Formal Response to the Gowlings report - October 8, 1999

October 8, 1999

Hon. Pierre Pettigrew
Minister for International Trade
Department of Foreign Affairs and International Trade
125 Sussex Drive
Ottawa, ON
K1A 0G2

By FAX: 996-8924
Eight pages including this page

Dear Minister Pettigrew,

This letter contains the formal response of the Working Group on the EDC to the Report on the Review of the Export Development Act, conducted by the firm Gowling, Strathy & Henderson.

The Working Group on the EDC is a coalition of Canadian non-governmental organizations concerned about the human and environmental impact of export financing agencies. The Working Group, which is a project of the Halifax Initiative, promotes adherence by export credit agencies, particularly the Export Development Corporation, to internationally accepted standards regarding human rights, environment and sustainable development.

Members of Working Group on the EDC include: the Canadian Auto Workers Social Justice Fund, the Canadian Council for International Cooperation, the Canadian Friends of Burma, the Canadian Labour Congress, the Canadian Lawyers Association for International Human Rights, Democracy Watch, the International Centre for Human Rights and Democratic Development, Miningwatch Canada, Sierra Club of Canada, the Social Justice Committee of Montreal, and the West Coast Environmental Law Association.

Our response to the Report on the Review of the Export Development Act (hereinafter the Gowlings report) is focused primarily on Chapter 9, "EDC's Overall Success in Advancing Government of Canada Policies." It is our view that EDC has failed to adequately advance these policies in several key social and environmental areas. This failure begins with a lack of accountability and transparency, and spreads to environmental, sustainable development, and human rights issues. We believe that this must be remedied through specific amendments to the Export Development Act.

While the Gowlings report makes certain recommendations that the Working Group views as positive, it is our view that overall, the recommendations will not adequately protect the environment and human rights. Nor will they ensure that the serious human and environmental damage that has resulted from some EDC-financed projects in the past will not reoccur in the future.

What follows is our section-by-section comments and recommendations for Chapter 9 of the report.

Accountability and Transparency

Despite the benefits that EDC enjoys as a public financial institution -- including its immunity from paying taxes, its limited liability clause, its government-guaranteed credit rating, and the fact that its capital base is derived from taxpayer dollars -- EDC discloses very little information to the public. As noted by the Gowlings report, "public disclosure obligations [on EDC] are almost non-existent under current legislation"(p. 95).

This record of secrecy is unacceptable. EDC should be disclosing enough information so that the public can evaluate whether EDC-financed projects meet the standards set out in EDC legislation and policies, and whether those projects are harming the communities and environments in which they are implemented.

The exclusion of EDC from Canada's Access to Information Act, and the lack of other substantial disclosure provisions on the corporation, has been justified on the basis of commercial confidentiality. Gowlings report canvassed these concerns extensively, and concluded:

It appears, therefore, that the publication of general information regarding EDC clients and activities would not, in most cases, adversely affect the commercial interests of EDC customers. Moreover, owing to its status as a government entity, EDC customers should not expect their EDC relationship to be entirely shielded from public knowledge. Both EDC and many of its clients and supporters premise a number of their arguments in favour of the Corporation's existing procedures and powers on the grounds that EDC is an instrument of public policy. That being so, EDC must also be, and be seen to be, accountable to the public. One cannot have it entirely both ways: while EDC is both an instrument of public policy and a commercial entity, its privileges and obligations must be balanced in both directions on a consistent basis.

In Canada, placing EDC under the Access to Information Act would provide public access to important information. The fact that CIDA (including CIDA INC.) and other public agencies, as well as EDC/Canada Account financing, fall under the Act has not harmed these agencies, relations with the private sector. In addition, U.S. export credit agencies -- the Export-Import (Ex-Im) Bank and the Overseas Private Investment Corporation (OPIC) -- fall under the U.S. Freedom of Information Act. The latter has far more rigourous standards for disclosure than does the Canadian Act.

The Working Group recommends that, at a minimum, EDC should be brought under the purview of the Access to Information Act. We also agree with the Gowlings recommendation that EDC should be required to disclose all project information, defined as name of the applicant, country, name of exporter, amount and type of financial support, term and a brief description of goods, services or project, along with any environmental, social and human rights information collected. It is noteworthy that, every year until the mid-1980s, EDC listed all of its loans and related bank financing, including the name of the client, the products financed, the exporter, the country, and the amount.

In addition to this information, evaluation reports on EDC-financed projects should also be made available. As with other financing institutions like the U.S. Ex-Im Bank and OPIC, as well as the World Bank, all available information should be disclosed to the public at the proposal stage, with provisions in place that would protect specific information that is sensitive. These provisions should be interpreted in a restrictive manner. The information should all be listed on EDC's web site.

Some have argued that EDC cannot be compared to U.S. export credit agencies and the World Bank because, unlike these institutions, EDC is not primarily a lender of last resort. However, none of these agencies have parallel provisions giving blanket exemptions to projects where the client is not a borrower of last resort. All clients are subject to the same basic disclosure provisions, with certain environmentally or socially sensitive projects subject to additional disclosure provisions.

Environment and Sustainable Development

We support the Gowlings report's firm rejection of the notion that \establishment of environmental standards would constitute extra-territorial application of Canadian law and/or an infringement of the host country's sovereignty\ (p. 100). This argument has lost its currency even among many private sector actors in Canada, and it is inconsistent with international environmental norms and commitments to international conventions.

The Gowlings report also advocates declining support for projects if environmental issues are not adequately addressed (p. 100), an important statement on the significance of environmental values that is also espoused in EDC's own Environmental Review Framework (ERF).

The concept of sustainable development implies the inclusion of social impacts alongside environmental assessments. The Working Group recommends that stringent social impacts be meaningfully included in these assessments.

EDC Environmental Review Framework

We support the recommendation that "EDC should submit its environmental framework to a process of public comment to ensure that the resulting policy receives wide acceptance among Canadian exporters and non-governmental organizations" (p.104). The ERF was released after only a brief consultation with Canadian and U.S. NGOs; no Southern NGO was consulted. Besides, no draft Framework was ever provided to comment on. NGO recommendations regarding transparency, principles, and processes for consultation, as well as clear standards and limits to what was environmentally and socially acceptable for EDC to support were largely ignored. These issues call into question the integrity of the consultation process.

The Working Group on the EDC recommends that EDC immediately initiate consultations on its ERF with stakeholders in Canada and internationally, especially in the developing world. An effective mechanism would be a 90-day electronic consultation through the Internet. A mechanism should be created for participation in the on-going development of the ERF. In addition, an independent appeal mechanism similar to the Inspection Panel of the World Bank or the Ombudsperson used by IFC and MIGA should be established.

We support the recommendation that "EDC should adopt a substantively and methodologically clear and transparent environmental framework" (p. 106). The current ERF does not reflect these objectives. EDC has failed to guarantee adequate standards for the environmental and social impacts of the projects it supports because of the framework's lack of precise language, weak standards, a lack of transparency, and an emphasis on environmental risk rather than the impact of its financing on the environment.

We recommend that World Bank standards be explicitly referred to as the default standards for environmental assessment. In other words, World Bank standards should be employed, unless EDC can demonstrate to stakeholders that another standard is more appropriate. Gowlings recognized the suitability of World Bank standards, noting that

on a practical level the standards and procedures employed by the World Bank family of institutions appear to provide the most advanced and most widely used approach. The U.S. Ex-Im Bank and OPIC both apply World Bank standards. The private sector, including the Canadian private sector, also often relies upon World Bank standards and processes (p. 106-107).

The environmental assessment should also be done in a timely way; as early as is practicable in the planning stages of the project and before irrevocable decisions are made. This assessment should include public consultations with affected populations.

As noted by the report, some may argue that EDC's conformity with more stringent environmental standards ahead of many other export credit agencies (ECAs) may "unfairly disadvantage Canadian exporters vis-à-vis others by precluding support for certain kinds of transactions or imposing additional costs" (p. 100). The report also notes that "some members of the business community are of the view that there are advantages to becoming more environmentally responsible in terms of enhancing Canada's business image abroad, particularly with respect to the development of major projects" (p. 100).

Moreover, the report added, companies usually adopt whatever standards involve the highest scrutiny, whether they are those of the host country, Canada or the World Bank. It was not felt that this approach lessened their own competitiveness, since companies less environmentally responsible usually end up paying for their lower standards in the long term (p. 101).

Even if this were not the case however, Canadian publicly supported agencies should not be directing financing for environmentally and socially destructive projects. Such projects are ethically questionable and tend to harm Canada's image abroad. Standards are required that will assist the corporation to avoid these projects or improve them so that commercial and sustainable objectives are both met.

EDC's Formal Mandate

While an environmental framework can be useful as a tool for managing environmental impacts, a commitment to sustainable development must start at the corporate mandate. Consequently, sustainable development needs to be incorporated into EDC at a legislative level and cannot be left as an operational issue. EDC should develop an internal sustainability strategy. The inclusion of sustainable development within the Export Development Act will ensure that EDC is accountable to the federal government and Canadian public for the social and environmental impact of its activities. EDC's environmental framework, notwithstanding any revisions, will not provide the same degree of accountability.

The Gowlings report recommends that the Export Development Act

should be amended 1) to introduce a general requirement that EDC establish environmental review procedures consistent with the Corporation's commercial objectives; and 2) to explicitly empower the EDC Board to grant or withhold financing support after taking into account the beneficial and/or adverse environmental effects of a project or transaction.

The Working Group on the EDC welcomes this recommendation, but is strongly concerned that it will allow EDC to set its sights far too low with regard to environmental protection and sustainable development practices. We feel that more direction and specificity is required in the statute.

In this regard, section 10 of the Export Development should also be amended as follows:

The Corporation is established for the purposes of supporting and developing, directly or indirectly, Canada's export trade and Canadian capacity to engage in that trade and to respond to international business opportunities in a manner consistent with Canada's commitments to international agreements. EDC recognizes and establishes sustainable development as a guiding principle for its operations.

Other statutes relating to EDC should also be amended to ensure greater external accountability. The EDC should be required by regulation to report to the Commissioner of Environment and Sustainable Development, pursuant to s.24 (3) of the 1995 Amendment to the Auditor General Act. Crown Corporation regulations which would include the EDC should be established as soon as possible under the Canadian Environmental Assessment Act (CEAA). Alternatively, the Projects Outside Canada regulation under CEAA should be amended to include, at a minimum, the Canada Account administered by the EDC. In addition, EDC should implement an appeal mechanism similar to the Inspection Panel of the World Bank or the Ombudsperson used by IFC and MIGA

As noted above, internationally accepted standards should guide the method of environmental assessment. We recommend that World Bank standards be required as the default standards for environmental review at EDC. This would require EDC to "develop specific guidelines and procedures in consultation with stakeholders" (p. 106), but until those standards are developed (through a process of meaningful stakeholder participation), internationally accepted criteria would be used.

We find it disconcerting that the Gowlings report seems to allow for a balancing of "the beneficial and/or adverse environmental effects of a project or transaction" (p. 106). Such an approach may be interpreted to mean that any project may be approved if it has what EDC believes to be "positive effects." This is inconsistent with the concept of sustainable development and has the potential to render the entire environmental/social assessment process meaningless.

Public Disclosure of Environmental and Social Assessments

Highlighting the crucial, underpinning role played by access to information, the Gowlings report recognized that its other recommendations on environmental assessment were "unlikely to be effective unless steps are also taken to address the question of public disclosure of environmental assessments by EDC" (p.106).

It added that EDC does not now make public the environmental assessments it receives. It is questionable whether this is sustainable at a time when environmental assessments are available for domestic projects; when a number of Canadian companies as a matter of practice consult with local populations and disclose their intentions; and the government can be called upon to defend EDC decisions in this regard (p. 106-107).

The issue of proprietary rights was correctly identified as trivial, the report stating that "Project proponents could simply be required by EDC to agree to the disclosure of their environmental assessments as a condition to obtaining EDC support" (p. 107). And members of the mining industry testified that "public disclosure is essential to an environmental assessment process, and the publication of environmental assessments by EDC should not be problematic"(p. 107).

With regard to commercial confidentiality, the report noted that "US ECAs have been able to introduce disclosure policies without giving rise to issues of commercial confidentiality. In the case of Eximbank, environmental assessments are made public 120 days prior to final approval by its Board."

We agree that the claim that environmental information cannot be released without violating commercial confidences of clients is largely without foundation. External stakeholders require timely and detailed information on the potential environmental impacts and risks of a project, and EDC should have a statutory obligation to disclose such information to the public in order to ensure that the needs of external stakeholders are met.

However, the Gowlings report, after pointing out these various issues, then makes only a weak recommendation that environmental assessments be made available "concurrently with final approval of decisions by the Board" (p. 108), adding that "earlier voluntary disclosure should be encouraged."

On the basis of the analysis in the report alone, information on environmental impacts should be disclosed to external stakeholders immediately upon receipt of such information, and, as U.S. ECAs require, 120 days prior to the final decision being made. This information should include mitigation strategies for environmental risks. We recommend that this process can be facilitated in a confidential and discrete manner by listing the project, its environmental impact assessment details, and its location on the EDC web site.

Human Rights

The Gowlings report recommends that EDC should consult with [the Department of Foreign Affairs and International Trade (DFAIT)] in advance to ensure that EDC's planned country activities abroad do not conflict with Canada's foreign policy on human rights. DFAIT should establish a process to formulate human rights guidelines and disseminate information on a timely basis (p. 111).

The Working Group recommends that the government go further by requiring EDC to conduct a proper human rights assessment to ensure that projects it supports adhere to Government of Canada policies on human rights. Certain principles should appear as explicit requirements of this assessment. For example, where the project cannot be undertaken without contributing to repressive capacity or human rights-violating activity, EDC support should not be extended. Similarly, the assessment should require companies to abide by "core labour rights" in their operations. These rights include those guaranteed under International Labour Organisation (ILO) conventions: (29) on Forced Labour; (87) on Freedom of Association and the Protection of the Right to Organize; (98) on the Right to Organize and to Bargain Collectively; (100) on the Right to Equal Remuneration between men and women; (105) on the Abolition of Slave Labour; (111) on the Right to Non-Discrimination; and (138) on the abolition of child labour.

The Gowlings report also recommends that EDC implement a policy of asking its clients "to indicate on a voluntary basis whether they have adopted their own codes of conduct" on human rights (p. 112). The Working Group views the use of voluntary codes as inappropriate in this context. To begin with, only a small number of Canadian companies have such codes of conduct, and fewer have provisions in their codes that relate to human rights. Fewer still have effective implementation, monitoring and compliance measures. Even if these codes were to be widespread, they are unlikely to be observed if businesses are not given an independent incentive to abide by them. As a result, reliance on voluntary codes is not effective in ensuring compliance with human rights law.

Indeed, corporate voluntary codes are typically introduced and implemented in response to external pressures. As Industry Canada noted in its March 1988 report, Voluntary Codes: A Guide for their Development and Use:

While codes are voluntary -- firms are not legislatively required to develop or adhere to them -- the term 'voluntary' is something of a misnomer. Voluntary codes are usually a response to the real or perceived threat of a new law, regulation or trade sanctions, competitive pressures or opportunities, or consumer and other market or public pressures...[O]nce the code is in place, the initial pressure that led to its creation may dissipate, which could cause compliance among adherents to taper off.

Rather than rely on unenforced voluntary codes, EDC should be mandated to include in each of its contracts with the companies it supports, a clause requiring the companies to adhere to international human rights norms. Members of the EDC Working Group have expertise in this area and would be happy to assist in the drafting of such a clause.

Debt-Creating Aspects

Another important issue not addressed by the Gowlings report is the debt-creating aspects of EDC financing. The Working Group is concerned that EDC financing may increase the debt load of less industrialized countries, particularly those in the Heavily Indebted Poor Country (HIPC) category.

Export credit, compared with the financing available from the international financial institutions like the World Bank, has grown to predominate in developing economies. The role of export credit in HIPC countries, in which the level of external debt is now widely recognized as unsustainable on both an economic and a social level, is cause for greater concern, as the problem of indebtedness in these countries becomes more understood as an impediment to economic and social progress.

As a result, we recommend that the terms and conditions of new EDC support should be made in consideration of the context of poverty and indebtedness that is the reality in the poorest countries. These factors necessarily affect the desirability and feasibility of new lending, especially on non-concessional terms, to these countries. Assessments of loans should be made that take social conditions of a country, including poverty, into consideration. Support should not be contracted in situations where it cannot be determined that they will result in quality growth that will affect living standards, especially for the most vulnerable, in positive ways. EDC financing should support, at least to some extent, the provision of basic needs and the efforts of local producers and suppliers in their efforts toward self-sufficiency.

Debt-creating aspects should also be considered in stakeholder consultations that should be conducted by EDC as part of its environmental and social assessment.

The above proposals, if adopted, would help ensure that the values of Canadians, as reflected in Canada's foreign policy, are also reflected in Canada's export credit agency. We hope you find these proposals compelling, and will implement them in the next session of Parliament. We would appreciate your response, and look forward to continued participation in the legislative review of the Export Development Act. If you have any questions, please contact us at (613) 789-4447.


Aaron Freeman
Working Group on the EDC Coordinator
On Behalf of the Working Group on the EDC