Pacific Alliance Free Trade Agreement Negotiations - Initial Environmental Assessment

June 20, 2019

I. Executive summary

The Pacific Alliance (PA) was launched in 2011 by Chile, Colombia, Mexico and Peru. It is a regional integration initiative that aims to increase cooperation by creating common rules to promote greater competitiveness and economic growth, and expand their economic relations with the Asia-Pacific region.

In October 2012, Canada became the first non-Latin American observer to the bloc. On June 2017, Canada was invited to become an Associate State, along with Australia, New Zealand and Singapore, which requires each country to negotiate Free Trade Agreements (FTAs) with the PA. Negotiations for a Canada-Pacific Alliance Free Trade Agreement (CPAFTA) were initiated with a first round of negotiations held in Cali, Colombia, from October 23 to 27, 2017.

Canada has comprehensive Free Trade Agreements (FTAs) in force with all four members of the Pacific Alliance (Chile (1997^{Footnote 1} ), Colombia (2011), Mexico (the North American Free Trade Agreement (NAFTA), 1994), and Peru (2009)). In addition, three of the four members of the PA (Chile, Mexico and Peru) are also signatories to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force on December 30, 2018, for the first six countries to ratify the agreement, including Canada and Mexico (Chile and Peru have yet to ratify the CPTPP). A Canada-PA FTA represents a strategic opportunity for Canada to: (1) streamline and modernize our existing agreements; (2) achieve incremental market access improvements where possible; and (3) include elements that reflect Canada’s inclusive approach to trade (e.g. gender, SMEs, Indigenous peoples).

The Government of Canada is committed to conducting environmental assessments (EAs) for all its prospective FTAs. These EAs assist Canadian negotiators in integrating environmental considerations into the negotiating process, and otherwise document how environmental factors can help inform the negotiations. Through the EA and negotiating process, Canada seeks to ensure that proposed trade agreements contribute to the development of the Canadian economy in a sustainable manner.

Pursuant to the 2001 Framework for Conducting Environmental Assessments of Trade Negotiations (the “Framework”), this report constitutes Global Affairs Canada’s (GAC) Initial Environmental Assessment of a potential Canada-PA FTA. According to the Framework, the primary purpose of an Initial Environmental Assessment is to identify the main environmental issues likely to arise in Canada as a result of the proposed agreement. In other words, this assessment considers the effects of incremental trade that may result directly from an FTA between Canada and the PA. This Initial Environmental Assessment is not intended to predict specific outcomes of a Canada-PA FTA. Instead, it provides an assessment of the FTA’s possible impact, if any, of trade-induced economic and regulatory changes in Canada. The Initial EA is, therefore, more of a “forecasting” or “anticipatory” exercise.

Given the high quality of existing FTAs between Canada and all of the PA countries, the economic impact expected from the negotiation of an FTA with the PA is modest. Therefore, the environmental impact is expected to be very limited.

Moreover, any potential environmental impacts will be at least partially mitigated by Canadian pursuit of specific types of provisions in its FTAs. Canada’s broad environmental objectives in negotiating trade agreements are to:

• preserve Canada’s ability to protect the environment;
• promote mutually supportive trade and environment objectives, including through cooperation;
• improve the allocative efficiency of resources with the aim of generating positive environmental impacts;
• strengthen environmental governance; and
• support efforts to address international environmental challenges that affect Canada’s environment, economy, and health.

II.  Overview of the environmental assessment process

The Government of Canada has committed to conducting EAs of all trade and investment negotiations that includes interdepartmental collaboration and public consultations. The 2001 Framework for the Environmental Assessment of Trade Negotiations(the “Framework”) details this process, and was developed in response to the CabinetDirective on Environmental Assessment of Policy, Plan and Program Proposals. Detailed guidance for applying the Framework is contained in the Handbook for the Environmental Assessment of Trade Negotiations(the “Handbook”). The revised Guidelines for Implementing the Cabinet Directive require departments to describe, in appropriate detail, the scope and nature of environmental effects that could arise from implementing proposals and how they could affect the Federal Sustainable Development Strategy’s goals and targets.

The Framework provides a process and methodology for conducting the EA of a trade negotiation. It is intentionally flexible so that it can be applied on a case-by-case basis according to the nature of the agreement being negotiated. The objectives of the EA process for a trade negotiation, as outlined in the Framework are to:

• assist Canadian negotiators to integrate environmental considerations into the negotiating process by providing information on the environmental impacts of a proposed trade and/or investment agreement; and
• document how environmental factors are being considered in the course of trade negotiations.

The Framework provides for three phases of assessment:

• (1) Initial Environmental Assessment: a preliminary examination to identify potential key issues.
• (2) Draft Environmental Assessment (if required): builds on the findings of the Initial Environmental Assessment and provides detailed analysis of those issues. 
• (3) Final Environmental Assessment: takes place after the conclusion of the negotiations, taking into account final negotiated outcomes.

At the conclusion of each phase, a public report is issued, along with a request for public comments.^{Footnote 2} In the event that an Initial Environmental Assessment finds little likelihood of significant environmental impact occurring as a result of an agreement, a Draft Environmental Assessment is not required. In such cases, environmental considerations continue to be integrated into ongoing discussions, and a Final Environmental Assessment must still be completed.  

If warranted, follow-up and monitoring can be undertaken after the conclusion of an EA in order to review any mitigation or enhancement measures recommended in the Final Environmental Assessment. 

Assessment Methodology

The Framework provides a four-stage analytical methodology for conducting the Initial, Draft, and Final Environmental Assessments. Guidance on how to conduct each stage of the analysis is provided in the Handbook (section 4.6.1).

a. Identification of the economic effect of the agreement to be negotiated. This stage identifies the trade liberalization activity of the agreement under negotiation. It examines the areas the potential agreement may include, the changes or new trade activity that could result, and the overall economic relevance to Canada. This helps determine the scope of analysis for the EA and to prioritize the issues to be assessed.

b. Identification of likely environmental impact of such changes. Once the economic effects of the proposed trade agreement have been estimated, the likely environmental impacts of such changes are approximated. Consideration is given to potential positive and negative impacts.^{Footnote 3}

c. Assessment of the significance of the identified likely environmental impacts. The identified likely environmental impacts are then assessed as to their significance. The Framework outlines various criteria in determining significance, including frequency, duration, permanency, geographical scope and magnitude, level of risk, irreversibility of the impacts, and possible synergies among the impacts.

d. Identification of enhancement/mitigation options to inform the negotiations. The Initial Environmental Assessment is intended to identify, in a preliminary fashion, the possible policy options or actions that might be required to mitigate potential negative impacts and/or to enhance potential positive impacts that may result from the proposed agreement.

The EA of a trade negotiation requires interdepartmental collaboration. An interdepartmental committee is established to review the EA of each negotiation and includes participation by the Canadian Environmental Assessment Agency and Environment and Climate Change Canada, as well as officials from other government departments and agencies participating in the negotiations. This approach facilitates informed policy development and decision making throughout the negotiating process.

The EA process also includes consultations with the public, provincial and territorial governments and with the non-governmental Environmental Assessment Advisory Group (EAAG). The EAAG is made up of persons drawn from the business sector, academia and non-governmental organizations; the group provides advice in its own capacity on the Global Affairs Canada (GAC) environmental assessment process. At the conclusion of each assessment phase (i.e. Initial, Draft and Final), EAs are shared with provincial and territorial representatives and the EAAG for feedback before being released for public comment.

The Initial Environmental Assessment

Structure and Scope

The Initial EA consists of two levels of analysis: a scoping exercise and detailed analysis based on the analytical methodology outlined in the EA Framework. Table 1 presents the findings of the scoping exercise for each issue area (and corresponding potential FTA chapter). A more detailed analysis of potential environmental impacts in the areas of trade in goods, services, investment and government procurement is also included, as those areas typically represent core areas in the negotiations and are most likely to generate measurable economic effects.

The Consultation Process

An interdepartmental EA Committee was established by GAC to review the EA of the Canada-PA FTA negotiations. This Committee comprises representatives of GAC, Environment and Climate Change Canada, the Canadian Environmental Assessment Agency and other federal departments covering the areas being negotiated under a prospective Canada-PA FTA.

As noted above, prior to seeking public consultations, the findings of an Initial EA are shared with the EA Committee; Provinces and Territories; as well as the EAAG, composed of individuals from industry, academia and NGOs. The current Initial EA reflects comments received from these groups.

Public comments received after the publication of this Initial EA will be taken into consideration when drafting the Final EA.

III. Summary of public comments received during initial consultation

A Notice of Intent to conduct a Strategic Environmental Assessment of a prospective Canada-PA FTA was published on October 27, 2017 and posted on the Government of Canada’s website on November 1, 2017^{Footnote 4} . This Notice invited interested individuals to submit their input for consideration in the drafting of the Initial Environmental Assessment. No comments were received.

The Government of Canada welcomes input and comments on this Initial Environmental Assessment. Any comments received will be used to inform subsequent EA analysis, as well as future EAs of trade negotiations more broadly. Suggestions for enhancement of mitigation measures regarding potential negative environmental impacts and augmentation of positive effects identified at this stage are also encouraged.

Comments and inputs can be sent to:

E-mail: EAconsultationsEE@international.gc.ca

Mail:
Environmental Assessment of the Canada-PA FTA Negotiations
Trade Policy and Negotiations (TCW) 
Global Affairs Canada, John G. Diefenbaker Building
125 Sussex Drive, Ottawa, Ontario K1A 0G2

IV. Trade and environment

The Government of Canada’s Environmental Objectives in Relation to Trade

The Government of Canada’s first broad environmental objective in negotiating trade agreements is to preserve its ability to protect the environment by pursuing core obligations related to each party’s right to regulate and establish its own levels of domestic environmental protection and its own environmental priorities. A second objective is to promote mutually supportive trade and environment objectives, including through cooperation, the intention is to enhance environmental performance by seeking provisions on environmental cooperation in areas such as environmental goods and services, corporate social responsibility, and voluntary mechanisms. Thirdly, by pursuing provisions related to sustainable use of natural resources, such as fisheries and forestry, Canada is intending to fulfil its objective of improving the allocative efficiency of resources with the aim of generating positive environmental impacts. A fourth objective is to strengthen environmental governance and is expected to be achieved by pursuing core obligations in FTAs for parties to maintain high levels of environmental protection and robust environmental governance, including commitments such as to enforce environmental laws; to not derogate from these laws to encourage trade or investment; and to promote transparency, accountability and public participation. Finally, Canada aims to support efforts to address international environmental challenges that affect Canada’s environment, economy, and health. This is expected to be achieved by pursuing provisions related to global environmental challenges in areas such as sustainable management of forests, sustainable management of fisheries, combating illegal trade in wildlife, promoting biodiversity conservation, and provisions to support climate change.

The Government of Canada is committed to ensuring that its trade negotiations encourage mutually supportive trade and environmental objectives. The importance of this commitment is underscored by the strong correlation between open markets, economic development and environmental protection. A strong, rules-based trading system and efficiently regulated markets are key building blocks for economic growth and development. In turn, public support for measures to protect the environment generally increases as incomes rise, as do resources available to implement effective environmental policies. The reduction of trade barriers also helps create conditions that facilitate trade and investment in environmentally responsible technologies.

At the same time, an increase in global economic integration and investment may have an impact on Canada’s Federal Sustainable Development Strategy (FSDS) goals and targets^{Footnote 5} . The environmental assessment of this initiative takes into account the FSDS goals and targets. The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, published in 2010, supports the Government’s approach to sustainable development, including by requiring that SEAs consider how proposals could affect the achievement of goals and targets identified in the Federal Sustainable Development Strategy. In addition, the Federal Sustainable Development Act (2008), section 9(1), explicitly mentions the development of the FSDS within two years of the enactment, and every three-year period after that. The first FSDS goals were introduced in 2010, the second strategy in 2013, third in 2016, and so on.

The core objective of the EA is to identify potential negative environmental impacts as a result of a trade agreement so that negotiators can take this into account during the course of negotiations with the aim of minimizing potential harmful effects while also contributing to the economic wellbeing of Canadians. For example, Canada seeks to incorporate an ambitious Environment Chapter as well as provisions in other key chapters in its FTAs, including in a prospective Canada-PA FTA. This includes commitments to maintain high levels of environmental protection and robust environmental governance as trade is liberalized, and to not derogate from environmental laws to encourage trade or investment. As well, Canada is advancing commitments in its FTAs that support efforts to address global environmental challenges, such as climate change. The identification of likely and important environmental effects of a proposed FTA also enables negotiators to consider whether existing mechanisms (e.g. existing laws and/or regulatory frameworks) are sufficient, should an agreement be concluded and enter into force, or whether new efforts would be required to mitigate any identified environmental impacts.

V. Overview of the economic relationship between Canada and the PA members

The Pacific Alliance (PA) is a regional integration initiative created in 2011 by Chile, Colombia, Mexico and Peru to promote greater competitiveness and economic growth for member countries. At its June 2017 Council of Ministers’ meeting, the PA members invited Canada, along with Australia, New Zealand and Singapore, to become Associated States, a process that involves the negotiation of comprehensive FTAs between each prospective Associated State and the PA. Seven rounds of negotiation have taken place to date, with the most recently held on October 22-26, 2018 in Mexico City.

With a combined GDP of $2.7 trillion, an increasingly skilled workforce and over 225 million consumers (2018, IMF), the PA constitutes an important market for Canada. Canada’s total merchandise trade with these countries reached more than $52 billion in 2018, representing three quarters of Canada’s total two-way merchandise trade with the Latin America and Caribbean region.

Canada already enjoys the benefits of existing FTAs with all four PA countries (Mexico (1994, NAFTA); Chile (1997); Peru (2009)); and Colombia (2011). In addition, three of the four members of the PA (Chile, Mexico and Peru) are also signatories to the CPTPP, which entered into force on December 30, 2018 for the first six countries to ratify the agreement, including Canada and Mexico (as of June 2019, Chile and Peru have yet to ratify the CPTPP). A free trade agreement with the PA as a bloc offers the prospect for Canada to: (1) streamline and modernize its existing agreements; (2) achieve incremental market access improvements where possible; and (3) include elements that reflect Canada’s inclusive approach to trade (e.g. gender, SMEs, Indigenous peoples).

VI. Findings of the initial environmental assessment

The qualitative analysis of potential environmental impacts is not intended to be an exhaustive examination of the economy or environmental issues. Instead, it is developed as a tool for negotiators to inform themselves of potential environmental impacts as a result of a Canada-PA FTA.

The general overview provides a summary of all areas of the negotiations initially contemplated between Canada and the PA members. It also includes an assessment of the potential environmental impact for each area: market access for goods, rules of origin and origin procedures, customs administration and trade facilitation, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, investment, cross-border trade in services, financial services, temporary entry of business persons, maritime services, telecommunications, electronic commerce, government procurement, competition policy, state-owned enterprises, intellectual property, labour, environment, transparency and anti-corruption, cooperation, small and medium enterprises (SMEs), gender and trade, trade and Indigenous peoples, good regulatory practices, legal and institutional issues, and dispute settlement.

Following the general overview, a more detailed analysis is undertaken of potential environmental impacts in four key issue areas: trade in goods, trade in services, investment, and government procurement. Opportunities for mitigation or enhancement based on this assessment of impacts are also assessed.

Limitations of the Qualitative Assessment

As this Initial Environmental Assessment is a scoping exercise intended to provide an overview of the potential impacts of a Canada-PA FTA, several cautionary notes are required concerning the interpretation of the reported environmental impacts.

• The purpose of this assessment is not to assess the environmental impact of economic growth, but rather of the economic activity potentially resulting as a direct outcome of a Canada-PA FTA. There are many macro- and microeconomic forces at play that influence the pattern and flow of trade and investment. The actual economic effects of the Canada-PA FTA negotiations would also depend on how various economic actors, producers, and consumers react to the new liberalized trading environment.
• This analysis focuses on overall impacts for Canada.
• This analysis does not focus on potential impacts for PA countries and distributional impacts for Canada by Province/Territory or region. Although net impacts might be positive, certain regions may be impacted differently.
• As FTA negotiations with the PA are still in progress, there is some degree of uncertainty associated with likely negotiated outcomes. The full extent of these outcomes will not be known until negotiations are concluded.
• Measures taken to protect the environment may cause other, unintended effects on society that have not been considered in this assessment due to their complexity to predict. For example, changed behaviour may offset part of the environmental gain, something that has variously been labeled “take-back” or “rebound” effect (e.g. gains from energy efficiency can be subsequently negated by increases in energy use).

Overview of Qualitative Findings

The following table provides information relating to the various expected areas involved in a prospective Canada-PA FTA. Overall, the high quality of Canada’s existing FTAs with the PA will limit the scope for an increase in trade and investment flows as a result of this initiative, with correspondingly moderated environmental effects.

Table 1. Issue Area Overview

Detailed Analysis

There are four key issue areas of negotiation that have been identified as potentially having a greater likelihood of environmental impacts in Canada, as those areas typically represent core areas in the negotiations and are most likely to generate measurable economic effects:

• A. Trade in goods
• B. Trade in services
• C. Investment
• D. Government procurement

A qualitative analysis of these four areas focuses on the following: (i) anticipated effects of a Canada-PA FTA, (ii) potential environmental impacts and their significance, and (iii) opportunities for mitigation and enhancement.

In addition to the mitigation measures noted in the following sub-sections, Section VII contains a more detailed overview of Environmental Sustainability Indicators, including strategies, regulations, guidelines, standards, and monitoring programs, by which Canada quantitatively tracks its performance on key environmental sustainability issues.

A. Trade in Goods

A1.  Overview

As a bloc, the PA represents the world’s ninth largest economy. Canada's total merchandise trade with these countries was $52 billion in 2017, representing 75% of Canada's total two-way trade with Latin America and the Caribbean. In this regard, the PA represents Canada’s fifth largest merchandise export market (nearly $11 billion) after the U.S., China, the U.K. and Japan, and Canada’s third largest supplier of goods (annual imports of roughly $41 billion) after the U.S. and China.

As a result of Canada’s existing comprehensive and ambitious FTAs with all four PA countries, including most recently the CPTPP, bilateral trade with the PA will be, at full implementation of these FTAs, virtually duty-free. Trade in goods provisions in Canada’s existing FTAs with the PA countries that have contributed to the success of these agreements include: elimination of tariff and non-tariff barriers; trade facilitation measures and customs procedures; and transparent, predictable and consistent rules of origin.

A2.  Anticipated Economic and Environmental Effects

In order to predict where there could be changes in economic activity as a result of an FTA, it is typically useful to examine current tariff levels and trade patterns between the trading partners.

Since Canada’s FTAs with the PA countries provide preferential tariff treatment for the vast majority of goods, any economic or environmental impacts resulting from a potential Canada-PA FTA would be limited to those areas where Canada may obtain incremental improvements in market access. Such improvements would be concentrated among a very small percentage of agricultural products where Canada does not already benefit from full tariff elimination through its existing bilateral FTAs and the CPTPP.

A3.  Significance

Given the considerations noted above, and information available at this time, limited environmental impacts are anticipated as a result of increased trade in goods resulting from a Canada-PA FTA. There may be some modest increases in production resulting from an agreement; however any changes would be limited to the area of agriculture, and for only a limited number of products which are not already duty free.

A4.  Mitigation / Enhancement

While it is not expected that goods provisions in a Canada-PA FTA will have any significant environmental impacts, there are robust mechanisms for mitigating any potential negative impacts related to increases in production that could occur in facilities operating under Canadian legislation and regulation. Canada’s strong regulatory framework ensures that industrial and commercial practices are developed in accordance with sustainable development principles and environmental stewardship. 

In addition, Canadian policies and regulations focused on sustainable development and environmental protection are a critical element of the country’s broader regulatory framework at the federal, provincial and territorial levels of government. For example, environmentally sustainable agriculture is a key component of Canada’s overarching Canadian Agricultural Partnership (CAP) initiatives of the federal, provincial and territorial governments. Collaborative action related to environmental sustainability and climate change adaptation and mitigation improves the agriculture and agri-food sector’s ability to manage risks, enhances productivity, and contributes to economic growth. CAP also builds public confidence in the environmental performance of the agriculture and agri-food sector. It is expected that CAP will result in positive environmental effects that will improve the long term environmental sustainability of agriculture in Canada.

SPS and TBT provisions may also help mitigate any potential negative impacts related to increases in production, as their approach promotes environmental stewardship and the use of internationally accepted standards.

B. Trade in Services

B1.  Overview

Canada’s current bilateral trade in services with PA is modest. In 2017, Canada’s two-way trade in services totalled $5 billion, of which $3.3 billion were imports of services. The main PA market for Canada is Mexico (86% of the bilateral trade), followed by Chile and Colombia (6.5% of the bilateral trade each). No data is available for bilateral trade in services with Peru.

B2.  Anticipated Economic and Environmental Effects

In its FTA negotiations with the PA, Canada is seeking market access improvements for trade in services, where possible. Furthermore, Canada is seeking to modernize and streamline provisions relating to services, with a view to improving transparency and predictability for the benefit of Canadian services providers and vis-à-vis competitors in the PA market. However, given the level of bilateral trade volumes to date, and Canada’s existing bilateral FTAs with all of the PA countries, in addition to the more recent CPTPP (except for Colombia), the potential environmental effects of an FTA with the PA will only be incremental.

B3.  Significance

Canadian suppliers in knowledge-based services sectors are globally competitive, and would benefit the most from the opportunities found in the PA markets. These sectors include: management services; professional services; and technical services including engineering, financial, architectural, environmental, energy, and mining services. These sectors often provide their cross-border services using electronic means (Mode 1), which would minimize any environmental footprints that may emerge from increased activity in these sectors.

B4.  Mitigation / Enhancement

Most services benefitting from liberalization would likely be delivered with less likelihood of negative environmental impacts. Moreover, mitigation options exist in environmentally sensitive sectors (e.g. energy and mining services), such as environmental regulation and industry standards relevant to the specific context. Canada also has significant expertise in the use of clean technologies, which can help reduce any negative environmental impact, and even provide for an environmental enhancement.

Moreover, mitigation options relevant to the specific context, such as regulation and industry standards, exist in environmentally sensitive sectors, such as energy and mining services.

C.  Investment

C1.  Overview

Investment is a significant component of the economic relationship between Canada and the PA. Canadian foreign direct investment in the PA totalled $49 billion in 2018, primarily in mining, oil and gas, energy, finance, infrastructure and aerospace. PA foreign direct investment in Canada totalled just under $3.0 billion for the same time period^{Footnote 6} , primarily in agri-food and mining.

The Canadian and PA economies are generally open to foreign direct investment. Investment occurs within a framework of rules established by the respective regulatory regimes of each party as well as international commitments respecting the establishment of a commercial presence in Canada or the PA countries. Canada has investment chapters in place as part of its existing FTAs with all PA countries. However, there is room for improvement, with a focus on the top sectors for Canadian investments (mining, oil and gas, energy, finance, infrastructure, and aerospace).

C2.  Anticipated Economic and Environmental Effects

Quantifying the economic impact of investment liberalization in the context of a Canada-PA FTA is dependent on quantifying the scope of current barriers to foreign direct investment embodied in national economic regulatory frameworks, determining the extent to which such barriers can be reduced through further liberalization, and determining the financial capacity of individual investors and their subsequent assessment of opportunity and risk. Despite the difficulties in quantifying the economic impact of increased PA-Canada investment, it is particularly important for Canada to pursue a closer economic partnership with the PA countries in the context of an inclusive trade agenda more broadly. The inclusion of inclusive elements helps to reinforce the core values that PA countries and Canada already share and that underpin our economic success. Ensuring these values are formally endorsed in the context of our trade agreements can serve to bolster the existing trade relationship.

The likelihood and significance of the environmental impacts that could stem from the anticipated economic effects of a Canada-PA FTA in the investment context will depend on the degree of any increases in bilateral investment; the sectoral breakdown of investment; the type of investment; and any federal, provincial and territorial measures in place to protect the environment in relation to those activities.

Investment plays an important role in the establishment of global value chains, which facilitate the modern global economy. As such, international commerce very frequently involves extensive intra-firm trade in goods and services within multinational corporations. This is combined with international sourcing of components and services and the international movement of business executives and technical experts as well as capital. The kinds of environmental impacts that could arise from an increasingly integrated global economy could include effects on air and water pollution, as well as land and biodiversity conservation.

C3.  Significance

Given the considerations noted above, and information available at this time, minimal environmental impacts are anticipated as a result of any increased investment through a Canada-PA FTA. 

C4.  Mitigation / Enhancement

Foreign investors in Canada are bound by the same environmental regulations that govern the activities of domestic investors. As in all previous FTAs, Canada is seeking provisions in the Canada-PA FTA to fully maintain its right to regulate in the public interest in sectors such as health, public education, social services and culture, as well as its right to protect the Canadian environment.

Canada’s approach is also to negotiate flexibility to protect legitimate public policy objectives, including providing adequate guidance to arbitrators in the case of a challenge.

Any environmental impacts that could result from the Canada-PA FTA, although not expected to be significant, would be mitigated by this policy flexibility and by existing laws and regulations that govern domestic and foreign investors alike.

A dispute settlement mechanism is expected to be available to investors if they believe Canada has breached the treaty. The outcome of these disputes does not require that laws be repealed or modified; rather monetary damages are paid in the event of a successful claim by an investor.

D. Government Procurement

D1. Overview

Canada’s bilateral FTAs with each of the PA countries (as well as the CPTPP with PA countries except Colombia) contain commitments on government procurement. The market access schedules of Canada’s GP chapters in FTAs open up new opportunities for Canadian suppliers to bid on procurement contracts issued by foreign governments. These agreements also help ensure that Canadian suppliers are treated in a non-discriminatory manner when they bid on procurement contracts and that procurements are conducted in a fair, open and transparent manner. In return, Canada will grant the same treatment to suppliers from PA members seeking to bid on GP contracts in Canada.

D2. Anticipated Economic and Environmental Effects

Government procurement represents a significant proportion of a nation’s GDP. According to the Treasury Board Secretariat of Canada, the estimated annual value of contracts awarded by central entities in Canada (i.e. federal government departments and agencies) in 2016 was $18.2 billion.^{Footnote 7} This estimate excludes both sub-central procurements (such as Provinces and Territories) and procurements conducted by other central entities (i.e. Crown corporations).

Any economic effects from a potential agreement between the PA and Canada are not expected to be significant, in light of Canada’s existing FTAs with the PA countries that already provide a high level of market access. In areas where improvements are obtained, it is expected that the incremental gains of new market access under a Canada-PA FTA would be modest.

D3. Significance

Overall, maintaining or expanding market access commitments in GP is not expected to significantly impact the environment. Although negative transportation impacts of labour and goods may increase marginally, these may be offset by a slight positive impact from a procurement outcome that encourages the use of greener technologies, more efficient construction techniques, etc. Furthermore, procurement conducted by the Government of Canada tends to follow strict guidelines and policies with respect to environmental stewardship, and these policies will remain in place with or without a Canada- PA FTA.

D4. Mitigation / Enhancement

Many of Canada’s FTAs, including the CPTPP, provide that all parties can apply technical specifications to promote the conservation of natural resources or the protection of the environment, provided they are done in a non-discriminatory manner. Such policy flexibilities may help mitigate any environmental impacts arising from increased access to GP markets under the FTA (e.g. by the procurement of more efficient technologies as a result of increased competition). Canada will work to ensure that this policy flexibility is maintained in a FTA between Canada and PA.

Furthermore, green procurement practices will continue to be applied in Canada. In dealing with GP, the federal government, as well as the Provinces and Territories, are committed to take into account the need to restore, maintain, and enhance the environment. Canada will retain its ability to develop and implement green and sustainable procurement policies, and Canada and PA members may benefit from further cooperation in areas such as sustainable procurement. In this respect, the low-carbon Canadian government goal outlined in the 2016-2019 Federal Sustainable Development Strategy will help ensure that federal GP meets environmental standards.

The federal government is a significant purchaser of goods and services in Canada. As such, its activities impact the national economy and can influence both the price and the availability of goods and services, including construction services, in the marketplace. The federal government is in a position to influence the demand for environmentally-friendly goods and services. Consequently, this may further support the industry’s ability to respond to the escalating use of environmental standards in global markets.

As part of its ongoing commitment to improve the environment and quality of life for Canadians, the Government’s Policy on Green Procurement^{Footnote 8} seeks to reduce the environmental impacts of government operations and promote environmental stewardship by integrating environmental considerations through the procurement process, from planning to final disposal. The policy also supports the federal government’s goal of targeting specific environmental outcomes whereby procurement can effectively be used to mitigate their environmental impacts.

VII.  Environmental cooperation

Canada is actively engaged in environmental cooperation activities with all countries of the Pacific Alliance under Environmental Cooperation Agreements (ECAs), which were signed and implemented in parallel with our FTAs with each of the PA countries.

A non-exhaustive list of these agreements or cooperative initiatives (by country) is detailed below:

Chile: The Canada-Chile Agreement on Environmental Co-operation (CCAEC) came into force in July 1997 at the same time as the Canada-Chile Free Trade Agreement (CCFTA). Under the auspices of the CCAEC, Canada and Chile agreed to enhance environmental co-operation and to effectively enforce environmental laws, such as those governing water, air, toxic substances, and wildlife. The goal of the Agreement is to ensure that environmental laws and regulations in both countries provide for high levels of environmental protection.

The Agreement establishes the Canada-Chile Commission for Environmental Co-operation. This Commission is composed of a Council, a Joint Submissions Committee, a Joint Public Advisory Committee, and two National Secretariats, one in each country, that support the work of the Commission.

Recent cooperative activities have focused on protected areas, climate change, conservation of shared migratory species, contaminated sites, air quality, and environmental information systems.

Colombia: The Agreement on the Environment between Canada and the Republic of Colombia (the Canada–Colombia Environment Agreement) was signed on November 21, 2008, and entered into force on August 15, 2011. This Agreement commits both countries to encourage high levels of domestic environmental protection, to foster good environmental governance, and to promote transparency and public participation. It also creates a framework for undertaking environmental cooperative activities. The implementation of the Canada–Colombia Environment Agreement is overseen by a Committee on the Environment, made up of government officials from both countries.

The Environment Agreement reinforces the concept that free trade should not take place at the expense of the environment. The FTA itself also includes a principles-based environment chapter as well as environmental provisions elsewhere in the Agreement.

Recent cooperative activities with Colombia have focused on climate change, biodiversity, and chemical management.

Mexico: Since the mid-1990s, besides a direct bilateral relationship, Canada’s environmental relationship with Mexico has also been trilateral, through its involvement in the North American Agreement on Environmental Cooperation (NAAEC), signed in parallel to the North American Free Trade Agreement (NAFTA) in 1993. This Agreement came into force in January 1, 1994.

NAAEC established the Commission for Environmental Cooperation, commonly referred to as the CEC, which consists of three components: 1) The Council, which is the governing body of the Commission; 2) The Secretariat (headquartered in Montreal), which implements the annual work program, provides administrative, technical and operational support to the Council, and carries out some independent functions; and 3) The Joint Public Advisory Committee (JPAC), which is composed of fifteen citizens (five appointed by each Council member), provides advice to the Council on any matter within the Agreement and is required under the NAAEC to convene at the time of the annual Council session.

Within the context of the 60th anniversary of Canada’s diplomatic relations with Mexico and the 10th anniversary of the NAFTA, the Canada-Mexico Partnership (CMP) was launched on October 24, 2004. This Partnership provides an opportunity to enhance the strategic relationship between Canada and Mexico, and to further cooperation on bilateral trade, investment, public-private sector partnerships, business-to-business links, good governance practices, education, institutional reforms and citizen-focused government.

The Partnership was initiated by a binational steering committee involving key stakeholders and quadripartite working groups. With a focus on the environment and climate change, the Environment Working Group (EWG) provides a high-level forum to discuss priorities and undertake bilateral cooperation activities between the two countries.

Recent bilateral cooperative activities with Mexico have focused on climate change, addressing environmental impacts associated with the extractives sector, and conservation/biodiversity. In addition, the Canada – United States – Mexico Agreement (CUSMA) signed on November 30, 2018 includes an ambitious, comprehensive and enforceable environment chapter as well as a parallel Environmental Cooperation Agreement (ECA). The ECA ensures that the unique institutions that have existed for over 24 years under the NAAEC are retained and modernized, including the Commission for Environmental Cooperation which will continue the legacy of effective trilateral environmental cooperation between Canada, Mexico, and the United States, on global environmental issues of importance to Canada, such as climate change.

Peru: The Agreement on the Environment between Canada and the Republic of Peru (the Canada–Peru Environment Agreement) was signed on May 29, 2008, and came into force on August 1, 2009. This Agreement commits both countries to encourage high levels of domestic environmental protection, to foster good environmental governance, and to promote transparency and public participation. It also creates a framework for undertaking environmental cooperative activities. The FTA itself includes a principles-based Environment chapter as well as environmental provisions elsewhere in the Agreement.

Recent cooperative activities have focused on climate change, contaminated sites management, pollutant release and transfer registries, biodiversity and conservation, and water management.

CPTPP: The CPTPP includes a comprehensive and enforceable chapter on environment. The environment commitments outlined in CPTPP are designed to help ensure that environmental protection is upheld as trade is liberalized and to prevent countries from lowering environmental standards to promote trade or attract investment. The CPTPP Environment Chapter also establishes a framework for cooperation among parties (which includes Canada, Chile, Mexico and Peru) in areas of mutual interest in support of the Chapter’s commitments. This includes, for example, working together to address climate change, promote and conserve biodiversity, address illegal wildlife trade, combat invasive alien species, and promote sustainable fisheries practices.

Pacific Alliance: The 2016 Joint Declaration on a Partnership between Canada and the Members of the PA commits Canada and the PA to cooperate in a number of areas, including: trade facilitation and promotion; education and training; small and medium-sized enterprises; science, technology and innovation; responsible natural resource development and corporate social responsibility; and environment, including climate change and ocean conservation.^{Footnote 9}

This has been matched with cooperation projects that support the Declaration including:

• Improving Market Access and Export Readiness for PA Small and Medium-sized Enterprises ($524,000; 2016-2018);
• Skills for Employment for the Extractives Sector of the PA ($16.2 million; 2016-2021);
• Canada-PA Scholarships to support PA countries to sustainably manage and regulate their extractive sectors ($5 million; 2016-2021); and
• Support to enhance measurement, reporting and verification (MRV) mechanisms in collaboration with the PA ($1.6 million; 2017-2021). ^{Footnote 10}

The scope of cooperation and modalities of specific projects have been accorded by the technical groups designated for that purpose.

VIII. Conclusion

A strong rules-based trading system and efficiently regulated markets are key building blocks for economic growth and development. The reduction of trade barriers plays a key role in facilitating the exchange of environmentally friendly technologies and the establishment of investment rules that help create conditions for technology transfer. The identification of likely and important environmental effects of a proposed trade agreement enables negotiators to consider whether existing mechanisms, such as federal, provincial and territorial regulatory frameworks and EAs of new development projects are sufficient to mitigate any identified impact as a result of a proposed agreement and to examine the need for additional mitigation.

The Initial Environmental Assessment is designed to scope out the main environmental issues likely to arise during the course of negotiations. To that end, this report assessed environmental impacts by performing qualitative analysis to help negotiators and the Canadian public to better understand potential economic and environmental impacts from a free trade agreement with the PA.

Given Canada’s existing high quality FTAs with PA countries, the expected economic and environmental impacts from any incremental improvements gained in a Canada-PA FTA are expected to be minimal. Canada will nevertheless seek to uphold its commitment to sustainable development including by integrating in a prospective Canada-PA FTA environmental provisions that maintain high levels of environmental protection and robust environmental governance in the promotion of liberalized trade and investment and that encourage green trade opportunities. Such provisions would complement existing environmental initiatives and ongoing cooperation already taking place with PA countries. The assessment also notes Canada’s extensive environmental regulatory framework, which is expected to help mitigate any potential negative impacts and seek to ensure that increased economic activity resulting from the agreement would not jeopardize its commitment to sustainable development.

Pursuant to the Framework, and given the very limited expected environmental impact of a Canada-PA FTA, no draft Environmental Assessment will be prepared. Instead, the next phase of the EA process will be to conduct a Final Environmental Assessment, which will include a discussion of any subsequent analysis undertaken and document comments received in response to the Initial Environmental Assessment concerning the anticipated environmental impacts of the agreement on Canada. The Final Environmental Assessment will be made public once negotiations conclude.

Following the conclusion of the Final Environmental Assessment report, follow-up and monitoring could, if warranted, be undertaken in order to review any mitigation or enhancement measures ultimately recommended by the Final Environmental Assessment report. Monitoring and follow-up activities can be undertaken anytime during the implementation of a concluded trade agreement in order to gauge the performance of its provisions from an environmental perspective.

Appendix A – Acronyms