ENVIRONMENT CANADA
February, 2003

FOREWORD

In the Fall of 2002, Environment Canada launched a project to develop an analytical framework that could be used to explore the merits of convergence with U.S. levels of environmental performance. This Framework is intended to provide a collaborative tool for governments, industry and other stakeholders to explore the possibility of convergence in cases where it appears that U.S. environmental performance is better and where matching this performance could have strategic business benefits for Canada.

The Framework is neutral with respect to jurisdiction and instrument. While it has been developed at the federal level, Environment Canada sees it as a tool that could be used in collaboration with provincial governments and stakeholders. If application of the Framework to a particular case suggests that convergence may provide an opportunity to attain desired environmental objectives in a manner that creates strategic business opportunities for Canadians, then a more formal process could be established to design a detailed strategy and select instruments. The nature of the case would determine which jurisdictions and stakeholders should be involved.

Environment Canada's interest in the Framework is driven by a number of factors. First the increasing trend towards Canada-U.S. economic integration, reinforced by higher levels of security cooperation, raises opportunities and challenges with respect to meeting Canada's environmental objectives. Within this context, the concept of "convergence" with U.S. levels of industrial performance - as opposed to importing U.S. requirementsmay allow Canada to take advantage of the economic linkages to the U.S. economy while preserving a uniquely Canadian approach in the design of "how" we get there.

Second, Environment Canada has a mandate to improve environmental performance in Canada. The Department employs a range of approaches to do this. Convergence is one such approach, and this Framework is an innovative new tool to explore convergence opportunities, in a collaborative way, on a case-by-case basis.

The process used to develop this Framework has been a most rewarding one. The framework was developed under the auspices of the federal Policy Research Initiative - a federal "space" for exploring new ways of doing things. Environment Canada established a federal project team and an external advisory group to guide the development of the Framework.

The federal project team brought together colleagues from Environment Canada, Natural Resources Canada, Industry Canada, Department of Foreign Affairs and International Trade, Transport Canada, Health Canada and the Privy Council Office. I would like to thank all of them for their interest and support for this work. A list of the federal team members is included under Appendix B.

The Department retained the services of Stratos Inc. to work with the group to develop the framework document. John Moffet of Stratos provided clarity of thought, good advice in the design of the Framework and an ability to capture feedback from the group and reflect it clearly in the drafting of the document.

I would like to extend special thanks to our external advisory group, which brought new and varied perspectives to the issue of convergence and added high value to the Framework:

• Dave Besner, DIB Consulting
• Robert Hornung, Pembina Institute
• Amardeep Khosla, Procter and Gamble
• Claude Andre Lachance, Dow Chemical
• Gord Lambert, Suncor
• Ken Ogilvie, Pollution Probe

Finally, I would like to thank my colleague and project manager, Victoria Rowbotham for developing a vision for this Framework, bringing a strong team together and moving us all towards a product which I believe will be useful in teasing out opportunities to improve environmental performance through convergence with the U.S.

In February 2003, Environment Canada presented this Framework to a federal symposium on Environment and Trade, sponsored by the Policy Research Initiative. The Department has also begun to engage provincial and territorial governments, key industrial sectors and other stakeholders in discussions about the Framework and possible case studies. Based on our discussions so far, we are confident that this framework tool will help to identify opportunities where convergence with U.S. performance makes sense. We hope that where application of the Framework reveals environmental and business benefits, this will trigger initiatives and processes to develop and design convergence strategies.

David Egar, Chair, Federal Project Team

INTRODUCTION

In circumstances where Environment Canada has determined that there is a need for a sector of Canadian business to improve its environmental performance, the Department is committed to identifying ways of doing so that generate the greatest overall benefit to Canadians. When there is more than one possible approach to attaining a desired level of environmental performance, preference is given to policies that minimize the burden on industry and maximize the opportunities for improved trade and competitiveness. Where the environmental performance of corresponding U.S. businesses is higher, a strategy of "upward convergence" towards those performance levels is one of various possible approaches that may provide an opportunity to achieve this objective. The U.S. is by far Canada's largest trading partner, and there may be numerous economic benefits to Canadian industries from pursuing similar environmental performance to their American competitors. The Framework will inform decisions about whether such a convergence strategy should be pursued in a given situation.

The Framework builds on the tradition of cooperation among government, industry, environmental groups and other stakeholders in finding smart ways to improve environmental performance. One of the main purposes of the Framework is to avoid the protracted debates and unnecessary controversies that often characterize the development of sector-level plans to address environmental issues.

Governments generally explore a range of options for improving environmental performance. The Framework focuses on only one option - convergence towards U.S. environmental performance levels. It provides a tool to explore whether this approach can deliver desired environmental performance improvements and provide business benefits. The Framework does not identify the benefits of other possible strategies for improving environmental performance, nor does it compare convergence with these other strategies. In some cases, application of the Framework may lead directly to development of a convergence strategy. In other cases, it may be prudent to also compare convergence to other approaches.

The Framework provides a relatively simple analytical tool for governments to explore the merits of a convergence strategy collaboratively with business and other stakeholders. The analytical tool developed here is not intended to be a "one size fits all". The detailed Convergence Analytical Framework set out in Appendix A identifies a set of core questions and key factors relevant to examining the merits of convergence in two areas: facilities in major industrial sectors and single products. Variations of this model could be tailored for other applications, such as groups of consumer products contributing to the same environmental issue.

The Framework is not intended to trigger an in-depth detailed quantitative analysis. The Framework should be used as a guide, and applying it will involve a combination of qualitative and quantitative assessment. Judgment will be required to determine, on a case-by-case basis, which key questions and factors are most relevant and how much information and analysis is sufficient.

The Framework is intended to be consistent with the overall risk management policies relied on by governments to guide decision-making with respect to environmental and human health risks. The Framework complements other criteria and guidelines used by governments to evaluate environmental initiatives, such as the Federal Regulatory Policy, and is consistent with other analytical tools used to assess environmental policies, including the 2001 report prepared by the Conference Board of Canada for the CCME: Framework for Assessing the Competitiveness Impacts of Environmental Policies and Regulations. The Framework represents one aspect of the overall "smart regulation" emphasis of the Federal Government announced in the Throne Speech in 2002.

The Framework is not intended to signal an overall policy emphasis on harmonization with U.S. environmental policy. At its core, a convergence strategy entails improving environmental performance. There are many cases where Canadian environmental performance is better than U.S. performance. The Framework only applies to those issues for which U.S. performance is better than Canadian performance. Nor does a convergence strategy necessarily entail adoption in Canada of U.S. environmental policies or legal requirements. While a convergence strategy may involve some harmonization of Canadian approaches with the U.S., in many cases it will not. A convergence strategy may include a range of options in terms of the precise environmental performance targets, the timing of the desired outcomes, the policy measure(s) that will be used to ensure the desired performance, and which level of government is best situated to implement appropriate measures. Indeed, one of the possible benefits of a convergence strategy that the Framework helps to identify is the possibility of ensuring equivalent environmental performance while taking advantage of the more flexible, less prescriptive Canadian environmental law and policy regime and avoiding the high transaction costs associated with some U.S. regulations.

OVERVIEW OF THE FRAMEWORK

The Framework is one in a sequence of steps that could be taken by governments and stakeholders to develop a convergence strategy. Figure 1 illustrates how the Framework fits between a preliminary analysis and the subsequent, detailed design of a specific strategy.

PRELIMINARY ANALYSIS

Before applying the Framework, it will be important for governments and other stakeholders to undertake a preliminary analysis to satisfy themselves of the following:

• There is a shared recognition by government, industry and other stakeholders that the sector in question should make a significant environmental improvement on one or more clearly defined environmental issues in order to address an environmental or human health risk.

• Government has established clear expectations as to the order of magnitude of the desired environmental performance improvement and the approximate timeframe within which it should occur.

• There is some evidence that the environmental performance of the U.S. sector is better than Canadian performance. There is some evidence that there may be strategic benefits to Canadian business associated with a convergence strategy

The Framework does not provide guidance as to how this preliminary analysis should be conducted. Governments rely on various processes and tools to determine that there is a need to address an environmental or human health risk and to identify appropriate environmental targets or expectations for improvement by a particular industrial sector. These processes and tools rely on sound science and public input to identify and characterize risks to human health and the environment, and they provide the starting point for an exploration of various options to meet environmental and health objectives. Convergence with U.S. levels of performance is one option that could be pursued if it appears that the U.S. is ahead and that Canadian industry is committed to improve its environmental performance and sees the potential for strategic business benefits in convergence as a way to get there. The Framework provides a tool for exploring the merits of that option.

Once it is clear that these prerequisites have been satisfied, the Framework enables governments and stakeholders to work together to explore the merits of convergence. It is anticipated that the application of the Framework will occur on a collaborative and iterative basis with relevant stakeholders participating and providing new information to help refine the analysis and conclusions.

THREE-STEP CONVERGENCE ANALYTICAL FRAMEWORK

The Framework itself has three main steps. Step 1 seeks to confirm that a convergence strategy is likely to improve Canadian environmental performance to the desired levels that were established in the preliminary analysis (i.e. order of magnitude expectations). This step starts with a characterization of the current "baseline" situation - describing current U.S. and Canadian performance levels, accounting for regional variations, major variations across facilities within a sector, and likely future changes. It then assesses the changes in Canadian environmental performance likely to result from a strategy of matching U.S. performance levels. The main question to be addressed in Step 1 is whether a convergence strategy is likely to improve Canadian environmental performance to the desired levels or significantly close to the desired levels.

Assuming that Step 1 confirms the environmental soundness of a convergence strategy, Step 2 then elucidates the potential competitiveness and trade impacts of such a strategy. Step 2 also starts with a characterization of the current baseline. This provides the information needed to assess various possible business impacts, including: certainty and other regulatory benefits of being able to craft a Canadian approach for achieving U.S.- level performance; productivity impacts; impacts on innovation and diffusion of new techniques and technologies; impacts on access to capital; reputational impacts; trade and market access impacts and consumer impacts.

The key objective of Step 2 is to identify the possible strategic business opportunities and impacts that might result from a convergence strategy. In cases where Step 2 reveals positive or neutral business impacts, the analysis will be straightforward and can move onto the next step. Where Step 2 indicates that convergence could have a significant adverse impact, it may be appropriate to step outside the Framework and assess alternative strategies for achieving the environmental performance objective and compare them to the convergence option. Alternatively, there may be ways to mitigate such negative business impacts in the later stage of designing a specific convergence strategy.

In any event, it may be useful to account for many of the business impacts identified in this step in designing the specific measure(s) to improve the environmental performance of the sector in question.

Step 3 involves a basic assessment of the feasibility of a convergence strategy. The objective is to undertake a general "reality check" to ensure that there are no serious legal, administrative and political impediments to moving ahead with the design of a specific convergence strategy.

DESIGNING THE SPECIFIC CONVERGENCE STRATEGY

Finally, as Figure 1 illustrates, if the Framework suggests that there is a good rationale for a convergence strategy, then governments and stakeholders will move into a more formal design and implementation stage. The application of the Framework will have identified the merits of convergence and provided a starting point for identifying elements of a specific convergence strategy (e.g. target performance levels, time period over which convergence should occur, key areas of flexibility for business, etc.).

A critical step will be the design of a clear and effective process that brings the appropriate jurisdictions, industry representatives and other stakeholders to the table. The nature of this process and in which jurisdiction it is situated will depend on the specific issue and case at hand. This process would then have the task of determining the "how" of matching U.S. performance levels, including the specific instruments to be used and by whom, ensuring that consideration is given to the full range of instruments that could be used to lever performance improvements in Canada.

FIGURE 1: SCHEMATIC OF THE FRAMEWORK

(click on the above image to view a larger version)

APPENDIX A: CONVERGENCE ANALYTICAL FRAMEWORK

This Framework has been designed to evaluate the merits of convergence with U.S. levels of performance as a possible strategy for ensuring desired improvements in Canadian performance on a given environmental issue.

The Framework focuses primarily on the merits of such a strategy in two areas: large industrial sectors and single products.Variations of this model could be tailored for other applications, such as groups of consumer products contributing to the same environmental issue.

The Framework should be used as a guide, and applied on a case-by-case basis. Applying it will involve a combination of qualitative and quantitative assessment. Judgment will be required to determine, on a case-by-case basis, which key questions and factors are most relevant and how much information and analysis is sufficient.

STEP 1: POSSIBLE ENVIRONMENTAL PERFORMANCE IMPACTS OF A CONVERGENCE STRATEGY

1.1 INTRODUCTION

This first section of the Framework involves an assessment of the nature of the environmental performance improvement that would likely result from a convergence strategy. The objective is to determine whether convergence will improve Canadian performance to the desired levels. If so, the Framework moves to Step 2 to assess the potential competitiveness and trade implications of a convergence strategy.

Comparing environmental performance can be difficult. The comparison should be made at the level of the facility or product. In some industries there are many types of facilities producing the same product (cement, electricity, etc.). To ensure the analysis is useful, it will be important to determine what types of facilities or products to compare. It will also be important to select appropriate performance metrics (emissions per unit of output, product content, etc.). The decision for both issues - what to compare and the basis of comparison - should be relevant to the risk that is being managed.

Comparisons should also account for the variations in performance levels that may exist within each country. Performance may vary considerably, even among similar types of facilities or products. Variations may occur for numerous reasons, including differences in legal requirements, market pressures, age of facilities, prevalence of community pressure, etc.

Finally, it is necessary to account for the dynamic nature of environmental performance. Standards and performance levels in each country change over time. In particular, it is important to account for potential significant changes in U.S. performance levels in the near to mid-future. For example, is performance likely to change because of forthcoming domestic legal amendments, international commitments, rising market concerns, or the introduction of recently developed technology?

1.2 BASELINE CHARACTERIZATION

1.2.1 Characterize the performance of Canadian firms/operations/processes/products on the environmental issue of concern

• Identify which firms/operations/processes/products the comparison will address.
• Consider environmental performance in terms of criteria such as: level of emissions/waste per unit or $ of output; product content; feedstock; or absolute environmental burden, as appropriate.
• Identify anticipated future performance levels without a convergence strategy (i.e., estimate the business-as-usual scenario, accounting for anticipated capital stock turn-over, new technologies, market pressures, etc.).
• Identify the range in performance within the Canadian sector.

1.2.2 Characterize the performance of equivalent U.S. firms/operations/processes/products on the environmental issue of concern

• Identify which firms/operations/processes/products the comparison will address - Consider environmental performance in terms of same criteria as in 1.2.1.
• Identify the range in performance within the U.S., and the reasons for it (including legal requirements, complementary policies, market forces, etc.).
• Identify the anticipated future performance trends in the U.S. (e.g., resulting from anticipated changes in legal standards, emerging technologies, etc.).

1.2.3 Relevant legal requirements

• Identify existing Canadian legal requirements, if any. - Identify existing U.S. legal requirements.
• Identify the likely future status of U.S. requirements and performance. (Are reform processes underway? Is there a requirement for regular reviews?)
• Identify relevant forthcoming international initiatives.

1.2.4 Is industry performance elsewhere ahead of or behind the U.S.?

• Is industry performance in other countries significantly better than in the U.S.?
• What are the international trends in industry performance on the issue?
• How is this likely to affect the longer-term trend in U.S. performance?

1.3 ASSESSMENT OF POSSIBLE ENVIRONMENTAL IMPACTS OF CONVERGENCE

1.3.1 Compare the U.S. and Canadian performance of equivalent firms/operations/processes/products on the environmental issue of concern

Ensure comparison is:

• Of equivalent operations or products (e.g., don't compare entire electricity generation sector; compare similar types of plants).
• In equivalent areas (e.g., if Ontario would be considered to be a "non- attainment area" under the Clean Air Act, it will be important to compare Ontario plants to plants in non-attainment areas in the U.S.).
• If comparison to U.S. performance is not feasible, consider comparing Canadian performance to U.S. standards.

1.3.2 Estimate the environmental performance improvements likely to result from convergence to U.S. performance levels

• Describe which aspects of Canadian environmental performance would likely be improved:
  • Identify anticipated improvements in performance.
  • Describe what portion of the Canadian sector would improve its performance, and where.
• Identify different local impacts in Canada. In particular, account for where U.S. performance varies by region either because of different state laws or in accordance with local environmental quality considerations (e.g., non- attainment areas under the Clean Air Act, etc.).
• Account for trends in U.S. performance. For example, account for likely changes in performance due to:
  • Changed legal standards;
  • Changed market demands; and
  • Emerging technologies and techniques.

1.3.3 Are there any second-order environmental impacts which should be considered (i.e. trade-offs or co-benefits)?

• Could convergence stimulate significant production increases, which in turn might increase environmental load?
• Could better performance through convergence have a positive (or negative) impact on other environmental issues?
• Could convergence strengthen Canada's bargaining positions in bilateral, continental or international negotiations on related environmental issues?

Proceed to Step 2 if Step 1 confirms that convergence is likely to improve Canadian environmental performance to the desired levels or significantly close to the desired levels.

STEP 2: POSSIBLE BUSINESS AND COMPETITIVENESS IMPACTS

2.1 INTRODUCTION

For the purposes of the Framework, competitiveness may be defined as the relative ability of Canadian firms and sectors to design, produce and market goods and services with price and non-price characteristics that are more attractive than those of competitors in other jurisdictions.¹

This section enables the assessment of various possible types of economic impacts that might result from a strategy to converge towards better U.S. performance levels on a given issue. Improvements in environmental performance typically require some form of investment. The resulting costs may have both positive and negative impacts on competitiveness and trade. They may increase operating costs in the short-term. However, the resulting improvements in environmental performance and operating efficiencies also may enhance competitiveness and trade in various ways. As such, it may not always be possible to identify a way to improve environmental performance that also leads to an overall improvement in competitiveness and trade relative to the current situation. The objective is thus to determine whether a convergence strategy will improve environmental performance in a way that creates competitiveness and trade opportunities that are of strategic interest to Canadian business. Strategic interests may include all factors, quantitative and qualitative, affecting the longer-term success of Canadian firms. Other relevant considerations may include the impacts on consumers and labour.

Where U.S. convergence will have significant adverse impacts, it may be appropriate to:

• consider alternative strategies; or
• consider options for mitigating the anticipated adverse economic impacts.

In cases where it is appropriate to consider alternative strategies and compare these to the convergence option, the core questions and factors included in the Framework could be used to assess the business and competitiveness impacts of alternatives.

It is anticipated that users of the Framework will proceed in an iterative manner to refine the assessment outlined in this Step. Inevitably, the assessment of business impacts will be very approximate. It is not possible to assess business impacts with precision without knowing the specific design features of the policy measure(s) that will be relied on to ensure improved environmental performance. Users of the Framework may be able to refine their assessment of business impacts through an iterative process in which the preliminary identification of possible impacts leads to an improved understanding of the type of policy measures that may be appropriate to support a convergence strategy in the particular circumstances.

In addition to assessing possible business impacts so as to help decide whether or not to pursue a convergence strategy, this Part of the Framework will provide valuable information about factors relevant to the final design of the measure(s) needed to ensure improved environmental performance. For example, in many cases, one of the key factors affecting the overall impact on Canadian business will be the timeframe over which the change in environmental performance must occur. If change is required in the short term, affected companies may incur significant costs outside of their normal investment cycles. If the change can occur over the longer term, the affected firms will have a greater opportunity to integrate the necessary investments in technology and skills into their normal capital stock investment timetables. In some cases, the "Preliminary Analysis" conducted before the application of the Framework will specify a relatively fixed timeframe. In other cases, however, the analysis conducted in Step 2 may help refine it.

2.2 BASELINE CHARACTERIZATION

Note: this information will help support the analysis in elements 2.3 to 2.8.

• Structure of the Canadian sector:
  • Location of facilities and geographic concentration
  • Ownership concentration
  • Degree of foreign ownership
  • Age of facilities
  • Age, extent and type of pollution control equipment
  • Extent of pollution prevention practices
  • Size of companies (small, large, multi-facility)
  • Degree of organization (strength and services of industry association)
  • Capital cost turn-over characteristics (i.e. business cycle)
  • Access to capital (ease of financing)
• Level of integration / convergence on other issues:
  • Common standards
  • Shared markets
  • Common firms (U.S. and Canadian plants owned by same company)
  • Integrated supply chains
  • Competitiveness features:
  • Geographic scope of the industry (regional, domestic, North American, global)
  • Key markets
  • Level of competition among Canadian firms
  • Level of competition between Canadian and U.S. firms
  • Competitive position of Canadian firms vis-à-vis their U.S. counterparts.
  • Market power of the Canadian sector relative to the overall market
• Reasons for / drivers of current or potential trade:
  • Lower production costs
  • Different environmental standards
  • Changing exchange rate
  • Quality differences
  • Uniqueness of product
  • Non-tariff barriers (export subsidies and royalties, etc.)
  • Temporary excess demand in other country (e.g., electricity)
  • Capacity constraints of domestic industry in other country
  • Other.

2.3 CERTAINTY AND OTHER REGULATORY IMPACTS

2.3.1 Could a convergence strategy increase policy/regulatory certainty and predictability for Canadian firms?

• Is there wide variation in standards and approaches in Canada? Internationally?
• How volatile is the current policy situation with respect to the issue in question? In Canada? In the U.S.? Elsewhere (Europe, etc.)? - Are changes expected in U.S. legal and policy standards? - Would a decision to adopt a convergence strategy reduce any uncertainty associated with the current policy context in Canada?

2.3.2 Are there opportunities to provide Canadian firms with equivalent performance standards but enhanced regulatory flexibility?

• Is the U.S. regime highly prescriptive and transaction cost heavy?
• Is the U.S. regime static or does it provide incentives for continuous improvement?

2.3.3 Could a convergence strategy provide new options for managing the issue cost-effectively?

• Could convergence increase instrument choice? (For example, could it make market-based instruments more feasible?)
• Are there opportunities for U.S. firms to contribute to any increased production costs (as might occur, e.g., if Canadian firms were able to participate in a U.S. emissions trading regime)?

2.3.4 Could a convergence strategy provide flexibility in terms of when new investments are required?

• Are firms and facilities in the Canadian sector at different stages of their investment lifecycles with respect to the equipment relevant to the environmental issue of concern (i.e. capital cost turnover)?
• Could a strategy be devised to move Canadian environmental performance towards U.S. levels over a timeframe that accounts for these investment considerations?

2.4 IMPACTS ON PRODUCTIVITY

2.4.1 Implications of convergence for the costs of production

• What are the short-term implications of convergence for production costs (adjustment costs for capital investments, process changes, training, etc.?
• Over time, could convergence lead to reduced operating costs or increased productivity:
  • For example, from: Increased energy efficiency? Reduced requirements for productive inputs or operating costs? Improved quality, health or safety of productive inputs or outputs? Reduced costs of meeting other environmental requirements?
• What is the significance of these costs in the total cost structure?
• How do they compare to costs borne by U.S. firms?

2.5 IMPACTS ON INNOVATION AND DIFFUSION OF NEW TECHNIQUES AND TECHNOLOGIES

2.5.1 Possible impacts of a convergence strategy on Canadian innovation

• In the short term, is it likely that a strategy of convergence to U.S. performance levels will result in Canadian adoption of existing technologies and techniques used in the U.S., or will it prompt Canadian firms to innovate?

• Once Canadian firms are operating at the same environmental performance levels as their U.S. counterparts, would a convergence strategy that accounted for evolving U.S. standards create incentives for Canadian firms to innovate?

2.5.2 Could convergence create incentives for more rapid deployment of new technologies and techniques?

• Would Canadian firms be more willing to adopt new technologies or techniques related to pollution prevention knowing that the entire North American sector is striving to attain equivalent levels of performance?

2.6 IMPACTS ON ACCESS TO CAPITAL

2.6.1 Could a convergence strategy enhance Canadian's firms' access to capital?

• How significant a factor is environmental performance in gaining access to capital for the sector?
• Would the enhanced certainty resulting from a convergence strategy improve the sector's access to capital?

2.7 REPUTATIONAL IMPACTS

2.7.1 Reputational implications of convergence

• Could higher environmental performance based on a convergence strategy help improve relationships with customers? Investors? Employees? The local community? Governments? Non-government organizations?

2.7.2 Possible impacts on decisions about where to locate industrial facilities

• Is it possible that a convergence strategy would create an incentive for new plants to locate in Canada? Or an incentive for existing plants to leave Canada?
  (Note: this question depends largely on the answers to the above questions (impact on short-term operating costs, relative significance of those costs, possible impacts on competitiveness, trade opportunities, etc.).

2.7.3 What impact could convergence have on public support for industrial expansion to meet export opportunities?

• Could the resulting improved environmental performance help enhance public support for industrial expansion in Canada to meet export opportunities?
• Conversely, could convergence enhance public opposition to increased production?
  • Localized opposition might happen if increased market access results in increased industrial activity and a higher overall environmental load.

2.8 TRADE AND MARKET ACCESS IMPACTS

2.8.1 Would convergence help overcome existing trade barriers?

• For example, would convergence help (or hinder):
  • Satisfy more stringent U.S. or other foreign legal requirements?
  • Open up new markets elsewhere (e.g., Europe)?
  • Minimize potential for NAFTA challenge?
• If it is anticipated that U.S. legal standards will change in the near future, what is the implication of this fact for trade benefits?
• If it is anticipated that standards in other foreign markets will change in the near future, what is the implication of this fact for trade benefits?

2.8.2 Could a convergence strategy help Canadian businesses respond to foreign market demands?

• Would convergence help (or hinder):
  • o Satisfy U.S. or other foreign supply chain demands?
  • o Satisfy U.S. or other foreign consumer demands?
• Would convergence lead to increased demand for Canadian products due to factors such as: enhanced reputation for a "green" product or image, reduced product disposal costs, higher product quality or enhanced service value, or increased product resale or scrap value?

2.8.3 Could a convergence strategy help Canadian businesses take advantage of emerging international agreements?

• Could convergence help Canadians gain advantage over foreign competitors in the event of a forthcoming international agreement that mandates behaviour similar to the performance that will be attained as a result of convergence?

2.8.4 What impact would convergence have on Canadian consumers?

• Would it increase product choice in Canada?
• Would there be impacts on product quality and safety?
• Would convergence have an impact on product prices (bearing in mind that other approaches to improve environmental performance could have similar impacts on price)?
  • Could access to a larger market reduce prices?
  • Conversely, could increased market access result in increased prices from selling into a market that supports higher prices?

2.8.5 Possible overall trade impacts of convergence

• Based on 2.8.1 to 2.8.4 what would be the likely overall impacts on trade in terms of rough estimates of factors such as sales volume, total profit or new employment?
• To whom would the benefits accrue?
• Over what period of time?

Proceed to Step 3 if Step 2 indicates that a convergence strategy likely will improve environmental performance in a way that creates business opportunities that are of strategic interest to Canada.

STEP 3: FEASIBILITY

3.1 INTRODUCTION

This final step provides an opportunity to test in a cursory manner the feasibility of a convergence strategy. Without delving into detailed questions of instrument design, it may be useful to ensure that there are no obvious impediments to pursuing a convergence strategy.

3.2 ASSESSMENT

3.2.1 Is convergence feasible?

• Do Canada's international obligations limit its ability to converge towards U.S. performance levels?
• Without presupposing the type and design of the measure(s) required to ensure convergence, identify the key attributes of the Canadian legal/policy measures that may be required to ensure convergence.
• Would it be (legally, administratively and politically) feasible to change Canadian laws and policies to ensure convergence? (Could the required changes/new measures be developed without significant transaction costs or major reform of the existing legal or institutional framework in Canada?)

APPENDIX B: FEDERAL PROJECT TEAM

¹ This definition is based on the World Competitiveness Report.