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Virtual water, the amount of water used along a good's value chain, has come under discussion. Fairness and efficiency problems are seen to arise in the reallocation of access to water resources through the means of international trade. Moral issues are attached to both imports and exports, and even to a country's own consumption of virtual water. Global institutional arrangements have therefore been suggested to regulate virtual water trade both efficiently and ‘fairly’. With this paper we will provide a short overview of the concept's history and findings, and an analysis from the perspective of economic trade theory, bringing up the old debate about the economic and environmental merits of free trade. The contribution of this paper will be to examine the performance of virtual water concepts in advising business or policy decisions in the form of global governance arrangements. It must be concluded that the virtual water concept is limited in terms of its usefulness in providing policy advice. The usually applied normative criteria are inconsistent, implying governance schemes that improve neither efficiency nor sustainability Water-related problems should be solved in the respective arenas and not by global governance schemes or trade barriers.

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Although the traditional approach in water resources management is to address water-related scarcity problems at the local or regional scale, some see water as a global resource with global drivers and impacts, supporting the argument for a global governance of water. If water is not appropriately priced, or if "poor water governance" creates adverse incentives for resource use in countries that export "virtual water," then increased demand from the world market may lead to the overexploitation of water or increasing pollution. Is this reason enough for a global governance of regional water-scarcity problems? On which scale should water-management problems actually be addressed, and can global action compensate for local and regional governance failure? The paper argues that compensating globally for regional governance failure could cause "problems of fit" and present severe downside risks.

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