THE THREAT OF INTERNATIONAL TRADE AND INVESTMENT
from the booklet
The global water crisis and the commodification
of the world's water supply
A Special Report issued by the International
Forum on Globalization (IFG)
by Maude Barlow
National Chairperson, Council of Canadians
Chair, International Forum on Globalization (IFG) Committee
on the Globalization of Water
WATER, NAFTA, AND THE FTAA
Chapter 3 of NAFTA establishes obligations regarding the
trade in goods. Using the General Agreement on Tariffs and Trade
(GATT) definition of a "good" which clearly lists "waters,
including natural or artificial waters and aerated waters,"
NAFTA adds in an explanatory note that "ordinary natural
water of all kinds (other than sea water)" is included. Chapter
12 sets out a comprehensive regime to govern trade and investment
in the service sector, including water services. Chapter 11 establishes
an extensive array of investor rights, including investors in
water goods and water services. Thus, under NAFTA, water is a
commercial good, a service and an investment.
There are three key provisions of NAFTA that place water at
risk. The first is "National Treatment" whereby no country
can "discriminate" in favor of its own private sector
in the commercial use of its water resources. For example, if
a municipality privatizes its water delivery service, it would
be obliged to permit competitive bids from water service corporations
of the other NAFTA countries. Similarly, once a permit is granted
to a domestic company to export water, the corporations of the
other NAFTA partner countries would have the same right of establishment
to the commercial use of that country's waters as its domestic
companies. If a Canadian company, for instance, gained the right
to export Canadian water, American transnationals would have the
right to help themselves to as much Canadian water as they wished.
The second key provision is Article 3 15, the "proportionality"
clause, under which a government of a NAFTA country cannot reduce
or restrict the export of a resource to another NAFTA country
once the export flow has been established. Article 309 states
that "no party may adopt or maintain any prohibition or restriction
on the exportation or sell for export of any good destined for
the territory of another party" and this provision includes
a ban on export taxes. This means that if the export of water
were to commence between NAFTA countries, the tap couldn't be
turned off. Exports of water would be guaranteed to the level
they had acquired over the preceding 36 months; the more water
exported, the more water required to be exported. Even if new
evidence were found that massive movements of water were harmful
to the environment, these requirements would remain in place.
The third provision is "Investor State" (Chapter
11 ) whereby a corporation of a NAFTA country can sue the government
of another NAFTA country for cash compensation if the company
is refused its national treatment rights or if that country implements
legislation that "expropriates" the company's future
profit. Only a "foreign-based" company can sue using
Chapter t 1; domestic companies have to abide by national law
and cannot sue their own government for compensation under NAFTA.
As a result of this provision, there has been a flurry of investor-state
suits in North America challenging environmental, health and safety
legislation in the three countries.
Chapter 11 could specifically apply to water in two ways.
If any NAFTA country, state or province tried to limit the delivery
of water services or the commercial export of its water to its
domestic sector, corporations in the other countries would have
the right to financial compensation for "discrimination."
In fact, the very act of a government attempt to ban bulk water
exports automatically makes water a commercial tradable commodity,
triggering NAFTA. The very same law that excluded them would trigger
foreign investors' NAFTA rights, and they could demand financial
compensation for lost opportunities. For now, as long as water
is Iying in its natural state, it is safe from trade regulations.
As well, under Chapter 11, changes to government policy could
trigger a challenge, as foreign companies have the advantage under
this ruling. For example, if the state of Alaska were to reverse
its policy and ban water exports or change the law so that only
Alaskan companies could export water in order to keep jobs at
home, the U.S. government would be vulnerable to a huge investor-state
challenge. Global Water Corp. of British Columbia is poised to
make a great deal of money from its contract with Alaska. Because
it is a Canadian and not an American company, Global would have
rights to sue not accorded to U.S. domestic companies in the same
The first NAFTA Chapter t 1 case on water was filed in the
fall of t998. Sun Belt Water Inc. of Santa Barbara, California,
sued the Canadian government because the company lost a contract
to export water to California when the Canadian province of British
Columbia banned the export of bulk water in t991. Sun Belt alleges
that the ban contravenes NAFTA and is seeking $10 billion in damages.
"Because of NAFTA, we are now stakeholders in the national
water policy in Canada," declared Sun Belt's CEO Jack Lindsay.
All of these corporate-friendly provisions-and more-are contained
in the FTAA, currently being negotiated by 34 countries of the
Americas and the Caribbean. Although it is based on the NAFTA
model, the FTAA goes far beyond NAFTA in its scope and power.
The FTAA, as it now stands, would introduce into the Western
Hemisphere comprehensive new provisions on services including
NAFTAs Chapter 11, that would create a trade powerhouse with sweeping
new authority over every aspect of life in Canada, the Americas
and the Caribbean (except Cuba). The FTM would give unequaled
new rights to the transnational corporations of the hemisphere
to compete for and even challenge every publicly funded service
of its governments, including water and environmental protection.
As well, the proposed FTAA contains new provisions on competition
policy, government procurement, market access and dispute settlement
that, together with the inclusion of services and investment,
could remove the ability of all the governments of the Americas
to create or maintain laws, standards and regulations to protect
the health, safety and well-being of their citizens and the environment
they share. Also, the FTAA negotiators appear to have chosen to
emulate the WTO rather than NAFTA in key areas of standard setting
and dispute settlement, where the WTO rules are tougher.
WATER AND THE WTO
NAFTA is not the only existing trade agreement that compromises
water. The WTO was created in 1995 at the conclusion of the Uruguay
Round of the GATT in order to enforce GATT and other agreements.
The WTO's 134 member nations work toward eliminating all remaining
tariff and non-tariff barriers in order to promote the movement
of capital, goods and services across nation-state borders. The
WTO contains no minimum standards to protect labor rights, social
programs, the environment or natural resources.
The essence of the WTO is deregulation; it is intended to
render it more difficult for nations to place safeguards or conditions
on exportable products, including natural resources. The market
is given preemptive rights to determine the course of resource
development, and nation-state rules are not to be trade- or profit-inhibiting.
Tough environmental laws can be disputed by member countries at
the WTO as being non-tariff barriers to trade. Therefore, domestic
standards that are lower than the global average are protected;
those that are higher become clear targets for dispute. Once a
WTO dispute panel issues a ruling, worldwide conformity is required.
A country is obliged to harmonize its laws, face the prospect
of trade sanctions or pay direct compensation.
The WTO's authority includes water; it incorporates the same
GATT definition of a "good" as does NAFTA. Although
the WTO does not yet include an investor-state clause, in some
ways it is more of a danger to the protection of water than NAFTA.
This is because, unlike any other global institution, the WTO
has both the legislative and judicial authority to challenge laws,
policies and programs of member countries if they do not conform
to WTO rules, and it has the power to strike down these rules
if they can be shown to be "trade restrictive."
One provision of the WTO particularly places water at risk.
Article Xl specifically prohibits the use of export controls for
any purpose and eliminates quantitative restrictions on imports
and exports. This means that quotas or bans on the export of water
imposed for environmental purposes could be challenged as a form
of protectionism. A GATT ruling that forced Indonesia to lift
its ban on the export of raw logs and a NAFTA ruling against a
similar practice in Canada do not bode well for a nation's right
to protect its natural resources.
Further, the WTO forces nations to forfeit their capacity
to discriminate against imports on the basis of their consumption
or production practices. Article 1, "Most Favored Nation,"
and Article 111, "National Treatment," require all WTO
countries to treat "like" products exactly the same
for the purposes of trade whether or not they were produced under
ecologically sound conditions. Even if it were discovered that
the commercial trade in water was destructive to watersheds, the
WTO could prevent countries from restricting that trade because
of environmental concerns.
WTO defenders argue that an "exception" included
in the GATT will protect the environment and natural resources.
According to Article XX, member countries can still adopt laws
"necessary to protect human, animal or plant life or health...relating
to the conservation of exhaustible natural resources if such measures
are made effective in conjunction with restrictions on domestic
production or consumption." However, there is something known
in trade jargon as a "chapeau" to Article XX, which
means that the Article can only be applied in "non-discriminatory"
fashion and cannot be a disguised barrier to trade. In the individual
dispute cases that have come before the WTO to test these "protections,"
the WTO has upheld the rights of commerce over the rights of environmental
Also, any protections must be interpreted in a way that is
"least trade restrictive." Further, the WTO does not
recognize the authority of Multilateral Environmental Agreements
(MEAs) and threatens to undermine agreements such as the Convention
on International Trade in Endangered Species of Wild Fauna and
Flora (CITES). Says U.S.-based Public Citizen, "The emerging
case law...indicates that the WTO keeps raising the bar against
environmental laws." If panel rulings to date are any indication,
water is at great risk under the WTO, in spite of the so-called
"exception" of Article XX.
A new agreement of the WTO, the General Agreement on Trade
in Services (GATS), poses another serious trade threat to water
sovereignty and conservation. The GATS was established in 1994,
at the conclusion of the "Uruguay Round" of the GATT
and was one of the trade agreements adopted for inclusion when
the WTO was formed in 1995. Negotiations were to begin five years
later with the view of "progressively raising the level of
liberalization." These talks got underway as scheduled in
February 2000, and are scheduled to reach a general agreement
by December 2002.
The GATS is called a "multilateral framework agreement,"
which means that its broad commission was defined at its inception
and then, through permanent negotiations, new sectors and rules
are added. Essentially, the GATS is mandated to restrict government
actions in regard to services, through a set of legally binding
constraints backed up by WTO-enforced trade sanctions. Its most
fundamental purpose is to constrain all levels of government in
their delivery of services and to facilitate access to government
contracts by transnational corporations in a multitude of areas,
including water and environmental services.
The GATS covers hundreds of types of water services-sewer
services, freshwater services, treatment of waste water, nature
and landscape protection, construction of water pipes, waterways,
tankers, groundwater assessment, irrigation, dams, bottled water,
and water transport services, just to name a few. Crucially, the
object of GATS disciplines are not services per se, but rather
government actions, initiatives and regulations that pertain to
services and limit or prevent private-sector rights to service
industries. No other agreement to date has attempted to reach
so far into the policy jurisdiction of governments (although the
proposed FTAA services agreement is modeled on the GATS).
Essentially, under proposed new wording, governments would
have to prove that any measure or regulation related to water
(and other services, such as health care, utilities and education)
were "necessary," based on "transparent and objective
criteria," in accordance with "relevant international
standards," and the least trade restrictive of all possible
measures. For example, to defend standards on drinking water before
a WTO trade panel, a government would have to prove that it had
canvassed every conceivable way in which it might improve water
quality, that it was subjected to an assessment of its impact
on international trade in water services, and that it opted for
the approach that was least trade restrictive of the rights of
foreign private water providers.
Furthermore, the GATS has not even adopted the weak GATT Article
XX exception relating to conservation, thus expressing an undeniable
and deliberate intent to subordinate conservation goals to those
of trade liberalization. As Canadian trade expert Steven Shrybman
notes in his March 2001 legal opinion on the GATS "At risk
is the public ownership of water resources, public sector water
services, and the authority of governments to regulate corporate
activity for environmental, conservation or public health reasons."
WATER AND INTERNATIONAL INVESTMENT TREATIES
In addition to the above agreements, countries all over the
world are signing Bilateral Investment Treaties (BlTs) which,
by and large, leave their natural resource sectors open to unconditional
investment by one another's corporations. There are now 1,720
bilateral agreements and the number grows every year. Most BlTs
contain a form of NAFTAs Chapter 11 provision, allowing corporations
of the signatory countries to sue governments for "expropriation"
compensation. This is the trade venue chosen by Bechtel in its
suit against the government of Bolivia.
BlTs are modeled on the Multilateral Agreement on Investment
(MAI), a treaty proposed by member countries of the Organization
for Economic Cooperation and Development (OECD) which was defeated
in the fall of 1998 due to international opposition. Drafted by
the International Chamber of Commerce, the MAI contained the same
investor-state rights as NAFTA, but applied them to a wider range
of sectors and corporations. Any "investor" of any member
country could have claimed access to the natural resources of
any other country without discrimination and would have had the
right to sue for compensation if denied. The MAI set out clear
rules for privatization of public assets, including natural resources.
These international trade and investment agreements are gaining
in power and scope. Yet very few of the world's citizens are aware
of their contents or even their existence. No plan for water protection
can afford to ignore them; they form a clear and present danger
to water stewardship and must be deeply reformed or abolished.