Contributed by Robert Lyman © 2017

Robert Lyman is an Ottawa energy policy consultant. He was formerly a public servant for 27 years and a diplomat for 10 years prior to that.

Following the meetings of Prime Minister Trudeau and U.S. President Donald Trump in Washington this week, Canadian media reported that negotiations on the North American Free Trade Agreement (NAFTA) could be in trouble, despite public commitments by all three governments involved – the United States, Canada and Mexico – to continuing the liberalization of trade that has provided large economic benefits over the past 23 years.

 

From the perspective of those concerned with how environmental policy, regulation and programs might affect Canada’s economy, there are good reasons to wonder about the approach that the Trudeau government is taking to the negotiations and whether it, in fact, serves Canada’s best interests. That approach differs greatly from the American approach. The odd mixture of economic, trade, environmental, and social considerations in play makes for a strange brew.

 

Canada’s Objectives 

On August 14 2017, Global Affairs Minister Chrystia Freeland outlined Canada’s objectives in the NAFTA negotiations.  The objectives include a number that one might expect in a trade and investment agreement – government procurement, investor state dispute settlement, the movement of professionals and business persons across borders, and protection for certain “favoured” industries like publishing and broadcasting, as well as supply management in dairy, poultry and egg markets. However, the Canadian government’s key priorities read like a standard promotion of “progressive” political objectives: promotion of labour standards; moving environmental standards into the core of NAFTA; and including chapters on gender and indigenous rights.

 

These objectives are strikingly different from those articulated by the Office of the United States Trade Representative on July 17 2017. Those included a clear emphasis on improving the U.S. trade balance and what the U.S Administration sees as a trade “deficit” among the NAFTA countries. The U.S. has specific goals in a long list of areas: industrial products, agricultural goods, sanitary measures (affecting trade in food products); customs, trade facilitation and rules of origin; technical barriers to trade; regulatory practices; trade in services; digital trade and cross-border data flow; investment; intellectual property; transparency; state owned and controlled enterprises; competition policy; anti-corruption; trade remedies; government procurement; energy; and dispute settlement. The U.S. list also includes the inclusion of chapters on the environment and labour, with somewhat similar objectives as Canada but important differences in emphasis. Thus, the U.S. emphasized economic and trade objectives, while Canada emphasized social and environmental objectives.

 

The Proposed Environment Chapter

Environmental provisions were initially placed in side-letters in the original NAFTA agreement containing “enforce your own laws” provisions and a special consultation mechanism and dispute settlement procedure.

 

More recent international trade agreements have included provisions containing an affirmative obligation for free trade partner countries to adhere to multilateral environmental agreements (MEAs) and allowing for environmental disputes under trade agreements to access the full dispute settlement provisions of the agreements.

 

During negotiations on the Trans Pacific Partnership (TPP) trade agreement, the parties tentatively agreed on an environment chapter obligating each party to:

 

  • Effectively enforce its environmental laws, and not take actions to attract trade and investment that would conflict with those laws in order to promote trade and investment;
  • Not waive or derogate from its environmental laws in ways that would reduce the protections afforded in those laws to encourage trade and investment; and
  • Ensure that its environmental laws and policies provide for and encourage high levels of protection, and strive to improve these.

 

The draft TPP also:

 

  • Recognizes the sovereign right of each party to establish its own levels of domestic environmental protection, its own regulatory priorities, and to adopt or modify its priorities accordingly;
  • Acknowledges a party’s right to exercise discretion with regard to enforcement resources; and
  • Provides for the resolution of disputes.

 

Other recent international trade agreements have required the parties to “adopt, maintain and implement” seven enumerated MEAs. However, the TPP only requires this with respect to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). This commitment is less specific (e.g. requiring parties to “take measures consistent with”) regarding other MEAs, including the Montreal Protocol on Substances that Deplete the Ozone Layer, International Convention for the Prevention of Pollution from Ships (MARPOL), Convention on Wetlands of International Importance, Convention on the Conservation of Antarctic Marine Living Resources, International Convention on Whaling, and Convention for the Establishment of an Inter-American Tropical Tuna Commission.

 

One might wonder why it is necessary to include in trade agreements provisions obligating the parties to adhere to the terms of other existing domestic laws or international environmental agreements. Perhaps it is to add more public profile to these agreements. The more obvious and direct need, one might have thought, is to ensure that countries not so weaken their adherence to their own laws on international agreements as to give their companies cost advantages over those of other countries’ firms during trade or investment. As both Canada and the United States impose stringent and ever-increasing environmental regulations and assure strict adherence to them, it seems that the inclusion of these provisions in international trade agreements is more likely targeted at Mexico and various less developed countries that are parties to the proposed TPP. The United States, of course, has stated that it will not be a party to the TPP.

 

Perhaps the real reason behind Canada’s desire for a new NAFTA Environment Chapter was indicated by federal officials in discussions with the Government’s NAFTA Advisory Council on the Environment. According to a report by Barbora Grochalova of the law firm Borden Ladner Gervais in October 2017, the officials stated that they wanted to see climate action specifically included in NAFTA. One of the ways to do that would be to add the COP21 Paris Agreement to the list of MEAs to which parties must adhere and enforce.

 

This would be clearly contrary to the policy position of the Trump Administration in the U.S., and it is unclear what it would mean in practice. The COP21 agreement contains no legal commitments on parties other than to submit emissions reduction plans every five years and to contribute to the Green Climate Fund (with no allocation of funding among either contributing or receiving parties).

 

The Energy Issue

The U.S. statement of objectives for NAFTA negotiation includes to “preserve and strengthen investment, market access, and state-owned enterprise disciplines benefitting energy production and transmission and support North American energy security and independence, while promoting continuing energy market-opening reforms.” The Canadian government’s stated objectives make no mention of energy-related goals. This, one might argue, is surprising given the actions of the former Obama Administration to impair Canada’s market access by discriminating against Canadian oil pipelines like the Keystone XL pipeline. Surely, Canada would wish to strengthen the NAFTA provisions against the use of arbitrary regulatory measures that harm energy trade and market access.

 

What to Make of This

There are two different schools of thought as to what to make of the approach now being taken by the Trudeau government. One is that its real objectives in the NAFTA negotiation are economic; they concern creating more opportunities to trade while protecting certain favoured industries and ensuring that strong dispute resolution provisions remain in place. According to this view, the public profile given to environment, labour, gender and indigenous issues is merely a spoke screen so that Canada can ultimately acquiesce on some issues to attain the more important economic goals.

 

The other school of thought is that the Trudeau government means what it says when it declares that “progressive” issues are at the heart of its agenda. In that case, it might be prepared to sacrifice the interests of Canadian firms to get the environment, labour, gender and indigenous chapters added. Which stream of thought is correct will only become clear as the negotiations proceed.

 

If, as seems possible, the negotiations fail and NAFTA ceases to exist, it will certainly harm the prospects for mutually beneficial growth in trade within the three countries. One should not forget, however, that whatever happens to NAFTA, the Canada-U.S. Free Trade Agreement will remain in place.

 

And it has no environment chapter.

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Robert Lyman: “Environment over Economy?”

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