The 2005 Great Lakes Agreements:  A Call to Clarify and Reserve the States the Power to Determine the Status of Water as “Products” or Water Exports and the Exemption from the Diversion Ban

                                                               November 22, 2005

                                                                      Jim Olson^[1]

The Council of Great Lakes Governors announced that negotiators for eight states and two provinces have agreed on two agreements to protect the waters of the Great Lakes Basin from diversion to other parts of the United States, Canada, or the world.  While the threat to the Great Lakes was originally thought to be from large diversions to the Western U.S., and waste within the Basin, it has become more apparent in the last few years that another threat looms – that of export or the removal and sale of water for use outside the Basin.  The export issue has mostly taken the form of bottled water, but the underlying issue involves efforts to turn water – a public resource held in trust – into a private product or commodity at the point of capture or withdrawal from the ground or a lake, stream, or spring.  The agreements have been put on the desks of the governors who have slated December 13, 2005 as the deadline to approve and sign them.  If the agreements are signed without further clarification and corrections regarding the status of water as a product or export under the agreements or the reservation of power to the states sovereignty to require authorization and licensing to claim such status, the states and public risk losing control of water resources in a time of increasing national and global demand.

It should be understood that the threat of bottled water or other water exports is about legal precedents that could make it difficult if not impossible to restrict exports in the future in the face of increasing demand for water around North America and the world.  While impacts and diminishment of flows and levels of affected streams, robbed of their source, is a significant concern, the larger concern is about the conversion of public waters into a product for private gain without authorization or consent of citizen or their legislators.  The recent version of the Annex agreements would do just that.

Admirably, the agreements ban all diversions of water by nearly any means out of the Basin, except for diversions through the extension of water service pipelines to communities or growing urban areas that straddle the Basin divide.  ^[2] They also impose standards on reasonable use of water inside the Basin, including environmental and conservation measures.  But the agreements would legalize diversions of water as an export in any sized package or container for intermediate or end use somewhere else, even if outside of the Basin.  Incredibly, while water may not be diverted to the West or around the world in pipelines, ships, railcars or trucks, it can be exported as a Product by putting it in bottles, jugs, water bags, other containers.  The agreements provide that diversions of water as a “Products” are not a diversion.  Because of this, the agreements have an inherent bias in favor of water exports.

The term “diversion” is broadly defined as “a transfer of water from the Basin into another watershed” through pipelines, ship, truck or rail.^[3]  But this definition “does not apply to water that is used in the Basin or Great Lakes watershed to manufacture or produce a Product that is then transferred outside of the Basin or watershed.”^[4] The term “Product” is defined as “something produced in the Basin by human or mechanical means or through agricultural processes and used in manufacturing, commercial or other processes or intended for intermediate or end use consumers.”^[5]  The italicized phrases when given their plain meaning would include water withdrawn by humans or mechanical means, like pumps and wells; that is put in a package or container of any size in any amount.  In other words, water can be captured, put in a package, and presto it’s a Product or export, not a diversion.  Such word play could well doom or severely chill future public control and even the integrity of the waters and ecosystem of the Great Lakes.  As the saying goes, “the devil is in the details.”  When you put the broad definitions of “Diversion” and “Product” side-by-side it is clear that any water in any container for intermediate or end use outside of the Basin by a consumer would be a “Product” and not subject to the general ban on diversions.

How do the agreements and these definitions square with present legal rules and regimes?  The Federal Water Resources Development Act of 1986, amended in 2000, prohibits all diversions or exports unless consented to by every governor of each of the eight Great Lakes states.^[6]  When the WRDA was amended in 2000, Congress rejected attempts to qualify the ban with the adjective “bulk.”  Yet, the above definitions would exempt from diversions all water transferred from the Basin that is a Product.  Obviously, the definitions bore a serious hole in the hull of the agreements, and do not measure up to WRDA.

Most Great Lakes states follow some form of the “reasonable use” doctrine, which allows use of water in connection with land or in a watershed so long as it does not cause unreasonable harm to others.  Some states, like Michigan, declare a diversion from a lake or a stream to be unlawful because it severs the water that is shared by the other riparian landowners or communities dependent on this common resource.  Or as the circuit court judge held in the Michigan Citizens for Water Conservation v Nestle Waters North America Inc. lawsuit,^[7] the pumping and diversion of groundwater for sale out of a watershed or the Basin is unreasonable where it measurably diminishes the flow or level of a lake or a stream.  This is because the owners of property on the lake or stream or watershed  – cottager owner, farmer, industry, and municipality  – share the water in common.  Under the definitions in the agreements, water that is intended to be sold for use elsewhere would become a Product at the point it is removed from the ground, lake, or stream, and the common law rules that protect persons, businesses, communities and private property rights in water would be ignored.  The agreements do not measure up to these common law principles.

The agreements recognize that waters of the Basin are “public resources held in trust.”^[8]   Under the public trust doctrine,^[9]  public trust waters can not be disposed, alienated, or diverted for private sale without express legislative authority, a licensing or other use agreement, and then only if it is primarily for a public purpose, there is no harm or impairment, and the public is adequately compensated for what is lost.^[10]  Yet under the definition of Product, the water would be converted to private ownership for use by consumers elsewhere for private gain.  There are no requirements for legislative authority, licensing, determination of no impairment, or fair compensation to a state and its citizens.  A few words in the definitions would wash away the footprints of centuries of public trust law with no accountability to the states or public.  The agreements do not measure up to public resource and trust principles.

While the conceptual basis in the new agreements has shifted the status of water exports from diversions to products, with the significant chilling effect of the commerce clause or NAFTA as described below, the agreements sought to temper this by adding a “Bulk Water Transfer” section.^[11]  The section expressly prohibits the transfer of water out of the Basin in a container greater than 5.7 gallons (20 liters).  First, if transfers of bulk water exports are banned, then why the shift from treating them as a “Diversion” and exempting them as a “Product.”  By doing this, the agreements may be more susceptible to discrimination challenges under the commerce clause of the U.S. Constitution or the North American Free Trade Agreement.  If a transfer of water exports remains a diversion, it is not a product or article of commerce, and would be applied equally.  But once a product is in inter-state commerce or a private good, these anti-discrimination provisions chill any effort to regulate or ban the flow of goods from one state or nation to the other.  It would have been wiser and more defensible to have treated all transfers, containers or not, as diversions, then let the states decide whether they would be authorized or licensed in the first place.

Second, it implies that all transfers of water in containers less than 5.7 gallons are not prohibited.  No negative precedents are implied by allowing potatoes, beer, and soda pop to be sold outside of the Basin.  But serious negative precedents and effects could result if water exports are treated as a product, including the commerce clause and NAFTA problems that may arise for water in containers greater than 5.7 gallons.

The agreements try to soften the blow of these negative effects by including a savings clause.  It provides that states “have the discretion to determine the treatment” of water exported in containers less than 5.7 gallons.^[12]  But the problem with the savings clause is that the meaning of the word “treatment” is too vague.  Moreover, the discretion of the states is limited to exercise after the fact, suffering the same fate under the commerce clause or NAFTA as a state’s attempt to restrict or ban products or goods once they are in the flow of commerce.  It is somewhat illusory to exercise power to restrict the flow of water exports in small containers after it has been defined a “Product.”

After all, in 1999, a company sought to export 160 million gallons of water a year to China.  The scare shocked Great Lakes governors and citizens into negotiating agreements that would prevent such diversions or exports in the future.  Ironically, the definitions in the current draft of the agreements sanction the export of water in small containers far beyond the 160 million gallons per year at stake in the ship-to-China scheme.  In the Michigan Citizens for Water Conservation lawsuit, Nestlé sought to export 210 million gallons a year from one water source that would diminish the flow and level of two lakes and a stream.  This is not an insignificant matter.  Global bottled water trade has reached 22.3 billion gallons a year.^[13]

Here is what the agreements need for clarification and to avoid the confusion and lack of clear state control over privatization of public water resources as exports or products:

1.         The definition of “Product” could be modified to remove the possibility that it includes water itself as a product in any sized container or package.  The first sentence would read, “Product means something produced in the basin by human or mechanical effort or through agricultural processes and used in manufacturing, commercial or other processes.”  The remaining portion of the definition would remain the same.

2.         The Bulk Water Transfer provision in the agreements could be deleted because it would be no longer necessary with the clarification of the definition of “Product.”  It would be up to states or provinces to decide how to treat water exports, including water in bottles or smaller containers.  All interested and affected parties would have equal rights and remedies to make whatever arguments exist under existing law.

However, in the alternative, if the definition of “Product” is retained, it could be revised to make it clear that states must authorize and license water for sale as an export before it qualifies as “Product” under the agreements: “‘Product’ means something lawfully produced in the Basin by human or mechanical effort or through agricultural processes and used in manufacturing, commercial or other processes, or authorized and licensed under state law and intended for intermediate or end use consumers.”

3.         And, if the Water Transfer provision is retained, the savings clause should be clarified to read:  “Each Party reserves the complete sovereign power to authorize, license, and permit (or not) the export of water as a Product in a manner it sees fit, so long as the exercise of such power is otherwise lawful.”  This clarification is perhaps most important of all, because regardless of what the agreements say, the states expressly reserve their sovereign power to require authorization, licenses, or other requirements before the water in small containers can be exported or transferred.  This would also minimize the risk of commerce clause or NAFTA challenges to subsequent state regulations or restrictions.

 It appears that Governor Granholm and the other Great Lakes states’ governors face a serious dilemma: Should they sign agreements which in their present form appear to have been drafted under the influence of private interests who want to convert public waters to private exports?  Or should they insist on deleting the Product/export loophole in favor of provisions that preserve public ownership and control?  It seems more prudent on behalf of most citizens, businesses, and communities to insist on a clarification of these definitions and to adopt changes in the agreements that assure public control and long-term protection of these unfathomably valuable public trust treasures and public resources from private plunder.