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PRESENTATION Pg. 3
WHAT IS THE RELATIONSHIP BETWEEN FREE
TRADE AGREEMENTS AND TREATIES AND WATER
AND POTABLE WATER SERVICES? Pg. 5
HOW IS WATER TREATED IN FREE TRADE
AGREEMENTS AND TREATIES, IN WHICH
WATER IS CONCEIVED AS A COMMODITY?
Pg. 6
HOW DO THE FREE TRADE TREATIES AND
AGREEMENTS TREAT WATER IN TERMS OF
INVESTMENTS IN WATER RESOURCES AND
THE SERVICES DERIVED FROM USING THESE?
Pg. 9
HOW DO COUNTRIES NEGOTIATE ON THE
INCLUSION OF THEIR SERVICES IN THE WORLD
TRADE ORGANIZATION AND IN FREE TRADE
TREATIES? Pg. 13
WHEN SIGNING A FREE TRADE AGREEMENT OR
TREATY, DOES THE SIGNATORY COUNTRY GIVE
UP SOVEREIGNTY OR KEEP REMAINING
SOVEREIGNTY FOR JURIDICAL, JUDICIAL AND
REGULATORY ENDS? Pg. 16
HOW TO PLAN A NEGOTIATION IN A FREE
TRADE TREATY (FTT) OR A FREE TRADE
AGREEMENT (FTA)? Pg. 19
GLOSSARY OF TERMS AND ABBREVIATIONS Pg. 27
I N D E X G U I D E
1
2
3
4
5
6
7
Criteria and Suggestions for Negotiation Processes
CRITERIA AND
SUGGESTIONS FOR
NEGOTIATION
PROCESSES
1
Water and Free Trade
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Criteria and Suggestions for Negotiation Processes2
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The Social Vision of Water Project imple-
mented by the institution AGUA SUSTENT-
ABLE with support from the International
Development Research Centre (IDRC) has
developed several booklets and guides onthe 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 investiga-
tions 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 negotia-tors 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 investiga-
tions performed under consultancies were
processed. The consultants were differentanalysts such as Pablo Soln, Denisse
Rodrguez, Carlos Crespo, Oscar Campa-
nini in Bolivia, Hildebrando Vlez Galeano
in Colombia, Juan Fernando Tern in Ecua-
dor 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
www.aguavisionsocial.org/lineasDocs.html.
A team of AGUA SUSTENTABLE has
systematized the above-mentioned investi-
gations in an abridged version, this Guide,
complemented and illustrated with addi-
tional data and information.
The central topic of this Guide titled Crite-
ria and Suggestions for Negotiation
Processes is the negotiations within the
context of free trade agreements or
treaties, considering water and waterservices 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 Gen-
eral Agreement on Tariffs and Trade, GATT,
and the General Agreement on Trade in
Services, GATS) and the Free Trade Trea-
ties that are being entered into on a
bilateral basis by the Andean countriesafter the multilateral FTAA (Free Trade
Area of the Americas) and Andean FTA
negotiations failed.
PRESENTATION1
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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 understandingthe 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 provi-
sions and full chapters in the texts of the
likewise failed Andean FTA and of the
bilateral FTAs the US is negotiating sepa-
rately with the different countries of the
American continent. The Bilateral Invest-ment 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 positionsand commitments made by different coun-
tries in this regard.
In the first part, readers can find an intro-
duction 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 recommendationsfor 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 transform-
ing these processes and at providing ourcountries with instruments for strengthen-
ing 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.
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One of the most frequent questions
when talking about free trade agree-
ments is whether water and water
services are included, in other words,
whether upon signing a Free TradeAgreement (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. Some-
times, 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, authori-
zations etc.
WHAT IS THE RELATIONSHIP BETWEEN FREE TRADE AGREEMENTS AND
TREATIES AND WATER AND POTABLE WATER SERVICES?2
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
InvestmentsServicesGoods
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Table 1: Intersections between FTTs and Water
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.
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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.
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 Agree-ment 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.
HOW IS WATER TREATED IN FREE TRADE AGREEMENTS AND TREATIES, IN
WHICH WATER IS CONCEIVED AS A COMMODITY?3
SECTION V
MINERAL PRODUCTS: SALT, SULPHUR; EARTHS AND STONE; PLASTERING MATERIAL;
LIME AND CEMENT
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
2851.00.30.00
NANDINA Code Description of Goods
- Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or
other sweetening matter nor flavored; ice and snow
- 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
Distilled or conductivity water and water of similar purity; liquid air and purified air
- 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
- 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
- Mineral waters and aerated waters
- Waters, including mineral waters and aerated waters, containing added sugar or other sweetening
matter or flavored
- Other
- Other
- Other
Table 2:Common Nomenclature of the Cartagena Agreement Member Countries (NANDINA)
Source: Import Tariffs Bolivia, 2006.
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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 differ-ent ways. Bolivia and Peru have
included as a package all their customs
headings on consumer goods, estab-
lishing in the case of Bolivia a consoli-
dated 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 isclarified 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
water as a common commodity; there
is no precise tariff definition delimiting
the scope of the liberalization commit-
ment, and no special treatment is fore-
seen.
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). Inwater, 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.
THE UNITED STATES OF NORTH
AMERICA AND WATER LIBERALIZATION
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 coun-
tries, 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.
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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 agood, when any commitment on water
is not exclusively limited to the
progressive elimination of tariff barri-
ers, 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 head-
ings involving water so as to permit the
State to institute or maintain - besides
duties, taxes or other charges prohi-
bitions or restrictions on the importa-
tion of any product of the territory ofany 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 andTrade 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 tempo-
rary nature, which may leave them
defenseless in case of application of
the treaties.
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At present, there are three service clas-
sifications: i) the Sectoral Services
Classification List (W/120) adopted
within the framework of the negotia-
tions on the General Agreement onTrade in Services (GATS) during the
Uruguay Round; ii) the Provisional
Central Classification of Products
(Provisional CCP) of 1991; and iii) the
Central Classification of Products
(CCP) of 1997.
Potable water and sanitation services
are included as part of environmentalservices within the framework of the
GATS. Below, an overview is given of
the coverage of these services in each
of these classifications.
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.
HOW DO THE FREE TRADE TREATIES AND AGREEMENTS TREAT WATER
IN TERMS OF INVESTMENTS IN WATER RESOURCES AND THE SERVICES
DERIVED FROM USING THESE?
4
1997 CCPProvisional CCP 1991W/120
A. Sewage Services (9401) 9401 Sewage services 941 Sewage services94110 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 services94390 Other sanitation services
949 Other environmental protection services not
elsewhere classified
9402 Refuse disposal services
9403 Sanitation and similar
services
9404 Cleaning services of
exhaust gases
9405 Noise abatement services
9406 Nature and landscape
protection services
9409 Other services not
elsewhere classified
B. Refuse disposal services
(9402
C. Sanitation and similar
services (9403)
D. Other services (9409)
Table 3:Classification of Enviromental Services
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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-sharingagreements 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.
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 theWTO the GATS in itself can be
conceived as a kind of framework for a
multilateral agreement on the promo-
tion 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, administra-
tive 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 govern-
ment control, it is said that this chapter
must be binding for the authorities that
have, in relation to the investors, regu-
latory, administrative or other attribu-
tions.
Another important provision in thePeru-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
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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 inves-tor: (b) with respect to the provision
of services to the public in representa-
tion of the Party, such as the generation
or distribution of energy, the treatment
or distribution of water, or telecommuni-
cations; or .
This article makes it fully clear that the
obligations of the investment chapterprevail in the states that authorize
investors to provide services concern-
ing 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 aFTT. 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 characteris-
tics is an endless list of measures
favoring investors such as required
performance, expropriation and indem-
nity, national treatment, fair and equi-
table treatment, most-favored nationtreatment etc. Besides, non-
compliance 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. Itscontent 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,
(www.aguavisionsocial.org/lineasDocs.html)
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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 ofservices, 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.
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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 coun-try 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 Treat-
ment, or it can say WITHOUT CON-
SOLIDATION when the state wants tobe free to introduce all measures as it
may judge necessary, even if these are
inconsistent with the obligations of
Market Access and/or National Treat-
ment.
In the negative lists, the comprehen-
sive inclusion of all services sectors is
automatic, unless otherwise specifiedin 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.
HOW DO COUNTRIES NEGOTIATE ON THE INCLUSION OF THEIR SERVICES
IN THE WORLD TRADE ORGANIZATION AND IN FREE TRADE TREATIES?5
TYPES OF LISTS FOR INCLUSION IN
FREE TRADE AGREEMENTS
Positive ListsThe 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 keyelements.
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 negativelists. 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 negotiationsand regional and international services
trade), 2004, p. 36)
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NON-CONFORMING MEASURES
In the FTTs, the lists in which reserva-
tions are included with respect to the
treaty clauses are called Non-Conforming Measures. A non-
conforming measure is any law, regula-
tion, procedure, requirement or practice,
a non-conforming measure is therefore
a national decision which violates the
requirements of Market Access, Local
Presence, National Treatment, Perfor-
mance Requirements established in the
FTT. For example, the General Labor
Law of Bolivia (article 3) establishes thatcompanies cannot hire more than 15% of
foreign personnel on their payroll. This
provision is contrary to the principle of
market access.
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 invest-ment chapters. As this is a negotiation
with negative lists, this must be set out
necessarily, as otherwise the interpre-
tation would be that this sector is open
and that henceforward the State receiv-
ing 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
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 havenot liberalized their services sector,
thus generating a situation with an
unequal exchange of concessions in
terms of binding commitments.
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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 noclear 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.
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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 andrestrictive 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
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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 ofits 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.
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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 GoodsThe 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 byanother 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 interpreta-tions.
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 estab-
lish that the Secretary General can
propose, at the request of any Member
Country or at his own initiative, modifi-
cations to the NANDINA, aimed at,
among other things, incorporating the
modifications required for a betteradaptation to regional and hemispheric
integration processes. An amendment
could be submitted to definitely
exclude water from the commodities
negotiations when the commercializa-
tion thereof goes against the environ-
ment, sustainability of the resources or
privatization as a basic input etc.
3. At the multilateral level
As one of the tasks of the World Cus-
toms Organization (WCO) is to periodi-
cally revise the customs nomenclature
so as to examine possible errors in the
customs nomenclature, the proposed
amendment in the CAN on the exclu-
sion of some water usages could be
presented. This proposal was men-
tioned in the previous paragraph.
The Customs Tariff System (CTS) is
updated periodically (in general every
4 to 5 years). So far, three amend-
ments have been made (in 1992, 1996
and 2002). Taking advantage of a
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revision, a proposal could be submit-
ted to reconsider the treatment of
water as a commodity.
The importance of concretizing achange 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 negotiationstake place under positive lists
because negotiations based on nega-
tive 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 compre-
hensive revision of all measures
affecting the services of a country;
therefore, they require more prepara-
tion as many sectors are subject to
revision.
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 auxiliarytexts, 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.
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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 willbe 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 reser-
vations in a parallel way to present
reservations. These lists should
expressly point out in the horizontalobligations 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 sectorof 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 explic-
itly included in this list of exceptions,
but are not explicitly excluded either.
In case of a request for more preci-
sion, it will be assumed that thisdefinition 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 establishedregarding 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
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goals of the developing countries will
be significantly reduced, as only one of
the consequences.
2. At the multilateral level. The coun-tries 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 environmentalservices sector, three years after the
date on which a commitment entered
into effect. (In the absence of urgent
safeguard measures, still in negotia-
tion, this waiting period is reduced to
one year in certain conditions.)
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 differenti-
ated treatment and non-full reciprocity,
confirmed at the multilateral level. This
way, without giving up the negotiation,
the obvious asymmetry between coun-
tries is acknowledged and a flexible
environment is generated for the devel-
oping 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 ofparties with different capacities will
most probably generate unfair results
or incompliance.
In the WTO, even in matters that are
already regulated (for example, intel-
lectual property and services), develop-
ing countries have flexibility mecha-
nisms and options to interpret andimplement 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 devel-
oping countries. If these attempts pros-
per, the socio-economic development
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
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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 physicalpersons 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 invest-
ments 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 subsidizeinvestments 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 negotiationsshall also address the appropriateness of
countervailing procedures
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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 stateproperty sector.
3. Renegotiate concession agree-
ments 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 thehost 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 thestate, 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 renegoti-
ate the concession agreement, aimed
at avoiding a demand in an interna-
tional court of arbitration or in the direct
negotiations prior to the arbitration.
II) MULTILATERAL NEGOTIATIONS
If the foregoing alternatives are inter-
C) As regards Investments
The following negotiation alternatives
could be applied:
1. Denounce the treatiesThe 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 denuncia-
tion.
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 avoidthe 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 sover-
eigntyThe new investment norms should only
govern direct foreign investment and
exclude financial currents and portfolio
investments, enable sustainable devel-
opment and the promotion and protec-
tion of social policies, through enforce-
ability, and obligations enforceable on
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preted as non-compliance with interna-
tional commitments or have to overco-
me many obstacles before being
applied, a final alternative consists in
establishing an International WaterConvention 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 compen-
sate the privatizing trend. The principal
objective of the water convention would
be to consolidate and protect the
human right to water so as to guaran-
tee 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 towardsinvestors.
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 separatedfrom the water issue of the origin of
fresh water. Neither should it be sepa-
rated 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 econo-mic resource administered by interna-
tional water companies.
III) DOMESTIC REGULATION
The best protection is to work on
domestic regulation in all sectors, parti-
cularly 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 solu-
tion.
With a view to future negotiations,
State efforts should concentrate onmore intervention through active secto-
ral 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 non-
consumer use, on water contamination
etc. Thereto, institutional and regula-tory frameworks should be defined, as
well as mechanisms for the positive
discrimination of certain service provi-
ders (public and social ones, for exam-
ple). Priority must be given to the use
of water for human consumption, agri-
culture, animal husbandry and forestry
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human, social, cultural, economic and
citizen rights in general, creating
national sovereignty in this respect.
linked to food security, water for the
environment etc. These legislative
provisions are fundamental to back
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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
GLOSSARY OF TERMS AND ABBREVIATIONS
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Criteria and Suggestions for Negotiation Processes8
WATER AND FREE TRADE Guide n1: Criteria and Suggestions for Negotiation Processes
Publisher: Agua Sustentable (www.aguasustentable.org) Translation: Sophie Van Renterghen
Cover: Pedro Guereca - Visual design: Pedro Guereca (www.taller64.com)
Photographs: Pedro Guereca (except: p. 8,16 and 17 Helena Cordero; p. 3 and 4 Aldo Cardozo and p.18 repertoire)
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It is a publication of:
with the support of:
1
WAT
ERAND
FREET
RADE
WWW.AGUAVISIONSOCIAL.ORG
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