Monterey Institute of International StudiesMaster of Arts in
Recommendations for the U.S.
Trade Representative to
Negotiate Trade Rules with Canada Governing Bulk Water Exports
Master of Arts
Monterey Institute of International Studies
Professor William F. Arrocha
Professor Geza Feketekuty
Professor Robert McCleery
Professor William Monning
JUNE 30, 2002
for her love and patience
Small-Scale Water Exports
Recent Export Proposals
Concerns of Canadian
Opponents to Bulk Water Exports
COMMERCIAL & ECONOMIC ANALYSIS
project was completed to fulfill the requirements for the Master of
Arts in Commercial Diplomacy at the Monterey Institute of International
the purpose of this project, I assume the role of a Deputy Commissioner
for the Bureau of Reclamation, U.S. Department of the Interior.
My task is to advise the U.S. Trade Representative on negotiations
with the Canadian Department of Foreign Affairs and International
Trade (DFAIT) in order to establish rules within the North American
Free Trade Agreement (NAFTA) that allow for the export of bulk, unprocessed
this project, I assume that a municipal water district on
Coast , Monterey Peninsula Water Management District (MPWMD), wishes to import
bulk water from a British Columbia
exports take a variety of forms, and, for the purposes of this project,
it is important to distinguish among them.
Water can be traded as either a raw (bulk) or value-added product.
Water traded as bottled or value-added water is covered by
international trade rules as an economic good.
The focus of this project will be on the trade in bulk, unprocessed
water across international borders for municipal use.
Bulk water exports - the removal and transfer
of water out of its basin of origin by man-made diversions (e.g.,
canals), tanker ships or trucks, and pipelines.
Crown land – the term used for 92% of the
province that is publicly owned.
– the name
Groundwater – subsurface water usually found
in an aquifer.
Groundwater overdrafting – The process of
taking more water out of an aquifer than naturally returns to it.
Hydrologic Cycle – the process in which
the flow of solar energy reaching the earth from the sun evaporates
fresh water into the atmosphere from the oceans and land surfaces
and redistributes it around the world.
Overdraft – the process of taking water
out of an aquifer at a rate higher than it takes to naturally replenish.
Reclaimed Water – waste water that has been
treated for municipal use.
Royalties – the granting of a right by a
sovereign to a corporation or individual to exploit specified resources.
Runoff – the difference between precipitation
onto land surfaces and evaporation from those surfaces.
California water district with
a severe water shortage has received a proposal from a
British Columbia company for
the short-term delivery of fresh water in bulk quantities for residential
use. The company has a
location in the province from where water could be shipped, i.e. at
a deep sheltered harbor near an abundant source of water.
However, under British Columbia
’s Water Protection Act, the provincial government’s
Water Management Branch
refuses to issue a license to the company if the water is to be exported
outside the province beyond a 20-liter container threshold.
Thus, the British Columbia
Water Protection Act precludes a beneficial transaction
for the export of bulk, unprocessed water that could bring immediate
relief to a California
water district in need of additional supplies.
’s water shortage has resulted in
serious ecological damage that threatens the long-term security of
the state’s population. The
situation will gradually become exasperated as water shortages are
expected to increase in the face of
’s growing population and climate
change impacts. The damage occurs when water agencies, unable to meet
demands until new alternative sources are allocated, temporarily increase
pumping of surface and ground water at unsustainable rates.
Despite being temporary, this unsustainable practice can permanently
ruin underground aquifers, contaminate drinking water, and place the
local ecology in peril. Water
exported in bulk is suitable for such purposes as it can provide temporary
relief during droughts and shortages before new sources, such as desalination,
Ambassador Robert B. Zoellick
United States Trade Representative
Keith Spain, Deputy Commissioner
Reclamation , U.S.
Department of the Interior
Options to Reduce Water Shortages in
California through Trade with
June 27, 2002
British Columbia ’s Water Protection Act
prohibits the issuance of licenses to remove water from the province
in containers larger than 20 liters. Consequently, this precludes
a viable option for water district throughout
California to immediately mitigate their
water shortages. British
Columbia’s Water Protection Act and similar legislation in
Canada’s other nine provinces exist because, the federal government
of Canada is concerned that as soon as one of the provinces allows
its water to be exported in bulk, the North American Free Trade Agreement
(NAFTA) rules on trade and investment will apply to subsequent exports
of bulk water. As result
of the NAFTA application on such exports, the government of
Canada would be restricted
in its jurisdiction to limit one of its natural resources.
The mission of the
Bureau of Reclamation is to manage water in the Western
United States in an environmentally and economically sound
manner. To accomplish
this mission, the Bureau of Reclamation urges the Office of the United
States Trade Representative to engage in negotiations with
Canada ’s Department
of Foreign Affairs and International Trade in order to amend
British Columbia ’s Water
Protection Act so that water may be exported in bulk for the purpose
of mitigating water shortages in California
California ’s chronic water shortages and
prolonged droughts have caused the
U.S. severe economic and environmental
damage. According to the
National Oceanic & Atmospheric Administration, the cost from
water loss after the 1987-1992 West Coast drought, including damages
to agriculture and environment, totaled $39 billion.
Since the West Coast drought, conservation efforts throughout
California have led
to significant reductions in water use per capita.
Nevertheless, some hydrologic regions of
California still lack a sufficient supply
of fresh water despite successful implementation of conservation measures.
In many cases, water districts that have not acquired new permanent
sources of water have allowed respective water agencies to strain
existing, local sources just to meet the demands in their jurisdiction.
This leads to unsustainable practices such as groundwater overdrafting
and removing water from rivers at rates higher than it takes to naturally
replenish. Such actions
can lead to irreversible damage to drinking water supplies, aquifers,
and the ecology. The magnitude
of shortages and potential droughts demonstrates the urgency to take
California ’s water shortage
will increase by 50% during average years (1.6 million acre-feet or
maf to 2.4 maf)
and 22% during drought years (5.1 maf to 6.2 maf).
The greatest increase in demand will be from urban users.
Furthermore, as the state’s population expands, more water
will be needed to preserve and restore California
’s ecosystems as well as maintain its natural resources.
Population growth in most of the state’s coastal counties,
the likely importers of water from British
Columbia due to geography, is expected to
increase 40-60 % in the next twenty years.
To successfully negotiate
an amendment to the Water Protection Act, it is important to
understand that the issue of water exports is very politicized in
. Few Canadian politicians
will publicly state that they support the export of water.
’s Environment Minister David Anderson and the British Columbia Premier
Gordon Campbell, two key figures for this issue, both oppose exporting
water in bulk.
Canada ’s most prominent
environmental non-governmental organizations, civil society groups,
and public sector employees oppose exporting water and have formed
a coalition named ‘Water Watch’.
The majority of First Nation Bands are also opposed, namely
those who live away from the coast or in drier regions and would not
stand to benefit from the export of water.
that a ban is necessary in order to prevent bulk, unprocessed water
from becoming a commodity and, consequently, subject to the North
American Free Trade Agreement (NAFTA) rules.
They oppose exposing it to the NAFTA rules, because water is
vital to human life and requires governmental regulation to protect
it from becoming exhaustible.
At worst, they fear that once trade in bulk water has begun,
will be obliged by its trade commitments to export water to parched
parts of the world at the expense of their people and environment.
From an economic standpoint, Canadians argue that exporting
water in bulk, as opposed to added-value bottled water, provides only
a one-time benefit to the economy with marginal investment in capital
and local human labor.
and Canadians have a long history of friendly relations on water matters,
as demonstrated by the success of the International Joint Commission
(IJC), which has become a model for managing cross-border resources.
Also, the Great Lakes Governors and Premiers have followed a set of
principles to guide them in developing, maintaining, and strengthening
the regional management regime for the Great
Due to the politically sensitive nature of exporting fresh water from
its watershed in bulk quantities, the Bureau of Reclamation recommends
that the USTR should not initiate negotiations with the Canadian DFAIT
concerning action to amend the Water Protection Act or any
of the other nine pieces of legislation banning bulk water exports.
The Bureau of Reclamation is confident that, given increasing
water shortages as well as a growing population in the American Southwest
and global warming, the price for new water in
will demand a premium
high enough to induce Canadian entrepreneurs to challenge the respective
provincial ban on bulk water exports.
A successful challenge will encourage a
provincial premier to seriously consider amending the respective bulk
water export legislation, e.g. in 2001, the Newfoundland Premier Roger
Grimes challenged that province’s bulk water export law following
a local businessman’s proposal.
After one of the provincial premiers publicly announces his
intention of amending or overturning the said legislation, the USTR
should seek an opportune moment to react and introduce a proposal
to the Canadian Prime Minister and DFAIT that allows NAFTA members
to export bulk water but also safeguards such exports from the NAFTA
trade and investment rules.
Due to the sensitivity of the issue, the
Bureau of Reclamation advises that the USTR should not hold talks
or negotiations with the Canadian Prime Minister or DFAIT solely on
bulk water exports; rather, the proposal on bulk water exports should
be attached to an agenda of other trade issues to be discussed between
the USTR and DFAIT and/or the Canadian Prime Minister and U.S. President.
The Bureau of Reclamation suggests that the proposal to the Canadian Department
of Foreign Affairs and International Trade should include maintaining
the current decision making standard (e.g. Environmental Impact
Assessment in British
that the provinces utilize for reviewing proposals to withdraw
water for exports which are presently allowed, i.e. less than the
respective threshold. For
current Environmental Impact Assessment already takes into
account environmental concerns and offers input from all parties who
have a stake in a proposal to withdraw water.
However, to safeguard potential bulk water
exports from the NAFTA rules on trade and investment, the USTR should
include in its proposal to the Canadian DFAIT an ‘escape-clause’ which
allows the possibility of interrupting trade flows in case of environmental
problems. Further, to
ensure that water removed for the purpose of export in bulk quantities
adheres to the principles of sustainable development, a cornerstone
of Environment Canada’s mission, the USTR may include in its proposal
the establishment of a fund for ecological preservation.
For example, a percentage from each export transaction will
be donated to the fund for various ecological projects in the respective
watershed from where the water was removed, i.e. wetlands preservation.
The Bureau of Reclamation
recommends that the USTR include in its proposal the following principles
which would be applied to each and every bulk water export proposal
in the future:
significant adverse individual or cumulative impacts to the quantity
or quality of the waters and water-dependent natural resources of
the water basin;
improvement to the water and water-dependent natural resources (e.g.
establishment of fund for wetlands preservation);
with the applicable provincial, territorial, federal, and international
laws and treaties;
adverse impact to the local drinking water supply, or water supply
for agricultural and industrial use;
that is exported is ‘surplus’ (additional water after all the water
needs for the local constituents, industries, agriculture, and environment
have been met);
must demonstrate that there are no practical alternatives to the
practices are in place in the region importing the water.
of California ’s
In avg yrs
Water Plan Update BULLETIN
160-98, November 1998.
red numbers highlighted in yellow in Table 1 show the difference between
California ’s forecasted
supplies and demands.
California ’s increasing population
is the driving force behind increasing water demands.
Urban water demand will increase by about 3.2 maf in average
years, and, as the state’s population expands, more water will be
needed to preserve and restore California
’s ecosystems as well as maintain its natural resources.
Increases in water use efficiency combined with reductions
in irrigated acreage, resulting from urban encroachment, are expected
to reduce average year agricultural water demand by about 2.3 maf
’s Department of Water
Resources has recommended the state’s water agencies a number of supply
augmentation and demand reduction options in order to reduce the shortage
expected in 2020.
However, even after the implementation of options to augment supply and
reduce demand, parts of California will still experience water shortages.
The table below shows shortages in
’s hydrologic regions by the year
2020 after the implementation of the recommended options.
in thousand acre-feet (taf)
THe California Water Plan Update BUlletin160-98, November
A Case Study:
Monterey , CA
Monterey Peninsula Water Management District (MPWMD) has a water shortage
of 9,000 afy following a state order for the Peninsula
’s major water purveyor, Cal-Am, to reduce its pumping from the
In 1995, the state declared that Cal-Am’s pumping from the
River exceeded its water right and was
damaging the river’s ecosystem.
To reduce and eventually eliminate the shortage, MPWMD advanced
two proposals, Plan A and Plan B, for new water supplies.
As the District’s voters have already rejected Plan A, the MPWMD will
proceed to implement Plan B.
A was a proposal from the MPWMD to build a dam on the
. In November
1995, the District’s voters rejected funding for the dam.
The primary reasons for rejecting the proposal are: (1.) the
dam would have contributed to additional population growth; (2.) it
would permanently alter flow regimes in the Carmel River in ways that
would harm its ecological balance; and (3.) the amounts charged for
water would be too high (22-49% higher).
MPWMD will proceed to implement Plan B, as proposed by the California
Public Utilities Commission (PUC): a collection of non-dam alternatives,
all of which will be used to eliminate the shortage.
The table below illustrates how much each alternative will
yield. (measured in acre-feet per year - afy).
the table shows, after conservation measures and Plan B possibilities
for new water have been employed, the region will have normal-year
surpluses of roughly 1,600 afy.
These surpluses would be used to:
storage in the Seaside aquifer; and
water for existing lots/
the MPWMD plans to proceed with Plan B, it has not yet put the plan
of building a desalination plant to a public vote. In the meantime,
Cal-Am has continued to divert water at unsustainable rates from the
River , leading to increased ecological
damage to the river basin.
To reduce the stress on the river and allocate additional supplies
until new sources of water have been developed, the MPWMD wishes to
import water from a British Columbia
B.C. firm has a location from which water could be captured, that
would otherwise be discharged into the Pacific Ocean
and transported to the Monterey
Peninsula by marine vessel.
pursuant to British Columbia
’s Water Protection Act, the Water Management Branch refuses
to issue a license to the B.C. company if it will export the water
outside the province in containers larger than 20 liters.