Legal implications of trade in real and virtual water resources

This paper examines certain of the legal implications of international trade in water resources under regional and international trade instruments, both from the point of view of exporting states wishing to protect domestic water resources and importing countries wishing to resolve problems of water scarcity through trade. In so doing, it describes how the perception of water as a unique and vital resource has been increasingly challenged as the international community focuses on its economic aspects, particularly through the adoption of an economically-based perception of water by the international financial and trade institutions on the domestic and global levels.

Water transfers between states are becoming increasingly important in various ways. The paper addresses first the issues arising with respect to international trade in bottled water and other drinks, and in bulk water. While bottled water and other drinks containing water have for a long time been considered commodities, and remain certainly the main form in which water is traded between states and on a large scale, the trade boom in such goods that has taken place in recent years coupled with mounting concerns over scarcer water availability nevertheless make it all the more necessary to examine the way in which the international trade rules apply to trade in these goods. Rather than being transformed and traded in small, defined volumes, or as part of other products, water can also be traded as such, in bulk form. Despite the high cost of transferring water over long distances as well as growing public pressure against water trade in exporting countries, there is increasing momentum for the establishment of an international water market by multinational and domestic corporations and increasing demand by countries facing water scarcity problems. These factors contribute to rendering the issue a lot less theoretical that it was a few years ago and give ground to the assumption that in the near future one could witness large-scale water transfers between states . It thus remains to be assessed whether and how international trade law, particularly the 1994 General Agreement on Tariffs and Trade (GATT), applies to the different forms in which water can be traded on the transboundary level.

Water can also be traded when it is incorporated in products which either contain significant amounts of water or require large volumes of water to produce. This has been referred to as trade in virtual water. On the one hand, the import of virtual water enables water scarce countries to save important quantities of freshwater domestically to produce a given crop, thereby relieving pressure on water resources or making water available for other purposes. Favouring import of water intensive products is p articularly relevant to some countries as one way of redistributing water on a national or regional level and as one alternative to inter-basin water transfers. On the other hand, however, p roblems related to trade in virtual water are becoming significant in countries like India - one of the top exporters of virtual water - where a large percentage of water goes into agricultural production. In light of growing concerns over water scarcity, attention is turning to the issue of water exports and imports linked to agricultural products and its relationship with the international trade rules. In particular, the WTO Agreement on Agriculture (AoA) provides the legal basis for, and locks in, the current levels of trade distorting subsidies provided by many developed countries. The paper examines whether the current trade regime allows or not sustainable virtual water trade on the regional and international levels.

Overall, the paper will attempt to draw out some of the main issues raised by the emerging international market in water and its relationship with international trade rules in particular the WTO/GATT. These issues form part of a more general discussion regarding the influence of the international financial and trade institutions on the water policies of countries in the South, both in terms of question of ownership in water management and in terms of perceptions of water as an economic good. They also reflect the way in which water is being increasingly commodified at the international level, which also influences national policies towards a market approach to water resources.