Debate continues over how best to improve water services in poor countries. How does the promotion of free trade principles in Mexico affect the water sector? What might the implications be for development if water services are included under the General Agreement on Trade in Services?

Research from the Overseas Development Institute in London looks at the General Agreement on Trade in Services (GATS) rules in relation to the water sector and the achievement of development goals in Mexico City. The research examines whether free trade principles influence how private operators participate in the water sector. It also questions whether these trade rules constrain or enhance the ability of the Mexican government to regulate water services in a way that benefits pro-poor development.

The GATS is the World Trade Organisation agreement covering the liberalisation of trade in services. Until now, countries have been free to choose which sectors to liberalise and the extent of liberalisation. Fewest commitments have been made in social sectors, such as health, education and water services. Mexico, like many countries, has not made GATS commitments in relation to water services.

The nature of the interaction between free trade rules and development goals in the water sector depends on two factors: private sector participation in provision of water services, and regulation. Three areas of regulation are particularly relevant: pricing and tariffs, quality of water service to (poor) households, and rates of network connection.

The research finds that:

• The Federal District has taken a gradual approach to private sector and foreign participation in water services.
• Only a few commercial functions (such as metering and billing) have been delegated to private water companies.
• The public sector retains responsibility for most functions in relation to the sustainable management of water resources, the delivery of water supply and sanitation.
• Under Federal District regulations, the participation of foreign companies in private water operators is limited to 49 percent.
• Mexican laws and policies regulate of the water sector, rather than international GATS rules.
• The gradual approach to increasing private sector participation is likely to continue for the foreseeable future.

At present, there is little interaction between free trade principles and pro-poor development goals in relation to water services in Mexico. Water is seen as a national ‘public good’. This means applying free trade principles and GATS rules to water services is a sensitive social and political issue.

Looking ahead, the research concludes:

• Public authorities must make sure that adequate regulation is in place before opening up water services to the private sector, including the participation of foreign companies.
• Mexico and other developing countries should adopt a cautious, ‘step-by-step’ approach to GATS rules (such as those relating to subsidies, ‘irreversibility’ and competitive bidding).
• This cautious approach will give water officials time to understand different GATS rules and their likely implications before deciding on the extent and scope of their GATS commitments.

Source(s):
‘Water and the GATS: Mapping the Trade-Development Interface. Mexico Case Study’, ODI Case Study, ODI: London, by Peter Newborne, 2006. Full document.
‘Water and the GATS: Mapping the Trade-Development Interface’, ODI Briefing Paper, ODI: London, by Peter Newborne and Tom Slaymaker, 2005. Full document.

id21 Research Highlight: 05 December 2006

Further Information:
Peter Newborne
Water Policy Programme
Overseas Development Institute
111 Westminster Bridge Road
London, SE1 7JD
UK

Tel: +44 (0)20 79220312
Fax: +44 (0)20 79220399
Contact the contributor: p.newborne@odi.org.uk

Overseas Development Institute, UK

Other related links:
'Can market forces guide the use of irrigation water?'

'Time to get serious about the right to water'

'Water rights for indigenous people in Mexico'

'Success for water cooperative in Bolivia'

The Right To Water. Website, resources and links

Water and the GATS