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ITEM EX23

EXECUTIVE – 10 DECEMBER 2002

GATS Negotiations

1. On 17 September the Executive noted a request from Councillor Hodgson for a future agenda item to permit consideration of a consultation by the Department of Trade and Industry on proposals for liberalisation of the international General Agreement on Trade in Services (GATS) currently under negotiation at the World Trade Organisation (WTO). On 15 October, noting that the deadline for responses to the DTI consultation is 3 January 2003, the Executive decided that it would be appropriate to consider this matter at this 10 December meeting.
2. A copy of the consultation document –"Liberalising Trade in Services", has been placed in the Members' Resource Centre. Much of the content is highly technical, but certain issues of potential concern to local authorities have been identified by, among others, the Local Government Association and Local Government International Bureau – who have been taking an interest throughout the GATS negotiations. They held a meeting with the DTI in summer 2002, but neither that meeting, nor the consultation paper which has now been issued, have entirely allayed their concerns. The LGA will be considering their response to the current consultation in mid-December and have invited member authorities to inform them of their own concerns.

Background

3. GATS, which came into force in 1995, sets out a framework of rules governing the conduct of world trade in services. It is supported by a number of schedules of specific commitments by individual WTO members. These commitments bind member governments not to introduce more restrictive rules which could have an adverse effect on trade.
4. Under successive rounds of negotiations, aimed at progressive liberalisation, member governments individually choose in which sectors to make binding commitments, and in which not to. Negotiations proceed on the basis of requests and offers – that is, countries request each other to consider liberalisation in particular sectors, and respond with offers. Agreement to liberalise is not reached until all participating member governments – including developing countries – are satisfied with the total package being offered. This does not prevent any country from making commitments unilaterally at any time.
5. The European Commission acts as lead negotiator on behalf of EC member states in the WTO on the basis of positions agreed with all the EC member states. In the current round of negotiations ("GATS 2000"), the main outcomes they wish to see are, in sum:

• comprehensive coverage of world trade in services by enhancing market access;
• review of domestic regulatory barriers to achieve a predictable regulatory environment;
• promotion of pro-competitive principles; and
• continuation of negotiations on safeguards, subsidies and government procurement;

6. The specific concerns identified in the local government community are about the possible effect of the GATS negotiations on local authority freedoms and powers in the areas of procurement, regulation and planning.
7. On procurement, the Government has maintained that services "supplied in the exercise of governmental authority" are excluded from GATS. These services are defined as those which are "supplied neither on a commercial basis nor in competition with one or more service suppliers." However, it has been argued by some commentators that, given that most public services have been subject – for at least part of those services – to competitive tendering/market testing/outsourcing, there is a question mark about whether they continue to fall fully within the "government authority" category, and therefore, whether they are outwith the GATS regime. At best, this will give rise to uncertainty as to the application of GATS conditions; at worst, the ability of the authority to specify valid environmental or other conditions in contracts for services could be severely curtailed.
8. Another area of continuing concern is regulation, the key mechanism by which local government seeks to ensure a proper balance between the needs of economic activity based on a free market, and the need to intervene in that free market in order to protect the wider public interest (eg employment rights, health and safety, consumer protection, the environment).
9. The consultation document deals with the issue of whether regulation can be shown to be "necessary", "not more burdensome than necessary to ensure the quality of the service", and the "least trade restrictive". There is considerable anxiety about the extent to which these criteria are open to interpretation, and that the WTO dispute settlement process could be used to enforce a strongly de-regulatory interpretation at the expense of the well-being of local communities.
10. The third area of concern is the potential challenge posed by GATS to the planning system. In particular, the consultation document recognises restrictions on distribution services, including "zoning" (ie planning), licensing requirements, and limits on store size and opening hours, and acknowledges that such restrictions have been considered to be legitimate because they are, "non-discriminatory domestic regulatory measures," falling within the scope of Article VI of GATS". However, the summary of requests made to the EC/UK in the distribution services field include:

• the relaxation of restrictions on store hours; and
• "providing opportunity for prior meetings between service suppliers and regulatory authorities/local councils".

11. The latter request, if agreed, might require a local planning authority to consult with potential foreign distribution companies when drawing up local plans in respect of the location of distribution premises. Failure to do so might make the authority vulnerable to challenge under the WTO disputes procedure under its "national treatment" restriction (designed to ensure that foreign service suppliers are treated no less favourably than domestic suppliers).

RECOMMENDATIONS

12. The Executive is RECOMMENDED to decide whether to make formal representations to the Department of Trade and Industry on these and any other points arising on the current GATS negotiations.

CHRIS IMPEY
Assistant Chief Executive

Background papers: Nil

Contact officer: John Leverton: 01865 815314

November 2002

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