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GATS liberalization may conflict with human rights obligations

Stressing the primacy of human rights over the objectives of trade liberalization, the UN High Commissioner for Human Rights has called on governments to undertake rights impact assessments of liberalization policies that can guide their negotiating stance in WTO talks on freeing up services trade. The UN’s top human rights official has also underlined the need to interpret the services agreement of the WTO such that member states are able to invoke policy and regulatory options to serve development interests and promote universal service supply.

by Chakravarthi Raghavan


GENEVA: Progressive liberalization of services under the framework of the WTO’s General Agreement on Trade in Services (GATS), while providing opportunities, also involves challenges including possible negative effects on access by the poor to essential services (like water, health and education) and conflicts with the human rights obligations, individual and collective, of WTO members, the UN High Commissioner for Human Rights Mary Robinson has cautioned in a report.

This is the third in a series of reports by the High Commissioner on trade and human rights issues. The first last year to the UN Sub-Commission on the Promotion and Protection of Human Rights  was on the human rights implications of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The second report, also last year, to the UN Human Rights Commission was on the WTO Agreement on Agriculture.

In her present report (E/CN.4/Sub.2/2002/9), “Liberalization of trade in services and human rights”, the High Commissioner underscores the importance of governments making commitments in the ongoing GATS negotiations “on the basis of sound empirical evidence.”

She also calls on governments to undertake public, independent and transparent assessments of the impact of liberalization policies - both past policies and future options - on the enjoyment of human rights, through a participatory and consultative process with concerned indviduals and groups.

These assessments should be the basis for the WTO negotiations on progressive liberalization, Robinson says in the report. Where assessments are not available, the High Commissioner encourages states “to adopt a cautious approach to making new commitments until the relevant facts are available.”

“Further,” she adds, “where assessments indicate negative effects of past liberalization policies on the enjoyment of human rights, WTO members should allow the maximum flexibility to developing countries to withdraw liberalization commitments.”

The Robinson report also provides some support to the apprehensions of public interest civil society groups that GATS might come in the way of the provision of governmental services and the ability of countries to cross-subsidize services to ensure accessibility to the poor.

The High Commissioner in this regard calls for authoritative interpretations of GATS provisions on both these questions.

The report brings out that even where no voluntary commitments (to market access through one of the modes of service supply or to national treatment) have been undertaken by a member country, there are GATS disciplines and rules that apply to measures at the central, regional and local government levels and to all modes of supply for all services excepting those supplied in the exercise of governmental authority - defined in GATS as services supplied neither on a commercial basis nor in competition with one or more service suppliers.

Though the WTO and its officials have been making some noises to the effect that this exception for government services ensures that there is no threat to health, education, water supply and other essential services, the Human Rights Commissioner’s report casts some doubt on this view and underscores that the exception is qualified.

“Given that many essential services that promote human rights are delivered through a mix of public and private service delivery, many governmental services might still come within GATS,” the report says. It notes that measures taken by a government to respect, protect and fulfil human rights (of access by the poor to essential services) might in some, possibly many, cases also come within the scope of GATS and are therefore subject to its rules.

“The High Commissioner highlights the broad scope of the GATS and encourages interpretations of its scope to ensure that GATS obligations do not constrain governments from taking actions to promote or protect human rights.”

Human rights law

The report notes that all 144 WTO members have ratified at least one human rights instrument, 112 have ratified the International Covenant on Economic, Social and Cultural Rights (ICESCR), and all but one have ratified the Convention on the Rights of the Child. Also, those areas of human rights law recognized as customary international law take on a universal application, which means that “trade rules should be interpreted as consistent with these norms and standards whatever the treaty commitments of States in trade matters.”

The report adds: “In other words, whatever the human rights treaty obligations undertaken by particular States, WTO members have concurrent human rights obligations under international law and should therefore protect and promote human rights during the negotiations and implementation of international rules on trade liberalization.”

A human rights approach has to ensure that the progressive realization of human rights and progressive trade liberalization can be implemented simultaneously and coherently. This requires a constant examination of trade laws and policy and an assessment of human rights outcomes in healthcare, education, food security and so on. Assessments and a consultative process for negotiations must involve not only trade and industry ministries but also those dealing with social issues like health and education. It is hence essential to have “a cautious approach” to the setting of trade policy and rules, based on “sound evidence” that any particular strategy will promote enjoyment of human rights and not only increased investment or economic growth.

While the WTO notes that services liberalization can promote economic performance and provide a means for countries to capitalize on competitive strength and offer services at lower prices to consumers, liberalization of trade in services without adequate government regulations and proper assessment of its effects can also have undesirable effects, the report says.

Different service sectors require different policies and time frames for liberalization and some areas are better left under governmental authority, the report says, pointing to the report of the Special Rapporteur on the right to education which stresses that education is a governmental responsibility and a public service that continues to enjoy support of the overwhelming majority of governments in the world. However, exporters of education services have set the tone of education policy, slanting education towards an internationally traded service. This raises the question of whether the sector is heading towards progressive liberalization of trade in educational services or progressive realization of the right to education.

Modes of supply

On the four modes of service supply covered by GATS, the report says that while Mode 2 (i.e., consumers travelling abroad to get services) could be a means of implementing international cooperation and the income from foreign service users could be used to improve local health and education structures for the disadvantaged, “trade in services based on consumption abroad can introduce dual market structures and aggravate inequalities in service supply if careful government regulation and cross-subsidization policies are not implemented.”

On the commercial-presence mode (Mode 3), the report notes, on the opportunities side, the possibility of increasing foreign direct investment and of targeting FDI towards upgrading national infrastructure and introducing new technologies.

However, it points out, the increased presence of foreign - as of national - private suppliers of essential services can pose challenges to governments as the guarantors of human rights.

Specifically, says the report, “the introduction of user fees can reduce and even cut off service supply to the poor, marginalized or vulnerable.” In the health sector, privatization may result in two-tiered service supply, with a corporate segment focussed on the healthy and wealthy and an underfinanced public sector focussing on the poor and sick. This can also lead to a brain drain, with better-trained medical practitioners and educators being drawn towards the private sector by higher pay rates and better infrastructures.

Since FDI is primarily driven by commercial objectives, the promotion of FDI in areas such as the health, water and education sectors will not necessarily be the most effective means of ensuring universal access to entitlements that at times can be unprofitable.

Further, privatization that is leading to an increasingly large and powerful private sector can also threaten the government’s role as primary duty bearer for human rights. The report cites in this connection the World Health Organization (WHO) view that private sector companies can subvert health systems through political pressure and “regulatory capture”, namely the co-opting of regulators to make regulations more favourable to them.

Human rights law does not place obligations on states to be the sole provider of essential services. But “states must guarantee the availability, accessibility, acceptability and adaptability/quality of essential services, including their supply, especially to the poor, vulnerable and marginalized, and to do so requires constant monitoring of policies and targeted action on behalf of independent regulators.”

This applies not only to the health and education sectors but also to other sectors such as telecommunications which are important technological inputs that promote the realization of the right to development, the High Commissioner says, pointing to the World Bank view that “liberalization could increase prices of some services and threaten the provision of transport and telecommunications services to the poor.”

Thus, says the report, Mode 3 (which is accorded priority by industrialized nations in the current round of GATS talks) is therefore possibly “the most problematic” for the protection of human rights, raising both opportunities and challenges, in particular concerning the “availability” and “accessibility” of health and education services. In particular, the commercialization of education services does not sit easily with the commitments to make education progressively free at all levels. Further, the increasing power of the private sector in relation to governments raises challenges to the capacity of the state as the primary duty bearer of human rights.

On the movement of natural persons (Mode 4), the High Commissioner says it holds much potential for developing countries, which could allow for much greater movement of the workforce and greater exchange of knowledge and experience. However, while working overseas benefits service suppliers in the form of higher wages and better conditions of work, and home countries can benefit from remittances and money transfers, there is a risk that such movement may become permanent or semi-permanent, resulting in brain drain and reductions in the quality and availability of essential services in the source country.

In the health sector in particular, brain drain is of major concern, with medical practitioners moving from medium- to high-income and from low- to medium-income countries. This imposes significant cost to the enjoyment of human rights in the source countries, in terms of both reducing the number and quality of medical practitioners and the loss of return to the source country from investment in the education and training of medical practitioners.

The report cites a World Bank study about the benefits to India from its exports of software: from $225 million in 1992-93 to $1.75 billion in 1997-98, with projected annual revenues of $87 billion; providing 2.2 million jobs; the information technology sector expected to account for 35% of Indian exports and attracting $5 billion in FDI a year; and other benefits including availability of improved telecom technology and access.

[However, the World Bank’s estimations and projections are based on several assumptions and to some extent on computable general equilibrium modelling exercises, and do not admit easily to generalizations. A recent study by Rolf J. Langhammer of the Kiel Institute of World Economics published in the Journal of Economic Integration (see TWE #282) has questioned the view that developing countries have benefited from GATS and services trade, and assesses the increases in India’s computer and data processing services as an “outlier” experience that cannot be replicated by others.]

“Nonetheless,” says the High Commissioner, “in spite of opportunities offered through increased trade in services, liberalization of essential services can also have negative effects.” The report cites in this connection a dispute before the Centre for International Settlement of Investment Disputes between the government of Bolivia and a private sector foreign service provider for the Cochabamba city water supply system (which led to price increases of 35% and mass demonstrations and strike actions, forcing the government to reverse the decision to liberalize). While this decision to reverse was consistent with the government’s (human rights) obligation to ensure adequate supply of safe drinking water, linked to other rights such as the right to health and food and adequate housing, the dispute lodged by the service supplier is pending before the investment dispute centre.

The liberalization of trade in services can thus have varied impacts on the enjoyment of human rights. While the World Bank and the WHO recognize that unregulated privatization of public monopolies could lead to private monopolies and stress the need for regulation, in human rights terms “the need to regulate ... is in fact a duty to regulate.”

Given the broad scope of GATS and its rules, the High Commissioner “encourages interpretations of its scope to ensure that GATS obligations do not constrain governments from taking action to promote or protect human rights.”

GATS does recognize the right to regulate, and, under human rights law, this right is a duty. Nevertheless any regulatory measures taken by governments, even in sectors where they have made no commitments, are measures within the scope of GATS and subject to general obligations like most-favoured-nation (MFN) treatment. A particular subset of domestic regulations relate to “technical standards, licensing and qualification requirements” and there is a GATS mandate to negotiate new disciplines thereon. Disciplines have been evolved for the accounting sector, and disciplines for other sectors are being discussed. However, the introduction of the “necessity” test, and the requirement that such regulations should not be “more trade restrictive than necessary”, can render a country’s domestic regulations put in place to promote human rights inconsistent with GATS.

“A human rights approach to trade sets the enjoyment of all human rights above the objectives of trade liberalization, not as an issue secondary to trade liberalization,” the High Commissioner observes. “In this sense,” the report emphasizes, “any judgement of a trade-restrictiveness of a measure should take into account States’ obligations under human rights law.”

“Non-discrimination”

The “non-discrimination” and “national treatment” concepts of the trade law, which envisage equal treatment for all foreign service suppliers and equal treatment between national and foreign suppliers, whether large or small or not-for-profit service organizations (subject to any limitations inscribed in a country’s schedule of commitments), could in fact come in the way of human rights law, which does  not  envisage equal treatment to all  but  obliges  a state to take positive affirmative actions to promote human rights of the poor and vulnerable.

Subsidies are seen by some as a tool of disputed value but have nevertheless been used to protect domestic industry and services and promote greater equality. Cross-subsidization, e.g., the wealthy subsidizing access to healthcare for the poor or lower interest rates for loans in rural as against urban areas, could be a means for reducing poverty, assisting local infant service suppliers and increasing universal access.

However, the GATS requirement that such subsidies must involve the trade principle of non-discrimination would imply that if, for example, a commitment is made in respect of education services, then a government giving a subsidy to a domestic not-for-profit education service provider would have to extend it to the foreign service supplier too.

If trade law or trade liberalization ends up preventing cross-subsidization or other policies seeking to ensure universal access for the poor and results in a reduction in the quality and quantity of services to the poor and vulnerable, it may become “de facto discrimination under human rights law”.

GATS mandates negotiations on subsidies, but so far the discussions have been “superficial”, comments the High Commissioner, who calls for specific references in the agreements to these needs and concerns of developing countries and for all WTO members to recognize in these discussions “the responsibility of all countries to respect human rights.”

On the GATS provisions for “general exceptions” - which could be invoked to protect public morals, human, animal and plant life and the privacy of individuals - the High Commissioner points out that a human rights approach to these matters would place them at the centre of the objectives of GATS, rather than as a permitted exception. Nonetheless, such a link could provide an entry point for a human rights approach to liberalization and a means to ensure that the “essentially commercial objectives” of GATS can be implemented with respect for human rights.

“This link could also be relevant to determining the appropriate sources of international law relevant to the interpretation of the provisions of GATS in future rulings by the WTO Dispute Settlement Body or the Appellate Body,” the report adds.

Compensation

Because of unforeseen consequences of liberalization and its disproportionate effect on the poor or vulnerable, particularly when proper assessments have not been undertaken, countries may under GATS modify or withdraw their commitments - but only after providing compensation to other countries. The question that arises is “whether compensation in all cases of modification or withdrawal is appropriate.”

While, from a commercial perspective, holding countries to their commitments is important to ensure transparency and predictability of international trade, “from a human rights perspective, however, the focus is less on predictability and more on need for flexibility to modify or withdraw commitments to liberalize trade in services where experience demonstrates that a commitment constrains or limits the enjoyment of human rights,” the High Commissioner points out.

The need for flexibility is particularly relevant for developing countries, given that they are in a dynamic process of building social infrastructures. “For these countries, as the level of social development changes, the most appropriate form and pace of liberalization might fluctuate. Moreover, while compensation to affected parties might be appropriate in some cases upon withdrawal of commitments, a human rights approach would question whether States should be sanctioned for taking action to promote human rights.” The requirement to pay compensation might discourage States from actions, which, in turn, could reinforce the status quo or even exacerbate existing problems.

As for the progressive liberalization of trade in services, to be advanced in successive rounds of negotiations under GATS, “from a human rights perspective it will be essential ... that WTO members also meet their concurrent obligation of progressive realization of human rights,” taking into account the fact that “certain services are entitlements, not privileges, and should be guaranteed by the State.” Given the various issues that arise in liberalization of trade in services, the High Commissioner encourages states to open markets through WTO negotiations “only on the basis of sound empirical evidence gathered through assessments.”

Welcoming the provision in the negotiating guidelines for such assessments, the High Commissioner adds: “These assessments should seek to understand better the impact of actual and potential trade policies on the enjoyment of human rights such as health, education, drinking water supply and development and further should be based on thorough consultations with the people affected ... the poor, rural populations, vulnerable groups, industry and government, including education, health, environment, transport ministries, (and) not only trade and finance departments.”

In some specific recommendations and conclusions, the High Commissioner has underlined:

   *  the obligations of states under human rights law to ensure equal access, in particular for the poor and vulnerable groups, for basic services;

   *  the need to ensure the right and duty of governments to regulate, and interpret GATS to “acknowledge the need for countries to retain flexibility in use of development tools, such as cross-subsidization or regulation of corporate governance, in response to development needs and promoting universal service supply”;

   *  the need for agreed interpretations of provisions of GATS to enable governments to fulfil their concurrent obligations under human rights law and ensure that the broad scope of GATS does not constrain governments from taking actions to promote and protect human rights, reflecting this also in the future negotiations on subsidies or domestic regulations;

   *  the need for governments to undertake “public, independent and transparent” human rights assessments of the impact of liberalization policies - both past policies and future options - through a participatory and consultative process; and where assessments indicate negative effects of past liberalization policies on the enjoyment of human rights, WTO members should allow maximum flexibility to these countries to withdraw their liberalization commitments.

The scope of GATS and the application of its rules remain untested and still in a process of development, the report notes. It suggests that as the WTO services negotiations proceed over the next three years, “the openness of the system and the compatibility of progressive liberalization under GATS and progressive realization of human rights will become clearer.”

Consequently, the UN Sub-Commission on the Promotion and Protection of Human Rights should retain this issue on its agenda and review the negotiations as they proceed with a view to ensuring maximum coherence between the rules and policies of trade liberalization and the  enjoyment  of  human rights. Also, the Sub-Commission should request a report on “human rights, trade and investment,” the Human Rights Commissioner has suggested. (SUNS5173)                                           

From Third World Economics No. 287 (16-31 August 2002)

 

 

 


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