Water-Trading Deals Are the New Normal. Trade Law Isn’t Keeping Up

Via World Politics Review, commentary on water trading:

Five years ago, in April 2018, headlines around the world called attention to South Africa’s impending “Day Zero”—the day when water levels in the dams supplying Cape Town were projected to fall below the minimum capacity required to keep water running across the city. The hydraulic apocalypse never arrived, due largely to extreme municipal water restrictions, but the threat of Day Zero continues to loom over much of South Africa. The episode also highlighted how, from Bangalore to Bakersfield, water scarcity is already a problem for parched populations that are growing thirstier.

Acute water stress around the world has galvanized efforts to find new approaches and innovative solutions to access and maintain increasingly scarce water supplies. In November 2022, Israel and Jordan announced plans to negotiate a water-for-electricity deal, in which Jordan would provide solar energy to Israel in exchange for desalinated water. In December, officials in the U.S. state of Arizona—which faced its worst drought in more than a thousand years—announced that they were considering purchasing and piping desalinated water from Mexico’s Sea of Cortez. Arizona and Mexico had previously discussed proposals in which the U.S. state would fund the construction of a desalination plant across the U.S. border with Mexico in exchange for Mexico’s water allotment from the Colorado River.

The idea of transporting water from one location to another is in itself nothing new. Humans have moved, diverted, transferred and redirected water domestically and across international borders for centuries and even millennia. Indeed, this constant manipulation of water is a root cause of current global shortages. But some more modern proposals to move water across borders, like those mentioned above as well as previous efforts by countries like Spain, involve an additional wrinkle: The water intended for transport is in fact being traded—that is, it is appraised and exchanged in transactions involving some kind of payment, whether in the form of legal tender or barter.

This distinction is significant, as it essentially designates water as an item of trade, making it not simply an economic good, but also potentially a commodity under the language of the General Agreement on Tariffs and Trade, or GATT. Such a classification would, in turn, make the sale of water across borders subject to free-trade provisions, which some scholars view as anathema for what is a public resource and one of the most basic necessities for life.

These developments are not happening in a vacuum. Indeed, there is considerable precedent for countries looking to employ such strategies to boost their domestic water supply amid reduced availability. But despite the availability of many case studies for international bulk water trade, or IBWT, as the umbrella term for those efforts is known, it has received insufficient scholarly and international regulatory consideration. That means that critical questions about such trade, particularly with regard to the application of international trade law to untreated water, remain unresolved. These gaps not only hinder IBWT’s potential as a partial solution to global water crises, they also open the door to possible trade abuses and could exacerbate incidents of resource exploitation and water inequality around the world.

Comparative analysis and a deeper understanding of IBWT’s history as well as its terms of trade would equip policymakers with templates that can provide guidance for which approaches best serve their intentions. For instance, although the Israel-Jordan plan involves the exchange of desalinated water, there are several other examples of IBWT deals that offer insights into similar barter transactions. They include a 1953 agreement between Jordan and Syria on the use of the Yarmuk River that runs through the two countries, and a similar 1996 agreement between Kyrgyzstan, Kazakhstan and Uzbekistan regarding the Syr Darya river basin.

As more countries turn to water trading as a potential solution to water scarcity, others see it as a peril, raising the prospect of hydro-nationalism and water protectionism.

The terms of the Syria-Jordan agreement—by which Syria agreed to release overflow reservoir water from what is known today as Al-Wehda Dam as well as a quarter of the electricity produced by it to Jordan, in exchange for Amman bearing almost the entire cost of constructing the dam and its facilities—became a point of contention last year, when Syria rejected Jordan’s request for water, citing environmental pressures and differing interpretations of the agreement’s obligations. The dispute was instructive particularly for Jordan. As it proceeds with the water-for-electricity deal with Israel, Amman should push for specific stipulations in a final agreement that would prevent similar disagreements in the future.

A more comprehensive consideration of pure IBWT—where untreated water is traded upon extraction, without any change to its composition—and the trade of desalinated water would help clarify how international trade law applies to such transactions. For example, there is a need to determine whether certain GATT exceptions apply to water trade, particularly under Article XX(g), which refers to “the conservation of exhaustible natural resources.”

The World Trade Organization has an important role to play in these debates, providing clearer position on the contentious issue of water as an economic good and/or commodity in the context of IBWT. That would help address concerns that the trade of water jeopardizes its status as a public good and human right in international law, as reflected in customary and treaty-based laws established by the Berlin Rules on Water Resources and various United Nations conventions and resolutions. Expanding these discussions into the international regulatory arena would also provide countries with more standardized information from previous arrangements, which would help them balance competing water-related interests and needs.

Here, too, studying past IBWT examples, particularly the language used in previous trade agreements, would offer insights into ways to engage in such trade that mitigate tensions between water’s growing commodification and its public utility. For instance, the 1961 and 1962 water-trade agreements between Singapore and the Malaysian state of Johor, while recognizing water as the item of trade, established terms of trade that also defined it as a shared resource that requires protection.

Meanwhile, as more countries turn to IBWT as a potential solution to water-scarcity challenges, others see it as a peril, raising the prospect of hydro-nationalism and water protectionism. Those fears are not speculative, as examples of such behaviors already exist. In 2014, for instance, Slovakia approved a constitutional amendment banning water exports via pipeline from the country, though its motivation was economic—to retain water-bottling jobs in the country—rather than due to scarcity. Four years later, Ottawa submitted a side letter of understanding between Canada and the United States to the United States-Mexico-Canada Agreement, arguing that nothing in the agreement “would oblige a Party to exploit its water for commercial use, including its withdrawal, extraction, or diversion for export in bulk.” Avoiding water protectionism is a valid concern, but guardrails will nonetheless need to be established to ensure that domestic populations are not left parched by companies looking to profit from a hydrologic comparative advantage.

The Israel-Jordan and Arizona-Mexico proposals signal the beginning of what is likely to be a new trend. As certain phrases enter the global lexicon—like “dead pool,” referring to when a dam’s reservoir water levels drop so low that water cannot flow downstream to the dam; and “bathtub ring,” describing an outline on the walls of canyons or lakes created by a drop in water capacity—governments will only become more creative and desperate in their efforts to provide water supplies to their constituents in order to avert “Day Zero” nightmare scenarios. Whether via the trade of water across borders or icebergs across oceans, water will be increasingly on the move. Policymakers must get ahead of that trend now to put global norms and rules in place to govern the process. 

This entry was posted on Tuesday, February 14th, 2023 at 8:12 am and is filed under News.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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