A       Discussion Paper



Jonathan Rutherford

January 2001


Last year the Department of Trade and Industry hosted ‘Knowledge 2000’

Conference on the Knowledge Driven Economy. Prime Minister Tony Blair lit

the Government beacon: ‘I strongly believe that the knowledge economy is our

best route for success and prosperity.’ Secretary of State for Trade and

Industry Stephen Byers held the torch high: ‘The main source of value and

competitive advantage is human and intellectual capital...Knowledge needs to

be created, located, adapted and exploited.’ The message was clear, the

Government would promote open markets to improve Britain’s competitive

position in the knowledge driven economy. New Labour’s vision of a

liberalised global economy is now about to be enshrined in a multilateral

trade agreement called the General Agreement on Trade in Services (GATS).

National governments - Britain and other EU countries are represented in the

negotiations by the European Commission - have submitted their proposals

for the first phase of negotiations which will begin in Geneva and will

culminate in the World Trade Organisation round of talks to be held in

March. Curiously no-one seems to know anything about it: no parliamentary

debates, no ministerial clarion calls, only one or two articles to date in

the mainstream press. Why conceal the beacon under the bed?

Twenty years ago some of the world’s biggest corporations , particularly

financial giants Citicorp and American Express, began lobbying the US

government on the importance of trade in services. The US Coalition of

Service Industries (CSI) was formed in 1982 with the aim of achieving

greater liberalisation and access to foreign markets for US business. It

has played the leading role in organising corporate interests and promoting

GATS. The prizes are colossal. Services form the largest sector of

national economies. They create over 60 percent of world production, 71

percent in the US. With the decline of manufacturing industry, they hold

the key to economic growth and profitability. In 1998 the US exported $1.3

trillion of services. Education alone as a global wide industry tops $1

trillion dollars in public spending.

GATS was agreed under the General Agreement on Tariffs and Trade in its

Uruguay round and signed in Marakesh in 1994. The following year the

World Trade Organisation replaced GATT, and GATS became a part of its

‘built in’ agenda, providing ‘legally enforceable rights to trade in all

services’. The WTO describes it as ‘the world’s first multilateral

agreement on investment, since it covers not just cross-border trade but

every possible means of supplying a service, including the right to set up

a commercial presence in the export market.’ In the tear gas and

window smashing drama of Seattle, trade in services was overlooked. But

make no mistake, GATS marks an historic development in the process of

global economic liberalisation. Renator Ruggiero, the former WTO

Director-General, speaking in Brussels in June, 1998 gave a warning about

its scope and power. ‘I suspect that neither governments nor industries

have yet appreciated the full scope of these guarantees or the full value of

existing commitments.’

GATS covers 160 different areas of services including health care,

education, tourism, broadcasting, finance, insurance, road building, water,

energy. Under the obligations set down in Article XIX the 138 member

countries of the WTO shall enter into successive rounds of negotiations

‘with a view to achieving a progressively higher level of liberalisation’,

and the aim of ‘providing effective market access.’ The process has three

key principles. First, member countries shall not discriminate between

trading partners who are also member countries of the WTO; each must be

accorded ‘most-favoured-nation status’. Secondly, under the principle of

‘national treatment’, member countries must treat foreign companies in the

same way they treat companies from their own country; obstacles to trade

such as discriminatory practices and protectionist policies must be removed.

Third, member states must ensure an equal access to markets by eradicating

practices which mitigate against competition. In the field of education

there are many such practices: limitations on the mobility of students,

refusal to recognise foreign or corporate institutions and give permission

to award qualifications, the discouragement investment abroad. Even the

financing of Universities through national funding agencies such as Hefce

could be viewed as a discriminatory, monopoly practice.

The UK’s Department of Trade and Industry and European Community officials

insist that GATS will not effect public services like education, because it

exempts 'services provided in the exercise of governmental authority.''

This is disingenuous. The phrasing of the relevant Article 1 paragraph 3

goes on to describe such services as those which are ‘supplied neither on a

commercial basis, nor in competition with one or more service suppliers’.

It is a description which no longer fits public services in Britain.

Student fees and the increasing use of PFI contracts contribute to the

commercialisation of HE. The corporate contribution in PFIs includes not

only the provision of capital but also construction, retention of ownership,

management and operation. Universities are increasingly being forced to

resort to private funding, serviced from their general income.

Stephen Byers is an enthusiast. ‘Universities must become an integral part

of the economy, developing stronger links with business and commercial

applications for their research.’ Hefce, which describes Higher Education

institutions as ‘private sector bodies’ has its own Private Finance Unit.

It promotes ‘PFI and PPP within the higher education sector, as procurement

methods with potential to deliver better value for money.’ In its booklet

Private Investment in Higher Education, Chairman, Sir Michael Checkland

writes: ‘ Universities and colleges have demonstrated remarkable success in

adapting to meet the needs of a rapidly changing world. Investment in higher

education gives the private sector the opportunity to join in this success.’

In a restricted document, the WTO describes the UK process in Higher

Education as ‘a movement away from public financing and toward greater

market responsiveness, coupled with increasing openness to alternative

financing mechanisms, [which has] led universities in new directions,

balancing academic quality with business management.’ Sergio Marchi, Chair

of the WTO Council for Trade in Services which is overseeing the GATS

negotiations, argues that such reforms are ‘creating the conditions and

desirability for further GATS liberalisation.’

The process is already underway, particularly in the US where for profits

universities are attracting Wall Street investment and big conglomerates of

universities are acting as brokers for their distance learning courses.

Corporate education is growing with the likes of Cisco Systems Networking

Academy . A number of British Universities are copying their American

counterparts and setting themselves up in global consortia. Universitas 21

is an incorporated company of eighteen universities in ten countries,

amongst them Nottingham, Glasgow, Edinburgh and Birmingham. It describes

its ‘core business’ as the ‘provision of a preeminent brand for educational

services’. Its aim is to ‘leverage the reputation, resources and experience

of its members on behalf of corporate partners.’ Increasingly industry are

supplying their own education enterprises, for example British Aerospace

Virtual University, to educate their future work forces.

GATS implies a commitment to the liberalisation of public services. However

there remains an obstacle. Countries still retain their national

sovereignty and are free to devise their own domestic regulations in the

pursuit of public policy objectives. The voluntary nature of GATS had

originally been a means of checking corporate zeal. Post Seattle there has

been intense lobbying to remove this freedom and deepen and strengthen the

‘pro-competitive’ disciplines of the Agreement. The London EU-US Summit of

18 May 1998 agreed to ‘exchange views on ways to achieve the highest

possible level of liberalisation in the framework of the GATS 2000 process’,

and to develop ‘additional disciplines to strengthen market access and

guarantee that services can be supplied in a pro-competitive environment’.

Sergio Marchi has praised US leadership for proposing ‘liberalisation

beyond the bindings of the status quo.’ Mike Moore, the Director General

of the WTO has described removing restrictions on market access and

national treatment as the priorities of the talks. The UKs Department of

Trade and Industry promises that in the negotiations ‘everything is on the


It is the national freedoms over domestic regulation that the WTO, the US

and the European Commission on the behalf of member countries are now

seeking to curtail. Marchi has set up The Working Party on Domestic

Regulation which is mandated by Article VI.4 of the GATS to develop ‘any

necessary disciplines’ to ensure that domestic regulations do not

constitute unnecessary barriers to trade in services. Its intention is to

tighten up the ‘necessity test’, the central mechanism by which the WTO

can legally enforce market access. To achieve this it is seeking to

redefine the regulations as ‘pro-competitive’. They would be applicable

to all services, not simply to the ones put forward by member states. If

this reform was successful, the WTOs Dispute Settlement Body could

require states to deregulate their service industries if challenged by a

corporation through its government. A number of disputes already settled

suggest that the GATS can be used to challenge every conceivable form of

domestic regulation that directly or indirectly prohibits or hinders


We are witnessing the globalisation of higher education. Universities are

being drawn into the rapidly growing information market place. GATS stands

to permanently destroy the public interest in policy making in the public

services and end the ideal of a democratic system of education run by

accountable public authorities. The policies of New Labour have created

the conditions for the commercialisation of British Higher Education. The

increase in government regulation and prescription has brought Universities

into closer conformity with the needs of business. The QAA’s quality

assurance and proposed benchmarking of subject areas provide the necessary

centralised control for the privatisation of provision. Cuts in funding

have precipitated a drive for revenue and competition between universities

for new markets, a sharp reduction of unit costs, and a rise in

productivity gains - up 25%. It is a modernisation which is increasing the

inequalities between the new and old universities, and which is wrecking the

learning relationship between student and lecturer. It seriously conflicts

with disinterested scholarship. Corporate providers are not interested in

facilitating the creation of new knowledge but in packaging and delivering

existing knowledge for profit. Faced with this profound economic and

ideological assault, the universities have failed to forcefully engage in

public policy debates. They have failed to argue for what they stand for

and what their role is to be in the age of mass higher education.

On the 50th anniversary of GATT Tony Blair gave a speech calling for the

spread of the benefits of globalisation and the importance of extending

trade liberalisation. However he had a warning for the members of the new

WTO, ‘we...will settle our differences on the basis of rules not of power.’

The rules of course are being made by those with power. The Italians have a

phrase for it, Y Basta!


For more information on GATS, GATT, the WTO and the campaings against them see

Peoples' Global Action

World Development Movement


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