CAFTA and water privatization

By Anthony Batty | 9 August 2005

A number of NGOs, like the ironically-named Global Exchange, say that CAFTA mandates the privatization of water. Yesterday, America's Green Party came out to CAFTA-bash, saying that "CAFTA encourages nations to privatize and deregulate services such as... the provision of water."

So have CAFTA signatories agreed to privatize their water? No they have not. In article 11.1 of the agreement, CAFTA's provision for cross-board trade in services:

does not apply to services supplied in the exercise of governmental authority. A "service supplied in the exercise of governmental authority" means any service that is supplied neither on a commercial basis, nor in competition with one or more service suppliers.

In other words, if a government that is a signatory to CAFTA wishes to run a public service as a state monopoly, it is free to do so. CAFTA signatories have merely agreed to the notion that if they are going to allow private sector provision of services, they should allow competition from companies elsewhere in CAFTA. That's a positive thing.

And despite the talk about "deregulation", CAFTA doesn't stop countries applying regulations, but it does, for example, say that regulations have to be transparent so that competing companies can all understand them.

Moreover, the whole underlying assumption of NGOs about water privatization's effect is wrong. Rather than privatization being bad for the poor, the evidence points to the conclusion that privatization saves lives. A major study looking at water privatization in Argentina shows that childhood mortality fell by 5-7% in areas where water services were privatized, and by 24% in the poorest areas. As The Economist put it:

The NGOs... campaigning against privatisation are therefore likely to be condemning more children, not fewer, to death from waterborne diseases.

This is of course, what we would expect to see. Looking at the example of the UK, you would be hard pressed to find anyone who believed utility provision has become worse since it was privatised. Bringing in private capital allows investment to be made, and more efficient delivery. From this report we find that:

In the 14-year period since privatisation of the water industry in 1989, almost £50bn has been invested in capital improvements to the UK water and sewerage network.

The additional benefit of privatization is if a company is not fulfilling its obligations, their contract can be cancelled and another provider brought in. With state provision, if areas are not receiving water, or if it is of a poor quality, it's tough luck.

For further reading, check out Water for Sale.