Environmental Assessments of Trade Agreements: Process and Revised Framework

The environmental assessment (EA) of trade agreements is one of three complementary assessments undertaken by Global Affairs Canada (GAC) to evaluate the impacts of Canada’s trade policy initiatives. In parallel with Economic Impact Assessments and Gender-Based Analysis + (GBA+), EAs aim to assess the impacts of prospective international trade agreements against environmental sustainability priorities, as set out in Canada’s current Federal Sustainable Development Strategy (FSDS).

Since 2001, GAC has been conducting environmental assessments of its international trade negotiations, further to the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals. This directive provides guidelines to departments and agencies in their conduct of strategic environmental assessments of policies, plans and program proposals. Building on these guidelines, GAC developed its own framework for the environmental assessment of trade negotiations, which takes into account the environmental implications of trade agreements and the international context in which they are negotiated. As such, EAs closely align with the negotiation process and begin as early as possible at the policy development stage in order to identify possible environmental effects that are likely to arise from a trade agreement. This tailored approach helps to effectively assess the environmental implications of international trade negotiations, as well as to identify ways to reduce environmental risks and enhance positive environmental outcomes notably through specific provisions in our trade agreements.

The Framework for Conducting EAs of Trade Agreements is a reference document that sets out the objectives, guiding principles, analytical approach and processes to be followed.

Objectives

The objectives of conducting an EA for international trade negotiations and agreements are to:

• Assess the environmental risks and opportunities that a potential trade agreement may create in Canada and beyond;
• Assist Canadian negotiators to take into account environmental considerations during the negotiating process, with a view to mitigate risks and enhance benefits and mainstream relevant environmental provisions across the agreement;
• Support the identification of possible additional domestic measures to further mitigate risk and enhance benefits;
• Report to Canadians on how environmental factors are being considered over the course of trade negotiations in the Initial and Final EAs; and
• Utilize governance structures in the agreement to assess and monitor environmental risks identified in the EAs and leverage cooperation activities as well as stakeholder engagement to support mitigation strategies identified during the negotiations.

Guiding principles

The principles that will guide the application of this revised environmental assessment framework to trade negotiations are:

• Flexibility, which means that GAC will be flexible in the application of the EA framework given the wide range of different types of trade agreements that GAC advances globally, at the bilateral, plurilateral, and multilateral levels, as well as whether the prospective trade agreement is new or a modernization.
• Timeliness, which means conducting the EA in a timely manner so that it can influence decision-making and the negotiations.
• Transparent and accountable, which means that GAC will align its practices with Open Government Principles, consult with a diverse range of stakeholders and all other interested parties before, during and after negotiations, and publish reports on feedback received from consultations and share information with stakeholders on how their input was used and if it influenced any changes in approach.
• Evidence-based, which means that analysis and decision-making will be based on data and science, and other quantitative and qualitative evidence sourced from Canadian and other reputable international sources.
• Continuous improvement, which means that GAC will aim to continuously learn from implementing the framework and update and renew it as necessary to integrate learnings and good practices to ensure continuous improvement.

Analytical approach

Canada recognizes the principle that free and open trade, protecting the environment and acting on climate change must go hand-in-hand. Our sustainable prosperity depends on this. The current Federal Sustainable Development Strategy (FSDS) sets out the Government of Canada’s environmental sustainability priorities, establishing medium-term targets, and identifying short-term milestones and actions to achieve them. The FSDS reflects key government priorities and initiatives such as efforts to implement the UN 2030 Agenda; the Pan-Canadian Framework on Clean Growth and Climate Change; the Oceans Protection Plan; and work undertaken to address plastic waste and greenhouse gas emissions. The Strategy outlines the Government’s actions across federal departments and agencies to promote clean growth, ensure healthy ecosystems, and build safe, secure and sustainable communities. Learn more about the FSDS.

An important commitment under the FSDS is to ensure that informed and sustainable decisions are based on a clear understanding of the environmental effects of any proposed policy, plan and program. That is what environmental assessments of trade agreements aim to achieve.

Our approach to the environmental assessment of trade agreements is based on a recognition that:

• trade has broad environmental implications, both positive and negative; and
• understanding these implications will allow the Government to effectively use trade agreements as a tool to support environmental efforts and climate action, both domestically and globally.

The Analysis

For the purpose of the analysis and based on the Cabinet Directive definition, the environment is defined as the components of the earth, including land, water and air, and all layers of the atmosphere; all organic and inorganic matter and living organisms; and the interacting natural systems that include components referred to above.

Further, an environment effect is defined as any change in the environment that may result from the trade agreement, whether any such change occurs within or outside Canada.

Based on these definitions, two complementary components form the heart of the EA analysis:

• a quantitative and qualitative assessment of the environmental implications of projected changes in the production and movement of goods and people as a result of the agreement;
• a review of trade agreement provisions that can play an active role in the context of the negotiation in addressing environmental risks and promoting environmental stewardship in Canada and in the partner economy(ies).

Recognizing that the environmental risks identified may have implications that go beyond the agreement under review, the third and last component of the analysis reviews existing environmental legislation, policies, and actions in Canada for their potential to mitigate environmental effects of a trade agreement.

Taken together, these three components serve mutually supportive functions that are at the heart of the EA process.

The quantitative and qualitative assessment

The first component of the analysis seeks to isolate the effects of new trade and investment that may result directly from a trade agreement, and estimates potential related risks and benefits for the environment. Depending on the nature of the agreement under review and subject to available information and data, various combinations of quantitative and economic modelling-based analysis, qualitative analysis and case studies may be used to present a comprehensive assessment of possible environmental risks and opportunities.

Quantitative assessment and economic modelling-based analysis

Economic modelling provides a robust methodology for comparing a baseline scenario – without the agreement – to a post-liberalization scenario – after the full implementation of the agreement. This can be done through the use of various economic models and statistical analyses, including a Computable General Equilibrium (CGE) model of global trade^{Footnote 1}, which projects changes in output and other key economic variables as a result of a trade agreement.

Based on these projections, estimates are made of the environmental impacts that expected increases or decreases in production may have across sectors. These include measures of climate change (through GHG emissions), energy and water usage and other relevant and available indicators. Continuous efforts are made to improve and expand on the list of indicators retained for this analysis.

Results produced by the model distinguish between scale, composition and technical effects of projected changes. The scale effect measures the impact of an expansion of economic activity as a result of the agreement, assuming that the nature of that activity remains unchanged; the composition effect captures the changes in emissions and depletion of resources resulting from shifts in the structure of the economy due to trade policy changes; and the technical effect captures the current and future evolution of the environmental performance by sector, further to the adoption of new technologies and enforcement of regulations.

While the indicators tracked via economic modelling may only cover a few environmental aspects and be limited to production-induced changes, this analysis gives a useful indication of the sectors that are likely to be the main source of increased emissions, energy and water usage as a result of the agreement. Although limited in depth and scope, the economic modelling-based analysis is thus a useful tool to identify a selected number of sectors that should be subject to further detailed analysis, notably through qualitative analysis and case studies as detailed below.

Qualitative assessment and case studies

Recognizing that the economic modelling-based approach does not provide the information required to fully assess all environmental implications of a trade agreement, and in some cases may not be possible due to a lack of quantitative data, the analysis is supplemented by a qualitative analysis of other environmental effects of increased commercial and investment flows between Canada and partner economies.

Qualitative analyses and case studies are used to study potential environmental effects in cases where impacts are believed to be significant but when data are limited, when issues at stake are complex, and when regional or sectoral impacts may not be adequately captured by aggregate indicators. This approach is particularly useful to assess impacts outside of Canada or in specific sectors, including those highlighted in the economic modelling-based analysis. For effects beyond Canada, there will be a dedicated section in both the Initial and Final EAs, and the nature of the section will depend on data availability.

The assessment of risks to the non-Canadian environment provides an opportunity for Canada and its partners to work together to ensure that the trade agreement aligns with common environmental sustainable development goals. That said, this analysis presents a number of challenges. Notably, the nature and significance of projected environmental impacts outside of Canada depend in large part on the effects of an agreement on the economic structure of the other party(ies), as well as on the regulations, policies, and actions these economies have or will put in place to prevent and manage environmental risks created by the trade agreement. Recognizing these limitations, the objective of the analysis is to highlight key possible environmental risks to the non-Canadian environment, with a focus on issues of global significance such as climate change, plastic pollution, biodiversity preservation, and land and ocean conservation. Such qualitative analyses and case studies should be done in collaboration with the other party(ies) in order to promote common sustainable development objectives, ensure high-quality, evidence-based analysis and support optimal decision-making on both sides.

In the case of sectoral and regional analyses, the selection and design of related case studies are based on sectoral and regional data, available studies of similar agreements, as well as submissions made in the context of consultations with provinces and territories, Indigenous peoples, EAAG members and the general public.

As appropriate, the qualitative analysis and case studies may be developed internally, or contracted to a consultant with expertise in environmental assessment methodology, regional and sectoral analysis.

The review of trade policy mitigation and enhancement measures

The second component of the analysis aims to identify the trade policy options available to mitigate environmental risks and enhance environmental benefits in the context of the potential trade agreement under review. While it is understood that not all environmental risks and benefits arising from trade liberalization can be addressed through trade policy provisions, this review provides an opportunity for trade negotiators to effectively integrate the environmental risks and benefits identified in the quantitative and qualitative assessments and address them through trade policy if possible, with a view to mainstreaming environmental considerations across the agreement. For example, environment related trade policy measures could include creating a committee under the agreement for parties to discuss and promote best practices in environmental regulations (i.e. Environment Committee under the Comprehensive and Progressive Trans-Pacific Partnership agreement); prioritizing negotiation of trade barriers that limit market access for the environmental goods and services sector; establishing binding and enforceable dispute resolution processes to address any questions regarding compliance with environmental commitments under the agreement, etc. Moreover, environment provisions could be included in chapters beyond the Environment Chapter of the FTAs. For instance, in the Sanitary and Phyto-Sanitary Measures chapter, Canada seeks provisions that maintain each party’s right to take measures necessary to protect against risks to food safety, animal or plant life or health, while ensuring that such measures are science-based, transparent and do not create unnecessary and unjustifiable sanitary and phyto-sanitary trade restrictions.

This component of the analysis makes the necessary linkages between provisions negotiated under the agreement and Canada’s sustainable development objectives, including under the Federal Sustainable Development Strategy (FSDS), the Paris Agreement, and the 2030 Agenda for Sustainable Development.

The review of trade policy mitigation and enhancement measures is generally conducted on a chapter-by-chapter basis. This systematic approach allows us to capture and report on all relevant opportunities to advance sustainable development objectives through trade.

Existing environmental legislation, policies and actions

The analysis of the environmental implications of a trade agreement would not be complete without considering the broader set of domestic laws, policies and actions that help prevent and manage environmental risks in Canada.

The main objective of this review of existing environmental legislation, policies and actions is to assess projected environmental impacts against the existing framework for mitigating environmental impacts in Canada. This review helps to identify opportunities for additional domestic policy responses in cases where an effect or opportunity cannot be addressed through the agreement itself. The analysis thus includes recommendations for flanking measures, as relevant, to further maximize the benefits of the proposed agreement and mitigate risks that may not be addressed in the agreement or in the existing environmental framework.

While this review of Canada’s existing environmental framework is focused on the legislation, 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. The analysis in this regard will help other levels of government identify opportunities and needs for additional mitigation or enhancement measures under their respective jurisdiction.

The Process

The process for conducting EAs is flexible and can be adapted to a variety of trade negotiations^{Footnote 2} on a case-by-case basis, according to the scope and nature of the agreement under negotiation. As a general rule however, the following key players and analytical steps form an integral part of all EA processes.

The key players

EAs of trade agreements are conducted with the active contribution and support of five key players: Federal departments and agencies; Provincial and Territorial governments; Indigenous peoples; members of the Environmental Assessment Advisory Group (EAAG); and the public at large.

1. Federal departments and agencies
   As the lead department responsible for the negotiation of international trade agreements, the responsibility to conduct EAs lies with Global Affairs Canada (GAC), with support from relevant federal departments and agencies, including but not limited to: Environment and Climate Change Canada; the Impact Assessment Agency of Canada; Innovation, Science and Economic Development Canada; Employment and Social Development Canada; Natural Resources Canada; Crown-Indigenous Relations and Northern Affairs Canada; Department of Canadian Heritage; Finance Canada; Agriculture and Agri-Food Canada; Transport Canada; Fisheries and Oceans Canada; Health Canada; Immigration, Refugees and Citizenship Canada; Canada Border Services Agency; and the Canadian Food Inspection Agency.
2. Provincial and territorial governments
   Consultations with provinces and territories are essential to the environmental assessment of trade negotiations, given the potential for localized impacts and implications on issues of provincial or territorial jurisdiction. Under our Constitution, the management of environment issues is an area of shared jurisdiction between federal and provincial and territorial governments. The federal government collaborates with provinces and territories: to protect species and spaces; to develop environmental standards, guidelines, regulations and other risk management instruments; and to monitor levels of contaminants in air, water and soil. This collaboration is reflected in the EA process, and provincial and territorial input is integrated into the analysis to reflect regional environmental perspectives, as relevant.
3. Indigenous peoples
   The EA process also recognizes the important role of Indigenous peoples in the long-term conservation of the environment, sustainable fisheries and forestry management, and biodiversity conservation. Indigenous groups are actively engaged in environmental assessments of trade negotiations, notably through the GAC-led Indigenous Working Group on trade policy (IWG). The IWG comprises National Indigenous Organizations^{Footnote 3}, modern treaty partners, Indigenous industry associations, academics, legal and policy experts, and others.
4. Environmental Assessment Advisory Group (EAAG)
   The EAAG is composed of 10 to 15 expert volunteers from the business sector, academia and non-governmental organizations. GAC relies on the EAAG to provide advice on key environmental issues in the context of trade policy initiatives undertaken by the Government. More generally, the EAAG also advises on best methodological approaches for the analysis of environmental impacts of trade negotiations, providing an important independent perspective in this regard. Members provide advice in their own capacity and are appointed for a three-year renewable term by the Director General responsible for the Trade Agreements Secretariat at GAC. Members of the EAAG sign a non-disclosure agreement to enable their access to negotiating texts and confidential material.
5. General public
   General public participation, including from academics, industry and stakeholders, is an essential part of open, informed and meaningful impact assessment processes. This fundamental principle is applied at every step of the EA process of trade negotiations through regular public consultations. Perspectives shared by the general public play an important role in informing decision-making on environmental issues. A “What We Heard” report will be published following receipt of comments received from stakeholders on the EA consultations.

The Phases of the Assessment

The analytical phases of an EA are guided by the Cabinet Directive and designed to ensure that assessments of environmental effects are conducted as early as possible in the development of a proposed trade policy initiative. These phases are closely aligned to the trade negotiation process, in order to support the integration of environmental considerations during negotiations on an ongoing basis. Consideration of the effects beyond Canada’s borders will be integrated into each phase of the assessment. The four phases and their interaction with the negotiation process are as follows:

Phase 1: Initial EA analysis and reporting

The EA process is initiated as soon as exploratory discussions are launched with potential trade partner(s) in view of the future negotiation of a trade agreement. At this stage, the EA process focuses on: (1) activating communication channels with all key players involved in the analysis and, (2) establishing the methodological approach and scope of the analysis.

This stage starts with GAC notifying representatives from all involved federal departments and agencies of the initiation of work on an initial EA. Notices^{Footnote 4} are also sent to provincial and territorial governments, Indigenous peoples, EAAG members and the general public. The purpose is to inform them of the upcoming exploratory discussions and solicit their early input in the analysis of potential environmental risks.

Preliminary screening analysis is then conducted to assess the likely impacts on the environment of the trade agreement under consideration, in order to refine the analysis and identify the most significant risk areas. This also includes a review of possible elements to be negotiated as part of the agreement that could help mitigate potential negative impacts of the agreement, enhance positive ones, or more generally advance environmental protection objectives.

Led by GAC, this preliminary screening analysis involves extensive contributions from the environmental experts in Other Government Departments (OGDs), as well as consultations with EAAG members, provincial and territorial government representatives, Indigenous peoples’ representatives, and the general public. Summarizing the key findings of the analysis, an Initial EA Report is prepared by GAC and made public after the launch of negotiations (if approval is given by Cabinet to launch negotiations). Indigenous peoples, stakeholders and the general public are invited to submit comments on the document, which will support the integration of environmental considerations going forward and feed into the preparation of the Final EA Report.

Phase 2: Integration of environmental considerations in ongoing negotiations

This phase of the process involves the consolidation of the analysis undertaken in Phase 1 and the integration of environmental considerations into the preparation of Canadian positions during negotiations.

During this phase, more in-depth quantitative and qualitative analysis of the significant risk areas identified in Phase 1 is undertaken, and its key findings are shared with lead negotiators in real time. Lead negotiators are responsible for integrating these findings into their negotiation strategy before each negotiating round. As the negotiations proceed, the trade negotiation may touch on unanticipated areas, thereby necessitating further analysis of potential environmental implications. Phase 2 of the assessment ensures that the identification and integration of environmental considerations is not a one-time exercise but carries on dynamically during the course of negotiations.

Informal consultations with the environmental leads within the Department and OGDs are ongoing throughout this phase. Updates are also shared with provincial and territorial governments, Indigenous peoples and EAAG members on a regular basis as negotiations progress.

Phase 3: Final EA analysis and reporting

The third phase of the EA process updates the analysis undertaken in phases 1 and 2 based on the final outcomes of the concluded negotiations. It completes the analysis of selected environmental risk areas and of any other environmental consideration noted in the course of negotiations, and reports on the provisions included in the final agreement to help mitigate potential negative impacts, enhance positive ones, and advance environmental protection objectives in Canada and in partner economy(ies).

Drafted by GAC with input from the environmental experts within GAC and OGDs, a draft version of the Final EA Report is shared with provincial and territorial governments, Indigenous peoples and EAAG members for their comments. The Final EA Report is made public after the conclusion of negotiations.

Phase 4: Monitoring and ex-post reporting

The effectiveness of trade agreements as a tool to support environmental efforts and climate action continues to be relevant during the implementation phase of trade agreements. As cooperation mechanisms are put in place to advance common objectives, the monitoring of committee work and joint initiatives under the agreement provides an opportunity to track the results of the environmental measures taken in the context of the agreement.

Actual follow-up and monitoring depend on the context of the agreement and objectives of Parties involved. Follow–up activities may include ex-post environmental studies as well as ongoing reporting on cooperation activities, as appropriate. These would not only aim to monitor environment-related measures taken under the agreement but also to compare actual environmental effects with levels identified in the Initial EA.

More generally, follow-up efforts include the continuous improvement of the EA process itself through regular consultations and strategic reviews, in order to ensure that the EA approach remains a useful tool to address environmental risks in the context of trade negotiations.

For further information on the Revised EA Framework, please contact:
The Trade Agreements Secretariat (TCT)
Global Affairs Canada
111 Sussex Drive
Ottawa, Ontario
K1A 0G2
or by e-mail at: EAconsultationsEE@international.gc.ca