International Trade Committee on May 5th, 2009

[Carol Nelder-Corvari]

Yes, in this agreement with Peru, we have both a chapter on labour, which is part of the FTA, and the labour side agreement. We went as far as we could regarding where we were with provincial understanding. Both labour and environment are under provincial jurisdiction, so the chapters reflect and respect that jurisdiction while identifying key objectives and principles that are elaborated in the side agreement on both labour and environment.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you.

[The Chair, Conservative, Lee Richardson]

Mr. Cannis.

[John Cannis, Liberal, Scarborough Centre, ON]

That was actually what I wanted you to let us know—that there was a mechanism there. It seems to be properly placed.

I want you to add another dimension for me. The same dispute resolution system applies to the European trade agreements that they've put together. Do they have to deal with them as a group or individually? How does it work with their partners?

[Carol Nelder-Corvari]

To my knowledge, the discussions with EFTA that Peru has concluded do not include labour and environmental provisions. The U.S.-Peru agreement does. These provisions are not dissimilar to those in our model, with some variations. Negotiations with the European Union are just under way, but my understanding is that labour and environment are not included in the European model.

[John Cannis, Liberal, Scarborough Centre, ON]

Aside from labour, are there any other issues? Let's say we agree to disagree on other products, such as beef, lentils, or whatever; how do we resolve it eventually? How do we get into it? How do we enforce it?

[Carol Nelder-Corvari]

The agreement does include a dispute settlement chapter. It's modelled after our NAFTA dispute settlement system, so it allows for parties to come forward. If their issues aren't resolved, there's a process for resolving that, and that process can result in sanctions.

[John Cannis, Liberal, Scarborough Centre, ON]

Wonderful.

Mr. Chairman, thank you kindly.

[The Chair, Conservative, Lee Richardson]

Good. I think that will conclude our briefing today.

Thank you for coming. That was so good off the top that we had most of the questions answered before we could ask them. We appreciate that.

Does anyone have a final point?

Go ahead, Mr. Knudson.

[Dean Knudson]

Could I follow up and be a little bit more specific on two elements of the environment provisions that we've had a fair amount of discussion on?

I'd like to specify that the agreement does allow any citizen of either country to provide a written question regarding any obligation under the agreement with respect to the environment. The parties are obliged to provide an answer and to make both the question and the response publicly available. That's in terms of giving a bit more specificity to what is sanctionable. I know the definition is different from what Pierre has been talking about, but the publicly acknowledgeable process is there.

The other thing it allows is that any Canadian or Peruvian can request an investigation of alleged violations of environmental laws. It also, as I mentioned in my earlier comments, provides a dispute resolution process that allows for any question to be addressed under the environmental agreement. That does get resolved eventually at the ministerial level, for that public accountability.

There's also the point Carol was making earlier in terms of the context for the agreement. It's very important to understand that we are dealing with a developing country. What they were, quite frankly, interested in was what we were trying to do with Chile, and we had a bit of a discussion about enforcement matters, etc.

We don't spend a tonne of money working with Chile, but we've had some really effective results over the last few years. They've been along the lines of the enforcement information system Chile is developing, an electronic system based upon Canada's NEMISIS system. They've literally taken ours and applied it there, and we've transferred that.

On top of that, they have developed a pollution release and transfer inventory that is based upon Canada's system as well. It allows the country to actually track the flows of various pollutants in an effective manner, which helps them target their enforcement.

From talking with the Peruvians, we learned their biggest concern was biodiversity. In that case, when it comes to working with the Chileans very tangibly, we've had a specific engagement by our enforcement officers on species that are subject to illegal trade between the two countries so that they can be identified at the border. The results we're looking for are very specific and tangible and focused with respect to enforcement to protect biodiversity and to improve the capacity that Carol was talking about in these countries.

I just wanted to provide that additional context.

[The Chair, Conservative, Lee Richardson]

Thank you.

Go ahead, Mr. Kronby.

[Matthew Kronby]

Thank you, Mr. Chairman.

I wanted to come back to the question I had asked Mr. Julian for clarification on. As I understand it, the question is with respect to whether the investment chapter of this agreement would prevent Peru from privatizing its social security system.

He's shaking his head, so perhaps I will let him rephrase the question before I answer the wrong one.

[The Chair, Conservative, Lee Richardson]

Go ahead, Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

It has already been privatized--

[Matthew Kronby]

Excuse me, I misspoke. I meant to say that the question was on whether the chapter would prevent Peru from taking a privatized social security system and making it public.

The answer is no. The chapter doesn't prevent a government from making anything public, and the parties to the agreement can take reservations against the chapter.

But more specifically, I think the question was with respect to expropriation in the context of making a social security system public. There's nothing a Canadian investor could do to prevent Peru from taking a private social security system and making it public. If a Canadian investor in the sector had an investment that was being expropriated as a result of making the system public, that Canadian investor could insist on fair market value compensation for its investment. That is what the agreement would enable a Canadian company in that sector to insist on, but it would not prevent the Peruvian government from making its social security system public.

[The Chair, Conservative, Lee Richardson]

Mr. Julian, do you have a further comment?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you very much, Mr. Chair. You're being very lenient today.

[The Chair, Conservative, Lee Richardson]

Yes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

The question is around the potential loss of profit. The indirect expropriation, as defined in article 8 to 12, would allow a Canadian company to sue for potential loss of profit if a public social security system were put in place instead of the privatized one.

[Matthew Kronby]

Not exactly. What it would allow a Canadian company to do is make a claim that its investment had been expropriated, and it would have to establish that it had suffered a substantial deprivation to the value of its investment. The simple loss of profit would not establish a substantial deprivation. It might be a factor, but it would not establish substantial deprivation. As I mentioned, there's a whole annex to the free trade agreement, annex 812.1, that sets out the factors for tribunals to look at when considering a claim for indirect expropriation. I could imagine that in a context where a privatized system is made public, we would be looking at not necessarily indirect expropriation but perhaps direct expropriation as well, which might be a simpler matter.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I'll have further questions if we have time at the end, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

This is the end.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Oh, okay.

[The Chair, Conservative, Lee Richardson]

I'm sorry, you were preoccupied. We decided that we were going to end at 10:30 and go to committee business, so I'll give you another minute, Mr. Julian, if you want to wrap it up.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I think essentially what you're saying is that the type of indirect expropriation—loss of profits and loss of investment that we've seen with the Ethyl Corporation, without chemicals—would be permitted through this agreement. I did want to ask why the definitions were included in the annex as opposed to in article 812, because in article 812 it's very specific around indirect expropriation, but there is none of the refining of definitions that was referred to in the presentation.

Why in the annex rather than the article of the treaty itself?