Control of Canada's water yielded to the U.S. by NAFTA

By Mel Clark

[In the April 2000 issue of The Monitor, Jamie Dunn of the Council of Canadians stated that Canada's water was not protected under either the GATT or NAFTA, and called for both agreements to be renegotiated to provide such protection. In this response, Mel Clark, a former senior trade negotiator for the Canadian government, says that our water was protected under the GATT and that the only way to restore that safeguard would be to scrap NAFTA and return to trading with the United States under the GATT.]

Contrary to the reassurances of federal politicians, Canada's water resources are not protected under the terms of the North American Free Trade Agreement (NAFTA). They were protected under the General Agreement on Tariffs and Trade (GATT), which gave Canada complete control over its water, but in signing NAFTA the federal government in effect yielded control of the country's water to the United States.

In his article on Canada's water policy published earlier in The Monitor, the Council of Canadians' Jamie Dunn incorrectly cited GATT Article XX to support his claim that water was "not exempted from the obligations of the GATT." In fact, Article XX (General Exceptions) merely permitted contracting parties to waive their obligations for certain purposes, provided certain conditions were met. But Canada had no obligation to export its water--only to refrain from imposing duties on imported American water. Moreover, Canada had the right to levy prohibitive taxes and thus embargo water exports, precluding any need to invoke Article XX.

The specific GATT provisions that gave Canada control of its water are Articles III: 1, 2, 3 and 4 (National Treatment) and Article I:1 (Export Taxes).

Now that the GATT has been superseded by NAFTA, however, Americans are given the same rights as Canadians to our water. NAFTA cancels our right to tax water exports to the U.S., overrides the constitutional right of the provinces to control the water within their boundaries, and accords U.S. corporations the right to sue the federal government if it--or a province--fails to respect the terms of NAFTA. Nowhere in NAFTA is there any wording that gives Ottawa or the provinces the right to limit or embargo water exports to the U.S.

To be specific, the NAFTA provisions giving Americans control of Canada's water are Tariff Heading 22.01 in Canada's Schedule of Concessions annexed to NAFTA; Articles 102, 1102, 1202 and 1405 (National Treatment); Article 314 (Export Taxes); Article 103:2 (Relations to Other Agreements); Article 105 (Extension of Obligations to Provincial Governments); and Chapter XI, Section A (Investment).

Goods: The fact that Canada placed any good, including water, under any of the three trade agreements does not mean, ipso facto, that it has an obligation to export the good. Goods were placed under the agreements by tariff headings to classify imports for duty and statistical purposes, and to ensure that the duty does not exceed the negotiated rate. Goods identified under tariff headings are subject to other provisions of the agreements, and it is these other provisions that determine whether or not Canada has obligations relating to the export of such goods. The GATT contains no such obligations, but NAFTA does.

National Treatment: The GATT's National Treatment obligations are limited to those essential to preserve negotiated tariff concessions. They apply only to internal charges, laws, regulations and requirements affecting the internal sale of imported goods. Under NAFTA, however, national treatment is unlimited and permeates every right and obligation that is not specifically excepted from it--and there is no exception for water. This means that Americans are now free to demand that our governments accommodate their water interests, even if this means amending, rescinding or ignoring all existing relevant laws, regulations and policies.

Relation of NAFTA to Other Agreements: NAFTA Article 103:2 states: "In the event of any inconsistency between this Agreement and such other agreements, this Agreement shall prevail to the extent of the inconsistency, except as otherwise provided in this Agreement." There is no exception for the Boundary Waters Treaty or the GATT provisions relating to water.

Provincial Constitutional Rights: NAFTA Article 105 states: "The Parties shall ensure that all necessary measures are taken in order to give effect to the provisions of this Agreement, including their observance, except as otherwise provided in this Agreement, by state and provincial governments." There is no exception for the provinces to control the water within their borders.

Inevitably, sooner or later, the Americans will invoke their NAFTA rights to take substantial quantities of water from Canada. NAFTA denies our federal and provincial governments the right to stop such exports.

The Chretien government has been criticized for allegedly not having a "water strategy." But in fact it adopted a specifically permissive strategy when it implemented NAFTA. All subsequent reassuring statements to the contrary have been designed to conceal this central fact from Canadians--including the 1993 McLaren/Kantor "Joint Declaration," amendments to the Boundary Waters Treaty Act, and the federal proposal that the provinces prohibit water exports.

Two NAFTA Chaper 11 cases suggest that bulk water exports to the U.S. could begin soon after the next federal and British Columbia elections. The first case arises from the claim of Sun Belt Water Corporation of Santa Barbara, Calif. for $10.5 billion from the federal government to compensate it for damages caused by B.C.'s embargo on bulk water exports from that province. The embargo was imposed under the B.C. Water Protection Act, which restricts shipments of water to bottled water and water in tanker trucks. Sun Belt contends that the embargo infringes on its rights under Chapter 11 of NAFTA.

The Chretien government has been discussing this claim with Sun Belt for the past two years, and in doing so has implicitly acknowledged that the company has a legitimate case under NAFTA. Sun Belt naturally wants to obtain water--or compensation in lieu of water--as soon as possible, whereas the Chretien government wants to delay a settlement until after the next federal and B.C. elections. (What is the government offering Sun Belt to persuade it to be patient? Is the B.C. government participating in the discussions? Are the federal Liberals sharing information about the Sun Belt talks with the B.C. Liberals?)

In the second Chapter 11 case--and the only one Canada has so far settled--the U.S. Ethyl Corporation effectively demolished Ottawa's attempt to protect our health and the environment from "an insidious neurotoxin" contained in the company's MMT gasoline additive. It forced the government to lift an embargo on MMT imports, to retract statements made by the Prime Minister and the Minister of the Environment, and to pay Ethyl $19.3 million for lost revenue.

The power NAFTA gives Americans over Canadians and their governments is further illustrated by the following three facts related to the Ethyl settlement:

In 1991, Liberal leader Jean Chretien urged the Mulroney government to ban the use of MMT on the grounds that "some of our leading neurotoxin scientists...detail the truly horrific effects that allowing continued use [of MMT] could have on the Canadian people." As part of the settlement of its NAFTA complaint, Ethyl forced Chretien to repudiate this statement.

In 1996, the Chretien government introduced Bill C-29 to place an embargo on imports of MMT. The Bill was passed by both the House of Commons and the Senate and given Royal assent. Ethyl forced the government, in effect, to cancel a law of the land.

Ethyl claimed the embargo violated its rights under NAFTA's Chapter 11, and threatened to prosecute the Canadian government in a NAFTA court. The government's response was to capitulate and reimburse Ethyl for the import ban in an out-of-court settlement.

If NAFTA gives Sun Belt similar rights and power--and it very probably does--the result by 2001 or 2002 could be massive water exports to California from B.C. This would open the floodgates to a wave of water exports to other parts of the U.S. from other provinces, including Alberta, Saskatchewan, Manitoba and Ontario.

The only way to prevent this loss of our water is by terminating NAFTA (and the FTA) and returning to trade with the Americans under the GATT. The suggestion by the Council of Canadians and other critics that the terms of NAFTA and the FTA could simply be renegotiated to restore the protection of our water simply won't work, as I pointed out in a speech I delivered at the Council's Eighth General Meeting in November 1992, excerpts from which were published in the Council's journal Canadian Perspectives that winter. I made the same argument in a paper--"Restoring the Balance"--that was published by the Council in September 1993.

Of course, no federal government--whether Liberal, Tory, Reform, or even NDP--would ever seriously consider withdrawing from NAFTA or the FTA, since all four parties are either deeply committed to these "free trade" agreements or resigned to living with them. That leaves the only hope for regaining control of our water with the provincial governments. Any one of them, or all in concert, could very likely prevent water exports by challenging NAFTA in the Canadian courts.

They could make a strong case that the enforced export of their water under NAFTA intrudes directly on important areas of provincial jurisdiction and thus contravenes the division of powers under the Canadian Constitution.

But will any of the provincial governments launch such a challenge? On the answer to that question hinges the fate of one of our most precious resources.

(Mel Clark is a former Canadian government senior trade negotiator.)

Taken from The CCPA Monitor, July/August 2000.
Canadian Centre for Policy Alternatives


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