The impact of the new CUSMA on Canada’s water, as compared to NAFTA’s provisions, remains to be seen.
While Canada has 20% of the world’s freshwater, less than half of this freshwater (7%) is renewable. The world, including our American neighbours, is struggling with water crises in many places. As Canadians, we should understand how our agreements with the U.S. impact our rights to and trade of water.
In Canada, the federal and provincial governments share responsibility over water. The Constitution Act (1867) (the “Constitution”) does not list water under a specific level of government. Arguments exist for both levels of government having responsibility. First, under, section 109 of the Constitution, provinces have control over publicly-owned lands, mines, minerals and royalties. Control over natural resources falls to the provinces and presumably includes water. Provinces have responsibility over providing licenses to access and export water in bulk, and creating water management services.
However, the federal government has authority via section 91(2) of the Constitution to regulate trade and commerce, which includes entering into trade agreements. Moreover, the federal government has control over navigation and shipping (s. 91(10)), seacoasts and inland fisheries (s. 91(12)). The federal government also has significant powers over boundary and transboundary waters under treaties the British Empire signed on Canada’s behalf, such as the Boundary Waters Treaty (1909). Lastly, the federal government controls national parks, First Nations land and the territories. Considering that 60% of our freshwater drains to the north, and that many rivers pass through First Nations lands, the federal government has significant say in allocating Canada’s water resources.
The challenge of this dual responsibility is that different provincial policies for allocating water have created a fragmented approach at both levels of government. If an international trade dispute settlement process decides a provincial policy violates a trade agreement, this can have lasting effects on our ability to protect and preserve our water. We have seen this in cases started by investors against Canada under Chapter 11 of NAFTA (North American Free Trade Agreement). For an example, see the AbitibiBowater case.
In 2018, the federal government re-negotiated NAFTA into what is now known as the CUSMA (Canada-United States-Mexico Agreement). The impact on our water is yet to be seen. First let’s look at what NAFTA said about Canada’s rights and trade in water before looking at the CUSMA.
NAFTA’s “goods of a Party” definition in Article 201 refers to the General Agreement on Tariffs and Trade (GATT), amended in 1994. GATT defines water as a good that can be bought and sold. Specifically, GATT contains a tariff item for the definition of water:
22.01 waters, including natural or artificial waters and aerated waters, not containing added sugar or other sweetening matter nor flavouring; ice and snow.
An explanatory note states the heading item covers “ordinary natural water of all kinds (other than sea water). Such water remains in this heading whether or not it is clarified or purified.”
Goods were also referred to as “services” or “investments” under NAFTA.
So why do we care that NAFTA includes water as a good?
When NAFTA classifies something as a “good”, there are limits on the policies Canada can apply to protect that good. The first limit is that Canada cannot place tax levies on the good, according to Article 302. Often protectionist policies use levies. Even if Canada passes legislation to allow levies, or enacts other protectionist policies, these actions may trigger the “nullification and impairment” provision in Article 1105. Once triggered, Canada would be subject to the investor-state dispute settlement process. Under Articles 1102 and 1103, Canada cannot treat water as special to Canadians – all parties of NAFTA must receive the same rights.
Under Article 605, if the Canadian government wanted to reduce the amount of oil, natural gas and electricity it exported to the US, it could reduce its own use of those goods proportionally. This could have impacted the ability to regulate allocating water to produce oil or gas products. More importantly, the proportionality principle meant that Canada could never reduce its water exports regardless of the environmental effects. Provinces’ attempts to regulate water made Canada liable for expropriating another Party’s assets and property. Canada had to compensate the other party. Such arguments were made before an ad hoc tribunal under NAFTA in AbitibiBowater.
The only exceptions or defenses that Canada could potentially use required evidence-based arguments demonstrating:
- a “critical shortage” or
- “environmental measures necessary to protect human, animal or plant life or health [or] necessary for the conservation of living and non-living exhaustible natural resources”. See Article 1106.
Generally, the investor-state dispute settlement process has been problematic for Canada, even when Canada wishes to make decisions for the benefit of Canadians. About half of the 84 public claims under NAFTA’s investor-state dispute settlement process were against Canada (half of which have been successful). Canada has lost all 11 of its claims against the U.S. (See a 2017 LawNow article for more information.)
Water is only mentioned in the CUSMA in a Canada-U.S. side letter, which reaffirmed the 1993 Canada-United States-Mexico Declaration on water between the NAFTA parties. The side letter states the agreement does not create any rights to the “natural water resources” of any state. Water is not covered by the agreement unless water in any form has entered into commerce and become a good or product.
It also states that other water agreements apply, such as the United States-Canada Boundary Waters Treaty of 1909 and the 1944 Boundary Waters Treaty between Mexico and the United States.
On one hand, the benefit of the CUSMA is that Article 11 of NAFTA (the investor-state dispute settlement process), which Canada routinely fell victim to, no longer applies. Moreover, the proportionality principle does not apply.
Generally, climate change and environmental measures in the CUSMA are weak and provide little insight into what could happen to Canada’s water rights. However, the defining feature of the CUSMA on water is how much is not known in comparison to what is known. First, is the side letter enforceable? What happens when the water is determined to be a good or a product? As was questioned in 1993, could we ever turn off the tap or cancel water licenses if Canada wanted to remove some water for bulk exports? When will this question be answered and by whom?
There is some urgency to developing national and provincial policies. On February 16, 2021, Nestle reported that it is selling its bottled water interests – including those in Canada near Guelph, Ontario and Hope, B.C. – to a private equity firm for $4.3 billion dollars. Therefore, as climate change drives demand for water, it is important that Canadians push for coordinated provincial and national policies that reflect their interests and clarify trade implications.
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The information in this article was correct at time of publishing. The law may have changed since then.
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