When most people think about trade, they conjure up images of ships laden with sacks of coffee and steel beams ferrying between nations, and trade agreements focusing on cutting tariffs and quotas on trade in goods. In reality however, today's "trade agreements," such as the 1994 North American Free Trade Agreement (NAFTA) and the 1995 World Trade Organization (WTO), have little to do with trade. Instead they focus on granting foreign companies new rights and privileges within the boundaries of other countries, on constraining federal, state and local regulatory policies and on commodifying public services and common resources, such as water, into new tradable units for profit.
A leak this week of European negotiating demands in WTO service sector negotiations that have been quietly underway since 2000 in Geneva provided a harsh wake-up call to the world about what is really at stake in these global "commercial" negotiations.
Up for grabs at the negotiating table is worldwide privatization and deregulation of public energy and water utilities, postal services, higher education and state alcohol distribution controls; a new right for foreign firms to obtain U.S. Small Business Administration loans; elimination of a list of specific U.S. state laws about land use, professional licensing and consumer protections, and extreme deregulation of private-sector service industries such as insurance, banking, mutual funds and securities.
The national consumer group Public Citizen joined the Polaris Institute of Canada and civil society groups around the globe in a coordinated release of the secret documents. Europe's demands of the United States and 108 other WTO signatories provide the "smoking gun" evidence, after months of speculation and concern, about how these secretive WTO negotiations threaten essential public services upon which people worldwide rely daily.
The negotiations are to expand the scope of General Agreement on Trade in Services (GATS,) one of the 21 pacts enforced by the WTO. The "GATS-2000" talks are promoted by the United States and European nations on behalf of multinational service sector conglomerates.
Think of GATS as a Trojan Horse - appealingly dubbed a "trade agreement" - which in reality contains a massive attack on the most basic functions of local and state government. You might ask what the GATS provision creating a new right for corporations to establish a "commercial presence" within another country has to do with cross-border trade. The answer: nothing. Actually, the terms create a right for a foreign firm to set up subsidiaries in other countries or acquire local companies under terms more favorable than provided domestic competitors. For instance, once a service sector is covered under GATS, governments may not limit the number or size of service providers, meaning that applying zoning rules on beach front development or limits on concessions in national parks to foreign firms would be forbidden. This is why many people consider GATS to be a backdoor attempt to revive the Multilateral Agreement on Investment (MAI), a radical investment pact that was killed by public opposition in 1998.
The GATS not only promotes privatization of public services, but it makes it extremely difficult for countries, states and local governments to reverse privatization experiments that fail. Under GATS, if cities seek to bring a privately operated utility back into the public realm, they only can do so if the U.S. government agrees to compensate all WTO countries for lost business opportunities of their companies. Thus, if the United States agrees to Europe's GATS-2000 demands to subject water to GATS disciplines, then Atlanta, for instance, which just reversed a disastrous water privatization involving a French company, could do so only if compensation was offered not just to that company but to all WTO signatory countries. Another GATS threat revealed in the secret European document is a demand to include retail electricity services under GATS, which would mean that privatization nightmares like California's energy deregulation would be nearly impossible to fix.
GATS also sets strict constraints on government regulation in the services sector - even when those policies treat domestic and foreign services the same. GATS allows federal, state and local regulations to be challenged as barriers to trade if they are not designed in the least trade restrictive manner. For instance, Europe has charged that the rather modest Sarbanes-Oxley corporate accountability legislation inspired by the recent corporate crime wave violates these GATS limits on domestic service sector regulations. Also, because GATS is geared toward market access for foreign competitors, the agreement is hostile to regulation in general and in particular to the diversity of domestic regulations in the U.S. that vary from state to state, yet state and municipal officials are excluded from these closed-door negotiations.
The leaked EU documents have prompted civil society groups worldwide to call for a moratorium on the "GATS-2000" talks and for a public process involving state and local officials. The clock is ticking as all WTO member nations, including the United States, are expected to respond to the European demands within weeks, starting March 31, 2003. At a congressional hearing this week, U.S. Trade Representative Robert Zoellick dodged congressional inquiries about when or if the public and Congress would have an opportunity to vet the U.S. "GATS-2000" commitments. Zoellick recently submitted similar service sector commitments without public consultation in the regional NAFTA-expansion talks known as the Free Trade Area of the America (FTAA). Only growing public and congressional pressure is likely to stop the Bush administration from trading away our basic public services and governments' basic public interest regulatory powers.
Lori Wallach is the director of Public Citizen's Global Trade Watch
Wall Street Journal - Feb. 25, 2003
Leading the News: EU Asks U.S. to Revise Rules for Service Sector
Host of Regulations at Issue As Bush Seeks Freer Trade; Alarm Likely at Local Level
By Neil King Jr.
WASHINGTON -- As the Bush administration seeks freer global trade in services, the European Union is taking aim at the sector and requesting changes in how U.S. state and federal authorities regulate everything from liquor sales to accounting.
The EU requests, included in a confidential document put forward as part of continuing global trade talks, are likely to raise alarm among state and local authorities, who would be required to alter rules governing businesses ranging from land ownership to insurance. The 34-page paper was leaked to Ralph Nader's group Public Citizen.
The Bush administration is set to respond by the end of March with a list of changes it is willing to make to service-sector regulations.
Some of the EU positions have been known for months, but the final list includes new language regarding accounting standards, cross-border insurance and the retail sale of electricity, all highly controversial topics. Consumer groups, as well as a growing number of state officials, contend that the secretive talks within the World Trade Organization could undermine the ability of local authorities to oversee vital economic services.
"What we hear is going on in these WTO talks will run smack up against laws in states like mine, but for now it's behind closed doors," said Mark Pocan, a Democrat in the Wisconsin State Assembly. The big issues in his state, he said, are privatization of public water supplies and rules governing electricity distribution.
The EU push coincides with new scrutiny in Washington of the role that government, and particularly state and local governments, play in limiting competition. The Federal Trade Commission, under Bush appointee Timothy Muris, is seeking to open regulated markets across the economy, from prescription drugs to caskets makers, and has created a task force to examine anticompetitive restrictions on Internet commerce, such as state rules limiting auto sales or interstate shipment of wine. The agency also is preparing to charge that Unocal Corp. used state regulation and its patents on a clean-fuel formula to lock up a monopoly in the West Coast gasoline market.
And the wisdom of state regulation in telecommunications was a major issue last week at the Federal Communications Commission, where Chairman Michael Powell was outvoted in his effort to largely eliminate the role states play in overseeing wholesale rates that the four big regional Bell telephone companies charge competitors for using their lines.
U.S. Trade Representative Robert Zoellick has made opening up global trade in services a central plank of his strategy in the Doha round of WTO trade talks, which are meant to wrap up at the end of next year. Persuading the rest of the world to accept U.S. banks, insurers and overnight-delivery companies would be a boon to U.S. business, but promises to reciprocate in the U.S. are already raising the ire of environmental and labor groups.
The EU demands mirror those that the U.S. regularly makes on its trading partners to lift government rules that tend to favor domestic companies over U.S. competitors.
An area of chief concern to labor is the push by the EU and other countries to open the U.S. market to contract workers offering services ranging from computer software to equipment maintenance and landscape architecture. Environmental groups, meanwhile, oppose efforts to open all water and sewage services to foreign competition. Such a move, they contend, would allow other countries to overturn local water regulations and break up public utilities if they posed a "barrier to trade" within the world trade system.
"What is startling is how much of the U.S. economy is up for grabs here and how broad the impact might be," said Lori Wallach, head of Public Citizen's Global Trade Watch. Ms. Wallach obtained the EU document last week. It wasn't clear when it was submitted to U.S. trade negotiators.
The EU document also indicates that European officials may be ready to further challenge the requirement that businesses operating in the U.S. abide by U.S. accounting standards, as opposed to international standards used in Europe. The Securities and Exchange Commission has rebuffed several recent requests to allow the domestic use of international accounting standards, which critics say are overly subjective and lack clear rules. The EU, in its request to the U.S., calls this practice "a regulatory trade barrier" that must be resolved.
The EU also is requesting that the U.S. expand the cross-border sale of "large-risk" insurance services, a proposal that some experts say could weaken controls over insurers offering services to businesses or even individuals. The EU's earlier requests sought to open the U.S. market to foreign sales of mutual funds; the new document seeks to expand that to the sale of financial derivatives, especially futures.
Some of the previously known EU objectives could have a bigger effect on individual states. For instance, the EU wants to eliminate rules in 16 states that give state authorities the sole right to sell packaged liquor. The document also seeks to lift restrictions in nine states on foreign ownership of land and to remove certain residency and citizenship requirements for practicing law.
Some of the requests aren't likely to go far. For instance, the EU wants the U.S. drop its centuries-old prohibition on foreign ships moving cargo between U.S. ports, an unlikely move in these times of heightened security. The document also includes a request that the U.S. allow foreign companies and governments to acquire 100% ownership of U.S. radio stations. The EU also wants the U.S. Postal Service to cede its monopoly over bulk, first-class letter delivery.
Both U.S. and EU trade officials declined to comment on the EU requests.
The service negotiations are part of a long effort to deepen provisions within the General Agreement of Trade in Services, which was part of the sweeping 1994 Uruguay Round of global trade talks. The U.S. made its formal request of the EU and other countries last summer in documents that remain undisclosed.
Copyright 2003 The Wall Street Journal