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Spring 2002 cover

National Observer Home > No. 54 - Spring 2002 > Editorial Comment

The General Agreement on Trade in Services: Another Detraction from Australia's Sovereignty

The recent impetus towards "globalisation" has been so strong that the constraints upon states to surrender progressively parts of their sovereignty have often been difficult to resist. But as has been commented in this journal, the vague concept of "globalisation" includes some desirable and some undesirable aspects.

It must be remembered above all that the main impetus for "globalisation" has come from the United States. Its purpose has been to reduce other states’ defences, so that American goods can be sold more widely and the assets of other states, and especially privatised public assets, can be purchased by Americans. These objectives have been aided by effective U.S. control over the International Monetary Fund and the World Bank and other international organs. For example, when the I.M.F. has prepared "rescue" packages for states in financial distress, it has insisted on the privatisation of public assets so that in particular they can be purchased by U.S. financial interests.

Unfortunately in Australia the main political parties are carried along by this current, especially since Treasury officials have been much influenced by their American counterparts.

The Treasury's unfortunate role was seen in its attempts to promote the Multinational Agreement on Investment (the M.A.I.), which would have reduced Australia's capacity to control its own affairs and exposed Australia to actions for damages by multi-national (and largely American) corporations in particular. Fortunately a public outcry led to the intervention of the Joint Standing Committee on Treaties of the Australian Parliament, which criticised what was in substance the dishonesty of the Department of Treasury.1  The Joint Committee castigated the Treasury with unusual strictness, referring to "how excessive zeal for a cause in which it believes can sometimes blind an organisation".2

The General Agreement on Trade in Services (G.A.T.S.)

Unfortunately a similar threat that has emerged is the General Agreement on Trade in Services. G.A.T.S. will oblige member states to open up contracts for services to foreign competitors. It will hence be necessary for foreign and domestic providers of services to be treated as equals, and any preferential treatment of local service providers will be excluded. G.A.T.S. will apply to the sectors of the market that are specified by the subject state. Importantly, where there is a breach of G.A.T.S. individual service providers (and it may be assumed, U.S. companies in particular) will be able to recover damages against the subject state, such as Australia.

The specific provisions of G.A.T.S. provide many reasons for alarm. For example, although Article 1.3 exempts services that are provided "in the exercise of government authority . . . neither on a commercial basis, nor in competition with one or more service providers", there have been disputes as to the ambit of this exemption, and it has been suggested that it may not protect government-controlled activities in the health and education sectors. Further, under G.A.T.S. there will be continued pressure upon member states to expand the areas that are subject to that agreement: members wil be committed to "progressively liberalise" their service areas.

In addition, G.A.T.S. is directed at re-introducing many elements of the discredited M.A.I., for it is to apply where inter alia a foreign company (such as a water company or a bank) sets up a subsidiary or a branch in Australia.

It has been suggested that services comprise the fastest-growing sector in international trade, and that health, education and water are the most potentially lucrative of all services, on the basis that global expenditures on water services now exceed $1 trillion per annum, those on education now exceed $2 trillion and those on health care now exceed $3.5 trillion. U.S. corporations in particular are now attempting to capture foreign hospitals and health providers, and French corporations are extending their holdings in foreign water providers.

Australia's Position

In these circumstances it may well be asked why Australia should subject itself now to the G.A.T.S. regime, but this unfortunately is what some members of Mr. Howard's government wish to do. In these regards little responsible advice is to be obtained from the Department of Treasury. It has already been noted that that Department has become an intransigent and unreflective proponent of globalisation, and its much-criticised role in regard to the M.A.I.3  leaves little doubt but that its support of G.A.T.S. will be uncritical and extravagant. Unfortunately the Minister who is nominally in charge of the Treasury (the Treasury being in fact in charge of him) is Mr. Peter Costello, the Treasurer, who has a record of credulously adopting Treasury and Australian Tax Office advice and whose public statements have often proved to be misleading. There is no reason to believe that Mr. Costello will have the inclination or the ability to withstand pressure from departmental officers.4

The arguments against Australia's now become bound by G.A.T.S. are overwhelming. On the one hand its provisions are broad and uncertain, and will again involve a considerable loss of sovereignty. Further, Australia will not benefit: almost certainly the amount of foreign service provisions to which we will become subject will far exceed the relatively small provision by us of services abroad. On the other hand there is no need to bind Australia presently. If Australia delays its decision, and waits to observe how the G.A.T.S. regime operates in future years, it will be possible to proceed on an informed basis, something which is presently impossible in view of the overwhelming uncertainty that exists. If (which is unlikely) it appeared in the future that it would be in Australia's interests to be bound by G.A.T.S., Australia could then subject itself to that regime. If (which is likely) it appeared that this would not be in Australia's interests, but would instead benefit large U.S. corporations on the one hand and service-providers from countries with a low wage structure on the other hand, Australia should not do so.

Presently it is unfashionable amongst public servants and academics influenced by American pressures to pay attention to matters of sovereignty. In such quarters there is a naïve acceptance of contentions that policies that clearly favour the United States will also be beneficial to Australia. Unfortunately the quality of politicians in the Federal parliament is not generally high enough to lead to a critical and balanced assessment of public service advice.

The time has long arrived when Mr. John Howard should cease to be distracted by other matters and should concern himslf with protecting Australian sovereignty from internationalists5  whose loyalties are elsewhere and from the proxies of U.S. business.

The Commonwealth Government should not subject Australia to G.A.T.S., but should instead adopt a policy of proper caution in the safeguarding of Australia's interests.


1. See Dr. I.C.F. Spry, Q.C., "Globalisation: Ideologies in the Treasury - the Multinational Agreement on Investment", National Observer, No. 41, Winter 1999, at pages 38-46.

2. Op.cit., page 44.

3. See footnote 1, at page 5, supra

4. See, for example, "Mr. Peter Costello: A Poor Man's Paul Keating", National Observer, No.50, Spring 2001, pages 10-12.

5. Mr. Howard's failure to withstand pressure from Mr. Alexander Downer to ratify the International Criminal Court Statute will ultimately be one of the matters for which he is most remembered: see pages 8-10, infra.

National Observer No. 54 - Spring 2002