A Common Law Solution to the Bulk Water Export Problem

Note

In Deep Water: A Common Law Solution to the Bulk Water Export Problem

Elise L. Larson

The end of a world without large-scale bulk water exports may be near.1 Although previously deemed economically incon- ceivable, the growing problem of global water scarcity makes the sale of bulk water—large-scale international shipment of water by man-made diversion2—a potentially profitable enter- prise.3 An American company recently announced its plan to enter this newly developing market through its completion of a contract with the town of Sitka, Alaska.4 The company plans to export 2.9 billion gallons of freshwater per year from the Blue Lake Reservoir to an unannounced water hub on the west coast of India.5 If this venture is successful, the company will not only become the first in the United States to ship large-volume exports of water by tanker, but the first in the world.6 Since

 J.D. Candidate 2012, University of Minnesota Law School; B.A. 2009, Concordia College. The author thanks Professor Bradley Karkkainen for his advice and guidance, and Jeremy Harrell, Laura Arneson, and Nathan Wersal for their helpful comments throughout the process. Copyright © 2011 by Elise L. Larson. 1. See, e.g., Brett Walton, Alaska City Set to Ship Water to India, U.S. Company Announces, CIRCLE OF BLUE WATERNEWS (July 11, 2010, 2:49 PM), http://www.circleofblue.org/waternews/2010/world/north-america/alaska-city-set- to-ship-water-to-india-u-s-company-announces/. 2. This definition of bulk water will be used throughout this Note. 3. See Ariel Dinar & Aaron Wolf, International Markets for Water and Potential for Regional Cooperation: Economic and Political Perspectives in the Western Middle East, 43 ECON. DEV. & CULTURAL CHANGE 43, 43, 61–62 (1994) (finding that, with developments in technology, the application economic models to trade in water resources may show increased regional developments in some areas of the world). See generally U.N. DEV. PROGRAMME, HU- MAN DEVELOPMENT REPORT 2006: BEYOND SCARCITY 134–37 (2006), available at http://hdr.undp.org/en/media/HDR06-complete.pdf (discussing the current and future problems relating to water scarcity around the world). 4. Walton, supra note 1. 5. Id. 6. Id.

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740 MINNESOTA LAW REVIEW [96:739 this plan was announced, the Alaska Department of Natural Resources received three new applications to remove Alaskan water for international trade.7 These permit applications il- lustrate a growing international trend: as water resources are depleted, water-poor areas around the world will search for op- portunities to purchase water as a commodity.8 This new thirst for bulk water will undoubtedly encourage the expansion of this industry, creating new conflicts between the states‘ traditional authority to regulate their water resources and the limits placed on water resources if subject to international trade agreements. Many scholars hypothesize about the impact international agreements may have on traditional water right structures in the United States. One concern is that the actual export of water internationally may cause ―bulk water‖ to be defined as a ―good‖ or ―product‖ subject to the North American Free Trade Agreement9 (NAFTA) and the General Agreement on Tariffs and Trade10 (GATT).11 This categorization may result in the potentially serious domestic consequence of limiting a state‘s ability to regulate its water resources.12 Other consequences may include: discouraging investment by domestic companies; injuring ecosystems;13 and infringing upon the availability to the public of its most valuable resource.14

7. Brett Walton, Alaska Receives New Applications for Bulk Water Re- moval, CIRCLE OF BLUE WATERNEWS (July 8, 2010, 11:45 AM), http://www .circleofblue.org/waternews/2010/world/north-america/alaska-receives-new -applications-for-bulk-water-removal/. 8. Cynthia Baumann, Water Wars: Canada’s Upstream Battle to Ban Bulk Water Export, 10 MINN. J. GLOBAL TRADE 109, 109 (2001). 9. North American Free Trade Agreement, U.S.-Can.-Mex., art. 301, Dec. 17, 1992, 32 I.L.M. 289 (1993) [hereinafter NAFTA]. 10. General Agreement on Tariffs and Trade art. xi, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194 [hereinafter GATT]. 11. See Scott Philip Little, Canada’s Capacity to Control the Flow: Water Export and the North American Free Trade Agreement, 8 PACE INT‘L L. REV. 127, 139–41 (1996). 12. See Noah D. Hall, Protecting Freshwater Resources in the Era of Glob- al Water Markets: Lessons Learned from Bottled Water, 13 U. DENV. WATER L. REV. 1, 2–7 (2009) (discussing the potential harm to society and the environment through the removal of water for bottling). 13. See POLICY RESEARCH INITIATIVE, SUSTAINABLE DEVELOPMENT BRIEFING NOTE: EXPORTING CANADA‘S WATER I: OUTSIDE OF NAFTA, at 3 (2005), available at http://www.horizons.gc.ca/doclib/SD_BN_ExportingWater_E .pdf (describing the potential environmental risks associated with bulk water shipment). 14. See Baumann, supra note 8, at 129.

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The power to protect water resources under international trade lies largely in the hands of state governments because water rights are a form of property.15 States‘ police powers allow them to control property rights in water resources through statute, regulation, and permitting systems.16 Traditionally, state legislative power restricts the amount of water that becomes an article of commerce because a resource must be ex- tracted, used, and incorporated into a product before it becomes a ―good‖ for the purposes of trade law.17 However, state and lo- cal governments also have an incentive to allow the export of bulk water for short-term financial gain.18 This Note argues that because the legislature both holds the power to distribute water rights and possesses the potential to benefit financially by selling those rights in international trade, further protec- tions are needed to prevent the allocation of state water resources for bulk export. In Part I, this Note provides a brief overview of NAFTA and GATT, and their potential interference with the state regulation of water resources. This Part also supplies a brief overview of global water scarcity, American water law, and the public trust doctrine. Part II discusses the circumstances under which state and federal courts have applied the public trust doctrine and how this movement is applicable to bulk water exports. Part III asserts that the best remedy to solve the tension between international-trade law and state regulation of water resources is for state courts to apply the public trust doctrine to the allocation of permits for international trade.

I. PROPERTY RIGHTS IN WATER AND THEIR INTERPLAY WITH INTERNATIONAL TREATIES Global water scarcity is the fuel driving the new market of bulk water export.19 This Part describes this growing problem. As the bulk water market grows, exporting this resource will impact both the economic and political spheres of countries around the world. In the United States, the export of bulk-

15. See Scott S. Slater, State Water Resource Administration in the Free Trade Agreement Era: As Strong as Ever, 53 WAYNE L. REV. 649, 651–54 (2007). 16. See id. 17. Hall, supra note 12, at 3. 18. The city of Sitka, Alaska, for example, has the potential to make $90 million per year by exporting bulk water. Walton, supra note 1. 19. See Baumann, supra note 8.

742 MINNESOTA LAW REVIEW [96:739 water forms the intersection of three large bodies of law: first, state water rights20 under the police powers giving state legis- latures the authority to regulate and permit the waters within their territories; second, international trade law under NAFTA and GATT; and third, common law doctrines, specifically the public trust doctrine. This Part provides a discussion of these areas of law and describes how each applies to bulk water exports.

A. GENERAL OVERVIEW OF GLOBAL WATER SCARCITY Water is a unique natural resource in both the variety and importance of the needs it satisfies.21 Water‘s array of essential functions include: providing sustenance to humans, crops, and livestock; creating habitat for fish and other aquatic organisms; fulfilling both recreational and aesthetic needs; and purifying the air.22 This diversity of uses creates competition among water users, especially since, as one commentator noted, ―there is not always enough water of the right quality in the right place at the right time.‖23 Uneven geographical distribution is ex- acerbated by population growth, climate change, and over- pumping domestic resources causing global water scarcity in certain regions of the world.24 As a result, the World Health Organization estimates that over one billion people lack access to a basic water supply.25 This number is expected to increase to three billion people by 2025 as water stress increases in parts of China, India, and Sub-Saharan Africa.26 As a consequence, lack of this essential resource drives the new market for bulk water.27 As this market develops, American legislators and courts must determine how domestic law and policy will respond to

20. See generally WILLIAM GOLDFARB, WATER LAW 10–11 (2d ed. 1988) (explaining that water rights are legal rights and that ―a legal right is a legally enforceable expectation,‖ meaning ―that other people have enforceable du- ties toward a rightholder‖). 21. See, e.g., DAVID H. GETCHES, WATER LAW IN A NUTSHELL 1 (3d ed. 1997). 22. See, e.g., id. 23. Id. 24. Note, What Price for the Priceless?: Implementing the Justiciability of the Right to Water, 120 HARV. L. REV. 1067, 1070 (2007). 25. See WORLD HEALTH ORG. & U.N. CHILDREN‘S FUND, GLOBAL WATER SUPPLY AND SANITATION ASSESSMENT 2000 REPORT 1 (2000), available at http://www.who.int/water_sanitation_health/monitoring/jmp2000.pdf. 26. U.N. DEV. PROGRAMME, supra note 3, at 14. 27. See Baumann, supra note 8.

2011] BULK WATER EXPORT PROBLEM 743 the growing international need for freshwater resources. In re- lation to state rights, water exports will interact with both statutory water rights and judicial common law doctrines as water is redefined within this new market and by the terms of international treaties.

B. GENERAL OVERVIEW OF WATER RIGHTS IN THE UNITED STATES Two fundamental aspects of American water law are essential to a discussion of bulk water exports. First, water rights are a species of property rights28 and are subject to the police powers of a state.29 As a result, state common and statutory law determines the terms and conditions by which water rights are obtained.30 Second, water rights are usufructuary rights, meaning other people have the right to the benefits of another‘s water.31 This means a legal right to remove water must be ex- ercised with deference to the impact of one‘s use upon other water right holders,32 the public at large,33 and the environment.34 This Section explains these two aspects of water law.

28. See, e.g., Fed. Land Bank of Spokane v. Union Cent. Life Ins. Co., 29 P.2d 1009, 1011 (Idaho 1934) (―A water right is real property . . . .‖ (citation omitted)); N. Ohio Traction & Light Co. v. Quaker Oats Co., 152 N.E. 5, 9 (Ohio 1926) (―A water right is a species of property in and of itself . . . .‖ (citation omitted)). 29. See Slater, supra note 15, at 661. 30. Id. at 665–66. 31. BLACK‘S LAW DICTIONARY 1685 (9th ed. 2009); see also, e.g., Eddy v. Simpson, 3 Cal. 249, 252 (1853) (―[T]he right of property in water is usufructuary . . . .‖ (emphasis omitted)). 32. E.g., Bernard v. City of St. Louis, 189 N.W. 891, 893 (Mich. 1922) (holding that right holders are required only ―not to interfere with an ade- quate supply of water for the plaintiffs‘ reasonable use‖); see also RESTATE- MENT (SECOND) OF TORTS §§ 850, 850A (2010). 33. RESTATEMENT (SECOND) OF TORTS § 850A (1979); see also, e.g., Diack v. City of Portland, 759 P.2d 1070, 1078 (Or. 1988) (holding the commissioner must consider ―[t]he prevention of wasteful, uneconomic, impracticable or un- reasonable use of waters involved‖ when looking at the public interest); State v. Bleck, 338 N.W.2d 492, 498 (Wis. 1983) (holding that the subordinate rights of riparian owners are ―subject to the public‘s paramount right and interest‖). 34. See, e.g., Shokal v. Dunn, 707 P.2d 441, 448–49 (Idaho 1985) (citing Idaho law requiring environmental considerations when issuing permits for water rights); In re Eigenheer, 453 N.W.2d 349, 354 (Minn. Ct. App. 1990) (holding that the Minnesota permitting system must conserve the ―valuable resource‖ (citation omitted)); Stempel v. Dep‘t of Water Res., 508 P.2d 166, 172 (Wash. 1973) (applying Washington law to find that permits may be issued only if conditioned on the protection of the health of the natural environment).

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Under the state police powers, a person obtains water rights in a variety of ways.35 Generally, water-right regimes can be split into three categories: (1) common law riparian; (2) riparian with administrative permitting; and (3) prior appropriation.36 The basic premise of riparian common law is that a riparian owner—a person owning land which borders a stream or lake—has the right to take water for use on her land.37 The right to extract water is a consequence of riparian land ownership.38 As a result, water rights cannot be lost by disuse because the right is tied to the ownership of a specific kind of property.39 The nature of the riparian system puts non-riparians with water needs at a severe disadvantage because water rights are attained through property ownership and are not transfera- ble.40 Thus, many common law riparian states have enacted administrative-permitting systems to allocate water outside the common law regime.41 Under this riparian-with- administrative-permitting system, non-riparians can acquire water right by obtaining permits from a state administrative agency.42 The last major water allocation system is known as the prior appropriations doctrine.43 Under common law prior appropriations, water rights are not obtained through land ownership; instead, taking water and applying it to a beneficial use is the only way to acquire it.44 Most prior appropriation states have adopted this doctrine by statute.45 Generally, these statu-

35. See Slater, supra note 15, at 664. 36. See GOLDFARB, supra note 20, at 26, 33. 37. J.W. Milliman, Water Law and Private Decision-Making: A Critique, 2 J.L. & ECON. 41, 42 (1959). 38. Id. Within this general category, owners of riparian water rights may be subject to one of two allocation theories, natural flow or reasonable use. See GOLDFARB, supra note 20, at 22–24. These allocation methods are the terms by which a riparian owner‘s right is impinged by the public‘s usufructuary rights, discussed later in this section. See id. 39. See JOSEPH L. SAX, WATER LAW, PLANNING & POLICY: CASES AND MA- TERIALS 1 (1968). 40. GOLDFARB, supra note 20, at 24. 41. See George William Sherk, Eastern Water Law, 1 NAT. RESOURCES & ENV‘T, Winter 1986, at 7, 9. 42. See GOLDFARB, supra note 20, at 26. 43. See SAX, supra note 39, at 2. 44. See Milliman, supra note 37, at 42–43. 45. See Amber L. Weeks, Student Article, Defining the Public Interest: Administrative Narrowing and Broadening of the Public Interest in Response to Statutory Silence of Water Codes, 50 NAT. RESOURCES J. 255, 259 (2010)

2011] BULK WATER EXPORT PROBLEM 745 tory formulations approve appropriations in water, determine priorities for allotment, and administer the right to distribute water.46 Regardless of the type of system used, each state pre- scribes a set of terms and conditions by which a person may ob- tain water rights.47 Once an individual obtains a water right, it is not absolute because water is usufructuary and therefore remains subject to public ownership to a certain degree.48 As one commentator noted, ―[w]ater is legally and historically a public resource,‖49 meaning that water in its natural state is considered public property and belongs to the citizens of the state collectively.50 This gives the state power to regulate water use against its own citizens and the federal government regardless of whether that party owns the right to remove water.51 Therefore, a property right in water is distinguishable from that in land because the owner has a right to the use of the resource, but not to the actual property itself.52 Therefore, the state has customarily housed the power to regulate water resources through both allocation methods and enforcement of other citizens‘ rights. With the development of the bulk water export market, this structure may change as it is forced to interact with international agreements. The next

(―Every prior appropriation state except for Colorado has delegated quasi- judicial authority to state administrative agencies or state engineers to administer both new allocations, or permits, and changes in water rights, or transfers.‖). 46. See SAX, supra note 39, at 2–3. 47. Slater, supra note 15, at 665. 48. See id. at 650, 662–63 (―[W]hether water rights are derived as an in- cident of land ownership or by compliance with common law or statutory re- quirements, they are usufructuary property rights in a shared public resource and vest only to make use of the common supply and, even then, not without regard to the impact of one‘s use upon others and the environment.‖). 49. GETCHES, supra note 21, at 11. 50. GOLDFARB, supra note 20, at 11; e.g., State v. Bleck, 338 N.W.2d 492, 498 (Wis. 1983) (holding that the subordinate rights of riparian owners are ―subject to the public‘s paramount right and interest‖). 51. GOLDFARB, supra note 20, at 11. It should be noted that the states are subject to the Takings Clause if they appropriate water once water rights are vested in a private party. See Stop the Beach Renourishment, Inc. v. Fla. Dept. of Envtl. Prot., 130 S. Ct. 2592, 2601 (2010) (holding that the Takings Clause applies to the taking of a landowner‘s riparian rights); Yates v. Milwaukee, 77 U.S. 497, 504 (1870). 52. See Town of Chino Valley v. Prescott, 638 P.2d 1324, 1328 (Ariz. 1981) (holding that the right to groundwater is usufructuary); Rock Creek Ditch & Flume Co. v. Miller, 17 P.2d 1074, 1076–77 (Mont. 1933) (holding that the owner of a water right does not own the corpus of the stream).

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Section will discuss two major trading agreements and how they may impact the current American water-rights structure.

C. IMPLICATIONS OF GATT AND NAFTA ON AMERICAN WATER RESOURCES Historically, water has not been exported in bulk and, therefore, concern that international agreements would interact with domestic regulatory regimes was minimal.53 However, with the spawning of a new market in bulk water export, the potential interaction of these two bodies of law could reduce the ability of domestic law to regulate resources over which it traditionally had full control.

1. Application of GATT to Bulk Water Export Originally designed to provide an international forum to encourage free trade and resolve trade disputes, GATT was the initial step toward the development of a worldwide trade regime.54 With the formation of the World Trade Organization (WTO) in 1994, GATT now provides the basic legal structure that governs international trade between WTO members.55 GATT defines all commodities that may be traded by WTO members in the ―Harmonized Tariff Schedule‖ (HTS).56 Fresh- water is included under Section 2201.57 This inclusion is rele- vant to the discussion of bulk water because ―[t]he existence of an HTS number means that there is a mechanism under which shipments of fresh water can be processed by . . . customs or-

53. Cf. Dinar & Wolf, supra note 3, at 43 (finding that technology allows