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Regional and Bilateral Initiatives

Canada - Korea

Initial Environmental Assessment Report – Canada Korea Free Trade Agreement

Executive Summary

The Canada-Korea Free Trade Agreement (CKFTA) negotiations were launched on July 15, 2005. A free trade agreement (FTA) between Canada and Korea has the potential to enhance not only Canada’s important bilateral economic relationship with Korea, but also to strengthen Canada’s presence in the dynamic Northeast Asia region. Canada’s interest in Korea lies in three main areas: tapping into the value chains of globally competitive production and supply from Korean corporations; selling raw materials and key competitive technologies and products; and employing Korea as a strategic base from which to establish an export and manufacturing presence in Northeast Asia. An FTA with Korea is expected to generate economic benefits across the Canadian economy. Its impact in relation to the aggregated Canadian economy will be modest, and therefore we expect a correspondingly modest impact on the environment.

In keeping with the 2001 Framework for Conducting Environmental Assessments of Trade Negotiations (EA Framework), we are conducting an environmental assessment (EA) of the CKFTA, which is in its initial phase, to assist Canada’s policy makers in addressing potential environmental issues arising from the FTA that may affect Canada. Improved understanding of the relationship between trade, foreign direct investment (FDI), economic growth and the environment can assist in the formulation of government policy to reduce potential conflicts between commercial and environmental objectives.

There is a strong correlation between open markets, economic development and enhanced environmental protection. Liberalized rules-based trade and efficiently regulated markets are key building blocks for economic growth and development. In turn, public support for measures to protect the environment generally increases as incomes rise, and wealthier countries are better able to implement effective environmental policies than are poorer countries. Open markets also help to foster the development of new, more environmentally friendly technologies, and liberalized trade and investment help to create the conditions for technology transfer.

The Government of Canada is committed to conducting environmental assessments (EAs) for all trade and investment negotiations using a process that requires interdepartmental coordination and public consultations. This process¹was developed in response to the 1999 Cabinet Directive on Environmental Assessment of Policy, Plan and Program Proposals², which requires all initiatives considered by ministers or Cabinet to be environmentally assessed if their implementation is expected to result in important environmental effects, whether positive or negative. Detailed guidance for applying the Framework is contained in the Handbook for the Environmental assessment of Trade³.

This EA was conducted as part of Canada’s commitment to achieving a mutually supportive relationship between trade and the environment and its intent is to help Canadian negotiators integrate environmental considerations into the negotiating process by providing information on the environmental impacts of the proposed trade agreement and to address public concerns by documenting how environmental factors are being considered in the course of trade negotiations. Canada’s broad environmental objectives in negotiating trade agreements are to preserve Canada’s ability to protect the environment, to ensure mutually supportive relationships between trade agreements and multilateral environmental agreements, to stimulate improved allocative efficiency of resources to generate positive environmental impacts, to strengthen the environmental management capacities of Canada’s trading partners, and to use this strengthened capacity to combat transboundary pollutants and invasive species that directly affect Canada’s environment, economy and health. In order to ensure that Canada’s environmental quality is strengthened through liberalized trade, Canada includes trade-related environmental provisions in appropriate sections of the FTA (i.e. preamble, objectives, investment, general exceptions), and negotiates parallel agreements on environmental cooperation.

This EA documents the findings of the Initial EA phase of the CKFTA negotiations, focusing on the potential incremental environmental impacts, if any, of trade-induced economic and regulatory changes in Canada. It applies the analytical methodology outlined in the EA Framework that outlines the process for conducting EAs, and acts as a screening process to identify the main environmental issues expected to arise as a result of this free trade initiative. As such, it must be underscored that this is a strategic assessment and is intended to inform policy making as the proposed FTA is being negotiated. The Initial EA is, therefore, more of a “forecasting” or “anticipatory” exercise. The findings of this Initial EA will be shared with the interdepartmental EA Committee, which includes representation by the federal departments in the sectors in which increases in production are anticipated. This approach facilitates informed policy development and decision-making throughout the federal government.

The analysis performed for this Initial EA suggests that the elimination of Korean tariffs on industrial goods will have a modest effect on goods trade, given that Korea’s tariff rates for most of Canada’s non-agricultural exports are between 1% and 8% (although certain tariffs are much higher). While an FTA with Korea has the potential to increase production by key Canadian industries, its impact relative to overall manufacturing output in Canada is expected to be small, as would be the case with any new FTA with a single country.

With respect to agricultural goods, the CKFTA would facilitate an increase in Canadian exports, thereby increasing crop and livestock production in areas where production is currently concentrated (i.e. the Prairies). Nevertheless, the analysis suggests that overall, should an increase in Canadian domestic production be required in order to supply the Korean market, it would likely have a minimal impact on the environment.

Investment from Korea represents only a very small proportion of total foreign investment in Canada. In view of the current trend, even a significant economic change in investment from Korea would be small in scale compared to the overall level of investment in Canada, and any related environmental impact is expected to be minimal. Furthermore, the CKFTA negotiations will not substantially change Canada’s already open investment regime. Taking this into consideration, along with other factors influencing investment decisions, it is unlikely that there will be a substantial increase in investment from Korea in the short term as a result of this FTA relative to the total stock of FDI in Canada.

With respect to services, Canada is already quite open in most sectors. While studies have shown that there are positive benefits to services liberalization, it remains difficult to assess with certainty the impact of trade negotiations on specific services sectors. Services barriers take the form of domestic regulations—e.g. requirements for local partners, foreign ownership restrictions, citizenship, residency and licensing requirements and opaque or non-transparent rules/regulations)—and assessing the economic impacts of removing such barriers is difficult. Nevertheless, given the relatively small increase in the level of services trade expected within Canada as a result of an FTA with Korea relative to the size of the Canadian services sector, any increase is expected to have a limited impact on the environment.

To complement this EA, we also undertook an economic modelling simulation, as a means to estimate the potential economic impacts of the proposed FTA. Taking into consideration the limitations of such a simulation, in the scenario considered to be the most plausible, Canada’s total exports to Korea would increase by 56% (or $1.6 billion⁴, scaled to the value of exports in 2005) and imports from Korea would increase by 19% (or $1 billion, scaled to the value of Canada’s imports from Korea in 2005) compared to the pre-FTA level. In addition, Canada’s gross domestic product (GDP) could see a gain of $1.6 billion and Canadian households could derive an economic benefit of $1.1 billion.

It is important to note that the FTA negotiations themselves will not completely liberalize trade between Canada and Korea. Some agricultural tariffs will be maintained (e.g. for Canada’s supply-managed agricultural products), some tariffs will be phased out over time, and some other barriers to trade may remain. As a result, the environmental and economic impacts of a Canada-Korea FTA may turn out to be different than predicted by the economic modelling simulation conducted for this Initial EA.

Canada and Korea are established trade and investment partners. In 2005, two-way merchandise trade was approximately $8.2 billion (Canada exported $2.8 billion and imported $5.4 billion), and two-way direct investment was $1.1 billion (Canadian direct investment in Korea was $779 million; Korean direct investment in Canada was $364 million). In 2004, two-way trade in services between Canada and Korea totalled $1.1 billion (services exports amounted to $706 million and imports to $350 million).

Overall Environmental Assessment Process

The Government of Canada is committed to conducting environmental assessments (EAs) for all trade and investment negotiations using a process that requires interdepartmental coordination and public consultations. This process, which is explained in detail in the 2001 Framework for Conducting Environmental Assessments of Trade Negotiations⁵, was developed in response to the 1999 Cabinet Directive on Environmental Assessment of Policy, Plan and Program Proposals⁶, which requires all initiatives considered by ministers or Cabinet to be environmentally assessed if their implementation is expected to result in important environmental effects, whether positive or negative. Detailed guidance for applying the Framework is contained in the Handbook for the Environmental Assessment of Trade.

The Framework for Conducting Environmental Assessments of Trade Negotiations (EA Frame-work) provides a process and methodology for conducting an EA of trade negotiations. It is intentionally flexible so that it can be applied to different types of negotiations (i.e. multilateral, bilateral or regional) while ensuring a systematic and consistent approach to meet two key objectives:
The first objective is to help Canadian negotiators integrate environmental considerations into the negotiating process by providing information on the environmental impacts of any proposed trade agreement. As such, trade negotiators and environmental experts are involved in each EA, and work proceeds in tandem with the negotiations being conducted.
The second objective is to address public concerns by documenting how the environment is considered during negotiations. As such, the EA Framework contains a strong commitment to communications and consultations throughout each EA of trade negotiations.

Three increasingly detailed phases of assessment are undertaken: the Initial, Draft and Final EA. These phases correspond to progress within the negotiations. The Initial EA is a preliminary examination to identify key issues. The Draft EA builds on the findings of the Initial EA and requires detailed analysis. The Final EA takes place at the conclusion of the negotiations. At the conclusion of each phase, a public report is issued with a request for feedback. A Draft EA is not required if the Initial EA finds little likelihood of significant environmental impacts as a result of the negotiation. However, in such circumstances, environmental considerations will continue to be integrated into ongoing discussions and a Final EA will be prepared.

Assessment Methodology

Pursuant to the EA Framework, this Initial EA is being conducted in an ex ante fashion (i.e. before the negotiations are completed). A Notice of Intent to conduct a strategic environmental assessment of the CKFTA was announced on October 29, 2005, but to date, no comments have been submitted to the government. It must be underscored that this is a strategic assessment and is intended to inform the decision-making process as the proposed FTA is being negotiated. Consequently, there is a fair degree of uncertainty associated with identifying any likely environmental impact. The Initial EA is, therefore, more of a “forecasting” or” anticipatory” exercise. Nevertheless, the analysis allows for the early clarification of national goals and priorities with respect to trade and environmental interests, as well as for any mitigation and enhancement options that can be taken into account while the trade negotiations are under way.

Consistent with the methodology prescribed in the EA Framework, this assessment explores the link between trade rules and regulatory policy and focuses on the potential environmental impacts of the prospective CKFTA on Canada—that is, the effects of new trade that may result directly from the proposed FTA. Transboundary, regional and global environmental impacts of the CKFTA are considered insofar as they have a direct impact on the Canadian environment.

The analytical steps of this study are as follows:

Identification of likely economic effects for Canada that will result from the proposed trade agreement. The purpose of this stage is to identify the trade liberalization activity of the agreement under negotiation. This stage examines what the potential agreement would entail, the changes or new trade activity that could result, and the overall economic relevance to Canada. This helps to determine the scope of analysis required for the environmental assessment and to prioritize the issues to be assessed.
Identification of likely environmental effects (both positive and negative) within Canada. Once the economic effects of the proposed trade agreement have been identified and characterized, the likely environmental impacts of such changes are addressed. There are two main factors that contribute to likelihood: exposure and probability. For the purpose of this EA, “environment” refers to the components of the Earth, which includes land, water and air (all layers of the atmosphere); all organic and inorganic matter; living organisms; and the interacting natural systems that include components of the foregoing. Please note that the EA is intended to highlight the likely incremental impacts on Canada only.
Assessment of the significance of the identified environmental effects. The EA Framework outlines a number of criteria in determining significance, including frequency, duration, permanency, geographical scope and magnitude, level of risk, irreversibility of the impacts, and possible synergies among the impacts. This study uses the following scale in relation to the criteria outlined above to describe significance: none, minimal, moderate, high and extreme.
Identification of enhancement/mitigation options for any positive/negative environmental impacts to inform the negotiations. In the Initial EA, this step is intended to identify, in a preliminary fashion, the possible policy options or actions to address negative impacts and/or to enhance positive impacts that may occur as a result of the proposed FTA.

In conducting EAs of trade negotiations, the Government of Canada is committed to a process that involves interdepartmental coordination. An interdepartmental committee is established to undertake the EA for each negotiation. The department leading the negotiations leads these EA committees, which are chaired by the Deputy Chief Negotiator and include officials responsible for each negotiating area. EA committees also include representation from Environment Canada and the Canadian Environmental Assessment Agency (CEAA). All other government departments and agencies are welcome to participate, and often do so based on the nature of the agreement being assessed.

Results from the EA analysis are enhanced through consultations with the provincial and territorial governments, and stakeholders representing business, academia, non-governmental organizations (NGOs) and the public. In preparation for the Initial EA, a Notice of Intent is issued inviting the public to provide their thoughts on the potential impact of the proposed agreement on the Canadian environment. At the conclusion of each phase, EA reports are shared with provinces and territories and environmental experts and then issued publicly with a request for feedback.

The Government of Canada welcomes comments on this Initial EA report. Feedback on the initial assessment of the likelihood and significance of resultant environmental impacts is welcome. Comments on opportunities to mitigate any negative environmental impacts and to enhance any positive effects, as may already be identified at this stage are also welcome. Comments on this document can be sent to:

Email: consultations@international.gc.ca
Fax: (613) 944-7981
Mail: Consultations and Liaison Division (CSL)
Environmental Assessment Consultations – Canada-Korea FTA
Foreign Affairs and International Trade Canada
Lester B. Pearson Building
125 Sussex Drive
Ottawa, ON K1A 0G2

Background

After extensive domestic consultations with business, citizen-based organizations and individual Canadians, as well as with the provincial and territorial governments, Canada and Korea formally announced the launch of bilateral free trade negotiations on July 15, 2005.

A high-growth and rapidly advancing market, Korea is widely recognized as a gateway to North-east Asia, a region of strategic importance to global value chains. With an estimated 48 million inhabitants and a GDP approaching $1 trillion, Korea is the largest of the four “Asian tigers” (Taiwan, Hong Kong and Singapore). Korea’s remarkable, and rapid, recovery from the 1997 Asian financial crisis has resulted in its emergence as the 12th-largest merchandise trading nation in the world, with total merchandise trade in 2005 reaching $660.2 billion. Korea has demonstrated a strong commitment to promoting a favourable investment climate and positive domestic policy reform.

Canada and Korea are established trade and investment partners. In 2005, two-way merchandise trade was approximately $8.2 billion (Canada exported $2.8 billion and imported $5.4 billion), and two-way direct investment was $1.1 billion (Canadian direct investment in Korea was $779 million, Korean foreign direct investment (FDI) in Canada was $364 million). In 2004, two-way trade in services between Canada and Korea totalled $1.1 billion (services exports amounted to $706 million and imports to $350 million).

Canada’s interest in Korea lies in three main areas: tapping into the value chains of globally competitive production and supply from Korean corporations; selling raw materials and key competitive technologies and products; and employing Korea as a strategic base from which to establish an export and manufacturing presence in Northeast Asia. Current and potential export growth exists in many sectors, including wood pulp, mineral fuels, metals, electrical machinery, shellfish and a wide variety of agricultural products. Korean exports to Canada cover a broad range of sectors, including vehicles, electrical machinery, computers, rubber and steel. With respect to services, an FTA with Korea could yield benefits for Canadian exporters, particularly small and medium-sized enterprises (SMEs), in sectors such as financial services, information and communications technology (ICT) services, environmental services and professional services. In addition, Canadian exporters would benefit from increased transparency of regulations, broader access through temporary entry for a range of service providers and investors, as well as frameworks for the negotiations of mutual recognition agreements and provisions respecting professional licensing and qualification requirements and procedures.

It is expected that a CKFTA would serve as an important building block to greater economic ties with other Northeast Asian economies such as China and Japan.

Trade and the Environment

Public support for trade liberalization in Canada is linked to the expectation that the environment will be protected. Canada is committed to achieving mutually supportive trade and environment goals with its key trading partners. Canada’s broad environmental objectives when negotiating trade agreements are to preserve Canada’s ability to protect the environment, to stimulate an improved environment through increased allocative efficiency of resources generated by the removal of trade and investment barriers that distort trade and lead to inefficient economic production, to ensure mutually supportive relationships between trade agreements and multilateral environmental agreements, to strengthen the environmental management capacities of Canada’s trade partners, and to use this strengthened capacity to combat transboundary pollutants and invasive species that directly affect Canada’s environment, economy and health.

There is a strong correlation between open markets, economic development and environmental protection. Liberalized rules-based trade and efficiently regulated markets are key building blocks for economic growth and development. In turn, public support for measures to protect the environment generally increases as incomes rise, and wealthier countries are better able to implement effective environmental policies than are poorer countries. Open markets also help to foster the development of new, more environmentally friendly technologies, and liberalized trade and investment help to create the conditions for technology transfer.

The government undertakes EAs to inform future policy development and decision making. improved understanding of the relationship between trade, FDI, economic growth and the environment can assist in the formulation of government policy to reduce potential conflicts between commercial and environmental objectives.

In order to ensure that Canada’s environmental quality is strengthened through liberalized trade, Canada includes trade-related environmental provisions in appropriate sections of FTAs (i.e. preamble, objectives, investment, general exceptions), and typically negotiates parallel environmental cooperation agreements (ECAs).

Through ECAs, Canada and its trade partners commit to high levels of environmental protection and compliance; good governance and effective enforcement of environmental laws and regulations; fair, open and equitable proceedings; and accountability and public participation in the en-vironmental policy-making process. An ECA also promotes a positive, ongoing environmental partnership through cooperative activities.

Incorporating Environmental Provisions into a Canada-Korea FTA

In the context of the CKFTA, Canada is currently negotiating a parallel ECA, which includes specific obligations to ensure that:

each party maintains high levels of environmental protection, and that environmental laws are effectively enforced;
appropriate procedures for completing environmental assessments are used;
laws, regulations, judicial decisions and administrative rulings are made available to the public;
each party complies with the due process of law, as set out in explicit procedural guaran-tees; and
greater accountability and the open exchange of information between parties are promoted.

An ECA also promotes bilateral cooperation on environmental issues, setting out a list of areas of possible cooperation from which the parties can draw to develop specific work plans as appropriate. Examples range from economic instruments to sustainable urbanization to pollution prevention. Issues identified by the EA may also guide future cooperative work. For example, potential areas of cooperation that have synergies with this EA include fisheries, environmental services, toxics management, and air pollution, to name a few.

Canada-South Korea Bilateral Environmental Relations

In addition to the ECA, other mechanisms exist through which Canada has pursued environmental cooperation with Korea over the years.

More recently, Canada and Korea have signed a memorandum of understanding (MOU) on climate change, which allows the two countries to promote the deployment of cleaner Canadian technologies in Korea. In addition, Korea is one of the six founding members of the Asia Pacific Partnership on Clean Development and Climate (APP), a voluntary partnership focusing on the development and deployment of cleaner and energy-efficient technologies.

Canada wants to constructively engage Korea to play a leadership role in negotiating an effective and inclusive post-2012 agreement on long-term cooperative action to address climate change. As a major energy importer, Korea is conscious of a carbon-restrained future, with impacts on energy security, economic competitiveness and climate change.

In addition, Environment Canada has built mutually beneficial relationships with its Korean counterparts through its regional offices and nationwide services. Over the years, the department has welcomed numerous senior Korean officials to study for extended periods of stay, hosted study tours and delegations, and organized an environmental technology themed trade mission to Korea.

Environment Canada’s Meteorological Service Canada (MSC) also has a history of working collaboratively with the Korean Meteorological Administration (KMA). MSC has participated in a number of exchanges with their Korean partners and have built strong and open channels for dialogue on areas of mutual interest, including ocean monitoring, atmospheric science and climate change, variability and impacts. This dialogue is expected to continue. The Asia Pacific Economic Cooperation (APEC) Climate Network (APCN) has been another forum for cooperation. MSC will continue to support APCN and its recently established APEC Climate Centre (APCC).

Economic Modelling Key Findings

In order to complement the qualitative assessments in this EA and confirm assumptions about the potential scale of the economic impact on Canada resulting from an FTA with Korea, simulations with an economic model were conducted in parallel to assess the potential economic impacts of the Canada-Korea FTA (CKFTA) in quantitative terms. Consistent with generally accepted practice, the economic impacts of the CKFTA were analyzed using a computable general equilibrium (CGE) model. The model deployed for this purpose was the widely recognized Global Trade Analysis Project (GTAP) model, version 6.0.

These simulations were undertaken to provide some general guidance to the experts who were reviewing the potential environmental impact of the CKFTA regarding the magnitude of the potential economic impacts. The simulation results described below are necessarily based on simplifying assumptions in order to make the analysis tractable. In that light, it is important to take into account several general observations concerning the interpretation of the reported impacts as found in the full economic modelling report.

For the purposes of this simulation, the model assumed full tariff elimination for all industrial and agricultural products, so as not to prejudge the outcome of negotiations. The economic modelling confirms that an FTA with Korea is expected to generate economic benefits across the Ca-nadian economy, but its overall impact in relation to the size of the aggregated Canadian economy is expected to be modest. Accordingly, this would also suggest that the scale effect on the environment would similarly be modest.

The model will continue to be used to inform negotiators about the potential economic impacts, and shifts in production and consumption, and these results will be further considered in the context of environmental impacts for the purposes of the Final EA.

Economic Impacts

The main findings are as follows:

Assuming full elimination of tariffs for industrial and agricultural products, Canada’s total merchandise exports to Korea in the central scenario would increase by 56%. Based on the level of Canadian exports to Korea in 2005 of $2.8 billion, this would represent an export gain of about $1.6 billion.
Canada’s merchandise imports from Korea would increase by 19%. Based on the level of merchandise imports from Korea in 2005 of $5.4 billion, this would represent an import increase of about $1 billion.
The value of Canada’s gross domestic product (GDP) would increase, although the extent varies considerably based on alternative assumptions about the response of the economy to expanded trade with Korea. In percentage terms, the alternative simulations place the gain at between 0.064% and 0.268%; in the central scenario, the gain is 0.114%. Compared to the size of Canada’s GDP in 2005 ($1,369 billion), the corresponding GDP gain ranges between $0.88 billion and $3.6 billion across the five scenarios, with the central scenario estimate at $1.6 billion. The corresponding estimates for Korean GDP gains, compared to the size of Korea’s economy in 2005, range between $0.23 billion (0.024%) and $6.6 billion (0.691%) across the five scenarios, with the central scenario estimate at $0.66 billion (0.07%).
The simulations suggest that Canadian households would derive an economic welfare benefit, scaled to the size of Canada’s economy in 2005, between $266 million under the most restrictive supply-side-response assumptions and $3.5 billion under the least restrictive assumptions; the central scenario estimate is $1.1 billion. The simulations suggest that Korean households would experience a small decrease in economic welfare under the most restrictive assumptions, but would gain benefits that would exceed Canada’s in the least restrictive scenario.

Initial Environmental Assessment Findings

The Initial EA consisted of two levels of analysis: a scoping exercise and detailed analysis based on the analytical methodology outlined in the EA Framework. Table 1 presents the findings of the scoping exercise for each issue area (and corresponding FTA chapter) that were identified as not requiring in-depth analysis for the purposes of this Initial EA. A more detailed analysis of trade in goods, services and investment is then provided.

Table 1: Results of Initial EA Analysis

Issue Area	Anticipated outcome	Potential environmental implications and provisions
Preamble	The preamble will provide guidance on the general intentions of the two parties to the agreement, but is not binding.	The preamble is expected to reference the parties’ ongoing commitment to sustainable development and cooperation on environmental matters.
Objectives	This chapter will establish the free trade area between Canada and Korea, lay out the overall objectives for the agreement, define the relation to other agreements, and the extent of obligations.	A proposed provision will make reference to the relation to multilateral environmental and conservation agreements.
Transparency	This chapter facilitates the administration and smooth operation of the agreement by reiterating the parties’ commitment to transparency and due process regarding matters covered by the FTA.	This chapter will allow both parties to review and comment in a transparent manner any new laws or regulations that may have negative environmental implications.
Rules of origin	This chapter will provide rules of origin that are clear, as simple as possible, and leave little room for administrative discretion. The rules are intended to be sufficiently stringent to ensure that the benefits of the FTA flow only to goods qualifying as originating in the territory of either or both countries.	Production and consumption changes resulting from product-specific rules of origin will be captured in the Trade in Goods section below, along with their corresponding environmental impacts.
Custom procedures	This chapter seeks to administer and enforce the rules of origin in a fair and transparent manner.	There are no foreseen environmental impacts as a result of this chapter.
Trade facilitation	This chapter will seek to streamline customs processes and facilitate the movement of goods more efficiently.	It is expected that any measures agreed to between the two parties would have minimal impact on the environment. Outcomes related to trade facilitation would not impact the Government of Canada’s ability to implement measures or regulations to protect the environment.
Sanitary and phyto-sanitary measures (SPS)	This chapter will reaffirm commitments made under the WTO agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) and agree to continued use of the WTO dispute settlement procedures for any formal disputes regarding SPS measures. In addition, it will seek to establish a bilateral SPS mechanism to provide direction on identification, management, and resolution of SPS issues to avoid disputes.	As provided in the WTO SPS Agreement, both countries maintain the right to take measures necessary for the protection of human, animal or plant life or health. Both countries are required to ensure that any SPS measures are applied only to the extent necessary to protect human, animal or plant life or health, and are based on scientific principles.
Non-tariff measures and regulatory cooperation	This chapter will affirm commitments made under the WTO Technical Barriers to Trade Agreement (TBT Agreement), promote greater cooperation in the field of standards-related measures, address horizontal transparency issues, including notifications and participation in consultation processes, and establish a mechanism to provide direction on identification, management, and resolution of standards-related measures issues to avoid disputes.	The chapter will reaffirm WTO TBT rights and obligations, including the right of both countries to take measures necessary to ensure the protection of animal or plant life or the environment. Measures shall not be more trade-restrictive than necessary to fulfil such legitimate objectives.
Emergency action	This chapter seeks to protect domestic producers from difficulties associated with bilateral trade liberalization (e.g. sudden surge in imports). The measures are intended to be applied only on a temporary basis. No significant changes to production or consumption are expected as a result of this chapter.	This chapter is not expected to have any significant impact on the environment.
Financial services	This chapter of the agreement is expected to promote high quality, forward looking market access commitments and improve regulatory transparency in the financial services sector.	Financial services activities could increase and/or become more efficient as a result of these negotiations. There would be minimal positive or negative environmental impacts from the office operations associated with this change.
Telecommunications	This chapter seeks to ensure that the terms and conditions for access to and use of public telecommunications transport networks and services do not impede the parties’ market access commitments under the FTA, and to an open and competitive market for telecommunications services.	In the context of the Canada-Korea FTA, Canada will maintain its limitations on foreign investment in Canadian telecommunications carriers, such that these companies must be owned and controlled by Canadians. It is not anticipated that the FTA will have any adverse affect on the environment.
Temporary entry	This chapter seeks to facilitate the temporary movement of business persons in support of bilateral trade in goods, services and investment by negotiating more liberal access by waiving regulatory requirements for labour market tests, etc. Any outcome in these negotiations is not expected to significantly change production and consumption patterns in Canada.	There will be minimal environmental effects resulting from the normal operation of an office or service facility and travel and temporary stay of professionals from Korea to Canada to carry out their work. These would in-clude consumption of energy for heating, lighting, and use of vehicles or equipment, and production of waste, including paper, refuse and others. To the extent that temporary entry and stay of individuals from Korea is facilitated, this will not affect how Canadian environmental regulations are developed or implemented or how en-vironmental objectives are set.
Electronic commerce	This chapter will seek to include rules guaranteeing a predictable environment for the conduct of electronic commerce, while preserving the government’s flexibility to pursue cultural and other social policy objectives, including the environment.	The amount of e-commerce conducted between the parties is not expected to increase substantially as a direct result of the FTA. The only environmental impacts from these discussions would be indirect. If the expected cooperation activities increase the amount of e-services there could be positive and/or negative environmental impacts. Positive environmental impacts could include reduced demand for transportation. Negative environmental impacts could result from increased waste and energy usage. These impacts could be partially mitigated via effective environmental management practices.
Competition policy	This chapter will have provisions against anti-competitive business practices, as well as enhanced cooperation between Canadian and Korean competition agencies.	It is expected that any measures agreed to between the two parties would have minimal impact on the environment. Outcomes related to this chapter would not impact the Government of Canada’s ability to implement measures or regulations to protect the environment.
Monopolies and state enterprises	This chapter will have provisions that permit the designation of monopolies and state enterprises but place disciplines on a party with respect to such entities. These include disciplines to ensure that a party does not circumvent obligations under the agreement, monopolies or state enterprises provide non-discriminatory treatment to investors of the other party, and act in accordance with commercial considerations and do not act anti-competitively outside of their monopoly designation.	No environmental impacts are expected as a result of these provisions. Canada will safeguard its ability to delegate governmental authority to monopolies and state enterprises.
Government procurement	This chapter of the agreement is expected to contain government procurement market access and transparency commitments.	The Canada-Korea government procurement chapter will not have a negative effect on Canada’s ability to develop and implement environmental policies and regulations, including with respect to green procurement. Canada will safeguard its ability to maintain and expand the current framework of policies, regulations, and legislation for the protection of the environment in a manner consistent with its domestic and international obligations.
Intellectual property	This chapter will reaffirm commit-ments made under the WTO Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement as well as other international agreements in respect to intellectual property. This chapter of the agreement is expected to contain provisions on how Canada and Korea can enhance their cooperation on IP issues.	The provisions in this chapter are not expected to have a significant impact on production or consumption in any specific sector. The ability to regulate for environmental purposes will not change as a result of this chapter. The chapter is not expected to go beyond Canada’s current international intellectual property obligations, which can be implemented in a manner that is mutually supportive with the Convention on Biological Diversity (CBD). IP protection could encourage investment and innovation in environmental technology, which may lead to the development of new products, technologies or processes that could have a positive environmental impact.
Exceptions	This chapter will include exceptions for measures such as those necessary to protect, inter alia, human, animal or plant life or health, as well as the environment.	A GATT (Article XX) type exception will allows for adoption or enforcement of measures to protect animal or plant life or health, and measures relating to the conservation of exhaustible natural resources.
Dispute settlement	This chapter includes state-to-state dispute resolution procedures with Korea based on the dispute settle-ment provisions of the NAFTA, but simplified and improved where possible.	No environmental impacts are expected as a result of this chapter.

A. Trade in goods

Overview

This section is divided into two parts, which deal with the environmental impacts of goods exported to Korea as well as those Korean goods imported to Canada. In addition, an economic modelling simulation was undertaken to assess the possible economic and environmental impacts of the FTA. The key findings are highlighted in this section and the full economic modelling simulation is available as a separate document. General trade flows and applied tariffs are also described below.

In 2005, Canada exported to Korea $2.8 billion in goods, consisting primarily of wood and wood products, coal and non-ferrous metals, ethylene glycol, measuring instruments and controllers, and agricultural and fish products. Korea was Canada’s seventh-largest trading partner, and rep-resented less than one percent of Canada’s total goods exports, or 4% of non-U.S. exports.

Korea’s applied tariffs for most non-agricultural goods are between 1% and 13%. Canada’s major exports to Korea incur duties between 1% and 8%. Agricultural tariffs applied by Korea average around 52%, with tariffs ranging from 10%-887% on over half of these products. Fish and seafood products are subject to duties between 10% and 20%. Korea’s applied tariffs are Generally below the higher WTO bound tariffs, but are somewhat unpredictable as they are subject to annual unilateral review by Korea. Exporters also face a variety of technical and non-tariff barriers, as well as sanitary and phytosanitary (SPS) measures.

In 2005, Canada imported $5.4 billion in goods from Korea, a third of which were motor vehicles. Other major imports include consumer electronics such as cell phones, computers, televisions and appliances. Imports from Korea represent 1.6% of Canada’s total imports of goods.

Korea is a beneficiary of Canada’s general preferential tariff (GPT) for all goods with the exception of motor vehicles, which are assessed the 6.1 % most favoured nation (MFN) duty rate rather than the 6% GPT rate.

Exports

The proposed CKFTA will seek to improve market access between Canada and Korea principally through tariff elimination. Canadian negotiators will also work at increasing cooperation with Korea to make trading procedures more efficient, through trade facilitating measures and customs procedures designed to provide certainty, transparency and effective verification. Rules of origin that are transparent, predictable and consistent in application will be developed to ensure that the benefits negotiated under the trade agreement accrue only to its parties.

As tariffs are lowered and market access increases, it is expected that there would be an increase in the flow in some products currently being exported and opportunities for new products to be exported. The sectors chosen for study in this Initial EA, therefore, are based on the government’s analysis of which exports are expected to benefit the most from the FTA and input from industries that see opportunities for increased or new exports. It should, however, be noted that increases in some sectors made possible by tariff elimination in Korea, may reduce exports to other less profitable destinations, thus reducing the overall environmental impact associated with increased production.

The findings of this Initial EA will be shared with the interdepartmental EA Committee, which includes representation by the federal departments in the sectors in which increases in production are anticipated. This approach facilitates informed policy development and decision making throughout the federal government.

Agriculture

Two-way agriculture trade between Canada and Korea totalled $512 million in 2005. Canada’s top agriculture exports to Korea in 2005 were wheat and meslin (43% of total agriculture exports) and pork (20% of total agriculture exports). Prior to the discovery of a domestic cow with bovine spongiform encephalopathy (BSE), Canada exported $74 million worth of beef to Korea in 2000 and $21 million in 2001.

The following product categories have significantly high tariff rates in Korea that, if lowered, might lead to an increase in exports and a subsequent change in economic activity in Canada.

Meat and meat products (beef and pork): generally 8% to 40%, but as high as 72%;
Grains (wheat, malting barley, flax): generally 2% to 256%, but as high as 800%;
Oilseeds (canola, soybean): generally 0% to 30%, but as high as 487%;
Fruits and vegetables (apples, potatoes): generally 8% to 45%.

In addition, there are also non-tariff barriers, such as import licensing, quantitative restrictions or other duties and charges that may impede increased exports to Korea. Unfortunately, such limitations are not easily assessed for the purposes of an EA, since the effects of a particular barrier may differ from product to product, making an assessment of them, and their prospective elimination, difficult to analyze.

From an environmental perspective, the most significant changes in agricultural production are changes that affect land use (e.g. crop-land under summerfallow, use of marginal lands) and changes in livestock numbers. In addition, there may be some impact on groundwater aquifers and surface waters, depending on the location and the scope of change in agricultural activity. Overall, crop and livestock production are expected to increase only marginally if tariffs are significantly reduced. It is also likely that such increases would occur primarily in regions where production is currently focused (i.e. in the Prairie region). Canada’s agricultural production is of relatively low intensity and thus, a slight increase in the domestic production in order to supply the Korean market would cause minimal environmental impact.

The environment is one of the five key priorities of Agriculture and Agri-food Canada’s (AAFC) Agricultural Policy Framework (APF) announced by the federal government in June 2002. Through the APF, federal, provincial and territorial governments aim to assist producers in accelerating the adoption of improved environmental practices. For example, AAFC funds various initiatives intended to improve the environmental performance of the agri-food sector, such as:

Environmental Farm Planning (EFP): Farmers with EFPs are eligible to apply for financial and technical assistance to implement beneficial management practices through the National Farm Stewardship Program and Greencover Canada.
Greencover Canada: Landowners can access a package of funding and technical assistance to help improve grassland-management practices, protect water quality, reduce greenhouse-gas emissions, and enhance biodiversity and wildlife habitat.
National Agri-Environmental Standards Initiative: Producers will benefit from performance standards establishing the degree of desired environmental quality of air and water and soil in agricultural areas.
National Agri-Environmental Analysis and Reporting Program: provides objective, science-based indicators to inform decision-makers in agriculture and help improve policies and programs aimed at addressing environmental issues faced by producers.
National Farm Stewardship Program: Landowners can receive financial and technical assistance to implement on-farm beneficial management practices to address environmental risk identified in their Environmental Farm Plans.
National Land and Water Information Service is developing an Internet portal to provide land managers with information, data, tools and expertise to help them make sustainable land-use decisions.
National Water Supply Expansion Program: Producers and agricultural communities can receive technical and financial assistance to help meet their everyday growing water needs.
The Pesticide Risk Reduction Program develops and implements strategies, conducts research and develops alternative approaches to pest management.
The Minor Use Program assists producers in accessing more environmentally friendly and efficient pest management technologies.
Various ongoing programs built upon the work of the activities of the Prairie Farm Rehabilitation Administration (PFRA), delivered to ensure the sustainable use and conservation of agricultural soil and water resources, such as grassland management, irrigation, crop diversification and shelterbelt planning.

Provincial environmental legislation and initiatives usually have a direct impact on farming operations. They include a range of mechanisms designed to encourage or require environmentally sound farming practices:

extension services or funding to carry out specific practices, develop infrastructure, or diversify operations to reduce the environmental impact of agricultural production;
information documents on best environmental management practices;
regulations on reducing agricultural pollution;
policies encouraging the development of on-farm environment plans;
regulations on the development and operation of new or expanded livestock operations;
legislation to regulate the discharge of pollutants.

Efforts related to the above and other programs will help offset any negative environmental impact that may result from liberalized agricultural trade with Korea. In the event the environmental impacts as a result of the FTA turn out to be greater than expected, consideration will be given to expanding existing programs or creating new ones to deal with any negative effects.

Fish and seafood products

Fish and seafood products are one of Canada’s largest exports. In 2005, Canada exported $4.3 billion of fish and fish products, of which, $33 million was exported directly to Korea. These exports represent both “wild capture” and aquaculture fisheries.

Korea currently applies high tariffs on imported fish and seafood products (between 10% and 20%) and Canada could expect an increase in exports of fish and seafood products to Korea as a result of an FTA. For example, opportunities exist for increased exports of salmon, trout, char, shrimps, crabs, lobster and other species.

While tariff elimination could encourage more exports, such growth will be subject to supply restraints that ensure that fish and seafood products are harvested at a sustainable level. The Government of Canada, along with provincial and territorial governments, aboriginal organizations, coastal communities and other stakeholders and interested Canadians are committed to the conservation and sustainable development of Canada’s oceans through a variety of programs under the umbrella of the national Sustainable Development Strategy.

Canada’s fish management systems and federal, provincial and territorial governments measures have been put into place to ensure the sustainability of Canada’s fisheries and the environmental integrity of its aquaculture operations so that any increased trade resulting from an FTA will have minimal environmental impact. Therefore, because there are effective environmental management systems and government measures in place, an increase in exports to Korea due to the FTA and tariff liberalization in fish products is not expected to result in a significant negative or positive impact on the sustainability of fish stocks, nor on Canada’s marine or freshwater environment.

Wild capture fisheries

Canada has a fisheries management system in place that aims to ensure sustainable use of Canada’s fisheries, irrespective of market demand and tariff levels in export markets, and hence independent of the impact of this trade agreement. Fish stocks are managed according to controls on the amount of fishing, with a total allowable catch as the predominant control mechanism, often complemented by restrictions on effort (e.g. limited entry, vessel and gear restrictions), and/or catch composition (e.g. size and age of fish). Fisheries and Oceans Canada develops and implements Integrated Fisheries Management Plans for each fishery, which integrate conservation, management and scientific objectives and spell out the required measures to conserve and manage a fishery. Controls are subject to regulation and enforcement.

Aquaculture

The Canadian aquaculture industry is not subject to the same production constraints that apply to the wild capture fishery, e.g. catch quota allocations. Consequently, aquaculture production could be more responsive to certain market conditions than capture fishery production. To the extent that an FTA would lead to improved access for Canada’s fish and seafood products into the Korean market, there is the potential for augmented production incentives for fish species farmed in Canada. Depending on the outcome of negotiations, opportunities could exist for particular species, such as salmon, trout and char.

The federal, provincial and territorial governments share jurisdiction over Canadian aquaculture. Measures are taken to ensure the environmental integrity of aquaculture operations. Site expansion and the development of new aquaculture sites are subject to the Canadian Environmental Assessment Act.

Minerals

Currently, minerals represent Canada’s largest exports to Korea. Canada exported $938 million worth of bituminous coal, copper ores, aluminium, nickel, iron and other minerals to Korea in 2005. Coal is Canada’s largest mineral export and represents roughly 33% of Canada’s global minerals exports. In 2005 it was the largest single export to Korea. Korea purchased 17% (by value) of all the bituminous coal that Canada exported worldwide in 2005.

Mining is an intensive type of land use with potential for environmental impact over a limited area. However, with proper environmental protection and planning mechanisms, adverse impacts on the environment can be minimized. Possible negative impacts on the environment include the potential to disturb sensitive ecosystems, pollute the local water and contaminate soils. In Canada, environmental protection is an important element in modern mining oriented toward the safe and sustainable development of mineral resources, while at the same time ensuring that adverse environmental impacts are minimized.

Before mining activities commence, a company must submit a mine plan and an environmental impact assessment identifying all activities that may impact upon the mine site environment and the actions that will mitigate these environmental impacts. No mine facility will be granted oper-ating permits until territorial/provincial and federal governments are satisfied with the actions proposed under the assessment plan. The company must also include a plan for decommissioning the facility and reclaiming the lands. The Canadian mining industry is committed to the continual development of innovative technologies and processes to ensure that mining activities are conducted in a manner that is as environmentally responsible and sustainable as possible.

Currently, non-tariff barriers are not impeding market access for Canadian mineral exports, and Korean import duties are already very low (1% to 5%). At these low rates, it is unlikely that the elimination of tariffs under an FTA would result in substantially increased demand that would result in increased mining activity.

If increased export activity did occur, federal, provincial and territorial laws and regulations on both mineral development and environmental assessment would assist in ensuring that any increased production occurring in Canada consequent to increased export demand would be carried out in an environmentally acceptable and responsible manner.

Wood and wood products

This product group represents Canada’s second-largest export to Korea. Exports of wood pulp, sawn and rough wood and kraft paper, building products and plywood amounted to $565 million in 2005 or 15% of total exports to Korea. With the elimination of restrictive tariff barriers currently facing forestry products—such as on softwood lumber, particle board, and prefabricated buildings—Canadian exporters will benefit from improved market access opportunities in a rap-idly growing economy.

Korea, along with Canada, is signatory to a zero-for-zero agreement for pulp and paper and, therefore, these Canadian products enter Korea duty-free. Since tariffs have already been eliminated on these products, an FTA is not expected to increase exports.

Forest products are a renewable resource. Forests regenerate, both naturally and through silviculture. Canadian governments at the federal, provincial and territorial levels have taken steps to ensure that our forests are managed in accordance with sustainable development principles. Canada’s commercial forest resources are largely managed by the provinces through forest management tenure agreements that strictly regulate harvesting, silviculture and forestry practices. These policies provide for regulatory and audit mechanisms based on sustainable development principles to ensure that timber is not harvested at rates exceeding a forest’s capacity to regenerate. Any marginal increase in production in those products on which a tariff would be lowered could be easily accommodated within current forest management programs.

Ethylene glycol

Canadian exports of ethylene glycol (EG) to Korea have been increasing steadily since 1999 from $63 million to $174 million in 2005 and represented Canada’s fourth-largest product export in 2005. Korea’s import duty is currently 5.5% and the removal of this tariff is likely to lead to increased exports.

Environment Canada did a preliminary assessment report on EG in 2000. It found that there can be releases of EG into the air during its production. However EG does not bio-accumulate or persist in the environment, primarily due to biodegradation. The half-life in air is typically from 0.35 to 3.5 days, depending on the environmental conditions.

The report found that EG is not expected to contribute to a depletion of the ozone layer and has a low potential to contribute to ground-level ozone formation. Its potential contribution to climate change is negligible. The International Programme on Chemical Safety’s Concise International Chemical Assessment, Document 22, which looks at the environmental aspects of EG, concluded that with the exception of runoff water from airports when EG was used as a deicer, the detected levels in surface waters are generally low. The risk to aquatic organisms from the production of EG was also considered to be very low and probably negligible. If the increase in exports resulted in increased production, it is expected that there would be no measurable environmental impact.

Measuring equipment and controllers

Canadian exports of electrical equipment, measuring and controlling devices to Korea in 2005 were worth $123 million. These goods incur an average tariff rate of 6.4%, which is among the highest duties of Canada’s current non-agricultural goods exports to Korea. The elimination of these duties is expected to facilitate greater exports of these products to Korea.

The manufacturing of these products has an impact on the environment through the use of hazardous materials, water waste, energy use and airborne pollutants. The electronics industry, for example, uses large amounts of cleaning solvents. These not only pose risk to human health in the workplace, but often evaporate into the air where they may combine with other chemicals. Chlorinated and chloro-fluourinated hydrocarbons—CHCs and CFCs—have been used by industry for decades as solvents to clean electronics and mechanical assemblies. However, as it becomes known that these toxic materials are harmful to the environment, their use is being cur-tailed, and in many cases eliminated.

Environmentally conscious manufacturing (ECM) is a new concept guiding manufacturing. It focuses on the most efficient and productive use of raw materials and natural resources, and minimizes the adverse impacts on workers and the natural environment. Concepts like life-cycle analysis, pollution prevention, energy efficiency, material substitution and maximization of recycled content are parts of this process.

In its most advanced form, a product’s entire life cycle is considered, from design, raw material and natural resource use to end use and disposal. For example, the product design phase considers such things as quantity of raw materials, type and recyclability of materials, energy consump-tion required for manufacturing and use, and the ease of recycling. New products to treat the contact surfaces are being developed, which will limit the amount of cleaning solvents needed and reduce air and waste water pollution. ECM seeks to limit the use of heavy metals and ozone-depleting substances used in the products and manufacturing processes.

As manufacturing begins to conform to these new norms, the further production of these goods should have a less harmful impact on the environment.

Hides, skins and fur skins

Canadian exports of hides and skins in 2005 totalled $32.5 million and fur skins totalled $21.8 million. Canada exports primarily bovine hides, on which Korea assesses a 2% duty. Bovine hides are a byproduct of Canada’s large beef production.

There is no expectation from the industry or government that lowering the tariff will result in significantly increased exports to Korea given the already low tariff rate. Lowering the tariff on hides greater than 16 kg should not result in increased beef cattle production for the purpose of producing more hides. Therefore, the environmental impact of the CKFTA is expected to be minimal for this sector.

Korea assesses a 3% tariff on imported fur skins and almost all mink fur skins. Exports of mink pelts come from ranched mink and have been steady for the past few years. Given the already low tariff rate, any reduction is not expected to lead to greater Canadian production. Although the Canadian fur industry has expressed interest in the export of fur apparel to Korea, the special excise tax of 20% on luxury items is restricting any increase in exports, and this would not be affected by the CKFTA.

There are provincial best management practices for the purpose of minimizing the environmental impacts of raising ranched fur animals, including mink, and no negative environmental repercussions are expected to result from the CKFTA.

Imports

Motor vehicles

In 2005, a third of Canada’s imports from Korea were motor vehicles, which are assessed a duty of 6.1%. Korea currently exports approximately 128,000 cars a year to Canada, and its market share has increased from 2% in 1995 to 8.1% in 2005. Parts for the after-market and accessories for motor vehicles and tires are dutiable at 6% and 7% respectively. Original equipment parts to be used in the manufacture of new vehicles enter Canada duty-free.

The current 6.1% tariff is not a significant barrier for Korean automakers. Looking at the trend of Korean auto sales in Canada, it is highly probable that Korean auto imports will continue to increase with or without an FTA. An elimination of the tariff would cause a modest downward pressure on price, thus the net impact on overall auto sales is expected to be small. Since the impact on net sales is expected to be small, and new vehicles represent only a small portion of the vehicle stock, the impact on overall emissions would be negligible. In addition, since the majority of the increase in Korean imports is expected to displace other imports in the same class, emissions will not be affected by a change in the composition of vehicle sales.

Korean motor vehicles that are imported into Canada would have to meet Canada’s vehicle emission standards. Korean vehicles tend to be smaller than North American cars and, therefore, would likely have better fuel consumption efficiency. However, when compared to vehicles in the same class such as the Canadian-produced Toyota Corolla or Honda Civic, Korean vehicles have slightly worse fuel consumption efficiency. Therefore, the overall impact on air emissions that is anticipated from changed consumption in Korean automobiles is expected to be minimal.

Consumer electronics and consumer durables

Consumer electronics and durables make up a large part of imports from Korea. Major imports include items such as cell phones, radios and televisions and their components, computers and their peripheral devices, integrated circuits and boards, and consumer durables such as refrigerators, washing machines and air conditioners. Many consumer electronics are already MFN free, and as such, trade in these products would likely not be affected by the CKFTA. Canada maintains tariffs between 3% and 8% on some consumer electronics and durables, such as televisions, refrigerators and washing machines. However, removing tariffs on these items is not expected to significantly increase their imports from Korea, relative to total Canadian consumption. Canadian production in these areas is not substantial, and any increase in imports from Korea would likely be the result of displacing imports from other countries. Therefore, the net effect on the environment is expected to be minimal.

The environmental impacts in Canada would primarily be related to the disposal of these consumer items after their useful life is done. According to Environment Canada, electronic waste (e-waste) in Canada was predicted to reach 71,000 tonnes in 2005, almost double what was pro-duced in 1999. Between 1997 and 2004, some 315 million computers became obsolete. Not only do they take up space in landfill, but e-waste contains such toxic substances as cholinates, bro-mides, toxic gases, toxic metals, biologically active materials, acids, plastics and plastic additives. As much as 40% of the heavy metals in landfills (such as lead, mercury and cadmium) comes from electronic equipment discards.

Over the next five years, a number of key trends are expected to contribute to the increased consumption of electronic products. Computer technology is expected to continue to evolve at similar historical rates of doubling of processing speed every two years or less. Monitor technology has shifted from CRT to LCD technology, resulting in the replacement of most old monitors. peripheral devices are being integrated, resulting in new products and the discarding of old printers, scanners, etc. Cell phone technology continues to evolve toward lighter and smaller units, with new features constantly being integrated. Finally, phone technology is moving toward cordless phones, resulting in an increase use of batteries.

Responsibility of waste management is being shifted to the producer or brand-holder through government-driven regulation or through voluntary initiatives. Industries are responding by changing technologies to use more environmentally friendly components. For example, in 2004 Intel announced it was eliminating up to 95% of the lead used in its processors and chipsets. Sony announced that as of July 1, 2006, its products worldwide would not contain lead, mercury, cadmium, hexavalent chromium, or polybrominated biphenyl and diphenyl ethers. As well, industries are designing products that are easier to dismantle, sort and recycle.

In Canada, all levels of government share in the responsibility for e-waste. The Canadian environmental Protection Act (CEPA) gives the federal government the authority to regulate the use and disposal of toxic material in electronic products. The federal government, through the Export and Import of Hazardous Waste and Hazardous Recyclable Material Regulations under the CEPA, in order to improve the management of hazardous waste has put in place an effective system to control the export and import of such wastes at border points. The Export and Import of Hazardous Wastes Regulations (EIHWR) ensure that transboundary movements of hazardous wastes destined for disposal, and hazardous wastes destined for recovery/recycling facilities, are handled in an environmentally sound manner. By requiring that transboundary movements be directed to environmentally acceptable disposal or recovery/recycling operations, the regulations reduce risks to human health and to the environment. They establish proper mechanisms for exports and imports of hazardous wastes, and at the same time ensure environmental protection and the economic viability of such shipments. The enforcement and compliance policy under CEPA applies to these regulations. Strict penalties for non-compliance include fines of up to $1 million and jail terms of up to three years.

In 2004, the Canadian Council of Ministers of the Environment (CCME), a council composed of environment ministers from the federal, provincial and territorial governments adopted 12 principles for the proper management of e-waste. The principles focus on life cycle management, which places the responsibility for e-waste primarily with the producers, with the costs to be borne by producers and users. The list of products to be included in any regulatory regime encompasses not only what is considered to be IT-related equipment, but also a full range of household devices.

Management of e-waste is generally regulated by the provinces and territories. E-waste that is hazardous waste must be managed according to applicable provincial and territorial hazardous waste regulations. Municipalities may also be involved in the management or disposal of e-waste generated by households. Several provinces are implementing e-waste management programs. These programs focus on collection, disposal, recycling, take-back, recovery, reprocessing and treatment.

B. Trade in services

Overview

Korea has undertaken substantial opening of its services sector to foreign investment in recent years (notably financial, telecommunications, broadcasting, and maritime and air transportation)⁹. Since 2000, liberalization of its trade and investment policies to promote structural reform has improved the economy’s efficiency¹⁰. This acceleration of services liberalization and deregulation increased Korea’s trade in services from US$49 billion in 1998 to US$73 billion in 2002, and the share of FDI inflow into the services sector rose from 33.2% in 1998 to 56.3% in 2000 and to 63.9% in 2003.

In 2004, Canada’s total services exports to Korea totalled $706 million (total services exports consist of several components: travel, transportation, commercial services and government services) and imported $350 million in services. More current disaggregated data are not yet available. Korea is the destination of 1.02% of Canada’s services exports and 0.31% of Canada’s services imports.

Both Canada and Korea participate actively in the negotiations on the WTO General Agreement on Trade in Services (GATS). Our involvement is in part on a bilateral and plurilateral market access basis, as well as multilaterally in the context of the development of rules. Although Canada made many sectoral and horizontal market access requests of Korea, our main interests are in environmental services, telecommunications services, financial services, computer and related services and architectural services. While Korea did not signal any specific sensitivity with regard to Canada’s market access requests, its Initial and revised GATS offers do not provide any significant improvements in these areas, particularly with respect to cross-border supply.

Notwithstanding potential difficulties, there is sufficient scope to advance Canadian interests bilaterally under a CKFTA with respect to market access and to rules development on a number of fronts. A NAFTA-plus type approach would likely yield benefits beyond GATS to both parties. Canada is seeking to negotiate with Korea a comprehensive NAFTA plus chapter on services, which will include expanded provisions on domestic regulation, transparency, and professional services/mutual recognition. In addition, there will be separate chapters on telecommunications, financial services, e-commerce and temporary entry. A negative list approach to the listing of non-conforming measures will provide both parties with improved market access and regulatory transparency beyond our respective existing commitments under the GATS. In general, Canada and Korea share the same approach regarding the scope of cross-border trade in services.

On market access, Canada will not negotiate commitments on any services related to health, pub-lic education, social services or culture. In addition, Canada will ensure that its position at all stages of these negotiations is fully consistent with our right to regulate and to introduce new regulations on the supply of services in order to meet national policy objectives, including environmental protection.

Domestic Regulation

Services sectors tend to be heavily regulated. Governments at different levels have implemented and maintained regulations governing the provision of services for a variety of reasons. Generally, such regulations establish and maintain a legal framework to serve various public-policy purposes, including the protection of the environment. Canada’s proposed Article on Domestic Regulation in the context of the CKFTA seeks to build on the NAFTA and the GATS, as well as ongoing discussions in the WTO on potential disciplines on domestic regulation in accordance with GATS Article VI:4.

The proposed article has two elements: regulatory transparency (in non-binding language) that sets out “best practice benchmarks,” and an annex on licensing and qualifications requirements and procedures, rules of conduct, and standards of competence (in “best efforts” language) that seeks to ensure that these requirements and procedures do not constitute unnecessary barriers to trade in services. The proposed article also recognizes that it could potentially be supplemented, further to the review of any GATS Article VI:4 disciplines that may be developed and adopted by members.

The provision on transparency is expected to result in improved transparency and predictability in the business environment of individuals or companies providing a service in Korea. Such transparency is not expected to significantly change production or consumption patterns in Canada. Therefore, no significant impact on the Canadian environment is expected.

As for the proposed provisions on licensing and qualification requirements and procedures, these relate to application and not to the content or objective of regulations. They are not expected to materially change production and consumption patterns, and thus, will not significantly affect the Canadian environment. These proposed disciplines seek only to ensure that such measures do not unnecessarily restrict trade. In so doing, however, they will not infringe upon a government’s ability to regulate within its own territory, nor will they constrain the establishment of a wide range of regulatory objectives, including environmental protection, or the choices for implementing such objectives. This will be explicitly recognized in the CKFTA.

A further review of environmental impacts will be required as the FTA negotiations advance and a clearer picture of potential WTO disciplines on domestic regulation emerges. Consultations will continue to be undertaken to help ensure that our ability to regulate for the protection of the environment is not undermined or weakened.

Likely Economic Impact of the CKFTA

While studies have shown that there are substantial positive benefits to services liberalization, it remains difficult to assess with certainty the impacts of specific trade negotiations in specific services sectors. Services barriers take the form of domestic regulations—i.e. requirements for local partners, foreign ownership restrictions, citizenship, residency and licensing requirements and opaque or non-transparent rules/regulations—and assessing the economic impacts of removing such barriers to services trade is difficult. In addition, the definition of services trade reaches beyond cross-border flows to include three additional modes of supply: consumption abroad (e.g. international tourism), commercial presence (e.g. a branch office operating in a country outside of country of ownership), and the movement of natural persons (e.g. engineers, architects or other professionals working abroad).

Despite these difficulties, work is ongoing in this area. For example, several studies using CGE modelling suggest that there would be welfare gains to be made from services liberalization. For Canada, recent studies estimate that even a partial global reduction of services barriers in the WTO context could lead to gains in the range of 2.8% of GDP or US$20 billion¹¹while deeper liberalization that includes investment liberalization would lead to gains in the range of 14.9% of GDP or US$84 billion¹².

The gains identified above are based on a multilateral approach. The gains to be made from the CKFTA would therefore be smaller. For the purposes of the Initial EA of the CKFTA, we have based our analysis on expected results of an agreement with Korea that includes a NAFTA-plus services chapter and separate chapters on telecommunications, financial services, e-commerce and temporary entry. Korean services sectors of particular interest to Canada include environmental services, telecommunications services, financial services, computer and related services and architectural services. Canada will seek the removal of existing regulatory barriers in these and other sectors from Korea.

Likely Environmental Impacts of the Economic Changes

Generally, the kinds of environmental impacts that could result from the economic activities of increased trade in service sectors include effects on air and water pollution, land and biodiversity conservation, and effects on the atmosphere and climate. Environmental effects common to all services sectors include the consumption of energy for heating, lighting and vehicle and equip-ment use, which may result in air pollution and release of greenhouse gas (GHG) emissions, and the production of waste, including paper, refuse, sanitary waste, and chemical byproducts from office equipment. In sectors such as environmental services and telecommunications services, positive environmental impacts are anticipated. Given the nature of services trade, the analysis of the environmental effects must also consider the impacts of services trade liberalization in areas where the potential for negative impact may seem negligible but where the impact will prove more significant over time. Analysis of elements such as smokestack effects, direct and indirect effects, and upstream and downstream effects is necessary to capture the potential cumulative effects. An example of these indirect effects would be the increases in transportation and distribution services when service providers or imported goods come into Canada.

Significance of the Environmental Impacts

While an FTA with Korea is expected to provide increased market access into Canada, no substantial increase in trade in services is expected. Canada is already quite open in most services sectors and no domestic regulatory changes are expected as a result of a FTA with Korea. There may be some increased services exports from Korea, but it is difficult to segregate the effects of the Canada-Korea trade negotiations from those resulting from Canada’s other trade negotiations or implementation of existing regional or bilateral trade agreements or from unilateral liberalization. Generally speaking, while any environmental impacts, positive or negative, are not expected to be significant, we will need to consider indirect or cumulative impacts and the synergies between environmental goods and services, which may increase the impact.

Enhancement and Mitigation Options

As noted above, while an FTA with Korea will improve market access and to an extent, increase trade in services, we can expect little or moderate environmental impact. Further, any potential impacts can be partially balanced by mitigation options and opportunities for environmentally sustainable growth, including technology innovation and industry best practices.

Depending on the sector, mitigation options include the use of fuel-efficient vehicles, alternative fuels, paper conservation within the office, recycling of various materials, and corporate policies on “green procurement,” limiting access to ecologically sensitive tourist areas, consumer education, and promotion of sound environmental practices. In addition, increasingly, changes and improvements to environmental legislation and industry awareness of environmental issues are helping to offset potential negative impacts of services trade liberalization. A further review of environmental impacts will be required as the FTA negotiations advance and a clearer picture of potential WTO disciplines on domestic regulation is obtained. Consultations will continue to be undertaken to help ensure that our ability to regulate for the protection of the environment is not undermined or weakened.

C. Investment

Overview

Although the potential is significant, Korea is currently a modest destination for both Canadian direct investment abroad (CDIA) and source of FDI. In 2005, CDIA in Korea was $779 million (stock), which makes Korea the 30th-largest destination for CDIA in the world. Also in 2005, there was $364 million (stock) of FDI from Korea in Canada. This made Korea the 23rd-largest source of FDI in Canada in the world. A CKFTA with investment provisions will provide more certainty and predictability for businesses.

Likely Economic Impact of the CKFTA

As seen in the statistics describing the Canada-Korea investment relationship, there is currently a limited amount of Korean investment in Canada. Sectors where there are currently appreciable Korean investments include mining, oil and gas, auto parts and equipment, retail, transport and warehousing. Korean investors may also be interested in the information and communications technology (ICT) sector. These sectors would be expected to be the most susceptible to be influenced by the FTA in the short term. Improvements as a result of the negotiation of other chapters, such as improvements to the regulatory regime, may result in increased investment as well.

While the existence of investment provisions as part of the FTA should be a positive and important factor in investor’s decisions on whether to invest in the territory of the other party, it will be but one of many factors considered in any investment decision. In addition, Canada already has a relatively open investment regime. As such, large changes in investment patterns are not expected to result from these negotiations. For example, it is unlikely that the current FTA negotiation was a significant factor prompting Korea to invest in the oil sands.

Therefore, the results of the Initial EA indicate that significant changes to investment flows into Canada are not expected as a result of these negotiations, as compared to the total flow of investment to and from Canada from all sources. As such, the economic effects in the form of increased incoming investment from Korea in Canada as a result of the FTA are expected to be minimal.

Likely Environmental Impacts of the Economic Changes

The likelihood and significance of the environmental impact of expected economic changes would depend on the degree of increase in investment, the sectors of the investment, and the measures in place to protect the environment in relation to those activities.

As noted above, Korea’s stock of investments in Canada is modest. While over the long term the investment provisions are expected to contribute to a favourable business climate conducive to growth of two-way investments, increases will depend on investors’ individual assessments of the opportunities and risks. Notwithstanding the new investment in Alberta, compared with global investment flows, Korea is not anticipated to become a significant source of new invest-ment into Canada as a direct result of the investment provisions in the FTA. Therefore, it is expected that the environmental effects of the investment chapter of the CKFTA will be minimal.

The following is a general discussion, based on existing information, regarding the known environmental impacts associated with the mining, manufacturing, and trade, retail, transport and warehousing sectors, all sectors in which Korea has a demonstrated interest in Canada. Additionally, the known environmental impacts of the information and communication technology sector are discussed, as this is a sector in which Korean investors may have increased interest in the future.

Mineral Resources (Mining)

The main Korean investors in Canada have been raw material processing companies, such as Posco Canada Ltd. (POSCO), whose primary activities are associated with coal mining. These companies have accounted for nearly 70% of Korean investment in Canada over the last five years.

For many years, material processing companies were content to purchase supplies on the open market. The relationship has since developed and now Korean mineral processors have begun to invest in Canadian mines to secure supplies. For instance POSCO has invested in the Elkview mine in British Columbia to secure supplies of coal.

Each stage of the mineral production process (exploration, extraction, processing, closure, and abandonment) has the potential to have negative environmental impacts (e.g., air emissions, water contamination and sedimentation, soil contamination, and habitat destruction). The geographic scale of these impacts will vary from local to global, and will depend on the mitigation and prevention measures that are used by the company. All mining operations in Canada are subject to rigorous requirements, and must conduct an environmental assessment.

Manufacturing (Oil and Gas)

Manufacturing accounted for nearly 20% of Korean FDI to Canada between 2000 and 2005. The vast majority of FDI in manufacturing was in material processing. Korean resource processing companies, such as Korea National Oil Corporation (KNOC), have recently invested in Canada to secure resources¹³. This is highlighted in KNOC’s investment in the oil sands and interest in construction of an oil refinery. However, Korea is a relatively minor player in the industry and this is unlikely to change as a result of the FTA.

Trade, Retail, Transport and Warehousing

Trade, retail, transport and warehousing accounted for approximately 9% of Korean investment in Canada between 2000 and 2005. Several Korean companies such as Samsung, LG, Hyundai Motors, and Kumho Tires, have established sales offices and warehousing operations in Canada. Increased trade as a result of the FTA may lead to more Korean firms investing in offices or warehouses in Canada. The environmental impact of this sector will be limited to waste generated from daily operations and emissions associated with transportation. However, given that there is no manufacturing taking place, the environmental impact is considered to be minimal.

Information and Communications Technology (ICT)

Although there is not a significant amount of Korean investment in the ICT sector, it could be a sector of interest to Korean investors in the future. Growth in the ICT sector would likely result in more environmental benefits than risks due to reduced travel, shipping, and use of paper. However, any environmental challenges facing the industry as a whole can be broken down into e-waste, toxic and hazardous materials use, water and energy use.

E-waste: According to Environment Canada, e-waste in Canada was expected to reach 71,000 tonnes in 2005, almost double what was produced in 1999. As much as 40% of the heavy metals in landfills (such as lead, mercury and cadmium) come from electronic equipment discards. Disposal of old computers and the hazardous wastes associated with them is one of the key issues facing the industry in terms of environmental impact. While the industry is responding to the issue, the sheer size and rapid technological change associated with the industry requires that industry move quickly to create solutions.
Toxic and hazardous materials use: Semiconductor manufacturers use a number of extremely toxic chemicals in the chip-making process. These chemicals are a serious issue for both the workers who have to deal with them and the communities where the chemical waste ends up.
Water and energy use: While the industry as a whole is relatively frugal with water and energy, the manufacture of silicon chips and semiconductors requires large amounts of clean water and reliable energy, while the operation of fixed line networks (telecoms) is also energy intensive.

In Canada, major firms in the telecommunications sector are considered leaders in environmental stewardship. All of the major companies in the telecom sector have environmental policies and a significant majority of them have third-party auditing of their environmental policies. As well, the sector does an excellent job of providing employees with environmental education to pro-mote knowledge and skills development around environmental issues. Companies in the telecoms sector have also begun to embrace product take-back initiatives, a leading edge issue for companies worldwide.

It is not anticipated that the CKFTA will result in any significant change in the way this sector operates.

Significance of Environmental Impacts

Investment from Korea represents only a very small proportion of total foreign investment in Canada. In 2005, Korean FDI in Canada amounted to less than 0.2% of total incoming FDI in Canada. In view of the current trend, even a significant economic change in investment from Korea would be small in scale compared to the overall level of investment in Canada, and any environmental impact is expected to be minor, if not negligible. Furthermore, the CKFTA negotiations are not expected to substantially change the already open Canadian investment regime.

Potential Regulatory Impacts

Additional environmental concerns have been expressed regarding the inclusion of rules on investment in Canada’s FTAs. Principally, concerns have been raised regarding the language in recent international investment agreements governing the relationship between investors and the states that are parties to the agreements. Criticism has been focused on investment dispute-settlement provisions, which, it is argued, incorporate the principle that entities other than the signatories to the agreement can be granted rights but are not bound by any obligations, including obligations to protect the environment.

Foreign investors in Canada are bound by the same environmental regulations that govern the activities of domestic investors. Canada, as it has done in all previous investment agreements, fully intends to maintain its right to regulate in the public interest in sectors such as health, public education, social services and culture, and its right to protect the Canadian environment. Therefore, the inclusion of investor-state provisions is not expected to have an environmental impact.

Enhancement and Mitigation Options

In the event that the CKFTA results in increased FDI in Canada, potential environmental impacts will be mitigated by laws that bind foreign investors to the same environmental regulations that govern domestic investors.

Conclusion

Given the government’s view that trade and environment policies should be mutually supportive, it is Canada’s practice to pursue trade agreements in a manner consistent with, among other things, environmental protection and conservation. Undertaking environmental assessments is an effective way to address potential environmental impacts that may result from the negotiations of a trade agreement. The EA process is a mechanism through which the Canadian environment may be better protected in trade negotiations. It does this by assisting decision makers in understanding environmental implications of trade policy and by improving overall policy coherence at the national level.

In tandem with the FTA negotiations with Korea, a separate but parallel environmental cooperation agreement is being pursued. This agreement will be consistent with the focus on strengthening the domestic environmental management systems found in existing side agreements to which Canada is a party (including NAFTA, Chile and Costa Rica). It is en-visaged that this agreement will contain commitments to high levels of environmental protection and effective enforcement of domestic environmental laws, including through coopera-tive activities.

The conclusion of the CKFTA will strengthen the already robust commercial relationship enjoyed between our two countries. In addition, the anticipated new economic activity resulting from the trade agreement is expected to yield meaningful economic benefits to Canada through improved market access into Korea for Canadian goods, services and investment, as well as provisions that will ground the trading relationship between Canada and Korea in a coherent rules-based system, thereby making it more predictable and secure. These economic effects, while important, will be modest relative to Canada’s overall economic activity, and as a consequence, the environmental impact is not expected to be significant. Therefore, the Initial environmental assessment of the CKFTA does not anticipate significant environmental impacts on Canada.

In these circumstances, according to the EA Framework, the Draft EA phase is not required and we will proceed directly to the Final EA. Further analysis will be carried out if information becomes available that would warrant further consideration. Indeed, should the negotiations with Korea take a path that may lead to environmental effects not yet explored in this study, steps will be taken to ensure that they are assessed. In addition, the findings of the initial EA, published herein, as well as any new public comments received, will continue to inform Canadian negotiators.

In accordance with the Framework for the Environmental Assessment of Trade Negotiations, the Final EA will be conducted based on the outcome of the negotiations, and the findings will be reported publicly. As such, it will include a discussion of any new analysis and com-ments received in response to the Initial EA regarding the anticipated environmental impacts of the agreement on Canada.

1. This process is explained in detail in the 2001 Framework for the Environmental Assessment of Trade Negotiations.

2. 2004 Cabinet Directive on Environmental Assessment of Policy, Plan and Program Proposals.

3. ARCHIVED - Handbook for Conducting Environmental Assessments of Trade Negotiations (PDF*, 679 KB).

4. All monetary figures are in Canadian dollars unless otherwise noted.

5. For more information

6. For more information.

7. ARCHIVED - Handbook for Conducting Environmental Assessments of Trade Negotiations. (PDF*, 679 KB)

8. All reports are available on the DFAIT website.

9. 2000 WTO Trade Policy Review, Korea

10. 2004 WTO Trade Policy Review, Korea

11. Chadha, Rajesh, Drusila K. Brown, Alan v. Deardorff and Robert M. Stern (2000), "Computational analysis of the impact of India of the Uruguay Round and the Forthcoming WTO trade negotiations," Discussion Paper No. 459, School of Public Policy, University of Michigan.

12. Brown, Drusilla K. and Robert M. Stern (2000) "Measurement and modelling of the economic effects of trade and investment barriers in services," Discussion Paper No. 453, School of Public Policy, University of Michigan.

13. KNOC signed a deal with Newmont to acquire a 100% stake in BlackGold oil sands leases in Alberta for an estimated $310 million.

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Canada - Korea

Initial Environmental Assessment Report – Canada Korea Free Trade Agreement

Table of Contents

Executive Summary

Overall Environmental Assessment Process

Background

Trade and the Environment

Economic Modelling Key Findings

Initial Environmental Assessment Findings

A. Trade in goods