Initial Environmental Assessment of the Modernization of the Canada-Ukraine Free Trade Agreement
Table of Contents
- Executive summary
- 1. Background and study objectives
- 2. Stakeholder consultations
- 3. Preliminary environmental impact assessment
- 3.1 Environmental provisions of the CUFTA (in force since August 1, 2017)
- 3.2 Preliminary environmental assessment of a modernized CUFTA
- 3.3 Support of environmental laws in Ukraine
- 3.4 Conclusion of the preliminary Environmental Assessment
- 4. Chapter-by-Chapter review of enhancement and mitigation options
- 5. Canada’s existing environmental legislation, policies and actions
- 6. Ukraine’s Environmental Security and Climate Adaptation Strategy for 2030
- 7. Conclusion and next Steps
- Annex – Background on objectives of FTA chapters
- Objectives of FTA Chapters
- Objectives of possible new chapters and provisions in CUFTA
- Objectives of existing chapters in CUFTA – Possible modernizations
- Objectives of existing chapters in CUFTA – Not part of modernization discussions
The Initial Environmental Assessment (IEA) for the Canada-Ukraine FTA modernization was conducted prior to the Russian invasion of Ukraine in February 2022. Since the invasion, Canada has announced a suite of policy measures aimed at bolstering Ukraine’s economic resilience and holding Russian leadership to account. These measures include recent re-engagement on the Canada-Ukraine Free Trade Agreement (CUFTA) modernization.
The IEA of a possible CUFTA modernization aims to identify potential impacts on the environment that may result from the new and modernized chapters, assess the significance of these impacts, and identify possible enhancement or mitigation options. However, the protracted war in Ukraine and associated data collection challenges has impacted the ability to incorporate conflict-related dynamics and analysis into this assessment which is necessarily focused specifically on the modernization of the CUFTA. Canada’s evolving, whole-of-government response to the war, including ongoing financial, military, and humanitarian assistance to Ukraine, has also not been entirely captured in the below assessment.
The full extent of the short, medium and long-term environmental damage caused by the war are difficult to assess at this time, as the conflict is still ongoing and a multitude of factors would need to be considered. For example, while Ukraine made significant progress in green initiatives prior to the Russian invasion, the Organization for Economic Cooperation and Development (OECD) has found that these gains have been significantly undermined as a result of the ongoing war.
Canada is committed to take into account the current situation and will endeavour to provide further assessment of the potential linkages between the environmental impact of the war in Ukraine, and a modernized CUFTA, in its preparation of the Final Environmental Assessment of the CUFTA modernization.
The Government of Canada is aware of the complex linkages between trade and environment. In light of this, the Government is committed to ensuring that trade and environmental protection are mutually supportive.
Since 2001, the Government of Canada has conducted environmental assessments of its international trade negotiations, in line with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals. This approach allows for the identification of potential environmental impacts of a trade agreement and the identification of ways to mitigate possible negative impacts, either through the course of negotiations or through domestic measures. The purpose of these assessments is to fully integrate environmental considerations into the negotiating process, contribute to informed decision-making, and improve overall policy coherence.
On January 27, 2022 Canada launched negotiations toward the modernization of the Canada-Ukraine Free Trade Agreement (CUFTA). In line with its commitment to an inclusive approach to trade, which recognizes that trade policies need to respond and contribute more meaningfully to overall economic, social and environmental policy priorities, the Government of Canada committed to conduct an expanded assessment on the environmental and gender impacts of the negotiations. The initial Gender Based Analysis Plus (or GBA+) demonstrates that the modernization of CUFTA presents clear opportunities to increase gender-related benefits, notably by improving the level of participation in trade and employment conditions for women and Indigenous peoples.
This report presents the Initial Environmental Assessment (IEA) of a CUFTA modernization. Its purpose is to identify potential impacts on the environment that may result from a modernized CUFTA both in Canada and Ukraine, assess the significance of these impacts, and identify possible enhancement or mitigation options for consideration during the negotiations.
While a Final Environment Assessment will be more comprehensive and include the outcomes of negotiations relating to the Environment, based on the results of a broad review of environmental linkages, the IEA does not anticipate the modernization of the CUFTA to produce significant positive or negative environmental effects. Rather, the potential impacts are expected to be limited in extent and scope. Firstly, the modernization will not further liberalize bilateral merchandise trade and will only present limited risks related to cross-border services trade in a few selected sectors such as information and communications technologies (ICT) services. Further, the overview of the Government of Canada’s existing environmental legislative framework, including statutes, regulations, policies, and actions for the prevention and management of environmental risks, suggests that Canada is well positioned to mitigate the potential environmental impacts of an agreement, including through future improvements in the environmental performance of Canadian and Ukrainian economic sectors. The FTA also offers the opportunity to enhance positive impacts or mitigate negative effects from trade liberalization. In particular, the chapter-by-chapter review points to several areas for environmental collaboration and risk mitigation in the context of the FTA. This could potentially include modernized trade and environment chapter provisions, expanded market access for environmentally-friendly services, increased institutional cooperation between Canada and Ukraine, and provisions related to Investment and Government Procurement.
Global Affairs Canada will endeavor, to the extent possible, to incorporate comprehensive data on the environmental impact of CUFTA modernization in the Final Environmental Assessment.
1. Background and study objectives
On January 27, 2022, Canada launched negotiations toward the modernization of CUFTA, with a view to improving market access for Canadian services, and adding new chapters and provisions relating to investment, temporary entry, labour and environment, among others. The Government of Canada also committed to ensuring the modernization process aims at advancing an inclusive approach to trade, recognizing that trade policies need to respond and contribute more meaningfully to overall economic, social and environmental policy priorities.
Since 2001, the Government of Canada has conducted environmental assessments of all of its international trade negotiations, in line with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals (the “Directive”). In accordance with the Directive, this Initial Environmental Assessment (IEA) of a possible CUFTA modernization aims to identify potential impacts on the environment that may result from the new and modernized chapters, assess the significance of these impacts, and identify possible enhancement or mitigation options.Footnote 1 This report should be read in conjunction with the Gender-Based Analysis Plus (GBA+),Footnote 2 published on March 3, 2023, that presented the potential differentiated effects and opportunities of an agreement on women, men and non-binary people in Canada, with SMEs and Indigenous peoples as priority considerations.
In January 2016, Canada published the results of the final environmental assessment for the original CUFTA.Footnote 3 It concluded that the CUFTA was expected to have very minor environmental impacts in Canada, including because the economic impact of the Agreement would be modest relative to Canada’s overall economic activity. Now that Canada and Ukraine are considering a potential modernization of the CUFTA, this new study identifies the potential impacts of the chapters that could be added or modernized.
1.1 Canada-Ukraine relations
Ukraine had a population of 43.8 million in 2021. In the same year, gross domestic product (GDP) was US$200 billion or US$4,825 per capita. Ukraine became a member of the WTO in 2008.
Canada and Ukraine have enjoyed close bilateral relations since Canada became the first Western nation to recognize Ukraine’s independence on December 2, 1991. The bilateral relationship is further reinforced by strong people-to-people ties, with almost 1.4 million Canadians of Ukrainian heritage.
The Canada-Ukraine Free Trade Agreement (CUFTA), which entered into force on August 1, 2017, represented an important milestone in the Canada–Ukraine bilateral relationship. In addition to generating commercial benefits for Canadian businesses, CUFTA supports the economic reform efforts of the Government of Ukraine, and helps pave the way for long-term security, stability, and broad-based economic development in Ukraine.
In addition to the CUFTA, Canada has several other bilateral agreements with Ukraine, including the Foreign Investment Promotion and Protection Agreement (1995), Convention for the Avoidance of Double Taxation (1996), Air Transport Agreement (1999), and Nuclear Cooperation Agreement (1999). Between 2014 and 2021, Canada also provided more than $890 million to support Ukraine’s security, prosperity, and reform objectives, including (but not limited to) low interest loans, bilateral development assistance, peace and stabilization programming, and humanitarian assistance. Additionally, in support of the development-trade nexus, in 2016, Canada’s development assistance program partnered with the Conference Board of Canada (CBoC) and the Canadian Ukrainian Chamber of Commerce (CUCC), to implement the Canada-Ukraine Trade and Investment Support (CUTIS) project. The project aimed to stimulate economic growth in Ukraine through the expansion of Ukrainian trade with Canada and the encouragement of Canadian investment in Ukraine. The project ended in March of 2021.
In 2022 alone, in response to Russia’s illegal and unjustifiable invasion of Ukraine, Canada has committed over $3.4 billion in multifaceted support to Ukraine, including financial, development, humanitarian, military and peace and security assistance, as well as new immigration measures for Ukrainians fleeing Russia's invasion. This includes: $2 billion in financial assistance, over $626 million in military aid, $96 million in bilateral development assistance programming, $320 million committed for humanitarian assistance and $41.5 million in security and stabilization programming.
1.1.1 Economic relationship between Canada and Ukraine following CUFTA entry into force
CUFTA entered into force on August 1, 2017. Upon entry into force, Canada eliminated duties on 99.9% of imports from Ukraine. Similarly, Ukraine immediately eliminated tariffs on approximately 86% of Canada’s exports, with the balance of tariff concessions to be implemented over seven years.
Two-way merchandise trade between Canada and Ukraine has grown since the 2017 CUFTA entered into force, reaching $421.3 million in 2022 (though this was a decrease of 5.8% from 2021 largely due to the war). In the same year, Canada’s merchandise exports totaled $150.2 million (down from $220M in 2021) and merchandise imports from Ukraine were $271.2 million (up from $227M in 2021). Canada’s top exports to Ukraine in 2022 were vehicles and parts ($58.3M), fish and seafood ($18.4M), and pharmaceutical products ($17.1M). Canada’s top imports from Ukraine were fats and oils ($58.9M), iron and steel ($58.9M), and electrical and electronic machinery and equipment ($31.7M. Statistics on services trade between Canada and Ukraine are not available, as Statistics Canada does not report a full country coverage.
Statistics on services trade between Canada and Ukraine are not available, as Statistics Canada does not report a full country coverage.
At the end of 2021, the stock of Canadian direct investment in Ukraine stood at $114 million. The stock of FDI from Ukraine in Canada is not publically available. Export Development Canada (EDC) has identified agriculture; mining and metals; oil and gas; telecommunications; and transportation services as key sectors for Canadian exporters and investors in Ukraine.
1.2 Context of the proposed modernization
Free trade agreements are binding treaties between countries that establish a framework for market access by eliminating or reducing tariff and non-tariff barriers; establishing terms of market access in areas such as services, investment and government procurement; and setting out rules for fair and transparent treatment. CUFTA currently includes chapters covering market access for goods; rules of origin and origin procedures; trade facilitation; emergency action and trade remedies; sanitary and phyto-sanitary measures; technical barriers to trade; government procurement; competition policy, monopolies and state enterprises; intellectual property; electronic commerce; labour; environment; transparency; trade-related cooperation; institutional provisions; and dispute settlement.
The 2017 CUFTA does not include chapters on services and investment. These chapters were excluded from negotiations due to different levels of ambition between the Parties at the time. The CUFTA contains a review clause (Article 19.2) that commits the Parties to review the Agreement within two years of its entry into force with a view to expanding the agreement. The review clause identifies the areas of cross-border trade in services (CBTS), financial services, investment, telecommunications, and temporary entry, but does not restrict the Parties to exploring other potential areas of the Agreement.
On July 2, 2019, Prime Minister Trudeau and Ukrainian President Volodymyr Zelensky announced their mutual interest in expanding the existing Canada-Ukraine Free Trade Agreement (CUFTA). Following preparations on both sides and delays due to the COVID-19 pandemic, Canada and Ukraine jointly launched modernization negotiations on January 27, 2022, though progress was paused as a result of the Russian invasion of February 24, 2022.
1.3 Objective of the proposed modernization
A potential CUFTA expansion creates opportunities to deepen the Canadian-Ukrainian bilateral commercial relationship, and include additional areas of mutual interest, such as trade in services, investment and digital trade. Similarly, there are opportunities to strengthen provisions in the 2017 CUFTA to better reflect Canada’s commitment to inclusive trade in order to ensure that the benefits of trade are widely shared. A modernized CUFTA would aim to:
- Provide Canadians with preferential access to a wider range of services trade opportunities;
- Create more predictable and transparent conditions for businesses operating in Canada and Ukraine;
- Support the economic reform efforts of Ukraine and help support long-term security, stability, and broad-based economic development;
- Help reinforce the rules-based international system and promote the development of global value chains, strengthening Canada’s connectivity to the region.
- Strengthen and enhance overall bilateral trade and investment ties with Ukraine.
In addition to the areas of trade in services and investment referenced by Article 19.2 of the CUFTA, as part of modernization of the CUFTA, Canada is also seeking to:
- Add new chapters or commitments on good regulatory practices, trade and gender, trade and Indigenous peoples, and trade and SMEs;
- Update existing chapters on e-commerce, transparency, government procurement, labour, and environment; and
- Create separate chapters and update provisions on state-owned enterprises and competition policy, as they are currently contained within a single chapter of the CUFTA.
1.4 Framework for environmental assessment of trade negotiations
In 2001, pursuant to the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, the Framework for the Environment Assessment (EA) of Trade Agreements (the "Framework"), was developed by Global Affairs Canada to evaluate the environmental impacts of Canada's trade policy initiatives.
In 2021, the Framework was renewed to take into account progress on methodologies in conducting EAs and provide updated guidance to trade negotiators to support the continued application of the Directive to future trade negotiations. Based on the principles of flexibility, timeliness, transparency and accountability, evidence-based, and continuous improvement, the objectives of the new Framework are to:
- Assess the environmental risks and opportunities that a potential trade agreement may create within and beyond Canada;
- Assist Canadian negotiators to take into account environmental considerations during the negotiating process, with a view to mitigate risks and enhance benefits and mainstream relevant environmental provisions across the agreement;
- Support the identification of possible additional domestic measures to further mitigate risk and enhance benefits;
- Report to Canadians on how environmental factors are being considered over the course of trade negotiations; and
- Utilize governance structures expected to be established following entry into force of the final agreement to assess and monitor environmental risks identified in the EAs and leverage cooperation activities as well as stakeholder and Indigenous engagement to support mitigation strategies identified during the negotiations.
To ensure that the new Framework is consistent with Canada's inclusive approach to trade which seeks to ensure that Canada’s trade policies more effectively support Canada’s economic, social and environmental priorities, and also is consistent with and advances Canada's Federal Sustainable Development Strategy (FSDS), the EA analysis has three complementary components:
- Quantitative and qualitative assessments
- Quantitative assessment based on the Global Trade Analysis Portal (GTAP) economic model which allows for the comparison of the baseline scenario to the post-liberalization scenario after the agreement's implementation.
- Qualitative assessment and case studies to assess aspects such as impacts outside of Canada or in specific sectors in cases where quantitative data is limited.
- Review of trade agreement provisions
- Generally conducted on a chapter-by-chapter analysis, the review of trade policy aims to provide an opportunity for the trade negotiators to effectively address the findings of the quantitative and qualitative analysis in trade policy to mainstream environmental considerations across the agreement.
- Review of existing environmental legislation, policies, and actions in Canada
- The trade agreement is reviewed in the context of domestic laws, policies and actions to prevent and manage environmental risks in Canada as well as to identify opportunities for additional domestic policy responses.
The EA of trade negotiations benefits from the active support and advice from the following five critical actors: (1) federal departments and agencies, (2) provincial and territorial governments, (3) Indigenous peoples, (4) Environmental Assessment Advisory Group (EAAG), and (5) General Public.
The Framework follows 4 phases of assessment:
- Initial EA analysis and reporting: the EA process is initiated as soon as the launch of exploratory discussions and focuses on (1) activating communication channels with all players of the analysis and (2) establishing the methodological approach and scope of the analysis.
- Integration of environmental considerations: Consolidation of Phase 1 analysis through in-depth quantitative and qualitative measures and integration of environmental considerations into the preparation of Canadian positions.
- Final EA analysis and reporting: Final EA process on the final agreement.
- Monitoring and ex-post reporting: Implementation phase with follow-up and monitoring which may include ex-post environmental studies, ongoing reporting on cooperation activities, and continuous improvement of the EA process through regular consultations and strategic reviews.
2. Stakeholder consultations
In conducting consultations on trade agreements, the Government engages a number of stakeholders, including the public, provincial and territorial governments, Canadian businesses, and civil society organisations, all of which help inform Canada’s approach. With respect to the initial EA, the Government also consults 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, and provides advice in its own capacity on the EA undertaken by GAC. At the conclusion of each assessment phase (i.e., Initial and Final), EAs are typically shared with provincial and territorial representatives, Indigenous peoples’ representatives, and the EAAG for feedback before being released for public comment.
Within the Government of Canada, contributions to the environmental assessment comes from a number of federal government departments. This approach facilitates informed policy development and decision-making throughout the negotiations.
This section presents the comments and input that were received from the public, provincial and territorial governments and the EAAG as part of the preliminary assessment of a CUFTA modernization.
2.1 Public consultations
Public consultations to seek the views of Canadians on modernization of the Canada-Ukraine FTA were held in February/March 2020. Global Affairs Canada heard from 27 stakeholders representing industry, provinces and territories, civil society, individuals, and business associations. The majority of submissions were either positive or neutral. A report summarizing the findings of the public consultations was subsequently published online. Specifically, on the environment, business stakeholders and associations as well as the province of British Columbia underscored the high potential of the renewable and green energy sector in Ukraine for Canadian investments.
A Notice of Intent to conduct impact assessments which includes the initial environmental assessment (IEA) of a prospective CUFTA modernization was published from March 20 – May 4, 2021 and was sent to all involved federal departments and agencies, provincial and territorial governments, Indigenous peoples, and EAAG members. The purpose was to inform them of the upcoming negotiations and solicit their early input, if any, in the analysis of potential environmental risks. No feedback was received from stakeholders further to this Notice of Intent.
2.1.1 Engagement with Indigenous Peoples
Following the launch of public consultations for the modernization of the CUFTA, Global Affairs Canada received a submission from a National Indigenous Organization, which focused on a potential Trade and Indigenous Peoples chapter in a modernized CUFTA, the potential inclusion of Indigenous trade provisions mainstreamed throughout a modernized agreement, and the strengthening of the environmental provisions in CUFTAFootnote 4, to bring the agreement more in line with more recent FTAs such as the CUSMA. These comments were considered by Canada’s trade negotiating officials, and efforts by Canada to advance ambitious Indigenous and environmental chapters and provisions throughout a modernized CUFTA are ongoing. The Government of Canada remains committed to engaging with and taking into account the perspectives and priorities of Indigenous Peoples, including through the publishing of this Initial Environmental Assessment.
2.2 Other consultations
2.2.1 Interdepartmental consultations
Various government departments and agencies were consulted in the drafting and review of this IEA of a potential CUFTA modernization. Those departments and agencies included: Global Affairs Canada; Environment and Climate Change Canada; Employment and Social Development Canada; Natural Resources Canada; Canadian Heritage; Finance Canada; Transport Canada; and Immigration, Refugees and Citizenship Canada.
2.2.2 Provinces and Territories
Consultations with provinces and territories form an integral part of the environmental assessments of trade negotiations. As such, the draft of this IEA was shared with provincial and territorial governments. Comments were received on federal-provincial/territorial environmental policy alignment and specific interests of provinces and territories, and highlighting the importance of thoroughly engaging with Indigenous peoples on the environmental impact of a modernized CUFTA and in its implementation. The Government of Canada is fully committed to meaningfully engaging with Indigenous peoples on their priorities and perspectives regarding Canada’s international action, including the negotiations of trade agreements and the potential environmental impacts of these agreements.
2.2.3 Environmental Assessment Advisory Group
Members of the EAAG were also engaged in the drafting of the IEA. Given the variety of expertise and approaches represented on the EAAG, the comments received from the group were instrumental in shaping the final version of this document. In particular, EAAG members’ feedback on the IEA pointed to the need for more comprehensive data on the impact of the environmental provisions of the existing 2017 CUFTA, anticipated impacts of the modernization, and on the environmental and economic modelling of Ukraine. Global Affairs Canada has included further information on Ukraine’s long-term Environmental Security and Climate Adaptation Strategy below, and will endeavor to integrate more information on the outcome of modernization negotiations in the subsequent final EA.
3. Preliminary environmental impact assessment
The purpose of the IEA is to identify potential impacts on the environment within and outside Canada that may result from a modernized CUFTA between Canada and Ukraine, and to assess the significance of these impacts. Such implications are important to consider in order to provide the level of information and analysis required to contribute to informed decision-making throughout trade negotiations. While the economic effects of tariff reductions and eliminations are relatively straightforward, quantifying the impact of strengthening rules and improving transparency and certainty is much more difficult. Given that barriers to trade in services and investment typically are part of broader regulatory frameworks governing the delivery of services and investment in a given jurisdiction, the extent to which services and investment provisions can reduce the trade-inhibiting aspects of these regulations is very hard to measure directly.
As a result, for this analysis of a modernization largely focussed on cooperation, strengthening rules and improving transparency and certainty for investment and services trade, a quantitative environmental assessment based on economic modelling is unavailable due to data limitations. At this time, the Ukrainian data needed for this work is unavailable from international organizations that the Office of the Chief Economist at Global Affairs Canada usually relies on, such as the Organization for Economic Cooperation and Development (OECD), the World Bank, and other international organizations. For this reason, a detailed economic analysis about the potential effects of changes in trade rules under the proposed modernization is not possible in the short term until more data are available for Ukraine. However, work is ongoing to expand the availability of the type of data that is needed to complete this type of analysis. In the meantime, a qualitative analysis on the potential impacts of a modernized agreement was conducted, and more quantitative data will be included in a final environmental assessment to the extent these become available.
3.1 Environmental provisions of the CUFTA (in force since August 1, 2017)
3.1.1 CUFTA environment chapter
The CUFTA includes a substantive environment chapter that seeks to reinforce the positive relationship between trade and the environment.Footnote 5 This environment chapter includes commitments to high levels of environmental protection; the effective enforcement of domestic environmental laws; non-derogation from domestic environmental laws to encourage trade or investment; and public participation and engagement. The chapter also includes provisions affirming commitments to Multilateral Environment Agreements (MEAs) that both Canada and Ukraine have ratified, as well as promoting trade and investment in environmental goods and services. Furthermore, the Parties committed to respond, in a timely manner, to inquiries from the public on matters respecting the implementation of the Chapter.
The Agreement has also established a Committee on the Environment composed of senior representatives of each Party responsible for overseeing and reviewing the implementation of this Chapter. The chapter includes a chapter-specific dispute resolution process to address any questions regarding compliance, including, if necessary, review by an independent panel of experts whose recommendations would be made publicly available.
This chapter seeks to ensure that trade and environment conservation and protection are mutually supportive, and obliges the Parties to refrain from lowering environmental standards in order to gain a trade or an investment advantage. Provisions also seek to ensure that the Parties maintain the 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.
3.2 Preliminary environmental assessment of a modernized CUFTA
A modernization of the CUFTA provides an opportunity to increase the Agreement’s benefits for Canadians. However, increases in production levels are expected to be marginal considering the modernization will not touch market access for goods. Rather, the modernization will be focused on concluding new trade in services and investments commitments, as well as provisions to improve the predictability and transparency of doing business in Ukraine.
With regards to cross-border trade in services, a modernized CUFTA is expected to better position Canadian services suppliers vis-à-vis competitors in this market. However, given that Ukraine has already undertaken very liberal WTO General Agreement on Trade in Services (GATS) commitments, further market access gains in terms of sectoral coverage could be limited. Services provisions could improve upon GATS commitments bringing about enhanced predictability for Canadian services suppliers and tend to facilitate growth in services trade between Canada and Ukraine, but any increase in services trade is expected to have a limited impact on the environment, in part because some of the cross-border services benefiting from liberalization under the CUFTA could be in a virtual space (i.e. those without a physical component, such as professional advice), with less likelihood of negative environmental impacts.
As for investment, a bilateral Foreign Investment Promotion and Protection Agreement (FIPA) has bound Canada and Ukraine since 1995. Considering the robust commitments already into force, it is difficult to assess with certainty whether CUFTA modernization will effectively lead to major increases in large-scale investment projects and associated environmental impacts.
Therefore, in the context of this initial environmental assessment, the Government of Canada projects that minimal environmental impacts will result from the modernization of CUFTA in Ukraine and Canada, notably in terms of impacts on climate change, biodiversity, or on energy and water usage. However, potential environmental risks related to certain services sectors could see increases in activity following the modernization of CUFTA.
3.2.1 Cross-Border trade in services and temporary entry
The Government of Canada assessed that increased flows of the following services sectors’ trade could have positive or negative environmental impacts in Canada or Ukraine following CUFTA modernization:
- Financial services: Many provisions in Canada’s standard Financial Services chapter focus on Parties’ treatment of financial institutions, which play a central role in the economy as financial intermediaries. The security provided by new CUFTA financial services provisions could incentivize an increase in financial service supplier investments in Ukraine or Canada, thereby increasing the funding and insurance options available for companies in both countries. This can have a positive or negative impact on the environment depending on whether companies support sustainable practices and whether financial institutions incorporate environmental risk assessments into their credit or insurance decisions.
- Information and Communications Technology (ICT) services: Following CUFTA modernization and the inclusion of services commitments in the agreement, we anticipate that the Ukrainian ICT sector could see increased investment by Canadian companies interested in establishing data or cloud storage centers that could require energy intensive infrastructure. This could result in increased energy demands in Ukraine. Currently, much of the energy mix in Ukraine is composed of nuclear and coalFootnote 6. However, in sectors such as electronic commerce, positive environmental impacts can be anticipated through greater use of cross-border communications technologies (i.e. the internet/email, fax, teleconference, and videoconference) and by facilitating virtual transactions of goods and services.
- Environmental services: Positive environmental impacts can be anticipated as more environmentally sustainable services and technologies are adopted in Ukraine and Canada.
- Professional services: Increased availability of Canadian environmental expertise and consulting in Ukraine in certain sectors such as the renewable energy industry could accelerate the development of sustainable energy options (e.g. wind and solar energy), with an expected positive impact on the environment in Ukraine.
- Tourism services: The impact of a modernized CUFTA would likely be minimal on Canada’s tourism sector as Ukraine provides only a 0.1% of the total tourist arrivals. For example, in 2019, Canada welcomed 23,150 tourists from Ukraine. In addition, Destination Canada, a crown corporation responsible for marketing and promoting Canada abroad as a tourism destination, does not identify Ukraine among its target source markets for tourism.
- Transportation services: Taking into account that the existing CUFTA covers trade in goods, it is anticipated that a modernized agreement would result in only incremental increases in maritime and air freight transportation. A modernized agreement may result in further transportation between Canada and Ukraine to support the delivery of increased cross-border trade in services and investment, for example related to professional services. Additionally, as part of a modernized CUFTA, it would be possible for Canada and Ukraine to exchange information and best practices related to environmentally and climate friendly transportation technologies and approaches.
- Oil and gas services: CUFTA modernization is unlikely to have any impact on Canadian trade in oil services. Ukraine’s supply of petroleum products is already well established through its European neighbours (Russia, Belarus, and Germany), with all crude for Ukraine’s sole refinery provided by Kazakhstan and Azerbaijan. Ukraine has an ambitious net-zero plan, and is unlikely to expand its oil operations. Whereas Canadian firms are equipped to provide services expertise in building or decarbonizing Ukraine’s gas infrastructure, it is uncertain if the Canadian industry would be willing to collaborate with Naftogaz given the country’s fractious energy politics.
Provisions facilitating the temporary entry of business persons are unlikely to have direct environmental impacts, but could augment the sectoral impacts noted above. For example, these commitments could support environmental initiatives by facilitating temporary entry of businesspersons working in sectors such as environmental services and clean technologies. Facilitating the temporary entry for business persons in those sectors could also allow for increased exchange between business experts, with Ukraine potentially benefiting from Canadian expertise relating to the environment.
3.2.2 Large-scale investment projects
As noted previously, the projected increases in economic output and investment resulting from a modernized CUFTA are expected to be limited in scope, considering the existing FIPA already in place between Ukraine and Canada. As a result, the likelihood that changes brought by CUFTA modernization would lead to the building or expansion of production facilities, transportation infrastructure or other large-scale physical projects in Canada or Ukraine is also limited.
That being said, two key sectors have been assessed by the Government of Canada in the event that increased certainty brought by the CUFTA modernization due to new commitments on transparency and anti-corruption, for example, leads to more investments in Ukraine:
- Metals and Mining: Ukraine has a significant mineral potential and intends to open up deposits for auction, as reflected in its recent investment promotion materialsFootnote 7. However, Ukraine needs exploration companies to develop its deposits into reserves and attract capital investments to develop mines and downstream value chains. Canada is a global leader in this regard, hosting half of the world's publicly listed mining and mineral exploration companies. While increased activity in the mines and minerals sector may yield negative environmental impacts, a key priority for Canada’s mining and metals sector is reducing its environmental footprint and the use of circular economy principles and practices. Through its ‘Towards Sustainability Mining’ initiativeFootnote 8, the Mining Association of Canada leads Canadian mining industry commitments to responsible mining by creating tools and indicators for its members in support of community engagement, public safety and health, biodiversity and water conservation, and energy efficient mining practices to responsibly manage environmental and social risks. Canada’s mining sector investments may help to improve environmental practices in Ukraine’s mining sector.
- Clean technologies: A modernized CUFTA could potentially lead to increased investments in the clean technology sector in Ukraine, including renewable energy, which could in turn have positive environmental impacts.
3.3 Support of environmental laws in Ukraine
As mentioned previously, a modernized CUFTA would also support Ukraine’s economic reform efforts and support long-term economic development. As of now, the Ukrainian environmental legislation is quite broad and covers most areas of environmental protection. Ukraine’s environmental legislation includes the framework Law On Environmental Protection (1991), the Law On Air Protection (1992, new version 2001), the Water Code (1995), and the Law On Waste (1998). However, it also is largely declaratory in nature and does not have all the essential enforcement mechanisms for the implementation of legal acts and international agreements. There is also limited analysis of its impact and little publicly available data. That said, Ukraine’s Environmental Security and Climate Adaptation Strategy for 2030 (below), adopted in October 2021, will aim to increase the efficiency of the state system of environmental impact assessment and state supervision in the field of environmental protection. Ukraine also committed to reduce greenhouse gas emissions by 65% from 1990 levels by 2030, and to achieve climate neutrality not later than 2060.
A modernized CUFTA could support Ukrainian environmental laws, notably through strengthened commitments on environmental governance and enforcement of environmental laws, as well as on transparency. These commitments may result in increased compliance in Ukraine, which could have a positive environmental impact.
3.4 Conclusion of the preliminary Environmental Assessment
As a scoping exercise, this IEA focused on identifying the potential qualitative effects of a modernized CUFTA on the Canadian and Ukrainian environment. While this review does not identify any significant positive or negative impacts on the environment from such an agreement, it did highlight limited risks related to a few selected sectors such as information and communications technologies (ICT) services.
Considering these limited risks, the next sections review the enhancement and mitigation options that could be considered more specifically in the context of a modernized CUFTA, as well as the existing environmental legislative framework at the federal level in Canada. As previously stated, this qualitative analysis will be complemented with quantitative data in a final environmental assessment, to the extent such data become available.
4. Chapter-by-Chapter review of enhancement and mitigation options
A modernized CUFTA could help to enhance positive impacts and/or mitigate environmental risks, as described in the following section. As the final analytical stage of the environmental impact assessment, this section identifies areas for environmental enhancement and risk mitigation that may be addressed in a potential CUFTA modernization. This preliminary analysis aims to respond to the risks identified in section 3, as well as broader environmental considerations, in trade policy terms, with a view to inform ongoing negotiations. For more information on the purpose of each of the chapters mentioned below, please see Annex A.
For the purposes of this report, the assessment has been broken down into five groups of related chapters/provisions to be either added or modernized:
- Trade and Indigenous Peoples
- Transparency, Anti-Corruption and Responsible Business Conduct
Chapters not included above are those that are not expected to significantly enhance or mitigate environmental impacts of the agreement, although positive indirect effects could result from chapters like Good Regulatory Practices, to the extent they could promote environmental stewardship.
Canada seeks to include an ambitious and comprehensive environment chapter in its FTA negotiations. This includes obligations to ensure that high levels of environmental protection are maintained as trade and investment are liberalized and commitments to address a range of global environmental issues. Canada also includes environment-related provisions in other FTA chapters as appropriate, including in the preamble and the initial provisions and general exceptions articles.
Although the existing CUFTA already includes an environment chapter, its modernization provides opportunities to improve environmental governance, strengthen cooperation among the Parties and address environmental challenges, not only in the risk areas identified in Section 3 of this report but also more broadly.
In particular, Canada may use modernization to advance four key objectives:
- Strengthen environmental governance by pursuing enforceable core obligations to maintain high levels of environmental protection, including commitments to effectively enforce environmental laws, to not derogate from those laws to encourage trade or investment and to promote transparency, accountability and public participation. Commitments by Parties to maintain high levels of environmental protection and improve their respective laws and policies may help mitigate the minor environmental impacts identified in this report.
- Support efforts to address a range of global environmental challenges in areas that affect Canada’s environment, economy, and health. In addition to helping address specific risk areas identified in Section 3, environment provisions in a modernize FTA provide opportunities to enhance efforts in a number of areas including, illegal wildlife trade, resource efficient and circular economy, marine litter and plastic waste, and conservation of biodiversity. An agreement could also include a binding commitment on climate change, which would support Canada’s broader climate change objectives and align with the 2019-2022 Federal Sustainable Development Strategy goal to promote substantive climate change provisions in Canada’s FTAs. Further, Parties could use the FTA to enhance their respective commitments to the multilateral environment agreements they have signed. These provisions would support each Party’s respective national, bilateral and international commitments to strengthen environmental protection and would help advance solutions to address global environmental challenges.
- Promote mutually supportive trade and environment objectives through commitments to promote voluntary best practices of corporate social responsibility and responsible business conduct, voluntary measures to enhance environmental performance, and trade and investment in environmental goods and services. In particular, these provisions could encourage the promotion of trade in environmental goods and services, including those relevant to the risk areas identified in this report and to broader climate change mitigation and adaptation goals. This could also contribute to sustainable growth and the creation of jobs, and would align with the 2019-2022 FSDS goal to grow Canada’s clean technology industry and exports.
- Support sustainable management of natural resources through provisions related to a resource-efficient and circular economy and sustainable fisheries, agriculture and forestry management. Given the importance of natural resources and their significant role in the national economy of Parties, these provisions would reinforce the importance of sustainable resource management. These provisions may also help mitigate negative impacts, notably in relation to the agricultural practices highlighted earlier, as well as the generation of waste, illegal logging, overfishing of limited fish stocks, or illegal, unreported, and unregulated (IUU) fishing.
In addition to the above objectives, a modernized Environment chapter provides an opportunity to strengthen existing cooperation activities between Canada and Ukraine and to subject environmental obligations to the CUFTA’s dispute settlement mechanism.
One potential area of CUFTA modernization is the addition of new chapters on trade in services, including Cross-Border Trade in Services, Telecommunications, Financial Services, Temporary Entry for Business Persons, and new obligations on Electronic Commerce. The purpose of these chapters is to help Canadian traders, services providers and investors achieve new market access and to ensure a more predictable and transparent regulatory regime. Please refer to Annex A for more details.
A modernized CUFTA provides an opportunity to mitigate or enhance environmental impacts due to increased trade in services as follows:
- Positive environmental effects and mitigation of transportation-related impacts may be achieved in the modernized Digital Trade chapter, by supporting the facilitation of online services for trade. Expansion of online commerce may help reduce environmental impacts, provided that businesses seek new avenues in which they can have a positive and sustainable impact on the environment, such as logistics efficiencies, delivery via electric vehicles and use of recycled packaging materials.
- Cross-Border Trade in Services: This chapter will promote trade flows in higher-knowledge services sectors, including in sectors providing cross-border trade in services through digital means. The chapter could help support the growth of the environmental services sector by including provisions facilitating the access to Ukraine and Canada’s domestic markets to environmental services providers, thereby supporting the goal of the 2019-2022 FSDS to grow Canada’s clean technology industry.
- Temporary Entry for Business Persons: This chapter seeks to facilitate the temporary movement of highly-skilled business persons in support of bilateral trade in goods, services and investment by negotiating provisions that serve to remove common barriers that can be encountered by business persons when seeking to work abroad, including economic needs tests and/or quotas. For Canada, this means the waiving of the Labour Market Impact Assessment (LMIA) for all business persons covered by an FTA.
- Canada’s trade agreements generally include provisions that can mitigate any risk posed by trade liberalization in financial services to Parties’ environmental policies. In particular, Parties can adopt measures that treat financial services suppliers differently based on legitimate public welfare objectives, including environmental objectives.
Another potential area of CUFTA modernization is the addition of a new chapter on investment. Investment provisions under an FTA not only seek to protect investors from discriminatory or arbitrary treatment in their host country, but also offer an important tool to maintain environmental protections.
In the context of the CUFTA modernization, there are opportunities to use an investment chapter to enhance positive impacts or mitigate negative effects that may result from increased investments in Canada or Ukraine. The Investment chapter would include a number of clauses that can help address the risks noted in this study in relation to large-scale projects, such as:
- Modernized investment obligations, when compared to the Foreign Investment Promotion and Protection Agreement currently in force between Canada and Ukraine, that include better-defined scopes and that clarify the governments’ right to regulate.
- Affirmation that foreign investors in Canada (and Canadian investors in Ukraine) are bound by the same domestic laws as domestic investors. This includes any environmental legislation and regulations such as the Impact Assessment Act and provincial environmental assessment regulatory regimes;
- Clarification of the rules governing expropriation with regard to governments’ ability to protect legitimate public welfare objectives, notably in environmental matters;
- Flexibility to reserve existing laws and regulations such that they are not subject to specified trade liberalization obligations of the treaty, and to reserve sensitive sectors for future regulation; and
- More generally, investment provisions provide increased certainty and predictability for investors, including in the clean technologies sector, leading to potential positive environmental impacts.
The above commitments would be supported by a transparent, effective and efficient dispute-settlement mechanism. This investor-state dispute settlement is designed to preserve the government’s right to regulate in the public interest, including with respect to the environment. Some stakeholders have expressed concern that the inclusion of provisions for the settlement of disputes between an investor and a Party grants rights to investors without binding them to any obligations, including obligations to protect the environment. However, domestic environmental laws bind all investors operating on the territory of a party, including foreign investors.
4.4 Trade and Indigenous Peoples
As part of its inclusive approach to trade, Canada will propose Trade and Indigenous Peoples provisions that seek to acknowledge the importance of enhancing the ability of Indigenous peoples and Indigenous businesses to benefit from the opportunities created by a modernized FTA with Ukraine. These potential provisions include linkages to the environment:
- Reaffirm a number of important existing international instruments, such as the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), the 1992 United Nations Framework Convention on Climate Change, the 2015 Paris Agreement, and the 1992 Convention on Biological Diversity;
- Recognize the important role of the environment in the economic, social, and cultural well-being of Indigenous peoples, including the importance of the United Nations 2030 Agenda for Sustainable Development;
- Recognize the importance of respecting, preserving, and maintaining the knowledge and practices of Indigenous peoples that contribute to the conservation of the environment; and,
- Facilitate cooperation activities between the Parties, including the sharing of information and establishment of a dedicated website containing information on the Agreement that is useful to Indigenous entrepreneurs and businesses.
Overall, the proposed Trade and Indigenous Peoples provisions would likely have an indirect positive impact on the environment through cooperation activities between the Parties, pending a willing trade partner in Ukraine. These activities would highlight the importance the environment has on Indigenous peoples’ economic and cultural well-being and the role that Indigenous businesses play internationally in innovative and environmentally sustainable economic development.
4.5 Transparency, anti-corruption, and responsible business conduct
In 2021, Transparency International assigned Ukraine an overall score of 32 on its annual Corruption Perceptions index, ranking122 out of 180 countries surveyed overall.Footnote 9 This perception of corruption could limit bilateral trade by limiting investor confidence. The 2020 World Bank Ease of Doing Business Index, that was corrected in 2021 following data irregularitiesFootnote 10, confirmed Ukraine as the 64th economy out of 180, with a score of 70.2 out of 100. The index specifically noted positive changes in the areas of construction permits, electricity, property registration, protecting minority investors, and cross border trade.Footnote 11
Transparency international assigned Canada a score of 74 out of 100 in 2021, with a ranking of 13 out of 180 countries. This represented a drop of 1 place from the previous year. Canada’s 2020 World Bank Ease of Doing Business score according to the corrected data were 79.6, giving it an overall ranking of 23. The survey noted no significant regulatory changes affecting Canada`s score from the previous year.
The aim of Canada’s approach to transparency, anti-corruption and Responsible Business Conduct (RBC) is to ensure the effectiveness and predictability of the parties’ legal frameworks and regulatory environments, particularly regarding legal certainty and proportionality. In the context of CUFTA modernization, Canada will seek to update the existing language on transparency and anti-corruption, and add new obligations on responsible business conduct to ensure consistency with Canada’s most recent FTAs. Canada has included RBC provisions in its most recent agreements with the aim of increasing stakeholder and investor confidence, facilitating business access to financing mechanisms, and helping businesses manage social, environmental, reputational and economic risks abroad.
Canada has a strong, balanced approach to responsible business conduct. The Government of Canada expects Canadian companies active abroad to respect human rights, to operate transparently and in consultation with host governments and local communities, and to work in a socially and environmentally responsible manner while respecting applicable laws, and to adopt voluntary best practices and internationally recognized guidelines on RBC such as the OECD Guidelines for Multinational Enterprises and United Nations Guiding Principles on Business and Human Rights.
As countries around the world look to rebuild their economies and “build back better”, RBC can play a constructive role. For example, sound labour practices can contribute to the better health and retention of workers. Sound environmental practices can lead to lower costs of production as there are reduced risks of environmental damage. As more investors look for greener purchases and investment options, this approach builds brand credibility and competitive advantage. By seeking provisions on RBC, a modernized CUFTA can help establish a business environment that is more conducive to responsible practices that benefit society, the economy, and the environment.
In summary, the proposed new CUFTA transparency, anti-corruption and responsible business conduct (RBC) provisions would seek to improve the rules-based trading environment in Canada and Ukraine, and improve confidence in the fair and equitable administration of the agreement. Rules-based trade supported by clear administrative processes could improve confidence in the Canadian and Ukrainian business environments. Subject to previous remarks on the potentially limited impacts of new services and investment commitments in the CUFTA modernization, a more transparent and predictable business environment could lead to increased investments and eventual environmental impacts, including in relevant sectors identified in section 3. Canada will seek to manage these potential impacts by upholding existing environmental regulations and strengthening environmental protections as part of CUFTA modernization.
5. Canada’s existing environmental legislation, policies and actions
Expected impacts identified by the environmental analysis should be considered in the context of Canada’s existing statutes, regulations, policies and actions at all levels of government that help prevent and manage environmental risks in Canada. The environmental legislative framework focuses on minimizing threats to Canadians and their environment from pollution; equipping Canadians to make informed decisions on weather, water and climate conditions; and conserving and restoring Canada's natural environment. This robust environmental framework positions Canada well to mitigate potential environmental effects from the CUFTA modernization.
This section provides an overview of the Government of Canada’s environmental legislative framework, both at the broad and sector-specific levels. While this overview focuses on the statutes, regulations, policies and actions implemented by the federal government, it is understood that provincial and territorial governments also have important roles and responsibilities in the prevention and management of environmental risks, including numerous environmental statutes and regulations. As a result of these roles, there is extensive cooperation taking place between federal, provincial and territorial governments in these areas.
5.1 Canada’s environmental sustainability strategy and framework
Under our constitution, the management of environmental issues is an area of shared jurisdiction among federal and provincial governments. The federal government collaborates with provinces, territories, Indigenous peoples and others to protect species and spaces, to develop and administer environmental standards, guidelines, regulations and risk management instruments to reduce releases and monitor levels of contaminants in air, water and soil, and promote and enforce compliance with environmental laws and regulations.
Monitoring and reporting on changes in the environment on a regular basis is essential for assessing the impact of risks and the effectiveness of measures to prevent or minimize those risks, and is an important component of the scientific work supporting the implementation of Canada’s environmental framework. The environmental standards set by these instruments will remain in place irrespective of changes in economic activity or international trade, including as a result of the CUFTA modernization.
5.2 Key pieces of federal environmental legislation in Canada
The main federal statutes dealing with the protection of the environment are as follows:
- Canadian Environmental Protection Act (CEPA)
- Aims at preventing pollution and protecting the environment and human health.
- Prevents and manages risks posed by toxic and other harmful substances. It also manages environmental and human health impacts of products of biotechnology, disposals at sea, vehicle, engine and equipment emissions, fuels, hazardous wastes, environmental emergencies and other sources of pollution.
- Greenhouse Gas Pollution Pricing Act (GGPPA)
- Helps reduce Canada’s GHG emissions by establishing a greenhouse gas emissions pollution pricing system with respect to fossil fuels and trade-exposed industrial facilities.
- Canadian Net-Zero Emissions Accountability Act
- Enshrines Canada’s objective to achieve net-zero GHG emissions by 2050 and provides transparency and accountability in Canada’s efforts to achieve this objective by:
- Requiring the Minister of ECC to prepare, table and publish a GHG reduction target, emissions reduction plan, progress report and assessment report for each milestone year leading to 2050 (2030, 2035, 2040, 2045)
- Establishing the Net-Zero Advisory Body as a statutory body to provide advice to the Minister on ways to achieve net-zero emissions by 2050
- Enshrines Canada’s objective to achieve net-zero GHG emissions by 2050 and provides transparency and accountability in Canada’s efforts to achieve this objective by:
- Federal Sustainable Development Act
- Provides the legal framework for developing and implementing a Federal Sustainable Development Strategy (FSDS) that makes decision making related to sustainable development more transparent and subject to accountability to Parliament.
- Fisheries Act
- Addresses the protection of fish and fish habitats in both oceans and inland waterways.
- Prohibits the deposit of harmful substances into water frequented by fish, unless authorized through regulation.
- Canada Water Act
- Provides the framework for collaboration among federal, provincial and territorial governments in matters related to the conservation, development and use of Canada’s water resources.
- Transportation of Dangerous Goods Act
- Promotes public safety in the transportation of dangerous goods.
- Migratory Birds Convention Act, 1994
- Protects migratory birds, their nests and eggs anywhere they are found in Canada, including ocean waters.
- Prohibits the deposit of substances harmful to migratory birds in waters or areas frequented by them, unless authorized by other federal legislation or by the Minister for scientific purposes.
- Prohibits the purchase, sale, or possession of any migratory bird, including parts, nests or eggs, unless authorized by regulation.
- Nuclear Safety and Control Act
- Regulates the development, production and use of nuclear energy and the production, possession and use of nuclear substances, prescribed equipment and prescribed information in Canada.
- Canada Shipping Act
- Deals principally with controlling the discharge of pollutants from shipping vessels.
- Species at Risk Act (SARA)
- Designed to meet one of Canada's key commitments under the Convention on Biological Diversity (CBD).
- Its purposes are preventing wildlife species in Canada from becoming extirpated (no longer exist in the wild in Canada) or extinct, providing for the recovery of wildlife species that are extirpated, endangered, or threatened as a result of human activity, and managing species of special concern to prevent them from becoming endangered or threatened.
- Encourages the various governments in Canada to cooperate to protect wildlife species.
- Consultation and cooperation with Indigenous peoples are essential to the successful implementation of SARA.
- Wild Animal and Plant Protection and Regulation of International and Interprovincial Trade Act (WAPPRIITA)
- Implements the Convention on International Trade in Endangered Species (CITES) by regulating trade in wild animals and plants.
- Prohibits the import, export and interprovincial transportation of designated species unless the specimens are accompanied by the appropriate documents (licenses and permits).
- Impact Assessment Act (IAA)
- The Act and its regulations establish the legislative basis for federal impact assessment.
- The impact assessment is a planning and decision-making tool used to assess positive and negative environmental, economic, health and social effects of proposed projects as well as impacts to Indigenous groups and rights of Indigenous peoples.
5.3 Canada’s federal sustainable development strategy and Canada’s climate plans
The 2019–2022 Federal Sustainable Development Strategy (FSDS)Footnote 12 highlights the Government of Canada’s environmental sustainability priorities, establishes goals supported by medium-term targets, and identifies short-term milestones and actions to achieve them. It is Canada’s fourth whole-of-government strategy that brings the Government of Canada’s sustainability activities together in one place. It outlines what the Government is doing across 42 federal departments and agencies to promote clean growth, ensure healthy ecosystems, and build safe, secure and sustainable communities between 2019 and 2022. The FSDS also remains closely linked with government priorities, reflecting key initiatives such as efforts to implement the UN 2030 Agenda; Canada’s climate plans; the Oceans Protection Plan; and work undertaken to address plastic waste and promote zero-emission vehicles. Indicators to track progress against the goals and targets in the FSDS are drawn largely from the Canadian Environmental Sustainability Indicators program, including progress on GHG emissions for Canada. The FSDS also tracks progress on the federal government’s Mission Innovation pledge to double investments in clean energy, research, development and demonstration from 2015 levels of $387 million to $775 million by 2020, as well as reducing GHG emissions from government operations.
Among the 13 goals set out by the 2019-2022 FSDS, the following are of particular interest in the context of environmental impacts projected as a result of the CUFTA modernization:
- Effective action on climate change, including taking a leading role in international agreements and initiatives on climate change and promoting substantive climate change provisions in Canada’s free trade agreements;
- Greening government, including through green procurement initiatives;
- Clean growth, including supporting Canada’s growing clean technology industry;
- Healthy coasts and oceans, including using legislation and regulations to protect coasts and oceans, notably by enhancing enforcement of pollution prevention provisions;
- Sustainable food, encouraging the adoption of sustainable agricultural practices and working with provinces and territories through the Canadian Agricultural Partnership.
The 2016 Pan-Canadian Framework on Clean Growth and Climate Change (PCF)Footnote 13 is Canada’s first-ever national climate plan that was developed with provinces and territories, and in consultation with Indigenous peoples. In December of 2020, the Government of Canada introduced A Healthy Environment and a Healthy EconomyFootnote 14 as Canada’s strengthened climate plan. It builds on the efforts that are currently underway through the PCF to cut more pollution, to create more good jobs, and to support a healthier economy and environment. It includes 64 strengthened and new measures, through five pillars: make the place we live and gather more affordable by cutting energy waste; make clean, affordable transportation and power available in every community; continue to ensure pollution isn’t free and households get more money back; build Canada’s clean industrial advantage; and, embrace the power of nature to support healthier families and more resilient communities.
Among the key areas defined in these plans, those of specific relevance in the context of expected impacts from the CUFTA modernization include plans to:
- Reduce emissions through complementary actions in:
- Transportation, including fuel-switching and efficiency improvements in rail, aviation, marine, off-road sectors, light- and heavy-duty vehicles;
- Industry, by building Canada’s clean industrial advantage;
- Forestry, agriculture and waste; and,
- Government operations and procurement.
- Work with international partners to ensure that trade rules support climate policy;
- Invest in more efficient trade and transportation corridors, including hubs and ports; and
- Support innovation, commercialization and adoption of Canadian clean technologies.
The Government of Canada is investing heavily to meet these targets and has recognized the importance of mobilizing financial sector capital and ingenuity to help meet Canada’s climate objectives. The current focus is to support building the critical financial sector infrastructure needed to increase the sustainable finance market in Canada. To obtain financial sector views on sustainable finance issues, the Government established the Sustainable Finance Action Council in May 2021, comprised of representatives from major Canadian banks, insurance companies, and pension funds.
5.4 Sector-specific laws, policies and actions
Canada also leverages bilateral and multilateral engagement in key international fora to support wider global efforts to address climate change and manage environmental risks. For example, the Canadian Net-Zero Emissions Accountability Act enshrines the 2030 GHG emissions target as being Canada’s Nationally Determined Contribution (NDC) under the Paris Agreement. Canada submitted a new NDC in July 2021, committing to reduce GHG emissions by 40-45% below 2005 levels by 2030. Canada also provides climate finance to support developing countries’ transition to low-carbon, climate-resilient economies. Canada is delivering $2.65B in climate financing to developing countries, between 2015-16 to 2020-21 and announced in June 2021 a doubling of its international climate finance commitment, to $5.3 billion over the next five years (2021-22 to 2025-26). Specific policies and regulations are also of relevance given the environmental risks identified in the initial environmental assessment of the CUFTA modernization. At the sector level, these may help control the limited risks related to the transportation and mining sectors.
- Manufacturing: The regulatory framework governing environmental impacts from manufacturing includes the CEPA and its regulations. A key aspect of CEPA is the prevention and management of risks posed by toxic and other harmful substances. For example, CEPA provides broad authorities to regulate activities involving toxic substances, including manufacturing and processing activities. Under CEPA, manufacturing facilities may also be required to disclose their emissions data regarding of selected pollutants through various programs such as the National Pollutant Release Inventory (NPRI) and ECCC’s Greenhouse Gas Emissions Reporting Program. Pollutant emissions to water resulting from industrial manufacturing are also subject to the Fisheries Act, which prohibits the deposit of deleterious substances;
- Pulp and Paper: Emissions and effluents levels of the Canadian Pulp and Paper sector are subject to a number of regulations and monitoring activities, including the Pulp and Paper Effluent Regulations in the Fisheries Act, as well as ECCC’s code of practice for the management of air emissions from pulp and paper facilities, which promotes best practices in the environmental performance of pulp and paper mills in Canada with respect to atmospheric emissions of sulphur dioxide (SO2) and total particulate matter (TPM);
- Transportation: ECCC has implemented six vehicle and engine emission regulations to reduce air pollutants and greenhouse gas emissions from on- and off-road vehicles and engines under the CEPA. Transport Canada leads a suite of regulatory and voluntary measures to reduce greenhouse gas emissions from the aviation, marine and rail sectors, and also supports emission reductions from the on-road sector. With respect to the maritime transportation sector in particular, the Canada Shipping Act provides regulations to protect the marine environment coming from navigation and shipping activities;
- Invasive Alien Species (IAS): Implemented by a number of federal departments and agencies, as well as Provinces and Territories, the IAS Strategy directs national efforts to address the issues associated with invasive species entering or already in Canada. At the federal level, the government-wide IAS Strategy involves Agriculture and Agri-Food Canada, Fisheries and Oceans Canada, ECCC, Natural Resources Canada and the Canadian Food Inspection Agency;
- Large-scale projects, including in the mining sector: The Impact Assessment Act (IAA) and its regulations establish the legislative basis for the federal impact assessment process of projects. Whether Canadian or foreign, proponents of designated projects (as defined by the Physical Activities Regulation) may be required to conduct an impact assessment to determine if a project's adverse impacts are in the public interest. For the mining and processing sectors, air emissions and effluents are subject to a number of regulations and monitoring activities, including the Metal and Diamond Mining Effluent Regulations (Fisheries Act), as well as other federal instruments (e.g. Codes of Practice, Environmental Performance Agreements, Pollution Prevention Planning Notices).
The Government of Canada’s existing environmental legislative framework is well positioned to mitigate any environmental effects from the CUFTA modernization. As new statutes, regulations, policies and actions are developed and implemented in the future, improvements in the environmental performance of Canadian economic sectors may further help mitigate the environmental impacts of a trade agreement going forward.
6. Ukraine’s Environmental Security and Climate Adaptation Strategy for 2030
Ukraine’s Environmental Security and Climate Adaptation Strategy for 2030Footnote 15, adopted in October 2021, will aim to increase the level of environmental security and reduce the effects of climate change in Ukraine. It intends to do so in part by reducing the level of industrial pollution, ensuring rational use of natural resources, implementing better waste management, and emphasizing the preservation of biodiversity. The strategy’s goals are to be implemented through the integration of multiple governmental, social and economic initiativesFootnote 16.
7. Conclusion and next Steps
Modernization of the CUFTA offers an opportunity to deepen the Canada-Ukraine bilateral relationship by strengthening provisions in the CUFTA to better reflect Canada’s commitment to inclusive and sustainable trade. This Initial Environmental Assessment (IEA) of a possible CUFTA modernization aimed to identify potential impacts on the Canadian and Ukrainian environment that may result from the new and modernized chapters, assess the significance of these impacts, and identify possible enhancement or mitigation options that may be addressed in the negotiations. Overall, the initial environmental assessment found that a modernized CUFTA is unlikely to result in significant negative environmental impacts, both in extent and scope.
Further, the overview of the Government of Canada’s existing environmental legislative framework, including statues, regulations, policies, and actions for the prevention and management of environmental risks, suggests that Canada is well positioned to mitigate the potential environmental impacts of an agreement, including through improvements in the environmental performance of Canadian economic sectors going forward.
In addition, the chapter-by-chapter review points to several areas for environmental collaboration and risk mitigation in the context of the modernized FTA, including through provisions in the environment chapter, expanded market access for environmentally-friendly services and mechanisms to increase cooperation between Canada and Ukraine in key areas.
The next phase of the EA process will be to conduct a Final EA. This Final EA will take into account the final negotiated outcomes to assess the scope and nature of environmental effects that could arise from the proposed modernized CUFTA. The qualitative analysis will be complemented with quantitative data in the Final EA, to the extent such data become available. The Final EA will be published following the conclusion of negotiations.
Until then, the Government of Canada welcomes input and comments on this IEA. Any comments received will be used to inform subsequent EA analysis of the modernized CUFTA, as well as EAs of other 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 input can be sent until April 3, 2023 to:
Mail: Environmental Assessment of the Canada-Ukraine FTA Modernization Negotiations
Trade Policy and Negotiations - Europe, Middle East and Africa (TCE)
Trade Agreements Secretariat (TCT)
Global Affairs Canada, John G. Diefenbaker Building
Annex – Background on objectives of FTA chapters
Free trade agreements (FTAs) are binding treaties between countries that open markets to businesses by addressing trade barriers, such as tariffs and non-tariff barriers. These agreements:
- provide Canadians with preferential access to a wider range of export and international investment opportunities
- provide Canadian businesses with lower cost inputs and improved access to diverse suppliers of important inputs into products produced in Canada
- create more predictable and transparent conditions for businesses operating in foreign countries
- provide Canadians with a more diverse range of consumer products at lower prices
The term “FTA” may seem to imply complete free trade between countries involved in the agreement; however, FTAs do not automatically eliminate all tariffs (customs duties imposed on imported goods) and other barriers to trade. For example, some products may be free of tariffs, but others may not be. Tariffs may also be eliminated over a period of time. Beyond tariffs, FTAs seek to prevent and address non-tariff barriers, such as those arising from health, safety, and environment regulations, while preserving the right to regulate in the public interest.
Many of Canada’s FTAs also go beyond trade in goods to cover services. Over 18% of Canada’s total trade is in services, including:
- information technology
- financial services
- environmental protection and monitoring
- mining and energy development
Objectives of FTA Chapters
This section is divided into three thematic sub-sections, in order to reflect provisions Canada will seek to add or update in the CUFTA, as well as provisions in the CUFTA which will not be part of the modernization discussions.
Objectives of possible new chapters and provisions in CUFTA
Good Regulatory Practices – The focus of the Good Regulatory Practices provisions is to promote enhanced transparency and good regulatory practices, with a view to improving governance and predictability while taking into account the legitimate policy objectives of each country. These provisions include commitments on mechanisms to facilitate inter-agency coordination; obligations involving the implementation of good regulatory practices; and obligations concerning cooperation with other parties and interested persons of other parties.
Cross-border Trade in Services – The Cross-Border Trade in Services provisions set out comprehensive rules regarding the treatment of service suppliers in partner countries.
Temporary Entry for Business Persons – Sets out the labour mobility provisions that support the facilitated movement of highly skilled business persons between partner countries.
Telecommunications – The Telecommunications provisions enhance regulatory certainty for telecommunications service suppliers.
Financial Services – The Financial Services chapter sets out the rules for the treatment of financial institutions, their investors, and cross-border trade in financial services, while preserving flexibility to protect the integrity and stability of the financial system.
Investment – The Investment provisions protect investors from discriminatory or arbitrary treatment in their host country.
Trade and Gender – The main objective of the Trade and Gender chapter is to advance women’s economic empowerment and gender equality by removing barriers to participation in trade. It also facilitates cooperation activities and information sharing.
Trade and Indigenous Peoples – The Trade and Indigenous Peoples provisions seek to remove barriers to participation in trade and enhance the ability of Indigenous peoples and businesses to benefit from the opportunities created by an FTA, including by facilitating cooperation activities and information sharing.
Trade and Small and Medium-sized Enterprises – The Trade and Small and Medium-sized Enterprises provisions support the growth and development of micro, small and medium-sized enterprises by enhancing their ability to participate in and benefit from the opportunities created by an FTA, through identifying and removing barriers to participation, and facilitating cooperation activities and information sharing.
Objectives of existing chapters in CUFTA – Possible modernizations
Electronic Commerce – The Electronic Commerce provisions help facilitate the use of e-commerce by consumers and businesses, in recognition of the growing digitalization of trade and its impact on the economy.
State-owned Enterprises and Designated Monopolies – The State-Owned Enterprises and Designated Monopolies provisions seek to ensure a level playing field between state-owned enterprises, designated monopolies and private firms, while at the same time preserving the ability of state-owned enterprises to provide public services.
Competition – The purpose of the Competition Policy chapter is to promote open and competitive markets, and help ensure that the benefits of trade liberalization are not offset by anti-competitive business conduct. The proposed competition policy provisions require that the parties adopt or maintain measures to proscribe anti-competitive business conduct, and include specific commitments for transparency and procedural fairness.
Government Procurement – The Government Procurement provisions help to ensure that suppliers of goods, services and construction services are treated in an open, transparent and non-discriminatory manner when competing for government procurement opportunities in partner markets.
Environment – In addition to the obligations that ensure that parties effectively enforce their environmental laws and do not lower environmental standards to promote trade or attract investment, environment provisions could also include commitments that support efforts to address a range of global environmental challenges, such as climate change, conservation of biological diversity, illegal wildlife trade and invasive alien species.
Labour – The Labour provisions commit parties to effectively enforce their domestic labour laws which should in turn embody and provide protection for internationally recognized labour rights and principles, including those set out in the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work (1998).
Dispute Resolution – The Dispute Resolution provisions describe transparent, effective and efficient dispute settlement mechanisms, including for state-to-state and investor-state disputes. State-to-state mechanisms help to resolve disputes between the FTA partners over the interpretation of the agreement or whether a measure of a Party is inconsistent with the agreement. Investor-state mechanisms provide recourse for companies that feel they were not treated as favourably as the host country’s companies.
- Preamble – The preamble is not a chapter, but an introduction on the purpose of the Free Trade Agreement (FTA). The preamble reflects the intentions of the parties and the scope of the FTA and has interpretive value should a dispute arise.
- Initial Provisions and General Definitions – The first part of the Initial Provisions and General Definitions chapter explains how the FTA respects WTO commitments and how it links with existing agreements. The second part includes definitions of terms used in more than one chapter.
- Administrative Provisions--The Administrative Provisions chapter establishes the structure of the bodies that will be charged with the governance and the implementation of the FTA.
- Exceptions and General Provisions – The Exceptions and General Provisions chapter includes exceptions, such as for essential security, cultural industries and taxation, that would apply across the entire agreement.
- Transparency, Anti-Corruption and Responsible Business Conduct – The purpose of this chapter is to facilitate trade by reducing corruption and enhancing transparency. The chapter is divided into three sections: transparency, anti-corruption and Responsible Business Conduct.
- Final Provisions – This chapter includes provisions related to entry into force or accession to the agreement (i.e. elements linked to the Vienna Convention). However, the Final Provisions Chapter as a whole is not gender-neutral, as, for example, delaying the entry into force of an FTA foreseen as having a positive impact on women would also postpone the benefits they could avail from the FTA.
Objectives of existing chapters in CUFTA – Not part of modernization discussions
Market Access for Goods – A National Treatment and Market Access (NTMA) chapter establishes clear and predictable rules on a range of issues affecting trade in goods, such as elimination of customs duties and import and export restrictions, among others. The chapter also enshrines the foundational World Trade Organization principle of “national treatment,” which ensures that a country treats imported goods no less favourably than it treats domestically produced goods. Tariff schedules, which are often appendices to the NTMA chapter, set out each country’s obligations to eliminate custom duties (i.e. tariffs) within specified time frames. Canada’s FTAs typically involve elimination of all customs duties, except on a limited number of highly sensitive products.
Rules of Origin and Procedures related to Origin
- Rules of Origin – The Rules of Origin provisions set out the general requirements under which a good may be considered originating in the territory of the Parties to the Agreement and therefore eligible for preferential tariff treatment. These provisions are intended to benefit Canadian importers, exporters, producers and consumers by establishing a predictable rules-based environment for trade in goods. The economic impact of these provisions is dependent on the extent to which market access increases as a result of tariff reduction.
- Origin Procedures – The Origin Procedures provisions establish the procedures used to administer the rules of origin and set out obligations for importers, exporters, and the customs authorities. The procedures clarify the processes and obligations required for importers and exporters to take advantage of the reduced or free rates of duty and provide the customs authorities with an applicable methodology to ensure that only qualifying goods receive preferential tariff treatment under the FTA. Furthermore, one of Canada’s main objectives is to ensure that the rules of origin are administered in a fair and transparent manner by the customs administrations and provide the trade community a facilitative means in which to take advantage of the preferential tariff treatment afforded under the free trade agreement.
Trade Facilitation – The Customs and Trade Facilitation Chapter promotes a transparent, predictable and consistent border environment that facilitates legitimate trade in goods, while safeguarding Canada’s ability to protect its borders and to provide certainty around Canada’s ability to administer or introduce new measures that ensure or enhance trader compliance with Canada’s laws, regulations or procedural requirements relating to the importation, exportation or transit of goods. Such measures include those that seek to ensure the safety and security of Canada and its citizens through the proper reporting and accounting declaration of goods and payment of duties, taxes, fees and charges by traders.
Emergency Action and Trade Remedies – The purpose of the Emergency Action and Trade Remedies chapter is to reaffirm WTO rights and obligations for anti-dumping, countervailing and global safeguard measures under the relevant WTO Agreements.
Sanitary and Phytosanitary Measures – The Sanitary and Phytosanitary Measures provisions maintain each party’s right to take measures necessary to protect against risks to food safety, animal or plant life or health, while ensuring that such measures are science-based, transparent and do not create unnecessary and unjustifiable sanitary and phytosanitary trade restrictions.
Technical Barriers to Trade – The Technical Barriers to Trade (TBT) chapter builds on the existing WTO Agreement’s provisions in the areas of transparency, conformity assessment, and joint cooperation. A TBT is a non-tariff barrier to trade - such as a technical regulation, standard or conformity assessment procedure - that sets out specific technical or other requirements for products to be exported or imported to a certain country.
Intellectual Property – The Intellectual Property (IP) provisions include standards for the protection and enforcement of IP rights to which each Party’s national laws must conform.
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