"Stop GATS!" Against Privatization of Services

Stop GATS! Against the Privatization of Community Services

By Attac study group on Privatization

[This article is translated abridged from the German on the World Wide Web. For more information, see http://www.corpwatch.org, http://www.zmag.org and http://www.globalexchange.org.]

1. From Bretton Woods to WTO and GATS

2. GATS

3. GATS and the Communities

a) In 1944 the industrial countries under the leadership of the US drew conclusions from the disastrous economic crises of the 20s and 30s..

In Bretton Woods, a system was established on the following basic principles:

· fixed rate of exchange – tied to the dollar

· the GATT system as an agreement on tariffs for goods – equal conditions for all world market participants

· establishment of the IMF and the World Bank as control instruments for transwferring credit and building up destroyed Europe – with bonds to the US.

The IMF should be responsible dfor currency fluctuations and short-term credits – the World Bank for development assistance – for western Europe.

Altogether state interventions and control systems played an important role for the economy. The theories of the economist Keynes had a decisive influence on economic policy, for example on state –anti-cyclical – interventions and economic programs.

The US was the leading economic power in this phase after the 2nd World War and fixed the dollar rate art 4DM.

b) The Upheaval at the Beginning of the 70s

· decontrol of exchange rates

· suspension of capital transfer controls

· liberalization of foreign trade

Different causes are named for this change in neoliberal economic policy:

· “stagflation”, that is inflation bound with stagnating production on account of the “end of the post-war investment boom”/ the “satiation” of markets

· Billions of so-called petro-dollars sought investment possibilities. One consequence of this development was the formation of international financial markets that served only speculative goals uncoupled from the real economy. Today .5 trillion circulate daily. These markets mostly seek lucdrative short-term investment possibilities. The IMF first lost its function as a currency guardian at that time.

A phenomenon called the “debt crisis of the 3rd world” appeared at the beginning of the 80s. This phenomenon had different causes:

· In the age of “Keynesianism”, many – demand-oriented – credits were given to stimulate consumption and investments even if not urgently necessary.

· In the “Cold War”, awarding credits was often bribery to separfate or remove regimes from the eastern block.

· Cooperation with corrupt governments and oligarchies representing western strategic interests was strengthened.

· The collapse of raw material pricesx (increased raw material decline and export orientation of debtor countries – to repay debts – led to oversupply. Western industrial states and corporations dictated the prices.

· The forced opening of markets since the 70s impaired the development of independent industries in the 3rd world.

· Increased interests strangled states.

This was the new hour of the IMF. To optimize debt collection, the IMF leaped into the breach with new credits. Its new role was long-term control through interventions in national economies and “assurance” for other creditors – states or private banks. The seal of quality of the IMF opened the door for other credits. The IMF leaped into the breach amid insolvency.

So-called structural adjustment programs (SAPs) with which borrowing countries were forced to design their economic policy in the interests of large industrial countries and corporations were especially notorious.

· Economic policy must be “supply-oriented”, this means favorable production conditions for investors (low wages, social fees, environmental standards and so forth).

· So-called “budgetary consolidation” is demanded: savings in the social-, health- and education areas, no subsidies for food and so forth to guarantee stable monetary conditions for investors

· A restrictive fiscal policy, that is high interests for investors and ownersx of capital.

· Massive currency reserves should be maintained, that is trade balance surpluses through export orientation to cheap goods for the industrial countries, reduction of imports, lowering of consumption.

· Liberalization of capital transfer – opening of countries for unhindered investments – that could be ended again in the short-term if expected profits were not realized or were endangered.

· Privatization of state suppliers. Mammoth corporations take over local services at profitable conditions. What are the consequences of this policy? The so-called “Washington Consensus” from the 80s promised that a neoliberal policy – liberalization and deregulation – would be good for everyone. In fact, local structures in agriculture and industrial production are desrtroyed, human lives are annihilated through hunger and poverty and enormous environmental damage occurred.

The debts of the “countries of the South” have increased. In 1998 they were already .5 trillion after increasing 75% from 1990 to 1998. Simultaneously trillion flowed back to creditor countries from 1983 to 1995.

The 41 most-indebted countries pay back billion annually, often more than 50% of state revenues.

The income disparity between the richest and poorest fifths of the world’s population expanded from 30:1 to 74:1 between 1960 and 1997.

The leading indusrtrial states enforce this policy through the IMF and the World Bank:

Each of the 180 member states of the IMF transfers a part of its national currency reserves. The right to vote and the amount a country may borrow are determined by the amount of the contribution, the share.

With an 18% share, the US has a blocking minority on fundamental decisions. The US has more votes than South America, south Asia and sub-Saharan Africa combined.

19 industrial countries have over 60% of the votes; 122 developing countries have only 31%.

c) What is the WTO’s role in this framework?

From 1948 the GATT negotiations were the main instrument for regulating the world trade of goods. At first these negotiations were limited to industrial goods.

In the GATT negotiations, more and more pressure was exerted to expand the “trade fields”. The strongest offensive began in the 70s when corporations from developed countries of the North sought access to the less regulated labor- and consumer markets and to more natural resources.

After a round of negotiations lasting 8 years – the so-called Uruguay round – the WTO (World Trade Organization) was founded in 1995 by 125 countries. Today there are 144 countries including China. GATT was integrated in the WTO.

The WTO manages these agreements, organizes future negotiations on international trade, supervises trade practices of member states and forces acceptance of its aritrations in trade disputes.

The WTO’s function is to expand the freedom of action of corporations and their rights of access. The rights and possibilities of nation states and citizen movements should be reduced to regulate trade for the sake of people and nature.

The WTO is not strictly limited to trade with goods. Its sphere of influence also extends to so-called non-trade-related activities like foreign investments, rights to intellectual property and national regulating mechanisms like local laws, services and food- and environmental standards.

The WTO – unlike GATT – has an international status comparable to the UN with enforcement power. Serious economic and trade sanctions can be imposed if a WTO arbitration accuses a government of violating a WTO standard.

2. GATS (General Agreement on Trade with Services)

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a) Timetable

GATS, the first legally enforceable agreement in this area, was passed in the “Uruguay round” on pressure of the industrial states and took effect with the WTO’s founding on 1.1.1995. In the agreement, member states were obliged to liberalize the service area.

Agreements were resolved in 1997 to open the markets for telecommunications and financial services.

A timetable was already negotiated in 1995 according to which all rules should be examined every 5 years. A delay occurred through the failure of the WTO round in Seattle in December 1999. The first phase of the new negotiations ended in March 2001 with an inventory and adoption of negotiation guidelines. A new round of negotiations was also resolved at the ministerial conference in Doha in November 2001.

In the following phase up to the end of June 2002, allo WTO members should submit their market opening requests to other states. The market opening offers to third states must be filed by the end of March 2003. The conclusion of the GATS negotiations should coincide with the envisioned end of the new round of world trade on 1.1.2005.

b) Areas and Principles of GATS

This agreement covers essentially all services, from insurances and energy supply, transportation and water supply to the educational system and the public health system. The following subdivisions were planned:

1. business- and job-related services.


2. communication services

4. 3. construction- and assembly operations

5. 4. marketing services

6. 5. educational services

7. 6. environmental services

8. 7. financial services

9. 8. medical and social services

10. 9. tourism and travel services

11. 10. recreation, culture and sports

12. 11. transportation services

13. 12. other services

In addition GATS (Article 1) distinguishes four kinds of production:

1. Border-crossing services in the narrow sense are sent abroad by mail or a computer program is sent by e-mail. These services are comparable with the sale of goods and are increasingly important.

2. Services claimed by a consumernegotiating in another country (for example tourism and dental visits abroad)

3. Branch offices of firms: offering a service by new business establishments abroad (in the form of new direct foreign investment – for example branch travel offices in another country).

4. Border-crossing of services (the person who offers a service negotiates abroad or builds a water pipe abroad). Thus the service idea is expanded so even investment rules are included.

The Principles of GATS:

Worldwide liberalization and dismantling of trade-inhibiting regulations should be accomplished through 3 principles:

a) market access: So-called trade barriers (for example quantity restrictions for imported articles) should be removed and thre domestic market opened up to foreign suppliers.

b) equal treatment: Governments must treat foreign service providers in the same way as indigeneous and may not prefer native providers. Unlike GATT where this principle is in effect for all goods, countries with so-called “positive lists” can explicitly specify those sectors wherfe they arfe ready to open their markets to foreign suppliers.

This regulation will be questionedc in the new round. The goal is the removal of limitation possibilities of nation states.

c) Most favored nation treatment: When another country is favored, all other countries must receive the same favorable conditions. Exceptions may not be applied for more than 10 years and must be examined every 5 years. This exception rule could also fall.

These principles are the same principles fixed in 1947 for trade with goods.

Service as a Good?

While goods trade can be protected outwardly through tariffs, services are regulated more strongly through internal laws and decrees. Basic services (health, education, water) are frequently guaranteed by governmental institutions or institutions under public law.

A direct encroachment in state, regional and communal sovereignty occurs through GATS.

One important aspect of services should be considered: the solidarity principle.

This principle provides for a balance between different profitable areas, for example expensive postal services or costly power supply in rural areas are jointly financed through inexpensive supply in the cities or the costs of hardly used railroad lines are compensated by more frequented lines. Equal opportunities in education or an equal claim for everyoned in the public health system also follow this principle. Areas of “basic care” should not be subject to profit maximization. These social aspects are ignored or undermined by GATS.

Services “in the exercise of sovereign authority” (Art 1) should be excluded from GATS. What are these services?

These services may not be subject to commercial goals or competition with commercial suppliers. Thus all areas are problematic that arfe partly privatized where privatization is sought or quasi-state or private suppliers accomplish public tasks.

Art VI of GATS charges the WTO council with developing disciplines that guarantee national requirements, technical norms and admission procedures are not more burdensome than necessary to assure the quality of a service. Whether environmental compatibility, labor-, consumer- and health protection and social- or structural political goals may be counted in quality is open.

Pressure is exerted through a work group (“Working Party for Domestic Regulation”) appointed under GATS. Legislative proposals defining the “necessity” of state measures by an international consultation process – so-called “necessity tests” – are in the draft stage…

d) Interests

Pressure to advance GATS doesn’t come by chance.

The service sector has the highest growth rates and amounts to 60% of the global gross domestic product.. Considerable diffferentiations exist, 38% with countries with low incomes, 56% in middle income countries and 65% with OPEC countries.

On the other side, services in the past amounted to 20% of the total world trade. Liberalization could increase the volume…The volume on the health markets of OECD countries is estimated at trillion annually.

The US with its largely privately organized education- and public health systems lead the way since they have competitive advantages on account of mammoth corporations.

e) The Role of the EU

The EU (European Union) commission negotiates for all EU-states. The states do not negotiate individually…The EU will be forced – even if unprepared – to increase market access to foreign suppliers accordcing to the principle of mutuality.

In trade commissioner Lamy’s words, “If we want to improve our own access to foreign markets, we cannot keep out our protected sectors from the sunlight. We must be open and negotiate over everything if we want great success.” (quot. by Peter Wahl).

Brussels has a special interest in the privatization of the water supplyu since European firms like Vivendi have a strong competitive position….

EU documents show the EU intends to ask all WTO-members to open up the water sector (water production, water purification, water dcistribution, sewage plants and treatment) for international competition and to liberalize large parts of the energy sector, retail trade, tourism and transportation.

That these documents werfe discussed and not published by the EU commission demonstrates that a democratic control and public debate were made impossible.

f) General consequences of GATS

The surrender of public services to competition means profit orientation. Solidarity systems are destroyed, quality- and environmental standards lowered and prices raised. Public control is made impossible.

Many women are employed as unskilled, poorly paid workers in the service sector. Every protection of working conditions and wages can be neutralized.

The further opening of the tourism sector has led to an increase of women- and child trade and to more prostitution particularly in southern countries.

Unlike industrial countries, most southern countries have only a weak service sector. They have little “to trade” here but must open theirr markets to the large corporations.

This fits the definition of Percy Barnevik, the manager of Asea Brown Bovery: “Globalization is the freedom to invest wherfe we want, to produce what wed want and to buy and sell shat we want and to be subject to the least possible restrictions concerning labor- and social laws.”

3. GATS and the Communities

a) The privatization wave has run for years in the communities. GATS strengthens these tendencies and gives them a legal framework in effect worldwide.

The privatization of telecommunications and interferences in communal electricity supply are underway like the privatization of garbage rfemoval under the pressure of an EU-guideline process…

In the public hedalth system, large private hospital chains press to the lucrative market. The water supply is in corporate sites. Billions in profits beckon.

The communes are prepared to yield to the pressure and the advantageous offers of corporations. Revenues constantlyt fall through the decline of tax revenues – reduction of the corporation tax, tax relief and tax flight of the mammoth corporations. Simultaneously the expenditures increase, for example in the social area through long-term unemployment. The financial “bleeding white” of communities and cities leads to clutching at straws and selling the “silverware” to gain short-term relief. Sometimescorruption is also involved.

City apartments are sold to investors. The public serviced of making living space available at affordable rents for the socially weak is abandoned…

b) The diverse consequences of privatizatfion in the communities:

· Public community property is sold. This is a dispossession process of public property on a large scale.

· Communal constitutions are undermined. Communities arfe encroached in their basic understanding…

· Control rights of citizens over city- and town councils are lost..

Another principle of the community constitution is abandoned: “The administration of the communities is determined only by the will of the citizenry.”

Even if the public control through city councils is often inadequate and wheeling and dealing mark the process again and again, the suspension of control possibilities is not a solution. It is better when the citizens exert pressure so the possibilities of control are observed.

· A horizontal subsidy of profitable areas for deficit areas is not possible any more. All areas must then work in a private enterprise way of profit orientation. This means higher prices and lower quality standards.

· Communities have to fear another existential threat from the forced development to the “virtual city hall”. In the futurte the large part of communal services will be handled online on the Internet. This can mean at first an improvement of service for citizens.

However a dependence on commercial net operators arises. These operators are very interested in offering services as merchandise over the net. Grassroots structures dissolve the local relation and context.

Conversation with responsible city employees is replaced by anonymous Internet clicks.

· Under the rule of GATS, communities can no longer prefer local businesses (even to secure jobs) because mammoth foreign corporations must be given the same conditions. In the long term, fee revenues are lost to communities with privatizations. The financial disaster intensifies.

In conclusion, the communities are existentially threatened. Cohesion in the community, common plans and support by voluntary activities on the local plane are endangered when everything becomes a commodity.

The objection is raised again and again that communal services are of a poor quality. There is some truth in this objection even if it is sometimes exaggerated…

b) The Resistanxce has Begun

Dissastisfaction with this development grows in more and more cities…

Protests are mounted against the oversized incineration plants…

Over 60,000 Koln citizens protested through their signatures against the sale of 40,000 city apartments. The citizen demand was termed “inadmissible” by the council majority. The sale process was initated. The protest continues.

Positions against privatization are taken by many hospitals.

In the OPNV, there were protests when working conditions deteriorated and wages were lowered by private companies through tranferring bus lines.

The protests on the local plane are very important (think globally – act locally) and must be massively strengthened. At the same time a reform of community finances is necessary so the basic needs of citizens can be guaranteed as a public task.

Wilhelm Neurohr is convinced that the right of resistance anchored in the German constituition must be considered on account of interferences in communal constitutional law.