GATS and the Subversion of Sovereignty of Nations*

Wigberto E. Tañada, Lead Convenor

Warmest greetings to all the participants of this Regional Conference!

The title of this Conference sums up what most of us fear are on the negotiation table in the ongoing WTO talks on the Agreement on Agriculture (AoA), the Non-Agricultural Market Access (NAMA) and the General Agreement on Trade in Services (GATS). People’s jobs, people’s livelihoods and people’s securities. These are what are at stake in these parallel talks. This is particularly so in the proposed liberalization of the largest and fastest growing sector of the Asian economy – services.

Subversion of the sovereignty of nations

In addition, what is at stake in the GATS talks is the democratic and sovereign right of every nation to determine and manage freely their own internal affairs and commerce.

You see, one cardinal reason why the United Nations was established in the last century lies precisely in the need for nations, independent and sovereign as they are, to live in harmony with each other while respecting each other’s system of governance, be it in the political and economic arena. The Permanent Court of International Justice, in the well-known Lotus case, wrote: “Restrictions upon the independence of States cannot therefore be presumed.” Meaning states are assumed to have their independent means of action, especially in relation to the formulation and observance of their own laws, rules and regulations applied within their national boundaries. These could not be wished away.

With the WTO and the proposed all-out liberalization of services, the reverse seems to be happening. Now, it is the independence of states which cannot be presumed. Governments have to show proof that their acts still fall within the purview of whatever remains within their domestic jurisdiction.

Of course, with the increasing integration and globalization of economic and other human affairs, states surrender more and more of their sovereign powers to determine their own affairs by agreeing to certain international standards, laws and covenants governing bilateral, regional and international concerns such as maritime relations.

The problem, however, is that the cuts on national sovereignty are deep and one-sided in the case of GATS and other WTO-related liberalization programs. In the case of heavily indebted nations such as the Philippines and Indonesia, we have seen what these cuts in sovereignty means and how these are translated. Under the World Bank-IMF-supervised structural adjustment programs (SAPs), indebted nations have to implement radical liberalization programs such as the privatization of the banking industry and deregulation of whole sectors of the economy while undertaking growth-dampening austerity measures. SAPs have been adopted and implemented without any concurrence with or debates in the national legislatures of both countries. And what has been the c outcome from the SAP experience? More poverty, more indebtedness and less and less economic sovereignty.

I am afraid the SAP experience of the Philippines and Indonesia is what is being foisted on the Asian region through the GATS liberalization agenda.

Let me go into some specifics.

GATS covers all public services

It is said that public services, especially those exercised through government authority, are excluded in the GATS talks. However, GATS defines ‘a service supplied in the exercise of governmental authority’ as ‘any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers’. This means if government is in the education service, say a national university, and there private education service providers running with their own universities, colleges and schools, then this particular service shall be covered by GATS. On the other hand, a non-commercial service means a service which no private sector wants to enter into such as jail management and tax collection, although some crazy neo-liberal economists are also thinking of privatizing and commercializing jail management and tax collection.

In short, the whole service sector is now targeted for wholesale opening. This includes services where the government has a strong presence because of tradition or the need to protect small consumers or indigent communities such as education service, health service, water distribution service, power distribution service, grains stabilization service and so on and so forth.

This is why in the developed countries where there is a strong tradition of welfare economics, there are loud protests by the trade union and civil society movement against GATS and the proposed opening up of the school, health, water and other essential services. And yet, these countries are trying to open up the service sector of the developing countries in a wholesale manner, as can be seen in the request list sent by EU to many Asian countries.

This is why Oxfam International (OI) wants developing countries’ public services to be excluded from the GATS-WTO disciplines. As Oxfam put it, turning public services into ‘tradeable commodities’ is the most pernicious kind of globalization.

Derogation of domestic regulatory powers

Another major concern under GATS is the derogation of the power of the State to regulate the commerce of services. Under Mode 3 of GATS, on commercial presence, and the WTO principles of most-favored nation (MFN) treatment, member countries must allow foreign service providers, mainly transnational corporations, to come in and be treated like their own nationals. In certain sectors of the Asian service economy such as banking and telecommunications, this is already happening.

What is problematic is how domestic regulations shall apply in GATS-liberalized sectors. While GATS recognizes the right of member states to impose or develop regulatory measures, it also says that such measures should ‘not constitute unnecessary barriers to trade in services’ and ‘not more burdensome than necessary’. But what is a barrier and what is burdensome? In the oil and power distribution sectors, for example, countries in Asia have set up their own national oil and power companies. With GATS, these sectors shall be opened up to more foreign competitors. With GATS, the government’s role shall be eroded in these sectors. With GATS, what should be the role then of the government in managing or regulating these vital sectors of the economy? If measures protecting consumers are burdensome to the big companies, should such measures then be removed to make them compatible with GATS? If subsidies to schools or water consumption are affecting the business of the private sector service providers, should such subsidies be removed for they constitute barriers to trade?

Clearly, the central issue under GATS is whether or not countries are willing to give up their sovereign right to determine their economic development priorities and regulate their own internal commerce in support of their people’s needs.

GATS is bad for the health

The truth is that GATS is bad for the health. This is what I said in the two conferences that FTA conducted with the help of UNI PLC in the Philippines.

As pointed out, GATS greatly diminishes the concept of public service. GATS is one agreement under the WTO which seeks to open up through liberalization and privatization various service industries, including essential public services such as health service, grains stabilization service, education service and water distribution service. Shall we allow the operations of essential services to fall solely in the hands of the private sector, mainly foreign private sector?

GATS also eliminate the concept of universal service, a principle of governance which suggests that the government should provide more assistance to the poor and indigent. The uncritical liberalization of services negates this principle. With a fully liberalized, commercialized and privatized service industry, impoverished and underdeveloped areas shall have less access to basic services such as banking service, power service and postal service. In the Philippines, we have seen how the growing concentration in the banking industry due to the GATS- and earlier IMF-related bank liberalization programs, small farmer settlers have difficulty borrowing from the banks. Even the small and medium enterprises are complaining that their access to formal credit has been reduced because the big commercial unibanks are lending mainly to the rich, while their traditional sources of credit have dried up because rural banks, thrift banks and small development banks have increasingly been integrated into the operations of the big commercial banking system. On the other hand, the privatization of our postal services means there are no more people who will bring the mails in remote areas, especially areas which can not be reached by the internet and wireless communication.

GATS is also harmful. Jobs are likely to decline. Global as well as our own collective national experiences show that liberalization and privatization in our service industries often lead to job-displacing mergers, buyouts and consolidations. This we have already seen in the liberalization experience in the banking industry. Jobs disappear in the decimated small banks as well as in the merging and consolidating banks. In the distribution industry, the entry of Makro, Wal-Mart, Carrefour and the giant malls has wiped out numerous neighborhood stores in Manila, Bangkok and major cities of Asia.

On the EU’s GATS requests

To repeat, GATS entails sweeping changes in the laws and even Constitutions of some countries.

The EU’s GATS request list to the individual Asian countries clearly shows that GATS means changes in laws and regulations dealing with water distribution, power and oil distribution, media ownership, mining extraction, education management and so on. In the Philippines, they even want to change our Constitution, specifically in relation to the opening up of the land market which is reserved to Filipinos. What the EU is asking is virtually the overhaul of the entire government economic policy framework to make it GATS-compatible.

The irony is that the developed countries themselves are not prepared to change their Constitution or capriciously modify their laws just to accommodate member countries’ requests for liberalization, especially if the requests are coming from developing countries. In Canada and some EU countries, they have already announced that they will not allow any GATS-related liberalization in essential or vital services such as health and social security. Developed countries are engaging us in doublespeak.

What are the key charter or legal amendments which the EU is proposing in Asia? Briefly, these are:

One, ‘eliminate’ any citizenship requirement before a corporation can engage in any economic activity.

Second, ‘eliminate’ any citizenship requirement in the composition of a company’s board and officers.

Third, ‘eliminate’ foreign-equity capital requirement for ownership of land.

Fourth, ‘eliminate’ any debt-to-equity requirement before foreign investors can access domestic credit.

The word consistently used by the EU is ‘eliminate’ instead of the phrase ‘please change’ this or that. It is a marching order, not a request. And in the above ‘requests’, the whole thrust is to treat foreign capital or foreign corporation like a Filipino capital or an Indonesian or a Thai corporation. This of course is undeniably preposterous.

The whole idea is to open up to full foreign participation the remaining sectors of the economy where the present laws have imposed restrictions. These include the land market, the telecoms sector, banking sector, media sector, transport sector, energy sector, environmental sector, water distribution and the mining, exploration and retailing of minerals and gas. All of this in the name of trade liberalization.

And yet, the earlier liberalization of industry and agriculture in many countries has been disastrous. It is not difficult to imagine that the outcomes under GATS liberalization will be similar – more joblessness, more inequality and more foreign control over the economy.


To conclude, let me reiterate what I said at the beginning. GATS is an attack on the sovereignty of nations. Let us brace ourselves for a hard and difficult struggle ahead.

Thank you.

* Paper prepared for the Regional Conference on “People’s Stakes in the GATS Talks: Challenges for Trade Unions and NGOs” organized by the Asia Monitor Resource Center (AMRC), Fair Trade Alliance (FTA) of the Philippines and the Asia-Pacific Regional Organization of the Union Network International (UNI Apro), held at the Scout Center, Kowloon, Hong Kong, April 11-12, 2005.


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