Without vision the people perish

International Trade Regulation,

Economics, Water, and the Environment.
April 2000

West Coast Environmental Law, Water Export Controls and

Canadian International Trade Obligations, 17 August 1999.

Introduction

At issue in the West Coast legal opinion are competing

values between capitalism and environmentalism and the power to
promote or deny these values as concerns bulk water exports.
This essay will attempt to outline the various issues brought
forward by West Coast Environmental Law legal opinion and the
implications of Canadian trade obligations under the NAFTA and
the WTO. In order to do this however, the paper will begin with
a brief outline of economic history, tracing the root of
current economic theories that influence trade regulation
decisions and free trade, as well as alternative economic
milestones ignored by the WTO including a Canadian economic
perspective. This paper will eventually seek to view WTO trade
policies within a broader framework that includes environmental
principles as demonstrated by our legal and political systems.

Part I : Economic Theory and International Economic Policy

It is only by understanding the limitations of economic

theories that they become useful. Economic theories are often
declared and viewed as uncertain, and amorphous. Generally they

1
are accompanied by the warning that in practice theory should
be applied in a contextually limited manner taking into
consideration other competing models and values.

International economic policy is influenced by pragmatic

considerations and a bit of economic theory. Pragmatic
considerations which benefit specific groups are probably more
indicative as to the rational for the current global economic
climate than any theory used to justify the trading regime.
However, economic theory is used as a building block to justify
international trade obligations and should therefore be
examined on its merits, even though an analysis of benefits
might be more revealing.

The first premise that underlies international policy is

the idea that it is desirable to have international trade. It
is difficult to disagree with this proposition. Underlying this
desire is the motivation for material advantage and benefit.
The statement assumes that international trade is beneficial,
and so long as it is, the material advantage does provide a
motivation for trade. I can only think of two peace-time
scenario's where international trade would not be desirable.
First, if one party did not actually benefit, either at the
time of each exchange or over the entire duration of the trade,
calculating the full social costs and benefits involved. This
would create a situation where either neither party benefits,
or one party benefits at the expense the other, such as occurs
under many colonial relationships. Second, if the nation was
primarily self-sufficient or religious to the degree that
materially advantage was no longer a prime motivation. Neither
of these considerations are relevant to Canada.

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 The second premise that underlies international policy is
the idea that interference with trade and the resulting effects
should be avoided. The proposition is not self-evident. It
assumes that any benefit caused by intervention is outweighed
by net negative effects. This may or may not be true, as is
particular to the trade distortion. The effects of interference
can vary from creating higher prices, to increasing wages, to
improving our environment, to extra costs related to non-
proportional retribution.

Overall, the effects remain hard to define, are not

restricted to monetary evaluations, and are beyond the ability
of most statisticians to measure or forsee. It is obviously
possible for intervention to benefit trade, much of the GATT
limits the ability of nations to intervene in a beneficial way
within their region, under the rational of avoiding trade
retribution.

Another reason used to avoid interference is that lower

costs of production benefit the consumer. Of course, this
assumes that pricing is the result of supply and demand and
that products are priced relative to their cost, passing the
benefit the consumer, which is mostly artificial posturing.
Lower costs do not always benefit the consumer, sometimes they
provide the incentive for cutting corners on quality. It is
producers who benefit most from a low cost of production,
usually at the expense of labour.

Less to the point, this statement also assumes that trade

exists a priori interference, suggesting that free trade is
part of the natural law of the world. It is basically premised
on the idea that trade can exist without interference.

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Realistically, regulation should be viewed as the starting
point for trade and the building blocks from which fair trade
and free markets develop. Without intervention, the markets may
not exist, and fair trade might not take place at all.

Absolute Advantage

If one region can produce a commodity with less expense

than another, and they exchange, then both should benefit. In a
nutshell, this is the law of comparative advantage. It is used
as the justification for WTO trade regulations.

Some land grows corn better than other land. This

economical insight into farming in early 18th Century was the
cornerstone of the law of absolute advantage. Some farmland
will yield more corn per acre than another, therefore the good
land confers an absolute advantage over other regions. The
conclusion drawn from this argument is that the farmer of the
poor land should change products that it can produce to its
absolute advantage, such as grazing sheep.

The law of absolute advantage is based on the assumption

that competition is the best paradigm within which to build an
economy, it assumes that competition will improve production.
The problem with the use of this paradigm is that it creates
winners and losers. In every competition someone is excluded.
That the farmer of the poor land should go raise sheep is not
self-evident. This conclusion requires a firm faith in the
motivation for profit as the raison d'etre of people and
nations. It also follows that the net negative effects of the
sheep farmer do not outweigh the benefits gained by that farmer
or others in the region, or nation. Such may not be true.

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Competition is often used as an ideology to justify capitalism
and the free market. Markets however, are primarily co-
operative endeavours. Except for Darwinian battles of life and
death, every competitive endeavour is established by first co-
operating, setting rules, and agreeing to compete. Co-operative
markets allow for competition, not the other way around. To
this end, competition should never be seen as a natural law,
but merely as a by-product of co-operation, an agreed upon
behaviour.

Comparative Advantage

Comparative advantage developed from ideas generated

around the "labour theory of value" in economic debate by David
Ricardo. Ricardo was operating under the assumption that the
value of any given product was to be derived from the total of
its labour content. In a more complex society, we recognize the
additional costs of land and capital involved in the evaluation
of a good.

The law of comparative advantage1 posits that within a

country, a region will produce goods it can make cheaper than
other regions. That the value of a commodity within a country
is determined by its labour, land, and capital content. During
the production life of a good, the supply will expand until the
price is levelled down to the total value of the labour, land,
and capital that it contains. Therefore a country should export
the product in which it has the greater advantage, or
comparative advantage, and import the commodity in which its
advantage is less, or in which it has a comparative
disadvantage. Even when one country can produce both
1
Jackson, International Economic Relations, Kindleberger, 3rd ed. (West Group) Minn, 1995. P.8.

5
commodities more efficiently than another country, both can
gain from specialization and exchange, provided that the
efficiency advantage is greater in some commodity or
commodities than in others. International trade does not
require offsetting absolute advantages but is possible where a
comparative advantage exists. However, a comparative advantage
is always accompanied by a comparative disadvantage.

In order for this to be true, the theory of comparative

advantage must be restricted to a set of highly artificial and
limited applications. The theory must assume efficient
transportation, efficient labour and ready capital. All factors
that fluctuate depending on social conditions. It also assumes
that the value of a product is the sum of its production costs.
The theory requires that full social costs be calculated in a
benefits analysis of comparative advantage. This is a very
difficult endeavour requiring techniques to measure large
intangibles. Even if the costs were known as to labour, land,
and the capital involved, the benefits of a public bus route,
phone lines, or transportation systems, plus a thousand other
contributions are very difficult to measure.

Another problem with the general application of this

theory is the limitation on sources of value for a good.
Production costs are not the total cost involved over the life
of a good. Products that end up polluting our land and water
must be cleaned up, adding to the social cost of having the
product. The total value of a good should include production
costs and the final distribution costs in order to adequately
reflect the full social value accruing to the good.
Distribution costs can either be included in the price of
delivery, or they can be an added expense after the sale. It is

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usually not known what the distribution costs of a product will
be until it is consumed or used, or finds a last resting place.
But so long as the theory of comparative advantage limits the
evaluation of a product to production costs it will not
accurately predict which trade in goods result in benefits.
Limiting the value of a product to its production costs creates
a false sense of benefit, if the advantage is offset by
distribution costs.

Goods can fit into four different categories. Goods can be

useful, useless, durable, or disposable. Obviously goods traded
that are more useful and more durable are of better advantage
than goods that are useless and disposable. Profit can be made
on goods of any category, however comparing costs of useless
goods to real goods may be misleading as to the actual values
and benefits involved. The theory of comparative advantage does
not adequately discriminate between products that are more
useful than others. Trade in totally useless widgets,
regardless of cheap production costs do not benefit the
receiving parties.

The law of comparative advantage should distinguish

between the production of durable, useful goods over goods that
are merely profitable. To be accurate it its claims, the theory
of comparative advantage only holds true if the value of the
goods traded is of a similar nature. The character of the good
should be taken into consideration in any value assessment.
Cheap products of useless junk backed up by a great marketing
campaigns do not create a comparative advantage of real value,
although they do lead to speculative profit making. It would be
better to import durable goods than trade them in exchange for
non-value adding, or useless products. Importation of goods

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that are generally disposable and useless, in the long run will
only disadvantage a community.

The current economic theory of comparative advantage

really is only valid in a limited set of circumstances. If we
are to have economic theory help guide us in trade policy
decision making we must survey other contributions to economic
theory before and after Ricardo.

Part II : Economic Theory 1650-1950

Economists from the 19th Century would argue that we should

allow growth of trade to occur strictly in the private sector.
Economic theory trends suggest otherwise. A condensed history
of economic thought will be useful.2

Classical Economics

Beginning with the ideas of Adam Smith (An Inquiry into

the Nature and Causes of the Wealth of Nations, 1750),
including the ideas of David Ricardo, and ending approximately
with John Stuart Mill (1850's) the framework was established
for classical economics.

Mill in particular established the foundation for free

trade in advocating individual libertarian autonomy rights
which had the effect of limiting legislative authority in
matters effecting the private economy. In the context of 19th
Century Europe, this argument makes much sense, monopolies had
been granted to crown corporations for most major state
projects and independent private business moguls were working
2
The following information is from A History of Economic Thought by William Barber, 1967.

8
toward respectability. In the context of our 21st Century
corporate global climate the argument may validly be reversed.
It can be argued that individual rights have the effect of
lending legitimacy to legislation over matters effecting the
private economy.

Overall, the first classical theorists began the analysis

of wealth or economic growth by focusing on determinations of
economic value based on the agrarian model. Land, capital, and
labour were the three categories that created wealth. These
relate to value derived from the use of rents, profits, and
labour.

The Progress of Industrialization

The first ripple encounter by classical economics came

from sources such as Karl Marx, around the 1850's. He focused
on the disparity of equality between the various classes and
proposed reorganization of the traditional economic model that
divided people into landowners, capitalists, or labourers. Marx
advocated the overthrow of the bourgeois capitalist by the
proletariat labourer, and the confiscation of land under the
centralized control of a Communist government. He also
predicted that capitalism and the wage system would end in
revolution because the mass of people, the labourer, would not
allow the ownership of resources to be managed by the few, the
rich, once capitalism ran its course creating a gulf of
disparity between the rich and the poor.

Anarchist economic theorists proposed other models of

economic reorganization. Free trade has its origins in
anarchist thinking. Although Mill's ideas are described as

9
libertarian, his free trade ideas were anarchist. Anarcho-
capitalism is the unwaivering extreme view that absolute free
trade will promote the benefit of capitalists and trickle down
to benefit everyone. Free trade ideas have their origin in the
economic work of Pierre Proudhon, the "father of anarchism."

Proudhon, 1850's

Pierre Proudhon libertarian ideas involved advocating a

form of sovereignty association in the guise of decentralized
federalism. Anarchism was presented as a pragmatic solution to
commerce and trade. Anarchism was to be founded on concrete and
practical solutions of organized society for the mass of
people, a conscious attempt to avoid abstractions and self-
created power ideologies.

It was proposed that a tariff free environment would allow

for individual effort and needs to efficaciously guide the flow
of material goods from union owned manufacturing centres to the
people. The minimal impairment of the individual by the
government was key to a cost effective environment, as least
intrusive as possible, while eradicating the govern/governed
class difference. He coined the refrain, "Property is theft,"
and was concerned with limiting the role of authority in
society to the maximum.

Proudhon did not advocate an absolute or extreme position

but rather warned against utopianism, and absolutism as a kind
of thought that fails to distinguish between concrete reality
and abstract products of the mind. In The Federal Principle,
1852, Proudon sought to find a realistic pragmatic balance in
political life between,

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 "Authority and Liberty, two principles which underlie all forms of organized
society, on the one hand contrary to each other, in a perpetual state of
conflict, and on the other can neither eliminate each other nor be resolved,
some kind of compromise between the two is necessary. Whatever the system
favoured, whether it be monarchical, democratic, communist or anarchist, its
length of life will depend to the extent to which it has taken the contrary
principle into account."

Anarchist society is to be achieved by reducing,

simplifying, decentralizing and suppressing, one after another,
all the wheels of the state. He labelled himself a practical
reformer and saw the life of society as perpetual reformation,
reform which should go on unceasingly. The role of the
federation was to reserve power for the citizen rather than the
state based on free association concepts. Proudhon was in
favour of private ownership of small-scale property. He opposed
the corporate ideal of individual ownership over large
industries because workers would lose their rights and
ownership. Property was essential to building a strong
democracy through co-operative associations, like labour
unions, but only as to empower the mass of people, not for the
benefit of the bourgeoisie. Although anarchist thought after
Proudhon was also used as an absolutist doctrine representing
the demand "for every human being the right and means to do
whatever pleases him." Proudhon's contribution to history is
still reflected in politics represented by comity, free trade,
and the federalist movements of today.

The Economics of Kropotkin. The Conquest of Bread.

Most anarchists rejected capitalism and strove to create a

system beyond the free market. Kropotkin claimed that economics
should be approached from the standpoint of consumption--of

11
human needs. The needs of mankind should govern production, and
the means of satisfying production should include the least
possible waste of human energy. According to Kropotkin,
personal property should be abolished, the wage system, cash
and credit discarded, and to the extent possible, all goods and
services should be provided free of charge to all. Goods
available in abundance should be available without limit; those
in short supply should be rationed. He envisions a
decentralized anarchist economic polity to oversee production
and distribution of necessities, in all their variety, not on
the basis of position or productivity, but on need in a free
and democratic society.

Bakunin, 1914.

Bakunin offered a critique of capitalism, in which

authority and economic inequality went hand in hand, and a
critique of state socialism, (Marx) which was said to be one
sided in its concentration on economic factors while grossly
underestimating the dangers of social authority. Marx was
centralist. Bakunin opposed centralism with federalism.

Bakunin believed that representative democracy, or

parliamentary democracy, had found a way of gaining legitimacy
through the illusion that some how the voters were in charge of
running the system. The reality, he posits, is that the
capitalist class is in permanent control. So long as the great
mass of the population has to sell its labour power in order to
survive, there cannot be democratic government. So long as
people are economically exploited by capitalism and there are
gross inequalities of wealth, there cannot be real democracy.
Economic facts are much stronger than political rights. No one

12
can govern for the people in their interests. Only personal and
direct control over our own lives will ensure that justice and
freedom will prevail. To abdicate direct control is to deny
freedom. To grant political sovereignty to others, whether
under the mantle of democracy, republicanism, the people's
state, or whatever, is to give others control and therefore
domination over our personal lives.

Anarchism

Anarchism is the name given to a principle or theory of

life and conduct under which society is conceived without
government - harmony in such a society being obtained, not by
submission to law, or by obedience to any authority, but by
free agreements concluded between the various groups,
territorial and professional, freely constituted for the sake
of production and consumption, as also for the satisfaction of
the infinite variety of needs and aspirations of a civilized
being.

As to their economical conceptions, the anarchists, in

common with all socialists, of who they constitute the left
wing, maintain that the now prevailing system of private
ownership in land, and our capitalist production for the sake
of profits, represent a monopoly which runs against both the
principles of justice and the dictates of utility. Capitalists
are the main obstacle which prevents the success of modern
techniques from being brought into the service of all, so as to
produce general well-being. True progress lies in the direction
of decentralization, both territorial and functional, in the

13
development of the spirit of local and personal initiative, in
a free federation of autonomous sovereign groups.

Political organization ought to be governed by the

expressions of individual and group opinions, not directing
centres which control people. They should balance group rights
of self-determination with the freedom to associate or not with
larger political bodies, free from coercion. Anarchy is based
upon the free federation of participants in order to maximize
individual and collective well-being. Self-protection is the
only end for which society may legitimately infringe upon the
liberty of action of any individual. Power should be exercised
to prevent the individual from doing harm to others, but that
is the only part of conduct for which a person should be
answerable to society. In every other way people should have
freedom.

In Canada some provinces would like to see more

decentralized federalism or other forms of sovereignty
association. For example, Free trade zones and the elimination
of borders tariffs are the goals of modern investment treaties.
The free trade argument is an unconscious use of anarchist
thought as applied to finance and the international arena,
although it is to benefit a different abstract state creation,
the international corporation, rather than local unions.
International law concepts of sovereignty are used as a basis
for the relations between states. It is not a coincidence that
democratic policy makers make use of free trade arguments and
notions of sovereignty, the ideas were proposed as pragmatic
solutions that seem to fit our existential reality. Founded in
pragmatics, anarchism should not be ignored as a policy source
for international trade.

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Neo-Classical Economics

Neo-classical economics began around the turn of the

century. It provided more analysis on the processes through
which the market system allocates economic resources. The
application of supply and demand curves, micro-economics and
price theory helped to calm many of the disquieting aspects
that Marx had created around classical economics. It
accomplished this by ignoring the class division and working
from the assumption of the existence of the "autonomous"
rational wealth maximizer as subject for study.

Alfred Marshall was a professor at Cambridge in the late

1890's. He created the idea that supply and demand can be used
to determine a fair price for the exchange of commodities in an
industrialized society. These mathematical equilibrium curves
assume that people act as rational agents pursuing economic
ends. Another assumption required was formulated in Say's Law,
which says that all income must be spent. Hoarding was seen as
irrational, and the cause of a poor economic climate. The
interaction of rational economic consumers and producers was
suppose to create an equilibrium and fair price, so long as
rational economic actors sought to maximize wealth. In this
environment, market objects gravitate toward optimum value and
use, wasting nothing. Government intervention was seen to bear
a heavy responsibility for waste, inefficiency and
misallocation of economic resources.

The neo-classical preoccupation with efficiency in

production and exchange diverted attention from distributional
inequality and from divergent interests of various groups

15
within society, while focusing on the myth of the rational
person as a conforming economic agent. Although Marshall
himself warned against using this fiction as justification or
explanation of the reality of economics, (because people made
decisions for reasons other than maximizing wealth) many
theorists since claimed that these models are mathematical
formulas that actually govern market situations and decisions.
The problem with the application of these ideas to real world
is that they do not validly consider other rational goals
beyond the accumulation of money. Environmental considerations
and a host of other rational concerns not related to money
should be included in the idea of a rational actor.

Economist promoted these ideas as truth gospel and

strongly influenced turn-of-the-century America, represented by
the wide spread belief in laisse-faire market principles based
on individual initiative and reward.

Keynesian Economics,

General Theory of Employment, Interest and Money, 1932

Keynes represents the next major change in economic theory

and his ideas were created between the two world wars. The
contribution of Keynes to economic theory re-evaluated laissez-
faire capitalism, which was seen as inadequate to the increased
problems of industrialized societies. Government initiative,
hereforto seen as wasteful, should support and safeguard the
economy, for example, with the implementation of anti-trust
competition law. As well, the theory believes it is prudent to
hoard as a hedge against risks of capital loss, in opposition
to Say's Law.

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 With these important economic recognition governments had
license to move toward creating a variety of schemes aimed at
maintaining market security and predictability. Keynes
economics acknowledges the market as a construct that does not
run itself, but requires government intervention if it is to
continue to exist. Governments must intervene to support the
market system and correct potentially devastating problems.

Keynes also advocated deliberate government deficit

spending during conservative times to artificially increase the
demand for consumption. The idea is that by spending money on
infrastructure, public works, or boondoggling, money spent will
trickle down the line and benefit everyone by increasing
consumer spending. These ideas are responsible for our current
level of debt to G.N.P. ratio. Ironically, a large part of
Keynes contribution to economics was the determination of the
G.N.P.

Canadian Economist Harold Innis3

A Plea for Time, 1951

"In the long run, utility, like everything else, is simply

a figment of our imagination and may well be the fatal
stupidity by which we shall one day perish." Nietzche

The contribution of Harlod Innis to Canadian economic

history and theory is quite significant. His earlier works
recount how the history of Canada is also the dynamic of
3
Harold Innis, Essays in Canadian Economic History, (University of Toronto Press), 1956 and
Harold Innis, A Plea for Time, The Bias of Communication (University of Toronto Press), 1951
p.75

17
economic advantage. His works call for the general recognition
that economic theories and policies should unfold within the
context of the existing local conditions prevailing in the
place of production. In other words, advantages in production
and distribution can only be discerned by viewing production in
the context of the local community creating the product over
time. By understanding the whole context of production and
distribution, policy makers are then able to create appropriate
interventions that benefit the market.

Innis approached economics from a unique perspective that

does not quite fit in with previous economic models. He views
regulation of production as promoting either the interests of
time or space. Crown monopolies for example were monopolies of
time. The conflict between different groups over monopolies of
time hastened the intervention of the state. Unfortunately,
devices emphasizing a rapid turnover of goods, whether
technological, or commercial tend to conflict with long-term
investment supported by savings.

Competition between consumers' goods with rapid turnover

and durable goods implies conflict within an economy, and
conflict between nations that emphasize the durable character
of goods, such as England, and those emphasizing a less durable
character, such as North America. To manage this conflict the
state intervenes with policies ranging from the breaking of
trusts to devices of socialism. In fields concerned with
durable goods and involving long-term investment of capital,
such as railways, electric power, forests, and steel, state
intervention has been marked. The ultimate steps are taken in a
concern with long-term budgets and long-term capital
arrangements and with five-year plans.

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 Overall, a lack of interest in problems of duration in
Western civilization suggest that the bias of paper and
printing has persisted in a concern with space. The state has
been interested in the enlargement of territories and the
imposition of cultural uniformity on its peoples, and has lost
touch with the problems of time. The state has been willing to
engage in wars to carry out immediate objectives, at the
expense of long term harmony. As modern developments in
communication have made for greater realism they have made for
greater possibilities of delusion. Materialism is the auxiliary
doctrine of every tyranny, whether of the one or of the masses.

The difficulty of handling the concept of time in economic

theory and of developing a reconciliation between the static
and dynamic economic approach is a reflection of the neglect of
the time factor in Western civilization. It is significant the
Keynes should have said that in the long run we are all dead
and that we have little other interest than that of living for
the immediate future. Planning is a word to be used for short
periods - for long periods it is suspect and with it the
planner. The dilemma has been aptly described, "laissez-faire
was planned, planning is not." The results have been evident in
the demand for wholesale government activity during periods of
intense difficulty. The luxury of the business cycle has been
replaced by the concerted measures directed toward the welfare
state and full employment. Limited experience with the problem
has involved expenditures on a large scale on armaments.

Conservation of natural resources, government ownership of

railways, hydro-electric power, and flood controls are
illustrations of a growing concern with the problems of time

19
but in the main are the result of acute emergencies of the
present. In 1950, concern with the position of Western
civilization in the year 2000 is unthinkable. An interest in
1984 is only to be found in the satirist or the utopian but not
applicable to North America. Attempts have been made to
estimate populations at late dates or the reserves of power or
mineral resources but always with an emphasis on the resources
of science and with reservations determined by income tax
procedure, financial policy, or other expedients. Obsession
with present-mindedness precludes speculation in terms of
duration and time.

For Innis the preoccupation with space over the interests

of time in economic theory is an important oversight, betraying
a preference for immediate gratification rather than wise
fiscal policy.

Part III : Further International Trade Policy

Tariffs and Quotas

A tariff typically raises the price of an imported good

because domestic sellers of that good now have an additional
cost of production (the tariff) that must be recouped. Domestic
producers gain a competitive advantage from the tariff but
domestic consumers pay higher prices while the government
receives revenue from the tariff. As well, tariff's encourage
domestic producers to increase production consuming resources
often thought of as better deployed elsewhere. A production
subsidy equal in size to the tariff, would yield exactly the
same benefits to producers as the tariff.

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 A quota yields no revenue to the government unless the
rights to import under the quota are sold. Private
entrepreneurs will capture the difference between the price at
which imported goods can be bought on world markets and the
price in the domestic market resulting from the restriction of
import competition. "Quota rent" will be captured by foreign
sellers. Everything is the same as a tariff except that what
would be government revenue under a tariff is captured by
foreign sellers as a kind of monopoly profit.

Quotas tend to conceal from the public the degree of

protection being afforded domestic producers, the price effect
of tariffs is more obvious. However, economic planning may be
easier if the precise amount of imports can be predicted.

Free Trade

Free trade is a mantra that has been uttered since early

Greek times often as an end in-itself. Free trade or regimes
related to promoting free trade are goals of current
international treaty obligations. It is natural for countries
with low labour costs to specialise in the production of labour
intensive goods that do not require a lot of skill to produce.
Their trading partners will specialise in goods that are more
capital intensive, require more skilled labour, involve
considerable innovation and technical change.

Free trade is actually used to entrench advantage for

capitalists, at the expense of the other voices within our
global community. Free trade establishes de facto control over
the means of production by the capitalist class. Only they
wield the capital necessary to rent land and hire labour for

21
production. Our laws, regulations and trade regimes all reflect
this American bias. The creation of corporations and limited
liability sends a message to capitalists that they will not be
personally liable for the actions of the corporations they
organize. Environmental regimes attempt to discourage polluting
behaviour but in general only the assets of the corporation are
available if liability requires a remedy.

The efficiency argument for free trade is a corollary of

the principle that competitive markets, without externalities,
are efficient. This abstract thought loses coherence when
applied in the real world, promoting corporate predatory
behaviour disguised as survival of the fittest, while immersed
in externalities.

The best way to respond to free trade is not to abandon

industries that another region can produce cheaper. It requires
local decision makers to take a good look around and see what
resources are present, to understand the history of the region
and its communities, to acknowledge the people involved in the
industry, and then make an order to determine the production
that will benefit the community most, rather than what will
benefit the market best. In the context of production and trade
the land and the people are integrated together. Allowing
corporations, who are searching for cheaper products, to
determine local industry production is a very inefficient
allocation of market resources.

In my opinion the best economic actor is free from

decisions based on economic necessity. The best economic actor
is a man or a woman who is not forced to work for food, shelter
and clothing, but assured of survival, can choose what

22
activities will benefit the area most and that also help to
provide food, shelter, and clothing.

In Jackson's International Economic Relations, recent

authors recognize the reality that free trade does not ensure
maximum benefit and that intervention can create advantages.
The Optimal Tariff4 claims that free trade is not optimal from a
national perspective. That there exists an optimal degree of
trade intervention, known as the optimal tariff, that works by
turning the country's terms of trade in its favour. Each
country has available a policy that will benefit itself at the
expense of others, but, if all countries simultaneously pursue
that policy, all are likely to lose. This is a more realistic
analysis of trade over free trade arguments. The analysis
involves the conclusion that tariffs should be reduced to avoid
conflict and overall loss. The optimal tariff argument involves
a benefit for the intervening country only at the expense of
the country's trading partners. The rest of the world loses
more than the tariff-levying country gains.

In Is Free Trade Passe,5 the author provides a pragmatic

analysis of trade which disregards the theory of comparative
advantage. In this analysis trade is driven by economies of
scale rather than comparative advantage. International markets
are recognized as typically "imperfectly competitive."
Strategic trade policy is necessary to shift excess returns
from foreign to domestic firms. A government that commits
itself to subsidizing a product, for example Airbus, can take
the profits of a foreign, more efficient competitor, and
attract the profit for local producers. A government, by
4
Jackson, International Economic Relations 3rd ed., Alan Deardorff & Robert Stern1987, (West Group) Minn,
1995. P.21.
5
Ibid, Paul Krugman, 1987. p.22.

23
supporting its firms, can raise national welfare at the expense
of another country. A protected domestic market can -- under
some circumstances-- promote exports and raise national income.
However, interventionist policies that promote particular
sectors draw resources away from other sectors, and therefore
do more harm than good.

Again, in this article economic theory gives way to the

reality of pragmatic considerations. The conclusion supports
low tariffs by positing that the benefit of subsidies will be
outweighed by accompanying losses of other domestic producers
who compete for resources. The gain will conceal a loss in
overall national income. The article also recognizes that
governments do not necessarily act in the national interest,
especially when making detailed microeconomic interventions.
Instead, they are influenced by interest group pressures.

Overall, beggar-thy-neighbour interventions can raise

national income but will typically raise the welfare of small,
fortunate groups by large amounts, while imposing costs on
larger, more diffuse groups.

Fair Trade

Any significant absolute reduction in real incomes of any

6
significant section of the community should be avoided.
Implicit in this statement is the rejection of the free trade
6
Ibid, Trade Policy and Economic Welfare (1974) Corden, p30.

24
argument that some disadvantaged sectors, such as labour, must
necessarily suffer for the overall benefit of the economic
gains involved. In terms of welfare weights, increases in
income should be given relatively low weights and decreases
very high weights. It is unfair to allow anybody's real income
to be reduced significantly. The fact that it is known that a
government will intervene to prevent sudden or large and
unexpected income losses provides the essential security
necessary for political stability.

Policy Choice

One of the central ideas of public choice theory is that

political officials pursue their self-interest, which often
include maximizing chances of re-election, and maximizing
campaign contributions. Governments will not maximize "social
welfare" in any independent ethical sense. The battle over
protectionist measures will be fought mainly between competing
producer interests. Free trade agreements exist because they
are politically beneficial to officials in their signatory
governments. This analysis suggests that current trade
regulation is founded on self-interest rather than any economic
theory.

Environmental Law7

Water is an essential element of life. Communities are

often built up around water, without water communities are in a
desert. Evidence of environmental deterioration in the forms of
harmful pollution, resource depletion, and the decline or even
extinction of species is widely apparent.
7
Benedickson, J. Environmental Law. Irwin Law, Canada. 1997.

25
 Under Pennsylvania's constitution, "the people have a
right to clean air, pure water, and to the preservation of the
natural scenic, historic, and aesthetic values of the
environment." Public natural resources in the state are "the
common property of all the people, including generations yet to
come." The state is expected to conserve and maintain these
resources for the benefit of all the people in its capacity as
trustee.

Human rights are generally perceived to involve safeguards

from state interference, it is not clear how this applies to
environmental protection. State action appears to be an
essential component of environmental protection, for the right
to a healthy environment is a right that must be enjoyed
collectively or not at all. The adverse effects of
environmental degradation are frequently gradual, cumulative,
and often difficult to link causally to individual victims,
sometimes including members of future generations.

In Friends of the Oldman River Society v. Canada (Minister

of Transport) [1992] 1 S.C.R.3. Justice La Forest of the
Supreme Court of Canada,

"The Constitution Act, 1867 has not assigned the matter of

"environment" sui generis to either the provinces or
Parliament. The environment, as understood in its generic
sense, encompasses the physical, economic and social enviroment
touching several of the heads of power assigned to the
respective levels of government…. It must be recognized that
the environment is not an independent matter of legislation
under the Constitution Act, 1867 and that it is a

26
constitutionally abstruse matter which does not comfortably fit
within the existing division of powers without considerable
overlap and uncertainty."

In "A Substantive Right to Environmental Quality" the

author summarizes the position of environmental regulation
groups,

"Those who search for a right to environmental quality

hope it will confer more than a right to participate or some
requirement of due process or natural justice before
environmentally harmful decisions are taken. They want a right
which will dictate a decision in favour of environmental
protection in difficult cases. They hope this right will be
equivalent to a civil liberty, on the one hand, constraining
government actions harmful to the environment, and, on the
other, equivalent to a property right, restraining the use of
private property in ways that are incompatible with sound
ecological management."8

Part IV : Trade Regulations under GATT and NAFTA

The use of trade restrictions designed to force policy

changes in foreign countries has become more common. Trade
restrictions are viewed as an acceptable alternative to the use
of force. The fundamental choice is whether countries will
struggle against each other for wealth and power, or work
together for security and mutual advantage. NAFTA undermines
the democratic rights of Canadians to determine the direction
of our social and economic and environmental policies.
8
J. Swaigen & R.E. Woods, "A Substantive Right to Environmental Quality" in J. Swaigen, ed.,
Environmental Rights in Canada (Toronto:Butterworths, 1981) 195 at 200.

27
 GATT and NAFTA agreements cover trade in goods and
services, capital mobility and labour mobility for professional
and business groups, and the activity of corporations as well
as the management of resources. These trade agreements
establish regimes governing financial, transportation,
telecommunications, and agricultural sectors. They introduce an
intellectual property code and harmonized standards in areas
such as professional qualifications, agricultural inspection,
and health. NAFTA codifies, or entrenches in treaty, a
continental integration process accompanied by changes in
national regulation. NAFTA and the WTO has stimulated a major
new round of economic integration and restructuring. NAFTA/WTO
represents a further shift in power in favour of capital,
reinforcing global conformity, further constraining government
policy, and weakening the power of labour and other social
groups.

The deregulation of capital (domestic or foreign) allows

it to operate throughout an integrated economic space in which
investment tariffs and other border restrictions are being
dismantled as standards become harmonized. Corporations are
able to make decisions about how to organize production and
where to add value, where to locate new investment, where to
close down a facility, where to conduct research and
development, advertizing, and accounting, where to source
supplies, and where to transfer management and other
professional personnel on the basis of the profit motive.

28
 Pierre Trudeau summarized the situation when he wrote
"Worse still" (i.e. worse than Meech Lake) "the commendable
goal of promoting freer trade has led to a monstrous swindle,
under which Canadian government has ceded to the United States
of America a large slice of the country's sovereignty over its
economy and natural resources in exchange for advantages we
already had, or were going to obtain in few years anyway
through the normal operation of the GATT." Vital national
powers are protected under the GATT, the same can not be said
of NAFTA

Bulk Exports of Water

The bulk export of Canadian water is a trade issue, and

environmental issue, and a human rights issue. It is a debate
that has all the elements of a good drama. The Canadian
government is comprised of the people's representatives who are
committed to serving their constituency and promoting
commercial trade in goods and service. The government is bound
to uphold previous agreements while at the same time
responsible to protect the rights of the people they represent.
National treatment obligations, tariff reduction commitments
and investor rights, under NAFTA and GATT provide a framework
within which bulk water exports may or may not take place. The
power to decide the extent of the Canadian obligation is
subject to the potential decision of an international panel.

GATT Article XI

In the past Panel decisions have given Article XI a broad

reading and demonstrate a consistent reluctance to limit or
circumscribe its application. This seems reasonably natural

29
because panel members seek full implementation of their
jurisdiction; they have no incentive to limit their power and
do not operate under traditional Canadian judicial restraint.
The dispute resolution process desires a mutually agreeable
conclusion of conflicts as between the parties and are
committed to delivering decisions within their newly created
jurisdiction.

Article XI of the GATT is designed to eliminate any export

control measures not in the form of a tariff. In this way, all
export controls can become subject to tariff reduction
agreements. This is one of the fundamental elements of the
GATT, and represents a large move toward member integration and
international conformity. It effectively eliminates most if not
all other trade restrictive regimes designed for any purpose.

It seems the main problem with the subject of water for

trade export is not the WTO rules or the NAFTA, but the
operation of the two together. Article XI of the GATT provides
for "no other restrictions other than duties, taxes or other
charge on the exportation or sale for export of any product."

It would be difficult to craft water export control

measures that would not violate Article XI unless they are
tariff based such as the adoption of a high duty, tax, or other
charge. Under NAFTA Article 302 Canada is committed to a free
trade zone that requires tariff elimination. "No party may
increase any existing customs duty, or adopt any customs duty,
on an originating good." NAFTA provisions prohibit the use of
export tariffs that might, under WTO rules, have been
implemented to effectively ban water exports to the U.S.A. In
other words, Canada has two sets of obligations, one to the

30
free trade zone, and the other to the other members of the WTO.
Canada may adopt high tariff's effectively banning bulk water
exports under the WTO rules as relates to countries outside the
NAFTA agreement, however, within NAFTA, Canada may not adopt or
increase any customs duty tariff. NAFTA does however, allow for
quota restrictions, which GATT does not. It may be possible to
establish a quota system within the free trade zone and a high
tariff barrier beyond to protect Canadian water. Alternatively,
a panel may decide that Canada as concerns the U.S., is
restricted by the GATT from imposing a quota, and obliged to
not raise tariff's under NAFTA, effectively reducing Canadian
control over natural resources.

According to the legal opinion, the primary approach

advocated by federal government is that water in "its natural
state" would not be considered a "good" or "product." The
general idea is that unless water has entered into commerce,
such as in agriculture, it is not covered by any trade
agreement including NAFTA. Water in its natural state in lakes,
rivers, reservoirs, aquifers, water basins and the like is not
a good and is not traded.

Although this does not preclude water in its natural state

from being covered by being a service and therefore subject to
trade agreements, it does seem an appropriately sufficient and
consistent statement as to the parties intentions concerning
NAFTA trade obligations. The U.S., however rejects the Canadian
approach. In order to avoid in-state and out-of-state
discrimination, jurisprudence in America considers water in its

31
natural state to be a good, and so do other international
jurisdictions.

Water : An Environment, a Lake, a Good, or a Service?

How should we determination the meaning of the term

"water?" Is the word best understood to refer to a good or an
environment. Semantically the word can take on many different
referents. In the Arctic Waters Pollution Prevention Act,
R.S.O.1985 c.A-12. The legislation insisted upon the importance
of "the preservation of the peculiar ecological balance that
now exists in the water, ice and land areas," of the Arctic
region. "Water" in this context is a broadly inclusive term
alternatively describing an ocean, inland rivers and lakes, as
well as, ground water table aquifers.

"Water" is included in GATT schedules for tariff

reductions, in this context it refers to a good. A product that
is extracted from fresh water supplies for sale and export.
"Water" as referred to by the companies who desire to fill up
tanker after tanker of water for export sale to the U.S., think
of it as a commercial product.

Who has jurisdiction to determine whether Canadian water

is subject to the GATT/NAFTA regime? The obvious answer is a
WTO panel, however the GATT does operate within a number of
other competing regimes worth consideration for this paper.

At the Federal level, The Canadian Environmental

Assessment Act S.C. 19929, claims to encourage responsible
9
Canadian Environmental Assessment Act S.C. 1992, c37 [CEAA]

32
authorities to promote sustainable development and maintain a
healthy economy while encouraging opportunities for public
participation.

At common law, traditional private law doctrines relating

to the rights of riparian owners, nuisance, negligence, and
strict liability have also been used to regulate domestic water
use.

It is safe to assume that Canadian environmental

legislation includes the concept of "sustainability." For the
purposes of forest management, British Columbia has attempted
to codify sustainable use as conserving biological diversity,
soil, water, fish, wild life, scenic diversity and other forest
resources. The issue becomes how much water depletion is
sustainable if sustainable development is seen as development
that meets the needs of the present generation without
compromising the ability of future generations to meet their
own needs.

Canadian Environmental Law is comprised of a number of

different principles. The International Joint Commission uses
the overall guiding principles of the integrity of the
ecosystem, the precautionary approach, sustainability, water
conservation, co-operation, existing institutions, measurable
objectives, sound science, and adaptive management, and
fairness. As well the principle of waste prevention is included
by other environment regimes although not listed by the IJC.
Waste prevention is the conservation and efficient use of
resources, including the importance of reducing, reusing,
recycling and recovering the products of our society.

33
 Alberta's Environmental Protection and Enhancement Act
includes a typical definition of "environment," which means the
components of the earth, including the air, land and water,
together with all layers of the atmosphere, all organic and
inorganic matter and living organisms as well as the
interacting natural systems that comprise any of these
components.

Some of these definitions and principles are recognized at

International Law. The International Convention on Biological
Diversity defined ecosystem as "a dynamic complex of plant,
animal and micro-organism communities and their non-living
environment interacting as a functional unit. The Rio
Declaration on Environment and Development adopts the
precautionary approach, "where there are threats of serious or
irreversible damage, lack of full scientific certainty shall
not be used as a reason for postponing cost-effective measures
to prevent environmental degradation."10

Within this framework there may be room to exclude water

in its natural state from trade regulation. However, much of
Canadian water is already being used for commercial purposes.
For example, in the Great Lakes, the largest single use of
water is for hydroelectric power generation using an estimated
one trillion gallons each day. The issue becomes if NAFTA/GATT
obligations require bulk water export to the U.S. in a
proportional share, at what point in time will this breach
environmental principles such as sustainability, if ever? As
well, if trade regulations have the effect of breaching
environmental laws, will Canadian judicial jurisdiction have
the obligation and jurisdiction to enforce "sustainable" laws,
10
Rio Declaration on Environment and Development, 14 June 1992, 31 I.L.M. 874, Principle 15.

34
or will international trade obligations provide an exemption
under Canadian Environmental Law?

National Treatment

Article 301 of NAFTA is the source of Canada's national

treatment obligation, "Each party shall accord national
treatment to the goods of another party."

What is the scope of the national treatment obligation?

GATT Article III is restricted to import measures only.
However, NAFTA Annex 301.3 specifically exempts from NAFTA
Article 301, export controls on such products as logs and fish.
The question becomes, does Article 301 extend to exports as
well? Is it limited to imports in its application? That such a
determination may be made by a WTO panel in opposition to
Canada's view, undermines the Canadian right to set the terms
of international treaties. Such a determination by a WTO panel
will explore the intentions of the parties and the plain
meaning of the text. It is unclear whether the intention was to
restrict the application of national treatment obligations to
import measures only, or only to provide further confirmation
of export exemptions.

It is not possible to predict with any confidence how this

question might be resolved by a dispute panel at some unknown
future date. If a panel were to conclude that Article 301of
NAFTA was intended to apply to exports as well, it would
provide strong support for the argument that Canada must treat
water bound for export markets, in precisely the same way it
would water bound for domestic consumption. However, to
misconstrue the plain language of "goods of another party" to

35
mean "domestic export goods," seems a bit extreme. This
determination really bends the plausible meaning of the Article
and the original intent of the drafters, even though the
Appendix specifically exempts some export controls.

Proportional Share

NAFTA Article 315 -Trade in Goods, Other export measures: A

party may adopt or maintain a restriction otherwise justified
under Art XI or XX (G)(I)(j) of the Gatt only if,

1. the restriction does not reduce the proportion of the total

export made available to the other Party relative to the
total supply as compared to the proportion prevailing in the
previous 36 months.
2. The Party does not impose a higher price for exports than the
price charged when consumed domestically. (does not apply to
a quota)
3. The restriction does not disrupt the normal channels of
supply.

This obligation gives rights to the recipients of current

exports to a proportion of the total Canadian supply of any
exported good, even if Canadian's must go short.
Notwithstanding the exceptions in GATT Article XX, Canada would
be precluded by Article 315 from ever reducing the "proportion
of total exports shipments of the specific good." In other
words, the U.S. may be entitled to a proportional share of
Canadian water resources, in perpetuity, once exports begin.
The Shrimp/Turtle Case demonstrates the difficulty of using the
Article XX exemptions, NAFTA imposes even higher standards on

36
Canadian attempts to justify trade restrictions. Overall, I
doubt if any sort of protectionist measure would survive a
challenge.

Investment Rights

Americans have the same rights as Canadians to establish,

acquire, and operate any resource company with virtually no
conditions attached. NAFTA Chapter 11 establishes investor
rights relating to goods and services including a national
treatment obligation in Article 1102. NAFTA Article 1110
establishes freedom from discriminatory expropriation and
adequate compensation for measures that interfere with a
business in a way deemed tantamount to expropriation.
Investment rights cover goods and services and probably include
access rights to water in its natural state.

Any investment right accorded to nationals, such as

commercial water service suppliers, must also be extended to
U.S. investors or breach this condition. The combined effect of
national treatment for investment and the expropriation regime,
require that ownership of Canadian water suppliers operating
under any grant or licence, at federal, provincial or common
law must also be open to foreign investors or risk the legal
claim of expropriation damages. For this reason it is necessary
for the government of Canada to act to restrict foreign
investment in Canadian water. As more investors become
associated with the supply of water in Canada, the risk of
investor-state claim liability increases. As well, investor
state claims would not be resolved by Canadian courts applying
Canadian law but rather would be subject to the jurisdiction of

37
international tribunals operating outside the context of
Canadian judicial norms.

The Canadian Strategy

Foreign Affairs Minster Lloyd Axworthy introduced an

amendment to the International Boundary Water Treaty Act of
1911 to prevent anyone from removing water in bulk from
Canada's boundary waters. Ottawa has jurisdiction over
international waters, while the provinces control the water
basins within their own boundaries. With the purpose of further
protecting Canadian water, Environment Minister David Anderson
attempted to persuade all the provinces to agree on a national
accord to ban bulk water exports. The federal strategy, seeks
to avoid the use of trade mechanisms to control water exports,
and was designed in the belief that all provinces would agree
to a national ban. Five provinces refused to sign a national
accord to ban bulk water exports. If the federal government
cannot manage to convince our own provinces to agree on
environmental measures, it seems unlikely that they will have
much success in the international arena. Not every province
wants to ban bulk water exports for obvious economic
considerations.

Part V : Conclusion

The sanction for a violation of GATT if authorized by the

WTO is a grant of permission to the aggrieved nations to
retaliate. This ensures a stable, predictable retaliatory
regime versus a unilateral retaliatory action with effects that
may not be proportional to the damage done.

38
 The NAFTA agreement has explicitly created obligations
within our free trade zone. Beyond this zone, WTO rules permit
the use of a high tariff. Within this region, no new tariffs
are allowed, but quota's may operate. The quota's however are
not the equivalent of tariffs because in this situation
underlying the quota policy is an obligation to keep
export/import ratio's for indefinite periods of time.

The federal strategy may involve trying to prevent bulk

water exports from Canada, however, agreements previously
signed bind us to our international obligations. Treaty law is
incorporated into domestic law.

I believe that it is wrong to approach the WTO/NAFTA water

problem from a ban perspective. Banning implies bad faith in
the international context. The agreement should always be
referred to and designed for providing what is necessary to
preserve water resources for non-commercial local use and
enjoyment.

Ultimately, a WTO panel may decide the extent of Canada's

obligations to international trade, and they may decide that
Canada is under obligations to export bulk water to the U.S. in
accordance with national treatment principles. Even if they do
not come to this conclusion, investment and therefore control
over service providers, will probably be caught.

If extraction of water in bulk does begin to occur in

Canada, it should be done under strict conditions which limit
the daily amount of water that may be collected to a
sustainable maximum amount. (i.e. One hose at the end of one
river.) Only with the passage of time does this grant of water

39
begin to pay off. It is only by viewing economic policy from a
perspective of duration that our natural resources will be
maintained. Overall reductions within the Great Lakes Basin of
even a foot or two a year will have drastic effects in the
area. Any large depletion of the water table would result in
similar environmental results.

These types of trade and investment decisions have

traditionally been within the sphere of Canadian jurisdiction
granted by the people to officials and elected representatives.
Such an international determination of economic decisions seems
offensive to Canada's sovereignty over natural resources. If
our representatives have committed our nation to obligations
that reduce our jurisdiction over the exploitation of our
national public resources, I cannot see how this is other than
a disturbing breach of a fiduciary duty owed by politicians to
the people of Canada.

Who benefits most under the provisions of NAFTA and GATT

as concerns water exports. In this case the answer is probably
U.S. agriculture. North America is moving toward one economy,
one capital market, and one investment market. NAFTA truly
creates an integrated North American economy with a single
market for all goods and services, including the use of natural
resources. That such integration undermines sovereignty seems
to have little effect, when the reality is that to reject these
agreements could bring serious financial hardship.

NAFTA even places limits on the ability of government to

regulate investment through existing or new crown corporations
or public enterprises. Under Article 1502 any government
monopoly must "act solely in accordance with commercial

40
considerations in the purchase or sale of that monopoly good."
This provision alone negates the rational of establishing many
crown corporations, and limits the ability of the Canadian
government to remove water services from the commercial sphere.

In hindsight, Brian Mulroney totally undermined Canadian

democracy and sovereignty by signing the NAFTA agreement and
giving away domestic control over market levers. He did not
have the benefit of seeing the WTO dispute resolution panels,
even so, the effect of the agreement is such that the WTO may
decide interpretative issues over NAFTA Articles that bind
Canada and require bulk export of water or retribution in lieu
thereof.

In my opinion, NAFTA must be a breach of the Constitution.

It is ultra vires the Constitution for foreign affairs to enter
into agreements that purport to remove legislative and judicial
jurisdiction originally granted and entrusted to these bodies
originally by the Canadian Constitution. As far as the
agreement undermines national sovereignty it offends the rule
of law. The rule of law requires that the government shall be
ruled by the law and be subject to it. Government by law and
not by men means government shall operate by general, open, and
relatively stable laws. The rule of law requires the subjection
of particular laws to general, open, and stable rules, such as
the independence of the judiciary to ensure review powers in
the face of unconstitutional executive action.

If foreign affairs has the jurisdiction to make treaties

relating to the Canadian and international economy, do they
enjoy this jurisdiction without Constitutional limitation? Can
they deprive or work toward depriving ownership of natural

41
resources for future generations. Can Parliament enter into
agreements that limit the full exercise of their jurisdiction,
granted to government officials by the democratic process? Do
they have the authority to limit domestic jurisdiction that
traditionally has been important to Canadian sovereignty?
Parliamentary fiat in a majority government could push through
any type of legislation. How much power do they have to bind
future generations? Can an assembly in Canada pass a Bill that
binds our citizens and judiciary to respect the authority of a
"greater body," such as a World Trade Organization,
indefinitely. A body that operates beyond the control of the
Canadian people, independent of our sovereign jurisdiction. Is
it possible for our legislature to assign our rights and
freedoms over natural resources, to that of another country,
indefinitely into the future? How can you pass up a right to a
higher independent body in full knowledge that the right might
possibly never be recovered. Can you enslave the wealth and
labour of your nation for longer than the term of your elected
mandate? I guess the easy answer is that a new Parliament can
choose to override previous legislation it finds distasteful.
It is unlikely to happen within the current market framework
because quitting the WTO agreement could bring with it
potentially sever consequences, such as loss of profit,
restriction and reduction in trade exports and even potential
volatility of global currency values. (which really begs the
question whether the GATT does not operate in effect by
wielding a big stick that demands conformity or risk an
increase in poverty by global economic regulation or trade
barriers.)

However, I do not see how it is not possible to retreat from

the WTO treaty if a state would so choose. At this point it

42
would even be possible to establish the very same regime at the
federal or provincial level. Rather than using a foreign body
to negotiate for trade blocks, Canada could individually treaty
with every place that will trade with us within the GATT
framework, outside the WTO. We have the technology. I mention
this assuming that this may minimize the loss resulting from
departure of the WTO forum. One main difference would be, of
course, that the dispute settlement procedure would be within
domestic jurisdiction, properly safeguarding Canadian
sovereignty.

The better choice to retreating from the NAFTA/WTO

agreement is just to allow retribution penalties for
infractions and work within that forum to limit the damage
calculated. Of course, the actual problem is not the GATT rules
so much as it is the NAFTA rules being applied in the GATT/WTO
dispute panel resolution setting.

If NAFTA investment rules apply national treatment

obligations to water and water exports, then Provincial and
Federal legislatures may be open to private expropriation
claims made by American investors. As between states, the U.S.
may insist upon nation treatment of exports as prescribed by
Article 301 of NAFTA or pay equal and proportional retribution
penalties as dictated by rules of the WTO. Which is not such a
bad outcome. But one wonders if we will find the political will
to protect our natural resources, and if we do, will it have
cost us more to participate in the WTO that it has given us in
benefit? The alternative of course is to just sell the water,
but to do so at a very high rate of profit, both domestically
and internationally. Of course, if it were to become profitable
enough, it would attract foreign investment. At this point, any

43
profit seeker with a capital pool larger in scale than any
Canadian could ever amass, could buy the whole industry and
then sell us back our own water for a good profit at fair
global market value. Free trade is capitalist rule.

Bibliography

Alan O.Sykes, Protectionism as a Safeguard: A Positive Analysis of the GATT Escape Clause
with Normative Speculations, 58 U.Chi.L.Rev. 255, 269-72 (1991).

Benedickson, J. Environmental Law. Irwin Law, Canada. 1997.

International Joint Commission, Protection of the Waters of the Great Lakes, Interim Report to
the Governments of Canada and the United States.

Innis, Harold. Essays in Canadian Economic History. (University of Toronto Press). 1956.

Innis, Harold. The Bias of Communication. (University of Toronto Press). 1951.

Jackson, Legal Problems of International Economic Relations, 3rd ed. (West Group, St. Paul
Minn.). 1995.

Barber, William. A History of Economic Thought. 1967.

Water-Export Plan Springs a Leak, Ottawa Citizen, 1 December 1999.

It's All for One in Blocking the Export of Bulk Water, The Globe and Mail, 2 December, 1999.

A Legal Opinion Concerning Water Export Controls and Canadian Obligations Under NAFTA
and the WTO, Steve Shrybman, West Coast Environmental Law, 15 September, 1999.

44