A submission by Federal Union to the Department of Trade and Industry, 2 January 2003

Read this article as a pdf.

1. This submission falls into four parts. First, what is Federal Union? Secondly, why we welcome the GATS process. Thirdly, some specific comments on aspects of the consultation document. Fourthly, an overall observation on the GATS process and what needs to be added to it to make it democratic.

What is Federal Union?

2. Federalism divides political power between levels of government to achieve the best combination of democracy and effectiveness. It is not the bureaucratic centralisation of popular myth. Federal Union was founded in 1938 and campaigns for federalism for the UK, Europe and the world. It has argued since then that democracy and the rule of law should apply to states as well as within them.

Why Federal Union welcomes the GATS process

3. The world badly needs better global economic regulation. Tariffs and non-tariff barriers restrict trade and cost wealth and jobs. The super-rich can exploit tax loopholes and tax havens to avoid paying their fair share of tax. We are unable to deliver cheap medicines to those who need them, or environmental regulations that work. If economics has gone global, politics must follow.

4. The record of freer trade in manufactured goods shows that it has boosted growth and created jobs in poorer parts of the world. The system is not perfect, far from it, but millions of people have been lifted out of poverty and millions more are more prosperous than they would otherwise have been. In the long run, protectionism does more harm than good.

5. The GATS proposals aim to bring the same approach to services as applies to manufactured goods today. Services make up a larger proportion of the global economy every year - there are technological and environmental imperatives for this - so GATS is a logical extension of existing arrangements.

6. However, a free and fair trading system does not arise of its own accord. It needs institutions to regulate and protect that system. The weakness of those institutions, and the even greater weakness of their mechanisms of democracy and accountability, is a serious concern. We will return to it in the fourth section of this submission.

Some specific comments on the GATS proposals

7. Federal Union does not claim a competence to comment on the technical detail of the proposals. However, as a membership-based NGO, it does claim a right to comment on the political significance and implications of what is proposed.

(a) Cultural products

8. The consultation document notes that the audio-visual sector is treated by the EU as "an essentially cultural form of expression" and observes that special treatment is sought for it on those grounds. Sport and food also raise the same issues: they are both commercial products and also cultural artefacts. The document recognises that there is this dual status, but does not propose a means of resolving this tension.

9. The market impulses of liberalisation are now reaching some of the commercial activities most associated with national or cultural identity. Globalisation must not be allowed to sweep such identities away.

10. There is a need for a collective process of decision-making on this point, or else there will be no progress in opening up markets: the importance of this decision-making only emphasises the importance of democracy in such decisions. No amount of diplomatic negotiation can handle this adequately. The legitimate and democratic concerns of the people are too strong for this.

11. The concept of the "cultural product" needs to be recognised with the rules of world trade (and within the European Union, too), where market needs have to be balanced by cultural ones.

(b) The future of taxation

12. As an increasing proportion of the world economy becomes mobile, there is the danger that the capacity of governments to levy taxes will be diminished. Perhaps some people would welcome this for its own sake: Federal Union does not. Taxation questions need to remain subject to democratic decision-making. We deplore the way that tax havens can enable the super-rich to escape their obligations to society. Taxation cannot be purely a matter of national sovereignty, so a supranational element is essential.

13. Liberalisation in financial services should not prevent, either by design or by result, governments from raising taxes. Similarly, liberalisation in transport services should not be allowed to remove it from the realm of taxation. Already, airline fuel is exempt from duty because of the impossibility of collecting it on a national basis. As the importance of environmental taxation grows, transport, and particularly international transport, and even more particularly international air transport, will become a focus for action. GATS agreements should assist this, not prevent it.

(c) Shipping regulation

14. The sad case of the Prestige, which sank recently off the north-west coast of Spain, illustrates the absurdity of the concept of "national" shipping regulation. The ship was registered in the Bahamas, owned by a company based in Greece, operated by a company based in Switzerland. The charterer was Russian, the voyage from Latvia to Singapore, the crew Filipino, the salvage experts Dutch. No nation state can regulate that. Supranational rules are long overdue.

(d) Diversity in the media

15. The ownership of the media would not be a concern if proprietors did not influence editorial decisions. However, they do, so it is. It is to the disadvantage of most of us that so much of the world's media output comes from such a narrow range of countries. Rules on media ownership should be framed so as to protect the diversity of expression. This is true within any one country: it must also be true globally.

An overall observation on the GATS process

16. It is a sad reflection on the state of public debate that the fact of globalisation remains as controversial as it does. While it would no doubt be possible to grow bananas under glass in the north of Scotland, it would be madness to try. However, the logic of opposition to globalisation implies that that is where bananas in Britain should come from. For that reason, Federal Union welcomes the fact of globalisation.

17. However, it is an even sadder feature of public debate that the nature of globalisation is not more controversial than it is. Power is leaching away from national governments to distant bureaucracies and international institutions or simply to nowhere at all. A new democratic deficit is emerging before our eyes. Federal Union argues that this must be filled.

18. Distrust of the global economic institutions is widespread. It is widely held, for example, that the GATS process will require the privatisation of public services, repeated government protestations to the contrary. For some reason, the word of New Labour is not believed.

19. As observed above, the world needs a trading system and therefore needs institutions to manage and protect it. Those institutions must be accountable, transparent and eventually democratic if they are to be successful. For example, the WTO could acquire a parliamentary assembly - with purely consultative powers at this stage - to hold its executive decision-makers to account.

20. But this is not new. The European Union has its origins in just such a debate. The genius of Jean Monnet was to balance the executive, legislative and judicial institutions of the European Union, to balance the interests of the participating member states, and to balance the development of the powers of the Union alongside the development of its democratic legitimacy.

21. Federal Union is firmly of the belief that global trade is desirable, but equally firmly of the belief that effective and democratic global institutions will be needed to make it as beneficial as it should be. The current GATS process is important, but it is only half the picture.

2 January 2003