Services

Background

In 1994, services were incorporated for the first time into a multilateral accord with the creation of the General Agreement on Trade in Services (GATS) in the Uruguay Round of the GATT. Various bilateral or regional negotiations have begun since then, designed to deepen the liberalization of this sector, particularly in the FTAA. The structure of the FTAA negotiation is similar to that of the GATS, but the FTAA is intended to go beyond that agreement (and beyond NAFTA), above all in issues related the manner in which services are liberalized.

Services have undergone tremendous transformation in recent decades, but this does not mean that they have lost their basic characteristics, justifying their treatment as mere commodities. The WTO has identified 160 service sectors in the following categories:

• transport and distribution services, such as airlines and wholesale trade; • consumer services, such as hotels and fast food chains;
• public services, such as sanitation, health, and education;
• repair services, such as auto repair garages;
• financial services, such as those offered by banks and insurance companies; and
• public utility services, such as electrical, telecommunications, water, and gas services.

Of those services, financial activities and public services have come to play an increasingly important role in the liberalization and globalization of our economies. The Latin American experience with the liberalization of financial services dramatically demonstrates that liberalization and increases in financial flows - especially speculative flows - can generate enormous monetary and financial turbulence, which have become the cause of many economic crises. In addition, transnational corporations in the public-service sector have taken advantage of privatization to appropriate state-owned enterprises, thus managing the supply of basic services according to the logic of profits and marketing. Moreover, many investments in such sensitive sectors as energy, transportation, water, tourism and toxic waste disposal, have been made without consideration of their environmental impacts.

Hemispheric trade in services is growing rapidly, but the majority of exports come from industrialized countries. A similar phenomenon is occurring with flows of direct foreign investment in service activities, which have grown over the last few years. It is hardly surprising, therefore, that the vast majority of Latin American countries are "net" importers of services. Caribbean nations are the exception. Those countries are true service economies, due mainly to tourism and financial services. These differences in trade and investment flows reflect the differing capacities for service production that exist between the hemisphere's most developed countries and those that are further behind.

Furthermore, while services are important to Latin American economies - comprising nearly 60 percent of Gross Domestic Product (GDP) - they reflect, above all, the increase in informal or precarious services, which is the refuge of a significant portion of the population that has become marginalized from productive activities.

Services are extremely important, not only because they are inputs for the production of goods and other services but also because they satisfy consumers' needs, many of them essential for peoples' lives. Unfortunately, multilateral and hemispheric (FTAA) negotiations on the service sector tend to treat services more as industrial inputs rather than as vital products that satisfy the needs of a given population. Given their importance, the imposition of compulsory, global and irreversible rules that threaten democracy and service regulations is unacceptable.

Guiding Principles

1. Negotiations for any integration agreement must take into account that the majority of basic services are either public goods or are characterized by naturally monopolistic tendencies. Furthermore, many services are bound to the cultural identity, national security, or political cohesion of a given country (e.g., education, health and welfare). Therefore, the standards that regulate trade in services cannot be the same as those applied to goods.

2. Nation states must assume the responsibility to guarantee the provision of basic services and public utilities to their populations as a whole and therefore must commit to achieving legitimate regulatory objectives, including consumer protection and universal access to services. Any international anti-monopoly regulations on services should take into account that governments, when required by the public good, must preserve their ability to maintain publicly owned companies as the exclusive providers of vital services to the population.

3. Any service negotiations should be conducted with a broad perspective that includes national interests and those of citizens, as well as relevant policies on foreign investment, intellectual property rights, and other issues. In other words, the provision of services cannot be left either to the market or to a policy based on a perspective of efficient resource allocation.

4. A true integration agreement should take into account the large differences among countries in terms of the size and level of development of their service sectors. Special and differential treatment is absolutely necessary and should not be limited to setting longer phase-in periods for agreements.

5. Financial activities have continued to dominate the globalization of services. Any negotiations process should include the development of an adequate regulatory structure for financial flows-especially those of speculative capital. (see Finance Chapter for more details)

6. Any integration agreement should be based on unlimited respect for national sovereignty and democracy. The "national treatment" and "market access" principles that have been included in services negotiations are unacceptable, as they are only intended to secure open access for foreign companies to local services, restricting or prohibiting government policies that appear to interfere with the market.

7. Transparency in all negotiations is essential. The FTAA negotiations, as well as negotiations for other bilateral or regional accords, are taking place behind closed doors, under corporate pressure, and beyond the reach of the media and public scrutiny despite the fact that this adversely affects the vast majority of the inhabitants of the hemisphere.

Specific Objectives

1. The right of citizens/consumers to access to basic services must be guaranteed by nation states. In cases of free trade negotiations or agreements that would undermine that access, services should be excluded.

2. The rights of all governments to exclude certain essential services from negotiations or to introduce temporary safeguard measures on some services must be recognized.

3. National competition policies and laws should be reformed and strengthened in order to control the manner in which companies are acquired and merge, as well as to control anticompetitive practices and unfair trade in services. These regulations to prevent anticompetitive practices should be compatible with nation states' rights to serve as the exclusive provider of essential services when required in the public interest.

4. National and hemispheric regulations on financial flows, especially speculative flows, must be improved or established.

5. Nation states must protect citizens' and consumers' rights. Consumer protection laws should be applied to all service sectors. These laws should take precedence over any trade agreement.

6. Governments should promote effective and participatory regulations, based on the concept of public service, to orient and control services companies, whether state-owned or private.