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WATER AS A COMMODITY

By

Dr. Isabel Al-Assar, LLM
Oxford University
Brookes College

Oxford, England

UPDATED MARCH 28, 2008

On June 14, 2000, Dr. Isabel Al-Assar presented an extremely lucid and controversial paper entitled: Water as a Commodity before the Third International Water Law Symposium at the University of Dundee.

Dr. Al-Assar's central premise is that water shortages are the driving force underlying the privatization and trade in water.   The temporal and geographic imbalance of supply and demand has caused companies to look for water to sell internationally.  When blocked by national legislation, the companies have resorted to the 1947 and 1994 General Agreement on Trade and Tariffs (GATT) and the North American Free Trade Agreement (NAFTA).

In the case of the Sun Belt Water Company, Sun Belt applied to export water from British Columbia.  The Government of Canada denied their application under legislation enacted under intense pressure from the Council of Canadians, a non-governmental organization (NGO), to prohibit bulk-water sales. Sun Belt sued Canada and the Province of British Columbia for $600 million.

GATT constrains the 142 high contracting parties from imposing measures that restrain or distort international trade.   The NAFTA establishes a free market for trade and a comprehensive framework for investment in Canada, the United States, and Mexico.  Under GATT, the most evident and probable cause of conflict between water-export-control measures and trade disciplines arises under Article XI which provides:

No prohibition or other restriction other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by an contracting party on the importation of any product or any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.

GATT contains rules for environmental exceptions for exhaustible natural resources that justify violations of Article XI of GATT

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures;

... (g) relating to conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production and consumption;

The question then becomes is water an "Exhaustible Natural Resource?" under Article XX(g) of GATT?  Does GATT only apply to exhaustible minerals and fossil fuels?  Was water even contemplated when GATT was drafted?

Under NAFTA, it is unlikely that a ban on the export of water as a good such as bottled water could be sustained because NAFTA Article 309, which is similar to GATT Article XI, prevents contracting parties from restricting or prohibiting the export of goods.

The 1993 Joint Statement by the Governments of Canada, Mexico and the United States stated:

"The NAFTA creates no rights to the natural water resources of any Party to the Agreement ... nothing in the NAFTA would oblige any NAFTA Party to either exploit its water for commercial use or to begin exporting its water in any form.  Water in its natural state in lakes, rivers, reservoirs, aquifers, water basins and the like is not a good or product, it is not traded, and therefore is not and never has been subject to the terms of any trade agreement."

So, does Canada have a Sovereign right to prohibit removal of water from its natural state for use outside the watershed?  However, Chapter 11 of NAFTA is the investment chapter.  Its disciplines apply to access rights to Canadian water in its natural state.  Once governments allow water to be withdrawn from its natural state - as they have done on numerous occasions for purposes that range from large-scale industrial use to personal consumption - the same rights must now be accorded to foreign investors.  Water would be subject to the services provisions of the NAFTA, for similar reasons.  This means that a water service provider operating in Canada would have the same rights to supply water services to U.S. consumers as to Canadians.

Article 1102 of NAFTA goes on to accord to investors of another party treatment no less favourable than it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

Though Dr. Al-Assar's presentation focused on the export of Canadian water, the issue is of global importance because the GATT applies to 142 contracting parties.   The only mechanism by which the bulk-export of water could be prevented is to establish non-discriminatory conservation programs.

WEBMASTER'S NOTE

In the United States, the Supreme Court has ruled that water is an article of interstate commerce.  In all states of the United States, when a permit has been issued for the capture of water, and water has been captured, its export cannot be prevented.

Following the July, 2000 meeting in Dundee, Congressmen from the State of Michigan announced an agreement that would prevent the export of water from the Great Lakes until the United States Congress approves standards developed by shoreline governors.  This agreements comes amid recognition from the International Joint Commission that trade law permits nations to protect their natural resources but that they cannot use environmental legislation to deliberately hamper trade.

Dr. Al-Assar's presentation was particularly provoking because the GATT and the NAFTA and possibly other regional trade agreements are supernational.  They trump national laws and place international trade above national social policy and the policy of NGOs. 

The position of NGO's is set forth in their discussion paper prepared for the 2nd World Water Forum convened in the Hague in March 2000 wherein they state: "Water is the common heritage of mankind and should not be negotiated as a commodity." (NGOs and Water - Perspectives on Freshwater, Issues and Recommendations of NGOs, 2000, ed. Danielle Morely, United Nations Environmental and Development Forum, London, p. 1).   This position is in direct conflict with existing trade treaties.

UPDATE - DECEMBER 2000

In December 2000, Dr. Al-Assar published a more comprehensive and authoritative peer reviewed paper on this subject entitled: The Great Lakes Region and Bulk Water Exports: Issues in International Trade in Water in Water International the official publication of the International Water Resources Association (IWRA).

UPDATE - OCTOBER 18, 2001

Since Dr. Al-Assar's presentation, debate within Canada has risen to new levels.  In early July 2001, the Council of Canadians held their annual conference in Vancouver in opposition to water exports and the privatisation of water systems. The Province of Newfoundland, led by Roger Grimes, had planned a public participation process in the Fall of 2000 on the topic. Grimes intended to introduce legislation to permit the export of fresh water from Lake Gisbourne in the Spring of 2002. 

In late September 2001, Ottawa apparently prevailed on Grimes to take the issue off the table.  As of October 4, 2001 Grimes did not plan to oppose Ottawa.  On October 18, 2001, the Prime Minister's Office released its report on the export of bulk water from Newfoundland & Labrador.  The full report is on the Internet.  It would seem that the Prime Minister has determined that the economic benefit to Newfoundland & Labrador is not worth the political effort to change the Water Resources Protection Act of 1999.  In fact, it is more likely that Ottawa exerted financial pressure as Newfoundland relies on the central government to pay its bills and balance its ledgers.  The economic feasibility analysis in the report commissioned by Grimes relies heavily on information from the WaterBank® website and is based on incorrect assumptions as to the destination of the water proposed for export from Lake Gisbourne

It is unfortunate that Acts passed as a knee jerk reaction to pressure from special interest groups become bad experiments on society which may never be corrected.  This website recommends to New Brunswick, which has not yet passed restrictive legislation (October 2001), that it not follow in the footsteps of the remaining provinces of Canada.

UPDATE AUGUST 30, 2002

In preparation for the Rio + 10 Summit in Johannesburg, Dr. Al-Assar was queried on the subject of water as a commodity by Bloomberg News.  Her written response is contained as Newsletter 42 here.

UPDATE JANUARY 8, 2005

The graphical representation of visits to this Newsletter is available by clicking here.

UPDATE SEPTEMBER 19, 2009

Dr. Al-Assar has informed the webmaster that she has entered the job market and will review placements that deal particularly with international trade matters.  She can be contacted at the link at the top of this page.

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