The water challenge: international trade to the rescue

The Water Challenge: International Trade to the Rescue

In many parts of the world, water availability is in decline and its quality is deteriorating. According to the World Bank, water scarcity, intensified by climate change, could come at a high price for some regions, costing as much as 6 percent of their gross domestic product.

Tackling the water challenge is crucial to unlocking poverty eradication, prosperity, ecosystems preservation, and gender equality. As such, water security is a fundamental element of a sustainable development agenda. The United Nations Sustainable Development Goals recognized this by introducing a dedicated water goal (“SDG 6”) that seeks to “ensure availability and sustainable management of water and sanitation for all.”

Modern strategies for water security seek to balance hard and soft approaches. While hard approaches focus on infrastructures and the mobilization of new water resources and their management, soft interventions seek to strengthen demand-oriented solutions such as pricing, use of technologies, fostering a culture of conservation, and land use planning.

On close examination, international trade is not misaligned with the pursuit of a resolution of the water challenge. Understanding the nexus between trade and water resources provides a resourceful set of direct and indirect effects that can be leveraged to effectively implement solutions to the water challenge.

Direct effect: Bridging the services and technology gaps

Ensuring a consistent response to the water challenge depends on the capacity to attract investments with a view to facilitating new infrastructure projects and maintaining or replacing aging infrastructures. In parallel, efforts should be made to nurture inventions and innovations in water related technologies.

Patent data suggests that such inventions tend to originate in countries where water availability is relatively high (Conway 2015). That innovations are developed in countries where they are comparatively less needed, justifies a global diffusion through an apt international trade system that can effectively support the flow of technology transfers. Regrettably, intellectual property rights are not enforced and secured well enough and private companies holding patents continue to invest themselves rather than licensing their technology, narrowing down the channels through which technology can be diffused and adopted.

Trade in water-related services, unfortunately, is driven by several erroneous perceptions that may have eclipsed the potential benefits of a trade system in facilitating both investment and the provision of high value services from abroad. The current opposition to strong World Trade Organization commitments on water-related services is unfortunate insofar as it hampers and delays the potential mutual benefits of international trade coupled with efficient domestic regulations for resolving the water crisis. A reduction in trade barriers and the promotion of flows of services in the water sector could help support the transition to a more stringent regulatory framework that fosters the preservation of water resources and ecosystems by providing efficient solutions at lower costs.

Indirect effect: Virtual water

Virtual water is that volume of water used (and embedded) in the production of a good or a service (Allan 1997). While products are traded regionally or globally, movements of goods involve virtual transfers from one trading partner to another of the water used in their respective production processes. This concept allows for a stimulating compromise to align both demand-based and supply-based approaches into a single vision. Combined with appropriate domestic policies, trade in agriculture may contribute to reducing imbalances between countries using water more or less efficiently.

Following recent climate shocks, countries are turning to food security policies to protect farmers and the agricultural sector from world price volatility. While it is understandable that countries would strategically reduce their risk of exposure to world price volatility, this may come at an even higher price if it goes against sustainable water management. In this context, international trade should be considered as a powerful instrument in the medium term, to be used as an insurance mechanism against climate shocks (Jouanjean et al. 2016). With stable and reactive domestic policy responses to protect against adverse social implications and negative environmental externalities, a more open international trading environment can have a positive impact in balancing out lack of water across countries.

The world recently forged an ambitious climate agenda following the agreement at the 2015 Paris Climate Conference (COP21) and a development ambition through the Sustainable Development Goals and countries are forging a stronger water regime. This is most welcome. But given the urgent need to implement solutions to the water challenge, international trade should be considered alongside other approaches as a powerful conveyor of solutions concurring to support demand and supply-oriented responses to the water crisis.

Conway, D. 2015. Invention and Diffusion of Water Supply and Water Efficiency Technologies: Insights from a Global Patent Dataset. Working paper. Grantham Research Institute on Climate Change and the Environment.
Allan, J. 1997. Virtual Water: A Long-term Solution for Water Short Middle Eastern Economies? Paper presented at the 1997 British Association Festival of Science, University of Leeds.
Jouanjean, M. A., A. Le Vernoy, C. Simonet. 2016. Price, Water and Trade in Agriculture: An Alternative to the Rain Dance. Paper under review and written to support the project “Pathways to Resilience in Semi-arid Economies (PRISE).”

Alexandre Le Vernoy

About the Author

Alexandre Le Vernoy is an International Consultant at Groupe d'Economie Mondiale (GEM).
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