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Institutional and Legal Mechanisms for Enforcing Liberalization

The European Commission, and in particular its DG trade, has championed the neoliberal agenda depicted above. Echoing the analysis of the institutional and legal drivers of negative integration made by Scharpf, the status of welfare services in international trade shows that this was possible notably due to the Commission’s institutional power position underpinned by a set of legal provisions. Most interestingly, the EU Commission had used the dynamic nature of these provisions in order to ensure the supremacy of international liberalization over national regulation. This is particularly evident when looking at (a) the progress of the policy realm where the Commission enjoys an exclusive competence to negotiate international agreements and (b) the intricacies and inconsistencies of EU and WTO law with regard to the definition and legal status of welfare services.

The ability of the Commission to promote (and require) market opening in SGI sectors has spectacularly strengthened over time. This resulted to a large extent from ideational and political change among the Member States: while a majority of governments deemed that welfare services should be excluded from trade negotiations in the mid-1990s, by the mid-2000s they had agreed to include almost all sectors in such negotiations. Moreover, the Member States exert control over the Commission’s competence as they agree on a predefined negotiation mandate defining the line to follow for the EU as a whole. Insofar, the developments in trade policy echo the dynamics which have been analysed in the previous chapters on internal policy issues. Initially, the exclusive competence to negotiate international trade agreements conferred upon the Commission by the EU treaties excluded all services—and welfare services in particular. As the global agenda moved on to services with the adoption of the General Agreement on Trade in Services (GATS) in 1994, the extension of what was then Community’s exclusive competence was challenged by several Member States, including France, the UK and Germany (Meunier 2005). Asked to give an opinion on the matter (Opinion 1/94), the ECJ suggested that the Community’s competence should be differentiated depending on the services to be handled: services supplied across borders would fall under the scope of the Community’s exclusive competence, but all other services would remain under sole control of the Member States. However, this approach was modified with the Treaty of Nice in 2001, which established a shared competence between the EU and the Member States for cultural and audiovisual, educational, social and health services. Moreover, agreements in these policy areas would have to be decided in the Council unanimously instead of by qualified majority. Finally, the Treaty of Lisbon put an end to the shared competence area and generalized the EU’s exclusive competence to all services sectors. However, the unanimity rule in the Council was maintained for cultural and audiovisual services

where these agreements risk prejudicing the Union’s cultural and linguistic diversity’ and ‘in the field of trade in social, education and health services, where these agreements risk seriously disturbing the national organisation of such services and prejudicing the responsibility of Member States to deliver them. (Article 207.4 of the Lisbon Treaty)

Hence, while granting the Commission very large room for manoeuvre, the Member States solely maintained the possibility to veto an agreement should their vital interests be threatened (Krajewski 2009, p. 194). The developments in EU primary law have therefore progressively extended the possibility for the Commission to include welfare services in its trade policy agenda.

In parallel, the changes in the definition of welfare services and those services which would fall in or out of international law have also underpinned a dynamic of increased liberalization.

A main feature of the GATS is that it represents a very encompassing agreement since it defines and covers four modes of service provision:

  • - ‘Cross-border supply is defined to cover services flows from the territory of one Member into the territory of another Member (e.g. banking or architectural services transmitted via telecommunications or mail)
  • - Consumption abroad refers to situations where a service consumer (e.g. tourist or patient) moves into another Member's territory to obtain a services
  • - Commercial presence implies that a service supplier of one Member establishes a territorial presence, including through ownership or lease of premises, in another Member's territory to provide a service (e.g. domestic subsidiaries of foreign insurance companies or hotel chains)

— Presence of natural persons consists of persons of one Member entering the territory of another Member to supply a service (e.g. accountants, doctors or teachers)’ (WTO, no date).

At the outset, the GATS took a so-called carve-out approach to welfare services with a clause that excluded services supplied in the ‘exercise of governmental authority’, defined as services which are supplied neither on a ‘commercial basis nor in competition with one or more service suppliers’ (Article I:3 (b) and (c) of GATS).[1] Hence, a narrow conception of welfare services has prevailed where public administration, justice, police and military activities were explicitly excluded, but network industries, social services and healthcare, as well as culture and education remained ‘liberalizable’. In addition, the GATS contains a ‘public utilities clause’ referring to a (non-limitative) list of services such as research and development, environmental and health services, as well as transport, where it is possible for members to exclude specific activities in subsectors. Thus, in the view of the UNICE (today BusinessEurope), virtually all services fall under one of the four provision modes, including communications, post and courier, healthcare and social services, environmental, energy and transport services (UNICE 2000).

It therefore appears that the categories used in WTO law reflect a restrictive approach to the definition of welfare services, on the one hand, and do not overlap the categories of economic, non-economic or social SGI in EU law. As a result, almost all services can become candidates for further liberalization in one context or another. This has effectively enabled the Commission to play a double game in cases where SGI no longer fell under the scope of services provided in the ‘exercise of governmental authority’ due to having been progressively marketized within the EU in the framework of the internal market, and could therefore be proposed for market opening at the global level. More generally, this process reflects the legal theory of implied competence in EU law whereby the EU should enjoy external competencies in the policy areas where it enjoys internal competencies. This dynamic has been at play during the

Doha round from 2001 onwards. However, it has also triggered contention, and the Commission has made use of the existing protective provisions on welfare services. While it has been a tool for advancing a negative integration agenda, the ways in which EU law has been used and reshaped over time shows that it is actually a field of political and ideological battles.

  • [1] Crafted in the GATS, this definition has also been used for economic partnerships with Caribbeancountries (2008), and in free trade agreements with South Korea (2009) and with Peru andColumbia (2011) as well as Canada (2014).
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