8 consumptive rights, which are particularly useful when there is storage availability, can only be honored if all permanent consumptive rights have been met. Non-consumptive rights, used for hydropower generation, grant the owner the use of water as long as it is returned to its source at a specified location and quality. The bulk of the estimated 300,000 owners of water rights hold consumptive rights, with agriculture accounting for 89 percent of such rights (Rios and Quiroz 1995). The monitoring, distribution, and enforcement of water rights is carried out by water user associations at the level of the river basin, underground aquifer (for groundwater), primary canal, and secondary or tertiary canal. Except for a few large dams and their associated main canals, all hydraulic infrastructure is owned and operated by water users themselves.

23. Chile's experience with water markets has been very positive. Water users are particularly pleased by the flexibility and control over their water rights. In the arid areas north of Santiago, there have been many mutually beneficial sales and leases of water, resulting in a voluntary transfer of water to more productive uses (see following subsection). However, in the high-rainfall areas south of Santiago, there have been few trades since the transactions cost of registering the rights and conveying the water is greater than the gains from transferring the water. There are also few transactions in the main canal of the Maipo river near Santiago because this canal uses fixed flow dividers and the cost of changing the water intakes for transfers is prohibitive.

24. For reasons largely unrelated to water markets, Chile still has problems in water use. For example, Chile continues to suffer from water quality problems since regulations to its tough 1990 environmental law were never issued. Also, because the obligations of nonconsumptive rights holders to release water for consumptive purposes at certain times were not clearly defined, conflicts between the recently privatized hydropower companies and farmers have developed in some areas. Some shortcomings in the law have also enabled one hydropower company to obtain huge volumes of non-consumptive rights without charge. Despite these problems, Chile has far fewer conflicts and makes better use of its water as compared to its neighbors.

_25. Mexico._ As the Mexican agricultural economy became more market-oriented, policy makers realized that the full benefits of the economic liberalization could only come with secure and tradable water rights that offered the flexibility of water use to respond to changing prices and demands. Accordingly, under the 1992 water law, and its 1994 regulations, users may convert their existing precarious water rights to more secure tradable "concessions" with a maturity of five to fifty years, with the norm being thirty years to ensure security of the water right. However, the rights are not as secure as in Chile. Under the Mexican Constitution, all water belongs to the Nation and this property right is perpetual and nontransferable. The law also mentions the possibility of forfeiture for reasons of public interest if the water has not been used "efficiently;" or if it has not been exploited for three years. Although the rights are specified in volumetric terms, in practice the rights are proportional since the water user associations are to allocate deficits or surpluses proportionately across all existing rights. The rights for both ground and surface water are recorded in a public registry.