North American Free Trade Agreement negotiations – Initial environmental assessment

December 12, 2018

Table of contents

I. Executive summary

Pursuant to the 2010 Cabinet Directive on the Environmental Assessment of Policy, Plan, and Program Proposals, and following the guidelines of the Environmental Assessment for Trade Negotiations Process developed by Global Affairs Canada, the Government of Canada has conducted an initial environmental assessment on the negotiations to modernize the North American Free Trade Agreement (NAFTA) between Canada, the United States and Mexico. This initial environmental assessment report follows a Notice of Intent published in the Canada Gazette on Saturday, August 26, 2017. The Notice provided until Wednesday, October 25, 2017 (60 days) for Canadians to submit their views and comments on the potential impact of a renegotiated NAFTA on the environment in Canada. This initial environmental assessment attempts to determine whether significant environmental impacts are likely to occur as a result of a modernized NAFTA.

A qualitative assessment of potential environmental impacts of a renegotiated NAFTA was conducted for this initial environmental assessment based on the analytical methodology outlined in the Environmental Assessment Framework (Section 2.2). The qualitative assessment concluded that a renegotiated NAFTA would have minor negative environmental impacts beyond the original NAFTA. Furthermore, a renegotiated NAFTA could have significant positive impacts on the environment as a result of enhanced and enforceable provisions related to environmental protection and governance. Canada is also seeking commitments that support efforts to address climate change and other global environmental challenges. Two additional chapters of the renegotiated agreement (good regulatory practices, and environment) have also been identified as having a potentially positive impact on the environment.

A quantitative assessment was not pursued due to the fact that quantitative assessments of environmental impacts are derived from economic impact assessments. In the case of NAFTA, given that the negotiations were ongoing at the time of drafting of this report, an economic impact assessment has not been conducted.

In addition, given that NAFTA has been in force for over 20 years, the Government has undertaken a preliminary review of existing analyses on the environmental impacts of NAFTA that were carried out by the NAFTA’s Commission on Environmental Cooperation (CEC), as well as by civil society groups and non-profit organizations. These studies concluded that NAFTA has potentially led to an increase in air pollution in Canada, particularly in communities near the U.S. border, and could have had an impact on Canada’s ability to adopt and enforce stricter measures related to environmental protection.

Following the conclusion of the negotiations, the Government will undertake a final environmental assessment. That final environmental assessment will include a discussion of any subsequent analysis related to possible environmental impacts and review comments following this initial environmental assessment.

II. Overview of the economic relationship between Canada, the United States and Mexico

NAFTA came into effect on January 1, 1994 and created the largest free trade region in the world at that time. It has generated economic growth and helped to raise the standard of living for the people of Canada, the United States and Mexico. By strengthening the rules and procedures governing trade and investment, NAFTA has proven 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.

Under NAFTA, total trilateral merchandise trade, as measured by the total of each country’s imports from its other two NAFTA partners, reached nearly US$ 1.1 trillion in 2017, representing more than a threefold increase since 1993. Some 77.3 percent of Canada’s total merchandise exports were destined to our NAFTA partners in 2017. Total merchandise trade between Canada and the United States has more than doubled since 1993, and has grown over ninefold between Canada and Mexico.

Canada is the largest merchandise export market for the U.S. and one of the three largest merchandise export markets for 47 U.S. states. In 2017, the U.S. exported more than US$282 billion of merchandise to Canada. That same year, the United States was the number one destination for Canadian merchandise exports, and was Canada’s largest supplier of merchandise imports. Almost 9 million jobs in the U.S. depend on trade and investment with Canada, while more than 2 million Canadian jobs are linked to Canadian exports to the U.S. Canada is the main foreign supplier of energy to the United States, and was the fourth-largest cumulative source of foreign direct investment (FDI) into the United States at the end of 2016. Furthermore, Canada was the number one export market for U.S. agriculture products in 2017. According to Agriculture Canada, for every $1 billion in U.S. agricultural exports to Canada, 8,000 American jobs are supported and $1.3 billion in economic activity is generated.

Canada’s trade and investment relationship with Mexico has seen strong growth since the entry into force of NAFTA. In terms of overall bilateral trade, Mexico is Canada’s third most important trading partner, with two-way merchandise trade reaching over $43.3 billion in 2017. Canadian direct investment stock in Mexico reached over $16.7 billion in 2016, while the stock of Mexican direct investment in Canada amounted to approximately $1.7 billion in 2016. Mexico’s demographic and economic prospects point toward an even greater growth in commercial exchanges.

NAFTA’s provisions ensured greater certainty and stability for investment decisions and have contributed to enhancing Canada’s attractiveness to foreign investors while providing more opportunities for Canadians to invest in NAFTA partners’ economies. Under NAFTA’s investment-friendly environment, Canada and the U.S. developed one of the world’s largest investment relationships, while the Canada-Mexico relationship increased dramatically since the agreement entered into force.

Following through on its campaign promise, and following the guidelines of the U.S. Trade Promotion Authority (TPA), the new U.S. Administration through the Office of the United States Trade Representatives (USTR) formally notified Congress on May 18, 2017 of its intent to enter into negotiations with Canada and Mexico to renegotiate NAFTA. Following this, Canada launched its formal NAFTA consultation process with a Canada Gazette notice on June 3, 2017, providing 45 days for Canadians to submit their views on the negotiations and a modernized NAFTA. These views helped inform the Government of Canada’s negotiating positions and strategy. The first round of negotiations was held in Washington, D.C. on August 16-20, 2017.

III. Overview of the environmental assessment process

The Government of Canada has committed to conducting environmental assessments of all trade and investment negotiations using a process that requires 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 Cabinet Directive on Environmental Assessment of Policy, Plan and Program Proposals (the "Directive"). Detailed guidance for applying the Framework is contained in the Handbook for the Environmental Assessment of Trade Negotiations (the “Handbook”). The guidelines for implementing the 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 environmental assessment 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 environmental assessment process of a trade negotiation, as outlined in the Framework, are to:

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: published after the conclusion of the negotiations, it documents the outcome of negotiations and identifies any notable divergence from the previous environmental assessment.

At the conclusion of each phase, a public report is issued along with a request for comments.Footnote 1 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 is completed.

If warranted, follow-up and monitoring can be undertaken after the conclusion of an environmental assessment 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).

  1. Identification of the economic effect of the agreement to be negotiated. This stage identifies the trade liberalization activities 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 to determine the scope of analysis for the environmental assessment and to prioritize the issues to be assessed.
  2. Identification of the 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 2
  3. 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.
  4. 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 environmental assessment of a trade negotiation requires interdepartmental collaboration.Footnote 3 An interdepartmental committee is established to review the environmental assessment of each negotiation, including the Canadian Environmental Assessment Agency and Environment Canada, as well as other officials from government departments and agencies participating in the negotiations. This approach facilitates informed policy development and decision making throughout the negotiating process.

The environmental assessment 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 experts drawn from the business sector, academia and NGOs who provide advice in their own capacity on the environmental assessment process. At the conclusion of each assessment phase (i.e. initial, draft and final), reports are shared with provincial and territorial representatives and the EAAG for initial feedback before being released for public comment.

The initial environmental assessment

Structure and scope

The environmental impacts of NAFTA have been analyzed and studied several times over the last 24 years. For example, the NAFTA CEC has studied a number of environmental issues related to NAFTA, including transportation and air pollution, agriculture and biodiversity, as well as liberalized trade in electricity. Independent studies have also been conducted at various landmarks, such as 10 and 20 years after entry into force, to assess the major impacts of the agreement on the environment of the three NAFTA partners. Section V of this report summarizes the key findings of these analyses and studies.

Building on these environmental impact studies, and taking into account the submissions received through consultations, this initial environmental assessment will focus on all areas of the agreement under negotiation. It will also be limited in scope to the potential impacts in Canada. Section VII provides a qualitative chapter-by-chapter assessment of possible outcomes of the negotiations and their potential impacts on the environment in Canada. Based on this assessment, the section also includes detailed analyses of areas that have shown to potentially have certain environmental impacts.

The consultation process

An interdepartmental Environmental Assessment Committee was established by Global Affairs Canada (GAC) to conduct the environmental assessment of NAFTA negotiations. This Committee comprises representatives of GAC, Environment and Climate Change Canada, the Canadian Environmental Assessment Agency and other federal departments and agencies covering the areas negotiated.

This consultation process is carried out at each assessment phase prior to releasing the document for public comment. The current initial environmental assessment reflects comments received from the Environmental Assessment Committee, provinces and territories, and the EAAG. Comments received during the preliminary phase were considered in this report. Furthermore, public comments on this initial environmental assessment report will be taken into consideration when drafting the final environmental assessment report.

IV. Summary of public comments received during initial consultation

A notice of intent to conduct an environmental assessment of NAFTA modernization was published on August 26, 2017.Footnote 4 This notice invited interested individuals as well as stakeholders to submit their input for consideration in the drafting of the initial environmental assessment. The comments received represent a wide range of subjects, including water, investor-state dispute settlement and the environment.

Water

Water was among the most frequently raised issues in public submissions. Canada is steward of approximately 9% of the world’s renewable freshwater,Footnote 5 and submissions warned against listing water as a good or service under NAFTA as it could lead to the bulk export of water, or the export of related goods such as bottled water.

Submissions received noted that the environmental impact of such an outcome could be important, leading to the spread of invasive alien species, drought, and have negative impacts on Canadian shores, flora and natural habitat. Moreover, some added that this issue would become increasingly challenging as the effects of climate change become visible, such as increased scarcity of water resources, thus adding pressure to export Canadian water to regions that face shortages and drought.

It is important to note, however, that Canada has not assumed obligations under any trade agreements that would require it to allow bulk water extractions or diversions for export. Consequently, water in its natural state is neither a good nor a product and therefore measures governing it in this state are not subject to obligations relating to trade in goods, including under NAFTA.

Investor-State Dispute Settlement (ISDS)

Submissions received also pointed to ISDS as the current NAFTA provisions with the most significant impact on the environment. Submissions argued that giving private actors the ability to sue governments under a free trade agreement (FTA) for enacting measures that directly or indirectly affect operations could make governments less inclined to enact stronger environmental laws and regulations. There are some ISDS cases where investors have challenged the specific application of environmental measures, such as Bilcon v. Canada, and S.D. Myers v. Canada, in which Canada was found liable for having breached its NAFTA obligations on minimum standard of treatment and national treatment.

In the context of the NAFTA negotiations, Canada is looking for a comprehensive set of commitments related to the treatment of Canadian investors and their investments that is backed by an effective dispute settlement mechanism and that does not undermine the government’s right to regulate in the public interest, including with respect to the environment. Reaffirming the right to regulate in the public interest is an essential component of Canada's approach in these negotiations.

Environment

Submissions received called on the government to incorporate strong and binding environmental provisions in NAFTA, including language on climate change, and warned against an environment chapter that would fail to impose sanctions on parties that do not comply with environmental obligations. Furthermore, some submissions called for the inclusion of environmental obligations that would assist Canada and other parties in meeting their obligations under the Paris Agreement.

Canada believes that commitments to high levels of environmental protection are an important part of trade agreements. As part of NAFTA negotiations, we have an opportunity to modernize and strengthen the environmental provisions under the agreement to ensure that environmental standards continue to be upheld as part of our trade and investment relationship. Canada also continues to work with the U.S. and Mexico to explore the possibility of including commitments on specific issues of importance to Canada, such as climate change.

Additional Public Comments

The Government of Canada welcomes additional input and comments on this initial environmental assessment. The comments received will be used to inform the current and/or subsequent environmental assessment analysis as well as future environmental assessments of trade work 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 input on this document can be sent to:

Email: EAconsultationsEE@international.gc.ca

Mail:

Environmental Assessment of NAFTA Negotiations
Trade Agreements and NAFTA Secretariat (TCT)       
Global Affairs Canada, John G. Diefenbaker Building
111 Sussex Drive, Ottawa, Ontario K1N 5A1

V. Overview of NAFTA’s environmental impacts

This process constitutes the first environmental assessment of NAFTA by Canada since its negotiations and implementation, due to the fact that the environmental assessment process in Canada was established after NAFTA was implemented and it did not cover measures, policies and programs already in force. This section provides a preliminary analysis of existing literature on the environmental impacts of NAFTA over the last decades. This analysis will continue and will be detailed in the final environmental assessment of NAFTA, including with respect to academic literature.

The U.S. National Bureau of Economic Research (NBER) assessed the potential environmental impacts of NAFTA in the U.S. and MexicoFootnote 6 in 1991 (before the agreement was concluded). The study concluded that economic development in Mexico as a result of the implementation of NAFTA would increase political pressure for stricter rules and regulations on environmental protections, and could lead to a reduction in pollution production due to Mexico’s increased specialization and trade. The NBER also found that asymmetries in environmental regulations play a minor role at most in guiding inter-sectoral resource allocations and investments, thus addressing one of the major concerns at the time that NAFTA would lead to the creation of “pollution havens” as a result of a “race to the bottom” in environmental laws and regulations.

The North American Agreement on Environmental Cooperation (NAAEC), an agreement parallel to the NAFTA, established the CEC. The CEC has done extensive research on specific aspects of the North American environment and ecosystem, such as air quality, and greenhouse gas and black carbon emissions. In fact, much of the CEC’s work has focused on identifying, managing, monitoring, and raising awareness on threats and risks faced by the North American ecosystem, such as invasive alien species, and various form of pollutions in the Great Lake basins. Through this work and various cooperation programs led by the CEC, the effects of environmental provisions contained in the NAAEC have been positive, and have helped NAFTA partners address a variety of cross-border environmental issues.

The CEC designed a framework to assess the environmental impacts of increased trade as a result of NAFTA. The CEC shared these assessments in a series of symposia with experts and the public. For example, a first symposium was held in 2000 focusing on NAFTA’s impact on freshwater, fisheries, forests, hazardous waste and domestic environmental law, while other symposia focused on issues like energy and agriculture (2003), investment and economic growth (2005), and services (2008).Footnote 7 Through various case studies, the CEC found that “the most important impact of increased trade was measured in the transport sector, where freight transport expanded massively while local infrastructure had not adapted to the changes.”Footnote 8 Certain studies concluded that this led to an increase in air pollution levels at border crossings, and affected human health in communities adjacent to border areas, particularly at the U.S.-Mexican border,Footnote 9 but other studies showed similar results at the Canada-U.S. border.Footnote 10 Moreover, the CEC confirmed the NBER conclusions regarding the creation of pollution havens, stating that “industry relocation is only tenuously influenced by environmental regulations, whereas factors such as wages, market proximity, infrastructure and fiscal policy, among others, have been shown to have greater influence on the choice of location.”Footnote 11 More broadly, the CEC concluded that “the environmental impacts of NAFTA are neither very bad nor very good, and they vary considerably from one sector to the next and from one region to another.”Footnote 12

A number of civil society groups and non-profit organizations also conducted environmental assessments over that same period. For example, the Peterson Institute for International Economics published a paper on NAFTA and the Environment in 2000, the Sierra Club Foundation conducted periodic review of NAFTA’s environmental impact, with the latest iterations dated March 2014 to mark the 20th anniversary of the agreement. The International Institute for Sustainable Development (IISD) also produced a paper on NAFTA’s environmental impacts in June 2017 prior to the NAFTA renegotiation process.

In studies conducted by civil society groups and non-profit organizations, the NAFTA Chapter 11 ISDS mechanism is cited as having the most negative impacts on the environment. In fact, all three studies mentioned above have identified ISDS as an alleged deterrent to implementing policies and regulations that would increase environmental protections in North America. Instead, they argue that ISDS has created an alleged chilling effect on government policymaking.Footnote 13 As stated in Section IV, there are some ISDS cases, such as Bilcon v. Canada,and S.D. Myers v. Canada, in which Canada was found liable for having breached its NAFTA obligations in how it implemented measures related to the environment. This chilling effect is also mentioned by other academics, such as Sanford E. Gaines.Footnote 14

That said, a number of legal academics maintain that ISDS is not an impediment to state sovereignty and, by extension, government policymaking. Rather it is the exercise of states’ sovereign rightsFootnote 15 that potentially leads to better policy that takes into account the true cost of regulation.Footnote 16 Similarly, many regulators state that the threat of investment disputes does not sway the regulatory process.Footnote 17 Some legal scholars maintain that “IIA provisions, properly interpreted, are fully consistent with a robust regulatory state.”Footnote 18 Currently, NAFTA’s Chapter 11 contains a provision guaranteeing full policy flexibility to adopt or maintain measures related to the environment that would otherwise be consistent with the chapter (art. 1114). In other words, NAFTA countries cannot be found liable under ISDS for adopting or enforcing a measure related to the environment if this measure is not in breach of a NAFTA Chapter 11 obligation.

Other environmental impacts identified by civil society groups include increased use of pesticides and chemicals in all three NAFTA countries as a result of a new export-oriented agriculture model, increased deforestation and new threats to the biodiversity in Mexico, as well as further depleted water resources. The direct relationship between these phenomena and NAFTA has not, however, been clearly established.

Some studies have also argued that NAFTA has intensified fossil fuel extraction and use across North America, thus increasing Canada’s greenhouse gas emissions.Footnote 19 While Canada’s energy sector has grown significantly, this growth is largely a result of pre-existing trade policies and patterns, to which NAFTA provides added predictability and stability. The U.S. energy sector has also seen rapid expansion in recent years, fuelled mostly by internal demand and new technologies that have expanded extraction capacity. In fact, U.S. energy production is equal to about 90% of U.S. domestic energy consumption in 2017.Footnote 20

To sum up, the environmental record of NAFTA since its entry into force has been balanced, with both positive and negative impacts in Canada. In fact, most studies conclude that Mexico has seen the majority of negative impacts, but that can also be explained by the country’s rapid economic growth since NAFTA came into force. In Canada, non-governmental studies have concluded that NAFTA has contributed to an increase in air pollution, particularly in communities near the U.S. border, and could have had an impact on Canada’s ability to adopt and enforce stricter environmental protection measures. However, provisions of the NAAEC and work done by the CEC have allowed NAFTA partners to positively address significant threats to the North American ecosystem and other environmental issues.

VI. Trade and environment

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

Canada is committed to ensuring that its trade agreements encourage mutually supportive trade and environmental objectives. The importance of this mutually supportive relationship 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. The reduction of trade barriers helps to create conditions for facilitating trade and investment in environmentally friendly technologies.

The Federal Sustainable Development Strategy (FSDS)Footnote 21 is the Government of Canada’s primary vehicle for sustainable development planning and reporting. It sets out our sustainable development priorities, establishes goals and targets, and identifies actions to achieve them. Commitments in Canada’s free trade agreement environment chapters, for example, related to illegal wildlife trade and illegal logging, sustainable fisheries and forestry management, conservation of species at risk and biodiversity, and environmental goods and services, will help contribute to targets set out in Canada’s FSDS, relating to, for example, “healthy wildlife populations”, “healthy coasts and oceans”, ”sustainably managed land and forests”, and “clean growth”.

The identification of likely and important environmental effects of a proposed trade agreement enables negotiators to consider whether existing mechanisms (e.g. existing laws and/or regulatory frameworks) are sufficient to mitigate any identified impact as a result of a proposed agreement and to examine the need for additional mitigation. The environmental assessment process looks to identify potential negative environmental impacts as a result of a trade agreement, so they can be minimized while efforts are made to contribute to the economic well-being of Canadians.

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

Canada is firmly committed to ensuring that parties maintain high levels of environmental protection and robust environmental governance as trade is liberalized, and that they do not weaken their environmental laws to encourage trade or investment. Recognizing that increased economic activity can lead to both positive and negative environmental effects, the renegotiation of NAFTA is an opportunity to modernize and strengthen the agreement through high-ambition and enforceable environmental provisions that ensure that environmental standards continue to be upheld as part of our trade and investment relationship. Canada is also advancing commitments that support efforts to address climate change and other global environmental challenges.

VII. Findings of the initial environmental assessment

The initial environmental assessment is presented in two parts. The first part, the Qualitative Analysis, consists of a scoping exercise and a detailed analysis based on the analytical methodology outlined in the Environmental Assessment Framework (Section 2.2). The table below presents the findings of the scoping exercise for each issue area (and corresponding NAFTA chapter).

The second part, the Quantitative Analysis, consists of the assessment of the environmental impacts of an FTA expressed in three categories of environmental indicators (greenhouse gas (GHG) emissions, energy use and water use) based on the estimated economic impacts from the Computable General Equilibrium (CGE) model. In the context of NAFTA renegotiations, however, the quantitative analysis could not be carried out for reasons explained in part 2 of this section.

Part 1: Qualitative analysis

The General Overview of All Qualitative Issue-Areas section below provides a summary of all areas of the negotiations and their potential environmental impact. The overview covers all negotiating areas initially established between Canada, the United States and Mexico.

Following the general overview, a more detailed analysis is undertaken in two key issue areas: environment, and good regulatory practices.

Limitations of the Qualitative Assessment

As indicated previously, this initial environmental assessment is a scoping exercise that attempts to determine whether significant environmental impacts are likely to occur as a result of a modernized NAFTA. The qualitative assessment of potential environmental impacts is not an exhaustive examination of sectors of the economy or environmental issues. Instead, it is intended to provide an overview of the potential impacts of the trade agreement. As a result, several cautionary notes are required concerning the interpretation of the reported environmental impacts.

General Overview of All Qualitative Issue-Areas

Issue-AreaAnticipated OutcomePossible Environmental Impact
National treatment and market access for goodsMaintain existing market access for goods into the U.S. and Mexico, while modernizing the National Treatment and Market Access chapter.Elimination of tariffs and streamlined rules for market access for goods can result in an increase in the value of goods traded between the parties, which can have an impact on the environment. However, given that the anticipated outcome of a modernized NAFTA will not include any significant changes to the terms of trade for goods market access, this chapter is expected to result in negligible environmental impacts.
AgricultureMaintain existing market access for agricultural goods into the U.S. and Mexico, while modernizing the agreement text to reflect developments in areas such as agricultural biotechnology and export competition.There are no foreseen environmental impacts as a result of these commitments.
Rules of origin and origin (ROO) proceduresProvide for rules of origin that are clear and leave little room for administrative discretion. Ensure that the benefits of an agreement flow to goods originating in the territory of any party. Ensure that the rules of origin are administered in a fair and transparent manner by the customs administrations, and provide the trading community with the means to take advantage of the preferential tariff treatment afforded under the agreement.As the ROO serve to ensure that only goods qualifying as originating benefit from NAFTA, production and consumption changes resulting from the trade of such goods would be captured by outcomes of the National Treatment and Market Access for Goods chapter, along with their corresponding environmental impacts, which are expected to be negligible. For origin procedures, strengthening the administration of rules of origin can deliver commercial and environmental benefits by reducing costs and delays to traders, while minimizing the environmental impacts relating to the movement of goods through, for example, improving transportation efficiencies by promoting a paperless environment.
EnergyModernize NAFTA’s energy provision, address market access opportunities or commercial irritants, and provide for enhanced cooperation and coordination on energy issues.The provisions in the Energy chapter are intended to enhance transparency, predictability and cooperation in the North American energy sector. They are not expected to significantly affect the terms of trade for energy goods in NAFTA, and therefore the environmental impacts of this chapter are expected to be negligible.
Customs and trade facilitation (CATF)Streamline customs processes, reduce impediments to trade and simplify and modernize border-related requirements and procedures.Given the sophisticated state of Canada’s customs and border regime, the environmental impacts from these provisions in NAFTA are expected to be negligible. Streamlined border procedures would minimize the environmental impacts relating to the cross-border movement of goods resulting from any increased trade between the parties through, for example, reducing the time goods are held in customs control (especially low-risk goods), promoting a paperless environment, and working toward a single-window approach to customs reporting requirements.
Sanitary and phytosanitary (SPS) measuresEnsure that NAFTA parties can take measures to the extent necessary for the protection of human, animal or plant life or health, provided that these measures are not applied in a manner that constitutes a disguised restriction on trade.There are no foreseen environmental impacts as a result of these commitments.
Trade remedies, and dispute settlement for antidumping and countervailing dutiesModernize existing trade remedy dispute-settlement procedures, establish best practices for trade remedy investigations, and maintain and enhance exclusion from global trade actions by NAFTA partners, e.g. global safeguards).There are no foreseen environmental impacts as a result of these commitments.
Technical barriers to trade (TBT)Build on and modernize the original NAFTA Standards-Related Measures chapter , including with provisions that build on Canada’s WTO TBT Agreement obligations and achieve a balance between the right to regulate to meet legitimate objectives while ensuring that those regulations, standards, testing and certification procedures do not create unnecessary obstacles to trade.There are no foreseen environmental impacts as a result of these commitments.
Government procurementProvide NAFTA country suppliers with open, transparent and non-discriminatory market access to NAFTA members’ respective government procurement markets.Maintaining or expanding market access commitments in government procurement is expected to have a negligible impact on the environment, particularly considering that all three NAFTA parties have enjoyed access to each other’s markets for more than 20 years.
InvestmentProvide a framework of investment rules that recognize the government’s right to regulate and is backed by an effective dispute-settlement mechanism.Increase in cross-border investment flows may lead to incremental increase in economic activity. Cross-border investments, however, would have to be undertaken in accordance with Canada’s environmental laws and regulations.
Cross-border trade in servicesProvide for improved market access, transparency and predictability for Canadian, American and Mexican service providers.There are no foreseen environmental impacts as a result of these commitments.
Telecom-municationsEnsure that the terms and conditions for access to and use of public telecommunications transport networks and services do not impede the parties’ market access commitments, as well as providing an open and competitive market for telecommunications services.There are no foreseen environmental impacts as a result of these commitments.
Financial servicesFacilitate a predictable environment for financial institutions and cross-border financial service suppliers and preserve the ability of financial regulators to take prudential measures.There are no foreseen environmental impacts as a result of these commitments.
Competition policyEnsure that anti-competitive business conduct does not undermine the benefits of the agreement.There are no foreseen environmental impacts as a result of these commitments.
Temporary entry of business personsFacilitate the temporary movement of business persons by waiving requirements, such as labour market tests.It is not possible at this time to predict the likely increases in business travel and temporary stays resulting from this chapter. However, it would be unlikely to result in direct environmental impacts beyond those of the original NAFTA.
Digital tradeEnsure a predictable environment for electronic commerce.There are no foreseen environmental impacts as a result of these commitments.
Intellectual propertyProtect and enforce intellectual property rights and provide rights holders with greater certainty and predictability.There are no foreseen environmental impacts as a result of these commitments.
State-owned enterprisesMaintain and build on existing rules for designated monopolies and state-owned enterprises so as to maintain a level playing field while preserving the ability of Crown corporations and other entities to provide public services.There are no foreseen environmental impacts as a result of these commitments.
LabourComprehensive and fully enforceable labour provisions with obligations on parties to effectively enforce domestic labour laws that reflect internationally recognized labour rights and principles.There are no foreseen environmental impacts as a result of these commitments.
EnvironmentComprehensive and enforceable environmental provisions that maintain mutual support between trade and environmental conservation and protection. Issue-specific provisions may also highlight efforts under way on a number of key matters with trade implications. Such provisions seek to ensure that parties maintain their ability to set their own environmental priorities, to establish their own domestic levels of environmental protection and to adopt or modify relevant environmental laws and policies. The inclusion of a chapter on environment could have positive impacts on the environment.
Small and medium-sized enterprises (SMEs)Enhance SME abilities to participate in and benefit from the opportunities created by NAFTA, thereby ensuring their growth and development.There are no foreseen environmental impacts as a result of these commitments.
AnticorruptionAffirm and enhance shared commitments to fighting corruption by building on domestic anticorruption frameworks as well as on multilateral efforts under existing international conventions, including at the UN, the OAS and the OECD.There are no foreseen environmental impacts as a result of these commitments.
Good regulatory practicesEnhance transparency and evidence-based decision-making as well as foster confidence in each NAFTA party’s regulatory frameworks, which in turn can promote regulatory cooperation and reduce barriers to trade.Such provisions ensure the development of transparent and predictable regulations that will foster trade and investment while protecting the health and safety of our citizens, as well as the environment. To the extent that such regulations strengthen environmental stewardship, they could have a positive effect on the environment.
Publication and administrationEnsure that laws, regulations and other measures are administered and published in a transparent, predictable and consistent matter, and are publicly accessible.There are no foreseen environmental impacts as a result of these commitments.
Institutional chaptersFacilitate the management, administration and operation of the agreement.    Provisions would provide policy space to protect environmental measures (notably in the exceptions chapter) and recognize various environmental principles, including language confirming that the agreement does not affect the ability to restrict bulk water exports. There are no foreseen environmental impacts as a result of these commitments.
Dispute settlementProvide a transparent, efficient and effective state-to-state dispute-settlement mechanism for the agreement.There are no foreseen environmental impacts as a result of these commitments
Trade and genderAcknowledge the importance of incorporating a gender perspective into economic and trade issues.There are no foreseen environmental impacts as a result of these proposals.
Trade and Indigenous peoplesPromote trilateral cooperation to enhance the engagement of Indigenous peoples in NAFTA trade and investment, and help to enable Indigenous peoples to benefit from the opportunities created by the agreement.The proposals affirm parties’ commitment to the United Nations 2030 Agenda for Sustainable Development, as well as the achievement of the Sustainable Development Goals. There are no foreseen environmental impacts as a result of these proposals.

Detailed analysis

The qualitative analysis conducted above did not identify areas where NAFTA negotiations could result in significant negative environmental impacts. In fact, in the vast majority of areas, there are no foreseen environmental impacts beyond those of the original NAFTA. There are, however, two areas where positive environmental impacts could arise from a renegotiated NAFTA. Those are the chapters on environment, and good regulatory practices.

With respect to the environment chapter, Canada is building on Canada’s past and recent achievements, and improving environmental protections with innovative provisions as part of a trade agenda that seeks ambitious environmental commitments. As noted in Section VI, Canada is seeking high-ambition and enforceable environment provisions that commit the parties to maintain high levels of environmental protection, robust environmental governance, and to not lower standards to attract investment or trade. Canada is also advancing commitments that support efforts to address climate change and other global environmental challenges. In the event that these objectives are reflected in the final agreement, these commitments would likely have positive impacts on the environment, particularly if the chapter is enforceable as is the case of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

With respect to the chapter on good regulatory practices, as noted in the overview of qualitative findings above, provisions could strengthen the environmental stewardship of NAFTA countries, and thus have positive impacts on the environment. The significance of these potential positive impacts will greatly depend on the final outcomes of these sections of the agreement, and there is a possibility that they could have no environmental impact.

A detailed analysis of these potential impacts will be carried out once the final outcomes of the negotiations are known and will be included in the final environmental assessment.

Part 2: Quantitative analysis

Quantitative analysis is an integral part of the initial environmental assessment of trade negotiations. The quantitative analysis is used to assess the environmental impacts in Canada resulting from increasing trade and economic cooperation between Canada and its FTA partners. Such an assessment is carried out by the Office of the Chief Economist at Global Affairs Canada, and is based on the estimated economic impacts from the Computable General Equilibrium (CGE) model. Specifically, the estimated output changes from the CGE-based economic analysis are linked to Statistics Canada’s Canadian System of Environmental and Resources AccountsFootnote 22 and Environment and Climate Change Canada’s National GHG Inventory.Footnote 23 In other words, for any given FTA other than NAFTA, the assessment of environmental impacts is derived from a change in trade and economic cooperation between Canada and its FTA partners, based on a new situation wherein tariffs applicable to each other’s exports are virtually down to zero, and new rules govern trade in services and investment.

In the context of NAFTA, depending on the nature of the final outcomes, the quantitative economic and environmental assessment will be provided when the negotiations are concluded and to the extent the results are quantifiable. For this reason, a quantitative analysis is not available for this initial environmental assessment report. The government will be in a better position to quantitatively assess the potential impacts of a renegotiated NAFTA on the environment when the final outcomes of the negotiations are known.

VIII. Environmental cooperation

The majority of trilateral environmental cooperation in North America takes place under the umbrella of the NAAEC. That agreement signifies the three NAFTA parties’ commitment to help ensure that liberalization of trade and economic growth in the continent would be accompanied by effective cooperation and continuous improvement in environmental protection.

Accordingly, the NAAEC established an intergovernmental organization—the CEC—to support cooperation among the NAFTA partners to address environmental issues of continental concern, including the environmental challenges and opportunities presented by continent-wide free trade. The CEC comprises a council, a secretariat and a joint public advisory committee. The council is the governing body of the Commission and comprises cabinet-level or equivalent representatives of each country, and is required to convene at least once a year in a regular session to engage with the public and establish strategic objectives for the upcoming year. This year’s Council session was held on June 26 and 27, 2018 in Oklahoma City, U.S., and was chaired by the administrator of the U.S. Environmental Protection Agency.

Further information on the NAAEC and the CEC can be found here: http://www.cec.org/about-us/about-cec

Bilateral Cooperation: Canada/Mexico

Canada-Mexico Partnership (CMP) Environment Working Group (EWG)

Bilateral Cooperation: Canada/U.S.

There is extensive bilateral environmental cooperation between the U.S. and Canada, including in the areas of air quality, hazardous waste, biodiversity, etc. A complete list of bilateral environmental agreements can be found at the following link: https://www.canada.ca/en/environment-climate-change/corporate/international-affairs/partnerships-organizations/participation-international-environmental-agreements.html

Furthermore, Canada and the U.S. are signatories to several multilateral environmental agreements. A complete list of multilateral environmental agreements can be found here: https://www.canada.ca/en/environment-climate-change/corporate/international-affairs/partnerships-organizations/participation-international-environmental-agreements.html#X-201501201052415

IX. Conclusion

From the outset of these negotiations, Canada’s approach has been to put forward ideas and proposals that will benefit all three countries. The NAFTA renegotiations provide Canada with an opportunity to make the current agreement even better. This is particularly true with respect to environmental provisions. Canada is seeking to integrate enhanced and enforceable environmental provisions into the agreement, to ensure that no NAFTA country weakens environmental protection, and to ensure that efforts to address climate change are fully supported. 

A strong rules-based trading system and efficiently regulated markets are key building blocks for economic growth and sustainable development. The reduction of trade barriers plays a key role in facilitating the exchange of environmentally friendly technologies and could help create opportunities for environmental goods and services trade. 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 environmental assessments 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.

Overall, the initial environmental assessment found that a modernized NAFTA is unlikely to result in significant negative environmental impacts beyond those of the original agreement in Canada. Certain improvement to the agreement could have a positive impact, including comprehensive and enforceable environmental provisions, improved regulatory practices, and the use of electronic customs and procurement procedures.

It is important to note that these results are preliminary and based solely on a qualitative assessment of Canada’s negotiating objectives and expected outcomes. The government welcomes further public submissions and will continue to assess the potential impacts of the agreement. A final environmental assessment to qualitatively and quantitatively evaluate how the negotiated outcomes could impact the environment in Canada will be conducted once the negotiations conclude.

Date Modified: