Canada - China

Initial Environmental Assessment (EA) of the Canada-China Foreign Investment Promotion and Protection Agreement

6. Stakeholder Feedback

The notice of intent to conduct an EA of the Canada-China FIPA was in the Canada Gazette on November 5, 2005. The notice included an invitation to interested parties to submit their views on the likely environmental impacts of the Canada-China FIPA on Canada. There were no comments received on the Notice of Intent.

7. Other Environmental Considerations – Global Effects

a) Global Effects

Canada’s Framework for Conducting EAs of Trade Negotiations calls for national assessments, and allows for consideration of transboundary, regional, and global environmental impacts if they have a direct impact on the Canadian environment. However, it is outside of the scope of this study to assess the potential for positive or negative environmental impacts that could occur in China because of these negotiations, or to judge the measures in place within China to enhance or mitigate such impacts. The Framework does provide the opportunity to consider how Canadian investment in China that results from the FIPA could have transboundary and global environmental impacts that would affect the Canadian environment.

Mining is a prime sector of interest to Canadian companies operating in China. We therefore focus on this sector to identify potential environmental effects of these investments on the Canadian environment. As discussed above, the temporal and spatial scale of these impacts varies significantly, from temporary and localized to long-term and extensive. The environmental impacts of concern that could most directly affect the Canadian environment relate to air emissions, which can result in the deposition of heavy metals thousands of miles from the primary source. Additionally, any projects subject to the Canadian Environmental Assessment Act and the Projects Outside Canada Environmental Assessment Regulations must also consider any change in the environment as a result of a project.

b) Canada/ China Environmental Cooperation Activities

Canada and China are actively engaged in environmental cooperation activities: although not specifically linked to the FIPA, these efforts demonstrate existing mechanisms to work together on issues of common concern.

• Canada-China Framework Statement for Cooperation on Environment into the 21st Century: Canada and China signed the “Canada-China Framework Statement for Cooperation on Environment into the 21st Century” during Premier Zhu Rongji's visit to Canada in November 1998. The framework reflects a shared interest in enhancing cooperation on environmental and sustainable development issues and provides an umbrella for collaboration on the environment, especially climate change and sustainable development, through the coordination of all federal efforts with China. The Framework Statement created the Canada-China Joint Committee on Environment Cooperation (JCEC) with Environment Canada and the Chinese State Environmental Protection Administration (SEPA) as the lead agencies. The JCEC held its inaugural meeting on March 20-21, 2000. The fifth meeting took place in Xi’an, China in April 2006 and focused its policy discussion on environmental impact assessments; environmental emergencies and preparedness; greening the Olympics; and cooperation with environmental industries. Previous meetings have focused on a range of topics, including air pollution, environmental legislation and sustainable urbanisation. Canada will host the next JCEC meeting in 2007.

• Memorandum of Understanding on Environmental Cooperation: Environment Canada and the State Environmental Protection Agency (SEPA) renewed the Memorandum of Understanding (MoU) on Environmental Cooperation in September 2003 in Beijing. This is the second renewal since the signing of the first MoU in 1993. The MoU provides a framework for cooperation on regional and global environmental issues with a focus on transboundary air and toxic substance control, water resource management, smart growth and sustainable development, environmental management policies and regulations, ecosystem and biodiversity protection, as well as transfer of clean technologies. Through work plans, the MoU is implemented through workshops, missions, exchange of information, hosting Chinese officials and study tours.

• The Canada-China Climate Change Working Group (CCWG): The Canada-China Climate Change Working Group was formed in March 2004, as a follow up to the Canada-China Joint Statement on Climate Change Cooperation. The Working Group co-ordinates and advances the bilateral effort to respond to climate change and is co-led by Environment Canada and the department of Foreign Affairs and International Trade (DFAIT) on the Canadian side and the National Development and Reform Commission (NDRC) and Ministry of Foreign Affairs (MFA) on the Chinese side. The first CCWG meeting was held in Vancouver in March 2004 and the second one in Shenyang, China in July 2005. Government officials from Canada and China representing various ministries and departments held frank and open discussions on the issues related to climate change while identifying opportunities for future cooperation in priority areas, such as clean technology, renewable energies, sustainable urban development and the 2005 UN climate change conference in Montreal.

• The 3^rd meeting of the Canada-China Climate Change Working Group CCWG was held in Vancouver on July 16 – 17, 2007. Canadian and Chinese officials engaged in a discussion on substantive climate issues. China learned about Canada’s integrated approach to control air pollutants and GHGs through short term intensity based targets, leading to 60-70% absolute reductions of 2006 level by 2050, in line with the G-8 Leaders' recent statement and the Intergovernmental Panel on Climate Change (IPCC) recommendation to halve GHG emissions from 1990 levels. Both countries share interest in reducing energy intensity, enhancing energy efficiency, increasing renewables in the energy mix and addressing air pollution through integrated GHG reduction measures.

• China gained a better appreciation of Canada's policy and commended Canada for its honest and practical approach to both the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol. Both countries agreed to hold informal meetings prior to major upcoming meetings including the US-Major Economies’ Meeting, the UN Secretary General's High Level meeting and the CoP-13 preparatory meeting in Jakarta. China's view is that while other meetings can be useful in raising the profile of climate change, progress on addressing climate change should be made under UNFCCC and the Kyoto Protocol.

• Prior to the meeting, Environment Canada hosted a visit of the Chinese delegation to Regina to learn about the Weyburn-Midale Carbon Capture and Storage project, the largest operational CO2 sequestration project in the world. The delegation was impressed with this world class Canadian technology, which was supported by the Government of Canada.

• MOU on Science and Technology Related to Meteorology, Hydrology, Environmental Prediction and Climate Change: The Meteorological Service of Canada (MSC) and the China Meteorological Administration (CMA) first signed the Memorandum of Understanding (MOU) on Cooperative Meteorological Programmes on June 1, 1986. The main focus of the MOU was on cooperation and exchanges between technical experts to improve the coordination of national programs directed at the provision of meteorological and related services. After 15 years of successful collaboration, a new MOU on Science and Technology Related to Meteorology, Hydrology, Environmental Prediction and Climate Change was signed in 2001. This MOU was renewed on 29^th of September, 2006 during the Tenth Joint Working Group which was held in Canada.

  The MOU provides a framework for collaboration in a wide range of areas including modernization strategies; Earth observations of weather, water, climate and atmospheric chemistry; Environmental Predictions including high impact weather, floods and air quality and underlying modelling and data assimilation; Climate Change science, seasonal to inter-annual predictions, assessments of vulnerabilities, impacts and adaptation strategies; and technical and management training.

• China-Canada Strategic Working Group: In January 2005, China and Canada established a Strategic Work Group which is designed for regular consultation on important bilateral political and economic issues, and stronger exchange and coordination on major international and regional issues of common concern, such as safeguarding world peace and security, prosperity and sustainable development. China and Canada have a shared commitment to the sustainable development and management of natural resources, as the two countries recognize the potential for mutual benefit in furthering cooperation in minerals and metals, forestry, earth science and energy. In 2007, the two countries agreed to focus particularly on four key areas: investment and trade, environment and energy efficiency, public health and disease control, and governance. In the area of environment and energy efficiency, China and Canada have committed to strengthening the dialogue on climate change and other key environmental policy issues through the Canada-China Climate Change Working Group, China-Canada Joint Committee on Environmental Cooperation (JCEC) and the China Council for International Cooperation on Environment and Development (CCICED); promoting environmental governance by encouraging the use of appropriate economic and legal instruments and government policy, planning and regulations (e.g. environmental assessments processes) in environmental management; and strengthening cooperation on capacity building and promotion of development, deployment and transfer of advanced environmental protection technologies aimed at addressing climate change and reducing air, water and toxics pollution, and implementation of Multilateral Environmental Agreements (MEAs).

• Illustration of Work: Environment Canada's bilateral cooperation with China has recently included workshops, training and internships in Canadian institutions, mentoring senior Chinese officials, incoming and out-going missions and exchanges of documentation and publications. The main topics covered include climate change, sustainable development, integrated water resource management, transboundary air pollution and toxic substances control, protection of ecosystem and biodiversity, and technology transfer.

• Environmental Trade Missions to China: The Government of Canada has organized a number of environment themed trade missions to China. In the past Trade Team Canada Environment (TTCE) missions were organized by Industry Canada, in cooperation with the Canadian Government's Trade Commissioner Service in China. Although they are now called Canadian Environment Industry Trade Missions (no longer TTCE) the objective remains the same: to facilitate the transfer of Canadian environmental technologies and know-how to China, and foster partnerships between environmental industries in both countries. Canadian environmental companies wishing to access the Chinese market or expand their activities in China are encouraged to participate. The programs include business briefings, technical workshops, mini trade shows, one-on-one meetings, networking events and site visits.

• 2007 Science and Technology Cooperation Agreement between Canada and China: On January 15, 2007 in Beijing, the Government of Canada and the Government of China signed a Science and Technology (S&T) Cooperation Agreement that will boost collaborative research and development activities between the two countries. The Agreement aims to promote greater collaboration in research and development between Chinese and Canadian academics, and both private and public sector researchers and innovators. This will be accomplished through measures such as a mechanism to facilitate public and private sector investment in joint S&T initiatives. The work conducted under the Agreement will initially focus on four priority areas: energy, the environment, health and life sciences, and agricultural foods and bioproducts.

• China Council for International Cooperation on Environment and Development: Environment Canada has become increasingly involved in the China Council for International Cooperation on Environment and Development (CCICED) -- to better align the department’s current work with the focus of the Council – by attending the annual meetings as an observer. The China Council is a high-level (chaired by Chinese Vice Premier), non-governmental consultative and advisory body created by the Chinese government to provide recommendations and policy guidance on environment and development issues in China.

• Canadian International Development Agency Projects: The Canadian International Development Agency (CIDA) has revised its goal and objectives for its China Country Development Programming Framework, but continues to give priority to human rights, democratic development, good governance, and environmental sustainability. CIDA program aims to promote environmental sustainability in China through support for Chinese efforts to manage environmental issues in rural western regions of China by enhancing the capacity of China’s land resource management systems. CIDA’s environmental sustainability projects include:

  • China Council for International Cooperation on Environment and Development Phase III ;

  • Canada-China Co-operation on the Management of Environmental Sustainability Project;

  • Canada-China Cooperation in Climate Change (C5);

  • Confronting Global Warming: Enhancing China's Capacity for Carbon Sequestration;

  • Reduction of CO2 Emissions from Coal Fired Utility Boilers in China;

  • Renewable Energy Diversification - Small Hydro Technology in Western China;

  • Canada-China Development of Coalbed Methane Technology Carbon Dioxide Sequestration Project (CCCDF);

  • Biodiversity Protection and Community Development in Inner Mongolia Autonomous Region;

  • Canada-China Cooperation Project in Cleaner Production;

  • Canada-China Jiangsu SME Applied Management and Environment;

  • Nutrient Management and Strategies for Sustainable Development in China;

  • Sustainable Agriculture Development Project Phase II (SADP II).

Canada and China are also engaged in Corporate Social Responsibility initiatives:

• Initiatives focused on Corporate Social Responsibility (CSR) or "sustainable development" in China are still in the nascent stages of development. The concept, among many Canadian small and medium sized enterprises (SMEs), is often misunderstood, and education is needed to ensure the commercial benefits linked to application of a CSR policy are communicated. The Beijing Chapter of the Canada-China Business Council (CCBC), one of the longer-standing bilateral business organizations active in China, restructured its executive into committees in 2006, forming a sustainable development committee focused on CSR. The committee organized two independent networking and information events, and several joint networking events with other Chambers of Commerce in 2006/07, bringing together interested companies and Non-Governmental Organizations (NGOs).

• The Canadian embassy in Beijing met with the CCBC's Sustainable Development Committee Chairs to discuss future initiatives. In planning are the following: a) an education seminar that helps companies to properly define CSR and understand the benefits of a CSR policy to the company's bottom line in addition to the countries and regions that they operate; b) a workshop bringing together CSR-minded Canadian and Chinese companies to network and discuss sustainable solutions to common problems facing these businesses; c) development of a list of qualified NGOs that can work with companies to implement sustainable projects in line with companies’ CSR plans and strategies; d) a joint project with other Chambers of Commerce to investigate hot topics in CSR, such as micro-credit or micro-financing; and e) a day dedicated to discussion of sustainable solutions in mining, to be delivered on the margins of the large China Mining Conference in November 2007.

• In addition to initiatives led by government and associations, some individual Canadian companies continue to provide leadership in this area.

c) Third Party Documents

Examination of environmental policies in China or postulation about general trends of Chinese investment abroad falls outside of the mandate provided by the Framework for EA of Trade Negotiations. However, past feedback from consultations has indicated interest in this regard, and we have therefore responded through the identification of the following third party documents.

• The Asia Pacific Foundation of Canada and the China Council for the Promotion of International Trade carried out an online survey in September 2006 in order to better understand the changes in Chinese companies’ outward investment intentions. The report “China Goes Global – II: 2006 Survey of Chinese Companies’ Outward Direct Investment Intentions” is available on their website..

• In November 2006, the OECD published two reports on China’s environmental performance and policies: “Environment, Water Resources and Agricultural Policies: Lessons from China and OECD Countries” and “Environmental Performance of China: Conclusions and Recommendations (Final) ”. The first report contains a set of expert papers on how to improve water management in China’s agricultural sector. Although the OECD report on “Environmental Performance of China: Conclusions and Recommendations (Final)” recognizes that China has made some significant environmental progress, it states that the implementation of environmental policies needs to be strengthened. The Working Party found that China’s efforts to protect the environment have not been sufficient to keep pace with the environmental pressures and challenges generated by the very rapid growth of China’s economy. It recommends that China further strengthen its international environmental efforts with the co-operation and support of OECD countries.

• The Deutsche Bank has published in August 2006 a report on China’s overseas direct investment entitled “Global champions in waiting: Perspectives on China's overseas direct investment”. The report states that numerous high-profile cross-border mergers and acquisitions deals involving Chinese companies as acquirers point to the emergence of China as a global investor. The bulk of current Chinese ODI is driven either by the increasing need to secure overseas energy and raw material resources or as a countermeasure to growing competition and overcapacity in a number of key sectors of the domestic economy. In February 2006, the Deutsche Bank also published a report on China’s environmental sector entitled “Environmental sector China: From major building site to growth market”. The report states that China's economy is booming at the expense of its environment. Shortages of important resources are reducing China's growth potential. Awareness must be created that it is better to prevent environmental damage in the first place than to have to remedy the situation later at considerable expense. Several hundreds of billions of US dollars are likely to be invested in environmental technology in China over the next 20 years, for which the country needs private know-how and capital from abroad.

8. Conclusion and Next Steps

Canada’s Framework for Conducting EAs of Trade Negotiations calls for national assessments and allows for consideration of transboundary, regional, and global environmental impacts if they have a direct impact on the Canadian environment. However, it is outside of the scope of this study to assess the potential for positive or negative environmental impacts that could occur in China because of these negotiations, or to judge the measures in place within China to enhance or mitigate such impacts.

Investments in sectors of interest to China may have an impact on the environment. However, the impact would be the same whether the investment is made by a Chinese investors or a domestic investor. In addition, investors, whether they are Canadian or foreign, are bound by environmental protection regulations and projects resulting from these investments are subject to applicable environmental assessment legislation

The Initial EA of the Canada-China FIPA concludes that significant changes to investment in Canada are not expected as a result of the Canada-China FIPA negotiations as there are no specific investments known to be dependent on the FIPA’s conclusion or no direct known causal links between FIPAs and expansion of investment. As such, the environmental impacts on Canada are expected to be minimal.

The Initial EA will be circulated to decision makers to inform the conclusion of the Canada-China FIPA negotiations as well as other policy development activities.

Following the receipt of public comments on the Initial EA, the Final EA will be completed taking into account the consultative findings. In the light of the Initial EA’s conclusions regarding the unlikelihood of significant economic activity and environmental impacts in Canada, preparation of a Draft EA is deemed to be unnecessary. The Final EA will coincide with the conclusion of the Canada-China FIPA negotiations.

Annex 1: Canada’s FIPA Program

a) Background on Canada’s FIPA Program

A FIPA (Foreign Investment Promotion and Protection Agreement) is a bilateral agreement aimed at protecting and promoting foreign investment through legally-binding rights and obligations.

FIPAs accomplish their objectives by setting out the respective rights and obligations of the countries that are parties to the treaty with respect to the treatment of foreign investment. Typically, there are agreed exceptions to the obligations. FIPAs seek to ensure that foreign investors: will not be treated worse than similarly situated domestic investors or other foreign investors; will not have their investments expropriated without prompt and adequate compensation; and, in any case, will not be subject to treatment lower than the minimum standard established in customary international law. As well, in most circumstances, investors should be free to invest capital and repatriate their investments and returns.

Canada’s policy is to promote and protect investment through a transparent rules-based system in a manner that reaffirms the right of Governments to regulate in the public interest, including developmental interests. As an instrument that supports the rule of law and fosters fairness, transparency, non-discrimination and accountability, a FIPA encourages good governance. A FIPA also promotes sustainable development principles by exhorting Governments to not lower health, safety or environmental measures in order to attract investment.

Canada began negotiating FIPAs in 1989 to secure investment liberalisation and protection commitments on the basis of a model agreement developed under the auspices of the OECD (Organization for Economic Cooperation and Development). In 1994, Canada introduced a FIPA model incorporating the enhanced investment protection afforded under the NAFTA (North American Free Trade Agreement). Canada signed 5 agreements using the OECD model and signed 18 FIPAS based on the 1994 model for a total of 23 FIPAs to date.

b) Canada’s New FIPA Model

In 2003, Canada began updating its FIPA model to reflect lessons learned from its experience with the implementation and operation of the investment chapter of the NAFTA. The principal objectives of this exercise were: to enhance clarity in the substantive obligations; to maximize openness and transparency in the dispute settlement process; and to discipline and improve efficiency in the dispute settlement procedures. Canada also sought to enhance transparency in the listing of reservations and exceptions from the substantive disciplines of the Agreement.

In May 2004, Canada's new model for the negotiation of FIPAs was published on the website. The new FIPA model provides for a high standard of investment protection and incorporates several key principles: treatment that is non-discriminatory and that meets a minimum standard; protection against expropriation without compensation and restraints on the transfer of funds; transparency of measures affecting investment; and dispute settlement procedures. The new model serves as a template for Canada in discussions with investment partners on bilateral investment rules. As a template, the provisions contained therein remain subject to negotiation and further refinement by negotiating parties. Thus, although all FIPAs can be expected to follow this approach, it is highly unlikely that any two agreements will be identical.

Canada's FIPA negotiating program is intended to reflect the priorities of Canadian investors. With many countries expressing great interest in negotiating FIPAs with Canada, we are currently undertaking a comprehensive priority setting exercise to consider potential FIPA partners based on the following factors: 1) likelihood of engagement 2) commercial and economic interests 3) lack of investor protection 4) trade policy interests 5) political / developmental interests.

c) Environmental Issues related to the new FIPA Model

Underlying Canada's new FIPA model are renewed commitments to transparency, including with respect to crosswalks between investment agreements and environmental issues. For instance, Canada seeks commitments whereby Parties would agree to publish laws, regulations and other procedures respecting any matter covered by the FIPA. We also seek to allow Parties an opportunity for prior comment on future legislation covering inward investment.

Canada also recognizes the benefits of transparency with respect to procedural arrangements associated with our investment agreements. This includes investor-state dispute settlement procedures, whereby Canada seeks to facilitate third-party (amicus) submissions to tribunals, for example.

Canada’s new FIPA model incorporates various safeguards aimed at protecting Canada’s right to regulate for legitimate public welfare objectives. It also includes a statement in the preamble on the consistency of the agreement with sustainable development, and general exceptions with respect to human, animal, or plant life of health as found in GATT article XX/GATS article XIV.

The revised FIPA model clarifies Canada’s position that non-discriminatory measures, such as a regulation, designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute an indirect expropriation. This provision is intended to ensure that crucial regulations (including environmental) are not stifled by the obligation to provide costly compensation. For example, unless a measure is so severe that it cannot be reasonably viewed as having been adopted and applied in good faith, a non-discriminatory environmental regulation that may adversely affect an investor would not constitute a breach of indirect expropriation rules and would not require compensation under the treaty.

The revised FIPA model strengthened a clause on "not lowering standards", whereby signatories recognize that it is inappropriate to attract investment through lowering health, safety, and environmental standards. Specifically, this clause recognizes that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. In the event a Party has offered such encouragement, the other party may request consultation.