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Great Lakes Article:

The Fate of the Great Lakes:
Sustaining or Draining the Sweetwater Seas?
Trading Away the Lakes

published February 1997
Posted 10/26/2002

From Great Lakes United's "Fate of the Great Lakes"

The purpose of trade agreements is to break down barriers to trade that governments set up. Herman Daly, a senior economist in the environment department of the World Bank, says:

A more accurate name than the persuasive label "free trade"—because who can be opposed to freedom?—is "deregulated international commerce."1

The Free Trade Agreement (FTA) between the United States and Canada and the North American Free Trade Agreement (NAFTA) between these countries and Mexico, which superseded it,2 facilitate the flow of "goods" across international borders in North America. These agreements are reinforced by the worldwide General Agreement on Tariffs and Trade (GATT).

The vision of those who successfully promoted North America–wide free trade agreements is of a common market with the free flow of goods and resources. Free trade is an essential component of the privatization of the ability to profit from the sale of resources, for it involves the breaking down of barriers to where profits can be made. In this vision, water is another saleable commodity like wheat, lumber and copper, which will bring prosperity to those lucky enough to have an excess supply.

This grand vision is clearly stated by Francis Dale, president of Citizens for Water and Power for North America:

If North America is to continue to flourish and progress as a productive economic entity, made up of Canada, the United States, and Mexico—a virtual common market of North America—it is absolutely critical to consider the development of ever more cooperative and profitable uses for our fresh water resources in order to make possible the conservation and control of our natural supplies and the transfer of ever larger volumes of water from areas where there is surplus water to areas where it is desperately needed.3

Given the existing distribution of water and population in North America, it is likely that Mexico and the southwestern United States will be net importers of water, whereas exports are most likely to come from the Great Lakes Basin and other parts of Canada.

But many people have another vision—that of sustainability. In this vision, there is not an excess of water in one place and a scarcity in another. Instead water is in the place where it naturally belongs and people must learn to live within the limits and the opportunities that it presents there. People with this vision see water diversion and export as contrary to sustainability. For example, one commentator has said,

Water diversion and export leads us in a direction precisely opposite to that implied by "sustainability." Water diversion replaces natural systems with costly structures of a temporary nature, for the benefit of a restricted number of people, to meet a need that we have seen to be largely imaginary.4

Free Trade and Water Export

Water is a "good" in both NAFTA and the FTA. In both agreements, a "good" is that which is considered a "product" under the General Agreement on Tariffs and Trade (GATT).5 The GATT tariff item for water is the following:

22.01 waters, including natural or artificial waters and aerated waters, not containing added sugar or other sweetening matter nor flavouring; ice and snow.

The official GATT explanatory note for this tariff heading states that it . . .

covers ordinary natural water of all kinds (other than sea water). Such water remains in this heading whether or not it is clarified or purified.

Under the GATT, products must be "gathered, stored, bottled or otherwise packaged or delivered"; as a result, bottled water or water carried by tankers would be a "product." Further, since oil or gas in a pipeline are considered a product under GATT, it can be assumed that the same would hold true for water transferred in a pipeline.6 *

A number of consequences flow from water being a "good" under FTA and NAFTA.8 The primary guiding principle in these trade agreements is that governments cannot act in ways that give economic advantage to their own people over people in other countries who wish to trade with them (the national treatment provision). This means that a country cannot use domestic measures such as taxes, laws and regulations exclusively to benefit their own people.

While the FTA national treatment provision applies to both exports and imports, in adopting the GATT wording, the NAFTA provisions apply only to exports.9 **

In NAFTA, however, the national treatment principle is extended to investment and services and thus the provision of construction, engineering services, and investment, all of which are key to any large-scale water export development scheme, could not be impeded by a domestic government.10

In addition, both the FTA and NAFTA prevent a country from applying export taxes or restrictions on quantities exported unless similar taxes or restrictions are applied to domestic consumption. Based on a GATT provision, quantitative restrictions on exports are only permitted if there is a critical shortage of foodstuffs or other essentials, the restriction is necessary to protect human, animal or plant life or health, the restriction is necessary to conserve an unrenewable natural resource, or where there is an emergency situation.11

For these provisions that allow a restriction on export to come into play, the country making the restriction would have to be experiencing a major water shortage crisis. Even if this dire situation developed, the exporting country would have to cut domestic consumption by the same proportion as the exports are cut, the price paid in both countries would have to be equal, and under no circumstances could the "normal channel of supply" of a good be restricted.

As a result, FTA and NAFTA severely constrain regulations on water export, if not making them virtually impossible.

* Answering assertions that water is a "good" in the FTA and NAFTA, the Canadian government noted that the implementing legislation for both agreements did not apply to water. However, if the issue of water exports went to a trade dispute panel, the international treaty clause would have precedence over domestic legislation.7

** There is some uncertainty as to whether NAFTA may apply to exports. Annex 301.3 excludes the exports of raw logs and unprocessed fish, suggesting that exports are excluded. According to this argument, if NAFTA does not extend to exports, Mexico will not have the security of access to Canadian water, which the United States does have under FTA.

Implications for Control of Diversions and Water Conservation in the Great Lakes

The development of free trade in water has serious implications for attempts to prevent diversions from the Great Lakes and, as a result, for Great Lakes water levels. The premiers and governors through the Great Lakes Charter and the IJC under its powers in the Boundary Waters Treaty may attempt to control the export of water from the Great Lakes Basin. But the extent to which they can use these powers are now challengeable under NAFTA because their actions would favour their own residents to the disadvantage of people outside the Great Lakes Basin.

Under the Great Lakes Charter, one of the criteria that governments are supposed to consider when deciding on a request to divert water out of the Basin is whether the jurisdiction receiving the water has a serious water conservation programme. It is doubtful that this provision can be used under NAFTA.

The national treatment provisions in the trade agreements will discourage efficient uses of water in the Great Lakes. Under NAFTA and the FTA no party can impose a tax or duty on another party that it does not impose on itself. This will force domestic and export consumers to pay the same price for water.

Because Canadians and Americans do not pay the full cost of water, any trade from the Great Lakes Basin would subsidize the cost of water for the export consumer. Thus, until the full cost of water is charged to domestic consumers, the water will be a good deal for those who are importing it and will encourage wasteful usage.

Despite the fact that areas likely to import water would probably be facing a shortage of their own water resources, they will have little incentive to conserve.12 Why should they conserve if they do not have to rely on their local resources and can obtain cheap water from elsewhere? Those who have wasted their own water resources can continue such practices with water from distant ecosystems.

Given the important limitations on what types of regulations are permissible under free trade, government conservation programmes will be more difficult to achieve. If a government were to subsidize industry in order to promote water conservation, this could be seen as an unfair trade advantage and could be challenged by foreign competitors. If a country tried to use a policy such as domestic taxes or higher water prices to encourage conservation, foreign competitors would be at a competitive advantage and thus domestic producers would be upset. The threat of a challenge under trade agreements may well be enough to discourage governments from even trying to proceed with such programmes.13

Under NAFTA, when water is exported, the proportion of the total water output available for export must be maintained at a relatively constant rate. As a result, even if export customers had blatantly wasteful water usage, there is little that an exporting country could do to discourage this behaviour because any attempts by the exporting country to limit exports must be met by a proportional decrease in domestic consumption.

Once a NAFTA country allows a domestic corporation to divert water and deliver it elsewhere as a commodity, it must allow foreign corporations from other NAFTA countries to do the same. Thus, for example, if Canada allowed a Canadian firm to divert water from the Great Lakes, it would also be required to allow U.S. or Mexican firms to do the same.14

Dealing with Free Trade

If the residents of the Great Lakes Basin are to have any hope of protecting the waters of the Great Lakes under free trade, it is essential that they quickly develop and implement a powerful, effective water conservation program that is uniform throughout the Great Lakes. Only in this way could they hope to withstand a challenge under the free trade agreements if they try to impose restrictions on exports of water. Even then it may be difficult.

In addition, it is essential to prevent the export of water from the Great Lakes Basin because, under free trade, once we turn the tap on, we cannot turn it off.


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