Guide

nº 2

Incompatibilities between Free Trade Treaties, Bilateral Investment Treaties and relevant

International Conventions

WATER AND FREE TRADE

Water and Free Trade

INDEX
Incompatibilities between Free Trade Treaties, Bilateral Investment Treaties and relevant International Conventions
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GUIDE

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INTRODUCTION Pág. 3 WHAT ARE THE LEGAL FRAMEWORKS AND INTERNATIONAL PRINCIPLES THAT REGULATE WATER RIGHTS AND THE INTERNATIONAL TRADE OF WATER AND THE PROTECTION OF INVESTMENT? Pág. 5 WHAT IS THE STRUCTURE OF THE SYSTEM TO RESOLVE INTERNATIONAL BUSINESS CONFLICTS AND WHAT IS ITS IMPACT ON COUNTRIES’ WATER MANAGEMENT? Pág. 8 WHAT ARE THE SOURCES OF INTERNATIONAL LAW THAT CONFER THE REGULATORY FRAMEWORK FOR THE PROTECTION OF WATER AND WATER SERVICES? Pág. 9 WHAT ARE THE LEGAL INSTRUMENTS OF INTERNATIONAL LAW THAT RECOGNIZE THE RIGHT TO WATER FROM A PERSPECTIVE OF HUMAN RIGHTS AND WHAT IS THEIR REGULATORY REACH? Pág. 17 WHAT ARE THE LEGAL IMPLICATIONS OF HUMAN RIGHTS AGREEMENTS WITH RESPECT TO THE CLAUSES INCORPORATED IN FREE TRADE TREATIES AND BILATERAL INVESTMENT TREATIES THAT COMMIT TO THE TRADE OF WATER? Pág. 19 Glossary of Terms and Acronyms Pág. 22

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Incompatibilities between Free Trade Treaties, Bilateral Investment Treaties and relevant International Conventions

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INTRODUCTION

The Social Vision of Water, a project led by the Institution AGUA SUSTENTABLE (SUSTAINABLE WATER) with the help of the International Development Research Centre (IDRC) has developed various guides on the theme of Water and Free Trade based on diverse investigations carried out primarily in Andean countries between 2004 and 2007. The objective of these investigations was to determine how water and drinking water services are impacted by Free Trade Agreements and Treaties. The results of this research permitted the design of a series of didactic documents written principally for public operators, government negotiators of free trade agreements, national and international public authorities with decisionmaking power pertaining to water, academics and consultants, and representatives or leaders of civil society. This Guide has been prepared primarily as a synthesis of the introduction to the book “Water and Free Trade. Impact and implications of Free Trade Agreements on Water and its Services” by Miguel Solanes. In addition, the guide incorporates reflections found in various investigations carried out with trusted consultancies with different analysts such as Howard Mann and Michael Hantke - Domas and Jorge Barraguirre. The texts of these documents, including the introduction by M. Solanes are available at http://www.aguavisionsocial.org/ lineasDocs.html. The supporting documents used to prepare this guide have been systematized into a

summary, and complemented and illustrated with facts, analysis and additional information by Nacy Yañez, with the help of a team from SUSTAINABLE WATER. The central objective of the present Guide called “Incompatabilities between Free Trade Treaties and Bilateral Investment Treaties and Relevant International Conventions,“ is to open of debate around the following themes: i) points of interaction between international law and water; ii) legal principles that apply to the protection of investment; iii) the impact of the system of resolving international comercial disputes on countries´ ability to govern water resources and the exercise of water rights; iv) sources of international law that confer a regulatory framework for water and its associated services, and v) international legal rules that protect the right to water from a perspective of human rights. The proposed conclusions put forth in the documents that comprise this guide, firstly, emphasize the imperative need to modify the decisions of the international arbitration tribunals –the principle mechanism for the resolution of commercial disputes in the international arena – with relevant national precedents that consider the nature of the facts upon which the conflicts were submitted for resolution and the context in which they take place, urging the international trade community to change the mode of designation, operation and procedure of international arbitration. Secondly, although it is affirmed that Free Trade Treaties and other investment agreements open the market for trade in water as a natural resource and as services and establish

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a legal commercial regime at the international level that tends to override the current international order, it is clear that this market is not free of responsibilities. Finally it establishes that these responsibilities are regulated by the rules established by international law that protect water and its related services through a regulatory framework: principles that come from international agreements, international practice, general principles of law applied by relevant national systems in the regulation of water resources (with an emphasis on

the contractors’ obligation of efficiency), whose legal rulings allow challenges to contracts when it suffers defects or if current circumstances differ from the time of its signing; international environmental law and standards of sustainability in the planning and execution of development policies; human rights; and international water agreements.

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WHAT ARE THE LEGAL REGIMES AND PRINCIPLES OF INTERNATIONAL LAW THAT REGULATE THE INTERNATIONAL TRADE OF WATER AND THE PROTECION OF INVESTMENTS?

The World Trade Organization (WTO), the General Agreement on Tariffs and Trade (GATT), and the General Agreement on Trade in Services (GATS) are well-known instruments that regulate commerce and incorporate water in the market of goods and services. Other agreements with provisions similar to GATT and GATS and which have similar impacts in relation to water, also exist. One example is the Central American Free Trade Agreement, known as CAFTA, where water has not been specifically excluded from the trade rules. Furthermore, the agreements with the United States of America, in the services sector, only exclude services when they have been explicitly excluded, which differs from GATS, where it is understood that only listed services are included (through the so-called “positive lists,” lists where states have committed services whose inclusion of offers has been explicitly accepted). In the Central American Free Trade Agreement (CAFTA), only Costa Rica has excluded water services, which means that if one of the other countries party to the agreement permits a water privatization, the entire sector would be opened to private investment. The United States, by comparison, is not subject to the same rule, given that the commercial areas of jurisdiction of each of the states of the Union have been excluded from the agreement;

and because water is subject to the regulation of each of the member states of the Union, which means the decision regarding its commercialisation remains subject to the “sovereignty” of each federal state.
WATER AND THE RIGHTS OF U.S. INVESTORS IN CAFTA

If there were already private water services in the region of the Central American Free Trade Agreement (CAFTA), then the entire sector would be open to U.S. investment.

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Interaction between International Investment Law and Water
The interaction between investment and water can be illustrated in the following areas: a) direct investment in the water sector; b) investment in other sectors that consume water in their production processes; and c) the impact of legal rules that include provisions for investor protection after the investment has been made. Water is an important part of all investment agreements that open up sectors such as agriculture, energy and industry, and foreign investment. After an investment is made, the foreign investor acquires certain rights. The investment implies a situation of permanency in the country that results in relations between the investor and authorities and regulatory entities of all levels, and as a result in international responsibilities for the State. The principles of protection that support an investor in this context are the following: 1. National treatment: an investor can not be treated in a less favorable manner than nationals, except in the case of exceptions expressed in the treaty; 2. Most Favored Nation: an investor can take advantage of more benefi-

cial agreements signed by other countries, except where explicitly excluded in the treaty. 3. Standard of international minimum treatment, fair and equal treatment: is a principle of absolute international law that is not linked to a comparative like the two previous principles. Its content is still in formation, and includes “transparency,” “due process,” “right to defense,” and “day in justice (“día en justicia” as it is defined in Spanish), as well as that of fair and equal treatment. This is related to a subjective standard based on the legitimate expectations of the investors. Conforming to this principle and in relation to the regulation of the water sector, whichever modification of the conditions of the rights, including tariffs not forseen at the time of the investment, could be seen as a violation of this standard. 4. Protection with respect to uncompensated expropriation: This notion is an absolute standard like that of fair treatment. The problem it presents is not in its traditional application that requires the compensation of expropriative actions, rather that its expanded definition attempts to block regulatory activities under the rubric of indirect or regulatory expropriation.

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Incompatibilities between Free Trade Treaties, Bilateral Investment Treaties and relevant International Conventions

INDIRECT OR REGULATORY EXPROPRIATION The doctrine of indirect expropriation considers that government measures are undue interference on private activity. This issue is particularly serious considering that water will be subject to increasingly severe regulations, in terms of quality, environmental balance, and scarcity; and therefore a broad conceptualization of expropriation would translate into serious social, environmental and sustainability problems. It should be noted that the United States has apparently never paid compensation for measures resulting from the application of environmental legislation by the State even though investors’ acquired rights may have been restricted.

RIGHTS OF INVESTORS Versus RESPONSIBILITES OF INVESTORS TOWARDS STATES

The rights of investors are broad and expansively interpreted, and the tendency imposed by the new international commercial order vis a vis Free Trade and Investment Agreements is that investors do not have a corresponding set of obligations with respect to the states where they operate.

5. Prohibition of Performance Requirements: Investment agreements prohibit performance requirements that investors must meet as a condition for doing business in a country. Nevertheless, water is plainly an area where performance requierements will continue to increase given the nature of the water problem.

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HOW IS THE SYSTEM OF INTERNATIONAL COMMERCIAL DISPUTE RESOLUTION STRUCTURED AND WHAT IS ITS IMPACT ON COUNTRIES’ WATER MANAGEMENT?

Investment agreements signed after 1980 establish special mechanisms to resolve conflicts. These mechanisms are based in private arbitrations between private firms, but in practice they have become actions taken by private investors against States. The majority of the cases submitted to international arbitration in the Americas have to do with important questions of public interest, including the environment, land use planning, the use and protection of soil, and social questions. These issues are illustrated in the following emblematic cases: a) in the case of the La Villa wetlands in Lima,

Peru; and b) public service companies, in the cases pertaining to Aguas Argentinas y Aguas del Illimani (in Argentina and Bolivia, respectively). In spite of the importance of their decisions, the arbitration tribunals do not comply with the basic rules of due process: i) they are not independent; ii) its members are selected by the parties and act indistinguishably as arbitration judges and litigant attorneys; iii) the proceedings are held in secret; iv) there are no means to appeal decisions; and v) only one of the parties, in this case the investors, have the active legitimacy to initiate proceedings against governments.

COMMERCIAL LAW TRUMPING PUBLIC INTEREST The international arbitration carried out in the cases that involve Investor-to-State has been a frustrating imposition of international commercial law over questions of public interest, as demonstrated by 1) the nature of the questions submitted for arbitration: public services, environment, social questions; 2) the economic magnitude of the demanded reparations ($20 million only in Argentina); and 3) the tendency of arbitration tribunals to undermine national judicial systems by employing a pro-investor, supra-state jurisdiction.

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WHAT ARE THE SOURCES OF INTERNATIONAL LAW THAT CONFER A PROTECTIVE REGULATORY FRAMEWORK FOR WATER AND ITS RELATED SERVICES?

I. Trade and Investment Law in the context of other sources of International law, with special emphasis on water and its services Until the 1990’s, the decisions of commercial tribunals operating under GATT applied to rules/ or applied rules that were strictly linked to GATT itself, without taking into account other sources of international law. Nevertheless, after the 1990’s, the Tribunal of Appeals of the World Trade Organisation completely reverted this jurisprudence and decided that the Organisation would exist as part of a much broader body of international law, that should be considered when it was deemed relevant by a panel or appeals. The arbitration tribunals set up by investment agreements have followed the original restrictive tendency of GATS, in terms of applicable law as well as the consideration of the protection of interests, concentrating its action in the protection of investors, conforming to the purpose of the agreements. In this way, the arbitration tribunals have created a new constitutionality, with principles, proceedings, and unique uses of exorbitant power. The international arbitration tribunals have taken no notice of either the existence of principles of common law or regulatory law that are important to arrive at balanced solutions that guar-

antee the sustainability of the global institutional system. In this scenario, it is important to note that there are a wide range of principles, notions and concepts that are extremely relevant for guaranteeing the equity and the sustainability of the international order and that provide a dimension of balance and neutrality in the system of international law.

II. International customary or common law, source of international law resulting from conduct or repeated behaviour of States Customary law or practice can be applied as a tool for interpreting contractual obligations, or as a source of rights and obligations in and of itself. Interpretive Practice As a source of interpretation, in accordance with the Vienna Convention, customary law has negative and positive elements. The negative is that it conditions the interpretation of treaties on its object and purpose. This has resulted in a broad interpretation of the rights of investors and has constrained the role of the arbitration tribunals pushing them to protect the private interests stipulated in the contract.

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The negative impacts of the system have been ignored and have put into question the State’s function to guarantee the public interest. As a safeguard, it has been argued that the agreements have other explicit purposes, such as the right to development and to regulation, whose consideration will broaden the range of interpretive criteria that the clauses of the contract should be subjected to and the balance of the the arbitration decisions. Another safeguard that emanates from interpretive practice has been to estab-

lish provisions over specific institutions. Here it is considered that the principle of fair and equal treatment is evolving, conforming to common law, in a type of international administrative law, which, according to some arbitrations, could be adjusted and applied to conform to the level of development of the country in question. It is argued that this differentiation could be part of international customary law as it is not realistic to think that the same standard can be applied to all the countries in the world, regardless of conditions of economic, social and institutional development. The importance of interpretive common law can be substantiated in the fact that countries, such as the United States, make an effort to ensure that their domestic interpretation, related to processes and/or legal expropriative acts, is binding. This validates international customary practice and generates legal certainty. Nevertheless, it is important to note that this is only valid if both or all of the parties on signing the treaty agreed to apply this legal regime. Custom as a Source of Law Customary practice can be an autonomous source of laws; many international agreements have broad clauses about international law that permit reference to customary practice as a source of international law. This permits practice to be invoked when a reasonable

EXPROPRIATION UNDER INVESTMENT AGREEMENTS The other institution whose normative reach could be detemined by international customary law is expropriation under investment agreements. This includes the determination of when there is expropriation and how much should be paid in the name of indemnification. The claims of expropriation can be based on administrative measures that are based on: the loss of property rights and the decrease of all or most of the value of the goods and capital invested. Nevertheless, there are cases in which the demand is founded on indirect expropriation resulting from regulatory measures. It should be noted that normal regulatory measures of government are not expropriation under international law if they are not discriminatory, conform to due process and have been adopted for public purpose.

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linkage exists between customary law, general principles of international law, and trade conflict generated in the frame of an international agreement. The expressed contents of applied law vary with case to case, but use of customary practice helps to mitigate the impacts of an interpretation that advocates for the breach or state responsibility founded only in the text of the agreements. The crucial point is to determine if other sources of international law are applicable, from the moment that the process of negotiating international commercial agreements is initiated, and to determine which is the relevant applicable content. General Principles of Law The general principles of law are the source of international law. These can be used to fill gaps in agreements and international customary law and also to consolidate principles of international law that have been broadly accepted in domestic law. The General Principles of law can be a source for interpretation, or also of contextualization and balance between States and investors in the area of rights and obligations derived from investment agreements.

When these principles are found to be sufficiently embedded in legal systems that are stable and based on developed institutions, they will apply to similar situations or goals, and can be considered as general principles of law and applied in the international arena. Specific principles exist that guide the formation of consent and honouring of investment contracts, their execution and therefore the regulatory measures by which governments, eventually, can alter the contractual clauses or the economic and institutional setting where they are executed. Its application will depend on the context and what’s done and the capacity to demonstrate that it relates to a general principle of law relevant to the concrete case.

In terms of regulation of public services, an examination of law in the European Union, the United States, England and Chile, suggests that a general regulatory principle exists that requires an obligation of efficency from service providers, imposed in favor of

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the users and which justifies the regulatory action of the state aimed to prevent undue profits, externalities and other affects which are contrary to efficiency. General principles applied to the formation and honouring of contracts Acts contrary to public order, a domestic notion held in civil courts, can not be bases for legal actions. This has been recognized in doctrines over arbitration, linked to the public international order. Corruption is one act considered contrary to prescribed public order. There are processes for signing agreements outlined within the United Nations and the Organization for Economic Cooperation and Development (OECD). Contracts affected by corruption can not be taken to arbitration. But while in some cases it has been suggested that the state that invokes corruption should have initiated proceedings to the effect, in others solid circumstancial evidence has been admitted. In other cases, when it has been invoked by a country, corruption has served to get investors to drop their demands and pay costs. When there is corruption, the investors can not argue legitimate expectations. Other principles to consider in the writing of a contract, received in almost all of the systems of the world, are: i)

physical or moral violence; ii) intimidation; iii) undue influence; iv) falsifying and hiding of material information; v) abuse of law; vi) error or moral violations vii) good conduct and basic decency. To summarise, the lack of moral conscience. Of course in all cases the factual base should be clear and well founded. It has been argued in cases linked to water that one could investigate, for example, if financing organisations, companies and other possible beneficiaries of privatisation actively promoted privatisations, that led to banks not financing public enterprises, conditioning financing on privatisation. Another argument that has been suggested is that privatised companies should have been aware, given their worldwide experience, that the conditions of the privatisation were not sustainable, and therefore entered the contracts knowing they would be renegotiated. The reality is that the majority of concessions have been renegotiated, particularly in water and tranportation, which has had an impact on the credibility of the country and sector in question, and which indicates both poor design of contracts and excessive opportunistic behavior. This suggests that regulation, particularly in poor countries, should consider the imbalance of information and difficulties of enforcing laws.

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The limited frameworks for competition which have led to the capture of markets also could give rise to the invocation of the principles noted above. What should be made clear, is that in all cases, proof of facts and determination of applicability and procedure of the principles invoked under international law, will be fundamental. Subsequently, it will be relevant to determine the civil sanction in the event that the facts and the legal jurisdiction of the principles are applied, for example: annulment, payment for damages, or adjustment and compensation for shared faults, in other words of mutual services. Principles generally applied in the execution of contracts In the context of monopoly services such as water, with sensitive imbalances of information, and with problems and costs for the associated government in the disruption of the contract, the potential for abuse of law is significant, in the same way as abuses of market power, strategic behavior and the hiding of information. In this case, failure to complete obligations and violations of good faith can be argued. This is linked to the specific non-completion of the obligation of efficiency for the benefit of users, which is the basis for the decisión to open the

national market to the private foreign investor.

Another possible defense is change of circumstances. This principle, nevertheless, presents problems linked to the unforseen nature of determining facts of the situation. Not withstanding, if the facts were forseen, whether serious or of daily occurence, other elements enter into play. These include ineptitude, bad faith, lack of due diligence, ignorance, whether culpable or intentional, of acts or information, formal or informal, that a prudent and normal person should have taken into account to determine if a commercial operation in its context is viable or not. In this case the adherence to the obligation of diligence could vary related to the degree of knowledge with respect to an activity, its performance conditions, risks or limitations. In American regulatory law the term “constructive notice” has been created to refer generically to the situations in which it is considered if a person has information sufficient to be prudent.

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General Regulatory Principles The most important general principle is that States, in the exercise of their sovereignity, have the right to dictate regulatory rules in their territory. This principle can only be limited in function by expressed contractual rules. In the area of water and its related services the question can be better understood if it is thought of as a combination of the basic right to regulate and an understanding of good practice in the referred sector. In this respect it would be unreasonable for an investor to assume a permanent unchanging regulatory universe if the local practices had not been developed to the necessary level, or to a comparable standard. This argument can be strengthened if it can be demonstrated that certain practices have elevated the level of general principles to comparable law. In this sense there are principles in water resources and in water services that can be considered general. The principles that are enumerated include but are not limited to: Water Resource Among the most relevant water resource principles are i) public dominion; ii) assignation to and control by the

State; iii) control of monopolies; iv) effective use; iv) prohibition of contamination and risk creation; v) management of sustainable use; vi) priority assigned to potable water or water for humans; vii) environmental discharges; vii) respect for established and customary rights; and –in certain conditionsviii) charges for the water Water Services With respect to practices and regulations in the field of services, there exist relevant rules and practices that are upheld in the principle of efficiency of endeavour and that manifests in: i) supply to the poor; ii) reasonable rates’ levels; iii) sustainability; iv) quality of services; iv) information; v) transfer prices/pricing; vi) levels of corporate debt; vii) capital structures; viii) useful and usable property; ix) regulatory organization; x) levels of reinvestment; y xi) tariff/rate adjustments in times of crisis. In terms of regulation of water services, it would be inappropriate to assume that low levels of regulation, resulting from ignorance or lack of information in a country, should remain indefinitely simply because this was the state at the time of the investment. In the experience of countries such as England, the United States and Chile, to mention a few, regulatory rules have been adjusted and perfected progressively

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over time. Therefore, as regulation and the art of providing a service is developed, necessary regulation should not be blocked by service providers via undue influence, abuse of a dominant position, misrepresentation of facts or hiding of information. III. Potential application international law unlinked international investment law of to

which can include not only the environment, but also equitative development in economic and social terms. There is consensus that meeting environmental obligations constitutes a justification for the exercise of environmental regulatory authority, a principle which the World Trade Organization (WTO) accepts in practice. The same principle exists in the obligation to not cause cross-border harm.

The principles of international investment law are not or should not be considered in a context that does not include other rules of international law. For the reality is that they operate within a complex set of norms that in its entirety makes up the international public order. As such we can observe that the rules established by the World Trade Organization, in setting legal precedence, exist within a body of general international law and are not isolated in and of themselves. From this perspective, international law, in its entire legal complexity, determines the parameters of the legitimate expectations of investors in the context of the principle “pacta sunt servanda” (principle of international law and civl law that means that the covenant should be respected by all parties) and also the principle of good faith. The principles of international law can refer to sustainable development,

The sustainable development component of development can generally be understood in terms of social and economic equity, based on the need to respect policies of distributive equity, with particular reference to historically mistreated minorities.

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International Water Agreements International rules pertaining to shared water resources include causing no harm, reasonable and equitative allocation; and the priority of basic human needs. The existence of treaties to this effect condition the legitimate expectations of the investor. Human Rights The water sector is particularly relevant

to the area of human rights, and the growing recognition that international corporations are obliged to meet basic human rights standards. There is a human right to secure drinking water. Another area of human rights looks at the protection of indigenous rights which incorporates a collective dimension within the field of rights to water.

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WHAT ARE THE JUDICIAL INSTRUMENTS IN INTERNATIONAL LAW THAT RECOGNISE THE RIGHT TO WATER FROM THE PERSPECTIVE OF HUMAN RIGHTS AND WHAT IS THE EXTENT OF THEIR LEGAL APPLICATION?

The discussion with regards to the right to water dates to 1972, at the United Nations Conference on Human Environment which took place in Stockholm, Sweden, where it was established that water should be an object of special protection by the legal system, to guarantee its sustainable use by current and future generations. This same point was also asserted in 1977, in the United Nations Conference on Water in Mar del Plata, Argentina and, afterwards, in 1992 in the International Conference on Water and the Environment in Dublin. In the same year, the Rio Conference on Development and the Environment established the so-called Agenda 21, paragraph 18, with a preferential right to the use of water resources for the satisfaction of basic needs and the protection of ecosystems. From a social perspective, paragraph 18 conceptualises that the right to water is both a social good and an economic good, and attempts to harmonise this dual condition. The mechanisms by which attempts to arbitrate these interests are: demand management, the conservation and reuse of water, the evaluation of available resources and financing instruments. The implications that emanate from the recognition of the fact that water is an economic and social good are found in pronouncements of the need to regularize rate structures taking into consideration opportunity costs, environmen-

tal impacts and ability to pay. On the other hand, given the shortage and vulnerability of the resource, the investor is obliged to recognize, in all planning and use of water, the full costs, the benefits of investment and the costs of environmental protection and exploitation, as well as the opportunity costs in terms of the most valuable alternative use of the water. In the institutional arena, there is a need to adapt the institutional system to new perspectives that require integrated management of water reservoirs and local development. As well, it is recommended that institutional changes should be adapted to the needs of intergrating water management with land use. Other international foras such as the World Conference on Human Rights celebrated in Vienna in 1993, Global Water Partnership (GWP) and the United Nations Committee on Economic, Social and Cultural Rights have advanced the recognition of the right to water as a human right. The United Nations General Assembly, in 1999, recognized that the right to water is based in the right to development. In this manner, the United Nations has put forward the right to water as an economic, social and cultural right that should be guaranteed under the protection of the International

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Covenant on Economic, Social and Cultural Rights (ICESCR) of 1966. The Comittee for Economic, Social and Cultural Rights that founded the covenant, in 2002 explicitly established the relationship between human rights and water and granted express recognition of the right to water, adopting a General Observation sindicated with Number 15 which further uphold what is established by Articles 11 and 12 of ICESCR. The General Observation Number 15 of ICESCR established as legal basis

the human right to water, the right of all to have acess to sufficient, healthy, acceptable and accessible water for personal and domestic use. The observation also linked the right to water to the obligation established in paragraph 2 of article 1 of ICESCR, that states that a person can not be deprived “of their own means of subsistence,” making the member States responsible for guaranteeing sufficient access to water for subsistence agriculture and ensuring the survival of Indigenous People.

INTERNATIONAL INSTRUMENTS FOR HUMAN RIGHTS The International Covenant on Economic, Social and Cultural Rights and its counterpart the Convenant of Civil and Political Rights are human rights instruments that count on a significant number of State adherents. The International Convenant on Economic, Social and Cultural Rights was adopted on 16 December 1966, and entered into effect on 3 January 1975 (after its ratification by 35 States). Today, 141 States are adherents to the Convention. The International Convenant on Civil and Political Rights has established in its articles 28 to 45, that rights related to these international treaties on human rights are supervised in their application by the Committee for Human Rights. However, only 45 States have adhered to the declaration in article 41 of the Convenant, which establishes the competence of the Committee of Human Rights (which entered into effect on 28 March 1979).

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WHAT ARE THE LEGAL IMPLICATIONS OF THE HUMAN RIGHTS AGREEMENTS WITH RESPECT TO THE CLAUSES INCORPORATED IN FREE TRADE TREATIES AND BILATERAL INVESTMENT TREATIES THAT COMMIT TO THE TRADE OF WATER?
JUS COGENS: OBLIGATORY RULES OR HIERARCHY OF NORMS The rules of jus cogens are established in Article 53 of the Vienna Convention. These rules establish that a treaty is null and void if it is in opposition to an imperative rule of general international law. For the purposes of this Convention, an imperative rule of general international law is a rule accepted and recognized by the international community of States in its entirety as a rule that can not be challenged and that can only be modified by a subsequent rule of general international law that has the same character

The international community has reached consensus on the supremacy of human rights with respect to other rights recognized in international law. Human rights constitute imperative rules of jus cogens, some of which are rules that are at the will of the States and through which international customary law protects the superior interests of the international community such as the defence and protection of the rights of the human person. The imperative character of the rules of jus cogens determines that these enter into effect without requiring the accordance or the will of the States and rejects the acts of States that try to minimize their effectiveness.

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Experts from the United Nations Subcomission for the Protection and Promotion of Human Rights have specifically emphasized the supremacy of human rights over international financial and trade rules. The lawyers J. Oloka – Onyango (Uganda) and Deepika Udagama (a substitute member of Sri Lanka), in a report commissioned by the Subcomisson (E/CN.4/Sub.2/2000/13.) effectively elaborated on the theme of globalization and its consequences for the full exercise of human rights. In this document they stressed the indivisibility, interdependence, and universal recognition of the civil, political, economic, social and cultural rights of the International Charter of Human Rights. These rights, argue the experts, were recognized as part of international public customary law and jus cogens and also apply to the States and International Multilateral Institutions including the WTO and its trading system, the World Bank and the International Monetary Fund (IMF). They concluded that human rights laws have a superior position with respect to the charters of the multilateral institutions which have a responsibility and obligation to observe these laws. For its part, the Meeting of High Level Human Rights Authorities (MHLHRA) of MERCOSUR and associated states ruled in favor of the supremacy of

Human Rights over Free Trade Treaties, a theme that has been discussed in their past seven meetings. A consensus declaration on the subject, however, has not yet been issued.

PROPOSAL FOR THE FULFILLMENT OF HUMAN RIGHTS GOALS In the VII/2007 Meeting of the High Level Human Rights Authorities and Foreign Ministeries of MERCOSUR and Associated States, the government of Brazil proposed that the members of MERCOSUR devise a long term plan for fulfilling international human rights goals. The Chief Minister of the Special Secretariat of Human Rights, Paulo Vanuchi, signaled that he himself would carry forward a proposal for MERCUSOR as a whole to put into effect a plan “to convert this nice discourse (regarding respect for human rights) into reality in the world.” (We Are MERCUSOR Bulletin) available at
http://www.somosmercosur.org/?q=es/ book/ export/html/153)

Based on these premises it can be concluded that a State that permits foreign investment of any kind in development projects which are not socially or environmentally responsible and, by contrast, is indifferent to the negative impacts of such projects on the funda-

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mental rights of people, communities, indigenous peoples and the environment as recognized by international law, is failing to fulfill its obligation to protect human rights. The Free Trade and Bilateral Investment Treaties that commit the trade in water violate human rights, when via

this means, they put at risk access by all citizens to drinking water and sanitary services or when they take advantage of sources of fresh water that impact the hydrological sustainability and the normal supply of water to indigenous communities and farmworkers who have used such water resources from time immemorial.

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GLOSSARY OF TERMS AND ACRONYMS

BIT – Bilateral Investment Treaty CAFTA – Central America Free Trade Agreement CAN – Community of Andean Nations

ICWE – 1992 Dublin International Conference on Water and the Environment ICESCR – International Covenant on Economic, Social and Cultural Rights IMF – International Monetary Fund

CS – Customs System MAI – Multilateral Agreement on Investment CNMCCA – Common Nomenclature of the Member Countries of the Cartegena Agreement Dec. 291 – Common Treatment Regime for Foreign Capital and Copywright, Patents, Licenses and Royalties Dec. 292 – Uniform Regime for Andean Multinational Companies Dec. 510 – Adoption of Inventory of Restrictive Measures of Trade in Services Dec. 634 – Modification of Deadlines Scheduled in Decision 629 Dec. 507 – NANDINA Nomenclature Update FDI – Foreign Direct Investment FTA – Free Trade Agreement GATS – General Agreement on Trade in Servies GATT – General Agreement on Tariffs and Trade GWP – Global Water Partnership HTS - Harmonized Tariff Schedule of the United States ICSID – International Center for the Settlement of Investment Disputes TRIPS – Agreement on Trade Related Intellectual Property Rights UNCITRAL – United Nations Commission for International Trade WTO – World Trade Organisation MERCOSUR – Southern Common Market MHLAHR – Meeting of High Level Authorities of Human Rights NAFTA – North America Free Trade Agreement OECD – Organisation for Economic Co-operation and Development W/120 – List of Sectorial Classifications of Services PCPC – Provisional Central Product Classification

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Incompatibilities between Free Trade Treaties, Bilateral Investment Treaties and relevant International Conventions

Incompatibilities between Free Trade Treaties, Bilateral Investment Treaties and relevant International Conventions

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WATER AND FREE TRADE Guide nº2: Incompatibilities between Free Trade Treaties, Bilateral Investment Treaties and relevant International Conventions Publisher: Agua Sustentable (www.aguasustentable.org) Translation: Nick Buxton Cover: Pedro Guereca - Visual design: Pedro Guereca (www.taller64.com) Fhotographs: Pedro Guereca (except: p. 1, 5 and 13 MOMOS; p. 4 Helena Cordero and p. 7 repertoire)

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Incompatibilities between Free Trade Treaties, Bilateral Investment Treaties and relevant International Conventions

WATER AND FREE TRADE

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