NGO WORKING GROUP ON EDC (February 2000) : Backgrounder on EDC and the Environment

Prepared by the NGO Working Group on the Export Development Corporation, a project of the Halifax Initiative

The Canadian Export Development Corporation (EDC) is the main source of publicly supported export financing in Canada, designed to complement the private financial sector wherever possible. A federal Crown corporation, EDC provides Canadian exporters with financing products to help their customers, and with commercial and political risk insurance, particularly for higher-risk and emerging markets. In 1998, EDC worked with 4,183 customers in 200 countries, helping Canadian companies to generate nearly $35 billion in sales and foreign investments.

During the last decade, annual new commitments of officially supported export credits have increased from approximately $26 billion in 1988 to $105 billion in 1996, making the Export Credit Agencies (ECAs) the single largest public financiers of large scale infrastructure projects in the developing world. In Canada, official development assistance (ODA) continues to decline while both Canadian exports and EDC-supported trade expand.

EDC-financed projects can have enormous human and environmental impacts. In fact, some of the world's worst industrial environmental disasters have involved Canadian firms financed by the EDC. For example, the Ok Tedi mine in Papua New Guinea, the third-largest open-cut copper mine in the world, was supported with $88 million in export credits from EDC. In 1984, a landslide destroyed the dam retaining the mine's toxic tailings, sending 80,000 tons of waste rock containing lead, cadmium, zinc, and copper into the Fly and Ok Tedi Rivers. The mine continued to operate despite its lack of tailings retention facility. Nearly 70 kilometres of the river have became almost biologically dead.

The Canadian-owned Omai mine in Guyana was also financed with the help of EDC. In 1995, a burst tailings dam at the mine released 3.2 billion litres of cyanide and heavy metal-laced effluent into the country's main waterway, decimating Guyana's fishing and tourism industries. Other harmful projects supported by the EDC include the Kumtor mine in Krygyzstan, which experienced a serious cyanide spill in 1998, and China's Three Gorges Dam.

With the enormous amount of capital flowing through EDC comes the potential to ensure that this financing is not socially and environmentally destructive. Currently, there is little to distinguish EDC financing from private financing in this regard. The EDC has no statutory obligations relating to environment and human rights matters. It is not subject to the Access to Information Act or any other significant public disclosure obligations relating to the projects it finances. As a public institution, this lack of even rudimentary accountability obligations is unacceptable.

In contrast, projects financed by the World Bank are subject to a comprehensive environmental assessment procedure which include the disclosure of relevant information, public participation, and consultation with the communities affected as well as NGOs. World Bank rules include: adopting Safeguard Policies; establishing lists of categorical prohibitions for which no assistance will be provided; requiring environmental assessments; following detailed sector specific guidelines for some types of projects; and creating appeal bodies where citizens have a forum to challenge specific projects that may violate the Bank's own policies. In addition, U.S. ECAs Export-Import Bank (Ex-Im) and the Overseas Private Investment Corporation (OPIC) have both adopted binding environmental guidelines based on World Bank standards, and are subject to the U.S. National Environmental Policy Act.

In April 1999, EDC released its new voluntary Environmental Review Framework (ERF). Although the EDC should be commended for developing such a framework, the ERF has been flawed from its inception. Often, the ERF's standards are unclear, and worst of all, they are not enforceable. EDC never circulated a draft ERF to those consulted, and the ERF itself contains only minimal provisions for public participation in environmental reviews.

Under the ERF, the impact of environmental risk on a project is considered, rather than the impact of the project on the environment. This runs contrary to one of the cornerstones of sustainable development, namely that environmental considerations should be incorporated into economic decisions. This concept has been embraced by the federal government in many of its policies, such as the requirement for each government department to prepare a Sustainable Development Strategy.

Primarily to avoid competitive disadvantages from unilateral actions by individual countries, the largest exporting countries have agreed to work towards common environmental standards for ECAs. The World Bank's protective standards are the logical choice for international standards. Many ECA clients already adhere to World Bank standards as terms of financing from World Bank agencies, and U.S. ECAs Ex-Im and OPIC. However, Canada and other countries have been pushing for weaker and less binding standards.

An effective and binding environmental screening procedure is needed for the EDC project financing process. To be effective, these procedures must include meaningful consultation with external stakeholders and adequate access to information. Standards must also be comprehensive and enforceable. Using World Bank standards as a minimum standard would help ensure that environmental and sustainable development goals are met by projects receiving EDC support. Environmental and social standards for EDC-financed projects should be mandated in the Export Development Act rather through than a voluntary, non-enforceable framework.