III. Legal Overview  

Classification of Water under the Harmonized System (HS)

The Harmonized System (HS) is an international six-digit commodity classification developed under the auspices of the Customs Cooperation Council. Both Canada and the United States have converted their tariff schedules to conform to the HS.  All potential commodities are defined and described in the HS.  The HS includes water of all kinds (other than seawater, which is described in a separate heading) under section 2201.   

            2201.90.0000: Other waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavored; ice and snow.  

The existence of an HTS number means that the U.S. Customs Service and Canada Customs and Revenue Agency can process shipments of fresh water.  
 

Canada-U.S. Free Trade Agreement (CUSFTA)

On January 2, 1988 , Canada and the United States signed the Canada-U.S. Free Trade Agreement (CUSFTA).  During the drafting stage of the CUSFTA, there was discussion among the Canadian drafters on whether to include a specific provision exempting water from the agreement.  Water was a concern for Canadians in light of earlier large-scale proposals from both the U.S. and Canadian politicians to divert entire rivers southward to the United States . Some Canadians argued that since water was listed in the U.S. and Canadian tariff schedules it must be a “good” and therefore subject to the CUSFTA rules.  The final consensus was that it was better not to have such a provision since the inclusion of an exemption for an issue that had nothing to do with international trade – water diversion projects are not part of international trade agreements – would raise legal questions about other non-trade issues.[1]  

North American Free Trade Agreement (NAFTA)  

On December 17, 1992 , Prime Minister Mulroney of Canada , United States President Bush, and President Salinas of Mexico signed the North American Free Trade Agreement (NAFTA).  NAFTA incorporates many provisions of both the General Agreement on Trade and Tariffs (GATT) and the CUSFTA.   

On December 2, 1993 , approximately one month before NAFTA came into force, the governments of Canada , Mexico , and the United States , at the request of Prime Minister Chretien, issued the following unsigned joint statement:  

‘The NAFTA creates no rights to the natural water resources of any Party to the Agreement.  Unless water, in any form, has entered into commerce and becomes a good or product, it is not covered by the provisions of any trade agreement including the NAFTA. And nothing in the NAFTA would oblige any NAFTA Party to either exploit its water for commercial use, or to begin exporting 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, is not traded, and therefore is not and never has been subject to the terms of any trade agreement.  

International rights and obligations respecting water in its natural state are contained in separate treaties and agreements negotiated for that purpose.  Examples are the United States-Canada Boundary Waters Treaty of 1909 and the 1944 Boundary Waters Treaty between Mexico and the United States . ’  

Although this statement may not be legally binding, it is the only statement released to date from the Parties on whether water is considered a good by the NAFTA.

NAFTA & GATT Issues Pertaining to Bulk Water Exports  

Contrary to the reassurances of federal politicians, Canadian opponents fear that Canada ’s water resources are not protected under the terms of the NAFTA.  One Canadian NGO, Water Watch, has called on the federal government to open negotiations to exempt water from NAFTA or, preferably, ‘sink the deal’.[2]  In their campaign brochures to stop water exports, Water Watch argues that the following NAFTA rules would jeopardize Canada ’s control of its fresh water once it becomes a commodity:

• National Treatment for Investors & Investments (NAFTA Article 1102)

Water Watch fears that trading water would not be limited to Canadian companies nor can the federal government use export taxes as a way to embargo bulk water exports. Thus, Water Watch argues, NAFTA limits the ability of the Canadian federal government to regulate this natural resource.  

• Expropriation and Compensation (NAFTA Article 1110)

Water Watch fears that if bulk water exports are allowed, Canada will have to pay billions in compensation to U.S. or Mexican investors if Canada ever wanted to stop the trade flow.  Water Watch cites the Sun Belt case as a prime example.  

• Proportionality Provision (NAFTA Article 315)

According to the proportionality provision in NAFTA, once trade in bulk water has begun, at least the amount of water that has been authorized for trade cannot be withdrawn from trade by an action of the country of origin.  Canadian opponents to water exports fear that the U.S. will be entitled to a proportional share of Canadian water resources in perpetuity once exports get underway.  In fact, one of Water Watch’s campaign slogans is ‘once water exports have started, the tap can never be turned off’.  

• Import and Export Restrictions (NAFTA Article 309 and GATT XI)

Pursuant to NAFTA Article 309 and GATT XI, no Party may adopt or maintain any prohibition or restriction on its exports, with exceptions.  Water Watch fears that once a province allows bulk water to be exported, the province will be unable to change its policy to restrict or prohibit future exports.

IV. Small-Scale Water Exports from Canada

Cross-Border Movement of Water by Pipeline and Bulk Export of Water to Non-Canadian Ships (1980s-Present)  

Since the 1980s, water has moved by pipeline from Canada to the U.S.   They all involve cooperative arrangements for municipal water supply, yet it is still unclear whether these would be considered exports under the NAFTA.  The arrangements are carried out by the following neighboring Canadian and American communities:

• St. Stephen , New Brunswick to Calais , Maine

• Coutts , Alberta to Sweetgrass , Montana

• Vancouver , British Columbia to Port Roberts, Washington

• Neche , North Dakota to Gretna and Altona , Manitoba

The amount of water involved in the Vancouver , B.C. to Port Roberts, WA pipeline transfer is 730 afy.  

Canada Sells Water to Foreign Ships  

One form of bulk water export that has been occurring for a long time in Canada is the sale of water to foreign ships calling at Canadian ports.  Crewmembers buy the water for use on-board.  In the province of Newfoundland , for example, the city of St. John’s provides most of the water sold to vessels in port.  The amount of water sold is unknown since it is not metered.  Payments to the city of St. John’s for water are according to the hours the vessel is connected to the loading hose.

V. Recent Export Proposals from Canada

In the 1990s, three different firms (two Canadian: Nova Group and McCurdy Group, one American: Sun Belt Water Inc.) applied or obtained licenses from the provincial governments of British Columbia, Ontario, and Newfoundland to remove water in bulk for export by tanker ship to overseas markets.  Like the transborder water supplies mentioned earlier, the volume of water in two of the three export proposals in the 1990s was an insignificant amount and would have involved no serious environmental disruption to the water source.   

However, one of the proposals (Nova Group) involved removing water from one of the Great Lakes , Lake Superior .  The problem is that only 1% of the water in the Great Lakes is renewable every year through precipitation and rivers that feed and drain into the Lakes.  The other 99% is fossil water: water left over from the melting of glaciers of the Pleistocene epoch about 12,000 years ago.  The proposal created public outcry on both sides of the border, and the license to remove the water was revoked.  This proposal became the vehicle for Canadian opponents of bulk water exports to eventually persuade the federal government to take action.  
 

Sun Belt Water Inc.[3]  

In 1991, at the peak of the 5-year ‘West Coast Drought’, the Sun Belt – Snowcap joint venture won a 5-year contract to deliver up to 5,000 afy of fresh water to the city of Goleta , California , for residential use.  Days later, the government of British Columbia imposed a moratorium on bulk water exports by marine vessel.  Consequently, no water was ever exported to Goleta , and the city followed its second option and joined the nearby city of Santa Barbara in building a desalination plant.   

After filing a civil action in the provincial Superior Court against the government of British Columbia , the government awarded Snowcap a cash settlement but failed to negotiate a settlement with Sun Belt.   Consequently, in 1998, Sun Belt filed a Notice of Intent to Submit a Claim for Arbitration under Chapter 11, Article 1119 of the NAFTA.  Sun Belt claims that the treatment provided to Sun Belt by the government of British Columbia and the provincial court system violated NAFTA articles 1102 (national treatment for investors and their investments), 1103 (most favored nation treatment), 1104 (standard of treatment), and 1105 (minimum standard of treatment).  Sun Belt is seeking $10.5 billion.  The case is still pending.
   

Nova Group  

In 1998, the government of Ontario , then under Conservative Party Premier Mike Harris, issued a five-year permit to Nova Group, an Ontario company that planned to take 600 million liters of water per year from Lake Superior .  The water was to be loaded in bulk container ships and sent to undisclosed buyers in Asia .  However, the permit was revoked that same year following a storm of protests to stop the export of water from the Great Lakes .  The Nova incident triggered the federal government to pursue its strategy to prohibit bulk water removals. Ontario has since endorsed the national accord that supports prohibition of bulk water removals.
   

McCurdy Group  

In June 2001, Newfoundland and Labrador Premier Roger Grimes (Liberal Party) expressed his interest in challenging the province’s legislation prohibiting the removal of bulk water.  The legislation had been put in place two years earlier by the province’s former premier, Brian Tobin (Liberal Party). Premier Grimes endorsed a plan developed the Newfoundland construction company McCurdy Group to skim 500,000 cubic meters of water from Gisborne Lake, Nfld, each week and ship it in bottles and bulk container ships to markets in Canada and the U.S.  According to the McCurdy Group, draining 500,000 cubic meters of water would lower the lake an inch, however the lake would be naturally replenished from natural springs within 10 hours.   

The McCurdy Group planned to build a 20-km pipeline, a docking facility and a bottling plant in Grand LePierre, a remote Newfoundland community with a population of 350 and unemployment rate of 75%.[4]  Total expenditures for the project were estimated at $35 million (Canadian Dollars).  The plan received full support from Premier Grimes and Grand LePierre Mayor Edward Fizzard. According to Grimes, the McCurdy project could generate royalties worth $20 million per month.  Grimes promised to use the money the government would receive from the export to provide free tuition for Newfoundland and Labrador students.[5]  

By October 2001, amidst intense political pressure to refrain from exporting water, Grimes recalled his support for the project.  

VI. Concerns of Canadian Opponents to Bulk Water Exports  

A Canadian NGO Spearheads the Anti-Bulk Water Export Campaign  

In Canada , there exists a strong opposition to exporting bulk water. The opposition is spearheaded by a loud and powerful coalition of Canadian non-governmental organizations (NGOs), named Water Watch. Water Watch serves as the public voice for opponents to bulk water exports. The public debate in Canada on exporting water is often very emotional.  Aside from the previously mentioned legal issues and trade obligations, the underlying concerns for Water Watch are:

• Commodification[6] of water

• Large scale out-of-basin water transfers

• Climate Change

• National security

• Trade in bulk water offers minimum economic benefit to local economy

• National identity

Commodification of water

Water Watch believes that water requires a certain amount of government regulation and stakeholder participation.  Allowing water to be exported means treating water as a commodity.  As soon as water becomes a commodity under NAFTA, Water Watch fears this might lead to the requirement that their resources be tapped to provide fresh water for the rest of the world at the expense of their own people and environment.[7]   

Another concern is that if water becomes a commodity, it becomes an economic good.  However, water also holds some significant benefits and costs – namely cultural and ecological – which cannot be quantified through cost/benefit analysis or other quantitative tools.  For example, the ecosystem services provided by healthy rivers and coastal habitat demonstrates an ecological value of water.  A creek that serves as a private bathing place for First Nations ceremonies or initiation rites demonstrates a cultural value of water.   

Thus, Water Watch and other opponents to bulk water exports fear that exporting water leads to the treatment of water as an economic good without considering its social value. Moreover, if treated as an economic good, Water Watch argues that bulk water exports would reach only a few who could afford it, encourage wasteful and unsustainable practices, and discourage much needed global solutions to water shortages. 

Large scale out-of-basin water transfers

Although the Aral Sea is located in Central Asia , far from Canada , the figure above nonetheless illustrates how unsustainable water transfers can have a significant impact on watersheds in a short period of time.  Subsidized cotton production in Central Asia expanded so much that the inflows of water to the Aral Sea were cut off by irrigation demands, leading to a shrinking of the sea, the extinction of endemic species, and adverse impacts on human health. 

Large-scale withdrawals that significantly reduce water quantity of a basin may alter the vegetation, terrestrial biota, nutrient transport between ecosystems, recreational and transportation opportunities, and aesthetic benefits.  It can also impact the regional climate and weather services and cause local health problems.  Opponents to bulk water exports fear that private markets or trading systems will not consider the benefits of fresh water in situ, resulting in unsustainable water withdrawals as what happened to the Aral Sea .

Climate Change

Climate change is expected to have a significant impact in British Columbia , including increased flood dangers in some areas, drought in others, and widespread disruption to forests, fisheries and wildlife.  Summer droughts along the south coast and southern interior will mean decreased stream flow in those areas, putting fish survival at risk, and reducing water supplies in the dry summer season when irrigation and domestic water use is greatest.

National security

The bulk removal of water from a watershed is a challenge to the long-term security of Canada ’s water resources.  Fresh water is integral to all ecological and social activities, including the production of food and energy, transportation, waste disposal, industrial development, and human health.  Further, water issues are diverse, ranging from pollution to the impacts of floods and droughts and, in the long term, effects of climate change on water availability and distribution.  For these reason, Water Watch believes that the government should maintain control over its fresh water resources and prevent water from becoming commodified.
   

Minimum Economic Benefit  
Another concern of Canadian opponents to bulk water exports is that the trade in bulk water does not involve economic inputs or labor-intensive activities.  Although investment is needed to acquire the water, little else is needed. Compared to the value-added bottled water industry, bulk water exports offer less benefit to the local economy.
   

National Identity  

Water evokes special feelings among Canadians.  Many Canadians attach special heritage value to their water resources.  Many think of Canada as a land of great rivers, lakes and snow-covered wilderness.  Water has shaped the way of life for many Canadians, most conspicuously First Nations, but also a high proportion of the population whose choice of work, recreation and home is influenced by water bodies and the amenities they offer.     

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