Not Just a Thirsty Neighbor:
U.S. Water Conservation and International Trade
Andrew W. Shoyer and Mika C. Morse 1
Presented to the
Canadian Bar Association
2011 National Environment, Energy and Resources Law Summit
April 7-9, 2011
I.
Introduction
International trade agreements, such as the North American Free Trade Agreement
(“NAFTA”), 2 as well as the General Agreement on Tariffs and Trade 1994 (“GATT”) and other
obligations under the World Trade Organization (“WTO”), 3 seem to impact the ability of a
country to regulate exports of fresh water in ways that have alarmed some policy makers and
interest groups in Canada. 4 The United States, on the other hand, has not reacted as acutely to
the prospect of free trade in fresh water. This is undoubtedly due to the relative fresh water
endowments of the two countries: Canada is water rich, while the United States is less so.
Consequently, the debate over the impact of NAFTA and the WTO on water exports has largely
taken place north of the border – and specifically with respect to fears that the United States is
eyeing Canada’s water supply as a solution to its own shortages. The issue of international trade
in water, however, is likely to garner more attention in the United States in years to come. To
the extent that the United States has fresh water supplies it wishes to conserve, there will
undoubtedly be those in the United States who echo Canada’s concerns that NAFTA and the
WTO make it more difficult to implement conservation-minded laws and regulations. And, to
1
Andrew W. Shoyer chairs the International Trade Practice of Sidley Austin LLP, and Mika C. Morse is an
associate attorney in the International Trade Practice of Sidley Austin LLP. Both are located in the firm’s
Washington, DC office. Ms. Morse is currently admitted to practice only in Virginia, and practices law in the
District of Columbia pending application for admission to the D.C. Bar and under the supervision of principals of
the firm who are members in good standing of the D.C. Bar. The views expressed in this paper are those of the
authors, and do not reflect those of Sidley Austin LLP or its clients. © 2011 by Andrew W. Shoyer and Mika C.
Morse
2
North American Free Trade Agreement, Can.-Mex.-U.S.., Dec. 17, 1992, 32 I.L.M. 289 (1993) [hereinafter
“NAFTA”].
3
4
Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 155, 33 I.L.M. 1144.
See, e.g., Christine Elwell, NAFTA Effects on Water: Testing For NAFTA Effects in the Great Lakes Basin, 3 TOL.
J. GREAT LAKES’ L. SCI. & POL’Y 151 (2001); Christopher Scott Maravilla, The Canadian Bulk Water Moratorium
and its Implications for NAFTA, 10 CURRENTS INT’L TRADE L.J. 29 (2001).
the extent that the United States will need water as shortages worsen, it has an interest in allaying
Canada’s fears and working with Canada to enable sustainable water exports.
This paper will first briefly discuss the United States’ competing water interests and the
internal disputes over fresh water resources. The following section examines the obligations
under NAFTA and the WTO to show that, although they tightly discipline water export
limitations, they should not make it too difficult to design conservation laws that comply with
trade obligations. Lastly, the paper examines how U.S. water laws could be improved to address
sustainability concerns without incurring liabilities under these two agreements. This brief
review of U.S. water interests suggests that the United States should not wait for international
trade disputes to crop up before working with Canada to address its concerns about international
trade and water since carefully crafted legislation can accomplish both conservation objectives
and responsible water exports.
II.
U.S. Water Resources
A.
Abundance and Scarcity
The United States has plentiful fresh water resources in some regions and severe scarcity
in others, placing its interests on both sides of the debate on international trade and water. On
one extreme, both the Southwest and Southeast of the country currently do not have enough fresh
water to meet their populations’ needs. 5 Scientists predict that between booming population
growth and shifting climate patterns, areas that are living at or beyond their fresh water capacity
will experience severe water shortages in the near future. 6 This is precisely the scenario that has
worried Canadians. On the other extreme, there are abundant fresh water resources in many
regions of the country. For example, the fresh water resources in Alaska – accounting for 40
5
See ScienceDaily “Southeastern U.S., with Exception of Florida Likely to Have Serious Water Scarcity Issues,”
December 14, 2010, available at http://www.sciencedaily.com/releases/2010/12/101213184436.htm (last accessed
March 8, 2011); Richard A. Kerr, “Global Warming Coming Home to Roost in the American West,” 318 Science
Magazine 1859, December 21, 2007, available at http://www.sciencemag.org/content/318/5858/1859.citation (last
accessed March 9, 2011); Mary Milliken, “Water scarcity clouds California farming’s future,” Reuters, March 13,
2009, available at http://www.reuters.com/article/2009/03/13/us-water-agriculture-idUSTRE52C07R20090313.
6
Id.
2
percent of the United States’ total fresh water resources – have spurred a number of companies to
initiate plans to export bulk water shipments to China and India. 7
Therefore, it is important to remember that U.S. interests in water and international trade
do not lie exclusively in importing water to satisfy thirsty regions of the country. The United
States, as an exporter of valuable water resources found in Alaska, the Great Lakes, the
Northeast, and the Rocky Mountains, shares some of the concerns that Canada has about
balancing its international trade obligations with its water conservation efforts. A look at the
disputes over bottled water in the United States is revealing in that it shows that U.S. citizens are
very concerned about the conservation of fresh water resources and, through legislative and
judicial channels, they are sometimes able to have a significant impact on state water laws.
Bottled water disputes are also informative because they reveal the ways in which U.S. water
laws provide useful tools for conservation and resource management, as well as some ways in
which they may not be fully attuned to U.S. international trade obligations.
B.
Bottled Water Disputes
As the bottled water industry has grown in the United States, 8 disputes over groundwater
withdrawals have also multiplied – although they have been limited to domestic legislative and
judicial skirmishes rather than international trade disputes.9 These disputes are informative in
that they demonstrate the strong interest of U.S. citizens, as property owners and
environmentalists, in protecting groundwater sources. Groundwater extractions for bottled water
may be relatively insignificant relative to total withdrawals in the United States, 10 but they can
have a significant impact on local supplies by lowering the water table, drying up neighboring
wells, increasing concentrations of contaminants or salt, and fundamentally changing the
character of the aquifer.11 Citizen activist groups have led several prominent legal challenges to
7
See, e.g., Wesley Loy, “Aleut Corp. wants to export Adak water,” Alaska Journal of Commerce, August 20, 2010,
available at http://www.alaskajournal.com/stories/082010/loc_adw.shtml (last accessed March 9, 2011).
8
In 2005, bottled water sales in the United States exceeded $10 billion, of which approximately 95% were sales of
domestically produced water. See Noah D. Hall, Protecting Freshwater Resources in the Era of Global Water
Markets: Lessons Learned from Bottled Water, 13 U. DENV. WATER L. REV. 1, 9 (2010).
9
See, e.g., Tara Boldt-Van Rooy, “Bottling Up” Our Natural Resources: The Fight over Bottled Water Extraction
in the United States, 18 J. LAND USE & ENVTL. L. 267, 269 (2003).
10
See Hall, supra note 9, at 11 (“Groundwater withdrawals for bottled water production represent far less than onetenth of one percent . . . of the total groundwater withdrawals in the United States.”)
11
Id.; see also Boldt-Van Rooy, supra note 10, at 279-281.
3
plans in Michigan, Texas, Wisconsin, and Florida – to name a few – over bottled water
production plans that would draw heavily on local water sources.12
These challenges involve state water laws that govern the allocation of resources as well
as mechanisms for resolving disputes, but they also encompass state environmental and
administrative regulations – drawing together a complex web of state laws that directly impact
the right of a bottled water company to withdraw groundwater. 13 Two noteworthy challenges
include Michigan Citizens for Water Conservation v. Nestlé Waters North America, Inc. 14 in
Michigan and Sipriano v. Great Spring Waters of America, Inc. 15 in Texas. The outcomes of
these two cases are quite different and both pose interesting challenges for the United States
from an international trade perspective.
1.
Michigan Citizens for Water Conservation v. Nestlé Waters North
America, Inc.
The Michigan Citizens for Water Conservation v. Nestlé Waters North America
(“Nestlé”) dispute began when Nestlé planned major groundwater withdrawals of up to 576,000
gallons per day from a site called Sanctuary Springs to use off-tract for its bottling operations. 16
The Michigan Citizens for Water Conservation (“MCWC”) challenged the plans, inter alia, on
the grounds that they would affect the recreational use and enjoyment of area surface waters, and
that Nestlé’s plan was per se unreasonable because it was off-tract and would cause harm. 17
The trial court found for MCWC, and the Michigan Court of Appeals mostly upheld the
ruling. 18 However, the Michigan Court of Appeals disagreed with the trial court on how to
adjudicate the competing interests of the MCWC and Nestlé, and substituted its own set of
12
See, e.g., Boldt-Van Rooy, supra note 10, at 282-83; Marc Gunther, “Bottled water: No longer cool?” CNN
Money, April 25, 2007, available at
http://money.cnn.com/2007/04/24/news/economy/pluggedin_gunther_water.fortune/index.htm (last accessed March
9, 2011).
13
See Hall, supra note 9, at 23-24.
14
See Mich. Citizens for Water Conservation v. Nestlé Waters N. Am. Inc., 709 N.W.2d 174, 207 (Mich. Ct. App.
2005).
15
See Sipriano v. Great Spring Waters of Am., Inc., 1 S.W.3d 75 (Tex. 1999).
16
The description of the case is largely taken from Hall, supra note 9, at 24-28, who provides a concise analysis of
this and the Sipriano case. Parallel cites to the court decision are provided for reference.
17
See Hall, supra note 9, at 25 (citing Nestlé, 709 N.W.2d at 185-86, 205).
18
Id. at 27.
4
factors to be considered. These factors include “(1) the purpose of the use, (2) the suitability of
the use to the location, (3) the extent and amount of the harm, (4) the benefits of the use, (5) the
necessity of the amount and the manner of the water use, and (6) any other factor that may bear
on the reasonableness of the use.” 19 Of particular relevance, the court explicitly provided that
“water uses that benefit the riparian land or the land from which the groundwater was removed
are given preference over water uses that ship the water away or otherwise benefit land
unconnected with the location from which the water was extracted.”20
Following the Nestlé decision, the Michigan legislature enacted several important
reforms to the state’s water laws that both defined the specific ways in which withdrawals could
cause harm, and placed limitations on the quantity of water that could be withdrawn without
applying for a special permit. 21 The new Michigan laws also placed stricter requirements on
water bottlers, such as lower withdrawal limits and obligations to address the negative impact of
pumping on surface waters, stream flow, water quality, and aquifer viability. 22 Finally,
Michigan approved the Great Lakes-St. Lawrence River Basin Water Resources Compact, 23
which prohibits the diversion and export of bulk water from the Great Lakes Basin 24 and places
significant restrictions on water withdrawals for bottling. 25
In this case, the citizen’s group won a victory both in terms of the judicial factors for
adjudicating a water rights dispute and the legislative reforms that followed. As will be
discussed further below, both the judicial factors and the new laws are good examples of a strong
water management system that also seems to comply with NAFTA and the WTO. The only
potential weakness can be found where traditional water law concepts intersect with international
trade obligations. Therefore, the United States’ best approach to treaty-consistent conservation is
to work with the policy makers to keep international trade in mind when making the ground rules
for water use in each state.
19
Nestlé, 709 N.W.2d at 203.
20
Nestlé, 709 N.W.2d at 204.
21
Id. at 36 (citing MICH. COMP. LAWS § 324.31702(1), (6)(b) (2009)).
22
Id. at 37 (citing MICH. COMP. LAWS § 325.1017(3)).
23
Great Lakes-St. Lawrence River Basin Water Resources Compact, Pub. L. No. 110-342, 122 Stat. 3739, 3752
(2008); see Hall, supra note 9, at 37.
24
See Peter Bowal, Canadian Water: Constitution, Policy, and Trade, 2006 MICH. ST. L. REV. 1141, 1157 (2006).
25
See Hall, supra note 9, at 38, n. 281.
5
2.
Sipriano v. Great Spring Waters of America, Inc.
The outcome in Sipriano could not be more different from that in Nestlé. Again, Nestlé
was pumping water for bottling, this time from a source located near land owned by the plaintiff,
Sipriano. 26 When Sipriano experienced a decrease in his well water supply, he sued to enjoin the
pumping. However, Texas follows the “rule of capture” as the basis for the state’s water laws,
which essentially means that any landowner can pump as much groundwater as he chooses
without any liability to neighbors whose water supplies are harmed. 27 The Texas Supreme Court
deferred to the Texas legislature, which has not taken any action to bring Texas’s water laws into
line with modern theories of reasonable use.28 As a result, in Texas, there is no legal protection
for groundwater supplies, and in theory, the biggest pump is free to take as much water as it
can. 29 The international trade implication is that state water laws in a state such as Texas
provide no barriers to water exports, even if there were a water resource crisis.
To better understand how these domestic legal disputes implicate U.S. international trade
obligations, the next section provides a brief review of the limitations that international trade
agreements impose on any domestic law or regulation that could be considered an improper
export restriction.
III.
When International Trade Agreements Impact Water
International trade agreements apply certain limitations and obligations on countries to
refrain from restricting imports or exports. Whether a specific water regulation is or is not
consistent with these treaty obligations would depend greatly on the facts at issue. In general,
however, water falls under the ambit of agreements such as the WTO Agreement when it enters
the stream of commerce as a “product.” 30 The most obvious example, as other commentators
26
Id. at 34 (citing Sipriano, 1 S.W.3d at 75-76).
27
Id.
28
Id. (citing Sipriano, 1 S.W.3d at 81-82 (Hecht, J., concurring)).
29
Id.
30
See, e.g., Note: Robert J. Girouard, Water Export Restrictions: A Case Study of WTO Dispute Settlement
Strategies and Outcomes, 15 Geo. Int’l Envtl. L. Rev. 247, 252-53 (2003); Note: Gregory F. Szydlowski, The
Commoditization of Water: A Look at Canadian Bulk Water Exports, the Texas Water Dispute, and the Ongoing
Battle under NAFTA for Control of Water Resources, 18 Colo. J. Int’l Envtl. L. & Pol’y 665, 671-72 (2007). Water
can also be implicated under NAFTA’s Chapter Eleven, if an investor’s rights to access water are affected by a law
or regulation. A discussion of water and investor-state dispute resolution is, unfortunately, beyond the scope of this
6
have pointed out, is bottled water. 31 Bottled water is clearly a product that is protected by
international trade rules. 32 However, the question is much more complicated when considering
water closer in form to its natural state, such as when it is still in the ground, or when it has been
diverted from its source in pipelines, channels, or tankers.
From the U.S. perspective, water in its natural state may be considered a product as soon
as it has entered the stream of commerce. Specifically, U.S. law has recognized that ground
water is an article of commerce when it is used for agriculture purposes because the commodities
produced with its use are clearly in the stream of commerce. 33 The Harmonized Commodity
Description and Coding System, which is used to describe products for tariff purposes under the
GATT, supports the view that water can be a product, even when very little processing has been
done to it to change it from its natural state. For example, HS heading 2201 defines the
following as a good: “Waters, including natural or artificial mineral waters and aerated waters,
not containing added sugar or other sweetening matter nor flavored; ice and snow.” 34 The
implication is that water can still appear to be in its natural state, but by some action done to it to
bring it into the stream of commerce, it has become a “product.”
The U.S. perspective is echoed in a Joint Statement issued by the Governments of the
United States, Canada, and Mexico that water “in its natural state in lakes, rivers, reservoirs,
aquifers, water basins and the like” is not a good and that “[u]nless water . . . has entered into
commerce and becomes a good or product, it is not covered by the provisions of any trade
agreement.” However, the Joint Statement is frequently cited as evidence that water in its
natural state is never covered by NAFTA. 35 Leaving aside that this statement is nonbinding, 36
paper. See generally Jorge E. Vinuales, Access to Water in Foreign Investment Disputes, 21 Geo. Int’l Envtl. L.
Rev. 733 (2009).
31
See Hall, supra note 9, at 19-20.
32
Id.
33
Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941 (1982).
34
Harmonized Tariff Schedule of the United States (2006) 22-23 (rev. 2d Supp. 1 2011), available at
http://hts.usitc.gov/, Chapter 22 (last visited March 9, 2011) (emphasis added).
35
See, e.g., Scott S. Slater, State Water Resource Administration in the Free Trade Agreement Era: Strong as Ever,
53 WAYNE L. REV. 649, 683 (2007); cf. Steven Shrybman, “Water Export Controls and Canadian International
Trade Obligations: Legal Opinion Commissioned by the Council of Canadians” West Coast Environmental Law
Association, August 17, 1999, at sec. 2.1, available at
http://www.canadians.org/water/documents/Water_Export_Controls_Aug_99.pdf (last accessed March 9, 2011);
Elwell, supra note 5, at 173-74.
7
such an interpretation misses the point that the Joint Statement does contemplate that water can
become a good or product, even when it is still close to its natural state. What the statement does
not resolve is the crucial and complex question of when water actually enters into commerce and
becomes a product. In other words, what degree of processing converts water into a product?
As evident by its ban on bulk water exports, Canada has asserted its view that water in its
natural state cannot be a product, and putting water in a tanker for export does not convert water
into a product. 37 On the other end of the spectrum, a group of investors in Texas
(unsuccessfully) attempted to argue that surface waters in the Rio Grande became a commodity
as soon as the river’s flow was determined by agreement between the United States and Mexico
and no longer bore any relation to its natural flow. 38 While resolving this debate is beyond the
scope of this paper, we will now examine the ramification under both NAFTA and the WTO if
their provisions are triggered by the commodification of water.
A.
General Agreement on Tariffs and Trade 1994
As the NAFTA incorporates by reference basic GATT obligations, many of the relevant
disciplines on the regulation of trade in goods in the NAFTA and the WTO are the same. 39
Ordinarily, any internal regulation would be governed by GATT Article III, which prohibits the
treatment of imported products that is less favorable than that accorded by the government to like
domestic products. However, in the case of water exports, there are no imported products to be
treated differently! It would appear, then, that Article III is inapposite. Instead, a law or
regulation that restricts the sale of water outside the territory of a state (or the country as a
whole), even if it were part of a more general water use regulation, might be considered first for
GATT purposes as an export restriction, and therefore would be subject to GATT Article XI
provisions. Article XI:1 provides:
No prohibition or other restrictions other than duties, taxes or other
charges, whether made effective through quotas, import or export licenses
36
See, e.g., Shrybman, supra note 36, at sec. 2.1 (explaining that the joint statement is not a legal obligation or a
ratified part of NAFTA, but rather a non-binding statement of policy).
37
See Elwell, supra note 5, at 173.
38
See Szydlowski, supra note 31, at 672.
39
See infra Section III.B for a discussion of NAFTA-specific disciplines regarding trade in goods and investment.
8
or other measures, shall be instituted or maintained by any Member on the
importation of any product of any other member or on the exportation or
sale for export of any product destined for the territory of any other
Member. 40
Article XI:2 provides a limited set of exceptions, such as the ability to temporarily
impose restrictions to “prevent or relieve critical shortages of foodstuffs or other products
essential to the exporting Member.” 41 Again, the question of when water becomes a product is
critical for determining whether Article XI applies to exports of water. So far, there has been no
authoritative interpretation of Article XI’s application to water under the WTO, so it is not easy
to predict how regulations of water exports would be treated. If the restriction were not
permissible under any Article XI:2 exceptions, it could still be permissible if it fit under one of
the general exceptions in Article XX.
The exceptions that could be applicable in the case of a fresh water export restriction
include measures “necessary to protect human, animal or plant life or health;” 42 or “relating to
the conservation of exhaustible natural resources if such measures are made effective in
conjunction with restrictions on domestic production or consumption.” 43
If one of the Article XX exceptions applies, the next step in the analysis is whether the
restriction complies with the chapeau of Article XX, which provides:
Subject to the requirement that such measures are not applied in a manner
which would constitute a means of arbitrary or unjustifiable discrimination
between countries where the same conditions prevail, or a disguised
restriction on international trade, nothing in this Agreement shall be
construed to prevent the adoption or enforcement by any Member of [the
following] measures. 44
Thus, regardless of the specific exception invoked, the chapeau prohibits any restrictions
that are thinly-veiled protectionism. So far, there have not been any cases under the WTO
challenging a restriction on water exports, but some insight can be drawn by analogy to other
40
See GATT, supra note 3, at Article XI.1.
41
See GATT, supra note 3, at Article XI.2.
42
See GATT, supra note 3, at Article XX(b).
43
See GATT, supra note 3, at Article XX(g).
44
See GATT, supra note 3, at Article XX.
9
cases that have invoked the environmental conservation exception. 45 For example, one author’s
review of WTO disputes distills a few key lessons:
The recommendations in Reformulated Gasoline, Shrimp-Turtle, and
Shrimp-Turtle II suggest that if a WTO member uses an export restriction
to conserve water resources, and if the restriction violates Article XI of the
GATT, the measures will be provisionally allowable under Article XX(g)
if it is ‘primarily aimed at’ and ‘narrowly focused’ on a conservation
objective . . . if it is not a ‘blanket prohibition’ that is ‘disproportionately
wide in scope and reach’ in relation to its objective, and if it is
accompanied by restrictions on domestic producers or consumers . . . . 46
Therefore, states retain the ability to enact sound regulations for the conservation of fresh water
resources as long as they comply with the basic GATT rules or can meet the conditions of GATT
Article XX.
B.
North American Free Trade Agreement
In addition to the GATT provisions discussed above, NAFTA imposes additional
limitations on laws and regulations that restrict exports. 47 Article 315, for example, imposes a
requirement of “proportional sharing,” which allows export restrictions only insofar as “the
restriction does not reduce the proportion of the total export shipments of the specified good
made available to that other Party relative to the total supply of that good of the Party
maintaining the restriction . . . .” 48 The implication is that once exports of water are under way,
the country receiving the water becomes entitled to a proportional share of the fresh water
supplies of the exporting country. 49
A more profound difference between the WTO and NAFTA is that Chapter Eleven of
NAFTA establishes various protections for foreign investors and their investments from and into
45
See Girouard, supra note 30, at 264-74 (2003).
46
Girouard, supra note 30, at 268-69 (analyzing Appellate Body Report, United States – Standards for
Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996; Appellate Body Report, United
States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998;
Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products – Recourse to
Art. 21.5 of the DSU by Malaysia, WT/DS58/AB/RW, adopted 21 November 2001).
47
See Shrybman, supra note 37, at sec. 1.2.
48
See NAFTA, supra note 2, at Article 315.
49
See Shrybman, supra note 37, at sec. 1.2.2.
10
one of the NAFTA countries, and the right to binding international arbitration at the request of
the investor to resolve disputes arising under those investment protections.50 As noted by the
West Coast Environmental Law Association in its legal opinion on the legality of Canada’s bulk
water export ban under NAFTA, there is no limitation in Chapter Eleven similar to GATT
Article XX. 51 In other words, even if a law or regulation were appropriately conservationminded in the eyes of the WTO, it could still be subject to a dispute brought by a foreign investor
under Chapter Eleven of NAFTA. Additionally, Chapter Eleven applies to the government’s
treatment of a foreign investor or investment, which may include access rights to water in its
natural state. 52 In a Chapter Eleven dispute, the most likely claims would be that a law or
regulation violated NAFTA Article 1102 (National Treatment for Investors and Investments),
NAFTA Article 1105 (Minimum Standard of Treatment), or NAFTA Article 1110
(Expropriation and Compensation). 53 It is difficult to predict how an arbitral panel would
interpret these investor rights in the context of water.
It should be noted, however, that the Canadian bulk water export ban has been in place
since 1999, 54 and with the exception of one investor-state claim that was ultimately abandoned, 55
there have been no NAFTA-based claims challenging the prohibition. And so, one may wonder
then if the concern of excessive NAFTA litigation is perhaps a bit overblown. In any case, as the
next section shows, states within the United States can likely fulfill their conservation and
sustainable use objectives while still complying with the United States’ obligations under the
WTO and NAFTA.
IV.
Lessons and Implications for U.S. Water Laws
The first question from the U.S. perspective is whether there is a legitimate concern that
NAFTA and the WTO could “open the floodgates” to water exports by severely curtailing the
50
See Szydlowski, supra note 31, at 672-73; NAFTA, supra note 1, at Ch. 11.
51
See Shrybman, supra note 37, at sec. 1.2.3.
52
Id.
53
Id.; see also Maravilla, supra note 5, 33-34.
54
See Maravilla, supra note 5, at 29.
55
See Bowal, supra note 25, at 1173 (discussing the Sunbelt case, a claim filed by a U.S. company against Canada
for $10.5 billion as compensation for its lost bulk water export profits following the implementation of a prohibition
on water exports in British Columbia; the claim was never pursued and is assumed to be abandoned).
11
ability of states to regulate water use. One commentator is optimistic that because state laws
impact rights to use water, and not necessarily water as a good, there is absolutely no conflict
between usufructory regulations and international trade obligations. 56 However, this perspective
does not take into account that export restrictions are not limited to restrictions that target a good
(or “product,” as the term appears in the GATT); usufructory regulations can have both an direct
and indirect impact on exports of goods and would therefore be subject to international trade
obligations. That still does not mean that trade agreements undermine the United States’ or
Canada’s ability to manage natural resources. Rather, it suggests that those responsible for
water-management laws and their ancillary administrative and environmental regulations should
be aware that laws must be carefully designed to take into account international trade
obligations. It is instructive to refer back to the two domestic disputes highlighted in Section
II.B to see why this is the case.
In Nestlé, the Michigan courts upheld the doctrine of reasonable use as the backbone of
the state’s water laws. The ability to condition the right to use water on reasonableness, and the
impact on the environment and other water users, is a treaty-friendly basis for state regulation
that would limit harmful withdrawals for export. 57 The restriction that water withdrawals should
not harm the water source or connected surface waters is not discriminatory since it applies to all
water users. The ability to challenge the environmental review process and other administrative
hurdles to obtaining a permit gives water users a mechanism for ensuring that the rules are
applied fairly. 58
However, the manner in which reasonableness and impact is defined by state
governments or courts could have some consequences from an international trade perspective.
The factors enumerated by the Michigan Court of Appeals in Nestlé prioritized on-tract use that
benefits the riparian land and water users within the state. It is possible that this could be
interpreted as discriminating against water exports if, for example, a company that sought a
withdrawal permit for bulk water exports was denied while an application for the same
withdrawal quantity would have been permitted if the water remained in state. To the extent that
56
See Slater, supra note 36, at 651-54.
57
See Slater, supra note 36, at 665-67.
58
See Hall, supra note 9, at 33 (describing litigation in New Hampshire that upheld the state government’s fair
application of environmental and administrative laws).
12
state water laws take into account the purpose of the withdrawal and where the water that is
withdrawn is ultimately used, there is some risk that it could be viewed as violating NAFTA or
WTO obligations.
This risk should not be overstated. There are sound environmental reasons to prefer ontract uses that benefit the riparian land. For example, water that is extracted for agricultural
purposes will return to the groundwater source, whereas water that is bottled for use elsewhere
will not replenish the source. Also, Michigan’s laws do not ban water withdrawals for bottling
and the limitations on water bottling apply regardless of where the final product is sold. The
point is simply that international trade agreements place the burden on state legislatures to design
water laws that comply with international trade obligations.
On the other end of the spectrum, Texas’s hands-off approach to water resource
management poses no international trade obstacles, but it may make it more difficult in the future
for Texas to conserve its fresh water resources. In Texas, the “rule of first capture” would make
it very difficult to prevent water exports for conservation reasons without specifically targeting
exports. For example, if Texas experienced a severe drought and wanted to direct its few fresh
water resources to needs within the state or even in other parts of the United States, it would not
have the regulatory framework to limit any existing water exporters from exporting as much
water as they chose.
One solution could be to focus state legislation on limiting the quantity of withdrawals
and the environmental impact of the withdrawals. 59 Michigan’s 2006 legislative reforms and the
ratification of the Great Lakes-St. Lawrence River Basin Water Resources Compact moved
further in that direction. For withdrawals over a certain amount, the user must apply for a permit
and demonstrate that the withdrawals do not harm the environment. The potential weakness of
the Compact, however, is that diversions are almost completely prohibited, and some
commentators question whether that strict provision could withstand an international trade
dispute. 60
Regardless of the current water law regime in a given state, the overarching lesson is the
same. In designing water resource management laws, states can make themselves less
vulnerable to international trade disputes by focusing on conservation objections, adopting and
59
See Boldt-Van Rooy, supra note 10, at 297-98.
60
See Bowal, supra note 25, at 1160-61.
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applying laws that do not discriminate against foreign investors or exporters of water, and
administering regulatory procedures in a transparent way. 61
V.
Conclusion
The issue of international trade in water has not gotten as much attention in the United
States as it has in Canada. This paper suggests, however, that the United States has important
interests at stake on both sides of the debate. The United States itself has valuable fresh water
resources that it wishes to conserve, and so it should be mindful of the impact that trade
agreements like NAFTA and the WTO have on the regulation of water exports. At the same
time, the United States has a growing need for fresh water resources that should provide an
incentive to work with Canada to enable responsible and sustainable water exports. By looking
at the United States’ competing water interests and the internal disputes over fresh bottled water,
it is apparent that states may not be aware of how the nuances of their laws and regulations can
interact with international trade obligations. Yet, states retain the ability to protect their natural
water resources with conservation-minded laws that take into account the United States’
international trade obligations.
61
See Girouard, supra note 46, at 268-69; Hall, supra note 8, at 20; Slater, supra note 53, at 705-06.
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