The Assault on Public Services

WTO, CAFTA and the Assault on Public Services

by Deborah James

Trade agreements have historically dealt with the movement of goods across nations. But corporate interests are attempting to expand their control of the world’s resources and labor for profit by redefining ‘trade’ to include a host of other activities. The most recent generation of trade rules have grown exponentially to attempt to cover services, both across borders as well as within nations. The U.S.-Dominican Republic-Central American Free Trade Agreement (CAFTA), and the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO), are two such agreements that could greatly impact crucial aspects of our lives. The accessibility of education, the quality of our water, the cost of and quality of our healthcare, and the development of our communities are being threatened by a massive corporate takeover.

What is a Service?

Today, services constitute a bigger share of the global economy than ever before. A service is anything you can’t drop on your foot: the work of lawyers, accountants, doctors, nurses, teachers, child care and elder care employees, librarians, architects, and other professionals are services. Services also include water collection and distribution, mail delivery, electricity generation and distribution, tourism, shipping, construction, transportation, oil drilling, waste incineration, and sewage treatment. Services constitute between 70 percent and 80 percent of the United States’ economy, and make up more than 60 percent of the global economy. Some services are essential for human survival, like healthcare, water distribution, and education, but the category also includes retail services, entertainment, financial services, electricity, transportation, and many, many other sectors.

Resistance to Privatization: A Lightening Rod

On October 22, 2002, over 150,000 Salvadorans protested against the privatization of health care and electricity that would be required under CAFTA. On January 27, 2003, over 125,000 came out again against the privatization of health care and CAFTA. On March 13 it was over 250,000. On January 12 of 2003, Nicaraguan activists protested CAFTA outside their National Assembly, calling on legislators to reject the privatization of water that would be the first step in the CAFTA process. In Costa Rica, thousands of people have mobilized against CAFTA’s forced privatization of telecommunications. On April 2, tens of thousands of Central Americans held a rally outside the official CAFTA negotiating sessions in San Salvador. These protests have continued across the region throughout the negotiating period. Now that CAFTA has been negotiated, citizens in Central America have been mobilizing to prevent their Congress from ratifying it. Wonder what all the fuss is about?

Services and the WTO

In 1994, WTO negotiators established the GATS agreement, and built in successive rounds of negotiations to achieve greater “market access” to service sectors for foreign corporations. The corporations driving the WTO are aiming to restrict the ability of governments to regulate services, while forcing governments to open up public services for sale to private, foreign, unaccountable corporations. In 2000, a new round of WTO services negotiations was launched.

In the negotiations, countries make what are called “requests” and “offers” of other countries regarding which services should be covered by the agreement’s rules. The U.S. has already made commitments (offers to restrict regulation and allow other countries’ corporations to buy our services) in the sectors of energy, healthcare, environmental services, education, temporary workers, professional services, and media. The U.S.’s top agenda in terms of requests (of other countries to restrict regulation and allow private U.S. corporations to purchase their services) focus on financial services, energy services, telecommunications, distribution, and express delivery.

Services and CAFTA

Under the GATS/WTO, in order for a service to be included in the agreement, it must have explicitly been included in the negotiations – on a list of services called a country’s “schedule of commitments.” If a country decides not to commit a service, that sector will not be affected by the agreement. CAFTA, however, takes a much more aggressive approach. Under CAFTA’s services rules, all services are included unless they have specifically been exempted – for Central America. The poor countries of Central American were in a much weaker negotiating position vis-à-vis the United States, and have left their service sectors wide open for U.S. corporate pillaging. Shockingly, however, U.S. trade negotiators only committed what they had already agreed to under the GATS/WTO. This means that while U.S. negotiators maintained protections for U.S. service corporations, they forced Central Americans to expose theirs – a clear example of the hypocritical, unfair disparities that occur in negotiations between very poor and very rich countries.

De-Regulation: Abolishing Public Oversight of Corporate Behavior

Many services that are important to the functioning of society, like telecommunications and transportation, are operated through a mix of public and private enterprise. Others, like banking, electricity, and accounting, are generally controlled by the private sector. In both cases, the public exerts oversight over corporate behavior through regulations to ensure transparency and accountability, protect the environment, enforce labor laws, guard against monopolies, ensure payment of taxes, etc. For years, corporations have fought battles for “de-regulation” – to abolish or reduce the enforcement of laws intended to protect consumers, workers, and the environment.

The energy crisis in California is a good example of what can go wrong when a public utility like electricity is de-regulated based on corporate interests. Public oversight was restricted, while mergers were allowed that consolidated power in just a few corporations. Those corporations then manipulated the markets to create an artificial scarcity that caused dramatic price increases. Consumers were subjected to rolling blackouts, and in the end overcharged $6.2 billion in 2000. Deregulation was a bonanza for the electricity corporations, but consumers paid through the nose for diminished service.

The services rules in CAFTA and GATS/WTO would open the door to a wholesale assault on health, safety, labor, and environmental laws worldwide. Since services do not face trade barriers in the form of border tariffs or taxes, access to foreign markets is restricted through national regulations. Thus the liberalization of the trade in services implies modifications of national laws and regulations.

The way the services rules are written in CAFTA and GATS, governments—national, and in many instances, state and local—are prevented from having regulations that are deemed “more burdensome than necessary” to business. That frighteningly vague definition unfortunately includes many important environmental, health, and labor laws. For instance, laws regarding how a service is provided, such as anti-sweatshop laws, or laws requiring the use of environmentally sound processes are construed as “more burdensome than necessary” in that they deal with how a service is provided, rather than the quality of the service itself. Regulations regarding where services can be provided, such as laws restricting the location of big-box stores, or development in sensitive ecological areas would similarly be subject to challenge.

The Corporate Agenda of Privatization: Forcing Governments to Sell Essential Services

CAFTA and GATS don’t only threaten government regulations. They also raise the specter of a sweeping privatization of the public services on which ordinary people — especially poor and working class people — depend. In negotiations of services rules, multinational corporations have lobbied negotiators to gain access to local postal services, health care services, educational services, and utility services in an effort to expand their businesses.

Many services are essential for the survival and dignified development of human beings, as codified in the Universal Declaration of Human Rights, including the right to education (Article 26), health care (Article 25), and social security (Article 22). Generally, these services are provided for the public good by state and local governments, rather than for profit by corporations.

But corporations know that transferring control of these “public goods” to themselves – a process called privatization - represents a major source of potential wealth. Under CAFTA and the GATS expansion, trade in services would be “liberalized”. These new rules would speed up the process of deregulation and privatization already underway in many countries, a process that is eliminating public oversight of essential services – and violating citizens’ human rights to health care, water, and education.

The problem is that when important public goods such as health and education are managed by for-profit companies, the bottom line comes first while health standards and education suffer. Local control is lost as crucial services come under the management of giant, unaccountable corporations headquartered thousands of miles away. And as money for public services is diverted to private companies, the poor are left to rely on an under-funded and inadequate public sector or else to fend for themselves.

Health Care in El Salvador Under Attack

Since it first became clear that El Salvador’s health care system was on the chopping block under CAFTA, Salvadorans have taken to the streets in droves. They are demanding that the public maintain control over the health care system. Allowing private foreign investors to control health care, they argued, would mean that quality care would be provided only for those who could afford it. The vast majority of the population wouldn’t be able to pay for private clinics, and would be left to be sick and die. The best doctors and nurses would leave the poorly-funded public sector and move into the more lucrative private sector. Instead, Salvadorans have been fighting for a more effective, preventative and community-based health care system with an investment in medical education.

Anti-Privatization mural in El Salvador.

Nicaraguans Struggle for Access to Water

Lack of access to clean drinking water is one of the leading causes of death for poor people globally. Carlos Pacheco, Executive Director of the Center for International Studies, explains that “more than half of all Nicaraguans lack potable water in their homes. This vital service must be expanded and administered solely by the public sector in our country in the interests of the people…and not as a commodity to be sold for profit. [Nicaraguans] are fighting against the privatization of water which is being pushed by…CAFTA. We see access to water as a human right.”

Privatization: a Corporate Wish List

Major multinational service corporations are eager to expand their opportunities for profit, and in fact companies such as American Express and Enron have aggressively lobbied trade negotiators to speed up the “liberalization” of services. Financial corporations like Citicorp are eager to take over local banks in the region, while energy and water companies see a bonanza in the privatization of public utilities. For-profit education and health care companies, meanwhile, see a chance to increase their profits by marketing their services to the more affluent segments of the population. The pro-CAFTA business lobby includes giant multinationals like Wal-Mart Stores, Inc., ChevronTexaco, ExxonMobil, and industry trade groups like the Coalition of Services Industries and the Telecommunications Industry Association, all of whom have lobbied heavily for CAFTA.

Predecessors to CAFTA and the WTO: The World Bank and the International Monetary Fund

Even before CAFTA and the WTO, the privatization of public services has already been well underway in Latin America, thanks to the International Monetary Fund and the World Bank. As part of the structural adjustment conditions attached to the loans they give, the IMF and the World Bank have directed poor countries to sell off many of their publicly controlled services. In Mexico, the phone system has been privatized. Under pressure from the IMF, Guatemala, the second poorest country in the hemisphere, has sold off its telephone and electric companies, its rail service, and its postal system. Nicaragua has privatized its health and education systems. CAFTA and the GATS/WTO would exacerbate this wave of privatization and make it irreversible.

The experience of Cochabamba, Bolivia provides a glimpse into what can happen when a resource essential to human survival like water is privatized. Bolivia, the poorest country in South America, has been mired in debt owed to the International Monetary Fund for decades. In 1999, Cochabamba, Bolivia’s third largest city, sold its municipal water utility to a multinational consortium led by Bechtel as part of a World Bank-mandated privatization program. When Bechtel took control of the water system, rate hikes were quickly instituted. Some bills tripled, and many ordinary workers were facing water bills that amounted to a quarter of their monthly income. The rate increases soon led to a public backlash, and the city was convulsed by street protests and demonstrations. During the protests, security forces opened fire on the crowd. A 17-year-old student was shot in the face and killed. Bechtel soon withdrew from Cochabamba, but is suing the country of Bolivia for $25 million in future lost profits.

Promoting Privatization: No Support for Local Services

CAFTA and GATS/WTO rules promote privatization in two main ways. First, a “national treatment” rule states that foreign service providers must receive equal or better treatment than domestic service providers. In effect what this means, is that public or local service providers covered under the agreement cannot be given tax breaks, subsidies, government purchasing preferences, or other “discriminatory” treatment. For example, a municipality would not be able to attempt to bolster the local economy by promoting local businesses because that would be “unfair” to the multinational corporations. In effect, this would bankrupt public services. If a government tries to support a public hospital or a public school with local tax monies, multinational corporations will be able to challenge those subsidies by arguing that they violate the rules mandating that all service providers be treated the same.

This type of challenge is already happening under NAFTA. United Postal Service has used a provision within the North American Free Trade Agreement (NAFTA) to file a lawsuit against the Canadian government. In the suit, UPS claims that Canada’s support of its postal service, Canada Post, represents a barrier to trade. UPS is seeking $160 million in damages from Canada, claiming that the government subsidy has prevented UPS from effectively competing for the express mail market. According to The New York Times, the “complaint contend[s] that the very existence of the publicly financed Canadian postal system represents unfair competition that conflicts with Canada’s obligations under NAFTA. Critics worry that if the tribunal upholds the UPS claim, government participation in any service that competes with the private sector will be threatened.”

Promoting Privatization: Prohibiting Public Ownership

Another way in which CAFTA and GATS/WTO would promote privatization is by prohibiting governments from being the sole provider of a service sector. Under these services rules, governments are prohibited from limiting the number of service providers in any covered sector. Limiting the number of service providers is a crucial way that governments insure the viability of certain essential services.

Imagine if the postal service, health clinic, or telephone company were forced to compete with ten other companies who could choose whom to provide service to and how. People in rural, remote, or economically depressed areas would be cut off from services as companies “cherry picked” the most profitable markets. Rates would skyrocket and the poor, elderly, sick and most vulnerable in society would be left on the curb.

Costa Ricans Defend Their Right to Communicate

Costa Ricans have been particularly alarmed at CAFTA’s privatization of the telecommunications industry. The current publicly-owned company uses extra revenues from the profitable internet and cellular operations to subsidize fixed phone access for the poor, a practice that would be impossible under CAFTA as the profitable sectors would be sold to private corporations. According to the telephone workers’ union, “the discrimination is of such magnitude that [if CAFTA were ratified] telecommunications would not be accessible to the majority of the population, but only to a privileged minority.”

Privatization: Almost Irreversible

And once the door is opened for multinational corporations to enter a certain market, there is no way of closing it if elected officials feel that the presence of the multinationals is damaging to communities or violates citizens’ rights to a service. According to “market access” rules for services, once a country agrees to let a foreign company into a certain service sector, multinational corporations must be granted virtually unrestricted entry. If government officials later determine that the presence of multinational corporations is harming the environment or eroding social protections, there is nothing they can do. To reverse a privatization, a government would have to compensate all private service providers for future profits, a task that is financially impossible. Under CAFTA and GATS/WTO, once there is a private school or private hospital in a community, the floodgates are open.

Privatization of Energy Services: a Key to US Global Hegemony

One of the key results of the war in Iraq has been that the U.S. now exerts tremendous control over Iraqi oil supplies. The U.S. has achieved that, not through "owning" the oil itself, but through forced privatization of energy services. Billions of dollars in contracts for giant multinational corporations like Halliburton and Bechtel for the service of getting the oil from the earth to the market (exploration, drilling, refining, transportation, distribution, etc) have become far more valuable than the oil itself.

The U.S. is clear in its written proposals that it wants GATS/WTO rules to govern all sources of energy, concentrating corporate control over oil in the hands of giant energy services companies like Halliburton. Over 70% of the world’s oil resources are currently managed by state-owned corporations, in countries like Venezuela, Mexico, Iran, and Norway. The result would be the Iraqi-fication of the entire globe's oil supplies through the WTO, and the further consolidation of U.S. global corporate hegemony through the control of the world’s most strategic natural resource.

Our Future: Public Services Under Public Control, or Private Services for Profit?

This new services agenda represents a massive increase in corporate power at the expense of the ability of ordinary people and governments to determine their future. CAFTA and the GATS/WTO expansion would severely restrict the ability of the public to control the provision of services necessary for the survival and development of human life. Many people in Central America’s poorer countries fear that the quick introduction of giant foreign firms will lead to private corporations swallowing up essential public services, and leaving the poorest citizens without access to water, education, health care, or even communications and transportation. We have a choice of the kind of world we want to leave in the future for our children. We can allow CAFTA and the GATS/WTO to make the rules, where the services necessary to sustain and develop life are controlled by a small number of multinational corporations for profit. Or we can work to stop CAFTA, stop the expansion of GATS/WTO, and roll back the IMF and World Bank’s privatization, and create a world where the public can exert oversight over services to ensure that people’s fundamental human rights are guaranteed.

For more information on Free Trade and Services:

Citizens Trade Campaign www.citizenstrade.org
Public Citizen's Global Trade Watch www.citizen.org/trade/
Polaris Institute www.polarisinstitute.org
Public Services International www.world-psi.org/globalisation
GATS Watch www.gatswatch.org