A Legal Opinion Concerning Water Export Controls and Canadian Obligations Under NAFTA and the WTO
Occasional Paper series, Issue 25:01. An abridged version of a legal opinion prepared for the Council of Canadians, which addresses five questions concerning the potential for conflict between Canadian efforts to restrict the export of water, and the commitments Canada has made under NAFTA and the WTO. It also considers the most appropriate course of action for Canada to ensure that our water resources are adequately protected from unconstrained export demands.
Recent proposals to export Canadian water, and an investor-state suit under NAFTA concerning BC’s water export control measures, have revived Canadian concerns about the loss of public control over this vital resource. In response, the federal government has announced several initiatives including the negotiation of a federal provincial accord to ban bulk water exports, and strengthening the Boundary Waters Treaty Act. However, its strategy appears to have been determined by a reluctance to confront the reality that under NAFTA and WTO rules, water export controls are prohibited. Moreover, under NAFTA, Canada is also precluded from denying US investors and service providers the same access to Canadian water it allows Canadian companies, communities, and residents.
But instead of seeking amendments to these agreements, Canada is attempting to finesse these trade constraints by taking the approach that water in its "natural state" is not a tradable "good" and therefore not subject to international trade rules. There are several reasons to doubt the validity of this assertion. For instance under both US and international law, water in its natural state is considered a commercial good. Moreover a very large portion of Canadian water resources would already have to be considered as having entered into commerce, because it is being used to generate power, irrigate crops, support industry and service individual consumers.
Furthermore, by focusing attention on water as a tradeable commodity, the federal government is ignoring the fact that under NAFTA, water is both an investment and service even if it is not considered to be a "good". Indeed Canada’s most onerous trade obligations are found in NAFTA’s investment chapter, not in the trade- in-goods provisions of either NAFTA or the WTO. Moreover, by putting its powerful enforcement machinery at the disposal of countless foreign investors, NAFTA leaves Canadian water resources, and measures established to protect them, entirely vulnerable to foreign investor claims.
Unfortunately, rather than recognize and confront these problems directly, the federal government seems to be hoping that if it ignores them, they’ll go away. This is particularly problematic because of the consequences of under-estimating the effect of NAFTA rules, not the least of which is the fact that an error would be difficult, if not impossible, to reverse. This is because the National Treatment and proportional sharing rules of NAFTA make it virtually impossible for Canada to restrict water exports once they are underway.
Given the confidence with which Canada asserts it position, it is also only fair to point out its recent and dismal track record in defending Canadian cultural, and research and development programs from trade challenges. As you many will know, in spite of assurances very much like the ones it now offers concerning water export controls, Canada recently lost two important WTO cases concerning important cultural and technology programs.
Finally by way of introduction, we should note one important qualification to our opinion. This has to do with the difficulty of predicting the outcome of trade disputes and investor claims concerning Canadian water protection measures. Many of the international trade, investment and services provisions of NAFTA and the World Trade Organization that might give rise to such disputes and claims are unprecedented and have yet to be considered by either trade tribunals or the courts. Moreover, the water export control measures that have been adopted by some provinces, or which are now being considered by other Canadian governments, are also innovative and similarly untested.
Accordingly, it is extremely difficult to anticipate the views of trade dispute panels or tribunals that will be called upon to address the novel issues that are certain to arise in a trade challenge or investor claim concerning water export control measures. Therefore, given the seriousness of underestimating the risk of adverse rulings, it is incumbent on the federal government to exercise considerable prudence to avoid putting Canadian water resources entirely at the mercy of international market forces.