[Recorded by Electronic Apparatus]
Wednesday, October 9, 1996
.1546 
[English]
The Chairman: I'll bring the meeting to order, please.
Colleagues, we have a quorum. The representative from the Reform Party is not with us because he has to be in the House, but hopefully he will join us, or a representative of the member from the Reform Party will come and join us later.
Before we proceed with today's business I would like to make a brief announcement for the benefit of a few colleagues. There will be a round table organized by the Centre for Trade Policy and Law - le Centre de droit et de politique commerciale - on the subject of dispute settlement in the World Trade Organization. This meeting, this seminar, takes place on October 16; I wanted to flag this for your attention in case you would be interested in joining or having someone from your party join in that meeting.
I should add that at this meeting the director of the appellate body secretariat of the World Trade Orginization, Madam Debra Steger, will be present in Ottawa. She has agreed to come to my office on the 17th at 9 a.m., and of course you're invited if you want to join me in meeting Mrs. Steger, to exchange on dispute settlements in the World Trade Organization. That is my brief announcement. Please pass it on to the other members of the committee, if you feel so inclined.
We shall now proceed to the main business of the day. We have a round table today. We can afford to be more flexible in the procedures. We've had round tables before, and the rule of the game is really quite simple. We invite the participants, our distinguished guests, to take the floor, one by one. Please don't take too much time, so as to leave room for questions, and then we move into questions and a very free exchange.
I will invite, naturally, my colleagues from the House of Commons to take the floor, but feel free to exchange among yourselves so that we have the full benefit of your presence here.
I will invite first, from Thomas and Davis Law Firm, Mr. Greg Tereposky. We have brought to the attention of our guests that we would like them to focus on two fundamental questions: Could the number of trade disputes be reduced by improving international trade agreements, and if so, why? Secondly, how can the trade dispute settlement process be improved?
Over to you. We're all ears.
Mr. Greg Tereposky (Lawyer, Thomas and Davis Law Firm): Thank you, Mr. Chairman.
Mr. Chairman, members of the subcommittee, I'd like to address each question in turn, and I will start with the question of whether the number of trade disputes could be reduced by improving international trade agreements.
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In my view, Mr. Chairman, the answer to this question is a qualified no. Improving trade agreements will not necessarily decrease the number of disputes. As you are no doubt aware, trade agreements are the product of negotiation by many states, and these states have many different negotiating objectives and interests. As a result of these divergent objectives and interests, the agreements themselves often contain ambiguous or general language, which imprecisely defines the rights and obligations in the agreement, and it is this impreciseness that generally leads to disputes.
There is another factor which must be looked at as well, and we have seen a development over time in both the scope and the level of detail of international agreements. The best example of this is the recent agreements negotiated under the auspices of the World Trade Organization. These agreements go far beyond the very limited bounds of the General Agreement on Tariffs and Trade of 1947. The increase in the level of detail as well as scope provides further grounds not only for creating disputes, but further grounds for ambiguity and impreciseness.
The whole process of international trade agreements and disputes arising under those agreements really relates to parties over time adding further precision to those agreements. In this sense, international trade agreements are not static. In fact, they evolve over time. There are some approaches to solving trade disputes outside of a dispute settlement process - for example, having a side agreement on a particular dispute. We saw a bilateral agreement with the United States in the case of the softwood lumber issue.
These agreements are not always possible, and whenever such agreements are entered into they raise very difficult public policy - and sometimes sovereignty - issues. So as a general rule it would be very difficult to use special side agreements to reduce disputes over time.
What this all leads to is that it's a very interesting result, in that improving trade agreements - meaning expanding their scope, clarifying their level of detail - may in fact give rise to an increase in the number of disputes.
This increase is a result of countries becoming more aware of their rights and obligations, and as a result of countries being able to negotiate greater disciplines on actions of other countries. In that sense it's not necessarily negative that further disputes are developing. I think we will see from the World Trade Organization agreements a greater trend towards disputes. I don't think that in itself should be viewed as a negative result.
Those complete my comments on the first question. With respect to the second question - how can the trade dispute settlement process be improved? - I would like to focus on the preparation stage of trade disputes. There are several elements in the preparation stage that can be improved which would lead to an overall improvement in not only what type of matters are brought to trade dispute, but also in how those trade disputes are resolved.
The first element I would like to look at is, as one of my colleagues refers to often, ``resources, resources, resources; education, education, education''. What we are finding, in the disputes that we have been involved in, is that while there is a very considerable amount and depth of expertise in government to deal with these disputes - and I'm speaking of the Government of Canada in this case - we are finding that those resources are being taxed to their limit with the great increase in the number of disputes that are being brought, as well as in the depth and level of detail of those disputes. One of the ways to deal with this entire issue is to shift more of the resource burden to the private sector, which has a direct interest in these disputes.
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There are two things that could result from that which are beneficial. The first thing is that we could have a shifting of resource to alleviate some of the resource strain on government. When I speak of resources I speak not only of the time commitment and the person-hours involved in preparing cases, but also of the financial resources. The second benefit flows from the transfer of primarily the financial resources, in that it would act as a disincentive for cases to be brought forward which lack fundamental merit.
How do we accomplish this shifting of more resources to the private sector? I'd like to just comment on two things which relate to the education of the private sector.
The first thing is that the government needs to advise the private sector as a whole - not just lawyers - on how they can assist in the process, because it is a very complex process. The second thing is that the private sector needs a better understanding of how government operates.
In a case that our firm is currently involved in there are many, many different government departments involved. When you get involved in one of these cases, it's always unclear first of all who the important contributors into the process are. There's the Department of Foreign Affairs and International Trade, Department of Finance, Industry Canada, Agriculture Canada - many, many different departments involved in these disputes. Even if you determine who is contributing to the process, there's also a big question of how the decisions are being made as to how the process is conducted. In both of these areas I think it's very important to further educate the private sector so they can assist in the preparation of these cases.
When I refer to the shifting of resources to the private sector, what I'm referring to is shifting resources in the area of a consultative or advisory role. Effectively, the private sector - which generally would be more familiar with the intimate details of the industry, and it has the resources to look at its case before it decides to bring it - can conduct the initial analysis and pull together the initial evidence. This in itself speeds up the process and makes it more efficient, once dealing with government.
It is important, however, when looking at this shifting of resources to recognize that - at least in most cases, with rare exceptions - trade disputes are government-to-government disputes. So it is the Government of Canada which is bringing the dispute, and in this sense it is the Government of Canada which makes the ultimate decisions relating to the dispute as well as arguing the case. The reason it's important to recognize this and to in a sense limit how far the shifting of resources occurs, is because Canada's interests may be - or if not in all cases, will be - broader than a specific industry's interests.
A secondary area where the preparatory stage can be improved is in the area of increased transparency - and this also extends to the actual dispute settlement proceedings - and that is, open consultations with affected industries in preparing the case as well as open dispute settlement proceedings.
There has been controversy in the past about dispute settlement proceedings which are closed. The mere fact that they are closed raises the interests of the general public. As we have found in the chapter 19 dispute proceeding process, which is generally open to the public except when confidential information is being discussed, there is very little interest in that because once you look at these trade issues they tend to be quite complex and generally uninteresting to the public. By making it open, though, it will substantially increase public confidence in the process.
Mr. Chairman, that completes my comments on the two questions.
The Chairman: Thank you, Mr. Tereposky.
Now from Shibley Righton, Mr. Charles Gastle, please.
Mr. Charles M. Gastle (Lawyer, Shibley Righton): Yes, Mr. Chairman.
I am a lawyer, but I'm also a student, and I come here today on the student side. I am unsullied by private practice and uninformed by it, so my comments are going to be very policy-oriented in terms of the way the mechanisms I think should move into the future.
I want to concentrate on the substantive countervailing duty law and its impact on the high technology sectors. The major hurdle in the reform of dispute settlement mechanisms has been the countervailing duty issue. There's general agreement on what to do with anti-dumping. That's a competition-based system.
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The high-technology sectors are seen as essential to Canada's success in the 21st century. They've been the focus of a recent federal strategy on science and technology. They are the focus of other governments as well and there is a growing risk of conflict between governments and these sectors.
I will argue that fundamental reform is required with respect to countervailing duties because countervailing duty practices unduly restrict the Canadian government's ability to address structural problems facing Canada. They tend to frustrate our need to develop a high technology sector.
Secondly, countervailing duty practices are inconsistent with current economic theory relating to the high-technology sector. I recognize the province is suggesting fundamental reform, but I believe you must have a goal in mind when you're measuring any kind of incremental reform.
The federal government has recognized it cannot be a direct participant in the selection of winners and losers in the economy. It must concentrate upon the infrastructure, becoming a catalyst and a coordinator. Its purpose is to create the conditions that will foster the growth of a high-technology sector.
The federal science and technology strategy is designed to implement a national system of innovation. Its strategy is to promote linkages between government, industry and universities. It concentrates upon small and medium businesses as the engine of growth in a knowledge-based economy.
One specific program that is recommended is technology partnerships. This is targeted government support to groups of companies within certain industries to stimulate and leverage private investment. They are designed to go beyond basic research and to be risk-sharing. The federal strategy is intended to facilitate the growth of clusters of high-technology industries to fill a structural gap in our economy.
To turn to countervailing duty practices, they basically allow government to do what it wants until a complaint is launched. The complainant must show the Canadian company received a subsidy and that the complainant was injured or a threat of injury exists. Let's take the technology partnerships as an example. There's no question that the technology partnerships would be considered subsidies. With respect to injury, there's almost a reverse onus at the interim duty stage upon a Canadian company to prove there's no threat of injury.
By definition the technology partnerships will be dealing with sensitive industries in the United States. The partnerships are not saved by WTO exemptions because they go beyond basic research. The result is that there's a significant risk of duties being imposed at an early stage in the process that will likely cause a significant disruption in the Canadian company's exports to the United States.
This regime places Canada at a distinct disadvantage. We must compete with the United States, which has an established high-technology sector. In many cases American companies have received substantial government support in the past primarily through defence spending. They can prime the pump of an existing structure with subsidies targeted at basic research because the mechanisms are already in place to commercialize the results. Sematech, in the semiconductor industry, is a good example of that. But we must also compete against Japanese companies, which have distinct advantages that are exempt from countervailing duty practices.
The Japanese industrial structure is dominated by collusive business groups that are able to target high-technology sectors while keeping Japanese markets closed. An example of such advantages: venture and risk capital is readily available. Another advantage: a strong worldwide marketing support company is usually involved. These are privately organized advantages, so by definition they're excluded from countervailing duty practices.
The result is that the current countervailing duty mechanisms tend to protect existing high-technology infrastructure in the United States and Japan and place a significant barrier in the road of Canadian attempts to establish high-technology companies.
Countervailing duty practices are not only unfair, they're unprincipled. The general model upon which they're based, the neo-classical economic model, has a mechanical model of supply and demand. If you get out of the way of the market, the market process will take over and achieve the single equilibrium point that represents the efficient allocation of resources. Subsidies are bad because they interfere with the markets.
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This model does not hold in the high-technology sector. There is a new model that is emerging in the late 1980s and the 1990s where economic development is seen as an emergent, evolutionary process that results from the dynamic interactions of a large number of economic agents. This is the model upon which the federal science and technology strategy is based. This is the model of the concept of innovation in that strategy.
In this model there is no single equilibrium point. There are multiple points that can be reached. There is no presumption that efficiency will be guaranteed. The economy can become part dependent upon an inferior technology that has been locked in.
A quick example: the next time you look at your computer, look at the keyboard. You'll see in the upper left-hand corner the letters Q, W, E, R, T and Y. It's called a QWERTY keyboard. It was developed in the late 1800s to slow people down because it would jam the existing mechanical typewriters at the time. The fact of the matter is that it's a technology that is locked in even though the problem is long gone.
Government action can influence which equilibrium point is achieved passively, through the setting of standards - that's recognized in the federal science and technology strategy - actively, through government support or the provision of subsidies, and unfortunately, in the case of the United States, strategically, through strategic trade action.
The evolution and emergence is an important factor in this model. The historical advantages that are granted to particular companies can still exist and be transferred through spin-off companies. Past patterns of government support in the United States in the post-war period can continue to have influence on market conditions today through the structure of the high-technology industries created in the United States.
The growth of a high-technology structure in Canada may well have been stunted by the levels of support for high technology in the United States both through defence spending, which obviously is exempt under the GATT, and also from procurement practices and other things.
The points of this new model are as follows. One, the economic model is fundamentally changed with respect to the high-technology sector. Two, the Canadian government's strategy is correct. The government should act as a catalyst. It should strengthen the linkages and concentrate upon infrastructure and promote those conditions in which the emergent dynamics of the market can take over. It is justified in extending support to the high-technology industries to help overcome the economic topography created by past patterns of support in the United States.
What to do? Fundamental reform will be difficult if not impossible to achieve. Notwithstanding this, you must have a concept of what should be done. Government support in the form of technology partnership should only be targeted when it harms competition, the process of competition.
The focus should not be upon injury to a particular company but to the economic interests of the community at large, including those of the consumers. This is consistent with the new model of the economy because it lets the processes of the economy and intensifies the competition that will give rise to that kind of growth. The European Community has developed a competition-based system. So the precedent exists for this kind of model.
It's very difficult to suggest what practically can be done in the short term. I don't think much can be done in terms of the redrafting of CEMA as it exists today. However, if the U.S. won't negotiate with us, maybe we should make an approach to the European Community. Maybe we should try to negotiate some kind of mechanism between Canada and the European Community, or for that matter between Canada and Mexico, or Canada and Chile or the deepening and broadening of the NAFTA partnership.
I think you have to set the precedent. You have to get a mechanism in place that can be tested over time so that down the road maybe such reform will be possible.
Thank you.
The Chairman: Thank you, Mr. Gastle.
[Translation]
I now invite Jean G. Bertrand from the firm of Ogilvy Renault to take the floor.
Mr. Jean G. Bertrand (Lawyer, Ogilvy Renault): I apologize for arriving late and missing part of the presentations.
Thank you for this opportunity to speak on a subject which is of interest not only to me, but to many other members of my firm.
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For a number of years now, many of us have been closely involved in several international trade disputes, particularly since the coming into force of the free trade agreements with the United States. Therefore, I am speaking to you today as one who has practised in this field. I will also be sharing with you some observations made by my colleagues.
The two questions to which the subcommittee is seeking answers are, to my mind, closely related since any improvement in the settlement dispute process helps to reduce the number of trade disputes.
In order to reduce the number of trade disputes, a reliable, effective dispute settlement mechanism must first be established. Without question, this is the best way to ensure that in the long run, the number of trade disputes is kept to a minimum.
Reliability and effectiveness are essentially a function of five factors. The first factor is the rapidity of the settlement process; the second, the predictability of the outcome; the third, the rigorous nature of the review undertaken; the fourth, the integrity of the process and the competence of the decision makers; and the fifth and final factor, the accessibility of the process.
As we will see, based on the objective sought - some of the data on these factors can be modified - there is always an impact of some sort on the other components.
I submit that our experience so far now in North America shows that in many respects, the process which emerged from the first agreement and which was maintained in NAFTA produces some excellent results and can serve as a model for many other trade agreements.
With respect to the rapidity of the settlement process, some will always persist in believing that the existing rules do not allow for the parties to reach a settlement quickly enough, but one must realize that the deadlines imposed are, after all, rather short. We here around the table who are involved in the process often find them too short. To shorten these deadlines in any significant way would put additional pressure on the entire dispute settlement process, at the risk of affecting the quality of the final outcome. Therefore, in my opinion, there is not much room for improvement as far as deadlines are concerned and the speed with which a final settlement can be achieved.
As for the predictability of the outcome, notwithstanding the agreements' provisions aimed at ensuring that each proceeding is a leading case, experience has thus far shown that the panels have embraced with reassuring consistency the interpretation offered by previous panels of certain issues crucial to the unfolding of the process and to its reliability.
In particular, judicial review standards have been the focus of several panel decisions and these form more or less a body of legal precedents which allow the opposing parties to assess from the outset with some degree of certainty their chances of eventually coming out ahead in a dispute. This is important if we are to avoid a duplication of disputes.
The adoption of a stare decisis rule whereby a panel would be bound by previous decisions would certainly help to lend an even more predictable nature to the decisions to be handed down by the panels.
Nevertheless, one much recognize that it would be difficult to adopt such a rule without institutionalizing the panel mechanism. By institutionalize, I do not mean setting up ad hoc panels, but rather establishing a kind of pan-national court with all of the problems that this entails.
Ultimately, there are many inconveniences to the rule of stare decisis, particularly in that it greatly restricts the possibility of seeing the manner in which a same rule is interpreted over time evolve. With this rule, the interpretation of a given point could well be frozen in time and therefore be binding on all panels in the future.
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With respect to the rigorous nature of the review undertaken, here again, despite the clear terms of the agreements concluded thus far and the existence of an extensive body of Canadian legal precedents as to the limited scope of a judicial review, one must recognize that the panels have consistently interpreted their role as something more than simply conducting a judicial review.
In a number of cases, the panel did not pay deference, as it normally should have, to the decision-making authority whose decision was being reviewed. The panel proceeded to review the facts of the case and to ensure that a sound decision had indeed been reached.
Many will view this as a source of insecurity in that the panel may be tempted not merely to control the legality of the decision handed down, but rather to hand down the decision that should have been reached initially, a temptation which can be dangerous in some cases. Others, including myself, view panels as being concerned primarily about conducting a rigorous review of the case and about not deferring to the decisions of national bodies which could be based on a protectionist or partial vision.
Some will also take this as a sign, and this is very important to my mind, that the dispute settlement process has acquired some maturity and is clearly able to handle disputes submitted for resolution appropriately.
As for the integrity of the process and the competence of the decision-makers, here again, the existing process has worked very well until now, largely because of the professionalism of the secretariat, particularly its Canadian members. The competence and independence of the panel members are clearly important to ensuring the credibility of the process.
I do, however, have one concern. It has to do with the rules respecting conflicts of interest which have been tightened under NAFTA. While the objective is very commendable, care will undoubtedly have to be taken to ensure that the new requirements insofar as conflicts of interest are concerned do not discourage lawyers practising in this field from taking part in dispute settlement panels.
As we know, NAFTA's conflict of interest rules require that panel members not be involved in the dispute in any manner. Furthermore, these rules also prevent panel members from acting in this capacity for a very long period of time after the dispute has been settled.
The rigorous nature of these requirements could in the short term exclude Canadian lawyers from serving in such a capacity, given their limited numbers in Canada. Obviously, the problem is not as serious in the United States, but in Canada, if you gauge the mood of practitioners, you will quickly see that fewer and fewer of them are interested in serving as panel members because they want to keep open the option of representing other interests before these panels.
Therefore, the ultimate effectiveness of the process could suffer as a result since the participation of lawyers in the various panels can only help to bring about practical solutions which encourage trade. I am speaking with regard for my colleagues in the academic or other fields.
In terms of the accessibility of the process, this is undoubtedly one area in which it would be the easiest to propose changes to limit the number of disputes. Consideration could be given to measures which would involve having the parties bear the cost of the process or to the requirement that any recourse come with some guarantee as to the countervailing duties that could be required or any damage that could incurred by a party which, while awaiting a panel's decision, suffers a loss, or to simply doing away with the automatic nature of this mechanism.
No doubt the adoption of any preventive measure would help to reduce the number of disputes submitted for settlement. Unfortunately, a reduction in the number of disputes submitted does not necessarily translate into a reduction in the number of trade disputes. We must not lose sight of this fact. Some of these measures could even have the effect of extending the deadlines before the disputes are settled once and for all. For example, if preapproval is sought in order to resort to this mechanism, this will delay the settlement process further.
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More importantly still, if access to the process were restricted in any way by the adoption of measures aimed at increasing the costs to the opposing parties, Canada could find itself at a disadvantage in relation to its trade partners given the relative size of its industries. One of the positive things that has come to light as a result of the free trade agreement dispute settlement mechanism is that it has enabled partners from very different economic powers to settle disputes without regard for this power relationship.
I am not saying that the current process could not be improved upon, but for heaven's sake, let us not give other partners who could be less satisfied with the results of this process thus far an opportunity to renegotiate some of the fundamental aspects on the pretext that certain minor improvements could be made. These fundamental aspects are the ones that have given Canada some concrete results and which, as far as general trade is concerned, are responsible for producing a favourable climate.
The agreements between Canada and the United States and subsequently those with Mexico provide an enviable dispute settlement model which works very well and which can certainly serve as a tool for reducing the number of trade disputes on a much broader basis than the one currently used.
The Chairman: Thank you, Mr. Bertrand.
[English]
I now invite Mr. Flavell from Flavell, Kubrick and Lalonde to take the floor.
Mr. Michael Flavell (Lawyer, Flavell, Kubrick and Lalonde): Thank you, Mr. Chairman and members.
One of the nice things about batting fourth is that one can take advantage of the batters who have gone ahead, so I will be advantaged by being able to comment on some of the excellent remarks by my predecessors.
I smiled particularly broadly when my friend Mr. Tereposky recommended greater participation by the private sector. Being a private practitioner, that brings a smile to my lips and anticipation of additional profit, so I would join with him in that particular assertation. I do it for more than complete selfishness - I really think the process should be and could be aided by a greater role for the private sector.
He made the point, and it is true, that the interests of the individual who has a trade complaint are not always identical to those of the state of which he is a member. I can't go into detail, but in one case I was recently involved in a Canadian complainant had a very strong case against the United States. But when the government got involved, they had a much broader series of ambitions. They had a bigger, different agenda, and by our analysis their approach was going to significantly weaken the case.
You often have a strange situation where the private and the public just do not mix. I think it would be helpful if we could think of ways in which the private sector and private complainants could play a greater role. I think that would increase the transparency of the process, as well.
I would like to comment briefly on a point made by Mr. Gastle, one that he stated almost as an aside. His point was that everybody agreed the anti-dumping law should be replaced by competition law. I think many economists subscribe to that theory and many writers on the subject have indicated that theory, but there is no question that to do so is not just a matter of turning a page, of phoning somebody and making an agreement. The Americans are not in favour of such a change, and it would require a consolidation of competition law in the various countries involved.
There is one significant philosophical problem, and that is that you either do or do not require predation in this new competition law system. Most people think you do and that this is indeed what we're after - predation. Mr. Trebilcock, of the University of Toronto, who has analysed every dumping case ever taken in Canada, has concluded that not one of them ever indicated that there was an element of predation.
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So if we're going to be dead honest I think we have to acknowledge that to replace anti-dumping law by competition law is not to replace it at all, it is to cancel it by the current norms and principles of competition law. I won't argue strenuously that this might not be a good thing, but I do think the partisans of replacing anti-dumping law with competition law should be aware that they are really removing trade remedy protection for Canadians. I don't think all Canadians, at least not all clients I've represented, would agree with that point of view.
I'd also like to pick up on something Mr. Bertrand said that I think is of some significance to the dispute resolution process these days, and that is that academics have gradually become almost the sole source of panellists, for reasons not attributable to their own selfishness. If one checks the daily rate, one does not buy new furniture with the kind of money one gets from these panels. It is simply because the conflict rules that have been relied upon and have grown up have effectively displaced practitioners as panellists. I know from personal experience that some of my friends in the business have had some pretty gruesome experiences where they have become panellists and then become subject to the slings and arrows of the conflict process.
I think the only way we are going to achieve the goal of the FTA and NAFTA drafters in respect of these panels - and in respect of the aim that the panels be mixed, practitioners and academics and others - is to change the code with regard to conflicts.
If we're going to continue with this process at all, I think we have to come up with a much more relaxed code. So if Mr. So-and-So is on the panel and shows those qualifications, I don't care if his partner 20 years ago represented somebody indirectly connected with this matter. I think we have to say those 15 or 25 people are trustworthy people who can be on any panel.
Obviously if they or their partner is actively representing somebody in the case at the moment, the normal rules of politesse would prevail. But I think we have to get away from this ultra-American litigious concept of conflicts in which everybody who has ever done any trade work is effectively in a conflict. Of course that means the people who could do it would necessarily have to know nothing about it, which sort of seems contradictory.
So I would add a fervent bravo to Mr. Bertrand's remarks in this regard. I think it's important for the process that there be a mixed panel system, and I think at the moment we don't have it. I don't mean to suggest that has impacted on the quality of the work done by panels; I merely mean to suggest that the panel system, which as we know is already subject to criticism, much of it - in the United States - unfair, should be as strong as possible, because we in Canada perceive it to be a good thing. I think that is one way we could do it and avoid criticism.
Now as to the question about whether the number of trade disputes could be reduced by improving international trade agreements, I'd make the trite observation that if one could do a perfect trade agreement and cover every contingency absolutely clearly and perfectly, there would be fewer trade disputes. I'd think the likelihood of that happening is very high, and the unlikelihood of that happening is very high.
I think Mr. Tereposky is right when he says you get hurt either way. If you have a very precise agreement, you'll get into disputes over interpretation of words, and if you have a very wide agreement, you'll get into interpretation as to what those wide principles mean in a given case. I really don't think a close analysis or computer-driven analysis or whatever of a trade agreement and making it more perfect is going to avoid disputes, because as we used to say before political correctness came into vogue, boys will be boys. Countries will be countries and they will do naughty things.
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We see our neighbours to the south occasionally doing naughty things, and of course we know that they think some of the activities we engage in, particularly in the area of culture - they think we are being naughty boys. I think they think it without malice. I think they really believe that we have an overly broad view of what is and is not a cultural matter.
So whatever country one looks at, depending on the politics and the economics of the day, they will be doing things other countries don't like. So there will always be disputes of a trade nature. I don't think that by improving international trade agreements or by making them more precise one will make much of a difference.
Second, how can the trade dispute settlement process be improved? I think I already spoke to that when commenting on my friend's remarks: I think it's important that they be more transparent. I think they are, as Mr. Bertrand says, already pretty quick in relation to court delays, so I have no problem with the rapidité element of Mr. Bertrand's analysis. As far as predictability, thoroughness and accessibility go, I think they are working very well.
In conclusion, I would say the trade agreements aren't the problem; it's the people who sign the trade agreements who are the problem.
The Chairman: Thank you, Mr. Flavell.
Mr. Ronald Cheng is from Osler, Hoskin and Harcourt. You're privileged; you're the last of our guests. So feel free to comment. You have the floor.
Mr. Ronald Cheng (Lawyer, Osler, Hoskin and Harcourt): Thank you, Mr. Chairman. Unlike Mr. Flavell, I will not take the opportunity to comment on the preceding witnesses.
I want to pick up on two things you said in your introductory remarks. The first is that we shouldn't take too much time in our prepared remarks, and I shall not. Second, you indicated that this was a round table. I'm going to ask you and look to you and your fellow members for guidance as to the shape of the discussion to ensue, because in my view we have a large number of issues on the table before us, whether the chapter 19 process focused on by Mr. Bertrand.... If we can go back, shall we address the chapter 20 process and WTO process that were specifically referred to in the materials given to us as part of the questions you placed before us for today's proceedings?
With respect to those two types of dispute resolution processes, my view is that you have already received advice and guidance from those more qualified and au courant than I am when you receive testimony from members of the Department of Foreign Affairs and International Trade, since, as you are aware, these are intergovernmental or government-to-government dispute resolution processes. My experience and practice with respect to those processes has been limited to advising private parties who may have an interest in the issues that were involved but who were not themselves participants in those processes.
I'm also aware that your subcommittee and the SIMA subcommittee have had joint meetings in connection with the review of the Special Import Measures Act. I think the existence and mandates of the two subcommittees really reflects the reality of international trade. You and your subcommittees may reflect the two sides of the trade coin, if I may call it such. Trade remedies for other trade legislation are our government's domestic answer to, and management of, a perceived international trade problem. Government-to-government trade disputes result when another government disapproves of those domestic answers to a trade problem. So it may be a natural demarcation to your respective mandates that as the SIMA subcommittee explores changes proposed to Canada's remedies legislation, your subcommittee explores the potential government-to-government disputes that may be generated by such proposed changes.
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In any event, Mr. Chairman, I have views relating to government-to-government trade disputes and processes. I also have strong views with respect to SIMA, such as those Mr. Paré sat through when your parent committee held its hearings in connection with Canada's World Trade Organization implementation legislation two years ago. But essentially, Mr. Chairman, I think I speak for all of us that as far as the direction of today's discussion goes, we should be in your hands.
Thank you very much.
The Chairman: I think you made a very good analysis of what the two subcommittees are concerned with, and it is obvious that they have a relationship.
I think we should not invest too much time looking at the SIMA dimension, largely because this will be a matter for the other subcommittee. So far what we've had here is a description of mechanisms given by our senior officials. They've done it very well. They took us through all the books. They illustrated how the dispute arises, how the dispute mechanisms are triggered and how they compare. So we have this descriptive analysis before us.
What we would very much welcome, and indeed I've heard a lot of it - you responded quite well - is a critical view, an evaluation, an appreciation based on your own experience. That is what we can achieve today - getting this new layer of knowledge that is more critical than what we've heard so far.
Would you like to continue with that guidance and express views? If not, I will turn to one of our members.
Mr. Cheng: Mr. Chairman, perhaps your members have had to listen to us for long enough. One of them may wish to express a view or ask a question.
The Chairman: Mr. Paré.
[Translation]
Mr. Paré (Louis Hébert): I had several brief questions which have much more to do with my ignorance than with the range of comments that have been made.
I will follow the order of the speakers. When Mr. Tereposky stated that recent agreements were more detailed than the previous ones, I was very happy to hear this, but he immediately went on to say that this had given rise to more disputes.
This seems a little contradictory to me because if an agreement is not detailed, it can be interpreted in many different ways and it seems to me that in any case, there will be disputes over the interpretation.
In my view, there is a connection between the detailed nature of an agreement and the predictability to which Mr. Bertrand referred and I would like you to elaborate a little further on this point.
[English]
Mr. Tereposky: Mr. Chairman, I'd like to give an example to respond to the question. This is an example where an agreement, as a result of the WTO, became more detailed, and as a result of that detail, the rights and obligations under the agreement became clearer. As a result of that clarity it became apparent that a particular measure that may have been more difficult to challenge in the past - the grounds of the challenge are much clearer. That would be the recent agreement on subsidies and countervailing measures as it sets out its regime regarding prohibited subsidies and actionable subsidies.
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When we discussed the chapter 19 process and subsidies, in most cases we're discussing countervailing duty law, whereby a particular country will take an action with its domestic legislation and attempt to impose duties against imports. These new, much more detailed provisions regarding export subsidies and other actionable subsidies are intended to impose disciplines on subsidies outside of the borders of a particular member. So if Canada now has a problem with a subsidy of a third country that is having effects in other countries outside of Canada's borders, it can invoke these new provisions, which are much more detailed, to take action against those particular subsidies.
Now in the past, under the 1979 Tokyo code, which was the previous agreement, these institutional disciplines on subsidies were rarely ever invoked. What we can now see with the new level of discipline and detail is a greater use of these provisions. We are already beginning to see that with cases in the WTO system that will be proceeding to dispute settlement. So that would be one example.
Another example where detail is going to likely create further disputes is where that detail begins to cover new areas. For example, we now have an agreement relating to trade-related intellectual property measures. That is a new area that didn't exist before. So there would be new disciplines that could also relate to further disputes.
Thank you.
[Translation]
Mr. Paré: Before I move on to another question, perhaps someone would like to add something further...
[English]
Mr. Flavell: If you would permit me to just observe that I think what Mr. Tereposky is saying is that more words can solve disputes or create disputes. I think more words can raise issues, add, if you will, recourses, and give parties more reason to be debating these issues. On the other hand, more words - that means longer, more precise agreements - can obviate or remove some disputes because they answer the question in advance, if you will.
I think where I come down - I think I'm agreeing with Mr. Tereposky on this - is that you don't necessarily solve disputes by having more detail and more frequent provisions. More words don't necessarily mean fewer disputes.
Mr. Gastle: Sometimes more words are necessary. The example Mr. Tereposky used is a good example of that.
Here's a little bit of quick history of a countervailing duty and the GATT. In 1979, at the Tokyo Round codes, there was an effort to put in a list of permissible subsidies in order to provide direction to government as to what it could do. Canada was one that supported that. I believe Mr. Dupuy could probably give more people the background on that than any one of us could.
The fact of the matter is that in the classification structure Mr. Tereposky referred to, one of the main objectives was to create a non-actionable category in which government could have guidance in terms of actually being able to develop subsidies that it could use. In that area, you do find an exemption for basic research. You find another exemption for subsidies for environmental purposes. You find another exemption for regional development.
Those additions are the first time time you'll find, at least within the GATT-WTO structure, at least some definition of what the Canadian government can do in the area of subsidization. One of the legitimate alternatives for reform is to try to broaden and deepen some of those non-actionable categories.
[Translation]
Mr. Paré: I have another question, again for Mr. Tereposky.
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In your presentation, I understood you to say that the number of government stakeholders - that is the number of departments that could intervene - was rather high and that this could complicate matters. Do you view this as a necessary evil or is there some way that we could reduce the number of government departments involved?
[English]
Mr. Tereposky: I wouldn't refer to it as a necessary evil. I think that a trade dispute inevitably involves very large, broad government policy issues. So you inevitably get the Department of Foreign Affairs and International Trade involved on the trade regulation and arguing side. Industry Canada and Agriculture and Agri-Food Canada would be involved on industrial policy. I think it's inevitable that you will have a very large number of government departments involved. I don't see any way at this time of reducing that, or seeing a necessity to reduce it. It's just a matter of understanding who's involved so you can understand the process.
[Translation]
Mr. Paré: My next question is for Mr. Gastle. I understood you to say that countervailing duties prevented the government from settling problems in Canada. Could you elaborate further on this observation?
[English]
Mr. Gastle: The question becomes, I think, what role does the Canadian government need to play, or for that matter any of the provinces, in terms of addressing what Canada needs to do to become more competitive while moving into the next decade? If you take a look at the kinds of policies developed by the federal and Quebec governments, as well as by others, it's clear that there is a perceived gap in Canada's industrial structure.
We have a resource-based economy in many ways. We have pockets of manufacturing excellence, aerospace in certain limited instances, telecommunications, as well as automobile manufacturing, but the fact of the matter is that it's seen there's a need to create more of the high-technology companies that can give the kind of competitiveness for taking us forward.
The fact of the matter is that the countervailing duty policies that exist now are potentially a barrier to that. The Canadian government, or any other government, can put in any kind of policy it wants, but once it does that it creates a risk, which is that a competitor in the United States will bring a complaint against Canada on the basis of the subsidy.
The mechanisms and the percentages are so low right now that once a complaint is brought, as long as there can be an indication of a threat of injury, a preliminary duty can be imposed. These preliminary duties can be quite substantial and can interfere with the ability of a Canadian company to sell under the United States.
Canada's need is that we have to be able to commercialize upon the technology we have and diffuse it through different companies. The fact of the matter is that both of those things are offside as per current countervailing duty laws.
[Translation]
Mr. Paré: I take it from the latter part of your answer that the solution does not lie with increasing subsidies to businesses.
[English]
Mr. Gastle: It's recognized in the science and technology strategy that you have to provide some kind of mechanism to jump-start the kind of innovation that takes place. The technology partnerships are an example of that. But once you put a subsidy in place, yes, you do create the risk.
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It raises a question in my mind. When the science and technology strategy was put together and the technology partnerships designed, did anyone take a look at them in terms of their consistency with international trade law principles? I've tried to ask those questions of the government. I have not got an answer to it as yet.
I'd like to know how the federal government is approaching the issue of the potential risk created by those technology partnerships. As long as countervailing practices exist as they do today, any time you put in that kind of a program you're creating a risk. When you do it in the high-technology sectors, those are the ones that are of most importance to the United States, and those are the ones that can be come vulnerable.
The Chairman: Mr. Steckle.
Mr. Steckle (Huron - Bruce): Thank you, Mr. Chairman. I apologize for being late. I am not a regular on this committee.
It's the first time I can recall in recent memory that I was able to sit and question five lawyers. That is indeed a challenge. I almost feel like I'm the one who's being challenged on this particular issue.
Although I am not as familiar with this issue as with some others I might discuss, I do want to ask a number of questions.
Canada has recently been challenged on a number of issues. Canada has been favourably disposed in terms of the final interpretation of the decisions that were made in Canada's favour.
Have we been challenged more frequently because of the nature of our country? We are a smaller country. The interpretation of subsidies is something that I'm not sure is clearly defined anywhere. Maybe that's simply something that lawyers from time to time try to define. Perhaps they have to define it in each particular situation. Maybe that's how you people continue to stay in business.
I have to wonder about this because we've been challenged and we've been successful in those challenges, particularly with NAFTA, our American counterparts. We would think that going to an agreement, when we come to an agreement and when we sign those agreement papers we would clearly understand the terms and conditions of that agreement. Who is driving us to these issues whereby we cause confrontation and allow ourselves to be challenged? Canada has obviously come out successfully in these challenges, pretty much so.
Where do we go on this one? It works fairly well. We have to agree that the mechanism we have in place works quite well, but I guess we have to question things. When do we run out of the good luck we've had? Or have we simply been managing our affairs to the extent that we know that when we do these things we're on the high ground? Those are some of the comments I have before I go to my next questions.
I didn't read your biographies, so I'm not sure who I should direct the question to. It's an open question.
Mr. Flavell: I'm the oldest, so I'll have a go.
First of all, the systems we speak of, if we're talking about the NAFTA and even the FTA, are relatively recent. In fact they are very recent. There isn't a huge amount of experience or history to look at.
For example, the softwood lumber case is the most famous one. We prevailed on the law as I think we should have. I don't think there are really as many challenges as you think in the sense that the ones that have happened get blown up a lot. I don't think I would agree with the proposition that Canada has been subject to a lot of challenges.
Canada, however - notwithstanding what you sometimes read in the papers from trade ministers and others - is not perfect. So we do some things that other people, rightly or wrongly, don't agree with. Supply management was one, in the area of poultry and milk. I'm sure there are a lot of Canadians who aren't quite as happy about supply management as the farmers are. As for some of the things we do in the cultural area, I think trade lawyers from other countries would say these are at least debatable.
We are not always totally innocent. We get challenged. We are certainly not always guilty, so we win some. But I think the system is working. I think we are about like most other countries in that we are partly wonderful and partly not so wonderful.
Mr. Bertrand: Maybe I can say something for the process in itself. What I mentioned earlier in my remarks is that the process has had the magnificent result of bringing some sort of balance back into the relationship with larger partners.
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This may be a telling part of the story in the sense that if we've been winning more cases overall it's maybe because the other partner was trying to pull a blanket a little too much on his side of the bed. I think this tells part of the story, and that's why the process is so nice.
My second comment is that irrespective of what the process is or purports to be, and what the governments may agree to do, they control only part of the story. You have the actors in the field doing what they want to do and marketing their products as they see fit. They obviously are the primary source of disputes.
You hope to have as little control as possible over them, because you want to promote free competition and free trade. So they're part of the equation that you have very little control over. That's more or less a question mark, and it gives a totally different dynamic to the whole process.
Thank God, again, that however short the experience under the two free trade agreements in North America, it proves that a good process can deal with most of the situations.
I'll take the opportunity to mention that reducing the number of disputes is a good objective but should not be the end of the world. It should not be a target in itself. Providing for an efficient means of solving whatever disputes arise is probably a saner and more realistic objective than the simple reduction of trade disputes as such. In trying to get a very tight and efficient dispute resolution mechanism, one may be tempted to increase the number of disputes.
One colleague was suggesting to me that Canada is not using section 20 enough. To act as a counterweight to the impression that is left with many, and which you expressed earlier, that Canada has won more battles than the U.S, Canada should be using section 20 more in order to let it be known that we stand firm on our position. Maybe in the balance we should also lose some cases so that the Americans can't go and say we're winning them all.
The Chairman: Mr. Cheng, you wanted to add something.
Mr. Cheng: Your questions raise an equal number of comments on my part. When you comment on the larger number of countervail subsidy instances involving Canada, that is in part the context in which we in North America all tend to look at it.
When one looks at the chapter 19 NAFTA trade dispute settlement process and so forth, when there's reference to softwood lumber and so on, that is a natural result of the fact that we are talking about being the U.S.'s largest trading partner. This does not mean the U.S. has not been involved, for example, in making claims of subsidies against other governments in other products.
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Secondly, we should remember that although the impression may be that we've won most of the cases, as Monsieur Bertrand says, this may be a little deceptive. While the single chapter 20 panel.... We have the interim report for it, but the final decision is really not technically due until November. While that may be a win for Canada, an American company, for example, is planning on challenging for the first time under the chapter 11 provisions in NAFTA, which are the investment provisions, against Canadian proposed legislation. I'm sure you're all familiar with it. It involves the MMT gasoline additive restrictions.
While we may have won the important subsidy cases on which you focused - and Mr. Flavell referred specifically to softwood - we have to remember that in fact under the World Trade Organization implementation legislation the Americans effectively overturned two of those decisions that were in our favour. As many of you may well be aware, under NAFTA there are challenge provisions whereby any of the partners can challenge amendments to the trade remedies legislation enacted by the other partners, or where such legislation effectively overturns decisions by national panels.
To date, we have chosen not to challenge those amendments that overturn effectively the two wins we had in softwood. One can leave that on the table to ask the government. One can leave that on the table in the expectation that the Department of Foreign Affairs and International Trade, when looking at the broader scope of matters, has decided it is not worth challenging because we are dealing with the entire range of the trade relationship. But it's a very important thing to remember to qualify your impression that we've been winning most of them.
Mr. Steckle: Let me take you into another avenue. I don't want to politicize this issue, but -
The Chairman: I'm sorry to interrupt, but before you launch into another direction, I thinkMr. Gastle wanted to also enter the discussion.
Mr. Gastle: Thank you.
I understood one aspect of your question to be preventative maintenance. If we have the agreement, what do we do? When programs are put together there has to be some form of sensitivity analysis in terms of what risks we are running.
Let me come back to my favourite, the technology partnerships. Again, I tried to find out what kind of review was done by trade analysts. That is to say, if we put this program in these industries, these are the risks we run. I think those kinds of analyses should be done. If you want to talk about preventative maintenance, I'd suggest that.
I'd like to follow up on Mr. Cheng's comments with respect to softwood lumber. Yes, we won it, and we now have a quota system.
Mr. Flavell: By our choice?
Mr. Gastle: We were facing another complaint. On softwood lumber three we had a Canadian majority at both the committee level and the panel level. The case tended to turn on the measure of discretion that is given to commerce and the interpretation of it.
If you take a look at Judge Wilkey's dissent in that, there's a strong argument to suggest that if there was another complaint and if there was an American majority at either level, there was a substantial risk that it was going to get overturned, especially given the fact those provisions were there. Yes, it was by our choice. We had a gun to our head. We had no option.
The Chairman: Mr. Steckle, did you want to continue?
Mr. Steckle: You've hit the issue that I was addressing in terms of doing some preventative maintenance. Canada has done that in a number of issues in terms of how we might have been affected - even our TRQs on beef imports, particularly related to offshore beef and how we set the agreement so that the United States would be the first consideration before beef offshore could be considered. I think we realize that we have to consider the ones who are our closest neighbours.
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But on another issue - and as I said a moment ago, I don't want to politicize this issue - the kinds of trade sanctions the Americans were placing against us from the Helms-Burton bill, we haven't had to challenge, because I think it will probably fly away in the dust after the election in the U.S. in November.
I don't see Canada putting forward those kinds of initiatives as blocks of challenge for the United States, but are we big enough to challenge such a challenge if indeed it would be considered? Are we big enough to do that?
I was hesitant to ask that question, but I think we're here to talk about disputes. This could have been one of the things we might have had to challenge.
Mr. Gastle: If I may, just to follow up on what you said relating to subsidies in particular, there is a policy in Canada not to challenge subsidies in the United States. It's expressed in the handbook for SIMA, or at least the last version of it, that if there's going to be any such challenge, there are some real policy issues there. The Canadian government is worried about engaging and using that mechanism against the United States by entrenching it further. I think you'll find that the European Community is the same way. We're a little gun-shy. We don't want to use that one, because if we do we entrench it.
So are we big enough? Yes, we probably are, but there's a downside if we do it. We're far more open than the United States is in terms of our economy to trade. They're our dominant partner.
The Chairman: Mr. Cheng.
Mr. Cheng: Can I just dare to comment very briefly on Helms-Burton, since you referred to it? Perhaps it's by good design, perhaps it's by luck, but of course you're perfectly aware, sir, that we are not the only ones objecting to it. The Europeans in particular have made strong objections.
In fact, you may be aware that the community, the union, is presently in the process of considering legislation that in fact is retaliatory. For example, it gives companies the right to sue in retaliation if they are sued under Helms-Burton. I don't think we've ever gotten into that detail of discussion or consideration by our government.
So I guess all I wanted to mention was that perhaps in this case someone else will be doing it for us.
The Chairman: Mr. Flavell.
Mr. Flavell: I think Helms-Burton is in a way a wonderful thing; it's one of those few things that ever happens in life where everybody agrees.
Often we don't like what the U.S. does, but we always have to admit, as reasonable men, that maybe there's an argument this way or that. In this one they appear to be completely out to lunch as far as everybody is concerned. We are participating, as I understand it, at various levels, legislative and others, to protest it, but never will we have a better occasion to beat our breasts and shout. This is one where we have total support and where I think the Americans have done something that by current standards of international rules is unacceptable.
But I don't think we will often have that kind of situation. You will always have the shades of grey that you have in these disputes. For example, in the dumping area - and that's the Special Import Measures Act, so I'll just say this in passing - Canadians tend to feel beaten on by the U.S. The U.S. has not taken a dumping action against Canada since 1993. We have taken several against them. Over the years we take more actions against the U.S. than it does against us.
Granted, the point that balances this is that when they hit us, it hurts a lot more because we are so export dependent. If an American company is hit by an anti-dumping action in Canada, traditionally if they have, as they often do, 1% to 3% of the market, they just back away, because they don't feel the hurt.
We probably take more dumping actions than they do, but theirs hurt more. So where do you come out?
[Translation]
Mr. Paré: I have a few more questions, including one for Mr. Bertrand. I very much liked the fact that you listed the characteristics required in order for a mechanism to be reliable and effective.
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However, I do have a question about the predictability of the outcome. You stated that based on the findings of panels which have already handed down decisions, the predictability of the mechanism had already been somewhat confirmed. My question is as follows and I will personalize it somewhat: will the United States ultimately understand that the mechanism is predictable?
Mr. Bertrand: It is difficult to give a specific answer to that question.
[English]
Have they already understood? I doubt it. Are they still trying? Obviously. But I don't think the answer is really important. The fact that the process is in its nature predictable is an asset. It's certainty, in other words. It's a guarantee of some sort of justice in the end.
You can't prevent the other party from trying to challenge a decision, but you have a certain level of comfort that you're going to come out of it as a winner within a very reasonable period of time.
So, no, you're not reducing the number of disputes, but, yes, you are, in the sense that you have in place a mechanism that in the end will promote freer trade, because it's not propitious in nature. The decisions are constant, or the interpretation is constant, and therefore you promote freer trade even though you have not reduced the number of disputes. I'll grant you that.
[Translation]
The Chairman: Mr. Gastle wanted to add something further to that.
[English]
Mr. Gastle: With respect to the chapter 19 process, there are some limitations. One of the limitations is that it's an iterative process. Just because you win the complaint once doesn't mean you're going to be faced with another. In fact, there are certain disputes you can find where there was one complaint brought against a particular trade period, and we won that.
Let's take the next period. The softwood lumber dispute is an example. I believe the period of time was between 1990 and 1991. That was the period for which all of the analysis was done. One of the threats the coalition made in the United States was that they were going to come back with softwood lumber four, then they were going to look at 1992 and 1993. If they didn't win then, they were going to come back with 1994 and 1995.
It's multiple jeopardy. That may be something that's impossible to avoid, but just because you win once doesn't mean you're not going to be faced with the exact complaint three months later.
[Translation]
Mr. Paré: Part of Mr. Flavell's answer brings me to another question. In reference to the softwood lumber dispute, you stated that we had won that round. I have a somewhat different take on this. It seems to me that if we had won, we would not have been forced to once again renegotiate new five-year arrangements which impose quotas on us.
[English]
Mr. Flavell: Referring to the lumber case and the history of it, there is no question that, at a given point in time, we won. Let's call that the first level. We did so through the entire process - through the American process, the binational panel process, even extraordinary challenge.
At that point, it is said, when you read press reports, the Americans change the law in a manner that would enable them to win the next time. As my friend Mr. Cheng has pointed out, if indeed the Americans changed the law, we had a right to do something about that. There is a mechanism in NAFTA that says if somebody changes the law, you're allowed to consult, and there's a process. In the wisdom of the then government, that was not done. Then Mr. Cheng implied, and I think he's right, that the government had broader objectives, broader concerns.
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Again, you get back to this business of government having slightly different concerns from the individual parties. But the long and short of it was that it was alleged the law was changed. Then the lumber coalition in the U.S. said ``We will go after you again if you don't agree to a reasonable settlement''.
I think the government and the lumber companies got varying advice. I'll be frank. I think they got varying advice as to whether they would win the second time or the next time. In their wisdom, and as a matter of practical business decision, they decided to make a deal and to accept effectively a quota.
I've read learned newspaper columns and articles criticizing that decision, and I've read reasonable articles praising it as saving another two or three years of battle. So you pay your money and you take your choice on that one.
Mr. Gastle: With respect to the softwood lumber case, we did not win at all levels. We lost at the preliminary duty stage in the United States and we lost at the final determination before the administrative tribunals. In addition to that, the mechanism Mr. Cheng has referred to with respect to challenging any subsequent amendment is non-binding.
One of the problems we have with the mechanism is that the United States can change their law, can amend it, and there is nothing we can use to force them to overturn that amendment. We can get a panel determination saying it's wrong, but it is non-binding.
With respect to softwood lumber and the outcome, yes, there was a quota system that was put in place. One of the advantages of the quota system is that had there been another complaint, there would have been a 10% to 15% interim duty put in immediately. At one point, I worked out that cost for a three-year period - if that was the length of the dispute - as probably somewhere in the neighbourhood of $2 billion in terms of duties. That was avoided because of the quota system being put in place.
Mr. Cheng: Just as a matter of clarification, Mr. Gastle is perhaps right in saying it's non-binding, but the provision contained in article 1903 of the NAFTA essentially says that if such a challenge were to be taken, and a decision in favour of the party challenging were made and a recommendation essentially made that the legislation be amended, then if corrective legislation is not enacted within a certain period of time the party challenging has the right to take comparable legislative or equivalent executive action or to terminate this agreement. That's the entire NAFTA we're talking about.
So there are certain avenues open, but, as I said, it's just a matter of clarification. This is not a disagreement with Mr. Gastle.
Mr. Gastle: I might add that we should take a look at the remedy for a second. We can adopt whatever the Americans do. So if the Americans make a change to their legislation that targets softwood lumber, our remedy is we can adopt that into our law and we can start stepping up the level of abstraction that's in our law. I suggest that this probably is no remedy at all. The ultimate sanction of being able to terminate the agreement is no sanction at all, because it exists in the other parts of the agreement to begin with and it's not a remedy.
[Translation]
Mr. Paré: I pretty much agree with my colleague opposite that it is rare for us to have the opportunity to get an opinion from five lawyers all at the same time.
Even before Mr. Cheng mentioned MMT, I had it down as my final question. The company is threatening the Canadian government with a $201 million lawsuit if it moves ahead with the passage of Bill C-29. I would like our learned guests to tell us whether they think this is merely a bluff on the company's part or whether their actions are founded under NAFTA.
[English]
Mr. Cheng: Mr. Paré, if I were acting for Ethel Corp. I might hesitate to say anything. Since I don't act for Ethel Corp. I will still hesitate to say whether it's a bluff, but I personally welcome calling their bluff, because, as I said, it's the first time that chapter 11 procedures will have been called on and I think it would be interesting to see how far they get.
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Mr. Flavell: I think as a generalization, Mr. Paré, one could say, putting it in its kindest light, that the Americans are more prepared to have a fly in these things than we are. That gets back to what Mr. Gastle and Mr. Cheng and others have said, that we are still a mouse and they are still an elephant. Everything we do that involves, if you will, a risk or taking a chance or doing something aggressive involves a very nasty reaction, whereas in the case of the U.S., in most instances they can can look and say they'll have a go at that and if we don't win it's not the end of the world. That together with their - I'm choosing my kindest possible words again - litigious nature means it's not fun living next door to the elephant, but we get some benefits, so let's try to enjoy the benefits and play down the bad side.
The Chairman: Mr. Tereposky, you indicated that you would welcome a greater involvement by the private sector in what essentially are state-to-state, government-to-government disputes. Could you put a little more flesh on that thought? How would you see the private sector getting involved?
Mr. Tereposky: Certainly. It has been the past practice of the Government of Canada to consult with industry when government-to-government disputes are being brought. What we have seen develop over time, particularly with the WTO agreements, is that the complexity of the disputes is getting greater and greater, not only with respect to the rules, but it's now developing to the extent where evidence is becoming more and more important.
In the past, when you went to a government-to-government dispute it was often like an appeal court such as the Supreme Court of Canada, where you're simply interpreting or primarily interpreting provisions. Now it's beginning to look a lot more like litigation, where you have weighing of evidence.
There are many thresholds that are evidential thresholds, or which approximate evidential thresholds, in the WTO agreements, and where, I believe, the function of private industry would be to assist in developing those evidential thresholds because it's private industry that has the knowledge of how the industry operates. A lot of these thresholds, when you're looking at them, require a very in-depth knowledge of the industry and how the obligation would apply to the industry itself.
By formalizing the process to get private industry involved, you actually advance it much quicker. You have the analysis and the initial work done upfront, and this certainly takes a lot of the resource requirements out of government. It also assists the government in conducting their analysis. We've seen that in practice work, and I think it's certainly the direction of the future, given constraints on government resources.
The Chairman: Thank you very much. Yes, Mr. Cheng.
Mr. Cheng: Mr. Chairman, I have a very brief comment with which I suspect Mr. Tereposky will agree.
The issue can be looked at the other way in those situations, Mr. Chairman. Often private industry, as you well know, includes everyone from not just manufacturers and producers but agricultural groups, etc., and in many instances, even in government-to-government disputes, those parties often look to the government for providing the resources to conduct the litigation, if you will. So there is some hesitation to counterbalance the statements of Mr. Tereposky, with which I agree as far as the most efficient and effective method of carrying it out.
Private parties often will rely on government and look to government for assistance. This is in fact one of the areas in which the government is seen as being the proper bearer of cost, if I can put it that way.
The Chairman: Thank you. Mr. Flavell.
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Mr. Flavell: I was just going to say it seems to me the matter of private access is, as well, just an attempt to make sure the best possible case is put forward. Depending on the nature of the matter and whether you're in a dumping case, a countervail, a Helms-Burton, or whatever, often the private complainant has been working on the matter for months or even years, and has accumulated a significant knowledge of the matter. I think they could help the government to some degree. Any of us who are lawyers know that when you come into a matter at an advanced level, particularly when it is, for example, an appellant level as opposed to the first instance, you just don't know the file as well as the other person.
So I think private access would be important and would be useful if we presume we want to win.
The Chairman: One related point, which has come before this committee or the SIMA committee, relates to the cost of litigation to private complainants. Do you have a view of this? Indeed, the cost may run so high that only very wealthy industries can really face dispute settlement or the private aspect of these disputes.
Mr. Tereposky: I'd just like to follow up on a comment Mr. Cheng made. Not all private interests can afford to have their own counsel involved in these. This goes directly to your point, Mr. Chairman. I think allowing or welcoming the participation of private counsel for those interests that can afford it actually frees up resources so the Government of Canada can put more resources into these other cases.
There is no question Mr. Cheng is correct. There are groups out there that just cannot get the resources together. It is a very important function of the Government of Canada to look after those interests, and it does this quite well.
[Translation]
Mr. Bertrand: I think the concern about costs is justified. The solution advocated by Mr. Tereposky which would see the participation of the private sector in government-to-government disputes is certainly a practical solution.
With respect to the chapter 19 settlement process, the accessibility provided by the current mechanism is an advantage which would be lost if the parties were required to defray part or all of the costs.
It would all come down to which party has the most money and once again, in the interest of reestablishing a certain power relationship, it is virtually a given that U.S. industries, with their lobby, are in a better position to wage this type of battle, and to take a matter up two, three or four times than a Canadian industry operating in the same sector.
[English]
The Chairman: Mr. Flavell.
Mr. Flavell: Again, I think I'll be slightly politically incorrect.
I do agree with the basic premise that it is hard on a small or medium business to fund one of these cases, particularly if we're talking now about dumping cases or countervail cases. But I would advance the outlandish proposition that it damned well should be expensive, because they are asking the Government of Canada to put into effect a tariff which is usually a prohibitive tariff after Revenue Canada has finished with the numbers. We're talking about dumping margins of 50%, 60%, 70%. It is a prohibitive tariff and it strikes me to ask someone to pay a fair price to have the Government of Canada impose this kind of duty for five years. You're making a request that is quite outrageous if you approach it from the point of view of free trade.
So I'm not quite as outraged by the cost of these proceedings.
Mr. Gastle: I'm going to take the cost issue in a slightly different direction. What we're trying to achieve by NAFTA is an integrated market between Canada and the United States. To me, an integrated market means that there should be no difference in treatment between goods that cross the national borders and goods that cross state borders.
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If we could design the legislation and the agreements the way we wanted, I would suggest that it would be a good thing to have a cost consequence as part of the dispute. If, for instance, the Americans bring a challenge and lose, I think that the cost should be paid by the American government or the American participants of the parties that were complained against.
We haven't really discussed the problem of preliminary duties, but that's a major problem, because it really tilts the equities in the system. If you are trying to get that kind of extraordinary interlocutory and interim relief in Ontario or most other provinces, you would have to provide an undertaking as to damages.
I would like to see that kind of mechanism put in place with respect to international trade disputes. Then maybe you would see people backing off from spurious disputes. Right now you've got a system that promotes any industry in the United States to bring a compliant against Canada because there's a substantial chance, at the preliminary stage, that you're going to get preliminary duties put in place, and once you do that you have tremendous leverage to extract a voluntary restraint agreement.
The Chairman: We seem to be running out of questions just as we're running out of time.
I thank you very much for your contribution. This has been a very good couple of hours spent together. On behalf of this subcommittee, thank you to all of you. We'll make good use of your views. Thank you.
The meeting is adjourned.