Evidence of meeting #70 for International Trade in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was foreign.
A recording is available from Parliament.
4:40 p.m.
Conservative
4:45 p.m.
Conservative
The Chair Conservative Rob Merrifield
Thank you, both, for that.
We'll now move to Mr. Van Harten, who is an associate professor at Osgoode Hall Law School at York University.
Mr. Van Harten, the floor is yours.
4:45 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
Thank you for the opportunity to speak to you.
First, I'd like to say a word of caution: it's difficult to evaluate any treaty without looking at the text, and I understand that negotiations haven't been concluded, so the text isn't available. I will just make it clear that I haven't reviewed the text, so I say all of this with a certain caution.
I'd like to point out at the outset that this is a trade agreement. It's not a FIPA, and it's not, as I understand it, like NAFTA, a hybrid trade and investment agreement. Judging by the information available on the DFAIT website, there are no aspirations at this time to include an investment chapter in the free trade agreement or certain other topics, including intellectual property rights, procurement, and so on. It could be that I'm wrong about that; I'm judging only from the list of topics covered on the website.
With all of that said, I'm actually quite supportive of this approach to the free trade agreement with India. I think it does have the potential to benefit Canadian businesses looking to improve their level of access to India, for goods, exports, and services exports.
I think it's a good idea to take the more modest approach that I see reflected in this treaty. It excludes such sensitive topics as investment, which for other reasons, I think both from an Indian and a Canadian perspective, are raising concerns based on recent information about how investor-state arbitration is being used. That calls for further attention and study, including from a Canadian point of view, keeping in mind that with the exception of NAFTA, Canada has never ratified a FIPA or a free trade agreement with a country whose nationals have owned substantial assets in Canada. We haven't had to think as much about the risks and liabilities that come with the very strong provisions for foreign investor protection that investor-state arbitration entails. We haven't had to look too closely at how that affects Canada as a capital importing country in the relationship outside of NAFTA.
That situation is changing, and it may change quite dramatically in light of a number of treaties that are under discussion and negotiation. I would not put Canada's relationship with India at quite the same level as some of those other treaties. Nevertheless, I think it is significant that Indian companies own several billion dollars of assets in Canada. That's an order of a presence, an inward investment presence, that goes beyond that of other countries Canada has concluded FIPAs with to this point.
Along those lines, I'll elaborate by speaking a bit more of my impressions as to why the proposed FIPA with India has not been concluded. My understanding, especially from colleagues in India, is that it is because the Indian government is not committing to investor-state arbitration in any treaties at this time, and that would include the FIPA with Canada or other possible treaties. The reason for that is that India has joined other countries in initiating a review of its exposure to investor-state arbitration and the risks and liabilities that creates for its governing and regulatory decisions affecting foreign investors in India.
It's also reviewing the issue of whether investor-state arbitration gives special advantages to foreign companies that domestic companies don't enjoy in their own home economy and jurisdiction. These issues have arisen in India because of its experience in about the last 18 months where it has faced approximately six new investor-state arbitration claims against it by investors from a variety of other countries.
My understanding is that it's because of India's caution that investor-state arbitration is presently off the table in a Canada-India FIPA, and I assume, although I have no reason to confirm this, that may be part of the explanation for why investment is not among the list of topics contemplated for the free trade agreement.
I'd like to speak briefly to some of the comments that were just made about investor-state arbitration and the role that it might play in protecting Canadian investors from arbitrary discriminatory treatment and so on in India. I think that's an important consideration to take into account. Indeed, it has always historically been the primary consideration in Canada's other FIPAs. Because the investment flows were predominantly one way or they were not particularly significant, Canada didn't have to think as much about how consents to investor-state arbitration would affect governing decisions here and would affect domestic investors in Canada attempting to compete with foreign investors. I'd like to add a little more information to shed a bit more light on just how much we can rely on investor-state arbitration, even to protect Canadian investors abroad.
The points I would make are based on the record of investor-state arbitration cases decided under Canada's FIPAs and NAFTA to date when the claim was brought by a Canadian national, usually a Canadian company. There are 17 such cases that are known on the public record wherein a Canadian investor has used investor-state arbitration to sue another country. Ten of them arose under NAFTA, including nine cases against the United States, and seven cases arose under FIPAs concluded by Canada with a variety of countries, such as Venezuela, Costa Rica, and other countries.
The record of Canadian investors in those cases is zero wins and 17 losses. No Canadian investor has ever recovered compensation in a known case involving investor-state arbitration. By comparison, in the several hundred cases to date brought in investor-state arbitration proceedings, the success rate of the investor is around 45% to 50%. That fact in itself might be helpful. I don't know that it tells the whole story. It's just one piece of information, but I'd just like to highlight it as one reason why I think there is legitimate cause for further reflection on just how well investor-state arbitration is serving Canadian interests, including the interests of Canadian companies abroad.
We should keep in mind that there are other instruments available to protect Canadian companies abroad, such as the contracts that they conclude, which can also provide for arbitration, such as the commercial risk insurance that's available in the marketplace, and such as the channeling of their investments through third countries that have concluded investment treaties with India. Some of the claims against India have gone through what we would call “holding platforms” in a third state, such as Mauritius, and there's no reason why a significant Canadian company cannot structure its investments in India to take advantage of the same protections available through those third country investment treaties without exposing Canada and Canadian companies to any of the risks or disadvantages that would follow from a direct commitment to investor-state arbitration between India and Canada.
I would offer those as my opening comments. I thank you again for the opportunity to speak to you.
4:50 p.m.
Conservative
The Chair Conservative Rob Merrifield
We thank you for those comments.
We will start now with the questions and answers.
Mr. Davies, you have seven minutes.
4:50 p.m.
NDP
Don Davies NDP Vancouver Kingsway, BC
Thank you, Mr. Chairman.
Thank you to all the witnesses for being here.
Dr. Van Harten, I know that you've done a lot of research on the investor-state dispute resolution system. We've already heard from you and other people that India is one of the few countries of the world that is now opposed to including investor-state provisions in their trade agreements. I think they join other countries like South Korea and Australia. I know that Canada of course has been pursuing and in fact has been the demander of such provisions as a standard feature in our trade agreements. I want to drill into a bit of the ISDS mechanism.
My understanding, of course, is that an investor who believes that their rights have been violated under the agreement would then take their case not to the domestic courts of either jurisdiction, but rather to an ad hoc panel of three international trade lawyers that is set up. That's usually who it is. I'm just wondering about it. When they make a decision, where does an appeal of that decision lie? Should the country be aggrieved or not like the decision, or even if the investor doesn't like the decision, to whom do you appeal?
4:55 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
It would depend on the arbitration rules under which the investor chose to bring the claim. Most treaties give investors a choice of rules. If the investor brought the claim under the ICSID rules, there's an opportunity for so-called annulment proceedings, which are quite light touch and which are decided not by a court but by another panel of arbitrators. The members of that panel would be appointed under the authority of the World Bank president. So there's a light touch review option, but it's outside of any court process under the ICSID rules.
If the claim is brought under other sets of rules, especially the UNCITRAL rules or what are called the ICSID additional facility rules, and this is typical for arbitrations involving Canada.... Canada has been s been sued about 35 times under NAFTA, and those are usually under the UNCITRAL rules and the ICSID additional facility rules. The way it works is that the arbitrators choose which domestic courts will have the authority to review the arbitrators' decisions. So it could be a foreign court, it could be a domestic court, but again, typically it's a very light touch review. There's not rigorous and extensive judicial review of the ad hoc arbitrators' awards.
4:55 p.m.
NDP
Don Davies NDP Vancouver Kingsway, BC
In a short answer, are you of the opinion there's an adequate appeal mechanism in place with respect to ISDS mechanisms?
4:55 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
No, it's widely held among academics that there's not an adequate appellate mechanism. Some people prefer an appellate body; I personally prefer a proper court, but I think it's widely regarded as requiring a more rigorous appellate process.
4:55 p.m.
NDP
Don Davies NDP Vancouver Kingsway, BC
There's been a further criticisms of the ISDS process that these ad hoc appointed panels do not enjoy some of the prime characteristics or features of what we regard as the rule of law. For instance they don't have security of tenure. Generally, we think in the western school of thought on the rule of law that judges need to be shielded from the consequences of their decisions so that they're free to decide as they wish. Are there concerns about the lack of security of tenure of these people? Also, could you comment briefly on criticisms of bias in the system?
4:55 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
There are concerns. I have expressed those concerns in some of the work that I've done. What you have here is a very exceptional context when arbitration is used to resolve some of the most sensitive public policy and public law issues that can arise in any country.
Those issues are normally resolved in courts. Courts enjoy institutional safeguards of independence, such as security of tenure, objective methods of appointment of the judge to individual cases, and prohibitions on the judge earning income on the side or working in an overlapping role as both a judge and a lawyer in different cases. All of these concerns arise because of the unique context in which arbitration is used here, and it does give rise to serious concern.
I never allege actual bias because I don't think that's necessarily a decent thing to do. I don't wish to cast aspersions on any individuals, but that's not actually the key concern. The key concern is that everyone involved, investors, states, and so on, be confident that this is a fair and independent process. When you lose the institutional safeguards, you give rise to reasonable apprehension of bias, and that's the problem.
4:55 p.m.
NDP
Don Davies NDP Vancouver Kingsway, BC
I think when we get down to what many citizens would be concerned about, it's that they want to make sure that their provincial or federal governments can make policy decisions or pass laws, let's say in the interest of protecting the environment or to develop the economy in some way to require job creation in our country. They're worried that ISDS mechanisms can subject those decisions to challenge by foreign investors, who can then overturn those policy decisions and force the governments to pay damages, which are taxpayer dollars, to those investors.
Not only are taxpayer dollars at risk, but this may also have a chilling effect by causing governments not to want to legislate in areas because they fear getting sued by foreign investors. Is there any basis to that fear?
5 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
The primary basis for those concerns relates to the award of monetary damages against countries when decisions are taken by a legislature, by a government, by a court, that affect detrimentally the foreign investor and are found by the arbitrators to have breached some broad standard of investor protection.
This is becoming more and more serious as we see countries facing awards into the billions of dollars. They are backward looking awards: you have no opportunity to fix the problem before you face that kind of fiscal liability. From the point of view of taxpayers, fiscal responsibility, and the auditing of how Canada's legal obligations create very significant fiscal risks, potentially, for the country, that to me is the primary concern that we should be examining when Canada is signing up to investor-state arbitration, when we're on the wrong end of the stick so to speak because there is a lot of foreign-owned investment from the relevant country in our economy.
5 p.m.
Conservative
The Chair Conservative Rob Merrifield
Thank you very much.
We'll now move to Mr. Cannan, for seven minutes.
5 p.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
Thank you, Mr. Chair.
I have a question for Mr. Vidler, but I wanted to thank, is it Dr. Angus Van Harten, or do you go by professor, or what do you prefer?
5 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
You can call me Gus.
5 p.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
Gus, all right.
Well, I thank you for your patience and perseverance. I think it's the third attempt we've made to get you at committee, so I appreciate your being here today. It's good to see you. You're represented in the media as an international law expert and you have some academic credentials. I guess that would make you able to be a witness, to perceive objectively, I guess, the issue that's before us today.
5 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
I'm sorry?
5 p.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
With your credentials, you can look at these issues from an objective perspective?
5 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
Well, I'm an academic researcher, and that's always my aspiration, yes.
5 p.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
Have you been involved in politics or do you consider yourself non-partisan?
5 p.m.
Associate Professor, Osgoode Hall Law School, York University, As an Individual
I do. I've never been involved in politics. I don't have any aspirations to get into politics.
5 p.m.
A voice
Good choice!
5 p.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
Have you been involved in political parties at all, or contribute to...?