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Does the USMCA offer hope for a revitalized Commission for Environmental Cooperation?

In an earlier blog post, CELA expressed its happiness that the re-negotiated North American Free Trade Agreement (NAFTA), known as the United States-Mexico-Canada-[Trade] Agreement (USMCA), does not include the controversial investor state dispute settlement process.

In this guest blog post, Hugh Benevides* provides preliminary comments on the USMCA’s Environment Chapter (Ch. 24), and how it compares to NAFTA’s environmental side agreement, the 1994 North American Agreement on Environmental Cooperation (NAAEC), with a particular focus on the role of the Commission for Environmental Cooperation (CEC).

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The USMCA includes some welcome environment-related improvements on NAFTA. Notable among them are the omission of the NAFTA energy proportionality provision that was said to threaten Canadian energy sovereignty, and reference to the importance of forests, including carbon storage.

Like the NAAEC, Chapter 24 of USMCA asserts the role of cooperative measures in strengthening the three Parties’ joint and individual capacities to protect the environment. The Parties commit “to expanding their cooperative relationship” and they aim to do this “pursuant to the Environmental Cooperation Agreement [ECA] signed by the Parties.” The Government of Canada’s summary of the chapter confirms, however, that negotiations on the ECA are “ongoing” (Canada notes this in the context of climate change, which the current presidential administration in the US was unwilling to include in the text of the USMCA). The USMCA provides that activities undertaken pursuant to the ECA will be coordinated and reviewed by the Commission for Environmental Cooperation, which was initially established in the NAAEC and which, Canada’s summary indicates, will continue to exist under the USMCA regime, with details to be defined in the ECA.

The CEC has been the locus of cooperative work on pollutants, climate change mitigation options and transboundary ecosystem conservation among other things, for nearly 25 years. Its current structure can be broken down into three main parts: the Secretariat, which is headed by an executive director who is appointed on a rotating three-year term basis by the three Parties (the search for a qualified Canadian should be underway now, to take on the role in 2019) and who in turn hires staff at Secretariat headquarters in Montreal; the Council, comprising Canada’s Minister of the Environment and Climate Change, the Administrator of the US Environmental Protection Agency, and the Mexican Secretary of the Environment; and the Joint Public Advisory Committee (JPAC), which NAAEC empowers to “provide advice to the Council on any matter within the scope of” the NAAEC. Notably, JPAC’s next meeting, to be held in late October 2018, is meant to discuss “enhancing the CEC’s communications and outreach efforts in North America and beyond.” The website indicates that the meeting is “Closed to the public.”

In practice, the functions of Council members are delegated to senior and mid-level officials in the federal governments of the Parties, who interact with the Secretariat staff.

Chapter 24 adds to this the creation of an Environment Committee, “composed of senior government representatives, or their designees, of the relevant trade and environment national authorities of each Party responsible for the implementation of this Chapter.” This committee would oversee the implementation of Chapter 24 among a few other functions enumerated in Article 24.26.3. However, it would be required to meet only once every two years after its initial meeting, to be held within the first year of the USMCA’s entry into force. Publication of its decisions and reports requires consensus agreement by its members (Art. 24.26.6). Chapter 24 does imply a continuation of JPAC (Art. 24.28.4(d)), says that the Environment Committee shall provide for public input into its work “as appropriate,” and requires that a public session be held at each of its meetings (Art. 24.26.8).

The establishment of the Environment Committee and its semi-annual meetings coincides with the elimination of an annual public meeting requirement for the CEC Council, found in Article 9 of NAAEC.

Failure to enforce environmental laws, and resolution of disputes

Articles 22 through 36 of the NAAEC provide a detailed process for consultation among Parties and resolution by an arbitral panel, when any one Party feels that another has shown “a persistent pattern of failure ... to effectively enforce its environmental law.” The process can in theory result in the imposition of monetary penalties against the offending Party by an arbitral panel. The process has, however, never been used.

Given that record, North Americans might have hoped that a new agreement would include provisions more effectively discouraging the kind of environmental law retrenchment now being conducted by the Trump administration in the US, and seen not long ago at the federal level in Canada. Instead, the USMCA makes it more difficult for a Party to complain when one of its North American trading partners becomes an environmental laggard: Article 24.4.1 provides that “No Party shall fail to effectively enforce its environmental laws through a sustained or recurring course of action or inaction in a manner affecting trade or investment between the Parties.” Elaboration in a footnote on the meaning of “in a manner affecting trade or investment between the Parties” suggests that the course of action or inaction to be targeted is limited to economic activity implicating trade and investment between two of the Parties. Even if that interpretation is incorrect, unfortunately it is difficult to imagine any one of the Parties suddenly inspired to exercise dispute resolution provisions that have been disregarded to date.

Articles 24.29 to 24.32 will allow any of the Parties to initiate “environmental consultations” on any matter involving the interpretation and application of chapter 24. Article 24.31.3 provides that the consultations shall be confidential. Involved Parties “shall make every effort to arrive at a mutually satisfactory resolution to the matter.” Provision is made for escalation to the Environment Committee, to “relevant Ministers” and finally, to the general Party dispute resolution procedures of the USMCA in Chapter 31.

Multilateral environmental agreements

Noting in Article 24.2.3 that “enhanced cooperation to protect and conserve the environment … brings benefits that can … support implementation of international environmental agreements to which they are a party,” the Parties have included provisions on multilateral environmental agreements. Articles 24.8 through 24.24 give attention to ozone-depleting substances, protection of the marine environment from ship pollution, air quality, marine litter, biodiversity, invasive alien species, marine wild capture species (these provisions explicitly do not apply to aquaculture), sustainable fisheries management, conservation of marine species, fisheries subsidies, illegal / unreported / unregulated fishing, conservation and trade in wild flora and fauna, and sustainable forest management and trade. Some provisions in these areas may indicate a willingness by the Parties to enhance current cooperation at the North American regional level, suggesting possible additional functions for the CEC.

Submissions on enforcement matters

Articles 14 and 15 of the NAAEC provide for a process allowing any person to make a submission asserting that one of the Parties is failing to effectively enforce its environmental law. Chapter 24 preserves the process, with a few changes:

— While the Party responding to a submission will have the same amount of time to file its response (NAAEC gives the Party 30 days, with an optional additional 30 days; Article 24.28.1 will give the Party 60 days outright), the Secretariat will have just 60 days (reduced from 120 days) to determine whether the submission in light of the Party’s response merits a recommendation that a factual record be prepared.

— The current 120-day time limitation on the Secretariat is included in non-binding guidelines. Preparing recommendations to the Council for a vote in light of a complex submission and a Party’s response to it can involve considerable time and effort. Crafting a sound recommendation within 60 days will prove to be extremely challenging in some cases.

— Similarly, the time for the Secretariat to prepare a draft factual record is reduced from a non-binding 180 days to 120 days, and “Any Party may provide comments on the accuracy of the draft within 30 days [down from 45 days] thereafter” (Art. 24.28.5).

— Small consolation for the above time restrictions is that “The Secretariat shall make the final factual record publicly available, normally within 30 days following its submission, unless two members or more of the Council instruct it not to” (Art. 24.28.6), down from 60 days. This language also changes the nature of the onus on the Council; under the NAAEC “the Council may, by a two-thirds vote, make the final factual record publicly available.”

— A two-thirds vote of Council will still be required in order for the preparation of a factual record to proceed, despite some trade agreements to which the United States of America is party that allow a factual record where just one party recommends it.

A significant deficiency of factual records is that they neither assign blame or fault nor include recommendations for improvement. This problem is not addressed by the USMCA. Article 24.28.7 does allow the Environment Committee to “provide recommendations to the Council on whether the matter could benefit from cooperative activities” – hardly a bold innovation.

USMCA offers hope for a revitalized CEC

Despite the USMCA, the CEC runs the risk of becoming increasingly moribund. The budget provided by the Parties for its operation remained unchanged from 1994 until 2013-2014, when the Parties reduced their historic annual USD $3,000,000 contributions by USD $450,000 each and asked the Secretariat to draw down its reserve to make up the difference in ensuing years. The Council agreed in June 2017 to maintain each Party's annual contribution at USD $2,550,000 (see the CEC's 2017-18 Operational Plan). These reductions have resulted in the CEC supporting significantly fewer projects and initiatives. In December, the Secretariat’s offices will move to smaller quarters, and the staff complement is a shadow of what it once was.

Meanwhile, the most recent item displayed on the CEC web page reserved for current financial statements, annual reports and other documents, is a Secretariat Activity report from 2015, and the page dedicated to disclosure of contracts has not been updated since the first trimester of 2017.

The opportunity for revitalization includes not only the ongoing negotiations toward the Environmental Cooperation Agreement, which will elaborate on the framework and appropriate budget for the cooperative work programme, but also for governance changes that could be kicked off and led by a strong, experienced and qualified Canadian executive director at the Secretariat.

When the Parties designed the CEC, they did not intend that professional staff positions at the Secretariat be held for indefinite terms. The Parties should review policies for periodic renewal not only of the executive director but of other senior roles, as well as for accountability and oversight of the executive director and protections for staff, particularly support staff.

The North American public cannot judge the environmental aspects of USMCA on the basis of the text alone. Until they see renewal established through new leadership, and until they can review a draft Environmental Cooperation Agreement, the jury is out. 

*Hugh Benevides is former CELA counsel and former Canadian legal officer at the Secretariat of the North American Commission for Environmental Cooperation