The Other Oil War:

Halliburton's Agenda at the WTO

 

A Policy Brief on the Energy Services

negotiations in the World Trade Organization (WTO)

 

June 2006

by

Victor Menotti
International Forum on Globalization
www.ifg.org

Executive Summary	3
Key Concerns	4
Background	5
Implications of Current WTO Proposals	7
I.            The Proposal's Introduction	8
II.           Overall Objectives	8
III.          Sectoral Coverage	11
IV.          Specific Commitments	13
Specific Energy Policies At Risk	15
State of Play in Geneva	17
Timeline	18
Suggested Actions	19
Acknowledgements and About the Author	20

 

The International Forum on Globalization (IFG) is a think tank and educational organization working in alliance with researchers, economists, writers, and activists around the globe analyzing the myriad effects of economic globalization and promoting alternative policies for equity, diversity and a sustainable planet. International Forum on Globalization 1009 General Kennedy Avenue # 2, San Francisco, CA 94129 Tel: 1-415-561-7650  Fax: 1-415-561-7651 vmenotti@ifg.org  www.ifg.org

 

KEY  CONCERNS

Energy experts believe the world is entering a period of historic transition, where energy security has become the new lens through which governments view international relations.  European officials are panicking over Russia's recent restrictions on gas exports, Brazil feels vulnerable after Bolivia's decision to nationalize its energy industry,  China's hunt for energy resources has many world leaders on edge, while the US continues to mobilize even more diplomatic and military might to secure supplies.

In the context of today's political moment of "energy anxiety," all governments, whether hoping to maximize the benefits of their energy exports or reduce their reliance on energy imports, must maintain full flexibility to decide their own energy future and not become subordinate to onerous new disciplines under the WTO.  If current proposals are approved, foreign energy services companies could win WTO rights to unilaterally decide which energy resources, energy workers, and energy technologies to use, extending even to the protection of their rights to perform "monitoring services" that "enable remote control over pumping," as recently revealed in the document, "Plurilateral Negotiations on Energy Services," issued by the demandeurs to clarify their request.

In addition, a proposed blanket prohibition on government policies and programs that encourage one type of energy source or technology over another could, unless specifically exempted, allow global corporations to determine the scale and character of energy exploitation.  Indeed, a WTO takeover of the energy sector could be best understood as the corporate response to mounting concerns about peak oil and the "end of cheap energy" because it aims to allow energy companies to switch to whatever type of energy is most profitable (coal to solar to nuclear) without government control.

•  For energy-exporting nations, WTO's expansion into energy policy could reduce governments' abilities to:

-       set conditions on foreign investors and foreign service providers;

-       develop domestic employment and local service providers;

-       acquire technological expertise and strengthen national capacity;

-       conserve natural resources and minimize environmental impacts; and

-       meet development goals that maintain political stability.

•  For energy-importing nations, WTO's expansion into energy policy could:

-       deepen over-dependence on fossil fuels;

-       restrict measures that reduce reliance on imported energy;

-       increase political instability in nations that supply energy; and

-       undermine efforts to shift to a safe, secure, and sustainable energy future.

Though often at odds with each other, what could unify oil-exporting governments and renewable energy advocates to prevent a WTO takeover of energy policy is the common goal of preserving each other's "policy space" to craft policies according to one's own local and national needs.  International instruments for energy cooperation are, of course, still needed, but the WTO's non-transparent processes and institutional bias toward private rights is not the appropriate place to decide policies over public energy resources. 

BACKGROUND

Daniel Yergin, author of the seminal book on the oil industry's history, The Prize, has launched a partnership between his think-tank and the World Economic Forum to help shape how, "the energy security paradigm is evolving into a new form." Their recent survey of "global energy company CEOs showed that top executives consider energy security to be the highest ranking issue facing the global industry, demanding action and posing a high level of uncertainty in both the short and long-term.  Climate change and long-term energy supply concerns were also among the top-rated issues."

At least two factors are driving energy services liberalization in the WTO.  First, seventy percent of the world's one trillion barrels of proven petroleum reserves have "restricted access" by state-owned oil companies, according to the energy-consuming nations' Paris-based think tank, the International Energy Agency.  IEA claims that the chief impediment to greater energy security and stable oil prices are the existing policies in energy-exporting nations that block access by foreign investors and foreign oil services companies.  WTO would remove or reduce the "barriers" that foreign companies dislike most, such as limits on foreign investment, requirements to partner with domestic firms, hire local labor, or transfer new technology.  Throughout the 20^th century, energy has been one of the key economic sectors in which governments created state-owned enterprises to manage energy resources because they believed they were essential to running the economy and too important to leave to the market's private players.  Ultimately, death of state-owned energy companies by slow dismantling is the end game with GATS, as evidenced in an earlier US DRAFT Energy Services GATS Request.

Second, globalization has had major impacts on gas and oil companies, where Exxon-Mobil, Shell, and Chevron-Texaco no longer employ legions of full-time staff to explore, extract, and export energy.  Today, the "supermajors" operate as mainly executive offices administering multiple contracts with oil services providers, like Halliburton, who, in turn, sub-contract workers and rent equipment as needed, i.e., the "just in time" approach to management.  As the supermajors' oil reserves dwindle down, they are increasingly having to partner or contract with the state-owned companies who hold the seventy percent of remaining reserves.  By locking in these industry trends (from which companies like Halliburton have profited enormously), enforceable through the WTO would compel state-owned oil companies to outsource more service contracts to foreign companies.  Subjecting energy to WTO rules could even result in the breakup of state-owned companies.

Halliburton, formerly run by current US Vice-President Dick Cheney, is "one of the world's largest providers of products and services to the oil and gas industries" holding energy services contracts with nearly every major state-owned and private oil company in the world.  Halliburton "alone represents 52% of the total contract value" of $25.4 billion the Pentagon had paid out as of May 2005 for post-invasion Iraq, as reported by the Defense Contract Audit Agency in a special investigation for Congress. 

The company's Vice President of Industry Relations, Galen Cobb, is an official advisor on the United States Trade Representative's formal advisory group, the Industry Trade Advisory Committee 6.  In 1999, the WTO Energy Services Coalition was founded by the US Coalition on Energy Services to promote WTO negotiations on energy and was co-chaired by Joseph Hillings, a vice-president of Enron, and Donald Deline, a director of Halliburton.  In one of his first moves as Vice President, Mr. Cheney chaired the secret industry group that produced the 2001 National Energy Policy Document, which identified the WTO as a primary vehicle for advancing international policies for free trade in energy services.

While certainly not the only energy services company aggressively pushing for expanded WTO rules (many other non-US firms are behind them, with European officials coordinating efforts in Geneva), Halliburton represents the symbolic face of energy services companies and is clearly the industry's global heavyweight with unparalleled political reach worldwide.  New WTO rules on energy may increase world production of petroleum (though not quickly enough to impact today's high gas prices), but key decisions over energy use will be placed further beyond the influence of governments, democratically elected or not. People with little sympathy for state-owned oil companies and the governments who run them should ask themselves, "Would it be a better world if more control were concentrated in the hands of Halliburton?"

With Saudi Arabia having just made what the US calls a "substantial opening of its energy services market" to enter the WTO, with Russia now finalizing its terms of entry, with Iraq on the fast-track to join (ushered by the US and a new WTO-consistent Petroleum Law), and with Iran being offered WTO membership as one of the major incentives for its dropping the development of nuclear weapons, the global economy could soon see a systemic shift in petro-politics where the world's governments with the vast majority of gas and oil resources become subordinate to a global regime restricting what they can and cannot do with energy policy.  Some say such a coup is unthinkable given today's oil states re-asserting their power, but many energy-exporting governments are still learning the tricks of the trade in WTO negotiations and, with little visible involvement by their energy ministries, may find themselves trapped in a web of services trade rules before their full implications are clear.

IMPLICATIONS OF CURRENT WTO PROPOSALS

The World Trade Organization, created in 1995 with a Secretariat based in Geneva, Switzerland, is a binding contract between its 149 Member Nations in which they agree to reduce government controls on international commerce.  Operating outside of the United Nations system, the WTO governs vast areas of public policy through its own legislative, judiciary, and executive bodies that respectively write, adjudicate, and enforce its world trade rules.

Among the more than thirty multilateral trade agreements WTO administers is the General Agreement on Trade in Services (GATS), which is increasingly important to developed nations as their economies become based more on services while manufacturing and agricultural production move to lower cost developing nations.  The aim of current GATS negotiations is to remove barriers to the trade in services, the scope of which includes every sector from architecture to banking to tourism.  There are no service sectors excluded from the current negotiations.  There are requests in even the most sensitive sectors: health, education, culture, and water.

The WTO is already somewhat in the oil services arena because the list of sectors in the current GATS includes commitments made by various countries for individual activities (such as transport and information) that sometimes intersect with the energy business.  It should also be noted that other areas of the current negotiations, such as talks on Non-Agricultural Market Access (NAMA), could also impact energy policies by reducing governments measures on everything from tariffs on imported equipment to quotas on energy products.  What's in play now with services is whether energy-exporting nations and major developing nations will make expanded and deepened commitments to liberalize that can become structured into a comprehensive "energy" category, removing decisions over the world's most strategically sensitive sector from government control at a time when we need more democratic space to determine our energy policy.

GATS negotiations take place in Geneva through a process of formal "requests and offers," whereby countries seeking to penetrate the service sectors of other nations "request" that a country "offer" to make specific commitments to open its market to more foreign service suppliers.  "Requested" or "demanded" countries are not obliged to offer anything to the "requesting" or "demanding" countries, but the political reality is such that they are subject to intense political pressures (like commitments for national security in the case of Saudi Arabia, or hopes of a deal on immigration in the case of Mexico, or expectations for others to open their agricultural markets as in the case of Brazil) to make the maximum offer possible.  A fundamental principle in GATS is that of "progressive liberalization," which stipulates that governments may initially exempt certain sectors today or place limitations on the extent that they commit these sectors to the GATS.  But these exemptions and limitations are targeted for removal in successive rounds of GATS negotiations.

On February 28, 2006, a group of demandeurs from energy-importing nations plus a few major energy-exporters, some of who call themselves the "Friends of Energy," formally submitted to the WTO a collective request to target group of developing nations asking that they open up their markets to freer trade in energy services.  Upon first glance, the request appears harmless, because it asks for more access to markets in "testing services," "services incidental to mining," "engineering services," and "equipment rental services."

However, on closer examination, the request covers such critical services as oil drilling and pipeline construction. Imposing the logic of GATS on energy — especially gas and oil — runs the risk of atomizing into individual services markets the collective activities that comprise control over the global economy's most strategic resource.  Beyond accepting such a dangerous philosophical approach, which is perhaps the most serious threat of the WTO's Energy Services agenda, the collective request includes even more troubling aspects.

I.  The Proposal's Introduction

Energy-importing nations (the US, EU, Japan), plus several major energy-exporters, including Saudi Arabia, Norway, Australia, and Canada), are some of the governments comprising the group of demandeurs for the collective request.  Their proposal notes that, "the aforementioned interested Members are also deemed to be recipients of this request," implying that any country included in making the request is also expected to make a corresponding offer, which could set a standard that other recipients of the request must meet. 

The group of demandeurs sent their request to a group of countries that includes 6 of 7 OPEC Members who are also WTO Members, excluding Venezuela.  Also receiving the request were seven Latin American countries, and nearly every major developing nation with growing energy needs, or those countries whose state-owned oil companies (China, India, South Africa) contract for millions per year and are outweighed only by their "downstream" energy and electricity distribution services.  The request does not name which other Members have been sent the request, hindering any attempts for recipients to coordinate any sort of  "collective response." Obviously, the demandeurs underwent substantial consultations among themselves beforehand but now there is little time for the requested countries to consult with each other.  Referring to the deadlines set in the December 2006 Hong Kong Ministerial, all offers must be submitted by July 31, 2006, when the WTO General Counsel in Geneva.

II.  Overall Objectives

At least four issues arise in the request's stated objectives:

•  "Efficient and Environmentally Sound Energy Services"

The request asserts that, "modern energy services provide the means to develop energy resources in an environmentally sound manner and in ways that promote responsible and efficient development of energy resources," yet it offers nothing to ensure that these means meet such ends. At least 48 countries—34 developed and transition countries and 14 developing countries use renewable energy policy tools.  Eight of these nations, as well as 20 US states, have already implemented Renewable Portfolio Standards, which are being targeted in GATS as potential "discriminatory" measures.  Liberalizing the energy sector in the absence of adequate enforcement of environmental safeguards, not to mention the absence in many countries of a regulatory framework to enforce, makes inevitable the reinforcement of inaccurate market signals and the intensification of environmental pressures.  Beyond the failure to address today's existing problems, the request's other stated objectives directly conspire to create a framework that will undermine any future attempts to achieve environmental efficiency.  Aside from creating these new hurdles, existing WTO rules on intellectual property (TRIPS) enforce global monopolies on the cleanest, most efficient technologies that almost every government wants to use.  Good international trade rules would guarantee, not make a rare exception, the transfer of environmentally efficient technologies and services.

•  "Neutral with respect to Energy Source and Technology"

The collective request says it "is neutral with respect to energy source, technology, and whether offered onshore or offshore." The principle of "technological neutrality" was first established in the GATS Telecommunications Annex of 1996 to prevent governments from treating one communications technology differently than another, such as cable versus wireless.  Applying this same principle to energy could have sweeping implications that prohibit governments from deciding which energy sources and energy technologies they may use.  While still a vague and untested principle, it could possibly be used to restrict governments from enacting measures that encourage or discourage the use of one energy source or technology over another, even if the intended goal is reducing reliance on imported energy or environmental balance.  "Neutrality" could make WTO violations of China's efforts to mainstream "clean-coal" technologies, or California Governor Arnold Schwarzenegger's Executive Order to increase the state's sourcing of energy from renewables to twenty percent by the year 2020.  Brazil has similar legislation to increase the use of biodiesel in heavy vehicles by five percent before the year 2012.  While the neutrality principle may provide some short-term benefits to some energy-exporters, it could entirely undermine the purpose of the Kyoto Protocol on climate change as well as the many national and local efforts now underway to reduce greenhouse gas emissions and control consumption of carbon-based fuels, not to mention attempts to mitigate the other harmful effects of other energy sources and technologies like nuclear.

•  "Right to Regulate"

The request notes that, "GATS explicitly recognizes the right of WTO Members to regulate services and to introduce new regulations to meet national policy objectives."  This wording has been borrowed from the GATS preamble.  However a WTO panel (Mexico -Telecommunications case) has already stated that the right to regulate extends only so far as it does not impinge on the trading rights countries grant through the GATS.

In addition, the very next line of the energy request reveals some major restrictions on this "right to regulate" by stating "It is stressed that the regulatory measuresÉmust be clearly defined, transparent, and non-discriminatory."  All of these terms would be subject to the discretion of a WTO panel if a regulation were challenged.  A panel could find a government in violation of the GATS if a regulatory objective, such as universal access to essential fuel, were not clearly defined.  A requirement to be "transparent" could be interpreted broadly to mean that foreign companies had a right to prior comment before regulations were implemented. A requirement to be "non-discriminatory" would cover even unintentional forms of discrimination.  Governments can inadvertently disadvantage foreign energy suppliers when they regulate to promote environmentally friendly energy sources.

The risk to the right to regulate is magnified substantially by the GATS negotiations on domestic regulation going on parallel to the request-offer negotiations.  These new disciplines, if approved, could mean all of the following regulations would become violations of the GATS:

- "Unnecessarily burdensome" licensing requirements – such as requirements to provide poor or rural populations with access to energy services;

- Licensing requirements that are "unreasonable" or not strictly "related" to the energy service being supplied, such as requirements to provide environmental impact assessments;

- Differences between regulations at the sub-federal level that create "unnecessary" burdens for foreign companies that have to adapt to different regulatory jurisdictions;

- "Restrictions on fee setting", such as the imposition of price caps to moderate extreme charges for energy;

- "Licensing procedures" that result in energy licenses not being granted "promptly."

• "Ownership of Energy Resources"

Among the more revolutionary elements of the collective request is its redefining energy from a commodity to a service.  Although the request claims it "does not extend to the ownership of energy resources" one does not have to legally own energy resources to exert decisive influence over their use. In the case of today's hyper-sophisticated energy technologies, who supplies the service can control the commodity.  An example is in Venezuela, where the state-owned Petroleos de Venezuela (PDVSA) contracted with a California-based private company to provide "information technology services" to manage PDVSA's computer systems.  But in a nationwide work stoppage the foreign contractor halted performing its contract.  Although oil still flowed, without the capacity to manage the complex computer systems, PDVSA was unable to sell oil, resulting in the loss of billions of dollars of revenue for the nation.  This case underscores some of the reasons why state-owned oil companies want to maintain the right over which types of projects to contract with private foreign companies and which projects to contract with domestic or state-owned service suppliers. 

In the document "Plurilateral Negotiations on Energy Services," issued by the demandeurs to clarify their request, they explain that "the collective request on Energy services does not address the relationship between states and those entities authorized to produce the natural resources.  Only measures affecting trade in services provided by service suppliers to the latter fall within the scope of the request."  But recalling the IEA's clam that seventy percent of all oil is "restricted" by the state-owned entities, the request's scope would seem to cover a substantial amount of energy services contracts since the "entities authorized to produce the natural resources" are often state-owned companies themselves, or some form of their join operation with private foreign companies, both of whose activities are apparently covered by the request.

The demandeurs assurances about the limited reach of their request provides no protection should these issues ever be brought up in a WTO dispute. A WTO panel (in the EC-Bananas case) has already defined the term "affecting trade in services" as having a very broad meaning. The panel also said: "the scope of the GATS encompasses any measure of any Member to the extent it affects the supply of a service regardless of whether such measure directly governs the supply of a service or whether it regulates other matters but nevertheless affects trade in services."

III.  Sectoral Coverage

The next section of the proposal "requests that commitments be taken with the widest possible sectoral coverage," then goes on to list categories of energy services that encompass the core activities of oil and gas production, processing, and distribution.  Everything from surveying to map-making, drilling to retailing, is included.  While energy-exporting nations may want or need foreign involvement in some aspects of the energy sector, the request is seeking complete market opening and potential foreign takeover of oil and gas services.

In "Plurilateral Negotiations on Energy Services," the demandeurs reveal a shocking potential consequence that should make all governments think twice before submitting any offers.  While explaining the kinds of commitments governments might make, the example is given of how:

"Monitoring services may be provided on a cross-border basis (e.g. monitor status and production information from well to help improve operating efficiencies – this would enable remote control over pumping)."

Although "monitoring services" may not seem to play a critical role, countries that make such an offer may subsequently have to permit foreign service companies to unilaterally determine levels of production from distant locations. Countries would be effectively ceding control over production levels, export volumes, and other essential aspects of the energy sector.  This may not entail resource "ownership" per se but certainly strikes at the heart of sovereign control over natural resources.

GATS energy services liberalization could not only open core activities to foreign companies but also restrain governments from imposing restrictions on the supply of those services by foreign companies.  Consider the potential implications of a foreign service supplier with "remote control over pumping" to then exercise its rights established in the provisions of GATS Article XVI (Market Access), which state that:

"In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as: a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test; (b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test; or (c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test."

A footnote in the agreement could give countries the mistaken impression that market access requirements to eliminate quantitative limits cannot lead to the depletion of natural resources.  The footnote states that the kinds of limitations listed under "c" above do not  "cover measures of a Member which limit inputs for the supply of services." Mireille Cossy, a Trade in Services Counselor for the WTO, has pointed out that the footnote does not apply to all of the market access provisions.  So, for example, if restrictions on oil and gas production indirectly limited "the total value of service transactions", then could be a GATS violation.

It should also be noted that, unlike other WTO agreements, the GATS does not provide any exception to allow for conservation of natural resources.  So if a country is found to have violated its commitments under the agreement, it cannot use the need to conserve natural resources to defend itself in a dispute.

Demanded nations should not expect demanding nations to volunteer full explanations of how these provisions could be used to challenge various government actions but it would seem that, considering recent rulings in WTO disputes over services (such as the decision on the US ban on Internet gambling services), the sectoral coverage is so broad and yet so vague that almost any measure governments enact could be challenged as a violation of the GATS.

With strategic implications for national security and development priorities, few if any governments have undertaken any internal assessments to understand the full consequences of binding any part of their energy sectors to WTO rules.  Again, no government is required to undertake such commitments, but some may insist on doing so, or may be pressured into doing so, possibly even without the knowledge of other ministries responsible for energy policies.

IV.  Specific Commitments

In this section of the request, demanding countries identify the specific types of policies used by many energy-exporting nations, asking for the "removal or substantial reduction" of key measures that ensure local people benefit from the energy industry, like "foreign equity limitations,"  "joint venture and joint operation requirements," "economic needs tests," and so-called "discriminatory licensing procedures."  They also ask for the liberalization of policies restricting the "movement of natural persons" who work in the energy industry, so they can more freely import, say, computer engineers from Houston or construction workers from Bangladesh.

The imposition of GATS "national treatment" rules that prohibit the favoring of domestic companies or the requiring of foreign companies to hire locally or transfer technology could restrain the national capacity of energy exporters, eroding the development of domestic expertise and increasing dependency on foreign energy service companies.  True, many state-owned oil companies already contract with private companies to perform certain projects, but these are their own decisions to make based on domestic needs. Privatization may be an option but it could become an obligation under the WTO.

Among the many threats posed by the GATS energy services negotiations are a series of interlocking and overlapping rules designed to reduce national sovereignty and limit the control of national authorities over this vital industry.  Some of the types of policies at risk include:

•  National Development Policies

Most energy-exporting nations base their national development strategies on maximizing the full use of their publicly held energy resources to increase revenues for social spending, maximize job creation, develop a domestic sector of service suppliers, and enhance national expertise in the energy sector.  Governments employ a range of policy tools, support programs, and business practices intended to build a base for national development, just as all developed countries did with their economies.

•  Creating Quality Employment

Oil service multinationals like Halliburton want to be free from having to hire local labor to fulfill their contracts.  Instead they often prefer to import their own engineers, geologists, construction workers, and other personnel.  Part of the request by energy-importing nations to energy-exporting nations is to liberalize the "movement of natural persons," called "Mode 4" in GATS terminology.  Mode 4 seeks to give corporations the right to import and export workers as needed.  Oil services companies are pushing to liberalize the most important, and often highest-paid, services sector jobs so that they can import workers from lower-wage nations to do the job cheaper, meaning the services company keeps more profit.

Many governments spend precious tax revenues to train young people to learn the skills needed for such jobs, so it could undermine the value of such programs if these service sectors are liberalized in WTO.  People who believe their nation possesses some export potential in their competent corps of energy services professionals must first assess their competitiveness against not only Angola's oil engineers but against those of global giants like Halliburton's, whose worldwide market dominance, "award-winning technologies," and key contacts for procuring contracts make them the oil services superpower.

•  Transferring New Technologies

Many governments want the newest, most-efficient, and environmentally sound technologies available on the market, but foreign services providers are often reluctant to import, deploy, or install them if they reduce profits.  WTO proposals could transfer power to foreign energy services providers to decide which equipment to use, preventing even democratically elected legislatures from mandating the use of specific equipment for public health or environmental reasons. 

•  Diversifying Economic Activities

No nation can afford to be over-dependent on one sector, and any government that is not actively diversifying its own economic base beyond a single sector is committing national suicide.  It's like having only one skill, or owning only a single company's share in the stockmarket: putting all one's eggs into one single basket risks ruin.  That's why submitting one's national energy sector to control by foreign companies through new WTO rules would risk reducing a nation's ability to diversify its economy into other sectors.  Heads of State, ministers, parliamentarians, regulators, and citizens are all restrained from exercising their full sovereignty once WTO rules are adopted.  Some governments with income generating, state-owned enterprises use them to cross-subsidize other strategically important industries that need some state support; allowing GATS to dismantle these revenue-generating enterprises could also endanger the other sectors dependent on them.  Many people are increasingly concerned about adjusting to climate change.  Workers and governments who see the writing on the wall realize that carbon fuels are disrupting the stability of global climate and they will need to be phased out.  Workers and governments who rely on oil revenues need maximum flexibility and "policy space" to manage the transition from a carbon-based economy to alternative economic activities.  WTO disciplines in the energy sector could reduce the flexibility needed for a just transition.

SPECIFIC ENERGY POLICIES AT RISK

Expanding WTO disciplines over how state-owned oil companies contract energy projects could restrict their government's abilities to develop domestic employment and enhance technological expertise.  Examples abound of how such policies are used in countries who have the target of the request, and even from those who have not.

Nigeria, whose Energy Minister currently holds the OPEC Presidency, has a number of measures to redistribute the benefits of contracts in the energy sector that have been captured by foreign companies and divert a certain percentage to local businesses. Growing social and ecological problems in the oil producing Niger Delta have made the government move more aggressively to implement a "local content policy" in recent years.  Liberalization of energy services under the GATS would erode possible gains for domestic service suppliers that the new legislation aims to assist.  The Nigerian newspaper, the DAILY INDEPENDENT, reported on 28 April, 2006, in an article called, "Senate Endorses Local Content For Oil Industry," that the Nigerian:

"Senate has approved the total takeover of the oil industry by local operators, giving preference to indigenous companies and independent operators in the award of oil blocks, field and lifting licenses....The bill requires operators in the oil and gas sector to have a minimum 50 per cent local content. The proposed law stipulates that all petroleum arrangements, agreements, contracts or memoranda of understanding relating to all operations in the Nigerian oil and gas industry shall be modified to bring the terms into conformity with the provisions of this Act within 90 days.   The aim of the proposed law... is to promote full and fair opportunities for participation of Nigerians and enhance the wealth and income benefits of the oil and gas industry for Nigerians, while ensuring international competitiveness of the materials, equipment and services provided by Nigerian companies.

Leaders in Nigerian civil society, such as Oronto Douglas of Environmental Rights Action and a member of the legal team that defended critic Ken Saro-Wiwa, believe that such local content policies are "essential to guaranteeing that the oil and gas industry benefits Nigerians."

Saudi Arabia and Indonesia already use some of these policy tools, and there are proposals for more. Their use is the basis of ensuring that the energy sector actually advances the national development agenda by creating quality employment, encouraging domestic industries, acquiring new technologies, and diversifying economic activities.

Mexico's Constitution forbids foreign investment in the petroleum sector.  Although there is vigorous debate within Mexico about whether or not to change this, it is a decision that is best made democratically by Mexicans and not predetermined at the WTO, where Mexico's negotiators are reportedly advancing proposals that could open the door to foreign investors in possible violation of their own Constitution.

Brazil, which is celebrating its self-reliance in petroleum, could find itself subject to new disciplines that make balancing imports and exports impossible.  Subjecting energy to WTO rules could undermine decades of government policies and programs designed to cultivate national expertise in energy, to create cutting edge technologies for national needs, and to minimize the energy insecurity that now threatens many nations.  It is precisely this sort of "policy space" that all nations must preserve to deliver fair and sustainable benefits to its citizens.

Venezuela and Bolivia, though not included in the list of demanded countries, currently require, or are in the process of developing policies that could require, foreign companies to partner with domestic company.  They are limiting the percentage of foreign investments in infrastructure and production.  They are requiring foreign companies to use local labor and to hire nationals for engineering and other high-skill, high-wage jobs.  They are demanding the transfer of state-of-the-art technology for exploration, extraction, processing, monitoring, and information systems.  Such policy tools are precisely the "barriers to free trade in services" that foreign energy services companies want to discipline by using the WTO.  It is also important to note that the re-emergence of such policies, as well as the trend toward nationalization, is a major motivation for rich nations to establish new WTO rules that halt the proliferation and adoption of such policies by energy-exporting nations.

STATE OF PLAY IN GENEVA

Why the urgent push for a deal now?  The White House's authority to negotiate international trade agreements with limited involvement from Congress (so-called "fast track rules) will expire in mid-2007, and the White House needs at least six months before that (i.e., January 2007) to prepare the implementing legislation to submit to Congress, if it is to have any chance to pass.  This US-imposed deadline means all countries would have to finalize a Doha Round deal by the end of 2006, meaning the main modalities and offers would have to be submitted by end of July 2006.

In Geneva, negotiations are coming down to the wire in the next few weeks, where the three themes of Agriculture, Non-Agriculture Market Access (NAMA), and Services are the main pillars upon which agreement will be reached, or not.  For an agreement, developing nations need to offer to open their markets to more import of goods and services from developed nations.  In return developed nations will need offer to open their agriculture markets to more imports from developing nations.

If agreement is reached, energy services will likely be a substantial part of the deal.  The Bush Administration's preoccupation with energy makes the expansion of market access to foreign energy services via GATS negotiations a top priority in the current WTO talks.  Not only has the US already managed to keep OPEC members from unifying against the demandeurs in the negotiations, but they and the Europeans continue to cultivate allies and undermine any basis of opposition.  Indeed, some of the world's leading energy exporters have been lured into advancing the WTO agenda of the consuming nations, in the belief that binding their most important industry to world trade rules will somehow increase their national development agendas. 

Other than Brazil, there is no visible evidence of requested countries undergoing any internal assessments.  This may be for a number of reasons, such as they have already decided not to submit anything, or there are other priorities in the negotiations, or technical or staff difficulties in assessing a complex theme that is new to both trade and energy officials.  Nations who have received the collective request are in their full rights to submit no offer if, in fact, they have not had adequate time, resources, technical capacity, or whatever reason, to assess the impacts of making any commitments in Energy Services. 

TIMELINE

Timeline of key meetings in Geneva before "end of July 2006" General Counsel:

June 21:           Working Party on GATS Rules

June 22:           Council for Trade in Services

June 23:           Council for Trade in Services - Special Session

June 26:           Stock-taking Ministerial on Services

July 11-13:      "Cluster" of Services negotiations      

July 14:           Council for Trade in Services –Special Session

July 27-28       General Council (all "revised offers" due)

SUGGESTED ACTIONS

To meaningfully counter the push to put energy under WTO control, target country governments must defend their own interests.  But to achieve this, they must first assess the potential threats, and they must know that their own citizens will not allow them to surrender this strategic sector to foreign control.  Here is where civil society, including energy workers, can play an important supporting role.

Although the current target deadline to conclude the Doha Round is the end of 2006, WTO Director General Pascal Lamy says that most decisions need to be made by the end of July, 2006, when a General Counsel meeting will take place in Geneva.   The Hong Kong Ministerial of December 2005 stipulated that all "revised offers" are due July 31, 2006.  If no offers are submitted by then, that would surely put off any expansion of WTO over energy in the immediate term.

For governments:

Assess how the WTO's proposals, as embodied in the collective request explained above, could impact your domestic energy sector.  Involve your Ministries of Energy, Environment, Economic Development, and other relevant agencies.  Public participation from civil society is also important.  Identify how any of the policies or programs currently is use, or under proposal, might be impacted if offers are made.  The author urges that no offers be submitted in order to keep the energy sector free from WTO control.

For civil society: 

Urge your national trade minister, or whomever is responsible for WTO negotiations, to not submit any offers on energy services to WTO.  If they are non-committal, urge them to first assess the impacts of any offers, including in the assessment process transparent inputs from other relevant government ministries, as well as responsible business leaders, energy workers' unions, energy consumers' groups, environmentalists, and fair trade advocates.

For businesses:

Urge your national trade minister, or whomever is responsible for WTO negotiations, to not submit any offers on energy services to WTO.  If they are non-committal, urge them to first assess the impacts of any offers, including in the assessment process inputs from other relevant government ministries, as well as responsible business leaders, energy workers' unions, energy consumers' groups, environmentalists, and fair trade advocates.     

Special thanks to

Ellen Gould, David Waskow, and Tony Clarke

for their precious time and thoughtful inputs.

*                      *                      *

Victor Menotti is Program Director at the International Forum on Globalization (IFG), a network of researchers, economists, writers, and activists from over 30 countries formed to stimulate public debate on the many consequences of economic globalization.  The IFG has played a central role in developing an "international citizens' perspective" on globalization.  Menotti works with the leadership of emerging international networks of farming, fishing, and forest communities to address globalization's impacts, focusing on natural resources and world trade rules.  In addition to advising governments, NGOs, and small producers' associations on trade and investment policy, Menotti is the author of the IFG report, "Free Trade, Free Logging: How the World Trade Organization Undermines Global Forest Conservation", as well as the report by the Institute for Fisheries Resources, "WTO and Sustainable Fisheries."  In addition to his native English, he speaks Spanish, Portuguese, French, some Italian and Slovak.

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