Northern Waters and Free Trade

Donald J. Gamble and Melvin G. Clark

Northern interests could be especially at risk in the free-trade agreement when it comes to water. Although 90 per cent of Canadians live within 150 miles of the U. S . border, 60 per cent of the total river discharge runs north. The Yukon and Northwest Territories are home to fewer than one in 200 Canadians, but the two territories contain 30 per cent of Canada's fresh water. With the growing water shortages throughout the more populated regions of the continent, there is little doubt that northern waters, which are often seen as "wasting their way to the sea", will be coveted by power interests to the South.

In November 1987, Minister of the Environment Tom McMillan released the Federal Water Policy, the clearest and most comprehensive statement on water ever to come from Ottawa. In his introduction, the minister stated that "Canada emphatically opposes large-scale exports". The policy itself notes that the federal government will "take all possible measures within the limits of its constitutional authority to prohibit the export of Canadian water by inter-basin diversions; and strengthen federal legislation to the extent necessary to fully implement this policy".

The text of the Canada3/4 United States Trade Agreement explicitly excludes some things like " the export of logs of all species" (Article 1203). It does not, however, exclude water, as one might have expected from federal policy statements. Not only does the agreement fail to exclude water, but the government has included it both implicitly and explicitly.

 The implicit inclusion of water begins with the term "good". For example, Article 105 states: "Each Party shall, to the extent provided in this Agreement, accord national treatment with respect to investment and to trade in goods and services." Article 408 (on export taxes) applies to the "export of any good", and Article 409 (on other export measures) "applies to the export of a good".

 But is water a "good"? Article 201:1 states that "goods of a Party means domestic products as these are understood in the General Agreement on Tariffs and Trade" (GATT). Tariffs covering water have been included for many years in the schedules annexed to the GATT. A1SO7 GATT has adopted the Harmonized System used for classifying goods for customs tariff and other purposes, and it contains an item for waters. It is beyond reasonable doubt that GATT understands water to be a "good".

The explicit inclusion of exported water in the free-trade agreement is found in item 22.01, which is in both the Canadian and U.S. tariff schedules annexed to the agreement and also in the Harmonized System. This item includes all natural waters, as well as snow and ice. Any good covered by a tariff item annexed to the trade agreement is subject to the provisions of the agreement itself.

 There is no reason to believe that the free-trade agreement could, in practice, reflect the kinds of water export exclusions that are inherent in the Federal Water Policy. A unilateral policy statement made by either the Canadian or U.S. government does not change the rights and obligations set out under free trade. Although the Federal Water Policy does not change the free-trade agreement, the agreement could change federal, provincial, and territorial water policies.

 Clarification Needed

Northern water is included in the free-trade agreement. The full implications of this inclusion are unknown and are not being addressed. But a firm understanding of the implications is essential before Parliament considers implementation of the agreement.

 The prospect of a continental water system is something that warrants the most careful examination. Just over a decade ago, Canadians were vocal in their opposition to any kind of continental energy policy. What was unpalatable then will become reality next year when the free-trade agreement is ratified. Is a move toward continental water management a wise course to follow?

To make informed decisions, four areas need to be clarified as soon as possible.

1. The first is the most obvious. Given the Federal Water Policy, why was the inter-basin export of water not explicitly excluded in the free-trade agreement? In light of the minister's statements, was it included in the final days of the negotiations? Are there reasons for its inclusion?

2. Any "good" covered by a tariff item annexed to the free-trade agreement is subject to the provisions of the agreement itself. Therefore, in order to obtain a full appreciation of the significance of the inclusion of water, it will be necessary to examine whether provisions in the agreement would impinge on current federal, provincial, and territorial policies, laws, and regulations relating to water. In particular, the following questions must be addressed.

• The Inquiry on Federal Water Policy (Pearse inquiry) noted that "the federal government has enacted a good deal of legislation that bears in one way or another on water use." Does the free-trade agreement impinge on this legislation and require its amendment?
• Similarly, the Pearse inquiry identified nine international treaties or agreements that Canada has with the United States relating to waterways that cross or delineate the border, including the Boundary Waters Treaty of 1909, which established the International Joint Commission and set the basic principles and dispute resolution mechanisms for boundary-water relations between the two countries. Does the free-trade agreement affect these other agreements and related principles and processes and, if so, how?
• The provinces have constitutional rights regarding the use of waters within their boundaries. The two territories and aboriginal groups also have special interests. The agreement therefore raises the question of how the relevant policies, laws, and regulations relating to the transfer of water will be affected by free trade now and in the future.
• One of the major strategies of the Federal Water Policy is water pricing. On the surface, there seems to be a conflict between water as a priced commodity or resource and something that the government suggests is somehow outside the free trade agreement. Is the policy move toward the market-place as an allocator of water use the Trojan horse that will threaten northern water interests?
• It will also be necessary to examine the influence the agreement has on the development of the "guidelines and criteria for assessing inter-basin transfers within Canada", as promised by the Federal Water Policy.

 3. The initial phase of the free-trade negotiations did not achieve the federal government's first objective of securing access to U.S. markets by obtaining "national treatment" regarding the application of U.S. non-tariff measures, especially countervailing and dumping duties. Will concessions related to the export of water form any part of the second phase of the negotiations? (In a paper presented to an Ontario Economic Conference in 1985, chief trade negotiator Simon Reisman suggested that obtaining full national treatment for Canadian goods, services, and enterprises would require Canada to export water.)

 4. Finally, what are the implications of the caveat "within the limits of its constitutional authority" to the federal government's commitment to "take all possible measures...to prohibit the export of Canadian water by inter-basin diversions"? Would the free-trade agreement make it easier for a province to negotiate an agreement, or part of an agreement, with a U.S. state to export water?

Examination of these four questions would go a long way toward clearing up the confusion that seems to be growing around the issue of water exports and the free-trade agreement. It would go a long way to defining how one of the North's most precious assets will be affected as the South becomes increasingly interested in acquiring that asset. In the end, an early and comprehensive examination can do nothing but assist both parties to the agreement and the Canadian provinces and territories as well. It will clarify any ambiguities that exist between the Federal Water Policy and the agreement. It will clarify a difficult area of federal-provincial-territorial-aboriginal jurisdiction. And it will, as the Pearse inquiry recommended, "ensure Canadians sufficient, safe water to sustain their physical, economic and social well-being for all time."

Donald J. Gamble is Executive Director of the Rawson Academy of Aquatic Science and a member of CARC.

 Melvin G. Clark is former deputy head of the Canadian delegation to the GATT Tokyo Round. He is now president of a trade consulting firm in Ottawa.