SAN FRANCISCO (AP) -- The Bush administration is urging a federal appeals court to allow part of a canal separating California and Mexico to be lined with concrete to stop millions of gallons of water from seeping south of the border.

A lawsuit seeking to block the project argues that shutting off that seepage would be detrimental to farmers and others in Mexico.

The lining is proposed along a portion of the 82-mile All-American Canal that delivers Colorado River water to crop land on both sides of the border about 100 miles east of San Diego.

The U.S. government says Mexico already gets 489 billion gallons of Colorado River water legitimately each year under a 1944 treaty and isn't entitled to the seepage, which provides a farming lifeline in Mexico.

A Justice Department attorney told a panel of three appellate judges on Monday that Mexicans have no right to the water, which is also the lifeblood for 500,000 acres of U.S. farmland.

"How does a constitutional barrier against takings of property in the United States apply to somebody's property in Mexico?" Judge John Noonan asked.

Judge Sidney Thomas said the U.S. might have abandoned the water, but that doesn't mean "somebody else acquires it."

Malissa Hathaway, another attorney for the business group, argued the canal project would be detrimental to both sides of the border.

"No one has looked at the economic effects of taking land out of production," she said.

The Mexican government is not a party to the case, but disapproved of the lining in court briefs.