Canada–China Foreign Investment Promotion and Protection Agreement: Initial Environmental Assessment

April 2008

Table of contents

• 1. Executive Summary
• 2. Introduction
• 3. Background on the EA Process
• 4. Invitation to Submit Comments
• 5. Analysis of the Canada-China FIPA
• 6. Stakeholder Feedback
• 7. Other Environmental Considerations – Global Effects
• 8. Conclusion and Next Steps
• Annex 1: Canada’s FIPA Program

1. Executive Summary

This report outlines the results of the Initial Environmental Assessment (EA) of the Canada- China Foreign Investment Promotion and Protection Agreement (FIPA) negotiations. Negotiations for a Canada-China FIPA were re-launched in September 2004. There is a reasonable expectation that these negotiations will conclude successfully in 2008.

The Canada-China FIPA is the third of such agreements to benefit from an EA. The EAs of a FIPA follow the process outlined in the 2001 Framework for the Environmental Assessment of Trade Negotiations. The process focuses on the environmental impacts in Canada and normally involves three phases – the initial, draft and final EA. The middle phase or draft EA is not undertaken if the FIPA is not expected to generate significant economic or environmental effects in Canada. Public consultations are an integral part of the EA and are undertaken throughout the process.

The Initial EA of the Canada-China FIPA negotiations identifies the likely economic effects of the FIPA and, on this basis, draws conclusions about the potential environmental impacts in Canada. The report also considers the impact of the FIPA on the ability of Canada to regulate in the interest of environmental protection. Other environmental issues are discussed as well.

Stakeholder input was taken into consideration during the Initial EA. For example, a public notice of intent was issued that invited comments on any likely and significant environmental impacts of the negotiations on Canada. In addition, the Department of Foreign Affairs and International Trade’s (DFAIT) external advisory group on EA of Trade was asked to provide feedback on the content of this report. Stakeholder input on past EA reports was also considered.

While over the long term the FIPA is anticipated to contribute to a favourable business climate conducive to growth of two way investment, such growth will depend on investor’s individual assessment of opportunity and risk.

The results of the Initial EA indicate that significant changes to investment flows into Canada are not expected as a result of these negotiations. As such, the economic effects and likely significant environmental impact in Canada are expected to be minimal. However, this report does discuss the likely environmental impacts associated with sectors in which Chinese investors have indicated interest.

The Canada-China FIPA will not have an impact on Canada’s ability to develop and implement environmental policies and regulations. Canada will safeguard its ability to maintain and expand the current framework of policies, regulations, and legislation for protection of the environment in a manner consistent with its domestic and international obligations.

The Government of Canada welcomes comments on this Initial EA Report. A Draft EA will not be carried out as the economic effects in Canada of the Canada-China FIPA are expected to be minimal. The Final EA will coincide with the conclusions of the negotiations. Please submit comments regarding this Initial EA Report to: consultations@international.gc.ca.

2. Introduction

Enhancing Canada's investment opportunities abroad is important to Canada's international competitiveness. FIPAs provide a framework for rules that help to open international markets and make them more secure for Canadian investors. As a reciprocal agreement FIPAs also contribute to attracting foreign investment into Canada. This has attendant benefits for the Canadian economy, the encouragement of increased domestic economy efficiencies and opportunities to attract new investment and technology in support of Canadian competitiveness, economic growth and prosperity.

Emerging economies and economies in transition are increasingly important destinations for Canadian investment abroad. A FIPA contributes to a predictable investment framework and engenders a stable business environment by specifying the rights and obligations of the signatories respecting treatment of foreign investment.

From the perspective of developing countries, foreign investment represents an important lever of development. Developing countries need access to capital to foster their growth prospects and they want to convey a positive message to international investors. FIPAs provide that necessary signal of stability.

In 2003, the Government approved a FIPA model that serves as a template for Canada’s discussions with investment partners on bilateral investment rules. More background information on Canada’s FIPA program is also available in Annex I of this Initial EA.

The Canadian government is committed to integrating sustainable development into domestic and foreign policy, and the environmental assessment of trade and investment negotiations is one mechanism for doing so. The environmental assessments (EAs) of trade negotiations use a process that requires interdepartmental coordination along with public and stakeholder consultations, including provincial and territorial governments. The 2001 Framework for the Environmental Assessment of Trade Negotiations details this process. It was developed in response to the 1999 Cabinet Directive on Environmental Assessment of Policy, Plan and Program Proposals, which requires that all initiatives considered by Ministers or Cabinet must be 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 Trade.

3. Background on the EA Process

The Framework provides a methodology for conducting an EA of a trade or investment 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 possible environmental impacts of the proposed agreement. As such, negotiators and environmental experts are involved in the EA and work proceeds in tandem to the negotiations.

The second objective is to respond to the environmental concerns expressed by the public. The Framework contains a strong commitment to communications and consultations throughout each EA of a trade or investment negotiation.

Three phases of assessment are generally undertaken: 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. It occurs earlier on in the negotiations. The Draft EA builds on the findings of the Initial EA and requires detailed analysis. A Draft EA is not undertaken if the negotiation is not expected to yield large economic changes. The Final EA takes place at the end of the negotiations. At the conclusion of each phase, a public report is issued with a request for feedback.

A consistent analytical methodology is applied during each phase. The Framework recognizes that economic and environmental effects can relate to changes in the level and pattern of economic activity, the type of products traded, technology changes, as well as regulatory and policy implications.

The Government of Canada has completed Initial EAs of the World Trade Organization (WTO), Free Trade Area of the Americas (FTAA), Singapore, and CA4 countries (Guatemala, Honduras, Nicaragua, El Salvador) trade negotiations, Canada-Peru FIPA as well as Canada-India FIPA. Initial EAs are underway for the Canada-Korea FTA and Canada-EU Trade and Investment Enhancement Agreement. The Draft EA for the WTO negotiations is also underway. Final EA reports have been issued for the Canada-Peru FIPA and for the addition of a government procurement chapter to the Canada-Chile Free Trade Agreement.

The Government of Canada will continue to apply the Framework to future trade and investment negotiations. Information on the EAs Canada has conducted are available on our website.

The findings of this Initial EA have been communicated to Canada’s lead negotiator, to the interdepartmental Environmental Assessment Committee for the Canada-China FIPA and to the interdepartmental EA of Trade Steering Committee. Any comments the public has on this report will inform the Final EA and be shared with the interdepartmental EA Committee. EAs of FIPAs will continue to evolve based on our experience and the feedback received from experts and the public.

4. Invitation to Submit Comments

In keeping with the Framework, an Environmental Assessment Committee (EAC) has been formed to undertake the analysis of the Canada-China FIPA. Coordinated by the Department of Foreign Affairs and International Trade Canada, the Canada-China FIPA EAC includes representatives from other federal government departments, including Environment Canada, the Canadian Environmental Assessment Agency, and Natural Resources Canada, and is formally chaired by the lead negotiator for the agreement. An important responsibility of the EAC is to gather input from provinces and territories, stakeholders representing business, academics, and non-governmental organizations, as well as the general public.

As part of its commitment to an open and transparent process, the Government has opened this Initial EA for public comment fromFebruary 20, 2008 to March 21, 2008. Feedback on the likely economic effects and the likelihood and significance of resultant environmental impacts is especially welcome, including ways in which the GoC’s current analysis could be strengthened. It is important to keep in mind that the assessment is focused on the possible positive and negative environmental impacts in Canada.

All feedback received is documented in keeping with the guidance contained in the EA Handbook, and circulated to the EAC. It will inform the Final EA of the Canada-China FIPA, as well as ongoing EA work within the Government of Canada.

Comments on this document may be sent by email, mail or fax to:

Consultations and Liaison Division
Initial Environmental Assessment of the Canada-China Foreign Investment Protection Agreement
Department of Foreign Affairs and International Trade
International Trade Canada
Lester B. Pearson Building
125 Sussex Drive
Ottawa, Ontario K1A 0G2

Fax: (613) 944-7981
Email: consultations@international.gc.ca

5. Analysis of the Canada-China FIPA

Negotiations for a Canada-China FIPA were re-launched in September 2004. There is a reasonable prospect that these negotiations will be concluded in 2008 and subsequently ratified by both Parties.

A) Identification of Likely Economic Effects

The first step in the EA process is the identification of the likely economic effects of the FIPA in Canada. To determine this we have considered existing investment flows, as well as information that provides an indication of future potential investment flows.

The two-way investment relationship between Canada and China has been growing steadily for the past fifteen years.

Canadian direct investment in China has grown steadily since 1990, but remains small in comparison to Canada’s overall investment abroad and China’s direct investment from other countries. Canada’s direct investment stock in China increased from $6 million in 1990 to $1.5 billion in 2006. China received approximately 4.6% of Canadian direct investment, and about 0.7% of total Canadian direct investment abroad.

Canadian investment in China covers a full range of key sectors including aerospace, biotechnology, education, finance, information technology, manufacturing and natural resources. However, Canadian investments in China are still mainly in the resources and financial sectors, while U.S. and Asian investments are concentrated in manufacturing industries. The majority of the 400 Canadian firms that invested in China are small and mid-sized enterprises.

China is only starting to invest abroad. Although we have seen a major increase in China’s investment in Canada over the past years, Chinese investment in Canada is still very modest.

Chinese direct investment in Canada increased from $54 million in 1991 to $1.3billion in 2006, representing 0.3% of total FDI in Canada. In 2006, the stock of Chinese direct investment in Canada increased by over 39% from 2005 level, making China the 16th largest direct investor in Canada. The increase in FDI from China in 2005 was largely due to China’s increasing investments in Canada’s energy sector, and also the acquisition of IBM’s computer division by Lenovo. Sectors of identified interest for Chinese investors in Canada include natural resources (mining and energy), information and communication technology (ICT), pharmaceuticals and manufacturing. Although there are a few large Chinese agri-food companies capable of investing abroad, it appears that Canada would not be a priority country for them. They are more interested in surrounding Asian markets before considering North America at this stage.

In recent years, China has encouraged aggressive state-owned enterprises (SOEs) investments both within China and abroad. According to Xinhua news (March 9, 2007)^{Footnote 1}, in 2006, Chinese enterprises made direct offshore investment of more that US$ 16 billion, up 32 % from the previous year. By the end of 2006, Chinese enterprises had launched more than 10,000 offshore operations, involving a total investment of US$ 73 billion.

We can expect an increased level of Chinese investment abroad, including from SOEs, in the future. We expect the FIPA to better position Canada as a recipient of such investment.

While the existence of a FIPA should be a positive factor in investors’ decisions on whether to invest in the territory of the other party, a FIPA typically does not impose new market access obligations or liberalize existing investment restrictions. Companies’ decisions to invest are largely dictated by their assessment of economic information and opportunities, whereas the existence of the FIPA is directed toward reducing political risks. Therefore, it is impossible to establish a direct causal relationship between any eventual changes in investment patterns and the outcome of these negotiations.

Recently, increased academic attention has been given to the question as to whether a FIPA, or the international equivalent bilateral investment treaty (BIT), results in an increase flow of investment between the signatories. It is important to note that these studies have focused on the impact of FIPAs or BITs on the level of investment in developing countries, and therefore such treaties are seen mainly as a tool for attracting investment into developing countries. While reciprocal commitments are made by developed countries in a FIPA, there are no academic studies to date that examine the impact of a FIPA on investment coming into a developed country. Although China’s current foreign direct investment abroad is still modest, we should expect that its FDI will increase over time, including in Canada, due to its new “Going Global Strategy”.

As a member of the OECD which established Codes on the Liberalization of Capital Movements and the Liberalization of Current Invisible Transactions more than 30 years ago, Canada has long been committed under an international obligation to remove barriers to international investment. There are high levels of international investment in many sectors of the Canadian economy, and the economic impact of these high levels of investments has been the subject of considerable academic study.

The fact that the FIPA represents, for Canada, the reiteration of an existing long standing policy suggests that its effect on inward investment will be relatively small. In addition, the fact that existing stocks of FDI in Canada are already substantial means that the economic impact of an additional investor, even a fairly large investor may be rather small by comparison with the impact of the effect of existing FDI stocks.

An increase in the level of Chinese investment stock does not necessarily indicate that there is an economic impact in Canada, as this increase could simply represent a Chinese partial or total acquisition of an already existing investment, or an increase in the book value of a Chinese owned investment. If Chinese investment is in the financial services sector, most of the Canadian assets of the Chinese financial service provider may represent a financial, rather than a controlling, stake in a wide range of assets outside the financial services sector. In such cases there is not likely to be an environmental impact as a result of the increase of Chinese investment stock. Therefore, even if a significant increase in Chinese investment is seen, this does not mean that there will be any environmental impact of this increased investment.

B) Identification and Assessment of Likely Environmental Impacts in Canada and the Context for these Impacts

The Framework calls for the identification and assessment of the environmental impacts that could stem from the anticipated economic effects of the FIPA. The likelihood and significance of such impacts would depend on the degree of increase in investment, the sectors in which the investment occurs, and the measures in place to protect the environment in relation to the investment activities.

As noted above, although growing, China’s stock of investment in Canada is modest. While over the long term the Canada-China FIPA is anticipated to contribute to a favourable business climate conducive to growth of two way investment, increases will depend on investor’s individual assessment of opportunity and risk. Significant new flows of investment from China into Canada as a result of the FIPA are not anticipated. Therefore, it is concluded that the environmental effects of the Canada-China FIPA will be minimal.

As stated previously, the sectors of identified interest for Chinese investors in Canada include natural resources (mining and energy), ICT, pharmaceuticals and manufacturing with a lesser potential for investment by agri-food companies.

Indicators of the expected economic effects of the FIPA on Chinese investments in these sectors are not available, because there are no specific investments known to be dependent on the FIPA’s conclusion or a direct known causal links between FIPAs and expansion of investment. Although significant new flows of investment into Canada as a result of the FIPA are not anticipated, and therefore overall environmental effects of the FIPA will likely be minimal, it was decided that a general assessment of the likely environmental impacts should be included in the report. This ensures that decision makers are aware of the potential environmental impacts of expanded investment from China into these sectors.

Finally, it should be noted that the Canada-China FIPA will not impact on Canada’s ability to develop and implement environmental policies and regulations. Canada will safeguard its ability to maintain and expand the current framework of policies, regulations, and legislation for the protection of the environment in these sectors in a manner consistent with its domestic and international obligations. In the model FIPA Canada protects its ability to adopt and apply measures that are designed to protect legitimate public welfare objects, without being required to pay compensation for indirect expropriation. Additionally, the model FIPA contains a provision that allows a Party to the Agreement to request consultations if it considers that the other Party relaxes its health, safety or environmental measures in order to encourage investment. The draft texts for Canada-China FIPA are subjected to legal review to ensure that the text is consistent with the spirit contained in the model FIPA and that Canada’s ability to develop and implement environmental policies and regulations is not negatively impacted.

Mining

Each stage of the mineral production process (exploration, extraction, processing, closure, and abandonment) has the potential for significant adverse environmental effects (e.g., air emissions, surface and groundwater flow and quality, soil contamination, habitat destruction and fragmentation). The temporal and spatial scale of these impacts varies significantly, from temporary and localized to long term and extensive, depending on a number of factors, such as project design, methodologies, technologies used, and mitigation measures implemented.

Canada has a regulatory framework to address environmental and others impacts from mining. The environment is a shared responsibility between the federal and provincial government. Therefore, all mining operations in Canada are regulated through federal and provincial legislations, including the requirement of an environmental assessment and other impacts prior to approval of the development of new mines and mine expansions.

During 2005, Chinese enterprises made three mining investments in Canada. Two of these investments were in Alberta’s oil sands mines and the other one in one of Vancouver’s gold mine. The oil sands sector will be discussed in more details under the energy sector.

• China National Offshore Oil Corporation (CNOOC) acquired a 17% interest in Calgary-based MEG Energy Inc. for $150 million.
• China’s Sinopec Group invested $105 million for a 40% stake in Calgary-based Synenco Energy Inc.’s Northern Light oil sands project in Alberta.
• The Zijin Mining Group invested $1.95 million in Vancouver-based Pinnacle Mines Ltd., to jointly explore and develop Pinnacle’s Silver Coin gold-silver property in the North-West of British Columbia.

In the first two cases the Chinese investment represented a minimal stake in an existing enterprise. It is not clear whether the investment was in newly issued stocks, or was acquired from existing stakeholders. However, based on available information it appears that even though the investment did not represent a majority interest, it may have provided an impetus to the project development activities of these enterprises by demonstrating the value of the work already accomplished. In the third case the investment has resulted in the creation of a joint venture. Once again the investment validated previous investments, and even more definitively than in the first two examples provided additional financing for mining activities.

Energy: Oil and Gas Sector

All oil and gas operations in Canada are regulated through a range of federal and provincial legislations, including the environmental assessment of new developments and expansions. The oil sands are located in north-eastern Alberta. According to the Alberta Energy and Utilities Board, the oil sands consist of three main deposits that cover nearly 150,000 square kilometres and represent 1.7 trillion barrels of crude bitumen, of which 19% is likely to be recovered. If reserves are located within 100 meters of the surface they can be recovered through surface mining activities commonly referred to as open pit mining. Deeper reserves require in situ recovery.

There are a number of environmental issues associated with oil sands development, with challenges related to cumulative impacts for a number of environmental parameters such as global warming/GHG emissions, water usage and water quality, aquatic and terrestrial habitat destruction and fragmentation, and land reclamation as well as growing infrastructure and socio-economic issues at the forefront of public concerns. Federal and provincial agencies participate in a number of multi-stakeholder, consensus-based regional initiatives set up to address environmental issues related to oil sands development. Recommendations arising from these initiatives are considered in directing government policy and priorities for the region.

Water usage issues center around the potential negative impact on the aquatic ecosystem, the removal of water from the watershed (surface and groundwater) and the large tailings ponds that are being created.

There are currently divergent views regarding the ultimate success of reclamation methods. The concerns related to land reclamation are that the proposed future reclaimed landscape will be significantly different than the original boreal forest, with the creation of dry, forested hills instead of wetlands, a larger percentage of lakes (the reclaimed pit lakes), and the absence of peatlands. Wetlands account for approximately 40% of the boreal forest landscape in Alberta. Almost 10% of the region’s wetlands will be permanently removed from the landscape as a result of oil sands development. While in-situ processes requires no excavation and use a smaller surface area for operation, fragmentation of the forest and water bodies from the construction of new roads in the area, seismic lines and exploration well sites represent a concern. There are a number of legislations in place, at the federal and provincial level, linked to the industrial development in the boreal, such as the Fisheries Act, the Canadian Environmental Protection Act and the Species at Risk Act. These legislations aim to protect fisheries habitat, wildlife populations and habitat and the sustainability of forests.

The production of the oil sands emits higher GHG emissions than the production of conventional crude oil and has been identified as the largest contributor to GHG emissions growth in Canada.

While significant progress has been made towards decreasing the intensity of GHG emissions produced by oil sands operators (GHG intensity of production improved by some 27% over 1990 to 2000), total emissions have increased due to higher production levels. Technology will continue to be an essential element in addressing the environmental impacts aforementioned. CANMET Energy Technology Centre (CETC) at Devon, Alberta is the federal government's primary research group for the development of hydrocarbon supply technologies and related environmental technologies, with an emphasis on oil sands and heavy oil. The Centre is working closely with industry and the province on a range of new oil sands and heavy oil technologies including technologies that will reduce the industry’s dependence on natural gas and water. Research areas include: combustion of residue bitumen, coal / coke gasification, air injection, the application of nuclear energy to provide the heat and power alternatives to natural gas, and non-water based extraction and process technologies. The use of CO2 for enhanced oil recovery could potentially reduce GHG emissions and create an economic opportunity.

Managing the environmental footprint of oil sands development will be an on-going challenge for the orderly and sustainable development of the resource.

Information and Communication Technology (ICT)

Growth in the ICT sector could result in more environmental benefits due to reduced travel, shipping and use of paper. However, any environmental challenges facing the industry as a whole can be broken down into e-waste, toxic and hazardous materials use, water and energy use.

• E-waste: One of the environmental issues associated with e-waste is the import / export of used electrical and electronic equipment (EEE) as well as the requirements to ensure that used EEE is processed or resource recovered in an environmentally sound manner. According to Environment Canada, e-waste in Canada has reached an estimated 160,000 tonnes in 2002 and is estimated to reach 206,000 tonnes by 2010. As much as 40 per cent of the heavy metals in landfills (such as lead, mercury and cadmium) come from electronic equipment discards^{Footnote 2}. Disposal of a wide range of electronic and electrical equipment and the hazardous wastes associated with them is one of the biggest issues facing the industry in terms of environmental impact. While the industry is responding to the issue, the sheer size and rapid technological change associated with the industry requires that it move quickly to create solutions. It should be noted that in 2002 the State Environmental Protection Administration for The People’s Republic of China published a series of lists of goods prohibited to be imported into China under their domestic Law of Prevention and Control of Solid Waste Pollution to the Environment. The five lists of prohibited goods include a wide variety of electrical and electronic equipment ranging from consumer items such as electric rice cookers, micro wave ovens, VCRs, TVs and telephone sets to name a few, plus commercial products encompassing automatic data processing machines, fax machines, printed circuit boards, photocopying machines and many other instruments or appliances used by institutions and/or industry. As per their UNEP Basel Convention's obligations, China has informed the Basel Secretariat of these changes, and in turn, the Secretariat informed Basel's Parties. As a result, Canada circulated and published, on its web site, a fact sheet on these changes in China to inform Canadian exporters. Canada, through activities of the Basel Convention, has been providing some financial support towards projects on environmentally sound management of e-waste in Asia, including China. This support is contributing towards the development of an e-waste inventory in China, hosting of workshop to share information and intelligence on e-waste, establishment of strategic partnerships, implementation of pilot projects on collection/segregation of e-waste and repair/refurbishment, and raising public awareness.
• Toxic and Hazardous Materials Use: Semiconductor manufacturers use a number of extremely toxic chemicals in the chip-making process. These chemicals are a serious issue for both the workers who have to deal with them and the communities where the chemical wastes end up. It is important to note that China is putting in place a regulation similar to the European Union’s Restriction on Hazardous Substances (RoHS) Directive. However, the procedures for its implementation remain unclear. As stated in the previous section, there are a series of lists currently in effect under Chinese domestic law which are prohibited from import. In addition, it should be noted that the export and import of hazardous waste or hazardous recyclable material between Canada and China, including Hong Kong, are subject to the provisions of the United Nations, Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal. Notification and prior informed written consent are required of the importing jurisdictions in order for the movement of toxic or hazardous materials destined for disposal or recycling/recovery operations as defined in the Convention or under domestic law.
• Water and Energy Use: While the industry as a whole is relatively frugal with water and energy, the manufacture of silicon chips and semiconductors requires large amounts of clean water and reliable energy, while the operation of fixed line networks (telecoms) is also energy intensive.

Retail and Distribution Services

Growth in the retail sector could result in minor environmental impacts due to the creation of new stores, wholesale facilities and retail outlets, increased movement of capital, people, and demand for infrastructure services, increased level of overall income, competition and employment, lower prices and greater variety of products for consumers. The most significant negative environmental impacts are likely to be in relation to the use of land, noise pollution as well as effects on air quality and effects of increased influents and emission on water and air quality in retail, wholesale and franchising. Other associated impacts of increased retail and distribution services relate to transportation-related impacts (e.g., air emissions) and increases in packaging waste.

According to the Asia Pacific Foundation of Canada, there are a growing number of Chinese investments in Canada outside of the energy and resource sectors, even though these investments are small in value terms compared to resource sector acquisitions. Some examples from 2005 include:

• China Telecom Corporation Ltd. (a US subsidiary of the Chinese telecom giant) opened an outlet in Toronto, Ontario as part of its international expansion strategy.
• Toronto-based TCM Inc., which exports Canadian wood frame construction technology and building materials to China, signed joint-venture agreements with Wuhu Shijie Hardware Co. Ltd. to open a subsidiary-branch outlet in Toronto; with Taizhou Baile Pumps Ltd. to open a subsidiary-branch outlet in Toronto; and with Zhejiang Huarong Exhaust Purification Co. Ltd. to open a subsidiary-branch outlet in Toronto.
• A Chinese national retail giant, Hualian Supermarket Co. Ltd., has opened a store in Richmond, British Colombia, marking the first major Chinese investment in the Canadian retail sector.

It is not clear that all of these investments will count as Chinese FDI in Canada, since some of them involve the use of subsidiaries in other countries and/or the use of capital that is technically sourced from within Canada but which may well have originated in China.

Pharmaceuticals

Since September 2001, substances new to Canada that are present in pharmaceutical products regulated under the Foods & Drugs Act (F&DA) are subject to the New Substances Notification Regulations (NSNR) (either the NSNR for Chemicals and Polymers or the NSNR for Organisms) of the Canadian Environmental Protection Act, 1999 (CEPA). The Environmental Assessment Unit at Health Canada conducts pre-manufacture and pre-import assessments of the potential environmental and human health risks associated with environmental exposure to substances in F&DA products such as human drugs, biologics, veterinary drugs, cosmetics, novel foods, food additives, natural health products and medical devices. As of 9 November 2006, 83 substances contained in therapeutic products have been notified to Health Canada in accordance with the notification triggers and data requirements stipulated by the NSNR for Chemicals and Polymers. Currently, the Environmental Impact Initiative (EII) of Health Canada is developing environmental assessment regulations more consistent with the environmental exposure and hazard profile for new substances in F&DA regulated products.

Possible routes for pharmaceuticals to enter into the environment include release from pharmaceutical manufacturing facilities, disposal of pharmaceuticals products from the supply chain (prior to distribution to the patients), disposal by patients or health care facilities of unused pharmaceuticals, or patients’ excretion of an active ingredient and metabolite(s). While environmental inputs from the manufacture of pharmaceuticals may contribute to total loading at sewage treatment plants, there is a growing consensus that reported detections of pharmaceutical ingredients in the environment originate primarily from consumer use patterns. Part of the mandate of the Environmental Impact Initiative is the development of regulatory and non-regulatory tools aimed at reducing the levels of pharmaceuticals in the environment from all possible entry routes.

The two principal scenarios associated with an increase in investment into Canada’s pharmaceutical sector (apart from the above-mentioned Chinese acquisition of existing investments) would be i) additions to Canadian pharmaceutical manufacturing capacity and ii) an increase in the consumption of pharmaceuticals to Canadians. An increase in manufacturing capacity would be limited by domestic consumption capacity and international manufacturing competitiveness for export markets; regardless, any such increase would not be expected to have an undue impact on the Canadian environment, for the reasons outlined above and due to manufacturing licensing requirements. A significant increase in consumption of pharmaceuticals by Canadians may result in a greater amounts detected in the Canadian environment; however it is unlikely that the implementation of the Canada-China FIPA would result in a drastic change in consumption patterns. Health Canada does not control the quantity of a product once approved in Canada and such a change could occur even in the absence of the FIPA.

Recognizing the modest Chinese investment in the pharmaceutical sector and the supply and demand dynamics of pharmaceutical consumption in Canada, the impact of the FIPA on the Canadian environment can be assessed as being minimal as it relates to potential future growth on FDI from China in pharmaceuticals.

Separately, as Canadian FDI moves to China - there may be relatively more but still modest to small impact of pharmaceutical manufacturing operations and consumption in China. This of course would be highly dependant on perception of risk by investors (which is currently very high) as well as Chinese public perception of usefulness of "western" medicines. Therefore any impact would be more in the mid to long term and commensurate with increased in manufacturing and consumption.

Manufacturing

Environmental impacts of Chinese Outward Direct Investment (ODI) in Canada's manufacturing sector are difficult to project given the absence of sub-sectoral ODI estimates. The manufacturing sector encompasses numerous industry sectors that could result in different environmental impact scenarios. A selection of these industries include: aerospace; apparel; automotive; basic chemicals and resins; computer and electronic products; electrical equipment, appliances and components; energy; food and consumer products; plastics; railway equipment; shipbuilding; steel; textiles; tool, die and mold making. Many of these industries would require environmental assessments under federal and provincial regimes prior to approvals for construction and operation.

There has been a total of 14 investments from China in the manufacturing sector with a corresponding asset value of $ 142 million since 1985.

A survey prepared by the Asia Pacific Foundation of Canada entitled "China Goes Global II - 2006 Survey of Chinese Companies’ Outward Direct Investment Intentions" suggests that manufacturing is the second major area of existing outward direct investment (ODI) activity accounting for 27% of the responses. Fifty seven percent of the responding companies claimed that the purpose of their ODI is to manufacture in invested foreign markets for sales in that market. China's ODI in Canada is expected to continue to increase and based on the survey results would likely correlate with a significant proportion of ODI in the manufacturing sector.

C) Policy and Regulatory Context

The Framework calls for consideration of the potential policy and regulatory effects of the FIPA. Foreign investors in Canada are bound by the same environmental protection regulations that govern the activities of domestic investors. Proposed projects resulting from inward investment would be subject to applicable environmental assessment legislation, including the Canadian Environmental Assessment Act and provincial environmental assessment regulatory regimes.

Recent revisions to the Government of Canada’s FIPA model have further expanded the provisions dealing with the governments’ right to regulate in the public interest. The new model includes a general exception that recognizes a Party’s rights to take measures necessary to protect human, animal or plant life or health, the environment and safety, or measures primarily aimed at the conservation of exhaustible natural resources, provided that these measures are not applied in an arbitrary or unjustifiable manner and are not disguised restrictions on trade or investment. In addition, the model clarifies the rules governing direct and indirect expropriation with regard to governments’ right to regulate. FIPA parties may also reserve existing laws and regulations such that they are not subject to specified obligations of the treaty, and they may reserve sensitive sectors for future regulation. Finally, the revised FIPA model strengthened a clause on "not lowering standards”. Specifically, this clause recognizes that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. In the event a Party has offered such encouragement, the other party may request consultation.

The revised FIPA model is the basis for Canada’s position in the Canada-China FIPA negotiations. We anticipate, therefore, that the final agreement will not have a negative effect on Canada’s ability to develop and implement environmental policies and regulations. Canada will safeguard its ability to maintain and expand the current framework of policies, regulations, and legislations for protection of the environment in a manner consistent with its domestic and international obligations. The draft texts for Canada-China FIPA are subject to legal review to ensure that the text is consistent with this objective.

6. Stakeholder Feedback

The notice of intent to conduct an EA of the Canada-China FIPA was in the Canada Gazette on November 5, 2005. The notice included an invitation to interested parties to submit their views on the likely environmental impacts of the Canada-China FIPA on Canada. There were no comments received on the Notice of Intent.

7. Other Environmental Considerations – Global Effects

A) Global Effects

Canada’s Framework for Conducting EAs of Trade Negotiations calls for national assessments, and allows for consideration of transboundary, regional, and global environmental impacts if they have a direct impact on the Canadian environment. However, it is outside of the scope of this study to assess the potential for positive or negative environmental impacts that could occur in China because of these negotiations, or to judge the measures in place within China to enhance or mitigate such impacts. The Framework does provide the opportunity to consider how Canadian investment in China that results from the FIPA could have transboundary and global environmental impacts that would affect the Canadian environment.

Mining is a prime sector of interest to Canadian companies operating in China. We therefore focus on this sector to identify potential environmental effects of these investments on the Canadian environment. As discussed above, the temporal and spatial scale of these impacts varies significantly, from temporary and localized to long-term and extensive. The environmental impacts of concern that could most directly affect the Canadian environment relate to air emissions, which can result in the deposition of heavy metals thousands of miles from the primary source. Additionally, any projects subject to the Canadian Environmental Assessment Act and the Projects Outside Canada Environmental Assessment Regulations must also consider any change in the environment as a result of a project.

B) Canada/China Environmental Cooperation Activities

Canada and China are actively engaged in environmental cooperation activities: although not specifically linked to the FIPA, these efforts demonstrate existing mechanisms to work together on issues of common concern.

• Canada-China Framework Statement for Cooperation on Environment into the 21st Century: Canada and China signed the “Canada-China Framework Statement for Cooperation on Environment into the 21st Century” during Premier Zhu Rongji's visit to Canada in November 1998. The framework reflects a shared interest in enhancing cooperation on environmental and sustainable development issues and provides an umbrella for collaboration on the environment, especially climate change and sustainable development, through the coordination of all federal efforts with China. The Framework Statement created the Canada-China Joint Committee on Environment Cooperation (JCEC) with Environment Canada and the Chinese State Environmental Protection Administration (SEPA) as the lead agencies. The JCEC held its inaugural meeting on March 20-21, 2000. The fifth meeting took place in Xi’an, China in April 2006 and focused its policy discussion on environmental impact assessments; environmental emergencies and preparedness; greening the Olympics; and cooperation with environmental industries. Previous meetings have focused on a range of topics, including air pollution, environmental legislation and sustainable urbanisation. Canada will host the next JCEC meeting in 2007.
• Memorandum of Understanding on Environmental Cooperation: Environment Canada and the State Environmental Protection Agency (SEPA) renewed the Memorandum of Understanding (MoU) on Environmental Cooperation in September 2003 in Beijing. This is the second renewal since the signing of the first MoU in 1993. The MoU provides a framework for cooperation on regional and global environmental issues with a focus on transboundary air and toxic substance control, water resource management, smart growth and sustainable development, environmental management policies and regulations, ecosystem and biodiversity protection, as well as transfer of clean technologies. Through work plans, the MoU is implemented through workshops, missions, exchange of information, hosting Chinese officials and study tours.
• The Canada-China Climate Change Working Group (CCWG): The Canada-China Climate Change Working Group was formed in March 2004, as a follow up to the Canada-China Joint Statement on Climate Change Cooperation. The Working Group co-ordinates and advances the bilateral effort to respond to climate change and is co-led by Environment Canada and the department of Foreign Affairs and International Trade (DFAIT) on the Canadian side and the National Development and Reform Commission (NDRC) and Ministry of Foreign Affairs (MFA) on the Chinese side. The first CCWG meeting was held in Vancouver in March 2004 and the second one in Shenyang, China in July 2005. Government officials from Canada and China representing various ministries and departments held frank and open discussions on the issues related to climate change while identifying opportunities for future cooperation in priority areas, such as clean technology, renewable energies, sustainable urban development and the 2005 UN climate change conference in Montreal.
• The 3rd meeting of the Canada-China Climate Change Working Group CCWG was held in Vancouver on July 16 – 17, 2007. Canadian and Chinese officials engaged in a discussion on substantive climate issues. China learned about Canada’s integrated approach to control air pollutants and GHGs through short term intensity based targets, leading to 60-70% absolute reductions of 2006 level by 2050, in line with the G-8 Leaders' recent statement and the Intergovernmental Panel on Climate Change (IPCC) recommendation to halve GHG emissions from 1990 levels. Both countries share interest in reducing energy intensity, enhancing energy efficiency, increasing renewables in the energy mix and addressing air pollution through integrated GHG reduction measures.
• China gained a better appreciation of Canada's policy and commended Canada for its honest and practical approach to both the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol. Both countries agreed to hold informal meetings prior to major upcoming meetings including the US-Major Economies’ Meeting, the UN Secretary General's High Level meeting and the CoP-13 preparatory meeting in Jakarta. China's view is that while other meetings can be useful in raising the profile of climate change, progress on addressing climate change should be made under UNFCCC and the Kyoto Protocol.
• Prior to the meeting, Environment Canada hosted a visit of the Chinese delegation to Regina to learn about the Weyburn-Midale Carbon Capture and Storage project, the largest operational CO2 sequestration project in the world. The delegation was impressed with this world class Canadian technology, which was supported by the Government of Canada.
• MOU on Science and Technology Related to Meteorology, Hydrology, Environmental Prediction and Climate Change: The Meteorological Service of Canada (MSC) and the China Meteorological Administration (CMA) first signed the Memorandum of Understanding (MOU) on Cooperative Meteorological Programmes on June 1, 1986. The main focus of the MOU was on cooperation and exchanges between technical experts to improve the coordination of national programs directed at the provision of meteorological and related services. After 15 years of successful collaboration, a new MOU on Science and Technology Related to Meteorology, Hydrology, Environmental Prediction and Climate Change was signed in 2001. This MOU was renewed on 29th of September, 2006 during the Tenth Joint Working Group which was held in Canada.
• The MOU provides a framework for collaboration in a wide range of areas including modernization strategies; Earth observations of weather, water, climate and atmospheric chemistry; Environmental Predictions including high impact weather, floods and air quality and underlying modelling and data assimilation; Climate Change science, seasonal to inter-annual predictions, assessments of vulnerabilities, impacts and adaptation strategies; and technical and management training.
• China-Canada Strategic Working Group: In January 2005, China and Canada established a Strategic Work Group which is designed for regular consultation on important bilateral political and economic issues, and stronger exchange and coordination on major international and regional issues of common concern, such as safeguarding world peace and security, prosperity and sustainable development. China and Canada have a shared commitment to the sustainable development and management of natural resources, as the two countries recognize the potential for mutual benefit in furthering cooperation in minerals and metals, forestry, earth science and energy. In 2007, the two countries agreed to focus particularly on four key areas: investment and trade, environment and energy efficiency, public health and disease control, and governance. In the area of environment and energy efficiency, China and Canada have committed to strengthening the dialogue on climate change and other key environmental policy issues through the Canada-China Climate Change Working Group, China-Canada Joint Committee on Environmental Cooperation (JCEC) and the China Council for International Cooperation on Environment and Development (CCICED); promoting environmental governance by encouraging the use of appropriate economic and legal instruments and government policy, planning and regulations (e.g. environmental assessments processes) in environmental management; and strengthening cooperation on capacity building and promotion of development, deployment and transfer of advanced environmental protection technologies aimed at addressing climate change and reducing air, water and toxics pollution, and implementation of Multilateral Environmental Agreements (MEAs).
• Illustration of Work: Environment Canada's bilateral cooperation with China has recently included workshops, training and internships in Canadian institutions, mentoring senior Chinese officials, incoming and out-going missions and exchanges of documentation and publications. The main topics covered include climate change, sustainable development, integrated water resource management, transboundary air pollution and toxic substances control, protection of ecosystem and biodiversity, and technology transfer.
• Environmental Trade Missions to China: The Government of Canada has organized a number of environment themed trade missions to China. In the past Trade Team Canada Environment (TTCE) missions were organized by Industry Canada, in cooperation with the Canadian Government's Trade Commissioner Service in China. Although they are now called Canadian Environment Industry Trade Missions (no longer TTCE) the objective remains the same: to facilitate the transfer of Canadian environmental technologies and know-how to China, and foster partnerships between environmental industries in both countries. Canadian environmental companies wishing to access the Chinese market or expand their activities in China are encouraged to participate. The programs include business briefings, technical workshops, mini trade shows, one-on-one meetings, networking events and site visits.
• 2007 Science and Technology Cooperation Agreement between Canada and China: On January 15, 2007 in Beijing, the Government of Canada and the Government of China signed a Science and Technology (S&T) Cooperation Agreement that will boost collaborative research and development activities between the two countries. The Agreement aims to promote greater collaboration in research and development between Chinese and Canadian academics, and both private and public sector researchers and innovators. This will be accomplished through measures such as a mechanism to facilitate public and private sector investment in joint S&T initiatives. The work conducted under the Agreement will initially focus on four priority areas: energy, the environment, health and life sciences, and agricultural foods and bioproducts.
• China Council for International Cooperation on Environment and Development: Environment Canada has become increasingly involved in the China Council for International Cooperation on Environment and Development (CCICED) -- to better align the department’s current work with the focus of the Council – by attending the annual meetings as an observer. The China Council is a high-level (chaired by Chinese Vice Premier), non-governmental consultative and advisory body created by the Chinese government to provide recommendations and policy guidance on environment and development issues in China.
• Canadian International Development Agency Projects: The Canadian International Development Agency (CIDA) has revised its goal and objectives for its China Country Development Programming Framework, but continues to give priority to human rights, democratic development, good governance, and environmental sustainability. CIDA program aims to promote environmental sustainability in China through support for Chinese efforts to manage environmental issues in rural western regions of China by enhancing the capacity of China’s land resource management systems. CIDA’s environmental sustainability projects include:
  • China Council for International Cooperation on Environment and Development Phase III;
  • Canada-China Co-operation on the Management of Environmental Sustainability Project;
  • Canada-China Cooperation in Climate Change (C5);
  • Confronting Global Warming: Enhancing China's Capacity for Carbon Sequestration;
  • Reduction of CO2 Emissions from Coal Fired Utility Boilers in China;
  • Renewable Energy Diversification - Small Hydro Technology in Western China;
  • Canada-China Development of Coalbed Methane Technology Carbon Dioxide Sequestration Project (CCCDF);
  • Biodiversity Protection and Community Development in Inner Mongolia Autonomous Region;
  • Canada-China Cooperation Project in Cleaner Production;
  • Canada-China Jiangsu SME Applied Management and Environment;
  • Nutrient Management and Strategies for Sustainable Development in China;
  • Sustainable Agriculture Development Project Phase II (SADP II).

Canada and China are also engaged in Corporate Social Responsibility initiatives:

• Initiatives focused on Corporate Social Responsibility (CSR) or "sustainable development" in China are still in the nascent stages of development. The concept, among many Canadian small and medium sized enterprises (SMEs), is often misunderstood, and education is needed to ensure the commercial benefits linked to application of a CSR policy are communicated. The Beijing Chapter of the Canada-China Business Council (CCBC), one of the longer-standing bilateral business organizations active in China, restructured its executive into committees in 2006, forming a sustainable development committee focused on CSR. The committee organized two independent networking and information events, and several joint networking events with other Chambers of Commerce in 2006/07, bringing together interested companies and Non-Governmental Organizations (NGOs).
• The Canadian embassy in Beijing met with the CCBC's Sustainable Development Committee Chairs to discuss future initiatives. In planning are the following: a) an education seminar that helps companies to properly define CSR and understand the benefits of a CSR policy to the company's bottom line in addition to the countries and regions that they operate; b) a workshop bringing together CSR-minded Canadian and Chinese companies to network and discuss sustainable solutions to common problems facing these businesses; c) development of a list of qualified NGOs that can work with companies to implement sustainable projects in line with companies’ CSR plans and strategies; d) a joint project with other Chambers of Commerce to investigate hot topics in CSR, such as micro-credit or micro-financing; and e) a day dedicated to discussion of sustainable solutions in mining, to be delivered on the margins of the large China Mining Conference in November 2007.
• In addition to initiatives led by government and associations, some individual Canadian companies continue to provide leadership in this area.

C) Third Party Documents

Examination of environmental policies in China or postulation about general trends of Chinese investment abroad falls outside of the mandate provided by the Framework for EA of Trade Negotiations. However, past feedback from consultations has indicated interest in this regard, and we have therefore responded through the identification of the following third party documents.

• The Asia Pacific Foundation of Canada and the China Council for the Promotion of International Trade carried out an online survey in September 2006 in order to better understand the changes in Chinese companies’ outward investment intentions. The report “China Goes Global – II: 2006 Survey of Chinese Companies’ Outward Direct Investment Intentions” is available on their website..
• In November 2006, the OECD published two reports on China’s environmental performance and policies: “Environment, Water Resources and Agricultural Policies: Lessons from China and OECD Countries” and “Environmental Performance of China: Conclusions and Recommendations (Final) ”. The first report contains a set of expert papers on how to improve water management in China’s agricultural sector. Although the OECD report on “Environmental Performance of China: Conclusions and Recommendations (Final)” recognizes that China has made some significant environmental progress, it states that the implementation of environmental policies needs to be strengthened. The Working Party found that China’s efforts to protect the environment have not been sufficient to keep pace with the environmental pressures and challenges generated by the very rapid growth of China’s economy. It recommends that China further strengthen its international environmental efforts with the co-operation and support of OECD countries.
• The Deutsche Bank has published in August 2006 a report on China’s overseas direct investment entitled “Global champions in waiting: Perspectives on China's overseas direct investment”. The report states that numerous high-profile cross-border mergers and acquisitions deals involving Chinese companies as acquirers point to the emergence of China as a global investor. The bulk of current Chinese ODI is driven either by the increasing need to secure overseas energy and raw material resources or as a countermeasure to growing competition and overcapacity in a number of key sectors of the domestic economy. In February 2006, the Deutsche Bank also published a report on China’s environmental sector entitled “Environmental sector China: From major building site to growth market”. The report states that China's economy is booming at the expense of its environment. Shortages of important resources are reducing China's growth potential. Awareness must be created that it is better to prevent environmental damage in the first place than to have to remedy the situation later at considerable expense. Several hundreds of billions of US dollars are likely to be invested in environmental technology in China over the next 20 years, for which the country needs private know-how and capital from abroad.

8. Conclusion and Next Steps

Canada’s Framework for Conducting EAs of Trade Negotiations calls for national assessments and allows for consideration of transboundary, regional, and global environmental impacts if they have a direct impact on the Canadian environment. However, it is outside of the scope of this study to assess the potential for positive or negative environmental impacts that could occur in China because of these negotiations, or to judge the measures in place within China to enhance or mitigate such impacts.

Investments in sectors of interest to China may have an impact on the environment. However, the impact would be the same whether the investment is made by a Chinese investors or a domestic investor. In addition, investors, whether they are Canadian or foreign, are bound by environmental protection regulations and projects resulting from these investments are subject to applicable environmental assessment legislation

The Initial EA of the Canada-China FIPA concludes that significant changes to investment in Canada are not expected as a result of the Canada-China FIPA negotiations as there are no specific investments known to be dependent on the FIPA’s conclusion or no direct known causal links between FIPAs and expansion of investment. As such, the environmental impacts on Canada are expected to be minimal.

The Initial EA will be circulated to decision makers to inform the conclusion of the Canada-China FIPA negotiations as well as other policy development activities.

Following the receipt of public comments on the Initial EA, the Final EA will be completed taking into account the consultative findings. In the light of the Initial EA’s conclusions regarding the unlikelihood of significant economic activity and environmental impacts in Canada, preparation of a Draft EA is deemed to be unnecessary. The Final EA will coincide with the conclusion of the Canada-China FIPA negotiations.

Annex 1: Canada’s FIPA Program

A) Background on Canada’s FIPA Program

A FIPA (Foreign Investment Promotion and Protection Agreement) is a bilateral agreement aimed at protecting and promoting foreign investment through legally-binding rights and obligations.

FIPAs accomplish their objectives by setting out the respective rights and obligations of the countries that are parties to the treaty with respect to the treatment of foreign investment. Typically, there are agreed exceptions to the obligations. FIPAs seek to ensure that foreign investors: will not be treated worse than similarly situated domestic investors or other foreign investors; will not have their investments expropriated without prompt and adequate compensation; and, in any case, will not be subject to treatment lower than the minimum standard established in customary international law. As well, in most circumstances, investors should be free to invest capital and repatriate their investments and returns.

Canada’s policy is to promote and protect investment through a transparent rules-based system in a manner that reaffirms the right of Governments to regulate in the public interest, including developmental interests. As an instrument that supports the rule of law and fosters fairness, transparency, non-discrimination and accountability, a FIPA encourages good governance. A FIPA also promotes sustainable development principles by exhorting Governments to not lower health, safety or environmental measures in order to attract investment.

Canada began negotiating FIPAs in 1989 to secure investment liberalisation and protection commitments on the basis of a model agreement developed under the auspices of the OECD (Organization for Economic Cooperation and Development). In 1994, Canada introduced a FIPA model incorporating the enhanced investment protection afforded under the NAFTA (North American Free Trade Agreement). Canada signed 5 agreements using the OECD model and signed 18 FIPAS based on the 1994 model for a total of 23 FIPAs to date.

B) Canada’s New FIPA Model

In 2003, Canada began updating its FIPA model to reflect lessons learned from its experience with the implementation and operation of the investment chapter of the NAFTA. The principal objectives of this exercise were: to enhance clarity in the substantive obligations; to maximize openness and transparency in the dispute settlement process; and to discipline and improve efficiency in the dispute settlement procedures. Canada also sought to enhance transparency in the listing of reservations and exceptions from the substantive disciplines of the Agreement.

In May 2004, Canada's new model for the negotiation of FIPAs was published on the website. The new FIPA model provides for a high standard of investment protection and incorporates several key principles: treatment that is non-discriminatory and that meets a minimum standard; protection against expropriation without compensation and restraints on the transfer of funds; transparency of measures affecting investment; and dispute settlement procedures. The new model serves as a template for Canada in discussions with investment partners on bilateral investment rules. As a template, the provisions contained therein remain subject to negotiation and further refinement by negotiating parties. Thus, although all FIPAs can be expected to follow this approach, it is highly unlikely that any two agreements will be identical.

Canada's FIPA negotiating program is intended to reflect the priorities of Canadian investors. With many countries expressing great interest in negotiating FIPAs with Canada, we are currently undertaking a comprehensive priority setting exercise to consider potential FIPA partners based on the following factors: 1) likelihood of engagement 2) commercial and economic interests 3) lack of investor protection 4) trade policy interests 5) political / developmental interests.

C) Environmental Issues related to the new FIPA Model

Underlying Canada's new FIPA model are renewed commitments to transparency, including with respect to crosswalks between investment agreements and environmental issues. For instance, Canada seeks commitments whereby Parties would agree to publish laws, regulations and other procedures respecting any matter covered by the FIPA. We also seek to allow Parties an opportunity for prior comment on future legislation covering inward investment.

Canada also recognizes the benefits of transparency with respect to procedural arrangements associated with our investment agreements. This includes investor-state dispute settlement procedures, whereby Canada seeks to facilitate third-party (amicus) submissions to tribunals, for example.

Canada’s new FIPA model incorporates various safeguards aimed at protecting Canada’s right to regulate for legitimate public welfare objectives. It also includes a statement in the preamble on the consistency of the agreement with sustainable development, and general exceptions with respect to human, animal, or plant life of health as found in GATT article XX/GATS article XIV.

The revised FIPA model clarifies Canada’s position that non-discriminatory measures, such as a regulation, designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute an indirect expropriation. This provision is intended to ensure that crucial regulations (including environmental) are not stifled by the obligation to provide costly compensation. For example, unless a measure is so severe that it cannot be reasonably viewed as having been adopted and applied in good faith, a non-discriminatory environmental regulation that may adversely affect an investor would not constitute a breach of indirect expropriation rules and would not require compensation under the treaty.

The revised FIPA model strengthened a clause on "not lowering standards", whereby signatories recognize that it is inappropriate to attract investment through lowering health, safety, and environmental standards. Specifically, this clause recognizes that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. In the event a Party has offered such encouragement, the other party may request consultation.