Oct 21, 1989

U.S. "GATS" DRAFT, A TNC CHARTER OF EXTRA-TERRITORIALITY.

GENEVA, OCTOBER 19 (BY CHAKRAVARTHI RAGHAVAN)— The United States has tabled the draft of a "general agreement on trade in services" (GATS) which, in its sweep and depth, goes far beyond the "universe of services" it seeks to encompass.

It is really a world-wide economic charter for TNCS, and with "extra-territorial rights" in all countries, covering production, deployment of resources and capital accumulation, and foreigners' untrammelled rights to property and its enjoyment not known since the end of the colonial era, some long time observers of the unfolding services scenario in GATT commented.

The draft agreement has been tabled by the U.S. for the Uruguay round group of negotiations on services (GNS) which is meeting next week. The U.S. has been apparently discussing or disclosing the contents of the draft to some of the GNS participants. Representatives of the U.S. service sector enterprises are also in Geneva to lobby for the draft.

Taken together, the various provisions of the U.S. draft would appear to be a combination of the charter of the east India company which operated from the 17th century in India (and ultimately brought India under British rule) and the Shanghai concessions and rights of western nations in China, competent observers suggest on a preliminary reading of the text.

All the discussions and the mid-term agreement at Montreal on the issues of definition of "trade in services" and the scope of such an agreement appears to have been ignored in the U.S. paper.

Some of its provisions even seem to go beyond what the U.S. service enterprises have been seeking in their drive for a multilateral agreement on services.

In some parts of the draft, U.S. political ideologies seem to have provided the cutting edge. For several decades now the U.S. has been trying in international negotiations to get legal recognition for rights for foreigners and their properties which used to be "international law", enforced through gunboat diplomacy, in the 18th and 19th centuries, but which lost legitimacy in the post-war era of the UN charter based on sovereignty of states.

One third world observer said that the whole draft is so dangerous that even agreeing to "discuss" it will put the third world on the path of a new colonial relationship with the north. "Even if 90 percent of the proposals are whittled down or eliminated, the balance will still be enough to damage the sovereignty and independence of countries", the observer commented.

The U.S. draft is an "umbrella-type" framework agreement, which neither defines "service" nor "trade in services".

It will apply to any existing or new measure of a party to the agreement related to the "provision of a covered service" within or its territory by a person of another party to the agreement (including a company owned or controlled by such a person). Even an "located" on a territory not a party, but owned by nationals of a party will get rights.

In combination with other provisions, including the dispute settlement provisions, this definition would give any foreign "person" or "enterprise" providing or seeking to provide a "covered service", extra-territorial rights on the territory of a sovereign state where the service is sought to be provided.

These rights relate to a wide range of activities including right of movement of "senior managerial personnel", right to hold and enjoy property and engage in business, etc.

It will also give the state of which the service provider is a national a locus standi in the host states’ dealings with the provider in these matters, including the coercive processes of trade retaliation.

The draft does not define "covered service", but envisages it to be listed in an annex, to be developed by the GATT secretariat with the approval of the parties to the agreement. The GATT secretariat has no legal basis under the articles of GATT, but is given such a status under GATS.

Parties to the agreement could list in a schedule the "covered services" which they would exclude.

The draft defines "provision of a covered service" as including within or into the territory of a party, "the production, distribution, sale, marketing, delivery or facilitation of a covered service, and the purchase or use thereof".

It also includes "access to, and use of, domestic distribution systems and services of public telecommunication transport networks". Some of these matters are to be spelt out in an annex, but have not been spelt out in the draft.

The activity associated with the provision of a covered service includes "the organisation, control, operation, maintenance and disposition of companies, branches, agencies, offices, or other facilities for the conduct of business."

It also includes "the making, performance or enforcement of contracts; the acquisition, use, protection and disposition of property; use of a commercial name of the provider's choice; the borrowing of funds; the purchase and issuance of equity shares, and the movement of information into and within a party (to the GATS)".

Taken together these two definitions will cover practically every type of economic activity, which a foreign enterprise might desire to involve itself in on the territory of a sovereign state.

For the provision of any covered service, each party to the agreement is obliged ("shall permit") to permit the "persons" of any other party "to establish or expand a commercial presence for the provision of a covered service, including inter alia the acquisition an existing company, establishment of a new company, or joint venture or affiliation with an existing company on a basis not less favourable than that accorded to its own nationals.

No party to the agreement shall establish or maintain any measure that prohibits or restricts the provision of a covered service to persons within its territory on the basis that the service or service provider is located partially or wholly within the territory of another party.

Thus in the "universe of service activities", foreigners will have equal legal rights as nationals of a country and in practice will have more since the foreigner will have the power and authority of his own state behind him in his dealings with the state where the service is sought to be provided.

Service providers are to be given "temporary entry" into a country to provide the service.

This right for ordinary "service providers" would be subject to the right of the state to allow visa and temporary stay permits "to the extent feasible and taking into account its national objectives".

But in the case of "senior managerial personnel" essential to the provision of a covered service, it would be the mandatory obligation of every party to the GATS to permit the "temporary entry" of nationals of any other party, otherwise qualified for entry under national laws and regulations relating to public health, safety and national security.

Another provision in the draft establishes the obligation to give "national treatment" to service providers who had "achieved market access" in a country, and would apply to all measures covered by the GATS.

A service provider would be deemed to have achieved market access it has entered the market of a country through establishment, cross-border transactions, "or use of the public telecommunications transport network".

While some of the last are yet to be developed and defined and incorporated in the final agreement, it would appear to include as simple a proposition as an outside party claiming to provide a establishing contact with a service consumer by telephone or telegraph or other telecommunications, and on this basis claiming market access rights.

Parties to the GATS are required to promptly publish all judicial decisions, administrative rulings, and international agreements to which they are parties, and all measures other than administrative decisions, which pertain to or affect the provision of a covered service.

Except in urgent circumstances, no measure shall be enforced before it has been officially published or, where this is not possible, before it is made known to the persons affected.

Also, except in urgent circumstances, before instituting any new or revised regulation affecting the provision of a covered service, every country party to the agreement is obliged to publish a notice its intention "to enable interested persons to become acquainted" with the proposed regulation.

Even more, "reasonable time" is required to be given to enable such "interested persons" and other states party to the GATS, "to comments in writing, and discuss these comments upon request with other parties".

The states concerned are further obliged to take all such comments and results of the discussions into account in the promulgation of the regulations.

Governments are to be precluded, through another provision, from giving any aid for the provision of a covered service within its territory or into any other territory, if such aid would cause "injury" to the interest of another party to GATS.

A provision relating to payments and transfers reinforces the power of the international monetary fund in ways that the fund does not now enjoy or can enforce except when one of its members seeks the fund's resources.

Another provision, relating to their right to impose "short-term" restrictions for balance-of-payments reasons, also obliges them to. accept the "determination" of IMF on whether or not a party's BOP situation justifies such short-term restrictions, whether a party has "appropriate" economic policies in place to permit early elimination of such restrictions, and whether the bop situation justifies extension of such restrictions beyond a year.

The analogous provisions of GATT, only obliges contracting parties (acting together) to accept findings of the IMF on statistical or other facts about foreign exchange, monetary reserves and BOP, and what constitutes "a serious decline" or is "a very low or "a reasonable rate of increase" in monetary reserves.

The fund staff, with their unproven dogma that unilateral liberalisation always results in increased exports and improvement in BOP always advances the view, in the GATT BOP consultations, even acknowledging the "fact" of low reserves, that it is "short term".

But GATT precludes, at least in respect of third world countries, the contracting parties (acting together), or the IMF, sitting in judgement and deciding that following another set of development policies would obviate the need for restrictive measures.

Since the fund, in its 40-odd year history has always acted in the interests of its five majority shareholders and the veto wielding U.S., the GATS draft will give fund vis-à-vis the third world far superior powers to the fund than its own articles when a member not seek its resources or under the GATT.

The draft has some provisions for consultations and nullification and impairment of rights but with incomplete provisions, to be in on the basis of the outcome of the GATT negotiations on dispute settlement.

The GATS will be open to governments contracting parties to GATT and the EEC. It will be open to other governments, not GATT CPS, on terms "related to the effective application of rights and obligations" under GATS to be agreed upon with the parties to the GATT.

A final provision in the U.S. draft specially names the "GATT secretariat" as the one to service the GATS, and makes the director-general of the GATT the depository of the GATS.

The Punta del Este declaration had specifically said that when the results of the Uruguay round MTNS, both in goods and services, have been "established", the ministers of the participating countries meeting "(in the occasion of a special session of the (GATT) contracting parties shall decide regarding the international implementation of the respective results".

This has so far been understood to include the issue of institutional arrangements, since there are a number of international organisations dealing with various service activities, including some aspects relating to the "trade" in those service sectors.