessary."

In a preview of the type of cases that could become routine under the GATS, tobacco giant Philip Morris recently assailed the Canadian government's proposal to remove the 'light' and 'mild' descriptors from cigarette packages. The company argued that less burdensome regulatory alternatives exist and that the regulations would create "unnecessary obstacles to trade." The proposed GATS restrictions on domestic regulation are excessive and a recipe for regulatory chill.

Despite denials by its supporters, the GATS seriously threatens public service systems and public interest regulation. It is disturbing that the Canadian and other governments are doggedly negotiating to expand it --- even though its existing policy impacts have neither been widely debated nor understood. One thing, however, is certain: deliberately misleading official pronouncements will simply inflame the growing debate and raise concerns among ordinary citizens around the globe.

Scott Sinclair is a Canadian trade policy specialist and a senior research associate with the Canadian Centre for Policy Alternatives. Jim Grieshaber-Otto, Ph. D. is an independent trade policy consultant based near Vancouver. Their new book Facing the Facts: A Guide to the GATS Debate is published by the Canadian Centre for Policy Alternatives.

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