Contact: Kevin Gardner, Head of Legal Practice, ext 7381

1 Summary

The Department of Trade and Industry ("DTI") has issued a consultation paper entitled "Liberalising Trade in Services". The paper concerns negotiations being conducted by member states of the World Trade Organisation ("WTO") within the framework of the General Agreement on Trade in Services ("GATS"). Responses to the consultation paper are invited by the 3 January 2003. This report sets out the context and background to the negotiations, and considers the key implications for the Council. A response to the consultation paper is proposed.

2 Context and Background

2.1 The GATS is an agreement signed in 1994 by 140 member states, including the UK. The agreement is administered by the WTO. It applies to measures adopted by central and local government authorities of member states which affect trade in services. The aim is to remove restrictions which are regarded as unnecessary barriers to trade, thereby promoting freedom of international trade and ensuring a level playing field for foreign service providers to compete in any member country.

2.2 GATS rules apply to many different types of services, including a number which are the responsibility of local government or in which local government has a direct interest e.g. determination of planning applications; regulation of waste disposal, transport, highways; procurement. Negotiations are currently taking place on the extension of these rules to other types of service.

2.3 As a signatory to the agreement, the UK Government is committed to taking part in the negotiation process with the aim of achieving a progressively higher level of liberalisation. The Government believes there is a huge market for the export of services and is prepared to negotiate trade-offs which will allow foreign, particularly US, companies access to our domestic markets, in return for access for UK-based companies to a growing world market for services. Many national governments are strongly committed to the principles of globalisation, believing that this brings benefits in terms of economic development and the long-term eradication of poverty. Other EU states and WTO members are generally supportive of the principle of further trade liberalisation.

2.4 A WTO conference at Doha in November 2001 established three key dates in relation to the current negotiations:

- 30 June 2002 for the submission by member states to other member
states of initial requests for extension of liberalisation

- 31 March 2003 for the making of an offer of an extension in response to
the request

- 1 January 2005 for negotiations to be concluded.

2.5 A number of requests for increased liberalisation have been received by the EU/UK, and the DTI is currently preparing its response to these requests, which will be finalised by March 2003, as indicated above. It is this upon which the DTI is currently consulting. In particular, the DTI invites views on the following questions:

- should the UK be prepared to meet the request in full, and why?

- should the UK be prepared to meet the request partially ,and why?

- what conditions, if any, should the UK be seeking to attach to attach to any
requests that the Government might agree to?

3 The Implications for the County Council

3.1 The service sectors in which greater liberalisation has been requested are numerous, and include a number of areas of direct interest to the Council e.g. environmental services; architectural and urban planning services; computer services; construction and related services; education services; recreational, sporting and cultural services. The Council's interests in these areas can be grouped into two broad categories: firstly, where the Council acts as regulator, and secondly, where the Council acts as the commissioner or provider of a service.

3.2 The Council's functions as a regulator include activities which involve the protection of the environment e.g. the determination of planning applications, and the protection of the public e.g. the enforcement of consumer protection legislation. Under the GATS, domestic regulatory requirements must be capable of meeting a necessity test. To defend a regulation under this test, it is necessary to show that the measure in question is not more burdensome than is necessary to ensure the quality of the service. Concern has been expressed by the Local Government Association ("LGA") that these criteria are very much open to interpretation, and that the WTO dispute settlement process could be used to enforce an interpretation in favour of business, as opposed to regulatory interests.

3.3 With regard to services which the Council commissions or provides, the Government, and the WTO, have insisted that services supplied in the exercise of governmental authority are excluded from GATS, on the basis that they are services "supplied neither on a commercial basis nor in competition with one or more service providers." However, there is a contrary argument that this exemption would not be held to apply to public services which have been subject to competitive tendering or market testing.

3.4 Although requests for liberalisation have been received in respect of Education services, the consultation paper states that the Government's position is that it will not make commitments that could call into question the funding and regulation of the state education system. The state school education system is therefore regarded as falling outside of GATS.

3.5 On the 21 November 2002 the Recreation and Heritage Committee considered the particular implications for recreational, sporting and cultural services. Particular concerns were expressed at the possibility of foreign companies demanding equal levels of subsidy to public service providers in the fields of library provision, and the effect that this may have on the funding of existing services. The consultation paper states that EU Member States have declined to make commitments for liberalisation in respect of libraries, archives, museums, and other cultural services, reflecting the need to ensure continued provision of public library and museum services. However, views are sought on the extent to which GATS commitments could be made in this area.

3.6 The Recreation and Heritage Committee's conclusion was that the Executive Member, Recreation and Heritage should respond to the consultation in terms that the areas of recreation, sporting and cultural services should be excluded from liberalisation, as this may lead to these services being removed from democratic control. The Committee further recommended that efforts should be made through the LGA and the Assembly of European Regions to establish an international agreement for the protection of diversity in these areas.

4 Comments and Proposed Response to the Consultation

4.1 Local government has a wide range of mechanisms by which it intervenes in the free market in order to secure a public interest benefit to the local community. The land use planning system ensures that the interests of different sections of the community are balanced in reaching decisions in relation to future development. Planning decisions can result in limits properly being placed on the freedom of businesses to trade, where these are necessary for environmental or social reasons, or to respect the rights of others. In the enforcement of consumer protection legislation, the Council may properly take action to restrict trade in a particular instance where this is necessary to protect the public from fraud or for safety reasons. In placing contracts for the provision of services, the Council may restrict tender lists to companies who meet minimum criteria as to financial standing, and require minimum levels of insurance, or a parent company guarantee or bond. Such measures do restrict the ability of some to compete, but the measures are properly designed to avoid difficulties arising, and to protect the position of the Council in the event that they do.

4.2 While the consultation paper does indicate that there is no intention to prevent WTO Member States from regulating to achieve domestic policy objectives, it is not totally clear from the consultation paper how the types of measures referred to in paragraph 4.1 above would be affected by the "necessity" test. In these cases, the justification for the measure is not simply that it is needed "to ensure the quality of the service." It is difficult to contemplate that the Government would propose making commitments for the liberalisation of services in a way which would restrict the ability of local authorities to continue to operate the sort of controls referred to above, in the exercise of their statutory functions. Nevertheless, it is important that such a possible outcome is guarded against.

4.3 It is suggested therefore that the DTI be advised that the Council would not wish to see any liberalisation of services on terms which had the effect of removing from the Council the responsibility, and accountability, for the commissioning and provision of local public services in the exercise of its functions. Further, the Council would oppose any liberalisation on terms which fettered its discretion to impose, in the exercise of its functions, reasonable measures which it considered necessary for the achievement of environmental, sustainable, economic, social, or public protection objectives, or which the Council otherwise considered to be in the public interest.

4.4 The creation of a level playing field for foreign and domestic businesses would be an extension of the position under the EU public procurement regime where, subject to certain exceptions, tendering arrangements for public service contracts must be open to businesses from EU Member States, and must be conducted in a way which is non-discriminatory. Businesses from outside Europe can already establish their own subsidiaries within Europe, which can then bid for contracts. Providing the Council remains in a position to make decisions as to whether services should be market-tested, and if so, how the contract should be packaged and specified, and to whom, if anyone, the contract should be awarded, then the widening of the field of potential service providers should be nothing to fear. Indeed, it would be consistent with the Council's duty to secure best value in service provision.

4.5 In respect of recreation, sporting and cultural services, the views put forward by the Recreation and Heritage PRC to the Executive Member, Recreation and Heritage were that these should be excluded from liberalisation, as this may lead to these services being removed from democratic control. The Committee further recommended that efforts should be made through the LGA and the Assembly of European Regions to establish an international agreement for the protection of diversity in these areas.

5 Conclusion

In conclusion, it is suggested that the Cabinet endorses the comments set out in paragraph 4 above, and that the Chief Executive be authorised to respond to the consultation in these terms.

Section 100 D - Local Government Act 1972 - Background Documents

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works

2. Documents which disclose exempt or confidential information as defined in the act.

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