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Final Environmental Assessment of the Canada-United States-Mexico Agreement (CUSMA)

PDF Version (1.1 MB)

July 16, 2020
Prepared by the Government of Canada

Table of contents

Executive Summary

On November 30, 2018, Canada, the United States and Mexico signed a protocol to modernize the North American Free Trade Agreement (NAFTA). The new Agreement is known in Canada as the Canada-United States-Mexico Agreement (CUSMA, or the Agreement). Footnote1 Subsequently, on December 10, 2019, the parties signed a Protocol of Amendment to modify certain elements of the new Agreement in the areas of state-to-state dispute settlement, labour, environment, intellectual property and rules of origin. The final CUSMA outcome preserves key elements of NAFTA, modernizes disciplines to address modern trade challenges, reduces red tape at the border, and provides enhanced predictability and stability for workers and businesses across the integrated North American market. Overall, the modernization of NAFTA marks an important milestone in Canada’s economic relationship with the United States and Mexico.

The entry into force of NAFTA in 1994 created the largest free trade region in the world. By strengthening the rules and procedures governing trade and investment in North America, the agreement has proved to be a solid foundation for building Canada’s prosperity and has set a valuable example of the benefits of trade liberalization for the rest of the world. Since 1994, NAFTA has helped generate economic growth and raise the standard of living for the people of all three member countries. In particular, NAFTA has supported the development of an integrated and competitive North American market by providing manufacturers, producers, investors and consumers with a predictable and secure commercial environment.

From a trilateral perspective, NAFTA has contributed to an unprecedented increase in trade flows across North America since its implementation. Between 1993 and 2018, total merchandise trade between Canada and the United States tripled and total merchandise trade between Canada and Mexico grew almost tenfold. Overall, total trilateral merchandise trade (the total of each country’s imports from one another) had risen to reach nearly US$1.2 trillion in 2018.

The Environment: NAFTA to CUSMA

NAFTA was the first FTA in history to link the environment and trade. It did so through a parallel agreement, the North American Agreement on Environmental Cooperation (NAAEC). Through the NAAEC and the Commission for Environmental Cooperation (CEC) that it established, Canada, the United States and Mexico have worked together to effectively monitor and address emerging and complex environmental issues, including climate change.

In assessing the impacts of CUSMA on the environment, it is important to consider that CUSMA generally carries forward the key provisions of NAFTA, including virtually tariff-free market access, and therefore important environmental considerations of relevance to North American trade are not expected to change significantly with the transition to the new Agreement. In this regard, a review of the numerous studies and research on environmental impacts of NAFTA since its entry into force, including those conducted by the CEC, provides a comprehensive set of real, ex post observations for the assessment of CUSMA. While studies and research highlight a number of environmental outcomes associated with NAFTA’s coming into force, in the aggregate, it has been very difficult to assess whether the overall effect of the agreement on the environment has been positive or negative. That said, several studies Footnote2 point out that the environmental cooperation framework created under the NAAEC played an important role in improving environmental protection in the region following NAFTA’s entry into force. By bringing NAFTA partners to work together on environmental issues, the NAAEC is considered to have had a net positive environmental impact.

Environmental Assessment of CUSMA

With the renegotiation of NAFTA, Canada, Mexico and the United States took the opportunity to strengthen and modernize the existing environmental provisions within the NAAEC, integrate them into the Agreement, and establish a new comprehensive and enforceable environment chapter. The final CUSMA outcome includes a new parallel Environmental Cooperation Agreement (ECA) that ensures the retention and modernization of CEC and its Montréal-based Secretariat, unique institutions established under NAFTA in 1994. These institutions will continue to effectively monitor and address environmental impacts of trade, and promote cooperation with North American partners to achieve the goal of sustainable development in the region. CUSMA also contains several environment-specific provisions in various chapters and side letters that impact trade in goods and services, investment and dispute settlement, intellectual property, and trade and Indigenous peoples. Recognizing the challenges of securing trilateral support for obligations on climate change, Canada worked to make sure that the Agreement reflects the importance that Canada places on climate change, including guaranteeing that the parties can cooperate in the promotion of strategies and actions, such as alternative and renewable energy and low-emission technologies, that play a significant role in addressing climate change.

Overall, CUSMA preserves key elements of NAFTA and modernizes disciplines to address modern trade challenges, reduce red tape at the border, and provide enhanced predictability and stability for workers and businesses across the integrated North American market. Gains related to these new provisions, such as transport efficiency, paperless procedures and trade in environmentally sustainable services and technologies may further reinforce the positive impact that CUSMA will have on the environment when compared to the original NAFTA.

Based on the environmental impact studies undertaken on NAFTA, as well as on the qualitative chapter-by-chapter assessment of the environment-related provisions under CUSMA, this report finds that CUSMA’s impacts on the environment will be more positive than NAFTA as the new Agreement is expected to strengthen environmental protection and governance practices in North America.

I. Introduction

The purpose of the Final Environmental Assessment (Final EA) of CUSMA is to summarize the anticipated environmental risks resulting from the Agreement, and highlight the specific provisions it includes that may have an impact on the environment. Footnote3

Following an overview of the Government of Canada’s environmental assessment process for free trade agreements (FTAs), this document presents an overview of the NAFTA’s key environmental impacts since its 1994 implementation and summarizes the main areas of concern raised by stakeholders during the CUSMA negotiations. The document outlines relevant CUSMA chapters and provisions, and highlights their expected effect on environmental cooperation and governance. Finally, the document provides a general overview of existing legislation, regulations and actions that address environmental issues in Canada.

II. The Environmental Assessment Process

Canada is committed to ensuring that trade, and environmental protection and conservation are mutually supportive. An important step in that regard is the conduct of environmental assessments of trade negotiations, which aim to fully integrate environmental considerations into the negotiating process, contribute to informed decision-making and improve overall policy coherence.

Section A below provides an overview of the general framework for the conduct of environmental assessments of trade negotiations, while Section B summarizes the key findings of the Initial EA, which was conducted at the beginning of negotiations to modernize NAFTA.

A. Framework for Environmental Assessment of Trade Negotiations

Pursuant to the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals (the Directive), all Government of Canada departments and agencies are obligated to consider, when appropriate, potential environmental effects when developing policy, plans and programs. This includes a requirement to conduct a strategic environmental assessment of a policy, plan or program proposal when the proposal is submitted to an individual minister or Cabinet for approval, and the implementation of the proposal may result in important environmental effects, either positive or negative.

The environmental assessment process analyzes the potential environmental impacts of a proposed free trade agreement (FTA) by exploring the links between the environment and liberalization of trade. In so doing, it considers the effects of new trade and investment that may result directly from an FTA, as well as potential related impacts on the environment. More specifically, the objectives of the environmental assessment process for a trade negotiation are to:

There are three phases to the process followed by Global Affairs Canada for the environmental assessment of trade negotiations, as detailed in the Framework for the Environmental Assessment of Trade Negotiations that was developed by the Department in response to the Directive, as listed below.

This document constitutes the Final EA of CUSMA. Given that NAFTA has been in force for over 25 years and that, in many ways, CUSMA carries forward the key benefits of the original agreement in terms of tariff elimination, the focus of this report is a qualitative environmental assessment of CUSMA outcomes. For an overview of the economic impact of CUSMA, please consult the Canada-United States-Mexico Agreement: Economic Impact Assessment. Footnote5

B. Overview of the Initial Environmental Assessment on the Modernization of NAFTA

The Initial Environmental Assessment on the negotiations to modernize the North American Free Trade Agreement (NAFTA) between Canada, the United States, and Mexico was conducted to determine whether significant environmental impacts would be likely to occur as a result of new trade and investment rules under a modernized NAFTA. This report was published on December 12, 2018. Footnote6 Stakeholders, including environmental organizations and individuals, were invited to submit their views for consideration in the drafting of the Initial EA. The comments received covered a wide range of subjects, including water, investor-state dispute settlement and the environment, and fed into the analysis of potential impacts of a new NAFTA on the Canadian environment. Stakeholder submissions have continued since the publication of the Initial EA, and are summarized in Section IV.

Based on a qualitative assessment of potential environmental impacts of a modernized NAFTA, the Initial EA found that a revised agreement could have positive impacts on the environment as a result of enhanced environmental protection and governance provisions. The Initial EA noted that promoting a paperless environment through the use of electronic processes for customs and procurement, as well as rules-of-origin procedures, could help reduce the time that goods (especially low-risk goods) are held in customs control, and improve transportation efficiencies thereby helping to minimize the environmental impacts relating to the cross-border movement of goods.

The report also identified chapters on environment and good regulatory practices as potentially having the most positive impacts on the environment. In particular, the Initial EA identified opportunities for Canada to pursue ambitious obligations in the environment chapter, including commitments for parties to maintain high levels of environmental protection, robust environmental governance, as well as a commitment to not lower standards to attract investment or trade. With respect to the chapter on good regulatory practices, the Initial EA concluded that expected provisions could potentially strengthen the environmental stewardship of NAFTA countries, and thus have positive impacts on the environment.

III. NAFTA and Trilateral Cooperation on Environment

This section provides an overview of environmental impacts of trade liberalization in the context of the integrated North American market since the original negotiations and implementation of NAFTA in 1994. It also provides an overview of trilateral cooperation that has taken place under the North American Agreement on Environmental Cooperation (NAAEC), a parallel agreement that came into force at the same time as NAFTA.

As CUSMA generally carries forward the key provisions of NAFTA, including virtually tariff-free market access, important environmental considerations of relevance to North American trade are not expected to change significantly with the transition to the new Agreement. In this regard, the review of the numerous studies and research on environmental impacts of NAFTA since its entry into force provides a comprehensive set of real, ex post observations for the assessment of CUSMA. This approach is thus chosen instead of an ex ante analysis of projected impacts.

In the context of the Initial EA of a modernized NAFTA, a preliminary review of existing literature found that the environmental record of NAFTA since its entry into force has been balanced, resulting in both positive and negative outcomes domestically and across North America. While the Initial EA focused mostly on analysis and literature prepared by civil society and advocacy groups, this Final EA further includes the review of several academic papers. In total, almost 30 academic papers on the environmental impacts of NAFTA, and, more broadly, the effects of trade liberalization on the environment were reviewed as a part of this assessment (See Annex A, bibliography).

The key findings presented below are also based on the multiple ex post analyses of the environmental effects of NAFTA undertaken by the CEC Footnote7 , an organization created by the NAAEC to support cooperation among NAFTA partners on environmental issues of continental concern, including the environmental challenges and opportunities presented by continent-wide free trade.

In considering the findings presented in these studies and articles, it is important to recall that while NAFTA has contributed to a growth in trade in North America, a considerable amount of trade between Canada and the United States is conducted under the World Trade Organization (WTO) most-favoured nation (MFN) rules. In fact, approximately 40.5 percent of Canadian exports to the United States and 66.7 percent of U.S. exports to Canada enter duty-free under the WTO rules. This means that a significant portion of bilateral merchandise trade, and the related environmental impacts, are not directly attributable to NAFTA.

A. Key findings

Within the context of a long-standing debate about the relationship between economic growth and general welfare gains, a number of studies have looked at the trade-environment nexus and the relationship between free trade, growth in income, and indicators of environmental quality. Footnote8 Discussions about the environmental challenges and opportunities in the context of NAFTA have provided a fertile ground for such studies.

A core challenge highlighted by the literature, however, has been the difficulty to isolate the agreement’s effects for the purpose of analysis. Due to data limitations and the combined positive and negative effects identified, most authors refrained from making definitive statements regarding the NAFTA’s overall impact on the environment. With that important caveat in mind, it is still helpful to review the evidence presented in those studies.

Regional Impacts

Studies reviewed provide evidence that there has been a negative impact on the environment in Mexico Footnote9 , although that development can be explained by the country’s rapid economic growth since the agreement came into force. Footnote10 In Canada, studies have concluded that NAFTA has contributed to an increase in air pollution, particularly in communities near the U.S. border. Footnote11

Pollution Havens

In the literature reviewed, researchers were unable to find evidence supporting the theory that firms would relocate their operations to Mexico in order to take advantage of the perceived more relaxed environmental regulations. Footnote12 While the literature suggests that NAFTA did not generally cause entire firms to relocate, firm-level data from the United States shows that individual manufacturing plants opted to import their pollution-intensive materials from Mexico, rather than produce them themselves. Since plants could now import these materials, the demand to produce them in other locations, such as Mexico, grew.

Production Intensity

There is evidence to suggest that NAFTA accentuated the intensity of resource extraction and exacerbated the effects of agriculture-related environmental degradation in Mexico. Footnote13 The liberalization of trade in agricultural goods as a result of the agreement has been associated with consequences such as nitrogen pollution and chemical intensive farming, water scarcity, and the loss of biological diversity due to over-farming. Footnote14

Air Pollution and Greenhouse Gas (GHG) Emissions

There is conflicting evidence on the nature of linkages between trade liberalization and measures of air pollution and GHG emissions. In a hypothesis known as the Environmental Kuznets Curve presented during the NAFTA negotiations in several influential papers, Grossman and Krueger found that some pollution emissions - notably, sulfur dioxide, nitrogen oxides and suspended particulate matter - initially rise as per capita income within a country rises. However, the trajectories of income growth and pollution emissions appear to go in opposite directions: as income grows, pollution emissions decrease. Footnote15 The turning point at which economic growth and pollution emissions separate depends on the particular emissions and air conditions tracked. For sulfur dioxide and nitrogen oxides, the turning point appears to be around US$5,000 GDP per capita.

Nevertheless, the research found that this mutually supportive relationship between free trade/economic growth and environmental quality indicators is true only part of the time and depends on the kind of environmental indicators that are examined. For example, studies have shown that indicators such as GHGs do not display the kind of turning point that was found for sulfur dioxide and nitrogen oxides. Instead, there appears to be a continuous rise in GHG emissions as GDP per capita continues to increase. Other studies have noted that at higher GDP levels, certain indicators, such as sulfur dioxide, undergo an absolute increase, shifting from an inverted “U” shaped curve, to a “N” shape curve. Footnote16 Data also show that NAFTA may have led to marginal increases in aggregate carbon monoxide air pollution, amounting to approximately two percent, as measured for the United States as a whole.

Transportation-related Impacts Footnote17

The increase in trade volumes as a result of NAFTA was reported to have a significant impact on the environment through the associated increase in trade-related freight and shipping activity. The evidence shows a robust and direct trade-environment link in the transportation sector relating to (a) increased air pollution in border areas, from freight transportation, and (b) increased entry of alien invasive species, from the expansion of transportation pathways, particularly from marine transportation. Footnote18

The increased presence of transport trucks has led to significant congestion on roadways in the areas around border crossings and this has also been found to have increased air pollution.

Technology, Investment and Capital

While some of the studies noted NAFTA’s negative impact on the environment, others found that the agreement led to more beneficial environmental outcomes. Footnote19

Some studies have highlighted the positive impact of free trade on the environment, notably through the open exchange of new, more efficient capital technologies and management practices. Several studies also found that the agreement provided opportunity for companies to improve their technological capacity through investment, which led to the adoption of new and cleaner technologies and the alignment of investment goals with environmental performance, notably in large-scale manufacturing. As such, studies found that several industries became cleaner as a result of the agreement.

Other studies also uncovered linkages between free trade in electricity and marginal improvements in air quality, notably because of accelerated capital turnover. Footnote20

Overall, studies and research have highlighted a number of environmental outcomes associated with NAFTA’s coming into force. In the aggregate, however, it has been very difficult to assert whether the overall effect of the agreement on the environment has been positive or negative. Indeed, a common theme in the literature has been the difficulty in isolating NAFTA’s effects from other variables and policies that were implemented along parallel timeframes.

That said, several studies have pointed out that the environmental cooperation framework created on the margins of NAFTA under the NAAEC has played an important role in improving environmental protection in the region following NAFTA’s entry into force. Footnote21 By bringing NAFTA partners to work together to promote sustainable development, foster conservation, protection and enhancement of the North American environment, the NAAEC is considered to have had a net positive environmental impact, as described in more details in the next section.

B. Mitigating the Environmental Effects of Trade Liberalization: Trilateral Cooperation under the NAAEC

Trilateral cooperation under the NAAEC has been formalized and supported by the CEC, which has provided a neutral forum for examining emerging and complex environmental issues and possible strategies to address them. Created in response to public concerns about the effects of a trade agreement on the environment, the CEC was a pioneer among international institutions in examining environment and trade linkages and promoting the economic benefits of sound environmental practices. Much of the CEC’s success can be attributed to its ability to address these important issues by involving all sectors of society, including industry, environmental organizations and Indigenous communities, and facilitating consensus among experts and policy makers in the three countries.

Regional Environmental Cooperation

Over the years, the CEC has facilitated the development of innovative joint programs, approaches and tools such as the Taking Stock report, an online database which provides data on tri-national pollution releases and transfers (PRTR), the Sound Management of Chemicals (SMOC) program Footnote22 , a chemicals management program that has led to the elimination of DDT Footnote23 , the CEC’s North American Bird Conservation Initiative (NABCI) that created a strong network of tri-national cooperation for the conservation of birds, and the North American Environmental Atlas, an interactive mapping tool to research, analyze and manage environmental issues in the region. Footnote24

Notably, the CEC has played a key role for more than 25 years in protecting the iconic monarch butterfly by implementing tri-national actions to reduce threats and promoting sustainable economic activities in communities involved in their conservation. Footnote25 The CEC has also served as a forum to share expertise and provide key information on the monarch butterfly to the public and wildlife officers.

The CEC also supported community-based, environmental projects in North America through the North American Partnership for Environmental Community Action (NAPECA), a community grant program that engages with local and underserved communities. This program promotes a sense of shared responsibility for the environment and has served as an important mechanism to engage the public in CEC’s work.

The CEC has contributed to promoting environmentally sustainable products and green supply-chains, sustainable transportation and building sectors, renewable energy and energy efficiency, and market-based mechanisms in North America. It has not only assisted small businesses like coffee growers through the development of ecological criteria for shade-grown coffee farming, but it has also partnered with the private sector (nine large-scale North American companies) to accelerate the adoption of international energy performance standards in order to reduce energy consumption. Through training personnel from large companies, such as 3M and Arcelor Mittal, it has improved the management of energy systems in manufacturing. The CEC has also assisted in the establishment of a self-sustained coalition of auto suppliers and manufacturers in the region aimed at improving the economic and environmental performance of the North American automotive industry supply chain.

In addition, the Government of Canada signed a Canadian Intergovernmental Agreement regarding the NAAEC with Alberta, Manitoba and Québec, providing these provinces with the opportunity to participate in CEC meetings, programs and reports, and thus contribute to regional environmental cooperation in North America.

Enhancing Environmental Protection and Enforcement

Upon signing the NAAEC, the three countries identified the improvement of environmental law and standards as a key objective of their environmental partnership Footnote26 . In this regard, CEC-led assessments led to several improvements in environmental protection and enforcement across the region. For example, an independent report of the Secretariat on spent lead-acid battery trade and recycling (2013), resulted in legislative changes in Mexico related to air pollution from secondary lead smelting, as well as bolstering the U.S. Environmental Protection Agency’s (EPA’s) determination to revisit the import/export regulations related to spent lead-acid batteries. Footnote27

In addition to the elimination of the use of DDT in North America, the three parties have worked together, under the CEC North American Regional Action Plan, to reduce the risk of exposure to the North American environment and people to lindane Footnote28 and other hexachlorocyclohexane (HCH) isomers. This includes the phasing out of the pharmaceutical use of lindane in Canada Footnote29 .

The most unique CEC mechanism to ensure government accountability regarding the enforcement of environmental laws is the citizen submission process. Through the submission on enforcement matters (SEM) process Footnote30 , members of civil society can submit an allegation to the CEC Secretariat that a party is not effectively enforcing its environmental law, and request an independent and objective review and presentation of the facts.

As will be further detailed in section IV, CUSMA maintains and incorporates the SEM process established under the NAAEC, and further accelerates the timeline to ensure that factual records are released in a timely manner. CUSMA also creates an opportunity for the Environment Committee to recommend cooperation activities on matters raised in CEC investigations. Over the past 25 years, more than 300 stakeholders and community groups have raised their concerns to the CEC through 96 submissions involving over 40 environmental laws, resulting in 24 reports.

IV. Stakeholder and Partner Consultations

The process for the assessment of potential environmental impacts under CUSMA was comprised of multiple rounds of consultations. This included consultations with the Canadian public; provinces and territories; Indigenous leaders and representatives; the Environmental Assessment Advisory Group (EAAG); and the interdepartmental Environmental Assessment Committee, which consists of representatives from across the Government of Canada.

A. Public Consultations

Between February 2017 and December 2019, the Government of Canada engaged with over 1,300 stakeholders through nearly 1,100 interactions to solicit the views of Canadians on the modernization of the NAFTA, including on the environment. The consultations were part of a broad effort to engage with provinces and territories, businesses, business associations, civil society, labour groups, Indigenous groups, women entrepreneurs, academics, and youth. The consultations emphasized direct engagement with Canadians, including through in-person meetings, town halls and regular teleconference calls with stakeholders. The government also used broad-based mechanisms, including soliciting formal submissions on NAFTA modernization through a Canada Gazette consultation process (June 3 to July 18, 2017) as well as a dedicated NAFTA consultations website. During this process, a number of stakeholders, including Indigenous groups, private sector stakeholders in agriculture and agri-food sectors, and members of civil society and academia raised issues related to the environment.

In addition to the general stakeholder engagement process, two rounds of formal public consultations were held specifically related to environmental impacts. The first round was launched by a Canada Gazette notice on August 26, 2017 – calling on Canadians to provide views on the potential environmental impacts of a renegotiated NAFTA. Following publication of the Initial EA on December 1, 2018, the government invited further public submissions and comments in order to continue assessing the potential impacts of the agreement throughout the course of negotiations. The government received a total of 8 submissions Footnote31 in response to these public consultation exercises. Submissions addressed a wide range of issues, including the environmental assessment process, water, energy, agriculture, forestry, fisheries, biodiversity, climate change, investor-state dispute settlement, regulatory cooperation, enforceability provisions, and items of specific interest to Indigenous peoples. These are presented in detail in section C below.

B. Other Consultations

Interdepartmental Committee

An interdepartmental committee was closely involved in the drafting and review of this Final EA of CUSMA. This committee was composed of representatives from Global Affairs Canada; Environment and Climate Change Canada (ECCC); the Impact Assessment Agency of Canada; Employment and Social Development Canada; Innovation, Science and Economic Development Canada; Natural Resources Canada; Canadian Heritage; Finance Canada; Agriculture and Agri-Food Canada (AAFC); Canada Border Services Agency; Transport Canada; Fisheries and Oceans Canada; Health Canada; and Immigration, Refugees and Citizenship Canada.

Provinces and Territories

Consultations with provinces and territories form an integral part of the environmental assessments of trade negotiations. As such, the draft of this Final EA was shared with provincial and territorial governments. The comments received recommended to include:

  1. the existing Intergovernmental Agreement on environment;
  2. a divide between federal and provincial/territorial obligations under CUSMA, where appropriate;
  3. specifics about existing provincial/territorial legislation;
  4. potential localized environmental impacts of increased trade;
  5. the importance of enforcement, intergovernmental collaboration, and effectiveness of governance structures outlined in the ECA for successful environmental impact; and
  6. a rigorous analysis of potential environmental impacts of increased trade on toxic materials, plastics, freshwater environments, and climate change commitments.

These comments were considered in the final version of this report.

Environmental Assessment Advisory Group (EAAG)

Members of the non-governmental and independent EAAG were also engaged in the environmental assessment process and asked to review various versions of the Final EA. Given the variety of expertise and approaches represented in the EAAG, the comments received from the group were instrumental in shaping the Final EA. Overall, several EAAG members noted with satisfaction the positive developments in environmental protection under CUSMA when compared to NAFTA, as detailed in section V. Further, EAAG members’ feedback on the Final EA included recommendations to:

  1. improve the methodology of environmental assessments, through better data collection and monitoring as well as more extensive literature review;
  2. further the analysis on specific issues, including indigenous-related impacts, trade barriers to trade in environmental services and packaging regulations;
  3. include more details provide more information on public participation and consultation; and
  4. improve the clarity and flow of the overall document.

These recommendations were taken into account in the finalization of this EA report and will be considered for future improvements of Global Affairs Canada’s approach to environmental assessments.

C. Key Issues Raised

Water

Water was among the most frequently raised issues in public submissions. Canada is steward of approximately 9 percent of the world’s renewable freshwater. Submissions warned against listing water as a good or service under CUSMA, in order to prevent the bulk export of water or the export of related goods such as bottled water.

Energy

Energy was raised in several submissions. In particular, the “energy proportionality clause” under NAFTA represented a concern for certain civil society groups, who argued that the clause prohibited Canada from restricting or reducing its energy exports (i.e. oil, gas, and electricity) to the United States, and that this was impeding Canada’s ability to meet its climate change mitigation goals.

Agriculture

Agriculture represented another key concern in the submissions received. In particular, submissions made linkages between NAFTA and increases in the use of pesticides and other agro-chemicals as a result of more intensive agriculture, leading to unsustainable farming practices and a rise in Canada’s greenhouse gas emissions (methane in particular). With respect to the new market access granted to the U.S. dairy, poultry and egg industry, submissions argued that the U.S. sector’s factory-farming practices are significantly more detrimental to the environment than the sustainable practices of limiting total production under Canada’s supply management system. Submissions also expressed concerns that the agriculture chapter in CUSMA makes no reference to sustainability or the environment.

Investor-state Dispute Settlement

Submissions received in response to the 2017 Canada Gazette notice pointed to the investor-state dispute settlement (ISDS) mechanism as the NAFTA provisions with the most significant impact on the environment. In particular, stakeholders noted concerns in relation to the use of this mechanism to challenge environmental regulations and hinder the legitimate exercise of governmental authority in the public interest. They argued that NAFTA’s ISDS mechanism has been used repeatedly by corporations to challenge legitimate environmental policies in Canada (e.g. Bilcon v. Canada and S.D Myers v. Canada). According to some stakeholders, the ISDS mechanism limits the government’s right to regulate and has a chilling effect on government willingness to implement environmental and sustainable development measures. Importantly, more recent submissions received in response to the 2018 Canada Gazette notice have praised the removal of the ISDS mechanism for Canada under CUSMA.

Intellectual Property

Global Affairs Canada invited the views of Canadians on a broad range of intellectual property (IP) related issues both leading up to and during the renegotiation of NAFTA, including by way of a questionnaire, in-person meetings, and teleconferences with interested stakeholders. While stakeholders did not raise issues related to specific IP rules that might address environmental concerns, certain stakeholders did note that their business model involves the export of environmental technologies to foreign markets, and that a modernized NAFTA would facilitate a more transparent and predictable operating environment in this regard. Global Affairs Canada also heard from stakeholders interested in issues related to traditional knowledge associated with genetic resources, including in relation to the IP system.

Indigenous peoples

The interests of Indigenous peoples emerged as a key theme in the submissions, with a number of submissions suggesting that the Initial EA did not properly assess the impact of the Agreement on Indigenous peoples. Specifically, the Assembly of First Nations called for the Final EA to take into consideration the broad impacts of international trade and investment on Indigenous peoples, their territories, and Treaty rights, and said that the Final EA should expand its scope to assess whether the new NAFTA is consistent with Canada’s commitment to fully implement the UN Declaration on the Rights of Indigenous Peoples.

Environment and Climate Change

Stakeholders noted the importance of comprehensive, enforceable environment obligations, and the need to address important environmental issues such as climate change. Stakeholders also reiterated their concern with the investor-state dispute settlement mechanism, and the need to improve the SEM process. With respect to input on the Final EA, some stakeholders asked that the EA assess the Agreement’s impact on forestry, fisheries, and climate change.

Environmental Assessment Process

A number of submissions expressed concerns with the Government of Canada’s environmental assessment for the trade negotiations process. Concerns focused on the scope of the environmental assessment process, suggesting that Canada work towards expanding it to reflect current environmental standards, including social, economic, and cultural impacts. Submissions also suggested that the environmental assessment process outline how the Agreement can help achieve Canada’s sustainable development goals, as laid out in the 2019- 2022 Federal Sustainable Development Strategy (FSDS) Footnote32 , and how the government should monitor and report on the environmental impacts of CUSMA using quantitative indicators.

Importantly, the comments received were taken into account in the context of negotiations, as well as in the drafting of this Final EA. In response to comments on the environmental assessment process itself, significant changes were made to the format and scope of the analysis. In particular, efforts were made to broaden the assessment of impacts to the North America region; include Indigenous-related impacts; better reflect the existing Canadian framework for the mitigation of environmental impacts; and make appropriate linkages with the FSDS.

V. CUSMA Outcomes and Implementation Considerations

As the final analytical stage of the environmental impact assessment, this section highlights the chapters and specific provisions included in CUSMA with a view to mitigating environmental risks and enhancing environmental protection across the North American region. This analysis aims to address in trade policy terms the environmental considerations and concerns raised in critical academic and institutional papers and studies, as well as stakeholders’ views.

During the engagement process, stakeholders raised specific concerns that certain provisions of CUSMA could constrain Canada’s ability to form policy in the public interest, including environmental protections. In response to these concerns, the CUSMA chapter on exceptions and general provisions (Chapter 32) ensures that Canada’s commitments do not impact its ability to adopt or maintain measures, programs or policies to preserve or protect, among others, the environment. The chapter incorporates the general exceptions provisions of the 1994 General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS) into the Agreement and confirms the parties’ understanding that the measures captured by those provisions include environmental measures necessary to protect, for example, human, animal or plant life or health, as well as those relating to the conservation of living and non-living exhaustible natural resources. This means that Canada can adopt public policy measures that are inconsistent with the Agreement’s disciplines, but necessary to protect human, animal or plant life or health, or relating to the conservation of exhaustible natural resources. The ability to adopt such measures is subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade. This chapter was carried forward from NAFTA and is an essential component of all of Canada’s FTAs.­

In addition to this general provision, the Agreement includes several environment-specific provisions. For the purposes of this section, the review focuses on the chapters, annexes and side letters listed below Footnote33 . See Annex B for more information on the purpose of each of these chapters and letters.

  1. Environment
  2. Goods-related areas
    1. National Treatment and Market Access for Goods
    2. Agriculture
    3. Energy
    4. Canada-U.S. Side Letter on Natural Water Resources
    5. Customs Administration and Trade Facilitation
    6. Sanitary and Phytosanitary Measures
    7. Technical Barriers to Trade
    8. Good Regulatory Practices
  3. Services-related areas
    1. Cross-Border Trade in Services
    2. Financial Services
  4. Investment and Dispute Settlement
  5. Intellectual Property
  6. Trade and Indigenous peoples

A. Environment

Canada is committed to advancing the principle that trade liberalization and environmental protection should be mutually supportive. Promoting stable and transparent environmental regulatory frameworks and institutions through trade agreements provides Canadian investors with greater certainty on the environmental governance of our trading partners. Consistent with Canada’s established approach towards free trade agreements, CUSMA includes environment provisions that reinforce this important principle.

NAFTA was the first FTA to link the environment and trade through a historic parallel agreement on environmental cooperation, the NAAEC. CUSMA strengthens and modernizes the environmental provisions in the NAAEC and integrates them into the Agreement in an ambitious, comprehensive and enforceable environment chapter, as well as in a parallel Environmental Cooperation Agreement (ECA). Key environmental provisions secured in the environment chapter and the ECA are detailed below. They support many of the goals of the FSDS Footnote34 .

Enforcement

Recognizing the importance of the environmental commitments under CUSMA, Canada worked to establish an improved dispute settlement process to ensure that the Agreement’s environmental commitments can be effectively enforced. This includes the ability for countries to have recourse to the broader CUSMA dispute settlement mechanism if they are not able to resolve a matter through consultation and cooperation. The new enforceable CUSMA environment chapter addresses concerns raised by several stakeholders on the importance of legally binding commitments on the environment, and supports Canadian businesses by ensuring that our CUSMA trading partners do not gain an unfair trading advantage by not enforcing their environment laws. Importantly, compared to the original NAFTA, the burden of proof has been reversed so that failure to comply with an obligation in the environment chapter is now presumed to be “in a manner affecting trade or investment between the parties,” unless the defending party can demonstrate otherwise. This effectively increases the flexibility to pursue violations of the Agreement under the dispute settlement mechanism.

Public Information and Consultation

The Environment chapter ensures oversight by stipulating that each party shall promote public awareness of its environmental laws and policies, including enforcement and compliance procedures, by ensuring that relevant information is available to the public. Parties shall also make use of existing consultative mechanisms to seek views on matters related to the implementation of the chapter.

In addition, the chapter maintains and incorporates a key mechanism – i.e. the submissions on enforcement matters (SEM) – to promote transparency and public participation. Established under the NAAEC, the SEM process allows members of the North American public to make an assertion that a party to the Agreement is failing to effectively enforce its environmental laws and request an independent and objective review and presentation of the facts. It is expected that this process will continue to play an effective role in promoting information sharing with the public and enhancing understanding of environmental law and its enforcement in North America.

Environmental Governance and Performance

The CUSMA environment chapter includes core obligations for parties to maintain high levels of environmental protection and robust environmental governance, including commitments to ensure that parties enforce, at the national level, their environmental laws; not derogate from these laws to encourage trade or investment; promote transparency, accountability and public participation; and ensure federal environmental impact assessment processes are in place for projects having potential adverse effects on the environment.

The environment chapter also includes a new article that identifies seven multilateral environmental agreements (MEAs) and commits the three parties to implement their respective obligations under those MEAs. For Canada Footnote35 , this includes the Convention on International Trade in Endangered Species of Wild Fauna and Flora; the Montreal Protocol on Substances that Deplete the Ozone Layer; the Protocol of 1978 Relating to the International Convention for the Prevention of Pollution from Ships; the Convention on Wetlands of International Importance Especially as Waterfowl Habitat; the Convention for the Establishment of an Inter-American Tropical Tuna Commission; and the Convention on the Conservation of Antarctic Marine Living Resources Footnote36 .

It also creates new commitments to address a range of global challenges, including substantive obligations to combat illegal wildlife trade and illegal logging. Illegal, unreported and unregulated (IUU) fishing provisions in the chapter promote sustainable fisheries management, including commitments to prohibit subsidies that negatively affect fish stocks. For the first time in a free trade agreement, the CUSMA includes articles on air quality and marine litter, as well as a binding commitment that prohibits the practice of shark finning. It also recognizes the important role of Indigenous peoples in the long-term stewardship of the environment, sustainable fisheries and forestry management, and biodiversity conservation. In many of these areas (e.g forestry, wildlife conservation, fisheries management), the obligations apply both at national and sub-national levels.

While several stakeholders noted the lack of specific commitments to address climate change, it remains a priority for Canada. For example, in the ECA, the parties committed to cooperate in the promotion of strategies and measures that can help address climate change, including in the areas of energy efficiency; alternative and renewable energy; low emission technologies; sustainable transport and sustainable urban infrastructure development; deforestation and forest degradation; enhanced capacity to respond to extreme weather events; sustainable agriculture; development and promotion of the use of market mechanisms to improve environmental protection; trade and investment in environmental goods and services; and green growth and clean innovation.

In addition, the CUSMA environment chapter sets out new commitments that aim to strengthen the relationship between trade and environment, including through the promotion of responsible business conduct and corporate social responsibility, trade and investment in environmental goods and services, and the use of voluntary measures to enhance environmental performance.

Notably, the chapter also recognizes the important role of Indigenous peoples in environment-related matters. This is reviewed in more detail in Section F.

Trilateral Collaboration

CUSMA includes a parallel ECA, which ensures that the unique institutions that have existed since 1994 under the NAAEC are retained and modernized, including the CEC and its Montréal-based Secretariat. Through the ECA, a modernized CEC will continue the legacy of effective trilateral environmental cooperation between Canada, Mexico and the United States, including on global environmental issues of importance to Canada, such as climate change.

Evidence-based Monitoring

Canada recognizes the importance of good data as a basis for policy decisions. Under the ECA, Canada, the United States and Mexico agreed to promote the development of regional environmental indicators. This will be advanced through the work of the CEC, which will continue to produce strategic plans, lead sustainability initiatives, and develop quantitative and qualitative indicators to track the results of these efforts. In addition, the CEC Ministerial Council may continue the practice of instructing the Secretariat to prepare a report on the state of the environment in North America and develop recommendations on common indicators for such a report. This is expected to support continued evidence-based monitoring and address stakeholders’ call for the development and use of sustainability indicators under CUSMA.

B. Goods-related Areas

Commitments in goods-related areas under CUSMA include specific provisions to promote environmental stewardship in various sectors. These commitments support FSDS goals of clean growth, clean energy, sustainable food, and safe and healthy communities.

National Treatment and Market Access

CUSMA includes a provision on remanufactured goods, which may have the effect of encouraging and facilitating the circular economy, whereby goods are reused rather than discarded as waste. Provisions in this chapter specify that the prohibitions or restrictions on the importation or exportation of goods apply to remanufactured goods. Remanufactured goods are distinct from used goods in that they undergo significant processing beyond cleaning, repair and maintenance and are thus restored to a higher level of functionality than a repaired or used good.

Agriculture

CUSMA preserves duty-free access to North American markets for a wide range of Canadian agriculture products such as meat, grains, fruits and vegetables. It also includes new obligations reflective of the modern North American agriculture and agri-food sector. For example, the agriculture chapter includes a new Committee on Agricultural Trade and recognizes the existing bilateral Consultative Committees on Agriculture as venues for further collaboration on relevant agricultural trade issues.

With respect to sustainable-farming practices, the CUSMA parties committed in the ECA to cooperate on promoting sustainable agriculture, such as establishing shared goals and objectives related to strengthening environmental governance, and conserving and protecting biodiversity and habitats. Activities could include promoting clean water and soil, and protection of natural terrestrial areas. These priorities are also reflected in the standard Agri-Environmental Indicators (AEIs) measurements that AAFC has been compiling and analyzing since 1993, and that measure key environmental conditions, risks and changes resulting from agriculture and the management practices that producers use to mitigate these risks. Sharing information with CUSMA parties on measures of soil health and biodiversity indicators, such as wildlife habitat capacity on farmland, can improve the overall outcomes related to these areas.

In addition, facilitating trade of biotechnology products among CUSMA parties is expected to support the use of agricultural innovations that can contribute to sustainable farming practices and minimize impact on soil, water, air and biodiversity. Products of biotechnology can improve crop quality and yield with fewer inputs, and their use is associated with modern agricultural practices, such as no-till and precision agriculture, which can have a positive impact on the environment. These investments and practices help decouple growth in production from a corresponding increase in risk to agriculture resources and the surrounding environment.

Energy

Recognizing the importance of the energy sector in North America, as well as related environmental implications of this sector, the modernized Agreement contains an energy-performance standards annex, which seeks to maximize benefits to consumers and the environment. It encourages approaches to promote and improve energy efficiency for a range of products in order to protect the environment. The annex builds on the existing regulatory cooperation between the parties and identifies areas for future cooperation. It also endeavours to harmonize energy-performance standards or test procedures that are applied by each of the parties.

Importantly, CUSMA no longer includes provisions related to the security of supply of energy goods, also known as the “energy proportionality clause” Footnote37 . Under this clause, if either the United States or Canada imposed an export restriction on an energy good, it had to ensure that customers in the other country had the opportunity to bid on a proportion of the total available supply of the particular good that was equivalent to their share of recent exports from the country introducing the restriction. While the energy proportionality clause was never invoked and would not have forced either party to export energy under any circumstance, it was incorrectly interpreted by some stakeholders to mean that Canada had to maintain certain levels of domestic production and was required to sell a certain percentage of its energy output to the United States, even when facing a domestic shortage. Nevertheless, the removal of this clause in CUSMA further clarifies Canada’s continued ability to make decisions regarding domestic energy production and to take domestic actions toward climate change objectives, as appropriate.

Natural Water Resources

Canada recognizes the importance of water as a resource for Canadians. While Canada has not assumed obligations under any trade agreements that would require it to allow bulk water extractions or diversions for export, the Government of Canada took note of the concerns raised in stakeholder submissions in this regard, and used the opportunity of CUSMA to carry forward the 1993 Statement by the Governments of Canada, Mexico and the United States on Natural Water Resources Footnote38 and clarify that the Agreement creates no obligations for the use of water as a commercial good. Canada and the United States have thus agreed to a side letter on natural water resources affirming that CUSMA does not create a right to the water resources of a party to the Agreement, and does not create any obligation that allows the exploitation of another party’s natural water resources for commercial use, including its withdrawal, extraction or diversion for export in bulk.

Customs Administration and Trade Facilitation

Unlike NAFTA, CUSMA includes a chapter on customs administration and trade facilitation. The chapter aims to streamline customs procedures, reduce red tape and ensure greater predictability in customs matters. The obligations in this chapter that relate to streamlined border procedures are expected to keep transaction costs and the environmental impacts related to the cross-border movement of goods resulting from any increased trade with CUSMA parties to a minimum through, for example, reducing the wait times for goods (especially low-risk goods) to be released from customs control and promoting a paperless environment. Other elements contained in the chapter, such as advance rulings, risk management, automation, single window and post-clearance audits, will contribute to the establishment of predictability and certainty at the border for traders and customs administrations. This will lower the number of instances in which goods are held up at the border, and result in a more efficient process that will lower the impact of border activity on the environment.

Sanitary and Phytosanitary Measures

The CUSMA chapter on sanitary and phytosanitary (SPS) measures maintains each party’s sovereign right to take the SPS measures necessary to protect against risks to human, animal or plant life or health, while requiring that such measures be science-based, transparent and not applied in a manner that creates unnecessary barriers to trade. The objective is to ensure that CUSMA’s market access benefits are not undermined by unjustifiable SPS-related trade restrictions in the agricultural, agri-food, fish and seafood and forestry sectors.

This chapter renews the SPS Committee from NAFTA, which serves to enhance cooperation and information-sharing between the parties, and to identify and discuss, at an early stage, proposed or revised SPS measures that may have a significant effect on trade in North America, including for the purpose of avoiding issues and facilitating greater alignment of SPS measures. The SPS Committee may undertake a number of tasks, such as the establishment of technical working groups. For example, the Technical Working Group on Pesticides has worked to facilitate cost-effective pesticide regulation and trade among the three countries through harmonization and work-sharing, while recognizing the environmental, ecological and human-health objectives of NAFTA. Recent examples of interagency work include efforts to align approaches for water-exposure models used in pesticide assessments and discussions surrounding the development of the North America Pollinator Risk Assessment Framework.

The CUSMA Environment Committee established under the environment chapter provides for coordination with the SPS Committee to identify cooperative opportunities to share information and management experiences on the movement, prevention, detection, control and eradication of invasive alien species, with a view to enhancing efforts to assess and address the risks and adverse impacts of invasive alien species.

Technical Barriers to Trade

The CUSMA technical barriers to trade (TBT) provisions help ensure that unnecessary or discriminatory regulatory requirements do not erode key market-access gains negotiated elsewhere in the Agreement. Regulatory measures are usually based on legitimate concerns, such as establishing necessary safety measures, but if poorly designed or abused they can be overly burdensome or discriminatory against foreign manufactured goods. Having mechanisms in place that work to prevent, reduce or address regulatory barriers is a key outcome of negotiations in CUSMA. This outcome builds on and complements the obligations in the good regulatory practices and the sectoral annex chapters, which promote regulatory transparency and predictability while preserving each party’s right to regulate in the public interest, including regulations or measures necessary to protect human, animal or plant life or health.

One concern raised in stakeholder submissions was the transportation of dangerous goods. In this respect, CUSMA contains a chemical substances annex that recognizes that the principal objective of regulating chemical substances and chemical mixtures is the protection of human health and the environment. The Agreement requires the parties to make efforts, where appropriate, to align risk-assessment methodologies and risk-management measures for chemical substances, as well as to continue to improve their respective levels of protection (including health, safety and environmental). It also defines “hazard” in a way that requires the consideration of environmental effects caused by a chemical substance or chemical mixture. This consideration of environmental effects would apply to measures relating to hazard communication, labeling and communication of information on the use and storage of chemical substances and chemical mixtures, and in response to workplace hazards and exposures. It is also applicable to the consideration of import and export permits. The annex on chemical substances builds on the existing, extensive regulatory cooperation on chemicals between the parties and identifies areas of focus for future cooperation. This could improve environmental protection to the extent these lead to new and effective cooperation and improved levels of safety.

Good Regulatory Practices

Canada recognizes that regulation is an important tool to deliver better economic and social outcomes, including the protection of health, safety and the environment. This chapter builds on and complements the obligations in the technical barriers to trade and the sectoral annex chapters, which promote regulatory transparency and predictability while preserving each party’s right to regulate in the public interest. The chapter preserves the right of a party to pursue the domestic environmental goals it deems necessary and includes an enforcement provision by stating that no party shall fail to effectively enforce its environmental laws through a sustained or recurring course of action or inaction in a manner affecting trade or investment between the parties.

The chapter encourages regulators to pursue regulatory cooperation through the existing Canada-U.S. Regulatory Cooperation Council, as well as through CUSMA, to reduce unnecessary burdens to business in North America. This chapter creates a trilateral committee to share expertise and information about approaches to regulatory cooperation, which could include cooperation in the environmental sector.

C. Services-related Areas

Commitments in services-related areas under CUSMA support the FSDS goals of effective action on climate change and clean growth. In addition, environmental innovation spread by trade in services is also expected to contribute to the achievement of other FSDS goals, including modern and resilient infrastructure, clean energy, clean drinking water and sustainable food supply.

Cross-Border Trade in Services

The cross-border trade in services (CBTS) chapter helps ensure predictability for services trade, including environmental services, and recognizes the right to maintain or adopt regulations related to environmental protection. With regards to market access certainty, this chapter reaffirms Canada’s trade liberalization for the imports of sewage, refuse disposal, sanitation and other environmental services (i.e. cleaning of exhaust gases, noise abatement, nature and landscape protection), and binds additional commitments ensuring market access to the United States and Mexico for Canadian exports of environmental services, such as waste management, protection of ambient air and climate, remediation and clean-up of soil and water, protection of biodiversity and landscape protection, and other environmental and ancillary services. These market access commitments, along with some improved market-access commitments for engineering services, as well as research and development, could further support trade in environmental solutions.

The chapter enables parties to maintain or adopt measures for services sectors that are particularly sensitive and for which a party needs to preserve policy flexibility for regulations supportive of environmentally sustainable processes. Accordingly, Canada lists reservations at different levels of government, including for health and other social services, maritime cabotage, fisheries, as well as Indigenous and minority affairs. These measures may relate to the protection of the environment with respect to public health and safety compliance, fisheries management, national-parks preservation, as well as certification and inscription of vessels.

Additionally, the chapter includes new provisions on the development and administration of measures covering licensing and qualification requirements and procedures, which further elaborate “objective and transparent criteria” that do not constitute unnecessary barriers to trade in services. The chapter specifies that “objective and transparent criteria” also include “potential health or environmental impacts of an authorisation” and that “competent authorities may assess the weight given to such criteria.” This clarification allows a CUSMA party to adopt or maintain a measure relating to licensing and qualification requirements and procedures for environmental reasons. For instance, applicants in the transportation or construction services sectors may be required to demonstrate their capacity to respect environmental regulations governing activities in those sectors as part of a licencing process.

To the extent that the chapter ensures predictable market access in environmental services amongst CUSMA parties and allows them to maintain or adopt measures supportive to environmentally friendly processes, private sector expertise in environmental-impact mitigation could provide additional solutions for the protection of the environment, which could be supplied on a cross-border basis.

While cross-border trade in services commitments ensure that there are no barriers to the supply of environmental services, when it comes to in-person services, commitments for the temporary entry of business persons are limited, meaning that only certain professionals in the environmental services sector can benefit from the reciprocal commitments to facilitate entry under CUSMA. Therefore, certain experts and workers may face limitations, such as economic needs tests and quotas, making it more difficult to obtain the necessary work authorization.

Financial Services

While there are no foreseeable environmental impacts as a result of the financial-services commitments in CUSMA, Canada, the United States and Mexico agreed to establish a Financial Regulatory Forum (the Forum) outside the Agreement. The purpose of the Forum is to improve dialogue and regulatory cooperation among financial-sector regulators, including in areas such as sustainable finance. Timely collaboration on this issue will facilitate CUSMA parties having the right finance and investment structures in place to fight climate change, build the low-carbon economy, and help households and businesses manage climate risks.

D. Investment and Dispute Settlement

The CUSMA investment chapter ensures environmental protections are not undermined in relation to investment within the North America region by maintaining both the obligation of foreign investors to comply with Canadian laws and regulations, and the parties’ right to regulate to achieve legitimate policy objectives, including in the area of environmental protection. The chapter also includes a corporate social responsibility (CSR) provision that reaffirms the importance of encouraging businesses to respect CSR standards, such as the OECD Guidelines for Multinational Enterprises. This CSR provision provides an illustrative list of CSR areas, including environment. These provisions are expected to support environmental stewardship on the part of North American investors throughout the region.

Unlike NAFTA, CUSMA does not include an Investor State Dispute Settlement (ISDS) mechanism that applies to Canada. Footnote39 The absence of ISDS alleviates stakeholders’ concerns regarding its potential impact on governments’ right to regulate and their willingness to implement environmental and sustainable development measures. Investment obligations will remain subject to the Agreement’s state-to-state dispute settlement mechanism, which provides for a transparent, open and clear means to resolve disputes between CUSMA parties regarding the interpretation or application of the Agreement.

E. Intellectual Property

The CUSMA intellectual property (IP) chapter contains provisions on the protection of almost all categories of IP rights, including patents. The CUSMA IP chapter affirms the parties’ longstanding multilateral flexibilities under the WTO that they “may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal, or plant life or to avoid serious prejudice to nature or the environment.” The chapter provides that a party may also exclude from patentability plants other than microorganisms, but confirms that patents are available at least for inventions that are derived from plants.

One of the key IP-related considerations regarding environmental issues pertains to the patenting of environmental technologies, particularly in the area of climate change. This is of particular importance for the more than 850 Canadian firms engaged in the research and development (R&D), manufacture or sale of clean technologies. Footnote40 While the CUSMA IP chapter does not contain specific provisions aimed at facilitating the patenting of environmental technologies, it establishes a transparent and predictable framework for the protection and enforcement of IP rights for Canadian companies, including emerging and small and medium-sized enterprises (SMEs), operating in the North American marketplace. For instance, the chapter contains provisions aimed at ensuring the transparency and efficiency of patent office practices in all three parties.

With respect to issues related to IP and traditional knowledge associated with genetic resources, although the CUSMA IP chapter does not contain provisions in these areas, Canada is actively engaged in discussions on these issues at the World Intellectual Property Organization (WIPO) Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore (IGC). Canada’s longstanding position has been that the IGC serves as the most appropriate venue for discussions on the possible relationship between these domains. In supporting engagement in these multilateral discussions, the Government of Canada recently entered into agreements with Indigenous organizations to provide grants to send representatives to meetings of the WIPO IGC, and recently co-hosted a workshop with WIPO for the Arctic region.

Finally, while the CUSMA IP chapter does not contain provisions on cooperation in respect of IP-related environmental issues, it establishes a Committee on Intellectual Property Rights, which will enable parties to exchange information pertaining to IP matters. While environmental issues are not explicitly noted among the issues for cooperation listed in the chapter, a party may raise any IP-related issues of interests, including those related to the environment.

F. Trade and Indigenous peoples

Recognizing the importance of potential environmental impacts on Indigenous peoples and the role they play in environmental conservation, Canada sought to ensure that the interests and priorities of Indigenous peoples were taken into account throughout the negotiations. During the negotiation process, the government engaged with Indigenous leaders and representatives, Indigenous businesses and policy experts, including on issues pertaining to the environmental provisions of the Agreement. This was done in line with the government’s efforts to advance Indigenous rights, prosperity and sustainable development in Canada and around the world.

As in all of Canada’s FTAs, policy flexibility has been retained to ensure Canada’s ability to advance the interests of Indigenous peoples and Indigenous-owned businesses, including in the area of environment. Another key outcome is the inclusion of a general exception clearly confirming that the government can adopt or maintain measures it deems necessary to fulfill its legal obligations to Indigenous peoples. A first for Canada’s FTAs, this exception includes a footnote that clarifies that, for Canada, legal obligations include those recognized and affirmed by section 35 of the Constitution Act, 1982 or those set out in self-government agreements between a central or regional level of government and Indigenous peoples. This forward-looking, inclusive formulation is intended to allow for the inclusion of any other Indigenous rights that may become codified in Canadian law in the future.

In addition to a carve-out related to Aboriginal harvesting of natural resources, the environment chapter includes provisions that recognize the important role of Indigenous peoples in the long-term conservation of the environment, sustainable fisheries and forestry management, and biodiversity conservation. Through the ECA, parties have agreed to encourage public participation that is inclusive and diverse, including with Indigenous peoples, in the development, implementation and monitoring of cooperative activities.

VI. Existing Environmental Legislation, Regulations and Actions

Expected impacts identified by the environmental analysis should be considered in the context of Canada’s existing statutes, regulations, policies and actions that help prevent and manage environmental risks in Canada. In particular, the federal government deals with a wide range of environmental issues through various actions including: the implementation of the Pan-Canadian Framework on Clean Growth and Climate Change Footnote41 ; engagement with our strategic partners, including provinces, territories and Indigenous peoples; monitoring; science-based research; policy and regulatory development; and the enforcement of environmental laws. The environmental legislative framework focuses on: minimizing threats to Canadians and their environment from pollution; equipping Canadians to make informed decisions on weather, water and climate conditions; and conserving and restoring Canada's natural environment. This robust environmental framework positions Canada well to mitigate potential environmental effects from CUSMA.

This section provides an overview of the Government of Canada’s environmental legislative framework, both at the national and sector-specific levels. While this overview focuses on the statutes, regulations, policies and actions implemented by the federal government, it is understood that provincial and territorial governments also have important roles and responsibilities in the prevention and management of environmental risks, and have done so through numerous environmental statutes and regulations. As a result of these roles, there is extensive cooperation taking place between federal, provincial and territorial governments in these areas.

A. Canada’s Environmental Approach

Under our constitution, the management of environment issues in Canada is an area of shared jurisdiction among federal and provincial governments. The federal government collaborates with provinces, territories, Indigenous peoples and others to protect species and spaces, to develop environmental standards, guidelines, regulations and other risk-management instruments to reduce or prevent releases of pollutants, and to monitor levels of contaminants in air, water and soil. The federal government promotes and enforces compliance with its environmental laws and regulations. The environmental and performance standards set by these instruments will remain in place irrespective of changes in economic activity or international trade, including as a result of CUSMA. Monitoring and reporting on changes in the environment on a regular basis is essential for assessing the impact of risks and the effectiveness of measures to prevent or minimize these risks, and is an important component of the scientific work supporting the implementation of Canada’s environmental framework.

B. Canada’s Federal Sustainable Development Strategy (FSDS)

The FSDS sets out the Government of Canada’s environmental-sustainability priorities, establishes goals supported by medium-term targets, and identifies short-term milestones and actions to achieve them. It is Canada’s fourth whole-of-government strategy that brings the Government of Canada’s sustainability activities together in one place. It outlines what the government will do across 43 federal departments and agencies to promote clean growth, ensure healthy ecosystems and build safe, secure and sustainable communities over the next three years. The FSDS also remains closely linked with government priorities, reflecting key initiatives such as: efforts to implement the UN 2030 Agenda Footnote42 ; the Pan-Canadian Framework on Clean Growth and Climate Change; the Oceans Protection Plan Footnote43 ; and work undertaken to address plastic waste and promote zero-emission vehicles. Indicators to track progress against the goals and targets in the FSDS are drawn largely from the Canadian Environmental Sustainability Indicators program Footnote44 , including progress on GHG emissions for Canada. The FSDS also tracks progress on the federal government’s Mission Innovation pledge to double investments in clean energy research, development and demonstration from 2015 levels of $387 million to $775 million by 2020, as well as reducing GHG emissions from government operations by 40 percent over 2005 levels by 2030 with an aspiration to be carbon neutral by 2050.

Among the 13 goals set out by the FSDS, the following are of particular interest in the context of environmental impacts projected as a result of CUSMA:

C. The Pan-Canadian Framework on Clean Growth and Climate Change

The Pan-Canadian Framework on Clean Growth and Climate Change is a joint federal-provincial-territorial commitment to take ambitious action to fight climate change, build resilience to a changing climate, and drive clean economic growth. It is the first climate change plan in Canada’s history to include joint and individual commitments by federal, provincial and territorial levels of government, and to have been developed based on comments received from Indigenous peoples, businesses, non-governmental organizations and Canadians from across the country. The Pan-Canadian Framework has four pillars: pricing carbon pollution; complementary actions to reduce emissions across the economy; adaptation and climate resilience; and clean technology, innovation and jobs.

Among the key areas defined in the Pan-Canadian Framework, those of specific relevance in the context of expected impacts from CUSMA include plans to:

D. Key Pieces of Federal Environmental Legislation in Canada

The main federal statutes dealing with the protection of the environment are as follows:

E. Chemicals Management Plan

The Chemicals Management Plan Footnote64 (CMP) is a Government of Canada initiative aimed at reducing the risks posed by chemicals to Canadians and their environment.

While most actions to manage risks from chemicals are taken under the Canadian Environmental Protection Act, 1999, actions can also be taken to develop instruments under other Acts, such as the Canada Consumer Product Safety Act (CCPSA) Footnote65 , the Pest Control Products Act (PCPA) Footnote66 and the Food and Drugs Act (FDA) Footnote67 . Therefore, when making risk-management decisions, consideration is given to which Act is best placed to manage the identified risks.

Canada-wide Air Quality Management System

In October 2012, Ministers of environment for the federal, territorial and provincial governments, with the exception of Québec, which has its own air-management policies, agreed to implement a Canada-wide Air Quality Management System (AQMS). AQMS is a comprehensive approach for reducing air pollution in Canada and is the product of an unprecedented collaboration by the federal, provincial and territorial governments, and stakeholders. Federal, provincial and territorial governments all have roles and responsibilities in the implementation of the system. Canadian Ambient Air Quality Standards (CAAQS) are the driver for air-quality management across the country. Standards have been developed for nitrogen dioxide, sulfur dioxide and fine particulate matter (PM2.5) and ozone. The CAAQS are established as objectives under the Canadian Environmental Protection Act 1999.

G. Sector-specific Laws, Policies, and Action

Canada leverages international bilateral and multilateral engagement in key fora to support wider global efforts to address climate change and manage environmental risks. Under the Paris Agreement, Canada committed to reducing GHG emissions by 30 percent below 2005 levels by 2030. Canada also provides climate finance to support developing countries transition to low-carbon, climate-resilient economies. Canada is delivering $2.65 billion in climate financing to developing countries, between 2015–16 and 2020–21.

Specific policies and regulations are of relevance given the environmental risks identified in the Initial EA of CUSMA. At the sector level, these may help control the limited risks related to the manufacturing and mining, transportation and agriculture and agri-food sectors.

Manufacturing and Mining

The regulatory framework governing environmental impacts from manufacturing includes CEPA and its regulations. A key aspect of CEPA is the prevention and management of risks posed by toxic and other harmful substances. Under CEPA, manufacturing facilities may be required to disclose their emissions of selected pollutants through various programs such as the National Pollutant Release Inventory (NPRI) and ECCC’s GHG Emissions Reporting Program. Pollutant emissions to water resulting from industrial manufacturing are also subject to the Fisheries Act, which prohibits the deposit of deleterious substances in water frequented by fish, but also activities that result in serious harm to fish, unless authorized by regulation.

Importantly, emissions and effluents levels of the Canadian pulp and paper sector are subject to a number of regulations and monitoring activities, including the Pulp and Paper Effluent Regulations under the Fisheries Act, as well as the Pulp and Paper Mill Defoamer and Wood Chip Regulations, the Pulp and Paper Mill Effluent Chlorinated Dioxins and Furans Regulations, and the Code of practice for the management of air emissions from pulp and paper facilities under the Canadian Environmental Protection Act, 1999. The Code of practice promotes best practices in the environmental performance of pulp and paper mills in Canada with respect to atmospheric emissions of sulfur dioxide (SO2) and total particulate matter (TPM).

For large-scale projects, including in the mining sector, the Impact Assessment Act and its regulations establish the legislative basis for the federal impact-assessment process of projects. Whether Canadian or foreign, proponents of designated projects (as defined by the Physical Activities Regulation Footnote68 ) may be required to conduct an impact assessment to determine if a project's adverse impacts are in the public interest. For the mining and processing sectors, air emissions and effluents are subject to a number of regulations and monitoring activities, including the Metal and Diamond Mining Effluent Regulations (made under the Fisheries Act), as well as other federal instruments (e.g. Codes of Practice, Environmental Performance Agreements, Pollution Prevention Planning Notices).

Transportation

ECCC has implemented six vehicle- and engine-emission regulations and nine fuel regulations to reduce air pollutants and GHG emissions from on- and off-road vehicles and engines under CEPA. Transport Canada leads a suite of regulatory and voluntary measures to reduce GHG emissions from the aviation, marine and rail sectors. With respect to the maritime-transportation sector in particular, the Canada Shipping Act provides regulations to protect the marine environment from navigation and shipping activities.

Agriculture and Agri-Food

The federal government, working with its provincial and territorial counterparts, developed the Invasive Alien Species Strategy for Canada Footnote69 (IAS). This strategy directs national efforts to address the issues associated with invasive species entering Canada. The government-wide IAS involves AAFC, Fisheries and Oceans Canada, ECCC, Natural Resources Canada and the Canadian Food Inspection Agency.

Through Agricultural Policy Framework agreements with provinces and territories, AAFC provides funding to support the implementation of on-farm actions in the form of beneficial management practices, which can mitigate negative agricultural environmental impacts and result in improved water quality, biodiversity and climate change adaptation.

The current agricultural policy framework, the Canadian Agricultural Partnership Footnote70 (CAP), provides a greater emphasis on climate change mitigation and adaptation, environmental sustainability and science, with the aim of further enhancing the agriculture sector’s environmental performance. Programming could accelerate the agriculture sector’s ability to reduce the most significant GHG emission sources, such as nitrous oxide. AAFC works in partnership with provinces and territories to support the agriculture, agri-food and agri-based sectors in order to assess and respond to priority environmental risks and incorporate sustainable practices.

Through AAFC, the Government of Canada also invests in sustainable agriculture by supporting direct on-farm action, the implementation of beneficial management practices, and innovative research and development activities that contribute to the sustainable growth of the sector. Research and development activities include increasing resource and input use efficiency (e.g. water, land and nutrients); developing new crop varieties; enhancing crop yields; and developing beneficial management practices and technologies.

AAFC-specific programming also plays a significant role in ensuring business continuity through the Business Risk Management suite of programs Footnote71 . These programs can enhance the sector’s resilience to environment-based risks, such as pests, drought or flooding. For example, producers participating in AgriInvest may be able to make more strategic decisions based on the long-term outlook rather than short-term cash-flow needs. This would allow producers more scope to diversify their crops and use farming practices, such as crop rotation, that have beneficial impacts on soil quality and the environment. Overall, the Government of Canada’s existing environmental legislative framework is well positioned to mitigate any environmental effects from CUSMA. As new statutes, regulations, policies and actions are developed and implemented, improvements in the environmental performance of Canadian economic sectors may further help mitigate potential environmental impacts of CUSMA.

VII. Conclusion

NAFTA was the first FTA in history to link the environment and trade. It did so through a parallel agreement, the NAAEC. With this side agreement in force, the evidence suggests the environmental record of NAFTA since its entry into force has been balanced, resulting in both positive and negative outcomes domestically and across North America. With the renegotiation of NAFTA, Canada, Mexico and the United States took the opportunity to strengthen and modernize existing environmental provisions, integrate them into the Agreement, and establish a new, comprehensive and enforceable environment chapter. The final CUSMA outcome preserves key elements of NAFTA and maintains the institutional structures, such as the ECA and CEC, to effectively monitor and address the environmental impacts of trade, and to work with North American partners to achieve the goal of sustainable development in the region. Recognizing the challenges of securing trilateral support for obligations on climate change, Canada worked to make sure that the Agreement reflects the importance that Canada places on climate change, including guaranteeing that the parties can cooperate in the promotion of strategies and actions, such as alternative and renewable energy and low-emission technologies, that play a significant role in addressing climate change.

Moreover, CUSMA modernizes disciplines to address modern trade challenges, reduce red tape at the border, and provide enhanced predictability and stability to workers and businesses across the integrated North American market. Gains related to these new provisions, such as the increase in transport efficiency, the move to paperless procedures and increased trade in environmentally sustainable services and technologies, may further reinforce the positive impact that CUSMA will have on the environment when compared to the original NAFTA.

Based on the environmental-impact studies undertaken on NAFTA, as well as on the qualitative chapter-by-chapter assessment of the environment-related provisions under CUSMA, both the Initial and Final EAs found that CUSMA’s impacts on the environment will be more positive than NAFTA’s as the new Agreement is expected to strengthen environmental protection and governance practices in North America.

Comments on the Final Environmental Assessment (EA) of CUSMA are welcome. This will help inform future EA reports.

Comments can be sent by email or mail to:

Email: EAconsultationsEE@international.gc.ca
Mail: EA Secretariat
Trade Agreements and NAFTA Secretariat (TCT)
Global Affairs Canada
125 Sussex Drive
Ottawa, Ontario
K1A 0G2

Annex A: Bibliography of Scholarly Works on NAFTA and the Environment

Commission for Environmental Cooperation (CEC) Publications:

Analytic Framework for Assessing the Environmental Effects of the North American Free Trade Agreement. Commission for Environmental Cooperation, 1999a

Assessing Environmental Effects of the North American Free Trade Agreement (NAFTA): An Analytic Framework (Phase II) and Issue Studies. Commission for Environmental Cooperation, 1999b

Environmental Assessment of NAFTA: Lessons Learned from CEC’s Trade and Environment Symposia. Commission for Environmental Cooperation, November 2008

NAFTA Effects – Potential NAFTA Effects: Claims and Arguments 1991-1994. Commission for Environmental Cooperation, 1996

Plagiannakos, Takis. Will Free Trade in Electricity between Ontario/Canada and the United States Improve Air Quality?, Commission for Environmental Cooperation, 2002

The Environmental Effects of Free Trade: Papers Presented at the North American Symposium on Assessing the Linkages between Trade and Environment. Commission for Environmental Cooperation, October 2000

Vaughan, Scott and Greg Block. “Free Trade and the Environment: The Picture Becomes Clearer.” Commission for Environmental Cooperation, 2002

Academic papers:

Barbier, Edward. “Introduction to the environmental Kuznets curve special issue”, Environment and Development Economics, 1997

Charnovitz, Steve. “NAFTA’s Environmental Significance.” Environment, Volume 36 No. 2, 1994

Cherniwchan, Jevan. “Trade liberalization and the environment: Evidence from NAFTA and U.S. manufacturing.” Journal of International Economics, Vol 105, 2017

Chiu, Christine. “Chapter 11 and the Environment.” Environmental Policy and Law, 33/2. 2003

Cole, M.A. “US environmental load displacement: examining consumption, regulations and the role of NAFTA.” Ecological Economics. Vol 48 (4), p.439–450. 2004

Davis, L.W., Kahn, M.E. “International trade in used vehicles: the environmental consequences of NAFTA.” American Economic Journal: Economic Policy. Vol. 2 (4). 2010

Domínguez-Villalobos, Lilia and Brown-Grossman, Flor. “NAFTA’s Impact on Business Environmental Decision Making.” The Policy Studies Journal, Vol. 35, No. 2. 2007

Ederington, Josh. “NAFTA and the Pollution Haven Hypothesis.” The Policy Studies Journal, Vol. 35, No. 2, 2007

Fernandez, Linda. “Environmental implications of trade liberalization on North American transport services: the case of the trucking sector,” International Environmental Agreements: Politics, Law and Economics, 2010

Ferretti, Janine. “NAFTA and the Environment: An Update.” Canada-United States Law Journal, Vol. 28:81, 2002Fox, Annette Baker. “Environment and Trade: The NAFTA Case.” Political Science Quarterly. Vol. 110, No. 1. 1995

Gamper‐Rabindran, Shanti. “NAFTA and the Environment: What Can the Data Tell Us?” Economic Development and Cultural Change, Vol. 54, No. 3. April 2006

Grether, Jean-Marie; Mathys Nicole A.; de Melo, Jaime. “Unraveling the Worldwide Pollution Haven Effect.” World Bank Policy Research Working Paper 4047, 2006

Grossman, Gene M. and Krueger, Alan B. “Environmental Impacts of a North American Free Trade Agreement.” National Bureau of Economic Research, Working Paper No. 3914, 1991

Grossman, Gene M. and Krueger, Alan B. “Economic Growth and the Environment.” National Bureau of Economic Research, Working Papers 4634, Inc. 1994

Hettige, Hemamala; Mani, Muthukumara; Wheeler, David, "Industrial pollution in economic development: Kuznets revisited," Policy Research Working Paper Series 1876, The World Bank, 1998.

Hufbauer, Gary Clyde; Esty, Daniel C.; Orejas, Diana; Rubio, Luis; Schott, Jeffrey J., “NAFTA and The Environment: Seven Years Later.” Peterson Institute for International Economics, 2000

Morin, Jean-Frédéric, Andreas Dür, and Lisa Lechner. “Mapping the Trade and Environment Nexus: Insights from a New Data Set.” Global Environmental Politics, 18:1. February 2018

Jinnah, Sikina and Lindsay, Abby. “Secretariat Influence on Overlap Management Politics in North America: NAFTA and the Commission for Environmental Cooperation.” Review of Policy Research, Volume 32, Number 1, 2015

Karpilow, Quentin; Solomon, Ilana; Calderón, Alejandro Villamar; Pérez Rocha, Manuel; Trew, Stuart. “NAFTA: 20 Years of Costs to Communities and the Environment.” Sierra Club, March 2014

Kaufmann, Robert K.; Pauly, Peter and Sweitzer, Julie. “The Effects of NAFTA on the Environment.” The Energy Journal. Vol. 14, No. 3. 1993

Kaufmann, Robert K.; Davidsdottir, Brynhildur; Garnham, Sophie; Pauly, Peter. The determinants of atmospheric SO2 concentrations: reconsidering the environmental Kuznets curve, Ecological Economics, 1998.

Logsdon, Jeanne M., Husted, Bryan W. Mexico's Environmental Performance Under NAFTA: The First 5 Years, The Journal of Environment & Development, 2000

Mann, Howard. “NAFTA and the Environment Lessons for the Future.” Tulane Environmental Law Journal, No. 13, 2000

Mattoo, Aaditya; Subramanian, Arvind; van der Mensbrugghe, Dominique; He, Jianwu. “Reconciling Climate Change and Trade Policy.” The World Bank Development Research Group, Trade and Integration Team, November 2009

Markell, D. L., and Knox, J. H. (Eds). “Greening NAFTA: The North American Commission for Environmental Cooperation.” Stanford University Press, 2003

Mitchell, Ross E, “Environmental Actions of Citizens: Evaluating the Submission Process of the Commission for Environmental Cooperation of NAFTA”, The Journal of environment & Development, 2006

Nadal, Alejandro, and Wise, Timothy A. “Los Costos Ambientales de la Liberalización Agrícola: El Comercio de Maíz entre México y Estados Unidos en el Marco del NAFTA [The Environmental Costs of Agricultural Liberalization: Corn Trade between Mexico and the United States in NAFTA].” In Globalización y Medio Ambiente: Lecciones desde las Américas [Globalization and Environment: Lessons from the Americas], 2005

Page, Robert. “Kyoto and Emissions Trading: Challenges for the NAFTA Family.” Canada-United States Law Journal. Vol. 28: 55. 2002

Reinert, Kenneth A. and David W. Roland-Holst. “NAFTA and Industrial Pollution: Some General Equilibrium Results.” Journal of Economic Integration. Vol. 16, No. 2. June, 2001

Rodrik, Dani. “What Do Trade Agreements Really Do?” The Journal of Economic Perspectives, Vol. 32, No. 2. 2018

Vaughan, Scott. “How Green Is NAFTA?: Measuring the Impacts of Agricultural Trade.” Environment. Vol. 46, No. 2. March 2004

Vaughan, Scott. “NAFTA’s Environmental Record: History, outcomes, impacts and options.” International Institute for Sustainable Development, 2017

Walker, Raymond. “The Effect of NAFTA on Environmental Regulations in the United States, Canada, and Mexico” Law and Business Review of the Americas, 2000

Annex B: CUSMA Chapter Summaries

Environment chapter (Chapter 24) and Environmental Cooperation Agreement

When NAFTA came into effect in 1994, it was the first free trade agreement to link the environment and trade through a historic parallel agreement on environmental cooperation, the North American Agreement on Environmental Cooperation (NAAEC). The CUSMA strengthens and modernizes environmental provisions by integrating them into an ambitious, comprehensive and enforceable environment chapter. The environment chapter establishes a binding and enforceable dispute resolution process to address any questions regarding compliance. This includes recourse to the broader CUSMA dispute settlement mechanism if countries are not able to resolve the matter through consultation and cooperation.

The CUSMA also includes a parallel Environmental Cooperation Agreement (ECA). The ECA ensures that the unique institutions that have existed since 1994 under the NAAEC are retained and modernized, including the Commission for Environmental Cooperation and its Montréal-based Secretariat. Through the ECA, a modernized Commission will continue the legacy of effective trilateral environmental cooperation between Canada, Mexico and the United States, including on global environmental issues of importance to Canada, such as climate change.

Goods-related Chapters

National Treatment and Market Access for Goods (Chapter 2)

The National Treatment and Market Access for Goods (NTMA) chapter of CUSMA sets out the fundamental disciplines for trade in goods, with the aim to eliminate or reduce barriers to trade in goods. The disciplines in this chapter provide for transparency and predictability in the North American market, and open up opportunities for Canadian exporters. As per this chapter, the CUSMA parties agreed to preserve the already comprehensive NAFTA tariff commitments, to not apply restrictions or prohibitions on the import or export of goods, and to treat imported products as favourably as similar domestic products.

Agriculture (Chapter 3)

The Agriculture chapter establishes obligations and commitments on agricultural trade between the CUSMA parties. In addition, market access and tariff commitments for agricultural goods are contained in Chapter 2 (National Treatment and Market Access for Goods). Chapter 2 also includes each party’s Appendix with their respective tariff schedule and tariff rate quotas.

Energy

Provisions governing trade in energy goods, as well as other activities in the energy sector, will be found across CUSMA instead of in a dedicated chapter. This includes disciplines and provisions in the areas of national treatment and market access, rules of origin, customs and trade facilitation, cross-border trade in services and investment. Recognizing the importance of the energy sector in North America, CUSMA also contains an enforceable bilateral Canada-U.S. side letter on energy regulatory measures and regulatory transparency. The commitments, contained in an annex to the letter, will provide for enhanced regulatory transparency and cooperation in the North American energy sector and include disciplines with respect to access to electric-transmission facilities and pipeline networks.

Canada-U.S. Side Letter on Natural Water Resources

In a side letter on natural water resources, Canada and the United States have affirmed that CUSMA does not create a right to the water resources of a party to the Agreement, and does not create any obligation that allows the exploitation of another party’s natural water resources for commercial use, including the export of water in bulk.

Customs Administration and Trade Facilitation (Chapter 7)

The Customs Administration and Trade Facilitation chapter aims to streamline customs procedures, reduce red tape and ensure greater predictability in customs matters. This chapter was not found in NAFTA 1994 and its inclusion in CUSMA will provide additional benefits for Canadian traders.

Section A of the chapter establishes obligations that seek to reduce the transaction costs incurred by traders by simplifying, standardizing and modernizing trade-related customs procedures. This section addresses various stages of the customs process with a view to reducing red tape at the border, thereby contributing to greater predictability, consistency and transparency when trading goods.

Section B of the chapter provides for cooperation amongst the parties to assist each other in the enforcement of laws and regulations related to customs offences in goods traded amongst the parties.

Sanitary and Phytosanitary Measures (Chapter 10)

The CUSMA chapter on sanitary and phytosanitary (SPS) measures maintains each party’s sovereign right to take the SPS measures necessary to protect against risks to human, animal or plant life or health, while requiring that such measures be science-based, transparent and not applied in a manner that creates unnecessary barriers to trade. The objective is to ensure that CUSMA’s market access benefits are not undermined by unjustifiable SPS-related trade restrictions in the agricultural, agri-food, fish and seafood and forestry sectors.

Technical Barriers to Trade (Chapter 11)

Technical barriers to trade (TBT) are a form of non-tariff barrier stemming from regulatory measures that affect issues such as product characteristics or labeling. TBTs can impact market access because they impose various mandatory requirements on goods that must be met before being granted access to a particular market abroad. Regulatory measures are usually based on legitimate concerns such as establishing necessary safety measures, but if poorly designed or abused they can be overly burdensome or discriminatory against foreign manufactured goods.

As tariffs are reduced, regulatory barriers can take on a greater importance for Canadian exporters. Building on the WTO Technical Barriers to Trade Agreement, the CUSMA TBT chapter provisions help ensure that unnecessary or discriminatory regulatory requirements do not erode key market access gains negotiated elsewhere in the Agreement. Having mechanisms in place that work to prevent, reduce or address regulatory barriers is a key outcome of negotiations in CUSMA. The TBT chapter: promotes the use of internationally accepted standards and acknowledges their role in supporting greater regulatory alignment, good regulatory practice and reducing unnecessary barriers to trade; provides national treatment for conformity assessment bodies of CUSMA countries, which will help reduce testing costs and requirements for Canadian companies; promotes further transparency when developing technical regulations and conformity assessment procedures, which will provide Canadian exporters with greater predictability regarding foreign regulatory frameworks, and; establishes a mechanism between the parties to help address concerns with the goal of avoiding the creation of new barriers and minimizing or eliminating the negative impacts of those already in existence. Collectively, these benefits will help reduce costs and marketing delays for Canadian companies, including small and medium-sized enterprises (SMEs).

Sectoral Annexes (Chapter 12)

The Canada-United States-Mexico Agreement (CUSMA) incorporates sector-specific outcomes, including those concerning pharmaceutical products, medical devices, cosmetics products, chemical substances, information communication technology, energy efficiency, alcoholic beverages and proprietary food formulas. These sectoral outcomes build on and complement the obligations in the technical barriers to trade and the good regulatory practices chapters, which promote regulatory transparency and predictability while preserving each party’s right to regulate in the public interest to achieve legitimate public policy objectives, such as the protection and promotion of public health, safety and the environment. In these particular sectors of the North American economy, commitments in the sectoral annexes are designed to promote effective regulation that facilitates trade between the parties.

Good Regulatory Practices (Chapter 28)

Governments use regulations to achieve a range of policy objectives, such as ensuring the health and safety of their citizens, protection of the environment and consumer protection. While the vast majority of regulations are designed to achieve non-trade related objectives, they can also have the unintended effect of restricting or distorting trade. As tariffs have decreased globally, regulatory and other non-tariff barriers are increasingly the hurdles that global exporters face in gaining access to foreign markets. For example, regulatory changes implemented without providing sufficient prior notification to foreign companies can limit market opportunities in a given country, while at the same time provide an advantage to domestic firms. To achieve good regulatory outcomes, governments should follow good regulatory practices, which foster openness, transparency and evidence-based decision-making. Countries that adhere to good regulatory practices can have confidence in one another’s regulatory systems, which can in turn facilitate trade. Trust in a trading partner’s regulatory systems also helps foster regulatory cooperation, so that regulators across borders can choose to work together to align their regulatory frameworks, resulting in a reduction in unnecessary barriers to trade.

Services-related Chapters

Cross-Border Trade in Services (Chapter 15)

The Cross-Border Trade in Services (CBTS) chapter addresses trade in services as supplied on a cross-border basis. Services are a key component of global value chains as they help promote value-added activities. They account for a high proportion of Canadian jobs and of Canada’s value of trade, particularly when accounting for services embodied in goods.

Canadian services suppliers are active in the United States and Mexico in all services sectors of the economy, including travel and business services, as well as transportation. Canadian exports and imports to and from the United States totalled $63.9 billion and $76 billion, respectively, on average yearly between 2016 and 2018, which makes the United States Canada’s largest services trade partner (two-way). Canadian exports and imports to and from Mexico totalled $1.4 billion and $3.1 billion, respectively, on average yearly between 2016 and 2018, which makes Mexico Canada’s seventh-largest services trade partner (two-way).

Building on the benefits brought by the cross-border trade in services disciplines in the NAFTA and the WTO General Agreement on Trade in Services (GATS), Chapter 15 of CUSMA ensures continued predictability for Canadian service suppliers involved in the American and Mexican markets. This Chapter maintains key rules with respect to the treatment of service suppliers of the other party, the development and administration of measures, and bound market access commitments, as well as non-binding guidelines for the negotiation of mutual-recognition agreements for regulated professional services.

Financial Services (Chapter 17)

The modernized financial services chapter promotes a level playing field between Canadian, Mexican and U.S. financial-service providers through a framework of general rules tailored to the unique nature of the sector. The chapter also provides protections for investments in financial institutions for all three countries, establishes a framework for regulatory transparency, and includes provisions to tailor the state-to-state dispute settlement framework to the financial sector. Consistent with the investment chapter, there will be no investor-state dispute settlement mechanism for financial services that applies to Canada. Finally, the financial services chapter includes a strong prudential carve-out, ensuring the right of financial sector regulators to take measures to preserve the safety and soundness of the financial system.

Investment and Dispute Settlement

Investment (Chapter 14)

The objective of an investment chapter in a free trade agreement (FTA) is to establish a framework that provides investors with a predictable, stable, transparent and rules-based investment climate. It is intended to help ensure that Canadian investors are treated fairly and have an equal chance to compete for business abroad. In the Canada-United States-Mexico-Agreement (CUSMA), the investment chapter was updated to bring it into line with the recent treaty practices of the three parties. The chapter contains a comprehensive and robust set of obligations similar to those found in other FTAs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These obligations include: national treatment; most-favoured nation treatment; a minimum standard of treatment for investments; disciplines on the use of performance requirements; prohibition of expropriation except for a public purpose and with prompt and effective compensation; prohibitions regarding investors’ ability to discriminate on the basis of nationality to hire management and board of directors; predictability in terms of transferring capital.

CUSMA does not include a trilateral investor-state dispute settlement (ISDS) mechanism. Under CUSMA, the United States and Mexico have agreed to maintain a bilateral ISDS mechanism for a narrow set of disciplines and sectors. The parties have also agreed to a transitional period of three years, during which ISDS under the original NAFTA will continue to apply only to investments made prior to the entry into force of CUSMA. Apart from this transition period for existing investments, CUSMA parties’ investors will not be able to launch an ISDS claim against Canada under CUSMA. For Canada, under CUSMA, the only recourse to enforce the obligations of the investment chapter will be state-to-state dispute settlement mechanism. Note that the CPTPP ISDS mechanism will be available to Canadian investors in Mexico and to Mexican investors in Canada.

Dispute Settlement (Chapter 31)

Chapter 31 establishes a state-to-state dispute settlement mechanism that provides a transparent, open and clear means to resolve disputes between CUSMA parties regarding the interpretation or application of the Agreement. Almost all of the obligations in the Agreement, including those related to labour and the environment, are subject to this dispute settlement system. The chapter provides the ability to resolve disagreements through cooperative means such as consultation and mediation, so that formal dispute settlement is used only if the parties to a dispute fail to resolve it through other means.

If cooperative means of dispute resolution fail, the chapter provides for the creation of panels to assess whether a party has violated its obligations. If a party is found to have failed to implement its obligations under the Agreement, the chapter also requires the offending party to bring itself into compliance (in other words, remove the violation), or face retaliation (in other words, the suspension of benefits of equivalent effect).

Intellectual Property

Intellectual Property Rights (Chapter 20)

CUSMA contains a comprehensive chapter on intellectual property (IP) rights, which includes provisions in almost all areas of IP rights protection and enforcement, such as copyright and related rights, trademarks, geographical indications (GIs), industrial designs, patents, pharmaceutical IP, data protection for agricultural chemical products, trade secrets, and civil, criminal, and border enforcement. This chapter builds on the parties’ IP commitments under the original NAFTA, as well as the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and certain treaties administered by the World Intellectual Property Organization (WIPO). In building on parties’ existing IP commitments, the IP chapter also reflects recent developments in the digital economy since the original NAFTA was negotiated, such as with respect to copyright in the digital environment. For instance, the IP chapter contains provisions building on the WIPO “Internet treaties,” and recognizes Canada’s “notice-and-notice” framework for Internet service provider (ISP) liability as an effective approach to addressing online infringement.

In most areas, Canadian IP law and policy is already consistent with the CUSMA outcome. However, Canada will be required to make certain changes to its IP regime upon entry into force of the Agreement, in the areas of copyright and related rights (full national treatment for copyright and related rights; criminal remedies in respect of rights management information or RMI; increase in certain specific copyright terms of protection, such as 75 years for published sound recordings from the date of publication, up from Canada’s current term of 70 years from publication), and IP rights enforcement (ex officio border authority to detain suspected counterfeit trademark and pirated copyright goods in-transit; and new criminal offenses for the unauthorized and willful misappropriation of trade secrets).

Trade and Indigenous peoples

In CUSMA, Canada was successful in achieving priority outcomes with respect to Indigenous peoples, in line with the government’s efforts to advance Indigenous rights, prosperity and sustainable development in Canada and around the world. Canada’s obligations to Indigenous peoples under the Canadian Constitution cannot be superseded or undermined by commitments under a free trade agreement. To ensure clarity on this point, the government has secured a general exception related to the rights of Indigenous peoples. This exception is a demonstration of the commitment by all three parties to ensure that the Agreement’s obligations do not interfere with a party’s legal obligations toward Indigenous peoples.

As in all of Canada’s free trade agreements, policy flexibility has been retained to ensure Canada’s ability to advance the interests of Indigenous peoples and Indigenous-owned businesses, including in the areas of services, investment, environment, state-owned enterprises and government procurement. There are also important outcomes that reflect the important role of Indigenous peoples regarding the environment, including in the conservation of biodiversity. The textile and apparel goods chapter also expands on an existing NAFTA provision to provide a special, facilitative pathway to origin for Indigenous textile and apparel goods.

Annex C: List of Acronyms

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