Big retailers will seek to alter a services pact. Local officials fear a loss of power to limit firms.
By Evelyn Iritani
Union leaders, politicians and anti-globalization activists have used the courts and zoning laws to keep big-box stores like Wal-Mart out of their neighborhoods.
Now the Bentonville, Ark.-based retail giant and other major chains are hoping to counterattack with a powerful new weapon: the World Trade Organization.
This week, those retailers will head to Hong Kong to try to persuade negotiators to fashion a trade pact that would make it more difficult for governments to restrict foreign-owned stores, banks and telecommunications companies.
These retailers say they are not making a back-door attempt to undo various countries' laws. They say they are simply trying to get rid of protectionist barriers, such as size and geographic restrictions, that have unfairly hindered their growth, particularly in emerging markets such as China and India.
"These are issues we oppose in the United States and we want to make sure abroad we don't see the same types of issues," said Jonathan Gold, vice president of global supply chain policy at the Retail Industry Leaders Assn., which represents Wal-Mart Stores Inc., Home Depot Inc., Target Corp. and other big-box retailers. "There should be fair hearings to decide whether or not companies operate, not just based on size alone."
But critics, who include state Sen. Liz Figueroa (D-Fremont) and Los Angeles City Councilman Eric Garcetti, call the move a stealth attack on grass-roots democracy.
They fear that the proposals to change the WTO's 1994 General Agreement on Trade in Services would make it easier to attack dozens of U.S. laws designed to restrict the growth of big-box retailers. That agreement was designed to open up trade in services such as retailing, accounting, medicine and entertainment that weren't covered under previous trade pacts.
Some WTO critics are organizing educational campaigns, pressuring trade officials and taking their protests to Hong Kong for the WTO ministerial meeting, which runs Dec. 13-18. They will be handing out copies of a report due to be released today by Public Citizen, a Washington-based watchdog group that also opposes the changes.
Concerns over the effect of trade pacts on state and local autonomy were also discussed last week at meetings of the National Conference of State Legislatures in Chicago and the National League of Cities in Charlotte, N.C.
Under the WTO, foreign governments cannot force federal or state officials to change laws in conflict with global trade rules. But if a country loses a trade case and doesn't revise the offending statute, it may face trade sanctions or large fines.
Garcetti co-sponsored a Los Angeles ordinance requiring big-box retailers to show — before setting up shop — how their business would affect the local economy. He said it would be a "tragedy" if local officials anywhere were restricted in their ability to limit, among other things, the size and height of buildings or operating hours. U.S. retailers have complained that European limits on operating 24 hours or opening on Sundays or holidays restrict their business.
"I lived in England for five years, and look, the English [store owners] don't want to stay open as long as the Americans do," Garcetti said. "They should have the ability to determine what their communities look like."
The stakes are high for the upcoming WTO meeting. The expansion of the services agreement is part of a broader effort to negotiate a new global trade pact that could cut government subsidies and lower tariffs on farm products and industrial goods.
Talks have stalled on a dispute over European farm subsidies, but WTO officials are pushing negotiators in Hong Kong to produce a blueprint that would allow them to complete the so-called Doha round of trade talks by 2006. If the talks collapse, as they did in previous WTO meetings in Cancun and Seattle, countries could retreat from ambitious market-opening measures that exact a high political price back home.
Under the WTO, only governments can challenge other countries' laws. So firms that believe they are being treated unfairly must persuade their governments to take up their case.
Dismantling trade and investment barriers is a key concern of Wal-Mart, which has become a leading target of globalization critics around the world. The fiercest battles have been in the U.S., where dozens of municipalities have passed laws aimed at limiting the retailer's expansion. But the company has also seen its growth slowed by government restrictions in Canada, China, Britain, Germany and Japan.
Angela Hoffman, Wal-Mart's director of international trade, said it was premature to discuss specific provisions in the WTO services agreement, given the early stages of negotiation. But she said she knew of nothing in the pact that would require changes in existing U.S. restrictions on retail operations, as long as they didn't discriminate between U.S. and foreign firms.
But in some foreign markets, Wal-Mart faces significant hurdles, Hoffman said. "We may only be able to do two stores per city or one store per city, and a domestic retailer is able to open up countrywide," she said.
The biggest proponents of the services pact proposal have been the U.S. and the European Union, whose economies have become increasingly dependent on service industries as their manufacturing bases have been eroded by low-cost competitors.
Services account for 8 in 10 jobs in the U.S. Exports of those services totaled $340 billion in 2004, nearly 30% of America's exports, according to the U.S. trade representative's office.
Assistant U.S. Trade Representative Justin McCarthy said the U.S. market was one of the most open in the world but its companies are restricted in foreign markets by a variety of unfair measures. Those include limits on foreign ownership of insurance companies or banks in China and prohibitions on foreign retail operations in India.
"Knocking down barriers in foreign markets to U.S. service providers is our chief offensive goal in the negotiations," he said.
McCarthy said the services agreement does not, as its critics claim, "overrule the ability of states to regulate on consumer issues, health, safety or the environment." Trade officials say that under the pact, any signatory country can exclude sensitive economic sectors, such as healthcare or water services.
But state and local officials aren't convinced that the federal government is protecting their interests in negotiations, citing several cases in which environmental or land-use laws have been challenged by foreign governments or companies under the North American Free Trade Agreement or other trade pacts.
Figueroa said California's experience had proved that trade accords posed a serious threat to state and local authority. Last year, she co-sponsored a bill that would have required the governor's office to notify the Legislature when it committed the state to participating in any trade agreement. That bill was vetoed.
"We already know we're vulnerable," said Figueroa, chairwoman of the Senate Select Committee on International Trade Policy and State Legislation. "Why in the world can we not draft these provisions so that they are strong enough so the states don't have to have this hanging over our heads?"