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Canada – Andean Community Free Trade Negotiations

Initial Environmental Assessment Report - January 2008

Table of Contents

1. Executive Summary
2. Overview of the Environmental Assessment Process
   • A. Assessment Methodology
3. Overview of the Trade and Investment Relationship Between Canada and the Andean Community
4. Trade and the Environment
5. Initial Environmental Assessment Findings
   • Trade in Goods
   • Trade in Services
   • Investment
6. Conclusion

Appendices

Economic Analysis of Prospective Free Trade Agreement(s) between Canada and the Countries of the Andean Community

Canada-Andean Community Trade Relationship
Canada-Colombia Bilateral Economic Relationship
Canada-Peru bilateral Economic Relationship
Canada-Ecuador Bilateral Economic Relationship
Canada-Bolivia Bilateral Economic Relationship

Canada’s FIPA Program

Environmental Legislation and Regulations

1. Executive Summary

The Canada-Andean Community free trade agreement negotiations (FTAs) were launched on June 7, 2007. Free trade agreements between Canada and Andean Community countries (Peru, Colombia, Ecuador and Bolivia) have the potential to enhance not only Canada’s bilateral economic relationships with Andean Community countries, but also to strengthen Canada’s presence in the Americas. FTAs with the Andean Community are expected to generate economic benefits across the Canadian economy, however, their impact in relation to the aggregated Canadian economy will be very modest, and therefore, we expect a minimal impact on the environment.

In keeping with the 2001 Framework for Conducting Environmental Assessments of Trade Negotiations (The Framework), we are conducting an initial environmental assessment (EA) of the Canada-Andean Community FTAs to assist Canada’s policy makers in addressing potential environmental issues arising from the FTAs that may affect Canada. Improved understanding of the relationship between trade, foreign direct investment (FDI), economic growth and the environment can assist in the formulation of government policy to reduce potential conflicts between commercial and environmental objectives.

There is a strong correlation between open markets, economic development and enhanced environmental protection. Liberalized rules-based trade and efficiently regulated markets are key building blocks for economic growth and development. In turn, public support for measures to protect the environment generally increases as incomes rise, and wealthier countries are better able to implement effective environmental policies than are poorer countries. Open markets also help to foster the development of new, more environmentally friendly technologies, and liberalized trade and investment help to create the conditions for technology transfer.

This Initial EA was conducted as part of Canada’s commitment to achieving a mutually supportive relationship between trade and the environment. The intent is to assist Canadian negotiators integrate environmental considerations into the negotiating process by providing information on the environmental impacts of the proposed trade agreements and to address public concerns by documenting how environmental factors are being considered in the course of trade negotiations.

Canada’s broad environmental objectives in negotiating trade agreements are:

• to preserve Canada’s ability to protect the environment;
• to ensure mutually supportive relationships between trade agreements and multilateral environmental agreements;
• to stimulate improved allocative efficiency of resources to generate positive environmental impacts;
• to strengthen the environmental management capacities of Canada’s trading partners; and
• to use this strengthened capacity to combat transboundary pollutants and invasive species that directly affect Canada’s environment, economy and health.

In order to ensure that Canada’s environmental quality is strengthened through liberalized trade, Canada normally negotiates trade-related environmental provisions in the FTAs and parallel agreements on environmental cooperation.

This EA documents the findings of the Initial EA phase of the Canada-Andean Community negotiations, focusing on the potential incremental environmental impacts, if any, of trade-induced economic and regulatory changes in Canada. It applies the analytical methodology outlined in the Framework that outlines the process for conducting EAs, and acts as a screening process to identify the main environmental issues expected to arise as a result of this free trade initiative. As such, it must be underscored that this is a strategic assessment and is intended to inform policy making as the proposed FTAs are being negotiated. The Initial EA is, therefore, more of a “forecasting” or “anticipatory” exercise. The findings of this Initial EA have been shared with the interdepartmental EA Committee,which includes representation by thefederal departments in the sectors in which increases in production areanticipated. This approach facilitates informed policy development and decision-making throughout the federal government.

The analysis performed for this Initial EA suggests that the elimination of tariffs on industrial goods within Andean Community countries will have a minimal effect on goods trade, and production in Canada, partly because, while hoping to increase trade activity, Canada generally seeks to maintain its market shares (not lose them at the benefit of the US who have already negotiated trade agreements with these countries).

With respect to agricultural goods, the FTAs would facilitate an increase in Canadian exports of these products. In the event of increased exports of agricultural goods, crop and livestock, production would increase somewhat in those areas where production is currently concentrated (i.e. in the Prairies). Nevertheless, the analysis conducted shows that an increase in Canadian domestic production to supply the Andean Community markets will, overall, likely cause minimal environmental impact.

With respect to services, Canada is already quite open in most sectors. While studies have shown that there are positive benefits to services liberalization, it remains difficult to assess with certainty the impacts of trade negotiations on specific service sectors. Services barriers take the form of domestic regulations (i.e. requirement for local partners, foreign ownership restrictions, citizenship, residency and licensing requirements and opaque or non-transparent rules/regulations), and assessing the economic impacts of removing such barriers to services trade is difficult. Nevertheless, given the relatively small increase in level of services trade expected within Canada as a result of FTAs with the Andean Community relative to the size of the Canadian service sector, any increase is expected to have a limited impact on the environment.

Current investment from the Andean Community is insignificant. In 2006, Andean FDI in Canada amounted to less than 0.002% of total incoming FDI. In view of the current trend, even a significant economic change in investment from the Andean Community would be small in scale compared to the overall level of investment in Canada, and any environmental impact is expected to be negligible. Furthermore, the FTA negotiations are not expected to substantially change the already open Canadian investment regime.

Canada and the Andean Community are established trade and investment partners. In 2005, two-way merchandise trade was approximately $3.79 billion (Canada exported $889 million and imported $2.9 billion), and Canadian direct investment in the Andean Community was $3.5 billion. In 2004, trade in services from Canada to the Andean Community totalled $77 million.

2. Overview of the Environmental Assessment Process

The Government of Canada is committed to conducting environmental assessments (EAs) for all trade and investment negotiations using a process that requires interdepartmental coordination and public consultations. The 2001 Framework for the Environmental Assessment of Trade Negotiations1 details this process. It was developed in response to the 1999 Cabinet Directive on Environmental Assessment of Policy, Plan and Program Proposals2, which requires that all initiatives considered by Ministers or Cabinet must be environmentally assessed if implementation of the proposal may result in important environmental effects, either positive or negative. Detailed guidance for applying the Framework is contained in the Handbook for the Environmental Assessment of Trade3(the Handbook).

The Framework provides a process and methodology for conducting an EA of a trade negotiation. It is intentionally flexible so that it can be applied to different types of negotiations (e.g., multilateral, bilateral, regional) while ensuring a systematic and consistent approach to meet two key objectives.

• The first objective is to assist Canadian negotiators to integrate environmental considerations into the negotiating process by providing information on the environmental impacts of the proposed trade agreement. As such, trade negotiators and environmental experts are involved in the EA and work proceeds in tandem to the negotiations.
  
  
• The second objective is to address public concerns by documenting how the environment is considered during negotiations. As such, the Framework contains a strong commitment to communications and consultations throughout each EA of trade negotiations.

The Framework provides for three increasingly detailed phases of assessment: the Initial, Draft, and Final EA. These phases correspond to progress within the negotiations. The Initial EA is a preliminary examination to identify key issues. The Draft EA builds on the findings of the Initial EA and requires detailed analysis. The Final EA takes place at the conclusion of the negotiations. A Draft EA is not required if the Initial EA finds little likelihood of significant environmental impacts as a result of the negotiation. However, in such circumstances, environmental considerations will continue to be integrated into ongoing discussions and a Final EA will be completed. At the conclusion of each phase, a public report is issued with a request for feedback4.

Following the conclusion of the overall EA of the trade negotiations, follow-up and monitoring can be undertaken in order to review any mitigation or enhancement measures recommended during in the Final EA report. Monitoring and follow-up activities can be undertaken anytime during the implementation of the concluded trade agreement in order to gauge the performance of its provisions from an environmental perspective.

A. Assessment Methodology

Pursuant to the EA Framework, this Initial EA is being conducted in an ex ante fashion (before the negotiations are completed). A Notice of Intent to conduct a Strategic Environmental Assessment of the Andean Community free trade agreements (FTAs) was announced on October 13, 2007, but to date, no comments have been submitted to the government. It must be underscored that this is a strategic assessment and is intended to inform the decision-making process as the proposed FTAs are being negotiated. Consequently, there is a fair degree of uncertainty associated with identifying likely economic and environmental impacts. The Initial EA is, therefore, more of a 'forecasting' or 'anticipatory' exercise. Nevertheless, the analysis allows for the early clarification of national goals and priorities with respect to trade and environmental interests, as well as for any mitigation and enhancement options that can be taken into account while the trade negotiations are underway.

Although this Initial EA assesses the impact of FTAs with all Andean Community member countries, at this time, negotiations have only been initiated with Peru and Colombia. Subsequent FTA negotiations with Ecuador or Bolivia will be informed by the current EA process.

Consistent with the methodology prescribed in the Framework, this assessment explores the link between trade rules and regulatory policy and focuses on the incremental economic and the potential environmental impacts of the prospective Andean Community FTAs on Canada - that is, the effects of new trade that may result directly from the proposed trade agreement. Transboundary, regional and global environmental impacts of the FTAs are considered insofar as they have a direct impact on the Canadian environment.

The Framework provides a four stage analytical methodology. The Handbook provides guidance on how to conduct each stage of the analysis.

• Identification of the economic effect of the Agreement to be negotiated. The purpose of this stage is to identify the trade liberalization activity of the agreement under negotiation. This stage examines what the potential agreement would entail, the changes or new trade activity that could result, and the overall economic relevance to Canada. This helps determine the scope of analysis required for the environmental assessment and to prioritise the issues to be assessed.
  
  
• Identification of likely environmental impact of such changes. Once the economic effects of the proposed trade agreement have been identified and characterised, the likely environmental impacts of such changes are identified. Consideration is given to potential positive and negative impacts. For the purpose of this EA, “environment” refers to the components of the Earth – which includes land, water, and air (all layers of the atmosphere); all organic and inorganic matter; living organisms; and, the interacting natural systems that include components of the foregoing.The Framework calls for analysis of the most likely impacts on the Canadian environment. The Handbook demonstrates that there are two main factors that contribute to likelihood: exposure and probability.
  
  
• Assessment of the significance of the identified likely environmental impacts. The identified likely environmental impacts are then assessed as to their significance. The Framework outlines a number of criteria in determining significance, including frequency, duration, permanency, geographical scope and magnitude, level of risk, irreversibility of the impacts, and possible synergies among the impacts. This study uses the following scale in relation to the criteria outlined above to describe significance: none, minimal, moderate, high and extreme.
  
  
• Identification of enhancement/mitigation options to inform the negotiations. In the Initial EA, this step is intended to identify, in a preliminary fashion, the possible policy options or actions to mitigate potential negative impacts and/or to enhance potential positive impacts that may occur as a result of the proposed free trade agreement.

In conducting EAs of trade negotiations, the Government of Canada is committed to a process that involves interdepartmental coordination. An interdepartmental committee is established to undertake the EA of each negotiation. The department leading the negotiations leads these EA committees, which is chaired by the Deputy Chief Negotiator and includes officials responsible for each negotiating area. The EA Committee also includes representation from Environment Canada and the Canadian Environmental Assessment Agency. All other government departments and agencies are welcome to participate, and often do so based on the nature of the agreement being assessed.

Results from the EA analysis are enhanced through consultations with the Provincial and Territorial Governments, stakeholders including representatives from business, academic and non-governmental organizations (NGOs) and the public. In the preparations for the Initial EA, a Notice of Intent is issued inviting the public to provide their thoughts on the potential impacts of the proposed agreement on the Canadian environment. At the conclusion of each phase, EA reports are shared with provinces and territories and environmental experts and then issued publicly with a request for feedback.

The Government of Canada welcomes comments on this Initial EA Report. Feedback on the analysis of the economic relevance of new negotiations and the initial assessment of the likelihood and significance of resultant environmental impacts is welcome. Comments on opportunities to mitigate any negative environmental impacts and to enhance any positive effects, as may already be identified at this stage are also welcome. Comments on this document can be sent to:

E-mail: consultations@international.gc.ca or

Fax: (613) 944-7981 or

Mail: Consultations & Liaison Division (CSL)
Environmental Assessment Consultations– Andean Community FTAs
Foreign Affairs and International Trade Canada
Lester B. Pearson Building
125 Sussex Drive
Ottawa, ON
K1A 0G2

3. Overview of the Trade and Investment Relationship Between Canada and the Andean Community

In response to today’s rapidly evolving global trading environment, the Government of Canada is committed to an aggressive bilateral trade negotiations agenda, which is supported by Budget 2007 and the Government’s economic plan, Advantage Canada. Consistent with the Global Commerce Strategy (GCS), the strategic international commerce framework in support of Advantage Canada, the Andean Community countries (Colombia, Peru, Ecuador, Bolivia) were identified as among the next trade partners with which Canada should pursue FTAs. The Government announced, on June 7, 2007, the launch of free trade agreement (FTA) negotiations in the Hemisphere, including with Andean Community countries.

Canada remains interested in strengthening trade and investment ties with all countries of the Andean Community, but recognizes that not all Andean Community countries may be in a position to move forward on FTA negotiations at the same pace. In the near term, Canada intends to proceed on negotiations with Colombia and Peru, who have demonstrated that they are both interested and prepared to negotiate a comprehensive FTA, and with Bolivia and Ecuador at an opportune time. While all countries are discussed in this document, the emphasis will be on those countries with whom Canada plans to negotiate in the near term, namely, Colombia and Peru.

The Andean Community countries are significant trade and investment partners for Canada and FTAs with these countries are expected to open up new opportunities in these areas.

In 2006, Canadian merchandise exports to the four Andean countries totalled $889 million while imports from them amounted to $2.9 billion (Appendix 1 – Annex A). Colombia and Peru, in particular, are significant and growing destinations for Canadian exports, especially in the agri-food, machinery and equipment sectors. The combined stock of Canadian direct investment in Colombia, Peru, Ecuador and Bolivia is estimated at $3.5 billion (2006).

Colombia

Colombia is an established market for Canadian products, with the agri-food sector being of significant importance. Two-way trade in goods between Canada and Colombia totalled $1.14 billion in 2006, with Canadian domestic merchandise exports increasing by 9% over the previous year to $447 million. Over the same period, imports from Colombia increased by 9% to $634 million. Major Canadian exports consist of cereals, paper (newsprint), off-road dump trucks, copper wire, machinery and electrical equipment and leguminous vegetables. Top imports to Canada from Colombia include coal, fuel, coffee, bananas, cut flowers and sugars.

Canadian direct investment stock in Colombia amounted to $453 million in 2006 according to official statistics, and has been concentrated in the oil exploration, mining, printing, footwear, food processing, education and household paper sectors. The Canadian Embassy in Colombia estimates that the current stock of Canadian investment is significantly higher ($3 billion). This estimate takes into account that a majority of Canadian investments are made through offshore financial centers and/or countries with which Canada has tax treaties (this is especially the case for the oil, gas and mining sectors). A preliminary survey undertaken by the Canadian Embassy revealed that Canadian investors are seizing investment opportunities in Colombia, with more than US$2 billion in planned investment over the next two years. This survey also confirms an increasing flow of Canadian direct investment, particularly in the acquisition of property and exploration rights in the oil & gas and mining sectors.

Canadian commercial services exports to Colombia totalled $17 million in 2004. Canada's key services interests inColombia include oil and gas,mining services, engineering services, architectural, environmental services, distribution services and information technology.

Peru

Canada’s trade in goods with Peru has expanded significantly in the past years. The value of Canadian domestic merchandise exports to Peru was $267 million for 2006, representing an increase of 10% over the previous year. Imports totalled $2.1 billion, an increase of 54.5% over 2005. Major Canadian merchandise exports to Peru are cereals, machinery, electrical equipment, leguminous vegetables and paper. Major imports from Peru consist of gold, copper and other ores, asparagus and fishmeal.

Canada is Peru’s most important foreign direct investor in the mining sector and among the largest overall foreign investors with an estimated $2.9 billion of investment stock in Peru as of 2006. The banking and printing sectors are also significant destinations for Canadian direct investment in Peru. Recognizing this important relationship, the Canada-Peru Foreign Investment Protection and Promotion Agreement (FIPA) was signed on November 2006. Peru’s total investment in Canada is estimated to be very small, at only $1 million in 2002 (the last year for which official statistics are available).

Peru was the destination for $46 million of Canadian commercial services exports in 2004. Canada's key services interests inPeru include oil and gas, mining services, engineering services, architectural services, environmental services, distribution services, financial services and information technology.

Ecuador

Two-way trade between Canada and Ecuador amounted to $289 million in 2006. Canadian domestic merchandise exports to Ecuador totalled $151 million and consisted primarily of wheat, leguminous vegetables, machinery and equipment, newsprint and paper. Canadian imports from Ecuador totalled $131 million in 2006 and consisted mainly of bananas, cut flowers and fish and seafood.

A Foreign Investment Protection and Promotion Agreement (FIPA) between Canada and Ecuador came into force on May 1997. Statistics Canada indicates that Canadian direct investment stock into Ecuador was $46 million in 2006.

Canada’s commercial services exports to Ecuadorgrew from $2 million in 2000 to $26 million in 2004, largely as a result of investments in the oil and gas and mining sectors. Canada's key services interests in Ecuador include oil and gas, professional servicesand research and development.

Bolivia

Canada has limited trade with Bolivia, with two-way trade in merchandise amounting to $75 million in 2006, of which Canadian domestic merchandise exports to and imports from Bolivia totalled $24 million and $49 million respectively. Canadian primary exports to Bolivia include machinery, cereals, electrical equipment and trucks, while primary imports from Bolivia include silver ores, silver, tin, wood, and edible fruit and nuts.

Canadian direct investment stock into Bolivia was estimated at $87 million in 2006, largely concentrated in the mining sector, while Bolivian direct investment into Canada was negligible.

Canada exported $12 million in commercial services to Bolivia in 2004. Canada’s key services interests in Bolivia include professional services, research and development and oil and gas.

Canadian Objectives in the Americas

Canada seeks to strengthen economic ties with countries that have already taken significant strides to improve economic stability and to open themselves up to integration. In the Americas, Colombia and Peru have demonstrated their preparedness to engage in comprehensive FTA negotiations through efforts in recent years to modernize and liberalize their regulatory and trade environments and strengthen their economies.

4. Trade and the Environment

Public support for trade liberalization in Canada is linked to the expectation that the environment will be protected. Canada is committed to achieving mutually supportive trade and environment goals with its trading partners. Canada’s broad environmental objective when negotiating trade agreements are to preserve Canada’s ability to protect the environment. Where global and transboundary impacts due to increased economic activity directly affect Canada’s environment, economy and health, Canada will seek to work with trade partners to strengthen their national environmental management systems.

Open markets, economic development and environmental protection are strongly correlated. Liberalized rules-based trade and efficiently regulated markets are key building blocks for economic growth and development. In turn, public support for measures to protect the environment generally increases as incomes rise, and wealthier countries are better able to implement effective environmental policies. Open markets also help to foster the development of new, more environmentally friendly technologies, and liberalized trade and investment help to create the conditions for technology transfer.

In order to ensure that economic development is both sustainable and provides a level playing field for Canadian economic interests, Canada negotiates robust and meaningful provisions related to the environment in the FTA (e.g., preamble, objectives, investment, general exceptions) and will implement, where possible, parallel Environmental Agreements.

In the context of increased economic activity due to trade liberalization, it is important to ensure that Canada and its trade partners maintain high levels of environmental protection and do not lower their standards or enforcement to attract foreign investment.

Incorporating Environmental Provisions into the Canada-Andean Community Free Trade Agreements

In the context of the Free Trade Agreements between Canada and countries of the Andean Region, Canada will negotiate parallel environmental agreements, seeking environmental obligations that aim to achieve the following goals:

• maintain high levels of environmental protection and enforce environmental laws;
• use appropriate procedures to complete environmental assessments;
• ensure laws, regulations, judicial decisions and administrative rulings are available to the public;
• ensure compliance with the due process of law, as set out in explicit procedural guarantees; and
• promote greater accountability and open exchange of information between parties.

Canada’s Engagement in the Andean Community

Canada and countries of the Andean Community are actively engaged in environmental cooperative activities.

Natural Resources Canada (NRCan) is currently involved in several sustainable development projects in the Andean region in the areas of geosciences, forestry, and mining. In the, Multinational Andean Project: Geosciences for Andean Communities, NRCan is working with the governments to strengthen each country’s hazard assessment capability in dealing with volcanoes, earthquakes and landslides. Knowledge is being transferred to local communities with the objective to reduce their vulnerability to natural hazards.

Canada also supports environmental cooperation in the Andean community through its involvement and financial support for the International Model Forest Network (IMFN) which includes a regional network of 14 sites throughout Latin America and the Caribbean. The IMFN is a voluntary association of partnership-based sites using a shared ecosystem-based approach toward the common goal of sustainable forest management and use.

To promote sustainable development practices in the minerals and metals sector and to increase market access, NRCan has established regional alliances with groups such as with the Mines Ministries of the Americas (CAMMA). Such activities have promoted the active engagement of CAMMA member governments in the Summit of the Americas process, in bilateral activities and in meetings with APEC Economies of the Americas. It also encourages countries within the Andean Community to join the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (Canada is the Secretariat). Canada also promotes good governance through its engagement in the Extractive Industries Transparency Initiative (EITI) with the oil, gas and mining sectors.

Through the Government of Canada funding, the World Bank Persistent Organic Pollutants (POPs) fund is helping the four countries of the Andean Community build capacity to reduce or eliminate releases of persistent organic pollutants.

5. Initial Environmental Assessment Findings

The Initial EA findings are the result of a scoping exercise and subsequent analysis based on the analytical methodology outlined in the EA Framework. Table 1 presents the findings of the scoping exercise for each issue area (and corresponding FTA chapter) that were identified as not requiring in-depth analysis for the purposes of this Initial EA. A more detailed analysis of trade in goods, services and investment is then provided.

An economic analysis was conducted for the Andean Community FTAs to assess the expected economic outcomes of trade and investment liberalization. This analysis helped to inform the Environmental Assessment of the Canada-Andean Community FTAs (see Annex 1: Economic Analysis).

A. Trade in Goods

In accordance with the analytical methodology, this section provides an overview of the anticipated economic changes, and the associated environmental consequences, following the signature of FTAs with Andean countries. Attention is then turned to potential mitigation and enhancement measures that could respond to possible negative/positive environmental impacts. The analysis considers goods exported to Colombia, Peru, Bolivia and Ecuador as well as the importation of goods from these countries into Canada.

Trade overview

The proposed free trade agreements will seek to improve market access principally through tariff elimination. Canadian negotiators will also work at increasing cooperation with Andean governments to make trading procedures more efficient, through trade facilitating measures and customs procedures designed to provide certainty, transparency and effective verification. Rules of origin that are transparent, predictable and consistent in application will be developed to ensure that the benefits negotiated under the trade agreement accrue only to its parties.

A reduction in tariffs following the negotiation of FTAs is expected to result in an increase of trade in products of export interest to Canadian agricultural producers and industrial manufacturers. It is also anticipated that Canada will reduce certain tariffs imposed on goods imported from these countries. This may also affect the flow of goods and have consequences on Canada’s environment. However, given the low level of trade between Canada and the Andean countries, it is expected that the environmental effects of such agreements will be minimal.

Colombia imposes an average 11.8% tariff on industrial goods and a 16.6% tariff on agriculture products. In 2006, Canada exported $513 million worth of goods to Colombia, representing Canada’s 30th largest export market. Cereals, off-road dump trucks, newsprint, leguminous vegetables and copper wire are the most exported items. On the import side, Colombia is a beneficiary of Canada’s general preferential tariff (GPT). Canada imported $634 million worth of goods from Colombia in 2006 (ranked 43rd among Canada’s trade partners). Canada’s main imports from Colombia consist in coal, coffee, banana and oil.

As for Peru, Canada exported $289 million worth of goods in 2006 (Canada’s 45th largest export market). Canada’s main exports to Peru are cereals, followed by leguminous vegetables, parts of machinery, and cotton yarn. Peru currently maintains an average tariff of 9.7% on industrial goods and 13.6% on agriculture products. In 2006, Canada imported $2.6 billion of goods from Peru (ranked 20th among Canada’s trade partners). Main imported items consist of gold, copper, zinc and oil. Imports from Peru also receive the GPT and most items enter Canada duty-free or under a relatively low tariff rate with the exception of apparel products (for which tariffs up to 18% apply).

Exports from Canada to Ecuador amounted to 158 million in 2006 (ranked 59th among Canada’s export markets). Wheat, paper (including newsprint) and machinery and equipment represent the most exported items. On the import side, most imports from Ecuador (about 70%) already enter Canada duty-free. These consist primarily of bananas, other tropical fruits and fish and seafood. Recipient of GPT treatment, Ecuador ranks 72nd among Canada’s trade partner (imports worth $131 million in 2006).

Finally, Bolivia, also recipient of GPT treatment, is Canada’s smallest trading partner among Andean countries. In 2006, imports from Bolivia to Canada amounted to $49 million (94th position) while Canadian exports to Bolivia had a value of only $26 million (103rd position). Most Canadian products exported to Bolivia fall in the machinery and equipments category ($16 million value in 2006). Rates ranging from 5 to 20% generally apply on these items. The elimination of these tariffs following an FTA should not have any significant effect on Canadian production nor on Canada’s environment. On the import side, Canada mostly buys minerals in Bolivia such as silver. More imports of these minerals following an FTA with Bolivia should not have any effect on the environment.

Exports

As tariffs are lowered and market access increases, it is expected that there would be an increase in the flow of some products currently being exported from the Andean Community to Canada as well as opportunities for new products to be exported. However, the impact on trade flows and, consequently, on the Canadian environment should be minimal partly because, with these agreements, Canada is seeking to maintain its market share within these countries, and not lose them at the benefit of the US and other competitors who have trade agreements with some of these countries.

Agriculture

The agriculture sector in Canada may be affected by a deal between Canada and Colombia. Canada’s main agricultural products exported to Colombia are wheat ($72 million in 2006, representing 22% of Canadian exports to Colombia) and barley ($12 million). Colombia currently imposes a 15% tariff on these cereals. Although, the reduction or elimination of these tariffs is expected to significantly affect trade flows, it is not anticipated to impact overall production since exports to Colombia represent a small proportion of total Canadian cereals exports. For example, elimination of all tariffs on wheat would likely increase exports to Colombia, however, only 2.5% of Canadian wheat is exported to Colombia, so the relative impact on the sector would be minimal. Canada also exports pork and beef to Colombia ($3 million annual average over the last 3 years). The Colombian tariff on pork is 20% and tariffs on beef range from 5 to 80%. The reduction or elimination of these tariffs as a result of an FTA could affect trade flows but, once again, the economic impact would be minimal given that it represents less that 1% of all Canadian exports of these products.

The profile of Canadian agricultural product exports to Peru is very similar. Wheat represented 38% of all exports from Canada to Peru in 2006 (worth $112 million). Canada also exported $8 million of barley to Peru in the same year. Peru currently applies a 17% tariff on wheat and barley. As a result, trade flows might be affected by the elimination or reduction of this tariff. However, it is not likely to have a very significant environmental effect since it represents only 2% of Canadian exports of wheat to the world. Canada also exports pork and beef to Peru but the value is very negligible (less than $1 million per year). The potential elimination of the tariffs (12 to 20%) on these items should therefore not have any notable impact on production.

Wheat is the only item where a reduction of the Ecuadorian tariff (currently at 10%) may affect Canadian production. Ecuador received $68 million worth of wheat in 2006, representing half of all exports from Canada to this country. Still, because it represents only 2% of Canada’s total exports of wheat, the effect on Canadian production and the environmental consequences are both expected to be minor.

In addition to tariffs, there are also non-tariff barriers, such as import licensing, quantitative restrictions or other duties and charges that may impede increased exports to Andean countries. Unfortunately, such limitations are not easily assessed, since the effects of a particular barrier may differ from product to product, making an assessment of them, and their prospective elimination, difficult to analyze.

From an environmental perspective, the most significant changes in agricultural production are changes that affect land use (e.g. crop-land under summerfallow, use of marginal lands) and changes in livestock numbers. In addition, there may be some impact on groundwater aquifers and surface waters depending on the location and the scope of change in agricultural activity. Overall, crop and livestock production are expected to increase only marginally if tariffs are significantly reduced. It is also likely that such increases would occur primarily in regions where production is currently focussed (i.e. in the Prairie region). Canada’s agricultural production in order to supply the Andean market would cause minimal environmental impact.

The environment is one of the five key priorities of Agriculture and Agri-food Canada’s (AAFC) Agricultural Policy Framework (APF) announced by the Federal government in June 2002. Through the APF, federal, provincial and territorial governments aim to assist producers in accelerating the adoption of improved environmental practices. For example, AAFC funds various initiatives intended to improve the environmental performance of the agri-food sector, such as:

• Environmental Farm Planning (EFP): Farmers with EFPs are eligible to apply for financial and technical assistance to implement beneficial management practices through the National Farm Stewardship Program and Greencover Canada.
  
  
• Greencover Canada: Landowners can access a package of funding and technical assistance to help improve grassland-management practices, protect water quality, reduce greenhouse-gas emissions, and enhance biodiversity and wildlife habitat.
  
  
• National Agri-Environmental Standards Initiative: Producers will benefit from performance standards establishing the degree of desired environmental quality of air and water and soil in agricultural areas.
  
  
• National Agri-Environmental Analysis and Reporting Program provides objective, science- based indicators to inform decision-makers in agriculture and help improve policies and programs aimed at addressing environmental issues faced by producers.
  
  
• National Farm Stewardship Program: Landowners can receive financial and technical assistance to implement on-farm beneficial management practices to address environmental risk identified in their Environmental Farm Plans.
  
  
• National Land and Water Information Service is developing an Internet portal to provide land managers with information, data, tools and expertise to help them make sustainable land-use decisions.
  
  
• National Water Supply Expansion Program: Producers and agricultural communities can receive technical and financial assistance to help meet their everyday growing water needs.
  
  
• The Pesticide Risk Reduction Program develops and implements strategies, conducts research and develops alternative approaches to pest management.
  
  
• The Minor Use Program assists producers in accessing more environmentally friendly and efficient pest management technologies.
  
  
• Various ongoing programs built upon the work of the activities of the Prairie Farm Rehabilitation Administration (PFRA), delivered to ensure the sustainable use and conservation of agricultural soil and water resources, such as grassland management, irrigation, crop diversification and shelterbelt planning.

Provincial environmental legislation and initiatives usually have a direct impact on farming operations. They include a range of mechanisms designed to encourage or require environmentally sound farming practices:

• extension services or funding to carry out specific practices, develop infrastructure, or diversify operations to reduce the environmental impact of agricultural production;
• information documents on best environmental management practices;
• regulations on reducing agricultural pollution;
• policies encouraging the development of on-farm environment plans;
• regulations on the development and operation of new or expanded livestock operations; and
• legislation to regulate the discharge of pollutants.

Efforts related to the above and other programs will help offset any negative environmental impact that may result from liberalized agricultural trade with Andean countries. In the event that the environmental impacts, as a result of the FTA, turn out to be greater than expected, consideration will be given to expanding existing programs or creating new ones to deal with any negative effects. The provision within the Framework to conduct follow-up and monitoring once the negotiations have concluded and the trade agreement implemented is therefore key in this regard and will be critical to informing decisions regarding new or additional mitigation or enhancement measures that may be required.

Wood and wood products

Canada exported newsprint and paper to Andean countries for a total value of $158 million in 2006. While there is no tariff applied on the importation of newsprint, there is generally a tariff of 15% applicable on paper. With the elimination of restrictive tariff barriers currently facing forestry products—such as paper—Canadian exporters will benefit from improved market access opportunities in a rapidly growing economy. However, this should not affect much Canadian production given the fact that these exports represent a negligible proportion of Canada’s total exports of these products.

Forest products are a renewable resource. Forests regenerate, both naturally and through silviculture. Canadian governments at the federal, provincial and territorial levels have taken steps to ensure that our forests are managed in accordance with sustainable development principles. Canada’s commercial forest resources are largely managed by the provinces through forest management tenure agreements that strictly regulate harvesting, silviculture and forestry practices. These policies provide for regulatory and audit mechanisms based on sustainable development principles to ensure that timber is not harvested at rates exceeding a forest’s capacity to regenerate. Any marginal increase in production in those products on which a tariff would be lowered could be easily accommodated within current forest management programs.

Oil and Minerals

Canada exports oil and certain minerals (e.g. zinc ores and copper) to Andean countries, as well as certain intermediate goods produced with minerals extracted in Canada. A good example resides in copper wire, for which a value of $26 million was exported to Colombia in 2006. The conclusion of an FTA with Andean countries is not expected to significantly influence extraction and production industries in Canada because the tariff rates that apply on these items are generally very low (often less than 5%) and because the proportion of Canada’s exports of these products to these countries is negligible.

Mining is an intensive type of land use with potential for environmental impact over a limited area. However, with proper environmental protection and planning mechanisms, adverse impacts on the environment can be minimized. Possible negative impacts on the environment include the potential to disturb sensitive ecosystems, pollute the local water and contaminate soils. In Canada, environmental protection is an important element in modern mining oriented toward the safe and sustainable development of mineral resources, while at the same time ensuring that adverse environmental impacts are minimized.

Before mining activities commence, a company must submit a mine plan and an environmental impact assessment identifying all activities that may impact upon the mine site environment and the actions that will mitigate these environmental impacts. No mine facility will be granted operating permits until territorial/provincial and federal governments are satisfied with the actions proposed under the assessment plan. The company must also include a plan for decommissioning the facility and reclaiming the lands. The Canadian mining industry is committed to the continual development of innovative technologies and processes to ensure that mining activities are conducted in a manner that is as environmentally responsible and sustainable as possible.

If increased export activity did occur, federal, provincial and territorial laws and regulations on both mineral development and environmental assessment would assist in ensuring that any increased production occurring in Canada consequent to increased export demand would be carried out in an environmentally acceptable and responsible manner. As such, mitigation and enhancement measures would be carried out in relation to the sectoral activities and policies, rather than via these trade negotiations.

Imports

Because the conclusion of FTAs would result in lower Canadian tariffs on Andean products, an increase in the flow of some products currently being imported from these countries is expected. Some imported products may have a positive effect on Canada’s environment while others may have the opposite effect. Still, the overall impact will be very limited given that Canada’s imports from these countries represent a very small share of total Canadian imports.

Agriculture commodities

Most agriculture commodities imported from Andean countries already enter Canada duty free (e.g., coffee and bananas). Still, the elimination of the tariff on ethanol produced in Colombia could provide benefit to Canada’s environment. It is well-known that gas containing ethanol produces less environmentally damaging emissions. This is why the Government of Canada has launched programs to foster its production and consumption. A reduced tariff on this resource could lead to cheaper imports and, consequently, a higher level of domestic consumption, which would be beneficial for the environment. The tariff on ethanol currently ranges from 4.92 to 12.28 cents per litre depending on the composition.

Oil and coal

Canada imports a significant quantity of oil from Andean countries ($379 million in 2006). The use and processing of such commodities certainly has significant environmental effects on the Canadian ecosystem. However, trade flows should not be noticeably affected by the completion of FTAs since these imports already enter duty free to Canada.

B. Trade in Services

Overview

There are currently several Canadian service providers currently operating in the Andean region and many further opportunities for which Canadian companies are well suited to respond. For example, Colombia offers good opportunities for Canadian exporters and investors, particularly in the oil, gas and mining sectors. Due to the increasing number of new concession contracts being issued to foreign investors by the Colombian government, the short term opportunities in these sectors are primarily in the export of equipment and technology as well as in exploration services, especially in geo-physical, geological and drilling activities. As Colombia’s regulatory environment is beginning to foster a business climate receptive to pollution prevention and cleaner production processes, important business opportunities exist for Canada in the sectors of environmental technologies and services. To support the anticipated increase in trade that will result from the implementation of the U.S.-Colombia FTA, the Government of Colombia is planning important capital projects which will also create opportunities for a variety of Canadian engineering service providers.

With respect to Peru, Canadian exporters have expressed an interest in sectors such as oil and gas services, mining services, engineering services, architectural services, environmental services, distribution services, financial services and information and technology services. In Peru, Canada currently has several companies operating in the mining and energy sectors and also has a significant interest in the financial services sector.

To provide an initial indication of interest with respect to market access in Bolivia and Ecuador, Canada’s bilateral request to Bolivia in the WTO General Agreement on Trade in Services (GATS) context covers professional services, research and development services, oil and gas services, horizontal commitments (Modes 1, 2 and 3) and the movement of natural persons (Mode 4). Canada’s bilateral request to Ecuador covers research and development services, oil and gas services and movement of natural persons (Mode 4).

* Latest year for which official data is available

Canada and Peru and Colombia participated actively in the negotiations on the WTO GATS. Our involvement was in part on a bilateral and plurilateral market access basis, as well as multilaterally in the context of the development of rules. Neither Ecuador nor Bolivia has GATS offers on the table for this Round - Bolivia had originally submitted initial and revised offers but has withdrawn them both.

Notwithstanding potential difficulties, there is sufficient scope to advance Canadian interests bilaterally under an FTA with respect to market access and to rules development on a number of fronts. A NAFTA-plus type approach would likely yield benefits beyond GATS to both parties. Canada is negotiating with Peru and Colombia a comprehensive NAFTA plus chapter on services which will include provisions on domestic regulation, transparency, and professional services/mutual recognition. In addition, there will be separate chapters on telecommunications, financial services, ecommerce and temporary entry. A negative list approach to the listing of non-conforming measures will provide all Parties with improved market access and regulatory transparency beyond our respective existing commitments under the GATS.

On market access, Canada will not negotiate commitments on any services related to health, public education, social services or culture. In addition, Canada will ensure that its position at all stages of these negotiations will be fully consistent with our right to regulate and to introduce new regulations on the supply of services in order to meet national policy objectives, including environmental protection.

Likely Economic Impact of the Canada-Andean FTAs

While studies have shown that there are substantial positive benefits to services liberalization, it remains difficult to assess with certainty the impacts of specific trade negotiations in specific services sectors. Services barriers take the form of domestic regulations – i.e. requirements for local partners, foreign ownership restrictions, citizenship, residency and licensing requirements and opaque or non-transparent rules/regulations – and assessing the economic impacts of removing such barriers to services trade is difficult. In addition, the definition of services trade reaches beyond cross-border flows to include three additional modes of supply: consumption abroad (e.g. international tourism), commercial presence (e.g., a branch office operating in a country outside of country of ownership), and the movement of natural persons (e.g., engineers or architects working abroad).

Despite these difficulties, work is ongoing in this area. For example, several studies using computable general equilibrium (CGE) modeling suggest that there would be welfare gains to be made from services liberalization. For Canada, recent studies estimate that even a partial global reduction of services barriers in the WTO context could lead to gains in the range of 2.8% of GDP or U.S. $20 billion5 while deeper liberalization that includes investment liberalization would lead to gains in the range of 14.9% of GDP or U.S. $84 billion.6

The gains identified above are based on a multilateral approach. The gains to be made from the Canada-Andean FTAs would therefore be smaller. Peruvian service sectors of particular interest to Canada include oil and gas services, mining services, engineering services, architectural services, environmental services, distribution services, financial services and information and technology services. Colombia service sectors of particular interest to Canada include professional services, management consulting services, oil and gas services, environmental services, courier services, and distribution services. Canada is seeking the removal of existing regulatory barriers in these and other sectors.

Likely Environmental Impacts of the Economic Changes

Generally, the kinds of environmental impacts that could result from the economic activities of increased trade in service sectors include effects on air and water pollution, land and biodiversity conservation, and effects on the atmosphere and climate. Environmental effects common to all service sectors include the consumption of energy for heating, lighting and vehicle and equipment use which may result in air pollution and release of greenhouse gases (GHGs), and the production of waste, including paper, refuse, sanitary waste, and chemical by-products from office equipment. In sectors such as environmental services and telecommunication services, positive environmental impacts are anticipated. In addition to examining such elements, given the nature of services trade, the analysis of the environmental effects must also consider the impacts of services trade liberalization in areas where the potential for negative impact may seem negligible but where over time the impact will prove more significant. Analysis of elements such as smokestack effects, direct and indirect effects, and upstream and down stream effects is necessary to capture the potential cumulative effects.

Significance of the Environmental Impacts

While FTAs with the Andean Community are expected to provide increased market access into Canada, it is unlikely that there will be a substantial increase in trade in services as a result of these negotiations. Canada is already quite open in most services sectors and no domestic regulatory changes are expected as a result of FTAs with the Andean Community. There may be some increased services exports to Andean countries, but it is difficult to segregate the effects of the Canada-Andean Community trade negotiations from those resulting from Canada’s other trade negotiations or implementation of existing regional or bilateral trade agreements or from unilateral liberalization. Generally speaking, while the environmental impacts are not expected to be significant, we will need to consider indirect or cumulative impacts and the synergies between environmental goods and services which may increase the impact.

Enhancement and Mitigation Options

As noted above, while FTAs with the Andean Community will improve market access and, to an extent, increase trade in services, we can expect little or moderate environmental impact. Further, any potential impacts can be partially balanced by mitigation options and opportunities for environmentally-sustainable growth, including technology innovation and industry best practices.

Depending on the sector, where required, mitigation options will be explored, for example, the use of fuel efficient vehicles, alternative fuels, paper conservation within the office, recycling of various materials, and corporate policies on “green procurement”, limiting access to ecologically-sensitive tourist areas, consumer education and promotion of sound environmental practices. In addition, increasingly, changes and improvements to environmental legislation and industry awareness of environmental issues are helping to offset potential negative impacts of services trade liberalization. A further review of environmental impacts will be required as the FTA negotiations advance and a clearer picture of potential WTO disciplines on domestic regulation is obtained. Consultations will continue to be undertaken to help ensure that our ability to regulate for the protection of the environment is not undermined or weakened.

C. Investment

The Andean Community is a significant destination for Canadian direct investment abroad (CDIA), totalling $3.5 billion (stock) in 2006. Of that amount, $2.9 billion was in Peru. FDI in Canada from the Andean Community is modest, in 2006 reaching $7 million. FTAs with investment provisions will provide investors with more certainty and predictability.

The Investment Chapter of Canada-Andean FTAs is expected to closely follow the , which entered into force on June 20, 2007.  Both the are available online.

Likely Economic Impact of the Canada-Andean FTAs

As seen above in the statistics on the Canada-Andean relationship, there is currently a limited amount of Andean investment in Canada. While the existence of investment provisions in the FTAs should be a positive factor in decisions on whether to invest in the territory of the other Party, it will be but one of many. In addition, Canada already has a relatively open investment regime. Large changes in investment patterns are not expected to result from the FTAs.

The results of the Initial EA indicate that significant changes to investment flows into Canada are not expected, as compared to the total flow of investment to and from Canada from all sources. The main effect will be greater protection for existing Canadian investments in the Andean Community.

Peru

Data on Peruvian investment in Canada is not available. The stock of Canadian direct investment abroad (CDIA) in Peru was $2.9 billion in 2006, dominated by investments in the mining sector. In 2003, Peru ranked third in an examination of where large Canadian mining companies spent their exploration budgets and fourth in mineral property abroad owned by Canadian companies. Large investments also exist in hydro-electric transmission projects and printing facilities. A FIPA between came into force on June 20, 2007

Colombia

Colombia’s investment in Canada totalled $1 million in 2006. The stock of CDIA in Colombia in 2006 was $453 million, concentrated in the oil exploration, mining, printing, footwear, food processing, education and household paper sectors. Canadian investment is projected to grow rapidly, largely driven by Colombia’s oil and gas and mining sectors. Significant improvement in the security situation, economic stability, recent policy reforms, as well as a highly qualified workforce, are all factors contributing to a greater sense of confidence on the part of foreign investors.

Ecuador

Data on Ecuadorian investment in Canada is not available. CDIA stocks in Ecuador totalled $46 million in 2006 and are focused primarily in the oil sector. Investment opportunities could develop further as Ecuador encourages new investment and new projects in oil and gas, mining, hydroelectric power generation, telecommunications and the environment. A FIPA between came into force on May 6, 1997

Bolivia

Data on Bolivian investment in Canada is not available. CDIA stocks in Bolivia in 2006 totalled $87 billion. Investment opportunities could develop in natural gas, mining, telecommunications and the environment.Data on Bolivian investment in Canada is not available. CDIA stocks in Bolivia in 2006 totalled $87 billion. Investment opportunities could develop in natural gas, mining, telecommunications and the environment.

Likely Environmental Impacts of the Economic Changes

The likelihood and significance of environmental impacts due to the FTAs is dependant upon the overall rise in investment activities, the sectors in which these activities take place, and the measures in place to protect the environment in relation to those activities.

As noted above, the Andean Community’s stock of investment in Canada is minimal. These FTAs are not anticipated to result in significant new investment into Canada. Thus, the environmental effects of the Canada-Andean FTA resulting from investment will be minimal to non-existent.

Significance of Environmental Impacts

Investment from the Andean Community represents only a very small proportion of total foreign investment in Canada. In 2006, Andean FDI in Canada amounted to less than 0.002% of total incoming FDI in Canada. In view of the current trend, even a significant economic change in investment from the Andean Community would be small in scale compared to the overall level of investment in Canada, and any environmental impact is expected to be minor, if not negligible. Furthermore, the FTA negotiations are not expected to substantially change the already open Canadian investment regime.

Potential Regulatory Impacts

Foreign investors in Canada are bound by the same environmental regulations that govern the activities of domestic investors. As in all previous investment agreements, Canada fully intends to maintain its right to regulate in the public interest in sectors such as health, public education, social services, and culture, and its right to protect the Canadian environment.

Enhancement and Mitigation Options

In the event that the Canada-Andean Community FTAs result in increased FDI in Canada, potential environmental impacts will be mitigated by laws which bind foreign investors to the same environmental regulations that govern domestic investors.

6. Conclusion

Given the government’s view that trade and environment policies should be mutually supportive, it is Canada’s practice to pursue trade agreements in a manner consistent with, among other things, environmental protection and conservation. Undertaking environmental assessments (EAs) is an effective way to address potential environmental impacts that may result from the negotiations of a trade agreement. The EA process is a mechanism through which the Canadian environment may be better protected in trade negotiations. It does this by assisting decision makers in understanding environmental implications of trade policy and by improving overall policy coherence at the national level.

In tandem with the FTA negotiations with the Andean Community, a separate but parallel environmental cooperation agreement is being pursued. This agreement will be consistent with the focus on strengthening the domestic environmental management systems found in existing side agreements to which Canada is a party (including NAFTA, Chile and Costa Rica). It is envisaged that this agreement will contain commitments to high levels of environmental protection and effective enforcement of domestic environmental laws, including through cooperative activities.

The conclusion of the Andean Community FTAs will strengthen the existing commercial relationship enjoyed between our countries. In addition, the anticipated new economic activity resulting from the trade agreements is expected to yield meaningful economic benefits to Canada through improved market access into the Andean Community for Canadian goods, services and investment, as well as provisions that will ground the trading relationship between Canada and Andean Community countries in a coherent rules-based system, thereby making it more predictable and secure. These economic effects, while important, will be very modest relative to Canada’s overall economic activity, and as a consequence, the environmental impact is not expected to be significant. Therefore, the Initial environmental assessment of the Canada-Andean Community FTAs does not anticipate significant environmental impacts on Canada.

In these circumstances, according to the Framework for the Environmental Assessment of Trade Negotiations, the Draft EA phase is not required and we will proceed directly to the Final EA. Further analysis will be carried out if information becomes available that would warrant further consideration. Indeed, should the negotiations with the Andean Community take a path that may lead to environmental effects not yet explored in this study, steps will be taken to ensure that they are assessed. In addition, the findings of the Initial EA, published herein, as well as any new public comments received, will continue to inform Canadian negotiators.

In accordance with the Framework, the Final EA will be conducted based on the outcome of the negotiations, and the findings will be reported publicly. As such, it will include a discussion of any new analysis and comments received in response to the Initial EA regarding the anticipated environmental impacts of the agreement on Canada.

Finally, following the conclusion of the overall EA of the trade negotiations, follow-up and monitoring can be undertaken in order to review any mitigation or enhancement measures recommended during in the Final EA report. Monitoring and follow-up activities can be undertaken anytime during the implementation of the concluded trade agreement in order to gauge the performance of its provisions from an environmental perspective.

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1 For more information on the 2001 Framework for Conducting Environmental Assessment of Trade Negotiations see .

2 For more information on the 2004 Cabinet Directive on Environmental Assessment of Policy, Plan and Program Proposals, see .

3 For more information on the Handbook for Conducting Environmental Assessments of Trade Negotiations see .

4 All reports are available on the DFAIT web site.

5 (Chadra, 2000)

6 (Deardorff and Stern, 2004).