Trade on Tap: The Linkages Between Trade and Water
On the heels of the UN 2023 Water Conference (22-24 March, 2023) which saw the adoption of the Water Action Agenda, representing voluntary commitments of nations and stakeholders to accomplish the Sustainable Development Goals (SDGs) and their targets connected to water, the idea came to me to share some thoughts on the linkages between trade and water and the positive role which trade and trade policy can play in addressing water related challenges. This was prompted by the fact that, the more persons I spoke to, the more I became increasingly aware that many people do not typically make direct associations between trade and water - seeing them as different spheres - when in fact, water scarcity being one of the most significant challenges facing the world today with over 2 billion people lacking access to safe drinking water, affects all aspects of our lives including economic activity. I consider this piece important, because by increasingly recognising and highlighting the interdependence between trade and water management, we may collectively be better equipped to address water scarcity and other water-related issues through collaboration and cooperation at the international level.
Water is a critical component of global trade, shaping transportation, agriculture, and manufacturing, but the linkages between trade and water are not limited to direct water usage by industries. Trade can also indirectly impact water resources through its impact on the environment - increased trade can lead to higher carbon emissions, which contributes to climate change and exacerbates water scarcity in many regions. The impacts of water scarcity in relation to trade are manifested in increased production costs, reduced productivity, and supply chain disruptions, and these effects in turn can have a significant impact on the global economy. Country groupings such as Small island developing states (SIDS) and Land-locked developing countries (LLDCs) are particularly vulnerable to water-related issues due to their unique geography and exposure to climate change.
Another critical linkage between water and trade is maritime shipping, one of the most important modes of transportation for global trade. Water scarcity can have a significant impact on this industry - disruptions to shipping lanes caused by low water levels can lead to delays and higher costs for importing goods, which can ultimately be passed on to consumers and lead to severe economic consequences. It is therefore also important to consider the impact of water scarcity on maritime shipping and the potential economic implications for water-scarce regions that rely on imports.
A Sea of Opportunity: How Water Shapes Global Trade
As alluded to, water is an essential component of many industrial processes, and the production of goods can have a significant impact on water resources. When we trade commodities across borders, we are also transferring water in virtual form, because the production of the commodity requires a certain amount of water which is embedded in the commodity. This concept of “virtual water” is understood by academics as the volume of water that has been used to produce an item, and noting this water footprint of our consumption patterns and trade activities is important, as trade patterns influence patterns of water use and scarcity: import of water-intensive commodities reduces national water demand, whereas export of water-intensive commodities places pressures on national water demand and increases water scarcity.
As globalisation has progressed, the manufacturing of many water intense goods such as footwear for example has moved to South East Asia because of competitive labor advantage, with China alone accounting for 60% of global shoe manufacturing, however these areas tend to struggle with limited water resources due to climate, lack of infrastructure, or industrial pollution. Water scarcity is a growing concern in countries such as India, China, and Pakistan, who are among the world's largest consumers of water, and as their economies continue to grow, so does their demand for water. This has led to increasing competition for water resources, with implications for trade and commerce. For example, in India, water scarcity has led to lower agricultural productivity and higher food prices, affecting not only domestic consumers but also export markets. To address this challenge, India is investing in new water conservation technologies and exploring new trade agreements that could facilitate the transfer of water-saving technologies from other countries.
In Africa, water is a critical resource for agriculture, which is the backbone of many economies in the region. However, water scarcity is a major challenge in many parts of the continent, with implications for food security and trade. To address this challenge, many countries in Africa are investing in new irrigation technologies, investing in the development of new water infrastructure, such as dams and water treatment plants, to improve the availability and quality of water for agriculture and other purposes, and exploring new trade agreements that could facilitate transfer of such technologies from other regions.
In Europe, water plays a key role in manufacturing and maritime shipping, but water scarcity is a growing concern, particularly in the Mediterranean region. This has led to increasing competition for water resources and the need for new approaches to water management and conservation. Similarly in the Americas, water is a critical resource for agriculture, manufacturing, and maritime shipping.
Water, Water Everywhere: the Complexities of Water in International Trade
The World Trade Organization (WTO) plays a crucial role in shaping the global trade landscape, and although the WTO explicitly refrains from making environmental agreements, I believe it also has a role to play in addressing water-related trade issues. The WTO's Agreement on Agriculture, for example, while not explicitly mentioning water issues, does address issues such subsidies, export restrictions, and import tariffs that can affect the trade in water-intensive agricultural products. Similarly the General Agreement on Trade in Services (GATS) covers a wide range of services sectors, including environmental services, which may include water-related services such as water treatment, distribution, and management.
The global water crisis presents an opportunity for the World Trade Organization (WTO) to take a more active role in addressing water-related issues through encouraging the transfer of technology and expertise related to water management from developed to developing countries, and by supporting the current conversations surrounding the development of climate adaptive funding mechanisms to help countries address the water-related impacts of climate change on trade.
In the meanwhile, regional trade agreements are a useful tool and should also be employed among country groupings to address water-related trade issues. These agreements can include provisions promoting sustainable practices in agriculture and manufacturing, as well as joint management and monitoring of shared water resources addressed in further detail later on.
The Blue Economy & Making Waves: Investment Strategies to Address Water-Related Challenges in Trade
The Blue Economy is a concept that recognises the significance of water in trade and the need to manage it sustainably; as an approach, the Blue Economy seeks to balance economic development with environmental sustainability and emphasises the need to use water resources efficiently, reduce waste, and promote conservation. In the context of SIDS like those in the Caribbean who are heavily reliant on the ocean for trade, as well as tourism and fisheries, the Blue Economy provides a framework for these sectors to be developed in responsible manner, balancing economic growth with protection of marine resources.
Many SIDS face pollution challenges; harbours, which are major hubs for trade can contain high levels of contaminants from cruise ship industries and shipping activities, including oil spills, sewage, and other waste that can have a significant impact on the local environment. Loss of marine biodiversity and the degradation of coastal ecosystems in turn affects the performance of industries such as fisheries and tourism, which are critical to the economies of many SIDS. Further, many SIDS face water scarcity, which is exacerbated by their small land area, limited rainfall, and vulnerability to natural disasters. This water scarcity can have a significant impact on trade, particularly in industries such as agriculture, and can lead to increased costs for businesses, further hindering economic development.
To address these challenges, policymakers and businesses must work together to develop investments in infrastructure, such as desalination plants and water recycling facilities, as well as education and training programs to promote water conservation and sustainable use, but water-related challenges require significant investments to address, particularly in developing countries.
Financing for such development will necessarily take various forms, including domestic resource mobilization, foreign direct investment, official development assistance, and innovative financing mechanisms. Trade agreements can also be harnessed to provide incentives for private sector investment in water infrastructure, including through public-private partnerships.
Drowning in Challenges: Water-Related Issues in Trade and How to Address Them
As mentioned, trade policy has a critical role to play in addressing water-related challenges by promoting sustainable water use, facilitating outlined investment in water infrastructure, and encouraging greater cooperation and collaboration between countries in the management of shared water resources.
Regarding sustainable water use, as mentioned trade agreements can be a vehicle for the inclusion of provisions that encourage the adoption of sustainable agriculture and manufacturing practices that reduce water usage and pollution. The United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA), includes a chapter on the environment that addresses issues such as marine conservation and sustainable fisheries, for example. It also includes provisions on trade and the environment that require parties to effectively enforce their environmental laws and regulations, and to not lower their environmental standards to attract investment. In the context of trade agreements however, SIDS and least developing countries can face several challenges related to water resources management as they often have limited bargaining power in trade negotiations, which can make it difficult to ensure that their water resources are protected, and sometimes trade agreements may even encourage the export of water-intensive goods from SIDS which can exacerbate water scarcity and pollution.
Trade agreements should be wielded for good and manoeuvred as a framework for cooperation and support; when employed positively they can also be used to facilitate the transfer of technology and expertise related to water management and conservation, which can play a critical role in addressing water-related challenges in the Global South. In Antigua and Barbuda, which faces significant water scarcity issues as a small island nation in the Caribbean, osmosis plants that turn seawater into freshwater have been implemented as a solution to water scarcity issues. The generated freshwater is used for agriculture and domestic consumption. The implementation of such plants not only addresses the issue of water scarcity but also has trade implications as it reduces Antigua's reliance on imported water and thus reduces the country's trade deficit. Moreover, where Antigua is able to finance sufficient plants, the country may even have the potential to one day export excess freshwater to neighbouring countries that face similar water scarcity issues, creating opportunities for trade in this vital resource. Many developing countries lack the financial resources, infrastructure, and expertise necessary to address water scarcity and other water-related challenges through such infrastructure, and the G77 & China has continued to include a call for the transfer of technology and expertise from developed countries to help address challenges such as these on their development and financing agenda when addressing the United Nations.
Trade policies can promote greater investment in water infrastructure as outlined and help to address water-related challenges by promoting greater collaboration between countries in the management of shared water resources, such as rivers and aquifers through the inclusion of provisions that encourage joint management and monitoring of shared water resources in trade agreements and and facilitate the sharing of data and information related to water quality and availability.
Conclusion
Water is a crucial resource for trade, and its scarcity can have significant impacts on global commerce. In conclusion I found it important to summarise the linkages between trade and water, and the need for increased sustainable water management practices being included and reflected in trade policies and agreements. Global water-use efficiency can be increased by including water scarcity as a factor into trade decisions; it is this focus on sustainable water management in trade which is crucial for ensuring the long-term health and availability of this vital resource.
To address the challenges posed by water scarcity, I believe it will be critical to adopt a collaborative approach that involves all stakeholders, including governments, businesses, and civil society in order to focus on developing sustainable water management practices that ensure the long-term availability of water resources for trade and other essential needs. Financing for development in relation to water-related challenges will also require a continued coordinated and integrated approach involving various stakeholders, governments, international organizations, and the private sector. Only together, by working towards a harmonious balance between economic growth and environmental preservation, can we ensure the longevity of global trade which benefits both the north and the global south, and centres the planet's most precious resource: water.