Recipe for A Quagmire:
Bulk Water Exports and NAFTA

What is water? Ask an ecologist and he/she will say it is composed of two parts hydrogen - one part oxygen, invariably making reference to its integral role in life. Ask an economist, politician or trade lawyer that same question and the response is likely to be considerably different: 'water is a commodity and as such should be treated no differently than wheat or oil' or, 'it is a public resource and should be managed as a public trust'. Regardless of how we define water, the perception that it is a dwindling resource in the US, combined with the Canadian public's negative attitude towards water export and the North American Free Trade Agreement (NAFTA), has created a policy quagmire for both federal and provincial politicians in Canada. This quagmire existed prior to NAFTA, but the "leap of faith" trade deal has added to the mix some challenging quasi-legal implications with regards to many trade-related issues.

The five years between 1961 and 1966 saw the greatest drought to hit the northeastern US in historical time. "Save water, shower with a friend!" was a phrase that grew out of this period, reflecting both the social atmosphere and innovative problem solving skills synonymous with the period (Bocking, 1972:5). To avert futre shortages, resource managers and politicians initiated an age of grand water diversion projects which focused on Canada's ample fresh water resource.

Two key diversion projects were the Great Recycling and Northern Development (GRAND) Canal Plan in 1959 and the North American Water and Power Alliance (NAWAPA) in 1964 (The Canadian Forum, 1999:48). The GRAND Canal scheme involves the separation of James Bay from Hudson Bay with a 160-km long dam. The freshwater rivers that run into James Bay would eventually convert it to a freshwater lake. This water would then be pumped via river systems into the Great Lakes and transferred to areas of the US (Windsor, 1993:242). Liberal MP Dennis Mills is today still promoting the GRAND Canal scheme (Barlow, 1998). NAWAPA is such a ridiculous proposal that I won't go into it here. Suffice it to say that somehow a learned man thought that flooding an 800 km stretch of the Rocky Mountain Trench, literally washing away existing British Columbian communities such as Prince George, would be feasible. The plan has since been sold to a US based citizen's group for one dollar. "One dollar more than it is worth" according to University of Northern British Columbia professor Orland Wilkerson.

Historically, our political leaders have stuck with Canadian public attitudes and stated that Canada's water is not for sale (Windsor, 1993:259). What appears to be and what actually is, however, are not necessarily the same. In 1965, Minster of Northern Affairs Arthur Laing stated "Diversion of Canadian water to the US is not negotiable. There is no such thing as a continental resource. We own it." However, while speaking to Walter Stewart, a Maclean's Magazine reporter, a few days later he revealed that "…Something like NAWAPA is not merely feasible, it's inevitable… We are establishing a bargaining position and the best bargaining position is to say 'NO'" (Bocking, 1972:32). Forty-five years have passed since this pronouncement and Canada still does not have solid water export legislation. Evidence that the federal government is not keen on creating such legislation for fear of restricting profiteering on what could be a new exportable raw material. This decision could stand to be a very costly one since Canada signed the NAFTA in 1994, for along with this deal came a Trojan horse termed 'Expropriation' and 'Compensation.'

Expropriation: The Corporation's Trojan Horse

It is not surprising that the NAFTA contains similar elements to US constitutional law, such as the "takings" rule. This US law prohibits governments from taking private property without adequate remuneration (Clarke and Barlow, 1997:32). This concept appears in chapter eleven (investor-state provisions) of the NAFTA document . Any corporation of the NAFTA countries can sue any of the NAFTA governments for failing to uphold the 'rights' as enshrined in the deal (Clarke and Barlow, 1997:91). Expropriation has traditionally been interpreted as the "wrongful or arbitrary taking away of an asset by a government" (Herman, 1998). Under NAFTA it appears to have a very wide range of interpretation. Herman Lawerence, a writer and trade lawyer points this out with regards to the MMT fiasco:

The intelligent and astute counsel to Ethyl Corp. has proved, however, the legal concept of expropriation and the protection afforded under NAFTA provisions go beyond these traditional legal concepts. The MMT case has thus emerged as one of the most important in the annals of Canadian trade law. Even though it was settled out of court, it has established a far-reaching precedent.

(Herman, 1998)

As the entrepreneurs and profiteers play on the perception of a water shortage in the US and attempt to make a quick and easy buck, Canadians raise their voices in protest and ask their politicians to do something about it. The question is, can they? The Canadian public will never know what took place during the MMT secretly arbitrated trade tribunal. We only know this: our government must lift the ban, write Ethyl Corporation a letter of apology and pay the settlement of twenty million tax-paid dollars (McEachern and Shaw, 1989:14-16). What does a fuel additive have to do with bulk water sales? The same 'far reaching precedent' that Herman Lawerence speaks of is now being tested with bulk water exports.

Jack Lindsey, owner of Sunbelt Water of Santa Monica, California is currently seeking $300 million dollars from Canada under NAFTA (The Economist, 1999:26). Sunbelt had won a contract to supply water to a small town in California. It planned on getting that water via container ships from Snowcap Waters, a company located in Fanny Bay, British Columbia. Days after Sunbelt received the contract in 1991, the BC government placed a moratorium on bulk water exports by container ships (The Economist, 1999:26). Snowcap immediately sued the BC government and won an out-of-court settlement of $335,000 (Crossley, 1998:21). The foreign corporation, Sunbelt, attempted the same suit but the BC government would have nothing to do with it. Sunbelt then turned to NAFTA's Trojan horse 'expropriation and compensation', claiming that they did not receive "fair and equitable treatment" (The Economist, 1999:26). Time will tell whether banning bulk water sales will be as costly for Canadians as banning MMT was; this case is currently before the secret NAFTA tribunal. An interesting question arises from this: if Sunbelt wins its claim, could/would the federal government make BC liable and take it from BC transfer payments?

Since Sunbelt challenged BC's moratorium, there seems to be a watershed of bulk water exporters now looking to the NAFTA to 'compensate' their 'losses'. In 1997, NOVA Group of Sault Ste. Marie was granted a five-year permit from Environment Minister Norm Sterling to tanker ship 3 billion liters of Lake Superior water to Asia (Toronto Star, 1998:E2). A loud opposition from environmentalists and politicians in both Canada and the US caused the Ontario government to about face and cancel Nova's bulk water export permit. Sniffing the winds of public opinion, Premier Mike Harris said it’s "a dumb idea" and that "our water is not for sale" (Toronto Star, 1998:E2).

Another bulk water export scheme that hopes to quench the thirst of Asians has arisen in Gander, Newfoundland (The Economist, 1999:27). McCurdy Enterprises has shifted its attention from construction (not much of that happening in Newfoundland at the moment) to the bulk sale of water from Gisbourne Lake (The Economist, 1999:27). The fear is that if the Newfoundland government allows this sale, and it is seriously considering it, then the tap will have been turned on (The Economist, 1999:27).

In 1996, going against the desired flow of water from Canada to the US, Global Water Corporation of Vancouver arranged the bulk export of US water from Sitka, Alaska to China (The Economist, 1999:27). The deal is now in its final stages. Opponents of bulk water sales in Canada are hoping that the bulk sale of US water by a foreign company will "goad the United States into agreeing to remove water from the list of NAFTA tradeable goods" (The Economist, 1999:27). Indeed this is the million dollar question. Is bulk water under NAFTA considered a tradeable good?

NAFTA and the 1990 Free Trade Agreement (FTA) between Canada and the US, were built upon existing trade principles developed under the General Agreement on Tariffs and Trade (GATT) (Gale, 1995:102). Under GATT, water, as defined by tariff line 22.01: "Waters, including natural or artificial mineral water and aerated water, not containing added sugar or other sweetening matter, ice and snow" and GATT's Harmonized System Explanatory Notes: "ordinary natural water of all kinds (other than sea water)", is considered a marketable good (Government of Canada, 1988:1). According to resource economist Wendy Holm, GATT also stipulates that water is considered a good if it is contained or stored. This includes water stored in dam reservoirs, pipelines or containers on trucks or ships (Coles, 1994). The confusion that arises with regard to bulk water sales may stem from the fact that within the GATT document water falls under the heading "Beverages, Spirits, and Vinegar" (Stone, 1988:2). If water were to be treated exclusively as such, then what legislation exists to stop a business from exporting bulk water as 'beverage, spirit or vinegar'?

Past trade minister John Crosbie stated that water is not considered a good because article 407 of the GATT "enables a country to restrict the export of a natural resource for reasons of environmental protection." This provision appeared at the time to be the Canadian government's defense against water export. Even if the US position that water is a tradable good were accepted, then Canada could resort to article 407. NAFTA's Trojan horse, expropriation and compensation, has turned the table.

Unlike the FTA, NAFTA makes reference to environmental issues such as environmental protection, conservation, and sustainable development. The agreement, however, like the FTA, does not require any implementation and is toothless with regards to enforcing environmental protection (Gale, 1995:109). Under NAFTA the burden of proof is placed on the member country (or in the case of Ethyl, the corporation) challenging an environmental regulation (Gale, 1995:113). If harmful environmental consequences cannot be proven, then the trade 'benefits' win over any potential environmental impacts. This situation completely undermines Canada's commitment to the adoption of the United Nations Rio Earth Summit's Precautionary Principle.

Policy Statements After Policy Statements… Still No Legislation

As the issue of bulk water export became more and more of a political hot potato, a number of policy statements were developed. Four stand out as the most important. In 1985, the 'Currents of Change' report by the Inquiry on Federal Water Policy, This report did not keep with the 'water not for sale' stance; it suggested a "mechanism by which all proposals could be evaluated on their own merits" (Windsor, 1993:261). In 1986, 'The Design of Water-Policy' was developed as part of the Royal Commission on the Economic Union and Development Prospects for Canada. It suggested that Canada go ahead with water exports under certain conditions (Windsor, 1993:261). The 'Federal Water Policy' drafted in 1987 was clearly opposed to large-scale overland water export schemes (Windsor, 1993:261). On February 10, 1999, Ministers Lloyd Axworthy (Foreign Affairs) and Christine Stewart (Environment) released the 'Strategy Launched to Prohibit The Bulk Removal of Canadian Water, Including Water for Export' (Department of Foreign Affairs and International Trade, 1999). This policy statement continues the government's public stance of 'no water for sale'.It is important to note that all of the above are statements of intent only and bear absolutely no legal authority until legislation is passed by which to enforce the specified intent (Windsor, 1993:261).

The federal government has to put its money where its mouth is and come up with solid legislation banning the export of bulk water (if that is in fact the goal). The strategy released this year "prohibit[s] the bulk removal of Canadian water, including water for export" (Department of Foreign Affairs, 1999:1). This statement contains some very promising aspects, but the strategy also has one over-riding flaw. It relies on "co-operation with the provinces and territories, a Canada-wide accord on bulk water removals…" (Department of Foreign Affairs, 1999:1). Lloyd Axworthy requested that all provinces "adopt moratoriums on bulk water removal while the accord is being developed" (Department of Foreign Affairs, 1999:1). However, the Natural Resources Transfer Act of 1931 gives the provinces regulatory power over their waters as long as they do not conflict with federal legislation; federal legislation that currently does not exist (Caulfield, 1999:129). Almost two months after Mr. Axworthy issued the request, Quebec has flatly refused and Newfoundland is reluctant to take a stand (Council of Canadians, 1999).

Turning On The Tap

The debate today seems to evolve around two issues: whether or not water is a 'tradeable good', and, if we start exporting bulk water, are we essentially 'turning on the tap' by declaring it to be? Many believe that one bulk sale of water; regardless of its size, will be the precedent-setting occurrence required to open the floodgates. Water sales are already occurring, however. For example, direct pipelines currently send treated water from St Stephen, New Brunswick to Calais, Maine; Coutts, Alberta to Sweetgrass, Montana; Vancouver, BC to Point Roberts, Washington; and, in the opposite direction, from Neche, North Dakota to Gretna and Altona, Manitoba (Windsor, 1995:234). The potential effect of these sales as precedents for future water exports is still unclear.

What the US Wants The US Gets

Canadians must also consider a very important aspect of international law: the US has a history of not obeying it. For example, in 1984, President Reagan declared May 1^st to be 'Law Day.' The day prior he declared that the US would not recognize any decision of the World Court with regards to Nicaraguan charges of American aggression (Chomsky, 1987:124). This is important because conceivably we could end up in such a court, disputing with the US over water issues. This would undoubtedly involve The Great Lakes, specifically Lake Michigan, the Chicago Diversion, the Mississippi River and a great US mid-western thirst.

A drought in the Mississippi Valley during the summer of 1988 put the US Army Corps of Engineers under political pressure to open the Chicago Sanitary and Ship Canal to its maximum flow of 280 cubic meters of water per second from its regulated 98 cubic meters (Bourrie, 1988:A1). Also known as the Chicago Diversion, this canal joins Lake Michigan to the Illinois River, which flows into the Mississippi. The drought created a situation where barge operators could only operate half full (Bourrie, 1988:A1). The implications of this are tremendous. The US believes that Lake Michigan, land-locked within US borders yet part of the Great Lakes system, does not fall under the Boundary Waters Treaty of 1909 (Bourrie, 1988:A2). As such "withdrawals from it cannot be refereed to the International Joint Commission" (Bocking, 1987:124). This is significant. Although the Great Lake states surrounding Lake Michigan have traditionally opposed water transfer, recent US Supreme Court decisions have made it more difficult for those states to oppose transfers (Bocking, 1987:124). In Sporhase vs. Nebraska the US Supreme Court found that a state can only regulate/ban inter-state water transfers that pose a risk to human health and safety (Windsor, 1993:237). Matters of economics and commerce, such as farm irrigation and shipping are under federal jurisdiction (Windsor, 1993:238).

On June 23, 1988, a US Embassy official informed the Canadian government that the diversion was being seriously considered and that the US government is under no legal obligation to consult with Canada on the matter (Bourrie, 1988:A2). The US Federal political will existed to increase the water flow. A heavy rain (and possibly dissent from environmentalists and the Great Lake States) is the only reason the floodgates were not opened. What about the next time? What leverage does Canada have to prevent the opening to full capacity of the Chicago Diversion?

The Future all Wet

We have to be careful not to alienate this resource without taking care of our needs and we will be discussing this with the United States who are very anxious to work out arrangements by which some of our water resources are moved down south. This can be as important as exporting wheat or oil.

Prime Minister Lester Pearson, 1965

I don't want to be a dog in the manger about this. But if people are not going to use it, can't we sell it for good hard cash?

Pierre Trudeau, 1970

Within 25 years we will be exporting water.

Jean Chretien, Minister of Northern Affairs, 1969

(Bocking, 1972:32-33)

The above are fairly accurate statements/prophecies of future water flow policies, or lack there of, from Canada to the US. The infrastructure required to make water run uphill is costly. Water exports as such make little economic sense, let alone ecological sense (Windsor, 1995:261), but as the often quoted Senator Dave Durenberger has pointed out, "the first principal of water policy, in my country, at least, is that rational thinking doesn't apply" (Windsor, 1995:255). Americans, as well as Canadians, are simply a wasteful bunch, (there is just more of the former group). This applies to many resources, but is blatantly obvious with regards to water in the US. Selling bulk water to America would provide incentive for already wasteful habits. The US, according to the majority of hydrologists and water managers, does not have a water shortage, it has a water management problem (Bocking, 1972:14 Windsor, 1995:246-247). The amount of water being pumped through the Mirage Hotel's fountain in Las Vegas is perhaps the most blatant example. Simply diverting more water to an already inefficient system will not correct any problems.

The issue of bulk water exports is very complex and important. Bocking points out that such a practice could seriously affect and threaten environmental, economic, social and possibly even Canadian sovereignty (Windsor, 1995:267). Over time, the hidden elements, loopholes and costly consequences of the NAFTA are coming to light. The Canadian Federal government is in a position to act but does not act effectively. They must draft legislation banning the bulk export of water from Canada. If NAFTA is preventing this, then as Maude Barlow points out, the government must decide: "What is more important to Canada - NAFTA or our water" (Council of Canadians, 1998).

Notes

Methylcyclopentadienyl Manganese Tricarbonyl also known as MMT is a fuel additive manufactured by Ethyl Corporation of Richmond, Virginia.

Under NAFTA a three-person panel (one Canadian, one American, and a third member to be mutually agreed upon, or, that failing, to be selected by the World Bank) arbitrate trade disputes behind closed doors. The process is secret and the public will never know how the tribunal comes to its decisions. No appeal of such a decision is allowed.

References

• Bocking, R.C. (1972). Canada's Water: for sale? Toronto: James & Samuel, Publishers

• Bocking, RC. (1987). in Canadian Aquatic Resources. Can. Bull. Fish. Aquat. Sci. Editited by Healy, M.C. and Wallace, R.R.

• Bourrie, M. (1988). "US considers water diversion: Lake Michigan would be tapped to raise level of the Mississippi." Globe and Mail, July 7.

• Caulfield, H P (1996). "Currents of Change: Final Report Inquiry on Federal Water Policy." Environment Vol. 28, December.

• Chomsky, N. (1987). The Chomsky Reader. New York: Pantheon Books.

• Clark, T., Barlow, M. (1997). MAI: The Multilateral Agreement on Investment and the threat to Canadian sovereignty. Toronto: Stoddart.

• Coles, D. (1994). "Canadian water rights negotiated away." The Peace Arch News. September 28.

• Council of Canadians (1998). "Our Water is Not For Sale " Press Release, December 7.

• Council of Canadians (1998). "National Sovereignty Dripping Away Under NAFTA " Press Release, May, 15.

• Council of Canadians (1998). "One month after federal announcement, state of Canada's water as precarious as ever." Press Release, March 10.

• Crossley, K. (1998) "Don’t go near the water: BC persists in banning bulk-water exports." British Columbia Report, Vol. 9(38) May, 25.

• Department of Foreign Affairs and International Trade. (1999). Press Release No.23. February 10.

• Gale, R.J.P. (1995). in: Resource and Environmental Management in Canada, edited by Mitchel, B. Don Mills: Oxford University Press.

• Government of Canada. (1988). Subject: Federal Provincial Relations & Economic Analysis. Issues - General: Water. File Dossier: 03100-20-. Vol. 01.

• Herman, L. (1998). "'Expropriation' takes on new meaning." The Financial Post July, 28.

•  Holm, W. (1988). .Water and Free Trade: the Mulroney Government's Agenda for Canada's Most Precious Resource. Toronto: James Lorrimer and Company.

• McEachern, J., Shaw, C. (1989). The Canadian Center for Policy Alternatives Monitor. Vol. 5, No. 6. November.

• Stone, F. (1988). "Our Water is For Sale - In Bottles." The Institute for Research on Public Policy, Ottawa. July 14.

• The Economist. (1999) "There's Plenty up North." Vol. 350 Issue 8103. January, 23.

• Toronto Star. (1999). Final Edition, September 5

• Windsor, J.E. (1993) Water Diversions and Export: threat or opportunity? In Advances in Resource Management, London: Belhaven Press. Edited by Foster, H.D.