any of the services we take for grantedfrom professions such as accounting, advertising, and architecture to teaching, trading stocks, and tourismmay undergo significant change in the next decade because of a little-known trade agreement.
It all began in 1995, when the World Trade Organization (WTO) established the General Agreement on Trade in Services (GATS) at the conclusion of the Uruguay Round of the GATTthe General Agreement on Tariffs and Trade. GATT represents goods and products like coffee and steel; GATS negotiations deal with all types of services, including:
Essential infrastructure systems (telecommunications, finance, insurance, energy services, transportation, and distribution).
Professional services (accounting, law, architecture, and engineering).
Environmental services (sewage, refuse disposal, and sanitation).
All those services really add up. According to the WTO, the services sector is the largest and fastest-growing sector of the world economy, providing more than 60% of global output and in many countries an even larger share of employment. In 1999, the value of international trade in services amounted to $1.35 trillion, or about 20% of total cross-border trade.
Between now and when the GATS talks are scheduled to conclude in January 2005, Patricia Arnold is going to be busy. The associate professor in the UWM School of Business Administration is on sabbatical for a year to examine the public policy implications of international trade agreements such as GATS for the accounting and financial services sectors.
According to the Office of the U.S. Trade Representative, GATS provides a legal framework for addressing barriers to trade and investment in services, includes specific commitments by WTO member countries to restrict their use of those barriers, and provides a forum for further negotiations to open services markets around the world.
Some advocates say liberalization of services will benefit people in many ways, such as increasing the worlds economic performance, providing savings for consumers, and disseminating innovative practices and technologies to those who need them most. But Arnold says the assumption that what is good for export trade is good for the country deserves to be questioned.
Trade researchers from the U.S., Canada, and Europe have shown that international trade agreements can have alarming repercussions for health and safety standards, the environment, public services, domestic regulation, and democratic rights, she wrote in a paper presented last year at meetings of Public Citizen and the Transatlantic Consumer Dialogue, an umbrella organization of 65 U.S. and European Union consumer groups. In addition, GATS could lock future generations into a dangerous level of financial deregulation, and constrain future policy choices regarding consumer protection, health care, and social security.
Arnolds research looks at many unanswered questions:
Will GATS jeopardize insurancelike social programs such as Social Security, workers compensation, unemployment insurance, and Medicare? Will it stand in the way of meaningful health care reform? Will GATS weaken Congressional efforts to regulate financial markets in the aftermath of recent financial and accounting scandals? Will it undermine state regulation of insurance and weaken consumer protections? Will GATS contribute to the growth of too big to fail transnational financial service firms, leaving taxpayers with the choice of funding bailouts or risking financial crisis?
Numbers are not objective, Arnold says. Theres a social context in which numbers are produced, and critical accounting research acknowledges that accounting practices can be connected to societal problems.
Her timing is excellent. Critical accounting advocates have had a field day with the Enron and Arthur Andersen situations, and several publications, including the academic journal Critical Perspectives On Accounting, are looking at corporate and social responsibility.
Traditional vs. Critical
Within economic theory there is an assumption that market competition equates positively with social welfare, Arnold explains. Theres a belief that as long as you have competition, its good for society, that the best you can do is make a market competitive.
But is that true? Within that theory, theres no room for questions. What critical accounting does is consider other disciplinesthe humanities, political science, sociology which have more room in their perspectives to question social implications.
Arnold is putting those considerations to practice as she researches the impact of GATS negotiations. Dozens of books, articles, and Web sites explain the complex background and legal implications of trade negotiations. A recent New York Times article notes that American officials say the requirement will simply prevent governments from setting up discriminatory rules, limitations, and quotas that would interfere with the right of foreign service companies to enter their markets. But critics of the new rules say such a standard could hobble a governments ability to regulate scores of services.
GATS advocates often describe critics as anti-trade, anti-investment, anti-rules, and anti-progress. Arnold says that doesnt describe her research.
Im not anti-globalization. Thats naivethe world is becoming more integrated, and there are many good things about that, she says. These international treaties are writing the rules that will govern the new international order. The role of research is to find out what is going on and raise the questions about possible implications.
Arnold is using accounting practices and analyzing the accounting industry. For instance, Arnold is currently reviewing GATS requirements for professional labor markets, such as accounting, law, and medicine, which currently are licensed and regulated by states.
The WTO says there cant be regulatory barriers to trade, such as restrictions on forms of ownership, Arnold explains. One of the provisions in GATS that is still on the table is a new rule that would basically say that domestic regulation of licensing qualifications and technical standards cannot be more trade restrictive than the WTO says is necessary. My job is to ask, What could that mean?
In the U.S., accounting firms are owned by professionals who are licensed at the state level and subject to state regulations such as residency requirements. Our trading partners believe that state-level regulation poses a barrier to trade because the need to comply with 50 different state regulatory systems makes it difficult to enter the U.S. market, she says.
Arnold continues, I am attempting to identify public policy issues. It (state-level regulation) may be trade restrictive, but do we want to give that up? I am not necessarily saying we doI am saying we should have public debate on these issues.
In the GATT talks, many labor unions protested companies sending production work to offshore factories with low wages and poor working conditions. Arnold says there should be similar questions from professionals about the GATS agreement.
Its beginning to happen, she says. There have already been mutual recognition negotiations between Italy and India to allow off-shoring of accounting work, and there is a WTO proposal for a special GATS visa to enable people to move more freely across borders. We dont want to be xenophobic and focused on keeping foreign professionals out. But you need to be aware of the enormous implications of opening borders to trade in servicesincluding potential implications for professional labor markets.
The negotiations go on in secret. Theres very little public input or discussion about the commitments we are making, she says. These decisions are binding in trade disputes.
Some people have an image of globalization protesters as aging hippies, Gen-X Deadheads, or flaming radicals. Its possible, though, that youll see doctors, lawyers, and even accountants become concerned about WTO negotiations. These service professionals likely wont be holding signs that say, Hell No, We Wont Litigate or Make Love, Not Offshore Accounting, but Arnold says there is growing concern about GATS.
The protestors are very eclectic. All are concerned about globalization rules on their issues, such as labor markets, the environment, health care, she says. Now that the debate on fast-track authority is ended, U.S. organizations, like Public Citizens Global Trade Watch, are focusing their attention on GATS. There are limited resources, and theres so much to be done, she says, noting that Europeans and Canadians are becoming much more aware of the situation.
Part of her sabbatical is being spent making sure more people know about the potential impact of GATS agreements. Besides her work with Public Citizen and the TransAtlantic Consumer Dialogue, she spoke at a congressional briefing sponsored by U.S. Rep. Lloyd Doggett (D-Texas).
I plug through the text of the WTO documents and the few leaked reports on the negotiations, then go back historically through minutes of meetings to gather information and get a sense of what it all means. I start raising questions about the impact of the policy. My hope is that these people take my questions and data and determine their own policy platforms, she says.
Academic and Professional Credibility
Arnolds academic and professional experience provides credibility to her students. Shes been at UWM since 1989 and previously taught at Harvards School of Public Health. She has also taught at the London School of Economics. She was a management consultant for an accounting firm in Boston. She serves on the editorial board of Accounting, Organizations and Society and has authored numerous articles on the social implications of accounting policy choices in journals in the United States, England, and Australia.
She hopes the information she accrues during her sabbatical helps her to better integrate international and interdisciplinary components into her classroom teaching and course development. Even more important to her is bringing the discipline of critical accounting to potential business leaders.
UWMs core MBA course, Accounting Analysis and Control emphasize the social and political aspects of accounting. We just started teaching it last year when the MBA program was revamped, she says. Our MBA students are not going to be accountants, but they need to know how to question their auditors and ask where the numbers came from and not just take them at face value. They learn the technical how-tos but also broader implications. These lessons are more useful to them than just learning debits and credits.
The university environment is a positive place to ask the question, What happens in the real world? Look what happened with Enron. Ultimately we cant know what the graduates will do; hopefully theyll behave in an informed way.