Feb. 6, 2003

Consumer Group Warns California AG: New Trade Agreement Could Accelerate Acquisition of California Public Water Works by Foreign Firms

Leaked WTO Documents on "Trade in Services" Reveal Threats as Negotiation Deadline Approaches

OAKLAND – The consumer advocacy group Public Citizen warned California Attorney General Bill Lockyer this week that a wide array of California’s consumer safeguards and public services are under attack in secret trade negotiations at the World Trade Organization (WTO).

By March 31, the Bush administration must respond to European Union demands contained in a document leaked from negotiations aimed at implementing the WTO’s General Agreement on Trade in Services, or GATS. The EU is demanding that municipal water service contracts in California and other states be opened to foreign corporations and that California drop its insurance and utility regulations to pave the way for acquisitions by European firms.

"Roll your generators back out and try digging your own backyard water well," said Tom Hayden, former California state senator and former chair of the California Senate Select Commiteee on International Trade and State Legislation. "What’s going on here is a back door attack on California policies and regulations in the service sector that could spread our electricity privatization debacle to every other service sector, and the Bush administration is intent on not letting us have any say in the matter."

In the past, federal trade negotiators have made binding commitments regarding state law without consulting with state officials. In a Feb. 3 letter to Lockyer and other state attorneys general, Public Citizen warned that, "State and local authority could be curtailed profoundly and the Constitutional balances of federalism irreversibly biased if states do not act now to protect their interests during these ongoing negotiations."

The GATS – established in 1995 as one of 23 agreements enforced by the WTO – has little to do with trade, but rather creates new rights for foreign corporations to establish service businesses within the United States. It promotes privatization of public services and the elimination of government regulations. All countries belonging to the WTO are required to change federal, state and local laws to conform to the WTO’s rules.

Since 2000, negotiators in Geneva have been engaged in secret talks to further expand the scope of the GATS. Called GATS 2000, these talks are being pushed by the United States and the European Union (EU) on behalf of major multinational service sector conglomerates. The negotiations are aimed at seeking "progressive liberalization" of services, in part by bringing all service sectors under the pro-corporate GATS rules. The leaked European documents show that 60,000 municipal water systems in California and other states are a special target. Several large European corporations dominate the for-profit, private water trade and are eager to privatize the water works in communities like Stockton.

As part of the GATS 2000 negotiations, the United States has issued demands to other countries to privatize and deregulate education, health care, energy, banking, telecommunications, environmental services and tourism. While the specifics of these demands remain secret, the full extent of Europe’s demands was revealed in the leaked document. Click here to view that document on Public Citizen’s Web site.

In addition to water, the EU documents reveal demands that California and other states change regulations in the insurance, energy, legal, engineering and tourism industries, as well as eliminate residency requirements for federal small-business loans. The documents show that:

  • To make operations for European firms easier, the EU seeks to eliminate state authority over insurance regulation and replace it with a federal authority. The state of California has the nation’s largest insurance commission, overseeing an $87 billion industry.
  • The EU demands access for European firms in wholesale energy trading and the right to sell retail power to large industrial customers. Opening either of these sectors to GATS would make it more difficult for California to re-regulate electricity or otherwise protect consumers from price-gouging, service disruptions and market manipulation.
  • The EU seeks a piece of California’s tourism and transportation services, including access to U.S. airline computer reservation systems, airline ground handling services and airport management services.
  • The EU demands access to the U.S. water services sector for giant European water companies such as Suez and Vivendi. These corporations own and operate sewage and drinking water services throughout much of Europe, but the vast majority of water service providers in the United States are small, public utilities.

The GATS 2000 negotiations have followed a timeline whereby countries have issued demands for new commitments for access to each other’s service sectors, and responses called "offers" are due March 31. The WTO Secretariat has described GATS commitments as "effectively irreversible." Under GATS rules, once a country has agreed to allow foreign competition in a service sector, it cannot limit the number of private providers. In addition, if the United States were to grant EU requests concerning tourism, California would be barred from applying land-use rules limiting beachfront hotel development to a foreign corporation. The state of California would also be precluded from reversing failed privatization experiments in sectors covered by GATS unless the United States is able to negotiate compensation for every other WTO country.

If the U.S. agrees to open its electricity sector to foreign competition, and the state of California sought to reverse the failed electricity deregulation experiment and re-regulate the power utility sector by, for example, creating a not-for-profit government service provider, it could only do so if the United States agreed to compensate all other WTO member countries for the lost business opportunity.

"The whole point of the GATS is to privatize public services, dump essential service regulations and then pour cement over that mess to make it permanent," said Michael Dolan, Western Director of Public Citizen’s Global Trade Watch. "Well, we saw how that worked in California with energy."

Over the past five years, citizens of California have become familiar with the unintended consequences of international trade agreements. A Canadian company that manufactures MTBE, the hazardous gasoline additive banned in California, is currently using the North American Free Trade Agreement’s investment provisions to demand $1 billion from the United States as compensation for California’s statewide ban, arguing that its NAFTA-granted investor rights have been violated. This case, and similar ones pending, have caused an increasing number of members of U.S. Congress and state assemblies to question the merits of the sweeping international commercial agreements such as NAFTA and the WTO.

"We are deeply concerned about the implications of GATS negotiations on California groundwater and essential services," said Anna Blackshaw, a consultant on international trade policy with the California legislature. "The very design of this agreement turns on its head the long-established notion that government regulation plays a vital and positive role in economic growth and long-term sustainability. Under the models proposed in the GATS agreement, accountability and public protection take a back seat to the interests of deregulation and privatization."

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