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Is the GATS a Threat to Public Services?
Michael Priestley
Economics, Commerce and Industrial Relations Group
19 February 2002
Introduction
The General Agreement on Trade in Services or GATS is increasingly being
perceived as a threat to public services, such as heath and education.
At the heart of the debate about the GATS is the extent of the 'government
authority exclusion' in the GATS agreement. The World Trade Organisation
(WTO) services negotiations, which began in early 2000, have intensified
the public debate as to how far the liberalisation of trade in services
should go. This has led to a public perception that the GATS will encourage
the further privatisation and deregulation of the services sector, and
lead to the loss of basic public services.
The GATS came into effect on 1 January 1995 and covers all internationally
traded services. As a founding signatory to the GATS, Australia has made
certain commitments to liberalise trade in services. Its priority in the
services negotiations has been to reduce barriers facing Australian services
exporters in overseas markets.
This Research Note examines the specific commitments Australia has already
made under the GATS and answers the question whether the GATS really does
pose a threat to public services or not.
Overview of the GATS
Specifically, the GATS has three major components: the overall framework
Agreement, a Schedule of each Member's specific commitments and special
rules for some services as contained in eight Annexes.(1)
All WTO Members, some 144 countries, are at the same time Members of
the GATS. Each WTO Member is required to have a Schedule of specific commitments
which identifies the services sector, subsectors and activities subject
to Market Access and National Treatment obligations.(2)
General obligations and specific commitments
The Most Favoured Nation
(MFN) principle underlies each Member's general obligations under the
GATS. It means if a country allows foreign competition in a sector,
equal opportunities in that sector should be given to service providers
from all other WTO Members.
Each Member must have a national schedule of specific commitments, but
there is no rule as to how extensive this should be. Once Members make
a bound commitment to liberalise a service sector they become subject
to additional specific obligations. The most important of these are Market
Access and National Treatment.
Market Access commitments are guarantees that foreign service providers
can enter the domestic market under the conditions specified in the Schedule.
The granting of market access is subject to one or more limitations contained
in Article XVI(2). Limitations may be imposed on the number of service
providers, service operations or employees in a sector, the use of foreign
capital, or the value of transactions.
National Treatment requires that, subject to the conditions listed
in the Schedule, foreign service providers must be treated no less favourably
than domestic providers.
In scheduling commitments, Members are free to adjust the extent of their
commitments, so as to avoid obligations that they consider too demanding.
GATS and public services
In Australia, health and community care accounts for six per cent of
Gross Domestic Product, and education slightly less. Many of these services
have a strong public policy dimension to them. Importantly, therefore,
the GATS excludes from its coverage services 'supplied in the exercise
of governmental authority'. The GATS defines these services as any service
not provided on a commercial basis or in competition with other suppliers.(3)
Since they do not fall under the Agreement, these services are not covered
by the WTO negotiations, and the specific commitments on Market Access
and National Treatment do not apply to them.
In Australia, as in most WTO countries, public services are rarely delivered
exclusively by governments. Instead the provision of public services is
normally supplied through a mix of public and private providers and often
includes commercial aspects. But the concern is that vital public services
might fall outside the GATS' protective exclusion.
A Canadian report issued by the Ministry of Employment and Investment
of British Columbia suggests that the 'governmental authority exclusion'
is defined very narrowly. Because of the wording of the exclusion 'only
a small sub-set of services-those that are provided by completely non-commercial,
absolute monopolies-appear to be protected by this exclusion'.(4)
The GATS would appear to bring many public services and their regulation
within the scope of WTO authority.
Notwithstanding that services provided on a commercial or competitive
basis are covered by the GATS, there is nothing in the Agreement that
requires those services, which may include a mix of service providers,
to be privatised or deregulated. In respect of public services, it is
perfectly legitimate for any Member to maintain the service as a public
or private monopoly, or to open the service to competing suppliers but
restrict access to national companies only, or to open the service to
domestic and foreign suppliers but to make no GATS commitments on it.
These are all legitimate options for any Member country to pursue.
Record to date
As of February 2002, fewer than 50 WTO Members have made specific commitments
to open health or education services to foreign suppliers. In terms of
opening health services, Australia has made no commitments other than
allowing a very limited access for foreign podiatrists and chiropodists.
With regard to education, Australia's commitments are limited to private
tertiary and secondary schooling, and English language services.(5)
But more importantly, the 14 November 2001 Doha Ministerial Declaration
reaffirmed the right of WTO Members to regulate their domestic service
sectors.(6) To date, no WTO Member has brought a challenge
under the dispute settlement process to any measure of domestic services
regulation.
Conclusion
The protection of public health is explicitly recognised in the GATS
as a policy of overriding importance. Article XIV of the GATS contains
a General Exclusion stating that 'nothing in this Agreement shall be construed
as preventing any Member from adopting measures necessary to protect human,
animal or plant life or health'. The same applies to public safety. This
means that a Member would be able to breach any provision in the GATS,
including its own Market Access commitments to protect public health or
safety. Consequently many basic public services will remain carefully
regulated in the public interest.
- See http://www.wto.org/english/docs_e/legal_e/26-gats.pdf
for the text of the Agreement.
- See http://www.wto.org/english/tratop_e/serv_e/serv_commitments_e.htm
for the Schedule of commitments by each WTO Member, including Australia.
- Article I:3(c). See also GATS - Fact and Fiction, WTO. http://www.wto.org/english/tratop_e/serv_e/gats_factfiction_e.htm
- GATS and Public Service Systems: The GATS 'governmental authority
exclusion', Discussion Paper, 2 April 2001.
- Australia and the WTO Negotiations On Trade In Services,
Department of Foreign Affairs and Trade, 2000.
- Doha 4th Ministerial Declaration. See Ministerial
Declaration.
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