Examination of Witnesses (Questions 240-259)
TUESDAY 8 APRIL 2003
MR JOHN
HILARY AND
MR PETER
HARDSTAFF
240. That is a ban, to my mind?
(Mr Hilary) Who are we to ban it? It is a recommendation
that no member country of the WTO actually should commit their
water sector under GATS, because indeed that would be cancelling
out their policy choice. You will see the quote from Mike Muller,
who is the Director General of the South African Water and Forestry
Directorate, where he says South Africa has actually engaged the
overseas private sector in foreign investment in its water sector,
but it believes that definitely it should not be making GATS commitments,
because that would close down its policy choice for the future.
So we are putting the same point.
241. Yes, but you want to take away from the
developing countries the freedom to choose to go in that direction,
that is what you want to do, and yet no WTO member country has
committed its water distribution sector to GATS, and there is
nothing that can compel them, as I understand it, to commit?
(Mr Hilary) The issue is not so much about compelling
them to commit, it is within the context of these WTO negotiations
they come under overwhelming pressure, as they themselves have
told us on numerous occasions, and what we are saying is—
242. It is overwhelming pressure which no-one
has succumbed to, according to your paper?
(Mr Hilary) That is because this round currently is
the first round in which there have been requests of developing
countries to open up their water sectors.
243. But no-one has offered?
(Mr Hilary) They have only just received the requests,
and, as you know, the offers phase is ongoing as we speak. What
we are suggesting to developing countries is that they do not
offer water.
244. And they are accepting, but they have freedom
to decide whether to or not, but you want to take away that freedom.
What would be interesting to me is, how do you recommend that
large-scale water provision should be supplied; how do you recommend
that should be supplied?
(Mr Hilary) That is a little bit outside the bounds
of this particular paper and your inquiry, but I will answer it
very happily. We have heard from the private sector companies
themselves that they do not believe they have even a tenth of
the capacity to meet the Millennium Development Goals, which in
this respect means halving the proportion of people throughout
the world without access to water; the private companies themselves
are saying that they do not have the capacity, really they are
not more than a marginal part of the solution to this. What we
would recommend, therefore, is a dramatic mobilisation of public
resources, from international donors and also within countries
themselves, in order to provide effective and sustainable public
systems to deliver water to all the people of those countries,
and that includes a commitment to public sector reform in those
countries where the public sector simply is not working at the
present.
245. Sure; but it seems to me there are poor
developing countries that do not have their own capital resources,
so they have to involve the developed world in some way. One way
they can do it is by going into straightforward debt, supplied
by the World Bank, or major infrastructure; the other way is by
using the resources in the private sector. And what are you recommending;
because it does not seem to me there is any point in you telling
us what not to do unless you have got a perception of what we
ought to do?
(Mr Hilary) The third way would be to take, as I said,
public money in order to build up public systems, which are sustainable
and can deliver these services for the whole of the population.
246. So it would be grant from the developed
world to the developing world?
(Mr Hilary) And also, as I say, as much mobilisation
of local domestic resources as possible. The thing about the private
sector is, in fact, that you are not unlocking capital which is
flowing in without incurring extra debt; a lot of the case studies
in our report show that, for developing countries which take on
privatisation, or part privatisation, of their services, they
end up with enormous debt on top of that as well. Tanzania is
the most obvious example most recently. So what we would say is,
there are many other, more useful avenues to explore than involving
the private sector, because the private sector actually does not
have any answers to the problems of non-access by the poor, since
the poor cannot afford to pay and sustain the profits which the
private sector needs.
Tony Worthington: So it is sort of agreeing
with what Alistair said. We have gone round, and this issue about
GATS is raised by British, European NGOs but is not raised with
us by the developing countries. Is there a way in which you can
answer that criticism?
Chairman
247. Peter, can you respond to that comment,
and any other comments you want to make to Mr Worthington's questions?
(Mr Hardstaff) Thank you. First of all, I just wanted
to reiterate that, when John is recommending that countries do
not make a GATS commitment in water, this has nothing to do with
attracting FDI in the water sector. These things are separate.
You can attract FDI, you can liberalise, you can privatise, you
can do whatever you want outside of GATS; the critical thing about
GATS and one of our problems with it is the lock-in, of rules
which affect the way that you can regulate FDI. So a position
where you recommend a country does not take on a GATS commitment
is not saying "Don't ever involve private finance in any
sector." These things—on the one hand attracting investment
and on the other GATS—have to be separated. On the issue
of developing country concern, we work with NGOs in developing
countries; for example, there is a recent report by an NGO called
Social Watch, which is a network of some 60 NGOs in developing
countries, raising concerns about liberalisation and about GATS,
so this is not just a northern NGO concern. I think it is fair
to say that the developing country governments at the WTO are
steadily realising some of the problems with GATS and are starting
to raise some of those. Developing countries consistently have
called for more assessment on the implications of GATS commitments,
and on the implications of liberalisation; and these calls still
have not been met. On the issue of bilateral pressure, I would
like just to quote a speech from a Bangladeshi ambassador to the
WTO. I quote: "When you go into bilateral format of the negotiations
you are vulnerable; why? Because against a major developed country
you simply cannot withstand the level of scrutiny and you do not
have the strength and numbers that you get in the multilateral
process. This is exactly what happens bilaterally in the WTO."
I think it is fair to say that there are more and more examples
of developing countries concerned about the kind of pressure that
they come under in GATS; a lot of it, of course, is not official,
not through government papers but anecdotal, and that tends to
be the way that these things come out in the WTO, and I think
an increasing level of concern is being expressed. But, apart
from the issue of assessment, this has not reached the level of
developing countries putting forward proposals, like they have
done with implementation issues and like they have with agriculture.
Alistair Burt
248. We have discussed also, to some extent,
Article VI.4, which is the Article about burdensome regulations,
which gives countries the opportunity, it gives them this choice
on their regulatory structure, requiring countries to develop
rules aimed at restricting their domestic regulation to measures
which are not more burdensome than necessary, however. The sense
is, how will these regulations be interpreted, and we have a sense
that probably you believe that the interpretation of such an Article
will not necessarily be development-friendly, whereas the other
interpretation equally is possible. What leads you in your particular
direction?
(Mr Hardstaff) I think, on the issue of Article VI.4,
the proposal for a necessity test, where you are setting up a
rule under which government regulations should be the least trade-restrictive
and "no more burdensome than necessary", we have no
way of knowing how a WTO panel will interpret those rules if a
dispute is brought to the WTO; however, I think our main concern
is should the power be given to a WTO panel to interpret what
is "least burdensome".
249. Somebody has to.
(Mr Hardstaff) Why?
250. There is no point in having the rule which
requires that arbitration unless you have some reference point
for it?
(Mr Hardstaff) Exactly. We question the need for those
rules in the first place; why do you need a rule requiring government
measures to be least burdensome. This has not happened in the
WTO before. This is an expansion of the WTO's rules into areas
we have not seen before, and we are concerned that this will constrain
unduly the ability of governments, and not just developing country
governments, to effectively regulate service providers. There
is no definition at the moment on what regulations these rules
might cover—the scope of such terms as "technical standards",
and "licensing requirements". We question the need even
to insert these rules into the WTO. And it is important to recognise
that this is not about the WTO's core competence, if you like,
of so-called non-discrimination, this has got nothing to do with
discrimination, these are rules that will be about the trade-restrictiveness
or the burdensomeness of a government regulation. And it seems
wholly unnecessary to both develop those rules and transfer the
power, to WTO dispute panels to decide what is or what is not
least burdensome; as far as we are concerned, that is up to governments.
(Mr Hilary) Can I give you just one example which
might be useful in this respect? It is the precedent which actually
is cited at the WTO for how they see this concept of "necessary"
panning out in dispute settlement. It comes from a 1990 ruling
of a GATT dispute settlement, that is pre-WTO but still used by
the WTO, and it relates to the case brought by the US Government
against Thailand for the import ban that the Thai Government has
always held on foreign cigarettes. The Thai Government came to
this disputes panel and said, "Well, we maintain this ban
on the import of foreign cigarettes because we have been told
by the WHO how great an increase in smoking, particularly among
children and women, is likely to be seen if we have American cigarettes
coming into the country on top of the Thai cigarettes, which are
smoked just by men, and particularly older men." And the
US came along and said, "Well, we can see that there is a
public health issue here, but what we would like to maintain is
that it is not necessary to maintain this import ban," and
the WHO itself gave evidence and said, "Yes, we know, from
Latin American countries and other Asian countries, that when
you drop a ban on imports you do see dramatic increases in the
level of smoking." But the pre-WTO panel, the GATT panel,
ruled in favour of the US, saying that it did not consider an
import ban to be "necessary" under the trade rules which
GATT and the WTO are there to uphold. So that gives us a sense
of how genuine public health objectives actually will take second
place to the trade liberalisation agenda of the WTO under any
panel ruling.
Mr Colman
251. It is an interesting read-across, and,
as somebody whose parents died from excess smoking, and my mother
was very ill when sadly she died two years ago, certainly I would
agree with that; but it is a strange read-across to GATS. But
I am sure, in the evidence that you have seen we have already
taken, the DTI emphasised that, in contrast to the multilateral
agreement on investment, they say, that is DTI, corporations will
not be able to bring GATS cases to the WTO dispute settlement
panel, and therefore developing countries need not fear that their
decisions about how to provide public services will be challenged
in this way. Are you reassured by this, and, if not, why not?
(Mr Hardstaff) On the whole regulation issue, again,
I think it is important to make a distinction. When we talk about
regulation, we mean regulation of investors and also regulation
in terms of the quality of the service, so it is not just environmental
and social standards, for example, and how you provide a service;
regulation for us also incorporates all the measures which the
GATS is designed to get rid of, in terms of performance requirements,
joint ventures, etc. And the DTI is absolutely correct, the GATS
does not encompass investor states dispute resolution, and we
have never said that it did, we have never claimed that GATS will
allow companies to take disputes in the WTO, obviously companies
can encourage their governments to do so, and, as we have seen
with previous disputes, for example, bananas, a company can lobby
its government to initiate a dispute settlement proceeding, but
we have never claimed that companies will be able to do that directly
in GATS. When you look at the kinds of regulations that GATS is
slowly whittling away then we have major concerns; the leak of
the European Union's "GATS requests of developing countries"
lists a whole swathe of regulations which the European Union is
targeting for elimination. Cameroon currently has reserved its
right to require, for every $10,000 of foreign investment, at
least one job is created, and the EU has asked for that to be
eliminated. El Salvador has a limit on the profit remittances
of companies, and the EU has asked for that to be eliminated.
Chile has capital controls, which some years ago actually were
praised for sheltering Chile from financial crisis; the EU has
asked for that to be eliminated. These are the kinds of regulations
which we are concerned, slowly, over time, are being whittled
away through the formalised GATS process.
252. Do you think though that the dispute settlement
mechanism is sufficiently transparent and accountable?
(Mr Hardstaff) In the WTO?
253. Yes; because it does provide, if you like,
a benchmark which all the countries of the world, or all the members
of the WTO, must all accept; it provides a level playing-field
to developing countries and developed countries?
(Mr Hardstaff) There are particular problems with
dispute settlement, when we say level playing-field, then, in
terms of capacity, to initiate disputes and afford to initiate
disputes, there are clear differences, in terms of the ultimate
enforcement mechanism, which is trade sanctions, then there are
clear differences in the ability of countries to use that, either
the threat or the enforcement of sanctions. So currently there
are still problems with the dispute settlement process, but it
does provide an opportunity for both developed and developing
countries to initiate a legal process to deal with what they see
are violations by the members of WTO rules.
254. And that is pro developing countries, in
terms of ensuring that there is, if you like, a basis on which
the regulatory framework, in fact, can be queried around the world?
(Mr Hardstaff) Having a legal dispute mechanism is
not something that we have ever questioned; we question the operation
of it and, if you like, the detail of the way that it works, but
having a system, and a legal system, to resolve disputes is not
something we have ever questioned.
(Mr Hilary) Might I make just one single point in
that respect, which I think is important for the inquiry as a
whole? It is to distinguish between the formal and the actual
elements of the WTO. When you heard from Pascal Lamy very recently,
he brought up this old canard that the WTO is an organisation
which works on the principle of "one country, one vote";
yet it does not vote, the WTO has never had a vote. So bringing
up this idea that it is a "one country, one vote" system
actually is not particularly informative or meaningful because
they do not have votes. Similarly, with the GATS, as we have already
seen, it has the architecture of a very development-friendly agreement,
but actually the process of negotiating it, and the market access
negotiations which we are in currently, reverses completely that
development-friendly architecture. So I think you need to look
below the level of the formal WTO processes and actually find
out what really is going on. And one thing which I know the Committee
will be interested in for later on in the year, there is a book
which is coming out in a couple of months' time[55],
which actually is looking at some of the real processes which
go on behind the scenes at the WTO; it is based on interviews
with developing country representatives and many others within
Geneva, and I think this is something which lays open the truth
about what actually happens in international trade negotiations.
We will certainly send a copy to each of you.
Mr Colman: I did ask that that be reviewed,
in fact, prior to publication, by Members of Parliament, who actually
were at Doha, but I am afraid that was refused.
Mr Walter
255. I wonder maybe if I could just turn this
on its head. Clearly, it is not the case that developing countries
are full of efficient service providers, providing water, electricity,
sanitation, waste disposal, and so on, and clearly it is not the
case that, even if they were there, they are not about to be cherry-picked
by western multinationals. But, given your criticisms of GATS,
which I see essentially as a framework, rather than a necessary
process, but it does provide legal templates, and to some extent
is a catalyst, in the absence of that kind of stable investment
climate that GATS could provide, how do you envisage the provision
of public services in developing countries being improved; the
question is, if it is not GATS then what?
(Mr Hardstaff) Again, I come back to the point that
there is no evidence GATS has increased the amount of investment
going to developing countries, so if you make a GATS commitment,
whatever legal certainty you think that provides, obviously it
has not been enough to attract primary investment. So, again,
let us make a distinction between attempts to attract FDI into
developing countries and making a GATS commitment, because the
two are separate. WDM does not have a kind of "in principle"
opposition to private sector involvement in services, the private
sector is very diverse, when you look at successful service provision
in countries like Brazil, in countries like Bolivia, then there
is a different private sector model that seems to be emerging,
in terms of community participation and community-based management
systems; in these cases in the water sector. Now there are lots
of different possibilities for increasing transparency, and increasing
effective service provision, we do not claim to know the answer;
what we are concerned about is the ability for countries to change,
to iterate, as they go along, and that is where our problem with
GATS lies. So I do not think it is a question of, if not GATS,
what else, because I do not think GATS is relevant to providing
services in developing countries, countries can try to develop
service provision systems without GATS.
256. But many countries have been trying to
do this for years, and what GATS has done, or has attempted to
do, and we are only at the beginning, we are talking about major
investment projects now, these are not something that happened
overnight because somebody signed a piece of paper in Doha, really
it is trying to create the framework, the climate, in which companies
will feel some stability in being able to make that investment.
What you are saying is, "No, let's kick that away, let's
not involve the WTO, let's just leave it as it was and hope for
the best"?
(Mr Hilary) No, because I think, if I may respond
to that, companies already have a fairly high level of security
through the other investment-related provisions of the World Bank,
in particular ICSID, the committee through which they can actually
chase up any compensation for contracts which have been cancelled;
they already have that level of assurance. What GATS does is,
it gives them an extra level of guarantee against political and
commercial risk. What we feel is that handing more and more and
more of these guarantees and rights to companies actually could
swing the pendulum much too far, because it takes away the rights
of the people whose lives potentially are harmed by some of the
most negative investments. What we are suggesting is you need
actually to get back into a more balanced framework, which allows
countries the flexibility to have their own policies to maximise
the positive use of foreign investment.
257. What is negative investment?
(Mr Hilary) You have many examples of investment where
the foreign investor will come in and undermine already existing
state provision of services. The example I can give you from Save
the Children's research is in terms of health insurance, where
you have countries which have tried to roll out a social state
health insurance programme across their population, which is based
on risk-pooling, cross-subsidisation and the greatest number of
people participating within that. If then you have competition
from Prudential, or Allianz, or one of the other big multinational
insurance providers, actually that cuts the market in half and
makes it unsustainable, and, before you know it, the common saying
is that the poor are left with poor services and the rich end
up with even better services than they have already. It is in
that type of framework that foreign investment actually works
to the disbenefit of the poorest, which again is why it is wrong
to lock it in under GATS.
Mr Battle
258. Could I ask about Mode 4 of GATS, that
labour mobility clause, and when the Secretary of State gave a
speech at Chatham House, she said ". . . that if developed
countries increased the proportion of temporary labourers to the
equivalent of just 3% of their labour forces it would yield an
increase in world economic welfare one and a half times greater
than the gains we could expect from the liberalisation of all
the remaining trade restrictions." So, that question of Mode
4 of GATS allowing that mobility, what is your view on the desirability
of Mode 4?
(Mr Hilary) Certainly we have always called for the
richest countries to open up their systems for increased mobility
of labour, and we agree completely the level of benefits that
could bring back to developing countries. In 1997 already India
gained more than $10 billion in remittances from its own personnel
working overseas. But, within that general approbation of the
idea of extending the mobility of labour, Save the Children, in
particular, has wanted to make just one small caveat, it is a
large caveat, actually, and that is in respect of the migration
of key personnel from developing countries in, for example, the
health sector. The World Bank has suggested to developing countries
that they might see the export of health personnel as a nice earner
for their economies, very good for balance of payments, but what
certainly we feel, at Save the Children, is that these key public
services are under extreme strain already in many developing countries,
and it is much more important for the key personnel in health
and education and other basic services to be retained within the
countries in order to deliver those services to children and their
families.
259. Would not that depend on the circumstances
in those countries?
(Mr Hilary) It would, but what we find is that there
are only one or two countries in the world which have a genuine
surplus of these personnel to send; Cuba is the obvious example,
which is targeting other Latin American countries.
55 "Power Politics in the WTO", by Aileen
Kwa, of Focus on the Global South. Available at: www.focusweb.org/publications/Books/power-politics-in-the-WTO.pdf. Back
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