Australian Local Government Association

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Department of Foreign Affairs and Trade (DFAT) discussion paper on General Agreement on Trade in Services (GATS): ALGA response

26 February 2003

Contents

• Executive Summary
• Who is ALGA
• Why is local government responding to the Department of Foreign Affairs and Trade (DFAT) discussion paper on GATS
• The impact of GATS on local government
• About local government in Australia
• Basic principles of local government and dealings with the WTO
• Maintaining local government, planning, licensing and regulation
• Local government and environmental services
• Local government environment expenditure
• Conclusion

Executive summary

ALGA is responding to the Department of Foreign Affairs and Trade (DFAT) discussion paper on Australia's initial offer to extend commitments to other members of the World Trade Organisation (WTO) under the General Agreement on Trade in Services (GATS).

Local government is concerned that its regulatory and administrative powers may be diminished as a result of GATS negotiations in some of the service areas outlined in the discussion paper. Local government is particularly concerned about the potential impact the forthcoming round will have on certain areas of local government activity, including (but not limited to):

• licensing the provision of services (such as food outlets)
• the regulation of services (such as waste disposal, building control)
• the provision of planning permission/permits (including discretionary powers)
• general discretionary powers (such as giving preference to local providers)

Local government supports the basic principle of liberalising trade in services, where it leads to improvements in:

• market access conditions for Australian services exporters
• the level and quantum of services provided to local communities without a diminution of the public interest (as defined in the paper)

Local government believes the fundamental principle underlying Australia's negotiating position at the WTO should be the maintenance of the public interest. Public policy regarding regulation, funding and provision of essential services should be made by governments at all spheres (national, state and local). Any weakening of the public governance arrangements within Australia would be strongly opposed by local government. Local government opposes any proposal:

• reducing the capacity of local government to make regulations on behalf of local communities
• with the potential to lower the extent, nature or quality of services local government provides to local communities

Local government urges the Commonwealth to ensure that the provision of a public subsidy (by any sphere of government) is not interpreted as a barrier to trade. Local government opposes any agreement allowing such a definition to be enforced by the WTO.

Local government opposes proposals that may lead to diminution or circumvention of local environmental laws and regulations.

Local government supports measures in the solid waste management and water supply market that will lead to effective environmental outcomes and improved services to local communities. However, ALGA is unable to determine the impacts trade liberalisation may have on the solid waste management and water supply sectors. Therefore, prior to negotiations local government urges the Commonwealth to undertake a detailed investigation of the potential impact of GATS related determinations in this particular sector.

Who is ALGA

The Australian Local Government Association (ALGA) is constituted as a federation of the peak Local Government Associations in the six States and the Northern Territory, together with the Government of the ACT. Each year, the National General Assembly of Local Government provides local governing bodies with the opportunity to consider national policy directions and convey their views to the ALGA national executive.

Through these processes, ALGA is able to speak on national issues for the 717 local governing bodies throughout Australia and the local communities they represent.

Why is Local Government responding to the Department of Foreign Affairs and Trade (DFAT) discussion paper on GATS

The Minister for Trade recently sought public comment on a discussion paper circulated by DFAT. The paper relates to Australia's initial offer to extend commitments to other members of the World Trade Organisation (WTO) under the General Agreement on Trade in Services (GATS). Local government is concerned that its regulatory and administrative powers may be diminished as a result of GATS negotiations in some of the service areas outlined by the discussion paper.

Local government is particularly concerned about the potential impact the forthcoming round may have on certain areas of local government activity, including (but not limited to):

• licensing the provision of services (such as food outlets)
• the regulation of services (such as waste disposal and building control)
• the planning permission/permits (including discretionary powers)
• general discretionary powers (such as giving preference to local providers)

ALGA therefore wishes to alert the Minister to these areas of concern and to request involvement in discussions about Australia's approach at the forthcoming GATS negotiations.

The impact of GATS on local government

Under GATS, WTO members may negotiate commitments to open specific service sectors to foreign competition, affording foreign suppliers the same market access treatment as domestic suppliers. WTO members may also make commitments about the operation of their own domestic regulation of services to other WTO members.

Under GATS, member governments are required to ensure sub-national governments observe GATS related obligations and commitments. All services are covered, except those "supplied in the exercise of governmental authority". By entering into proposed new international commitments the Commonwealth obligates the other spheres of government to certain activities.

Given the potential impact upon sub-national governments, including local government, a dedicated commitment by the Commonwealth to consult widely with the other spheres of government prior to undertaking such negotiations is required. Such an approach will ensure that Australia's public interest is maintained and that adverse or unintended consequences can be avoided.

In the context of this paper, the public interest is defined as the provision of a service or determination of a regulation that benefits (in either an economic, social or environmental sense) the local community as a whole.

Local government welcomes the opportunity to participate in full consultations with the Commonwealth on the potential impact of GATS determinations on the ability of local government to provide services, formulate polices and regulate activities in the interests of local communities.

ALGA contends that the public interest is best served by a clear and transparent liberalisation of the services sector that is acceptable to all three spheres of government.

About local government in Australia

Local government in Australia offers to local communities a very broad and expanding range of services. For example, local government operates ports and airports, protects the environment, provides welfare and aged care services, maintains the bulk of Australia's road network and plays a critically important role in the nation's health through environmental health measures, regulatory functions and waste management. In many parts of Australia local government is also the major provider of water and sewerage services

There are 717 local governing bodies across Australia, employing some 152,500 people.¹ In much of rural Australia, local government is the major employer, thereby underpinning the viability of many communities

Collectively, local government is a significant sector of the Australian economy. In 2000-01, local government collected around $6.4 billion in property taxes (rates) and was responsible for maintaining around 84% of Australia's road network (683,893 km).² It invested almost $16 billion in Australia's local communities, including:

• $4.5 billion in transport and communications
• $3.6 billion in housing and community amenities
• $2.1 billion in recreation and culture
• $820 million in social security
• $2.6 billion in general public services³

Basic principles of local government and dealings with the WTO

Local government supports the basic principle of liberalising trade in services, where such liberalisation leads to an improvement in:

• market access conditions for Australian services exporters
• the level and quantum of services provided to local communities without diminution of the public interest

The inclusion of additional service sectors in GATS negotiations should not undermine or restrict the ability of local government to meet community service obligations deemed necessary on social, local and other policy grounds. Local government has a range of regulatory mechanisms designed to intervene in the market (usually in the case of market failure) in order to maintain the public interest benefit to the local community (such as the pursuit of social or environmental goals). Local government:

• believes the fundamental principle underlying Australia's position at the WTO should be the maintenance of the public interest. Public policy regarding regulation, funding and provision of essential services should be determined by governments at the national, state and local level
• opposes any proposal reducing the ability of local government to make regulations relating to the delivery of services to local communities
• opposes any proposal which will diminish the extent, nature or quality of services it provides to local communities
• opposes any weakening of the public governance arrangements within Australia

ALGA urges the Commonwealth to ensure that the provision (by any sphere of government) of a public subsidy is not interpreted as a barrier to trade. Many local services provided by local government are funded through public subsidies. This mechanism overcomes local area market failure and ensures more equitable service delivery to local communities.

The forced removal of such subsidies, on the basis of being a barrier to trade, would entrench inequity, particularly where the delivery of community services is not commercially viable.

ALGA opposes any agreement allowing such a definition to be enforced by the WTO.

Local government has been facing revenue pressure in recent years as a result of growing demand for services and increasing devolution of responsibilities from the Commonwealth and state governments, in a context of declining (in real terms) revenue grants from federal and state governments.

There are potential cost implications for local government if particular licensing arrangements and service charges are identified under GATS as trade barriers. User charges are an important component of local government revenue. Any reduction of this revenue stream will place a severe strain on local government budgets. Notably, in 2000-01 local government raised $5.4 billion from the sale of goods and, provision of services.⁴

Foreign companies disputing local regulations (made in support of community interests) on the basis that they could constitute a barrier to trade may expose local government to considerable and burdensome dispute processes. Local government has little if any expertise, nor the financial resources to respond effectively to disputes in this area.

Maintaining local government, planning, licensing and regulation

Communities expect local government to balance the public interest against the perceived efficiencies arising from reduced levels of regulation. Local planning, public health and environmental laws are invariably implemented after a great deal of community consultation. Such regulations and laws are an expression of a community's expectation of environmental and health standards, service delivery, and the way they wish to see their community to evolve.

The rationale for many regulatory and licensing decisions by local government is to ensure the provision of goods and services meet agreed minimum community standards. Such standards protect the community (individuals and businesses) from the supply of poor quality goods or services.

Any suggestion such regulations are a barrier to trade assumes little or no knowledge about how local government makes decisions on behalf of communities. Successfully challenging such regulations would ensure a decline in the standard of services provided to local communities and potential degradation of the immediate environment.

Local government and environmental services

Local government plays a leading role in the provision of environmental services, primarily natural resource management and environment protection. Local government rejects any external influence that may diminish or circumvent local environmental laws and regulations.

In circumstances where appropriate policies for sound environmental management are not in place, trade liberalisation may potentially exacerbate existing environmental problems. There is little evidence to suggest that issues of environmental degradation are resolved by improving access to markets in these areas.

Local government supports measures in the waste management and water supply market that will lead to effective environmental outcomes and delivery of improved services to local communities. In many instances, local government provides direct and indirect financial subsidies (often as a result of market failure) to ensure effective operation of these markets.

Local government supports the adoption by the WTO of a broader classification scheme for environmental services that is based on the UN Classification of Environmental Protection Activities and used by the Australian Bureau of Statistics.

In 2000-01, local government spent $2.5 billion on environmental protection,⁵ mainly in the prevention, reduction and repairing of environmental damage resulting from harmful socio-economic activities.

In the same year, local government spent a further $1.8 billion on natural resource management,⁶ ensuring the management, allocation and efficient use of natural resources. This also included activities associated with the recreational use of the environment, such as the management of parks, beaches and reserves.⁷

Chart 1

Local government environment expenditure

Australia's environment faces crucial challenges, particularly in regard to reversing environmental degradation. Many of these challenges are confronted by local government in conjunction with volunteers or local community groups undertaking much needed environmental repair work, often with little or no financial resources.

As there is little economic profit available in the area of environmental protection the only benefit to Australia in this regard would be the employment of overseas experts in the field of environmental repair.

Any financial resources in this area of environmental activity are usually provided through a grant, or public subsidy from one of the three spheres of government. Environmental maintenance and repair should be viewed as the provision of a public good by all spheres of government.

In some states, activities such as the delivery of water and wastewater services (rural NSW, QLD and TAS), are provided by local government, often utilising outsourced providers in the production chain. In regard to solid/hazardous waste services local government, is the main provider, in many cases the only provider. Table 1 illustrates how much local government in Australia spends on these two activities and the amount that goes to private sector contractors.

Table 1: Payments to contractors as a percentage of local government spending 2000-01⁸

Details	Solid Waste ($m)	Waste Water ($m)	Water Supply ($m)
Amount paid by local government to contractors	585.7	85.9	48.8
Total Amount Spent by local government	1,067.1	601.0	563.8
Percentage of total	54.9%	14.3%	8.7%

ALGA is unable to determine the potential impact trade liberalisation may have on local government in the solid waste and waste water sectors. Therefore, prior to the negotiations local government urges the Commonwealth to undertake a detailed investigation on the potential impact of GATS related determinations in these sectors.

Conclusion

The issues raised in the discussion paper are of real, immediate and pressing concern to local government in Australia. Local government notes the potential impact future GATS determinations may have on certain areas of local government activity, including (but not limited to):

• licensing the provision of services (such as food outlets)
• the regulation of services (such as waste disposal and building control)
• the provision of planning permission/permits (including discretionary powers)
• general discretionary powers (such as giving preference to local employment)

Local government supports the basic principle of liberalising trade in services, where it leads to improvements in:

• market access conditions for Australian services exporters
• the level and quantum of services provided to local communities without a diminution of the public interest

The inclusion of additional service sectors in forthcoming GATS negotiations should not undermine or restrict the capacity of local government to satisfy community service obligations deemed necessary on social, local and other policy grounds.

Local government:

• believes the fundamental principle underlying Australia's position at the WTO should be the maintenance of the public interest. Public policy regarding regulation, funding and provision of essential services should be determined by governments at the national, state and local level
• opposes any proposal reducing the ability of local government to make regulations relating to the delivery of services to local communities
• opposes any proposal which will diminish the extent, nature or quality of services it provides to local communities
• opposes any weakening of the public governance arrangements within Australia

Local government opposes any proposal reducing the capacity of local government to regulate or diminish the quality and/or quantity of services it provides. Any lessening in the public governance arrangements within Australia would be strongly opposed by local government.

Local government urges the Commonwealth to ensure that the provision of a public subsidy by any sphere of government is not interpreted as a barrier to trade. ALGA opposes any agreement allowing such a definition to be enforced by the WTO.

Local government opposes any proposal that may negate, diminish or circumvent local environmental laws and regulations.

Local government supports measures in the waste management and water supply market that will lead to effective environmental outcomes and improved services to local communities.

ALGA is unable to determine the impacts trade liberalisation will have on local government in the solid waste and waste water sectors. Prior to future GATS negotiations, local government urges the Commonwealth to fully investigate the potential impact of future GATS determinations on these sectors.