Under Threat:Under Threat:Democracy and Jobs

Under theFTAA and GATS

Democracy and JobsUnder the

FTAA and GATS

Erik Peterson and Larry WeissFair Trade Coalition

Evolution of new free trade rulesEvolution of new free trade rules • A corporate global agenda

– growth of multi-national corporations – national borders become less important

– political agenda to maximize profits emphasizing privatization and deregulation

• Going after services– context of growing “service” economy –

70% of U.S. and 60% of world economy is now services

– expand multi-national corporate control into services, including government services

• “Less government is better”– extends “less government” philosophy into

trade in services– addresses “non-tariff trade barriers”

• government rules, policies, subsidies, laws, regulations, court decisions

A new free trade modelA new free trade model

• The new trade agreements espouse an economic theory that asserts increasing the flow of trade is, by itself, the highest good.

• The WTO aims to tear down all barriers to all trade --

“[its] main function is to ensure that trade flows as smoothly, predictably, and freely as possible.” • GATS and the FTAA both specifically target

services

WTO: A new global trade organizationWTO: A new global trade organization

• WTO difference– Created in 1995 – now has 146 member

nations– Member organization (like U.N.)– Power to effectively strike down trade barriers

(unlike predecessors)

• WTO mandate– monitor and enforce 20 major trade deals– “ensure free flow of trade as smoothly,

predictably, and freely as possible”

• WTO organization– Comprised of appointed trade ministers– Accountable to no other global authority

Free Trade in Action: Expanding Regional

Trade Agreements

Free Trade in Action: Expanding Regional

Trade Agreements

NAFTA

NAFTA

FTAAFTAA

NAFTA (North American Free Trade Agreement)NAFTA (North American Free Trade Agreement)

• Took effect January 1, 1994

• Between U.S., Canada and Mexico

• Applies mostly to goods and commodities; first trade deal to include some services (trucking, legal, engineering, etc.)

• Focuses on “non-tariff barriers” (government rules, environmental and safety regulations, etc.)

• First trade deal to include “investor rights” (“Chapter 11”)

NAFTA’s Devastating EffectsNAFTA’s Devastating Effects

• 750,000 jobs (mostly in manufacturing) lost in the United States

• Mexican manufacturing wages drop 23%

FTAA (Free Trade Area of the Americas) FTAA (Free Trade Area of the Americas)

• “NAFTA on Steroids”

• Between U.S. and all 33 Western Hemisphere nations except Cuba– scheduled to be completed by 2005– Congress will vote under “fast track” rules

• Will apply to goods, commodities, and services

• Focuses on “non-tariff barriers” (government rules, environmental and safety regulations, etc.)

• Will likely keep “Chapter 11”

• Why GATS?

• Why now?

• Why GATS?

• Why now?

Free Trade in Action: Expanding Global

Trade Agreements

Free Trade in Action: Expanding Global

Trade Agreements

GATS on Fast TrackGATS on Fast Track

• GATS took effect in 1995– Covers only certain services so far– 30,000 pages of commitments to date

• GATS calls for on-going re-negotiations– First round renegotiations now started– New round intends to greatly expand

services covered

• GATS on “Fast Track”– Re-negotiations to be completed in 2004– Scheduled to be voted on by Congress in

2005 under new “fast track” authority

GATS (General Agreement on Trade in Services)GATS (General Agreement on Trade in Services)

• Goal is to cover all services, all methods of delivering services, and every government measure at all levels affecting trade

• Rules that apply to all services– Most Favored Nation Treatment– Domestic regulation

• Rules that apply to committed services– Market Access– National Treatment– Monopolies and Exclusive Service

Providers

GATS (General Agreement on Trade in Services)GATS (General Agreement on Trade in Services)

• Goal is to cover all services, all methods of delivering services, and every government measure at all levels affecting trade

• Rules that apply to all services– Most Favored Nation Treatment– Domestic regulation

• Rules that apply to committed services– Market Access– National Treatment– Monopolies and Exclusive Service

Providers

Potential services covered by GATS: Potential services covered by GATS: • Professional (legal, nursing, computer, etc.)

• Communications (postal, radio and TV, video, etc.)

• Construction (general building, installation, assembly, etc.)

• Distribution (wholesale and retail trade)

• Educational (higher education, primary and secondary ed)

• Environmental (sewage, waste disposal, sanitation, etc.)

• Financial (health and life insurance, banking, etc.)

• Health and Social (hospitals and social services, etc.)

• Tourism and Travel (hotels, restaurants, agencies, etc.)

• Recreation and Cultural (theater, news agencies, libraries, museums, parks, etc.)

• Transport (passenger and freight, pipelines, etc.)

GATS & Public ServicesGATS & Public Services

• Covers government services – exempt only if public service is not

• “commercial” (i.e. charges a fee)• “competitive” (i.e. there is a

competing private sector provider)

• GATS aim: privatize public services

GATS targets government

measures

GATS targets government

measures

“This agreement applies to measures by Members affecting trade in services.”

-- from GATS Article 1

• rules• policies• laws• subsidies• regulations• court decisions

GATS Four Modes of Supplying ServicesGATS Four Modes of Supplying Services• Cross border supply

– service crosses a border

– e.g. British legal firm provides legal advice via the telephone

• Consumption abroad– consumers cross border to purchase service

– e.g. Saudi patient comes to Mayo for treatment

• Commercial presence– foreign firm has subsidiary in other country to provide

services in that country

– e.g. French construction firm has U.S. subsidiary that builds a stadium

• Natural persons– foreign workers cross border to perform services

– e.g. Philippine nurses come to U.S. provide nursing services

GATS (General Agreement on Trade in Services)GATS (General Agreement on Trade in Services)

• Goal is to cover all services, all methods of delivering services, and every government measure at all levels affecting trade

• Rules that apply to all services– Most Favored Nation Treatment– Domestic regulation

• Rules that apply to committed services– Market Access– National Treatment– Monopolies and Exclusive Service

Providers

Most Favored Nation TreatmentMost Favored Nation Treatment • Covers all services

• “As you treat one – treat all” – Requires a nation treat all service providers in all

member nations as favorably as it treats any service provider in any nation

– Prohibits a nation from discriminating between like foreign service providers.

• For example:– Suppose the U.S. limits foreign ownership of

pipelines to less than 50% but grandparents in BP (British Petroleum) which already owns its own pipelines.

– Pakistan challenges this under GATS– Under MFN, the U.S. would have to treat pipeline

companies in Pakistan and all other member nations the same as BP.

Domestic RegulationDomestic Regulation• Severely limits government

regulations– GATS covers all regulations except for:

• national security• narrowly defined public interest

• Narrowly defines “legitimate” regulations – must be necessary for ensuring quality and

supply of service– must be the least “trade restrictive”

alternative possible

Sample MN Laws at RiskSample MN Laws at Risk• Prevailing wage

• Corporate subsidy reform reporting and wage standards

• Corporate feedlot restrictions

• Electricity rate regulations

• HMO non-profit requirement

• Cost clean-up requirements for pipeline spills

• Many other environmental, labor, and corporate accountability laws

GATS (General Agreement on Trade in Services)GATS (General Agreement on Trade in Services)

• Goal is to cover all services, all methods of delivering services, and every government measure at all levels affecting trade

• Rules that apply to all services– Most Favored Nation Treatment– Domestic regulation

• Rules that apply to committed services– Market Access– National Treatment– Monopolies and Exclusive Service

Providers

How services are committedHow services are committed

• Schedule of commitments – each nation identifies service sectors

they are willing to have covered

– each committed service must identify which modes of supply are covered

• Non-reversibility of schedule– once a service is committed, a nation

must compensate all other nations if it wishes to remove the service

potential front page of US schedule page – Larry will get

Sample GATS Schedule of CommitmentsSample GATS Schedule of Commitments

How a schedule of commitments worksHow a schedule of commitments works

• Accounting services are not committed on the schedule– GATS specific rules (e.g. Market Access,

National Treatment, and Monopolies) do not apply to accounting services

– Rules that affect all services still apply (e.g. Most Favored Nation and Domestic Regulation)

Assume …

How a schedule of commitments worksHow a schedule of commitments works

• Legal services are committed on the schedule– Must identify which of the four modes of

supply are covered

– Assume all but Mode 4 (workers crossing borders to perform work)

– GATS specific rules would then cover:• U.S. firms who give legal advice to

foreign consumers

• foreign consumers who come to U.S. for legal services

• foreign firms in the U.S. providing legal services

Assume …

GATS rules that cover only committed services

GATS rules that cover only committed services

• Market Access

• National Treatment

• Monopolies and Exclusive Service Providers

Market AccessMarket Access• Covers committed services

• Complete access to markets – Prohibits any law, rule, regulation, court

decision or administrative action that limits competitive access to a committed service

– Does not require discriminatory intent – only a discriminatory effect

• Measures cannot limit:– number of service suppliers

– value of service transactions

– number of service operations

– number of workers in a service sector

– type of legal entity delivering service

– foreign capital participation in providing service

National TreatmentNational Treatment• Covers committed services

• Cannot favor domestic service providers – Must treat all foreign services providers as

favorably as domestic service providers– Does not require discriminatory intent – only a

discriminatory effect

• Types of laws targeted– Government set-asides for local producers– Incentive programs to stimulate small, minority

and women owned businesses– Prevailing wage, apprenticeship, and local hire

requirements– Restrictions on foreign ownership of key

industries and service sectors

Monopolies and Exclusive ProvidersMonopolies and Exclusive Providers • New public monopolies prohibited

– Market access rule effectively prohibits new monopolies and exclusive service providers

• Existing public monopolies threatened – Must follow MFN rule– Cannot use monopoly status to leverage better

deal for services outside monopoly rights

• Types of public monopolies targeted– Postal services– National health care systems– Public water distribution systems– Public power companies– Public waste treatment companies

WTO Dispute Resolution ProcessWTO Dispute Resolution Process

• GATS disputes under WTO– Only member nations can file challenges;

GATS has no “Chapter 11” provisions

• Decisions by secret tribunal – Three member tribunal of appointed “trade

experts”– Tribunal meets in secret; challenged party is

only there at wishes of member government– Tribunal decisions are binding

• Sanctions– Offending nation has two choices:

• suffer trade sanctions

• repeal or revise offending measure

What can be done?What can be done?• Build awareness

– present to local unions or groups

– write opinion piece or letter to editor

– write article for local newsletter

• Contact Congress– write Congress about specific issue

– encourage organization or local elected officials to contact Congress

• Make it an election issue– put question on candidate screening

– talk to local elected officials about local impacts

• Mobilize people nationally– prepare for November Miami rallies