International trade and investment agreements are smoothing the way for foreign companies to buy up public infrastructure in developing countries and invest in independent power projects. Multinational corporations have been lobbying at the international level to instigate international rules and agreements for this purpose. Negotiations for a multilateral agreement on investment (MAI) began in the OECD in 1995 but did not become public until 1997 when a draft was leaked. It aimed to strengthen the power of multinational companies and weaken the ability of governments to regulate foreign investment. The economic or trade ministry officials involved in the negotiations were lobbied extensively by industry at both a national level and an international level by groups such as the International Chamber of Commerce and the OECD's Business and Industry Advisory Council.
The MAI was designed to reduce the ability of national governments to restrict foreign investment in their countries. So a nation could not favor local companies for ownership of a privatized water or electricity company. Sanctions against companies on the basis of their environmental or human rights records would also not be allowed. The MAI sought to prevent environmental legislation that could be construed to impose barriers to free investment. And countries that wanted to foster local development through conditions on investment, such as use of local suppliers or materials, would be prohibited, as would restrictions on capital flows out of the country.
The MAI was defeated at the OECD level, mainly as a result of concerted campaigning by NGO groups. But the concept then moved to the World Trade Organization (WTO) where multinational corporations hope to have more success. Energy services were identified as a priority for the round of WTO talks launched in November 2001.
The General Agreement on Trade in Services (GATS) aims to open up the provision of all services to international ‘free trade’. It prohibits governments from discriminating against foreign multinational companies that want to buy government services or compete to supply them, in areas that governments agree to liberalize. At an international level transnational service companies are pushing for GATS to be extended.
GATS includes a framework agreement outlining the rules under which trade in services should occur, annexes to that agreement, and schedules of commitments by individual countries as to which sectors they are opening to GATS rules. The idea is that various negotiation rounds will involve nations committing to the opening of more and more of their service sectors to GATS. GATS is administered by a Council for Trade in Services, within the World Trade Organization (WTO).
Under GATS rules, once a country decides to ‘liberalize’ a public service such as electricity or water, it cannot put any limits on foreign ownership nor limit how much of the industry one company can own. Also a government is not allowed to favour local businesses, so that if it subsidizes renewable sources of electricity, such as hydroelectricity, and these subsidized sources are mainly owned by local companies, then that could be interpreted as discriminating against foreign service providers that use ‘dirty’ sources of power like oil and gas.
According to the European Commission, GATS “is first and foremost an instrument for the benefit of business, and not only for business in general, but for individual services companies wishing to export services or to invest and operate abroad.”
Ongoing negotiations require countries to make requests for services to be opened to competition in other countries and then make offers of which services they themselves are willing to open up. Once commitments have been agreed they are not reversible and any privatization and liberalization that has already occurred or does occur in the sector cannot be reversed. This ensures that the interests of foreign investors are protected.
As part of the official offers and requests process, the European Commission (EC) has requested that other nations open up their water sectors, large parts of their energy sectors including electricity, and other sectors such as transport, to competition from abroad. These requests were not an outcome of democratic decision making in Europe but were kept secret until they were leaked.
The influence of Veolia and other European water multinationals in global trade negotiations is evidenced by the EU request for 72 countries to commit their water sectors under the General Agreement on Trade in Services (GATS) negotiations... Inclusion of water in the GATS agreement will give Veolia and other multinational companies greater access to national water resources and will create the legal and institutional framework to promote even more extensive water privatization.
The Corporate Europe Observatory argues that the EC intends ‘to use the GATS talks to deregulate and de facto privatise essential services, particularly in the South’.
According to the World Development Movement, any developing country escaping privatization of services under World Bank or IMF structural adjustment packages, or seeking to reverse them, ‘will feel a left hook coming in from the WTO’. It notes that if GATS negotiations are successful, ‘governments will be forced to privatise services and the sale will be irreversible’. Moreover, GATS will provide an excuse for governments that want to privatize against the will of the people, for reasons of corruption or ideology or misconception. They can pass on responsibility for the decision to the WTO which has required it.