Trade pact 'may force councils to privatise services'

Councils would be forced to privatise huge swaths of public services under plans to liberalise world trade, local authority leaders have warned.

They are worried that a global deal to open up markets could "enforce a strongly deregulatory interpretation in favour of business interests", according to a memorandum passed to The Independent.

The leak came as a protest group claimed that a range of public services, from hospitals to rail maintenance, could be thrown open to global competition if the Government signed up to the package being negotiated through the World Trade Organisation (WTO).

It also threatens to fuel an increasingly acrimonious debate over the role of the private sector in public services via schemes such as the private finance initiative.

But the Department of Trade and Industry insisted that the Government had complete freedom to protect core health and education services from competition.

The councils raised their concerns in a letter sent by the Local Government Association to local authority chief executives. Although the pact contains an exemption for government authority services, the letter warns that "given that most services have been subject to competitive tending" they may fall outside the exemption.

It claimed that the pact – known as the General Agreement on Trade in Services (Gats) – appeared to argue against "trade restrictive" regulation. "There is considerable anxiety these tough criteria are very much open to interpretation and that the WTO dispute settlement process could be used to enforce a strongly deregulatory interpretation in favour of business interests," it said.

The memo is likely to form the basis of councils' response to a DTI consultation paper on services negotiations published in the summer. The association said a meeting with Whitehall officials has failed to "entirely allay their concerns".

The World Development Movement (WDM) said that control over the ownership of essential public services was being put in the hands of "unelected trade lawyers".

It warned that bringing rail maintenance back into public ownership – a key demand of some rail safety campaigners – would breach Gats, and that proposals to create "foundation" hospitals outside the NHS could remove them from the protection offered to government authority services.

The WDM said the proposals came amid a fierce debate over private provision of services and the ability of the Government to regulate them. "Gats could bypass these debates by binding the UK to a set of effectively irreversible liberalisation rules at the WTO," said Peter Hardstaff, the WDM's head of policy.

A DTI spokeswoman said that while Gats would clearly apply to private-sector hospitals and schools, "the greater role seen by the Government for the independent sector in the NHS in no way changes the nature of the NHS as a strictly publicly financed and universal healthcare system".

Negotiations on a worldwide services agreement were secured by Western governments at trade talks in Qatar last year in exchange for pledges to reform European Union and United States agriculture subsidies and abolish patents on drugs to fight Aids and TB.

Christopher Roberts, a former head of trade for the DTI who now works for the law firm Covington & Burling, said the rules covered areas such as private care homes and language schools. "I think this is something of a non-issue linked to domestic campaigns on privatisation. I wish the WDM would worry about real issues such as agriculture that really affect the developing world."