Foreign Affairs Committee on May 30th, 2012

[Karyn Keenan, Program Officer, Halifax Initiative Coalition]

Thank you, Chair.

Thank you for the opportunity to speak before this committee. For those of you who aren't aware, the Halifax Initiative is a coalition of development, environmental, faith-based, human rights, and labour organizations that works to democratize the international financial system. The coalition, which was created in 1994, seeks to make public financial institutions more transparent, democratic, and accountable.

My comments today will address the extractive sector, which is the focus of Canadian programming to promote the private sector in developing countries.

As a lawyer, l've worked on Canadian policy and law regarding the overseas extractive sector for over 15 years. While living in Peru, I worked directly with indigenous communities affected by the operations of transnational mining companies. Later, as a consultant to Amnesty International, I examined the impacts of a gas pipeline on indigenous communities in Peru.

In 2006 I was a member of the advisory group to the Canadian national round-table process that examined Canadian extractive operations in developing countries. Others have testified before this committee regarding the relationship between private sector investment and development. They reminded committee members that private sector investment per se does not lead to sustainable development. In fact, such investment can, and often does, undermine development.

A complex set of political, legal, institutional, and social conditions must exist in order for the wealth generated by the private sector to contribute in a meaningful way to the sustainable development of a country and its people and to ensure that the often devastating costs associated with private enterprise are both minimized and internalized.

We know that in most places in the developing world those conditions do not exist. This poses a dilemma for any thoughtful government considering the promotion of its companies as a mechanism to enhance development in the global south.

I'd like to spend a few minutes exploring these issues by focusing on the example of Peru, which is the country that features most prominently in CIDA's new programming in support of the private sector and is a country that l know well. The extractive sector plays a central role in the Peruvian economy. Like many other resource-rich countries, Peru was subject to a structural reform program imposed by the World Bank and the International Monetary Fund. The program began in Peru in the early nineties, after Alberto Fujimori came to power. Fujimori is currently serving time for embezzlement, bribery, and extrajudicial killings.

The structural reform program in Peru sought to facilitate private investment through a radical liberalization of the country's trade and investment framework. This included privatization; lower taxes and royalties, such as the elimination of all royalties on mineral production; the introduction of stability agreements; and the elimination of important social and environmental protections. Foreign investment in the mining and the oil and gas sectors has grown significantly since then.

By the late 1990s, Peru had one of the lowest levels of tax revenue in Latin America. Despite impressive economic growth, high levels of poverty persist, particularly in areas rich in mineral deposits and in oil and gas.

In a recent report concerning violence and social conflict, the Peruvian national ombudsman explained:

After 10 years of continuous economic growth, with an average annual increase in real GDP of 7.15% and 20 years of free market economics, and despite the fact that poverty has ostensibly decreased, there still exists a large sector of the population that lives in a situation of poverty or extreme poverty that has not seen any substantial improvement in the quality of their lives.

Peruvians are marginalized from public decision-making processes, often receive little to no benefit from extractive investments, bear the burden of the often devastating environmental and social costs associated with these activities, and are beaten, incarcerated, and killed when they stand in defence of their rights.

Given this context, it comes as no surprise that the Peruvian extractive boom has been accompanied by an explosion in conflict. According to the Peruvian ombudsman, extractive investments constitute the single most important source of social conflict in the country. In a recent report, the ombudsman reveals an increase in social conflict of over 300% in the past five years. The office reports an increase in the number, intensity, and geographical extension of social and environmental conflicts.

I will give you a few examples.

In 2009 indigenous people in Peru mounted a major protest regarding the adoption of new legislative provisions that further facilitate extractive operations in their territories. On June 5 the national police attacked the protesters, triggering a violent confrontation that resulted in the deaths of 33 people. The prime minister was forced to resign over the government's handling of the incident, and Congress repealed a number of the contested decrees.

A more recent conflict in late 2011, concerning Newmont's proposed Conga mine, triggered the resignation of the prime minister and the entire Peruvian cabinet less than five months after President Humala was sworn into office.

Last month I accompanied a delegation of indigenous Achuar leaders from the Peruvian Amazon to the House of Commons. Their traditional territory has been included in an oil concession held by a Canadian company, Talisman Energy. The Achuar have seen the neighbouring rivershed devastated by an American oil company. Their neighbours can no longer eat local fish or animals. The Achuar came to Canada to demand that Talisman leave their territory.

Finally, this week two indigenous people were killed and a state of emergency declared in Cusco, at Xstrata's Tintaya mine in Peru.

The conditions required to ensure that extractive investment supports sustainable development are clearly lacking in Peru. Yet Peru is the single most important destination for new CIDA-sponsored projects promoting the extractive sector.

How is the Government of Canada addressing this issue? One approach would be to support the development of a robust governance capacity in Peru and other developing countries. A complementary option would be to ensure that the overseas operations of Canadian corporations that benefit from government support are effectively regulated in Canada.

How does Canada fare on these fronts? First, it's important to note that Canada finances the World Bank and the International Monetary Fund, and that it holds seats on the boards of directors of both institutions. This means that Canada shares responsibility for the structural reform program that undermined the Peruvian government' s capacity to both regulate the extractive sector and to exact a fair proportion of the wealth generated by extractive companies for the benefit of its people.

Canada further weakened Peru's hand when it signed a free trade agreement with that country in 2008. The agreement includes investor state provisions that will make it difficult for Peru to strengthen its regulatory framework in favour of local communities without running the risk of being sued by affected Canadian companies.

This has been the experience of the government of El Salvador, which was sued by Canadian mining company Pacific Rim, under the Central American free trade agreement, when it declined to grant the company a mining licence.

For over ten years CIDA funded a project that sought to enhance the Peruvian government's governance capacity regarding the mining sector. As researchers at the University of Quebec at Montreal have reported, the PERCAN project was limited in scope, focused on conflict resolution, and did not address issues of legitimacy, responsibility, and accountability that underlie mining-related conflict in Peru.

The project included an inherent bias in favour of mining, seeking to make the activity more socially acceptable. It did not contemplate the promotion of processes and institutional capacity to address the extreme power imbalances that exist between multinational companies, communities, and local governments, or to create conditions for truly participatory processes of decision-making and oversight concerning mining operations. In fact, the number and intensity of mining-related conflicts in Peru grew significantly during the tenure of the PERCAN project.

Not only has Canada undermined Peru's capacity to effectively govern multinational companies, it has also refused to regulate the overseas operations of Canadian extractive companies, relying instead on ineffectual voluntary initiatives.

The Conservatives defeated a modest bill that was introduced in the House of Commons in 2009 that would have ensured that any extractive company receiving financial or political support from the Canadian government satisfy international standards.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Opposition members voted against it as well.

[Karyn Keenan]

Well, we can talk about that.

Until conditions in Peru and other developing countries address the enormous power differential between companies and local actors, are protective of communities' political, economic, social, and cultural rights, and ensure that companies make meaningful contributions to state coffers, extractive investment is unlikely to promote sustainable development. Any government programming that promotes extractive investment in the absence of such conditions cannot credibly claim to contribute to sustainable development.

Thank you.

[The Chair, Conservative, Dean Allison]

Thank you, Ms. Keenan. I'm sure you'll have lots of questions to follow up.

Mr. Saganash, you have seven minutes, sir.

[Romeo Saganash, NDP, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Thank you very much.

Thank you for your testimony to this committee.

I know your organization has done a lot to raise awareness about the activities of Canadian mining companies abroad. In 2006 you produced a map of mining activity by Canadian companies around the world. I notice that a number of nations where these companies are active are the same 20 nations of focus for CIDA now. That includes Colombia, Mali, Tanzania, and you just spoke about Peru as well. They're on your map and on the list of 20 countries of focus for CIDA today. That doesn't even include mining firms where we have funding from CIDA. Barrick Gold in Burkina Faso is an example.

Are you seeing a greater connection between Canadian mining interests abroad and CIDA funding on the other hand?

[Karyn Keenan]

I certainly see greater convergence between those two things in the new CIDA programming that's part of the Canadian government's corporate social responsibility strategy. I hadn't considered the overlap between cases where communities and workers have raised issues about Canadian companies' operations and countries where we're providing ODA, especially not in the context of the mining map, but there's definitely a convergence of those two things now through this new policy, the corporate social responsibility policy, and the programming.

That's a concern for my organization. We're worried that the impetus for this programming is more about the promotion of Canada's commercial interests than positive developmental outcomes for the countries where those investments are happening, for the reasons that I outlined in my comments. I don't believe that in countries such as Colombia, Peru, Tanzania, and Mali conditions exist to ensure that those investments are making a significant and positive contribution to development.

[Romeo Saganash, NDP, Abitibi—Baie-James—Nunavik—Eeyou, QC]

I represent a riding where there are a lot of mining companies. These same companies do operate abroad as well, throughout the world. One thing that strikes me a lot when I look at this is the fact that they seem to be able to do the right thing, at least in my riding. I participated in many of the agreements and negotiations that led to good agreements with first nations people in my riding, as recently as two weeks ago. Yet these very same companies do not seem to know how to do things right in other countries abroad.

What do you think they need to do differently when they do their activities abroad?

[Karyn Keenan]

That's an excellent question, one I think I could spend a lot of time answering.

You know, it may sound trite, but it's things like respecting basic human rights. I mean, the allegations, the credible allegations, that have been investigated by reputable organizations regarding the operations of Canadian companies overseas include such things as forcibly relocating people from their traditional areas, causing them serious bodily harm, gang-raping them, killing them.

So as a start, I would say refrain from participating in or allowing the people who you hire or contract to become involved in those kinds of serious human rights abuses. That's a simplistic answer, but that, it seems to me, would be a good starting point.

[Romeo Saganash, NDP, Abitibi—Baie-James—Nunavik—Eeyou, QC]

I'd like to have your opinion on what you see as the proper role of the private sector in international development.

[Karyn Keenan]

The private sector has an important role to play in development. I don't think that's in dispute. I reviewed the testimony of the people who testified at this committee before me, and I don't see any dispute about that factor. The question is how, and under what conditions.

As I said in my comments, I don't think conditions exist in countries such as Peru and the other countries you mentioned to ensure that extractive investment by multinational companies would lead to positive developmental outcomes. I'm talking about public institutions, policies, and processes that can provide effective oversight of those corporations, and can use the wealth that's generated by those companies to respond to their citizens' needs. That's not happening, and I don't see it happening in the short term.

[Romeo Saganash, NDP, Abitibi—Baie-James—Nunavik—Eeyou, QC]

I have a very quick question then. I'm almost afraid to ask this one. In your view, is there another country that would serve as an ideal model for Canada with regard to international development?

[Karyn Keenan]

Do you mean specifically with respect to this new CSR programming, partnering with the extractive sector?

[Romeo Saganash, NDP, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Yes, I do.

[Karyn Keenan]

I can't think, off the top of my head, of a country where the kinds of conditions that I'm describing—robust public institutions, pro-poor policies, an effective and independent judiciary, truly participatory decision-making, etc.—exist in a way that would guarantee that wealth generated by Canadian companies would contribute to real and long-lasting developmental outcomes. Off the top of my head, no, I can't.

[The Chair, Conservative, Dean Allison]

Thank you very much.

We are now going to move over to the government side.

Mr. Dechert, you have seven minutes, please.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thank you, Mr. Chair.

Thank you, Ms. Keenan, for being here.

At the outset, I wanted to mention something you brought up, which I think was Bill C-300 in a previous Parliament. You mentioned that the government defeated it. You probably remember that there was a minority government at the time, so to defeat any bill would take the votes of people from multiple parties. In fact, the Liberal Party industry critic voted against that bill, as did I. I voted against that bill, quite frankly, because I thought it would be hugely detrimental to the Canadian economy in the extractive sector, in the financial services sector, and in many other sectors. I thought it was a rather poorly drafted bill that would have done substantial harm to Canada and very little good to other countries. That was supported by many MPs from many parties.

You mentioned Peru. I understand that you've had some experience there. I don't know if you had an opportunity to hear our previous speaker, Dr. O'Neill, from USAID. She mentioned specifically that USAID was partnering with Barrick Gold, in Peru, on a project she said had created 800 jobs, most of which are in agriculture, not mining.

It sounds to me like a pretty good project for Peru and it has had some positive outcomes. Some mining companies, if they are just in there to extract resources, will train people to work in the mines, and when the ore body is finished they'll leave. Perhaps those people will have skills they can use elsewhere and perhaps not. But in this particular project, partnering with USAID, they're creating jobs that have nothing to do with the mining industry. I don't see what the objection to that kind of project would be.

You may also be familiar with a CIDA project with World Vision Canada, which is a very reputable organization that supports people in poor and developing countries around the world. It happens to be headquartered in my city of Mississauga. It's just a spectacular organization. It's supported by people across Canada, very significantly by people in Mississauga. I can tell you that they did just an incredible job of helping people in Haiti after the earthquake. They raised a huge amount of money from Canadians and put it to good use making lives better for people in Haiti who were recovering from that earthquake and rebuilding their economy.

That is an organization CIDA has partnered with. It has also partnered with Barrick. That project in the municipality of Quirulvilca is benefiting a thousand families. It is strengthening the municipal authority's ability to work with the national government to use a greater share of the mining revenue locally in that community to diversify its economy.

CIDA is putting up $500,000. It's being implemented by World Vision. And Barrick Gold is putting up $500,000. I wonder why that would be a project anyone would want to criticize. It seems to me that what they're doing there is leveraging the work Barrick Gold is doing creating jobs locally and they're taking that economic benefit far beyond that particular industry. Isn't that the kind of thing we want to see happening in developing countries? Those resource companies have contributed to making Canada the prosperous and peaceful place it is, with one of the highest qualities of life in world. When our ancestors first landed in this country, the resource industry was what got this economy moving in the first place. It built our economy. Why wouldn't that work in a place like Peru or in other countries in the world? Those same companies, as Barrick did here, can do it elsewhere. If the taxpayers of Canada want to help those countries develop, we want to show them how it was done in our country.

We have developed some of the best, most successful, most environmentally sensitive, and most progressive programs in the world in terms of employee health and welfare programs, and we've developed them here in this country. They've made this country prosperous. We want to help people in other countries. That's something Canada knows about. Canada is home to the largest mining industry in the world. We're home to the finance business for mining around the world. We've got the expertise in finding the ore bodies, exploiting the ore bodies, and financing the whole project. We have all that in-house. That's something Canada has that not many other countries in the world have.

If we want to help people in poor countries around the world develop their economies, doesn't it make sense that Canada would work with an industry that we know, and try to re-create in other places what we saw happen in our own country so successfully? We're doing that through these programs with reputable organizations, like World Vision. I assume you don't have any problem working with an organization like World Vision.

Perhaps you could comment on that USAID project, the Canadian project with Barrick Gold, and tell me what you think of those projects.

[The Chair, Conservative, Dean Allison]

You actually have 30 seconds. I'm going to let you answer the question, though.

[Karyn Keenan]

I want to respond to several points very quickly.

First of all, had the Conservatives who were in the House of Commons voted for Bill C-300, it would have passed. Secondly, it's hard to see that Bill C-300 would irrevocably damage the extractive sector, given that the mining and oil and gas companies in Canada already claim to adhere to the standards embedded in that bill.

On the question of whether I object to USAID's project or World Vision's projects in Peru, of course I don't object to those projects. I question CIDA funding such partnerships for the reasons I enumerated in my comments, which are that CSR projects cannot replace public policy and institutions that are dedicated to poverty alleviation. In fact they can undermine those policies and institutions, and that's my concern.

[The Chair, Conservative, Dean Allison]

Thank you very much for the quick response after that very long question.

Mr. LeBlanc, seven minutes is yours, sir.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

I won't take six minutes and 30 seconds for the introduction, Mr. Chair.

Thank you, Ms. Keenan, for being here. Thank you for your comments, which I think are instructive in a number of areas.

Perhaps I could pick up on some questions that my colleague Mr. Saganash opened up with. He asked you whether, in your view, there were any public-private partnerships around public money going to companies in the extractive sector. I think you asked for precision, and he agreed that was the case. You couldn't think of a circumstance where those investments would be a valid use of taxpayers' money, and you used a very compelling example of where it can go off track badly.

What about other sectors? You're right, we have tended to focus on a partnership in the extractive sector, but I'm thinking of some large multinational agrifood companies. McCain Foods from New Brunswick, for example, has a number of initiatives in developing countries around growing potatoes. Can you see other sectors of the economy where...?

You're going to tell me, lawyer that you are, that it will depend on the project, the terms of reference, the objectives, and so on, but as a general idea, I think the extractive sector is more complicated than perhaps other sectors where there may be an opportunity for a less complicated or polarizing partnership in terms of its local impact. Can you think of other areas of the economy or in developing countries where it might be easier to structure something that would have some merit, at least on the face of it?

[Karyn Keenan]

I don't know. The sector I know the best is the extractive sector. But what I would say is that you anticipated my answer, that it would depend on the project or the particulars of the investment. I would say, yes, that's important. But more important are the other things I've been trying to emphasize so far this afternoon, which are the conditions in the country where the investment is happening—that is to say, whether there is an effective policy in an institutional context, a framework and capacity to allow the government where the investment is taking place to regulate the company, to levy appropriate taxes and royalties so that it can then spend on social programs, where there's an independent judiciary so there can be accountability, and where there's transparency about all of those things.

That seems to me to be more important, regardless of the sector from which the investment is coming, than the specifics of the project.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

I don't disagree with that observation.

Isn't there, then, an inherent contradiction? On the one hand, the extractive sector is working—because many of these minerals are underground—in countries where they're sorely lacking in some of those reliable, transparent, democratic institutions, basic things like the rule of law, as you say, the independence of a judiciary, some public financial system that has any sense of public support and transparency in terms of governmental finance, anti-corruption laws and so on. It seems to be a curse that many of these minerals are in countries that unfortunately haven't advanced to where I'm sure they want to be or where we would like them to be. Then you have these Canadian companies, because that's the sector of the economy they operate in, going after these mineral deposits, which is not in and of itself inappropriate, but because of the context it becomes that much more complicated.

Does your group have a view on what the Government of Canada, and particularly CIDA, public institutions in Canada...? You touched on a few multilateral financial institutions, but what could domestic Canadian institutions like CIDA do in a more robust way to help some of these countries implement or achieve greater institutional stability and transparency as a precursor perhaps to other forms of development?

My sense is we've missed an opportunity, after the Arab Spring and we hope the emergence of some of these democracies, to help them at a very critical time build greater capacity in public institutions in their own countries, and therefore there may be a backsliding and we may find ourselves in a similar situation or worse situation than before some of these circumstances led to such an increase in hope. Can you see a greater role for Canadian public institutions in that aspect?

[Karyn Keenan]

First of all, you mentioned that there seems to be extractive investment and the lack of the kinds of conditions that I described. There seems to be a coincidence or they seem to happen in the same places. I would say that's an accurate observation, and it's not an accident; it's by design. That's what I was trying to explain about Peru. The programs that were imposed on Peru, that decimated public institutions and public policy, happened in many developing countries—and most developing countries—that are rich in mineral, oil, or gas resources. So that happened by design.

I wouldn't minimize the role of the multilateral development banks and multilateral institutions as creators of this problem but also as potential agents to solve this problem. Canada has a very important role in those institutions. Not all countries are privileged to have positions on the boards of directors of both the IMF and the World Bank and all of the regional development banks. Those organizations of course are still very important in influencing policy development in these areas. I would say Canada has an important role within those institutions to help developing countries that would like to create more robust policies and institutions to do so.

With regard to CIDA, I think CIDA has done some very good work in these areas in promoting institutional strengthening in areas like an independent judiciary and so on. But I fear CIDA is moving away from that kind of programming and it's redirecting funds to things like corporate social responsibility programming. So I think there's probably capacity in CIDA and experience to draw on regarding the kinds of initiatives or areas that I would prioritize.

[The Chair, Conservative, Dean Allison]

That's all the time we have.

We'll see how long until we have bells and votes.

We'll start with Ms. Brown.

[Lois Brown, Conservative, Newmarket—Aurora, ON]

Thank you very much, Mr. Chair.

Ms. Keenan, I think that both our extractive industries and the members of this committee would take offence at the suggestion that our extractive companies are going into other countries and making rape and pillage their norm. I know people who are in the extractive industries, and they are fine, upstanding people who run reputable companies. So personally, I find your characterization highly offensive.

I shouldn't speak for the rest of the committee, but I think this is an accusation that goes beyond the pale. I have attended the PDAC convention in Toronto, the prospectors and developers convention. It's enormous. It's attended by people from every country in the world. Every country that has a booth there places a high value on the expertise of Canadian companies and the reputation of the Canadian extractive industry. They want our companies to go to their countries and do business there. I could probably name 50 countries off the top of my head with whom I have had conversations.

I have been in Burkina Faso. I have seen the wonderful project that Iamgold has in that country and the wonderful work that they are doing to create alternative economic opportunities for the people of Burkina Faso. These people are thrilled that they now have a school for their youngsters and a training centre for their young people, who are getting the ability to do electrical and plumbing work, and take real jobs into the economy. They have a health care clinic populated with competent health care workers who are providing assistance to the people of Burkina Faso in an area that is four hours removed from Ouagadougou. So there are good things going on with our extractive industries.

We can also look at the Equator Principles. You talked about Bill C-300. Canadian extractive companies comply with the Equator Principles. We have a counsellor—there are no complaints against Canadian companies she's dealing with. We have a fine reputation around the world. You talked about Talisman. Talisman was in South Sudan, and there were some accusations against Talisman. Talisman threw up their hands and decided to pull out. China went in, and we know the sad tale that's ensued.

You've heard Dr. O'Neill's testimony. You heard what she said here. What you're telling us is 180 degrees removed from the good work that USAID is seeing done. They talked about 800 permanent jobs being created in Peru in the agricultural sector. I've visited countries in Africa where, in tandem with Canadian companies working in Kenya, we have agricultural projects going on in Ethiopia. We have agricultural projects that are creating real opportunities. The private sector, the extractive industry, they're all part and parcel of this. It's not that we're only working in that area. CIDA has much money going into capacity-building in these countries—developing judicial processes, developing a civil society. It can't be one or the other. Civil society, a fair and open judiciary, transparent elections—these things can't happen unless there is a reliable and growing economic process happening at the same time.

When you look at these things happening in tandem, is it not possible for CIDA to partner with companies and make life better for people in these emerging economies?