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]

Monday, November 24, 1997

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[English]

The Chairman (Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.)): Order.

Colleagues, this is meeting number eight with the trade subcommittee studying the issue of the MAI.

Today we're going to deal with issues concerning negotiating the treaty, international political and legal issues.

We have before us today a panel of experts that we've called upon to brief us on this issue. We have with us Elizabeth Smythe, professor of political science from Concordia. We have also, from the University of Toronto, Robert Howse, professor; from the Canadian Institute of International Affairs, Alan Sullivan, president and CEO; from the firm of Thomas and Davis, Serge Fréchette, a partner; and from the Canadian Environmental Law Association, Michelle Swenarchuk, executive director.

Welcome.

In the past we've asked presenters to give about a ten-minute presentation. We will go through the whole list, and then at the end we'll have questions and answers from the presenters, at which time any of the panel can jump in on any particular question to a panel member. We've found in the past that it's helped us in getting the issues out and into the public domain.

We will start today with Elizabeth Smythe from Concordia.

Professor Elizabeth Smythe (Faculty of Political Science, Concordia University College of Alberta): Thank you very much. I'd like to thank the members of the committee for giving me this opportunity to come before you.

Today I'm not going to talk about the implications of the MAI for Canadian policy issues such as culture and environmental protection, but, rather, I'm going to try to address some aspects of the origins of these negotiations, the negotiation process itself, and some of the difficulties and challenges that lie ahead. I'm also going to try to look at the interests of some of the actors involved and then make some concluding comments about the role that I think Canadians should have in this process.

I'll start with just a little bit of background. I've circulated a brief paper that I'll talk to very briefly.

Essentially what I argue in the paper is that capital has been moving ever more freely in the post-war period, that in the early post-war period this movement was facilitated as well by a liberalizing of the flow of goods internationally, and that this was facilitated by a compensatory domestic policy on the part of states to both facilitate adjustment and assist those affected by changes in the international economy. International relations scholars call this embedded liberalism.

I then note that in the later part of the post-war period we're faced with a much greater increase in the size and flows of foreign direct investment and a situation where this new globalization of the international economy has been accompanied by retrenchment at the domestic level on the part of states.

It's also for Canada meant a shift from the role of capital importer to capital exporter. Canadian firms now have a significant and growing stake of assets invested abroad. A great part of this is in the United States, but a significant and growing part is in Latin America and Asia.

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I then go on to explain a little how these movements to greater integration in the global economy have raised new issues on the international agenda. One of these issues is investment.

The investment issue and other issues such as labour standards and environmental regulation are part of what Sylvia Ostry and others have called a deeper integration in the global economy, where there will be negotiations, not about transparent barriers to the flow of goods and capital but rather about different economic domestic systems and the extent to which these constitute barriers to the international movement of capital. We must place these kinds of system frictions within the negotiation of the Multilateral Agreement on Investment.

The Multilateral Agreement on Investment has its origins in a frustrating process of trying to create a binding instrument on national treatment at the OECD. In 1991 both the United States and the chief advocate of this binding national treatment instrument, the Business and Industry Advisory Committee of the OECD, gave up on the process, arguing that only a binding international treaty on investment would create the kinds of rules international capital needed if it was to invest with security around the word.

The process was also moved forward by the United States as a result of its frustration with the failure to make a significant breakthrough at the World Trade Organization on the regulation of trade-related investment measures.

A very limited code emerged from the Uruguay Round, and the United States credited this limited code to the very strong opposition of a number of developing countries. As a consequence, it concluded that a preferable venue for a multilateral agreement on investment would be the OECD, where like-minded countries could create a “state-of-the-art agreement”.

Canada was not in the forefront of this drive to use the OECD to create a multilateral agreement. In fact both Canada and the EU championed the WTO as a more appropriate location for such an agreement in the long term, given its broader membership and its experiences with dispute resolution.

Canada, however, adopted a two-track policy, negotiating at the OECD while it continued to push at the World Trade Organization to move investment onto the trade agenda, excepting a very limited move to study the relationship between trade and investment as a result of the Singapore ministerial meeting. As a consequence, the OECD launched these negotiations with the concurrence of Canada and the European Union and a number of other members in 1995.

The initial report launching the negotiations at the MAI was surrounded by a rhetoric that reflected the agenda of investment liberalization, which had been championed by the United States and the Business and Industry Advisory Committee. The focus was to be on a broad definition of investor, the creation of a dispute resolution process that would involve investor state disputes, and a strong code on national treatment designed to enhance the security for investors and limit the discretion of government in regulating investment. The whole idea was to ratchet state policies ever forward in an increasingly liberal direction.

You're already familiar, I know, with the concepts of standstill and roll-back. The idea was to get standstill and to begin the long process of achieving major roll-back in a number of areas.

The question of labour and environmental standards was mentioned briefly; however, they were significantly downplayed. The Business and Industry Advisory Committee at the outset was strongly opposed to any commitments on environmental standards and labour standards. It was also strongly opposed to any annexation of the voluntary guidelines for multinationals.

Canada's interest in the MAI really stemmed from its experience with the NAFTA and changes to Canadian policy views regarding the ability of Canada and the desirability of Canada's attempting to regulate foreign direct investment. By the mid-1980s Canada had concluded it could no longer afford and was not able to effectively regulate broad areas of foreign direct investment, largely because it saw itself in a losing competition with other countries for new investment. As a consequence, much of Canada's investment regulation policy was abandoned, with the exception of a number of limited areas, including culture.

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On the other hand, the Multilateral Agreement on Investment provided for Canada the opportunity to enhance the security of Canadian investors abroad as well as to rein in some undesirable unilateral U.S. policies that threatened Canadian investment, such as the Helms-Burton bill.

Canada had experience negotiating at the OECD on investment issues as a result of the 1976 Declaration on Multinational Enterprises. At that time, though, Canada had had problems with national treatment, with which it still has some difficulties today. Canada ended up in a difficult situation of having to trade off signing an agreement that included a non-binding commitment on national treatment or being isolated and excluded from the work of the OECD Committee on International Investment and Multinational Enterprises. At that time, Canada decided to sign the package and lodge a reservation, the state of which was in some dispute, particularly by the United States.

I mention that simply because it illustrates a pattern that the United States has used the OECD to create what it calls model agreements, which it can then use to strengthen the values of liberalization beyond the doors of the OECD. In 1975 the target was the United Nations, where the U.S. sought to derail the negotiation of a code on transnational corporations.

We see again the use of the OECD to advance a broader liberal agenda. In this case the idea is to create a model state-of-the-art agreement at the OECD and then negotiate with non-OECD members on a case-by-case basis, based on the argument that it would be in their interests to adhere to the agreement or they would lose valuable investment flows.

The OECD also represents the interests of labour through the Trade Union Advisory Committee. I understand you've already heard from Bob White who heads the TUAC. Labour's concern with the liberalization of foreign direct investments has been the concern that competition among those seeking investment will lead to an erosion of labour and environmental standards. TUAC has also sought to have the guidelines on corporate behaviour, the guidelines on multinational enterprises, also negotiated in 1975, annexed to the agreement.

On the other hand, business has argued that such obligations, if they were to become binding in the area of labour, the environment, or the guidelines on corporate behaviour, would in fact discourage FDI flows into a country signing the agreement, and would also sabotage the possibility of non-OECD members ever acceding to the agreement.

Other actors have also had an interest in this agreement from the outset. One of them is the secretariat of the OECD itself. As I point out in my submission, the secretariat itself has championed these negotiations very zealously, largely to create a greater credibility for the division in charge of investment issues and to strengthen the position of the OECD, which has been a target of some questioning in the post-Cold War period and the period of retrenchment, particularly in the case of the United States, which has arbitrarily cut its contribution to the budget of the OECD quite significantly.

Therefore, a binding international investment agreement would show the OECD as an effective negotiating venue and solidify its position on investment, which is obviously facing some encroachment from the WTO.

The process of the OECD has not gone nearly as smoothly, though, as most of the negotiating groups thought it originally would. Part of the problem has been that there's been no clear and consistent method of clarifying when a consensus emerges on an issue and when and where there are serious and significant differences among member countries.

This has led to a draft agreement, with which you're all familiar, that is loaded with footnotes, clarifications and language that ranges from tight and precise to vague. All of the tough political issues have been left to the end. To quote the chairman: “Nothing is agreed until everything is agreed”.

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As a consequence, the draft agreement gave the impression, when it was leaked last winter, of a sweeping treaty, vastly liberalizing investment policies in a rather unbalanced way, that chiefly benefited multinational capital and was a fait accompli. This has generated a reaction to the agreement, which in combination with the slow progress of negotiations, has given opponents of this agreement time to mobilize.

I would say that in response to this mobilization, the OECD and some of its member governments have been rather slow and inept to react. The OECD has been criticized as being secretive. The ministerial statements and many of the speeches laudatory to the agreement were available on the Internet very early on. What was not available, however, was the draft agreement, nor has the OECD developed a coherent method for dealing with non-governmental organizations.

Many of the difficulties regarding the MAI remain unresolved. One of them, I'm sure you're aware, is the Helms-Burton bill. This is an area where the European Union and the United States, along with Canada, have had severe disagreements. From the U.S. perspective it is hard to see how this provision could be abandoned, particularly given the current atmosphere in Congress. On the other hand, from the European Union's perspective, it is difficult to see how it could permit such measures to be enshrined in an international investment agreement.

The vaunting ambitions of the original ministerial declaration have been characterized by a growing realism. Many members of the secretariat now acknowledge, as do many negotiators, that there will not be significant roll-back in this agreement, but rather a standstill and perhaps limited roll-back in a number of areas.

There has been some movement as well on labour and environmental issues, particularly as a result of the work of non-governmental organizations and the changes in some governments, such as that of the United Kingdom, which has become much more sympathetic to stronger wording in the agreement. For Canada the key deal-breaker will clearly be the cultural issue, which would be a necessary agreement to any acceptance of the deal. It is again, however, difficult to see how the United States would accept a general exemption of the nature proposed by France, given the difficulty it had in selling the NAFTA exemption to the United States entertainment industry.

At the same time, even members of the European Union are not overly enthusiastic in their support of, and in some cases they are opposed to, the general exemption France proposes. Thus Canada may be able to achieve an individual country exemption on culture, but again, this is an issue the results of which we're not yet able to forecast.

I would, however, argue that if the Canadian government wishes to build on this project of international investment rules, in fact agreement at the OECD may not be the only option. If it wishes to proceed at a slower pace, the WTO remains an option, and one where a broader range of country interests would be heard. Aside from the embarrassment of a group of like-minded countries turning out not to be so like-minded, much of the work at the OECD would not be wasted. In fact I see no real downside should Canada walk away from an unacceptable agreement if it cannot find a settlement or if the other negotiators fail to agree.

I want to close by noting that the hearings of this committee itself indicate a shift in the willingness of the Canadian government to seek input from Canadians on this agreement. I also want to note, however, that this seeking of input only occurred after a full-page ad attacking the agreement, questions in the House of Commons, and questions to ministers about this agreement. No significant effort was made to inform Canadians about the process, despite the fact that negotiations began in September 1995.

I want to note, however, that the Canadian negotiators themselves have been very effective and extremely co-operative and forthright, as my own experience attests. Rather, I have concerns about the general policy and practice of Canadian governments and parliamentary systems. I would argue that these practices must be revised in a way that provides for much more input on these kinds of agreements, which are addressing major areas that have in the past been considered largely domestic.

It's not enough to point out to citizens that they get the chance to vote for a government once every four years, if the kinds of trade-offs and choices on important international investment rules that will affect the domestic economy are never outlined prior to or during an election campaign. Even more so, to argue that when elected representatives after an election appear to be completely unaware of or not informed about the negotiations makes it even more questionable.

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More public consultations on the negotiations should take place, I would argue, prior to the negotiations themselves, and certainly a much more representative consultative body needs to be established to provide input on these negotiations. If global investment rules are to be accepted as legitimate by citizens, who are often asked to bear costs because of the forces of globalization, then citizens must feel both that they have a role in shaping such rules and that the rules themselves take the interests both of mobile capital and immobile citizens in communities into account.

Thank you.

The Chairman: We'll now move to Professor Robert Howse, University of Toronto.

Professor Robert Howse (Faculty of Law, University of Toronto): Thanks very much.

I begin by an apology, which is that I have to leave at 5 p.m. for a meeting back in Toronto that I wasn't able to change.

I'm a professor of law at the University of Toronto and also an adjunct scholar of the C.D. Howe Institute. I'm the co-author, with my colleague Michael Trebilcock, of a treatise entitled The Regulation of International Trade, which is used as a teaching text in whole or in part at various universities around the world, including Carleton, Queen's, Harvard University, New York University, the University of Virginia and the London School of Economics.

I want today to address a few of the issues concerning the legal text of the draft Multilateral Agreement on Investment that have raised questions or controversy in the last number of weeks or months.

I should say at the outset that I'm in general a strong supporter of liberalizing investment flows. I also think that many of the restrictions that Canada has imposed on foreign investment in sectors like telecommunications, broadcasting and financial services are unjustifiable and unduly restrictive of competition that can benefit Canadian consumers. So that's the basic perspective from which I come to the text of this agreement.

I was sent—and I'm grateful for that—by the clerk of the committee a text of a legal memorandum by Mr. Barry Appleton that apparently was tabled with the subcommittee. I'd like to pick up on several points that are made in that memorandum.

The first concerns the way in which some of the Canadian reservations or draft reservations appear to have been written, particularly concerning the role of governments in delivering social services. Mr. Appleton suggests that the drafting is such that it could be interpreted that provincial policies are not being reserved here, and certainly that's something that should be brought to the attention of the Canadian negotiators.

My reading of the words that he quotes is that it is possible perhaps to interpret those as including both the federal government and the provinces, but it's certainly worth while making it clear, because, as he suggests, many or most of these policies are in provincial jurisdiction. So unless—and this is highly implausible—the reservation was drafted somehow to give the federal government a bigger role in social policy, it should be clearly drafted to make certain that the provinces are reserved as well as the federal government.

Inasmuch as the obligations themselves of the MAI apply to some national governments in federal states, when I was rereading the agreement after I read Mr. Appleton's opinion I was surprised to find no real reference to the situation of federal states in there. This is kind of odd, really, when you think of how many OECD members are in fact federations. The federalism issue is clearly one that will need to be addressed.

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This relates to a second point which concerns the discussion over labour provisions, or possible provisions on labour standards, in the MAI. I think it's quite important that the agreement reflect the commitment of OECD countries, including Canada, to certain labour rights which are basic human rights. I also believe that commitment is totally consistent with believing in the liberalization of investment flows. These are two separate commitments, one to the efficiency and growth that come from free flows of capital, the other to the human rights that are represented by basic labour standards.

An issue has been raised as to whether, given the doctrine that the federal government cannot implement treaties in areas of provincial jurisdiction, it would be possible for Canada to accede to provisions related to labour rights. In my view this is not a problem. As long as the federal government is not trying to use legislation actually to force any province to change its labour laws, we can sign the agreement in good conscience. It seems to me the kinds of labour practices that would be prohibited or stated to be impermissible in an agreement among OECD countries are not the kinds of practices any province in Canada is likely to support vigorously. I also think one way of bolstering any labour provisions would be to have the agreement contain some kind of negative list, where countries would agree that certain practices are violations of basic human rights and would agree to respect international norms, including the norms included in the International Labour Organisation conventions on these practices.

But again, as with NAFTA, as long as the federal government is not trying to legislate in areas of provincial jurisdiction there is no legal constitutional problem with its signing an agreement that contains statements about Canada's compliance with certain kinds of labour standards. Once the federal government tries to ensure that provinces act consistently with the agreement through legislative action, then it may run into constitutional difficulties.

On the other hand, the kinds of extreme practices that would be curtailed by an international agreement of this kind could probably in any case be practices the federal government might prohibit under its criminal law power. So even if it went to the extreme situation of the federal government having to legislate to comply with these basic human rights obligations, there probably wouldn't be a constitutional obstacle.

But my bet is that the provinces would probably act. I don't think any province in Canada would want to be seen as entertaining or permitting labour practices that have been condemned by all the major industrialized nations.

This brings me to the question of environmental and related public policies and whether legitimate public policies in these areas, environment, consumer protection, and so on, are adequately dealt with in the agreement, its exceptions, and reservations. The answer is probably not. Conspicuous by its absence from the MAI is the kind of clause that one finds, for example, in the GATT and relevant WTO agreements, and that allows the country to take measures that would otherwise be in violation of the agreement provided those measures are necessary for the protection of the environment or the protection of human or animal health or life.

These are very basic kinds of exception clauses. They have been existent in the main international trade agreements, including the GATT and regional agreements such as NAFTA, for some time. I see no reason why such a provision should not be in this agreement. Indeed, I think it would be important just as a means of ensuring legitimate public policies that are not being enacted for any trade-restricting purpose are not subject to pot-shots by foreign economic or political interests.

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Finally, I'd like to draw your attention to provisions of the MAI that I think will, first of all, closely parallel NAFTA provisions but will also, I think, pose a specific and important possible problem for Canadian public policy. And these are the expropriation provisions, which basically prohibit the expropriation of the investment of an investor, as defined in the agreement, without compensation and without certain other conditions being present.

On its surface it may seem entirely reasonable, if you limit expropriation to simply taking someone's shares or the assets of a company away from it and putting them in governmental hands or shutting down the firm altogether and creating a monopoly or something like that.

But the fact is that many United States interests—and this relates to the “takings” jurisprudence in the United States, which is domestic U.S. constitutional jurisprudence—tend to interpret expropriation to include regulatory changes. It can affect the value of a company. If we decide to ban some kind of product as dangerous to human health or the environment on the basis, let's say, of scientific evidence and if it's being produced by an American-owned factory in Canada, the Americans might complain that this is an expropriation and that they deserve compensation. And this kind of thing happens. They do threaten this kind of thing.

At one level it's quite reasonable to have provisions in this agreement that require compensation to be paid when you're actually literally taking the assets of a company. Not to do so would be tantamount to theft. I think we should also insist that it be clarified so that this does not include what Americans call “regulatory takings” or changes in normal, general public policies or regulations that may affect a company's value, because all kinds of changes affect the value of a particular company. It would be highly inefficient for governments to compensate private firms for risks that are normal marketplace risks. And certainly, changes in government policy are normal marketplace risks. As you can see if you look at any major corporation, corporations pay people good money to analyse public policy and to have lobbyists and so on.

In sum, we just have to make sure that these provisions on expropriation and compensation do not open the door to claims against changes in general public policies in areas like the environment or health and safety or consumer protection.

I have one last thought. Of course this agreement will also regulate our trading relationship with the United States, and that's also the context of my previous remark. And as a treaty made later in time, under the Vienna Convention rules for the interpretation of treaties, if there are any inconsistencies between this agreement and the NAFTA, it's this agreement that would arguably prevail as a matter of international law. So we should remember when we are going into this exercise that we're in some sense de facto amending the NAFTA.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Howse.

Now we'll hear from Mr. Sullivan from the CIIA. Welcome.

Mr. Alan Sullivan (President and CEO, Canadian Institute of International Affairs): Thank you, Mr. Chairman.

The Canadian Institute of International Affairs was established in 1928 to provide Canadians with a national forum to learn and understand more about international issues and to exchange views from a Canadian perspective. As an institute, it does not advocate positions on international or domestic politics. Under our by-law, it would thus be inappropriate for me, as its president, to express views on the pros and cons of any particular clause or provision under consideration in the MAI.

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That having been said, I agreed to accept the committee's invitation to appear because I thought I could legitimately add some perspective and help to situate the negotiation in the broader context of Canadian diplomacy.

Let me begin by noting that participation in international activities on a multilateral basis, leading ultimately or immediately to a broad-based international consensus, has been core Canadian practice since World War II. Whether you characterize that as being a player or as a policy of engagement, it reflects our approach to international activities virtually across the board. Multilateralism was and remains the preferred option for dealing with international issues.

Further, for a country like Canada, with our global interests but less than superpower status, it probably is the most effective way for us to promote our interests and ensure that they are heard and taken into account. For one thing, it is usually the case that we are not alone, and thus our allies on any one issue can add to the leverage over the mighty, who might otherwise simply impose their weight and authority in a bilateral negotiation.

I am not implying that we have been or are unable to achieve acceptable outcomes on a bilateral basis. Here, incidentally, I mean acceptable to the government of the day and subsequently to succeeding governments. I am saying, however, that in most global problems or issues, the broadest possible global understanding reflected in rules or provisions accepted as binding by the greatest number of countries—and in some cases you may have to start with a more restricted number and move to a larger—is the best way to ensure that the strongest are subject to constraints in pursuing their interests with the weakest. If it does not always result in a perfectly level playing field, I suggest it produces a much more level playing field than would otherwise be the case.

Canada has certainly been a firm believer in this approach and it is reflected in our membership in so many of the world's clubs, both with universal and more restricted memberships such as NATO and the OECD. Our commitment to a global approach to global problems is well known and expected of us.

Thus, as a complement to our long-standing practice of participation in GATT from the earliest days, and the WTO, dealing with the liberalization of international trade and the advantage to Canada of broadly based rules, it is logical and consistent that Canada would approach the issue of international investment—increasingly the partner of international trade—by being a participant in any negotiation trying to achieve a level playing field in that area. Not to be at the table, in a field dealing with such an important issue for our domestic economy and our interest as a major global investor, would remove our capacity to influence the outcome in a more positive way, even if ultimately we found it to be unacceptable on the whole.

Further, given our history as something of a pillar of the multilateralist approach, our absence would be unusual, and to the extent it was interpreted as a weakening of our support for going the multilateral route, it could possibly contribute to the lessening of support for multilateralism in others.

Because I believe in the generally accepted view that multilateralism has served Canada well over the years, any diminution of support for that process would be inimical to our core Canadian interest in maximizing our potential influence to achieve outcomes consistent with our objectives.

At the end of the day, Canada, as a participant in a treaty negotiation, is free to enter reservations or decline to sign or ratify the finished product. By participating in the negotiating process, however, Canada contributes to a more orderly world without sacrificing its own freedom of action to deal with the finished product as it sees fit.

Finally, I would like to note the value of this kind of hearing and the hopefully enlightening focus it can put on the specifics of an issue like the MAI and grassroots attitudes towards it. Through Parliament, the government will hear the views of experts, of proponents and opponents, and judge what is in the national interest. In turn, as a democracy, the people will judge the government.

Finding out about issues that have an impact on Canada and Canadians is what the CIIA is all about. Thus we share the committee's objective of shedding light on an issue that has generated interest nationally. The CIIA, with branches from Victoria to Halifax, is a continuing complementary vehicle to the parliamentary committee system of deepening knowledge and understanding.

Thank you, Mr. Chairman.

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The Chairman: Thank you, Mr. Sullivan.

Now, from the firm of Thomas and Davis, Mr. Fréchette.

[Translation]

Mr. Serge Fréchette (Partner, Thomas & Davis): Thank you, Mr. Chairman.

This afternoon, my comments have to do with two aspects which, although separate one from the other, still were linked in one way or another during the preparation of a text flowing from a negotiation.

The first part will have to do with the legal aspect of the negotiation and the preparation of the text of the agreement, that is the mechanical aspect pure and simple of the negotiation.

The second one will have to do with a few legal aspects contained in the text as we know it at this point, in other words, the substance.

I will start with the first item, that is the aspect of the negotiation and the preparation of the text. I'd first like to sincerely congratulate those who took part in the negotiation as well as the secretariat of the OECD which prepared the texts.

Having taken part in several negotiations in the past, I can state that it is extremely important to have at hand, both during the negotiation itself and at the moment of finalization, a clear text including a lot of notes with an appendix of the different countries' proposals to improve the wording.

Why is this necessary? Because in many respects we should remember that the agreement that will be implemented, if that is the case, of course, will have to be adopted by those different countries in one form or another within the framework of their respective regimes.

So the interpretation of the text itself will have to be a reflection of the intent of the parties. The existing text, with the footnotes, including comments, and the appended texts proposing amendments, help in this understanding. And it will become even more clearer when Canada, if Canada were to accept a proposed agreement, implements this accord in harmony with its domestic legislation.

Of course, the texts will ultimately be used to implement the agreement not only in the domestic context but also but within the international one. Canada is one of the members of international agreements that is often involved in dispute settlement mechanisms, specially in the area of agreements concerning foreign trade.

It is important for those involved in protecting Canadian interests and confronted with dispute settlement mechanisms to be able to reread the text of the agreements and check up on the history underlying each one of the provision especially those that are questioned to be able to clearly identify what parameters were used to circumscribe the interpretation of the agreement.

Canada has done so several times in the past to settle disputes involving very specific texts. So those texts are useful in that sense. It's also in that sense that, a bit earlier on, I congratulated those who helped in preparing those texts and who saw to it that they essentially reflect the views and intents of the parties concerning each one of the obligations that is suggested.

It's also particularly important for Canada as a member taking part in those negotiations to make known its own views on some of those provisions by submitting wording or commenting on those obligations. Thus if any disputes were to arise within the framework of the agreement, Canada could make known its own interpretation of those texts quite credibly using the dispute settlement mechanism.

That said, I'd now like to go to the purely substantive aspect of the agreement, in other words, discuss some aspects and some details contained in the agreement as we know it.

I shall only emphasize a few of them as the agreement is, of course, still only a rather young draft, taking into account that there are still several months of negotiations left. Even though two years have gone by, we're still at an initial stage in terms of negotiations as the main part of the negotiation will happen during the last two months of the process. Nevertheless, the wording does reveal a few aspects that deserve closer attention.

Minister Marchi, when you started your work, announced that Canada's main objective was, in fact, to multilateralize the regime of rights concerning foreign investment to something like what's found in an agreement like NAFTA.

So it's important to think about the concept of the agreement as we know it at this point in time to be able to see if Canada isn't getting into an agreement that could bring it beyond the obligations it has under NAFTA.

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A particular example of this kind of situation can be found in the texts of obligations having to do with most-favoured-nation treatment that, at the present time and multilaterally, is the object of a very important discussion having to do with similar circumstances. The obligation of most-favoured-nation treatment existing within the context of investment and services between Canada and the USA since the very beginning, in other words during the 1987 FTA, the original Free Trade Agreement, is subject to the concept of similar circumstances, in other words the analysis of the treatment afforded an investor is done within the context of similar regulatory circumstances.

This concept is of the utmost importance because it is used to qualify the obligation imposed. In particular, if you think about sectors such as the regulated ones we have in Canada like telecommunications, broadcasting and others, there are all kinds of very justifiable reasons for any government to intervene and regulate certain specific circumstances in a different way, so that you can wind up with investors who, although they belong to the same category, are treated differently.

So it's important that Canada, if it wants to ensure that the multilateral text, if ever there is one, is a reflection of its present position concerning the obligation of a national treatment for investors and investments, see to it that, at the very least, there would be an agreement between the parties recognizing the existence of the concept even if the words "similar circumstances" were not included in the obligation on national treatment and most- favoured-nation treatment at the time consideration is given the way investors or investment would be treated.

The other sector deserving particular attention is that of incentives and regulations proposed by some countries concerning the treatment of incentives granted by certain governments to attract investment. If we look at the proposed definition within the framework of one of the proposals, this concept of incentives essentially agrees with what we call "subsidies".

Now, in the multilateral context, there are already very specific disciplines concerning subsidies. For example, just take the World Trade Organization agreement or any specific agreement and you will see that one part of the agreement specifically has to do with how to treat subsidies granted for investment either at the time of implementation of those investments or at the time of their management or operation.

Thus, at the multilateral level there is already a legal framework having to do with what is authorized or not in the matter of incentives and in the matter of investment, so that introducing, with this agreement, provisions having to do with investment but also with the use of incentives for that investment could, in some cases, lead to the existence of conflicts, to the existence of different rules and that is why, as we said earlier, it becomes important to manage the interrelation between those agreements in such a context.

At the outset, however, the most fundamental question concerns the usefulness of introducing, within a context such as an agreement on investment, a discipline specific to the use of subsidies in the matter of investment as such disciplines already exist within a multilateral context.

Now, as for the matter of applying the agreement to certain measures, there is, of course, the whole present discussion, which is probably the most important and has to do with those measures which will be excluded from the argument's application, either through the use of general exception clauses or the use of reservation clauses specific to certain countries.

There is also the issue of whether Canada, in particular, will manage to get an exclusion with respect to culture or cultural industries, depending on the political approach used in the implementation of the agreement itself.

As I indicated earlier, it is important to note that we are still at a very preliminary stage as regards the actual details of obligations. Very often, these discussions take place and are finalized in the final months of the agreement, and it is then you can determine the most appropriate way of dealing with these issues from a purely strategic viewpoint.

• 1610

It's important to mention at the outset that the clause referring to reservation measures which authorizes countries to make specific reservations affecting them, deals only with existing measures under the current wording. It does not deal, for example, with what are referred to as global measures, aimed at covering a particular sector, independently of the current existence or future adoption of such measures on a particular sector.

There is one sector where there are fundamental differences at the present time between the rules under NAFTA and those which might be contained in this agreement on investment.

I think that we have spoken to you from the beginning about Part II of the annexes to the NAFTA which include very specific exemptions for countries wishing in fact to exclude global sectors of the economy from the application of certain specific rules and disciplines.

In the wording of the agreement as currently proposed, such reservations would not be permitted, although Canada, in the list of reservations it filed, seeks to exclude such measures. Canada, in seeking to indicate once and for all its subsequent intention and because there is always discussion on this subject, has clearly indicated that in the case of certain sectors—and we are referring here to the particularly sensitive area of social security and services, for example—in the federal area, it intends to exclude all of this sector from the possible application of both current and future measures.

Coming back to what was said earlier about the effect on provincial measures in these areas, at the present time the agreement obviously seeks to cover both federal and also regional measures, thus including provincial measures. But it is still very early, and it remains to be seen how the provinces will choose to participate in negotiations, in co-operation with the federal government, and whether they will submit their own lists of reservations.

But obviously related to this is the whole issue of including a federal clause aimed essentially at delineating the type and nature of federal obligations concerning provincial measures. For the provinces there is also the issue of what they would obtain in return for any such measures they might offer. There is the whole question of give and take, which, even at the provincial level, exists when, for example, it has to be decided whether to accept the terms of an agreement within a provincial sector.

I shall conclude my presentation, because time is moving on, by considering how and whether the federal government should seek to have safeguards included for the cultural sector as a whole.

There has been a debate since the early 1980s on how Canada can best preserve what is now referred to as its cultural identity and its ability to adopt measures enabling it to preserve its legitimate right to intervene in these areas.

The question which has still not been discussed, but which will have to be ultimately determined, is what Canada wishes to preserve. Does it, like France, wish essentially to preserve—as we can see from the wording of the clause proposed by the French government—culture and its ability to intervene in support of cultural sovereignty, or, as it has done in NAFTA, is Canada seeking to preserve measures related to cultural industries? Clearly, this is the cause of all the difficulties encountered by negotiators seeking to sell a cultural exemption, as they try to explain in a multilateral context to their partners Canada's need to defend its culture and cultural sovereignty through measures which are very often protectionist towards those cultural industries.

There is a debate on this issue at the present time. For a number of years there has been a debate on whether Canadian legislation and regulations are really the tools the country needs to preserve its cultural sovereignty, or wether a few of these measures have been implemented purely and simply for protectionist purposes.

In the end Canada will have to consider this issue and accept that, in-so-far as such domestic measures seek to serve only protectionist purposes in a multilateral and even regional context, there is a price to be paid for this in commercial agreements, since obvious legitimate interests will be in conflict, that is on the one hand the protection of culture, and on the other the commitment of investments in-so-far as markets are opened up within very sensitive sectors.

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Canada must therefore decide what its position is on this issue and determine what it really intends to protect and how it will do so.

Technically, in purely legal terms, there is very little practical difference between a global cultural exemption and a national Canadian reservation seeking essentially to protect the same thing. As regards the protection of rights, the impact is essentially the same regardless of the method chosen.

The use of a reservation clause, particularly in the case of specific reservations rather than global reservations for sectors, has the effect of exposing our measures. Some people believe that as a result of this our partners will, in a second round of negotiations, demand the removal of such measures, and this explains their fear. But in terms of practical legal impact, in the case of a challenge, the content of the reservation or exception will be determined not by reform but by the actual wording.

I will conclude on that point and will be pleased to answer any questions you may have. Thank you.

[English]

The Chairman: Thank you, Mr. Fréchette.

Finally, from the Canadian Environmental Law Association, Michelle Swenarchuk. Welcome.

Ms. Michelle Swenarchuk (Executive Director, Canadian Environmental Law Association): Thank you, Mr. Chairman, and we thank the committee for having invited us to present here today.

The Canadian Environmental Law Association, CELA, was formed in 1970 and we have worked on casework, law reform and legal education since that time, including trade and environment questions since about 1987. Before coming here we looked at the submissions you've already heard from the Sierra Club, the Canadian Labour Congress and Barry Appleton. We share some of those concerns but I won't be recapping those areas.

We've been studying environment and trade questions for over ten years now and we look at the MAI as round four in Canada on this question. It's the latest in a network of international agreements that have had and continue to have significant impacts on environmental protection and environmental policy. People ask whether this agreement will have an impact, and we think it definitely will.

Domestic regulations, including environmental ones, are precisely the targets of investor rights documents like the MAI, since regulations do affect the capacity of corporations to engage in profit-generating activities. Investment protection to us actually means the removal of regulatory controls on corporate activity. The MAI is there for the latest in the international deregulation initiatives.

We think we have seen significant impacts in Canada from the agreements to which we are already a party. We are living in an era of environmental deregulation as well as an era of free trade, and the two are related.

I've tried to set the MAI in this kind of context in order to talk about environment and trade. I've listed for you in our paper five ways in which I think the current set of trade agreements have contributed to environmental protection and policy problems.

First I talk about the general exception that Mr. Howse referred to in the GATT as an environmental protection mechanism. I'll come back to that in a moment because I think it's very important for this discussion. I also talk about the way in which the other agreements, including the GATT of 1994, the Canada-U.S. agreement and the NAFTA, all establish new approaches to writing environmental laws through internationalization, harmonization of standards and removal of standard setting to international bodies. I'll leave that for you to read.

I've also added a little on the extent to which in this era, volunteerism or the promotion of voluntary compliance by corporations is also replacing mandatory environmental law standards, and I believe the MAI furthers that goal. I also talk substantially about what the agreement calls investor protection, or the expropriation clause.

• 1620

I think the important lesson to be gained from the free trade agreement's impact on environmental policy to date is that, as has been said, the agreements all contain the general exception for environmental and human health protection that is in article XX of the GATT, which has been incorporated in subsequent agreements. However, in every case that has been decided by a trade dispute panel since the Canada-U.S. agreement was adopted in which article XX was relied on to protect an environment-related regulation, it has not been an adequate protection. I've given you a list of some of those cases. So in fact article XX isn't good enough.

It's very important to recall that, given the wording of that article, in fact trade regimes could have accommodated environment and human health policies from the beginning. We didn't have to be in the position we're now in legally, in which environment and human health concerns fall when put up against trade regimes.

So, yes, the MAI negotiators at their October meeting came up with a list of issues to deal with on environmental questions. One of them is a possible inclusion of article XX. We don't think that will be very helpful.

Of all the strategies that have been developed through the trade regimes that threaten environmental protection, we think the expanded expropriation chapter of this agreement, like the investment chapter of NAFTA, is perhaps the most powerful tool that is likely to see further environmental deregulation.

The investor protection, as it's called, the expropriation wording, in both NAFTA, in my view, and the proposed MAI, differs significantly from how expropriation is actually treated in Canadian domestic law.

We've given you excerpts from a paper we previously wrote on expropriation in relation to the so-called takings question. I've cited there for you a number of Supreme Court of Canada decisions that indicate the limits in Canadian law of rights of expropriation.

For example, many of these cases are decided in the context of land use regulation. At page 5 of my brief, second paragraph:

...Canadian courts have long recognized that land use regulation is not “expropriation”, primary because zoning by-laws or other planning instruments do not generally involve a taking or transfer of the full use, title or benefit of property. Therefore, if a landowner's ability to use or develop his or her property is constrained by a properly enacted zoning by-law, the landowner is not entitled to compensation, even if the zoning by-law causes a diminution in property value.

As I say, I've cited various of the Supreme Court of Canada decisions that demonstrate that essentially zoning, for example, in the public interest, though it may well be accompanied by a reduction in property value, does not give rise to compensation per se.

The important principle that emerges from these cases may be stated as follows—and this is on page 6 of our brief:

...planning authorities may regulate, restrict or prohibit land use or development without triggering the remedy of compensation for affected landowners, provided that such measures are undertaken in good faith for a proper planning purpose.

In contrast, both the NAFTA investment chapter and the MAI extend the concept of expropriation with the requirement of compensation so broadly that virtually any governmental regulatory action that reduces the potential for generating profits may generate a claim for compensation.

I believe that other people have discussed with you here the Ethyl Corporation case. I'm sure that as members of Parliament of Canada you know that they're claiming $350 million Canadian essentially for compensation for a bill passed in the Commons.

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I've also included in my paper another so-called expropriation case currently being claimed against Mexico under the NAFTA chapter. This is also an environment-related case in which Metalclad Corporation of the U.S. is suing the State of San Luis Potosi for the refusal of a permit to operate a waste disposal site.

The permit was refused because, on the basis of a geological audit performed by environment impact analysts at the University of San Luis Potosi, the government deemed the plant an environmental hazard to surrounding communities and ordered it closed down. The study had found that the facility is located on an alluvial stream and therefore could contaminate the local water supply. This is a type of regulatory action that I think most Canadians would consider entirely legitimate. We don't put waste disposal sites on water supply sources, hopefully.

Eventually, the governor declared the site part of a 600,000-acre ecological zone. Metalclad seeks compensation for some $90 million—that would be U.S. dollars, by the way—for expropriation and for violations of national treatment, most favoured nation treatment and prohibitions on performance requirements. This figure is larger than the combined annual income of every family in the county where the Metalclad facility is located.

The Metalclad case raises other alarming questions. Metalclad claims the Mexican federal government is unofficially encouraging the company's NAFTA lawsuit so it can deflect the political fallout of forcing the state to open the facility. If Metalclad's claims are indeed accurate, this case raises the disturbing possibility that investors can use their rights to collude with governments to force unwanted or even dangerous investments on unwilling populations.

I think both the Ethyl case and the Metalclad case are very relevant to the discussion of the likely impact of the MAI on environmental policy-making, because my view is that the chilling effect for legislatures of the potential of claims like this is so enormous that it's going to make it that much more difficult for us to ever successfully work toward improving environmental law.

The true purpose and likely result of the expropriation chapter of the MAI is evident in these cases. Canadian law would not treat these legitimate governmental regulatory actions to protect the environment and human health as expropriation giving rise to compensation. Indeed, the Supreme Court of Canada has recently, just this year, emphasized the importance of environmental protection as a value in Canada in upholding the constitutionality of the Canadian Environmental Protection Act.

We believe the combination of the NAFTA expropriation claims and those possible under the wording of the MAI will constitute the most effective anti-environmental strategy yet devised by corporations and their government allies. No government will take lightly the prospect of a huge financial claim against it for legislation, however high the public support for the measure. And I do want to remind you that despite the era of environmental deregulation that we live in, poll after poll shows extremely high public support for strong environmental law.

The chilling effect of the Ethyl case and potential claims under the MAI, after its completion, will make effective environmental protection in this country even more difficult. Of course, another whole range of concerns arises with regard to that expropriation potential in countries of the Third World, developing countries that don't yet have an environmental law framework in place. How willing are those countries' governments going to be to take the risk of claims like this that Mexico is now facing if, as we expect, the MAI, once signed, will be widely adhered to around the world?

The delegations, the negotiators, are talking about what they are calling the three-pronged approach to environmental protection in this agreement. In our view, and I've summarized this at pages 8 and 9, the approach they're proposing isn't going to be much help. The approach includes wording in the preamble, but we know that preambles are not enforceable. There is wording to oppose the lowering of environmental standards in order to attract investment, and here they're thinking of the NAFTA wording that I've given you, which is non-binding, non-enforceable and does not prohibit the lowering of environmental standards in order to attract investment.

• 1630

They are also talking about further references in the MAI to GATT article XX; but of course the jurisprudence under article XX to date does not help us.

In addition, the United Kingdom is proposing some form of assessment of environmental issues. We had a Government of Canada NAFTA environmental review, and on our side of the table there wasn't much positive to be said about the quality of that review, so we don't get a lot of comfort out of having one done on the MAI.

We conclude that even more than with previous international trade agreements the MAI suffers from a lack of balance between commercial interests and the interests of citizens and the environment. It does not recognize the legitimate objectives of domestic protections of health, labour standards, social policy, culture, or local job creation. However, it includes an extremely broad definition of investment and investors' rights, with extraordinary expropriation claims. It includes standstill and roll-back provisions but no protection for future and necessary innovative policies for public interest goals. It provides investor state legal claims but no citizen state or citizen investor claims. It provides for secret legal processes.

I really urge members of the Canadian Parliament to consider very seriously this problem of the secret dispute resolution processes associated with these agreements, in which the very powers of this Parliament are at issue. Those kinds of decisions are not open to public participation, reporting, or even documentation. In fact, we would like to intervene in the Ethyl case, but we can't. A potential $350 million Canadian claim against this government is at issue there and none of us, as citizens of this country, can get one page of documentation in the case. It's an entirely confidential proceeding.

The MAI provides no balancing of northern industrial interests and southern needs for poverty alleviation. It requires mandatory compliance by national governments but not that corporations comply with public interest laws in the countries in which they operate.

We reviewed Minister Marchi's statement to your committee and consider that it actually suggests a very limited attempt by the federal government to protect public legislative powers. He indicated in his statement that: “As in the NAFTA, Canada will not accept any general commitment to freeze”—that's the so-called standstill—“or phase-out”—roll-back—“restrictions on foreign investment. Canada will retain the flexibility to carry out public policy in core areas of national interest.” He also referred to the investor state arbitration system as “transparent”. I find this a truly mystifying statement. How these complete secret processes could be described as transparent I really don't understand.

The actual words of his statement suggest to me that the Canadian government is perhaps trying to refer to protecting controls on foreign investment, such as in the remains of the Foreign Investment Review Act. I'm very concerned to read that Canada will retain the flexibility to carry out public policy apparently only in “core areas” of national interest. I don't know what “core areas” are, but it disturbs me if Canada is not concerned with all areas of national interest.

So we have provided four recommendations, in conclusion. We don't support this agreement. We don't think Canada should be signing it. However, given the history of our time, we expect it will sign it.

Our first recommendation is that given the history to date with trade agreements and environmental issues, the proposed solutions being considered by delegations will not be sufficient to protect the environment or environmental policy and Canada should be proposing a carve-out for environment and resource management policies, and, failing that, with other delegations, be proposing a clear and specific reservation of those policies.

We support the Sierra Club's proposals too, for much broader public access to documentation and educational capacities and hearings on the agreement.

We support an environmental assessment and urge the Canadian government to support the U.K.'s proposal for one, but it has to be a broad assessment, with public participation. It needs to look at, as none of them have done in the past, the impact of these agreements on actual policy-making powers in the governments that sign them.

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Lastly, we do not believe the Canadian government should be signing this expropriation clause.

Thank you.

The Chairman: Thank you. We'll now turn to questions, starting with Mr. Penson.

Mr. Charlie Penson (Peace River, Ref.): Thank you, Mr. Chairman.

I'd like to welcome the panel here today.

I certainly agree with one aspect: I believe both the OECD and the federal government have been far too secretive in this process. They should have involved the Canadian public at a lot earlier stage in order to garner the kind of support they are going to need at the negotiating table.

It seems to me that Ms. Smythe has summed it up in saying all the difficult political issues have been left to the end. We've seen the May draft and we've seen a table of reservations, but that was a long time ago, and it seems to me that in these kinds of negotiations, things move pretty quickly near the end. We really don't know what's going to end up as the total package here, so it's up to us to try to decide what Canada should be taking to the table.

Mr. Howse, I have a couple of questions for you, and I know you said you had to leave early. You brought up two things that I would like to ask the panel to deal with.

I think you said the MAI would take precedence over a NAFTA investment chapter, and I'd like to challenge you on that. It seems to me that when you have parallel agreements like that, any party would use whatever agreement would best fit their needs to address these investment disputes. That's one thing I'd like to try to get some sense from the panel on: is there clear thinking that one would take precedence over the other, or would rate higher?

Second, Mr. Howse, you talked about regulation versus expropriation and the need not to get into litigation on all aspects of government regulation, but it seems to me there's a pretty grey area there. Isn't it easy for government to say all of a sudden, “This is our policy”, and in fact introduce a policy that may well affect an investor—whether it be a Canadian investor or a foreign investor—and may cause them undue hardship in terms of loss of income?

If they're going to make that kind of policy, in a case such as that of the Ethyl Corporation—which is one we have before us, so we can see it—shouldn't it be based on scientific fact? Shouldn't they have to prove they're moving in a certain direction because the science of the day indicates there's an environmental hazard, for example? Isn't it just a little too easy to say they should be allowed to expropriate and the company should not be able to challenge it, therefore being out of business?

Prof. Robert Howse: On the first point, I may have been slightly misunderstood. You're absolutely right that it's not as if the MAI obligations and rights will supplant NAFTA obligations and rights. But what would happen is, in the event of an actual conflict that could not be reconciled between the provisions of an earlier and later agreement, according to the principles for treaty interpretation of the Vienna Convention, which are also customary international law, the agreement later in time would prevail.

But it's also part of the Vienna Convention that you do your best to reconcile provisions of different agreements on the same subject matter, so the circumstance I'm describing would only occur where there was a clear operational conflict between the provisions of the two agreements that could not be reconciled. I hope that clarifies what I was suggesting.

On the second point, I guess the answer is no. The risk of regulatory change is a risk that every business in this country runs. The way a particular sector will be taxed might be changed, or the way in which the product or substance it's manufacturing might be changed, or its production methods might be found unsafe. If we started compensating businesses for these kinds of regulatory changes, the public treasury would simply become a kind of insurance plan for businesses against governmental change.

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We can't do that. I don't think there's any reasonable principle for doing it.

If what you mean is that there might be a circumstance in which government is singling out a particular company and actually trying to cause it problems or drive it out of business, but hiding it behind some general regulatory change, well, yes, in those circumstances I think there might be good reasons why we would want to protect investors against prejudicial or malicious conduct, or even bias, against a particular company by governments.

I think any dispute resolution panel, reading even very strict language about expropriation in an agreement like the MAI, would be quite quick to detect an attempt to use purportedly normal public policy to put a particular firm out of business. That's what we call colourability in constitutional law—you try to do indirectly what you can't do directly.

I think we can have the expropriation provisions changed in such a way as to ensure that regulatory changes are not subject to this requirement for compensation, while ensuring that dispute panels will not be fooled, as it were, by attempts to disguise an effort to put a company out of business, or essentially to nationalize it behind general policy changes.

Ms. Michelle Swenarchuk: I want to add to that. From the wording of the expropriation clauses that currently exist, even if the governmental action is well based in science, compensation will still have to be paid. The wording is so general—this is at page 51 of the draft agreement—that any kind of interference with profit generation, even if it's in the public interest, even if it's done in accordance with law, and even if it's on a non-discriminatory basis—those words are all there—will still generate a claim for compensation.

Mr. Charlie Penson: Should that decision be done on a scientific basis?

Ms. Michelle Swenarchuk: I guess it would be part of the assessment that the action is non-discriminatory, but my point is that this won't help the government. It doesn't matter how scientifically well grounded it is, it will still have to be paid for, and I think that's a complete distortion.

Mr. Charlie Penson: My understanding is that this is still in negotiation.

Ms. Michelle Swenarchuk: But we signed it in NAFTA. I think the Government of Canada's position, as far as I know, is that it supports this kind of wording. I think it's extremely dangerous. It's a real digression away from Canadian domestic law.

[Translation]

Mr. Serge Fréchette: I would just like to add something to what was said, but from a slightly different viewpoint.

I think we all more or less agree that governments should not be limited by this kind of discipline when deciding on legitimate regulations to ensure that such industries can operate effectively in the market.

However, if you look at the specific wording of section 2.1 to which reference has been made, I do not think that is the purpose of the clause. It states very specifically:

[English]

or take any measure or measures having equivalent effect.

[Translation]

In my view, what is being sought by the wording here is also what was sought initially through different wording in the NAFTA, that is measures which for all practical purposes would have the result of preventing a business from operating. It is the equivalent of expropriation and it is not simply government intervention which would normally be expected to enable the business to carry on.

It does not seem to me that the kinds of general regulations adopted by all governments are affected at all by this kind of provision, which is equivalent to the NAFTA provision.

However, as was indicated earlier, I agree that if a government, under the cover of so-called legitimate regulations, adopted provisions to totally prevent a company from doing business, in the context of international public law, this would be referred to as expropriation

[English]

of taking away the business concern

[Translation]

in such a case, the regulation would constitute, in my view,

[English]

a measure having equivalent effect

[Translation]

and, in such a case, the tribunal would very clearly conclude that this is expropriation.

• 1645

Coming back to the case of Metalclad and Ethyl Corporation, I think it should be remembered that at the present time these cases are sub judice. The basic question to be determined in both cases is whether the action taken by government authorities constitutes expropriation. That is the test.

Bear in mind too that the disciplines incorporated in NAFTA— originally in the FTA, because it goes back to the text of the original agreement between Canada and the United States—and then into this agreement, are not really different from current standards in public international law. So in some cases—at least as far as the most developed countries, the OECD countries, are concerned—attempts are being made to codify the current understanding that these parties have of what constitutes public international law. Do not imagine that these agreements will create a body of law that is entirely different.

[English]

The Chairman: Mr. Penson.

Mr. Charlie Penson: To follow that up, then, the next question I would ask—and the matter has been raised by this panel—would be in terms of domestic legislation, a company that has to go through domestic legislation or a foreign investor whose property is being expropriated, the difference in the two processes. How could we design a process whereby the domestic company was not served poorly by having to go through the Canadian courts and the length of time...whereas the foreign company has access to a panel, no appeal process, that type of thing? Can you help us out there?

Prof. Robert Howse: Yes, I think that's basically what you're doing; in fact, you're giving foreign companies better protection, in some sense, against government policies than domestic firms. This provision is actually, in the Canadian case, more than national treatment.

I also disagree with Mr. Fréchette's suggestion that we could be sure that these provisions are simply a codification of the existing approach to expropriation in public international law.

I've advised clients on the language in the NAFTA in a number of contexts that I can't describe because of client confidentiality. But suffice it to say that the positions that American interests have taken suggest the view that one should read these provisions as some substantial new concessions that are not really closely linked to existing public international law norms, which have not been accepted by the United States, by the way, which has often negotiated quite different and much more stringent provisions in bilateral investment treaties. I think there is a real risk that these provisions would be interpreted by a dispute panel as substantial new concessions that go beyond the, albeit vague, status quo of public international law.

In any case, you're taking a big risk because, as at least one of the speakers suggested, the money involved in having to compensate someone would be quite huge. As she has suggested, the big problem here is that we won't have any regulation any more—that's an exaggeration—that actually there will be a freezing impact.

Maybe there will be a freezing impact, but also there is a real risk that governments will make regulations, and all of a sudden some interest will turn around and say this is an expropriation and present them with a bill for hundreds of millions of dollars. That's a very real risk, and a risk I don't think fiscally prudent legislators can afford to take.

Mr. Charlie Penson: It is really an expropriation in disguise.

Prof. Robert Howse: Right, it is an expropriation in disguise. But you know, there is a long history in the GATT and the interpretation of these trade agreements of panels penetrating behind disguises. I would be perfectly happy if there were language here that defines expropriation narrowly, in terms of the taking of assets or any action that is a disguised taking.

• 1650

In other words, just as there's language in certain provisions of the GATT that refers to a measure not being exempted if it's a disguised restriction on trade, I would be quite happy to have a non-circumvention provision here that would say that if you try to disguise an expropriation as something else you still have to pay compensation.

The Chairman: Thank you.

Mr. Nault.

Mr. Robert D. Nault (Kenora—Rainy River, Lib.): Thank you, Mr. Chairman.

I seem to be the one at every meeting so far who wants to know about the whole practice of consultation. I'm trying to understand the role of treaty-making versus the role of negotiation in any form, and the role of Parliament, governments and the public.

You go from the extreme of some people saying these are secretive negotiations to others who say you should put everything in the window and just tell the rest of the world what our position is and hopefully, as good boy scouts, they'll buy into what we'd like to do or walk away from it and see what happens at the end.

I'd like to pursue that a little. Tell me if it's obvious in some people's minds that the process we use is not effective. If it isn't, how do you see us doing it differently, understanding for a second that these treaties and negotiations and what we do are becoming so almost commonplace? It would take a significant amount of somebody's time, whether we had a permanent committee that would do this on a regular basis across the country or we just fired it over the Internet somehow and let everybody have a peek at it and do as some parties suggest and have a referendum every time we want to do something.

I'm curious how you expect us to do that. I thought that to some extent it would be nice if people trusted each other since we're looking after Canadians' interests. Assuming that's not true, start by giving me some ideas. I think we should put it on the public record how you would do it differently if you don't like the process the Canadian government is undertaking.

Ms. Michelle Swenarchuk: We already have other models in this country. Not all Canadian international treaty negotiations are done in secret. I am, for example, a member of the Canadian advisory committee, and periodically a delegation, currently negotiating an international trade treaty on the transboundary movement of genetically modified organisms, the bio-safety protocol. I'm a non-governmental representative on that negotiating team. We can report to our constituencies. There are members of industry on the team, academics, as well as the relevant governmental ministries. Everything that occurs in those negotiation sessions is publicly available. At the end of a week-long session in Montreal for negotiation, a report of every country's position is out there for people to read.

This is characteristic of all UN negotiating processes. The model is right there and the Government of Canada can work with that mode in UN processes. I think it could equally start to work with that mode in trade processes.

Historically, trade agreements have been negotiated with complete confidentiality and secrecy. That goes right back to the GATT in 1947. But for me that's simply not acceptable any longer, because the scale of impact, the number of subject areas and the breadth of the agreements are now so huge that very little governmental activity is unaffected by them. In that sense, it's time to move to the UN model and these negotiations should be public.

Prof. Elizabeth Smythe: I would echo that. In fact, my first example was going to be that the UN itself operates on a different model.

I don't want to be unduly critical of the OECD. It kind of falls between the WTO and the UN in the sense that it does have, and has had historically, representation for trade union and business advisory committees. My point simply is that there are other players now, and this is an investment agreement that has impact on a broad range of areas and there are other affected actors.

At the domestic level, I also want to point out that I think there's quite a big middle ground between saying absolutely nothing about what you're doing and saying everything about what you're doing. For example, I think it is possible to be much more open initially on questions related to your negotiating mandate.

• 1655

We do have consultative committees, and have had them for international trade negotiations. I don't know if they've been used as effectively as they could be, and I also don't think they're broadly representative. I did a quick count on one of the international trade advisory committees, and there were something like 23 members, a huge proportion of which were from business, with the balance from business schools. There was a very small representation of labour, environmental, consumer and other groups. I think that can easily be addressed.

I think there is a place for parliamentary consideration of things like the negotiating mandate. The United States government operates quite well in negotiating international trade agreements even tough it has to go before Congress, lay out its negotiating objectives, and subject them to quite a lot of debate.

So I do think there is a middle ground. I think we can go a lot further toward the middle than we do now.

The Chairman: Mr. Howse.

Prof. Robert Howse: Since I have to leave, this is going to be a final intervention.

First of all, I think there's a tremendous role for committees like this one, and they need the research resources to play that role. Also, we need to somehow deal with the cloak-and-dagger attitudes that still prevail in parts of the foreign affairs ministry, by creating incentives for officials to provide much greater disclosure to parliamentary committees, including the disclosure of documents. So that the documents have security clearances, there should be a mechanism for dealing with that issue properly.

The real incentives for officials to talk to Congress is that Congress makes it very clear that if it isn't satisfied with what its getting, there's a very real possibility the agreement will be rejected. The problem in Canada is that too many people have taken the attitude that we have to take whatever we get, that it's a totally unacceptable position that Canada would ever say this isn't any good for us and would walk away. We've been told again and again with the FTA, the NAFTA and so on, that we can't walk away no matter how bad it is.

At the Harvard negotiating course taught by Roger Fisher, I was taught that this is a disastrous negotiating strategy. The one way to be totally powerless in a negotiation is to have no batten, a best alternative to a negotiated outcome basically. Unless we are prepared psychologically to say that if there's a bad agreement we will not sign it, the incentives are all wrong about trying to make adequate changes to it.

Thank you, and my apologies for having to leave.

The Chairman: Mr. Howse, I do thank you for coming forward. I know that you have to leave. I want to assure you, however, that we do have very good research resources. We have the Library of Parliament. In fact, because this is such a complicated issue, we have hired a professor from Carleton University, Christopher Maule. So I think we do have the resources that we need.

Also, just before you go, I noted that the minister did say when he was here—and very strongly—that we would not be signing a deal just for the sake of signing a deal. Unless it is in Canada's best interest, in fact, he won't sign the deal, but I don't know how strong you'd want him to get.

Mr. Sullivan very quickly.

Mr. Alan Sullivan: I have three very quick points, Mr. Chairman. First, in terms of practical arrangements, if I were the committee, the first thing I would do is look at the degree of interest across the country. In other words, if there's a very modest number of Canadians, they can be consulted directly perhaps, rather than having to mount a World War III operation. That would certainly be one criteria: to what degree is there a lot of interest around the country? I would think of this as a classic example of where there is considerable interest right across the country on this particular agreement.

Secondly, using my old hat as a practitioner of international affairs, I would note that to some extent you are the victim of the people you're negotiating with in the sense that if they aren't prepared to play the game you want to play it, then you may not be in the game. That is a judgment call, it seems to me, for the government. At one time or another, it must decide whether or not it wishes to change the rules of the game or it must decide on what the effect will be, and to what degree, and what the implications will be for Canada's national interests at the end of the day.

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Thirdly—and I'm sorry our colleague has left—one of the differences between the Canadian and the American systems, as I understand it, is that under the American Constitution, as perhaps everyone in the room knows, the Senate must advise and consent in international treaties. In other words, the President does not have the power to sign an international agreement without the approval of the Senate, whereas in Canada, as I understand it, the government of the day, through the executive branch, has the power to sign international agreements.

Mr. Robert Nault: And I assume that on some days the President wishes he could do it on his own.

I very much appreciate your giving us your remarks on the whole process of how we can better manage people's knowledge. But you might keep this in mind, because it works in the reverse.

The average Canadian wouldn't have a clue about who these organizations are that you talk about. They rely, of course, on their elected officials more so than on these organizations that generate their own enthusiasm by what they do and the statements they make. So it's sort of a two-edged sword when it comes to that, and I think that's one of the reasons we're here this afternoon. In the end, members of Parliament have to make the decision, rightly or wrongly.

I want to make a statement about this “chilling effect” that people keep talking about. This must be a new term that has come out in the last few years. I don't find that the ability of the Ethyl Corporation to sue—or of any corporation in a democratic society—has a chilling effect. Quite frankly, in both of these cases that were mentioned this afternoon, there's no conclusion, so we're not quite sure who's going to win and who's going to lose. And quite frankly, I suspect that if the Ethyl Corporation were to get close to winning and the Government of Canada thought it was affecting us, they would do something about it.

I don't want to go too far down the line with this, but I'm a little concerned that people think the Canadian government and its officials are going to back down on doing what is good for (a) the environment, and (b) its citizens, just because some corporation comes along and says it doesn't like what the government is doing. Maybe that works in some third world countries, but I doubt very much that it's going to work very well here. I don't think that's going to sell well to Canadians either, because that's not what we're here for. It might sound a little macho, but I'm a little disturbed that people think the Canadian government is going to lie on its back because the Ethyl Corporation is going to sue us. You can comment on that.

I just want to ask about one more issue, which is the one that has intrigued me the most about our federation: provincial reservations. Some people came before the committee not too long ago and suggested that our health care and our social policy system were being threatened because there was no solid statement of reservations as it relates to provincial jurisdiction. Can you tell me whether that's in fact true? Or do we need to have some sort of special reservation put into the treaty itself to assure ourselves that we won't have to ignore this treaty somewhere down the line or forget it after the 20-year period because it doesn't meet our needs?

Ms. Michelle Swenarchuk: Let me just comment on the “chilling effect” argument first of all. We are an organization that actually has a provincial statutory mandate from Ontario to work for law reform in our particular area, so we are constantly involved in campaigns to improve environmental law.

And come on, the world knows how these things happen. The Canadian Environmental Protection Act is a good example. We campaign for a particular standard. We form alliances with people across the country and with organizations that share our desire to achieve that standard. And the affected industry forms its own alliances and opposes the standard or presents its own perspective. That's how environmental policy, health policy and every kind of public policy is made. It's made by a trade-off—and I accept that it is the role of government to make the trade-offs—of various interests in the country.

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But invariably that process involves differences of opinions, frequently, in our case, between us and the industries affected. The number of times in the last ten years that we have been told by bureaucrats, “Oh, you can't do that because of the Canada-U.S. Free Trade Agreement....” “Why is that?” “Because we might be challenged and then...”, blah, blah, blah. The bureaucrats are going down the line of assuming losing the challenge, and therefore we can't put the standard in place because it's going to get knocked down.

That is a very live reality in public policy-making in Canada already.

The government now knows very vividly about the expropriation powers of NAFTA, because it's being sued for a huge amount of money. That will contribute further to the response that we'll be getting, which is, we can't do that; we can't take a risk of a compensation suit.

Briefly on the reservation question, yes, I think the wording needs to be clarified to make it absolutely clear that it covers provincial policies as well.

The Chairman: Mr. Fréchette.

[Translation]

Mr. Serge Fréchette: In response to the first question, it seems to me that we are essentially talking about the entire issue—I'm going to reverse the order of the questions—of protecting sovereignty, or if you prefer, of provincial intervention to protect public health measures.

As I said earlier, the reservation talked by the federal government, as it is currently written, covers only the federal level. Why? I am not privy to anything that goes on at that level, I am not part of the negotiating team, but quite often, the provinces wait before submitting their own reservations to see the complete package, what is being offered, what the obligations are, the extent of the obligations and what they have to gain or to lose in providing or making reservations themselves.

At present, as I said earlier, there is no federal clause in the agreement that would allow the federal government, in the event that one of the Canadian measures is challenged, to limit the scope of the challenge on provincial intervention. That means that normally speaking, the purpose of the federal clause in a treaty is to impose a limit regarding the extent of these obligations on the so-called lower levels of government: the provinces and local levels of government.

What is probably happening at present is that the provinces are waiting to see the entire package before deciding if they will introduce their own reservations. In that case, if they agree to accept that the obligations apply to them, on a voluntary basis, that means that they accept that in their respective areas of responsibility, their areas of constitutional jurisdiction, they intend to comply with the obligations for national treatment, ie the most-favoured-nation and others.

They will most probably give the federal government a list of reservations that they want included in the Canadian list, in which case, for example, the federal reservation, as currently stipulated, will probably be amended to include the federal and provincial levels of government, so that the wording, which is essentially the same wording that is currently found in NAFTA, will cover federal and provincial measures. After that, it is a question of interpretation as to whether the wording covers the types of measures that are adopted by a province to determine whether they are excluded from the application of the obligations or not.

So that is how the reservations work. As long as the provinces have not agreed to put their jurisdiction in abeyance, that is to have their own measures come under the treaty, and as long as there is no federal clause that goes beyond what they are normally, there will be no direct implication in areas of provincial jurisdiction, so that even in the current context, if the wording remained the same, the provincial measures that are within a very specific area of provincial responsibility would not be affected by the agreement, because the federal government has no constitutional jurisdiction to get involved in implementing international obligations in areas that are under exclusive provincial jurisdiction.

The areas we are talking about are mainly areas of provincial jurisdiction, so that if the federal government faced a challenge and the Canadian measure was considered illegal, the federal government could not force the provinces which would have these measures, to amend their provincial regimes to comply with the obligation.

The federal government would have to pay the price in another way, because it remains subject to its international obligation, but there would be nothing that would amend the provincial measure.

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So I am trying to say that we are still very early on in the process to determine whether provincial measures in that sector are in danger or not. I think that at the end of the day, the provinces will have to assess the package to determine whether or not they intend to voluntarily comply or not, in their respective areas of jurisdiction, given the obligations, and that is where we are at now.

[English]

The Chairman: Thank you, Mr. Fréchette. Mr. Sauvageau is next.

[Translation]

Mr. Benoît Sauvageau (Repentigny, BQ): I would like to thank our guests. My first question is for Ms. Smythe. I would like you to confirm—I believe I understood you clearly, but I want to make sure—that, like several other panellists with the exception of Mr. Sullivan, if I am not mistaken, you said: "Whether we sign it or whether we don't, the agreement won't be a disaster for Canada."

Is that what you said?

As for you, Mr. Sullivan, you said that as a matter of principle, Canada should sign the agreement. No? So we could refuse to sign it, and it would not be a disaster either.

[English]

Mr. Alan Sullivan: I didn't pass judgment on whether we should or we should not sign. I said that was for the government to decide. But I said the process of negotiation was something we should be part of. We should be engaged in the negotiation, and at the end of the day we make our judgment whether we wish to sign it as is, sign it with reservations, or decide not to sign.

Prof. Elizabeth Smythe: Could I just clarify on my reasoning, because I went into it a bit more in my written text.

My understanding is that the concerns Canadian investors have about limits or barriers, where they have problems, are not with OECD member countries. Therefore, this agreement does not necessarily address their concerns. The idea is that this agreement would become a model and non-OECD members would sign it.

Should this agreement not come to pass, or should it not be an agreement that Canada wishes to sign, over half our investment is covered by NAFTA, our investment to the United States. We are also covered with Mexico. We have a bilateral trade agreement with Chile, which covers investment. Chile might be one of the countries adhering, and there is nothing stopping us from forging bilateral agreements with other countries.

We have a process of foreign investment protection agreements already under way, and finally, we are continuing and have not stopped working to get investment rules at the WTO.

[Translation]

Mr. Benoît Sauvageau: I would like to hear the opinions of the four of you who are still here on the role of members of Parliament and the role of this committee once the report has been tabled. By the end of 1997, we have to draft a report, table it, and a final and extensive round of negotiations will be undertaken in January and will conclude sometime in April.

But have spent the past month working on a draft document where three quarters of it is in parentheses and where we can see the negotiators' orientation. I must admit that over the past month witnesses have completely surprised us in many ways and have provided us with very pertinent information.

In your view, and I have my own view on it, should we let the negotiators proceed and, after that, as we often saw with the Free Trade Agreement with Chile or Israel, adopt implementation agreements where that work, after the negotiations, would be reviewed by the committee, like Mr. Nault said earlier, and also hear other witnesses?

Mr. Fréchette

Mr. Serge Fréchette: To perhaps distance myself a bit from what was said by other participants earlier, having participated in several bilateral, trilateral and multilateral negotiations in the past, I can assure you that the current process is probably far from perfect, I agree. But it is probably one of the most transparent processes I've ever seen, and in that sense, I am encouraged that at least people have the opportunity to see a text that is still in draft form. To my mind, that is something that has never been done before.

I think it is necessary, in light of everything that has been said, with which I agree entirely, about the current issues that are being negotiated in these agreements, and the interrelations between the obligations of the other sectors, that there be more public involvement, through comments made at committees like yours or through other mechanisms put in place by the federal and provincial governments. Bear in mind that there are provincial interests that are at stake and that there most be involvement throughout the process.

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There are several ways for the federal government to decide to implement mechanisms like those, and also several ways for Parliament to get involved in mechanisms like those by asking the federal government to intervene and be part of the negotiation process.

There is a limit, however, and I can tell you that as a negotiator, there is a certain limit as to the degree of transparency that can be achieved, and what we need to strive for is a balance. Nevertheless, because the stakes are higher and higher, and because these agreements are having an increasing impact on domestic regimes, it is necessary for people to be more and more involved in policy development regarding these agreements and also in the development of regulations.

So I think that all we can do is continue to encourage you, as a committee, to ask people involved in the negotiations to intervene, not only those people who are involved, but also those people who are affected at all levels, a little bit like you are doing now.

[English]

Prof. Elizabeth Smythe: I'd like to make a comment.

One of the things the committee could do in the report that it will obviously produce after these hearings is address some of the important trade-offs Canada might face. The real key to this kind of negotiation is it does involve trade-offs. In your report, that is something you need to address so the public and the government itself have something to respond to.

I can't presume to tell the government how it should finish the negotiation in the sense that, certainly under our Constitution, it has the right to proceed as it's proceeding. I would hope, though, that as a result of your report, when the government reaches a final deal and puts the implementing legislation before Parliament, the government would take it upon itself to indicate how the final deal has addressed the important issues this committee has raised.

I'd also like to see a commitment to changes for future negotiations. It is difficult to change a process midstream, and we are very far along in this process to suddenly expect the government to change the way in which it does things, but I would like to see perhaps some recommendations come out of this committee about how in the future government might better consult, particularly given that these agreements are having a broader and broader impact on Canadians.

The Chairman: Just to inform colleagues and the panellists, when this committee reports, it always asks the government to respond within a certain number of days, so certainly the government will have to respond. I think it's 150 days or so—Bill knows better—but they'll have to respond, in any event, to the committee's recommendations.

Ms. Michelle Swenarchuk: Could I comment as well on the questions?

The Chairman: Certainly.

Ms. Michelle Swenarchuk: First of all, correct me if I'm wrong, but as far as I know, the reason the process to date is as open as it is is not that the OECD released the draft agreement, but that it was leaked somehow, which is how people like me got to read it.

Secondly, we had a similar experience with the NAFTA negotiation. We had a leaked draft of that in March 1992. Certainly, with some changes, that was very far along in the process. This one is due to be concluded next May. The leaked draft, with some changes, was very substantially the final draft. I think we are seeing here very substantially what the OECD wants this agreement to include.

So I would think it's most useful for this committee to do whatever intervention is available to it sooner rather than later. I don't think the opportunity to make any substantive difference in the Canadian government position can wait. If there's a recommendation to be made, it should be done now.

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About the relevance of this particular text, I was amongst the non-governmental organizations which met with the OECD in October. It seemed pretty clear to them that this is the working text and nothing very substantial at all has changed since the draft was leaked. So I think this is fundamentally what the agreement is going to look like, with whatever exceptions are added.

The Chairman: Yes, it's our role to have a report before Christmas, because I understand there will be further negotiations in January...which essentially reflects what Canadians are telling us on the issues. The government will have that in hand before they start to negotiate again in January.

Mr. Sauvageau.

[Translation]

Mr. Benoît Sauvageau: Mr. Fréchette, earlier on, you talked about the distinction between the cultural industry and culture in general in the definition. I won't ask you what wording you would propose, because that could get long, but I will ask you which of the following three subjects: labour laws, the environment, and specifically, sustainable development and culture, you believe will be deal-breakers.

We are not negotiators, we are people who hold discussions and who are going to give some direction, we hope, to the government negotiators. In your view, are those three topics important enough to be basic topics?

Mr. Serge Fréchette: In my view, those three topics are particularly important, because, as I said earlier, this is an agreement that could potentially have a very significant impact on the daily lives of everyone, unlike several previous agreements. NAFTA was identical in scope and the government attempted to maintain its ability to intervene to preserve its capacity to regulate in the sectors you referred to.

I think we must now ask whether the way the government attempted to preserve its ability is the best. We saw it in the case of the cultural industry, particularly in light of the recent WTO decision on environmental and labour issues. I think the whole issue of interface between measures on investment, measures on trade, labour standards and environmental measures must be debated. That debate has not yet taken place.

So ideally, the government should preserve as much leeway as possible to intervene while recognizing, however, that what is being negotiated and what we are attempting to do is prevent governments, under the cover of measures like these, which are otherwise legitimate, from adopting measures that are purely protectionist. That happened in the past, protectionist measures were adopted under the cover of intergovernmental measures. The issue is one of balance in light of the current disciplines and those being negotiated, but those three sectors are sensitive issues, there's no doubt about that. They are deal-breakers.

Mr. Benoît Sauvageau: As regards the environment and labour laws, parallel agreements or reservations would be insufficient. Must that be included in the agreement, in your view, or what importance should be attached to them? The chief negotiator or the minister, I don't remember which one, told us that Canada's position was similar to the one that prevailed in NAFTA. Is that enough involvement?

Mr. Serge Fréchette: As far as I am concerned, parallel agreements will be sufficient. However the question becomes the nature of the obligations contained in those agreements, and whether these obligations can be implemented using a dispute settlement mechanism that is valid, that is included in the agreement or in a parallel agreement as long as the same parties are signatories and the arguments have force of law. I do not think it makes any difference whether it is a parallel agreement or the main agreement.

What is important is the very body of the obligations. Are these formal obligations that commit the parties in these sectors or is it simply a commitment to attempt to do certain things? You have to look at the parallel agreements under NAFTA which were all in all tentative agreements, in that they were attempting to set up a regime, for the first time.

The Chairman: Do you have any other questions, Mr. Sauvageau?

[English]

Mr. Blaikie.

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Mr. Bill Blaikie (Winnipeg—Transcona, NDP): The last question sort of anticipated where I wanted to go in terms of the environmental end of things.

In your presentation you lay out the various things that are being suggested in regard to the environment and say why they're not adequate. But unless I misunderstand, you don't address specifically the whole notion of side agreements or parallel agreements as they exist in NAFTA. It seems to me that, even if they are binding in some particular way in NAFTA, all that the three governments of NAFTA, the three amigos or whatever, are bound to do is to enforce their own laws. They're not bound to any core set of environmental standards that all three countries adhere to, and the same applies with respect to labour.

I'd like to hear more from anyone who cares to volunteer a comment, because we have had a number of suggestions from a number of witnesses that this might be the way this would be dealt with, through side agreements or parallel agreements that would replicate what happened in NAFTA, as the MAI replicates a lot of things about NAFTA.

Ms. Michelle Swenarchuk: I'll respond to that.

We've never considered that the side agreement approach was an adequate response to the kinds of integration, both economic and environmental, that NAFTA included. I'm recalling, as I hear that it's the Government of Canada position to use parallel agreements here, that that's about all they would consider in the Canada-Chile agreement as well.

We've written critiques of the NAFTA side agreement. I won't pursue it here.

The most important thing to remember is that there's no power in the side agreements actually to affect the trade relationships. They're co-operative agreements about programs of co-operation; they occur entirely outside of the trade context and in that sense, in my view, include no protection whatever against the possible environmental on-ground problems and policy problems that flow from the trade agreements.

Mr. Serge Fréchette: One of the fundamental issues we have right now is to try to define the right balance between the use of trade policy and environmental policy, labour policy. I think everybody will recognize that it is very important that we address those issues as soon as possible, because of the current arrangements we have, the current agreements we have in place.

When we try to maintain the ability of governments to adopt certain types of measures, we don't know yet what governments' abilities are under those agreements. Some say they're very restricted in what they can do because of the language we have. Others say that it maintains their ability to do certain things that are very positive for the maintenance of environmental and labour standards, but it's just that we had bad examples brought to the dispute settlement process; that's why the record is pretty bad.

The point is that whatever we're doing right now, we have to maintain the ability for government to do the maximum it can do without using those policies as discriminatory tools to affect trade flows. I say this because those agreements, whether we like it or not, are there to preserve trade flows of goods, services, investments.

I think the next agenda.... That's why in answering the question that was put earlier I was saying we have to maintain maximum flexibility: because the next set of negotiations in the WTO and other forums will try to address some of those points, which are becoming more and more important every day because they affect Canadians.

All of us in Canada will have to ask ourselves what exactly we are trying to achieve and how we want to build a linkage between those trade agreements and those other agreements.

In many ways trade negotiators are not very well equipped to deal with those issues, because they do not understand their intricacies. They have to understand that before they can go in and try to deal with this interrelationship. I don't think they're there yet. I think we still have a few years to go, and there's a lot of education that needs to be done before we can do that.

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Mr. Bill Blaikie: I wonder, Michelle, if you could expand on the last line in your brief, which says the MAI provides no balancing of northern industrial interests and southern needs for poverty alleviation. I know that's not specifically an environmental comment, but it seems to me it's worth some elaboration.

Ms. Michelle Swenarchuk: I think the issue that arises here is similar to arguments many Canadians have made about the impacts here of the free trade agreements with the U.S. That is, some of us think it's entirely legitimate for governments to use local preferences to promote, for example, local development and job creation. As environmentalists, we think that's appropriate in order, for example, to increase value-added returns from our resources rather than exporting them raw. One of the great concerns my southern colleagues talk about from this agreement is the extent to which their governments' capacities to construct frameworks of law like that to foster local development will be hindered by this kind of agreement.

The Chairman: Mr. Reed.

Mr. Julian Reed (Halton, Lib.): Thank you, Chairman.

You have raised for me in some very new ways the salient issues we've heard a number of times. I appreciate that no end, because it's helpful for a better understanding on my part. Before I get into a couple of those issues, there are perhaps a couple of things I could clear up.

One is the business of provincial involvement. In this process we're using, as flawed as it might be deemed in the opinion of some, we do involve provincial consultation on an ongoing basis. It's done on a monthly basis all the way through the process. When the MAI draft was arrived at the provinces were immediately consulted after that meeting and so on, on a month-to-month basis. At least that part of the process is acceptable, we hope.

The other part we would hope may come out positively with this agreement is this extraterritoriality that is being applied, in this case; but even Helms-Burton in the United States was mentioned. It's fair to put on the record that there's nothing new about extraterritoriality. The United States has been practising it in this country for years and years; not to the same extent trying to apply it to companies they don't have an involvement with but certainly to companies they would own in Canada, where you had a wholly owned subsidiary in Canada that would be expected to subscribe to American foreign policy. One of the things we would hope to help get over if this agreement does come to fruition...one wonders whether it will, but if it were to, that would be one of the things we would strive for.

The question of expropriation was brought up, and it's a very important part of the negotiations. I know, having spoken with the chief negotiator, it's an issue of real concern. What you have raised is expropriation beyond the seizing of assets or property. It goes to regulatory change, zoning change, land use, and so on. I can only say from personal experience if those things can be deemed to be expropriation, then I've been expropriated four or five times. I happen to be one of those terrible people who have the misfortune of owning land, and as zoning changes it is imposed on me whether I owned it before the change was made or not.

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I think this is something we should be talking to the chief negotiator about when he comes back to this table, to make sure that this socialist ploy does not get injected into the agreement.

We realize, too, that there's a real challenge with the OECD because all countries are not federations. Some of them are unitary, so that the processes will naturally vary from country to country as they try to arrive at an agreement. It's obviously a challenge getting 29 countries that are all different to sing out of the same hymn book. I used to be a choir leader; I know what it's like to get 29 people who were singing out of the same hymn book to sing something that was compatible.

One of the reasons for carrying this negotiation right to the end has to do with the nature of multinationals themselves. It seems to surprise everyone that the majority of multinationals are not big business. They are not large corporations that have one great foot in this country and one foot in another one, but they're small and medium-sized business. Those are the majority.

Any agreement has to work both ways so that if we have a company that's, say, based in Canada that is a multinational by virtue of its establishing offices in Chile, let us say, or whatever, then it behooves us to have some kind of rules of the road, because the small guys don't have the same resources to stand up to the rules of the jungle. This is essentially where we're going.

I really don't have any questions, unless you'd like to comment. I thank you for raising those issues in a manner that is fresh to me and we certainly will exhaust the arguments you have presented.

The Chairman: That brings an end to our deliberations. I want to thank the panellists for coming forward and taking the time to put their thoughts on paper. I can assure you that we will look at these. We will present your arguments not only to the chief negotiator but to the government in our report.

If there's anything further you'd like to say as our deliberations go on, I would encourage you to bring them to the attention of the clerk. We will have to draft this report by the first week of December and present it before the House rises on that week so the government will have it prior to the negotiations in January.

I assure you also that this committee will be following the MAI as it goes through to its final deliberations, whether it be April, May or June. As I follow the WTO, I think it took a couple of years longer than they said it would. I don't know if they plan to do that here, but this committee will be around and will be following it through.

Colleagues, we're adjourned until tomorrow.