Trade agreement has new environmental rules

“Environment now has a chapter [in the USMCA], as opposed to side agreements,” says Bobechko. “It’s risen in stature, which is a significant improvement from the previous NAFTA.”

Richard Butler, a partner with Willms & Shier Environmental Lawyers LLP in Toronto, says the agreement has not yet been ratified and the new mechanisms contained within the USMCA are untested. He says the structure of the new agreement has put mechanisms that were “sister” agreements to NAFTA — such as the North American Agreement on Environmental Cooperation — into the main body of the new agreement.

“Rather than having those side by side with NAFTA, they’re now more explicitly included in chapter 24 of the new agreement,” says Butler.

“The question that we’re struggling with and will be interested to see how that plays out is whether that has a substantive or procedural change going forward.”

Articles 24.2 and 24.4 talk about promoting trade, but they discourage parties from using or enforcing environmental laws in a way that unduly favours or restricts trade for companies in their countries, which mirrors the anti-dumping provisions of a trade agreement.

Butler says that, to a large degree, the new provisions under chapter 24 refer back to the original agreements and the Commission for Environmental Cooperation.

Bobechko says that, in the new agreement, however, there are provisions within article 24 that set out different levels of protection, along with ways in which to manage those protections.

“If a party has a concern that a country isn’t enforcing or is backsliding on their environmental obligations, the mechanism on how to resolve that is set out within the chapter and ultimately to the dispute resolution chapter in the agreement,” says Bobechko.

She says the agreement does recognize sovereignty and that each country can set its own environmental priorities and how it enforces those priorities, but it remains to be seen how that will be interpreted.

Bobechko says there are “escalating” ways to resolve concerns.

Whereas previously there was the NAAEC, article 24.25 talks about an environmental co-operation agreement that has not yet been signed, she says.

“It keeps the Commission for Environmental Cooperation intact, but [it] will be updating it,” says Bobechko. “That’s to be set up within a year of execution of the USMCA.”

She notes that issues such as protection of the ozone layer, marine environment and ship pollution, fishing issues, air quality and marine litter are all clearly defined in the agreement and that there is a bona fide test to ensure that each country’s decision-making is done in good faith. If a party feels that the decision-making wasn’t made in good faith, it can make a submission to the commission and, from there, it can go up to escalating layers of consultations. If that doesn’t resolve the matter, it can go to dispute resolution.

Butler says the real question is whether the enforcement mechanisms for the entire USMCA have more “bite” than NAFTA did. With the loss of chapter 11, which was the investor-state dispute settlement mechanism, civil remedies in local courts will likely be necessary instead of NAFTA-based arbitration.

“For lawyers and clients, the idea of being pushed to a different venue could be a real decision-maker in terms of whether to proceed with a remedy or not,” says Butler.

“It will be relying on different legal principles, and it will go by way of our Court of Appeal. That could be very interesting.”

Risa Schwartz of Risa Schwartz International Law in Toronto says that the end of chapter 11 is one of the most important environmental gains in the new agreement.

“It’s huge,” says Schwartz. “There have been a number of disputes related to environment and health measures. ISDS is a threat to a state’s sovereignty to regulate in the public interest for health and environment.”

In announcing the chapter, the federal government stated that the environmental provisions would have strong, enforceable standards.

Butler points to article 24.32, where a dispute resolution mechanism is outlined, which could mean the establishment of a panel.

“That’s going to start looking like the anti-dumping trade disputes like we’ve seen under NAFTA,” says Butler.

Bobechko says those enforceable standards are related to the obligations of each party to ensuring the key aspects of the chapter and there is a continuous improvement requirement.

“They have to move to the higher level of environmental protection,” says Bobechko. “It places a positive obligation on the parties to not ignore the environment and to continue to enhance that.”

That remains couched within the language about countries both setting their own priorities and meeting the bona fide test, says Bobechko.

“It tries to balance the fact that, if Canada has a specific agenda item that it wants at the top of the list, that might not be the same top-of-list priority for the U.S. or Mexico.”

She adds that there are provisions within the chapter for a recognized role for Indigenous people and the role they play in conservation and protection of the environment.

“From a Canadian’s perspective, it’s great to see that recognition is right in there,” says Bobechko.

Schwartz says this acknowledges the importance of engaging with Indigenous people in the long-term conservation of the environment.

“It’s more of a hint to our consultation requirements in Canada, but it applies to all three countries,” she says.

Schwartz notes that all three countries have either adopted or endorsed the United Nations Declaration on the Rights of Indigenous Peoples, which contains obligations to free prior and informed consent.

“Although I would like to see stronger language, I do see this as a nod to the fact that there are consultation requirements for Indigenous people and the link between Indigenous rights and land rights,” says Schwartz. “That’s a very important statement.”