There is a popular misconception in Australia that the free trade issue is only about agriculture and tariffs on industrial goods. The current debate in the Labor party, and in particular the comments made by supporters of free trade, is fuelling that misconception. The free trade agenda being pursued by the World Trade Organisation (WTO), and the Howard Government, goes way beyond the dismantling of tariff barriers.

The failure of the Seattle WTO meeting late last year to launch a general round of trade negotiations is in part due to the comprehensiveness of the agenda. Media reporting at the time highlighted the lack of progress on agriculture and the disagreement on Clinton’s labour standards proposal – the latter being simply a WTO working party. But the manoeuvrings before and during Seattle also pertained to pressures for WTO agreements on government procurement, competition policy and investment liberalisation.

Investment liberalisation or free trade in capital was the subject of negotiation over a couple of years by OECD countries. The aim was to produce an OECD-wide Multilateral Agreement on Investment (MAI) but there were reports at the time of an intention on the part of its promoters to subsequently push for extension of the ‘disciplines’ of the treaty to the developing world. The negotiations produced a 112 page draft treaty but collapsed due to disagreements between the European Union and the USA, campaigns by non-government organisations, and the withdrawal from negotiations by the Jospin Government of France.

Investment liberalisation has three aspects. First, the removal or attenuation of national government powers to block foreign investment. Second, the removal or attenuation of national government powers to impose conditions on the entry of foreign investment. Such conditions include technology transfer requirements, meeting export targets, prescribed levels of research and development expenditure in the recipient country, sourcing a proportion of business inputs from local suppliers, investing in the form of a joint venture with local equity partners, or a requirement that a proportion of board members of the subsidiary company in the recipient country must be citizens of that country.

The third aspect of the investment liberalisation agenda, as embodied in the draft MAI, is the ‘national treatment’ discipline, which requires a national government to treat foreign investors or investments no less favourably than domestic investors or investments.

The promoters of investment liberalisation at the WTO have secured a WTO working party on this matter, and an existing WTO Agreement on Trade Related Investment Measures already ‘discourages’ targets for exports or for sourcing inputs from local suppliers. Further, much of the third aspect of the agenda is being pursued as part of the renegotiation of the General Agreement on Trade in Services.

The European Union, which has its own EU-wide competition policy and counterpart to Australia’s Alan Fels, is the main promoter of the notion of a WTO treaty on competition policy. The WTO has an ‘analytical and exploratory’ working party to address this issue, but it is doubtful that much will be achieved in the short to medium-term.

Government procurement is already the subject of a WTO side agreement which is plurilateral rather than multilateral, i.e. covers only those countries which volunteered, rather than all WTO member countries. The WTO website describes this agreement as follows:

There is a multilateral WTO working party on procurement and the medium-term aim of free trade advocates is to secure a multilateral agreement on transparency in government procurement. The long-term objective remains that of removing or circumscribing the powers of national, state, and local governments to foster local employment by selecting a local supplier over imports where the local suppliers price is, say, only 5-10% higher than the importer’s quote.

The services sector is the growth area of the world economy and in Australia employs 76% of the workforce. It became subject to a WTO treaty for the first time in 1994, when the General Agreement on Trade in Services (GATS) was concluded. Despite the post-Seattle impression that trade liberalisation negotiations are stalled, on 25 February 2000 the WTO launched a round of full-scale renegotiation of GATS, pursuant to a commitment contained in the 1994 Agreement to re-negotiate ‘with a view to achieving a progressively higher level of liberalisation’’.

The 1994 GATS was a ‘bottom-up’ agreement allowing countries to nominate which of their services or indeed service sub-sectors would be covered by its provisions. GATS also permitted a country to specify limitations on market access even in respect of those services nominated for inclusion. Hence, Australia was able to nominate private tertiary education, rather than all of tertiary education, and also to refuse or limit access to the Australian market by foreign providers by a particular ‘mode of supply’.

The four modes of supply referred to in GATS are:

Cross-border supply – services flow from the territory of one WTO Member into the territory of another Member e.g. banking, education, or architectural services transmitted via telecommunications or mail;

Consumption abroad – situations where a service consumer or his/her property moves into another Member’s territory to obtain a service e.g. tourism, ship repair or aircraft maintenance;

Commercial presence - a service supplier of one Member establishes a territorial presence, including through ownership or lease of premises, in another Member’s territory to provide a service e.g. insurance companies, hospitals owned by foreign health services corporations, or hotel chains; and

Movement of natural persons - persons of one Member entering the territory of another Member to supply a service e.g. accountants, doctors or teachers.

A key GATS obligation is that of National Treatment. The National Treatment Article states:

Moreover, in respect of any service sector or sub-sector offered without limitation for market access, a WTO Member under GATS must abide by the following:

• No restriction may be imposed on the number of service providers, either in the form of a numerical quota or the requirements of an economic needs test for the establishment of new providers.

• No restriction may be imposed as to the type of legal entity for a provider to operate.

• No limit may be imposed upon the percentage of foreign ownership.

• Qualification requirements and procedures, technical standards and licensing requirements may not be "more burdensome than necessary to ensure the quality of service" and in the case of licensing requirements, "not in themselves a restriction on the supply of the service".

• Arguably, no restriction may be imposed on intake in order to avoid an over-supply problem, e.g. limiting the number of students enrolled in medicine.

Four factors need to be taken into account to comprehend the significance of GATS. First, in principle GATS covers all services – health, education, tourism, construction, transportation, telecommunications, financial, retail, distribution, postal, broadcasting, environmental, computing, cultural, recreation, sporting services etc – unless the service is supplied ‘in the exercise of governmental authority’. The latter is defined restrictively ‘to cover any service not provided on a commercial basis or in competition with other suppliers’, and hence does not protect from GATS obligations health, education, welfare and employment services, housing services, etc provided by the public sector in Australia.

Second, the National Treatment obligation of GATS applies to government grants and subsidies. Consequently, if a government basically confines government grants to public sector institutions in a particular service area which is listed for unqualified coverage by GATS, but also provides a grant to a domestic private provider, then ‘in like circumstances’ an existing or new foreign provider is entitled to the same grant. The implications of this are far-reaching: flow-on claims for funding from other domestic private providers, reduction in grants to public institutions as governments seek to cap expenditure in the area, increased likelihood of recourse to competitive tendering or voucher-based funding system to ensure that there is no ‘discrimination’ by government between public and private, domestic and foreign providers. It should be noted that in a Ministerial statement on 24 December last year, David Kemp announced that Australia’s intention was to offer education services generally for market access coverage by GATS.

Third, major players in the WTO have in their sights so-called barriers to free trade in services that many Australians would regard as legitimate acts of government regulation. US-based audio-visual companies, for example, regard Australia’s requirement for 55% of broadcast television programs to be produced locally as a discriminatory barrier to trade in services.

Fourth, the protection from the GATS obligations associated with the ‘bottom up’ nature of the Agreement is at risk. Many of the industrialised countries want to convert GATS into a ‘top down’ Agreement, covering all services unless expressly excluded by way of an exemption taken out by a particular country. The impact of such a revised GATS would depend upon whether the government in power at the time comprehensively evaluated all the ramifications of the Agreement and successfully listed all the areas of concern in exemptions. Naturally, a government ideologically inclined to the global free trade model would be less likely to notify exemptions. Moreover, the type of exemptions allowable under a top down GATS remains to be seen. Exemptions could retain full national sovereignty in the nominated area. Alternatively, exemptions might only snap freeze existing domestic arrangements, permitting variations only in the direction of greater compliance with the Agreement’s obligations.

Much of the free trade agenda is unlikely to be accepted within the WTO framework over the next five or so years, although there are real dangers in this round of GATS negotiations. But incrementally, round by round, ‘progress’ has been made on the free trade agenda, and this may continue unless the labour movement internationally pays greater attention and intervenes effectively.

The labour movement has to reconceptualise the free trade debate. It must go beyond the comforting imagery of trade between nations to examine the balance of power between transnational corporations and national governments, and indeed between those countries which are the headquarters of transnational corporations and derive some of the higher order benefits of such corporations, such as research and development and competitive strengths in technology, and those which do not.

The labour movement must formulate a comprehensive response to what is a comprehensive free trade agenda. In echoing the conventional wisdom on the advantages of agricultural liberalisation for Australia, it must consider the price to be paid in liberalisation of services and other areas in the context of quid pro quo negotiations. The movement also needs to avoid creating the impression that the inclusion of a labour standards clause would fix the free trade problem. It must consider what limits should be imposed on WTO treaties – what goods and services are of such public, cultural, environmental and social significance that they should be outside the scope of WTO trade agreements.

Finally, the movement must consider the extent to which the free trade agenda will erode both the capacity of national governments to regulate the market economy in the interests of national communities, and the scope for democratic political decision-making. The European Union concept of a ‘democratic deficit’, which refers to a shift in the locus of economic regulation with attendant social consequences to a level above that where representative democratic institutions operate, becomes a greater problem the more ‘progress’ is made in the direction of comprehensive free trade.

TED MURPHY
NATIONAL ASSISTANT SECRETARY
NATIONAL TERTIARY EDUCATION UNION