This speech is a plenary session response on behalf of the TransAtlantic Consumer Dialogue to remarks by European Commissioner for Trade Pascal Lamy to the 4th international meeting of the TACD. The GATS (General Agreement on Trade in Services) is a companion agreement to the GATT (General Agreement on Tariffs and Trade). Both of these controversial trade agreements, and others, are negotiated and enforced under the auspices of the World Trade Organization (WTO) . For more information on consumer opposition to GATS, see the Public Citizen Global TradeWatch GATS page.

3 May 01, Brussels, Belgium.

Response To Speech By Commissioner Pascal Lamy Concerning Unacceptable Health And Safety Impacts Caused By The Preemption of Local and National Consumer Laws By The General Agreement on Trade In Services (GATS).

3 May 01

By Edmund Mierzwinski,  TACD-US Steering Committee and Consumer Program Director, U.S. PIRG

Commissioner Lamy, we want to thank you for the opportunity to hear your views once again. We certainly appreciate the efforts that you have put into both participating in the meetings of TACD and also making other regular efforts to reach out to meet with us and other NGOs, as you did when you visited the U.S. in November.

INTRODUCTION

My time is limited today. In summary, my detailed remarks are intended to emphasize the following five points to you that are of grave concern to the NGO community.

First, GATS is not only about services. The GATS agreement is so sweeping that it can be interpreted to affect trade in almost any product as the recent bananas case demonstrated. Therefore any domestic consumer or environmental protection regulation affecting any service or any product or the use of any product may ultimately be threatened as a barrier to trade in services. Despite the WTO’s statements to the contrary—this is the GATS reality. The purported checks and balances all act in favor of the country challenging regulations as restrictive of trade, not in favor of the country defending its rules.

Second, the Working Party on Domestic Regulations is working on importing into the GATS negotiations some of the most problematic enforcement regimes from other trade rules and treaties. Provisions in other WTO agreements that require governments to prove their regulations are either "necessary" or the "least trade restrictive" measure they could have taken have resulted in the most controversial rulings made by WTO panels. Such terminology as “least burdensome” could have drastic impacts on attempts by governments to meet important governmental goals.

Third, the language in GATS encompasses virtually all government services and is likely to promote and accelerate privatization in ways that will benefit private entities at the expense of the provision of necessary and basic services, from water to education. While the WTO may state that “The WTO is not after your water” in its little GATS booklet, our response is this: Maybe the WTO doesn’t want our water, but the powerful transnational corporations seeking to deregulate through the GATS do want our water, and they want us to pay more for it. You and I and the others in this room can afford to pay more for water—many others cannot.

Fourth, despite the many implications of the GATS, we remain upset that GATS negotiations have been conducted in a non-transparent, closed-door manner that has prevented scrutiny by all affected elements of civil society.

And finally, GATS needs to be amended to include, within the body of the agreement, an article explicitly recognizing government’s right to regulate.  The right of governments to regulate currently appears only in the preamble, so does not have the legal weight carried by the actual articles of the agreement. Otherwise, virtually any regulation can be challenged on trade grounds and its efficacy determined not by a panel of experts on health and safety, but by a WTO trade body without expertise in health and safety matters.

DISCUSSION

We understand both the US and EU governments have set a high priority on rapid completion of liberalized trade in services—both sides want to export more services worldwide. You both view an increase in service exports as critical to expanding your economies. Yet, there are numerous other problems with the GATS. For example, the pressure to liberalize services may result in unfair influence by powerful US and EU transnational corporations on developing countries, which face numerous negotiating disadvantages. Further, the promotion of trade in services may hurt women in developing countries, who may lose well-paying government jobs in disparate numbers as government services are, first, privatized and, then, casualized.

Finally, and the main focus of our response: in our view, consumers in general, not only of the many private sector services subject to GATS liberalisation but also consumers of historically government-provided services, will bear the brunt of the costs of a GATS that may overly encourage deregulation and privatization at the expense of health, safety, and universal access. Under the GATS, which has been largely negotiated in secret, despite representations of adequate but clearly after-the-fact transparency, countries acting on behalf of powerful corporate patrons may seek to override the right of a member nation to protect its consumers from dangerous products or guarantee its citizens the right to fairly-priced services. Quite simply, the checks and balances being considered are inadequate. Companies seeking to liberalize trade or privatize services have the procedural upper hand over countries seeking to defend consumer rights. The negative externalities created by the GATS, whether unintended consequences or not, are serious.

The US state of California recently deregulated its electrical supply and distribution system with catastrophic consequences—first, severe and ongoing regional disruptions of previously guaranteed supply and, second, skyrocketing rate hikes by out-of-state energy corporations that have been accused of profiteering. Yet, if California energy services deregulation had been established under a GATS regime, it is likely that the appropriate measures being taken by the government to solve the crisis could be challenged as trade law violations.

            I would like to emphasize the following areas of NGO concern with the GATS negotiations.

(1) The GATS goes far beyond what is usually considered trade related and affects key areas of domestic policymaking and domestic regulations:

The GATS applies to any government measure that even indirectly affects trade in services, even if the measure is primarily about something else. For example, when it was trying to defend the Lome Convention regulating banana imports, the EC tried to argue that just because bananas had to be transported and distributed did not mean that the GATS should apply. The EC lost. For consumers with concerns about food labeling, the broad interpretation of the GATS in WTO rulings means that yet another possible avenue is opened up for consumer protection laws to be challenged.   Why couldn’t food labeling regulations be considered to affect food retailing, a service covered by the GATS? Other important consumer and environmental issues covered by GATS include pesticide spraying, repair services, food inspection, advertising, construction, market research, financial services, and electronic database services. These issues and others are potentially much more significant than the development of accountancy services regulations, from the perspective of consumer health and safety. Yet, proponents of GATS routinely point to the development of the relatively non-controversial accountancy rules as proof that the GATS process works.

(2) The GATS applies to public services where they are in competition with other service suppliers or when they are provided on a “commercial basis:”

The exemption in the GATS for services “supplied in the exercise of governmental authority” is so narrowly defined that it exempts almost no existing public service.  Governments may make commitments under the GATS believing that the exemption provides more protection for public services than it does.  Decisions about which services should be kept in the public sector and which ones can be opened up to foreign, for-profit competition need to be made through the democratic process, not through decisions by trade panels.

(3) The EC is advocating importing into the GATS disciplines on domestic regulation from other WTO agreements. These disciplines have resulted in the most controversial rulings ever made by WTO dispute panels:

One of the most significant areas of concern for consumer and environmental groups is the Working Party on Domestic Regulation’s ongoing efforts to insert new language creating a necessity test.

The successful challenge of regulations using a form of “necessity test” that already exists in the GATT has produced some of the most contentious rulings by trade dispute panels.  Such famous cases as the challenges to US regulations to protect dolphins, Thailand’s laws to regulate cigarettes, and US clean air regulations involved application of a necessity test.   A necessity test applied to the service sector would be an especially significant development because services are the most heavily regulated component of modern economies.

We would ask the WTO: what does it mean to only have consumer and environmental regulations that are the “least restrictive to trade” and “no more burdensome than necessary” in regards to licensing requirements and standards over medical facilities, educational institutions, water treatment plants, and energy generating plants? What would be the consequences of “least restrictive to trade” rules for consumer protection initiatives protecting against the distribution of unsolicited commercial email (Spam), or the marketing of products to children or the sale and transfer of confidential patient data?

In addition, as TACD has already pointed out in responding to the guidelines on EU-US Regulatory Cooperation Guidelines, “We categorically disagree with the EU [regarding paragraph 22] about the concept that trade impact statements should be developed for regulations. We read with alarm recent reports in the press that DG Enterprise has been proposing industry self-regulation and trade impact statements, and we do not think this is an appropriate regulatory framework.” The new GATS rules stating that all domestic regulation had to be the least restrictive to trade would effectively impose such a trade impact review on governments.

(4) The EC and the US have stated their interest in seeing health care, education, as well as key utilities such as water and energy liberalized and privatized through the negotiations.

The Consumers International paper on the GATS reviews cases of how consumers have actually fared under liberalization of services in particular countries.  The paper points out some of the problems experienced with the privatization of electric and water utilities in Latin America: “While some consumers have benefited from better access, services and lower prices (especially for long distance telephone calls), far too many consumers continue not to have access, many are experiencing large price increases and policymakers and regulators have not put in place effective programs to prevent poor consumers being excluded by high prices....Telecommunications, electric utilities and to a lesser extent water utilities, have moved from domination by state-owned monopolies to domination by foreign corporations, which often use their power to limit competition.”

In Cochabamba, Bolivia privatization of the water utility provoked civil unrest due to sharply increased water charges and denial of access. Resolution of the conflict meant having the utility revert to public ownership, but with new provisions for extensive consumer involvement in management.  Such options would have been essentially foreclosed if Bolivia’ s water supply had already been covered under the GATS.

(5) The Procedural Barriers Established By The GATS Will Have A Clear Chilling Effect On Enactment and Enforcement of Consumer Health and Safety Laws at All Levels of Government:

The GATS covers all levels of government - federal, state, local, and even non-governmental organizations with delegated government authority.  Regulatory initiatives taken at the local level to advance the goals of consumer protection could be the first victims to WTO rules dictating that services regulations be the “least trade restrictive” that could possibly have been adopted. The uncertainty local authorities will face regarding whether regulatory initiatives might possibly violate GATS rules is likely to deter them from introducing these measures.

Consumer advocates routinely face the efforts of powerful corporate lobbyists to eliminate health and safety regulation. In particular, all of us in this room have battled to protect strong local consumer protection laws from being overridden or preempted. The right of localities and states to enact strong local laws is critical, since these laws often form the building blocks of strong federal laws and then help create strong international treaties and accords.

We cannot proceed from the top down to protect consumers or protect the environment. If we do that, powerful corporations with powerful influence over government processes and sometimes also a strong disregard for the rule of law always win, and consumers and the environment lose. Full implementation of the GATS regime gives these powerful firms one more important procedural weapon. No, we must wherever possible preserve the right of the member countries, their states and provinces and even cities, to enact and enforce consumer protection laws. (Of course, we agree that those laws should not conflict with national laws such that compliance with both is impossible.) But whenever those local laws are stronger and provide greater protection for consumers and the environment, they should be allowed to stand.

We have numerous examples in the US of good local consumer and environmental laws being expanded nationwide, even when consumer advocates had been unsuccessful in enacting federal laws due to the entrenched power of corporate opposition. For example, anti-tobacco activists went city-by-city throughout the US to enact smoke-free indoor air laws, even while the tobacco industry maintained a virtual stranglehold on the US Congress and federal government. When the Congress failed to enact legislation to protect children from small toy choking hazards, the state of Connecticut passed a law, which was upheld by the courts and subsequently was adopted nationwide. When anti-toxic chemical activists could not convince Congress to require reductions in industrial use of toxic chemicals, several state laws were passed that have become models for industry nationwide.

On the contrary, however, whenever states and cities have lost that right, or merely have been perceived to have lost that right to enact consumer and environmental laws, we can cite numerous examples of industry lobbyists invoking the mere threat of preemption (or in this case, the threat of a potential trade dispute) to convince other local, state or federal regulators not to enact a consumer law. We call this a “chilling effect.” I would submit to you that often, local regulation is necessary to protect the health and safety of consumers since no federal regulation exists to protect them. Then, the pressure of local health and safety regulation often forces adequate compliance on a national basis. It is difficult to enact national laws unless local jurisdictions have first acted.  Without the ability of local jurisdictions to enact strong laws—so long as those laws do not conflict with national laws, I submit that consumers are worse off. Unfortunately, we believe that the GATS regime unfairly and unwisely places so many significant procedural hurdles before the defense of consumer health and safety laws that GATS will have a chilling effect on the efforts of legislators to even enact consumer health and safety laws to protect their consumers.

(6) GATS Negotiations Have Been Non-Transparent and This Has Hindered Efforts Of Civil Society To Analyze Its Effects Or Adequately Participate In Its Formation:

Finally, we have also found that it has been difficult to influence negotiations or even to study the impact of GATS, as many documents, such as the EC Paper on Domestic Regulation, have been withheld from consumer groups and other NGOs. Further, the entire meeting process has generally been conducted without NGO observers. The lack of transparency with civil society in the negotiation of this very sweeping trade agreement makes it difficult for us to comment in detail today at the same time as it raises our level of concern that the globalization of services will result in severe negative consequences for consumers.  The lack of true transparency also raises serious questions about the level of commitment of the WTO and its members to opening a legitimate dialogue with civil society members concerning the impact of trade negotiations.

Thank you for the opportunity to respond to your presentation today.