April 2004<\/p>\n
Wendy R. Holm, P.Ag.<\/p>\n
The following are the most frequently cited reasons why Canadians shouldn’t worry about our water resources, and why these explanations, quite literally, don’t hold water.<\/p>\n
To date, the majority of public discussion has focused on “exports” – but as the MYTH #1 explains, the problems go well beyond exports.\u00a0 Under NAFTA, American companies using water in Canada for domestic purposes have superior rights than do Canadians.<\/p>\n
MYTH #1:\u00a0 As long as we can prohibit exports, what’s the problem?<\/strong> For reasons explained in the rest of this paper, so long as water is part of FTA and NAFTA, we cannot prohibit exports.\u00a0 But even more importantly, exports are only one dimension of the water\/trade dilemma.<\/p>\n Although much of the public discussion (and hence the rebuttals presented in this paper) still relate to the water\/trade issue as an export concern, the problem goes well beyond exports.\u00a0 Any time an American company (or a firm with American investors) uses water in Canada, that water use is covered by NAFTA. Whether Canada’s water is being used domestically by an oil and gas company (water flooding:\u00a0 pumping water into the ground to extract oil and gas), a manufacturer, a hydro-electric company or a private-public partnership managing municipal supplies, if that company is American or has American investors, their rights to use that water are vested in NAFTA and are clearly superior to the rights of Canadians.\u00a0 And if those rights are denied, they have a right to compensation under NAFTA Chapter 11.<\/p>\n MYTH #2: Exporting one drop of water puts all of Canada\u2019s water at risk<\/strong>\u2026 The Myth of the First Drop arose from a misinterpretation of the statement by US Trade Representative Mickey Kantor (October 28, 1993):<\/p>\n “The current U.S. \u2013 Canada Free Trade Agreement (CFTA) and the NAFTA are silent on the issue of Interbasin transfers of water.\u00a0 Interbasin transfers of water in which water is not traded as a good are not governed by either trade agreement.\u00a0 However under the CFTA and the NAFTA, when water is traded as a good, all provisions of the agreements governing trade in goods apply, including National Treatment provisions (Article 301).\u201d.<\/em><\/p>\n<\/blockquote>\n Kantor\u2019s \u201cwhen\u201d (meaning \u201ceach and every time\u201d) was taken to mean \u201conce\u201d and the myth of the \u201ctrigger\u201d was born:<\/p>\n \u201c\u2026once one drop of water is exported, all of Canada\u2019s water will automatically be considered a good of trade\u2026\u201d<\/em><\/p>\n<\/blockquote>\n \u00a0\u201c\u2026as long as we don\u2019t call water a good it won\u2019t be one\u2026\u201d<\/em> and<\/p>\n<\/blockquote>\n \u201c…if exporting one drop puts all of Canada\u2019s water at risk, banning exports will save it\u2026.\u201d<\/em><\/p>\n<\/blockquote>\n Water is already a good of trade.\u00a0 BC sells bulk, non-Treaty water out of the Columbia to the US every year as part of a long-term contract entered into over a decade ago.\u00a0 The Washington State town of Point Roberts is supplied by Canadian water.\u00a0 Numerous private sector firms have their profit centres tied to the sale of bottled Canadian water, much of which is shipped south.\u00a0 Large industrial users such as the oil and gas industry (for water flooding \u2013 accountable for up to 60% of groundwater withdrawals in Alberta’s oil patch), manufacturers (e.g. pulp mills) and ski hill operators (for snow-making) rely on licenses to use water (or operate ungoverned by provincial statute).<\/p>\n Under NAFTA, Americans have water access rights that Canadian farmers – and Canadian communities – can only dream about. The first water export is not a trigger – that trigger has already been pulled.<\/p>\n Exports from one province would make that province more vulnerable because under NAFTA\u2019s investment chapter, US companies have a right to best-in-province treatment. (This does not in and of itself extend to best-in-nation.)<\/p>\n MYTH #3\u00a0 Canada can\u2019t ban exports because that would automatically make water a \u201cgood\u201d under the NAFTA, triggering compensation claims<\/strong>. Canada can\u2019t ban exports because Canada has relinquished the right to impose quantitative restrictions on HCCS 22.01 (water) under the NAFTA.\u00a0 Placing a temporary moratorium on exports until a NAFTA exemption for water is secured will minimize the number of compensation claims arising from firms engaged in water exports. It will not mitigate claims from US-owned, Canadian-based industrial water users such as the oil patch. Domestically, a federal ban on water exports raises constitutional issues with the provinces because under the Canadian Constitution Act, the management of water, including for export, falls under provincial jurisdiction.<\/p>\n MYTH #4\u00a0\u00a0\u00a0 The Farmers Resolution is about banning exports.<\/strong> No.\u00a0 It is about retaining the sovereign right to make decisions concerning Canada\u2019s water resource in the interests, first and foremost, of Canadians and Canadian communities. To do this, water must FIRST be exempted from the goods, services and investment provisions of the NAFTA (and the FTA). The decision to export water or not to export water falls to the democratic processes of individual provinces. But any foray by a province in the direction of water exports is policy suicide so long as water is included in the NAFTA.<\/p>\n MYTH 5.\u00a0\u00a0 There is nothing in the NAFTA that could force Canada to start exporting water to the US. (\u201cAmericans can\u2019t turn on the tap.\u201d)<\/strong>\u00a0 There are a number of \u201cturn on the tap\u201d scenarios.\u00a0 Irrigation is a clear one.\u00a0 If Canada is contemplating a project that the Americans want to participate in, our choice may well be inclusion or compensation. Consider the example of an irrigation project being undertaken to bring the southern area of a Prairie province under irrigation.\u00a0 American farmers \u2013 armed with expert reports – would be perfectly within their rights to argue: \u201cWater is a good managed by the province on behalf of Canada\u2019s farmers. American farmers have a right to National Treatment in the management of that resource. Here is the analysis that justifies a project capable of also meeting the needs of American farmers, here are the reports showing little environmental consequence, here is the money to pay for the upscaling; American farmers want to share in the irrigation benefits provided to Canadian farmers.\u00a0 The Project cannot be undertaken solely for the benefit of Canadian farmers if American farmers wish also to participate.\u201d<\/p>\n And its not as if the tap is not already open\u2026\u00a0 There are several incidences of Canada\u2019s ongoing provision of water to the US.\u00a0 The border town Pt. Roberts is one example, as are large scale, ongoing bulk water purchases from the Columbia River system above and beyond the US entitlement under the Columbia Treaty.<\/p>\n Consider further the fact that water use \u2013 where it is regulated – is secured through the issuance of a license by the Crown conferring rights to withdraw a given volume of water from a given source.\u00a0\u00a0 As water becomes an increasingly scarce commodity (and as society begins to adopt appropriate conservation technologies) profitability associated with water sales will drive demand for licenses and exports.\u00a0\u00a0 Under the NAFTA, any attempt by a province to restrict the use of a license to block benefits to American buyers would clearly violate National Treatment provisions.\u00a0\u00a0 (National Treatment means the Crown cannot restrict the benefits of water licenses to only Canadians. The difference between a license to put water on a field and a license to put water in a tanker is moot.)\u00a0 The choice?\u00a0 Capitulation or Compensation under a Chapter 11 challenge for lost profits.<\/p>\n MOST IMPORTANTLY, policy concerns arising from water\u2019s inclusion in the NAFTA are not limited to situations of water export; American firms doing business in Canada have NAFTA-based rights to water which are superior to the rights of Canadians operating along side of them, including farmers. For example, water flooding: the use of water in the oil patch to extract the last 20% of oil and gas reserves.<\/p>\n MYTH #6 There is nothing in the NAFTA that could force a province to increase the volume of export beyond the level agreed<\/strong>. <\/b>It will be the profit expectations of the private sector that fuel water market development. The essence of the NAFTA is that the State cannot intervene in the business of markets.\u00a0 The government does not \u201cown\u201d the water, Canadians do; provincial governments simply manage the resource in the interests of Canadians.\u00a0 The profit incentives of the private sector (water entrepreneurs) and the refusal to accept limits to growth (global demand) will bid up offerings.\u00a0 Water licenses will increase in value proportionate to profit opportunities.<\/p>\n MYTH #7 The concept of National Treatment applies to imports not to exports. <\/strong>Once upon a time but not anymore. FTA changed this back in 1987 when it substituted the word \u201ctrade\u201d for \u201cimports\u201d when importing in GATT definition of National Treatment.\u00a0 The FTA still stands.\u00a0 Further, NAFTA imports (explicitly includes) Article 711 of FTA, which includes water as an agricultural good.\u00a0\u00a0 All international statements to date (e.g. Kantor) acknowledge that National Treatment rights extend to water.<\/p>\n MYTH #8 Canada made explicit amendments to the NAFTA legislation prohibiting the bulk export of water<\/strong>. In the days leading up to the 1988 election, Canada introduced amendments to our domestic enabling legislation to ban bulk water export.\u00a0 The trouble is, Canada\u2019s domestic enabling legislation does nothing to change the terms of the international agreement.\u00a0\u00a0 After signing the FTA and the NAFTA, each Party was obliged to go home and enact an omnibus bill that gives full force and effect to the terms and conditions agreed to at the international table.\u00a0 Neither side vets or approves these domestic bills.\u00a0\u00a0 It is the FTA and the NAFTA that prevail, not Canada\u2019s domestic enabling legislation.<\/p>\n MYTH #9 Recent changes Canada made to the International Boundary Waters Treaty Act prohibit bulk exports of water. <\/strong>The Act applies only to \u201cboundary waters\u201d \u2013 the Great Lakes, Lake of the Woods and portions of the St Lawrence, Upper St John and St. Croix rivers.\u00a0 It does not apply to waters west of the Ontario border, in Quebec and much of the Maritimes. The amendments to the Act do not ban bulk removals of water from drainage basins but rather restrict removals to licensed withdrawals at the pleasure of the Minister of DFAIT, who gets to define what is meant by \u201cdrainage basins\u201d.\u00a0 (The last time the feds attempted this definition \u2014 the failed Voluntary Provincial Accord \u2014 they stated that Canada has 5 drainage basins, the Atlantic, the Pacific, the Arctic, James Bay and the Gulf of Mexico.)<\/p>\n MYTH #10 The leaders of Canada, the United States and Mexico signed a joint declaration that water in free flowing lakes and rivers is not the subject of the NAFTA.\u00a0<\/strong> 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 NAFTA.\u00a0 And nothing in the NAFTA would obligate any NAFTA Party to either exploit its water for commercial use, or to begin exporting water in any form.\u00a0 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.<\/em><\/p>\n<\/blockquote>\n Once there is human intervention in the flow of a river to provide water when and in the quantity needed, a \u201cgood\u201d is created. And there is plenty in the way water licenses are issued that will prevent provinces from discriminating on potential water uses that will benefit Americans. It will be the market that will pressure private entrepreneurs to seek water export licenses,<\/p>\n MYTH #11\u00a0\u00a0 If Canada does decide at some point to allow the export of water it must make sure that it has a binding legal agreement that allows it to reduce or cease the supply in the future.<\/strong>\u00a0 The point is, NAFTA is the binding agreement and NAFTA does not allow such flexibility.<\/p>\n MYTH #12\u00a0 The Americans will never allow it (exempting water from the NAFTA).<\/strong> The problem to date has been to raise sufficient political will to get our politicians to stand up to the Americans and say \u201chere is the rock, here is the hard place.\u00a0 It\u2019s an error and the people of Canada want it fixed.\u201d America does this all the time. Every contract has an out clause and the US frequently threatens to walk if their interests are compromised.\u00a0 Well, in this case, Canada has the goodies on the table. We just need the political will to stand up and speak out. With Canada\u2019s farmers stepping forward in leadership on this Canada\u2019s consumers showing strong and visible support, the pressure to \u201cgo through the gate\u201d and get \u2018er done must be considered to prevail. Else we do not live in a democracy.<\/p>\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" April 2004<\/p>\n Wendy R. Holm, P.Ag.<\/p>\n\n
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Water in free flowing lakes and rivers is not at issue. The joint statement signed by Chr\u00e9tien, Clinton and Salinas (below) was a) not binding on NAFTA and b) expresses the same point made by Kantor \u2013 once water enters into commerce and becomes a good of trade, all provisions of the NAFTA apply:<\/p>\n\n
WATER AND NAFTA: A Dozen Reasons Not to Worry and Why They Won’t Hold Water<\/h4>\n