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Economics and the equitable utilization of transboundary freshwater Stoeckel, Katherine Jane 2004

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ECONOMICS AND THE EQUITABLE UTILIZATION OF TRANSBOUNDARY FRESHWATER by K A T H E R I N E JANE S T O E C K E L B . E c , University of Sydney, 1999 L L . B . (Hons. I), University of Sydney, 2002 A THESIS SUBMITTED IN P A R T I A L F U L F I L M E N T OF THE REQUIREMENTS FOR THE D E G R E E OF M A S T E R OF L A W S in THE F A C U L T Y OF G R A D U A T E STUDIES (Faculty of Law) We accept this thesis as conforming to the required standard  (Ian Townsend-Gault)  (Richard Paisley)  THE UNIVERSITY OF BRITISH C O L U M B I A September 2004 © Katherine Jane Stoeckel, 2004  Library Authorization  In presenting this thesis in partial fulfillment o f the requirements for an a d v a n c e d d e g r e e at the University o f British Columbia, I agree that the Library shall m a k e it freely available for reference a n d study. I further agree that permission for extensive copying of this thesis for scholarly p u r p o s e s m a y be granted by t h e head o f m y d e p a r t m e n t or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without m y written permission.  N a m e o f A u t h o r (please print)  Title of Thesis:  D  e  9  r  e  e  :  Department of  Date ( d d / m m / y y y y )  (SOOMCMlCS AMJ^ TWB. E Q U l T A e (JS  MAST&g  OF  L.A\MS  Year:  OT|U2AT\ON  OP  20QM-  L^Vs)  T h e University o f British C o l u m b i a Vancouver, B C  mm  Canada  !,igrad.ubc.ca/forms/?formlD=THS  page 1 o f 1  last updated: 20-Jul-04  Abstract Equitable utilization is the fundamental rule of international water law. It is the doctrine responsible for the fair allocation of international waters as between different water uses and users. Equitable utilization is a process whereby the interests of each watercourse state are taken into consideration on a case-by-case basis over time and as circumstances change. The process occurs through political negotiations, with an equitable outcome as the goal. However, the debilitated state of many transbouhdary watercourses today indicates that equitable utilization - despite its admirable goals - is failing to resolve the tragedy of the global freshwater commons. With growing demands on water resources due to increasing world population, economic industrialization and increasing awareness of the need for environmental conservation, water management is an issue that will only become more pressing. Watercourses that flow between two or more states face additional challenges in that the water resources must be shared between them. The central question of this thesis is whether greater use of economics would help the equitable utilization paradigm lead to higher standards of water management between upstream and downstream states. The benefits of the economic approach include optimal efficiency of water use, political feasibility in water negotiations, and flexibility across time and regions. Although there are technical, distributive, and moral limitations to the use of economic principles, they can be sufficiently addressed such that the economic approach ought to be a central part of the solution to the problem of global water scarcity. Greater use of economic incentives needs to be made within equitable utilization regimes. Sensible ' pricing of water is imperative. Markets for water, however, are not yet a feasible option because they require well-defined, secure, and enforceable property rights in water, all of which are difficult to achieve at the international level.  n  r  Table of Contents Abstract  ii  Table of Contents  iii  Acknowledgements  vi  Chapter 1: Introduction  1  1.  Introduction  1  2. 2.1 2.2 2.3 2.4  The importance of international law for water use Water and the hydrologic cycle International law and the hydrologic cycle The global water crisis The unique problem of transboundary watercourses  8 8 10 12 17  3. Methodology 3.1 Theoretical framework 3.2 Market and institutional failure  22 22 25  4.  30  Conclusion  Chapter 2: What is equitable utilization and where did it come from?  31  1.  Introduction  31  2.  History of international water law  32  3. 3.1 3.2 3.3 3.4 3.5  Equitable and reasonable utilization explained Equity in international law Substantive content of the principle Equitable use in state practice Equitable use in codified international law Equitable use as the cardinal rule of international water law 3.5.1 Reconciling no harm and equitable use  4.  Conclusion  38 39 46 47 48 ..50 56 58  Chapter 3: The economics-equity interface in international water law  60  1.  60  Introduction  iii  2. 2.1 2.2 2.3  Benefits of an economic approach to resource scarcity Optimal allocation and efficiency Political feasibility Flexibility  61 61 64 66  3.  Addressing transboundary water scarcity through equitable utilization  67  4. Comparison between equitable utilization and US jurisprudence 71 4.1 A n economic view of 'equitable allocation': US jurisprudence 72 4.2 Comparison between the international and US perspectives on using economics in the context of water allocations 76 5.  Conclusion  78  Chapter 4 - Limitations of the economic approach 1.  Introduction  80 80  2. Case study of the Columbia River controversy 2.1 Background 2.2 Why the Columbia as a primary case study?  81 81 85  3. Internal limitations: environmental sustainability and social accord 3.1 The technical critique 3.1.1 Externalities 3.1.2 The difficulty of valuing the environment with a monetary measurement A . Survey methods B. Inferring value 3.1.3 Di scount rates for future benefits 3.2 The distributive critique 3.3 The moral critique 3.4 The uniqueness of water  92 93 94 96 97 98 99 100 105 109  4. External limitations: the limitations of international law 4.1 Sovereignty 4.2 Enforcement of and compliance with international water agreements  110 110 112  5.  115  Conclusion  Chapter 5 - Conclusion: Can equitable utilization be reconciled with economic theory? Water pricing, water markets and private property  117  1.  Summary  117  2.  Economic incentives and sensible water pricing  119  3.  Property rights and markets for water  121  iv  4.  Final conclusion  126  Bibliography  131  v  Acknowledgements This thesis bears my name as the author, but many people were fundamental to its creation. I would first like to acknowledge the support and feedback of my two supervisors, Ian Townsend-Gault and Richard Paisley. Ian was unsurpassed in offering challenging comments and invaluable insights throughout the thesis process, and his help in meeting the final deadline has been, quite simply, exceptional. Thank you, Ian. I am also very grateful to Richard, who first set me thinking about the challenges and opportunities in the field of international water law, and who has offered invaluable guidance ever since. As well, Richard was instrumental in helping me obtain funding from Columbia Power Corporation and the Faculty of Law to enable me to attend the Banff Mountains as Water Towers Summit in November 2003, a key event that opened my eyes to the complexity of the issues involved. I have been fortunate also to enjoy the intellectual stimulation and helpful advice of several other professors in the faculty, especially Joel Bakan, Doug Harris, Karin Mickelson and Annie Rochette. I wish to thank my fellow graduate students for all their fun and friendship too. Special thanks must be extended to my family and friends in Australia for their love and encouragement. In particular, I thank my father for focusing my thoughts on this topic and casting a critical eye.over the economic theory of the thesis. In Canada, thanks are owed to the Dickson family for their wonderful diversions, and to Tim Morgan for providing me with many a power muffin in my hour of need. Finally, my deepest thanks go to my partner, Tim Dickson, who made this year of graduate study possible. Thank you Tim for your invaluable comments on every stage of my thesis, for your unconditional love and support, and for all the walks in the woods together.  vi  Chapter 1: Introduction Countless millions of people have lived without love, but none without water. -  Amikam Nachmani 1  1. Introduction Freshwater: like it or not, our lives depend upon it. Unfortunately, however, because it is in limited supply and nearly every other organism on the planet needs it too, it must be shared. It is this simple notion that underlies this thesis, and it is useful to remember from time to time for sharing really is, in essence, a simple concept. But it has been greatly complicated. In the past, water seemed abundant. Laws evolved reflecting this perception of abundance, and states behaved accordingly. But such behaviour is dangerous because water is finite and without adequate safeguards in place a "tragedy of the commons" can arise for international freshwater. The tragedy arises because states seek to use as much of the water resource as possible now because if they do not, neighbouring watercourse states will use it all themselves. There is therefore no incentive to conserve or protect the watercourse.  -  At the international level, where rivers and lakes (and, more recently utilized, groundwater) encountered political boundaries, arguments and assertions were  ' Amikam Nachmani, "The Politics of Water in the Middle East: The Current Situation, Imaginary and Practical Solutions," in A l i Ihsan Bagis, (ed.), Water as an Element of Cooperation and Development in the Middle East (Ankara: Ayna Publications, 1994) at 301, 302. Cited in Joseph W. Dellapenna, "Adapting Riparian Rights to the Twenty-first Century" (2004) 106 W. Va L. Rev. 539 at 542. See Garrett Hardin, "The Tragedy of the Commons" (1968) 162 Science 1243 [hereinafter "Tragedy"]. The tragedy is discussed further, below at part 3.2 of this chapter, and again in chapter 5, part 3. 2  1  propounded to strengthen claims to this vital resource as against the other nations relying on the same water resource. At their most extreme, these assertions were wildly opposite: upstream states took the view that they could do what they liked with any water found within their territory, while downstream states unsurprisingly took the view they were always to be entitled in perpetuity to the natural flow of a watercourse. Then, in this century, when water became relatively scarcer due to factors such as population growth and economic development, international law reached an impasse until the principle of equitable and reasonable utilization emerged from the stalemate. In a nutshell, the principle says, "Each basin state is entitled, within its territory, to a reasonable and equitable share in the beneficial uses of the waters of an international drainage basin." In other words, it is the doctrine responsible for the fair allocation of 4  international waters as between different water uses and users. Both codified and customary international law recognize this principle to be the fundamental principle of international water law today.  5  Equitable and reasonable utilization is often shortened hereinafter to 'equitable utilization' or 'equitable use' for the sake of brevity. International Law Association, "The Helsinki Rules on the Uses of the Waters of International Rivers", Report of the Fifty-Second Conference, Helsinki 1966, at 484. [Hereinafter 'Helsinki Rules']. This statement of equitable utilization is found in Article IV, and is generally taken to be customary international law. See also below, chapter 2, part 3. Equitable utilization is now codified in the United Nations Convention on the Law of the Nonnavigational Uses of International Watercourses: G.A. Res. 51/229, para. 2, adopting the text of the Convention contained in the Report of the Sixth Committee Working Group of the Whole (U.N. Doc. A/51/869 (1997), at 6, para. 10). Reprinted in 36 I.L.M. 700 (1997) [hereinafter 'Watercourses Convention']. The Convention has not yet entered into force. The customary law status of equitable utilization was recognized by the International Court of Justice in the Case Concerning the GabcikovoNagymaros Project (Hungary v. Slovakia) 1997 I.C.J. 7 (Sept. 25) at 80, para. 147 [hereinafter GabcikovoNagymaros case]. For more on equitable utilization as a customary norm, see further Robert D. Hayton, "The Formation of the Customary Rules of International Drainage Basin Law" in A . H . Garretson, R.D. Hayton, & C.J. Olmstead (eds.) Law of International Drainage Basins (Dobbs Ferry, N.Y.: Institute of International Law, 1967) at 834; Charles Bourne, "The International Law Commission's Draft Articles on the Law of International Watercourses: Principles and Planned Measures" (1992) 3 Colorado J. oflnt'l Envt 7 L. & Pol 'y 65; Stephen McCaffrey, The Law of International Watercourses (New York: Oxford University Press, 2001) [Hereinafter "Watercourses"]; Slavko Bogdanovic, International Law of Water 3  4  5  2  However, as is the nature with all international law, the principle of equitable utilization is a doctrine with its roots in state practice. Decades of international negotiations and debate, political manoeuvring and diplomatic concessions have shaped the principle into its current form, with many international water agreements concluded under its rubric. However, despite equitable utilization's lofty ideals of beneficial economic, social and environmental outcomes for each watercourse state, examples of environmental devastation, economic inefficiency and social inequity regarding international watercourses are everywhere. Environmentally, things are not good. Watercourses around the world face decreasing aquatic life, increasing pollution and unsustainable overuse of both ground and surface water. The ability of these watercourses to renew and revitalise themselves are being seriously undermined by population pressures and economic development. Furthermore, no populated continent is spared: Everywhere you look, rivers are in trouble. In Africa, the Senegal and Niger Rivers, among others, have seen cataclysmic drops in fishing catches. In South America, Colombia's Magdalena River has seen its fisheries decline by two-thirds in fifteen years because of pollution from oil production. In North America, the Illinois River supported two thousand commercial fishermen at the turn of the century, but the landings have dropped 98 per cent, mostly due to heavy sewage loads. In Orlando, Florida, two young boys became crucially ill with amoebic meningoencephalitis after swimming in local waters. In Sydney, Australia, tap water was tainted early in 1998 with a dangerous parasite that may have come from dead dogs or foxes, leading to panic-buying of bottled water. A Dublin conference on Water and the Environment in 1992 finished with the depressing conclusion that "after a generation or more of excessive water use and reckless discharge of municipal and industrial wastes, the situation of the world's major rivers is appalling and getting worse." 6  Environmental problems often lead to increased costs and stagnated development on the economic front, particularly because unclean water effectively becomes unusable for many of its uses. For example, the World Bank study, Clear Water, Blue Skies Resources: Contribution of the International Law Association (1954-2000) (London and Boston: Kluwer Law International, 2001). Marq De Villiers, Water: The Fate of our Most Precious Resource (Toronto: McClelland & Stewart, 2001) at 97. 6  3  estimated the annual cost of air and water pollution to be US $54 billion, equivalent to nearly 8 per cent of China's 1995 gross domestic product. The main costs hidden in this 7  composite figure specifically due to water pollution are $14 billion in lost industrial output due to factory closures, and agricultural crop loss of $24 billion. A second problem hindering good economic outcomes are the inefficiencies and wastefulness of current water use practices. Water is often deployed to projects for political or personal gain with little regard to its most efficient or conservative use within the watercourse as a whole. Examples of this include the irrigation of low-value, waterintensive crops such as rice and alfalfa in the semi-desert regions of California, leaving little water in the system for the environment and other users despite negotiated agreements requiring otherwise. Similar water use practices have contributed to the 9  decimation of the Aral Sea due to wasteful, short-sighted Soviet-era policies favouring downstream cotton growers. The decline of central planning and the Soviet Bloc did little to change the entrenched and wasteful water use practices of the cotton growers. As a consequence, the Aral Sea has now lost 83 percent of its original volume, concentrating salt and pollutants to extremely toxic levels in the little water that is left.  10  Todd Johnson, Feng Liu & Richard Newfarmer, Clear Water, Blue Skies: China's Environment in the New Century (Washington, D.C.: World Bank, 1997). Ibid. See for example Janet C. Neuman, "Symposium on Water Law: Beneficial Use, Waste and Forfeiture: The Inefficient Search for Efficiency in Western Water Use," (1998) 28 Envtl. L. 919 at 939-40 (examining the diversion of nearly the whole flow of the Truckee and Carson Rivers for irrigation of alfalfa and forage crops in an area that receives just five inches of rainfall annually); A . Dan Tarlock, "The Recovery of the Colorado River Delta Ecosystem: A Role for International Law?" [2002] Colo. J. Int'l Envtl. L. & Pol'y 9 at 9-10 (detailing frequent periods where little or no water reaches the Colorado River Delta in Mexico, despite the existence of a treaty between the US and Mexico obligating the US to deliver 1.5 million acre feet of water to Mexico annually). Lester K. Brown, "The Effect of Emerging Water Shortages on the World's Food" in Bernadette McDonald & Douglas Jehl (eds.) Whose Water is it? The Unquenchable Thirst of a Water-Hungry World (Washington D.C.: National Geographic Society, 2003) at 85-6. 7  8  9  1 0  4  Environmental and economic problems often give rise to social tribulations of their own. De Villiers notes the riots in various southwest Indian towns in 2001, caused when the towns literally ran out of water during a particularly dry summer: " A dozen people were killed. The army was deployed to deliver tanker loads of water to desperate villagers. Water looters were shot."" Social problems can also be associated with largescale water projects designed to foster prosperity and cooperation. Dam building is a common target of complaints regarding social disruption. Peter Gleick cites some examples: [T]he construction of the Aswan High Dam by Egypt led to flooding and dislocation of populations in the Sudan; the construction of the Farakka Barrage on the Ganges in India affected water conditions and availability in Bangladesh; the construction of several major irrigation projects in the south-western United States led to the serious degradation of Colorado River water 12  quality delivered to Mexico and an intense political dispute...  In Turkey, Kurdish activists made allegations of ethnic cleansing due to the Ilisu dam, forcing the displacement of up to 78,000 Kurdish villagers and flooding dozens of Kurdish villages and culturally significant sites, while the Three Gorges Dam in China 13  is estimated to displace between 1.2 million and 2 million people, with little compensation.  14  Fred Pearce estimates the worldwide number of refugees from dam  construction to be around 16 million, many of these belonging to minority groups.  15  " De Villiers, supra note 6 at 12. Peter Gleick, "Water in the 21 ' Century" in Peter Gleick (ed.), Water in Crisis: A Guide to the World's Fresh Water Resources (New York: Oxford University Press, 1993) at 110. International Rivers Network, "Beyond Big Dams - an N G O Guide to the W C D : Ilisu Dam, Tigris River, Turkey", online: International Rivers Network <http://www.irn.org/wcd/ilisu.shtml> (date accessed: 12 September 2004); The Economist, "Turkey's latest controversial dam" (27 April 2000), online: The Economist <http://www.economist.com> (date accessed: 27 August 2004). The Chinese government has itself admitted that around $58 million of the $2.1 billion it allocated for resettlement was 'misappropriated': The Economist, "Dam Shame" (4 July 2002), online: The Economist <http://www.economist.com> (date accessed: 27 August 2004). Fred Pearce, The Dammed: Rivers, Dams, and the Coming World Water Crisis (London: Bodley Head, 1992) at 154-55. 1 2  s  1 3  1 4  1 5  5  These few examples serve to highlight that everything is far from perfect with respect to the world's watercourses. Taking my cue from these and countless other examples, I therefore examine why international water law, through its primary doctrine of equitable utilization, is not leading to good social, economic and environmental outcomes for international watercourses. In so doing, I address a crucial deficiency in the debate on the future of the world's international watercourses. Whether the governing doctrine of international water law is able to meet the needs of an increasingly water scarce world is fundamental both for improving the efficiency of water use and maximizing long-term development that is economically, environmentally and socially sustainable. With growing demands on water resources due to increasing world population, economic industrialization and recognition of the necessity to dedicate a set amount of water for environmental needs, water management is an issue that will only 16  become more pressing. A n examination of whether equitable utilization can actually deal with the pressures of impending global water scarcity is crucial, because economic principles, rather than vague standards of equity, have been shown to best manage natural resource scarcity in the past.  17  For example, economic analysis has been successful in helping to  solve coastal and marine resource problems, particularly in the areas of fisheries  This need is commonly expressed as an 'environmental flow', meaning the flow within a watercourse necessary to maintain ecosystems and their benefits when the watercourse is subject to competing uses. Because of the other uses of the watercourse, the environmental flow will be less than the natural flow, but will mimic natural flow patterns and be sufficient to maintain ecosystem health. See further below at chapter 1, part 3.1. See also generally Yoram Barzel, Economic Analysis of Property Rights (Cambridge: Cambridge University Press, 1997); James R. Kahn, The Economic Approach to Environmental and Natural Resources, 2 ed. (Fort Worth: Dryden Press, 1998); Tom Tietenberg, Environmental and Natural Resource Economics, 5 ed., (Reading, M A : Addison Wesley, 2000). 1 6  1 7  nd  th  6  management and renewable marine resources.  Forestry has also benefited from the  application of an economic approach to resource scarcity.  19  As well, economics can be  used to shape public behaviour, and thereby tackle environmental problems. A further example is the imposition of carbon taxes to help to prevent global warming by making the use of fossil fuels more expensive, which itself makes the search for substitutes and greater efficiencies of carbon use more attractive.  20  Given such examples, it begs to be  asked whether economics can help resolve international water scarcity too. However, economics is not the only method to resolve transboundary freshwater scarcity. There are in fact two avenues that can help lead to better watercourse outcomes. The first is legal and the second, as mentioned above, is economic. The legal avenue depends upon notions of state responsibility to shape states' behaviour towards better watercourse regimes, while the economic avenue relies on the use of economic incentives to achieve the same goal. Both avenues are valid. However, I have chosen in this thesis to concentrate on the role of economics because Iview it as misunderstood and misrepresented - and even feared - in the debate today. The specific issue discussed in this thesis, then, is whether the fundamental principle of the international law of freshwater - equitable and reasonable utilization effectively improves and promotes higher standards of water management between  See H . Scott Gordon, "The Economic Theory of a Common-Property Resource: The Fishery" (1954) 62 J. Pol. Econ. 124; Colin W. Clark, "Restricted Access to Common-Property Fishery Resources: A GameTheoretic Analysis" in Pan-Tai Liu, (ed.) Dynamic Optimization and Mathematical Economics (New York: Plenum Press, 1980) at 117; H. J. Ruitenbeek, "The Great Canadian Fishery Collapse: Some Policy Lessons" (1996) 19 Ecological Economics 103. Robert Deacon, "The Simple Analytics of Forest Economics" in Robert Deacon & M . Bruce Johnson (eds.), Forestlands: Public and Private, (San Francisco: Pacific Institute, 1985); W.J. Reed, "The Decision to Conserve or Harvest Old-Growth Forest" (1993) 8 Ecological Economics 45; Richard Hartman, "The Harvesting Decision When a Standing Forest Has Value" (1976) 14 Economic Inquiry 52. David Pearce, "The Role of Carbon Taxes in Adjusting to Global Warming" (1991) 101 Economic Journal 938. 1 8  1 9  2 0  7  upstream and downstream states. To examine this issue, the thesis is structured in five chapters. In the first chapter I outline the hydrologic cycle and nature of the global water crisis. I then put forward the theoretical framework and methodology under which the rest of the thesis is argued. Chapter two covers the legal and historical development of the principle of equitable utilization, describing why it is now the fundamental principle of international water law. In chapter three I look at the interface between economics and equitable utilization, using United States domestic water law jurisprudence for comparison with the international regime. The benefits of the economic approach are also covered in that chapter. Chapter 4 then discusses the limitations of the economic paradigm to cope with water scarcity, drawing upon a Canada-United States case study to illustrate the inadequacy of the principle, and using supplementary examples where appropriate. I conclude my thesis in chapter five with an examination of whether and how economics can be successfully reconciled with the ideals of equitable utilization, and also suggest directions for future research.  2. The importance of international law for water use 2.1 Water and the hydrologic cycle With so much reliance on freshwater, it is worth .taking a closer look at this vital resource. The hydrologic cycle is a process whereby water is continually renewed and replenished. Water evaporates (mainly from the oceans, but also from lakes, rivers and plants) into the atmosphere, then condenses and falls as rain or snow again. When it falls on land, water finds its way into rivers and their tributaries, lakes, icepacks and glaciers,  8  and ground water.  21  The two key features of the hydrologic cycle are first that it is a  closed system (the amount of water evaporating equals the amount water returning to the earth through the cycle) and second, that water is perpetually in motion through every stage of the cycle. Surprisingly little of the earth's water is available for human consumption. A staggering 97.5 percent of water on the planet is found in the oceans.  22  Of the remaining  2.5 percent - the freshwater we depend upon - around 76 percent is effectively unusable, as it is trapped as glaciers and permanent snow cover. 13 percent is too deep within the ground for practical use (800-4000 metres deep), and 10 percent is found as groundwater within 800 metres of the surface.  Groundwater accounts for approximately 97 percent  of the world's total supply of accessible freshwater; only 0.33 percent of the entire world's freshwater is contained in lakes, while a meagre 0.004 percent runs through the earth's rivers and streams.  24  To this point, however, these sources of surface water have  generally been sufficient to deal with humanity's needs. But now growing population and economic development pressures place this balance in jeopardy. To compound the problem, having a sufficient quantity of freshwater is no longer enough. The water must also be of a usable quality. When pollution degrades water quality, the quantity of water necessary to meet the human and ecological needs of the watercourse increases correspondingly.  25  At some point the water may even become  totally unusable. This places yet another stress on the world's fragile water resources, There is also 'confined groundwater', which are (uncommon) ground water stores that do not interact with the surface water. Because they do not interact, confined groundwater is not part of the hydrologic cycle. Igor A . Shiklomanov, "World fresh water resources" in Peter Gleick (ed.), Water in Crisis: A Guide to the World's Fresh Water Resources (New York: Oxford University Press, 1993) at 13. McCaffrey, "Watercourses" supra note 5 at 27. Ibid. This is reflected in a common engineering mantra: "the solution to pollution is dilution". 2 1  2 2  2 3  2 4  2 5  9  and it is vital to understand and remember this oft-overlooked link. If water is too polluted, then it is useless to sustain life.  2.2 International law and the hydrologic cycle The problem with water for international law is that it moves: it flows across national boundaries, evaporates back into the atmosphere falling elsewhere as rain or snow, and seeps slowly through the earth as groundwater. In short, water and the hydrological cycle do not obey the vagaries of political, man-made'bouridaries. Although other natural resources also transcend international borders, the continuity of the hydrological cycle and the essential nature of water for all existence underlie the strength of sovereign concern over this particular natural resource. This has forced countries to come to agreements for the regulation and use of international watercourses. The first international treaty ever recorded dealt with the settlement of an international watercourse dispute. Over 3600 international water agreements have been concluded 26  since, serving to highlight the importance of international cooperation in the field of 27  transboundary water resource management. The role for international law is thus to provide the structure by which a fair and sustainable agreement can peacefully be reached, as well as to provide for both the initial allocation of property rights in water and *  the enforcement of those rights.  28  The earliest recorded treaty was between the ancient city-states of Umma and Lagash in Mesopotamia to settle a water dispute in approximately 3100 BC: McCaffrey, "Watercourses" supra note 5 at 59-60. M . A . Giordano & A . T . Wolf, "The World's International Freshwater Agreements", online: Transboundary Freshwater Dispute Database <http://www.transboundarywaters.orst.edu> (date accessed: 26 November 2003). 2 7  2 8  This point is discussed in detail in Chapter 5, part 3.  10  International water law generally falls within the broader field of international environmental law, which itself is a rapidly expanding field of international law. From the first international convention regarding the environment,  the number of bilateral,  regional and multilateral international agreements designed to protect, conserve and restore the natural environment must now number into the thousands. Within this field, equitable utilization occupies an important niche, as the principle governs the management of life's most important resource. Humans utilize water in a myriad of ways, from simple daily uses such as cooking, drinking, cleaning and sanitation, to complex arrangements for energy production, irrigation and industrial use. Recreation on or around watercourses is ever-present, as are the age-old uses of transportation and harvesting of the water's natural bounty. Water touches every aspect of our lives. And there is no substitute for it - it is, in the words of one commentator, a "non-negotiable precondition of life."  30  As the governing doctrine of international water law, equitable utilization is especially important today not only because of humanity's ultimate reliance on water, but also for two other reasons, discussed below. The first is the looming global water crisis; a crisis that some, including the United Nations, say has already arrived.  31  The second is  the unique problem of transboundary watercourses, with competing claims of sovereignty  The earliest international environmental treaty was the 1754 Treaty Between Her Majesty the Royal Empress and Her Serenity, the Republic of Venice, Concerning the Definition of Borders, 17 August 1754. This treaty concerned the free flow of water and use of water for fishing. The treaty is noted in Bernd Ruster & Bruno Simma (eds.) I International Protection of the Environment 99 and cited in Susan Emmenegger & Axel Tschentscher, "Taking Nature's Rights Seriously: The Long Way to Biocentrism in Environmental Law", VI Georgetown Int'l Envtl. L. Rev. 545 at fn 143. Malin Falkenmark, "Water Scarcity - Challenges for the Future" in Edward H.P. Brans, et al (eds.) The Scarcity of Water: Emerging Legal and Policy Responses (London: Kluwer Law International, 1997) at 22 [hereinafter "Challenges"]. See World Water Assessment Programme (United Nations), UN World Water Development Report: Water for People, Water for Life (New York: U N E S C O Pub.: Berghahn Books, 2003). 3 0  3 1  11  over this particular natural resource. Although states have chosen to give up sovereignty in the past for environmental purposes, water is of a different nature because people die, 32  and quickly, without it.  33  Further, with around 70 per cent of total world water  withdrawals used for irrigation, good water management is central to a state's food production capabilities.  34  States are understandably more concerned over water than over  other natural resources because of water's critical nature, and international law therefore has a large role to play in facilitating agreement and preventing disputes.  2.3 The global water crisis Global freshwater consumption rose sixfold between 1900 and 1995 more than twice the rate ofpopulation growth. About one third of the world's population already lives in countries considered to be 'water stressed' - that is, where consumption exceeds 10 percent of total supply. If present trends continue, two out of every three people on Earth will live in that condition by 2025. - Kofi Annan  35  -  Much has been written about the impending global water crisis, though the extent of the crisis has only become apparent in more recent years and is to a large degree still 36  Some diminution of sovereignty necessarily occurs whenever a state agrees to be bound by the terms of an international environmental treaty, because it constrains states' behaviour within their own territory. The human body typically consists of 60 to 80 percent water by weight and can only live for about seven days without water: Kenneth Saladin with Leslie Miller, Anatomy and Physiology: The Unity of Form and Function (Boston: McGraw-Hill Higher Education, 2004). Brown, supra note 10 at 80. Kofi Annan, We the Peoples: The Role of the United Nations in the 21 ' Century, (New York: United Nations, 2000) at 60. Available online at <http://www.un.org/millennium/sg/reportyfull.htm> (date accessed: 21 May 2004). Although freshwater as a cause in its own right has long been a concern of the United Nations, prompting the U N Water Conference in 1977, momentum elsewhere has been slow to gather. For example, the World Commission on Environment and Development's report Our Common Future (1987) extensively covered a 3 2  3 3  3 4  3 5  s  3 6  12  unknown due to the possible implications of global climate change.  Water expert Peter  Gleick's compilation provides perhaps the most comprehensive analysis of the state of the world's freshwater as of 1993 in the seminal work, Water in Crisis: A Guide to the *  38  World's Fresh Water Resources.  39  This book documents a range of penis:  uneven  distribution of water both regionally and temporally; stress on watercourses due to rapid 40  population growth in developing countries causing poverty and millions of deaths every year; decreases in water quality through microbiological, chemical and heavy metal 41  contamination, and the lack of information in this regard; threats to ecosystem health and diversity, including effects from habitat loss and species extinction; inefficient and wasteful irrigation, leading to environmental damage such as water logging, soil salinity and erosion; unsustainable overpumping of groundwater for both agricultural and 42  municipal use; decreasing quantities of water for energy production due to the needs of range of environmental woes, but neglected to include a section on freshwater: Peter Gleick, (ed.), Water in Crisis: A Guide to the World's Fresh Water Resources (New York: Oxford University Press, 1993) at 11. It must be noted and accepted that climate change is a controversial issue and that there is no consensus as to whether it is even a measurable phenomenon. However, I do not wish to enter into that debate in this thesis, but chooses to flag it to alert the reader to its unknown effects, and hence extra uncertainty that it would raise in the context of global water use, in the event that it does exist. For a refreshing look at the climate change debate, see Christopher Essex, & Ross McKitrick, Taken by Storm: The Troubled Science, Policy and Politics of Global Warming, (Toronto: Key Porter Books, 2002). Peter Gleick (ed.), Water in Crisis: A Guide to the World's Fresh Water Resources (New York: Oxford University Press, 1993). See also Edward H.P. Brans, et al (eds.) The Scarcity of Water: Emerging Legal and Policy Responses (London: Kluwer Law International, 1997). Some regions face chronic water shortages - the Middle East, Northern Africa, Australia and Central Asia are all noted for their aridity. Other regions must grapple with seasonal fluctuations in water supply, particularly monsoon areas where much of the year's rainfall arrives in a few months. Cheerapunji, in India for example, receives over 10.5m of rain during the monsoon months: Peter Gleick, "An Introduction to Global Fresh Water Issues" in Peter Gleick (ed.), Water in Crisis: A Guide to the World's Fresh Water Resources (New York: Oxford University Press, 1993) at 4 [hereinafter "Introduction"]. Although there is no single cause of poverty in developing countries (and therefore no 'silver bullet' solution), the poor health-suffered by millions due to inadequate drinking water and sanitation does little to help pull the country out of poverty. Gleick reports that there are more than 250 million new cases of water-related diseases annually, resulting in over 10 million fatalities. The Economist magazine estimates that "as much as 60 percent of the world's illness is water-related". See Gleick, "Introduction" supra note 40 at 4; The Economist, "Priceless: A Survey of Water", (19 July 2003) at 5 [hereinafter "Priceless"]. Sandra Postel points out in her book Pillar of Sand: Can the Irrigation Miracle Last? that every irrigation-based civilization, with the sole exception of Egypt, was short-lived. Their declines were primarily due to silt, salinity, or overuse of water supplies. Cited in The Economist, id at 11. 3 7  3 8  3 9  4 0  4 1  4 2  13  increasing populations, yet with a corresponding increase in energy demand for domestic and industrial use; difficulties providing drinking water and sanitation to exploding urban populations in developing countries; potential political conflict over international water 43  resources, particularly in water-scarce regions; and additional complications due to 44  extreme weather and other climate changes which could lead to growing numbers of ecorefugees - people who are displaced by drought, floods, land mismanagement, and severe environmental degradation.  45  It is not a good prospect. Yet, more than a decade after Gleick's sobering assessment, the situation is not much better. Indeed, it is worse. This is not because the amount of freshwater is decreasing but primarily because the needs of a rapidly increasing human population and its higher standard of living are growing exponentially. The amount of freshwater remains the same as it has been for billions of years, for water is an infinitely renewable resource.  46  However, the world's burgeoning in population in  the last half century and the projected increase to around 9 billion people by 2050  47  Mexico City, current population around 22 million, offers the best example of this. In a ten year period of rapid population growth, the city had to double the distance and the depth from which it pumps water, from 100km to 200km away, and from 1,000 metres to 2,000 metres below the city. The cost of this operation is huge, equating to around half of the annual interest payment on the country's external debt:. Malin Falkenmark, & Gunnar Lindh, "Water and Economic Development" in Peter Gleick, (ed.), Water in Crisis: A Guide to the World's Fresh Water Resources (Oxford University Press: New York, 1993) at 86. Note that this is the potential for future conflict. Aaron Wolf is one commentator who extensively studies this issue, noting that water scarcity has historically led to cooperation rather than to conflict, see Aaron T. Wolf, Shira B. Yoffe, & Mark Giordano, "International Waters: Identifying Basins at Risk" (2003) 5 Water Policy 29; and Aaron Wolf, (ed.) Conflict Prevention and Resolution in Water Systems (Cheltenham, U K : Elgar, 2002). Kofi Annan's Millennium Report estimates that there were 25 million environmental refugees in 1998 alone. The cost of natural disasters in that one year was more than for the entire decade of the 1980s: Annan, supra note 35 at 57. For more on 'eco-refugees', see Norman Myers, "Eco-refugees: A Crisis in the Making" (1994) 3(4) People Planet 6. It is estimated that there is around 35 million cubic kilometres of freshwater, which has remained constant for billions of years: Shiklomanov, supra note 22 at 13. World population is approximately 6.3 billion, and growing at a rate of 1.2 percent annually. This places an extra 77 million people on the planet each year. Half of this growth occurs in six countries alone, (India, China, Pakistan, Bangladesh, Nigeria, U.S.A.) placing great pressure on their environments and water 4 4  4 5  4 6  4 7  14  means less freshwater is available for each person, both for human consumption and for use in the production process when making goods to satisfy each person's needs. Water scarcity will become critical in regions that are already short of water and face high projected increases in their populations.  48  As it is, currently over one billion people have  no access to clean drinking water, and one-half of the world's population has inadequate access to sanitation services.  49  These are basic water needs. International hydrologist  Malin Falkenmark estimates, "by 2025 the number of people living in countries with water stress or chronic water scarcity will have grown from 300 million in 1990 to over 3,000 million, [that is] by a factor of 10 in only 35 years."  50  Although the most basic human water requirements are estimated at 50 litres per person per day, incorporating requirements for food production and increased standards 51  of living expand this exponentially. For example, 70,000 litres of water are necessary to produce one tonne of paper,  52  1,000 litres are needed to produce just one kilo of grain,  and 13,000 litres of water are behind the production of one kilo of beef.  53  And that is just  the start - it takes around 250,000 litres to make a car, while over 159,000 litres of 54  water are invested in one average traditional-style American Thanksgiving dinner for  resources. Estimates are from the United Nations Population Division's report, World Population Prospects: The 2002 Revision, U N Doc. ESA/P/WP.180 (26 February 2003) at vi. The Middle East, North Africa and Sub-Saharan Africa all fall within this category: Annan, supra note 35 at 60. Ibid. Falkenmark, "Challenges", supra note 30 at 33. Peter Gleick, "Basic Water Requirements for Human Activities: Meeting Basic Needs" (1996) 21 Water International 83 at 88. The "poverty line" for water is regarded to be 1,000 cubic metres per person per year. David Boyd, Unnatural Law: Rethinking Canadian Environmental Law and Policy, (Vancouver: U B C Press, 2003) at 43. Secretariat of the 3 World Water Forum, Press Release, '"Virtual Water' Trade and Geopolitics" (17 March 2003). Boyd, supra note 52 at 43. 4 8  4 9  5 0  5 1  5 2  5 3  rd  5 4  15  eight people.  55  The average daily water withdrawal by an average family of four in the  United States is more than four times the size of that used by an equivalent family in a developing country, illustrating the water requirements of a more affluent lifestyle.  56  Yet  despite technological advances designed to limit water use in the production of goods, industrial water use is still set to double in the next 25 years, and pollution of usable 57  water by industry is a constant threat.  58  On the environmental front, water tables are falling in many countries due to the overpumping of groundwater causing land subsidisation and more costly water withdrawals from greater depths. Then in some regions, over-irrigation causes the water table to rise, threatening the water tables with salinity. Globally, it is estimated that half the total area of wetland habitat has been lost, mainly due to human activity.  59  In  addition to their cultural and recreational value, wetlands play a key role in biodiversity, water purification, groundwater replenishment and land stabilisation. Although the fate of wetlands may seem unrelated or unimportant to many humans, destruction of wetlands has a dire implication for the global economy - one comprehensive study estimated the  Department of Biology, University of Wisconsin, 2003 Water Symposium, Nibi: Spirit of Water, "Water Facts", online: University of Wisconsin <http://biology.uwsp.edu/faculty/DPost/nibi/facts.html> (date accessed: 8 May 2004). Mike Dombeck, "From the Forest to the Faucet" in Bernadette McDonald & Douglas Jehl (eds.) Whose Water is it? The Unquenchable Thirst of a Water-Hungry World (Washington D.C.: National Geographic Society, 2003) at 126-127. The range within these figures is striking: for example, the average U S per capita withdrawal is between 250-300 litres per day, compared with 9 litres per person per day in Somalia: Pacific Institute, Water: Facts, Trends, Threats, and Solutions (March 2002), online: <http://www.pacinst.org/water_facts.htm> (date accessed: 10 June 2004). Dipankar Dey & Arjun Dutta, Centre for Sustainable Production and Consumption, Briefing Paper, "Water Sustainability: Issues for Development" (No. 1, 2002) at 3. Malin Falkenmark observes that "in spite of at least three decades of efforts to reduce the symptoms of water mismanagement and the outflow of pollutants to the atmosphere, to landscapes and to water bodies, water pollution tends to expand rather than shrink. This reduces the usable amount." Falkenmark, "Challenges" supra note 30 at 21. See World Wide Fund for Nature, "WWF's Freshwater Work: Wetland Conservation", online: World Wide Fund for Nature <http://www.panda.org> (date accessed: 2 June 2004). 5 5  5 6  5 7  5 8  5 9  16  global value of wetlands to be US$14.9 trillion per year, almost half the value of all natural ecosystems combined.  60  It can be seen that even within the range of current available statistics, concern that the world is facing a serious water shortage is clearly evident among the scientific, environmental and, to a certain extent, legal communities. Add to these problems ignorance o f - or, in some cases, wilful disregard for - basic hydrological processes, and the severity of the problem is starkly apparent. But the global water crisis is not just a problem of supply. It is primarily a problem of allocation and distribution, prompting a former vice-president of the World Bank, Ishmael Serageldin, to speculate that "the wars of the 21 century will be fought over water." st  61  With proper management and regulation  of distribution and use, this need not be so - the limited sustainable freshwater available today should be sufficient to cope with the world's increasing population.  2.4 The unique problem of transboundary watercourses The global water crisis, outlined briefly above, is exacerbated by international boundaries imposed upon a watercourse, which were often placed without any regard to the location of watercourse basins. By the term watercourse, I refer to any body of surface water, such as a river or lake, or any subterranean water (groundwater) that crosses an international boundary. As many as 145 countries have their territory in, or  Robert Costanza, et al, "The Value of the World's Ecosystem Services and Natural Capital" (1997) 387 Nature 253. The total value of the world's biosphere was estimated in that study to be $33 billion annually, on average (at 259). Cited in Aaron T. Wolf, '"Water Wars' and Other Tales of Hydromythology" in Bernadette McDonald & Douglas Jehl (eds.) Whose Water is it? The Unquenchable Thirst of a Water-Hungry World (Washington D.C.: National Geographic Society, 2003) at 112. 6 0  6 1  17  partly in, one or more of the 263 international river drainage basins in the world today. Many times this number of international watercourses exist when groundwater reserves are taken into account. The exact number is not known, however, as groundwater science is still in its nascent stages. Although ground water is substantially more abundant than surface water, the case studies in this thesis focus on surface waters, for not only are they are the main source of fresh water for human use but surface runoff is central to the hydrological 63  cycle as it replenishes groundwater. Poor management of surface water therefore adversely affects groundwater recharge rates, just as poor groundwater management can negatively impact surface water. However, the fundamental principles of international water law apply to groundwater exactly as they apply to surface water, including the principle of equitable and reasonable utilization. In recognition of this, the two main instruments that codify customary international water law's equitable utilization principle both define the central concept of an international watercourse as an interrelated system of both surface waters and groundwaters.  64  Watercourses may be international in one of two ways: the watercourse may be contiguous or successive. Quite often a watercourse has attributes of both. With contiguous states, the watercourse forms all or part of a boundary between states, while the waters in a successive basin flow from one state to another. In any case, the resource Aaron T. Wolf, United Nations Environmental Programme & Food and Agriculture Organization of the United Nations, Atlas of International Freshwater Agreements (Nairobi: U N E P , 2002) at 1-2. Shiklomanov, supra note 22 at 15. Article II of the International Law Association's Helsinki Rules states (my emphasis): A n international drainage basin is a geographical area extending over two or more States determined by the watershed limits of the system of waters, including surface and underground waters, flowing into a common terminus. Similarly, Article 2(a) of the United Nations Watercourses Convention reads: 'Watercourse' means a system of surface waters and groundwaters constituting by virtue of their physical relationship a unitary whole and normally flowing into a common terminus. 6 2  6 3  6 4  18  must be shared between two or more states. Watercourses in successive basins (commonly rivers) are a special case because states in this situation traditionally lay claim to all of the waters that pass through their territory. Exclusive claims raise many interesting questions as between upper and lower riparians that go to the heart of sovereignty, equity and other core principles of international law. Water is a sensitive issue for many states. When a dam or a pipeline is built on an international watercourse, ostensibly for the good of all states, the upstream country is suddenly left with total power over the resource. It is easy to see why downstream states are afraid that this power may be abused. Egypt, for one, has stated its willingness to go to war over the waters of the Nile, if need be.  65  Although many issues arise, the main tension in international law that impacts upon development, of all natural resources, including water, stems from the attempt to strike the necessary balance between a state's sovereign right to develop its resources, and the concomitant obligation to do no harm to another state.  67  66  This tension is  See for example Jutta Brunn^e, & Stephen Toope, "The Changing Nile Basin Regime: Does Law Matter?" (2002) 43 Harv. Int'l L.J. 105 citing Egyptian President Sadat's comment that "tampering with the rights of a nation to water is tampering with its life; and a decision to go to war on this score is indisputable in the international community," at 105-6. Each state's right to use its natural resources as it sees fit is recognized in Principle 21 of the Stockholm Declaration, which states "States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond the limits of national jurisdiction." Stockholm Declaration of the United Nations Conference on the Human Environment (16 June 72) U N Doc. A/CONF.48/14/Rev. 1 (1973). [Hereinafter "Stockholm Declaration."] This is further affirmed by Principle 2 of the Rio Declaration on Environment and Development (13 Jun 92), U N Doc. A/CONF.151/26 (vol. I) (1992). [Hereinafter "Rio Declaration."] Although these declarations are nonbinding on states parties, they have arguably reached the status of customary international law, and are incorporated in other binding agreements. See for example U N G A Resolution 1803 on Permanent Sovereignty over Natural Resources (14 Dec 62), U N Doc. A/5217; U N G A Resolution 3171 on Permanent Sovereignty over Natural Resources (17 Dec 73), U N Doc. A/9030 (1974). See further below at chapter 2, part 3.5. The no harm principle at international law reflects the maxim sic utere tuo ut alienum non laedas, meaning "so use you own as not to injure another's property." This maxim is discussed in more detail below at chapter 2, part 3.5. For discussion on this principle as applied to international water law, see 6 5  6 6  6 7  19  particularly apparent in the case of international watercourses, because water - the resource over which each state claims sovereignty - travels from one state to the other. As it does so, sovereignty over the resource changes accordingly. This is most evident in successive watercourse states, but even where a river forms the boundary between two or more countries, or where an aquifer or lake straddles an international boundary, one state's water use will impact the other state accordingly. In many ways this is a classic "tragedy of the commons" scenario. The tragedy of the commons is but one of three types of possible water conflicts identified by Malin Falkenmark, although disputes often share elements of all three.  68  This first example is a "scarcity-related" conflict, involving competition for the flow of a watercourse. Such conflict commonly occurs where upstream states are water towers and downstream states rely solely on that watercourse as their single source of water. Egypt's reliance on the waters of the Nile River, 97 percent of which originate outside of Egypt,  69  is a case in point. In the second type of water conflict, the dispute may involve deteriorating water quality. Falkenmark terms these conflicts "quality-related," a label easily applied to many watersheds receiving a mix of wastewater outflows from industrial, agricultural or municipal use. Finally, conflicts may be "project-related." Disputes arise in this manner in two ways - out of water management projects such as dams, canals and pipelines, or out of water policies such as wholesale transfers of water to urban areas or excessive groundwater depletion rates. The Columbia River  generally McCaffrey, "Watercourses", supra note 5, and Charles Bourne, International Water Law: Selected Writings of Prof. Charles B. Bourne (London & Boston: Kluwer Law International, 1997). Falkenmark, "Challenges" supra note 30 at 34-37. Gleick, Peter, "Water in the 21 Century" in Peter Gleick (ed.), Water in Crisis: A Guide to the World's Fresh Water Resources (New York: Oxford University Press, 1993) at 109. 6 8  6 9  st  20  controversy between the United States and Canada, discussed in more detail later, falls into this third category. So the reason that international boundaries exacerbate global water problems is simple to see, but difficult to deal with: along with all the water-related concerns that states must face individually, states sharing an international watercourse have the additional burden of coming to agreement with their neighbours about who gets what and when, at different times and ways. To do this peacefully when all parties lay claim to sovereignty over the resource requires a great deal of political will, and it is here that the international law principle of equitable and reasonable utilization benefits states, through its emphasis on negotiation. Equitable utilization is not only a call for states to use their limited shared water resources in a fair and sustainable way in order to avert the catastrophes and hardships caused by overuse, but, as a binding principle of international law, it provides the structure by which peaceful negotiations over watercourse use between states can take place. The continuity of the hydrological cycle and the specific properties unique to water force countries, in a sense, to come to peaceful agreements for the regulation and use of shared watercourses. However, peaceful agreement notwithstanding, it is questionable whether this principle will lead to the best long term outcomes for the economy, society and environment of the states concerned. Full discussion of this central question begins with the methodology of my argument, followed by an introduction to international water law.  21  3. Methodology The primary focus of this thesis is on why the principle of equitable and reasonable utilization does not necessarily lead to beneficial social and environmental outcomes within international watercourses, and second, on the implications this has for watercourse development. In particular, I will examine the impact of economics in this area of law, with an eye to its potential benefits. The methodology is fourfold: (i) description of the theoretical framework; (ii) review of the relevant literature, encompassing international treaties,- customary international law, case.law and secondary material; (iii) analysis of the interface between equitable utilization and economics, and in particular the benefits and shortfalls of drawing on economic principles more heavily in international water law; and (iv), examination of this interface in a United StatesCanada case study, complemented with other relevant case examples.  3.1 Theoretical framework I draw upon economic theory as a diagnostic tool to determine whether equitable utilization is really the best method for dealing with the scarcity of water confronting the international community today. Diagnostic economic analysis is concerned with determining why it is that desirable outcomes - for society, the economy and the environment - are not being achieved. As such, this thesis falls into the broader field of inquiry known as law and economics.  70  This field has long recognized that economic  Seminal works in this field include Ronald Coase, "The Problem of Social Costs" (1960) 3 J. L. & Econ. 1; Guido Calabresi, "Some Thoughts on Risk Distribution and the Law of Torts" (1961) 70 Yale L. J. 499; Richard A . Posner, Economic Analysis of Law, 5th ed. (Boston: Little, Brown & Co., 1998). For more background on the field of law and economics, see Michael J. Trebilcock, "Law and Economics" (1993) 16 Dalhousie L. J. 362; and Robert Cooter & Thomas Ulen, Law and Economics, 4d ed. (Boston: Addison Wesley Longman, 2004). 7 0  22  analysis provides relevant insights for law and social behaviour.  71  However, economic  analysis of the law is particularly useful in the context under discussion because applied economics is generally indispensable to solving natural resource scarcity problems. In most situations where a resource is scarce, economic theory tells us that the magic of Adam Smith's invisible hand steps in and, through the market's price mechanism, individual actions designed to maximize self-gain resolve the determinants of supply and demand "to promote.. .the public interest."  72  But what does the term  market mean? John McMillan outlines the central characteristics of a market transaction: A market for something exists if there are people who want to buy it and people who want to sell it... Decision-making autonomy is key. Participation in the exchange is voluntary; both buyer and seller are able to veto any deal.. .that reflect[s] their own preferences. Their choices are not completely free though: they are constrained by the extent of their resources and by the rules of the marketplace. 73  The market, then, is an abstract term referring to the summation and interaction of all of these individual market transactions between buyers and sellers.  74  Through all  these interactions, a price is set for each resource reflecting both its scarcity and desirability. When supply is limited, the flexibility of the price mechanism allows increases in price to reflect that scarcity. Prices will similarly rise when a good is in high demand. Increased price affects consumer behaviour in two ways: first, by sending the resource to the sectors and uses that value that resource the most; and second, by causing  As with most broad fields of legal scholarship, there are indeed detractors to the law and economics approach. Many of their arguments are covered below, in chapter 4. See also Ronald Dworkin, "Is Wealth a Value?" in Ronald Dworkin, A Matter of Principle (Cambridge, Mass.: Harvard University Press, 1985) at 237-266; Russell Hardin, "The Morality of Law and Economics" (1992) 11 Law and Philosophy 331; and J. Roland Pennock & John W. Chapman (eds.), Ethics, Economics, and the Law (New York: New York University Press, 1982). Adam Smith, The Wealth of Nations (New York: Modern Library, 1776) at 423. John McMillan, Reinventing the Bazaar: A Natural History of Markets, (New York: Norton & Company, 2002) at 5-6. Id at 6. 7 2  7 3  7 4  23  others to innovate, either by finding substitutes or ways to use less of the resource for the same output. Price rises may occur through a structured system whereby prices are set and adjusted by a central agency, but the collapse of the stagnant centrally planned command economies worldwide widely demonstrated that the mechanism works best when prices are left to the market to determine. The greatest benefit of the free market is that no regulation is needed for this change in price and in behaviour to come about. The price signal is an inherently flexible tool that enables rapidly changing signals to be acted upon immediately by economic agents with a minimum of information, without the need for slow, cumbersome and costly government interference.  75  This method of price adjustment is applicable to nearly every resource and has been used to great effect in the natural resource sector.  76  Indeed, examples of the  effective use of markets and other economic incentives for environmental management and natural resource use are plentiful. A vast body of literature extols the virtues of the market to manage resources in an environmentally and socially sound manner.  77  Bruce  Yandle notes that for over a century, simple markets for rights to use the environment  For further detail on the fundamentals of economic theory, see for example Robert S. Pindyck & Daniel L. Rubinfeld, Microeconomics, 3 ed (Englewood Cliffs, New Jersey: Prentice Hall International, 1995) Instances where a central regulatory body has set the price of a resource can also be successful in resolving natural resource dilemmas, although the costs associated with the definition, monitoring and enforcement of such regimes can be prohibitive and the procedure cumbersome. See for example Terry L. Anderson & Donald R. Leal, Free Market Environmentalism (New York: Palgrave, 2001); James L . Huffman, "Markets, Regulation, and Environmental Protection" (1994) 55 Mont. L. Rev. 425; R. Prescott Jaunich, "The Environment, the Free Market, and Property Rights: Post-Lucas Privatization of the Public Trust" (1994) 15 Pub. Land L. Rev. 167. For more specific instances of markets being used to benefit the environment, see for example R.I. Fassbender, "Reducing Great Lakes Toxics: Can We Do More for Less Through Wastewater Effluent Trading?" (1994) 1 Wis. Envtl. L.J. 57; F . C . Menz, "Transborder Emissions Trading between Canada and the United States" (1995) 35 Nat. Resources J. 803; Dean Lueck, "Property Rights and the Economic Logic of Wildlife Institutions" (1995) 35 Nat. Resources J. 625. See also supra notes 17-20. 7 5  rd  7 6  7 7  24  have emerged spontaneously in the United States when circumstances permit.  He  offers the examples of pulp mills buying downstream riparian rights of land affected by a mill's discharge, as well as the acquisition of environmental easements by land trusts.  79  More complex arrangements such as for emissions trading evolved later, although classical economist John Stuart M i l l foreshadowed markets for air as early as 1848: Air, for example, though the most absolute of necessaries, bears no price in the market, because it can be obtained gratuitously: to accumulate a stock of it would yield no profit or advantage to any one; and the laws of its production and distribution are the subject of a very different study from Political Economy ... If it became customary to sojourn long in places where the air does not naturally penetrate, as in diving-bells sunk in the sea, a supply of air artificially furnished would, like water conveyed into houses, bear a price: and if from any revolution in nature the atmosphere became too scanty for the [sic] consumption, or could be monopolized, air might acquire a very high marketable value. 80  Mills' scarcity-causing "revolution in nature" need not only arise from natural causes either. It is obvious to us now that human behaviour can contribute greatly towards the scarcity of a natural resource. But just as there are economic incentives to exploit nature, surely there are also disincentives. Ultimately, relying on human behaviour within the marketplace may provide at least part of the solution to natural resource scarcity.  3.2 Market and institutional failure Despite the virtues of the market approach, there are also many instances where markets and economic institutions do not work, leading to social or environmental problems. Indeed, the observation that these problems can be explained by market and institutional failure underlies the central idea in the diagnostic economic method of  Bruce Yandle, "From Local to Global Commons: Private Property, Common Property, and Hybrid Property Regimes: Grasping for the Heavens: 3-D Property Rights and the Global Commons" (1999) 10 Duke Env L & Poly F 13 at 18 [hereinafter "Heavens"]. See also P.N. Davis, "Theories of Water Pollution Litigation" (1971) Wis. L. Rev. 738 at 777-779. John S. Mill, Principles of Political Economy (London: Longmans, Green & Co., 1880) (1848) at 4. 7 9  8 0  25  analysis. culprits.  In the environmental and natural resource context, there are three main 82  The first concept is one that has been shown to be particularly robust in environmental settings - the tragedy of the commons. First put forward by William 83  Forster Lloyd in 18 3 3 and popularised by Garrett Hardin's seminal essay, "The Tragedy 8 4  of the Commons" in 1968, the situation arises when an unowned resource is nonrivalrous and non-exclusive (that is, everyone can use it at the same time, and none can be excluded.) The classic example is that of a field upon which the animals of several owners graze communally.  When numbers are small, this poses no'prbblem. But in  this situation, each individual receives the full benefit of the commons with every additional animal sent to graze while facing only a fraction of the costs of their individual behaviour because the costs are shared between all the users of the commons. In this case, the incentive arising from the most rational course of action (the goal being to maximize individual gain) is for each individual to increase the number in their herd grazing upon the commons. However, with everyone acting collectively in this manner there will be too many animals for the finite resource, and so the situation deteriorates. The commons becomes run-down, depleted and ruined. Hardin labelled the types of  See Barton H. Thompson Jr, "What Good is Economics" in "Symposium: Environmental Ethics and Policy: Bringing Philosophy Down to Earth: Panel: Synergy or Conflict: The Roles of Ethics, Economics, and Science in Environmental Policy Decisions" (2003) 27 Environs Envtl. L. & Pol'yJ. 175 at 187 [hereinafter "Economics"]. 8 1  For greater detail, see Thompson, ibid at 186-190. Besides numerous case examples from around the world, Thompson describes several simulation experiments where the subjects involved nearly almost always yield to the tragedy of the commons. Ibid at 188-189. William F. Lloyd, Two Lectures on the Checks to Population (Oxford: Oxford University Press, 1833), reprinted in part in Garrett Hardin, (ed), Population, Evolution, and Birth Control, (San Francisco: Freeman, 1964) at 37; cited in Hardin, "Tragedy" supra note 2 at 1244. Hardin, "Tragedy", supra note 2. Although Hardin's seminal essay was to do with the population problem, he illustrated the tragedy of the commons with this example: id at 1244. 8 2  8 3  8 4  8 5  8 6  26  problem that fall into this class as having "no technical solution."  That is, the  resolution of the tragedy of the commons must come from a change in behaviour, rather than a change in technology. Second, negative externalities play a role in explaining why institutions - that is, the rules of the game - specifically designed to lead to good outcomes sometimes fail. A negative externality occurs where a transaction between two parties creates a cost that must be borne by a third party (or by society) without their consent. Because the agent does not reflect this cost internally, there is no incentive to minimize it. Examples of this are the over-consumption of non-renewable resources by people today at the expense of future generations, and the industrial polluter who minimizes its costs by discharging its waste into the environment at large, rather than pay to treat it. The tragedy of the commons is also a specific example of a negative externality. Finally, the free-rider problem, also known as the problem of collective action, is used to demonstrate why initiatives designed to benefit a large number of people can fail. The seminal theorist in this field, Mancur Olson, defines collection action to be "actions taken by two or more people, comprising a group or organization, in pursuit of the same collective good—a good such that, i f any member of the group consumes it, it cannot feasibly be withheld from the others in the group."  88  In the environmental context, the  initiatives in question are usually designed to benefit the public through good management of the environment. With large numbers of people set to invest in the initiative (in order to reap the benefits) but with no way of excluding others from enjoying the benefits even if they do not contribute, every individual has an incentive not Id at 1243. Mancur Olson, Logic of Collective Action: Public Goods and the Theory of Groups, (Cambridge, M A : Harvard University Press, 1965) at 14. 8 7  8 8  27  to contribute but instead to free-ride on everyone else's actions. This discourages investment in the initiative by individuals. With many people free riding, there is a 89  strong chance of failure of the initiative without government interference.  Dellapenna  provides the example of air pollution, and an individual's choice to buy a cleaner running car: If many people voluntarily invest in cleaner running cars in order to protect the air we breathe, I will have cleaner air just as much as they will. If I decide not to buy a cleaner running car, that decision by itself will not greatly affect the quality of the air we all breathe. I can (and many would) decide to become "free riders" on the efforts of others to clean the air. As more people realize that this possibility exists, fewer would voluntarily buy a cleaner running car. Why bother when my buying a cleaner running car will have little effect on air quality and many or most others are not making the investments necessary to improve air quality? M y single decision to buy a cleaner running car actually would have too small an effect on air quality to justify my cost if most other people are free riding. Under these circumstances, all (or nearly all) simply will not buy cleaner running cars voluntarily, and we will end up with dirtier air than we would if there were no free riders. 90  When the individual cost of investing in a beneficial initiative is not offset by the gain to the individual, no one will buy a cleaner vehicle and air quality will actually deteriorate. The solution in this situation is for the government or some other body to impose and enforce pollution control standards to ensure everybody (or nearly everybody) pays the costs. Several methods are commonly proposed to combat failures of markets and institutions, and thereby manage natural resources and the environment more effectively. Four regimes are possible along a spectrum of natural resource regulation, as outlined by Norman Spaulding. On one end of the spectrum falls "free market environmentalism," 91  where the environment is treated as a full commodity with all the incidents of the free See for example Coase, supra note 70 and Mehmet Bac, "Incomplete Information and Incentives to Free Ride on International Environmental Resources" (1996) 30 J. Envtl. Econ. & Mgt. 301. Joseph W. Dellapenna, "The Importance of Getting Names Right: The Myth of Markets for Water" (2000) 25 Wm. & Mary Envtl. L. & Pol'y Rev. 317 at 331 [hereinafter "Myth"]. For further detail on each of these four governance regimes, see Norman H . Spaulding III, "Commodification and Its Discontents: Environmentalism and the Promise of Market Incentives" (1997) 16 Stan. Envtl. L.J. 293 at 297-298. 8 9  9 0  9 1  28  market attached. The other end is marked by the non-commodification of the environment, a situation in which the environment either transcends the very form of a commodity or is protected from the effects of being treated as such. Spaulding terms this "environmental internalisation", based on the idea that this regime should fully internalise all the costs - not just costs able to be reflected in the market - of environmental impact. Between these two regimes fall the common "command-and-control" system, centred on the idea that the market will never be able to account accurately for environmental impacts because of externalities, and that therefore the government must interfere to protect this public good. Finally, the "market incentives" regime is a system whereby the government sets environmental targets then relies on market incentives to meet them. Assuming there are lessons to be learned for international water law from the preceding economic analyses, I therefore draw on economics as a diagnostic tool to query whether equitable utilization will be able to effectively lead to and enforce higher standards of international water management. Although there is no shortage of discourse surrounding the use of economics to best manage natural resources, only a small set use this analysis to tackle international water law, and fewer still specifically examine 92  equitable utilization in this manner.  Rather, the discourse surrounding equitable  utilization has, to date, remained largely focused on whether the doctrine is indeed a  For examples of those that do, see Dellapenna, "Myth" supra note 90 (clarifying the distinction between markets for water and economic incentives to good water use); Eric Freyfogle, "Water Rights and the Common Wealth" (1996) 26 Envtl. L. 27 [hereinafter "Common Wealth"] (examining the role of private water rights in U S law, but with general reasoning that can be extrapolated to the international plane); Andrew P. Morriss, Bruce Yandle, & Terry L . Anderson, "Principles for Water" (2002) 15 Tul. Envtl. L.J. 335 (looking at legal and economic institutional reforms to water management policies). One notable study in this category, undertaken by the World Bank, examines the role of economics for Africa's international rivers: Claudia W. Sadoff, Dale Whittington & David Grey, Africa's International Rivers: An Economic Perspective (Washington D.C.: World Bank, 2002). See also Eyal Benvenisti, "Collective Action in the Utilization of Shared Freshwater: The Challenges of International Water Resources Law" (1996) 90 A.J.I.L. 384 (examining the collective action problem as a barrier to the optimal utilization of international water resources) [hereinafter "Collective Action"]. 9 3  29  legally binding principle of international law. Today, pronouncements by the International Court of Justice recognizing the principle as a customary norm in the 1997 Gabcikovo-Nagymaros decision and further codification of the norm in the 94  Watercourses Convention have largely settled this debate. It is therefore my intention to take the next step and consider whether the principle is adequate for today's needs, and if not, why not and what may be done about it.  4. Conclusion  ar  The global water crisis is preventable. Water, through the hydrological cycle, is an infinitely renewable resource. However, its four main problems - the environmental preconditions of limited supply and non-substitutability of freshwater, uneven distribution, effects caused by explosive population and income growth and land mismanagement, and increased quantity demands on water where pollution decreases quality - need to be overcome in order to ease water scarcity in the future. Because the international nature of a watercourse commonly exacerbates these problems, international law has a role to play in easing tensions and helping states come to a fair and reasonable agreement to share the resource. As the leading doctrine of international water law, the principle of equitable and reasonable use is fundamental in this regard. However, problems and conflicts around the world raise questions about whether the principle can adequately alleviate the problems brought about by water scarcity. I turn now to examine the doctrine in more detail.  Gabcikovo-Nagymaros case, supra note 5 at 80, para. 147.  30  Chapter 2: What is equitable utilization and where did it come from? Water, a universal need, has become in the twentieth century as perhaps never before in history a universal problem. -  L . Teclaff  95  -  1. Introduction The status of the principle of equitable utilization as the cornerstone of modern international water law is increasingly clear. The chief objection to its primacy - a concern now seldom voiced - lies in how equitable utilization fits with another general principle of international environmental and water law, that is, the duty not to cause significant harm to another state.  96  Accepting the current dominance of equitable use, the  role of this chapter is to outline both its origins and ascendance over rival doctrines as a prelude to the analysis of whether the principle effectively improves and enforces good standards of transboundary water management. It is also useful to know something about the historical doctrines in order to recognize their permutations and re-expression in modern arguments in this field. Beginning with a brief account of the evolution of international water law to place the doctrine in context, in this chapter I discuss the changes and debates that led to equitable utilization's emergence as the governing principle of international water law. In particular, I discuss codification of the doctrine and its relationship with the duty not to 9 5  9 6  Ludwik Teclaff, The River Basin in History and Law, (The Hague: Martinus Nijhoff, 1967) at 1. The resolution of this debate is thoroughly discussed below in part 3.5.1 of this chapter.  31  cause significant harm to another state. I then move on to consider equitable utilization in more depth in order to determine what it actually means and how it works. To determine whether equitable utilization is well situated to lead to good outcomes for transboundary watercourses, knowledge of what equity as a concept means in international law and the specific content of the principle is necessary.  2. History of international water law Most studies in international water law begin with an historical tour of the terrain. However, as the focus of my argument is on the interaction of a particular principle of the international water law regime with economics and the lessons that may be learned from that, a short and potted version must suffice. Any more than this is beyond the scope of this thesis. There are two historical tensions in the law concerning the non-navigational uses of international watercourses, stemming from theoretically opposite doctrines. The first doctrine is known as absolute territorial sovereignty, and refers to the absolute right of a sovereign nation to do what it will with its water resources, regardless of the needs or protestations of any other states dependent upon the same water supply. This doctrine came to be known as the Harmon doctrine, after United States Attorney General Judson Harmon, who wrote an opinion on the soundness of Mexico's claims to the waters of the Rio Grande River, asserted in 1895. Mexico argued that, under international water law, a prior claim takes precedence. Harmon, however, proposed that the US could divert the  32  Rio Grande without any consideration of Mexico's interests.  Because the doctrine  allows full development of a watercourse within a state's territory whilst denying any limitation on this right that is not imposed by the state itself, this doctrine has been historically favoured by upstream states. The theoretical opposite to the Harmon doctrine, and the second historical doctrine of international water law, is the doctrine of absolute territorial integrity, otherwise known as the natural flow theory. Downstream states tended to favour this view, as it asserts that a state is entitled to the natural flow or quality of water flowing into its territory without interference from outside. The Trail Smelter arbitration established this doctrine in international law.  98  Although this case involved air pollution,  the reasoning and the obligation not to cause harm can be, and has been, extrapolated to international watercourses.  99  Trail Smelter involved pollution from a smelter in British  Columbia, Canada, carried by the prevailing winds across the US border, damaging crops and timber. Despite espousing the Harmon doctrine in its Rio Grande dispute with Mexico, the US argued the theoretical opposite in this arbitration only four decades later. The tribunal held Canada liable for the transboundary harm caused to the US. Although superseded by equitable utilization, elements of the natural flow doctrine still remain today. For example, Egypt maintains its right to the full flow of the Nile River, upon which its civilization has relied for thousands of years and, as noted in the previous chapter, has even expressed its readiness to go to war for this share. Natural  See McCaffrey, "Watercourses" supra note 5 at 76-78, 89-90. Trail Smelter Arbitration (US v. Can.) (1941), 3 U N Rep. Int'l Arb. Awards 1905 (1949); reprinted in 35 Am. J. Int'l L . 684(1941). This is anticipated in the Trail Smelter judgment itself: id at paragraphs 146-152, where the Tribunal analogises US water law disputes across state boundaries with international air pollution. See also, for example, Bogdanovic, supra note 5 at 112; McCaffrey, "Watercourses" supra note 5 at 203. 9 8  9 9  33  flow theory is also reflected in the "first in time, first in right" doctrine of prior appropriation, which underlies water law regimes in several jurisdictions throughout the world, particularly the North American west. However, McCaffrey for one notes that prior appropriation is "unsound as a matter of both policy and law," because it "encourages a 'race to the river' and rewards the 'winner' with absolute protection, regardless of the merits of either its use or the potential uses of other states, and regardless of the optimal utilization of the drainage basin as a whole."  100  Tension mounted between upstream and downstream states sharing international watercourses with the existence of these two water law doctrines, primarily because the doctrines cannot theoretically co-exist in their entirety. Upstream states always claimed territorial sovereignty, whereas downstream states always claimed their right to the natural flow of an international watercourse without interference from any upstream states. Inconsistencies abounded as some states were in both an upstream and downstream position with respect to different states within a given watercourse. Conflict was bound to arise, and indeed, did. Within this tense setting, in 1966 the International Law Association (ILA) adopted the Helsinki Rules. International water law scholars generally accept these as an authoritative statement of customary international law at that time.  101  The principle of  equitable and reasonable use of an international watercourse emerged in the Helsinki Rules not only as a just and fair method of sharing transboundary water resources, but also as the cornerstone of international water law itself.  102  As McCaffrey notes, the  McCaffrey, id at 338. See in particular Bogdanovic, supra note 5. Equitable utilization is found in Article IV of the Helsinki Rules. As to equitable utilization as the guiding principle of international water law, codified by the Helsinki Rules, see Bogdanovic, id at 102.' 1 0 0  1 0 1  1 0 2  34  Helsinki Rules are noteworthy for six main reasons. They are the first effort at codification of the rules governing international watercourses, and importantly, they adopt an integrated basin-wide approach. Groundwater is included, recognizing for the first time the important hydrological link between surface and ground water. Also, the Rules do not attribute any specific priority to any watercourse use, not even navigation, leading to the common thought that the Rules laid the groundwork for the 1997 United Nations Watercourses Convention. However, most importantly for this study, because they are grounded firmly upon the principle of equitable utilization, the Helsinki Rules reject the competing doctrines of absolute territorial integrity and absolute territorial sovereignty.  103  Indeed, examination of the two conflicting historical water law theories demonstrates little support for them in state practice. McCaffrey, in his comprehensive work on the international law of watercourses, notes "while these theories are sometimes invoked by states to defend their positions in specific disputes, they are virtually never the basis of the resolution of actual controversies."  104  Rather, disputes are settled by the  equality of rights approach of equitable utilization. In an international environment of shared and scarce freshwater resources, absolute claims are no longer tenable. The anachronistic Harmon doctrine is long dead, with little i f any support in the international community.  105  Although claims to the natural flow of a watercourse do crop up from  time to time, this theory remained true to its Trail Smelter roots and eventually evolved into the no harm doctrine, discussed below. Dealing with the historical doctrine in this  See McCaffrey, "Watercourses" supra note 5 at 321-322. Id at 337 McCaffrey points out that "the fact that no state defended it during the negotiation of the Watercourses Convention in the United Nations bears powerful witness to this proposition": id at 339. 1 0 3  1 0 4  1 0 5  35  manner means entitlement to the natural flow of a watercourse is no longer a tenable claim in and of itself. Equitable utilization was also given a high priority in the United Nations International Law Commission's Draft Articles on the Law of the Non-Navigational Uses of International Watercourses.  106  The International Law Commission (ILC) compiled the  draft articles for the United Nations as an attempt to codify and advance the rules governing bodies of international freshwater, to possibly lead to a multilateral convention on transboundary watercourses. In particular, the ILC found equitable use to be the cardinal rule of international water law: A survey of all available evidence of the general practice of States, accepted as law, in respect of the non-navigational uses of international watercourses - including treaty provisions, positions taken by States in specific disputes, decisions of international courts and tribunals, statements of law prepared by intergovernmental and non-governmental bodies, the views of learned commentators and decisions of municipal courts in cognate cases - reveals that there is overwhelming support for the doctrine of equitable utilization as a general rule of law for the determination of the rights and obligations of States in this field.  The ILC's draft articles led to the creation of the multilateral Watercourses Convention, adopted by the General Assembly in 1997.  108  After years of recognition as a  customary norm, the Watercourses Convention finally establishes the equitable use doctrine in the growing body of international environmental treaty law. Despite the Watercourses Convention not yet being in force,  109  the widely held view is that this  International Law Commission, Report on the Draft Articles Adopted at its Forty-Third Session, U . N . G A O R , 46 Sess., Supp. No. 10, at 161, U . N . Doc. A/46/10 (1991); 30 I.'L.M. 1554 (1994) [hereinafter ILC Draft Articles]. International Law Commission, Report of the International Law Commission on the Work of its FortySixth Session, (1994) U . N . G A O R 49 Sess., Suppl. No. 10, U . N . Doc. A/49/10 at 222. The Watercourses Convention is annexed to U N G A Res. 51/229, 21 May 1997, and was adopted with a vote of 103 in favour, 3 against, and with 27 abstentions. 35 ratifications are needed for the Convention to enter into force. At the time of writing, there were only 16 signatories and 12 ratifications: United Nations, "Multilateral Treaties Deposited with the SecretaryGeneral", online: United Nations, <http://untreaty.un.org> (date accessed 25 September 2004). th  1 0 7  t(l  1 0 8  1 0 9  36  Convention codifies customary norm principles and the ILC's view as expressed in the draft articles.  110  One author who expresses a contrary view - that the Convention is not indicative of customary law - is Aaron Schwabach.  111  His opinion is based largely on his  examination and interpretation of the voting and abstention patterns in the U N General Assembly regarding the Watercourses Convention, concluding that state practice does not support the notion that the Watercourses Convention has reached the status of customary international law. Largely this is because one main group of states - namely, developing upper riparians - do not subscribe to it. However, Schwabach's view is refutable for several reasons. First, he admits that some developing upper riparians did vote for the Convention, while some lower riparians, notably Egypt, abstained from voting.  112  The second reason why the Convention can be  thought to express customary international water law is because it reflects the international view on transboundary watercourses due to the international process. That is, because all states had an opportunity to debate, to be involved and to have their voice heard in an open and transparent forum, the Convention is of value regardless of whether it has yet to enter into force.  113  The third reason is that several international freshwater  agreements were concluded based on the principles embodied in the ILC's draft articles  "° See for example Ibrahim Kaya, Equitable Utilization, (Aldershot, Hants, England: Ashgate, 2003) at 4, 7; Charles B. Bourne, "The Primacy of Equitable Utilization in the 1997 Watercourses Convention" (1997) 35 Canadian Yearbook of Int'l Law 215 [Hereinafter "Primacy"]; Attila Tanzi & Maurizio Arcari, The United Nations Convention on the Law of International Watercourses: A Framework for Sharing (The Hague: Kluwer Law International, 2001). Aaron Schwabach, "The United Nations Convention on the Law of Non-navigational Uses of International Watercourses, Customary International Law, and the Interests of Developing Upper Riparians" (1998) 33 Tex. Int'l L.J. 257. See also Eyal Benvenisti, Sharing Transboundary Resources: International Law and Optimal Resource Use, (Cambridge: Cambridge Univ. Press, 2002) at 201-203. Id at 263. The upper riparians voting for the Convention were Armenia, Lesotho and Nepal. McCaffrey, "Watercourses" supra note 5 at 316. 1 1 1  1 1 2  1 1 3  37  even prior to the adoption of the Convention in 1997.  114  Fourth, as the treaty codification  process does not destroy customary norms, a principle may exist simultaneously in custom and in treaty. So, voting patterns may not be the best indication of the status of the principle as an enforceable customary norm. Finally, the Gabcikovo-Nagymaros case, handed down by the International Court of Justice around the same time as the Watercourses Convention was concluded, further weakens Schwabach's argument. The Court was of the view that equitable utilization was indeed a norm of customary international law, contra to Schwabach's assertions.  115  These refutations of the argument  that the Watercourses Convention is not reflective of customary law are important, because treaties expressing customary norms have a greater likelihood of compliance.  116  And compliance is essential to the carefully negotiated agreements arising through the equitable utilization process.  3. Equitable and reasonable utilization explained Until now, the term equitable utilization has been discussed without fully describing either what it means or requires of states. This section explains the doctrine by beginning with an analysis of broad principles of equity at international law, which go  ' McCaffrey notes three such agreements: the 1995 Protocol on Shared Watercourse Systems in the Southern Africa Development Community Region, signed at Maseru, Lesotho, 16 May 1995; the 1991 Protocol on Common Water Resources between Argentina and Chile; and the 1995 Agreement on the Cooperation for the Sustainable Development of the Mekong River Basin (5 April 1995): McCaffrey, "Watercourses" supra note 5 at 317. 1 4  See supra note 94. International law scholars Abram Chayes and Antonia Handler Chayes note "If issues of noncompliance and enforcement are endemic, the real problem is likely to be that the original bargain did not adequately reflect the interests of those that would be living under it, rather than mere disobedience", Abram Chayes & Antonia Handler Chayes, "On Compliance" (1993) 47 Int'l Organization 175 at 183. 1 1 5  1 1 6  38  some distance towards an understanding of the underlying premises of the doctrine, followed by consideration of the explicit content of the principle in greater depth.  3.1 Equity in international law To understand the equitable use doctrine, a general overview of equity in international law is helpful. What is meant by the term equity in international law is explained by international legal scholar Ian Brownlie to be, "considerations of fairness, reasonableness, and policy often necessary for the sensible application of the more settled rules of law."  117  That is, the principles of equity may be - and often are - used in the  decision-making process to arrive at a fair outcome within the bounds of the legal rules involved. In accordance with Article 38 of the Statute of the International Court of 1 1 8  Justice,  which is generally accepted to be a statement of the recognized sources of  international law,  119  equity falls in that class of sources outlined in subsection (l)(c) -  namely, "general principles of law recognized by civilized nations."  120  ,  Equity has had a presence in international law for some time. In 1937, in The 121  Diversion of Water from the Meuse Case,  Judge Hudson sitting on the Permanent  Court of International Justice stated: What are widely known as principles of equity have long been considered to constitute a part of international law, and as such they have often been applied by international tribunals... The Court has not been expressly authorised by its Statute to apply equity as distinguished from law... Article 38 of the Statute expressly directs the application of "general principles of law Ian Brownlie, Principles of Public International Law (5' ed.), (Oxford: Clarendon Press, 1998) at 25. Concluded at San Francisco, 26 June 1945; entered into force, 24 October 1945 [hereinafter ICJ Statute]. See for example John H . Currie, Public International Law, (Toronto: Irwin Law, 2001) at 80; David J. Harris, Cases and Materials on International Law, (5 ed.), (London: Sweet & Maxwell, 1998) Ch. 2. Note that the term "civilized" is generally seen as an anachronism, and has no legal significance today. See Currie, id at 87. The Diversion of Water from the Meuse Case, (Netherlands v. Belgium) (1937), P.C.I.J. Reports, Series A/B, No. 70. 1 1 8  1 1 9  th  1 2 0  121  39  recognized by civilized nations," and in more than one nation principles of equity have an established place in the legal system... It must be concluded, therefore, that under Article 38 of the Statute, if not independently of that Article, the Court has some freedom to consider principles of 122  equity as part of the international law which it must apply.  However, it is the concern of some international lawyers that equity's very nature as a flexible doctrine necessarily introduces elements of subjectivity and uncertainty into an already hazy international law arena.  Judge Gros, in a dissenting opinion in the  Gulf of Maine Case, is one who takes this view: [E]quity left, without any objective elements of control, to the wisdom of the judge reminds us that equity was once measured by "the Chancellor's foot"; I doubt that international justice can long survive an equity measured by the judge's eye. When equity is simply a reflection of the judge's perception, the courts which judge in this way part company from those which apply the i law. 1  2  4  Aside from introducing subjectivity and uncertainty, another difficulty with equity in international law is that equity is a common law concept and therefore not compatible with all jurisdictions. However, none of these difficulties are insurmountable. They may be partly overcome by observing that the international community has long recognized equity as a principle of international law in numerous judgments of international arbitral and judicial bodies.  125  But equity is not constrained to surface only injudicial decisions -  it often appears in many guises in international treaties and state practice. Use of equity in these areas of state practice lend it great weight as a binding principle of international law because treaties and customary norms - including those embodying equitable principles - are, under subsections (l)(a) and (b) of Article 38, respectively, of the ICJ Statute, expressly recognized as sources of international law. Id at 76-77. On this, see Harris, supra note 119 at 51-52, note 2. I.C.J. Rep. 1984, at 386. Including: The Diversion of Water from the Meuse, (Netherlands v. Belgium) (1937), P.C.I.J. Reports, Series A/B, No. 70; Gulf of Maine Case I.C.J. Rep. 1984; Barcelona Traction, Light and Power Co. (Belgium v. Spain) I.C.J. Rep. 1970; North Sea Continental Shelf Cases (Fed. Rep. Germany v. Denmark; Fed. Rep. Germany v. The Netherlands) I.C.J. Rep. 1969; Continental Shelf (Tunisia v. Libya) I.C.J. Rep. 1982; Fisheries Jurisdiction (Jurisdiction) I.C.J. Rep. 1974. 1 2 2  1 2 3  1 2 4  1 2 5  40  There are various instances where equity has been widely recognized by the international community and accepted as a broad basis through which to mould the development of international law. One example, somewhat analogous to the situation regarding international watercourses, is the law of the sea. The United Nations Convention on the Law of the Sea,  126  widely held to reflect customary law in this field,  127  recognizes equity in two main capacities. The first involves delimitation of maritime boundaries, which are to have an equitable result. U N C L O S Articles 74 and 83 require states to use the principles of equity to determine boundaries when they share an opposite or adjacent coastline, and also requires an equitable settlement of any conflict that arises. The International Court of Justice also views maritime delimitations in this manner, finding "[t]he fundamental rule of general international law governing maritime delimitations...requires that the delimitation line be established while applying equitable criteria to that operation, with a view to reaching an equitable result."  128  The second instance where equity is recognized in the law of the sea regime involves the rights of geographically disadvantaged and land-locked states to share in marine resources, including the living resources of the global marine commons and the benefits of the seabed and its subsoil beyond the limits of national jurisdiction.  129  As the  states in these categories have no right to these resources based on sovereignty or  The United Nations Convention on the Law of the Sea [hereinafter "UNCLOS"] was adopted by the Third United Nations Conference on the Law of the Sea and opened for signature at Montego Bay, Jamaica on 10 December 1982. Entered into force, 16 November 1994. U N Doc. A/CONF.62/122; reprinted in 21 I.L.M. 1261 (1982). ' ' ' At the date of writing, there are 157 signatories to U N C L O S and 145 parties. Online: U N Treaty Collection <http://untreaty.un.org/ENGLISH/bible/englishinternetbible/partI/chapterXXI/treaty6.asp> (date accessed 23 September 2004). Gulf of Maine case, I.C.J. Rep. 1984 at 339. See U N C L O S Part V , Articles 69 (right of land-locked states) and 70 (right of geographically disadvantaged states), and Part XI, Section 2, Articles 140 (seabed is for the benefit of mankind) and 148 (participation of developing states in the development of the seabed). 1 2 7  1 2 8  1 2 9  41  territory, the only solid ground for their claim to the seas' surplus is in equity. The simple fact of membership in the international community gives these disadvantaged states a legal claim to resources otherwise out of their reach as an inherent attribute of state sovereignty. The law of the sea regime demonstrates how equity can operate in and shape international law in a continual manner, illustrating the flexibility of this principle. McCaffrey uses the example of the rights granted to land-locked or geographically disadvantaged states to stress the current and future need for a system enabling the equitable sharing of the world's freshwater resources, especially with what he terms "hydrologically disadvantaged" states.  130  These are states that languish due to factors  such as aridity, explosive rates of population growth and urbanization, and poverty: The fact that the international community has accepted similar rights in the context of the law of the sea represents a recognition that states should not have to suffer geographically caused hardships alone; rather, other states that are more fortunate may be called upon to share their resources, on an equitable basis, with those that are disadvantaged, as a matter of international solidarity. The same principles would seem to apply with equal or greater force to the sharing of freshwater. 131  Intergenerational equity - often referred to in an environmental context - is another instance of broad acceptance of equity in international law. This moral principle recognizes the rights of future generations to inherit a planet that is safe and intact, while still meeting the developmental needs of the present. The seminal articulation of the principle by Edith Brown Weiss states, "each generation has an obligation to future generations to pass on the natural and cultural resources of the planet in no worse condition than received and to provide reasonable access to the legacy for the present  1 3 1  For McCaffrey's discussion on this issue, see McCaffrey, "Watercourses" supra note 5 at 173-174. Id, at 173.  42  generation."  132  Weiss based her argument for the existence of this principle on the  charitable trust, an equitable creature, and Rawls' "original position" as expounded in A Theory ofJustice.  133  Support for intergenerational equity is found in:  [T]he nearly universal recognition and acceptance among peoples of an obligation to protect the natural and cultural heritage for future generations'; sociobiological theory; the basic psychological need of human beings to transcend the self by relating to the future; and the 'primordial social value' necessary for the maintenance and continuation of the human community intergenerationally. 134  135  Although still at the stage of a moral rather than legal obligation,  further  incorporation of the principle in several international environmental treaties, such as the Convention on Climate Change  136  and the Convention on Biological Diversity,  137  lends  further credence to acceptance of broad tenets of equity in international law, outlining how they play out when it comes to current behaviour and future needs.  Edith B. Weiss, In Fairness to Future Generations: International Law, Common Patrimony, and Intergenerational Equity (Dobbs Ferry, N Y : Transnational Pub., 1989) at 37-8. John Rawls, A Theory of Justice, (Cambridge, Mass.: Belknap Press of Harvard University Press, 1999). Rawls places all citizens in a hypothetical "original position" behind a "veil of ignorance" where no information is known about morally irrelevant personal attributes, for example ethnicity, religion, gender, talents or age. Citizens then form a civil society by selecting rules of justice. Rawls argues that they will select two fundamental principles: the liberty principle (ensuring all people have access to basic liberties such as freedom of speech and due process of law) and the difference principle (ensuring that wealth and social stature be structured to benefit the least well-off in society). Catherine Redgwell, Intergenerational Trusts and Environmental Protection, (Manchester: Manchester University Press, 1999) at 76 (footnotes omitted). See Patricia W . Birnie & Alan E. Boyle, International Law and the Environment (Oxford: Clarendon Press, 1992) at 212. United Nations Framework Convention on Climate Change ['Climate Change Convention'] concluded at Rio de Janeiro, 9 May 1992. Entered into force, 21 March 1994. U N Doc. A/CONF.151/26; reprinted in 31 ILM 849 (1992). The preamble expresses determination "to protect the climate system for present and future generations." It is also expressed in the principles section of the Convention (Article 3(1)): "The Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity..." Convention on Biological Diversity, concluded at Rio de Janeiro, 5 June 1992. Entered into force, 29 December 1993. Reprinted in 31 I L M 818 (1992). The preamble states that the Contracting Parties are "Determined to conserve and sustainably use biological diversity for the benefit of present and future generations." 1 3 3  1 3 4  1 3 5  136  137  43  Also found in these conventions and in the Montreal Protocol,  138  and again  drawing on the concept of equity in international law, is the principle of common but differentiated responsibilities.  139  This principle allows developing countries concessions  regarding the implementation of certain treaty obligations. Concessions can be things like financial breaks, longer compliance periods, or flexibility regarding specific treaty commitments. For example, Article 5 of the Montreal Protocol allows certain developing countries a 10-year delay in the implementation of the Protocol's requirements. The principle of common but differentiated responsibilities recognizes that although combating certain problems today requires the joint effort of the international community, fault for these problems rests mainly with industrialised countries. For developing countries to now be held accountable to the same degree as the rest of the world for problems they did not create, but which now necessarily impinge upon their sovereign freedoms is, in a word, inequitable. Attributing common but differentiated responsibilities to states satisfies the need for equity in this area. Even the notion of limited sovereignty ties in with equity. The traditional Westphalian view of state sovereignty has given way today to a form of modified sovereignty.  140  Under this new understanding, the attributes of sovereignty are modified  by legal constraints accepted by the international community through treaties and customary international.law. In particular, the traditional mainstay of state sovereigntythat a nation could do what it likes within its own territory - has given way, both because  Montreal Protocol on Substances that Deplete the Ozone Layer, ['Montreal Protocol'] as adjusted and/or amended. Adopted on 16 Sept. 1987; entered into force, 1 January 1989. Reprinted in 26 I L M 1550 (1987). Climate Change Convention: preamble, Article 3(1); U N Convention on Biological Diversity: preamble, and e.g. Article 20 (financial resources); Montreal Protocol: Article 5. See John H . Jackson, "Sovereignty-Modern: A New Approach to an Outdated Concept" (2003) 97 A.J.I.L. 782. 138  1 3 9  1 4 0  44  of the effect on other states, and of the effect on that nation's own populace. But incursion upon a state's sovereignty is no small matter and must be well justified. In the instances where states have voluntarily given up part of their sovereignty, it is arguable that it is because higher standards of fairness and equity force their hand. For example, where a state is constrained in its actions by the needs of another state, such as the need to be free from transboundary pollution, the interference with state sovereignty is justified on principles of fairness and equality (the state causing the harm would likely protest similar harm caused to them). We also see limits on sovereignty through the international community's imposition of fundamental human rights, applicable to all people in all nations at all times, regardless of sovereign decrees otherwise. Thus, from the above examples, it follows that equity is widely recognized today as a principle of international law. It does, however, take many forms. Equity plays a major role in international water law and underlies the fundamental principle of this area of the law. McCaffrey goes so far as to say that there is, and can be, no other fundamental principle in this context: The use of equity is virtually compelled when natural resources that must be apportioned are shared by more than one state. This is especially true of flowing water, as to which 'the action of one State reaches through the agency of natural laws into the territory of another State'. For not only are the waters of an international watercourse in constant motion along or across boundaries, they also constitute... 'a necessity of life'. They therefore 'must be rationed among those who have power over [them].' And in this rationing process 'the effort always is to secure an equitable apportionment without quibbling over formulas.' 141  So, the tenets of equity as understood in international law are expressed in water law's doctrine of equitable utilization, which requires states to use a shared, international watercourse in a fair and reasonable manner. It is time now to'take a closer look at the doctrine's provisions as understood in modern international water law.  1 4 1  McCaffrey, "Watercourses" supra note 5 at 345 (footnotes omitted).  45  3.2 Substantive content of the principle In general terms, the principle of equitable and reasonable utilization states that every basin state in an international drainage basin is entitled to a reasonable and equitable share in the beneficial uses of those waters. This right is an attribute of sovereignty; therefore every watercourse state has an equal right just as sovereignty between states is equal.  142  But even though states have equal rights to use the waters of a  transboundary watercourse, this does not translate to equal amounts of the water resources. A l l it means is that no state's claim to the resource is inherently stronger than that of any other state.  •  143  '  The idea of equitable utilization, then, is to provide the maximum benefit to each basin state with the minimum detriment to each.  144  Therefore, a use must be beneficial in  a social or economically valuable way. However, this use need not be the most productive use, nor, as noted, must states receive an equal share in the uses of the water. Rather, the allocation will depend upon weighing a range of factors relating to a particular watercourse on a case-by-case basis. McCaffrey emphasises that "equitable utilization is best understood as a process, rather than as a fixed state of affairs."  145  This  statement recognizes the importance to revisit the outcome of the principle as it applies to a particular watercourse, when circumstances change with time.  The sovereign equality of states is written into the Charter of the United Nations, Article 2(1). McCaffrey, "Watercourses" supra note 5 at 331. Bogdanovic, supra note 5 at 102. McCaffrey, "Watercourses" supra note 5 at 306.  46  3.3 Equitable use in state practice Equitable use, without grounding in state practice, could not be a principle of international law. The concept of maximizing the benefits of a watercourse for all riparian states is something that has found particular resonance in the international community. There are numerous examples of treaties negotiated and concluded under equitable terms. A typical example of an early agreement include the treaty between the US and Canada over the Niagara River,  146  where it is stated that the countries shall share  the river equally. A novel approach was taken to equitable use in resolving the tense stalemate between India and Pakistan over the waters of the Indus River, resulting in the Indus Waters Treaty of I960,  147  although the parties to the treaty did attempt to avoid  setting the precedent of equitable sharing of transboundary watercourses in this regard.  148  Under the Indus Waters Treaty, each state was allocated three of the six rivers in dispute based on geography (the waters of the western rivers went to India; the eastern to Pakistan), rather than a specific quantity of the total flow. Equitable utilization does not, however, mean equal utilization in all circumstances. Examples of equitable but unequal utilization include India's agreement with Bangladesh over the Ganges River,  149  and another between India and Nepal over the  Treaty relating to the uses of the waters of the Niagara River, signed at Washington, 27 February 1950; entered into force 10 October 1950. (1950) U.N.T.S. vol. 132, 228. See Article VI. Indus Waters Treaty, signed at Karachi, 19 September 1960, 419 U.N.T.S. 126. Article XI(2) of the Indus Waters Treaty states: "Nothing in this treaty shall be construed by the Parties as in any way establishing any general principle of law or any precedent." See also Colleen P. Graffy, "Water, Water, Everywhere, Nor Any Drop to Drink: The Urgency of Transnational Solutions to International Riparian Disputes" (1998) 10 Geo. Int'l Envtl. L. Rev. 399 at 427. Treaty on Sharing of the Ganges Waters at Farakka, 12 December 1996, 36 I.L.M. 519. 147  1 4 8  1 4 9  47  Mahakali River.  150  In both cases India, by far the more populous and powerful state,  secured a greater share water, but both nations nevertheless agreed to these equitable terms. However, one of the model examples of equitable utilization is the Columbia River Treaty.  151  This treaty is discussed in more detail below in chapter 4 to illustrate the  difficulties arising out of an equitably utilized transboundary watercourse regime, even where the regime is held to be a model of water law.  3.4 Equitable use in codified international law As noted above, the Helsinki Rules reflect the first instance where equitable utilization was recognized explicitly in an international document as the fundamental rule of international water law, although the principle owes its origin and essence to US water law jurisprudence.  152  Article IV of the Helsinki Rules provides, "Each basin State is  entitled, within its territory, to a reasonable and equitable share in the beneficial uses of the waters of an international drainage basin." The International Law Association then lists eleven factors to be taken into consideration when determining what reasonable and equitable use means. These factors are not exclusive, uses entitled to preference over the others.  154  153  nor is any one use or category of  The factors are listed in Article V of the  Helsinki Rules as:  Treaty Concerning the Integrated Development of the Mahakali River, 12 February 1996, 36 I.L.M. 531. See Salman M . A . Salman & Kishor Uprety, "Hydro-Politics in South Asia: A Comparative Analysis of the Mahakali and Ganges Treaties" (1999) 39 Nat: Resources J. 295. Treaty relating to Cooperative Development of the Water Resources of the Columbia River Basin, 17 Jan. 1961, and exchanges of notes at Washington, 22 Jan. 1964, and at Ottawa, 16 Sept. 1964, 15 U S T 1555, 542 U.N.T.S. 244. [Hereinafter "Columbia River Treaty"]. 1 5 0  151  1 5 2  1 5 3  1 5 4  This is discussed further in Chapter 3, part 4, below. Helsinki Rules, Article V(2) Id, Article VI.  48  (a) the geography of the basin, including in particular the extent of the drainage area in the territory of each basin State; (b) the hydrology of the basin, including in particular the contribution of water by each basin State; (c) (d) (e) (f) (g)  the climate affecting the basin; the past utilization of the waters of the basin, including in particular existing utilization; the economic and social needs of each basin State; the population dependent on the waters of the basin in each basin State; the comparative costs of alternative means of satisfying the economic and social needs of each basin State; (h) the availability of other resources; (i) the avoidance of unnecessary waste in the utilization of waters of the basin; (j) the practicability of compensation to one or more of the co-basin States as a means of adjusting conflicts among uses; and (k) the degree to which the needs of a basin State may be satisfied, without causing substantial injury to a co-basin State.  Ultimately, the International Law Association made it clear that what is equitable and reasonable must be decided on a case-by-case basis by weighing up all relevant factors in relation to each other. In a similar fashion, Article 5(1) of the Watercourses Convention provides: Watercourse States shall in their respective territories utilize an international watercourse in an equitable and reasonable manner. In particular, an international watercourse shall be used and developed by watercourse states with a view to attaining optimal and sustainable utilization thereof and benefits therefrom, taking into account the interests of the watercourse States concerned, consistent with adequate protection of the watercourse.  Article 6 of the Convention then provides a list of factors - similar to those in the Helsinki Rules - to be taken into consideration under the doctrine: (a) (b) (c) (d) (e) (f) (g)  Geographic, hydrographic, hydrological, climatic, ecological and other factors of a natural character; The social and economic needs of the watercourse States concerned; The population dependent on the watercourse in each watercourse State; The effects of the use or uses of the watercourses in one watercourse State on other watercourse States; Existing and potential uses of the watercourse; Conservation, protection, development and economy of use of the water resources of the watercourse and the costs of measures taken to that effect; The availability of alternatives, of comparable value, to a particular planned or existing use.  49  Again, these factors are to be weighted against each other on a case-by-case basis. The Convention requires that "all relevant factors are to be considered together and a conclusion reached on the basis of the whole."  155  The development of the doctrine between its statement in the earlier Helsinki Rules and its most recent expression in the Watercourses Convention offer some interesting insights into current conceptions of what the principle is trying to achieve. Several notable differences are observed. In particular, the later Watercourses Convention expressly mentions that a watercourse is to be used both optimally and sustainably. This emphasis on sustainability and on the "adequate protection of the watercourse" reflect developments in international environmental Jaw since the Helsinki Rules were drafted in 1966. Another difference, which perhaps reflects changes in views of state sovereignty, is the recognition in the Watercourses Convention that joint and co-operative participation is necessary to achieve the long term sustainable management of transboundary freshwater. There are small differences in the list of factors to be considered too. The Watercourses Convention does not mention the contribution of a state to the total amount of water in a watercourse as a relevant factor in determining allocation, for example. However, as the factor lists are not exclusive, this does not mean that amount of water contributed may not be considered.  3.5 Equitable use as the cardinal rule of international water law One of the tensions most difficult to reconcile in international environmental law involves the balance between state sovereignty, and its entailing right to natural resource 1 5 5  Watercourses Convention, Article 6(3).  50  development,  156  with the obligation not to harm another state.  157  In international water  law this is pronounced in the substantial - yet receding - debate over which doctrine is to take precedence: equitable utilization of transboundary freshwater resources, or the duty not to cause significant harm to another watercourse state. The no harm principle arises from the equality of these sovereign states and is embodied in the maxim sic utere tuo ut alienum non laedas, meaning "so use you own as not to injure another's property." In short, it means that one country may not use their territory so that it causes harm to the territory or the interests of another country. In the transboundary water context this duty applies to standards of both water quantity and quality. The problem arises between these two core principles of international water law because, in some circumstances, the use of a watercourse may necessarily involve some measure of harm to another state in order to be equitable as between all states. The obligation is not to cause any harm whatsoever, but to refrain from significant harm to an extent that is reasonable and equitable in all the circumstances. duty - some degree of harm may be required to be tolerated.  159  So, it is not an absolute Allowing a strict  interpretation of the no-harm principle by proscribing all and every harm would, in fact,  See supra note 66. Although some states claim that the definition of harm stretches to encompass harm to economic interests, harm is used in this thesis in its more accepted meaning, that is, no environmental harm: see for example Tanzi & Arcari, supra note 110 at 142-3. There has been a range of interpretations as to the level of harm required to be of such significance as to be prohibited by international law. 'Appreciable' harm is the criterion in Article 7 of the ILC .draft articles; 'substantial' harm is found in Article X of the Helsinki Rules; Article 7 of the Watercourses Convention uses the threshold of'significant' harm, and is the standard followed in this thesis. As to what harm entails, international water law protects only harm to legal rights and legal interests; factual harm per se enjoys no such protection: McCaffrey, "Watercourses", supra note 5 at 329. In the context of transboundary watercourses, examples of harm include decreases in the quantity of water, pollution, obstruction of fish migration, erosion, siltation, impacts on watercourse ecosystems, or even the bursting of a dam. This aspect of the relationship between the two principles is reflected in the doctrine of 'good neighbourship', although this doctrine's current status as a binding principle of in international law is somewhat contentious: Johan G. Lammers, Pollution of International Watercourses (The Hague & Boston: Martinus Nijhoff, 1984) at 563-9. 1 5 7  1 5 8  1 5 9  51  harm the state that sought to legitimately use its resources with due care and is unrealistic. The method of determining levels of harm deemed to be significant requires an examination of what is equitable and reasonable in the circumstances, indicating the primacy of equitable utilization over the duty not to cause harm. Even though it has swung permanently in favour of equitable utilization in recent years, opinion has traditionally been divided regarding which doctrine is to take precedence. Nowhere is this more apparent than in the respective reports of the five Special Rapporteurs to the International Law Commission.  160  These Rapporteurs were  charged with determining the current status of the international legal regime governing freshwater, in order to help the ILC with the draft articles. For example, the first report by Special Rapporteur Schwebel proposed a draft article stating: The right of a system State to use the water resources of an international watercourse system is limited by the duty not to cause appreciable harm to the interests of another system State, except as may be allowable under a determination for equitable participation for the international watercourse system involved. 161  In Special Rapporteur Schwebel's opinion, the duty to refrain from causing appreciable harm must be subjected to an examination of whether such harm is equitable or not. Special Rapporteur Evensen, the Rapporteur succeeding Mr. Schwebel, then took the opposite approach. His view was that the duty not to cause appreciable harm to another state along the watercourse was the primary rule of international freshwater law, and that any arrangement to the contrary must be by consent.  162  But the subsequent two  Although reports were prepared by only the last four of the five Special Rapporteurs: Kaya, supra note 110 at 156. Stephen Schwebel, "Third report on the law of non-navigational uses of international watercourses", U N Doc. A/CN.4/348, [1982] Y.B. Int. L. Comm'n, vol. 11(2), at paragraphs 104-5 (my emphasis). Evensen's proposed article excluded the exception clause found in Schwebel's draft: "A system State shall refrain from and prevent (within its jurisdiction) uses or activities with regard to a watercourse system that may cause appreciable harm to the rights or interests of other system States, unless otherwise provided for in a system agreement or other agreement." Jens Evensen, "First Report on the Law of the Non1 6 1  1 6 2  52  Special Rapporteurs, McCaffrey and Rosenstock, shared opinions similar to those of Schwebel - they thought that equitable utilization was the predominant principle. McCaffrey emphasised the distinction between factual harm and legal injury, because factual harm may be caused in some situations that is not, in fact, inequitable. Rather, focusing on the inequity of a legal injury enabled the no harm duty to be synchronized with the dominant principle of equitable utilization.  163  Rosenstock went a little further  than McCaffrey, believing that a use causing significant pollution harm would be presumed to be inequitable and unreasonable unless there were special circumstances and absent any imminent threat to human health or safety.  164  These differing opinions caused the ILC some trouble when formulating the draft articles, with members torn between the two positions.  165  Although early drafts ascribed  to the prima facie view that "utilization of an international watercourse is not equitable if it causes other watercourse State appreciable harm,"  166  eventually the ILC changed its  opinion of which doctrine must give way, settling on the following wording for the final text that became Article 7 of the Watercourses Convention: 1. Watercourse States shall, in utilizing an international watercourse in their territories, take all appropriate measures to prevent the causing of significant harm to other watercourse States. 2. Where significant harm nevertheless is caused to another watercourse State, the State whose use causes such harm shall, in the absence of agreement to such use, take all appropriate measures, having due regard for the provisions of articles 5 and 6, in consultation with the affected State, to eliminate or mitigate such harm and, where appropriate, to discuss the question of compensation.  navigational Uses of International Watercourses", U . N . Doc. A/CN.4/367, [1983] Y.B. Int. L. Comm'n vol. 11(1) at 172. See Stephen C. McCaffrey, "Second Report on the Law of the Non-navigational Uses of International Watercourses", U . N . Doc.'A/CN.4/3.99, [1986] Y.B. Int. L. Comm'n vol. 11(1). . ' . Robert Rosenstock, "First Report on the Law of the Non-Navigational Uses of International Watercourses", U N Doc. A/CN.4/451 [1993]. The permutations of what was to become Article 7 of the Watercourses Convention are thoroughly discussed in Bourne, "Primacy" supra note 110 at 221-225. International Law Commission, [1988] Y.B. Int. L. Comm 'n, Vol. 11(2), at 35-41. 1 6 3  1 6 4  1 6 5  1 6 6  53  In this conception of the no harm duty by the ILC, it can again be seen that equitable utilization is viewed as the overriding principle of international watercourse law, though states are still required to exercise due diligence to avoid harming watercourse neighbours.  167  Nevertheless, if significant harm is caused to another state  despite the existence of this standard of due diligence, the state at fault is required to ameliorate that harm. But, even in so doing it must have "due regard for the provisions of articles 5 and 6",  168  namely, the principle of equitable and reasonable utilization and the  factors for consideration under this principle. Professor Charles Bourne summarises what is now generally accepted as the correct relationship between the two principles, as they are currently stated in the Watercourses Convention:  .  The essence of [Article 7] is this: if a state is acting within its rights as defined in Articles 5 and 6, it is under a duty to prevent, eliminate, or mitigate harm to other watercourse states by all appropriate, presumably reasonable, measures; in short, it must act without malice and with due diligence — a proposition that is not disputed. • - ^ The function of Article 7, as defined in the Watercourses Convention, therefore, is not to impose limits on the right of states to undertake equitable and reasonable utilizations under Articles 5 and 169  6, but on the implementation of these utilizations. Article 7 deals only with process.  That the Watercourses Convention even considers compensation for and mitigation of harm means that it contemplates instances where harm may be caused. These instances will be situations where it is equitable to do so, meaning that it would be inequitable for a country to refrain from taking an action that would otherwise cause  Although this standard is not explicitly expressed in the Watercourses Convention, it is understood that the phrase "take all appropriate measures" imports a standard of due diligence. The tribunal hearing the Alabama Claims case of 1872 defined due diligence as "a diligence proportioned to the magnitude of the subject and to the dignity and strength of the power which is exercising it": The Geneva Arbitration (the Alabama Claims case), reported in John B. Moore, Digest of International Law, V o l . 1 (Washington D.C.: US Govt Printing Office, 1906) at 572-573. International legal commentators have largely accepted this definition: see for example, Kaya, supra note 110 at 160. Watercourses Convention, Article 7(2). Bourne, "Primacy" supra note 110 at 225. 1 6 8  1 6 9  54  harm to their neighbour. This interpretation is one that has found favour with other water law scholars.  170  The primacy of the equitable use doctrine in customary international law is further supported by the judgment of the International Court of Justice in the GabcikovoNagymaros case of 1997,  171  a dispute where Hungary wanted to avoid treaty obligations  it had with Slovakia to build a dam because it was concerned about environmental repercussions. Although the requisite "state of ecological necessity" to enable Hungary to unilaterally terminate the treaty was not found on the facts of the case, the Court nevertheless found that Hungary had a "basic right to an equitable and reasonable sharing of the resources of an international watercourse."  172  This confirms the customary norm  of equitable use in international water law. However, no mention at all was made of the 173  obligation not to harm another state - clearly established on the facts of this case. Three conditions are required for a state to fall afoul of the no-harm principle: first, that state must cause significant harm to another watercourse state; second, a due diligence standard in failing to prevent the harm must have been breached; and third, the harm caused must be inequitable and unreasonable when viewed in light of all the circumstances of that watercourse.  174  The due diligence standard depends upon what  could "reasonably be expected of the state in question in the circumstances," along with Professor Lammers notes that "a strict application of the no substantial harm principle may in certain circumstances lead to results which are quite inequitable": Lammers, supra note 159 at 367; see also Stephen McCaffrey, "An Assessment of the Work of the International Law Commission" (1996) 36 Natural Resources Journal 297 at 309-310. Gabcikovo-Nagymaros case, supra note 5. Id at para. 78. The Court stated further (at para. 85): "Czechoslovakia, by unilaterally assuming control of a shared resource, and thereby depriving Hungary of its right to an equitable and reasonable share of the natural resources of the Danube...failed to respect the proportionality which is required by international law." See especially id, paragraphs 78, 85, 147 and 150 where equitable and optimal utilization and Article 5 of the Watercourses Convention are discussed with no reference to the no harm doctrine. These are listed by McCaffrey, "Watercourses" supra note 5 at 379. 171  1 7 2  1 7 3  1 7 4  55  generally applicable standards of either a global or regional watercourse level, although international consensus on this definition is lacking. When the no-harm obligation is viewed in this manner, it is easily reconciled with - indeed, within - the doctrine of equitable utilization: [T]he no-harm obligation works in tandem with the principle of equitable utilization, by sounding an alarm when the balance of interests constituting a regime or equitable utilization appears to be tipping too far in one direction. Far from being incompatible with equitable utilization, therefore, the no-harm obligation is a necessary and integral part of the equitable utilization process.  3.5.1  Reconciling no harm and equitable use Given that equitable utilization is now accepted as the dominant international  water law principle, there remains the issue of how the duty to do no harm can nevertheless be reconciled with this cardinal doctrine. One leading view on this issue proposes that any harm caused by a state's actions - despite the prohibitions against it is to be treated as an inequitable use to be negatively weighed against other uses within the equitable utilization factor-weighing process. McCaffrey is one prominent scholar who takes this view, whereby harm is treated "as but one factor - albeit an important one - in the equitable utilization calculus."  177  The flexibility of the no-harm principle,  prompting an equitable case-by-case analysis on the circumstances of each particular watercourse as to the harm and responsibility involved, lends it such a similar characteristic to the equitable utilization doctrine that McCaffrey argues that the principles are, "in reality, two sides of the same coin" which therefore do not need to be "reconciled."  Id at Id at ' Id at 178 Id at 176  178  379. 380. 346. 371.  56  The Helsinki Rules also treat harm as an inequitable use within the scope of the broader principle of equitable utilization - the "unnecessary waste" contemplated by Article V(2)(i) is to be negatively weighed against Article V ' s other factors. Further, where uses conflict - that is, where harm is caused - the practicability of compensation for this harm is raised as yet another factor to be weighed under Article V(2)(j). However, Professor Bourne notes that this method of reconciling equitable utilization with the duty not to cause harm could potentially give the latter rule "de facto dominance" if significant harm is taken per se to be unreasonable and inequitable.  179  I  contend, however, that this method of reconciling the principles holds much merit. Just because harm is measured within the factor-weighing process as an inequitable use does not mean that it necessarily becomes dominant to the detriment of reaching the goal of equity. On the contrary - that harm is considered in this manner attests to the strength of using equity as a concept via which to arrive at fair and just watercourse agreements between states, and between uses. Any watercourse use leading to harm will necessarily be considered in view of the all the benefits, as well as the fairness of such use within the watercourse as a whole. In some situations where the harm that may be caused will be very great, then it is conceivable that preventing this harm will outweigh other uses when viewed equitably. Further, this holistic approach ties in the best with modern understanding of the ecology of freshwater systems, where considerations of quantity (traditionally the domain of equitable utilization) and quality (traditionally the realm of the duty to do no harm) can no longer be considered in isolation from each other. Special Rapporteur Rosenstock also makes note of the current tendency to adopt an integrated approach in the 1 7 9  Bourne, "Primacy" supra note 110 at 227.  57  .  management of freshwater resources. In many respects, the interrelation of issues of quality and quantity of freshwater under the integrated approach forces this interpretation of the no harm-equitable utilization reconciliation. This is not without its problems, however, as it has "resulted in a degree of confusion and perhaps in an overloading of [the equitable utilization] principle whose implementation is already a complex matter."  180  4. Conclusion It can be seen from the foregoing discussion that equitable utilization has clearly emerged as the cardinal rule governing transboundary freshwater.. The content of this 1  principle is then drawn from state practice as well as conceptions of what equity means at the international level, finding expression in the customary norms of international water law and their codification today. The long running debate over whether the duty not to cause harm to another watercourse state takes precedence over the equitable utilization doctrine is now seemingly settled, with the bulk of the support establishing equitable utilization as the governing principle of international water law. This does not mean, however, that the duty not to cause harm is no longer a binding norm of international law - rather, it means that in the context of transboundary freshwater disputes it is best to take an holistic, watercourse-wide approach by examining any harm caused as an inequitable use under the broader precept of equitable utilization. This approach will, where used in good faith, lead to just and fair negotiated agreements for every transboundary watercourse. With  1 8 0  McCaffrey, "Watercourses" supra note 5 at 325.  58  pressures on the global supply of water ever-increasing, the resolution of this debate and the ability therefore to move beyond it could not have been more timely. However, it is time now to turn to an examination of the ability of international water law's fundamental rule - equitable utilization - to deal with the allocation of the world's transboundary watercourses in an age where these resources will only become scarcer.  59  Chapter 3: The economics-equity interface in international water law The rules ofjust conduct which the lawyer studies serve a kind of order of the character of which the lawyer is largely ignorant; ...this order is studied chiefly by the economist who in turn is similarly ignorant of the character of the rules of conduct on which the order that he studies rests -  Friedrich A. Hayek  181  -  1. Introduction This chapter explores the interface between the doctrine of equitable utilization and economic theory as it applies to the allocation of scarce natural resources at the theoretical level. In particular, I ask whether greater reliance on the fundamental principles o f economics would assist the equitable use paradigm in reaching water allocations with better social, environmental and economic outcomes. In the first section of this chapter I therefore examine the benefits accruing from an economic approach to problems of natural resource scarcity in order to demonstrate the usefulness of this line of inquiry. Given these benefits, I explore the current role assigned to economics within international water law's governing doctrine in the second part. To further illustrate the role of economics as regards international water law, I compare this aspect of the international allocation paradigm with domestic United States water jurisprudence, which uses a more economic-based approach.  ' Friedrich A . Hayek, Law, Legislation and Liberty (Chicago: University of Chicago Press, 1973) at 4-5.  60  2. Benefits of an economic approach to resource scarcity Three key benefits occur when an economic approach is taken to help resolve scarcity of all natural resource sectors, including transboundary watercourses: water is optimally allocated to its most efficient uses; political agreements can become more palatable to states, and therefore more feasible; and arrangements based on economics are inherently flexible and responsive to changing circumstances than other arrangements.  2.1 Optimal allocation and efficiency The first and most obvious benefit arises from normative economic cost-benefit analysis of allocation decisions. By ascertaining all the costs and benefits of a negotiated agreement, states can focus their energy towards minimizing the costs and maximizing the benefits of a transboundary resource allocation. This process results in an optimal that is, efficient - allocation of the scarce resource, generally by putting a resource to its highest value use. But what is meant by efficiency? In the language of economics, society will view a particular activity as efficient whenever the additional benefit (the marginal benefit) to society of an extra unit of that activity is greater than the additional cost (the marginal cost) to society for that unit. Where the marginal benefit equals the marginal cost, maximum efficiency is attained for that activity. Similarly, where marginal costs exceed 182  marginal benefits, the activity is said to be inefficient at that level of activity.  In  practical terms, maximum efficiency means it would not be possible to take a litre of water from one person or society and give it to someone else so that the total outcome for Nicholas Mercuro & Stephen Medema, Economics and the Law: From Posner to Post-Modernism (Princeton, New Jersey: Princeton University Press, 1997) at 14-15. 1 8 2  61  the economy, environment and society was increased. The power of the market with voluntary exchange is that i f someone else values the use of the water more highly, they will buy it from someone else who values it less. Both parties gain from the exchange. And they do not need lawyers, governments or anyone else to determine what is their own best interest - they work it out for themselves. The catch is that to set up a system of voluntary exchange whereby people can arrive at the best outcome for themselves, whether it involve the exchange of water, electricity or any other resource, there must be property rights over these goods and services and the enforcement of those rights including contract law.  183  The basic idea is that the benefits to society outweigh the costs that society must bear. Things get more complex when it is necessary to make comparisons between activities and across rime. And this is where cost-benefit, analysis comes into play. Richard Posner explains the several understandings of this approach: At the highest level of generality... it is virtually synonymous with welfare economics, that is, economics used normatively - used, that is, to provide guidance for the formation of policy, either public (the more common domain of the term) or private. At the other end of the scale of generality, the term denotes the use of the Kaldor-Hicks (wealth maximization rather than utility maximization) concept of efficiency to evaluate government projects... government grants... and government regulations.... Along a different axis of definition, the term cost-benefit analysis can refer to a method of pure evaluation, conducted wholly without regard to the possible use of its results in a decision; or to an input into decision, with the decision maker free to reject the results of the analysis on the basis of other considerations... 184  The final definition of cost-benefit analysis - that is, as an input into a decision is the most useful here because economics is used in the context of international water  This point is returned to in Chapter 5, part 3. In particular, that section notes the difficulties of setting up and enforcing a system of property rights in international waters. Richard A . Posner, "Cost-Benefit Analysis: Definition, Justification, and Comment on Conference Papers" in Matthew D. Adler & Eric A . Posner (eds.), Cost-Benefit Analysis: Legal, Economic and Philosophical Perspectives (Chicago: University of Chicago Press, 2001) at 317-8. 1 8 4  62  law only beneath and as part of the fundamental principle of equitable utilization, where equity is the overriding principle. The emphasis of all understandings of cost-benefit analysis is that people know what is best for themselves and they act out of self interest. Economic actors make rational, intelligent choices about what to buy, sell, or invest in. Their decisions rely in particular on the price signal,  which will lead to good outcomes provided the market  has full information. This ultimately leads to the 'bigger pie' of wealth maximization 186  with maximum efficiency.  Arguably, this is also one of the fairest ways of allocating  scarce natural resources because it provides an avenue to counter decisions based on the biased political power of the more powerful watercourse states. However, as can be seen, this model relies on several assumptions - the rationality of economic actors, that the market has full information, the existence of a price signal to act upon, and that there even is a market - all of which may not be the case with certain environmental goods. These limitations to the application of cost-benefit analysis are discussed more fully, among others, in the next chapter. For now, we should note that the existence of limitations means allocations based on a purely economic paradigm do not always lead to the most efficient allocation of resources as between states, unless the limitations are overcome or tempered.  Note that 'price' need not mean dollars: for example, cigarettes served as a medium of exchange in World War II prisoner of war camps. See infra note 191. In the context of water sharing, efficiency is beneficial because it increases the amount of water available for other users in the system. 1 8 6  63  2.2 Political feasibility The second benefit of applying economic principles to international water law is its importance for the potential political feasibility of a proposed environmental 187  regime.  *  There are three ways that using economic principles enhances political  feasibility. The first is simply that states, acting in their best interests, will obey negotiated international agreements when it is in their benefit to do so. A n international water agreement that capitalises on this by providing economic benefits while minimizing costs for all watercourse states involved leads to a higher likelihood of compliance with the international legal regime.  188  Other commentators note that a focus  on the benefits of a transboundary resource-sharing agreement through a cost-benefit appraisal can smooth the way to agreement more easily than focusing on resource rights 1 RQ  or ownership would. The second beneficial economic influence on politics is that economics is a common, global language. Everybody - governments, industry, environmentalists, and the public - knows generally what a cost-benefit analysis entails, while the same cannot be said for equity and the "length of the chancellor's foot." This point is also raised by Professor Barton Thompson, who notes "although environmental moralists might believe that non-economic criteria should be used in judging the merits of environmental goals, many politicians, voters, bureaucrats, and courts are far more attuned to wealthmaximization arguments."  190  That is, people know how to respond to incentives in an  Thompson, "Economics" supra note 81 at 191. See Thomas Franck, "Legitimacy in the International System" (1988) 82 A.J.J.L. 705 (noting that coercion will not be necessary, because states will view this arrangement as 'legitimate' and fair). See Richard Paisley, "Adversaries into Partners: International Water Law and the Equitable Sharing of Downstream Benefits" (2002) 3(2) Melbourne Journal of International Law 280. Thompson, "Economics" supra note 81 at 180. 1 8 7  1 8 8  1 8 9  1 9 0  64  economic system - we do it everyday.  So, when economic findings arise in a dialogue  concerning an international resource all players are well prepared to receive and critique them. In an international setting this point is of particular relevance where linguistic, social or cultural differences may impede the negotiations between states about environmental agreements.  192  A common economic language may help to overcome this  barrier because conflicts of interests or of understanding between states can be brought to a common denominator: costs and benefits. Further, because common language reduces one of the barriers to complying with international law, it may also result in higher levels of compliance with environmental agreements for the sharing of transboundary resources.  193  As well as being a common language, economics is a neutral language, and this is the final benefit of economics as it relates to politics. There are no morally "good" or "bad" decisions - simply decisions based on whether benefits exceed costs or vice versa.  194  Problems arising within certain regimes are therefore seen as failures of  economic institutions,  195  rather than a failure of the behaviour of specific actors involved.  Problems viewed in this manner can be fixed without recriminations of blame. This in  John McMillan, in his history of markets, notes the long history of economic behaviour in humans, dating back millennia, and the spontaneous invention of markets even in the most difficult of circumstances. The robustness and resilience of markets is evident in the examples McMillan provides, such as the bustle of eighty-two thousand businesses in the Rwandan refugee camps in Zaire in 1995, and the markets arising for all kinds of goods and services in the prisoner-of-war camps of the Second World War, with cigarettes as the instrument of exchange: McMillan, supra note 73 at 4, 15-16. 1 9 1  Anderson and Grewell note that transaction costs are reduced when there is a common language, which usually arises when a group is culturally homogenous, but could also occur when all parties are conversing with the same economic dialogue: Terry L. Anderson & J.Bishop Grewell, "From Local to Global Property: Privatizing the Global Environment? Property Rights Solutions for the Global Commons: Bottom-up or Top-down?" (1999) 10 Duke Env. L. and Pol> 73 at 79. 1 9 2  Franck notes that textual determinacy of an international rule is critical to compliance, because "indeterminate normative standards not only make it harder to know what conformity is expected, but also make it easier to'justify non-compliance": Franck, supra note 188 at 714. However, this is not to deny that there are problems arising from the lack of moral judgment about economic decisions. These problems are discussed in greater depth in Chapter 4. Thompson, "Economics" supra note 81 at 188. 1 9 3  1 9 4  1 9 5  65  turn makes it more likely for states to sign on to an agreement in the early stages, rather than avoiding obligations for fear of reproach.  2.3 Flexibility The third benefit economics bestows upon natural resource allocation and management is its flexibility. This is inherent in the free market but it also stems from other economic incentives, such as those gained by use of the price mechanism. Although markets will not work for certain natural resources or in particular situations,  19  there are certain benefits that can be gained for water use where circumstances are conducive to the use of water markets. Jurisdictions using water rights trading as their method of allocation enjoy benefits from this exchangeability, as temporal, seasonal or 197  environmental changes can be reflected in water demand and supply.  For a scarce  resource in high demand, this means that allocation will always be based on the contemporary constraints of the watercourse system. By comparison, allocation regimes concluded under the method of equitable utilization are based on political rather than economic negotiations. These are rarely, i f ever, revisited after the initial factor-weighing process. This inability of the current equitable allocation paradigm to flex with time and circumstances has then prompted some commentators to call for drastic measures. For example, The Economist magazine advocates tearing up the 1922 compact on the allocation of the Colorado river in the US  This is discussed in Chapter 5, part 3. Some western US states employ water markets, including Arizona, California, Colorado, New Mexico, Utah, and Wyoming: Lawrence J. MacDonnell, The Water Transfer Process as a Management Option for Meeting Changing Water Demands (Boulder: Natural Resources Law Center, University of Colorado, 1990). 1 9 7  66  1 OR  for this very reason.  The Columbia River Treaty too - the usual model of equitable  utilization - is set in stone for at least 60 years. The disenfranchisement felt by the people on the Canadian side of the watershed and the grievances of First Nations went ignored for many years until the public forced the provincial governments to put money towards a Columbia Basin Trust fund to remedy some of the community's loss.  199  This  example highlights the problem of stagnation that confronts international law agreements when things change in unforeseen ways without adequate safeguards.  3. Addressing transboundary water scarcity t h r o u g h equitable utilization The current allocation paradigm for the allocation of the waters of an international watercourse is the doctrine of equitable utilization. As shown in the previous chapter, it is a process whereby states negotiate their water needs, based on a starting position of equality of right to the benefits from those waters that flow through their territory and depending upon air the circumstances of a particular watercourse. There are no hard and fast rules. There is also no provision allowing for compulsory renegotiation of arrangements with a change in the circumstances of the watercourse. So, given that applied economics has been shown to lead to better social, economicand environmental outcomes in other natural resource contexts and across changing circumstances, it is useful to examine whether equitable utilization incorporates any of these principles in order to best allocate scarce water resources.  The Economist, "Priceless" supra note 41 at 15. The Columbia Basin Trust is discussed in more detail in Chapter 4, part 3.2.  67  At first glance - that is, on the theoretical level - the answer would appear to be in the affirmative. Take, for example, the 1966 Helsinki Rules. The commentary on Article IV, the equitable and reasonable utilization principle, states that "[t]he idea of equitable sharing is to provide the maximum benefit to each basin State from the uses of the waters with the minimum detriment to each."  200  Commentators Attila Tanzi and Maurizio  Arcari make a similar inference from the ILA's commentary, noting that "the principle of equitable sharing under the Helsinki Rules was primarily concerned with the realisation 201  of the maximum profit or benefit for individual States concerned." The Watercourses Convention also contemplates the use of economics. For example, the language adopted in the Watercourses Convention says states should optimally utilize their shared watercourses. After requiring the use of shared transboundary freshwater to be equitable and reasonable, the Convention provides, "in particular, an international watercourse shall be used and developed by watercourse States with a view to attaining optimal and sustainable utilization thereof and benefits therefrom..." However, the ILC clarified what it meant by optimal utilization of an international watercourse, attempting to attribute a more restrictive definition to this term: The expression 'with a view to' indicates that the attainment of optimal utilization and benefits is the objective to be sought by watercourse States in utilizing an international watercourse. Attaining optimal utilization and benefits does not mean achieving the 'maximum' use, the most technologically efficient use, or the most monetarily valuable uses much less short-term gain at the cost of long-term loss. Nor does it imply that the State capable of making the most efficient use of a watercourse - whether economically, in terms of avoiding waste, or in any other sense - should have a superior claim to the use thereof. Rather, it implies attaining maximum possible benefits for all watercourse States and achieving the greatest possible satisfaction of all their needs, while minimizing the detriment to, or unmet need of, each.  202  Helsinki Rules, in ILA, Report of the Fifty-second Conference held at Helsinki (1966) at 477, commentary to Article IV. Tanzi & Arcari, supra note 110 at 105. See also Gerhard Hafher, "The Optimum Utilization Principle and the Non-navigational Uses of Drainage Basins" (1993) 45 Austrian J. Pub. Int'l L. 113, at 131-132. Report of the International Law Commission on the Work of its Forty-Sixth Session, U . N . G A O R 49 Sess., Suppl. No. 10, U . N . Doc. A/49/10 (1994) at 218-219. 2 0 1  2 0 2  th  68  Despite these comments by the ILC, the focus on the optimal use of a watercourse nevertheless imports an economic paradigm, which is reflected in the final sentence of the ILC's comment. Even with the preliminary remarks, this formulation of equitable sharing of transboundary waters is little different to the Helsinki Rules approach - both are concerned with "attaining maximum possible benefits for all watercourse States.. .while minimizing the detriment to.. .each."  Nothing in this formulation is  inharmonious with the economic paradigm, because the heart of that paradigm is that the greatest benefits should be attained for all states involved while minimizing costs to each.  204  The ILC also makes explicit reference to "achieving the greatest possible  satisfaction of all [watercourse states'] needs." As the role of economic development is to achieve satisfaction of needs, the ILC's view on equitable utilization and economics are not incongruous. However, the way to achieve this goal necessarily includes some of the optimizing methods described by the ILC, such as technological, economic and environmental efficiency. The concern of the ILC that reliance on economics would result in behaviour biased towards short-term gains is, however, too severe. Economic incentives can and do take long-term benefits into their calculation when they are allowed to function properly by adequate accounting of the long run. However, as shall be seen in the following chapter, the proper functioning of economic institutions is often impeded, especially in the international arena, leaving the door open for short-term gains to be exploited. 2 0 3  Ibid.  Tanzi and Arcari also recognize that the objective of the optimal utilization of a watercourse may well entail economics: "Notwithstanding the ILC statement that attaining optimal utilization does not mean achieving maximum use, nor the most efficient use or the most monetarily valuable use of an international watercourse, one can hardly avoid the impression that the optimal utilization concept pertains to the economic dimension of the use and development of freshwater resources, rather than to their environmental protection." Tanzi & Arcari, supra note 110 at 110. 2 0 4  69  That an economic paradigm is expressed as part of the fundamental doctrine of international water law suggests that equitable utilization is the overriding principle, the content of which can - and should - be fleshed out by looking at the optimal economic benefits of watercourse use within the basin as a whole and as between states. How this may be done is through the factor weighing process, particularly as one of the factors to be taken into account under this process is the "social and economic needs" of the states involved.  205  The language in Article 6(1) of the Watercourses Convention listing the  factors relevant to an equitable use allocation implies the use of economics in the determination. Because people and states make many decisions regarding transboundary watercourses based on an economic cost-benefit analysis, the best way to balance factors (d) ("the effects.of the use or uses of the watercourses in one watercourse State on other watercourse States") and (e) ("existing and potential uses of the watercourse") is in these terms. Similarly, subsection (g) requires the costs of alternatives to existihg or planned ;  water uses to be taken into account. However, critics of using such a straight-up economic approach to water allocation between nations will likely draw attention to the caveat that watercourses must be used in an "optimal and sustainable" manner as expressed in Article 5. This criticism emphasises that the additional term places an obligation on states to negotiate agreements not only for their maximum economic benefit, but also for the optimum benefit of the watercourse as a whole - necessitating positive environmental outcomes. This is where the waters become a little murkier because it is not clear which has precedence in the event of conflict. Theoretically, the emphasis on optimization of a watercourse would fulfil requirements of sustainability because economically, technologically efficient 2 0 5  Watercourses Convention, Article 6(l)(b).  70  enterprises use less water, thereby allowing for greater environmental flows. However, many practical examples, including those discussed above, demonstrate that this need is often secondary to the economic paradigm. This issue is discussed in greater depth in the following chapter.  4. Comparison between equitable utilization and US jurisprudence It is advantageous to provide a comparison with US water law jurisprudence at this stage, for the international doctrine of equitable utilization has its roots in, and indeed "owes its very existence" to,  206  the US doctrine of equitable allocation. However, despite  common origins, the two doctrines have diverged with regard to the central question of this thesis, that is - the role that economics should play when allocating water in order to resolve problems arising from scarcity. Domestic water law in the United States focuses quite explicitly on issues of supply and demand through its 'harm-benefit' test of proposed water allocations between states. Therefore, by examining this aspect of the equitable allocation doctrine, and where, how and why it differs from equitable utilization at the international level, insight is gained into how economic principles can interact with the legal concept of equity in the context of sharing scarce water resources. Although there are certain procedural and substantive differences to the international arena, as a federal state, US national water jurisprudence sheds much light on the potential for economic analysis to help reconcile water disputes at the international level.  207  McCaffrey, "Watercourses" supra note 5 at 221. Indeed, in the seminal case of Kansas v. Colorado, the Supreme Court itself stated that, in order to fully recognize and take into consideration the sovereignty of each state party, they would be "Sitting, as it were, as an international, as well as a domestic tribunal, [applying] Federal law, state law, and international law, 2 0 7  71  4.1 An economic view of 'equitable allocation': US jurisprudence Equitable allocation in the United States, and, indeed, equitable utilization at international law, can be traced back to the influential 1907 decision of Kansas v. Colorado.  In this case, the US Supreme Court was required to determine the rights  over the surface and ground waters of the Arkansas River between prior downstream users in Kansas, with those seeking new upstream uses in Colorado. Kansas claimed that Colorado was causing it harm by "violating the fundamental principle that one must use his own so as not to destroy the legal rights of another,"  209  arguing that its users were  dependent upon and entitled to the continual flow of the river.  210  In case the natural flow  argument did not sit well with the Court, Kansas also drew attention to the fact that, in any regard, they were the prior appropriator of the waters of the Arkansas River, and *) 1 1  should be protected as such.  Colorado, on the other hand, asserted a claim akin to the  Harmon doctrine, arguing for "a right to appropriate all the waters of this stream for purposes of irrigating its soil and making more valuable its own territory."  212  The Court found that both states had an "equal right" to the water, that factual harm was indeed being caused to Kansas, but that this harm did not intrude upon Kansas' 213  legal rights.  In deciding against Kansas, the US Supreme Court employed a harm-  benefit analysis under what it termed the "interstate common l a w "  214  of equitable  as the exigencies of the particular case may demand": 206 U S at 97 (1907), quoting from its opinion in an earlier phase of the case, 185 U S at 146. Kansas v. Colorado, 206 U S 46 (1907). Id at 48. Ibid. Ibid. Id at 98. Id at 113-114. Id at 98. 2 0 8  2 0 9  2 1 0  2 1 1  2 1 2  2 1 3  2 1 4  72  apportionment - a term that is basically synonymous with the international customary law term equitable utilization. In Kansas v. Colorado, the harm-benefit test took into consideration the benefit from irrigation in Colorado and compared it with the costs accruing to Kansas of the diminished flow of the Arkansas River, ultimately finding that the benefits outweighed the costs. On the basis of equity, then, it would be wrong to interfere with this arrangement: [T]he diminution of the flow of water in the river by the irrigation of Colorado has worked some detriment to the southwestern part of Kansas, and yet when we compare the amount of this detriment with the great benefit which has obviously resulted to the counties in Colorado, it would seem that equality of right and equity between the two States forbids any interference with the 215  present withdrawal of water in Colorado for the purposes of irrigation.  So the Court employed an economic analysis first, then made a final determination on the basis of whether this analysis gave rise to an equitable result. The use of both comparative economics and equity to decide this case, however, leaves open the question of whether economic analysis has priority over a final determination on the basis of equity. It is important to know which analysis will have the final say in a water allocation between states because a situation could arise whereby a state laying a new claim to interstate waters already has the lion's share of the shared resource and/or a more developed economy. If economics trumps equity, it may be most beneficial economically - although less equitable - to allocate more water to the well-endowed state in certain circumstances. This dilemma was answered in part by Wyoming v. Colorado™ which concerned the Laramie River. In this case, Wyoming's prior water use was protected from the upstream diversions proposed by Colorado, despite Colorado's argument that it would be  2 1 5  2 1 6  Id at 113-114. 259 US 419 (1922), modified, 260 US 1 (1922), amended, 353 US 953 (1957).  73  able to put the water to a more beneficial use. However, water law scholars criticise this case "because it freezes existing, and presumably inefficient, uses in place to the detriment of future, presumably more efficient, uses."  217  Consequently, this strict  application of the prior appropriation rule was softened to allow greater equity between states, as demonstrated by the majority in Nebraska v. Wyoming: Apportionment calls for the exercise of an informed judgment on a consideration of many factors. Priority of appropriation is the guiding principle. But physical and climatic conditions, the consumptive use of the water in the several sections of the river, the character and rate of return flows, the extent of established uses, the availability of storage water, the practical effect of wasteful uses on downstream areas, the damage to upstream areas as compared to the benefits to 218  downstream areas if a limitation is imposed on the former - these are all relevant factors.  So equitable apportionment, like equitable utilization, calls for a weighing process of all relevant factors, but includes a "consideration of the pertinent laws of the contending States" as w e l l .  219  As for the role of economics in this determination, the  priority rule was held not to apply to situations where it would "work more hardship" on the junior user "than it would bestow benefits" on the senior user. Colorado v. New Mexico  121  220  of 1982 also discusses the proper role for economic  analysis within equitable allocation determinations. Rejecting New Mexico's contention that prior appropriations should be the exclusive focus and reaffirming equitable apportionment as the governing rule of interstate water disputes, the Supreme Court also based its decision on the fact that allowing Colorado to divert water would, indeed, harm New Mexico, but that "any injury to New Mexico would be restricted to the Conservancy District", which, it was noted by the Court, "has never been an economically feasible A . Dan Tarlock, "The Law of Equitable Apportionment: Revisited, Updated, and Restated" (1985) 56 U. Colo. L. Rev. 381, at 395-396. 325 US 589 (1945) at 618. Note that this was a decision where both states party to the dispute recognized prior appropriation within their jurisdictions; hence the allowance for "priority of appropriation" as the "guiding principle." Connecticut v. Massachusetts 282 US 660 (1931) at 670-671. 3 25 US 589 (1945) at 619. 459 US 176 (1982) (Colorado I).  2 1 7  2 1 8  2 1 9  2 2 0  2 2 1  74  operation."  The Court then reaffirmed this reasoning, stating, "We have held in an  equitable apportionment of interstate waters it is proper to weigh the harms and benefits to competing States."  However, they also note that in cases where a proposed use is  being weighed against existing uses, the potential benefits from the proposed use "may be speculative", while "the harm that may result from disrupting established uses is typically certain and immediate."  224  This is not, however, to say that proposed uses will never  outweigh existing uses, because they will where it can be demonstrated "by clear and convincing evidence that the benefits of the diversion substantially outweigh the harm that might result."  225  Combined with the principle in Washington v. Oregon  226  protection for wasteful - that is, inefficient - uses,  227  that there will be no  it appears that the Supreme Court  places significant emphasis on economic factors within the equitable allocation determination. Economics is tempered by equity, however, in the burden of proof upon the user proposing increased water use, who must meet a "clear and convincing evidence" standard that the benefits outweigh the harm.  228  Reflecting the balancing act  of such a determination, this standard nevertheless "accommodates society's competing  Id at 180-181. Id at 186. Id at 187. Ibid. 297 US 517 (1936). The Court noted that, particularly in the more arid Western states, "[fjhere must be no waste ... of the 'treasure' of a river... Only diligence and good faith will keep the privilege alive." Id at 527. See Colorado v. New Mexico 467 US 310 (1984) (Colorado II). The clear and convincing evidence standard is quite onerous: "A State can carry its burden of proof in an equitable apportionment action only with specific evidence about how existing uses might be improved, or with clear evidence that a project is far less efficient than most other projects. Mere assertions about the relative efficiencies of competing projects will not do" (at 320). 2 2 2  2 2 3  2 2 4  2 2 5  2 2 6  2 2 7  2 2 8  75  interests in stability of property rights and in putting resources to their most efficient  4.2 Comparison between the international and US perspectives on using economics in the context of water allocations Outlining the use of economics as part of US jurisprudence above enables a comparison with the international approach to water scarcity under equitable utilization. The US approach is relevant because of the common origins of US and international water law, and particularly now because of their apparent divergence. Despite stemming from US law, equitable utilization differs from the US equitable allocation doctrine in that little use of economics is made as part of the equitable utilization process. This divergence is likely to have arisen at the international level as a result of reliance on state practice, on which international law is grounded, as compared with the development of US jurisprudence through their constitutional legal system. As demonstrated above, a central difference between the two regimes is that US jurisprudence distinctly draws upon economic principles and analysis when determining allocation between two or more states. B y contrast, the international approach is to weigh the factors surrounding the situation of each watercourse on a case-by-case basis, "with a view to attaining optimal and sustainable utilization thereof and benefits therefrom."  231  It is a process through which states come together to negotiate water  Care must be taken when comparing US and international jurisprudence for this reason. Although equitable apportionment and equitable utilization appear similar, the US doctrine evolved within the broader framework of a constitutional system, with a federal government and judiciary overseeing the actions of sovereign states where necessary. There is no true equivalent for this at the international level. Watercourses Convention, Article 5(1). 2 3 1  76  rights and allocations, given each particular circumstance. In certain cases economic costs and benefits could play a central role in this process by way of certain factors to be considered in the determination; however, an economic approach to resolving water scarcity at the international level is not by any means the de facto rule. Other commentators have noted this split between US and international law. McCaffrey notes: The harm-benefit balancing test was applied in the Supreme Court's very first equitable apportionment decision and is an integral part of the equitable utilization analysis. It will perhaps be more difficult to apply where nation states are involved, but the principle that one state may have to bear some harm to an existing use, perhaps with appropriate compensation, to allow another state to initiate a use giving rise to substantial benefits, is recognized at least implicitly by 232  the two major instruments in the field.  One point needs to be made about McCaffrey's observation, namely that it is clear from his statement that the harm-benefit test is not currently utilized within the equitable utilization doctrine. It does appear, though, that McCaffrey, for one, envisages the eventual use of the harm-benefit test at the international level. However, the provisions he relies on to buttress his claim  233  both centre on compensating injured states where  harm is caused as a means of "adjusting conflicts among uses,"  234  instead of relying on an  explicit cost-benefit analysis of all the elements constituting supply and demand for a particular watercourse in order to best allocate the water between uses and users. Ximena Fuentes, however, casts doubt on the use of economics in equitable utilization by querying whether efficiency is indeed an element in the factor weighing process.  235  There are two aspects to efficiency, she notes: efficiency in the allocation of  McCaffrey, "Watercourses" supra note 5 at 337. Footnotes omitted; my emphasis. Article 7(2) of the U N Watercourses Convention, and Article V(2)Q) of the Helsinki Rules. Article V(2)(j), Helsinki Rules. "' Ximena Fuentes, "The Criteria for the Equitable Utilization of International Rivers" (1997) 67 B. Y.I.L. 337 at 378-394.  2 3 3  2 3 4  2 3 5  77  international waters, and efficiency in the accommodation of different uses. After a lengthy analysis of state practice, Fuentes concludes: [T]he element of efficiency cannot operate as a factor in the apportionment of waters from an international river between the various riparian States... If efficiency were to play a more important role in the process of allocation, the key elements that determine entitlement to the equitable utilization of rivers, that is to say, the element of State sovereignty and need, would be blatantly contradicted. When the task does not consist in dividing the waters of a river, but in accommodation different water uses, the element of efficiency can play a role as a relevant factor to take into consideration in the process. This is so because the accommodation of the different 236  water uses does not involve a question of entitlement to participate in the utilization of a river.  So, in Fuentes' view, the economic concept of efficiency can assist international water law when weighing up the benefits and costs of different water uses along the international watercourse when seeking to accommodate different uses and users, but should not operate with the initial allocation between countries lest it confuse the determinations of entitlement. This view accords with the concerns of several developing countries, which feared being left out of initial water determinations because their lower levels of technological development would be viewed as inefficient, despite having an equal right to share in the waters of a transboundary system.  237  5. Conclusion This chapter outlined several compelling benefits arising from the use of economics as a central principle in the context of transboundary watercourse allocations. However, despite these benefits, it can be seen that economics plays only a marginal role in international equitable utilization determinations where political negotiations and trade-offs are more apparent. B y contrast, the United States relies much more heavily on Id at 393. Footnotes omitted. Tanzi & Arcari supra note 110 at 106. See also Report of the International Law Commission on the Work of its Thirty-sixth Session, U . N . Doc. A/39/10 (1984), reprinted in [1984] 2(2) Y.B. InflL. Comm 'n 1 at 95.  2 3 6  2 3 7  78  the economic findings of harm, benefit, and efficiency within its equitable allocation doctrine. This method of approaching water disputes therefore enables US States to draw on the benefits of an economic approach, and in particular to maximize efficiency of water use and discourage wastefulness within the watercourse as a whole. The international community is not currently tapping into the strengths of the economic approach, despite its theoretical framework allowing it latitude in this respect. However, the economic approach also has its limitations, some of which explain the recalcitrance of the international community to adopt it more fully, and some of which can be overcome. The next chapter discusses these limitations.  79  Chapter 4 - Limitations of the economic approach When the well's dry, we know the worth of water -  Benjamin Franklin -  1. Introduction Questions of scarcity can be successfully dealt with through the application of an economic paradigm.  238  It was seen in the previous chapter that there are many  benefits to this approach, including the resolution of transboundary water disputes. However, it was also seen that the international water regime does not currently employ an economic standard - of benefits outweighing costs, or of efficiency - of an allocation arrangement, although both customary and codified international law provide latitude to do so. The harm-benefit test of US water jurisprudence discussed in the preceding chapter provides an example of how the economic paradigm may actually be applied in practice between sovereign entities. However, several things - not least the international aspect of the problem make matters more complicated than allowed for by simple cost-benefit or efficiency calculations. This incentive-based analysis is a purely economic approach to a dilemma that necessarily involves many more dimensions, such as the political, social, international and environmental aspects. When these factors are taken into account, issues arise that do not fall so easily under the economic rubric. We have seen that economics does provide benefits; now it is time to look at its shortcomings. Consequently, this chapter discusses the limitations to greater use of economics within the equitable approach to transboundary water scarcity. To do so, we return to  2 3 8  See above, chapter 1, part 1.  80  the diagnostic economic approach discussed in Chapter 1, which seeks to explain problems facing society and the environment by analysing the failure of economic institutions. The limitations to a primarily economic approach to transboundary water conflict fall under two broad themes. Thefirstis that when there are unspecified property rights, economics fails to account for the true costs of certain actions, ultimately leading to environmental degradation and social disharmony. The unique qualities of water as an economic good are also discussed under this concept to explain why some solutions applicable to other resources are difficult to achieve in this context. The second theme considers power politics and the limitations of international law as impediments to achieving good transboundary watercourse outcomes through economics. To best illustrate these ideas, this chapter begins with a case study in order to give context to the limitations arising from a narrow focus on economics.  2. Case study of the Columbia River controversy 2.1 Background This case study is provided to put the benefits and especially the limitations of economics in international water law in context. The case study chosen is the controversy surrounding the development of the Columbia River under the Columbia River Treaty regime,  239  a treaty said to have "ended one of the bitterest debates ever  waged between Canada and the United States."  240  It is a story where cooperation was  Columbia River Treaty, supra note 151.' Ralph W. Johnson, "The Columbia Basin" in A.H. Garretson, R.D. Hayton & C.J. Olrhstead (eds.), The Law of International Drainage Basins, (Dobbs Ferry, NY: Oceana Publications, 1967) at 167.  2 4 0  81  sought between two levels of government in Canada, and between two great nations in order to fully utilize the vast water resources of the Columbia River. From its origins in the Canadian Rocky Mountains' Columbia ice field, the Columbia River wends through southeastern British Columbia into the United States, travelling for more than 1,950 kilometres to its mouth at the Pacific Ocean, at the border of Washington and Oregon. The Columbia River Basin incorporates seven US states and Canada's British Columbia, and drains 58 million hectares, of which 15 percent is in British Columbia.  241  There are several major tributaries to the Columbia  River; one major tributary, the Kootenay River, is another transboundary river involved in the controversy. Because it is fed by melting snow the Columbia River's volume fluctuates, with an estimated 70 to 90 percent of the total annual amount of water flowing downstream in a five month period, from April to August. r  242  With an  average flow of 94,000 cubic feet per second at the border, and total fall of 2,655 feet, the hydroelectric potential of the river system is unrivalled in all of North America.  243  This potential has dramatically altered the Columbia, for now over 400 dams block the flow of the river and its tributaries. Indeed, the Columbia River Basin is the most hydroelectrically developed river system in the world, to label the river an "Organic Machine."  244  prompting one commentator  245  Such large-scale development of the Columbia was precipitated by the woes of the Great Depression in the 1930s. As part of President Roosevelt's New Deal to lift the United States out of the Great Depression, large public works were promoted to  US Department of the Interior, (2002), online: US Geological Survey, <http://vulcan.wr.usgs.gov/Volcanoes/Washington/CoIumbiaRiver/description_columbia_river.html> (date accessed 5 November, 2003). Neil Swainson, Conflict over the Columbia, (Montreal: McGill-Queen's University Press, 1979) at 27. Id at 25, 27. Center for Columbia River History, "The Columbia River", online: Center for Columbia River History <http://www.ccrh.org/river/article.htm> (date accessed 22 November 2003) Richard White, The Organic Machine (New York: Hill and Wang, 1995) 2 4 1  2 4 2  2 4 3  2 4 4  2 4 5  82  provide the unemployed with thousands of jobs and thereby stimulate the economy. Although private power companies completed the first dam on the Columbia, Rock Island Dam, in 1932, the US federal government completed two massive New Deal projects shortly thereafter - Bonneville and Grand Coulee - in 1938 and 1941 respectively. Before too long, the US had maximized use of the river's hydropower potential on the US side of the Columbia Basin, and, faced with rapid population growth in the Pacific Northwest and the consequent demand for power supply,  246  the  country turned its attention northward. In 1951, the United States put forward a plan to dam the Kootenay River at a site in Montana, just south of the Canadian border, in order to capitalise on its hydroelectric potential. This project was known as the Libby Dam. Canada protested despite US offers of compensation, because the waters from Libby's proposed reservoir would back up over 40 miles into Canadian territory, flooding valuable valley-bottom land. Not only did Canada insist on a share of the power benefits from any such scheme, but also threatened to divert the waters of the Kootenay into the Columbia River before the Kootenay crossed the border into Montana, thereby placing any Libby Dam hopes (a particularly favoured project of the US Army Corps of Engineers) in jeopardy. Further threats were made to then divert the Columbia into the Fraser River, a river system which is, effectively, wholly Canadian. The US, for its part, was anxious to reach an amicable deal with Canada over the Columbia to allow the Libby Dam to proceed.  247  International Columbia River Engineering Board, "Abstract of Report to the International Joint Commission on Water Resources of the Columbia River Basin" in The Columbia River Treaty Protocol and Related Documents, issued by the Canadian Departments of External Affairs and Northern Affairs and National Resources (February 1964) at 20. For further background on the dispute, see Swainson, supra note 242; Charles Bourne, Recent developments in the Columbia River Controversy (1958); Charles Bourne, Columbia River Treaty: Another View (Toronto, 1962); McCaffrey, "Watercourses" supra note 5 at 293-296. 2 4 7  83  As a result, after decades of (often heated) negotiations, the Columbia River Treaty between Canada and the United States was signed in 1961. Its purposes were solely to increase the river's hydroelectric capacity and to provide needed flood control for the Pacific Northwest. In September 1964, the whole arrangement including amendments to the Treaty in the form of a protocol, as well as a sale of downstream benefits agreement - was formally ratified.  248  The Treaty regime  provides for the capture and storage of this snowmelt in Canada during the high-flow period of the summer months (when energy demand is at its lowest and flood control requirements at their highest) and its regulated release over the low-flow period of late fall, winter and early spring. Combined with the Libby Dam built by the US on the Kootenay River, the three Canadian Treaty dams raised the overall hydroelectric potential of the river by doubling the water storage capacity of the entire Columbia 249  system. A feature of the Treaty, novel in international watercourse agreements at the time, was a provision allowing Canada, the upstream state, to share equally in the benefits that would arise downstream in the US due to the capture of the water upstream in Canada.  250  Canada was also compensated for providing flood control.  The downstream benefits provision was suggested by the guiding principles formulated by the International Joint Commission, a body established under the 1909 Boundary Waters Treaty to provide the mechanics to resolve and hopefully prevent 251  disputes over international waters between the United States and Canada. The Swainson, supra note 242 at 1. The delay in ratification was because of an implementation dispute between Canada and British Columbia. An additional 15.5 million acre feet of water storage resulted from the three Canadian Treaty dams, with an extra 5 million acre feet contributed by the Libby Dam: Columbia Report 1, published by the Downstream Benefits Steering Committee, at 4. Columbia River Treaty, Article V(l). Treaty relating to the Boundary Waters and Questions Arising along the Boundary between the United States and Canada, signed at Washington 11 January 1909, entered into force 5 May 1910 [hereinafter "Boundary Waters Treaty"]. 2 4 8  2 4 9  2 5 0  251  84  International Joint Commission listed, at the request of the parties, several principles under which a treaty must be negotiated, including a list of principles on how to share the benefits that arise downstream from upstream water storage for hydropower and flood control.  252  Importantly, this led to the equitable sharing of downstream benefits  under the Columbia River Treaty. Furthermore, the Treaty requires the US to make full use of the improved stream-flow brought about by the Canadian storage so the benefits available to Canada are maximized.  253  2.2 Why the Columbia as a primary case study? I have chosen to illustrate role that economics plays in the context of equitable utilization with the Columbia River case study for two reasons. First, largely due to the downstream benefit sharing provisions of the Treaty, the Columbia River Treaty regime is often cited as a model example of how the principle of equitable utilization can work in practice.  254  However, despite the commendability of the downstream  benefits aspect of the Treaty, the agreement focuses exclusively on quantifiable economic benefits. This focus, I argue, does not reflect the theoretical underpinnings of equitable utilization, which specifically take non-economic uses into consideration. The ramifications of this need to be assessed on two levels: first on the theory of international law; and second, on the people and environment of the Columbia Basin.  The IJC has investigative authority under Article IX of the Boundary Waters Treaty to examine and report on "any other questions or matters of difference arising between [the states parties] involving the rights, obligations, or interests of either in relation to the other or to the inhabitants of the other, along the common frontier..." Canada and the US asked the IJC to determine whether the Columbia River could be put to greater use, and if so, to determine what principles of international law would apply: Exchange of Notes Constituting an Agreement between the US and Canada Relating to the Study to be made by the International Joint Commission with Respect to the Upper Columbia River Basin, 25 February and 3 March, 1944, 58 Stat 1236, 109 UN Treaty Series 191 (entered into force 3 March 1944). Columbia River Treaty, Article III(l), "Development by the United States of America Respecting Power" See for example Patricia Jones, "Equitable and Reasonable Utilisation: The Columbia-River" (2002) 13 Journal of Water Law 19; Paisley, supra note 189. • 2 5 3  2 5 4  1  85  Many of the environmental effects of hydroelectric operations in Canada - many of which are having an impact on the Columbia Basin - are already clear.  255  The problems with the Treaty regime largely result from its limited subject matter - flood control and hydropower. The Columbia River Treaty between Canada and the United States was negotiated in a climate actively favouring economic development and large-scale public infrastructure works, such as hydroelectric dams. Although environmental concerns were raised at the time of negotiations, time has seen great shifts in emphasis towards protection for the environment, First Nations rights, and community involvement in decision-making. In today's political climate, talking about the problems of development along the Columbia is no longer taboo. Richard White, in The Organic Machine, tallies up some of the specific costs of modern development along the Columbia River, particularly on the US side: Development has largely destroyed a vast natural bounty of salmon and replaced it with an expensive and declining artificial system of hatcheries... The Bureau of Reclamation did created new farmlands, but these farmlands brought with them an exploitive set of labor relations and produced expensive subsidized crops that were ultimately not needed... The BPA created a vast power system, but one that never achieved its own social ends.  Even granted that the era of Treaty negotiations did not see fit to pay much attention to these issues - partly because the 1909 Boundary Waters Treaty attributes the highest priorities to domestic and sanitary uses, navigation, and power and irrigation  - all concerns would be addressed today under a modern assessment of  Canadian environmental law author David Boyd outlines some of the effects of hydropower dams in Unnatural Law, supra note 52 at 45: "Reservoirs formed by flooding increase evaporation, raise temperatures downstream, trap silt and nutrients and may release a toxic form of mercury, rendering fish unsuitable for human consumption (with disproportionate effects on Aboriginal people eating traditional diets). Dams block the movement of migratory fish and kill fish as water passes through powergenerating turbines. Altered stream flows destroy habitat, affect river deltas, increase turbidity, damage estuaries, harm fish, and eliminate wetlands. Recent studies also suggest that reservoirs created by flooding for hydroelectric projects may be a significant source of greenhouse gas emissions, contributing to climate change." White, supra note 245 at 108-9. Boundary Waters Treaty, Article VIII.  2 5 6  2 5 7  86  the river's uses under the equitable utilization doctrine.  As concerns relating to the  social and environmental impacts of development have now gained strong legal and political support - both domestically and internationally - it is compelling to examine why there has been little movement on these issues. Problems with the supposedly model Columbia River Treaty clearly demonstrates that there are difficulties with the principle of equitable utilization, even when the watercourse agreement is between states as seemingly similar and friendly to each other as Canada and the United States. To this point Neil Swainson, in his comprehensive commentary on the Columbia controversy, notes: The two countries shared a long tradition of friendly relations and similar political systems. Both were well endowed with extensive technical expertise and capital resources. Time constraints did not pose a threat to careful investigative effort. The Columbia valley, furthermore, is not one in which viable consumptive use by an upstream riparian produces threats to the very existence of the downstream watercourse - a complexity which greatly 259  aggravates reaching agreement on the joint use of some shared drainage basins.  This case study demonstrates the complexity arising even with relatively culturally homogenous nations in a peaceful environment. Imagine, then, the added complications when states sharing a watercourse have histories of political hostility, or where languages, culture, custom, and religion diverge. Levels of economic development, population growth and general levels of trust between states are other important factors that could influence the negotiation (or lack thereof) of a watercourse agreement involving several states. Swainson's comment also raises the important element of time as a constraining facet of the negotiation process. Further, equitable utilization's difficulty in requiring reassessment with the passage of time implies that it is not as flexible as perhaps originally intended. Again this goes to the point that because we cannot know the future, water allocations must be allowed to change with time and circumstances. Consequently, we need a system that allows the correct water allocation to evolve. One of the best ways of doing this, theoretically at least, is having a market for water. However, because this entails establishing property rights and enforcing them, it is an assiduous task. See further below at Chapter 5, part 3. Swainson, supra note 242 at 4-5. 2 5 8  2 5 9  87  The second reason for using the Columbia River for a case study is more practical. Although the Columbia River Treaty may remain in force indefinitely, either Canada or the United States may, by giving 10 years notice, bring the treaty to an end once it has been in force for 60 years.  260  The earliest date for this is 2024 if  notice is given in 2014. This provides both nations with the opportunity to address the problems inherent in the Treaty regime. Once terminated, the parties may wish to renegotiate or renew certain aspects. For either of these options, negotiations between the parties will take place beneath the umbrella of the international water law principle of equitable utilization. This is despite provisions that seek to import the pre-Treaty legal framework upon termination. The provisions of the Columbia River Treaty that cannot be terminated for the most part relate to practical matters, such as rights of diversion, ongoing flood control if the Canadian Treaty dams have not reached the end of their useful lives, and allowing certain land to remain flooded beneath the reservoir of the Libby Dam until the end of Libby's useful life.  261  But most importantly for the purposes of my thesis,  Article XVII of the Treaty also remains, which affirms that once the special legal regime relating to the Columbia Basin as established by the Treaty comes to an end as a result of its termination, the legal regime prevailing prior to the entry into force of the Columbia River Treaty again applies. Most importantly, this means the Boundary Waters Treaty of 1909 between Canada and the US that governs watercourses flowing between these countries comes into effect.  262  Columbia River Treaty, Article XIX(2), "Period of Treaty." Id, Article XIX(3) and (4), "Period of Treaty." ' ' Id, Article XVII(2), "Restoration of Pre-Treaty Legal Status" states: "Upon termination of this Treaty, the Boundary Waters Treaty, 1909, shall, if it has not been terminated, apply to the Columbia River basin, except insofar as the provisions of that Treaty may be inconsistent with any provision of this Treaty which continues in effect." *. 2 6 0  2 6 1  2 6 2  88  The dilemma at this point lies in determining how the Boundary Waters Treaty interacts with contemporary international water law, and specifically, equitable utilization - a doctrine not internationally accepted as the fundamental water law rule at the time when the Boundary Waters Treaty entered into force. Water law scholar Dante Caponera sheds light on this issue, highlighting that: Any international drainage basin treaty is not something standing alone, but is supported by, limited by, and tested against a set of international law standards, the content and the validity of which are not determined by the agreement in question. The conventional law of any international drainage basin can be effectively applied only with the aid of principles and rules drawn from the larger international legal system.  This is mainly because, he says, "as the utilization of the waters of international rivers or drainage basins increases in quantity and complexity, ... the rules agreed to in the river treaties in force may become inadequate or simply insufficient."  264  This is especially the case for international river agreements such as  the Columbia River Treaty because - like many older water treaties - its subject matter is constrained to particular water use issues, here flood control and hydropower. The gaps in this limited vision are therefore filled, where they arise, by customary international water law principles of which the most fundamental is equitable utilization. Not only that, but the treaty as a whole must be interpreted within the broader international water law framework of equitable and reasonable use, and all that it entails. So, despite equitable utilization's post-Boundary Waters Treaty emergence, the Boundary Waters Treaty must nevertheless be interpreted in line with modern international water law.  265  Further, because the core principles of the  Dante Caponera, "The Role of Customary International Water Law", in Mohammed Ali, George Radosevich & Akbar Khan (eds.), Water Resources Policy for Asia, proceedings of the Regional Symposium on Water Resources Policy in Agro-Socio-Economic Development, Dhaka, Bangladesh, 48 August 1985 (Rotterdam & Boston: Balkema, 1987) at 380. Ibid. More generally, this view of treaty interpretation is put forward by the International Court of Justice in its Namibia advisory opinion: "where matters involved 'were not static but were by definition evolutionary', the provision in question would be interpreted 'within the framework of the.entire legal system prevailing at the time of its interpretation' ": Legal Consequences for States of the Continued 2 6 4  2 6 5  89  Watercourses Convention hold the status of customary international law, they bind both the US and Canada regardless of whether they are signatories. McCaffrey notes that in such a case, the Convention "may be of value in interpreting other general or specific watercourse agreements that are binding on the parties to a controversy, whether or not the Convention is itself binding on those parties."  266  Another consideration regarding the Boundary Waters Treaty is that because of its age, it does not accurately reflect modem international law. At the time of conception of that treaty, navigation was the primary use and concern of international watercourse states. With modem developments in international water law clearly denying any one use priority over other watercourse uses, the concern that the Boundary Waters Treaty is out-of-date is well founded. Another example of the Boundary Waters Treaty's outmoded agenda is Article II,  267  which incorporates the  now-discredited doctrine of absolute territorial sovereignty, basically allowing a state to do what it likes with the water resources found on its territory regardless of consequences to other states.  As this doctrine has clearly been refuted by state  practice - including the practice of both parties to the Boundary Waters Treaty - the old doctrine of absolute territorial sovereignty cannot therefore be relied upon in international water law, regardless of its incorporation in the Boundary Waters Treaty. Modem conceptions of a state's right to water resources must apply, hinging today on the equitable and reasonable use of an international watercourse. In particular, Article  Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ Reports (1971) 6, at 31, para.53. The laws of international watercourses have indeed evolved greatly over the last century, as seen earlier in Chapter 2 of this thesis. McCaffrey, "Watercourses" supra note 5 at 316. Article II of the Boundary Waters Treaty states: "Each of the High Contracting Parties reserves to itself.. .the exclusive jurisdiction and control over the use and diversion, whether temporary or permanent, of all waters on its own side of the line which in their natural channels would flow across the boundary or into boundary waters..." This doctrine is discussed in more detail above in chapter 2, part 2. 2 6 6  2 6 7  2 6 8  90  64 of the Vienna Convention on the Law of Treaties of 1969, United States and Canada are parties,  270  to which both the  states that, "if a new peremptory norm of  general international law emerges, any existing treaty which is in conflict with that norm becomes void and terminates." In this connection, the International Court of Justice held in the Gabcikovo-Nagymaros case that international environmental law norms must be incorporated into the existing treaty regime in that case.  271  As the  Gabcikovo-Nagymaros dispute involved a regime established in 1977, it is highly probable that an international tribunal or court would require emergent international environmental law norms, including the principle of equitable utilization, to be incorporated in the 1909 Boundary Waters Treaty. Therefore, if the Columbia River Treaty is terminated at some point in the future, the Boundary Waters Treaty will again govern legal relations between Canada and the United States regarding the Columbia River. However, the Boundary Waters Treaty must be interpreted today according to modern international water law principles, including the doctrine of equitable and reasonable use. Thus, regardless of the existence of the Boundary Waters Treaty, it is nevertheless acceptable to use the Columbia River case study as a primary focus of the thesis to highlight the shortcomings of an economic approach to the doctrine of equitable utilization. By so doing, it is demonstrated there are indeed problems with the fundamental doctrine of international water law, which arise even when the watercourse is shared between two states sharing reasonably similar economic, political and legal institutions. This raises  1 155 U.N.T.S. 331; 8 ILM 703 (1969). Canada ratified the Vienna Convention on the Law of Treaties on 14 Oct 1970; the United States signed the treaty on 24 April 1970, but has yet to ratify it. However, both the Convention's status as customary international law and the obligation of a signatory to obey the terms of a treaty it has signed in good faith obligate the US to abide by the terms of the Vienna Convention. Gabcikovo-Nagymaros case, supra note 5 at para. 112. However, the treaty involved in this case had particular provisions allowing environmental norms to be incorporated into the treaty regime. This point would nevertheless be arguable for the Boundary Waters Treaty because it lacks such provisions solely due to the treaty's conclusion in a pre-environmental awareness era.  2 6 9  2 7 0  271  91  concerns of further complications in other transboundary watercourses due to differences of these institutions, and from other factors such as political mistrust, diverging levels of economic development and environmental protection, or religious, cultural and language barriers. These limitations and their impeding effect on good water management outcomes are discussed next.  3. Internal limitations: environmental sustainability and social accord A frequent complaint about the economic approach to the management of natural resources is that too often the environment and local communities suffer as a result. This observation has polarised opinion on whether capitalism is the planet's darling or devil, sparking protests and riots around the world. It is now common awareness that both ecological sustainability and community participation are vital for the health and future of a watercourse, but in many cases they appear to have been assigned second priority after short-term economic benefits, despite recognition of social and environmental needs in the equitable utilization and no harm principles of international water law. Perhaps the reason environmental sustainability is often secondary to the economic paradigm is because the term itself imports an inherent ambiguity to water allocations for, despite its common usage, there is still little common ground on what sustainable actually means.  272  However, this lack of  definition seems too simplistic to explain the widespread, global neglect of environmental concerns.  See for example Robert Percival, "Global Environmental Accountability: The Missing Link in the Pursuit of Sustainable Development" in John M. Gillroy & Joe Bowersox (eds.), The Moral Austerity of Environmental Decision Making: Sustainability, Democracy, and Normative Argument in Policy and Law, (Durham: Duke University Press, 2002) at 194; Bourne, "Primacy" supra note 110 at 228.  92  Looking closer, most concerns with the economic approach to problems involving society or the environment can be cast into three critiques.  273  First, the  technical critique suggests the method of measurement employed by the economic approach is flawed. By contrast, the focus of the distributive critique is on inequitable results, often attributed to the economic desire to achieve maximum efficiency. Finally, there is the moral critique. Underlying the central thesis of this argument is the inability of the economic model to comprehend non-economic values in the absence of assigned property rights - values that are, however, inherent in the environment and in humanity.  274  These three critiques, discussed below, contribute to  an understanding of the environmental limitations of the economic approach to natural resources. To this I add a fourth critique of economics that is particularly relevant to transboundary watercourses - water's unique qualities impedes its treatment as a standard economic good. Consequently, economic methods designed to achieve best possible resource management may not work in this context.  3.1 The technical critique There are numerous critiques of economics as it pertains to the environment on technical grounds, all of them focusing on the central instrument of economics for appraising the merits of a particular course of action - cost-benefit analysis.  275  It is  not my aim to go into great depths on each limitation in this section, but rather to flag the most important ones so that the reader may be aware of their existence and  Jane B. Baron & Jeffrey L. Dunoff, "Against Market Rationality: Moral Critiques of Economic Analysis in Legal Theory" (1996) 17 Cardozo L. Rev. 431, at footnote 1. See for example Baron & Dunoff, id at 431-432. See for example Steven Kelman, "Cost-Benefit Analysis and Environmental, Safety and Health Regulation: Ethical and Philosophical Considerations" in Daniel Swartzman, Richard A. Liroff & Kevin G. Croke (eds.), Cost-benefit Analysis and Environmental Regulation: Politics, Ethics and Methods (Washington D.C.: Conservation Foundation, 1982); Holmes Roltson III, "Valuing Wildlands" (1985) 7 Environmental Ethics 23; Steven Edwards, "In Defense of Environmental Economics" (1987) 9(1) Environmental Ethics 73. 2 7 3  2 7 4  2 7 5  93  whether there are potential solutions to each shortcoming for international watercourse'management.  3.1.1  '  '.'  *'*'  ;  Externalities One of the most widely discussed critiques of the cost-benefit, utilitarian way  of seeing the world centres on the negative externalities that often arise when economics meets the environment. It will be recalled from Chapter 1 that a negative externality occurs where a transaction between two parties creates a cost that must be borne by a third party to the transaction or by society, without its consent. Further, no incentive to minimize this cost exists because neither party to the transaction reflects it internally. This leads to a situation that, although efficient to the parties to the transaction, can be inefficient for society as a whole: because the true costs of the activity are not reflected, there will be over-production or over-use of resources.  276  The best-known example of negative externalities is the specific situation known as the tragedy of the commons, discussed in Chapter 1. Negative externalities can and do arise from international watercourse development. In the context of the Columbia River Basin, the costs borne by third parties accrued in the environmental and social side effects of the policy of economic development of the region, which focussed exclusively on hydropower and flood control. Externalities in the form of environmental impacts affect both the local •  777  Columbia Basin community and society as a whole.  •  The Columbia River Basin  supports a range of ecosystems, including interior rain forests, grasslands and  Anderson & Grewell, supra note 192 at 74-75. The impact of social externalities is discussed below in the distributive critique of the economic approach to watercourse management, chapter 4, part 3.2. 2 7 7  94  deserts.  These in turn support a great diversity of fauna and flora. The fluctuation  in water levels caused by hydropower reservoirs has increased pressure on low elevation areas for mammals such as deer, elk, caribou, moose and bear, as well as for birds and reptiles. The deterioration of the river's salmon-producing capacity is of special concern due to the emerging understanding that salmon are an important source of nutrition recycling: salmon is a significant food source for animals such as bears, eagles and ospreys, which then transfer nutrients back into terrestrial plants.  279  Decaying salmon also form a nutrient base for animals lower on the food chain that feed on decomposed fish bodies.  280  However, dams block the transfer of nutrients  from the ocean into the upper Basin, including to the relatively sterile waters where salmon ultimately spawn. It has been suggested that there may eventually be a resulting "progressive biological impoverishment" of the lands and waters of the 281  Columbia Basin,  282  •  exacerbated by the confining of nutrients behind dam walls.  The impact on the once-abundant salmon is immense - now, two species of salmon found in the region are on the endangered species list.  283  These environmental costs bome by society and the local Columbia Basin population came about because, at the time of project planning, it was neither a requirement nor a priority that there be an assessment of ecological effects. The  Columbia Basin Trust, "The Columbia River" (2003), online: Columbia Basin Trust <http://www.cbt.org/waterinit/main.asp?fl=3&pg=river>, (date accessed: 8 November 2003). Don Gayton, '"Ghost River': The Columbia" BC Journal of Ecosystems and Management (2001), online: Forest Research Extension Partnership <http://www.siferp.org/jem/2001/voll/no2/art7.pdf> at 4. Len Ortolano, Katherine Kao Cushing and contributing authors, Grand Coulee Dam and the Columbia Basin Project, USA, Case Study Report Prepared as an Input to the World Commission on Dams, Cape Town (2000), online: The World Commission on Dams <http://www.dams.org> [hereinafter WCD Case Study] at 4.4.2. Gayton, supra note 279 at 4; WCD Case Study, id at 4.4.2. Columbia Basin Fish and Wildlife Compensation Program, "Program Update - Summer 2003", online: Columbia Basin Fish and Wildlife Compensation Program, <http://www.cbfishwildlife.org/info/media/updatel0_summer2003_web.pdf> (date accessed: 23 October 2003). The endangered salmon are the Snake River Sockeye and the Willamette Steelhead. 2 7 9  2 8 0  2 8 1  2 8 2  2 8 3  95  economic analyses and engineering reports that were prepared for the complex and far-reaching development of the Columbia River included reports on timing, site selection, economic benefits, project costs, and other benefits that would be incurred *) OA  both for Canada and the United States.  Notably missing in these reports are ways  to deal with the externalities arising from an international water regime. As a result, individuals concerned with ecosystem integrity have been identified as major project cost bearers under the Columbia River Treaty regime.  285  As public opinion and  societal values change, and as further evidence comes to light about the detrimental effects of the dams, cracks are beginning to show in the Treaty regime.  3.1.2  The difficulty of valuing the environment with a monetary measurement The second technical critique of cost-benefit analysis notes this method's  dependence upon a common measurement to enable comparisons between the benefits and costs of the action. Typically, measurement is expressed as a monetary unit. However, this presupposes that everything can be expressed as a dollar-value.  286  Economists, however, believe they have circumvented this problem by either inferring value from market behaviour or by using survey methods such as contingent valuation, which reaches a monetary estimate of an environmental good or service by surveying a representative sample population to see how much they value the thing in question.  287  See John V. Krutilla, The Columbia River Treaty: The Economics of an International River Basin Development (Baltimore: Johns Hopkins Press, 1967). WCD Case Study, supra note 280 at 5.2.2. This point is returned to in part 3.3 of this chapter, below. See Robert C. Mitchell & Richard T. Carson, Using Surveys to Value Public Goods: The Contingent Valuation Method (Washington D.C., Resources for the Future, 1989); Richard C. Bishop & Thomas A. Heberlein, "The Contingent Valuation Method", in Rebecca L. Johnson & Gary V. Johnson (eds.), Economic Valuation of Natural Resources at 80-104 (Boulder & Oxford: Westview Press, 1990). 2 8 4  2 8 5  2 8 6  2 8 7  96  A. Survey methods The problem with survey methods is the high degree of observed variance in natural resource valuations, making it difficult to accurately weigh natural resources in a cost-benefit calculation. Levy and Friedman note that "the estimated value of a given natural resource could vary by three hundred to nearly two thousand percent, depending on the specific wording of the survey and the implied underlying property rights."  288  The variance observed in contingent valuations comes about through  choosing a method that surveys the public's willingness to pay to use the resource (implying that the public does not own the natural resource), as against surveys of the public's willingness to accept money to give up the resource (implying public ownership in the resource). Levy and Friedman observe, "Researchers have repeatedly demonstrated that WTA [willingness to accept] questions generate values from three to nineteen times greater than those elicited by WTP [willingness to pay] queries."  289  It is not the aim of the thesis to resolve why people require more to surrender rather than gain a right. Rather, what is concerning is the prevalence of the willingness to pay methodology, seen by most as more reliable than the willingness 290  Daniel S. Levy & David Friedman, "The Revenge of the Redwoods? Reconsidering Property Rights and the Economic Allocation of Natural Resources" (1994) 61 U. Chi. L. Rev. 493 at 495. My emphasis. Id at 506-7. See also Daniel A. Farber, "Environmentalism, Economics, and the Public Interest" (1989) 41 Stan. L. Rev. 1021, at 1023-24 and I. Ritov & D. Kahneman, "How People Value the Environment: Attitudes vs. Economic Values" in Max Bazerman et at (eds.), Environment, Ethics, and Behaviour: The Psychology of Environmental Valuation and Degradation (San Francisco: New Lexington Press, 1997) at 33-51. See for example Mark Sagoff, "Some Problems with Environmental Economics" in Christine Pierce & Donald VanDeVeer (eds.), People, Penguins and Plastic Trees (2 ed.) (Belmont, Calif.: Wadsworth Publishing, 1995) at 399; Edwards, supra note 275. 2 8 9  2 9 0  nd  97  to accept version of the same survey.  The use of both methodologies further  implies that it is uncertain as to who owns the environment. Until this fundamental question of property rights is addressed, contingent valuations and other surveys designed to value the environment in monetary terms cannot possibly result in a correct answer for the value of natural resources. The over-reliance on willingness to pay methodology, in turn, biases estimations of natural resources towards a low value to the environment, affecting decisions regarding environmental use, regulation and management accordingly.  292  B. Inferring value The other method for determining a value for the environment is by inferring value from observed market behaviour and the choices that people make.  293  A  common example estimates the value of human life by calculating the level of risk premium workers require "to undertake dangerous employment, by noting the wage differential between safe and risky jobs. However, this can only provide an accurate measure of human life - a non-monetary good - when the market for employment is perfectly competitive. The differential cannot solely be attributed to the value workers place on human life because lack of information, unequal bargaining power between employee and employer, labour immobility and other market imperfections also influence wage rates. Temporal variance, noted above for survey methods, is also observed in market choices: more weight is given to current costs and benefits than to those See Peter A. Diamond & Jerry A. Hausman, "On Contingent Valuation Measurement of Non-use Values," in Jerry A. Hausman (ed), Contingent Valuation: A Critical Assessment (Amsterdam & New York: North-Holland, 1993) at 3-38. Herbert Hovenkamp, "Legal Policy and the Endowment Effect" (1991) 20 J Legal Stud 225. See generally Robert Frank, "Why is Cost-Benefit Analysis so Controversial?" in Matthew D. Adler & Eric A. Posner (eds.), Cost-Benefit Analysis: Legal, Economic and Philosophical Perspectives (Chicago: University of Chicago Press, 2001) at 83-92. 2 9 1  2 9 2  2 9 3  98  occurring in the future.  When valuing the environment in this manner in decisions  over international water management regimes there are so many variables, and each watercourse is so context-specific and the time frames necessarily long that serious doubts can be cast on the ability of the inferred value approach to offer an unbiased or misleading direction.  3.1.3  Discount rates for future benefits The final technical critique of economic analysis raised here concerns discount  rates for future benefits. Discount rates are needed within cost-benefit analysis in order to measure future costs and benefits against present costs and benefits - future costs and benefits are assigned a present value. The problem arises because even though non-market goods, such as human life or the environment, are notoriously difficult to value in the present,  295  let alone the future, this calculation is fundamental  to determining the value of a proposed action. Discount rates play a large role in determining how much the present generation is prepared to sacrifice for the sake of future generations: by setting a discount rate too high, environmental protection is sacrificed, but by setting it too low, current economic welfare is burdened.  296  Stanley  Jevons explains why this trade-off often ends up favouring present consumption: To secure a maximum benefit in life, all future pleasures or pains, should act upon us with the same force as if they were present,, allowance being made for their uncertainty...But no human mind is constituted in this perfect way: a future feeling is always less influehtial.than a present one.  The effects of many decisions regarding the environment necessarily occur over a substantial period of time - today's pollution may have severe cumulative Id at 93. This section does not even consider the propriety of placing a monetary value on these 'goods'. This aspect of economic analysis is discussed further, below. Daniel A. Farber & Paul A. Hemmersbaugh, "The Shadow of the Future: Discount Rates, Later Generations, and the Environment" (1993) 46 Vanderbilt Law Review 267 at 270. W. Stanley Jevons, The Theory of Political Economy (London : Macmillan, 1879) at 72-73. 2 9 4  2 9 5  2 9 6  2 9 7  99  health affects on future generations, forests logged take time to regenerate. Because costs are generally incurred in the short term, with benefits accruing over a much longer time period, consequently the effect of discount rates is felt for environmental benefits more than for costs.  298  The import of this is especially apparent with  transboundary water allocations because the lengthy equitable utilization process can act as a deterrent to further renegotiations in the future. This places high importance on contemporary transboundary water negotiations for they will be binding for many decades to come. For example, the Columbia River Treaty took over two decades of negotiations, with Canada and the US then agreeing to a minimum life of 60 years for the Treaty regime. If greater use of cost-benefit analysis were to be used for international watershed management under the principle of equitable utilization, the long periods involved in and envisioned by the water law process would require use of discount rates to determine the present value of future costs and benefits. Given the point raised by Jevons, above, that we value benefits more in the present than the future, the concern is that environmental and ecological concerns - of which our understanding is yet minimal - are grossly undervalued by the generally arbitrary •  nature of discount rates in present terms.  299  3.2 The distributive critique The second critique of the economic approach to environmental sustainability problems involves distributive issues. The common distributive objection to the costbenefit approach is summarised by Robert Frank: [B]ecause willingness to pay is based on income, cost-benefit analysis assigns unjustifiably large decision weight to high income persons. Implicit in this objection is the view that  2 9 8  2 9 9  Farber & Hemmersbaugh, supra note 296 at 279. Discount rates are generally chosen from financial market interest rates: Frank, supra note 293 at  79.  100  everyone's preferences regarding policy decisions should receive the same weight, .  irrespective of income. e  300  The solution to this, Frank says, lies not in discarding cost-benefit analysis, but by dealing with the distributive ill effects by changing the tax structure and the welfare system to benefit the poor, who are unable to pay and therefore unable to have their preference fully accounted for under the cost-benefit technique.  301  If so  determined by cost-benefit analysis, the 'economic pie' should be made larger as a whole, so that rich and poor alike can have a larger slice.  302  Dealing with the  distributive critique in this manner, however, is highly unworkable in international contexts such as transboundary watercourses because no international redistribution scheme equivalent to domestic tax and welfare structures exists. So the distributive critique at the international level - fear that rich countries' preferences may be given more weight than poor countries' preferences under an economic approach - is a real concern. A similar problem arises with efficiency as the economic measure of an environmental regime. This aspect of the distributive critique falls under the broader theme of environmental justice, a movement centred on the presumption that laws pertaining to the environment may actually create, contribute to or condone discrimination against minorities or the poor. This is because, as Richard Lazarus notes: Hardly any laws provide Pareto optimality in the classic sense of making everyone better off and no one worse off. Virtually all laws have distributional consequences, including those laws designed to further a particular conception of the public interest. Problems of discrimination, therefore, may arise in the disparities between the distribution of benefits and their related burdens.  Id at 80. Id at 81. Ibid. Richard J. Lazarus, "Pursuing "Environmental Justice": The Distributional Effects of Environmental Protection" (1992) 87 Nw. U.L. Rev. 787 at 792-3, footnotes omitted. Lazarus notes that distribution discrimination may occur in a number of ways: environmental preferences reflected within legislation  i  m  3 0 1  3 0 2  3 0 3  101  Because of the impracticality of Pareto optimality for society (where some are made better off under a decision, but no one is worse off), decision-makers prefer the Kaldor-Hicks view of optimal efficiency (where wealth is maximized so that the better off can compensate the worse off for their loss).  304  However, the downside to  Kaldor-Hicks optimality is the distributive effect because maximizing society's total wealth can entail making many people poor at the expense of making many people rich.  305  That is, efficient, wealth maximizing allocations do not correspond at all to  equality and fair final distributions.  306  Institutional law and economics scholars argue it is important to look at the assumptions within the concept of efficiency because efficiency is not unique - the things contributing efficiency, such as costs, wealth, risk, prices, depend themselves on the assignment of rights under the prevailing institutional structure.  So it is that  "[different specialisations of rights will lead to different (and economically noncomparable) minimizing or maximizing valuations. The result is thafan outcome that is claimed to be efficient is efficient only with regard to the assumed initial  and regulations may reflect only the preferences of the wealthy or the majority; environmental protection costs may serve to exclude or remove the poor from certain areas; and, minority groups or the poor often bear the relative brunt of the burden of environmental protection, either directly as environmental risks, for example, landfill or industrial siting in poor neighbourhoods, or indirectly through increased prices and possibly reduced job opportunity: (at 795-796). See also Guido Calabresi, "The Pointlessness of Pareto: Carrying Coase Further", (1991) 100 Yale L.J. 1211; Burton A Weisbrod, et al., Public Interest Law: An Economic and Institutional Analysis at 103, 555 (Berkeley: University of California Press, 1978). Adler and Posner define Kaldor-Hicks efficiency in the following terms: "A project is Kaldor-Hicks efficient, relative to the status quo, if there is a hypothetical costless lump-sum redistribution in the project world, from winners to losers, such that this amended project world is Pareto efficient relative to the status quo", Matthew D. Adler and Eric A. Posner, "Implementing Cost-Benefit Analysis When Preferences are Distorted" in Matthew D. Adler & Eric A. Posner (eds.), Cost-Benefit Analysis: Legal, Economic and Philosophical Perspectives (Chicago: University of Chicago Press, 2001) at 272. Lewis A. Kornhauser, "A Guide to the Perplexed: Claims of Efficiency in the Law" (1980) 8 HofstraL. Rev. 591 at 602. Baron & Dunoff, supra note 273 at 441. See also Lucian A. Bebchuk, "The Pursuit of a Bigger Pie: Can Everyone Expect a Bigger Slice?" (1980) 8 Hofstra L. Rev. 671; Bailey Kuklin, "The Gaps Between the Fingers of the Invisible Hand" (1992) 58 Brooklyn L. Rev. 835. Mercuro & Medema, supra note 182 at 119. 3 0 4  3 0 5  3 0 6  3 0 7  102  structure of rights."  But the initial structure of rights depends itself upon  selectively choosing "whose interests will be accommodated, who will realize gains, and who will realize losses...[EJfficiency  is inevitably bound up with distribution."^  9  In any transboundary natural resource allocation a choice must be made by the international legal system to protect certain interests as rights at the expense of other interests.  However, because optimal, efficient use of resources is tied to initial  310  rights allocations, this choice necessarily involves a decision of what distributive 311  result is to be pursued and who or what is to benefit. The effects of this choice of initial rights allocations become apparent within the context of the Columbia River case study, where the local community suffered significant social disruption under a treaty regime designed to maximize benefits to society as a whole. In particular, the First Nations people of the area were disproportionately affected by the loss of the salmon from one of the world's largest salmon producing river systems.  312  The aboriginal inhabitants of the region harvested  the fish, hunted game and gathered wild flora along the river system for thousands of 71  years.  1  .  .  •  •  •  Their tribal economies, cultures, religions and existence were - and continue  to be - tied directly to the river, the salmon, and the surrounding environment.  314  With the loss of all or most of their reliable sources of salmon, tribes upriver lost the Id at 119. My emphasis. Warren J. Samuels, "Maximization of Wealth as Justice: An Essay on Posnerian Law and Economics as Policy Analysis" (1981) 60 Texas Law Review 147 at 154. ' " Id at 106. Emphasis in original. The Columbia supported first a tribal fishery for subsistence and trade, as well as a later commercial fishery as European settlement inundated the Pacific Northwest: R. Bruce Morrison & C. Roderick Wilson, Native Peoples: The Canadian Experience (Toronto: McClelland and Stewart Inc., 1986) at 547. Among the groups who have continued their sacred connection to the Columbia River are the Nez Perce, Warm Springs, Umatilla and Yakima Tribes of the United States, and the Ktunaxa-Kinbasket Tribal Council in Canada made up of the represented member bands, including the Columbia Lake band, Lower Kootenay band, Shuswap band, St. Mary's band, and Tobacco Plain band: Columbia River Inter-Tribal Fish Commission "Columbia River Treaty Tribes", online: Columbia River Inter-Tribal Fish Commission <http://www.critfc.org/index.html> (date accessed: 18 November 2003) Joseph Cone, A Common Fate: Endangered Salmon and the People of the Pacific Northwest (New York: Henry Holt, 1995). 3 0 9  3 1 0  3 1 1  3 1 2  3 1 3  3 1 4  103  centrepiece of their culture, economy and food supply, as well as suffering further consequences from the loss of the fish on the complex ecosystem as a whole. The damming of the river has severely damaged the physical and spiritual and cultural well-being of First Nations groups throughout the region.  315  It is significant that, at  the time of the Treaty negotiations in the 1940s and 1950s, the First Nations groups of the area did not have strong legal recognition of their aboriginal rights. The Columbia River Treaty was signed before the Canadian Constitutional amendments in 1982 recognized and affirmed aboriginal rights and thereby gave them constitutional protection, and even today Canada has concluded few treaties with First Nations in 316  British Columbia. Had aboriginal rights been recognized as existing at the time, the distributive ill effects for First Nations people outlined above may have been mitigated to a great degree. The Treaty also affected the non-indigenous local population. Relocation of communities was necessary as the four Treaty dams flooded valley-bottom land, valuable in country as mountainous as British Columbia. One estimate indicates 2,300 people were displaced as a result of the rising waters.  317  Residents affected by  land expropriation were paid compensation but many regarded it as inadequate. Tourism dependent on British Columbia's unspoiled wilderness was also affected by Treaty projects.  318  True, some people use the new lake areas created by reservoirs, for  example sport-fishermen,  319  but fluctuations in reservoir levels due to the nature of  hydropower generation generally limits the extent of recreational activities.  320  WCD Case Study, supra note 280 at 3.8.2. Constitution Act, 1982, s. 35, being Schedule B to the Canada Act 1982 (UK) 1982, c. 11. Columbia Basin Trust, "The Columbia River Treaty" (2003), online: Columbia Basin Trust <http://www.cbt.org/about/main.asp?fl=3&pg=treaty> (date accessed: 21 November 2003). WCD Case Study, supra note 280 at 4.3.1 Id at 5.2 ' . ' Josh Smienk, "Water and Our Way of Life in the Columbia Basin" in Leslie Taylor & Anne Ryall, (eds.) Conference Proceedings: Banff Mountains as Water Towers Summit, November 23-26, 2003, at 16. 3 , 5  3 1 6  3 1 7  3 1 8  w  3 2 0  104  The outcome for the Columbia Basin as a whole was based on an efficiency criterion of benefit maximizing under the Treaty regime. The detrimental outcomes for the First Nations, local communities and the environment in the Columbia Basin indicate that in this case those interests were neglected. Recognizing the negative impact of the externalities of the Treaty, the Columbia Basin Trust was created in 1995 with legislative backing  321  following cooperation between local communities,  First Nations leaders and the Province of British Columbia. The Trust's mandate is to support the people of the Basin in achieving social, economic and environmental wellbeing in the region by returning to it some of the financial benefits gained by the province as a result of the Treaty regime.  322  The creation of the Trust to remedy the  inequity of the Columbia River Treaty regime - the model of equitable utilization in the eyes of some commentators - shows there are serious problems with the equitable regime when too much emphasis is placed on economic development.  3.3 The moral critique One of the most compelling - and presently unanswerable - limitations of the economic paradigm is the moral critique. Summarised by Jane Baron and Jeffrey Dunoff, the argument runs as follows: [T]he choice whether to submit any "good" to market trading, and the related choice whether to think and speak of that good in cost-benefit terms, presuppose a controversial, and often submerged, moral choice. Markets...maximize satisfaction of a limited range of the preferences we have - the preferences we have when we think only of, and act only for, ourselves. But we also have a range of preferences (and attributes and qualities) that markets cannot satisfy - preferences that are not self-interested, but other-regarding; preferences about our own preferences, as well as the public good. To submit these latter preferences to market trading - to speak of them in market rhetoric - is not just mistaken but ethically wrong, Columbia Basin Trust Act R.S.B.C. 1996 c. C-53 Smienk, supra note 320 at 17. The Trust was endowed with S295 million, representing about five percent of the total downstream benefits owned by the British Columbia. Of this amount, S250 million is committed towards joint venture power investments in the region, while S45 million is dedicated to a range of non-power investments. Investment returns are used to deliver benefits to Basin residents, funding a range of programs including environmental projects, community initiatives, education and training, and economic development: Columbia Basin Trust, "Current Programs", online: Columbia Basin Trust <http://www.cbt.org/programs/rnain.asp7fN7> (date accessed: 18 October 2003). 321  3 2 2  105  because it denies the reality of, and fails to nurture, the important aspects of our humanity that markets are incapable of expressing.  This argument continues in the vein of the technical critique that certain aspects of the environment cannot be assigned a dollar value, but goes even further, saying that it is not just impossible under the economic model, but ethically wrong to attempt to do so. This is because economics is based upon the actions of rational individuals, meaning that certain preferences - about the public good and about whether the preferences we as individuals hold are morally and ethically right - are not reflected in the economic paradigm. Environmental ethicist Mark Sagoff distinguishes between individual "consumer" preferences, that is, those preferences traditionally viewed as economic preferences, and "citizen" preferences; "We act as consumers to get what we want for ourselves. We act as citizens to achieve what we think is right or best for the community."  324  The problem with consumer preferences  is that they are often short-sighted, and can be created, destroyed and manipulated, for example, by fashion, advertising or even by law.  325  Consumer preferences are a not  always a good indication of our long-term needs and wants and may often conflict with our citizen preferences. ,  1  Indeed, Barry Thompson raises an interesting point regarding this conflict, with intriguing implications for predicting when an environmentally ethical regime will actually be successful in its goal of protecting the environment. Thompson observed that a person's ethics - that is, their broader, long-term citizen preferences do have an influence on their behaviour, but only in instances where the personal cost is exceptionally small:  Baron & Dunoff, supra note 273 at 431-432. See Mark Sagoff, "At the Shrine of Our Lady of Fatima or Why Political Questions are not all Economic" (1981) 23 Ariz. L. Rev. 1283 at 1286. Baron & Dunoff, supra note 273 at 439. i 2 i  3 2 4  3 2 5  106  [T]he few studies that have tried to test the relative importance of environmental precepts and of economics in predicting environmentally relevant behaviour suggests that economics trumps ethics.... Ethical beliefs, in short, frequently fall victim to personal convenience or •A  3  2  6  cost considerations.  This incongruence of ethical beliefs with cost considerations can contribute to an understanding of why some international environmental regimes work, and why some fail. For example, the Montreal Protocol imposed a specific response to the problem of ozone depletion in the atmosphere: there was afreezeon production and consumption of CFCs upon ratification and a 50 percent reduction in CFC 397  consumption by 1998, substances.  328  •  leading to an eventual overall ban on ozone depleting  The Kyoto Protocol to the United Nations Framework Convention on 19Q  Climate Change  lift  also imposes explicit targets for emissions of greenhouse gases.  However, the Montreal Protocol has benefited from much greater adherence than the Kyoto Protocol. Why this is so is answered in part by Thompson's observation above that "ethical beliefs...fall victim to personal convenience or cost considerations."  331  It  is much easier for the average consumer to avoid the use of ozone depleting substances (by avoiding, for example, aerosol products) than it is to avoid creating greenhouse gases (say, as carbon dioxide emissions from the ubiquitous, but highly practical, family vehicle). The implications of this finding are that, as stated by Thompson, "Economics" supra note 81 at 188. This time limit was brought forward to 1995 by the 1990 London Amendment to the Montreal Protocol, Second Meeting of the Parties (London, 27-29 June 1990), UN Doc. UNEP/OzL.Pro.2/3. The 1992 Copenhagen Amendment moved the ban on CFCs from 2000 forward to 1996, as well as banning halons by 1994, and phasing out HCFCs by 2030: Fourth Meeting of the Parties (Copenhagen, 23-25 November 1992), UN Doc. UNEP/OzL.Pro.4/15. Developing countries were given extended time periods for compliance under the Montreal Protocol regime - halons and CFCs are to be banned by 2010 (1999 Beijing Amendment, Eleventh Meeting of the Parties, (Beijing, 29 November - 3 December 1999, UN Doc. UNEP/OzL.Pro. 11/10). Done at Kyoto, Japan, 10 December 1997. Not yet in force. FCCC/CP/1997/7/Add. 1; reprinted in 37ILM 32 (1998). ' •' • The Kyoto Protocol mandates Annex I parties (generally, those with industrialised economies) to reduce their overall emissions of specified gases by at least 5 per cent below 1990 levels by 2012: Article 3(1). It is important to note that this point is only one possible reason for the difference in adherence between the Montreal and Kyoto protocols. Other reasons why the Montreal Protocol is more effective at meeting its agenda are expounded in Laura Thorns, "A Comparative Analysis of International Regimes on Ozone and Climate Change with Implications for Regime Design" (2003) 41 Columbia J. Transnat'lL. 795. 3 2 7  3 2 8  3 2 9  :  3 3 0  3 3 1  107  Thompson, "[fjar from being inherently inconsistent with environmental ethics, economics may actually be essential to accomplishing ethical ends."  332  Employing  economic incentives by aligning them with environmentally ethical goals can be a powerful contributor to achieving good environmental outcomes. If so structured, economics need not trump ethics, but may prove instead to be beneficial. How this beneficial form of economics may develop starts with greater scrutiny of the quality of the preferences that we express.  333  Humans already  scrutinize preferences in this manner to some degree - child prostitution is illegal, slavery was long ago abolished, racial discrimination and cruelty to animals are banned. At some point society's opinion coalesced on these preferences to move them into the immoral and then the illegal sphere with infringers facing a hefty price. Society is arguably reaching that critical point for the environment, so it seems logical in the current climate to require deeper questioning of decisions pertaining to the environment. By scrutinizing environmental preferences more closely, those revealed to be truly consumer preferences can be left to the market, while citizen preferences should only be dealt with through the public policy debates of the democratic process.  334  When citizen preferences are subsumed under the market rather than  political realm, perverse results arise. Examples such as the Columbia River controversy demonstrate this. In that situation, preferences about the best outcomes for the River Basin as a whole were appraised using an economic benefit criterion set by the federal governments of the two nations. There was little consultation with and public involvement of the communities who would be directly affected in Canada.  335  As a consequence, widespread resentment arose when the negative externalities of the  3 3 2  3 3 3  3 3 4  3 3 5  Thompson, "Economics" supra note 81 at 177. Baron & Dunoff, supra note 273 at 444. Id at 444, 450. Smienk, supra note 320 at 16.  108  Treaty projects became apparent. Had the citizen preferences of all people involved with the project been debated through the political process, the Treaty results may nevertheless have been the same, but with an ethical blessing.  3.4 The uniqueness of water The final limitation of an economic approach to transboundary water management under the equitable utilization paradigm intertwines with all three critiques of the economic approach - technical, distributive and moral. Quite simply, the constraint is that water is a unique good. With its distinctive and inimitable properties, water fills an irreplaceable role in society, the environment and the economy. This has implications for treating water as an economic good. First, water as an economic good is highly price-inelastic. This means that because of the vital nature of water for many purposes, demand will remain roughly unchanged despite increases in price. Economic theory predicts as prices rise, demand for a good will fall and more suppliers will be tempted to enter the market to take advantage of the higher prices. With water, however, environmental constraints restrict supply so this cannot play a large force in driving down prices again. In times of shortage, water users pay higher prices. This has two distributive effects: first, as not all regions will be afflicted with water shortages to the same degree, some will be worse off than others; and second, high prices for water will affect the poor to a greater degree; as it is a fundamental necessity to life which cannot be foregone if it takes up a relatively large proportion of income. This, in turn, leads to problems of charging for water - who should pay full price for it, and who should be subsidised. Because water is not perfectly transferable, ecosystem and delivery constraints impose costs that cannot be readily calculated and prevent economic solutions, such  109  as assignment of private property rights,  that may work for other natural resource  sectors. Finally, the vital role of water in the health and sustainability of life itself begs a strong moral case that water should not be treated as an ordinary economic good at all.  4. External limitations: the limitations of international law The discussion above centred on limitations of the economic treatment of natural resources that are intrinsic to the economic approach itself. This section now looks at how external limitations can hamper good international watercourse outcomes when these outcomes are decided using economics as a key criterion. Limitations that are external in nature can all be traced back to the difficulties and peculiarities of the international legal system. The two main external impediments (overlapping to some degree) to the successful utilization of a predominantly economic approach to transboundary water allocations between states are sovereignty and enforcement of international law.  4.1 Sovereignty The problem for international watercourses arising from sovereignty is the conflict between the requirement that states should optimally use a transboundary resource as between the group of states, and the principle of state sovereignty attributing the state with the right to develop their natural resources as they see fit. This latter principle is reflected in many environmental agreements today. For example, Principle 2 of the Rio Declaration on Environment and Development, declares "States have, in accordance with the Charter of the United Nations and the 3 3 6  Property rights in water are discussed in part 3 of chapter 5.  110  principle of international law, the sovereign right to exploit their own resources pursuant to their own environmental and developmental policies.. . "  337  As shown  above, this principle is also recognized as a general principle of customary international law. However, this principle basically allows a state to use its resources as it wishes, even if these uses are inefficient. In these cases, sovereignty interferes with the best economic decision of the optimal outcome for the watercourse because the signals leading to solutions or amelioration of water use inefficiencies may not be heard within the compound that is state sovereignty. In many senses, this is the classic tragedy of the commons scenario played out on the international level - a level that greatly complicates the scenario (and therefore the solution to the problem) because sovereignty and the right to resource use and development provide a neat facade for each state's decision regarding the watercourse. That is, sovereignty is a limitation when it acts as a smokescreen behind which bad or inefficient uses are condoned. Because of the nature of the tragedy of the commons - where each user of the commons seeks to gain as much of the common wealth as fast as possible before all other users deplete the resource themselves - sovereignty may provide an excuse not to curtail the behaviour leading to destruction of the commons. Professor John Jackson, commenting on the modem sovereignty of today, shares a similar view: Overall, the concept of sovereignty seems quite often to be extremely, and perhaps purposefully, misleading, and may act as a crutch for politicians and the media to avoid the tough and very complex thinking that should be undertaken about the real policy issues  1 A involved.  3  3  8  However, when water is the resource in question, this underlying attribute of sovereignty to develop resources as the state sees fit echoes distinctly of the  3 3 7  3 3 8  Rio Declaration, supra note 66. Jackson, supra note 140 at 788.  Ill  discredited Harmon doctrine of absolute territorial sovereignty.  So it is that, in the  particular context of transboundary water law, equitable utilization must therefore override this other fundamental principle of international law. Yet despite this theoretical argument in favour of equity for transboundary watercourses, some states nevertheless rely on the sovereignty argument when it comes to their shared water resources. Powerful upstream states are of particular concern in this regard because they have the resources to undertake ambitious water projects without adequate consultation with their downstream neighbours, as well as the international clout to get away with them. China's blatant refusal to join the Mekong River Commission  340  and its continued development of large-scale upstream projects that will affect the whole region is a case in point.  341  These observations lead to the second limitation to  good water agreements in the international sphere: enforcement and compliance.  4.2 Enforcement of and compliance with international water agreements One of the reasons China is able to disregard the principle of equitable utilization with regards to its activities on the Mekong is because international law relies on subtle rather than direct enforcement. There is no legislature, no court system enjoying compulsory jurisdiction such as in domestic law,  342  nor a central  See above, Chapter 2. The members of the Mekong River Commission are Laos, Cambodia, Thailand and Vietnam. Two watercourse states - Myanmar and China - have not joined. The Mekong River Commission was established as the institutional framework for cooperation in the Mekong Basin by the 1995 Agreement on the Cooperation for the Sustainable Development of the Mekong River Basin, signed at Chiang Rai, Thailand (5 April 1995). See for example The Economist, "The Mekong River: The sweet serpent of South-East Asia", (30 December 2003). The International Court of Justice is indeed a 'world court'. However, the claims brought before it are limited: the Court is set up to adjudicate decisions as between countries, so only states are allowed to be parties: ICJ Statute Article 34. However, because jurisdiction is conferred on the Court by state consent, (see for example Corfu Channel Case (preliminary objection) (UK v. Albania) ICJRep. 1948 at 15), a state that knowingly infringes international law is not likely to offer its consent. 3 4 0  3 4 1  3 4 2  112  body - such as the police - at the international level to enforce laws and penalties.  343  This means that a powerful state can wilfully disregard international laws when it is in their interest to do so. Numerous contemporary examples support this: the US-led war in Iraq defied all existing notions in international law of national self-defence; Israel's security barrier is in contravention of international law; continually infringes its citizens' human rights.  345  344  and China  346  The relationship between formal and informal institutions is of additional importance for compliance. Nobel laureate and new institutional economist Douglass North defines institutions as "the rules of the game in a society or, more formally.. .the humanly devised constraints that shape human interaction."  347  Formal  rules are taken to be rules, laws and constitutions that, in this context, are negotiated international watercourse treaties. Informal rules, on the other hand, consist of "norms of behaviour, conventions, and self-imposed codes of conduct", which can be thought of as the local practices of a particular watercourse.  348  Quite simply, formal  rules that reflect informal institutions will have a greater likelihood of compliance than those that are markedly different. This is because those who must obey them will perceive the rules as legitimate because they are coherent.  349  Coherence occurs  H.L.A. Hart, The Concept of Law (Oxford: Clarendon Press, 1961) at 209. Self defence is warranted under the UN Charter as an inherent right only where there has first been an attack by one nation on the other (Article 51). Customary international law recognizes pre-emptive self-defence, but only in circumstances - not applicable in the US/Iraq situation - that are "instant, overwhelming, and leaving no choice of means, and no moment for deliberation": The Caroline (exchange of diplomatic notes between Great Britain and the United States, 1842), 2 John B. Moore, Digest of International Law (Washington: Govt. Print. Off, 1906) 409 at 412. Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, ICJ Advisory Opinion (9 July 2004). Bureau of Democracy, Human Rights, and Labor, "China Country Report 2001" (4 March 2002), online: US Dept. of State <www.state.gov/g/drl/rls/hrrpt/2001/eap/8289.htm> (date accessed: 17 September 2004). Douglass C. North, Institutions, Institutional Change, and Economic Performance (Cambridge: Cambridge University Press, 1990) at 3. Douglass C. North, "Economic Performance Through Time", Nobel Prize lecture, 19 December 1993. Also published in (1994) 84(3) American Economic Review 359. Thomas Franck notes four elements of rule legitimacy: determinacy, symbolic validation, coherence and adherence (to a normative hierarchy): Franck, supra note 188 at 712. 3 4 3  3 4 4  3 4 5  3 4 6  3 4 7  3 4 8  3 4 9  .113  when rules are consistent and reflect a broader underlying principle of the same system.  350  So, when formal rules reflect their underlying informal institutions, people  are likely to view the rule as legitimate and therefore to be followed. The problems that can arise when formal regimes are designed with little regard for informal institutions can be extensive. The free rider problem also explains why compliance with international water regimes designed to achieve optimal benefits for a shared water resource may be hard to achieve and maintain. This collective action problem occurs because international initiatives designed to use transboundary watercourses sustainably allow all watercourse states to reap the benefits of other states' actions without having to contribute. With no effective enforcement mechanism in international law, the initiative may therefore be ultimately undermined as each state seeks to 'free ride' on the actions of others. Water law commentator Eyal Benvenisti notes compliance is successful in those cases where cooperation is likely to occur due to a climate of indefinite interdependence - that is, where repeated interactions are necessary over a 1S1  long and indefinite period of time.  This implies that to avoid the collective action  problem, effort and economic incentives should first be centred on enhancing cooperation through long-term and frequent state interactions rather than on designing external enforcement mechanisms.  352  Establishing a joint monitoring body of a treaty  regime may serve this purpose. The current failure of the international law concept of equitable utilization to adequately lead to good social, environmental and economic outcomes in all Id at 741 (commenting on Dworkin's view of coherence as 'integrity': Ronald Dworkin, Law's Empire (Cambridge, Mass.: Belknap Press, 1986) at 190-92.) Benvenisti, "Collective Action" supra note 93 at 389, 392. The latter observation follows from game theory, and in particular, the Prisoner's Dilemma game. Id at 389. The other solution to the collective action problem is the assignment of private property rights in parts of the common-pool international resource. This is discussed further in the following chapter. 3 5 0  3 5 1  3 5 2  114  situations shows that appeal to equity by itself is not enough. To be successful, international water agreements need some kind of enforcement mechanism. Without this, there is no incentive to play by its rules. However, an incentive to abide by international law does not need to be threatening, such as penalties or sanctions. Positive incentives work too. And this is where economics can play a leading role. By focusing international water agreements on the collective benefits of abiding by the regime, rather than building in penalties for violation, states have an incentive to stick to the rules because, simply, it is in their benefit to do so. The zero-sum game is transformed into a situation where positive outcomes can be achieved for all players. Consequently, successful water-sharing regime designs under equitable utilization will be those that place great emphasis on tailoring their economic outcomes to achieve this goal. In this, the Columbia River Treaty, with its downstream benefits and flood control provisions, is indeed a model treaty. The danger with that treaty is that economic incentives to protect the environment or to achieve greater distribution of the benefits gained under the Treaty are absent. True, these incentives are more difficult to construct and negotiate, but that does not mean that they are impossible.  5. Conclusion There are benefits and there are limitations to a more thorough use of economics within the equitable utilization paradigm for transboundary watercourses. The previous chapter detailed the benefits that can arise from using an economic approach, including optimal efficiency of water use, political feasibility in water negotiations, and flexibility across time and regions. By contrast, the criticisms raised in this chapter demonstrate the breadth and depth of the limitations to the economic approach. Of the shortcomings in the economic process itself, many are resolved if 115  the legal system can put a functional system of enforceable property rights in place. As well, aspects of the technical critique may be overcome with greater development of the cost accounting methodology for the environment. Similarly, distributive effects may be countered by a watercourse re-distribution scheme, such as benefit sharing under equitable principles. The moral critique is more difficult to redress, because it touches values some sectors of society feel deeply. However, if the technical and distributive critiques are adequately addressed so that good social and environmental outcomes are observed in conjunction with good economic outcomes, society's opinion may mature on the merits of using economics to value the environment. The main external limitations arising from international law - sovereignty and enforcement constraints - are more complex to resolve as they depend, in part, on the fickle nature of international politics. However, the solution to these shortcomings of the economic approach could, ironically, be the use of more economics. When states focus on the economic benefits accruing from a common water regime, they will be less inclined to preach state sovereignty. Similarly, in the absence of effective enforcement measures in international law, economic incentives inbuilt in a transboundary watercourse agreement may sway states in the direction of complying with the terms of that regime. So, the moral critique notwithstanding, it appears that the limitations to the economic approach can, on the whole, be overcome. Accordingly, we turn now to the methods that could be used at the international level in order to benefit from a more economic approach to equitable utilization.  116  Chapter 5 - Conclusion: Can equitable utilization be reconciled with economic theory? Water pricing, water markets and private property  Freedom is the recognition of necessity - Hegel  1. Summary So far, I have come to the following conclusions. Chapter 1 showed that the world is approaching a time of global water scarcity, as supply remains constant but demand is increasing significantly through rapid population growth and increases in standards of living. Watercourses that flow between two or more states face additional challenges in that the water resources must be shared between them. Consequently, international law developed the allocation paradigm of equitable utilization to resolve transboundary water disputes. Equitable utilization's meaning was discussed in Chapter 2. There, it was seen that rather than having a strict meaning, this principle is really a process whereby the interests of each watercourse state are taken into consideration on a case-by-case basis over time and as circumstances change. The process occurs through political negotiations, with an equitable outcome their goal. However, equity is a concept that is notoriously difficult to define and pin down and current examples, discussed throughout the thesis, demonstrate that equitable utilization is not necessarily leading to the best social, environmental and  117  economic outcomes for watercourse states. Because of these concerns, the role of economics in the context of international water determinations was investigated in Chapter 3 as a more concrete method of determining rights and obligations. That chapter also discussed United States water jurisprudence, which employs a harmbenefit test when undertaking equitable apportionment decisions (a domestic equivalent to international law's equitable utilization paradigm.) The absence of such a test at the international level begs the question of whether there could be a similar economic determination when transboundary waters are allocated between countries. The central question is whether greater use of economics would necessarily lead to higher standards of water management between upstream and downstream states. To answer this question, the benefits and limitations of the economic approach as part of the equitable utilizationframeworkof international water law were discussed. Several benefits of an economic approach for international water arrangements were observed in Chapter 3, including optimal efficiency of water use, political feasibility in water negotiations/arid flexibility across time and regions. Chapter 4 considered the limitations of economics, focusing on the three main critiques: technical, distributive, and moral. The unique nature of water also serves as a limitation in its own way. However, when the limitations are analysed further, it was seen that there are distinct possibilities for overcoming each of them. This conclusion suggests a solution to the tragedy of the commons in this context: the benefits of an economic approach need to be reconciled with the principle of equitable utilization. This final chapter therefore turns to the applicability of several of the key economic tools for international water law. These tools can be grouped into two stages. First, economic incentives are discussed broadly as a way to induce states to  118  sign on to and comply with international freshwater agreements. The need for accurate water pricing is discussed here because price is the best possible incentive for shaping behaviour. The second stage is more complicated. This stage takes economic incentives to a higher level, discussing whether water markets and tradable property rights in water could be a practical method of reaching the best allocation for a watercourse.  2. Economic incentives and sensible water pricing Given its scarcity, societies should want to use water in the best possible way. There are three primary goals - good social, environmental and economic outcomes. But, there are necessarily tradeoffs. For example, the hydroelectric power potential generated by a dam may facilitate greater economic development of a region, yet destroy a culturally, environmentally and economically significant ecosystem, such as a salmon run. There are choices to be made, and choices respond to incentives. Todd Buchholz describes how these incentives operate with reference to Adam Smith's classic example of the baker who, by baking bread to sell to the town earns enough money to support the family, and yet ends up serving the public interest: Smith proclaims: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." Even those who enjoy slaughtering cattle, brewing beer, or baking cakes would not want to do it all day if they were not compensated. Smith never suggests that they are motivated only by self-interest; he simply states that self-interest motivates more powerfully and consistently than kindness, altruism, or martyrdom. Put succinctly: society cannot rest its future on the noblest motives, but must use the strongest motives in the best possible way. 353  So, economic incentives matter. People will respond to them. As Buchholz's comment shows, and recalling the argument from chapter 4, self-interest is a powerful  Todd G. Buchholz, New Ideas From Dead Economists: An Introduction to Modern Economic Thought, (London: Penguin Books, 1999) at 20-21. My emphasis.  119  motivator and will trump ethics when the personal cost of abiding by those ethics gets too high. One of the strongest incentives that people respond to is price. Consequently, it is imperative to have sensible pricing of water. Doing so will encourage conservation, discourage waste, encourage new technologies from water efficient washing machines to water efficient crops and make the water resource we have now go further. This will shape society's behaviour and its overall treatment of the resource away from inefficient uses and towards its best uses. The price of water needs to reflect the costs associated with its use. As was seen in the previous chapter, however, there are currently significant limitations regarding the accurate accounting of environmental and social costs because these costs cannot easily be measured with traditional economic criteria. The undervaluation of social and environmental costs needs to be addressed and reflected in the price charged for water. By not including these externalities in cost calculations, inefficient and wasteful water uses will continue because cheap water means there is little incentive to change these practices. Economic incentives such as good water pricing are particularly important at the international level because there is no central regulatory agency to monitor and enforce water use. Unfortunately, the international aspect complicates the pricing of water and good outcomes may be difficult to achieve across political boundaries. There is some hope for the resolution of these complications, however, because practical or administrative changes to economic incentives can ultimately resolve most of these concerns.  354  For example, there can be distributive concerns that some people, or perhaps one watercourse state, cannot pay full cost for water, which is a necessity for life itself. This should not be an impediment to the use of this important economic incentive, but rather redistribution schemes need to be undertaken to alleviate the burden. South Africa's example of charging an inexpensive fee for the first 25 litres (regarded as a bare minimum) and then sharply increasing the fee depending on the amount of water consumption could serve as a model in this regard. Similarly for the environment, the requisite 3 5 4  120  3. Property rights and markets for water Economic incentives integrated into transboundary watercourse regimes can help countries cope with water scarcity. But economic incentives by themselves may not be enough. One supplementary approach that continues to receive a large amount of coverage in the literature is markets for water.  355  Market theory provides a  predictable response to the classic economic problem of scarcity - when a good is in short supply, the price for that good increases and demand is curtailed accordingly. Furthermore, markets offer efficient, flexible, cheap and quick responses to scarcity, and are "the most effective means we have of improving people's well-being."  356  However, markets simply will not work without property rights and a system to enforce those rights. Clearly defined property rights that may be defended and transferred are an integral part of the dialogue between economics and natural resources because markets cannot exist without them. Property rights create economic incentives by defining ownership, and thereby the economic actors who trade in the market: The importance of property rights in economic analysis and performance rests on two facets of their operation. First, property rights determine ownership as well as benefits and costs of resource use and the allocation thereof across individuals, and thus structure the incentives that determine economic behaviour and performance. Second, property rights define the set of  environmental flow for the health and sustainability of the watershed needs to be determined and protected from allocation to another use. See for example Barton H. Thompson Jr., "Institutional Perspectives on Water Policy and Markets" (1993) 81 Calif. L. Rev. 673 [hereinafter "Institutional Perspectives"]; Dellapenna, "Myth" supra note 90; Yandle, "Heavens" supra note 78; Charles J. Meyers & Richard A. Posner, Market Transfers of Water Rights: Toward an Improved Market in Water Resources (Washington: US Dept of Commerce, 1971); Benvenisti, "Collective Action" supra note 93. Water markets in the US are well documented: see for example National Research Council, Water Transfers in the West: Efficiency, Equity, and the Environment (Washington, D.C.: National Academy Press, 1992); Bonnie C. Salida & David B. Bush, Water Markets in Theory and Practice (Boulder: Westview Press, 1987); Eric T. Freyfogle, "Water Justice" in "Symposium: Stewardship of Land and Natural Resources" (1986) U. III. L. Rev. 481 [hereinafter "Water Justice"]; Lawrence J. MacDonnell, "Transferring Water Uses in the West" (1990) 43 Okla. L. Rev. 119. McMillan, supra note 73 at 13. 3 5 5  3 5 6  121  actors within an economic system by "assigning to specific individuals the authority to decide 357  how specific resources may be used."  This second facet of property anticipates the solution to the tragedy of the commons because negative externalities (of which the tragedy is one example) are really unspecified property rights. Hardin therefore proposed two solutions to the tragedy of the commons both of which hinge on property rights: the assignment of private property rights over the common resource, thereby affording owners with the necessary incentives to protect their property; or government regulation to limit the use of the resource, which in effect creates a hybrid property market in government permits and licences to use the common resource.  358  A crucial distinction, however,  between private property rights and property rights created by regulation is that, "[w]e cannot forget that, under still-prevailing norms, to [privately] own a thing is to hold the right to destroy it."  359  The problem with private property is that the owner may  choose to do what he or she likes with the property, including destroying, wasting or polluting it.  360  But when that property is water, one of the necessities of life, society  must ask whether it is ethical or moral to assign private property rights over an ostensibly public good.  361  Government regulation of a resource through the allocation of rights via licences or permits is the traditional alternative to private property regimes. In the context of water, the government would first clearly define a cap on total water use  Mercuro & Medema, supra note 182 at 133, quoting L. de Alessi and R.J. Staaf, "Property Rights and Choice" in Law and Economics, edited by Nicholas Mercuro, (Boston: Kluwer, 1989) 175 at 179. Hardin, "Tragedy" supra note 2. Freyfogle, "Common Wealth" supra note 92 at 34. James Acheson notes that secure private property rights in forested land have not had the beneficial effect anticipated by Hardin when short-term gains are emphasised in the economy. Acheson's study details the devastating clearcutting practices in the US despite their private property regime: James Acheson, "Clearcutting Maine: Implications for the Theory of Common Property Resources" (2000) 28(2) Human Ecology 145. The need for this debate has not gone unheeded: see for example Joseph L. Sax, "The Limits of Private Rights in Public Waters" in "Symposium on the Public Trust and the Waters of the American West: Yesterday, Today and Tomorrow: Introduction and Overview" (1989) 19 Envtl. L. 473; Freyfogle, "Water Justice", supra note 355. 3 5 8  3 5 9  3 6 0  3 6 1  122  and then allocate the remaining water rights to users. The allocations need to be based on a temporary and tradable contractual relationship with the government for optimal resource management.  362  But the costs associated with setting up and running  an international central administration for transboundary water resources are enormous. For this system to work, it is crucial that the government - or in the international context, the multinational authority assigned with this task - have the capacity to define, allocate, monitor and enforce the property rights it has created.  363  Despite the increased capabilities for this regulatory model due to changes such as farreaching global democratic accountability, rapid increases in information exchange capabilities and the increasing role of non-govemmental organisations as environmental watchdogs, some commentators believe the costs involved in 364  establishing a command-and-control system for the global commons will be so prohibitive that eventually private property rights - definable, defensible and transferable - will nevertheless emerge.  365  Limited common property regimes are a third solution to the tragedy of the commons proposed by property law scholar Carol Rose. These regimes are arrangements whereby a resource belongs to one particular community to the exclusion of all others, but members within that group then treat the resource communally as between themselves.  366  Assigning property rights in the common  resource to the local community gives that community an incentive to design the best regime to suit their particular needs and circumstances to protect it from overuse. However, because limited common property regimes depend upon a number of The Economist, "Priceless" supra note 41 at 16. ' Carol Rose, "The Several Futures of Property: Of Cyberspace and Folk Tales, Emission Trades and Ecosystems" (1998) 83 Minn. L. Rev. 129 at 167. Ibid. See for example Yandle, "Heavens" supra note 78 at 28. Rose, supra note 363 at 174-180. See also Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (Cambridge & New York: Cambridge University Press, 1990). 3 6 2  3 6 3  3 6 4  3 6 5  3 6 6  123  informal channels such as the strength of community ties and kinship, these regimes may only be able to exist in close-knit groups and would be unworkable at the international level where anonymity is high. Regardless of the underlying property regime - and there are problems with each of the three suggestions above - water markets are complicated. Furthermore, the complexity of the system is exacerbated by international boundaries. Briefly, sovereign self-interest, legal restrictions, structural impediments, transactions costs, imperfect information and uncertainty about the future are just some of the things that stand in the way of international water markets.  367  Because the standard solution to  negative externalities - compensation payments to those harmed - is ineffectual in the context of environmental damage, environmental externalities are perhaps the largest concern. This is particularly so because the damage caused in some cases may be irreparable.  368  Another problem for the environment stemming from water trading is  that ecosystems can be greatly damaged because water is not perfectly transferable across places and time: [E]very detail of a given water use has peculiar ecological impacts - where the water is withdrawn, when it is withdrawn, where it is used, how it is used, whether and how long it is stored, and in what way and by how much it is polluted. In the abstract, a water flow is a water flow; it is the fungible widget of microeconomic theory. In real life, the matter is much more complicated.  Freyfogle analogizes water transfers with employee transfers - both are embedded in their respective communities to such a large extent that transfer costs, either in social or ecological terms, are substantial and to a great degree, unknown.  370  Therefore because the effects would be widespread, long lasting, and potentially  See Thompson, "Institutional Perspectives" supra note 355 at 677, 680; and Freyfogle, "Common Wealth" supra note 92 at 30. Freyfogle, id at 31. Id at 31-32.  3 6 8  3 6 9  124  irreversible, any planned disruption through water transfers would need to be carefully examined prior to their implementation. A further problem of markets is that without adequate enforcement, institutional support and attention to the fairness of the rules of the market, markets are prone to failure: To deliver their full benefits, [markets] need support from a set of rules, customs, and institutions. They cannot operate efficiently in a vacuum. If the rules of the market game are inadequate, as often they are, it is difficult and time-consuming to set them right... Markets are not miraculous. There are problems they cannot address. If their platform is unsound, they do not even solve the problems they are supposed to solve. Viewed as tools, markets need 371  not be revered or reviled - just allowed to operate where they are useful.  This comment touches on a key issue: markets are not perfect. They require certain things, provided by the law, to operate successfully. In particular, input is needed from the law on three counts: there has to be a system of well-defined property rights, including a determination of who (or what) has rights over the environment; there must be a system of enforcement of the property rights, as well as a method of exchange; and there has to be an initial allocation. Until there is clear definition and enforcement of property rights in transboundary water with international implementation, international water markets cannot and will not work. But the costs of providing the rules, customs and institutions necessary to establish, monitor and regulate the market by enforcing itsrightsand trades would be enormous, and the procedures complex. When these costs are added to the concerns raised by the international aspect of water trading, there are strong reasons to believe that markets for water cannot presently emerge at the international level. This point must be treated with great consideration because the extensive cost of establishing a market for water is only worthwhile if the market itself is efficient and can therefore lead to beneficial 3 7 1  From McMillan, supra note 73 at 14. My emphasis.  125  outcomes. It is unlikely that, in the current climate of transboundary water management, these impediments to water markets and tradable property rights in water will be overcome any time soon. So, the role of economics in achieving maximum economic, social and environmental benefits for international watercourse states is not to encompass water rights trading between and within states yet, but instead to maximize the use of economic incentives as part of equitable watercourse agreements.  4. Final conclusion Adam Smith's invisible hand can have a green thumb - Bill Clinton -  I set out in this thesis to determine whether international water law's fundamental principle of equitable utilization effectively improves and enforces optimal standards of water mariagemenf-between riparian states. The present debilitated state of many of the world's transboundary watercourses, detailed in Chapter 1, indicates that equitable utilization is not fully adequate in this regard. This observation prompted my central inquiry into whether greater use of economics could help equitable utilization achieve better social, environmental and economic outcomes for watercourse states. The incorporation of economics in international water law is not foreign to the equitable utilization process, as it is an explicit consideration under the principle's factor-weighing process. An economic approach to transboundary water scarcity leads to many benefits. On a direct level, cost-benefit analysis of water use identifies and rewards those uses that are water-efficient and conserve the resource. Inefficient uses are forced to give 126  way to other more efficient uses or to environmental flows, even where the inefficient uses are well established. Further, the neutral nature of the economic dialogue can serve to defuse tightly held views on this issue, making it easier for states to insulate decisions from interest group politics. The common language of economics enhances political feasibility and promotes compliance, while greater flexibility and responsiveness to changing environmental, social or economic circumstances results when economic incentives are built into treaty regimes. This is particularly important for international water agreements because the immense resources, time and political energy that go into watercourse negotiations mean they will not be revisited nearly as often as circumstances change. The fatal flaw in the current regime of equitable utilization is that, by promoting equity as the device through which to allocate water between states, it appeals to conscience - to standards of fairness and equality - as its everyday enforcement mechanism. International water law can also enforce good watercourse outcomes through the no harm doctrine. However, to trigger this doctrine the harm caused in these cases must be significant.  372  This requirement means, arguably, that  the doctrine will not be able to prevent many of the smaller deviations from compliance, many of which can be particularly pernicious for the environment and societies over time. There are long and short-term effects of relying on equity for enforcement. In the long term, as Hardin notes of Darwin, conscience is self-eliminating: "to make such an appeal is to set up a selective system that works toward the elimination of conscience."  373  In the short term, people are caught in a "double bind", thereby  resulting in the tragedy: by appealing to conscience, people are subject to  3 7 2  3 7 3  See supra note 158. Hardin, "Tragedy" supra note 2 at 1246.  127  condemnation if they do not desist from exploiting the commons, yet if they do, they are "secretly condemned]...for [being] a simpleton who can be shamed into standing aside while the rest of us exploit the commons."  374  Standards of conscience, fairness  and equality were shown at various points in the thesis to succumb to economic considerations when the cost of maintaining such standards got too high. Standards of good neighbourship or diplomacy are similarly weak. With increasing pressure on global water resources and corresponding decreases in freshwater per capita throughout the world, the lack of a strong enforcement mechanism in international water law has grave implications for the environmental, social and economic effects stemming from the overexploitation of transboundary watercourses. The solution to equitable utilization's shortcomings is to maximize those elements that enhance both effectiveness and compliance. As to effectiveness, there needs to be a more flexible and adaptable mechanism. This is what economics has to offer equitable utilization. Compliance is more difficult because international law does not have a direct enforcement mechanism. But this lacuna, arguably, means that indirect methods for inducing compliance play a much greater role. It is therefore crucial to determine the economic incentives of a particular transboundary freshwater regime, and shape them to achieve the equitable and sustainable outcomes for the watercourse as a whole. Economic incentives provide a simple enforcement mechanism - people will obey an economically beneficial transboundary water regime if it is their economic interest to do so. The problem with this approach is that current economic methods do not adequately account for environmental costs and social inequalities. To be of legitimate use, therefore, more thought needs to go into making the economic method  128  account for the unaccountables in a natural resource context. Greater emphasis on the long term of the natural environment and future generations, rather than on the short term of present generation, human-centric profitability goals would go a long way to resolving this problem. As for international water markets, some commentators do believe they are possible and are the solution to the tragedy of the global water commons. However, the discussion above clearly demonstrates the world is not yet ready for this solution. Markets require clearly defined property rights and a system to enforce those rights, both of which are currently absent and notoriously difficult to achieve at the international level. I do not claim that the economic approach will be perfect in all situations. Rather, it is a mechanism that, when well-designed property rights exist, can help the equitable utilization regime result in fairer and more equitable social, environmental and economic outcomes. Although the limitations to the economic approach demonstrate it does not provide a complete solution, when it is applied with the duty not to cause significant harm society can move towards managing transboundary watercourses in a more economically, socially and environmentally sustainable way. I therefore suggest that greater use of economic principles can be made within the equitable utilization paradigm in order to bring states closer to achieving good, flexible, responsive water management outcomes for transboundary water resources. In sum, equitable utilization is an essential legal paradigm because there must be an initial allocation at some point. However, as circumstances change over time any initial allocation - no matter how good - will, as a matter of course, become obsolete because negotiators cannot know how incomes, populations, climate, industries, preferences and so on will change with time. By contrast, economic principles allow water allocations to naturally evolve over time as demands for water  129  change, including those for the environmental and social values. So the legal challenge today is not to refine the equitable utilization principle further but to provide the framework, in harmony with domestic law, for a system of economic incentives that will lead to good outcomes for the environment, society, and the economy of each watercourse state. It is possible that water markets may evolve, first at the domestic level and then internationally. However, these require well-defined property rights - including an allocation for environmental and social uses - and the ability to trade and enforce these rights. In the near future, it is unlikely that water markets will emerge. The hurdles are simply too high.  130  Bibliography Primary Sources: Cases Barcelona Traction, Light and Power Co. (Belgium v. Spain) I.C.J. Rep. 1970. 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