Advance Australia Fair - Building Sustainability, Justice and Peace
Workshop - The Global Corporate Grab
Saturday 30th July 2005

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Ted Murphy

National Tertiary Eduction Union

I’ve been asked to talk about services, or services trade to use WTO jargon, and it’s connection with ‘free trade’, free trade agreements, and particularly the services sector of transnational capitalism. I’ll begin with a couple of quick observations.

The services sector in Australia counts for around 80% of the workforce. It is the growth sector of employment and economic activity in all the OECD countries and it is also an area where transnational corporations have been promoting particular forms of codification, of deregulation of the services sector through multilateral and bilateral free trade agreements (FTA’s). These FTAs have two objectives in mind. One is to achieve significant deregulation of the services sector in other OECD (Organisation for Economic Cooperation and Development) countries where there has been a history of government monopoly or significant regulation, or a history of governments favouring, through funding and other regulatory action, public service providers. And the other objective is to open up the services sector in the developing world, which has historically been protected. It has been a protected sector in part because of national development economic strategies by a number of developing countries - but also because the services sector is a relatively small services sector in most developing countries and there has been some historic unwillingness to declare a free market in services as sought by the OECD.

Just to give you an idea of how we need to think of a services sector – we usually associate the notion of an export-processing zone with manufactured goods. But in some ways there are export-processing zones in the services sector operating now, they’re called call centres. In the Philippines, in Indonesia, in a range of countries where Australian and North American corporations have out-sourced those particular functions to cheap labor zones. A broader development is that the United Arab Emirates is setting up a specific export-processing zone for the services sector. It is planing to waive, or at least significantly reduce what planning, environmental and taxation restrictions it currently sets in order to encourage transnational corporations to locate in the United Arab Emirates, with a view towards building what they call an export processing zone in services.

The idea is that transnational providers of financial, educational, telecommunication services, would set up their office from which they provide services electronically in Dubai and Qatar. It’s a specific economic strategy that’s been adopted by the UAE. It’s the first, to my knowledge, of a cross-services sector of an export-processing zone. How successful they’re going to be remains to be seen.

Where trade agreements and the WTO come into this is that the push for the General Agreement on Trade in Services (GATS), the main multilateral agreement that regulates services trade. The push for GATS came against the background of particular American and European trade policy experts and governments looking at the fact that, although they had a general agreement on trade for industrial goods, they had nothing that would open up markets for the services sector to transnational investment and transnational activity.

They were particularly interested in telecommunications and financial institutions. The former because of the anticipated – and realised over the last couple of decades – expansion in electronic commerce. If you’re going to have a lot of services delivered over the internet or electronically - whether it be education, or buying books through Amazon, financial services, or a medical professional in Australia providing health services to an affluent group in the developing world - then that in itself pointed towards a significant expansion of use of telecommunications authorities. And against the background where many OECD and developing countries had monopoly telecommunication authorities this was seen as an obstacle for the expansion of telecommunications trade. It was seen as a giant opportunity for profit so the private sector wanted its share. Hence the promotion of the notion that there should be commitments given under GATS that would open up previously monopolistic arrangements for telecommunications to private providers and in particular transnational private providers.

There’s several dimensions to the interests, and two dimensions to the way the GATS works, whether it pertains to education, telecommunications or any services sector you can think of.

One thing is getting a commitment that establishes a market where previously governments have maintained a monopoly or licensing restrictions that limit the number of private or public providers. The aim is to get rid of those licensing restrictions and get rid of that monopoly.

The other this is securing a commitment that there will be no limitation on foreign investment or foreign equity.

The third related objective is – to the extent that there are still public providers of the service once you are operating in the market – to secure a commitment that that public service provider will not be treated any more favorably than a private service provider.

A fourth objective is securing a commitment that private service provides which are owned by entities located off-shore will be treated as favorably as local service providers.

That’s the nutshell of the objectives and the nutshell of the way that many of the articles of the GATS were written. It’s also the underlying principals of how bilateral FTAs are also run – to create those opportunities and those rights, and to make those rights enforceable within the WTO or within some other allegedly non-partial international arbitration dispute settling body.

This can lead all sorts of countries into all sorts of difficulties particularly if they don’t understand what they’re doing. Even the United States, which has a vast ministry for trade - lots of lawyers, lots of resources - got it wrong when they gave a commitment under the GATS for a service category called recreational services. They didn’t realise that they were giving a commitment that would prevent them from blocking internet gambling from offshore. So congress actually had a law that said you could only gamble on the internet with an American gambling company. The US got taken to the WTO by Antigua and Barbados and the US lost. They said “but we didn’t realise that was what we were doing”, and the WTO said “bad luck!”. That is an oversight, or failure of technical knowledge, that is more likely to be committed by a developing country with very few staff in their trade department, very few resources and very few expert trade lawyers. While the US made that particular mistake you’re more likely to see commitments being given by developing countries because they’re not quite sure what something really means in the terms of the WTO legalese. If they’ve even got a trade ministry those officials can be covering services, agriculture and manufactured goods whereas the OECD countries will have a separate section devoted entirely to services, as we have within the Australian Department of Foreign Affairs and Trade.

In the field of education, which I’m more familiar with, I’ll give you an example of some of the dilemmas that arise as a result of the commitments under FTAs.

Can you limit public funding to public universities? Depending on what commitment you made under the WTO or a bilateral agreement the answer may be yes or no. If you give a commitment to what’s called national treatment – a bit of jargon saying foreign private service providers will be treated no less favorably than local service providers – you lose the right to say that government subsidies will only go to public sector universities, schools or health suppliers. So that’s how far reaching the commitments can be, if you give a commitment for that sector at all and if you don’t get the detail right. Remember that no countries are obliged to give commitments for any service, but they are under a lot of pressure to do so. And at this stage in the WTO negotiations intense pressure is being exerted on the developing world because the developing world is resisting giving commitments under the services treaty and particularly in areas like health, education etc, that the OECD countries want commitments on.

In one sense, if you looked at this on a global basis, those countries, societies and peoples most at risk are developing world ones. For example, you can end up in a dispute on water services, have your water supply being taken over by an OECD transnational provider of water, then they raise the price of water and poor people can’t afford it so they start using contaminated sources of water. The Government then moves in to regulate the price and is hit with objections on various free trade agreements. Particularly if there’s an investment FTA as well as a commitment under a services agreement that the developing country has entered into. And that’s not an abstract example, it’s a concrete example. This is big-ticket stuff from a developmental perspective.

But this is also an issue in the OECD. This may sound trivial, but I will give you this example. We gave commitments under GATS on services in 1994. The Commonwealth Government had to write in its commitments, the following words – “that the commitments do not apply to compulsory third party motor insurance, workers compensation provisions at the State Government level.” If they hadn’t written that in you would not have been able to maintain the compulsory third party motor insurance, workers compensation monopoly at the state level. So, this isn’t just a question of what the national government does, but also a question of whether a national government has regard to arrangements at a state, regional or local level. These commitments bind all levels of government – national, regional/state and local – in the provision of services. So it’s an important area to get it right.

Particularly important in these negotiations - forget about internet delivery of services - is the movement of people from one country to another for the purposes of providing a service, and the extent to which the trade treaties commit governments to allow this. Some of the developing countries are seeking commitments in this area because they believe they will be able to gain economic opportunities if a number of their services, supplies and individuals are able to move to Australia, or New Zealand, or Europe and have the right to deliver a service as an employee or individual contractor.

It’s a very sensitive issue in the German construction sector, with the German construction Union, because construction is a service. Within Europe itself, the EC came down with what they call a Draft Services Directive (DSD), which proposed that anyone within the EU could move to another part of the EU and deliver a service, governed by the labour laws of their country of origin. This has featured some more racist debates, and is where the ‘Polish plumber syndrome’ has come in to Western Europe’s concern about radical undercutting of labour standards, salaries and conditions in Western Europe. DSD, which was rejected by the France and Germany, but supported by the Blair Government, would have allowed people from Eastern Europe to deliver a service in Western Europe on Eastern European standards and salaries.

That’s an example of the movement of people within an OECD framework, but I want to conclude with another example between the developing world and the OECD. The Philippines-Japan FTA has a clause on the movement of nurses. For the Philippines the movement of nurses is partly because they don’t have enough funding to employ their own, or enough health services. Nurses go to Japan and remittances go back to their families in the Philippines. They see that as an economic benefit. From the Japanese point of view what are they going to argue? It could be argued that the movement of nurses is a right of migration for a developing country nurse who wants to work elsewhere and get migration points for working elsewhere.

On the other hand you could end up in a situation like South Africa where they lost 30,000 nurses to EU countries. Traditional left views about the freedom of movement of people, unless the regulations are right, can also lead to a significant loss of trained professional staff and people from the developing world to the OECD as part of a migration right or as part of a free trade agreement.

Thanks for your time.

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