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ENRON: Washington's Number One Behind-the-Scenes GATS Negotiator

by Tony ClarkeSpecial to CorpWatch
October 25th, 2001

Anti-Enron Protest in India.
Anti-Enron Protest in India. Economic Times

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Heavy Hitters in GATS Talks

So, what do Enron Corporation and the General Agreement on Trade in Services (GATS) have in common? After all, Enron is primarily a giant energy corporation specializing in everything from natural gas pipelines to electricity. And the GATS is a new body of rules at the World Trade Organization (WTO) which is designed to liberalize cross border trade-in-services. Why, then, is Enron such a big player in the GATS negotiations at the WTO?

Well, for one thing, Enron is not just another energy corporation. It has recently reorganized to become one of the largest, multi-sector, private service providers in the world. While specializing in energy services, Enron's product lines now include a broad range of services from transportation to electronic commerce. Since Enron markets its services on a global basis, the GATS rules being negotiated at the WTO provide the power tools that can be used to knock down any barriers that may exist to profitable cross border trade-in-services.

For these reasons, Enron has positioned itself to be a leading player in the major big business lobby machines driving the GATS negotiations. But, on top of this, Enron has enormous economic and political clout, even as it currently faces serious troubles. Enron is still a player despite a Securities and Exchange Commission investigation into transactions by its former Chief Financial Officer. The free fall in its stock prices and billion dollar losses Enron has incurred, are set against a backdrop of skyrocketing multi-billion dollar revenues in the last two years. More importantly, Enron's connections with the Bush Administration make it one of the most powerful corporate players in Washington today. And these connections make it an even more influential player in the WTO's service negotiations.

The GATS negotiations are designed to provide transnational corporations with the tools they need to take control of much of what remains of the 'commons' on this planet. Every service imaginable is on the table, including a wide range of public services in sectors that affect the environment, culture, energy and natural resources. By phasing out all governmental "barriers" to international trade and commercial competition in services, the GATS rules are meant to apply to virtually all government measures affecting trade in services, from labor laws to consumer protection, including regulations, guidelines, subsidies and grants, licensing standards and qualifications, and limitations on access to markets, economic needs tests and content provisions.


How Enron GATS What It Wants

While it was founded just over 16 years ago with its origins in the natural gas business, Enron has quickly become a high-powered, diversified, global services corporation. Originally formed out of a 1985 merger between Houston Natural Gas and InterNorth (a natural gas company in Omaha, Nebraska), Enron soon became the largest natural gas pipeline distributor in the U.S. By the mid-1990s, Enron had become the leading U.S. buyer and seller of natural gas and electricity, with extensive power generation ventures overseas. By the millennium, Enron, led by its CEO Kenneth Lay, had transformed itself into a multi-sector service corporation with five major divisions: Enron 'Online Services' commodity trading system provides the largest eCommerce site in the world, dwarfing all other energy marketing web sites combined. Enron 'Broadband Services' streamlines media applications, customizing bandwidth solutions on the Internet. Enron 'Transportation Services' specializes in the company's traditional natural gas pipeline operations. Enron 'Energy Services' is now the company's retail arm for the sale of natural gas and electricity to both commercial and industrial users. And, Enron 'Wholesale Services' currently delivers more than two times the natural gas and electrical power volumes as does its nearest energy marketing competitor.

Today, trade-in-services is the fastest growing sector of the global economy. In order to globally market its energy and related services, Enron needs favorable GATS rules to promote the deregulation of services in other countries and provide conditions for the privatization of public services (so it can buy up more subsidiaries). The existing GATS rules already contain mechanisms, such as the 'domestic regulation' provisions, which provide built-in instruments to compel governments to eliminate regulations governing services and set conditions for the privatization of publicly delivered services. The current GATS 2000 negotiations taking place at the WTO are designed to not only strengthen these tools but also to expand the scope of the rules to include all public services, ranging from healthcare and education to energy, water and transportation services. In short, if the proposed GATS rules are adopted, they will radically restructure the role of government regarding public access to essential social services worldwide, to the detriment of democracy itself.

Enron is now poised to become a prime example of how transnational corporations not only influence, but actually determine, global trade rules at through the WTO, especially the GATS. As a key member of the U.S. Coalition of Service Industries (UCSI), Enron has positioned itself to play a major role in the GATS 2000 negotiations. It is well known that the USCI, which is composed of most of the largest for-profit service corporations in the U.S., has played a powerful role in shaping the agenda for the GATS negotiations. In 1999, Enron was also a top sponsor of the World Services Congress in Atlanta, where the big business agenda for GATS 2000 was consolidated. In addition, Enron is an active member on the Board of the National Trade Council which is internationally recognized as a strong backer of the WTO, as well as a prime mover behind granting the President fast track authority over all trade negotiations.


White House Power Broker

What makes Enron even more pivotal in the GATS negotiations is its extraordinary economic and political clout. Between 1999 and 2000 alone, Enron's total revenues increased by a whopping 151.3 percent, from $40.1 billion to 100.8 billion -- putting its current financial woes in context. During this period, the corporation's electricity sales doubled, mainly due to exploiting the California energy crisis, while its sales in natural gas rose by a third. As a result, Enron was ranked 16th on the Global Fortune 500 and 8th on the U.S, Fortune 500 in 2000. In the first quarter of 2001, the company posted a 281 percent increase in revenues and a 20 percent increase in net income.

At the same time, Enron's reach into the White House has become legendary in Washington circles. While the corporation's political ties were well established with the presidencies of George Bush Sr. and Bill Clinton, they are now much more entrenched in the administration of George W. Bush. Enron's CEO, Kenneth Lay, is especially well placed. During the 2000 presidential campaign, Lay was a leading member on Bush's Pioneer Group, composed of the 400 plus people who personally contributed one hundred thousand dollars or more to his election drive. Lay was the number one career donor to the Bush campaign, contributing $318,050 in 2000. Enron gave another $300,000 to Bush's inauguration party.

When it comes to energy policies, Enron's political clout in the Bush Administration is simply awesome. According to Mother Jones magazine, Enron's Kenneth Lay is Bush's top energy advisor. Not only is Lay a key player on Bush's 48 member Energy Advisory panel but he also works closely with Vice President Dick Cheney's new Energy Policy Development Council formed to find short term solutions to energy problems. During the 2000 election campaign, Enron's Political Action Committee contributed to the senatorial campaigns of: Spencer Abraham (R-Michigan), who became Bush's Secretary of Energy; Jeff Bingaman (D-New Mexico), who became the new chair of the Energy and Natural Resources Committee in the now Democrat controlled Senate; as well as the re-election of Tom Delay (R-Texas) who sponsored the bill that mandated the deregulation of electricity across the U.S. Moreover, three top White House advisors involved in drafting President Bush's national energy strategy are reported to have either held stock or earned fees from Enron: Karl Rove, Bush's chief political strategist; Lawrence Lindsay, Bush's chief economic advisor; and Lewis Libby, Cheney's chief of staff.


US Energy Deregulation, A Blueprint for the WTO?

The recent deregulation of energy services in the U.S. became a major demonstration case of Enron's political clout, as well as perhaps a major clue as to how the new GATS rule making could play out on the international scene. Known as the 'Enron Bill' in D.C. circles, Sen. Tom Delay's legislative package called for a national deregulation of energy, particularly electricity. To strengthen their position, a series of moves were made in regards to the Federal Energy Regulatory Commission. First, CEO Ken Lay and other Enron officials interviewed prospective candidates to fill vacancies on the Commission and President Bush chose two people recommended by Enron. Then, the New York Times revealed on May 26, 2001 that Lay himself wrote to the Commission Chair, Curtis Hebert, saying that if Mr. Hebert changed his views on electricity deregulation, Enron would continue to support him in his new job. Hebert was reportedly offended by Enron's move, refused the offer and feared for his job. Again, on May 26th, Ken Lay met with actor Arnold Schwartzenegger, LA Mayor Richard Riordan, and former junk bond dealer and fraud convict, Michael Milken, to drum up support for Enron's deregulation solution to what then appeared to be America's looming energy crisis.

Meanwhile, Enron was able to reap huge profits from the California energy crisis. When sudden energy shortages translated into massive cost increases, major suppliers of commercial and industrial energy like Enron were able to cash-in big time. In the last quarter of 2000, Enron raked in $377 million in profits, largely due to the California energy crisis. The market should be even more deregulated, argue Enron officials, to allow 'demand' and 'supply' forces to resolve the ongoing energy crisis. A cartel of corporations, including Enron, are now being investigated by California state officials for holding back the supply of power through plant shutdowns in order to spike prices and profits. In addition, the Los Angeles Times has reported that the CEOs of energy corporations took advantage of the California crisis to pocket unusually high options transactions themselves. Enron's Ken Lay, for example, is reported to have netted $123 million in 2000, which is three times higher than his 1999 take and ten times higher than what his 1998 figures.

In effect, Enron's strategy on the GATS negotiations is to develop new trade rules to consolidate internationally what it has accomplished on energy deregulation in the U.S. To pry open new markets for energy and related services in other countries, Enron's plan is to ensure that GATS rules are established through the WTO that can be used to accelerate the deregulation, and where necessary the privatization, of these services. Once again, Enron has equipped itself for this mission. The current U.S. Trade Representative, Robert Zoellick, who is responsible for U.S. input into the GATS negotiations, has reportedly been the recipient of a $50,000 'advisory fee' from Enron. James Baker, former U.S. Secretary of State, and Robert Mosbacher, former Secretary of Commerce, are both on the Enron payroll as advisors on overseas projects and international negotiations. Enron's Board includes Charles Walker, former U.S. deputy Treasury Secretary; John Wakwham, former British Secretary of State for Energy, who specializes in providing advice on European businesses; and Frank Wisner, former U.S. Ambassador to India. With CEO Ken Lay already serving as Bush's number one energy advisor, it becomes increasingly clear that the U.S. negotiating position in the GATS round will go a long way to reflect Enron's interests.


Who Pays the Price?

In all likelihood, the GATS will also strengthen Enron's hand on the global stage. While this may bode well for its shareholders, the company's track record already leaves something to be desired in terms of human rights and the environment in communities and countries where the corporation operates. If Enron gets its way in the GATS, these problems may in fact escalate.

For instance, Enron uses its political clout internationally with U.S. embassies and even the CIA to win lucrative contracts overseas. In India, Enron eventually won the $2.8 billion contract to build the Dhabol Power Plant in 1995 after then U.S. Ambassador, Frank Wisner, exerted enormous pressure on the Indian government and the CIA provided Enron with strategic intelligence on its competitors and the bidding process. Later, when local villagers protested against the construction of the Dhabol project which threatened the environment and their livelihood, Enron paid state forces for security which resulted in a crackdown on protesters. According to Human Rights Watch, "Enron's local entity, the Dabhol Power Corporation, benefited directly from an official policy of suppressing dissent through misuse of law, harassment of anti-Enron protest leaders and environmental activists, and police practices ranging from arbitrary to brutal. The company did not speak out about human rights violations and , when questioned about them, chose to dismiss them altogether."

Enron's influence peddling has had far reaching consequences in other countries as well. In 1989, George W. Bush intervened, as governor of Texas, urging the Argentine government to grant Enron the contract to build a pipeline from Argentina to Chile. The Argentine Minister of Public Works told reporters Bush's intervention amounted to influence peddling. Nevertheless, Enron was awarded the contract shortly after Bush was publicly seen socializing with then president of Argentina. In 1995, the Clinton Administration threatened to cut off development aid to Mozambique if it did not sign a deal for Enron to construct a pipeline from Mozambique to South Africa. Declared Mozambique's natural resources minister, John Kachamila: "Their diplomats, especially Mike McKinley (deputy chief of the U.S. Embassy), pressured me to sign a deal that was not good for Mozambique. He was not a neutral diplomat. It was as if he was working for Enron."

It remains to be seen what further role Enron will play in the GATS 2000 negotiations which will likely go on into 2003. Given its track record to date in pressing for deregulation and privatization, Enron is certainly well placed to be Washington's number one behind-the-scenes negotiator. As an agent of GATS, Enron can hardly be counted on as a model employer when it comes to taking over service delivery in various parts of the world. As Jeffrey Skilling, until recently Enron's longtime president, put it at industry conference in 1997: "You must cut costs ruthlessly by 50 to 60 percent. Depopulate. Get rid of people. They gum up the works."

CorpWatch's 2001 coverage of the WTO was made possible through the generous support of the Humanitarian Group for Social Development.

Tony Clarke is the Director of the Polaris Institute in Canada.