General Agreement on Trade in Services (GATS)
A Growing Threat to Cultural Policy
Garry Neil,  Coordinator
3 May 2002

The General Agreement on Trade in Services, one of the agreements of the World Trade Organization (WTO), came into force in January 1995.  Negotiated as part of the Uruguay Round of talks, the agreement provides a framework of rules and disciplines on measures affecting trade in services.  The objective of the ongoing GATS negotiations, given impetus by the launch of a comprehensive new round of talks at the Doha Ministerial Meeting in November 2001 is to achieve “a progressively higher level of liberalization” in services trade.

Already, GATS places constraints on the ability of sovereign governments to implement cultural policies and programs.  Proposals in the new round of liberalization talks and the comprehensive negotiating agenda adopted by the WTO, can only bring further restrictions on governmental measures that support domestic cultural expressions and ensure cultural diversity.

Understanding GATS

The GATS is broad in scope.  It covers all aspects of the services sector of the economy, everything from birth (midwifery) to death (funeral services), from low tech (hair cutting) to high tech (wireless transmission of data).  It establishes enforceable rules and regulations that governments can invoke on behalf of commercial services providers. 

The GATS is considered a “bottom-up” Agreement.  It is intended to apply only to those economic sectors that individual governments explicitly agree to cover.  Thus, some governments argue that since they did not commit to apply the GATS provisions to the audiovisual or other cultural sector, there is a de facto, “cultural exemption.” 

However, certain “horizontal” commitments in the GATS apply to all services even if a government has not committed a specific sector.  There are two significant horizontal provisions:

• Most Favoured Nation (MFN), which requires each country to provide equivalent conditions to all other member states.  There are exceptions for regional trade agreements and free trade zones; and
• Transparency, which requires governments to make public all measures that might affect trade in services, including laws, regulations, policies and equivalent measures.

In its first Article, GATS provides that all services are covered, “except services provided in the exercise of governmental authority.” However, there are significant qualifications to this exception, services provided on a “commercial basis,” or “in competition with one or more service suppliers” do no qualify.  Further, all government measures can be reviewed if they affect trade in listed services, including those established by sub-nation and local governments, and non-governmental bodies exercising powers delegated by government.

All “modes of supply” fall within the parameters of GATS.  Mode 1 is cross-border trade in services; Mode 2 is the consumption of services abroad; Mode 3 is commercial presence, or foreign direct investment in a service business; and Mode 4 is the movement of natural persons providing services.

A key element of the GATS is the provision on National Treatment (NT), under which a country must treat all foreign service providers the same as domestic suppliers, for those sectors it decides to list.  Other Articles provide special rules for developing nations, market access rules for listed sectors and limitations on domestic regulations such as licensing and qualification requirements and technical standards. Under the GATS, such regulations must not be trade restrictive or “more burdensome than necessary”.

Understanding the Cultural Sector

The cultural sector is also broad.  It includes the cultural industries of publishing, music and sound recording, film and television and digital media.  It encompasses some of what others call the “entertainment industries.”  It also certainly covers all forms of artistic expression, production, distribution, exhibition and preservation – fields such as visual arts and crafts, photography, dance, folk arts and heritage are important to the cultural health of any society.

While this view of the artistic process is rejected by most artists, for purposes of analyzing the consequences of trade agreements on cultural policy one can consider that aspects of the process of artistic creation are “services,” for example, the work of the author, painter, musician or the film distributor.  But the physical embodiment of the artistic creation can also be viewed as a “good”.  A magazine, book, compact disk and painting are all physical objects with mass and texture.

Globalization has brought increasing access to the artistic creations of foreign artists and creators.  While most people support increasing the exchange of cultural creations between societies, the current reality is that the exchange is not a two way street at all.  The foreign material simply supplants local creations and monopolizes the market. The most widely understood example of this phenomenon is the film and television industry, where Hollywood films and television programs dominate the markets of most countries.

In response, governments of all political stripes and all regions of the world intervene in the market to give support to local cultural expressions. By doing so, they promote diversity and choice.

Government measures vary greatly and can be anything from direct financial support for individual creators, subsidy of arts and crafts, preferential tax rules, restrictions on foreign ownership of domestic cultural businesses or properties, content quotas, public institutions, production subsidies, to regulatory measures and many others.  All of these are “government measures” as defined in GATS and most are limited in application to domestic citizens and firms or provided reciprocally to nationals of other countries.

Application of GATS to the Cultural Sector

Within the trade community, there is considerable uncertainty about precisely where the culture sector fits.  Thus, in the Canadian periodicals case, Canada argued its magazine support measures should be judged under its GATS obligations.  The WTO dispute settlement panel found that magazines are a “good” and the rules of the General Agreement on Tariffs and Trade apply.

On the other side, the original 1947 GATT contains a specific exemption for cinema screen quotas, apparently on the assumption that a movie is a “good”. However, the GATS Sectoral Classification List includes under Audiovisual Services: “motion picture and video-tape production and distribution services; and motion picture projection services.”  The classification also includes “radio and television services; radio and television transmission services; and sound recording.”

An important conclusion that arises from this uncertainty is that the obligations of both the GATT and the GATS may apply in certain circumstances, since the issue being judged can be considered to comprise elements of both a good and a service.

The current GATS may have broader application to culture than some imagine. While most countries refused to make commitments in the cultural field, some have –

These countries have agreed they will not maintain or introduce government measures that are in violation of the GATS provisions for these sectors.  They are precluded from introducing measures that favour their own artists or cultural industries, under National Treatment rules they are obligated to treat domestic and foreign service providers equally.

If citizens of one of these countries should chose a new government and determine subsequently to introduce supportive policies because their culture is threatened, or because their market has become dominated by foreign cultural productions, it is too late.  Changes would be difficult and would require that country to compensate financially all foreign service providers.

The horizontal nature of the MFN commitment required many countries to list their film and television c-oproduction treaties as exceptions, since they violate MFN by treating producers from partner countries more favourably than other foreign nationals.  Since these treaties have now been registered as not conforming to the MFN provision of GATS, it would be difficult to change or modify them in a manner that would be more “trade restrictive.”  Thus, governments might be unable to expand the scope of co-production treaties to include digital media productions, or to conclude treaties with new partners.  Furthermore, listed exceptions are to expire in ten years according to the Agreement.

Because the governmental exclusion is limited to non-commercial services and services that are not provided in competition with private sector suppliers, it is theoretically possible that public service broadcasters, libraries, museums and other public institutions could run afoul of GATS obligations even in countries that have not listed these as covered services. For example, acquisition policies that favour certain groups of artists or certain art forms, might be both contrary to the MFN provision and outside the exclusion.

Many countries have a broadcast regulatory authority, some of which operate at arms length from government.  However, all are covered by the GATS.  While domestic content quotas can be maintained if a country has not listed the broadcasting sector, other regulations could violate MFN.  For example, provisions requiring a minimum content level by language of recording might constitute de facto discrimination against suppliers of sound recordings from certain other countries, or distribution regulations might favour some foreign suppliers over others.

Significantly, the GATS rules will come increasingly into play as the convergence of media, computers and telecommunications continues.  Since telecommunications and computer services are more likely to be listed or are otherwise covered already, it would be difficult to enforce content quotas imposed on television services distributed in future by telephone companies or via computer networks, even where such quotas merely replicate those applying to cable or satellite distributors.   As the Internet and other computer networks become increasingly a global marketplace for cultural and entertainment works, negotiations taking place elsewhere at the WTO on electronic commerce could have a profound influence on cultural policies.

New Negotiations/New Challenges

While some challenges of the existing GATS are hypothetical and have not been tested in practice, far greater challenges to cultural policy are likely to result from the ongoing and future negotiations.

Since the stated objective of GATS is to liberalize trade in services, bilateral and multilateral pressure will be used to expand the number of listed services in each country. Furthermore, a firm timetable has now been agreed for the GATS talks.  Under the “request-offer” negotiating approach, countries have until 30 June 2002 to table specific requests to other countries for measures they wish to see removed, or sectors of economic activity they wish the other country to list. The recipient country has until 31 March 2003 to respond to that request with an “offer” of those things it is prepared to commit.

All of this is part of a comprehensive new round of talks, optimistically scheduled to conclude by January 2005.  With a greatly expanded negotiating agenda, the opportunity increases for governments to trade-off cultural policies in return for progress in other areas such as agriculture, natural resources or textiles.  This places cultural measures at greater risk in most countries.

In a paper tabled in 2000, the United States has already announced that it seeks additional commitments in the audiovisual sector.  It proposes to use appropriate GATS rules to protect “the sector’s specific sensitivities.”  In particular it suggests that recognition be granted for “the use of carefully circumscribed subsidies for specifically defined purposes...”  The European Commission and others have rejected this US position.  But, in tabling a sector paper in response, the Swiss government attempts to position itself as an intermediary between the US and Europe.  Brazil has tabled a proposal that audiovisual services should be covered, although it also seeks discussion on competition provisions “to address unfair trade practices in the sector.”

The draft requests the European Commission is developing for presentation to other countries have been widely leaked.  In its requests both to Canada and the United States, the EC and its member states include a number of cultural policy issues.  For example, it questions US restrictions against one company owning both newspapers and radio or television stations in the same market, and it seeks removal of MFN exemption on one-way satellite transmission of Direct To Home and Direct Broadcast Satellite television services and digital audio services.  From Canada, the EC seeks removal of restrictions against or limitations on foreign ownership of cultural firms, including film distributors; commitments on advertising and publishing services; and removal of certain restrictions and regulations in wholesaling and retailing activities related to books, magazines, sound recordings and videos.

There is no doubt that as the negotiations proceed on the GATS, cultural issues will be front and centre.