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Criteria and Suggestions for

Negotiation Processes


Water and Free Trade

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Criteria and Suggestions for Negotiation Processes

Criteria and Suggestions for Negotiation Processes


The Social Vision of Water Project implemented by the institution AGUA SUSTENTABLE with support from the International Development Research Centre (IDRC) has developed several booklets and guides on the topic Water and Free Trade. This was done based on different studies carried out mainly in Andean countries between 2004 and 2007. The purpose of these investigations was to systematize the way in which water and drinking water services are considered in Free Trade Agreements and Treaties. The results of this research were used to draft a series of didactic documents mainly for public operations, state negotiators in free trade agreements, national and international public authorities with decision-making powers on this topic, academicians and advisors, and civil society representatives or leaders. For preparing this Guide, several investigations performed under consultancies were processed. The consultants were different analysts such as Pablo Soln, Denisse Rodrguez, Carlos Crespo, Oscar Campanini in Bolivia, Hildebrando Vlez Galeano in Colombia, Juan Fernando Tern in Ecuador and Guillermo Rebosio in Peru. The full texts of this research have been compiled in a book titled Water and Free Trade. Impact and Implications of Free Trade Agreements for Water and Water Services and can be found also on A team of AGUA SUSTENTABLE has systematized the above-mentioned investigations in an abridged version, this Guide, complemented and illustrated with additional data and information.

The central topic of this Guide titled Criteria and Suggestions for Negotiation Processes is the negotiations within the context of free trade agreements or treaties, considering water and water services as an axis for analyzing this topic. In general, the document discusses the implications of the agreements signed by the different countries within the framework of the World Trade Organization (the General Agreement on Tariffs and Trade, GATT, and the General Agreement on Trade in Services, GATS) and the Free Trade Treaties that are being entered into on a bilateral basis by the Andean countries after the multilateral FTAA (Free Trade Area of the Americas) and Andean FTA negotiations failed.

Criteria and Suggestions for Negotiation Processes

Readers will note that the document refers to the FTAA, the FTA per country, the GATT and GATS, which is why the explanation provided in the previous paragraph was absolutely necessary. For understanding the approach of this guide, it is important to distinguish between free trade agreements and free trade treaties. Agreements normally cover specific trade issues between countries, while treaties cover topics such as investments, services, markets, intellectual property, domestic legislation and control mechanisms, the institutionality of surveillance, sanctions, control, conflict resolution etc. From our perspective, the failed agreement on the Free Trade Area of the Americas (FTAA) was in fact a big multilateral treaty. Indeed, we found many of the FTAA provisions and full chapters in the texts of the likewise failed Andean FTA and of the bilateral FTAs the US is negotiating separately with the different countries of the American continent. The Bilateral Investment Treaties or Agreements (BITs) cover legal issues of certain topics related to investments and investors of the signatory countries. Their thematic scope is much more limited as compared to the famous FTAs. This Guide provides a brief overview of the

different FTAs, FTTs and BITs, and the institutional juridical frame in which they are set. In this sense, the text of the guide includes quotes and references to different official documents, explaining the positions and commitments made by different countries in this regard. In the first part, readers can find an introduction on the relationship between water and free trade, and a quick and succinct description of the provisions considered in the agreements and treaties. The second part contains information and analyses of a series of suggestions or recommendations for negotiations in the context of the treaties. We believe that this second part is fundamental as it reflects our vision and institutional actions, which implies that we do not adopt an attitude of opposition to the agreements and treaties, but rather involve ourselves with knowledge and skill in the negotiation processes, aimed at transforming these processes and at providing our countries with instruments for strengthening their internal institutionality and legality as a way to protect their sovereignty in the decisions they take on their present and future in relation to water and water services.

Criteria and Suggestions for Negotiation Processes


One of the most frequent questions when talking about free trade agreements is whether water and water services are included, in other words, whether upon signing a Free Trade Agreement (FTA), a Free Trade Treaty (FTT) or a Bilateral Investment Treaty (BIT) the countries are obliged to permit the free trade of water and to open the basic potable water service market. The fact is that water is part of the trade agreements in different ways. Sometimes, water and water services are expressly mentioned in the negotia-

tions on the trade of goods, services and investments. But sometimes water appears through indirect links to other parts of the treaties, e.g. in the chapters on Agriculture and Intellectual Property. See the draft texts of the FTAA or the Andean FTA. The table below shows that in the free trade treaties, water is included in different ways: sometimes as a good or product, sometimes as a service or investment. Investment also refers to the rights associated with water use, such as concessions, licenses, authorizations etc.

Table 1: Intersections between FTTs and Water

Goods Services Investments X X X X X X X X X X X X X X X X X X X

Bottled water Water exports Potable water services Environmental services Water use for hydroelectricity Water use for mining Water use for the oil sector Water use for tourism Water use for agriculture River transportation Water rights


Source: Soln, P. (2005, September) Los cruces de caminos entre el agua y el libre comercio (Intersections between water and free trade). Presentation in the International Seminar on Free Trade Agreements and Public Services. Buenos Aires, Argentina.

Criteria and Suggestions for Negotiation Processes


In their commodity trade relations in the World Trade Organization (WTO) and within the framework of FTTs, Andean countries use the Common Tariff Nomenclature of the Cartagena Agreement Member Countries (NANDINA), a

tariff classification similar to the US Harmonized Tariff Schedule. In both classifications, water is classified under tariff codes 2201, 2202, 2501 and 2851.

Table 2: Common Nomenclature of the Cartagena Agreement Member Countries (NANDINA)

- Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavored; ice and snow - Mineral waters and aerated waters - Other - Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored, and other non-alcoholic beverages, not including fruit or vegetable juices of heading No. 20.09 - Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored - Other - Salt (including table salt and denatured salt) and pure sodium chloride, whether or not in aqueous solution or containing added anti-caking or free-flowing agents; sea water - Other - Other inorganic compounds (including distilled or conductivity water and water of similar purity); liquid air (whether or not rare gases have been removed); compressed air; amalgams, other than amalgams of precious metals Distilled or conductivity water and water of similar purity; liquid air and purified air

22.01 2201.10.00.00 2201.90.00.00 22.02 2202.10.00.00 2202.90.00.00 25.01 2501.00.90.00 28.51


Source: Import Tariffs Bolivia, 2006.

CAREFUL WITH THE REFERENCE OTHER There are several headings with the reference other, which apparently refer only to the commodities that have not been mentioned under the 4 code-heading in the NANDINA nomenclature and hence their interpretation would be limited by the description of the commodity and in some cases, the specifications in complementary notes. The ambiguity of the word other may lead to the inclusion of a series of goods or forms in which these goods exist or are produced in the agreement or treaties. Water, for example, could appear under this ambiguity in different forms of usage.

Criteria and Suggestions for Negotiation Processes

In the lists of commodities per country of the WTO General Agreement on Tariffs and Trade (GATT), Bolivia, Peru, Colombia, Ecuador and the US present the headings analyzed above in different ways. Bolivia and Peru have included as a package all their customs headings on consumer goods, establishing in the case of Bolivia a consolidated tariff or ceiling of 40% and in the case of Peru a tariff of 30% ad valorem (applicable on the trade value of the price) for commodities involving water contained in headings 2201, 2202, 2501 and 2851. In other words, all forms of commodities in which water is contained detailed in Table 1 are included for import purposes, with a certain tariff ceiling or a certain import tariff. Colombia has reached a compromise, listing every heading not in a package like Bolivia and Peru, and has included only headings 2201 and 2202 with a consolidated tariff of 70%. Ecuador only includes headings 2201.90.00 and 2202.10.00 with a consolidated tariff of 30% and in the definition of heading 2201.90.00, it is clarified that the description of other will cover natural ordinary water, ice and snow, not containing added sugar or other sweetening matter or flavored. Of what we have seen, in the WTO both the Andean countries and the US treat


The US included headings 2201, 2201.10.00, 2201.90.00, 2202, 2202.10.00, 2501.00.00 and 2851.00.00 in the WTO. This country included the 4 groups of headings containing water. As regards customs tariffs, as opposed to the Andean countries, the US has established a fixed consolidated tariff of 0.26 cents per liter for heading 2201.10.00 and 0.2 cents per liter for heading 2202.10.00.

water as a common commodity; there is no precise tariff definition delimiting the scope of the liberalization commitment, and no special treatment is foreseen. In the case of the FTT between Peru and the US, the negotiation was based on eight-digit headings. Peru used its own Customs Tariff (the Customs Tariffs of Peru were prepared on the basis of the Common Nomenclature of the Cartagena Agreement Member Countries - NANDINA) and the US Harmonized Tariff Schedule (HTS). In water, only headings 2201.10.00, 2201.90.00, 2202.10.00 and 2202.90.00 (this last one exceptionally by Peru) were considered. Sea water, ice, natural unprocessed water are also subject to negotiation, as we have seen.
Criteria and Suggestions for Negotiation Processes

Water is a limited natural resource and a public good that is fundamental for life and health. Still, the headings refer to water as just another commodity, its description is a cold definition of a good, when any commitment on water is not exclusively limited to the progressive elimination of tariff barriers, but leaves open the door for water trading companies regarding trade decisions. The different countries do not resolve the interpretation of the heading other in the same way. If a State has a domestic norm regulating this topic, it can introduce exceptions to the headings involving water so as to permit the State to institute or maintain - besides duties, taxes or other charges prohibitions or restrictions on the importation of any product of the territory of any another contracting party (contracting party is a country signing a Treaty), or on the exportation or sale for export of any product destined for the territory of any other contracting party which may be made effective through quotas, import or export licenses or other measures (Article XI-1, General Agreement on Tariffs and Trade or GATT). If the States do not have these domestic safeguards, they will not be able to use this faculty recognized by the GATT. Most Andean countries do not have any regulation in this topic and the environmental exceptions that could maybe be interposed are of a temporary nature, which may leave them defenseless in case of application of the treaties.

Criteria and Suggestions for Negotiation Processes


At present, there are three service classifications: i) the Sectoral Services Classification List (W/120) adopted within the framework of the negotiations on the General Agreement on Trade in Services (GATS) during the Uruguay Round; ii) the Provisional Central Classification of Products (Provisional CCP) of 1991; and iii) the

Central Classification (CCP) of 1997.



Potable water and sanitation services are included as part of environmental services within the framework of the GATS. Below, an overview is given of the coverage of these services in each of these classifications.

Table 3: Classification of Enviromental Services

W/120 Provisional CCP 1991 1997 CCP
941 Sewage services 94110 Sewage treatment 94120 Tank emptying and cleaning 942 Refuse disposal service 94211 Non-hazardous waste collection services 94212 Non-hazardous waste treatment and disposal services 94221 Hazardous waste collection 94222 Hazardous waste treatment and disposal services 943 Sanitation and similar services 94310 Sweeping and snow removal services 94390 Other sanitation services 949 Other environmental protection services not elsewhere classified A. Sewage Services (9401) 9401 Sewage services

B. Refuse disposal services 9402 Refuse disposal services (9402

C. Sanitation and similar services (9403)

9403 Sanitation and similar services

D. Other services (9409)

9404 Cleaning services of exhaust gases 9405 Noise abatement services 9406 Nature and landscape protection services 9409 Other services not elsewhere classified

It is important to underline that, by definition, basic sanitation also covers potable water services. Heading 94390 of Table 3 could therefore open the door to potable water services. The liberalization of environmental

services follows the parameters of the General Agreement on Trade in Services (GATS) in the WTO and of the chapters on cross-border services and investments in the FTTs.

Criteria and Suggestions for Negotiation Processes

Commitments in the environmental services sector, which are considered an investment in services, are also subject to the provisions contained in the investment chapter in a FTT. In the WTO the GATS in itself can be conceived as a kind of framework for a multilateral agreement on the promotion and protection of investments in services (ECLAC, Foreign Investment in Latin America and the Caribbean, 2000, Santiago, Chile, p. 30). The concept of investment laid down in article 10.28 of the Peru-US FTT is applied to concessions (through which water sources have been granted in Andean countries), not only because of the concept of investment, but because there are other references in this chapter that clearly show the scope as regards these services. Thus, article 10.1 paragraph 2 states that the obligations of any Party (that is, one of the Parties signing the agreement) under this section will apply to any state company or any other person when executing any regulatory, administrative authority or any other government authority as may have been delegated by that Party. Provided that the concession is an administrative act, the granting and regulation of which is subject to government control, it is said that this chapter must be binding for the authorities that have, in relation to the investors, regu-

CONCEPT OF INVESTMENT IN THE PERU-US FTT In the FTT between Peru and the US, Art. 10.28 establishes that INVESTMENTS is any asset that is the property of or that is controlled by an investor, either directly or indirectly, and that has the characteristics of an investment, including characteristics such as committed capital or other resources, the expectation of obtaining profits, or the assumption of risk, which can be in the form of (a) a company; (e) ... concession agreements, income-sharing agreements and other similar agreements; (g) licenses, authorizations, permits and similar rights granted in conformity with domestic legislation etc. The wide scope of this definition interprets contractual rights as in the case of concession agreements, the modality under which potable water provision is authorized as a natural element of investments, basically because according to the commercial ideology, public services can be supplied efficiently only through market mechanisms.

latory, administrative or other attributions. Another important provision in the Peru-US FTT, which expressly refers to these services, is Art. 10.28 that states that an investment agreement will be a written agreement between any national authority of one Party and a covered investment or an investor of the other Party, on which the covered


Criteria and Suggestions for Negotiation Processes

investment or the investor relies for establishing or acquiring a covered investment different from the written agreement in itself, which grants rights to the covered investment or the investor: (b) with respect to the provision of services to the public in representation of the Party, such as the generation or distribution of energy, the treatment or distribution of water, or telecommunications; or . This article makes it fully clear that the obligations of the investment chapter prevail in the states that authorize investors to provide services concerning water treatment or distribution. As from this moment onwards, the country will be involved in conflicts because of the level of obligations imposed by the investment chapter in a FTT. A tough job considering that the typology of this part is similar to that of a Bilateral Investment Treaty, and considering that one of its characteristics is an endless list of measures favoring investors such as required performance, expropriation and indemnity, national treatment, fair and equitable treatment, most-favored nation treatment etc. Besides, noncompliance automatically gives rise to a demand before the International Centre for Settlement of Investment Disputes (ICSID).

FAIR AND EQUITABLE TREATMENT An international minimum standard of treatment; fair and equitable treatment is a principle of absolute international law. Its content refers to transparency, due process of law, the right to defense and justice, besides a fair and equitable treatment. It is related to the subjective standard of the legitimate expectations of investors. In water, any modification of the conditions of the rights, including tariffs (for example, potable water service tariffs) which were unforeseen at the moment of the investment, could be considered a violation of the standard. (Miguel Solanes, Introduction to the Book. Water and Free Trade. Impact and Implications of Free Trade Agreements for Water and Water Services, (

Criteria and Suggestions for Negotiation Processes


PRINCIPLES OF NATIONAL TREATMENT AND MOST-FAVORED NATION TREATMENT Two important principles that appear in a virtually standardized manner in FTAs, FTTs and BITs are the National Treatment (NT) and Most-Favored Nation (MFN). In the case of GATS, the texts on these topics are as follows: Article XVI Market Access: With respect to market access each Member shall accord services and service suppliers of any other Member treatment no less favorable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule. Article XVII National Treatment: In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favorable than that it accords to its own like services and service suppliers. The Principle of Most-Favored Nation Treatment implies that a country must grant the investor from another country that signed the treaty or agreement, the same treatment it grants to investors coming from the country with which it has the most favorable agreement on a certain topic. The formal text of this principle is as follows: Each Party shall accord to investors of the other Party, treatment no less favorable than that it accords to the investors of any non-Party, in like circumstances, with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.


Criteria and Suggestions for Negotiation Processes


Negotiations of services sectors are based on lists, positive lists in the WTO and negative lists in a FTT. In negotiations on positive lists, a country voluntarily lists a certain number of services sectors and after identifying the sector, it mentions the type of access and treatment for each one and for each supply mode it is willing to contractually offer to service providers from other countries. In the type of access and treatment, the country can describe the restriction why its institutional juridical framework makes it impossible to comply with the principle; for example, it can state NONE in case there are no limitations to Market Access or National Treatment, or it can say WITHOUT CONSOLIDATION when the state wants to be free to introduce all measures as it may judge necessary, even if these are inconsistent with the obligations of Market Access and/or National Treatment. In the negative lists, the comprehensive inclusion of all services sectors is automatic, unless otherwise specified in the list of reservations (called the Non-Conforming Measures) based on the specific disciplines of the chapters on services and investments that go beyond the categories of access and treatment.


Positive Lists The positive-list approach that is also known as the bottom-up approach consists of a list of the services intended to be liberalized, whereby the rest of the universe is protected. This approach, based on the notion of progressivity, arose in the Uruguay Round as an instrument intended not to affect the sensitivity of many developing countries, and in which the specific commitments are the key elements. Negative Lists The negative-list approach that is also known as the top-down or verticalist approach consists of the drafting of lists of services that are not the object of liberalization; in other words, in this approach all services are liberalized, unless they are mentioned on the lists. This explains why these lists are called negative lists. The logic behind a negotiation on a negative list is what is known as the list or loose it, i.e. all incompatible measures not listed in the reservations must be derogated. The key elements in this approach are the general commitments. (ALADI, Situacin de las negociaciones y el comercio de servicios regional e internacional (Situation of the negotiations and regional and international services trade), 2004, p. 36)

Criteria and Suggestions for Negotiation Processes


NON-CONFORMING MEASURES In the FTTs, the lists in which reservations are included with respect to the treaty clauses are called NonConforming Measures. A nonconforming measure is any law, regulation, procedure, requirement or practice, a non-conforming measure is therefore a national decision which violates the requirements of Market Access, Local Presence, National Treatment, Performance Requirements established in the FTT. For example, the General Labor Law of Bolivia (article 3) establishes that companies cannot hire more than 15% of foreign personnel on their payroll. This provision is contrary to the principle of market access.

stand-still clause (clause on a status quo or the prohibition to create new obstacles to the trade in services), an unbalanced situation crystallizes as compared to the countries that have not liberalized their services sector, thus generating a situation with an unequal exchange of concessions in terms of binding commitments.
JURIDICAL RESERVATIONS FOR REGULATORY SOVEREIGNTY If a country does not have a law in the sector of basic services, for example, which permits it to indicate its non-conformity with some of the treaty requirements at the moment of the negotiation, it could prepare a list with reservations, thus reserving the right to institute the conditions for provision of water services in its country.

Non-conforming measures of the water and sewage supply services must contain reservations regarding the obligations of the services and investment chapters. As this is a negotiation with negative lists, this must be set out necessarily, as otherwise the interpretation would be that this sector is open and that henceforward the State receiving the investor would no longer be able to impose requirements against the commitments established in the treaty. This form of negotiation conspires against countries with liberal regimes for the trade in services on the basis of unilateral openness, because when consolidating the current situation through the negotiation under the


Criteria and Suggestions for Negotiation Processes

NEGOTIATIONS WITH POSITIVE LISTS WHEN THE COUNTRY HAS WEAK POLICIES AND REGULATIONS Insofar as a country does not have policies and regulations in most services sectors and no clear national objectives have been defined, the negotiation based on positive lists could be more advantageous for the country. In addition, this would guarantee the countrys freedom to introduce new restrictive regulations in the sector that are not part of the specific commitments, as this does not necessarily imply a general stand-still obligation.

Criteria and Suggestions for Negotiation Processes



One of the principal preoccupations regarding the application of trade agreements in services is the effect of these agreements on the governments capacity when supervising the compliance of public policies, regulating the provision of services in conformity with its own laws and norms. Although FTT advocates insist that governments could apply the conditions as they judge convenient in their reservations, there is less enthusiasm when asked about what would happen when those countries have insufficient normative capacity to establish their nonconforming measure.

considered restrictive or discriminatory. Henceforward, any modification in the norms would be possible only if that country introduces criteria that respect the framework committed in the agreement and in the non-conforming measures. It can therefore not be more restrictive than agreed, even though it could be more liberal. In the FTA approach, the starting precept is that regulations must not affect either the investments or trade.

AMPLE AND DETAILED LISTS FOR SAFEGUARDING DOMESTIC REGULATION Even when formulating reservations, the capacity of exclusion that can be applied in any of these, leaves only a small possibility of regulatory autonomy for the future. In theory, natural resources regulation, on the provision of potable water services and others, is preserved if a sufficiently wide list was collected of aspects that are safeguarded from application of a FTT so they would fall outside the FTTs scope. We should not forget that in FTTs, as opposed to the GATS, negative lists are applied.

With a FTT, the public policies in services and goods that might restrict the use of a resource would be affected by the scope of the rights of the investor, i.e. of the third-country entity or company that invests in a certain country. Within this framework, it is difficult to imagine the negotiations creating a situation of harmonious cohabitation between the internal capacity to regulate services and the access of foreign service providers to domestic markets.

In practice, with or without safeguards, there can be no requirements hampering trade as all limitations could be


Criteria and Suggestions for Negotiation Processes

REGULATION AND NATIONAL REGULATORY ENTITIES Regulations are measures adopted by the governments or regulatory entities created by States, at the national or local levels, i.e. which the State normally uses for administering resources, services, the access thereto and the use thereof, as well as the provision of services, for example potable water. As regards the regulation of basic services, we see that in Peru, Bolivia and Chile there are institutions called Superintendencies; in the case of Argentina, the provincial governments have regulatory attributions; in many cases, just like the mentioned ones, local governments (municipalities, for example) have certain regulatory attributions.

RESTRICTIONS ON COUNTRIES SO THEY WOULD NOT LIMIT TRADE Article 11.7 of the Chapter on Cross-Border Services and article VI of the GATS related to Domestic Regulation mentions the obligations of each Party to ensure that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services. Furthermore, articles 11.7-2 b) and art. XVI.4 b) known as the proof of necessity stipulate that requirements should be not more burdensome than necessary to ensure the quality of the service. This merely refers to the quality of the service and not the quality of the access, i.e. it does not refer to, for example, the conditions in which users access and use the service (tariffs, price of connection etc.).

PROGRESSIVE LIBERALIZATION OF THE COUNTRIES According to art. XIX of the GATS on the Negotiation of Specific Commitments, the countries start bilateral negotiations with the purpose of being more liberal, which means that any retroactive and restrictive action is not permitted. ARTICLE XIX GATS 1. In pursuance of the objectives of this Agreement, Members shall enter into successive rounds of negotiations, beginning not later than five years from the date of entry into force of the WTO Agreement and periodically thereafter, with a view to achieving a progressively higher level of liberalization. Such negotiations shall be directed to the reduction or elimination of the adverse effects on trade in services of measures as a means of providing effective market access

Criteria and Suggestions for Negotiation Processes


INSTITUTIONAL AND LEGISLATIVE CAPACITY FOR DOMESTIC REGULATION LESSONS LEARNED FROM THE NEGOTIATIONS OF ANDEAN COUNTRIES ON THE FTT WITH THE US The results of the negotiations of Andean countries on the environmental services sector in the FTT with the US have yielded the following lessons learned: 1. The country with optimum norms for regulating its services reflected the requirements of its norms in its reservations. 2. The country with a federal system listed in a measure the regulatory autonomy of its states, i.e. without specifying the state conditions for the provision of the service, therefore protecting public providers. 3. The country with scanty norms raised future reservations, even though the setting out thereof was negotiated and subordinated to approval by the other party. (The other party is the country of origin of the investor or investing company). 4. The country with or without normative bases established future measures, reserving the right to adopt or maintain any measure that is not incompatible with that countrys obligations in conformity with article XVI of the GATS.. 5. The country with domestic liberal provisions did not raise any reservation as its juridical regime is open. 6. The country that opened a sector (environmental services, for example) at the level of the WTO did not mention a bilateral measure in that sector as the openness is automatic.


Criteria and Suggestions for Negotiation Processes


For negotiation purposes, we could propose a strategy on three levels: I) trade negotiations, II) multilateral negotiations, III) domestic regulation. I) TRADE NEGOTIATIONS This section will describe some proposals that could be used by the countries in future trade negotiations. A) As regards Goods The following negotiation alternatives could be applied: 1. At the bilateral level There are three alternatives in bilateral negotiations: First: a proposal could be submitted for replacing the description other by another one specifying the goods/commodities in the heading. Second: if this were impossible, then the concession list should contain a comment on this heading incorporated, for example, in complementary notes, aimed at limiting possible interpretations. Third: a measure must be established for the water regulation even if water is considered a commodity to comply with provisions contained in national norms even though these provisions may be incompatible with the obliga-

tions related to import and export restrictions. 2. At the level of the Andean Region At the level of the Andes Community of Nations (CAN), taking into account that articles 5 and 6 of Decision 507 establish that the Secretary General can propose, at the request of any Member Country or at his own initiative, modifications to the NANDINA, aimed at, among other things, incorporating the modifications required for a better adaptation to regional and hemispheric integration processes. An amendment could be submitted to definitely exclude water from the commodities negotiations when the commercialization thereof goes against the environment, sustainability of the resources or privatization as a basic input etc. 3. At the multilateral level As one of the tasks of the World Customs Organization (WCO) is to periodically revise the customs nomenclature so as to examine possible errors in the customs nomenclature, the proposed amendment in the CAN on the exclusion of some water usages could be presented. This proposal was mentioned in the previous paragraph. The Customs Tariff System (CTS) is updated periodically (in general every 4 to 5 years). So far, three amendments have been made (in 1992, 1996 and 2002). Taking advantage of a
Criteria and Suggestions for Negotiation Processes


DECISION 507 UPDATE OF THE NANDINA NOMENCLATURE Article 5.- The Secretary General of the Andes Community can: a) Propose to the Commission, at the request of any Member Country or at his own initiative, modifications in the NANDINA, among other things to: i. incorporate the amendments introduced by the Customs Cooperation Council in the Harmonized System; ii. incorporate in the NANDINA the modifications required for a better adaptation to regional and hemispheric integration processes; and iii. satisfy the needs inherent in the development of foreign trade and of the productions of Member Countries. b) Approve, through Resolutions, subject to the prior opinion of the Andean Committee of Customs Matters, the following auxiliary texts, facilitating the correct interpretation and uniform application of the NANDINA: i. Complementary Explanatory Notes; ii. An index of chemical substances classified according to NANDINA; iii. Binding criteria for the classification of commodities; and iv. Any other auxiliary text considered necessary. Article 6.- The NANDINA will be updated to introduce the modifications of a subregional interest, as well as the ones derived from the Recommendations of the Customs Cooperation Council or international commitments and in all cases the pertinent correlation will be elaborated.

revision, a proposal could be submitted to reconsider the treatment of water as a commodity. The importance of concretizing a change at this level is without any doubt the subrogation of these results in the WTO, i.e. introducing them into the WTO debate, for incorporation into the latters internal norms.

B) As regards Services The following negotiation alternatives could be applied: 1. At the bilateral or regional level. If the negotiation of this sector is unavoidable, three alternatives could be proposed: First: Propose that the negotiations take place under positive lists because negotiations based on negative lists tend to favor those parties (i.e. the contracting countries) that have a better-developed regulation system in the field of services and that have clearly identified the limitations they must maintain according to their national policy objectives. This type of lists requires a comprehensive revision of all measures affecting the services of a country; therefore, they require more preparation as many sectors are subject to revision.


Criteria and Suggestions for Negotiation Processes

Insofar as a country does not have policies and regulations for most service sectors and does not have any clearly defined national objectives, the negotiations based on positive lists will be more beneficial for the country. In addition, this way there can be a ceiling of commitments in which the countries can indicate the limitations of national treatment and market access that is not part of the current regulation regime, and hence it enables maintaining a gap. Despite the drawbacks in transparency with positive lists, they are preferable to ensuring the elimination of access and national treatment restrictions in the sectors in which no reservations have been registered, or the new services that could be developed in the future in the market. Second: a) If a negotiation based on negative lists is inevitable, a possibility must be foreseen to establish future reservations in a parallel way to present reservations. These lists should expressly point out in the horizontal obligations that in the country, the services considered as public service companies on the national or local level, can be subject to public monopolies or to exclusive rights granted to certain service providing agents, for example social service

providers such as cooperatives, water boards, joint public-social entities etc. With this measure, the country reserves the right to restrict the access to markets in the sector of public companies or social entities. b) A truly wide definition can be given of public companies subject to the obligations imposed by the State. As the public entities and social entities usually also exist on the national, local, regional etc. levels, it would not be practical to make a detailed and exhaustive specific list of the sector. This way, many public activities are not explicitly included in this list of exceptions, but are not explicitly excluded either. In case of a request for more precision, it will be assumed that this definition is limited to the previous list of examples, with the result that the other services will remain outside the public companies or social service providers, but within the coverage of the chapter or agreement. c) Reservations can be established regarding the Principle of National Treatment, excluding subsidiaries of companies that are not incorporated in conformity with the laws of a Member State. The subsidiaries set up according to the laws of a Member State, which only have their
Criteria and Suggestions for Negotiation Processes


registered office in those countries, can be treated in a less favorable manner, unless it is shown that they have an effective and permanent link with the economy in those States. Third: As any agreement at the regional level is obliged to respect the commitments of the WTO, it will be important to negotiate establishment of the principle of special and differentiated treatment and non-full reciprocity, confirmed at the multilateral level. This way, without giving up the negotiation, the obvious asymmetry between countries is acknowledged and a flexible environment is generated for the developing countries without the pressure of immediate openness or the adoption of other obligations to the same extent as the industrialized countries. On the contrary, an equitable treatment of parties with different capacities will most probably generate unfair results or incompliance. In the WTO, even in matters that are already regulated (for example, intellectual property and services), developing countries have flexibility mechanisms and options to interpret and implement their obligations. In the free trade agreements and treaties (see for example the texts of the failed FTAA and Andean FTT), an attempt is made to eliminate this flexibility for the developing countries. If these attempts prosper, the socio-economic development

goals of the developing countries will be significantly reduced, as only one of the consequences. 2. At the multilateral level. The countries can withdraw their commitments and offers. As regards commitments, a country for example Ecuador strictly abiding by the provisions contained in Art. XXI of the GATS, could withdraw or modify its commitments in the environmental services sector, three years after the date on which a commitment entered into effect. (In the absence of urgent safeguard measures, still in negotiation, this waiting period is reduced to one year in certain conditions.)
ARTICLE XXI OF THE GATS Modification of Schedules

A Member may modify or withdraw any commitment in its Schedule, at any time after three years have elapsed from the date on which that commitment entered into force


Criteria and Suggestions for Negotiation Processes

3. Safeguards and subsidies The negotiation of safeguards and subsidies in services must continue. This means that the country can deny third-country companies and physical persons the right to national treatment in the case of subsidies, expressly emphasizing that the provision of a service, or the subsidy granted, within the public sector, does not infringe this commitment. The bilateral agreements (bilateral FTTs or BITs) have excluded subsidies from their coverage, as they are within the scope of the GATS. The economic rationality backing the disciplines on subsidies, in the case of goods, have full validity for the case of trade in services. In the potable water services sector, subsidies can be granted for investments or tariffs through monetary mechanisms (grants for investments or pro-poor tariffs etc.) or social support programs with equipment and building materials. Chile and Argentina have already implemented programs to subsidize investments and potable water and sewage tariffs. 4. Collective claim in the WTO The widest-scope proposal is the collective claim which members of the WTO can collectively file as a measure

to reduce the scope of the GATS, creating additional instruments such as treaties or changing the agreement
SUBSIDIES IN THE GATS Article XV of the GATS says the following on subsidies: 1. Members recognize that, in certain circumstances, subsidies may have distortive effects on trade in services. Members shall enter into negotiations with a view to developing the necessary multilateral disciplines to avoid such trade-distortive effects. The negotiations shall also address the appropriateness of countervailing procedures

Criteria and Suggestions for Negotiation Processes


C) As regards Investments The following negotiation alternatives could be applied: 1. Denounce the treaties The treaties include a denunciation mechanism, which implies that one of the parties tells the other party that it does not want to continue with the Treaty. The denunciation can be made at any moment during effectiveness of the Treaty, though in general its effects are suspensive, i.e. that the Treaty stops having an effect once a certain time has elapsed after the denunciation. The most direct remedy consists of informing the other party on ones will to terminate the Treaty when the date on which effectiveness of the treaty concludes comes near, so as to avoid the so-called Tacit Renewal (which implies that the Treaty automatically continues in effect for another period of time, which is generally equal to the first period of time). 2. Renegotiate bilateral investment treaties, to recover regulatory sovereignty The new investment norms should only govern direct foreign investment and exclude financial currents and portfolio investments, enable sustainable development and the promotion and protection of social policies, through enforceability, and obligations enforceable on

the investors. On the other hand, those norms should recognize the right of governments to regulate all sectors of a public interest, including the investment sector, public services and the state property sector. 3. Renegotiate concession agreements with the companies Many concession agreements are the only law existing between the parties due to a lack of a framework law that regulates potable water supply in the host country. In many cases, these agreements are not related to the procedure for solving controversies to be adopted in case of a conflict, and they do not expressly mention the applicable law when there is a treaty entered into by both countries. In other cases, it is not mentioned that an administrative entity on behalf of the state, either a superintendency or other entity, has the power to regulate and, if necessary, enforce measures to ensure compliance on behalf of the company. When there is this type of gaps and there is a Bilateral Investment Treaty in the middle, it is a good idea to renegotiate the concession agreement, aimed at avoiding a demand in an international court of arbitration or in the direct negotiations prior to the arbitration. II) MULTILATERAL NEGOTIATIONS If the foregoing alternatives are inter-


Criteria and Suggestions for Negotiation Processes

preted as non-compliance with international commitments or have to overcome many obstacles before being applied, a final alternative consists in establishing an International Water Convention within the framework of the United Nations (only the United Nations could be above any other forum of a strictly commercial nature), which limits the different variants and forms of water trade in the free trade treaties. The international water convention would generate a strategy to compensate the privatizing trend. The principal objective of the water convention would be to consolidate and protect the human right to water so as to guarantee water for all. The human rights are formulated by virtue of the rights of individuals and are not based on the rights and obligations of States towards investors. A convention could merge the three principal water currents, namely social development, the environmental ecosystem and human rights in only one and powerful river. A sustainable and long-term approach to defend the right to water can never be separated from the water issue of the origin of fresh water. Neither should it be separated from the important role of healthy ecosystems to ensure fresh water in a sufficient quantity and of a sufficient quality for satisfying basic human needs, for socio-economic develop-

ment and for poverty reduction. The Convention could ensure that water continues to be a public good and not a mere commodity or economic resource administered by international water companies. III) DOMESTIC REGULATION The best protection is to work on domestic regulation in all sectors, particularly in water and the implicit sectors because of the high impact of this sector on the standard of living. The non-compliance with commitments is an action the government could take but it will never be the most ideal solution. With a view to future negotiations, State efforts should concentrate on more intervention through active sectoral policies. This is the only way to ensure long-term protection at all levels. This implies the implementation of a general water legislation, specific laws on potable water and sewage services, on consumer and nonconsumer use, on water contamination etc. Thereto, institutional and regulatory frameworks should be defined, as well as mechanisms for the positive discrimination of certain service providers (public and social ones, for example). Priority must be given to the use of water for human consumption, agriculture, animal husbandry and forestry
Criteria and Suggestions for Negotiation Processes


linked to food security, water for the environment etc. These legislative provisions are fundamental to back

human, social, cultural, economic and citizen rights in general, creating national sovereignty in this respect.


Criteria and Suggestions for Negotiation Processes


BIT- Bilateral Investment Treaty CAN - Andean Community of Nations CCP - Central Classification of Products CTS - Customs Tariff System Dec. 291 - Common Regime on Treatment of Foreign Capitals and on Trade Marks, Patents and Royalties Dec. 292 - Uniform Regime for Andean Multinational Corporations Dec. 510 - Adoption of the Inventory of Measures that Restrict Trade in Services Dec. 634 - Modification of the terms specified in Decision 629 Dec. 507 - Update of the NANDINA Nomenclature FDI - Foreign Direct Investment FTT - Free Trade Treaty GATS - General Agreement on Trade in Services GATT - General Agreement on Tariffs and Trade HTZ - US Harmonized Tariff Schedule

ICSID - International Centre for Settlement of Investment Disputes MIA - Multilateral Investment Agreement NAFTA - North American Free Trade Agreement NANDINA - Common Nomenclature of the Cartagena Agreement Member Countries TRIPS - Agreement on Trade Related Aspects of Intellectual Property Rights UNCITRAL - United Nations Commission on International Trade Law W/120 - Sectoral Services Classification List WTO - World Trade Organization

Criteria and Suggestions for Negotiation Processes


WATER AND FREE TRADE Guide n1: Criteria and Suggestions for Negotiation Processes Publisher: Agua Sustentable ( Translation: Sophie Van Renterghen Cover: Pedro Guereca - Visual design: Pedro Guereca ( Photographs: Pedro Guereca (except: p. 8,16 and 17 Helena Cordero; p. 3 and 4 Aldo Cardozo and p.18 repertoire)


Criteria and Suggestions for Negotiation Processes



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