Official Comments Re: OECD 2003 Common Approaches Rev. 1 - October 27, 2003

October 27, 2003

Mr. A. Ian Gillespie
President and CEO
Export Development Canada
151 O’Connor street,
Ottawa, ON   K1A 1K3

The Hon. Pierre Pettigrew
Minister of International Trade
Department of Foreign Affairs and International Trade
125 Sussex Drive, Tower B, 5th Floor
Ottawa, ON  K1A 0G2

Re.: Draft OECD recommendation on Common Approaches on Environment and Officially Supported Export Credits: 2003 Review – Revised version 1

Dear Mr. Gillespie and Minister Pettigrew:

Thank you for giving us this opportunity to comment on the ‘Common Approaches on Environment and Officially Supported Export Credits: 2003 Review – Revised version 1’ (Rev. 1).

Attached to this letter are the comments of the NGO Working Group on EDC on Rev. 1. These are based on an early version of comments on Rev. 1 drafted by the ECA-Watch campaign, to be submitted in a final version by the end of the week to the OECD Secretariat, for further circulation among OECD members.

The only note that we wish to add further to the attached comments relates to the upcoming negotiations themselves. Canada purports to be playing a progressive role at the OECD negotiations. It hopes to see the negotiations move forward, rather than backward. In contrast, the German, Austrian, Spanish and Portuguese governments are all in favour of watering down the existing agreement – a move that would only serve to perpetuate trade distortions and promote a ‘Common Policy for Different Approaches’. We therefore strongly urge the Canadian government to have the courage to promote a stronger agreement that enjoys the support of fewer members, than a much weaker agreement that enjoys the consensus of all. Do not let the goal of reaching a consensus blind you to the need to adopt provisions that effectively take environmental, human rights and social impacts into account in ECA-financing.

Yours sincerely,

Fraser Reilly-King
Coordinator, NGO Working Group on EDC

Enclosure: Comments on 2003 Common Approaches on Environment and Officially Supported Export Credits – Rev. 1
Comments of the NGO Working Group on EDC to the Canadian government on the 2003 Revised Draft OECD Recommendation on Common Approaches on Environment and Officially Supported Export Credits – Rev. 1

October 28, 2003

The NGO Working Group on EDC (WG) is a coalition of Canadian non-governmental organizations concerned about the social, human and environmental impacts of export credit agencies (ECAs). The WG promotes adherence by ECAs, especially Export Development Canada (EDC), to international accepted standards regarding human rights, the environment and sustainable development. The Working Group is hosted by the Halifax Initiative Coalition.

Our comments make a series of recommendations on the 2003 Revised Draft OECD Recommendation on Common Approaches on Environment and Officially Supported Export Credits – Rev. 1 (Rev.1) which, if adopted, would greatly strengthen the Rev. 1. They provide the kind of methodological clarity that is required to truly take the environmental, social and human rights impacts of ECA-funded projects into account; and a genuine ‘common approaches’ policy framework, free of the loopholes of Rev. 6 – which rather than providing a level playing field, merely institutionalized the incentives for companies to continue their ‘race to the bottom’ in search of the lowest environmental and social standards among ECAs.

1) Consultation on Rev. 1

Although we appreciate the opportunity to comment on Rev. 1, one week is insufficient time for making comments. Although the draft that has been sent to us dates from October 8, we were not given the opportunity to make comments on Rev. 1 until October 21. Stakeholders could have used this time to make more substantive and researched comments on the draft text.

Furthermore, we continue to express our disappointment for not being given the opportunity to comment on Rev. 1 at the next ECG meeting in Paris beginning November 3rd. We believe that without adequate stakeholder involvement and consultation the revision process could lose much of its own credibility, and we reiterate our request that a new consultation be held prior to any final revision of the common approaches.

Recommendation: We encourage the Canadian government to promote the establishment of a norm and expectation for improved stakeholder consultation and transparency, both in ECG’s own deliberations and in the development on national policies on environmental approaches and guidelines for export credits.  The ECG’s unwillingness to officially disclose the most recent draft texts sets a disturbing new low in the struggle for openness and accountability between governments and their citizens. 

2) Rev. 1 – General Comments

In our view, in some respects this draft represents a significant improvement in environmental policy over earlier drafts, while in other respects the text remains unsatisfactory. Indeed the draft falls substantially below the increasingly accepted environmental practices of the private sector in some areas of export credit agency (ECA) business. For example, to date, seventeen leading international commercial banks have committed (in the “Equator Principles”) to base their environmental assessment of large-scale project finance on World Bank/International Finance Corporation (IFC) standards and safeguard policies, something to which this draft still does not commit ECAs.

Meanwhile the draft perpetuates the failure of the ECG to deal with a broader set of significant negative impacts of ECA-supported projects, as per the Jakarta Declaration and the NGO-proposed Revision7BIS.  These include, inter alia, the adoption of explicit human rights criteria; compliance mechanisms for all ECAs; binding criteria and guidelines to end ECAs’ abetting of corruption; financing of non-productive expenditures; generation of illegitimate debt; and placing financing decisions in the context of sustainable development, rather than just the environment. 

Recommendation: We urge the Canadian government to promote dialogue and consultation at a national and international level on a broader set of issues – with an end to developing policy frameworks for taking these issues into account, and moving the debate beyond just the environment, to sustainable development as a whole. 
3) More specific comments on Rev. 1 - Transparency, public access to environmental information, and stakeholder consultation prior to project approval. 

Disclosure and consultation

We are heartened to see the requirement for disclosure of environmental information and EIAs at least 60 days prior to a final commitment (paragraph 17).  We also applaud paragraph 11’s disclosure and consultation requirements for locally affected residents and other stakeholders in the preparation of EIAs. 

However, we are concerned that Members would be allowed to circumvent the EIA disclosure requirement by disclosing only a summary. This undercuts evolving international good practice for private-sector finance.  Since 1998, the IFC (and now, at least by reference, the Equator banks for large-scale project finance) has required full disclosure of both the draft EIA (for Category A projects) and of the final EIA at least 60 days before project approval. The World Bank, US ECA Ex-Im and the Overseas Private Investment Corporation, commit to telling the public up to 120 days prior to board approval. If the Common Approaches is looking to apply stringent standards (Paragraph 12), then the international standards of 120 days ex-ante disclosure are the standards to apply.

“should” vs. “shall”

We are concerned about the ambiguities inherent in the word “should”. In paragraph 8, the text reads “For a Category A project, Members should require an EIA”. Equally, in paragraph 17 and the paragraph’s qualifying clause “Taking into account the competitive context in which they operate and constraints of commercial confidentiality of contracts Members should: […]”. Other sections of the Revised Draft use the terms “required” or “shall.”  The inconsistent use of different terms creates ambiguity as to the rigor of what “is required to” or “shall” be done, as opposed to what  “should” be done (the term “should” conveying a sense of being more optional). We would recommend that the terms “shall” and “is required” be consistently used in the draft, including in paragraphs 8 and 17, replacing the term “should”. 

Ex-Ante access to full environmental impact assessment

An unambiguous requirement for access to full environmental impact assessments for the public and project-affected communities, prior to project approval, is a fundamental element of a credible EIA process and any agreement that comes out of the ECG.  The above-mentioned allowance for disclosing only “sufficient information” or a summary of the EIA, as well as these other ambiguities and qualifications, make the practical outcome of the draft’s ex-ante disclosure requirement a matter of guesswork. 

Recommendations:  All project sponsors or applicants shall release final Environmental Impact Assessments for Category A and B projects to the public in both the project (host) country and the ECA (home) country no less than 120 days prior to final commitment.  To be coherent with current international good practice for the private sector, draft EIAs shall also be made available to the public and affected populations in the project country and in the local language, as well as in the ECA home country. ECAs will not require the release of information that is business confidential but also shall not approve a project unless a final EIA that meets international standards is released to the public 120 days prior to final commitment.
4) The lack of a commitment to common, predictable minimum internationally recognized standards and operational policies. 

Minimum set of international standards

While paragraph 12 represents an improvement insofar as it requires the more stringent of host country or “international” standards, it maintains the inadequate and ambiguous “benchmarking” approach with respect to different so-called “international standards”.  Allowing Members to choose among such varying sets of standards does not achieve the “predictability”, “equivalence”, or reduced trade distortions that are called for in the draft’s own stated objectives. 

What’s more, Regional Development Banks (RDBs) are listed as acceptable sources for international standards. However, there are RDBs with extremely weak policy frameworks that cannot be seen as providing acceptable international standards.  For example, the Inter-American Development Bank’s environment policy consists primarily of four “criteria”, each just an ambiguously drafted single sentence. 

In contrast, 17 of the largest global commercial banks, involved in over 75% of the project finance market, have committed themselves to one single, predictable, common set of international environmental standards and safeguard policies:  those of the IFC, the private-sector arm of the World Bank Group.  The 2000 Jakarta Declaration For Reform of Official Export Credit and Investment Insurance Agencies, endorsed by 350 International NGOs, has also called for “Binding common environmental and social guidelines and standards no lower and less rigorous than existing international procedures and standards for public international finance such as those of the World Bank Group and OECD Development Assistance Committee.”

Lack of clarity around benchmarking and standards

There are several important ambiguities in paragraph 12 that, together with the preceding points concerning benchmarking, make the current draft unacceptably lacking in rigor and specificity. These include: 

(a)    A clear defined set of standards - Members are to benchmark against host country standards and against international standards “such as” the World Bank Group, EU, WHO, Regional Development Banks etc.  Does the “such as” imply other, unnamed, international and regional standards?  What are the criteria for determining what are acceptable “international standards” and what are not? In effect, in this draft there are no explicit criteria.  As noted, some of the organizational and institutional standards that might be invoked do not meet current international good practice.

(b)    But still some flexibility in the use of other applicable standards - We forsee that there will be instances when World Bank Group, EU, WHO or Regional Development Bank policies fail to, or barely, address  some significant environmental issues. In this case, other international bodies and agreements should be looked to for required standards (e.g., inter alia, the World Commission on Dams, and the Framework Convention on Climate Change).  We believe that in these instances Members should identify the international institution or agreement with the highest competence and require that these higher standards be met. 

(c)    Disclosure of which standards have been applied - Furthermore, according to the existing agreement, Members are not required to disclose which international or host country standards they have applied to projects. Paragraph 13 only requires members to report on instances where they have applied less stringent standards. However, countries should disclose the standards that have been applied to projects, what standards they have applied when they choose to apply less stringent standards, and what other international bodies and agreements they have looked to. In all cases, this information should be disclosed to the public, not just the ECG, and more than 30 days prior to board approval. Otherwise, this lack of public disclosure undermines much of the usefulness of applying a set of international standards to projects, and perpetuates the unpredictability of the benchmarking process.

(d)    Clarity on safeguards and standards - Although reference is made to safeguard policies in paragraph 12, it remains ambiguous whether projects must meet standards and safeguard policies or whether Members have discretion to benchmark against whatever standards or safeguard policies from whatever international institutions they wish.  Technical standards for pollution and other items, together with safeguard policies addressing issues like natural habitats and indigenous peoples, form an indivisible whole; and compliance with both is required for environmental protection.  In effect, only the IFC has a generic minimum set of safeguard policies. 

(e)    Clarity on EIA model - The “benchmarking” among differing international standards is also ambiguous and unclear concerning the minimal elements of a Category A EIA.  Paragraph 11 notes that “an EIA should address the relevant issues referred to in the guidelines of International Financial Institutions (as referenced in footnote 3)” and cites Annex II, the World Bank/IFC EIA guidelines, only as an “illustrative example.”  But this gives members the freedom to apply the procedures and guidelines, as noted earlier, of regional international financial institutions such as the Inter-American Development Bank (IDB) and the Asian Development Bank. These procedures and guidelines, however, do not constitute any level of international good practice.  Because the draft allows for the application of these differing procedures, the content of what should explicitly be included in an EIA, and what critical issues would or would not be addressed, remains unclear.

Recommendation:  Projects shall comply with the more stringent of a clear set of either host country or IFC standards, guidelines, and safeguard policies.  If it becomes apparent that these standards, guidelines, and policies are not adequate protection for aspects of a particular project, explicit adherence to other international standards, guidelines, and policies must be done as a supplementary measure. In all cases, ECAs must publicly disclose the standards that have been applied to a particular project. The agreement should be clear in which EIA companies should be required to use.

5) The scope of the agreement continues to be limited

Classification of projects - Classification is only required for projects of which the member’s share is above SDR 10 million, the payback period is over two years or qualifies for such terms. Since multinational companies have subsidiaries in countless countries around the world, by using thresholds to trigger environmental assessment, there is an incentive among these companies to split contracts among subsidiaries so that they fall outside the scope of the environmental assessment. This might permit ECAs to approve support for potentially environmentally destructive projects without any environmental screening, let alone assessment.

Recommendation:  Remove any screening criteria based on share value or loan duration, and classify all projects, for purposes of environmental review and assessment, solely on potential environmental and social impacts.  The OECD mandate calls for common approaches on environment and export credits, not common approaches applied to an arbitrary subset of export credits. The obligation to assess the overall project needs to be included into the Common Approaches.
6) Other concerns

(a)    Late review - We are concerned that the next review would be scheduled for 2006.  If progress is to continue and the common approaches are not to fall even further behind the evolving international environmental regime, a two-year review (no later than the end of 2005) is the maximum acceptable review period.

(b)    Screening detail eliminated.  We are concerned about the elimination of paragraphs 6 and 7, given that those elements of screening are necessary in order to properly classify a project.

7) Conclusion

We welcome the progress made with this draft, but we strongly urge Canada to continue discussions and negotiations at the ECG until progress is made on these key issues and gaps, which constitute the most basic elements of credible environmental review and assessment.  An agreement without this progress would lack technical credibility and international support among key stakeholders. It would leave the ECG Members in the untenable position of lagging increasingly behind the commitments of a growing number of private international banks and Members’ own commitments under international environmental law.  We encourage Canada to show leadership by promoting the above recommendations for the benefit of local communities and the global environment.