AfD Testimony, CA Coastal Commission





The Alliance for Democracy strongly supports the staff recommendation of a "YES" vote on the motion that "the Executive Director submit a protest to the State Water Resources Control Board, Division of Water Rights concerning the two applications of Alaska Water Exports to divert water from the Gualala and Albion Rivers for municipal water supply use in San Diego" ("Memorandum to Commissioners and Interested Parties," November 22, 2002, p. 2).

Further, based on the evidence and analysis presented, we support the "Conclusion" of each "Draft Protest Letter" (Attachments 1 and 2) that "environmental analysis has not been conducted and presented that demonstrates all adverse environmental impacts would be avoided, minimized or mitigated consistent with the Chapter 3 policies of the "Coastal Act," and the relevant standards of applicable certified local coastal programs (p. 16 of each).

We also support the recommendation for additional and other analyses needed to satisfy the Chapter 3 policies of the Coastal Act, and the relevant standards of applicable certified local programs ("Draft Protest Letter," p. 16 of each).

Finally, in addition:

We ask that the Executive Director include in the protest to the State Water Resources Control Board, Division of Water Rights an analysis of the impact of current and pending international trade agreements on the authority and jurisdiction of the California Coastal Commission.

The degree to which the authority and jurisdiction of the Coastal Commission, granted through the California Coastal Act of 1976 ("Coastal Act" Public Resources Code, Section, 30000 et seq.), could be impaired under specific provisions of these trade agreements merits serious consideration.

It is our concern that BECAUSE water services, including the collection and transportation of bulk fresh water, AND THE TRADING OF BULK WATER are covered in such agreements, AS WELL AS LAND USE REGULATIONS IMPACTING COASTAL PROTECTION, specific provisions to open market access and protect corporate/investor rights if used as a basis for a claim at an international trade court might override local and state authority and jurisdiction to protect California's coastal resources as codified.

The following document presents evidence to support this recommendation.

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The impact of existing and future regional and global trade agreements on the regulation of California's coastal and water resources remains to be analyzed. While there is ambiguity in the language of these agreements making analysis of specific impacts challenging, there is clear reason for the California Coastal Commission and other agencies in California to be concerned about how these agreements could curtail their regulatory authority. Our testimony is intended to highlight these concerns related to Agenda Item F3a.

Existing agreements include the North American Free Trade Agreement (NAFTA) and two agreements under the World Trade Organization (WTO) -- the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS). Future agreements now under negotiation include most notably the Free Trade Area of the Americas (FTAA) and the expansion of GATS.

Uncertainties in the interpretation of these agreements in relation to California laws and regulations are most likely to be resolved before NAFTA or WTO trade dispute panels which do not operate under the standards of the U.S. court system. The three-member tribunal is held in secret and the State of California has no right to participate in the proceeding as a party, and very limited opportunity to participate as an Amicus Curiae. In NAFTA trade disputes, only national governments and foreign corporations are recognized as parties. In WTO trade disputes, only national governments are recognized as parties. This means that it is essential for the Coastal Commission to understand as much as possible the potential trade implications with regard to the exercise of its regulatory authority AND TO CONSIDER THE FUTURE IMPLICATIONS IF THE GUALALA AND/OR ALBION APPLICATIONS WERE TO BE APPROVED.

Trade agreements impact California regulatory authority over water in relation to two modes: 1) water, including bulk fresh water, as a commodity traded in the marketplace and 2) water provision as a service. In addition, transportation of water is a service which can relate to both modes.

Water as a commodity. Trade laws can affect the ability of California to regulate the export of water from its rivers and aquifers once such waters are transported for sale across international borders.

Water as a service. Trade laws can affect the ability of California to regulate investments by a foreign corporation in California in order to provide a service related to the collection, distribution, and transportation of water; treatment of water, and the treatment and disposal of sewage.

Trade agreements could also potentially impact California regulatory authority with regard to land use, including zoning.

Today the Coastal Commission is specifically addressing the issue of granting permits to Alaska Water Exports to install underground pipes to withdraw water from the Gualala and Albion Rivers and to employ giant polyfiber bags for transporting water. These "services" are covered by the General Agreement on Trade in Services (GATS) under certain conditions which will be described

With this framework, we set out our current understanding of how NAFTA and the WTO agreements, specifically GATT and GATS, could come into play. For the NAFTA and GATT analysis we owe a particular debt of gratitude to Dr. Peter H. Gleick of the Pacific Institute located in Oakland CA, who has done the best analysis of possible impacts we have seen.

We present this testimony as concerned citizens, not as seasoned trade lawyers, in the hope that the Coastal Commission will examine the concerns we raise in greater detail and will recommend that analysis of potential impacts be completed and added to the protest letters to the Water Resources Control Board.


This agreement between the United States, Canada and Mexico would come into play if Alaska Water Exports were to export water from California to Canada or Mexico or if Alaska Water Exports were to bring in a Canadian or Mexican partner. Given that Alaska Water Exports is already considering hauling its water bags to San Diego and given the water shortages experienced in Mexico, Mexico would seem a likely market, particularly if U.S. industry located in Baja California or along the Mexican/US border were in need of unpolluted water.

A joint declaration signed in 1993 by the three countries makes clear that water is considered a "good" under NAFTA as soon as it is traded. The declaration states: "Unless water, in any form, has entered into commerce and becomes a good or product, it is not covered by the provisions of any trade agreement, including the NAFTA...."--quoted in Peter Gleick et al, The New Economy of Water , February 2002, Pacific Institute, p 18.

So according to this joint declaration, the water in the Gualala and Albion rivers are not to be treated as goods, UNTIL the water enters into commerce, in this case when it is extracted and pumped into bags for sale. Note that this language does not specify cross-border commerce with Mexico or Canada.

It is unclear, drawing on Gleick, whether once some California coastal river waters are allowed to be exported, whether this then means all California coastal waters will be treated as goods, or
possibly even all waters in the United States (Ibid., p. 18).

While we recognize that the present applications are for export only within the United States, once a system of extraction and waterbag transportation is established, it would be difficult for the California Coastal Commission to argue that the impacts on the California coast would be greater if the water bags were carried further down the coast to Mexico. If California were to allow Mr. Davidge and Alaska Water Exports to export water to Mexico, then NAFTA rules on proportionality, expropriation, and national treatment come into play.

Proportionality: The "Rule of Proportionality" set forth in Article 309 of NAFTA constrains the ability of California to limit the quantity of water exported from the rivers under consideration. In general, if
California were to limit the amount of water exported to Mexico or Canada, California itself would have to make a "proportional" reduction in its own consumption. So if the Albion or Gualala flows were below normal and California wanted to limit the amount of water Alaska Water Exports could withdraw, California itself would have to make a "proportional" reduction in its domestic use of the water from these rivers. What impact would such reductions have on use of the river water by communities which consume water from these rivers? On wildl ife and plantlife?

Expropriation: The U.S. Constitution protects the taking of private property by the government for public purpose by requiring just compensation. NAFTA goes further by introducing the concept of
"tantamount to expropriation" which covers government regulations that could reduce future profits of a foreign company and requires that the company be compensated financially if a trade dispute panel finds in their favor. "Tantamount" is not defined in NAFTA, so that it remains unclear how broadly the concept can be applied to protect corporate/investor rights ("Chapter 11") in relation to regulation of California's coastal resources. Such definitions will only come through the NAFTA dispute panel rulings before which California and the Coastal Commission have no rights as parties.

National Treatment
: Any foreign investor involved in withdrawing and exporting water would have to be treated "no less favorably" than domestic investors with regard to "the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments." This mean that if Alaska Water Exports were to be granted a license to export water, applicants from Canada or Mexico requesting permission to withdraw water would have to be treated at "least as favorably" as Alaska Water Exports. What impact this would have on the regulatory authority of the Coastal Commission and the State Water Resources Control Board?


All three NAFTA signatories (Canada, the United States and Mexico) are also parties to the WTO agreements which include GATT and GATS. These agreements can impact California's ability to regulate water withdrawal and transport.

GATT: "General Elimination of Quantitative Restrictions". Gleick makes a clear argument for why water is covered by GATT based on its listing in Section 2201.90.000 of the GATT "harmonized tariff schedule" (Ibid., p. 16). This established, the ability of California to regulate such extraction and use of water bags for bulk water transfers between countries could be curtailed by GATT Article XI: "General Elimination of Quantitative Restrictions." Section 1 reads:

"No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party."

Gleick comments on this section as follows:

"Once bulk water transfers are initiated by domestic industry, Article XI plays a significant role in constraining WTO member governments' ability to establish policies, programs, or legislation that regulate, curtail, or eliminate such transfers." Ibid, p. 16.

Note that the question of nationality of the investor does not arise here; however for a case to be brought before a WTO trade dispute panel, one would assume that a foreign interest would need to be at stake. This could be the importing country as well as the country of a foreign investor. Alaska Water Exports has a financial relationship, as yet not fully understood, with Saudi Arabian financiers and with Norwegian and Japanese shipping companies. Norway and Japan are both WTO members and could bring a case if they believed this provision was being violated.

It is important to mention that GATT Article XX (g) provides an exemption "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption." Apart from fossil water, most water is classified as renewable and so would appear not to be covered by this exemption, although Gleick makes an argument that mismanagement of freshwater resources can shift them into the non-renewable category. It should be noted in this regard that the International Joint Commission between Canada and US issued a joint report in 2000 which concluded that the Great Lakes water is nonrenewable "with an eye to ensuring that they would be subject to a GATT Article XX exemption" (Ibid. p. 16-17).

GATT Article XX (b) provides another exemption for measures "necessary to protect human, animal or plant life or health." This could be used to argue that some amounts of water are necessary to protect animal and plant life and health, but keep in mind that jurisdiction falls with a WTO trade dispute resolution panel which are not known for making pro-environment decisions.


First, a few basic facts about GATS - the General Agreement on Trade In Services. This WTO agreement covers all services, including transportation, and applies to all levels of government. The European Union has defined water collection, distribution and treatment as an environmental service, and to date the Office of The United States Trade Representative (USTR) has decided not to contest this definition.

Some rules, such as national treatment and market access, only apply to a particular service sector when a country agrees to include the sector on its "schedule of commitments." This schedule is where countries designate what sectors they have agreed to open up to foreign competition under the market access and/or national treatment rules.

"National treatment" is quite similar to the provision in NAFTA described above. "Market Access" forbids, among other things, any limitations on the number of service suppliers or on "the total number of service operations, or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test."

Other rules, such as "most favored nation" and standards for domestic regulation, apply to all
services whether or not they are on the schedule of commitments.

While to date no WTO member countries have taken market access or national treatment commitments on water services per se, many have taken commitments on related services such
as construction and transportation which are key to water infrastructure. Most important, mandated negotiations began in 2000 in order to broaden the coverage of GATS through "progressive liberalization" which means continuous, systematic opening of additional service sectors to market access and national treatment rules.

The key mechanism for this expansion is the "request/offer" process of bilateral negotiations
between WTO member countries. At its last ministerial meeting, the WTO set deadlines for initial requests of June 30, 2002 and for initial offers of March 31, 2003. So, now intense negotiations are presumably going on between countries. Once bilateral agreements are reached for countries to apply national treatment and/or market access rules to additional service sectors, these bilateral
agreements will then be extended to all 144 WTO member countries through the "most favored nation" rule which in fact means all member countries must be equally favored.

So if the United States were to make a deal with the European Union that we would open up bulk fresh water exports or municipal water/sewer systems to foreign competition in return for concessions that U.S. corporations want from Europe, then the United States would have to open up these water services to investment from any other member country on equal terms even if that country's corporations had a poor service record. Again, this could put unanticipated pressure on California's coastal resources.

The USTR is not making public the requests and offers under these bilateral negotiations. When pressed about whether state agencies that have jurisdiction over specific service sectors would be
informed, a USTR negotiator told us that only the USTR would decide which state agencies needed to be notified. When asked if that agency could then inform its constituency, the USTR staff huddled and said they would get back to us. To date, we have heard nothing back.

And so we ask you, has the USTR told you that the European Union has requested that the United States remove all limitations on activities under the category "Water for human use & wastewater management" which includes:

Water collection, purification and distribution services through mains, except steam and hot water?"

This they say is "based on the EC proposal for the classification of environmental services." Their request includes both national treatment and market access for Mode 3 which is foreign investment. It includes publicly, as well as privately, contracted services. If the USTR has not informed you, perhaps they have decided that you do not have a need to know.

The only reason we have this information is because somewhere somebody in Europe made the EU document available through non-official channels.

You might want to know what collection means. We have asked this question of the European Commission trade staff in Geneva and were told that they did not have a generic definition. It was up to each country to define. We do find this very reassuring in terms of collection including the collection of bulk fresh water.

Market Access. If the United States accedes to the EU's request and includes market access for water on its schedule of commitments, California will not be able to limit the number of service suppliers involved in the "collection, purification and distribution" of "water for human use" or place limits on the total value of foreign capital invested in developing these water resources. Under this scenario, how many shipping companies will invest in extracting, collecting and distributing water in how many bladders? What authority will you have to set ANY limits? (GATS, Article XVI).

National Treatment. If the United States agrees to the EU's request on national treatment and if collection is left undefined or specifically defined to include bulk water, then once you have allowed Alaska Water Exports to extract this water and use bladders, California will have to treat foreign companies from member WTO countries "no less favorably than that it accords to its own like
services and service suppliers." (GATS, Article XVII)/

There is still one other GATS rule to consider which will apply whether or not specific commitments to open specific service sectors have been made.

Domestic Regulation. GATS Article VI-4 (b) states that measures relating to, among other things, licensing requirements should be "not more burdensome than necessary to ensure the quality of the service." This provision, the specifics of which are still to be negotiated, has the potential for placing a tremendous burden on California regulators and appointed and elected officials to show that any ruling or regulation to protect coastal resources is "not more burdensome than necessary." This can also impact land use regulation related to protecting coastal resources, as well as regulations to protect the coastal rivers

Note that there is no consideration here on the burden on the environment or on coastal resources. The burden is on the ability of companies like Alaska Water Exports to provide the "service" of collecting water and transporting it to another location for sale. How then, in this context, can the Coastal Commission carry out the goal stated repeatedly in the "Letters of Protest" which is to find the "least environmentally damaging feasible alternative that best protects coastal resources and other public trust uses" ?

It is important to note that GATS, unlike GATT, does not provide for a general exception based on the conservation of exhaustible natural resources. Instead it just retains the GATT exemption relating to protecting "human, animal or plant life or health," which is a much weaker standard

This rule applies even if the domestic regulation does not discriminate against foreign investors. And perhaps most important, the language of this article does not relate just to foreign service providers.

Further, the language can be interpreted to apply to trade within a country. If any such challenge were brought before a WTO trade dispute panel by another member country, California would not have the right to represent itself before the panel.

Clearly, approving even one application to collect water for human use and transport it in bladder s starts California down a dangerous slope into the tumultuous waters of GATS where California's regulatory authority could be severely hampered.

DOHA MINISTERIAL DECLARATION ON ENVIRONMENTAL SERVICES: Finally at the Fourth Ministerial in Doha, the Ministerial Declaration included language calling for "the reduction or, as
appropriate, elimination of tariff and non-tariff barriers to environmental goods and services" (Article 31-iii). "Non-tariff barriers" refers to all kinds of government laws and regulations outside the realm of trade such as environmental standards. With the EU's unchallenged classification of water collection and distribution as an environmental service, water collection and distribution service corporations stand to benefit from removal of non-tariff barriers. Once again, your authority in protecting the California coast could be eroded.

FREE TRADE AREA OF THE AMERICAS: Since the FTAA is under current negotiation, we will limit our comments to noting that the USTR is pressing for a comprehensive services chapter to include all services unless specifically exempted by individual member countries. It is expected that the United States will also press for stronger provisions than outlined above for GATS.

Additionally, there is debate as to whether an investor-to-state dispute resolution provision similar to NAFTA Chapter 11 should be included.

In closing, we recommend that the Coastal Commission examine the trade-related issues we have raised with great care and thoroughness and include these findings in the protest letters to be sent to the Water Resources Control Board concerning the proposed diversion of water from the Gualala and Albion rivers and the use of polyfiber bags to engage in the trade in water for human use.