Water lawsuit tests NAFTA

A California entrepreneur whose business deal went sour is now making a (Canadian) federal case out of it: He's suing Ottawa under the North American Free Trade Agreement.

The case involves a contract to ship water from British Columbia to southern California by supertanker. This is the first water case to make it onto the NAFTA agenda. Environmentalists here fear it will get them into a business they fervently hope Canada will stay out of: bulk-water exports.

The claimant is Sun Belt Water Inc., of Santa Barbara, Calif. In 1991, Sun Belt and its Canadian partner, Snowcap Waters, won a contract to provide Goleta, Calif., with water from British Columbia.

But shortly after, the provincial government shifted policy, in effect canceling Snowcap's water-extraction license. The partners sued. Two years ago, the provincial government settled with Snowcap. Sun Belt's claim against Ottawa is based on two contentions:

* That by settling with Snowcap but not Sun Belt, British Columbia violated NAFTA rules that national and foreign investors be treated equally.

* That the provincial government violated another NAFTA provision calling for "fair and equitable treatment" of investors by using what Sun Belt's legal counsel John Carten calls "obstructive tactics in the courts."

"We anticipate that Canada's senior government will honor its obligations under NAFTA," says Sun Belt chairman Jack Lindsey.

Ottawa had promised a legislative ban on bulk-water sales by this fall after the Nova Group, of Sault Ste. Marie, Ontario, announced it had been granted a permit to extract water from Lake Superior; Nova planned to ship the water to China for bottling and sale. A firestorm of criticism ensued, and the permit was canceled.

But a legislative ban still isn't in place. "We expect to have legislation in place in the new year," says Leslie Swartman, a spokeswoman in the Department of Foreign Affairs and International Trade.

For the time being, however, another controversial water project is moving ahead in Newfoundland. McCurdy Enterprises of Gander has a permit to extract half a million cubic meters a week from Lake Gisborne for export in tankers and in bottles.

Canadians in the main acknowledge that natural resources are the basis of their economy. But, "Water is different," says Jo Dufay, national campaigns coordinator for the Council of Canadians, an anti-NAFTA advocacy group. "Water is a public trust - not something to trade for profit."