NEWS RELEASES

June 26, 2001 (1:10 p.m. EDT) No. 88

PETTIGREW ANNOUNCES EDC POLICY CHANGES

International Trade Minister Pierre Pettigrew today announced steps to update the mandate of Export Development Corporation (EDC) and improve its support for Canadian exporters. The Government of Canada intends to table legislation in the fall to strengthen EDC's environmental practices by establishing a legal basis for the review of projects that it supports.

As part of the legislative review of the Export Development Act, the Standing Committee on Foreign Affairs and International Trade (SCFAIT) made a number of recommendations in the areas of information disclosure, the environment and human rights. In his response to SCFAIT in May last year, Minister Pettigrew announced the government's commitment to clarifying EDC's role in these important areas. The proposed changes also take into account the recent recommendations of the Auditor General.

"My proposal builds on EDC's existing environmental review framework and sets out the government's view of the fundamental elements of an effective procedure," said Minister Pettigrew. "EDC will undertake public consultations in late summer and have a draft framework ready for discussion by parliamentarians in the early autumn. I have asked the Auditor General to undertake an audit two years after a revised framework has been adopted, to ensure that EDC has implemented the recommended changes in its design and operation."

EDC's responsibilities to take account of benefits to Canada and to adhere to Canada's international obligations in the areas of human rights, core labour standards and the environment will be strengthened. In addition, EDC has proposed a new disclosure policy on which it is currently consulting with Canadians and which will place EDC at the forefront of export credit agencies in transparency.

The policy changes also include various other significant measures including (a) broadening the base of participation in export financing by the Canadian financial sector and (b) requiring EDC to share the cost of debt forgiveness to ensure that its lending to highly indebted poor countries is prudent and sustainable.

Minister Pettigrew's requirements for EDC's environmental review framework are set out in the attached backgrounder, and full details are available on the Department of Foreign Affairs and International Trade's Web site at: http://www.dfait-maeci.gc.ca/tna-nac/social-e.asp#environment. A general backgrounder on the legislative review of EDC is also attached.

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For further information, media representatives may contact:

Sébastien Théberge

Office of the Minister for International Trade

(613) 992-7332

Media Relations Office

Department of Foreign Affairs and International Trade

(613) 995-1874

Backgrounder

GOVERNMENT GUIDANCE FOR A REVISED

ENVIRONMENTAL REVIEW FRAMEWORK

The Auditor General of Canada recently concluded a comprehensive examination of the Export Development Corporation (EDC)'s environmental review framework. The Auditor General found that the framework contains most elements of a suitably designed environmental review framework for an international financial institution. The Auditor General also made certain recommendations for improving the framework's design and operation. On the basis of these recommendations, as well as research and consultations conducted during the legislative review of the Export Development Act, and taking account of multilateral work on this issue at the Organization for Economic Co-operation and Development (OECD), the government has identified the following key elements that it expects any new environmental review framework adopted by EDC to contain:

• The framework's statement of objective and its overall operation should reflect the fundamental purpose of environmental review: to help ensure that the projects supported by the Corporation are environmentally sound and sustainable.

• The framework should clearly identify the environmental standards that EDC will apply in conducting environmental reviews. Particular attention should be paid to the highly developed and widely utilized guidance provided by the World Bank Group.

• The framework should clearly identify those EDC products and services that require environmental review. EDC should analyse the environmental risk involved in all its forms of export support before excluding any forms of support from environmental review.

• EDC should screen projects for environmental risk and impacts, and screening should be based on simple, clear and objective standards. The framework should be clear about the kinds of environmental information required for screening and review, and stipulate that the decision to provide or decline financial support will not be taken in the absence of sufficient environmental information.

• EDC should categorize projects according to their level of potential environmental impact, and EDC's diligence in review should be proportionate to the category. The government notes and endorses the Auditor General's recommendation that EDC adopt a categorization system similar to that of other international financial institutions such as the World Bank Group's International Finance Corporation.

• EDC should provide reasonable public transparency for those projects that pose the greatest potential for environmental impact, without unduly compromising Canada's international business competitiveness through the release of commercially sensitive financial information. The government notes that EDC's draft disclosure policy has been designed to serve that objective, and expects the revised framework to build on that initiative.

• The framework should clarify that EDC will seek to mitigate the potential adverse environmental impact of projects as much as possible, and should stipulate the environmental grounds on which EDC will decline its support.

• The framework's design should permit clear accountabilities for its operation, including concise administrative records of the deliberations and decisions taken under it.

• The framework should identify those projects that require ongoing monitoring in order to ensure environmentally related covenants or commitments made by project proponents are met, and it should specify appropriate monitoring procedures.

• The framework should balance the interests and competitiveness of exporters with the environmental policy objectives of the government. Striking this balance can be greatly assisted by public consultations, and EDC should employ such consultations in its policy revision practices.

• The framework should continue to serve as a model to our counterparts in the OECD, and it should be designed in a manner that will permit EDC to continue to play a leadership role in the evolution of a multilateral consensus on this issue.

Backgrounder

LEGISLATIVE REVIEW OF

EXPORT DEVELOPMENT CORPORATION

EDC is a government-owned financial institution whose mandate is to support and develop Canada's export trade. EDC provides a wide range of financial and risk management services to Canadian exporters. In 2000, EDC programs facilitated $45 billion in international business by Canadian companies, serving some 5700 customers, of which more than 5000 were small or medium-sized enterprises (SMEs). In the process, EDC generated a net income of approximately $200 million.

A legislative review of the Export Development Act, commenced in 1998, produced many recommendations regarding EDC's operations. These were addressed in a government report to Parliament in May 2000 that included undertakings to:

• give statutory authority to EDC's environmental review procedures and to request the Auditor General to audit those procedures;

• encourage EDC's development of an information disclosure policy;

• require EDC to take account of benefits to Canada and Canada's international commitments, especially in human rights, core labour standards and the environment;

• require the Corporation to share the burden of international debt relief efforts for heavily indebted poor countries;

• study the merits of a loan guarantee program as a means to engage commercial banks in export finance; and

• study EDC's initiatives to improve SME access to services.

Environmental Review Framework

The Export Development Act will be amended to require EDC to conduct environmental reviews of the projects it is considering for support. Canada will be among the first nations to enshrine such an obligation in its national laws. The Auditor General has determined that EDC's existing environmental review framework has most elements of a suitably designed environmental review procedure for an international financial institution, but would be enhanced by a systematic approach to public consultation and information disclosure, as well as by more objective standards and clearer procedures. The Auditor General has also found serious deficiencies in the implementation of the framework. EDC has accepted the Auditor General's recommendations, and the Minister for International Trade has indicated that he will ask the Auditor General to conduct another comprehensive review of the framework two years after EDC implements those recommendations.

EDC Disclosure Policy

On May 15, 2001, EDC posted a draft Disclosure Policy on its Web site (http://www.edc-see.ca/corpinfo/CSR/Disclosure/index_e.htm) for public commentary before adoption. This Disclosure Policy will provide for the release of individual transaction information on all its financing activities as soon as possible after signing, but no later than 90 days thereafter. EDC will also provide notification, via its Web site, of greenfield projects or major expansions that are likely to have significant adverse environmental impacts and where EDC's support would exceed the lesser of US$10 million or 10 percent of the total project cost. EDC will require the proponents of such projects to release environmental and any related social information no later than 45 days prior to signing by EDC. EDC will designate a Compliance Officer to oversee the application of this policy.

Due Regard for Benefits to Canada, International Commitments and Human Rights

The Financial Administration Act requires Crown corporations to prepare annual corporate plans that set out and limit the range of the corporations' business and activities. These plans must be approved by ministers. Henceforth, EDC will be required by its Corporate Plan to consider the economic benefits to Canada of its activities, to be mindful of Canada's international commitments in the area of core labour standards, human rights and the environment, and to promote other corporate social responsibility standards, including the Guidelines for Multinational Enterprises developed under the Organization for Economic Co-operation and Development (OECD). To complement these activities, the Department of Foreign Affairs and International Trade will work with EDC to ensure that it has current information on Canada's foreign policies and international commitments.

Sharing the Costs of Debt Relief to Heavily Indebted Poor Countries

EDC will now shoulder the risk of future loss in these situations, to ensure that the Corporation acts responsibly and engages these countries in constructive dialogue as a means to mitigate these risks. This is a change to the existing policy of reimbursing EDC for losses incurred when its Corporate Account loans to highly indebted poor countries are forgiven by the Government of Canada.

Broadening Participation by the Canadian Financial Community in Export Financing

Canada's dependence on a single institution for the delivery of important export finance services was noted with concern during the review period. The Standing Committee on Foreign Affairs and International Trade's (SCFAIT) recommendations in this field addressed the following issues: EDC's dominant role in credit insurance; participation by commercial banks in specific EDC joint ventures; sharing of EDC risk assessments; sale of EDC insurance products through bank networks; sale of EDC loan assets to private buyers, including pension funds; and a commercial bank export credit guarantee facility that would mirror the export credits approach adopted by all OECD countries except Canada. Most of the recommendations have already been adopted. The government agreed to review EDC's role in credit insurance at a future date and to study the advantages and implications of a bank export credit guarantee program. This study is still in process.

Services to SMEs

The government agreed with SCFAIT's recommendation that the EDC Board of Directors consider a number of changes to its operations to make it easier for small and medium-sized enterprises to access EDC's services, including the adoption of e-business solutions. The government has promised to study the results of these changes in three years' time. At the same time, as a way to increase EDC's profile in the SME community, the Export Development Act will be amended to change the name of the Corporation to Export Development Canada/Exportation et Développement Canada in order to permit the use of the standard acronym "EDC" in both official languages.