GATS, the EU and the False Promises of Liberalization for African Development

AFRICA-EUROPE FAITH AND JUSTICE NETWORK
RESEAU FOI ET JUSTICE AFRIQUE-EUROPE

174, rue Joseph II
B-1000 Bruxelles - Belgique
Tel. 32-2 234 6810 Fax 32-2 231 1413
aefjn@aefjn.org http://www.aefjn.org

- GATS, the EU and the False Promises of Liberalization for African Development

Background

Since January 1995 cross-border trade in services has been governed by the World Trade Organisation's (WTO) General Agreement on Trade and Services (GATS). Under the broad scope of GATS, services that can potentially be open up to international trade and competition include health and hospitalisation, education, social, postal, transportation, port facilities, broadcasting, and, most alarmingly, environmental services including water and sanitation.

In the current round of GATS negotiations, ministers agreed to a new, more aggressive, calendar of service negotiations "in view of progressively augmenting liberalization…in a way to assure effective access to markets". The "requests-offer phase" began in 2001 (This is the process by which governments first "request" other countries commit particular service sectors under the GATS rules and then later respond to requests made of them with their own "offers".) The calendar of GATS negotiations was set as follows:

· On 30 June 2002, WTO members were invited to make requests to other members on a bilateral basis.
· Members are expected to respond to these requests by submitting their initial offers by 31 March 2003.
· More detailed negotiations will then proceed until September 2003, with a final binding agreement on progressive liberalization of trade in services scheduled for 31 December 2003.
· By 1 January 2005, all WTO members (144 countries of which 40 are African) must be in compliance with the revised rules and commitments of the GATS agreement. Failure to do so may render them open to WTO dispute settlement proceedings.

What it Means to Commit a Service Under GATS

Under GATS, countries are encouraged to commit broad sectors of services to liberalization. In doing so, countries must abide by the principles of most-favored nation, national treatment, market access and transparency.

· Most-Favoured-Nation: This means that all trading partners are treated equally.
· National Treatment: Entails all foreign service providers be treated as well as domestic firms. They can be treated better (and often are), but not worse.
· Market Access: Effectively guarantees both domestic and foreign service firms the unlimited right to operate wherever they like.
· Transparency: Obligates governments to alert foreign service suppliers and the WTO of any changes in their domestic policy that might affect trade in that service.

Failure to abide by these general obligations, or to address the concerns of foreign service providers regarding any of its domestic trade laws, opens African governments to the possibility that domestic regulation could be subjected to a complaint at the WTO Dispute Settlement Mechanism. The DSM has historically been very hesitant to support any regulation by the state of the economy, and there is little reason to believe the GATS Agreement would be different.

While governments may list a variety of limitations when offering up services sectors for GATS coverage, the effectiveness of these limitations remain largely untested. Moreover, the restricted timetable governing the current negotiations makes it difficult for developing countries in particular to conduct the sector specific liberalization impact assessments necessary to determine which restrictions will best protect domestic industry and facilitate economic growth. In any case, it is unlikely that limitations on service liberalization will be permanent. Rather such limitations may provide a "hit list" for other countries to target in successive rounds of GATS negotiations. Countries, especially developing countries, will be under strong pressure to remove any limitations on their commitments as part of the "progressive liberalization" required by the GATS.

The Current Situation

The EU has a material interest in the liberalization of trade in services. Services constitute the single most dynamic economic activity in the EU, accounting for over two thirds of GDP and employment. Indeed, the EU is home to some of the world's leading companies in many service sectors such as the telecom, financial, business, and environmental (including water supply and sanitation) service sectors, including the French water giants Vivendi, Suez-Lyonaise des Eaux and Saur who control more than 60% of the global market in the water and sanitation sectors. The EU is also the world's biggest importer and exporter of services, with 24% of world trade in services. Thus it comes as no surprise that the EU has been in the forefront in the drive to liberalize trade in services and to remove barriers to the realization of a global market in services.

The European Union, GATS and Development

In the current GATS negotiations the EU and WTO contend that liberalization is the only realistic solution to the lack of state capital, capacity and know-how needed to ensure quality access to basic services such as water, health care and education in Developing countries. Opening the provision of social services to the global market, it is argued, will reduce financial burdens on the state; attract foreign direct investment, technology and expertise; stimulate growth; and (most importantly) improve the efficiency, quality, and accessibility of social service delivery in developing countries. Moreover, they argue, GATS is "developmentally-friendly" because of its flexibility. The EC Director General of Trade, Pascal Lamy, recently outlined this argument and defended the EU against public accusations that it is trying to force developing countries to privatise their public services through GATS:

The GATS negotiations concern trade in services, not the regulation of these services within individual countries. States retain the full freedom to impose the regulations they see fit, and to decide whether services should be managed by public bodies or private sector companies. WTO negotiations have nothing to do, either directly or indirectly, with some governments' decisions on privatisation. Every country is free to decide which sectors will be opened to international competition and which will not. Public services that form part of key government functions are not subject to the agreement. In short, GATS has no power to define the mission of a public service, or determine how it is structured and financed; the WTO members retain full freedom of action.

Critics however, insist that GATS negotiations will only accelerate and strengthen the current trend towards liberalization and privatization in developing countries. Indeed African governments increasingly conform to World Bank policy prescriptions and International Monetary Fund (IMF) loan conditionalities that force governments to integrate neoliberal principles into their development strategies. Yet the realities of liberalization and privatization and the promise of their socio-economic 'benefits' have become the subject of debate and criticism by NGOs, academics and by local communities themselves.

Indeed the problems associated with subjecting basic needs such as water, electricity, housing, education and health care to market principles of full cost recovery are beginning to materialize. Liberalization of basic services in Africa undermines equal and affordable access for the poor majority who cannot afford to pay free market prices. Furthermore, the privatization of water and sanitation creates pubic health risks by forcing the poor to find alternative (often unsafe) water while reducing access to sanitation.

In the current GATS negotiations, developing countries are particularly vulnerable to the pressure and consequences of making full commitments under GATS. Unable to place effective limits on foreign ownership, market share, number of service suppliers, etc., African countries will find it increasingly difficult to regulate their domestic economies and promote their own development agendas. Such difficulties include their ability to (1) protect their natural environment from over-exploitation; (2) to protect and promote the growth of infant industries from competition from powerful multi-national corporations; (3) to regulate foreign monopolies; and (4) to protect their citizens from unlawful or dangerous business practices committed by foreign service suppliers.

Moreover, the technology transfer, foreign direct investment and economic growth that is supposed to accompany the adoption of liberalization have often not materialized. In fact, a recent statement by the World Bank announced that private investment has been well below expectations: "In the past we at the World Bank were over-optimistic about the willingness of the private sector to come in and invest. Now countries that reform can't find anyone willing to come in."

Undermining Flexibility under GATS

The European Commission refuses to acknowledge the multiple ways in which the "flexibility" available to developing countries under GATS is undermined. The EU refuses to recognise how WB/IMF loan conditionalities that force African governments to increasingly supply their social services on a commercial basis (through the application of "cost recovery" policies) disqualifies them from exempting their social services from consideration under GATS negotiations. Under the GATS rules, the only services to which the Agreement does not apply are those "supplied in the exercise of governmental authority…which are supplied neither on a commercial basis, nor in competition with one or more service suppliers." Thus African countries previously bound by their WB/IMF loan conditionalities to liberalize their services are made easy and technically legal targets for the EU in its efforts to gain better access for European multi-national service exporters in foreign markets.

The flexibility of GATS is also undermined by the tight schedule on which the current negotiations have been placed. While countries are allowed to list restrictions on whatever service commitments they make in GATS, it is unlikely that developing countries will have the time to conduct the necessary sectoral liberalization impact assessments needed to ensure that their development strategies for domestic growth are not compromised by the Agreement. The ability of countries to restrict liberalization after negotiations have concluded is severely circumscribed. Once in force, the Agreement would require a three year waiting period before any services could be delisted, and mandates a three-month advance notice of intention to withdraw and imposes compensatory damages on the state payable to any company whose interests were hurt by the withdrawal.

The EU is the leader behind current efforts to reclassify household water delivery from an 'essential service' protected from privatisation, to an 'environmental service' capable of being commodified and traded on international markets. While the EU has refused to commit its domestic water services to negotiations under GATS, it has requested that 14 African countries and 58 other countries commit theirs.

Confidential documents leaked in February 2003, revealed the EU's negotiating demands of 109 other members of the WTO for opening up international trade in services. These documents, which unapologetically target essential services in poor countries, demonstrate the extent to which Europe's negotiating priorities reflect the interests of European businesses rather than the developmental agenda previously claimed. Indeed, the leaked documents reveal that the EU is demanding 'environmental service' commitments from countries such as Tunisia and Botswana, known to have efficient public sector companies!

AEFJN Position on GATS

AEFJN asks that:

· negotiations on GATS be suspended immediately to allow for assessment of the effects of liberalising trade in services, both in the North and South, and room be made for an open debate on the desirability of such liberalisation.
· the European Commission commit themselves to clear and unambiguous language exempting all essential services, especially household water and basic sanitation services, from GATS negotiations and regulations.
· the EU withdraw its petition to reclassify water services under the category of Environmental Services in GATS.
· the EU recognize the impact of World Bank and IMF loan conditionalities on the GATS negotiations and withdraw its demands for African countries to commit their essential services such as water and electricity to GATS rules.
· the EU recognize that essential services such as water, electricity and housing are public goods that should not be put up for sale only to those who can afford them; and that it is the duty of public authorities in Europe AND in developing countries to assure equitable and affordable access to social services for all in order to meet people's basic needs.

Luc Coppejans, MAfr
AEFJN, Brussels,

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Draft Resolution
Water: a Human Right for All!

Whereas, drinking water is a limited natural resource and belongs to the earth and all species for all time. It therefore forms part of the common heritage of human beings and all living things and must remain a public trust to be protected and nurtured by all peoples, communities and nations, and the bodies that represent them at the local, state, national and international level;

Whereas, the United Nations Committee on Economic, Social and Cultural Rights has adopted the General Comment on The Right to Water, which states that the human right to drinking water is fundamental for life and health, and sufficient and safe drinking water is a precondition for the realization of all human rights ;

Whereas, available freshwater represents less than half of 1-percent of the world's
total water stock and if current trends persist, by 2025 the demand for freshwater is expected to rise to 56-percent above the amount that is currently available; and continued contamination, depletion and unequal distribution of water exacerbates poverty and ecosystem destruction;

Whereas, water is essential to all human and plant life. And, according to the UN more than one billion people on earth already lack access to fresh drinking water; 2.5-billion people have no access to proper sanitation and more than 5-million people die each year from water-related diseases, 10-times the number killed in wars, on average, each year.

Whereas, the unsustainable exploitation of ground water, seriously depleting acquifers globally and leading to falling water tables, virtually assures a drop in food production and jeopardizes the human right to food and food sovereignty;

Whereas, decisions about the conservation, distribution and management of water are vital and fundamental to the lives and livelihoods of people in all localities, municipalities and regions of the world, and that women play a key role in the provision of water at the household and community level;

Whereas, international development targets calling for universal access to drinking water and sanitation services to be achieved by 1990 and 2000 remain unmet, and current Millenium Development Goals now call for reducing by one-half the number of those without drinking water and sanitation services by the year 2015;

Whereas, the United Nations has proclaimed 2003 the International Year of Freshwater and has issued a comprehensive assessment of the world's water, stating that shrinking freshwater resources pose a serious threat to public health, political security and the environment;

Resolved by the European Parliament, that the European Commission take the following actions to defend water as a fundamental human right and to ensure universal public access to clean and affordable drinking water and sanitation services:

1. The European Union affirms the goals of the UN International Year of Freshwater, and further affirms the UN Committee on Economic Cultural and Social Rights position that access to clean and affordable freshwater is a fundamental human right;

2. Affirms that drinking water and sanitation services are global public goods. They should not be treated as private market commodities under circumstances where it infringes, limits or threatens the ecosystem, and public access to and control of freshwater. Drinking water and sanitation must be excluded as "goods," "services" and "investments" in all international, regional and bi-lateral trade agreements;

3. Affirms that negotiations on the GATS agreement should be suspended immediately to allow for proper impact assessments on the effects of liberalizing trade in services, both in the North and South, and room be made for an open debate on the desirability of such liberalization;

4. Recognizes that the E.U. petition to reclassify drinking water and sanitary services under the category of "Environmental Services" only serves to facilitate the commercial trade in drinking water and sanitary services under the GATS agreement, and that it should be withdrawn immediately;

5. Affirms that every human being has the right to clean and affordable water. Government policies should ensure that all individuals have access to a water "lifeline" and basic sanitation and that no one is cut-off from water due to inability to pay;

6. Affirms that access to international loans and debt reduction programs should not be used to impose water privatization policies. E.U. Executive Directors of International Financial Institutions (IMF, World Bank and regional development banks) should not approve loans that include conditions requiring the privatization (or public/private partnerships) of public water, or increases in consumer water fees for those who earn less than the minimum wage or fall below the national poverty line;

7. Affirms that the E.U. firmly commit itself to meet the Millenium Development Goals as they pertain to drinking water and sanitation;

8. Upholds the principle that all members of society, not merely governments, international institutions or private sector investors, but especially local civil society organizations, including women, religious organizations, environmental groups, indigenous peoples, farmers, teachers and citizens' committees, should directly and meaningfully participate in overseeing decisions about the conservation, distribution, use and management of drinking water and sanitation services in their communities, localities and regions;

9. Ensures that adequate E.U. funding is available to maintain universal access to clean and affordable drinking water and sanitation services and to rehabilitate and expand the public water and sanitation infrastructure; and certify that direct and indirect sources of water pollution, including factories, refineries, commercial agriculture and wastewater treatment plants, are adequately regulated and held accountable for the pollution they cause.

Luc Coppejans, MAfr
AEFJN, Brussels,