Análisis del impacto climático del AECG

Executive Summary

CETA is a Trojan horse. At first sight, it decreases tariffs and fosters trade between the parties. But look again: CETA is a threat to consumers’ and environmental protection standards.
–Mirjam Hägele, Foodwatch

This study, prepared by PowerShift, provides an analysis of the climate impact of the Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada, which entered into provisional application on September 21, 2017.

The methodology used for this ex-post assessment rests on four pillars:

1. an analysis of the variations of trade in goods between the EU and Canada, with a focus on commodities whose trade has a significant impact on climate change;
2. an analysis of rules, institutions and decisions that govern the climate policies of the trade agreement;
3. an analysis of the work of CETA committees and dialogues that have a strong climate impact;
4. estimates of the implications of CETA’s investment provisions regarding flows, stocks and investment protection.

This methodology goes beyond traditional impact assessments as it includes an analysis of goods that were already duty-free when CETA entered into force, such as iron ore, crude oil, hard coal, soya beans or many wood products. Only by including these commodities was it possible to identify the extent of harmful trade requiring targeted measures under a truly progressive trade agreement mitigating climate change.

Comercio de mercancías entre la UE y Canadá

The analysis of the variations in trade flows reveals that bilateral trade in numerous products harmful for the climate has indeed increased since CETA’s implementation. This is the case for the most important mineral raw material exported from Canada to the EU – iron ore – as well as fossil fuels such as crude oil and hard coal. In addition to accelerating climate change, the production and consumption of these minerals and fuels causes numerous other environmental impacts – such as air and water pollution, biodiversity loss and land use changes.

The liberalisation of trade in agricultural products adds to the negative climate impact of CETA. The quotas and tariff preferences offered for animal products such as dairy and beef pose particular risks, given that both partners largely failed to make any significant progress in reducing the GHG emissions of their livestock sectors, with methane the most harmful of the greenhous gases emitted. Since CETA’s implementation, both partners’ beef exports have risen sharply.

Closely linked to the livestock industry is the Euro-Canadian trade in oilseeds used for animal feed, especially soya beans and rapeseed. While EU soy bean imports from Canada saw a rather modest increase, EU rapeseed imports, however, grew considerably since CETA’s application. The large majority of rapeseed and soya plants grown in Canada are genetically modified to withstand being sprayed with herbicides. The use of these herbicides has increased substantially over the last 15 years causing biodiversity loss and significant GHG emissions.

Trade in forest products has also increased since CETA’s implementation. While EU wood imports from Canada reversed the decline they had experienced before the agreement, EU exports to Canada increased sharply. The bilateral increase in timber trade occurs against the background of accelerated forest loss in Canada and the EU as well. In both regions, forest land is suffering from a decrease in the ability to remove carbon dioxide, mainly due to high rates of industrial logging.

CETA’s market access commitments for the chemical industry are also fuelling demand for goods harmful for the environment. For instance, since CETA’s implementation, EU plastics exports to Canada have risen substantially, including particularly damaging products such as microplastics, plastic packaging and synthetic fibres. The production of these plastics requires large amounts of energy and is thus a huge contributor to climate change.

Another concern relates to the absence of targeted measures to mitigate the climate risks of trade in all these products. CETA does not link its trade preferences to concrete improvements in the production process of the sectors benefitting from the agreement. It also lacks concrete provisions to reduce or end trade in especially harmful products such as fossil fuels. Another glaring lacuna relates to the lack of technology transfer to facilitate the decarbonisation in the sectors which have been liberalised.

These failures cannot be compensated by the fact that trade in environmental goods saw a slight increase since CETA’s implementation, given that the share of ‘green’ goods in total bilateral trade never surpassed the threshold of 10 percent. It is therefore difficult to see how ‘green’ goods should be able to offset the climate impact of the 90 percent non-green and emissions-intensive goods exchanged between the EU and Canada.

Rules, institutions and decisions governing climate policy

The analysis of the rules and institutions governing the agreement reveals further shortcomings. CETA’s sustainability chapters, for instance, lack precise commitments to climate protection and do not even include a reference to the Paris Agreement – although the CETA negotiations coincided with the adoption of the Paris Agreement. The Trade and Sustainable Development Committee made only lacklustre efforts in enforcing meaningful climate protection measures, while the role of civil society in monitoring these provisions remains very limited.

These weaknesses are compounded by the fact that the sustainability chapter is exempt from CETA’s state-state dispute resolution mechanism, leaving it vulnerable to violations and subversion. Moreover, the European Commission declined Canada’s offer to allow penalising violations of sustainability commitments with trade sanctions – despite the widely acknowledged deficit in enforcing sustainability provisions in EU trade agreements. This refusal is also regrettable as neither Party can claim to be a
climate champion: both Canada and the EU are lagging behind in achieving their climate goals.

Committees and bilateral dialogues

The activities of the committees and bilateral dialogues established under CETA are another cause for concern. For instance, the committees enjoy extensive powers including the right to amend the agreement without the involvement of the European Parliament – a privilege which raised concerns about their democratic legitimacy. By mutually recognising each other’s standards, the committees may weaken environmental and climate regulations or limit the ability to unilaterally strengthen the requirements, for instance, for energy-intensive industries. Against this backdrop, the lack of transparency in the CETA committees is worrying: detailed minutes are not readily available, and key information on participants is absent.

The risks to environmental standards are clearly illustrated by the discussions in the SPS Committee on food safety. Canadian officials, for instance, argue that the EU’s Maximum Residue Levels for pesticides are too stringent, a barrier to trade for their farmers. They also seek to influence regulations on Genetically Modified Organisms (GMOs) and want the EU to accept higher levels of unauthorised GM contamination in its export crops. Canada also used CETA’s bilateral dialogue on forest products to challenge the EU’s new deforestation regulation – a worrying development given the huge emissions associated with the ongoing forest loss in both Canada and the EU.

The fossil fuel lobby, particularly in Canada, managed to significantly influence the EU Fuel Quality Directive during CETA negotiations. Tar sands oil, whose climate impact is especially high, is not adequately accounted for in the directive. This lobbying success may hinder future efforts to strengthen EU regulations on fossil fuels.

Investment: flows, stocks and protection

Other shortcomings relate to CETA’s rules on investment liberalisation and investment protection. CETA does not contain any provisions committing the partners to implement climate-related criteria for bilateral FDI (Foreign Direct Investment). Such an environmental investment screening mechanism is needed because the emissions-intensive manufacturing industry and the mining, oil and gas industry are among the top sectors receiving bilateral investments in the EU and Canada. In addition, the analysis of FDI flows and stocks reveals that the large majority of bilateral investments in the EU and Canada are channelled through the two important EU tax havens, the Netherlands and Luxembourg. Yet, these capital flows are diminishing the fiscal revenues desperately needed to support the energy transition.

The Investment Court System (ICS) – a modified version of Investor-State-Dispute Settlement – gives foreign investors the exclusive right to sue states for damages if policy decisions impact their profits. This corporate privilege can significantly increase the cost of strong climate legislation – or even prevent the adoption of respective laws – due to the threat of excessive compensation payments. Given the huge bilateral investments in the oil, gas and manufacturing sectors, CETA has the potential to enable many investment disputes on climate legislation, emissions standards and the energy transition. Moreover, the ‘Interpretative Declaration’ intended to minimise these risks does not provide sufficient policy space as it is largely inadequate for this purpose.

All these weaknesses point to perhaps the most basic failure of EU trade policy in relation to the climate crisis – the ongoing prioritisation of liberalisation over transformation. But as our analysis of CETA’s implementation clearly shows, these priorities must be reversed. The transformation of the productive apparatus, the decarbonisation of goods traded internationally must take precedence over the dismantling of barriers to trade in order to mitigate climate change.

Recomendaciones

For a future revision of CETA we would therefore offer the following recommendations:

1. include strong provisions on climate protection in all chapters of the agreement;
2. restrict or end trade in harmful products;
3. disempower undemocratic committees and create transparency;
4. include environmental investment screening and reject Investor-State Dispute Settlement.

More Information about CETA can be found here (in German only). This study was funded by the Fundación Europea del Clima.