Canada's Dry on Exporting Water

With about two-thirds of the world's fresh water, Canada is arguably to water what Saudi Arabia is to oil. But Canadians are divided over how - or whether - to exploit their water resources commercially. They're especially concerned that the North American Free Trade Agreement (NAFTA) has surrendered their sovereignty over their own lakes, rivers, and aquifers.

And as California entrepreneur Jack Lindsey sees it, Canada is blocking development of an emerging worldwide industry. His half-a-billion-dollar lawsuit against British Columbia may help settle the issue.

In Mr. Lindsey's view, millions of people in the dry American Southwest could benefit from just a fraction of the fresh water that splashes across British Columbia on its way back to the Pacific Ocean every year. His suit, filed after a provincial government policy shift left him unable to fulfill a contract, has been stalled in court.

But assistant US trade representative Jon Huenemann has taken up the matter with senior Canadian officials. "As we discuss the full range of trade and investment issues with Canada, and several also specifically with British Columbia, we will raise with them our desire to have this contract dispute resolved," he wrote to Lindsey's lawyer, John Carten of Comox, British Columbia.

"We've changed the venue to the United States government," Lindsey says.

The whole issue gained new visibility a few weeks ago. John Febbraro, president of the Nova Group in Sault Sainte Marie, Ontario, obtained a permit from the Ontario government to draw water out of Lake Superior. His plan was to ship the water by tanker for sale in Asia. After a firestorm of criticism on both sides of the US-Canadian border, Ontario announced it would cancel the permit.

It was never clear how water tankered through the St. Lawrence Seaway and then the Panama Canal could cost-effectively slake mass thirst in China.

But the picture is different in British Columbia: It is much closer to Asia and other markets, and it's wetter. Some 400 million acre-feet of water spill into the Pacific from the province annually. Rain falls on Canada's "Wet Coast," as lawyer Carten puts it, "in annual deluges that would make Noah feel at home."

Not everyone agrees with this view, however. Richard Bocking, an agricultural economist in Victoria, British Columbia, says flatly, "The concept of surplus water is erroneous." He warns accidents could happen if tankers - oil-fueled even if not oil-laden - plied the ecologically sensitive estuaries of British Columbia.

If Canada closes the gate on bulk-water exports, entrepreneurs in Alaska would like to supply the demand. "We're ready to go," says Ric Davidge, president of Alaska Water Exports in Juneau.

No one is yet transporting fresh water in oil-tanker-type vessels (very large crude carriers, or VLCCs). But smaller tankers as well as barges and "bladders" - giant water balloons, in effect - are in use to haul smaller volumes over shorter distances - in the Middle East, for instance. During the Gulf War, American forces were supplied with water tankered in from Turkey.

Alaska has the edge over British Columbia in proximity to Asian markets. But British Columbia is closer to southern California and northern Mexico. Jack Lindsey would prefer to supply these markets from British Columbia rather than Alaska - which is why he wants Canada to make up its mind about the water business.

WHICH brings us back to his lawsuit. In 1991 the Goleta (Calif.) Water District awarded Lindsey a contract to ship water in bulk by tanker. His firm, Sun Belt Water Inc., and its Canadian partner, Snowcap Waters Ltd. of Fanny Bay, British Columbia, would have shipped fresh, pure H20 from British Columbia to southern California. After years of drought, the town of Goleta was ready to consider the tanker option.

But just days after Sun Belt won the contract, the provincial government abruptly shifted its policy and placed a moratorium on new or amended licenses for bulk-water exports by marine transfer. Six companies, including Snowcap, had such licenses; 19 others had applied. But only one, Western Canada Water of Vancouver, British Columbia, was in a position to supply Goleta without an amendment to its license.

Lindsey suspects something other than an environmental-policy shift was going on. The moratorium was intended simply to "kill an American company's contract," he charges. Mr. Carten, Lindsey's lawyer, says that in his view the order imposing the moratorium was illegal because it "exceeded the authority granted by the legislature to the executive under the water act."

In 1993 the Sun Belt and Snowcap partners filed suit against British Columbia, charging breach of contract. British Columbia settled with Snowcap in 1996 but seems to be playing hardball with Sun Belt Water, based in Santa Barbara, Calif.

The case is on stay pending Lindsey's posting of $27,300 as security for costs, should the $468 million suit go to trial. Since the government has settled with Snowcap, Lindsey finds the demand for security anomalous. But a lawyer in the province's attorney general's office told the Monitor that the Snowcap settlement implies no admission of liability on the part of the province. She declined to say more to the press because the matter is in court.

It's not just the press with whom the government is declining to discuss this matter, however. A US official familiar with the case says, "The [British Columbia] attorney general seems to believe that because the case is in litigation, he shouldn't talk to me either." This official prefers to focus on whether by settling with a Canadian firm but stonewalling its US partner, British Columbia is discriminating illegally. "It looks on the face of it like a case of differential treatment," he says.

At Carten's request, the prominent Canadian law firm McCarthy Ttrault has reviewed the case and opined, "It is our view that Sun Belt has a good arguable case ... [under the] fair and equitable treatment guarantee of NAFTA."

Meanwhile, even some who oppose water exports worry that the moratorium is illegal. Under NAFTA "we gave [Americans] unfettered access to our waters," says Wendy Holm, an agrologist and resource economist on Bowen Island, British Columbia. She suggests that in the case of a full-scale legal challenge, Ottawa would have to force British Columbia to abandon its moratorium.