SINT Committee Meeting

37th PARLIAMENT, 1st SESSION

Sub-Committee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

COMMITTEE EVIDENCE

CONTENTS

Wednesday, February 20, 2002

¹

1535

The Chair (Mr. Mac Harb (Ottawa Centre, Lib.))

Mr. Claude Carrière (Director General, Trade Policy I, Department of Foreign Affairs and International Trade)

¹

1540

The Chair

Mr. Gary Lunn (Saanich--Gulf Islands, Canadian Alliance)

¹

1545

Mr. Claude Carrière

¹

1550

Mr. Gary Lunn

The Chair

Mr. Pierre Paquette (Joliette, BQ)

Mr. Claude Carrière

Mr. Pierre Paquette

Mr. Claude Carrière

¹

1555

The Chair

Mr. Daniel Drache (Director, Robarts Centre for Canadian Studies)

º

1600

º

1605

The Chair

Mr. Lawrence Herman (Trade Lawyer, Cassels, Brock and Blackwell)

º

1610

º

1615

The Chair

Mr. Jon Johnson (Individual Presentation)

º

1620

º

1625

The Chair

Mr. Serge Fréchette (Lawyer, Thomas & Davies)

º

1630

º

1635

The Acting Chair (Mr. Bob Speller (Haldimand--Norfolk--Brant, Lib.))

Mr. Gary Lunn

º

1640

Mr. Lawrence Herman

Mr. Speller

Mr. Jon Johnson

The Acting Chair (Mr. Bob Speller)

Mr. Gary Lunn

º

1645

Mr. Lawrence Herman

Mr. Lunn

Mr. Lawrence Herman

Mr. Lunn

The Acting Chair (Mr. Bob Speller)

Mr. Jon Johnson

The Acting Chair (Mr. Bob Speller)

Mr. Pierre Paquette

º

1650

Mr. Daniel Drache

º

1655

The Acting Chair (Mr. Bob Speller)

Mr. Daniel Drache

The Acting Chair (Mr. Bob Speller)

Mr. Serge Fréchette

The Chair

Mr. Lawrence Herman

»

1700

The Chair

Mr. Jon Johnson

The Chair

Mr. Pat O'Brien (London--Fanshawe, Lib.)

»

1705

The Chair

Mr. Mark Eyking (Sydney--Victoria, Lib.)

The Chair

Mr. Tony Valeri (Stoney Creek, Lib.)

The Chair

Mr. Serge Fréchette

»

1710

The Chair

Mr. Daniel Drache

»

1715

The Chair

Mr. Lawrence Herman

The Chair

Mr. Jon Johnson

»

1720

The Chair

---

CANADA

Sub-Committee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

---

NUMBER 021

l

1st SESSION

l

37th PARLIAMENT

---

COMMITTEE EVIDENCE

Wednesday, February 20, 2002

[Recorded by Electronic Apparatus]

¹  (1535)  

[English]

    The Chair (Mr. Mac Harb (Ottawa Centre, Lib.)): We have a quorum, and I wanted to say good afternoon to everyone. This is the Subcommittee on International Trade, Trade Disputes and Investment. We have a number of very distinguished witnesses with us today.

    Colleagues, since our witnesses are going to be talking on trade disputes as well as on the WTO, I thought what we probably should do is reverse the order and hear Mr. Carrière first. If we have any questions for him, we'll pose them to him as quickly as we can so we can send him out to go and do some serious work at the departmental level. Would that be okay with everyone?

    Some hon. members: Agreed.

    The Chair: Okay. Then we'll have Mr. Herman, Mr. Fréchette, Mr. Jon Johnson, and Daniel Drache.

    Mr. Carrière.

    Mr. Claude Carrière (Director General, Trade Policy I, Department of Foreign Affairs and International Trade): Thank you very much, Mr. Chairman and members. Unfortunately I don't have a prepared statement, but we can provide to you later some of the outline of what I will be using today to speak to you on the DSU and the DSU review, which will, in substance, be resuming soon.

    I think the first thing to say about the DSU, Mr. Chairman, from the department's standpoint, is that in general terms, the process is working well. It is being used by members, including developing country members, in disputes against both developed and developing country members. Panel reports are being adopted and for the most part are being implemented.

    Can it be improved? It certainly can. To quote the appellate body in one case, “the dispute settlement understanding is not a model of clarity”, so it certainly can be improved. At this point, we are in the process of formulating government views about the areas in which it could be improved based on empirical evidence, based on case experience, and based on, we hope, the report of the subcommittee based on views of experts in the field, which you will be obtaining.

    We did a first attempt at clarifying the DSU at Seattle, and there was a lot of good work that we will be able to use again. Between Seattle and Doha, we tried to update that. Again, there was no consensus, but there was some convergence on a number of files, and we will be able to use that basic work as one of the foundations for the future work of the DSU review.

    I can list some of the key things that have come to our attention during cases. Obviously one of the most important issues concerns the compliance or the implementation of panel reports and the whole compensation and retaliation issue. This is probably the most spectacular element of cases, but it's a rarity that panel reports lead to a situation of non-compliance and retaliation. There have been some cases, such as bananas, beef hormones, aircraft--there may be others, but those are the main ones--where there has been non-compliance and non-agreement as to the outcome. In some cases, there has been no exercise of retaliatory rights by Canada. In the case of Brazil, they are not there yet.

    Those cases, which are the exceptions, still bring forward some major issues. Is retaliation a proper instrument? Is there a better alternative to that when a country, for whatever reason, is unwilling or unable to comply with the issue of the WTO findings? In the DSU review, one of the areas we will want to discuss is whether there are such alternatives and how we can help members actually implement or find positive solutions or trade-creating solutions rather than using retaliation.

    There's also the issue of small countries, small exporters, or exporters with a large dependence on trade, where using the retaliatory option would have greater negative impact than positive impact.

    Another issue that has arisen during cases concerns what practitioners call sequencing, which is in fact where the appellate body used its “no model of clarity” phrase. Again this concerns the area where a country may or may not be complying with rulings and what process to follow in a retaliatory mode where there appears to be a contradiction between two articles, article 21(5) and article 22(6), of the DSU. Members have been able to address this lack of clarity through ad hoc arrangements, but it requires good will on the part of disputants, which cannot always be counted upon.

    Another issue that has come up is the size of the appellate body. There are seven members. They are very busy and there is no expectation that they will become less busy, certainly not in the short term. Some countries have proposed more or permanent appellate body members, and this will be one of the issues we will need to address.

    Connected to that is the panel, which precedes the appellate body. Some countries have suggested that perhaps we should move toward professional panelists or a permanent roster of panelists in order to speed up the panel selection process. This will also need to be discussed, as well as the implications from both a budgetary and an institutional standpoint.

    In more of a housekeeping nature, one key issue that has arisen in some cases has been the confidentiality of business information. There are no specific rules on this, and the absence of these rules has created some challenges and difficulties in some cases. We hope during the review to be able to address this particular problem.

    There is no remand authority in the DSU review. Again, some problems have arisen because of this. If a panel decides not to make a finding on one issue or another due to the concept of judicial economy, and if its findings are rejected by the appellate body, there is no way in which to correct or address the other elements. The appellate body seems to have found a way around this in the dairy case, but addressing it more carefully through the review would be useful.

    One of the areas I haven't touched on is transparency, which I believe is very much of interest to this committee. One of the members has been proposing greater transparency in the panel process and will continue to do so, but this an extremely controversial issue. I would say the majority--if not the overwhelming majority--of members to date have not been particularly sympathetic to the question of transparency.

    The question of amicus curiae briefs is another area where there is considerable controversy. Few, other than the United States and Canada, have been willing to address the issue and work toward developing rules surrounding the process of amicus curiae, in large measure because the WTO is a state-to-state process of dispute. It's not identical to private party disputes in national courts or even in investor state processes. It's also a concept that doesn't appear, as I understand it, in non-Anglo-Saxon...in many other member jurisdictions. So there is a pedagogical element to the question of amicus curiae to be dealt with.

¹  (1540)  

    Finally, the question of special and differential treatment for developing countries is another area that will need to be addressed, especially in the context of the Doha development agenda. Are there special rules that can be put in place for developing countries that do not completely tilt the balance? If so, what are they?

    Those are some of the issues we are struggling with, Mr. Chairman. We will welcome the views of the committee.

    The Chair: Thank you very much. We know you are a bit pressed for time, Mr. Carrière.

    If we have a specific question for Mr. Carrière, now would be the time to ask him. Otherwise we're going to release him to go back quickly to do some of his work. Does anybody have any questions for Mr. Carrière?

    Mr. Lunn.

    Mr. Gary Lunn (Saanich--Gulf Islands, Canadian Alliance): Thank you, Mr. Chair. I always have questions for Mr. Carrière. I'm quite pleased that he's been able to help me out a lot in the past on various issues.

    I apologize for coming in late. I take it we're talking about the dispute mechanisms within the WTO. I apologize if you already addressed this when you first spoke, but I just want to take this up to the 40,000-foot level, the big macro issues that I hear about.

    Number one, within the WTO process, of course Canada was the biggest advocate arguing for a rules-based system. That's one of the issues now in the softwood lumber issue. You know, we've argued and argued to get a rules-based system, and we should be using it. But the ongoing, constant complaint is that the remedies don't work. We have these great rules, a great dispute mechanism. Even if you go through all that, considering the delays and the times, in some cases some would argue that the remedies are actually non-existent or even useless.

    So my question would be twofold. Number one, what is your suggestion, or what do you as an expert in this area think we could do to help remedy the remedy problem? Number two, is there anything we can do with the timelines? For example, with the softwood lumber dispute issue, as you know, we have an excellent case, but by the time we get to the end of it, there may not be anything left of the industry, at least where I come from, British Columbia, and across Canada, for that matter. Those are the questions, the time and the remedy issue.

¹  (1545)  

    Mr. Claude Carrière: On your first question, I did mention that from our vantage point, the system is generally working quite well. The majority of disputes are settled ultimately without recourse to retaliation. But there are some cases where, for whatever reason, a party is unwilling or unable to comply. There are three major ones that come to mind: bananas between the Europeans and the United States; beef between Canada and Europe and the United States and Europe; and aircraft between Canada and Brazil.

    Unless you can find a solution that leads to compensation, which is the alternative to retaliation.... Compensation needs to be satisfactory to both parties. Otherwise the only recourse becomes retaliation, which has obvious implications. We would like to see whether there are ways in which we can modify the system to further encourage governments to find trade-creating solutions to disputes, rather than trade-destructive solutions. But it's very complex.

    One of the provisions and the parameters we have to work within is that retaliation is directed at the party that's not implementing its obligation. It's a discriminatory action, which is accepted by the WTO. But compensation by the other party has to be provided on an MFN basis. That narrows the range of compensatory measures that a government can make, because you don't want to compensate somebody else. Because of MFN, you're unable to do that.

    I don't know if a solution would be to relax that, because the cure may be worse than the disease. We have to look at the parameters and see whether they can be adapted, or whether we can introduce new parameters to address that.

    Those are still the exceptions. The rule is that the panels are implemented, countries do abide by their obligations, and the system does work.

    On your second question of timelines, that is a concern, especially if we bring improvements to the system and more checks and balances to the system, to avoid at the same time stretching out a process that in some cases can be two or three years long. So we have to find a balance between rights of parties and members on both sides of a dispute, but not make the process so long and complicated that companies and industries lose hope. That's what we wish to avoid.

¹  (1550)  

    Mr. Gary Lunn: Thank you very much.

    The Chair: Are there any further questions?

    Mr. Paquette, briefly.

[Translation]

    Mr. Pierre Paquette (Joliette, BQ): Good morning, Mr. Carrière.

    I would like to compare the WTO dispute settlement mechanism and that of the North American Free Trade Agreement. When the country in question is a NAFTA partner, why would we choose to go through the WTO, rather than through the tribunals provided for under NAFTA? Could we take it to both the WTO and NAFTA? Minister Pettigrew did mention both mechanisms in the case of softwood lumber. I would like you to put this into perspective for us.

    Mr. Claude Carrière: We can do everything that you mentioned. Everything depends on individual circumstances. In some cases, we have used both the WTO and NAFTA dispute settlement mechanisms, at least for consultation. If you remember, in 1998, when South Dakota embargoed Canadian beef and grain imports, we initiated emergency talks with the US under both the WTO and NAFTA. We did not need to go further, because we managed to deal with the problem fairly quickly.

    In the early 1990s, we also contested a countervailing duty on pork under GATT and under Chapter 19 of NAFTA. We won this one, both under GATT and under Chapter 19.

    So we could contest this under both the WTO and NAFTA, insofar as we would be contesting something different in each case. Through the NAFTA mechanism, we would be contesting failure to comply with obligations defined under NAFTA; with the WTO mechanism, we would be contesting failure to comply with obligations defined by the WTO. If those obligations are identical, we have to choose between the NAFTA mechanism and the WTO mechanism.

    For several years now, we have been choosing or preferring the WTO in most cases, primarily because the WTO mechanism is more automatic, more easily enforceable, and cannot be blocked by the other party. Moreover, since a WTO appeal body has been implemented, it carries greater weight, particularly with the US Congress in Washington.

    You may be able to go into greater depth with the other experts. It depends on the exact issue in question. In some circumstances, an issue would be better contested using the WTO mechanism and the NAFTA mechanism, but there would have to be a different angle in each case.

    Mr. Pierre Paquette: I have not spent much time on the transparency of WTO mechanisms. Some people suggest that it should be more transparent, while others believe that such transparency would undermine our ability to negotiate agreements and would force us to go all the way.

    On July 31, when the three Ministers of International Trade agreed to make the NAFTA dispute settlement procedures more transparent, would this mean that, even if such a course were sufficient for dispute settlement under NAFTA, it would be a course—at least to some extent—that from the WTO standpoint has not yet been approved by all parties?

    Mr. Claude Carrière: In this particular case, the clarification applied to Chapter 11, and to the dispute settlement mechanism applying to investment between countries and originating from other countries; one of those clarifications dealt with the transparency, or confidentiality, of procedures. So, this does show that the three governments have attempted to increase the transparency of the process.

    The WTO dispute settlement process is different from that of Chapter 11. It is a state-to-state mechanism. Thus, the nature of issues dealt with is different from the investor-State process. However, we believe—and I know the US agrees—that the process should be more transparent.

¹  (1555)  

[English]

    The Chair: Merci beaucoup, Monsieur Carrière.

    Can we release Mr. Carrière, so we can hear from other witnesses?

    Thank you very much.

    What I think we should do now is move to the rest of our witnesses and start with a brief statement, as brief as you can, because we are going to have a round-table type of discussion.

    We will start with Mr. Daniel Drache. If you can, please limit your presentation to anywhere from three to four minutes as the opening statement, and then you'll start bombarding us with your specific recommendations as we start the dialogue.

    Mr. Daniel Drache (Director, Robarts Centre for Canadian Studies): Thank you very much for the invitation to discuss the WTO's first seven years. We have, which might be of interest to the committee, carried out a report entitled “The First Seven Years of the WTO and Canada's Role at Centre Stage: A Report Card on Trade and the Social Deficit”. I think this is useful to us because it looks at concrete cases where Canada has been involved. As the members of the committee know, Canada has been disproportionately at centre stage in the first seven years of the WTO. Therefore, it is very important that we need to better understand in a global sense how well Canada has been doing at the WTO, and as well how effective the WTO is as a guardian.

    Without answering those two questions, it is difficult to really make a first-rate assessment of our participation and to decide whether we are doing well, or whether we are doing poorly at the WTO, both in the sense of total outcomes or particular outcomes. We need some benchmarks and yardsticks. In our report we try to provide benchmarks and yardsticks. We've developed what we call a methodology of assessment because we want to develop, first of all, the win-loss record of Canada.

    It will be of interest to the committee that Canada's batting average at the WTO is only 50% or less if we take all the cases. This is barely a passing grade. It should interest us to see whether we can do better, or we can do less, or whether we're winning the right cases, or whether there's a way to make our participation more effective.

    Secondly, I think we have to address what I call the social impacts of trade. You will hear today from people who are practitioners in international trade law and who are involved directly in the dispute settlement. But trade is much more complex than the cases themselves, because it has social impacts on health, labour, food standards, culture, industrial policy. We want to look at whether we think the quality of the jurisprudence in the WTO is adequate or is wanting, and how might we try to understand that. We try to deal with this in detail, and I'm going to take two minutes and review the different cases.

    I think what we want to try to assess is what is the balance between these new norms of the WTO and whether they lead to greater international cooperation through the trade dispute settlement mechanism.

    We took four cases because we wanted to make it as a report card. We took the asbestos case. This is an interesting one for us because it deals with public health. How does the WTO address public health through a dispute mechanism?

    Secondly, we looked at the Auto Pact, because the Auto Pact is really a regional economic development strategy, and because in this instance we want to see, in striking down the Auto Pact and dismantling it, what are the impacts of that kind of decision for developing countries or other countries that might be interested in creating an auto pact. Does the WTO rule out the Auto Pact?

    The Bombardier case at Embraer in Brazil--the dispute between Brazil and Canada--is interesting because that deals with the use of subsidies for international competitiveness purposes. We have to be very clear on that. The aerospace industry uses subsidies. The European Union uses them. The Americans use them. How good or how adequate is the WTO in addressing this question from a public policy point of view?

    Finally, there's a dispute we looked at in terms of patent protection. This is important to us because it poses the two questions of intellectual property rights versus affordable drugs, and how adequate, again, is the jurisprudence and the kinds of disputes. I can't go into the details, but that's in the report. I think you have it.

º  (1600)  

    I just want to make a couple of comments about this. For instance, when you look at the WTO--and it's important--we want to know, for instance, on the 20-year intellectual property... I mean, why is there a rule that intellectual property rights are 20 years, when we know from the rate of return on drugs and their development that these costs might be recuperated in five years, or seven, or ten years? This is a very interesting case for us, because it raises the whole issue of the adequacy to address the larger issue of affordable drugs.

    So each of these cases poses a kind of dilemma or conundrum. And it's significant that of the three, Canada won only one, on the Embraer and Bombardier, and on the other hand suffered losses.

    So what does our study, for instance, highlight about this system? First of all, you'll hear a lot that it's a rules-based system. But these rules, as we can see through the case studies we have made, tend to be highly unpredictable.

    If the WTO, in theory, was created to reinforce certainty at the global level, many of the dispute outcomes do not do this. They create as much uncertainty as anything else, because the winners and losers are never clear. There's no real guarantee that you're going to be a winner at the WTO. In other cases that I can talk about, for instance cases that we might have thought we might win, we might have been losers. So we can say there are rules, but we're not sure how adequate they are.

    Secondly, when we look at the framework of the WTO--again, I'd want to discuss this in more detail--it is a very narrow framework for a body that sees itself in charge of the world trading system, and it has very little capacity, if you go into the detail of the system, to address complex issues effectively.

    In the Brazil-Canada dispute, the question really is the role of subsidies to support international competitiveness on the part of developing or middle-ranking countries. For instance, you find no resolution in that dispute on that important substantive issue.

    On the asbestos issue, even though it was a loss for Canada, it is significant that there was no standard or ban on asbestos internationally, even though there was a lot of scientific evidence that asbestos is carcinogenic--it's been banned in Canada. It is questionable, of course, why Canada wants to export a substance that it has already banned in Canada. But again, there's no resolution through the WTO of the asbestos issue. I could go on to discuss a number of these issues.

    Finally, I wanted to say that frequently the WTO creates a regulatory void. Its decisions, through these specific cases, create a regulatory void at the international level, and it becomes an obstacle for countries that wish to set their own rules of the game in critical areas.

    I guess I would say the question now that's worth discussing and pursuing with you is whether in the area of intellectual property rights, for instance, or generic drugs, subsidies, public health, culture--any of these other areas--these disputes assist countries in developing more cooperative norms and standards at the international level. That's a big issue. And do they really advance the public interest, or do they simply advance private interests?

    The bottom line here is that trade disputes, on a case-by-case basis--if we look at all the disputes Canada or other countries have been in--frequently fail to strike a balance between trade and the social effects of trade. A more dramatic illustration of this is that under the TRIPS, for instance, patents on life-saving drugs are treated in the same manner as patents on ice-cream machines. It doesn't have the capacity to be a very refined instrument of governance or even of resolution of trade disputes at the international level. It's quite a crude instrument.

º  (1605)  

    At the end of the day, I think we should look at how other countries are able to participate and support the WTO, and the other kinds of policies and programs they use to complement the WTO, so they're not subject to outcomes that may be adverse to their public interest or to the global public interest.

    It's interesting how the Europeans are much more sophisticated in their use of the WTO than Canada. This is because they have a range of policies and programs that deal with restructuring, setting of public norms, and responsibilities. They deal with restructuring that advances their international competitiveness. The social market is important in the European case because commercial policy has to take account of the social market, so this in many ways buffers the WTO.

    Finally, with the Americans, we have a very different contrasting situation, where the United States has many more policies than we have, to address the complex issue of trade.

    In the end, we need to make a thorough audit of our participation in the WTO, because we've been at centre stage on a case-by-case basis, to try to understand our win-loss record substantively. We also need a much sharper analysis of the WTO and the reforms that have been undertaken after the Quebec summit, Seattle, and Doha.

    The final question we have to look at is why Canada has only a passing grade at the WTO, in terms of winning trade disputes.

    The Chair: Thank you very much.

    Maybe if we can limit the presentations to five minutes, it will give us more chance to come back and ask questions.

    We'll move on to Mr. Herman.

    Mr. Lawrence Herman (Trade Lawyer, Cassels, Brock and Blackwell): Thank you, Mr. Chairman.

    Like the others, I'm happy to be here. I understood that the focus was to be on the dispute settlement process, so that's what I'm going to talk about.

    I submitted a paper that contains some exaggerated language, I guess, or dramatic language, but I wanted to catch everybody's attention, so I used a sentence or two that you'll have to forgive me for. But I did say in the paper that the dispute settlement understanding, which is the entirety of the WTO dispute settlement process, should be considered one of the major achievements of international law and diplomacy in the 20th century. That's a pretty bold statement, but I truly believe it.

    I'm a public international lawyer and have worked in government for many years. I used to represent Canada at the old GATT in the 1970s. I've seen such a tremendous change between a system in the GATT that was diplomatic and not really based on firm rules, evolve into a serious, time-constrained, rule-based system that I think we now have to recognize is one of the major achievements of the international community. It's not a perfect system, and I say that in my paper. It's a human system, after all, and it's also a system that has to get the sign-on of 150 or 160 countries. So you have to negotiate the process and the rules. Taking that into account, I think the international community has made a major leap forward in international dispute settlement through the WTO system.

    The other point, which is not mentioned in the paper but I think is important when the subcommittee looks at this, is to understand that the WTO has become the central organizing institution in international relations. In a world that is filled with chaos, war, ethnic cleansing, and you name it, the WTO is a beacon of stability, and so my view is, approaching it from that perspective and understanding the nature of international compromise and the fact that fundamentally it becomes a human system, you get a perception of the WTO that may be somewhat different from that of its critics.

    Is there room for reform? Yes. Claude Carrière has mentioned areas where the system can be improved.

    At the end of the paper I make the comment that I think governments have to proceed with some caution--and I think this subcommittee should proceed with due deliberation and some caution--in suggesting that the agreement itself should be opened up. I think that would be, frankly, counterproductive and would be similar to opening a Pandora's box.

    In my view, you can improve the system without opening up the agreement. There are some internal working procedures--Claude Carrière has mentioned some of them--that need to be improved, and we can get into those in the discussion.

    I won't be much longer, but let me turn to the question of transparency and accessibility, because you will have heard from your constituents, the more vocal of whom tend to be critics of the WTO--and I quite frankly don't understand it--that NGOs, interest groups, so-called representatives of civil society should have access to the system.

    I come from the perspective of a public international lawyer. The WTO, like the UN or the IMF or the World Bank, is a multilateral institution where states are members. Persons, individuals, don't have standing in those bodies, nor, in my view, should they. This isn't a retrograde view; this recognizes that since the Congress of Vienna, if I can be so bold, and certainly since the First World War and the aftermath of the Second World War, we've been trying to find mechanisms whereby states, governments, can cooperate in a rule-based system. It isn't a system designed to allow individuals--persons, organizations, companies--to be players in that system, nor are non-elected representatives players in a direct sense in the law-making process that you people are engaged in.

º  (1610)  

    My view is that accessibility has to be looked at very cautiously. I don't believe it appropriate to have direct access to the dispute settlement system, in a formal sense, for the reasons I explained. In a practical day-to-day sense, allowing individual persons or organizations access--quite apart from the questions of whether this is democratically permissible--even by way of amicus curiae briefs, would paralyse an already overstrained system. I don't think that's in the interest of Canada, and it certainly isn't in the interest of the international community.

    Now, how do you deal with this? Well, one way of dealing with it is to ensure greater transparency. In my paper I point out--and if you go to the DFAIT website you'll find some useful material there as well, and Mr. MacPherson can help you in that regard--that Canada has been very forthcoming in making available submissions that have been filed in WTO disputes. Other countries don't do as good a job. I think we need to encourage the availability of documentation. That helps in terms of transparency.

    You have to also understand that the WTO has made a huge effort--absolutely incredible, when I think of the days when I used to go to the GATT in Geneva in the 1970s--to host a huge amount of material on the website, allowing citizens, interest groups, and civil society access to know what they're doing. It may be that some of the criticism of the WTO as a monolithic, closed shop, which may have had some justification four or five years ago, is no longer well founded.

    So at the end of the day, yes, we need to improve some of the procedures to deal with the kinds of issues Claude Carrière has mentioned. Is it a perfect system? No, but it is fundamentally a human system, and one that works well, and I think it behooves all of us to make sure we don't put demands on that system, as a human system, that simply can't be met. That's my perspective on this issue.

    Thank you.

º  (1615)  

    The Chair: Thank you very much.

    Mr. Jon Johnson.

    Mr. Jon Johnson (Individual Presentation): Thank you very much, Mr. Chairman. Thank you very much for inviting me here to speak on this subject.

    I'm going to approach this more as a practitioner. I've been involved in a number of these cases acting for stakeholders and advising the government, so I'm really going to come at it more from that perspective. Two of the cases have been mentioned. I was involved in the autos case. I also was involved in the Pharma case. I'd like to think of the Pharma case as a 90% win. There was about 10% of a loss there, so you might want to readjust your numbers accordingly, Mr. Drache, but we can discuss that.

    I think the process, as Mr. Herman says, is quite remarkable, and I think it works very well. It works very well in that disputes get resolved. You have the numbers from the website as to how many disputes there have been. They do get resolved. For the most part, the recommendations to the DSB are complied with. Also, the quality of the jurisprudence that comes out of the process I think is very good. Jurisprudence is always messy. There's no perfect line in jurisprudence, and actually in the WTO jurisprudence I think they do quite well.

    I'll deal with a number of practical issues. First, on panel selection. I don't have any particular problem with the panel process as it is. I think the three panellists are fine. I don't know that there would be anything to be served by having a standing roster of panels. I don't think cases have been inordinately delayed because of panel selection. In the autos case, for example, as I recollect, the request for a panel was accepted on February 1, 1999, and we had a panel less than two months later. I think that's more or less typical, so I don't think there are any particular difficulties with that process.

    As far as the procedures and timelines, people criticize the WTO process, or at least the DSU process, for being long. Firstly, remember we're talking about litigation here. When one is dealing with the world of litigation, actually the WTO process moves very quickly when you compare it with domestic cases or with NAFTA chapter 11 cases. The process probably moves along as quickly as it practically can. When one is in one of these cases the timelines are very tight, and I don't see how they can be very much tighter.

    The present rules or at least the present practice provides for two appearances in Geneva. Arguably, the second substantive meeting could be dispensed with. I think it probably sharpens issues, but it probably lengthens the process somewhat. On the other hand, I think the process moves along quite quickly and quite well.

    Evidence is, in this process, haphazard. There are no rules of evidence to speak of. Generally speaking, panels have approached it on an ad hoc basis and the appellate body has endorsed that. I think some rules of evidence as to when things can be submitted and some sort of discovery process that is a bit more organized than exists now might be desirable and make the process work a little bit better than it does. On the other hand, we are dealing with states, not with individual claimants, so tight litigation-type rules of evidence probably would not be appropriate.

    There are confidentiality issues. I suspect Mr. Fréchette has some views on those, and I think I will defer to him.

    On the question about public participation, I completely endorse what Mr. Herman says. This is a state-to-state process. Aside from the points he made, as a practical issue, to give standing to hosts of NGOs in a WTO case, in a system that is already overburdened, I think it would just put an impossible task on the governments and the WTO staff who are trying to settle the dispute. Aside from the fact that in principle I don't think it would be correct, I also think it would have huge impracticalities.

º  (1620)  

    As far as whether hearings should be as private as they are now or public, for one thing, I can see no harm in making them public. Confidentiality issues can be protected. Our proceedings before the CITT in injury cases are public, with confidential information being protected. Trials of commercial matters are public, with protections for confidential information.

    Making the panel hearings public may be very boring, by the way, and people would rapidly lose interest in them, but I think that would have a lot to be said for it.

    With respect to post-hearing procedures, one of the practices now is that the panel is required to come out with an interim report, and the parties comment on the interim report. I have heard that described as being an unnecessary step. I would endorse that, except in the Pharma case we were given the opportunity to comment on the interim report. It turned out the panel had answered a question that had never been asked of it, and that was pointed out. They changed the report. In that particular instance, that process worked in our favour. So I'd be a little bit reluctant to dispense with that.

    Coming to the appellate body, you hear various views of the appellate body. They are the supreme court of the world, in a sense, and there is a tad of arrogance that goes along with that, perhaps. But I think that having an appellate body has been very valuable. Basically what they have done is they have brought a great deal of consistency to the jurisprudence as it has evolved. They do correct mistakes of panels. Panels do make mistakes. Now, if the appellate body makes a mistake, it's like the Supreme Court of Canada making a mistake: there's nothing you can do about it. But on the other hand, the appellate body, given that they're a standing body--the same people deciding cases--brings an institutional memory, which I think has served the system very well.

    There is frankly no comparison between the WTO jurisprudence and the NAFTA jurisprudence in terms of quality. I think the appellate body is largely responsible for that.

    One point that was made by Mr. Carrière was the issue of remand. He raised it in the context of judicial economy. That would arise if, say, there were complaints A, B, C, and D. The panel would say we decided on the basis of the arguments made on point A, so we don't have to decide the rest. The appellate body comes along and says no, you were wrong on point A, so we moved to point B, and you would have been right on point B had the argument been made, but it wasn't, or the panel didn't decide it. There's no evidence, so we can't decide the point.

    Remand is used by national panels in chapter 19 cases. Essentially what happens there is that the binational panel hears a particular point and says International Trade Commission or TLC or CITT, you got it wrong; here are the principles; go back and reconsider the point, applying these principles. I think that would be a useful addition.

    With respect to compliance, this is obviously a very difficult issue. There are essentially three procedures. There is a procedure under article 21(3) for determining time to comply. It's a bit anomalous that there is a procedure for ahead-of-time determining time to comply, but you can't really address the means of compliance, and that sometimes can be an issue. There's another procedure to determine whether compliance has taken place, and there's also another procedure for dealing with the issue of retaliation.

    It's easy to criticize the problems of compliance or to find fault with the system. Retaliation is obviously bad. If country A has the opportunity to retaliate against country B, the people who really get hurt are various businesses unconnected with the matter in country A. That's not satisfactory.

    Compensation is fine, except compensation has to be consensual. You have inequality. For example, retaliation between say Ecuador and the European Union, which did come up in bananas, is a pretty unfair situation.

º  (1625)  

    You also have agreements like TRIPS, the intellectual property agreement, which is basically principle-based, not concession-based. So the notion of “well, if you won't go along with this and you're going to not comply with your obligations to me in this regard, then I'm going to withdraw these concessions” doesn't work for TRIPS because it's a principle-based system.

    So the problems are easy to find, but the whole root of the difficulty is we're dealing with state-to-state treaties that are consensual. We're not dealing with the sort of situation you have in civil litigation domestically where the plaintiff wants a judgment against the defendant and at the end of the day the sheriff can be sent off to seize the assets. That does not work out of the WTO.

    Essentially, regardless of whatever system you come up with, at bottom it's consensual. This really limits the mechanisms you can put in place to force compliance. At the end of the day, in this system you cannot force compliance.

    So with this issue of compliance I think I will pass the...

    The Chair: Thank you very much.

    Mr. Fréchette, go on with your final presentation. Then we will go to questions and answers.

[Translation]

    Mr. Serge Fréchette (Lawyer, Thomas & Davies): Thank you, Mr. Chairman. I will admit I had initially planned to deal with several of the topics that have already been raised, but I will limit myself to some much more specific ones.

    I would first like to give you one word of warning. I have been involved in WTO negotiations from the outset as well as in the implementation of the agreement. I have also worked on at least three disputes referred to earlier. Like Mr. Johnson, I can confirm that the manner in which the success or failure is determined ultimately depends not necessarily on the assessment criteria, but more on the parties' expectations at the beginning of the dispute, and therefore the effectiveness or lack thereof of the dispute settlement mechanism should not be based on the success or failure of a dispute.

    The questions I want to ask pertain more to what I would call the macro-policy of the dispute settlement mechanism. I would first just like to answer the question of whether the dispute settlement mechanism is effective. Like everyone else, I fell it is. If you look at it overall, you could only conclude that the mechanism is extremely effective.

    As with all mechanisms, some things must be improved. In my view, the ones that should be improved first and foremost are the issues relating to the willingness and ability of WTO members as well as the approach taken by the decision-making bodies.

    Let me explain. First of all, the issue of the remedy that must be applied when one of the members refuses to implement the ruling made by the dispute settlement body is clearly a fundamental one. One of the main objectives of the last round of negotiations was to ensure that the rulings on dispute settlements should be implemented. The test to see whether that is the case should not necessarily involve most of the rulings, but rather only the most sensitive ones.

    There is no point having a dispute settlement mechanism that works for 95% of the disputes, those which, in fact, do not pose any major political problem and to have no way to implement the other 5% of rulings, namely those that pose political problems for the parties. As Claude Carrière said, that is what happened in the cases of hormones and of bananas. That is also the problem Canada and Brazil are facing in the aircraft case.

    The question of implementation is often difficult for the parties from a domestic policy perspective and the mechanisms currently provided for in the agreement are often inadequate for the parties to find a politically acceptable solution and one that solves the problem from a trade perspective. In the case of the Canada-Brazil dispute, Canada was given the authorization to adopt countervailing measures. For Canada, the countervailing measures in question would have no effect whatsoever in settling the outcome of the dispute with regard to the complainant. The question in dispute was Embraer's use of subsidies. Imposing tariffs on orange juice or shoes from Brazil does not affect Bombardier or employment in Montreal or in the rest of Canada.

    Those are the types of problems that arise and that current rules cannot resolve if you deal with those matters in such a specific context, namely the elimination of concessions and duties that stem from the agreements. Other avenues must therefore be explored. Some of those were already discussed at the last negotiations and tend more towards civil remedies, for example. Since the purpose of a dispute is to rule on questions relating to market access and effects on trade, for cases where the countries cannot implement them by changing their measures, would it not be possible to simply assess the damage caused to the complainant's economy and find a way to provide monetary compensation?

    In some disputes, some parties have already broached that topic and are discussing the possibility of simply assessing the damage, deciding on its value and ensuring that the losing party simply compensates the government that won the dispute for the value of the trade that was affected by the dispute.

º  (1630)  

Afterwards, the plaintiff government would decide on how to reuse the funds, by compensating the plaintiff industry or in some other way.

    Many possible options have been looked into. Some are theoretically possible, but almost unacceptable politically, like simply expelling a member from the World Trade Organization. If the parties came to this conclusion, there are already mechanisms in place to allow this and there is also the status quo, whereby, for instance, parties could negotiate a satisfactory solution. But in the case of difficult unknown political factors, it is perfectly clear that given the sovereignty issue, it is difficult to force any country, be it the European Union, Brazil or any developing country large enough, to change its internal policies which are socially very difficult to change. Thus, the problem must be tackled more creatively, and that will be the challenge for the members when this fundamental issue will be negotiated again. They will have to explore other avenues than the currently existing ones.

    Secondly, I want to raise the issue of how the World Trade Organization's jurisprudence works.

    There are very often complex disputes that go through several stages. For instance, in the case about bananas, the parties appeared twice before the panels and the Appellate Body. There is also the civil aviation case and now we have a case about dairy subsidies, and it is perfectly clear that in each of these cases, the decisions handed down by the panel or the Appellate Body did not resolve the issues raised by the parties. Thus, once the decisions are handed down, the parties are basically stuck with duties they must implement, which are not always clear. Consequently, a second, and even a third dispute can arise over the same issue, as happened in the Canada-Brazil case.

    This is what I meant when I said that the members of the various deciding organisms, be they panels or the Appellate Body, will have to look very closely at their way of dealing with disputes.

    One of the basic objectives envisaged in the dispute settlement mechanism is to be able to settle the dispute by using the mechanism. And to settle the dispute, we must go beyond some fundamental issues. We must provide for the legal elements the parties will need to implement the decision, to avoid a second or third round of disputes on the very question that had been put the first time. Thus, a basically different approach must be adopted in certain respects, by the organism in charge of settling disputes, by asking the Appellate Body and the panels to hand down much more explicitly reasoned and more accurate decisions that answer the questions raised by the parties.

    From a practical point of view, this is what the members need to implement decisions and this is how we will succeed in ensuring that the obligations are perfectly clear and accurate and that the mechanism functions in a predictable way. In our opinion, this is the way the functionality of the dispute settlement mechanism should be evaluated.

    These are my comments for now. I will be pleased to answer your questions.

º  (1635)  

[English]

    The Acting Chair (Mr. Bob Speller (Haldimand--Norfolk--Brant, Lib.)): Thank you very much, gentlemen, for taking the time to come out and present here today.

    I'll turn now to questions. Mr. Lunn.

    Mr. Gary Lunn: Thank you very much, Mr. Chair.

    I personally want to thank all the witnesses for those presentations. I enjoyed the last gentleman who spoke in depth about the remedies.

    In the interest of allowing more questions, I'll focus my question to just two of the witnesses, Mr. Chair, so there's time for other questions. I'll focus this on Mr. Herman and Mr. Johnson.

    I'll speak for myself, but I'm a big supporter of the rules-based system at WTO, although it's imperfect, and I agree a lot with what Mr. Carrière has said. I just want to focus on one narrow problem that might be part of this 5% we talk about. We've come a long way, but there's still a distance we need to go. This frustration goes right to the heart of the softwood lumber issue.

    In discussions yesterday and today, the B.C. industry—which is about half the softwood lumber dispute, putting about $5 billion or so into the economy a year—is looking for a suspension agreement, out of their desperation to get this resolved, because they don't know if they'll be able to survive the timeline. Of course, as you're aware, it's been to international trade panels two or three times; it may have been as many as four. It's something like that. The concern is that they'd been down there before. They are very frustrated. It's costing tens of thousands of jobs.

    How do you think we can improve this WTO remedy situation, and the dispute one, in this specific situation or a situation like this? Again, I'm a big supporter of the rules-based system and I think we need to use it, but at the same time you've got the industry from British Columbia asking for a suspension agreement. I don't even know if they're aware that by doing so they'd have to meet a test of resolving 85% of the disputes. In other words, they have to pay 85% of the tariffs--that's generalizing--in order to get a suspension agreement.

    I'll let you comment, but that's the issue at hand.

º  (1640)  

    Mr. Lawrence Herman: Look, there's no easy answer to the softwood issue. It's going to the WTO and it just has to follow the timelines at the WTO if it continues there. At the same time, Canada is continuing to explore the possibility of a negotiated solution. It's not an easy one, and I don't think you can expect the WTO to answer all of these issues. It is theoretically possible that you could get some kind of interim relief negotiated into a new or revised DSU, but short of that you just have to follow WTO timelines, and that doesn't give you immediate relief. But I would point out that normal civil procedures in the courts don't get you immediate relief either.

    In my view, there are a limited number of choices in the softwood lumber dispute. One of them is we have to go to the WTO and push every avenue of relief there. Ultimately, I'm convinced Canada will succeed, but there will be a lot of pain in the interim. That's probably very difficult politically and commercially to sustain, but it's one avenue. The other avenue is to try to buy a deal with the Americans, and they're pushing hard. It's not the American government that is the most difficult party; it's the U.S. industry. They've got a remedy that allows them to play hardball. Somebody asked me in a TV interview yesterday why they're playing hardball. Well, let's get serious. These people aren't in the business of being friendly; they're in the business of doing business. If they have a remedy they will pursue it to the utmost. The U.S. industry understands the pain they put Canadians to, and they're not in a negotiating mood. Why would they be?

    Let's not have any illusions. There are those two routes. You negotiate a deal, which means you move to a market-based system and try to buy a deal--which is going to be more, I can tell you, than the 13% the B.C. government has offered, and the Americans have made that clear--or if you don't get a deal, you pursue every possible legal avenue. That means taking it to the ultimate test at the WTO.

    There are a couple of other avenues. I'm very interested in what Canfor is doing. Canfor had brought a chapter 11 dispute forward. I think that's a very interesting development and I hope Canfor pushes it. There are also some avenues in the U.S. courts that could be pursued quite independently from pursuing the WTO route. There may even be an after-remedy that could be pursued by the Government of Canada. But I'm not very hopeful, to tell you the truth, that there's an easy way out of this dispute. Sorry, but that's the way I see it.

    The Acting Chair (Mr. Bob Speller): Mr. Johnson, did you want to respond also?

    Mr. Jon Johnson: I don't have a whole lot to add, because I agree with what Mr. Herman said. But here are a couple of things.

    I wouldn't discount NAFTA, in the sense that chapter 19, in the dumping case, may very well produce a positive result.

    In the countervail case, unfortunately, with the chapter 19 review the binational panel is applying U.S. law. The way the dumping case has worked out, it may very well be that the U.S. hasn't complied with its own law. The countervail case might be more difficult in that regard.

    As for the WTO, as far as speed is concerned, as I said in my remarks and Mr. Herman said, the timelines actually are pretty fast for litigation. They're about as fast as you could ever expect.

    There is certainly one improvement that could be made to the DSU, but it's not going to happen. That is, that panels in the appellate body are very vague and very reticent to tell members how to comply. They simply say, “You're offside; you go figure out how to comply.”

    I would have thought in a case involving dumping or countervail that the remedy is very obvious. It's what it should be under domestic law: you are wrong; give back the money. If we tried to get that sort of amendment in the DSU, the Americans would fight it tooth and nail; they wouldn't agree to it. But it really is the correct result. It's not hard to remedy a wrongful countervail, or a wrongful anti-dumping order. When you have collected money for two or three years and you shouldn't have, whether you're found to be guilty by a national panel or by the DSB the result should be the same.

    But that's not the way the DSB works. There's a case going on right now that comes out of softwood involving duty refund, and it really involves the issue of how you comply when you've been found offside in a countervail case. It's more or less accepted it's on a prospective basis. You wouldn't give back all the money from the beginning of time. It's really just an issue as to where the cut-off is.

    What it should be, though, is if you wrongfully imposed anti-dumping or countervailing duties under the DSU, you should give back the money. Don't hold your breath for that.

    The Acting Chair (Mr. Bob Speller): It's highway robbery.

    Mr. Lunn.

    Mr. Gary Lunn: This is a short supplementarty question.

    One of the other issues the industry is bringing to us--and everybody is saying they're confident that we're going to go through the entire WTO process and at the end of the day we will be successful--and another frustration they've witnessed before is that two or three months later the U.S. industry is going to file another petition, and here we go again. Is there anything we can do to prevent that, or is there anything we should be looking for in the WTO negotiations to prevent repeat claims after we've won so many times, or lost, or whatever?

    The Acting Chair (Mr. Bob Speller): Frivolous claims.

    Mr. Gary Lunn: Yes.

    The Acting Chair (Mr. Bob Speller): Mr. Herman.

º  (1645)  

    Mr. Lawrence Herman: The reason we're into “softwood five” is because when we negotiated the previous agreements with the United States, a clause in those agreements said that when they come to an end for whatever reason, the U.S. industry retains its full rights under U.S. law. I would imagine any agreement with the U.S. industry in this case would contain the same kind of clause.

    The second and I guess more pertinent point is if we win at the WTO, would that allow the U.S. industry to refile a case subsequently? Theoretically, nothing would prevent them from doing that, but one would assume a WTO finding that is adverse to the U.S. and says they were wrong, or their law was inconsistent with the WTO agreement, let's say, in terms of how it defines subsidy, would then prevent the U.S. industry from bringing a case forward again and the Commerce Department from investing an allegation that stumpage programs were a subsidy, if the WTO had ruled they weren't.

    I think that would be perverse, and I don't think it would likely happen. On the other hand, adverse WTO findings don't necessarily result in preventing an affected industry from bringing remedies forward or seeking to have investigations started again.

    Just as a footnote, I think there may be a glimmer of a hope that we can settle this with the Americans through some kind of agreement if the provinces--particularly the province of British Columbia--come onside. There is some glimmer.

    I don't know what's happening behind the scenes. All sorts of things are going on. You probably know much more about it than I do. There is that possibility.

    But I think it's going to be very difficult to reach an agreement with the Americans on this one. I'm a little bit surprised that wasn't recognized and the militancy of the U.S. softwood industry wasn't recognized when we decided to pull out of this agreement. I think the parties should have done a little more diligence and recognized what that meant.

    I'm not being helpful, I'm sorry, but I'm trying to--

    Mr. Gary Lunn: No, no, I appreciate you're trying to give us a straight answer.

    Mr. Lawrence Herman: --give you a straight answer.

    Mr. Gary Lunn: Thank you very much.

    Thank you, Mr. Chair.

    The Acting Chair (Mr. Bob Speller): Thank you very much.

    Mr. Johnson.

    Mr. Jon Johnson: I have one comment on the WTO as to foreclosing future actions. It depends on the nature of the win. It depends what you win. There are a number of things being challenged. There are various procedural things the U.S. did that were challenged as being incorrect. There's a question about critical circumstances in those 90-day duties. There are some other things like that. If you win in any number of those, that doesn't foreclose another action. Basically they'll start it again, and they won't have critical circumstances or whatever.

    If you win on a core point, such as what is a subsidy, as Mr. Herman mentioned, stumpage of subsidy, and if you win that point either by outright win or by forcing a methodology that is different from what they do and much more favourable to us, then you're in a much better position.

    The Acting Chair (Mr. Bob Speller): Thank you very much.

    Mr. Paquette.

[Translation]

    Mr. Pierre Paquette: Thank you, Mr. Chairman.

    First of all, I would like to thank you for your presentations. They are extremely helpful, and I believe they will assist us a great deal on a very basic aspect of the issue. If there is some advantage to contesting under the WTO, it is that we can develop a sort of international trade law that will protect countries with weaker economies from those that have stronger economies,—particularly from the US, but also from developed countries as a whole.

    There are two issues related to this. I believe this. For example, I was very happy to see that one of the first cases settled using the dispute settlement mechanism was the textile issue between Costa Rica and the US. That is an excellent example.

    By contrast—and that is what I wish to talk about—we note that developing countries are not making use of the WTO mechanisms. In your view, is this because they lack the technical knowledge, skills and financial resources to use it? If that were so, it would mean that the WTO, in spite of all efforts to make it an international organization that protects trade rights, is still extremely inequitable.

    What can we do to remedy the problem? Should we create a legal aid fund, like Quebec's, to help countries with fewer resources defend their interests? That is the first part of my question. I would like your assessment of how developing countries are using this mechanism. Mr. Drache, in your brief, you state—and I do like the expression—that developing countries are becoming more active in a system dominated by industrialized countries. I would like your comments on that.

    There is something else as well. If we want to establish a body of international trade law, jurisprudence is extremely important. When I became interested in these things, I was surprised to see how little jurisprudence there was within the framework of NAFTA, and shocked to find that panels are not required to enter their decisions into what would become a corpus of jurisprudence. I would like one or more of these witnesses to explain why there is jurisprudence at the WTO, which does however need improvement. The WTO would need to provide more justification for its decisions, but it still has more jurisprudence than we find under NAFTA.

    I would like to know what has made it possible for that corpus of jurisprudence to be developed fairly quickly. And in the opinion of all the witnesses, that jurisprudence seems far more significant than what we find under NAFTA, which remains a good foundation on which to build.

    Those are my two principal questions: jurisprudence and developing countries.

º  (1650)  

[English]

    Mr. Daniel Drache: One thing we did was to look at about 500 cases from the first seven years of the WTO. We developed an examination of what countries used it, what subjects, and what articles of the WTO charter were most invoked. It's quite a full analysis. A database of decisions is on our website.

    When you look at the decisions, what's striking is that the majority of disputes have been between northern countries. We were also very interested in south-south disputes--for instance, between India and South Africa on intellectual property. There are also cases in the area of textiles between, I think, India and Turkey, and in a variety of other areas.

    The first thing we can say is that we expect more cases from the southern countries as they begin to develop an expertise about WTO itself. We know from various studies that many of the members from smaller countries and developing countries hardly have any presence in the WTO, even in terms of proper and full diplomatic accreditation. So there is a problem of both expertise and cost in terms of having the people who are trained to use the dispute resolution system.

    The WTO itself has devoted some resources to it. It's not a very large bureaucracy compared with other international organizations. Its budget is somewhat modest given its pretensions as a world trade organization. So there is a problem of inclusivity, and I think it's very important that it be addressed. There have to be initiatives taken to address the absence of developing countries and their use of the trade mechanism.

    Second, I just want to comment that we were quite surprised that we didn't see in our study more cases from southern countries. We didn't see that many. There may be more, and we're going to continue to update the database. For instance, you would expect a lot more in the areas of agriculture and labour-intensive goods, such as textiles. We could expect more in the area of intellectual property rights, because Brazil, India, South Africa, and other countries have quite an interest in developing a presence as generic drug manufacturers. So I think we're likely to see a lot more.

    On the jurisprudence side, NAFTA and WTO are very different bodies. NAFTA is a more limited body. It's different in the sense that there is less agreement within the NAFTA on a variety of things. On subsidies, for instance, there's no definition, so frequently the American Congress is the de facto point of reference for many of the disputes. So you have a kind of double relationship between NAFTA and the U.S. system of trade law.

    I think the WTO would like to address this issue in some detail. Part of the negotiations coming out of Doha will concern the role of American trade law, whether it conforms substantively and juridically with WTO discipline codes. I think this tension is likely to become sharper as the round--and we call it sometimes the millennium round, or the Seattle round, or the Doha round--develops. So in a whole number of areas we could expect to see some action.

    One issue that may resolve this somewhat--

º  (1655)  

    The Acting Chair (Mr. Bob Speller): Mr. Drache, could you be brief on this?

    Mr. Daniel Drache: Yes. One issue that may resolve this is this large trade dispute between the United States and Europe on the use of tax subsidies to American corporations.

    The Acting Chair (Mr. Bob Speller): Thank you very much.

    Mr. Fréchette, you wanted to add something.

[Translation]

    Mr. Serge Fréchette: I wanted to add that, approximately six months ago, a WTO secretariat was established essentially to assist developing countries, countries that require technical assistance. The secretariat has six legal advisers and a director, whose work is to help developing countries assess potential recourses upon request, and also to fund corresponding activities. It's a bit like legal aid in Quebec—there is an approved rate for legal advisers, who are outside the governments involved and may be called upon to help in the developing countries.

    In other words, the WTO is aware of this need, and has implemented a suitable mechanism to meet it. Developing countries are increasingly taking part in the dispute settlement mechanism.

[English]

    The Chair: Mr. Herman.

    Mr. Lawrence Herman: I have just a couple of comments.

    There's no doubt there's been a much greater use of the system under the WTO by the developing countries than there was under the old GATT regime. There's a huge quantum leap in the number of developing-country cases--not just developing countries against industrialized, but developing countries among themselves. So we've achieved a great degree of universality, if you like, that wasn't there before.

    It's somewhat incorrect to just look at the actual cases that are decided. Don't forget that under the WTO system consultations are the first step in a dispute. Many cases--about a third--are resolved through the consultative mechanism without ever going to panels, so you have to be very careful. A lot of the developing countries prefer to settle things through negotiations, and many of those disputes among developing countries are settled through consultations without ever going to panel. You have to be careful about making judgments just on the cases that have actually gone to panel decisions.

    The final point I would make relates to your question about the jurisprudence. The jurisprudence, as Mr. Johnson has pointed out, is solid, sound, good jurisprudence, from a lawyer's point of view, but it's far too wordy, far too detailed; there's far too much space taken in writing those decisions. They're hundreds of pages long. That frustrates the question I talked about earlier of accessibility. It makes it more difficult for developing countries to use the system, because they think, “My God, we're going to have to hire all those Washington lawyers, at huge fees, to help us run the case.”

    Something should be done, in my view--and this is an internal matter; you don't have to change the DSU, but something should be done--to make the jurisprudence more compact and easier to understand, to force much less of a burden on the parties, particularly the developing countries that appear, in terms of the case they'd have to file to get the matter heard.

    Those are my comments.

»  (1700)  

    The Chair: Thank you very much.

    Mr. Johnson.

    Mr. Jon Johnson: Briefly, following up on what Mr. Herman said, developing countries have used the system fairly actively. One of the earliest cases, a seminal case, involved reformulated gasoline. That was a complaint brought by Venezuela against the United States, which Venezuela won. The Philippines brought an action against Brazil on a countervail case involving desiccated coconut. India has brought a number of cases against the U.S. on textiles; also against Turkey on textiles. Poland brought a case against Thailand on an anti-dumping issue. The famous shrimp case, which has received so much publicity from NGOs and others, was brought by Malaysia and a host of other developing countries who produce shrimp. Pakistan has brought cases against the U.S. So the system is used by developing countries--although, by the way, I fully endorse what Mr. Herman said about the lengthiness and tediousness of WTO reports. If anybody were to pay attention to them, I really would appreciate it. They are really quite dreadful to read.

    The question was raised why the jurisprudence hasn't developed under NAFTA. Well, first, there are so many fewer parties. The way the system works as between WTO and NAFTA is essentially it's the choice of the complainant. In the two cases involving us that could have come under NAFTA... There was the case of periodicals; well, the U.S. wasn't going to bring that under NAFTA because they had a clear shot at us under the WTO, and that's what they used.

    The other one was term of patent protection. Under term of patent protection, we would have been fine under NAFTA because our system was justified under NAFTA, but it wasn't justified under TRIPS. The U.S. had the choice, and of course they took the TRIPS route.

    There have only been three chapter 20 cases, which is a minuscule number. There really is no overall NAFTA jurisprudence. The only jurisprudence that has developed--and if it is not becoming extensive, there are at least a number of cases to get some trains--involves chapter 11. But that's because chapter 11 is unique to NAFTA, and it's certainly no model of jurisprudence.

    The Chair: Thank you very much.

    Does anyone else have any questions? I have a question, if some of my colleagues don't. If we have any questions we may want to ask them all at once, and then our panelists will give us responses.

    You have some, okay, so ask them and then hold your reply until you hear them all, because we may have some overlap.

    Mr. Pat O'Brien (London--Fanshawe, Lib.): Mr. Chair, thank you.

    First of all, on the developing nations, of course that's a major preoccupation of the Canadian government, because I think it is recognized internationally. I would just recall for everybody that coming out of Doha, it's being called the development agenda.

    I wonder if there are any specific suggestions the witnesses have on what further steps could be taken to assist in capacity, on the whole idea that we have to give these nations the wherewithal to be able to participate. They simply don't have the expertise and the kind of help they need in-house, in their own countries in many cases.

    So in addition to what has been done already, what other specific suggestions could be made? We're really talking about DSU, but the first witness, Mr. Drache, was kind of ranging into WTO, in general. Other witnesses here have more or less said there's a fair degree of hypocrisy among the Europeans. They're supposedly more interested in the developing nations, but you can't tell that by their common agriculture policy, which is the single biggest block to developing nations having fair markets.

    I'm sure the gentlemen here--and I appreciate you all being here--are aware of the efforts of the Canadian government, in terms of capacity building. I wonder if you have any other specific suggestions we could look at.

»  (1705)  

    The Chair: Mr. Eyking.

    Mr. Mark Eyking (Sydney--Victoria, Lib.): A lot of barriers are coming down and trade blocs are being formed. You were saying that under-developed countries seem to be getting more into world trade. There's just more trade happening in the world. Russia is coming in and doing more trade.

    In these last talks at the WTO, is there a sense that we're going to have more problems with more dynamics happening? Is there a chance that because more countries are interrelating there will be more problems? Will there be more pressures on the WTO? There must be a kind of vision on this.

    The Chair: Mr. Valeri.

    Mr. Tony Valeri (Stoney Creek, Lib.): I apologize for being late.

    I don't know if you've covered this, but I am interested in the non-compliance issue. What can we do to deal with that? How serious is the problem, and what sorts of repercussions should there be for countries that don't comply? Are there some specific elements in the current system that make non-compliance a viable option for some of the offending countries? What practical steps can we take to kind of limit that non-compliance?

    The Chair: I have a question you might want to answer.

    I understand the dispute settlement issues seem to be a concern for all of our panelists. All four of you spoke about some of the challenges. Most of you are lawyers and work advising the sectors, so I would be interested in some of the specific solutions you would propose. In particular, there's a different element of the dispute settlement process--length of time, penalties versus compensation, versus some sort of system where the offending country loses the right to go before WTO for a period of one or two years. You have some sort of points system.

    Perhaps you have some specific suggestions you can give us now. Even better, you may want to take some time and think of them and then send them to the secretary of the committee. We sent you out a list of questions we wanted you to address, and while you have done exceptionally well, we still would like something from you in writing, if it's possible at all, within the next week or so. You can send them to us. Then we can at least go back to our government and provide them with all of the intelligent suggestions and recommendations that have come from our experts. Frankly, I was most refreshed by some of the suggestions and comments you have made today.

    I will now ask the first volunteer to respond to my colleagues' questions, to start. Who would like to take the microphone first?

    Mr. Fréchette.

    Mr. Serge Fréchette: I will address the question of non-compliance first because it's the one that bothers me most when it comes to what are the current difficulties we have to deal with under the DSU.

    As I indicated earlier, one of the greatest achievements, going back to 1994, when we closed the last round, is that we've been able to ensure--at least we've been trying to ensure--that decisions would actually be implemented; there would be no way for a losing member state to circumvent its obligation.

    Well, it seems that when the decisions are tough for governments and they're placed in situations where they have to change their domestic policies or measures, they do prefer in some circumstances to face retaliation, as opposed to actually living up to their WTO obligations. What this does actually is to prevent the complaining country and its affected industry from being able to enjoy the results of the commitments made during the negotiations or the obligations that should give them commercial advantages. The current mechanisms that exist in certain circumstances do not allow those affected industries or interests to be compensated in a way that will ensure market access.

    There are circumstances where countries have been involved in disputes and have gone to the table trying to find practical solutions to this difficulty. One of the solutions has been financial compensation--at least it's been discussed--where the government that has been found to be non-compliant would actually accept to compensate the other government for the commercial interests that are affected, if you will, by the dispute. At the end of the day it would then be up to the government receiving the financial package to determine how it should be used. It could turn around and actually compensate the industry.

    Now, how this actual package being passed to the industry would be dealt with afterward is a big question. Would it be seen as a subsidy? It opens up all kinds of questions. But the point I was making is that there are possible solutions there that are not currently being explored within existing rules because they do not allow for it. It's just a matter of having countries sit down and look at this creatively. You may have different solutions to respond to different sets of circumstances. In a context such as a bilateral dispute like the one between Canada and Brazil, financial compensation may be a possibility. If you try to use that package in a different context, it may not apply. You'll need something else.

    It's very difficult to approach, but there are creative ways it can be explored. It's all a matter of how much countries are willing to go for and how much they're willing to limit what they call their sovereign rights. This is what we're talking about at the end of the day, their obligation to change their domestic policies in order to live up to their obligations, or their sovereign right to actually decide under the existing rules to simply suffer retaliation, which does nothing to help the other country suffering damages, as I've indicated.

»  (1710)  

    The Chair: Thank you very much.

    I would suggest that you be brief in your response, just in case there are some more questions coming your way.

    Mr. Daniel Drache.

    Mr. Daniel Drache: Experts in the field have spent a lot of time on the compliance issue. In looking at both the GATT and the WTO, what was very striking was that countries that actually complied have a very high rate of compliance with both the GATT and the WTO for reasons of self-interest and trust, not because they could be ordered to do so. Basically, countries see value in complying with a system that may not even serve their short-term interests. We have to go beyond the idea that it's the rule that creates the compliance. It's the sense of value in having the system.

    If you take a non-compliance issue, such as the beef hormones case in the United States, this is quite interesting. The Europeans refused the WTO dispute panel decision because they believed the WTO would impose a lower standard than their public health concerns and food concerns. I think we are likely to see countries not complying on specific issues where they believe their public interest is more important than the WTO practices.

    That brings me back to my comment that you have to look at the WTO in the adequacy of its jurisprudence, in the balance it strikes between social need, public need, and private interest. As you can see from our report, we think there is an imbalance and that the WTO will be increasingly regarded with skepticism when it does not address these larger social issues. I think what all the panel people here have been saying, in part, is that the WTO is good on commercial things, but not more.

    So the question is whether you need to have a WTO plus, or something else.

»  (1715)  

    The Chair: Thank you very much.

    Mr. Herman.

    Mr. Lawrence Herman: We must not misunderstand the points that have been made here. The process of resolving disputes works well. It's pretty good; it gets you a resolution through a panel system. It needs some fine-tuning, but it's pretty good.

    That being said, it's quite clear that implementation is the single biggest threat to the system. It is a real problem, and it's a problem principally because of the United States and the European Union and their views. The U.S. and the EU run the WTO. Canada is a minor player. It doesn't mean we don't have an important role, but we're a minor player. The system is bipolar; it's run by the U.S. and the EU. There's no question about that. So you have to get the U.S. and the EU to buy into anything that would lead to improving the implementation system.

    The way the system is set up now, there's a choice: you can either withdraw concessions or retaliate, which has its own problems, or you can forgo any rights of compensation. Under the system as it works now, the other side has to agree to financial compensation for there to be a deal on financial compensation. But you could devise a system that allowed a country that won a case to go to an arbitration panel and demand the right of financial compensation. That would help on enforcement, but you have to get the Americans and the EU to buy in. If they don't agree, I can tell you right now, nothing is going to happen.

    The Chair: Thank you very much.

    It looks like the bell is ringing, so we may be having a vote.

    Mr. Johnson, maybe you would like to give us a brief response.

    Mr. Jon Johnson: I think even under the present system the DSB could do somewhat more, or the system could do somewhat more, to assist in seeing that matters are complied with. Under article 19, panels and the appellate body have the power to make recommendations as to how members can implement. They tend to be very mousey about that. They tend to recommend that the member bring their measures into compliance with the WTO and leave it at that. I think if panels and particularly the appellate body were more aggressive at saying you must do this or you should do that.... In many cases it's pretty obvious what should be done. If you have a TRIPS violation you amend your law, or if you have an anti-dumping situation, I've already given my views on that.

    The other thing that could possibly be done through the DSB process is a much more aggressive mediation process to essentially have the DSB get the offending party and get the complainant party and force them to sit down and talk until they resolve the thing.

    I think one other thing is that there are some unrealistic aspects in the WTO agreements right now. The one that comes to mind is the export subsidy--90 days or else. I don'tknow why that was singled out. Export subsidies were regarded as being particularly heinous. Our production to sales ratio was found to be an export subsidy, although I don't think anybody ever thought that would happen or that it was particularly heinous. Nonetheless, we were subject to the 90-day rule--not difficult in that case, but terribly difficult for dismantling something like the foreign sales corporation tax regime in the United States. There is a certain amount of unrealism there as well. But if the panels and the appellate body would be more aggressive in recommending how compliance should be done, and if you had a more aggressive mediation process, at least that might help some.

»  (1720)  

    The Chair: Thank you very much.

    On behalf of my colleagues from all of the political stripes... Actually we almost had a full house today. Obviously that speaks to the quality of the witnesses and their words of wisdom. On behalf of the House of Commons and this committee, I want to thank you greatly. As I stated a little earlier, if you have any additional specific thoughts that you want to share with us and with the government and Parliament, please do so.

    We're going to suspend and go in camera, because we have some items to deal with now. We will adjourn for one and a half minutes.

    [Editor's Note: Proceedings continue in camera]