The GATS and Ontario Public Libraries

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In January 2000, new international negotiations began under the General Agreement on Trade in Services (GATS). Concerns have been expressed about the GATS' implications for public libraries, and Ontario officials are responding with answers to some of the more frequently asked questions on this topic. This discussion is not meant to be exhaustive, and is geared toward establishing a dialogue with libraries on trade issues. The GATS negotiations are ongoing, and there are still many opportunities to discuss Canada's position. Libraries are therefore encouraged to take advantage of opportunities to engage with government officials and voice their interests and concerns.

Provincially, the Ministry of Culture and Ministry of Economic Development and Trade have consulted with stakeholders to better understand the variety of activities presently pursued by Ontario libraries, as well as the rapid evolution of library services that may occur in the future.  Provincial officials continue to welcome input in these areas.

Federally, Canadian Heritage and International Trade Canada (half of the former Department of Foreign Affairs and International Trade) have consulted with the Canadian Library Association on the implications of trade agreements for libraries.  Like their provincial counterparts, federal officials remain open to further discussions.

The answers to the following questions are meant to provide public libraries with a basic understanding of the General Agreement on Trade in Services. These answers are provided as general information only and should not be construed as legal advice nor as the official position of the Government of Ontario.

1. What is the GATS and how does it work?  
2. Are all library activities covered in the GATS exclusion for public services?  
3. What are Canada's obligations within the GATS' "Library Services" sector?  
4. How might Canada's commitments in other GATS sectors affect libraries?  
5. What does the GATS say about government procurement?  
6. What does the GATS say about subsidies and public funding?  
7. Will the GATS affect libraries' ability to set qualification standards for librarians?  
8. What is the risk that library activities will be challenged through the GATS?  
9. What about challenges to libraries under the NAFTA?  
10. Why is Ontario supporting these controversial GATS negotiations?  
11. Who can I contact for more information?

1. What is the GATS and how does it work?

The General Agreement on Trade in Services (GATS) is an international agreement administered by the World Trade Organisation (WTO). In effect since 1995, the GATS attempts to remove barriers to trade in commercial services, including discriminatory treatment, non-transparent regulations, and impediments to the movement of businesspeople. In January 2000, new negotiations began to deepen the GATS. Canada was an original GATS signatory and is also quite active in the current negotiations.

The GATS is designed so that each country chooses which commercial services it will open to foreign competition. By "opening" a sector, a country obligates itself to providing market access and non-discriminatory treatment (i.e. equal treatment of comparable foreign and domestic firms). After a country identifies the sectors it wants to open, it is also free to identify any exceptions and conditions it might want to apply within each sector. This process is known as "making specific commitments".

Because the GATS is intended to cover commercial services, it contains an explicit exclusion for "services supplied in the exercise of governmental authority". These are defined as "any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers". Services that meet both criteria are exempt from the GATS' trade obligations.

The GATS also contains general obligations that apply to all sectors, namely transparency and most-favoured-nation (MFN) treatment (i.e. equal treatment of comparable foreign firms). After specific commitments are made in a sector, MFN requires that market access and non-discriminatory treatment (as well as any identified exceptions) be extended to all foreign service providers. Where a country has chosen not to open up a sector, MFN effectively means equal exclusion of all foreign service providers.

2. Are all library activities covered in the GATS exclusion for public services?

The GATS does not provide definitions for the key terms in its "governmental authority" exclusion, and there have so far been no trade disputes that offer additional clarification. Commentary on what services might be covered within this exception is therefore speculative. Generally speaking, "commercial" entities are often characterised as being "private" and "for-profit", although "private, non-profit" entities may sometimes also be seen as "commercial". "Competition" may be defined intuitively as vying against others for consumer revenue.

Most Canadian libraries are public and non-profit, which likely makes them non-commercial entities. Many of the services they provide (i.e. the cost-free lending of books and information) also seem to be non-competitive and thereby exempted from the GATS. However, some of their other activities, particularly those offered on a direct fee-for-service basis (i.e. research services, e-mail accounts, etc.), may be considered competitive. These activities are likely not included in the "governmental authority" exclusion and may therefore be covered by some of Canada's other GATS obligations.

3. What are Canada's obligations within the GATS' "Library Services" sector?

Commercial and/or competitive library activities that do not fall under the GATS' public services exclusion appear to fall under the sector named "Library Services". According to the United Nations classification system used to define GATS sectors, Library Services are: "Services of libraries of all kinds. Documentation services, i.e. collection, cataloguing, whether manually or computer-aided, and retrieval services of documents. The services may be provided to the general public or to a special clientele, such as students, scientists, employers, members, etc."

Canada has not made any commitments in the GATS' Library Services sector. Thus, Canada does not need to provide market access and non-discriminatory treatment to foreign firms that compete with domestic libraries offering commercial Library Services. Canada has not given any indications of making commitments in this sector (only about a dozen countries have done so to date), and Library Services has not been a priority sector during the current negotiations.

4. How might Canada's commitments in other GATS sectors affect libraries?

Theoretically, some of the library activities not covered by the "governmental authority" exception could be affected by Canada's commitments in GATS sectors other than Library Services. If a library activity was classified as a Research and Development (R&D) Service, for example, then it would be subject to Canada's commitments in that sector and not Canada's commitments under Library Services. In the case of R&D Services, Canada has made commitments and must provide market access and non-discriminatory treatment to foreign competitors. In other sectors related to library activities (Education Services, for example), Canada has not made any commitments and these obligations would not apply.

It is unclear how relevant this issue is to libraries, for most library activities will likely be covered by the public services exclusion. Also, because the GATS definition of Library Services encompasses "services of libraries of all kinds", non-excluded activities would likely be covered by this GATS sector and not others. Finally, there has not yet been a dispute clarifying how services that may be classified in different sectors (and for which a country has different commitments) should be treated.

Provincial officials recognise that this issue needs further exploration and are therefore interested in learning more about the types of new services that Ontario libraries currently offer or are expecting to offer. Information on the frequency and extent to which these new services are being provided would also be useful in terms of assessing whether or not they are likely to spur future challenges.

5. What does the GATS say about government procurement?

In addition to the exclusion for "services supplied in the exercise of governmental authority", the GATS also excludes government procurement. This means that purchases of services by public bodies (even services that have been "contracted-out" or "opened to foreign competition") are not affected by the GATS. Although the current negotiations have discussed some procurement issues, the future inclusion of government procurement in the GATS is far from assured.

In any case, international procurement obligations, whether in the GATS or elsewhere, apply only at the federal level. Ontario has not undertaken any international procurement obligations, and is not prepared to do so. This freedom from procurement commitments also extends to municipalities and local institutions such as libraries. Thus, to the extent that library activities may be characterized as procurements, they are not affected by trade agreements such as the GATS.

6. What does the GATS say about subsidies and public funding?

The GATS does not currently contain any subsidy disciplines, but this is one of the subjects under discussion in the current negotiations. These discussions are an opportunity for Canada to influence the definition of subsidies in the GATS, and to ensure that any future disciplines are targeted at trade-distorting subsidies (i.e. export subsidies) and not funding for domestic services.

In any case, governments would remain free to fund library activities covered by the "governmental authority" exception, which are excluded from the GATS. Commercial activities in the Library Services sector could also remain publicly funded due to Canada's lack of commitments in this area.

7. Will the GATS affect libraries' ability to set qualification standards for librarians?

The GATS has developed guidelines for professional accreditation in the accounting sector as a way of ensuring market access for foreign-trained accountants. Similar disciplines may be extended to other regulated professions, but would only apply in sectors in which a country has made commitments. Since librarians are not regulated professionals in the same sense as accountants or lawyers, and because Canada has not made commitments in Library Services, the GATS cannot be used as a vehicle for challenging qualification standards for librarians.

Even if the GATS guidelines did apply, their effect would be minimal. The GATS never specifies what a particular professional standard should be, and would only require that Ontario libraries use a transparent and impartial process when evaluating foreign-trained librarians.

8. What is the risk that library activities will be challenged through the GATS?

The actual threat of a GATS challenge is currently quite limited. First, the GATS only covers the provision of services in a commercial or competitive manner, and libraries tend to use commercial services rather that provide them (e.g. using the internet as opposed to becoming a formal Internet Service Provider). Among those services that libraries do provide, traditional "brick and mortar" library activities, as well as any services that are offered for free, would likely be exempted from the GATS under the "governmental authority" exclusion. Thus, GATS coverage extends only to those remaining library activities, which thus far appear to be limited in number, that are offered on a fee-for-service basis and compete directly with the private sector.

Note that interaction with the private sector should not be mistaken for competition with it. A library negotiating prices with a commercial vendor does not constitute competition with that vendor, nor does providing access (particularly free access) to information for which a library has purchased distribution rights. These situations involve the establishment and exercise of a contract between two parties and not competition for third-party revenue. This is similar to the relationship between wholesalers and retailers, which is generally not seen as a competitive one.

Second, even when there is competition, it may not necessarily be foreign. As an international trade agreement, the GATS can only be invoked when there is a trade issue involved. The primary competitors for the fee-for-service activities of libraries appear to be local rather than global firms.

Third, even if there is foreign competition, there is little that the GATS can do to affect the actual behaviour of libraries due to Canada's lack of commitments in Library Services. The ability of foreign governments to characterise library activities as something other than Library Services (i.e. as services in a sector in which Canada has already made commitments) is also unproven.

Fourth, even if the other criteria are present, the financial stakes are likely too low for a library dispute to be championed by a foreign government (as is necessary under the GATS). Foreign governments would also likely be wary of supporting cases with the potential to upset their own domestic libraries.

Fifth, even if a GATS challenge was launched, there is no guarantee that it would be successful. The overall history of WTO trade disputes is too varied to automatically assume that Canada would lose.

9. What about challenges to libraries under the NAFTA?

Because the foreign competitors of Canadian libraries are most likely to be from the US, the North American Free Trade Agreement (NAFTA) may also be relevant. In particular, specific concerns have been raised about NAFTA Chapter 11 on Investment, which includes a dispute settlement mechanism allowing US and Mexican investors to directly sue the Canadian government over alleged violations of Chapter 11. The ongoing dispute launched by United Parcel Service (UPS) over "unfair competition" from Canada Post has added to fears that Chapter 11 will weaken public services.

The relevance of Chapter 11 to libraries is likely limited for three reasons. First and most importantly, libraries do not have the legal authority to regulate the establishment, operation, and sale of investments, and it is discriminatory behaviour in the exercise of this type of regulatory authority that leads to Chapter 11 claims. Libraries themselves cannot, for example, conduct expropriations (the issue at the heart of many Chapter 11 disputes). Also note that libraries cannot be directly targeted in a Chapter 11 case because only federal governments may be sued under its provisions.

Second, even if libraries could theoretically become involved in Chapter 11 cases, the relatively low financial stakes associated with library activities would make such cases impractical. The Chapter 11 process takes more than a year and involves substantial costs. In the absence of a major payoff, the likelihood of a foreign company undertaking this financial burden is limited.

Third, the Chapter 11 case launched by UPS is more complex than is commonly perceived, for it is based largely on rules governing the conduct of state enterprises and monopolies. Given that these entities tend to be federal and provincial institutions, the case's relevance to libraries is likely limited. In addition, it is not clear that UPS is entitled to press its claim under Chapter 11 and may instead need to rely on the NAFTA's general dispute settlement mechanism (which is a state-to-state system like the GATS' and therefore subject to the same need for governmental support in order to launch a dispute).

10. Why is Ontario supporting these controversial GATS negotiations?

The negotiation of trade agreements involves the rational assessment of risks and benefits. As the GATS negotiations proceed, Ontario and Canada will continue to work towards achieving an acceptable balance that maximises potential benefits while minimising potential risks.

Canada exports $60 billion in services annually, with Ontario accounting for roughly half of this total. By reducing barriers to, and laying a legal foundation for, global trade in services, the GATS has the potential to facilitate economic growth and diversification that will benefit all Canadians. At the same time, the risk that the GATS, an agreement designed to cover commercial services, poses to Canada's regulatory system and public services is relatively small.

11. Who can I contact for more information?

Officials in the Ministry of Economic Development and Trade are pleased to address any questions or concerns that Ontario libraries may have about the GATS or other trade issues. Please feel free to contact the Trade and International Policy Branch (either James Perttula at 416-325-6940 or Albert Louie at 416-325-6943) for more information.  The Ministry of Culture also welcomes feedback on these issues. Please contact Gartly Wagner of the Programs and Services Branch at (416) 314-7629.

For background information on the GATS, including the actual text of the agreement, please refer to the federal government website located at http://www.dfait-maeci.gc.ca/tna-nac/service-en.aspor the official WTO website at http://www.wto.org/english/tratop_e/serv_e/serv_e.htm. The federal government also provides information on the NAFTA at http://www.dfait-maeci.gc.ca/nafta-alena/menu-e.asp. The GATS positions of various library associations and stakeholders may be found on the website of the Canadian Library Association: http://www.cla.ca/AM/Template.cfm?Section=Resources1.