SINT Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL TRADE, TRADE DISPUTES AND INVESTMENT OF THE STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

SOUS-COMITÉ DU COMMERCE, DES DIFFÉRENDS COMMERCIAUX ET DES INVESTISSEMENTS INTERNATIONAUX DU COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, November 5, 1997

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[English]

The Chairman (Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): Colleagues, welcome back. This is the third meeting of the Subcommittee on International Trade, Trade Disputes and Investment, which is studying the whole MAI question.

We welcome back Mr. Bill Dymond, who is our chief negotiator responsible for negotiating this file. Welcome back. You were here yesterday with the minister, and I know colleagues had plenty of questions to follow up.

I understand you have an opening statement that talks a bit about the process. All members should also have in front of them some questions, which were put together by the Library of Parliament people and our researcher, with regard to the issue. If you don't, we'll get it to you.

I want to remind colleagues that this is a very technical issue, but please try not to get too technical in your answers.

Mr. Dymond.

Mr. William Dymond (Multilateral Agreement on Investment Chief Negotiator, Department of Foreign Affairs and International Trade): Thank you, Mr. Chairman. It's a pleasure to be here to speak about the MAI.

I have asked some colleagues to join me. Doug Anderson is the senior representative of the Department of Finance on the team, Mr. Rob Ready is from the Department of Industry, and our chief counsellor for the negotiations is Mr. Blair Hanky, from my department, which is Foreign Affairs and International Trade.

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If it's of interest to you, I propose to talk briefly about the process, about how we are doing this. Then I will move into a brief discussion of the text, which I believe you have in front of you. And as some interest was expressed yesterday in the exceptions and reservations process, I might introduce that item. And then of course we are available to the committee for any questions you wish to pose. I'll proceed on that basis if you agree.

The Chairman: Go ahead.

Mr. William Dymond: On the process, we are treating this as we would any other major trade or economic negotiation. We have employed the usual procedures that we used most recently for the NAFTA or the Uruguay Round, for example.

Three departments are principally involved: my own department leads these negotiations, together with the Department of Industry because some of their legislation is potentially involved, and there is the Department of Finance because of strong corporate interests in it.

But we also consult other departments. We are in touch with 18 federal departments and agencies. They have automatic access to all the documents by virtue of an OECD on-line system. We meet with them frequently. We meet with them on the specific issues of interest to their departments. In recent weeks we have had separate meetings with the Departments of Labour, Natural Resources, Heritage, Transport, and Environment, to name just a few, to ensure that they are fully informed and their contribution is made.

Our negotiating mandate, as is usual with the way we conduct negotiations, is a cabinet mandate, which is refreshed as need be as we get deeper into the negotiations.

We have a very intimate relationship with the provinces through the department's usual committee, which we call the C-Trade, which is a committee of principal officials from the Departments of Trade and Industry. It consults with the federal government on all issues on the trade and investment agenda, and we have plugged fully into that network.

We last met with the provinces on October 15. We also had a meeting on a narrow agenda on September 9. We are scheduled to meet them again in the second week of December, when that meeting will be fixed. We speak to the provinces to these same officials via conference call after each negotiating meeting, usually in the week afterwards. We are working to have a conference call with all the provinces tomorrow.

They of course get the documents on their own. We don't need to distribute them to them. They are on the OECD on-line system. They receive all of our written reports of the negotiations and we are of course at their disposition to speak to them individually or collectively about any specific issues.

Consultations with the business community, labour and non-governmental organizations are an ever-increasing part of our activity. We began last year with the industry advisory system, the so-called sectoral advisory groups. We have intensified that effort with that constituency over the past several weeks, working through the formal SAGIT network. In addition, we have gone out to organizations that may not like the SAGIT network or may not feel comfortable with it.

Either the minister or myself have written to some 25 organizations saying these negotiations are intensifying, providing the basic information and inviting them to consult with us either directly or by correspondence. This team has met twice with the staff of the CLC, and we anticipate and have proposed further meetings in the future.

The minister has written to six non-governmental organizations on the environment side. I met with three of them who were part of the NGO consultation in Paris last week. I have been working together with Ms. Maude Barlow of the Council of Canadians, and we're looking for a date to meet with the council and possibly some other groups as early as next week.

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That is the domestic process. Within Paris the negotiations are conducted by what is called the negotiating group, with the chairman being a senior official from the Netherlands. This negotiating group involves all 29 OECD countries, plus the European Commission. As of September we have added five non-member countries as observers. This negotiating group meets in plenary. Since the negotiations began it has met 18 times, and we have five more scheduled before the end of April, when we are supposed to conclude.

The negotiating group has spawned a number of subgroups, working groups, drafting groups and expert groups that have met much more frequently under the guidance of the negotiating group with instructions to produce text to reflect the discussion that has occurred.

The text that has been released—I hope you have it in front of you—is the collection of the work that has come forward from the working groups and drafting groups. There has been no attempt to date to reconcile different drafting styles and different legal concepts, or to reconcile inherent conflicts that occur in various bits and pieces of the text. This is the second assembly of this material; the first was last January. Since the version that you have in front of you appeared in May—it has an October date because that was the reissue of it—there has been no further addition of what we call the consolidated text, which has been issued.

I want to emphasize that no part of this text has been accepted by any delegation. It is a working text, an essential working tool so that you can see where various things fit. But all of it is open for negotiation. You will observe that some parts of the text are more advanced than others. To give two examples at either end of the less advanced and more advanced, more advanced includes the standard text on national treatment and most favoured nation treatment, which is drawn almost word for word from the NAFTA. However, it can be found in our bilateral agreements and in the bilateral agreements that many other countries have.

Virtually all the material on what is called special topics is least advanced because for many of the countries—not for us particularly—some of it is new material. It reflects an absence of consensus as to what the negotiating group was trying to get accomplished. If you read closely some of the alternative formulations and drafts, they don't match. It's not possible to say you like alternative one rather than alternative two, because they are mutually contradictory.

The importance of having a consolidated text as early as last January and then having a reissue is you need it to make a beginning on the exceptions and reservations process. Following a discussion I had with some members of the committee, I should be clear on that. I'm advised by my counsel that in standard treaty practice, an exception is something that occurs in the body of the text, while a reservation is something that is attached to the text under the heading of a country—a Canada reservation, a France reservation, etc.

We tend—I apologize for any sloppiness here—to use them interchangeably because what is important for us and for other countries is the legal cover, the legal impact. The legal impact is the same, of course. Some of the subjects will migrate between country reservations, general exceptions, and the text. There is a dance among these various elements in the sense that if you do not get what you are seeking in the text, you might try to get it in a country exception or a country reservation.

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To again draw an example, you will see in the text that there is a country exception proposed by four Nordic countries for the Saami people, which is an aboriginal group in their countries. They are proposed to be an exception. We in the United States, for example, have come to exactly the same need as we did in the NAFTA because we require this for our aboriginal people, but our approach was to have it as a reservation.

Some reconciliation for the sake of having a coherent text will have to be done, but the legal impact is the same. And I do want to emphasize that the actual text of the agreement does not enjoy any higher status than that of a country reservation or the exceptions that are within. When any government comes to assess its attitude to this agreement as a whole, it's the whole agreement that you have to look at. You have to measure the text exceptions and reservations to see what you're getting and what you're giving.

The last point I'll cover, Mr. Chairman, is the reservations. Some interest was expressed in this in our meetings yesterday.

We have put in the substance of the NAFTA list. At the end of the day, will the wording of the Canada reservations be the same as the wording of the NAFTA? I don't believe so, because the wording of the text of the agreement will not be the same. So we have to work very hard, as indeed we are working and will continue to work to the end, to make sure that the country reservations do what we want them to do.

Perhaps I could indicate one or two differences, apart from some minor textual things where we changed the citations of laws to make sure they are right.

In the text, in the reservation dealing with the Investment Canada Act, we have included in the preliminary draft text submitted for the MAI our reservation against dispute settlement. In the NAFTA the reservation against dispute settlement, or the safeguard against dispute settlement on Investment Canada decisions, is included in the text of the agreement itself.

We have included financial services. In the NAFTA there was a financial services challenge that covered all the rights and obligations that were going to be exchanged, and there will not be a financial services chapter that deals with market access. There are some technical aspects of financial services that are important. The market access of financial services is being addressed in a separate negotiation in Geneva.

If I may, Mr. Chairman, I would like to explain a couple of points that are set out in our introduction for the committee. It's found, at least in my version, on page four. It's entitled “Introduction”. I refer particularly to paragraph two, and the key words there are “preliminary”—this is our first cut at it—“it is subject to agreements on the substantive provisions of the agreement”, and of course “the satisfactory overall balance of rights and obligations”.

The second bullet is to reflect our constitutional position. We say these reservations apply to reservations that will be taken by the federal government. We have been very clear throughout the negotiating group that no assumption should be made that measures under the jurisdiction of the Canadian provinces can be made. We have to, as the minister said yesterday, work with the provinces to come to an agreement that will be satisfactory to them. We cover that point again in paragraph three, where we make it clear that “as” and “when ”measures under the jurisdiction of the provinces would be covered by this agreement. They would be covered against the proviso of the reservations applying to provincial measures. That would be necessary, and indeed we have done it in the NAFTA.

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After the third bullet we say this submission is premised on general exceptions for cultural industries.

You will see in the text a French proposal. We support the concept of a general exception. We have said the French proposal is one we're prepared to work with, and we took the tactical decision not to put in a specific Canadian reservation on culture but to keep a place holder for it in the event that a general exception for culture does not prove negotiable.

We also refer to tax measures as of last January. In February, when we put this in, there was still a debate in the negotiating group as to whether tax measures would be covered by the MAI. It has now been agreed as of last September that tax measures are for all intents and purposes out of this agreement, and the appropriate paragraph will be drafted.

In paragraph four we say a whole range of issues is outstanding, beginning with basic ones such as definitions and special topics and going to intellectual property, on which negotiations have to be much further advanced before we and other countries can decide whether we can eliminate some of these reservations because our preoccupations will be looked after or whether we need to submit further reservations.

The last point I would make, if I may draw your attention to the text, concerns standstill and roll-back. As the minister said quite clearly yesterday, and we have emphasized this very strongly in Paris, Canada cannot accept and will not accept standstill as a general principle applying to all reservations that will be lodged at the end of the day. But in the NAFTA we have accepted standstill on a range of topics. This is a matter to be negotiated.

In this text the reservations that begin on page 5 up to the reservations on page 37 are the reservations in the NAFTA, the substance thereof, on which we have taken a standstill commitment.

The reservations that follow, those from page 38 on, are in our jargon annex B. On those there's no standstill, and the words that capture the sense there's no standstill are “Canada reserves the right to adopt or maintain any measure”, etc.

That is, if you like, the future or the cautionary, but those are the issues on which we have not accepted standstill.

Mr. Bill Blaikie (Winnipeg—Transcona, NDP): Where are those tables again?

Mr. William Dymond: It's page 38 onward, Mr. Blaikie. The head note is “Aboriginal Affairs”.

Mr. Bill Blaikie: From there on in, can you have an accepted standstill?

Mr. William Dymond: That's right, in the NAFTA. We have repeated the same position.

Mr. Chairman, why don't I stop there if that's acceptable to you. I apologize for a fairly technical explanation, but I hope it's of interest to the committee. My colleagues and I are ready to respond to any questions.

The Chairman: Thank you, Mr. Dymond. We'll turn first to Mr. Penson.

Mr. Charlie Penson (Peace River, Ref.): I would like to start by asking the question—maybe I can put my questions together and you can go through them.

You said the members of the European commission are going to be at the table. They're also going to be represented, I gather, by their member countries in the 29 countries of the OECD. Isn't that in fact giving them a double hit, and how are those negotiations going to play out?

Dealing with the country-specific reservations, the minister said yesterday we going to be taking the same exemptions we took under NAFTA. I would ask the question, being that the free trade agreement and now NAFTA is some years old, isn't there some danger in taking the same reservations? I mean, things do change.

I see that we have an exemption or reservation under NAFTA in the telecommunications area. Aren't you recognizing there may be changes through technology that would not require that? Can you tell us why that's such a sensitive industry and requires protection with no change?

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Mr. William Dymond: Your first question is what is the role of the European commission vis-à-vis the member states. That's a question we constantly ask ourselves.

It is the tradition in the OECD that the European commission is responsible for matters that fall within the competence of the union as defined by the treaties. Consequently in the WTO, since this is trade, the commission has undoubted competence, so the European Union speaks with one voice through the commission.

When you ask the member states and the union what is the division of jurisdiction between the member states and the union on investment, you get 16 different answers. We sit back with some amusement on some issues and watch these people go all over the lot on them. They won't in fact get a double hit. The rights and responsibilities of the European commission will be those that relate to the competence of the European Union for investment matters. It will not in that sense be a double hit.

Second, with regard to reservations, I don't want to repeat what the minister said yesterday about why telecommunications are not included. The additional point I would make, as I've said to others, is remember that an exception or a reservation is a facility to do something, to act in a manner that is not in conformity with the agreement. It is not a requirement to act in a manner that is not in conformity with the agreement.

When we take a reservation—for example, those who hold licences to run land-based duty-free shops at the border must be Canadian citizens. Certainly the government or Parliament, since it is a matter of legislation, could change it tomorrow to remove the requirement to be a Canadian citizen. There is no impediment in this agreement to taking away a restriction. It is the facility to maintain the restriction.

I take your point, but my counter-argument would be that if there were a consensus or a decision by the government or a view coming from the industry to make a substantial change in our telecommunications policy to allow more foreign ownership, for example, there would be nothing in this agreement to prevent that. It's a facility to allow us to do things.

Mr. Charlie Penson: Well, Mr. Dymond, I guess the concern I have is that the more reservations and exceptions countries take, the less need for this overall agreement to begin with. Isn't the idea to try to move forward and liberalize investment throughout the world? Therefore, I think it's important that if conditions have changed in some of these industries, we recognize it. If we carve it out and say we could still back away from it and not have to implement it, doesn't that set a tone in the negotiations themselves?

Mr. William Dymond: Yes, Mr. Penson, that's a good point. There are some people who believe this agreement should in fact move very aggressively to remove the investment restrictions that we in other countries maintain.

In my judgment, what we are doing, even without removing existing restrictions, Canadian or French or what have you, is very important. It is very important because if we succeed, we will have set a multilateral framework for investment protection based on the principles of non-discrimination, which will provide a launch pad for negotiations in the future.

This is what happened in the post world war when the GATT was established. The original GATT of 1947 did not have much liberalization in it. It was an agreement that established not only principles but also binding obligations respecting non-discrimination, which moreover established a series of safeguards—not carve-outs, but the ability to evade those obligations that were used by European countries in the first 10 or 12 years of the GATT for purposes of post-war reconstruction. I think no one today would deny or doubt the value of the 1947 GATT in setting the world upon trade liberalization, but it was important to get that first step out of the way.

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The last point I would make is that even with excluding, as you will see, the regulated services industries, there are vast areas of the private economy that will be covered by the investments covered by this agreement.

Second, with regard to telecommunications and financial services there are negotiations concluded in telecoms and continuing under financial services. We will see liberalization on a broader front, involving a greater number of countries, in those areas.

Mr. Charlie Penson: There is just one other area. Under NAFTA, with our exemption for culture, I guess the United States and Mexico have the right to retaliate in those areas. Will that same principle apply to the other 28 member countries of the OECD—

Mr. William Dymond: No, sir. Remember the exception—and to use our jargon correctly, it is an exception within the NAFTA, not only from investment, but it is also an exception to the whole of the NAFTA, except for one or two areas, such as tariff liberalization.

The exception or reservation on culture in the MAI is one that would deal only with investment measures. It won't deal with the other tools that we and other countries employ to nourish our culture, and it will have the same status as any other exception or reservation. The issue of another country being able to retaliate for your exercising the right within the agreement has not arisen, and I do not anticipate that it will arise.

The Chairman: Thank you, Mr. Penson. Ms. Bulte.

Ms. Sarmite Bulte (Parkdale—High Park, Lib.): Thank you, Mr. Chairman. Thank you, Mr. Dymond.

Continuing on with what Mr. Penson said with regard to NAFTA, I know there's been some concern—and maybe you can help me out here—in the wake of the World Trade Organization ruling, especially with respect to the Canadian magazine industry, which had a negative effect on us.

What lessons, if any, were drawn from that WTO ruling that could be put to good use here in the MAI negotiations, or is it something totally different?

Mr. William Dymond: I would argue that it is totally different. The magazine ruling was a ruling under the provisions of the 1947 GATT, and we are dealing with investment here. I don't see a cross-over. It emphasizes something we've had in the front of our mind from the very beginning, to make sure we get this cultural reservation or exception. By that, I mean the room that the government of Canada requires and eventually the governments of the provinces require to pursue cultural policies in so far as those policies involve investment.

I have to be equally clear: we are not in this agreement reaching into other areas of public policy that are used to support cultural industries.

Ms. Sarmite Bulte: Going back to the question of culture, I'm delighted to hear you mention that the Canadian government will support, and correct me if I'm wrong, the French resolution for the exception attached to the agreement and handed out to us.

One of the things I've heard from the cultural community is why hasn't Canada said anything. France has gone right ahead and done this and we've remained quiet. Could you expand on why. You touched on it lightly.

Mr. William Dymond: Well, we've not remained quiet. We have been very vocal about this subject, setting out our position in unmistakable terms that we require the room to maintain the flexibility. Whether that comes by way of a Canada reservation or a general exception is a matter to be negotiated. The important thing is that the room the government needs will be maintained, and we've been very vocal about that.

As to why there isn't a Canadian proposal, I think at this stage it would be unwise to put in a competing proposal and allow the opponents to pick us off one at a time.

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The only proposal touching culture on the table right now is the French proposal. It has not been discussed in any detail. Nobody has tried to pick apart the words and say “How about this instead of that?” I'm aware that there may be some concerns about what the proposal actually does, but it has not been discussed. And I do not anticipate that this whole issue will come back to the table until very late in the game, because it is recognized all around, both by the countries who require this and the countries who don't like it very much, to be a very sensitive issue that will need to be resolved at the end.

Ms. Sarmite Bulte: But am I correct in saying that our position is that we in principle support...?

Mr. William Dymond: Yes, absolutely.

Ms. Sarmite Bulte: My next question is with respect to—

Mr. William Dymond: I'm sorry, but if there are comments that the committee or groups we will be consulting wish to make—for example, I am meeting this week with the Canadian Conference of the Arts and next week with the sectoral advisory group on culture—we're certainly open to comments and observations on proposals on the language of the French proposal. We have not been in a position that says we have to have every word, but we are solidly behind the concept and everybody knows it.

Ms. Sarmite Bulte: [Inaudible—Editor].

The Chairman: I wonder if I can just interject for a second. If culture is off the table, then how would a dispute over it be settled? If there is a dispute within the process, what sort of system would be set up to settle that dispute?

Mr. William Dymond: If culture is off the table, is out of the agreement.... If you take, for example, the limitations we have on foreign ownership of Canadian air carriers, which is 25%, they're out of the agreement. Nobody can come to you for a matter that is out of the agreement and say you're out of line here. When it's out of the agreement, it's not covered. It means you have not taken obligations on it. So nobody can come to you and complain—to use the Air Canada one—and say your regulators prevented me from buying 50% of Air Canada. We'd say so what—the legislation is 25% and we have no obligations. It is not a matter you can take into a dispute because we have undertaken no obligations on it.

The Chairman: Would it be handled under domestic law, then? There would be no....

Mr. William Dymond: Again, Mr. Chairman, if the United States or another country came to us and complained about the ownership restrictions we maintain on cultural industries, anybody can complain, but it's a far different matter from being able to say that the Government of Canada was acting contrary to its international obligations. Somebody can always ask us to change it, and we can always say no. But as a matter of being subject to treaty rights and obligations, the answer is no, it would not be, and it would not be addressed under that treaty.

The Chairman: Go ahead.

Ms. Sarmite Bulte: Thank you.

To go back, could you confirm for me what I understood you said? You said the legal effect of a reservation and an exception is the same. Is that correct?

Mr. William Dymond: Yes.

Ms. Sarmite Bulte: Going from there, then—and you talked about it in the reservations you handed out—the exemptions from page 38 on would be those that are not subject to the standstills. Is that correct?

Mr. William Dymond: That's right.

Ms. Sarmite Bulte: From my reading of the material, are those from page 38 on what would be called the unbound reservations?

Mr. William Dymond: Yes.

Ms. Sarmite Bulte: So as new technologies and new sectors emerge in those areas, they would be covered. Is that correct?

Mr. William Dymond: I would say not covered.

Ms. Sarmite Bulte: Not covered.

Mr. William Dymond: Yes.

Ms. Sarmite Bulte: You're not covered by the agreement.

Mr. William Dymond: Or I might add, not necessarily new technologies, but new legislation. If the government or Parliament were to say we need a new approach in this sector, then the legislation would not be covered.

Ms. Sarmite Bulte: Is that our government's position on the bottom line for culture—unbound reservations?

Mr. William Dymond: Yes.

Ms. Sarmite Bulte: I have one other question. You touched on this about Investment Canada. How will this agreement affect Investment Canada, or is Investment Canada going to be a specific reservation to the agreement?

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Mr. William Dymond: In our preliminary draft list, we have put in a reservation for what we do, reviews of large-scale acquisitions and mergers under the Investment Canada Act, as we did in the NAFTA. We've had to do that because, on the face of it, when you review a foreign acquisition of a Canadian company and do not review a Canadian acquisition of the Canadian company then that's not consistent with national treatment. So in order to do that and have the legal facility to do that, you take a reservation. As we took a country reservation in the NAFTA, we will take a country reservation in this area.

I would note that some other countries have similar types of procedures. For example, the British have this. They don't use it. They don't have the infrastructure to use it, as far as I know. But they have taken a general reservation that allows the minister of industry or the minister of jurisdiction in the British government to review acquisitions of British companies.

We do have an infrastructure, we have an agency, we have legislation, we have regulation, and we have set that all out in great detail in what is a three-page reservation.

Ms. Sarmite Bulte: I have one quick final question on the roll-back. You talked about the standstill. What about the roll-back provisions with reservations? Are those the same for page 38 on, that the roll-backs will not apply?

Mr. William Dymond: First of all, before there can be roll-back, there must be standstill.

Ms. Sarmite Bulte: All right, thank you very much.

Mr. William Dymond: On the reservations we've taken on page 38 and on, we're not the only ones who have taken these types of reservations or will take them at the end of the day.

On the ones that are stood still, it's always open for some country to come to us and say, listen, we would like you to liberalize your restrictions that you have identified on sector so and so, and are you interested in doing so? Then we would consult and see what instructions we might get to deal with that item and what we might ask in return. But clearly that can only apply to items that have been stood still, if I may use that term.

[Translation]

The Chairman: Mr. Sauvageau.

Mr. Benoît Sauvageau (Repentigny, BQ): I want to welcome the chief negotiator as well as his colleagues.

My first question is on a point of clarification. We know that NAFTA contains compensatory provisions in relation to exception clauses. Would there be the same in the MIA if there were a general exception for culture?

Mr. William Dymond [Editor's Note: Inaudible]

Mr. Benoît Sauvageau: Okay, thank you very much.

Now, you said earlier that culture was not on the table of the Multilateral Investment Agreement. If we consider a product, a good or a service to be of a cultural nature and if a third party contends that it is covered by the MIA, who would make the decision as to the definition of a cultural good?

[English]

Mr. William Dymond: This agreement will not cover goods or services; it will cover only investment.

To use your example, if a country wants to argue that a particular product is a good, and our view is no, it's a service, they're going to have to do it somewhere else. They won't be able to do that within this agreement.

This agreement involves investment; and whether it's investment in the production of goods or investment in the production of services, it's investment.

[Translation]

Mr. Benoît Sauvageau: If someone wants to invest in a cultural industry, who is going to interpret the definition of cultural industry? I will ask my question more clearly. You said that you would accept the provisions in NAFTA, but if somebody wanted to invest in movie theatres, in the multi-media business or in those tax credit programs for program production or involving technologies that do not exist today but that might arise in the future—things change rapidly in those industries—, who would define the meaning of cultural industry, especially since in Canada we could have two cultures? Heritage Canada defines one Canadian culture, but one might argue that there are two Canadian cultures. Whose mandate would it be to define this?

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[English]

Mr. William Dymond: You referred to tax credits. Tax credits, whether for the cultural industry or any other industry, will not be covered by this agreement because we have carved out tax measures altogether.

Second, using the NAFTA as an example, we defined the universe in the NAFTA by saying what cultural industries includes: film video, audio-video, publications, radio communications, etc. That is the universe we have defined.

If we took a measure that we considered fell under (e) or (d) and some country said it has nothing to do with culture, using the NAFTA model, it would be for the dispute settlement panel to decide whether the measure was in fact a cultural industry's measure.

The French proposal is self-judging: culture is what culture is. Whatever the government may decide is a cultural industry: whether it be the production of books or of automobiles, it would be a cultural industry on the judgment of that government.

[Translation]

Mr. Benoît Sauvageau: Very well. Here is my second question.

If my understanding is correct, the Minister said yesterday he is in favour of side agreements on the environment and labour. Are side agreements envisioned at the present time in those negotiations? Is this the position of the Minister and the department? Are you looking at negotiating side agreements and, if so, what countries support Canada on this issue of side agreements for environmental and labour standards?

[English]

Mr. William Dymond: Mr. Chairman, on that I have little to add to what the minister said yesterday. However, something that was pointed out to me today was that the discussion of this whole issue only began last June at the late June and early July session. We've just had the second full discussion of it.

The question of side agreements has been mentioned but not proposed. This is an area, like the whole complex of labour environment issues that eventually will have to be separated, on which we are consulting.

[Translation]

Mr. Benoît Sauvageau: Okay. I understand you have been negotiating for two years. The final round of negotiations will start in January. It is expected to be concluded in April, if all goes well, but you have not yet seriously discussed environmental and labour standards. You also said this is a very complex issue. So, would it not be time now to start discussing this issue before the negotiations are concluded, do you not think so? It might be wise.

Now, as for the provisions on relaxing national standards to attract investments, two alternatives are shown in the document you tabled yesterday. On page 49, we have alternative 1 where it says that it would be inappropriate to relax national standards to encourage investment. Then we have an alternative 2, which seems more narrow, where it says parties should not derogate from...

I asked yesterday the Minister if the Canadian government has a preference for one or the other of those alternatives. Could you tell us if there seems to be a consensus among the 29 countries around the table in favour of one of these two alternatives?

Also, there was a mention yesterday of punitive standards rather than simply hortatory language, as Mr. Blaikie mentioned. There was a mention of sanctions for infringements of alternative 2, the one we should favour. Could you tell us which alternative you support and which seems to have the greatest support from other countries? Also, would you go so far as to impose sanctions in cases of infringement of the second alternative?

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[English]

Mr. William Dymond: First, I would point out that the first alternative is the NAFTA language. It's drawn from the NAFTA language, which talks about the inappropriateness of lowering standards and applies only to environment.

On the second issue, the Canadian position, we have taken a position, as my minister said yesterday, in favour of very strong language. But we are consulting broadly on that precise question of whether between the two alternatives, which are stark alternatives.... The question is between a formulation that says inappropriateness and another that says a contracting party shall not waive, derogate, modify or whatever. There are a variety of formulations that can be used to capture the same idea.

On the basis of the meeting that occurred last week, only four countries pronounced in favour of alternative two, and by that I mean the idea in alternative two. I wouldn't want to commit anybody to a precise formulation, but they were in favour of the concept that it should be binding. One country—I don't want to identify them—that in a previous discussion was in favour of binding has now gone to voluntary or hortatory. About half the countries did not comment on that precise item. A number of them, like Canada, said this is an issue on which we are consulting very broadly with all the stakeholders—labour and the provinces in particular.

I think the other countries around the table are far away from final positions. I don't think this count of four in favour of binding will remain the same. I think it will probably grow, but modestly. I think some countries will add themselves to the binding, and after consultation some will drop off the binding and fall into the voluntary count. It is premature at this stage to determine whether there is a consensus to go in one direction or in another direction. We need to have a lot more discussion.

I hope we will know more about this issue and how it plays in Paris and further along in our consultations by the time of the next discussion, which is scheduled for the December meeting. That meeting will be far from the final word on this subject. I expect this to be a continuing and dominant theme right up until the end of negotiations.

The Chairman: Thank you, Mr. Dymond.

I want to follow on with one question because I wasn't clear. You said that in terms of defining culture, the country itself would define it. Culture is defined in a certain way under NAFTA, isn't it? It's defined in a different way under UNESCO, because they include other things. I'm not sure I understand what you mean.

Mr. William Dymond: If the solution of a general exception does not work and countries revert to country reservations, each country will define culture itself, and it will probably be defined by each cultural sector.

We know that the sensitivities on cultural industry sectors vary across those countries that are interested in it. Our sensitivity tends to be the largest of all because it's on the whole sector. Other countries say that's important but what is really key to us is the audio-visual sector or the publications sector, for example. In the country schedules, if that's the route we go, you will have a schedule for Canada, which will be what we require. Then you'll go to Spain, for example, and Spain's will not be identical. It will be up to them what they require. We can't enforce our list on them, nor can they do the same to us.

The Chairman: Okay. So we'll cover everything off somewhere in terms of terms.

Mr. William Dymond: Yes. We have to look after our own needs and let other countries look after themselves.

The Chairman: Mr. Blaikie.

Mr. Bill Blaikie: Mr. Chairman, a lot of people are concerned—and it's a concern that I share—about the twenty-year provision in the agreement. The twenty years is arrived at through the five years plus fifteen. Does the Canadian team have any qualms about this? Have any other governments expressed qualms about this? Or is it just generally accepted that an agreement like this, unlike the NAFTA or the Canada-U.S. Free Trade Agreement, should be able to bind four or five parliaments? It's a kind of democratic question that is raised here. Has this been universally and uncritically accepted by everyone at the table, or has there been discussion about what I would regard as the unacceptability of binding four or five parliaments?

• 1625

Mr. William Dymond: Mr. Chairman, this not a precise clause but a concept. It is five and fifteen, but it could be three or ten. Nonetheless, it is a prolonged time. It's commonly found in bilateral investment agreements around the world, in the bilateral investment agreements that we are negotiating, and in the agreements that other countries have. The economic rationale is that when you're putting an investment into a property or anywhere, the payback on that investment is not six months or a year. It tends to be for a very long time.

Second, it's important to understand that if you withdraw from an agreement within the withdrawal period, the protections to exist for a further fifteen years would be for those investments that occurred while you were a member of the agreement. Subsequent investments would not enjoy the protections of the agreement.

So the short answer is that this is a provision. To be perfectly honest with you, it has not been controversial. I suspect there'll need to be some drafting on it. To say that all the countries have them is perhaps going too far, but it is undoubtedly a common feature. It is in our bilateral agreement.

Mr. Bill Blaikie: But it's not in NAFTA.

Mr. William Dymond: No, it is not in NAFTA.

Mr. Bill Blaikie: To the extent that this is an effort to replicate NAFTA, this goes far beyond NAFTA in respect of these kinds of guarantees for investment.

Mr. William Dymond: Yes, the withdrawal clause in NAFTA applies to the whole of the agreement.

Mr. Bill Blaikie: But when you're out of the agreement, you're out of those obligations.

Mr. William Dymond: Yes, that's right.

Mr. Bill Blaikie: In this case the obligations persist long after you're out of the agreement—much longer than in NAFTA.

Mr. William Dymond: In respect only of the investments that have occurred.

Mr. Bill Blaikie: Yes, but that would be the case in NAFTA as well.

Mr. William Dymond: Yes.

Mr. Bill Blaikie: In one case the obligations last for twenty years or fifteen years, depending on when you start counting, and in the other case they only last for the duration of the notice period.

Mr. William Dymond: That's right; that's correct.

Mr. Bill Blaikie: I want to ask another question with respect to roll-back, because there is language in the agreement that talks about measures that are subject to standstill. It says they might be rolled back in the following ways, and then there's quite a list of ways in which measures that are subject to standstill might be rolled back.

Is there an understanding—this is what people would be concerned about if there were to be such an understanding in the agreement—that these measures that are subject to standstill are also subject to a general understanding that they will, over time and in an evolutionary sort of way, be rolled back, be further liberalized? Is that the understanding with respect to standards?

Mr. William Dymond: No, sir.

There was a discussion in the first half of 1996—it may have been late 1995—of a technical nature at the working group level that considered the techniques for roll-back. It's an interesting discussion, because if this were a straight tariff negotiation, the technique for reducing or rolling back tariffs is 10%, 9%.... You can devise various formulas, but you've got a single target. But the investment restrictions that we and other countries maintain do not conform to a common pattern. They are of a whole variety of different types. And if you wanted to roll back, you couldn't take the same formula and apply it one to another.

• 1630

I recall saying to my colleagues that this discussion seemed to be disconnected from reality at the time, because roll-back would have to be negotiated on an individual basis. If somebody wanted us to liberalize our foreign investment restrictions in the air transport industry, they'd have to make a proposal to us, and we'd examine it and see what we might say to it. But if there is roll-back in this agreement, it would be on individual restrictions—only those subject to standstill, for obvious reasons—on a country-by-country basis and a measure-by-measure basis, to be negotiated and agreed.

Mr. Bill Blaikie: But in your view there's no commitment to sunset or eventual elimination of standstill measures in the agreement as it stands.

Mr. William Dymond: No, there is no legal commitment. But other countries have been talking about borrowing something from the WTO or the Uruguay Round for the future agenda of identifying subjects that you might care to have negotiations on. But that is not a commitment to do anything, and it is not a binding legal obligation. Nobody would be able to come to you two years or three years down the road and say you were supposed to roll that back. There will be no such commitment.

Mr. Bill Blaikie: Going back to the question of the extent to which the MAI doesn't replicate NAFTA but actually goes beyond it, as we've just discussed in respect of the period in which—

Mr. William Dymond: [Inaudible—Editor].

Mr. Bill Blaikie: That's one example, but I'm just trying to determine what other ways there are in which the MAI goes beyond NAFTA. My understanding of the agreement is that with respect to prohibited performance requirements, there are extra prohibited performance requirements in the MAI that aren't in NAFTA. From the information that I've received, the NAFTA plus prohibited performance requirements are to locate headquarters for a specific region or the world market in the territory of the contracting party, to achieve a given level of research and development in its territory, to hire a given level of national personnel, to establish a joint venture or to achieve a minimum level of equity participation. Is this true?

These things are in the MAI but not in NAFTA, either at all or to the same extent.

Mr. William Dymond: I would differ with you, Mr. Blaikie, on whether they are in the MAI. There are proposals to that effect.

Mr. Bill Blaikie: In that sense, nothing's in the MAI yet. But is it in the draft general provisions of the MAI?

Mr. William Dymond: I think the most confusing part of the draft that you have in front of you is the text that deals with performance requirements. We have been working very hard—and I give all credit to Mr. Ready and his colleagues in the Department of Industry to try to put some coherence in it—and have made it quite clear that the Canadian position on performance requirements is not to go beyond the NAFTA.

If somebody makes a proposal—this is a negotiation—reflecting their wish list or what they want to get done, we can't rule them out of order. We have made proposals on extraterritoriality—the minister alluded to that yesterday—that go beyond the NAFTA. We'll see how far we get.

Mr. Bill Blaikie: Are those in the text—your suggestions with respect to extraterritoriality?

Mr. William Dymond: Yes, they are. They are under the heading of either union proposals or Canada proposals.

On performance requirements, as of the meeting last week we submitted a text—the Canadian proposal, which is the NAFTA proposal—as the text that we are prepared to live with. But if another country wants to propose something, they can.

The example I use is something you don't see here. Before this text was put together, a proposal being pushed by some smaller countries was that this agreement ought to forbid investment incentives, that governments get out of the business altogether. That was the proposal. We couldn't rule that proposal out of order. We just said it was unacceptable. We have made it clear that these proposals, which are in the MAI text, are unacceptable. Thanks to the work of Rob Ready and his colleagues, the text is beginning to make more sense. It is not there yet, but we have put on the table the Canadian proposal, which is the NAFTA proposal.

• 1635

We have further indicated in the head note to our reservations that we may need to take a reservation on this area. If we cannot persuade other countries to go along with the Canadian position, we will take the reservation necessary to ensure that our commitments on performance requirements do not exceed those of the NAFTA.

The Chairman: Mr. Blaikie, you'll get on the next round. Mr. Brison, please.

Mr. Bill Blaikie: I think it would be of help to all the committee to clarify the lingo. Is a bound reservation the same as a standstill?

Mr. William Dymond: Yes.

Mr. Bill Blaikie: We keep using these terms interchangeably, and sometimes it's not exactly clear just what's what.

A bound reservation is the same as a standstill. Is a carve-out the same as a general exception, as in the case of what France is demanding and what is in the text, or is it the same as taxes and services, which aren't in the agreement altogether? I'm just trying to get the lingo down here.

Mr. William Dymond: Well, as used to be said in wartime days, loose lips sink ships. In fact, if you search in the NAFTA you won't find the words “standstill”, “carve-out”, “bound” or “unbound”. You will find language that reflects those words. This is jargon we negotiated and developed in order to communicate among ourselves.

Mr. Bill Blaikie: It's a private language.

Mr. William Dymond: It's a private language, yes.

Mr. Bill Blaikie: “Unbound” is the same as “precautionary”.

Mr. William Dymond: Yes.

Mr. Bill Blaikie: Okay, I just wanted to get all of that straight.

Mr. Scott Brison: It's also known as annex B.

I have a document here from the western governors, and the European Union claims that American federalism results in market fragmentation that thwarts national treatment. In Canada, with interprovincial trade barriers, there must be a significant issue concerning national or subnational treatment. Would a company doing business in Ontario be treated under national treatment or under subnational treatment as per the interprovincial trade barriers?

Mr. William Dymond: Yes.

Mr. Scott Brison: There were two choices, either yes or no. Is it national or subnational treatment when you have a company doing business in a particular province, given that we do have interprovincial trade barriers in Canada? How would they impact? Would it be national or what?

Mr. William Dymond: We had in the NAFTA a very long negotiation on what precisely that meant, and the agreement reached is that the treatment you're entitled to is the best treatment available in the jurisdiction in which you're operating. That means if you're a foreign investor in the province of Ontario, the national treatment you get is the treatment that Ontario firms get.

The other way to look at it would be to say no, you get national Canadian treatment, which may not be as good as Ontario treatment. It's an important point. What the United States has proposed in its reservation list is not what we call in-state or in-province national treatment but in-United States national treatment, which isn't as good.

Mr. Scott Brison: Okay, you've said under NAFTA that is the case.

Mr. William Dymond: That's right.

Mr. Scott Brison: In our MAI negotiations there's a reticence to proposing, as the U.S. did, reservations for state sovereign issues. Am I to understand that the same treatment, national and subnational treatment and definition, would carry on exactly from NAFTA? Would it be identical to that in MAI?

• 1640

Mr. William Dymond: I don't you think you can understand anything precise on that, Mr. Brison, because this is an area that has not been extensively discussed. The unitary Europeans have brought an agenda to this negotiation that says that sub-national levels of government—in our case provinces, but you could talk about German länder and canton—

Mr. Scott Brison: Municipalities, potentially.

Mr. William Dymond: Yes, all of that, depending on various people's constitutional arrangements, would be automatically covered by this agreement. We have said quite clearly that does not apply to Canada. We could never accept such a thing. That is not in accord with the way we do things in Canada.

Every country has different constitutional arrangements and different constitutional jurisdictions of power. So our position has been you cannot assume that measures under the jurisdiction of Canadian provinces will be covered by this agreement. This is a matter to be negotiated, and it's a matter we are discussing with the Canadian provinces.

The United States has taken the opposite attack, because I understand they claim the federal government does in fact have the constitutional power to commit their states. But in their construct, in what they've put forward, they've put forward a reservation that does two things. It takes out of the agreement virtually all state measures of any interest to foreign investors, and it redefines the national treatment. It would be the national treatment available to the federal government, not national treatment in Wisconsin, for example. That's what the United States has done. I anticipate that when we get down to the really hard negotiating, this will be a very important issue, in which the principal target of the Europeans will not be Canada but the United States. That's because of the behaviour of certain U.S. states.

Mr. Scott Brison: Chapter 11 provisions in NAFTA relative to investment—I understand that the scope of chapter 11 is expanded somewhat in MAI. Could you clarify that or confirm it is the same as that of NAFTA's? You refer to NAFTA quite a bit. We already have three lawsuits against the Canadian government under those provisions, and there is some concern that if we are to increase the scope, there's even greater exposure.

Mr. William Dymond: Do you mean the scope of investments covered?

Mr. Scott Brison: Yes.

Mr. William Dymond: The working definition that you find in your draft is a broader definition; it's an open definition, whereas what's in the NAFTA is a closed definition. I'm sorry to get into jargon.

There are significant problems, if you look at the head note or the footer for that definition, with major items on which no agreement has been reached. I believe the negotiating group will have to revisit the investment definition to ensure it covers essentially what is in the NAFTA. We do not think we need to expand the scope of the investments covered. We think we did a fine job in NAFTA. Others may disagree with that. It covers the universe we want it to cover. We're not interested in having a narrower scope; we're interested in having the same scope.

We have said very clearly in our head note to our reservations that if discussion does not come out in a way that is acceptable to the Government of Canada, we will protect ourselves through reservations.

Mr. Scott Brison: Okay.

With respect to the impact on regional economic development, for example, a province may want to attract a specific sector and may have an economic development strategy for biotech or software development. They may have a government grant program or tax. You said tax breaks are okay, but a tax break is just the same as a subsidy. Are subsidies exempt as well?

Mr. William Dymond: No. Let me come to the point. All taxes are out, whether it's a tax credit or a tax. All taxes are out.

Mr. Scott Brison: What about subsidies?

Mr. William Dymond: The discussion on subsidies has been—-

Mr. Scott Brison: They're the same thing.

Mr. William Dymond: Economically they're exactly the same, but the tax people around the world have united to get the taxes out of this agreement.

• 1645

Mr. Scott Brison: What about the subsidy people?

Mr. William Dymond: The subsidy issue—and you're exactly right, that's what to call it—has been considered under two headings. The first one was the area I discussed in responding to Mr. Blaikie, which was a proposal early on in the negotiations that this agreement ought to reduce or eliminate over a period of time all subsidies. No, we're not interested in that and we weren't the only ones.

So we're not going to talk about any obligation—it's not in the NAFTA—that would limit the ability of the Government of Canada or eventually the government of any province to have any incentive program it likes to attract biotech, software, or....

Mr. Scott Brison: Suppose the province of Nova Scotia—I'm a Nova Scotian—wanted to provide incentives or attract biotech companies and had a specific program for biotech companies. Suppose a Canadian company received a grant under that program. Wouldn't there be a certain amount of exposure that a foreign company, maybe in some sector other than biotech, would not be eligible and thus potentially be able to take action against or through chapter 11 provisions, thus limiting the ability for an individual province to have a sectorally specific economic development program? That exposure is limiting.

Mr. William Dymond: No, I would argue not. I would argue the provision that would be applicable in that sense would be the definition of national treatment. National treatment talks about like circumstances, and nobody would imagine that if we have, as we do administer under Rob Ready's department, technology partnerships, under which, say, Bombardier has benefited, a company in a totally different business could come and say you just gave $100 million or whatever to Bombardier, so give it to us. That would be quite out of the question.

Mr. Scott Brison: But a provincial—

Mr. William Dymond: I look at them in the same way.

The issue that arises is the question of whether there should be national treatment type of incentives, whether the government should distinguish between a Canadian company and a foreign company, for example, in the biotech sector.

This is an issue we have been examining on both sides of the ledger, because in many markets, and I know this from the assignment I had in Washington a number of years ago, established Canadian companies, Canadian-owned companies, companies that are active and established in somebody else's market such as the United States and France, would like to be able to participate in some of the government's incentive programs and get a grant or a loan or a guarantee under the performance requirements, for example, to do R and D in Germany.

This goes back in my history, but Canadian companies have been excluded from such programs and were in my days in the United States.

On the other side there has been criticism. Would this mean that the health and social education services areas, where provincial governments engage in grants to non-profit groups, co-operatives and so forth, would be covered?

My answer to that has always consistently been no, because we are taking an unbound reservation for anything that goes on in those sectors, whether it be incentives or whatever the government wants to do.

It's my impression that at the earlier stages of the negotiation there was a lot of enthusiasm for applying a national treatment obligation to the grant incentives and that enthusiasm has been steadily diminishing as the months go by. This is an area we are examining.

We are searching very carefully within the federal government and have been for some months. What we have discovered, and this research is not complete, is that the Government of Canada as a matter of policy does not distinguish between Canadian firms and foreign firms in the grant of investment incentives. We do for taxes. The taxes are out.

• 1650

So this is a matter on which we have not taken a firm position. We want to hear from a lot of people on it, and as I say, we have interests in other markets.

The Chairman: Mr. Nault.

Mr. Robert D. Nault (Kenora—Rainy River, Lib.): I want to get Mr. Dymond to try to explain this, if he can. Under the reservations section on page four in the introduction, number three deals specifically with the Canadian provinces. Can you tell me if this particular section that deals with provinces is the same treatment we gave to the provinces under NAFTA, or is there a difference between MAI and NAFTA as it relates to our relationship with the provinces?

Mr. William Dymond: No, Mr. Chairman, we are proceeding in exactly the same way, of consulting intimately with the provinces, making sure we are fully aware of their preoccupations and their concerns, proceeding on the assumption that the replication of the obligations of the NAFTA in return for the acquisition of the same rights would be as attractive to the provinces as it would be to the federal government. We're not there yet. We are still in the middle of the negotiations. But as I say, we are treating this the way we traditionally approach a negotiation; that is, to find out where everybody is and make sure we're not causing damage or heartburn for anybody along the way.

Mr. Robert Nault: If I am correct in understanding what you have been telling us as it relates to the difference between us and the United States in reservations on what you call sub-national issues, we treat them all as reservations relating to the federal side.

Every reservation you gave us here says “Level of Government: Federal”. Is there no such thing as a provincial reservation, or is that because we have been so lucky to agree on everything that there is no need for them? I am having a really tough time trying to figure out the relationship between the provinces and your reluctance on the whole issue of binding them to something that's their jurisdiction when in fact they don't seem to show up around here.

Mr. William Dymond: If I may draw your attention to paragraph three of the introduction, on page four, we are saying as and when measures under the jurisdiction of the Canadian provinces would be covered by this agreement, we would deposit at the same time the reservations applicable to the provinces, to come to the same effect as we had in the NAFTA.

Mr. Robert Nault: Would you classify them as federal, for example, how we negotiate as a country, even though they are a reservation relating to a province?

Mr. William Dymond: I beg your pardon?

Mr. Robert Nault: Give me an example of a provincial reservation as it relates to the MAI.

Mr. William Dymond: Health, social and education services would not be distinctly or exclusively provincial because the federal government has responsibilities in those areas as well, and of course we would be united with them on that.

Mr. Robert Nault: That's not a very good example in the sense that it doesn't exist in here—meaning it is not in the reservations you have given us, so obviously we all agree on where we are headed in those particular fields.

I am saying you're telling us that on the area of the environment and in the area of labour there is a significant disagreement among the provinces. I am assuming, because there are no provincial reservations, that on everything else we agree as a nation, as a federation.

Or you do this in a different fashion: that provinces don't show up as a reservation. We put it in as a federal reservation, but really we are doing it on behalf of the province.

I am trying to get a sense of the relationship between us as a federation and another state that doesn't have to deal with it in this fashion and how we manage to negotiate an agreement like this—so people will understand it, because I don't, quite frankly, on the environment, as an example.

• 1655

Mr. William Dymond: Let me deal with the agreement as a whole.

I'll tell you what we've said in Paris: Until we tell you differently, negotiating group, other countries, this agreement will apply to measures under the jurisdiction of the federal Government of Canada, and there will be no obligations attaching to investment measures under the jurisdiction of Canadian provinces.

If there are no obligations on the provinces, clearly there are no reservations to obligations that have not been taken. If we get to the point where this deal is good enough and we say yes, this is good enough that provincial measures should be brought into the coverage of the agreement—we'd do this in consultation with the provinces—then we need the full package of reservations to exclude from coverage of those agreements areas of particular provincial sensitivity.

As a matter of practice, if you again look at the NAFTA, you will find that the areas of provincial sensitivity in investment are a pretty close match to the areas of federal sensitivity. We're not dealing with the situation where the province of Ontario is desperate to have something and we don't want it or no other province wants it.

Mr. Robert Nault: You can't seem to give me an explanation or an example of a reservation that relates to a province. Is there one? Does it exist?

Mr. William Dymond: Yes—health care.

Mr. Robert Nault: Is it in this document?

Mr. William Dymond: It is in this document applying to the federal government because we as a federal government have responsibilities in the health care area.

I have not put it in for the provinces because to this point we're saying measures under the jurisdiction of the Canadian provinces are not subject to this agreement until we change our mind. If there are no obligations incumbent upon the provinces, then we don't need reservations from non-existent obligations.

Mr. Robert Nault: Let's go back to the environment again. Why don't we go ahead, then, with the whole binding process for environmental standards and labour, and then allow the provinces to have some form of abilities to have reservation, and allow provinces that want to participate in that particular fundamental issue to do so, if that were our position?

Mr. William Dymond: That's certainly an alternative.

Mr. Robert Nault: But we don't do that as a Canadian position?

Mr. William Dymond: That's right. We come to a united Canadian position; that's what we're trying to....

Mr. Robert Nault: Thank you, Mr. Chairman. I'm having trouble catching on here.

The Chairman: No, that's fine. It's difficult subject matter.

We'll go on for some single questions from colleagues. I figure we'll go about another 15 minutes, maximum. Mr. Penson.

Mr. Charlie Penson: Mr. Dymond, up until now in this discussion we've been focusing mostly on what kind of protection Canada wants in terms of inward investment. But I'd like to ask a question. You've been out talking to Canadian investors who want some protection outside our country. I know national treatment and an effective dispute settlement mechanism is part of that, but what are they telling you?

Considering that the United States is sort of our investment choice location, what U.S. reservations...? What are Canadian investors telling you that are hurting our ability to invest in other countries that they would like you to have on your shopping list when you negotiate on our behalf?

Mr. William Dymond: They aren't telling us much specific on specific measures. Their message is that they want a high-quality multilateral agreement on investment. They want us to carry forward this agreement, or the principles that underlie it, into a global investment treaty to be negotiated as soon as we possibly can in the World Trade Organization.

They're telling us that in the absence of being able to move more quickly to a global treaty, they want us to negotiate more bilateral treaties, and in fact we have 33 countries on our list that we're either negotiating with or we would like to negotiate with in order to get these high standards of investment protection. They see the MAI as a launch pad towards that.

• 1700

They have a concern, and perhaps you'll hear this—I don't know—from the business witnesses that you will have before you. They have a concern that comes close to your own, Mr. Penson, about the level of reservations and the scope of this agreement, but they recognize that the government has to strive for a balance.

They have not come to us with any precise areas that they want us to examine. They have suggested a number of things we might want to look at. We are examining those, but we have not been presented—indeed, it's my impression that nobody around that table in Paris has been—with a list of French, German, Italian, Korean measures on transportation or mining or services that they want to get rid of.

Mr. Charlie Penson: I just want clarification on something Mr. Blaikie was exploring with you a few minutes ago. If we agree to something like this twenty-year, fifteen-and-five—or whatever it comes out as—in the MAI but don't have it under NAFTA, which agreement is going to take precedence?

Mr. William Dymond: If I may say so, it's a more general question. We have taken the view that the investment agreement among Canada, the United States, and Mexico is the NAFTA, principally chapter 11 and some other bits that are applicable to it as well. We wanted to be sure that what we negotiated with the United States would not be eroded because of doing an MAI with a larger group of countries. We take as our operating assumption that because it's an integral part of the NAFTA, the investment agreement between the three NAFTA countries will remain in the investment agreement. We will devise the appropriate legal formula to make sure that happens.

The Chairman: Mr. Sauvageau.

[Translation]

Mr. Benoît Sauvageau: I first have a request. You said Canada would take a position on alternative 1 or alternative 2 or some intermediate language by December. Since we are going to table our report around mid-December, could you communicate to us your position so that we can include it in our report, since it will have to be tabled in December?

[English]

Mr. William Dymond: Thank you for that question.

Obviously I will be instructed in this matter by the minister, but I do not believe it will be necessary to take a firm position for alternative one or alternative two in December. I don't think the discussion around the countries in Paris is sufficiently involved, and my view is that the advice this committee will render within the timetable it has set for itself will be relevant not only for that, but for all subjects under negotiation. The December meeting is by no means a crucial meeting that is going to point us in one direction or another on any given subject.

[Translation]

Mr. Benoît Sauvageau: If I am correct, you said that under MIA you negotiate presently areas of federal jurisdiction. In your answer to Mr. Nault, you said that you would deal with provincial jurisdiction in a second phase. Now these are hypothetical questions.

Once you will deal with areas under provincial jurisdiction, will you need the agreement of all ten provinces for these applications to become applicable? Sorry for the repetition. If a province decided not to sign on, would it be possible to take out reservations for only one or two provinces? How would this be implemented in the second phase?

[English]

Mr. Bill Blaikie: Do you have any province in mind?

Mr. Benoît Sauvageau: No. Why would you would ask such a question?

Some hon. members: Oh, oh!

Mr. William Dymond: I would have to refer such a question to the minister, and we would have to see what the issue was. I really don't want to speculate on what will be.

As I said, we're working for a situation in which we take the NAFTA rights and obligations and extend them to a larger group. If there is a province that believes it's all right to have those with the United States and Mexico but not with the rest of the OECD, clearly we'll have to reflect upon that.

[Translation]

Mr. Benoît Sauvageau: Yes, but we may want to have a report from your Minister or a position on this, as to whether agreement of all provinces will be required or if we can take out reservations for only one province.

Could I ask another question, Mr. Chairman? I may? Thank you very much.

• 1705

We have been expressing strong opposition against the Helms- Burton Act for a long time, but could you tell us what we are doing in a concrete or serious way against Helms-Burton in the MIA negotiations? What does Canada say or what is its position on this issue? Also, what other countries support Canada on this? Is Canada alone? So, firstly, what is your concrete position? Secondly, with who are you teaming up on this matter?

[English]

Mr. William Dymond: We have made two proposals to get at the heart of the matter. I'm afraid this will get technical, but I'll be brief, Mr. Chairman.

These proposals are contained in the draft text. The one entitled “conflicting requirements” addresses the situation where an investor may be subject to the legal requirements of where his investment is as opposed to the legal requirements of his home country.

The second one addresses the secondary investment boycott. That's the situation where the United States says that if you invest in Cuba in certain circumstances, you're in trouble in my market.

We made those proposals in March 1996. They have been amended by the European Union. All countries of the union stand fully behind us, or we stand fully behind them. We are arm in arm on this. Mexico clearly supports us. The other countries have more of a watching brief on it, I would say. But in terms of the principal countries around the table, we are in good company on those proposals.

The Chairman: Thank you, Mr. Dymond.

Mr. Brison, do you have a quick question?

Mr. Scott Brison: I have a quick question before I head off. I have another meeting.

The IMP situation with the Aeroflot hotel.... I'm probably going to ask you a softball question, but that's all right, because I think it does clarify.... We're more than willing to discuss the risks of MAI, and there are risks—

A voice: [Inaudible—Editor]...backbenchers.

Mr. Scott Brison: I'd like to be on the front benches, frankly.

In any case, on the Aeroflot hotel or the IMP situation, if Russia were part of this, which they're not, would IMP have been protected under MAI?

Mr. William Dymond: First of all, what I know about IMP is from what I've read in the newspapers. It's handled by somebody else in the department.

Prima facie it seems to be a case that would be eligible for investor state dispute settlement. The investor would say I'm being shabbily treated contrary to the obligations of the agreement, and therefore I seek an arbitral solution to it.

Mr. Scott Brison: In the future any country can join as long as long they meet certain criteria—is that correct?

Mr. William Dymond: This remains to be worked out, but the concept is generally agreed on, as in the GATT.

Mr. Scott Brison: Okay.

Mr. William Dymond: You'd have to buy your way in. You'd have to come in and say here's my investment regime, and it would be subject to examination to make sure it conforms. The second agreement would say here are my reservations, and they would be subject to examination to make sure it consists of an acceptable package of binding commitments. That's the procedure that is used in the GATT. That's what we're talking about in the MAI. We haven't fixed all the details, but there's consensus on that.

Mr. Scott Brison: Would it help Bombardier in Mexico, or would that be something we would need a foreign corrupt practices act for?

Mr. William Dymond: Good question. I don't think it would help in investment.

Mr. Scott Brison: Maybe we should get on with a foreign corrupt practices act, which the U.S. has had since 1977.

Mr. William Dymond: There is a negotiation in the OECD concerning that.

Mr. Scott Brison: Yes, okay.

The Chairman: Thank you, Mr. Brison Ms. Bulte.

Ms. Sarmite Bulte: Thank you, Mr. Chairman.

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Mr. Dymond, I'm going to come back to you again about what Mr. Nault was saying about the role of the provinces, because I don't understand it completely. Please correct me if I'm wrong, but I understand there were certain exceptions made for the States, their sub-nationals, in NAFTA. Is that correct? What were those exceptions? Are they put into one category, or can they be...?

Mr. William Dymond: Can I ask Mr. Ready to respond?

Ms. Sarmite Bulte: Yes, please.

Mr. Robert Ready (Acting Director, International Investment and Services Policy, Department of Industry): Thank you.

Just briefly, in the NAFTA, provincial non-conforming measures in article 1108 were supposed to be listed in an annex 1 fashion within two years of the coming into force of the NAFTA. That process of developing provincial and state reservation lists proved to be quite cumbersome. In the end, after this two-year period, the NAFTA partners agreed to an exchange of letters that effectively grandfathered existing provincial or state measures without listing them.

Ms. Sarmite Bulte: Without listing them.

Mr. Robert Ready: Transparency lists exist, but they're only for purposes of transparency because they're not complete, I think particularly on the U.S. side.

Ms. Sarmite Bulte: Going back to the MAI, I'm sure it's quite obvious, but I'm missing the point somehow. Why are there certain areas of shared jurisdiction, particularly in labour and environment? Why are the provinces being included at all if we can use this sub-national exception?

Mr. William Dymond: Why are they...?

Ms. Sarmite Bulte: Why are we consulting with the provinces if it's only going to apply to the federal jurisdiction?

Mr. William Dymond: If I may, let me use an example, the one we followed. I don't know whether the committee is familiar with the various agreements in the GATT on government procurement. Government procurement is not part of this agreement, but I just want to use it as an example. These are agreements to open up government procurement to foreign bids, and they're very modest. They're interesting, but they're of a very modest size—and I've taken part in the past in negotiations over this.

What the foreigners are principally interested in in Canada in terms of government procurement is not what the federal government buys. They're interested in the procurement of the provincial crown corporations in the utilities area, because that's very sexy procurement, high-tech procurement. Over the years—not this year, but for as long as I've been involved—we have worked very closely with the provinces to see what would be of interest to us in terms of opening up the procurement of, for example, Ontario Hydro to foreigners. Nothing of interest has been offered.

There are some areas of U.S. procurement and of European procurement that have been opened to Canadian bidders, and we have taken the view that we can pay for all of that by just opening up federal government procurement. That's all that agreement is good for, and we'll pay for it. Federal government procurement these days is not very interesting, particularly since the privatization of a number of crowns. We have therefore said that this agreement has to be large enough to bring provincial measures in the investment area under the jurisdiction of national treatment of non-discrimination areas. If it isn't, then we may reach a different judgment. That's where we are in the negotiations.

There is a reason why we have to be fully engaged with them on the precise labour and environment areas. The advice the provinces may render to us is that this is a pretty good agreement, that they want to be covered under that, with the full NAFTA package.

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I think there's a second reason. The MAI is not the only place where on this whole issue of the appropriate standards of environment and labour that ought to apply in a trade or in an environment agreement.... If you've been following the debate on the fast track in the United States, this has been an active area of contention among the various forces. Clearly, what we do in this agreement has to be seen in light of the forward agenda in the WTO and the ILO and other areas that are heavily into this subject matter.

I think, as the minister said or implied yesterday—a point with which we fully agree—this environment labour standards set of issues is an issue on the current global trade agenda, and whatever we do with it in the MAI, it's going to be considered in Geneva and perhaps in Paris in the future. It is going to be an area of continuing preoccupation. It was the NAFTA that brought it forward, and it is now on the global agenda and it is going to stay on the global agenda.

The Acting Chairman (Mr. Charlie Penson (Peace River, Ref.)): Mr. Blaikie.

Mr. Bill Blaikie: I have a couple of brief comments and then a question.

I would contend with Mr. Dymond as to the extent to which it's on the global trading agenda. Having been at Singapore with the minister in December 1996, it was a fight—and I didn't feel that the Canadians were in the fight—on the part of some other countries to even get the word “labour” mentioned in preambular language. It was the Canadian position that it should be dealt with at the ILO and shouldn't be an integral part of trade negotiations.

I see that same pattern emerging here in the MAI negotiations. I think, frankly—and I don't say this to you personally, as this is a political position you are constrained to defend—the provinces are being used as a cover, and the disagreement among the provinces with respect to labour and environmental standards is being used as a cover by the government for their own unwillingness to stake out a position in favour of binding and enforceable core labour and environmental standards.

You raised an interesting question earlier about taxes, and this is something that perhaps the committee could look at some time. It seems to me that carving out or not having taxes in the agreement altogether is an interesting point, because obviously a lot of other things are in the agreement and it seems to me that taxes and the raising or lowering of corporate taxes has obviously a lot to do with whether or not there is a level playing field in terms of countries' ability to attract and repel investment. Yet that's left out.

It seems to me that a broader sort of analysis of the agreement would show that all the ways in which countries can be nice to corporations are left out; that is to say, left out in terms of not being prohibited by say lowering corporate taxes or reducing labour and environmental standards. It would just be hortatory language on that: Please don't do it, but if you do, oh well, it's a tough world. But all the ways in which governments can get in the way of corporations are in the agreement. Those are all subject to dispute settlement, investor state dispute settlement, state-to-state dispute settlement. There seems to me to be an imbalance of power here that gives the lie to the view that this is somehow about creating a level playing field.

You may or may not want to comment on that. What are the deal breakers, as you see it, both in terms of the general negotiation and the deal breakers for Canada? Helms-Burton, general exemption on culture? What are they?

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Mr. William Dymond: Well, tax was not a deal breaker, but for the chairman of the negotiating group it was a heartbreaker. He was distressed when the tax people made common cause to take it out.

The deal breakers, as far as I can foresee them now, are focused around the exceptions and reservations, that complex of issues. It's appropriate that they be there, because that will define the scope of the agreement, how big or how small.

Within that there are some sub-issues. One clearly is standstill. I expect that there will be continuing pressure from a number of countries on the general principle of standstill applying to all issues. We, of course, will hold to our position.

I suspect culture will become a deal breaker, although it will be on the size and nature of the exception, not whether there should be one. I think it is generally accepted that it is inconceivable for a sizeable but important minority of countries, such as Canada and France, to enter into this agreement without the protection they need for culture. So it may be fought out by some others in terms of other agendas out there.

I think it is possible that the treatment of subnationals may be involved and fall into that category, but I don't think we will be the target. I think it will be the United States, because clearly the Europeans came to this negotiation with an agenda of bringing some of the more egregious policies of certain U.S. states under control. They're not going to get it, because the United States has taken those off the table.

On labour and environment, I put a question mark on that. That is a discussion on which many countries' positions are evolving. The United States has said a lot but in a sense has said little. I think they're waiting until...and I think their position has been informed by what would happen on the fast track. First of all, what would be the administration's proposal, which was a good year in the making; and second, would Congress would accept that?

As you know, that is scheduled to come to some kind of conclusion by the end of this week. Certainly it's an important one. Whether or not it will be elevated to that stage is hard to say.

What is Canada's bottom line? The bottom-line position we want to get is the NAFTA. We want to get those rights. If it turns out that the rights on offer are substantially less, we'll have to take that very carefully into consideration.

In terms of exacting obligations that go beyond the NAFTA, we consider—and I've been very blunt in saying this in Paris—NAFTA, chapter 11, and other bits that apply, to be a state-of-the-art investment agreement. If the MAI can reach that standard, then you all will have done very well, and we and the Americans and the Mexicans will be satisfied.

This is why, I might say, in our reservations list we have identified a number of place-holders such that if this thing doesn't come out right we will be able to defend what we need to do.

But our benchmark, whenever we have a question, is that we refer to: What did we achieve in the NAFTA? What did we get? What are the obligations we undertook? What are the reservations we obtained?

So when in doubt, as I say, refer to the NAFTA.

The Chairman: Thank you, Mr. Dymond.

Mr. Nault, do you have a final question?

Mr. Robert Nault: One quick question.

Is the fact that we are using the French position to say, then, at this point, that we think the French position is stronger than the NAFTA position as it relates to culture from a Canadian perspective? I mean, you have to assume that. You've suggested we're going along with it. Is this so that we can then tell the cultural people that we're getting a stronger position than we had under NAFTA?

Mr. William Dymond: If the French position were the one that is incorporated into the agreement, it is stronger than the NAFTA. It is, as I explained earlier, self-judging. It's not sector specific, it is self-judging. But I think it would be unwise at this stage, and certainly premature, to speculate what the precise solution will be on culture at this stage.

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As I've said, nobody's expressed this to me directly but I have heard that some people in the cultural industries community are concerned about some aspects. I look forward to learning more about that this week and next.

The Chairman: Thank you, Mr. Dymond.

That brings today's meeting to a conclusion. I have some questions, actually, but what I will do is table them with you and ask for a written response, if that's fine.

If any other members have questions, perhaps you can get them to me by tomorrow's meeting. I'll pass them along.

So if you could get back to us on those in the near future—I guess we have a week before we meet again—that would be appreciated.

Mr. William Dymond: Yes.

The Chairman: Outside of that, colleagues, I've put together a press release in terms of announcing this committee's goings-on. I will pass it around to members and send it out.

We will now break until tomorrow at 3.30 p.m.

Thank you.