Domestic Regulation and the WTO: The Case of Water Services in Developing Countries

Abstract

Trade liberalisation of environmental services, and water services in particular, under the current WTO General Agreement on Trade in Services (GATS), has been widely advocated as a means of increasing private sector participation in the water sector in developing countries. Recognising that effective regulation is needed to ensure that the potential gains from private sector involvement are fully realised, the paper considers the relationship between national regulatory autonomy and GATS liberalisation in water services. The empirical evidence on the impact of private sector involvement in the provision of water services in developing countries is reviewed, and a number of reasons why water privatisation has been problematic in lower-income countries are identified, including transaction costs and regulatory weaknesses. The study concludes that developing countries with limited regulatory resources should adopt a cautious approach to services liberalisation, by sequencing market liberalisation measures to match the development of their regulatory institutional capacity. Copyright 2005 Blackwell Publishing Ltd..

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“…evidence collected from episodes of infrastructure regulatory reforms carried out in various sectors (especially electricity, telecommunications, gas, highways, railways, and water) and countries, scholarly works highlighted what kind of regulation better suits the technological, economic, and social features of infrastructure industries, especially including specific concern towards whether the government should play an invasive role in the regulation of infrastructure or let the private sector be largely involved in infrastructure development and the provision of infrastructure-related services (Eberlein, 2000;Eberlein and Grande, 2000;Estache, 2001;Finger et al, 2005Finger et al, , 2010Künneke, 2006, 2009;Gómez Ibáňez, 2003;Kessides, 2004;Kirkpatrick and Parker, 2005;Newbery, 2000).…”

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