Vulnerable and Poor Face Up to The Implications of GATS

The service industry is quickly replacing trade in goods as the motor for global economic activity. From tourism to auditing services and from transport to insurance, the frontiers for economic domination are increasingly shifting from industry - manufactures and commodities - to trade in services. Services are currently the fastest growing component of trade and foreign direct investment (FDI) accounting for nearly 25% of world trade and more than 76% of FDI flows. It is for this reason that it was agreed at the launch of the Uruguay Round of trade negotiations in 1986 to include trade in services in the negotiations, in the belief that this would improve the world trade system.

But liberalisation of trade in services could be an uncontrolled avenue for indiscriminate investment deregulation, privatisation of vital public services as well as giving foreign interests a foothold in Government procurement and thus a dangerous instrument for the externalisation of resources of underdeveloped countries such as those in Africa.

Externalisation of Africa’s Resources

While those in control of the commanding heights of the global economy would like to convince us that globalisation is a new phenomenon made inevitable by qualitative development of productive forces, we know better. Africa and the rest of the third world have been integrated into the global economic system since the mid 15th century. Unwillingly, Africa was part of the then dominant international trading system where its role in the international division of labour was to supply natural resources in the form of gold, ivory, cloves etc and human resources in the form of slaves to the “developed” world.

The second wave of globalization was the 1884 Berlin Conference, where the “scramble for Africa” was concluded with the continent divided amongst the leading colonial powers. The division of labour then assigned Africa the role of producing primary commodities - agricultural products, minerals, wildlife resources - for processing and manufacturing interests in the so-called “mother countries”.

Almost half a century after the formal defeat of colonialism, the division of labour not only persists, but has been revised and reinforced through corporate-led globalization. We can identify thirteen avenues for the externalization of Africa’s resources, which include, but are not limited to: Debt servicing; difference in interest rates between North and South; unfair terms of trade; corporate control of world trade; capital account liberalisation; profit repatriation by TNCs; privatization of state-owned enterprises; intellectual property rights; ecological debt; capital transfer; brain drain; immigration laws; and transfer pricing. Liberalisation of trade in services facilitates all these thirteen avenues of Africa’s resource haemorrhage.

Trade in Services

Defined in broad terms, a service is a product of human endeavour aimed at satisfying a human need, but which cannot be categorised as a good. Others have simply defined a service as “a product that cannot hit your foot.” However the General Agreement on Trade in services (GATS) does not define what constitutes a “service”; instead, a guide to the GATS lists 12 major categories covering more than 160 distinct services. These services cover the gamut from birth to death.

The above understanding of services can be misleading since in reality services can be embodied in tangible products. For instance, a magazine is a good while an advertisement appearing in the magazine is a service. Publishing of the magazine is also a service.

GATS is the first and only set of international rules to open up trade in services to competition from foreign firms. Signed in 1994, it has nothing to do with whether the service is provided efficiently or not. It is a corporate boot sale of essential services ranging from water to electricity and the media.

The Agreement, as pointed out earlier, covers twelve broad categories: communications; construction and engineering; distribution, wholesale and retail trade; education; energy; environment; financial services (including banking and insurance); health and social services; tourism and travel; sports, culture and entertainment; transport; and, in case anything is not covered by the foregoing, it comes under “other”.

But critics warn that the reach of GATS could even extend to essential services such as education and health, resulting in their commercialisation by transnational corporations (TNCs). The naked truth is that in the GATS lexicon, ‘public service’ is an aberration. Article I of GATS starts with a proclamation that the Agreement does not apply to “services provided in the exercise of governmental authority”. This would be great if it was not neutralised by the proviso that such governmental services must be supplied “neither on a commercial basis nor in competition with one or more service suppliers”.

In the real world, perhaps it is only in Cuba or Democratic Republic of Korea that there might be some public services that aren’t delivered on a commercial basis or in competition with other suppliers.

The logic and significance of GATS is easy to comprehend. All human activities are to become, in the fullness of time, profit-oriented commodities that can be invested in, bought and sold. And the Agreement makes this irreversible since it is not a finished treaty but an open-ended framework agreement that mandates “successive rounds of negotiations” with the goal of attaining “progressively higher” levels of liberalisation.

This means that what is not opened today will be dealt with tomorrow until, presumably, all services are opened to all consumers by all countries in all “modes” of delivery. Even more alarming is Article IV. It gives GATS powers to interfere, via WTO’s Dispute Settlement Body (DSB), with government efforts to pass “measures” – laws, rules, regulations, procedures, administrative actions or any other forms – that are deemed to be “unnecessary barriers to trade in services”. In other words, let not your pesky national standards stand in the way of foreign corporate interests.

As an example, one of the sectors that have been presented as being of great benefit to African countries is tourism. It has been posited that with full or substantial liberalisation of tourism, African beaches, nature parks and cultural attractions would be bursting in the seams with overseas visitors, who would bring in an abundance of the “scarce yet much needed” foreign exchange. These benefits are at best exaggerated and worst non-existent. Leakages are encouraged thanks to the inordinate dominance of foreign ownership in the tourism industry. Leakage is described as a process through which part of the foreign exchange earnings generated by tourism, rather than being retained by tourist-receiving countries, is either retained by tourist-generating countries or remitted back to them. This foreign domination of the tourism sector in Africa has intensified under the GATS framework.

Liberalisation of Financial Services: Casino Economy

A typical Third World lesson in financial liberalisation could be distilled from the case of Uganda Commercial Bank (UCB). Having yielded to the pressure from International Financial Institutions (IFIs), the Uganda Government sold off this national asset to Stanbic Bank. UCB had an extensive network all over the country, catering for rural farmers, teachers and civil servants. Most of the branches operated in UCB’s own premises.

No sooner had the sale agreement been concluded than Stanbic closed down all the rural branches, sold the buildings (in the process realising more than four times what it had paid as purchase price) and repatriated the proceeds. No one cared that teachers who used to earn their salaries through the bank now had to spend a two days every month and more money to reach the nearest bank. This is done at the expense of their pupils.

A good number of WTO Members have made commitments in financial services. These cover banking, insurance, securities and capital accounts. A smaller number has made commitments regarding insurance intermediation and transfer of financial information. Fewer still have made commitment with respect to derivatives trading. African countries and China have been cautious. The following could explain the reason why.

On July 2, 1997 Thailand's currency, the baht, had to be floated. Far from being an isolated single country issue, this ignited the financial and currency crisis that was to engulf the East Asian sub-region. This crisis thrust millions of workers, small business enterprises, children and other vulnerable segments of the human race into dire poverty and desperation. The crisis quickly spread beyond the sub-region. Russia virtually succumbed to financial collapse; the Republic of South Africa had to intervene with a raise in interest rates so as to defend its currency. In quick succession, Brazil joined the ranks of crisis countries.

The crisis and its bushfire-like spread have forced certain issues into the domain of international discourse. The question arises as to what extent are the flaws inherent in the current dominant economic order responsible for the trend of slowing economic development and worsening of global income distribution. This issue informs present debate over the global financial architecture.

The debate is carried from two poles. On the one hand, is the Washington Consensus or Wall Street pole which maintains that the crisis - and indeed global economic growth generally - is best addressed by more open trade, export-led, greater deregulation, and more liberalised financial markets. According to this school of thought all that is required is a minor tune-up of the international financial system.

On other hand, is the "main street alternative" which thinks the Washington Consensus model is irreparably flawed and fundamentally bankrupt. This viewpoint contends that the issue is not one of recalibrating the model, but rather of designing a new model that is stable, equitable and pro poor.

When it comes to financial architecture, the fundamental differences between the main street alternative and the Washington Consensus become clear. The latter promotes and uses institutions it controls to impose opening up of the domestic financial markets, better accounting standards, more financial transparency and disclosure and more International Monetary Fund (IMF) surveillance.

On its part, the main street alternative maintains that while improved accounting standards, financial transparency and disclosures are necessary, there is an acute need to reduce speculation and make long term investment, giving proper regard to risk. This requires taxes on the buying and selling of currencies to reduce speculative trading, as well as requiring the investors to commit their investment to a minimum time period.

Water For Life or Profit?

A key concern is that through liberalisation schemes, water is treated like any other commodity to be sold at a profit. Yet we know that water is essential to life and nature. Indeed, water is our common heritage and a public trust. According to a report in the East African newspaper, the water provision in the port city of Dar es Salaam has not improved since it was privatised, yet the World Bank-funded British firm-Biwater has increased the charges manifold.

Today the global water industry is dominated by less than 10 companies – the leading two being French firms, Vivendi and Suez (with water revenue of US$ 11.9 and 8.84 billion respectively in 2001). In 2001, Vivendi and Suez were ranked at positions 51 and 99 respectively on the Global Fortunes 500. The two French companies are facing stiff challenge from German company, RWE, which recently purchased Thames water of UK and American Water Works of the US. RWE is ranked 53 in the Global Fortune 500 with US$ 2.8 billion water revenue in 2001. Other key players in the privatisation of water services include Bouygues (France), Bechtel (US), Severn Trent, Anglian Water and Kelda (all of UK).

Hiking of water prices is not the only concern. Most of the companies entrenched in the water sector have bad records. In 1999, the UK’s Drinking Water Inspectorate declared the Suez subsidiary, Northumbrian Water, the second worst company in terms of operational performance in England and Wales. The main reason was poor quality – high levels of iron and manganese were found in the water Northumbrian was delivering.

In the UK, five water companies – Anglian, Severn Trent, Northumbrian, Wessex, and Kelda Group – were successfully prosecuted 128 times between 1989 and 1997. On one count in August 2001, Thames Water pleaded guilty and was fined 26,600 Sterling pounds for allowing raw sewage to pollute a stream within a few metres of a residential estate.

Liberalisation and Health Care

Gradually but steadily there has been a major shift in global health strategy in recent years. Thanks to the Washington Consensus, the responsibility for health care provision has moved from the state to the “market forces.” The defining feature of this shift is many deaths from otherwise preventable and treatable diseases; resurgence of diseases that humanity thought were already conquered like tuberculosis and detention of decomposing corpses in ghettoes christened “private clinics” for lack of payments.

David Werner, the author of the renowned and best-selling book, ‘Where There Is No Doctor’, is very clear on why the public should be worried about the shift in global and national health strategies. He recalls how the celebrated concept of universal primary health care had been adopted by virtually all governments at the landmark global health conference that endorsed the Alma Alta declaration.

To advance toward ‘Health for All by the year 2000’, the Declaration promoted the principles that all people are entitled to basic health rights and that society (and thus the government) has a responsibility to ensure that the people’s health needs are met, regardless of gender, race, class, relative ability or disability. The centrepiece of the Declaration was primary health care, a comprehensive strategy that included an equitable, consumer-centred approach to health services and also addressed underlying social factors that influence health.

Hong Kong: The Last Nail

At the recently concluded WTO meeting in Hong Kong, developed countries bulldozed a framework for GATS negotiations that compels countries to negotiate a minimum number of sectors with targets and indicators. These proposals will seriously erode the current flexibilities embodied in the GATS Agreement. These flexibilities were the very reason for African countries’ agreement to the GATS during the Uruguay Round. Furthermore, these proposals would completely change the very architecture of the GATS and the approach to the negotiations as agreed in the Negotiating Guidelines.

Annex C introduces plurilateral and sectoral approaches to the negotiations, which would force African and other developing countries to enter into negotiations in certain sectors, even if they are not yet ready to do so. Sectors that have been mentioned for sectoral negotiations include energy, water (through environmental services) and health (through financial services) - all of which are crucial and sensitive in African countries. Given Africa’s level of development, selling out these sectors to the market forces would pose serious threats to affordability and accessibility to these services by the poor and vulnerable.

by Oduor Ongwen 

Oduor Ongwen is the country director of the Southern and Eastern Africa Trade Information and Negotiations Institute (Seatini) in Kenya. Previously, he was the Executive Director of EcoNews Africa and chaired the National Council of NGOs in Kenya. He holds a masters degree in Economic Policy of Developing Countries.  This essay is herein reprinted with the author's permission.