The Free Trade Area of the Americas and the Threat to Water

What is the FTAA?

At the 1994 Summit of the Americas in Miami, Florida, the leaders of the 34 nations of Canada, the United States, Central and South America and the Caribbean (excluding Cuba), agreed to sign a hemisphere-wide trade and investment pact called the Free Trade Area of the Americas (FTAA). At this meeting, former President Bill Clinton pledged to fulfill former President George Bush's dream of a trade agreement stretching from Anchorage to Tierra del Fuego. As envisioned, the FTAA would be the largest free trade zone in the world, as well as the most far-reaching trade and investment agreement ever signed. Newly elected President George W. Bush has committed to carry out his father's dream. The FTAA is scheduled for completion in 2005.

The FTAA negotiations were officially launched in Santiago, Chile, in September 1998. At this meeting, negotiators agreed to model the FTAA on the NAFTA signed in 1994 by the U.S., Canada and Mexico, and the World Trade Organization--a trade liberalization organization with over 135 member countries established in 1995. Based on the NAFTA and WTO models, the FTAA goes far beyond there agreements in both scope and power.

For example, the FTAA as it now stands would introduce into the Western Hemisphere all of the disciplines of the proposed services agreement of the WTO--General Agreement on Trade in Services (CATS)--with the powers of the Multilateral Agreement on Investment (MAI) that was rejected by the Organization for Economic Cooperation and Development (OECD) in 1998, to create a new trade powerhouse with sweeping new authority over every aspect of life in the region. The FTAA also locks in and expands upon the Structural Adjustment Programs (SAPs) imposed on most of the countries of the region by the International Monetary Fund and the World Bank.

Early on, citizens demanded that working groups on democratic governance, labor and human rights, consumer safety and the environment be included in the FTAA negotiations. This demand was rejected, and instead a Committee of Government Representatives on Civil Society was established, but with no mechanisms to incorporate civil society concerns and suggestions into the negotiations. At the same time, the business community was enjoying unprecedented direct involvement in the negotiating process through the American Business Forum. The result has been that corporate concerns dominate the negotiations while civil society is left behind.

April 200I Quebec Ministerial Summit

During April 19-22, 2001, the leaders of the Western Hemisphere (excluding Cuba) met in Quebec City, Canada, to continue negotiations of the FTAA. Over 60,000 people were on the streets of Quebec protesting the meeting outside a specially erected fence, while over 200 solidarity protests took place across the U.S. and the hemisphere. At this meeting, these FTAA architects agreed to a draft of a negotiating document already finalized in Buenos Aires earlier in the month and to completing the FTAA by 2005. The pressure to implement the FTAA has been mounting in light of the defeat of the MAI at both the 1996 Ministerial meeting of the WTO, and at the shut-down of the Seattle Ministerial meeting of the WTO in December 1999. Many trade observers and pundits promoting the current global trade model have identified the FTAA as the natural heir of these failed projects and are fearful that another such failure could put the whole concept of these massive free trade agreements on the back burner for years.

Global Water Scarcity

It is clear that the earth's water systems cannot sustain our demands upon it. Over 30 countries are facing water stress and scarcity and over a billion people lack adequate access to clean drinking water. Science reveals that because of operational limits and pollution, the earth's water system can support at most, only one more doubling of demand, estimated to occur in less than 30 years. By the year 2025, as much as two-thirds of the world's population will be living with some serious condition of water shortage or in absolute water scarcity. A recent report by the National Intelligence Council, a group that reports to the CIA, echoed this sentiment, finding that the main resource problem in 2015 will be water and that the instability created by shortages of water "will increasingly affect the national security of the United States."

Fortune magazine notes that "water will be to 21st Century what oil was to the 20th." Who owns water and how much they are able to charge for it will be the question of the century. The privatization of water is already a $400 billion a year business globally, and a $100 billion a year industry in the U.S. That makes it one third larger than global pharmaceuticals. Multinational corporations hope to increase profits from water even further by using international trade and investment agreements to control the flow and supply of water. The website of one Canadian water company, Global Water Corporation, puts its best: "Water has moved from being an endless commodity that may be taken for granted to a rationed necessity that may be taken by force."

In the past, the primary mechanisms through which multinational corporations profited from the provision of water were World Bank and IMF Structural Adjustment Programs (SAPs). Over the last few decades, the World Bank and IMF gave corporations access to the water systems of developing countries. Today, trade and investment agreements provide corporations with even greater access and rights to water systems in developed and developing countries. In addition, corporations are using trade and investment agreements to gain ownership over the world's ever-dwindling water supplies so that they will become the suppliers of last resort.

In February 1999 the National Post called Canada's water "blue gold" and demanded that the government "turn on the tap." Its business columnist, Terence Corcoran, wrote "The issue will not be whether to export, but how much money the federal government and provinces will be able to extract from massive water shipments…Using the OPEC model, they will attempt to cartelize the world supply of water to drive the price up." In fact, the "cartelization" has already begun. The aforementioned Global Water Corporation has signed an agreement with Sitka, Alaska, to export 18 billion gallons per year of glacier water to China where it will be bottled in one of that country's "free trade zones" to save on labor costs. Corporations hope that the FTAA, together with its predecessors and models the NAFTA and the WTO, will force countries to grant them access to and ownership of the world's water supply regardless of the environmental, health or social consequences. Based on the NAFTA, the WTO and the draft FTAA negotiating documents that have been released, we can begin to paint a picture of the threats to water which are likely to be included in the FTAA. A description of these elements follows.

Provisions of the FTAA That Threaten Water

NAFTA Chapter 3 establishes the goods that are subject to the agreement's obligations. These include "waters, including natural or artificial waters and aerated waters." The NAFTA adds an explanatory note that "ordinary natural water of all kinds (other than sea water)" is included. In 1993, then U.S. Trade Representative Mickey Kantor said in a letter to an U.S. environmental group, "When water is traded as a good, all provisions of the agreement [NAFTA] governing trade in goods apply."

"National Treatment" is a standard trade provision that guarantees that countries do not "discriminate" in favor of their domestic producers and against foreign producers. This means that if a locality provides any portion of its water systems through a private company, they can not have a preference for a local service provider who may have a greater commitment to the area and may be easier for the local community to oversee. Furthermore, once a permit is granted to a domestic company to export water, the corporations of all the other FTAA countries would have the same access rights to the commercial use of that water. For example, if a Bolivian company were granted the right to export Bolivian water, U.S. multinational corporations would then have the right to help themselves to as much Bolivian water as they wished.

Chapter 11, "Investor State." This is a provision of the NAFTA favored by the U.S. government, among others, for inclusion in the FTAA. This provision gives investors (usually corporations) the right to sue a foreign government directly if they believe that their rights have been violated under the NAFTA. As a result of this provision, there have been a flurry of investor-state suits in North America under the NAFTA challenging environmental, health and safety legislation in the three NAFTA signatory countries.

If this investor-state provision is included in the FTAA, it could apply to water in at least two ways. If any FTAA country, state or province allows only domestic companies to export water, corporations in the other countries would have the right to financial compensation for "discrimination." Further, the very act of a government attempt to ban bulk water exports automatically makes water a commercially tradable commodity, triggering the FTAA. The very same law that excluded them would trigger foreign investors' FTAA rights, and they could demand financial compensation for lost opportunities.

In addition, Chapter 11 allows foreign corporations to sue a country if a government implements legislation that "expropriates" the company's future profits. For example, if a country privatized its water services and hired a foreign corporation to provide the service and then passed laws requiring improved environmental protections or worker safety, the corporation could argue that the laws were an expropriation of its profits and therefore illegal under FTAA rules.

NAFTA Chapter Eleven: Case Studies Involving Water

Sun Belt Water, Inc. vs. Canada. The first NAFTA Chapter 11 case on water was filed in the fall of 1998. Sun Belt Water Inc. of Santa Barbara, CA, is suing the Canadian government because the company lost a contract to export water to California when the Canadian province of British Columbia banned the export of bulk water in 1991. Sun Belt alleges that the ban contravenes NAFTA and is seeking $220 million in damages. However, it is clear that Sun Belt is more interested in access to British Columbia's water than the paltry $220 million they could win in the suit As Sun Belt's CEO Jack Lindsay explained, "Because of NAFTA, we are now stakeholders in the national water policy in Canada."

Ethyl Corporation vs. Canada. Chapter 11 was used successfully by the Virginia-based Ethyl Corporation to force the government of Canada to reverse its ban on the gasoline additive, MMT. In June 1997, Canada legislated a ban on the cross-border sale of MMT because it pollutes ground water and is, in the words of Canadian Prime Minister Jean Chretien, an "insidious neurotoxin." MMT is banned in Europe and California for the same reason. Ethyl used NAFTA to sue the Canadian government for $250 million in damages for lost future profits and for damaging their "good name" during the debate over the legislation in the Parliament. Rather than allow the case to go to a NAFTA tribunal where it feared it would lose, the Canadian government reversed its ban in July 1998 and paid Ethyl $13 million in compensation for its "trouble."

Methanex Corporation vs. the United States. In July 1999, the Canadian corporation Methanex sued the U.S. government after California Governor Gray Davis, by executive order, mandated the removal of methyl tertiary butyl ether (MTBE) from gasoline sold in the state by December 31, 2002. The chemical has been associated with human neurotoxicological effects, with the potential to cause human cancer. The California MTBE ban is based on a 1998 University of California study which found, "There are significant risks and costs associated with water contamination due to the use of MTBE." The report concluded, "We are placing our limited water resources at risk by using MTBE." Once the ban is completely implemented, both domestic and foreign producers alike will be prohibited from using MTBE in gasoline sold in California. However, Methanex claims that California's ban violates NAFTA by limiting the corporation's ability to sell MTBE. Methanex is suing for $970 million. If a NAFTA tribunal finds for Methanex, the U.S. government can be held liable for the corporation's lost profits.

Several other provisions of the NAFTA and the WTO, which are likely to be included in the FTAA, will dramatically impact the provision of: water resources.

Article 315 of the NAFTA, "proportional sharing." Under NAFTA Articles 315 and 309, no country can reduce or restrict the export of a resource once the trade has been established. Nor can the government place an export tax or charge more to the consumers of another NAFTA country than they charge domestically. Exports of water would have to be guaranteed to the level they had acquired over the preceding 36 months, the more water exported, the more water required to be exported. Even if new evidence were found that massive movements of water were harmful to the environment, these requirements would remain in place.

Article XI of the GATT at the WTO specifically prohibits the use of export controls for any purposes and eliminates quantitative restrictions on imports and exports. This means that quotas or bans on the export of water imposed for environmental purposes could be challenged as a form of protectionism

Production Process Methods. The WTO forces nations to forfeit their capacity to discriminate against imports on the basis of their consumption or production practices. Article I, "Most favored Nation," and Article III, "National Treatment," require all WTO countries to treat "like" products exactly the same for the purposes of trade whether or not they were produced under ecologically sound conditions. Even though commercial trade in water can be destructive to water sheds, the WTO could prevent countries from restricting that trade.

"Least Trade Restrictive." The WTO requires that any law that a country may write to protect its water would also have to be the "least trade restrictive" law imaginable (as interpreted by a panel of trade lawyers). This vague language has already been the downfall of several environmental protection and public health laws and promises more of the same if included in the FTAA.

Services. The FTAA Services Agreement is even more sweeping than the General Agreement on Trade in Services (GATS) at the WTO. The fundamental purpose of the services agreements is to constrain all levels of government in their delivery of services and to facilitate access to government contracts by transnational corporations in a multitude of areas, including water services. The FTAA Services Agreement, says the Negotiating Group, should have "universal coverage of all service sectors." Governments are granted the right to "regulate" these services, but only in ways compatible with the "disciplines established in the context of the FTAA agreement." The Services Agreement apply to "all measures" affecting trade in services taken by governmental authorities at all levels of government. As well, it is intended to apply to non-governmental institutions "acting under powers conferred to them by governments."

Governments used to be unanimous in the belief that basic human services such as water, health care and education should not be included in trade agreements because these were essential components of citizenship. However, the NAFTA and the GATS began the process of eroding these basic human rights, which the FTAA will take to a whole new level. The framework of the FTAA Services Agreement represents sweeping new authorities of a trade agreement to overrule government regulation and grants huge new powers to service corporations under an expanded FTAA. For instance, if national treatment rights in services are included in the FTAA, all public services at all levels of government would be forced to open up for competition from foreign for-profit service corporations. This agreement would disallow any government or sub-national government from preferential funding to domestic service providers in services such as sewer and water services.

Cities and towns across the Western Hemisphere have been forced to privatize their water services due to World Bank and IMF Structural Adjustment Programs. The results have almost universally mirrored those in Cochabamba…[Bolivia]: increased prices and a concurrent loss of access to water, failure to live up to promises of infrastructure improvement, loss of indigenous peoples' rights to water, worker layoffs, lack of consumer information on water quality and big profits for the privatizing corporation. The FTAA would lock in the policies of the SAPs and increase the number of areas forced--or coerced--into privatizing their water systems. The FTAA will grant water privatizers greater rights, reduce the ability of governments to ensure that the privatized systems function in ways that protect the environment, consumers and workers, and reduce the ability of citizens to follow the lead of Cochabamba's "water warriors," and take back rights to regional water sources.

Protecting Water from the FTAA. The only way to protect water from the FTAA, or any trade agreement, is to explicitly exclude it from the obligations of the agreement. However, it is time to ensure that regardless of which trade or investment agreement comes down the pike next, water will be protected as a human and planetary right rather than as a corporate commodity. Toward this end, members of the IFC Project on the Globalization of Water joined with citizens of Cochabamba, Bolivia, in December 2000 to draft a people's declaration on the global provision of water. The declaration, in its entirety, follows.

The Cochabamba Declaration: We, citizens of Bolivia, Canada, United States, India, Brazil: Farmers, workers, indigenous people, students, professionals, environmentalists, educators, nongovernmental organizations, retired people, gather together today in solidarity to combine forces in the defense of the vital right to water. Here, in this city which has been an inspiration to the world for its retaking of that right through civil action, courage and sacrifice standing as heroes and heroines against corporate, institutional and governmental abuse, and trade agreements which destroy that right, in use of our freedom and dignity, we declare the following:

For the right to life, for the respect of nature and the uses and traditions of our ancestors and our peoples, for all time the following shall be declared as inviolable rights with regard to the uses of water given us by the earth:

(1) Water belongs to the earth and all species and sacred to life; therefore, the world's water must be conserved, reclaimed and protected for all future general and its natural patterns respected.

(2) Water is a fundamental human right and a public trust to be guarded by all levels of government; therefore, it should not be commodified, privatized or traded for commercial purposes. These rights must be enshrined at all levels of government. In particular, an international treaty must ensure these principles are noncontrovertable.

(3) Water is best protected by local communities and citizens who must be respected as equal partners with governments in the protection and regulation of water. People's of the earth are the only vehicle to promote democracy and save water.

For additional information on the Free Trade Area of the Americas, the IFG Project on the Globalization of Water or other water and globalization issues, please contact Antonia Juhasz, director of IFG Globalization and Water Project at (415) 561-3490,

© IFG Bulletin, Summer 2001

An article about Cochabamba, Bolivia, and its water war is also in this issue.