from the booklet

Blue Gold

The global water crisis and the commodification of the world's water supply

A Special Report issued by the International Forum on Globalization (IFG)

by Maude Barlow
National Chairperson, Council of Canadians
Chair, International Forum on Globalization (IFG) Committee
on the Globalization of Water



Chapter 3 of NAFTA establishes obligations regarding the trade in goods. Using the General Agreement on Tariffs and Trade (GATT) definition of a "good" which clearly lists "waters, including natural or artificial waters and aerated waters," NAFTA adds in an explanatory note that "ordinary natural water of all kinds (other than sea water)" is included. Chapter 12 sets out a comprehensive regime to govern trade and investment in the service sector, including water services. Chapter 11 establishes an extensive array of investor rights, including investors in water goods and water services. Thus, under NAFTA, water is a commercial good, a service and an investment.

There are three key provisions of NAFTA that place water at risk. The first is "National Treatment" whereby no country can "discriminate" in favor of its own private sector in the commercial use of its water resources. For example, if a municipality privatizes its water delivery service, it would be obliged to permit competitive bids from water service corporations of the other NAFTA countries. Similarly, once a permit is granted to a domestic company to export water, the corporations of the other NAFTA partner countries would have the same right of establishment to the commercial use of that country's waters as its domestic companies. If a Canadian company, for instance, gained the right to export Canadian water, American transnationals would have the right to help themselves to as much Canadian water as they wished.

The second key provision is Article 3 15, the "proportionality" clause, under which a government of a NAFTA country cannot reduce or restrict the export of a resource to another NAFTA country once the export flow has been established. Article 309 states that "no party may adopt or maintain any prohibition or restriction on the exportation or sell for export of any good destined for the territory of another party" and this provision includes a ban on export taxes. This means that if the export of water were to commence between NAFTA countries, the tap couldn't be turned off. Exports of water would be guaranteed to the level they had acquired over the preceding 36 months; the more water exported, the more water required to be exported. Even if new evidence were found that massive movements of water were harmful to the environment, these requirements would remain in place.

The third provision is "Investor State" (Chapter 11 ) whereby a corporation of a NAFTA country can sue the government of another NAFTA country for cash compensation if the company is refused its national treatment rights or if that country implements legislation that "expropriates" the company's future profit. Only a "foreign-based" company can sue using Chapter t 1; domestic companies have to abide by national law and cannot sue their own government for compensation under NAFTA. As a result of this provision, there has been a flurry of investor-state suits in North America challenging environmental, health and safety legislation in the three countries.

Chapter 11 could specifically apply to water in two ways. If any NAFTA country, state or province tried to limit the delivery of water services or the commercial export of its water to its domestic sector, corporations in the other countries would have the right to financial compensation for "discrimination." In fact, the very act of a government attempt to ban bulk water exports automatically makes water a commercial tradable commodity, triggering NAFTA. The very same law that excluded them would trigger foreign investors' NAFTA rights, and they could demand financial compensation for lost opportunities. For now, as long as water is Iying in its natural state, it is safe from trade regulations.

As well, under Chapter 11, changes to government policy could trigger a challenge, as foreign companies have the advantage under this ruling. For example, if the state of Alaska were to reverse its policy and ban water exports or change the law so that only Alaskan companies could export water in order to keep jobs at home, the U.S. government would be vulnerable to a huge investor-state challenge. Global Water Corp. of British Columbia is poised to make a great deal of money from its contract with Alaska. Because it is a Canadian and not an American company, Global would have rights to sue not accorded to U.S. domestic companies in the same situation.

The first NAFTA Chapter t 1 case on water was filed in the fall of t998. Sun Belt Water Inc. of Santa Barbara, California, sued the Canadian government because the company lost a contract to export water to California when the Canadian province of British Columbia banned the export of bulk water in t991. Sun Belt alleges that the ban contravenes NAFTA and is seeking $10 billion in damages. "Because of NAFTA, we are now stakeholders in the national water policy in Canada," declared Sun Belt's CEO Jack Lindsay.

All of these corporate-friendly provisions-and more-are contained in the FTAA, currently being negotiated by 34 countries of the Americas and the Caribbean. Although it is based on the NAFTA model, the FTAA goes far beyond NAFTA in its scope and power.

The FTAA, as it now stands, would introduce into the Western Hemisphere comprehensive new provisions on services including NAFTAs Chapter 11, that would create a trade powerhouse with sweeping new authority over every aspect of life in Canada, the Americas and the Caribbean (except Cuba). The FTM would give unequaled new rights to the transnational corporations of the hemisphere to compete for and even challenge every publicly funded service of its governments, including water and environmental protection.

As well, the proposed FTAA contains new provisions on competition policy, government procurement, market access and dispute settlement that, together with the inclusion of services and investment, could remove the ability of all the governments of the Americas to create or maintain laws, standards and regulations to protect the health, safety and well-being of their citizens and the environment they share. Also, the FTAA negotiators appear to have chosen to emulate the WTO rather than NAFTA in key areas of standard setting and dispute settlement, where the WTO rules are tougher.


NAFTA is not the only existing trade agreement that compromises water. The WTO was created in 1995 at the conclusion of the Uruguay Round of the GATT in order to enforce GATT and other agreements. The WTO's 134 member nations work toward eliminating all remaining tariff and non-tariff barriers in order to promote the movement of capital, goods and services across nation-state borders. The WTO contains no minimum standards to protect labor rights, social programs, the environment or natural resources.

The essence of the WTO is deregulation; it is intended to render it more difficult for nations to place safeguards or conditions on exportable products, including natural resources. The market is given preemptive rights to determine the course of resource development, and nation-state rules are not to be trade- or profit-inhibiting. Tough environmental laws can be disputed by member countries at the WTO as being non-tariff barriers to trade. Therefore, domestic standards that are lower than the global average are protected; those that are higher become clear targets for dispute. Once a WTO dispute panel issues a ruling, worldwide conformity is required. A country is obliged to harmonize its laws, face the prospect of trade sanctions or pay direct compensation.

The WTO's authority includes water; it incorporates the same GATT definition of a "good" as does NAFTA. Although the WTO does not yet include an investor-state clause, in some ways it is more of a danger to the protection of water than NAFTA. This is because, unlike any other global institution, the WTO has both the legislative and judicial authority to challenge laws, policies and programs of member countries if they do not conform to WTO rules, and it has the power to strike down these rules if they can be shown to be "trade restrictive."

One provision of the WTO particularly places water at risk. Article Xl specifically prohibits the use of export controls for any purpose and eliminates quantitative restrictions on imports and exports. This means that quotas or bans on the export of water imposed for environmental purposes could be challenged as a form of protectionism. A GATT ruling that forced Indonesia to lift its ban on the export of raw logs and a NAFTA ruling against a similar practice in Canada do not bode well for a nation's right to protect its natural resources.

Further, the WTO forces nations to forfeit their capacity to discriminate against imports on the basis of their consumption or production practices. Article 1, "Most Favored Nation," and Article 111, "National Treatment," require all WTO countries to treat "like" products exactly the same for the purposes of trade whether or not they were produced under ecologically sound conditions. Even if it were discovered that the commercial trade in water was destructive to watersheds, the WTO could prevent countries from restricting that trade because of environmental concerns.

WTO defenders argue that an "exception" included in the GATT will protect the environment and natural resources. According to Article XX, member countries can still adopt laws "necessary to protect human, animal or plant life or health...relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption." However, there is something known in trade jargon as a "chapeau" to Article XX, which means that the Article can only be applied in "non-discriminatory" fashion and cannot be a disguised barrier to trade. In the individual dispute cases that have come before the WTO to test these "protections," the WTO has upheld the rights of commerce over the rights of environmental protection.

Also, any protections must be interpreted in a way that is "least trade restrictive." Further, the WTO does not recognize the authority of Multilateral Environmental Agreements (MEAs) and threatens to undermine agreements such as the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). Says U.S.-based Public Citizen, "The emerging case law...indicates that the WTO keeps raising the bar against environmental laws." If panel rulings to date are any indication, water is at great risk under the WTO, in spite of the so-called "exception" of Article XX.

A new agreement of the WTO, the General Agreement on Trade in Services (GATS), poses another serious trade threat to water sovereignty and conservation. The GATS was established in 1994, at the conclusion of the "Uruguay Round" of the GATT and was one of the trade agreements adopted for inclusion when the WTO was formed in 1995. Negotiations were to begin five years later with the view of "progressively raising the level of liberalization." These talks got underway as scheduled in February 2000, and are scheduled to reach a general agreement by December 2002.

The GATS is called a "multilateral framework agreement," which means that its broad commission was defined at its inception and then, through permanent negotiations, new sectors and rules are added. Essentially, the GATS is mandated to restrict government actions in regard to services, through a set of legally binding constraints backed up by WTO-enforced trade sanctions. Its most fundamental purpose is to constrain all levels of government in their delivery of services and to facilitate access to government contracts by transnational corporations in a multitude of areas, including water and environmental services.

The GATS covers hundreds of types of water services-sewer services, freshwater services, treatment of waste water, nature and landscape protection, construction of water pipes, waterways, tankers, groundwater assessment, irrigation, dams, bottled water, and water transport services, just to name a few. Crucially, the object of GATS disciplines are not services per se, but rather government actions, initiatives and regulations that pertain to services and limit or prevent private-sector rights to service industries. No other agreement to date has attempted to reach so far into the policy jurisdiction of governments (although the proposed FTAA services agreement is modeled on the GATS).

Essentially, under proposed new wording, governments would have to prove that any measure or regulation related to water (and other services, such as health care, utilities and education) were "necessary," based on "transparent and objective criteria," in accordance with "relevant international standards," and the least trade restrictive of all possible measures. For example, to defend standards on drinking water before a WTO trade panel, a government would have to prove that it had canvassed every conceivable way in which it might improve water quality, that it was subjected to an assessment of its impact on international trade in water services, and that it opted for the approach that was least trade restrictive of the rights of foreign private water providers.

Furthermore, the GATS has not even adopted the weak GATT Article XX exception relating to conservation, thus expressing an undeniable and deliberate intent to subordinate conservation goals to those of trade liberalization. As Canadian trade expert Steven Shrybman notes in his March 2001 legal opinion on the GATS "At risk is the public ownership of water resources, public sector water services, and the authority of governments to regulate corporate activity for environmental, conservation or public health reasons."


In addition to the above agreements, countries all over the world are signing Bilateral Investment Treaties (BlTs) which, by and large, leave their natural resource sectors open to unconditional investment by one another's corporations. There are now 1,720 bilateral agreements and the number grows every year. Most BlTs contain a form of NAFTAs Chapter 11 provision, allowing corporations of the signatory countries to sue governments for "expropriation" compensation. This is the trade venue chosen by Bechtel in its suit against the government of Bolivia.

BlTs are modeled on the Multilateral Agreement on Investment (MAI), a treaty proposed by member countries of the Organization for Economic Cooperation and Development (OECD) which was defeated in the fall of 1998 due to international opposition. Drafted by the International Chamber of Commerce, the MAI contained the same investor-state rights as NAFTA, but applied them to a wider range of sectors and corporations. Any "investor" of any member country could have claimed access to the natural resources of any other country without discrimination and would have had the right to sue for compensation if denied. The MAI set out clear rules for privatization of public assets, including natural resources.

These international trade and investment agreements are gaining in power and scope. Yet very few of the world's citizens are aware of their contents or even their existence. No plan for water protection can afford to ignore them; they form a clear and present danger to water stewardship and must be deeply reformed or abolished.

Blue Gold

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