Bill C-53 (Historical)

Settlement of International Investment Disputes Act

An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention)

This enactment implements the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature in Washington on March 18, 1965.

Settlement of International Investment Disputes Act

[Alexa McDonough, NDP, Halifax, NS]

Mr. Speaker, I am pleased to speak to Bill C-53. As I understand it, the purpose of the bill is for Canada to implement the provisions of the international convention on the settlement of investment disputes.

I was not able to be here when the secretary of state introduced the bill and she may have addressed one of my questions that I posed to one of the Liberal members speaking to the bill. However, I reiterate the question because it seems to me it is something on which it is important for us to have some understanding. It has to do with the fact this convention has been open for signature for literally 42 years, from March 18, 1965 to this day. The obvious question that arises is, why now? What is the reason that today the government is proposing that something that has been on the books internationally and available for Canada to sign on to for years is suddenly a matter of sufficient importance and urgency to bring it forward in this Parliament?

In the absence of understanding that, I have proceeded to try to make sense out of the bill. I want to make it clear at the outset that the members of the New Democratic Party will not be voting to support Bill C-53 at this time. We have a number of concerns. I will try in the time available to me to summarize those concerns in three categories, first, with respect to matters of transparency, second, the issue of accessibility and third, matters of accountability. We find that this proposed agreement fails to meet the minimal test that we think is appropriate for a sovereign state to be able to seek reassurances that simply are not there.

First, I will speak briefly about transparency. The international convention on the settlement of investment disputes, proposes a consent based process for settling disputes. It is a difficulty that it is specified that once the consent of a party is given, there is no provision for there to be any revocation regardless of how flawed the process may be or how many concerns may arise in terms of how the whole process is being conducted.

The dispute settlement mechanism proposed by Bill C-53 will not just adjudicate individual contracts between foreign companies and sovereign states; it will in fact become the principal international process through which other investment agreements will be interpreted and applied with binding results. Article 48(5) of the convention clearly states:

The Centre shall not publish the award without the consent of the parties.

This creates a real concern about the transparency of the process. It seems that if matters are of sufficient import to our government, or for that matter to the corporations that are a party to such processes, there needs to be the assurance of there being some transparency around what has actually transpired.

The mechanism that is being proposed will exist under the aegis of the World Bank. That is an organization with which a great many NGOs have concerns. A great many countries, particularly the poorest of the poor countries in the world have major concerns with the World Bank. The New Democratic Party has raised concerns about it as well and in fact is pleased that the foreign affairs and international development committee currently is seized with some of those concerns and is looking at the issues of transparency, accountability and accessibility.

It seems to me at the very least that the government should not be jumping ahead without a more thorough examination of some of the concerns that have been brought to our attention through the experience of respected NGOs. One such NGO is the Halifax Initiative, an organization that was established after the G-8 was held in Halifax. It has nothing to do with me or my riding specifically. There was concern that there were no adequate responses to some of these serious issues. Another of the NGOs that presented on the matter before the committee was KAIROS, a highly respected multi-faith organization which is very involved in international development work around the world.

Concerns have not only arisen around the transparency and accountability of the World Bank operation which have massive implications for countries in the south but actually about the transparency of the Canadian government's decision-making as it relates to our participation in the World Bank.

These are issues that need to be examined more carefully with more satisfactory responses before we plunge into what is proposed here in the way of signing on to a convention. If for 42 years it has not been of sufficient or adequate usage by a series of Conservative-Liberal governments and the problems of transparency still remain with respect to the World Bank, it seems to me that it would be better if we put our house in order before we proceed with this new agreement.

Let me move briefly to the issue of accessibility. The process that is set out in the ICSID, which is the international convention that we are dealing with here, does not allow for third party testimony whatsoever. No matter how adversely some communities or other citizens may be impacted by certain contentious agreements between two parties, there is no allowance for what is called in legal terms amicus curiae briefs and is very problematic except with the full consent of the two parties to the arbitration.

There are citizens, communities and probably in some cases regional interests that could be massively impacted by some of these disputed agreements. It is not acceptable to us that there is no provision for some third party testimony being brought before an arbitration hearing. Couple that with the fact that there is no requirement for the decisions and the awards to be published, it is just a further reason for not being able to support this proposed process in its current form.

Most proceedings will probably be held in Washington. There is provision for a few designated centres elsewhere around the world, but they will take place in a small number of capital cities and will be entirely inaccessible in many instances to those third parties who may have a distinct and legitimate interest in the proceedings. Therefore, there are issues about accessibility. There is no question that countries in the southern hemisphere will most likely be impacted in adverse ways around such procedures and disputes.

Third, with respect to accountability, as I have already indicated, all decisions issued through the proposed dispute mechanism will be binding. The provisions for any appeals that could be launched to such binding decisions are very narrow and minimal.

According to article 52 in Bill C-53, annulment of a decision could only be permitted under five conditions: first, that the tribunal was not properly constituted in the first place; second, that the tribunal has manifestly exceeded its powers; third, that there was actually documented corruption in the tribunal itself; fourth, that there was a breach in the rules of procedure; and fifth, the award failed to state the reasons on which the decision was based.

Those are really very narrow legalistic provisions that would permit for any kind of appeal process whatsoever. Given the severe impact, the magnitude of the implications of decisions that may be rendered by such a dispute resolution body, when we combine the lack of transparency, the lack of accessibility with the lack of accountability, one has to be very concerned about why we need sign on to provisions that are this lacking in terms of really being transparent and accountable for its decisions.

Citizens cannot know which decisions are taken or how much their government is expected to pay in some cases where decisions are made that the government is a party to these decisions. We are talking largely about huge corporations, and in the instance of the government losing the decision, there is not even any kind of mandatory disclosure. In fact, the opposite is true.

It is not permissible for there to be disclosure of how much a government may actually be forced to pay in the event of such a decision being made that has the government, representing the people of one's country, on the losing side.

In that event, how is it possible for citizens to hold their government accountable, or foreign corporate entities for that matter? How is it possible to judge the legitimacy of ICSID decisions that are reached? I think it fundamentally erodes the democratic accountability and the transparency that needs to be obtained.

In conclusion, a great many Canadians remember, and certainly New Democrat members of Parliament remember all too well, the attempt of the previous government to plough ahead with the introduction of the multilateral agreement on investment. It was truly astounding when this came to light, it was actually a process that was so kind of clandestine and so below the radar that I remember asking questions on the campaign trail.

I hope my memory serves me correctly. It was either in 1997 during the federal election campaign or 2000, and my colleagues confirm that my first instinct was right. My memory is never perfect, I have to confess to that, but in 1997 the multilateral agreement on investments had just barely risen to public awareness and it was impossible to get any information about what this agreement was really all about.

Overwhelmingly, what we were hearing from people, the more we were able to delve into it, was that they were very concerned about the extent to which this multilateral agreement on investment would have severally curtailed the sovereign rights of states and citizens to the benefit, overwhelmingly, of large, transboundary, multinational corporations.

Had the ICSID process, the dispute mechanism that is here proposed in Bill C-53, existed at the time and had the multilateral agreement on investment gone ahead, cases of arbitration under the multilateral agreement on investment would actually have been channelled through the ICSID. As I mentioned at the outset when I raised questions about why now, why is this so-called new Conservative government now saying it has become very important for us to move ahead with this when it has been available for signature for 42 years, one really has to consider the adverse implications that would have accrued to Canada had we found ourselves in the situation of the MAI having gone ahead.

Thank goodness Canadians were not prepared for that to happen, but had it gone ahead it would have become subject to this disputes mechanism body with all the additional concerns that I have already raised.

With those reservations, the NDP has reached the conclusion that this is not a piece of legislation that we can support. We would have no recourse for arbitration decisions that would seriously erode the sovereign authority of the Canadian state had MAI gone into existence. We would have had no say whatsoever in the course of proceedings.

These are not light matters. These are not casual concerns. The ICSID process, while not substantive in itself, in our view has the very dark and worrisome potential to make bad financial investment agreements even worse. As I indicated at the outset, the New Democratic Party members of Parliament will not be voting for Bill C-53.

[Francine Lalonde, Bloc, La Pointe-de-l'Île, QC]

Mr. Speaker, from the beginning the Bloc Québécois has supported Bill C-53. Passing this bill will enable Canada to ratify the convention on the settlement of investment disputes between states and nationals of other states, and to become a member of the International Centre for Settlement of Investment Disputes, better known by its acronym, ICSID.

Bill C-53 integrates the requirements of the international convention in the laws of a country, in particular to ensure that arbitral awards are respected and to provide for the immunities required by the centre and its staff. As my colleague opposite said, ICSID was created by the World Bank by the Washington Treaty in 1965. There are currently 156 member countries. ICSID is responsible for settling disputes between a state and a foreign investor. There may be two types of conflicts. The first type are disputes over bilateral foreign investment protection treaties. The second are disputes over treaties between governments and foreign investors, for example the type that the Government of Quebec concludes regularly by eliciting foreign investments with the promise of providing electricity at an agreed price.

Canada’s membership will not have any impact on the provinces, except that they too may have recourse to the ICSID when they conclude agreements with investors. As for bilateral treaties binding the federal government to other countries, they already provide for recourse to ICSID arbitration, but not through the regular mechanism, since Canada has not ratified the convention. In fact the only thing that Canada’s membership in the centre will change is that Canada will be able to intervene in negotiations to amend the convention or the rules of the centre and it will enjoy the assurance of being able to join in the appointment of arbitration tribunals.

Ultimately the ICSID is only a tribunal. I could have said so at the beginning, but I am saying it at the end. Where there are settlement difficulties, however, the problem is not usually the tribunal, but rather the poor investment protection treaties concluded by Canada.

The Bloc Québécois, of course, supports the conclusion of investment protection agreements, as long as they are good agreements. It is completely natural for investors, before making an investment, to try and make sure they will not be divested of their property or that they will not become victims of discrimination. This is the sort of situation that foreign investment protection agreements are meant to cover. In fact this is not a new phenomenon. Agreements to protect investments have been signed by France and the United States since 1788. Today there are over 2,400 bilateral investment protection agreements around the world.

The Bloc is in favour of concluding such agreements and recognizes that they promote investment and growth. However—and it is important to say so—almost all these agreements rest on the same principles: respect for property rights regardless of the owner’s nationality; no nationalization without fair and prompt financial compensation; prohibition against treating property located on one’s territory differently depending on its owner’s origins; free movement of capital arising from the operation and the disposal of the investment.

In all cases, if there is non-compliance, states can submit a dispute respecting compliance with the agreement to an international arbitration tribunal. In most cases, investors themselves can submit disputes to an international tribunal, but only once they have got the state’s consent, and this is something to be noted. In many cases, the international arbitration provided for under the agreement takes place before the ICSID. Belonging to it, as is provided for under Bill C-53, also means belonging to the international order in the area of investments.

In the investment protection agreements they have signed, only two countries, Canada and the United States, systematically give investors the right to apply directly to the international tribunals, and we have repeatedly spoken out against this.

This is a deviation from the norm. By allowing a company to operate outside government control, it is being given the status of a subject of international law, a status that ordinarily belongs only to governments.

The agreements that Canada signs with other countries contain a number of similar deviations, giving multinational corporations rights that they should not have and limiting the power of states to legislate and take action for the common good.

We said no—and we still say no—to chapter 11 of NAFTA. That chapter of NAFTA, the trade agreement between the United States, Canada and Mexico, deals with investments and provides that a dispute can be taken to ICSID. That chapter is a bad agreement in three respects.

The definition of expropriation is so vague that the slightest government action—other than a general tax provision—can be challenged by a foreign investor if it reduces the profits from its investment. For instance, a plan to implement the Kyoto accord that forced the oil companies, the big polluters, to pay large sums could be challenged under chapter 11 and result in the government paying them compensation.

Let us remember that the Alberta oil companies are mainly owned by American interests. Chapter 11 could open the door wide to the most abusive proceedings.

Second, the definition of investor is so broad that it includes any shareholder. This means that virtually anyone can bring proceedings against the state and seek compensation in relation to a government action that allegedly reduced a company’s profits.

Third, the definition of investment is so broad that it even includes the profits an investor hopes to earn from its property in future. In expropriation cases, not only is the state then forced to pay the fair market value, but it must add the amount of the income that the investor anticipated earning in future. In that case, it would no longer be possible to nationalize electricity as was done in Quebec in the 1960s.

The dispute resolution mechanism allows corporations to apply directly to the international tribunals to seek compensation, without even getting the consent of the state—if they do, without going through the dispute resolution mechanism under the agreements signed in NAFTA.

How is it conceivable that a multinational corporation could, on its own authority, create a trade dispute between two countries? And yet this is the absurd situation that the investment chapter of NAFTA, chapter 11, permits.

Because of these flaws, chapter 11 of NAFTA reduces the state’s capacity to take action for the common good, to legislate about the environment, and is a sword of Damocles that could come fall at any moment on any legislative or regulatory measure that might reduce corporate profits.

In 2005, the United States changed some of the provisions in their model investment protection agreement. In 2006, Canada followed suit, thus agreeing that they were extreme.

Since both countries have now acknowledged the harmful nature of chapter 11 of NAFTA, the time is ripe for the government to move quickly to initiate discussions with its American and Mexican partners to amend chapter 11 of NAFTA. It is important to bring this up now. Obviously, therefore, we are saying no to bad investment protection agreements.

In addition to chapter 11 of NAFTA, and although its extreme nature has been widely decried, the government has entered into 16 other bilateral foreign investment protection agreements, and all are identical. All those foreign investment protection agreements—sometimes called FIPAs—are bad and should be renegotiated.

In 2006, the government more or less acknowledged that these agreements were bad. It copied the changes made by the Bush administration the previous year.

Indeed, the Conservative government made some amendments to its FIPA program to correct the most glaring weaknesses. For example, they clarified the concept of expropriation by specifying that a non-discriminatory government measure that seeks to protect health and the environment or promote a legitimate government objective should not be considered as expropriation and should not automatically generate compensation. It is too early to evaluate the final effect of that clarification, but at first glance, it seems to be an improvement and we salute that.

It also restricted the concept of investment by specifying that the value of a good is equal to its fair market value. That put an end to the folly that added together all the potential profits that an investor hoped to earn from an investment. As for the rest, the model investment protection agreement continues to be based on Chapter 11 of NAFTA.

In our opinion, the government must continue to improve this model agreement, especially in terms of dispute settlement mechanisms. Multinational corporations must be brought under the authority of the state, like any other citizen.

Before ending my remarks, I want to emphasize that the government must submit treaties and international agreements to the House of Commons before ratifying them. At the beginning of the year, the government issued a news release to announce that it had just ratified a new foreign investment protection agreement with Peru. It was only by reading that news release that parliamentarians and the public became aware of this agreement. Parliament was never informed and never approved it. That is completely anti-democratic.

During the last election, however, the Conservative election platform was clear: the Conservatives made a commitment to submit all treaties and international agreements for approval before ratifying them. Since the Conservatives came to power, Canada has ratified 24 international treaties.

Apart from the amendments to the NATO treaty, which were the subject of a brief, last-minute debate and vote, none of these international treaties were submitted to the House. Today, international agreements have an effect of our lives that is comparable to the impact that the law can have on the lives of the citizens of all the countries with which Canada has signed bilateral agreements. There is no way to justify these treaties being concluded unilaterally and stealthily by the government, going over the heads of the representatives of the people.

The Bloc Québécois has introduced bills in the past to restore democracy and ensure the respect of Quebec and provincial jurisdictions in the conclusion of international treaties. Since the government promised to do this, we did not bring the issue up again at the time.

We are now seeing that the word of the Conservatives is not worth very much. The Bloc Québécois will raise this issue again and will bring forward proposals to restore democracy in the conclusion of international treaties. Such proposals will include requiring the government to present to the House all international treaties and agreements it has signed before ratifying them, requiring the government to publish all international agreements by which it is bound, requiring the vote and approval of the House following an analysis by a special committee tasked with examining international agreements and major treaties before the government may ratify them, and calling on the government to respect Quebec and provincial jurisdictions in the entire process of concluding treaties, that is, all stages of negotiation, signing and ratification.

I repeat, the Bloc Québécois is in favour of Bill C-53, which will open the door to signatory countries and foreign investors with which agreements have been signed. However, ICSID is a tribunal that simply hands down decisions regarding agreements. I would like to emphasize that, based on the principles of Chapter 11 of NAFTA, the 16 bilateral agreements signed by Canada are all bad agreements and that, unfortunately, even direct access to the ICSID tribunal could not replace the agreements that would be good for the countries with which we are signing them.

[Alexa McDonough, NDP, Halifax, NS]

Mr. Speaker, I have a brief question. I very much regret that I was not able to be here when the secretary of state spoke on the introduction of Bill C-53. When this bill was introduced, she may very well have addressed this question.

I am not now in a position to ask her the question, but I am interested in asking members of the official opposition a question. Why now we are seeing a bill to propose that Canada become an implementer of this international convention on the settlement of investment disputes?

It is my understanding, and perhaps the hon. member for Mississauga South can correct me if I have not understood this accurately, that this convention has actually been open for signature ever since March 18, 1965. During many years of Liberal government, the decision was taken not to be a signatory to this, not to bring in legislation that would implement it. I wonder if he could comment on the reasons for not having done so.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Mr. Speaker, earlier I heard the member for Mississauga South say that if Bill C-53 is passed, it will enable Canada to become a member of the International Centre for Settlement of Investment Disputes, or ICSID. He added that to become a member, all Canadian provinces and territories must commit.

What does he think the impact of becoming a member will be for Quebec and the other provinces?

[Helena Guergis, Conservative, Simcoe—Grey, ON]

Mr. Speaker, when the Liberals and other members in the House rise to speak about Bill C-53, which is about protecting our Canadian businesses abroad, I would hope that they at least could use the words “business” or “foreign investment” at some point and at least keep some of the debate relevant to what we are talking about today, just a small attempt--

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, I am pleased to participate in the debate on Bill C-53, the settlement of international investment disputes act.

Should this bill pass, it will bring Canada one step closer to becoming a signatory country of the 1965 World Bank convention on the settlement of investment disputes. The convention is designed to facilitate the settlement of investment disputes between governments and foreign investors, thereby improving the conditions for international investment, which is what has been discussed today and certainly has been reflected in the questions that hon. members have posed to the government.

Any such disputes are argued before a tribunal at the International Centre for Settlement of Investment Disputes or ICSID, as members have been referring to it. Canada signed the treaty last December in Washington and in so doing, as has been mentioned, became the 143rd country in the world to sign on.

It will not come into effect until all the provincial and territorial governments have also signed on. Five have already done that, including Ontario in 1999. It is my understanding and the government's representation that the remaining provinces and territories have expressed approval in principle and interest, and are hopefully going to be signing in the near future.

Essentially, what the ICSID convention does is ensure that the domestic courts and any of the signatory countries have the power to enforce any arbitration amounts awarded by this tribunal. Although agreeing to the hearings is voluntary on the part of each party, once they have agreed to a hearing neither one can unilaterally withdraw from the process or refuse to pay any damages awarded by the tribunal.

In order to ensure an unbiased hearing, the arbiters are selected by contesting parties themselves. The ICSID then provides the hearings with a venue and the administrative support required to facilitate them.

At this time we in the official opposition will be supporting this bill. We believe it will help to provide recourse for Canadian investors who are sometimes hurt by the actions of foreign governments when those actions violate existing trade or investment treaties.

It will also let investors around the world know that Canada is committed to honouring its international treaties on trade and investment. This sentiment was expressed by the Minister of International Trade who said in his press release of March 30:

The ICSID Convention will contribute to Canada’s prosperity by providing additional protection to Canadian investors and reinforcing Canada’s investment-friendly image abroad.

With regard to the last part of that quote, the Conservative government has kept itself very busy over the past year doing just the opposite and in fact tarnishing Canada's investment image abroad. The most glaring example was the broken promise on income trusts. This particular event caused the largest meltdown in the financial markets in the history of Canada. There was $25 billion of investment value wiped out by a broken promise.

To remind members, it was the promise of the government not to tax income trusts. In fact, the Prime Minister himself said that the greatest fraud is a promise not kept. That promise was not kept to Canadians. During the election campaign the Prime Minister said that he will never, never, never tax income trusts.

That gave assurances to the marketplace and particularly seniors, 70% of whom do not have defined pension benefit plans and, as a consequence, were looking for investment instruments that would emulate a pension plan, and that was income trusts. That meant that they could receive regular cashflows from these investments in income trusts to pay their bills. On Halloween of last year, $25 billion worth of wealth was wiped out simply by that broken promise.

This has to do with the credibility of Canada. It has to do with foreign and bilateral investment. Investors feel secure dealing with a country when they know the rules of the game and they know they are not going to be arbitrarily changed at the whim of a government for whatever reason.

I had the opportunity to participate in the public hearings before the finance committee. It was clear that foreign investment issues were very key in this regard. The change of the rules of the game in the middle of the program had damaged the credibility of Canada in terms of foreign investment.

There is no question that there will be more on this subject. Over 2 million Canadians are very angry with the government.

The finance committee heard from some of the seniors. Some members would say that they were paper losses. However, that is like me saying I paid $50,000 for my house, which is now worth $300,000. However, if my property taxes go up 31% and my house value goes down that is okay because I still have the $50,000 value or more than that. The appreciation in the house price is not a paper gain.

Anyone who held an income trust lost that kind of money. One of my own constituents lost $125,000. An 82-year-old veteran has no way of recouping that lost investment value. The credibility of the financial markets of Canada is extremely important in terms of foreign investment.

There is also another angle to this issue that has not been discussed as much in the House. I am speaking of the damage that has been done to Canada's international reputation as a safe place to invest. In the weeks following the announcement many investors were likening Canada's Conservative government to a banana republic.

I realize the term “banana republic” gets thrown around a bit. If we take the time to consider it in this instance, there are some striking parallels. The term is considered to have been coined to describe Honduras in the late 19th century and the early 20th century. At that time the Honduran government was eager to encourage as much foreign investment as possible in its agricultural sector in the hopes of improving the nation's overall economy. In particular, the government sought out investment in its burgeoning banana sector and in new railroads to support that growth.

In 1893, in order to protect local farmers, the government unveiled a new tax on banana exports that caught all those foreign investors off guard. It was the new 2¢ tax levied on every banana exported from the country. That would be almost 50¢ per banana in terms of 2007 dollars.

Needless to say, investors, particularly American investors who had invested millions of dollars in the industry under one set of rules, were not very happy when the Honduran government changed the rules in mid-game. It is exactly what I described with regard to the income trust decision in Canada, a broken promise.

This is not the 19th century in Honduras. This is Canada and we have a 21st century G-7 economy. When the leader of a G-7 country promises never to tax something, a lot of people around the world will believe him and make their investment decisions accordingly.

When the Prime Minister promised arbitrarily that he wanted to levy a 31.5% tax hike on the trust sectors that affected particularly seniors. It undoubtedly raised questions about Canada's image as a safe and secure place to invest. That is the crux of this. It is nice to be part of treaties, but if people break their word, if promises are broken, if the rules of the game are changed in midstream, then their credibility and integrity certainly come into question.

That is one example of where the government has dropped the ball involving foreign investment.

Let us not forget the finance minister's ever changing story on interest deductibility. We can talk about relevant issues to the security of foreign investment and the implications to that investment, the credibility of that.

Earlier when I asked a question and I wanted to put a couple of quotes on the table. I should take the opportunity to do this now.

The question of interest deductibility is another flip-flop. It is to announce one thing, disrupt the marketplace and then all of a sudden change the story. It is a moving target. It is not will I tax it, will I allow the deductibility of interest on foreign investments or will I not. Now we are talking about double-dipping and double deductibility of interest in an offshore tax haven. We are talking about tower schemes.

There is more smoke and mirrors on the interest deductibility issue simply to confuse Canadians about the facts. The facts are the government, the finance minister particularly, did not do the homework. When we look at the reaction of the market and of the key leaders in the investment community, the retired senior partner of Ernst & Young and immediate past president of the Canadian Tax Foundation, Mr. Allan Lanthier, said, “this is the single most misguided proposal I've seen out of Ottawa in 35”.

Thomas d'Aquino, president and chief executive officer of the Canadian Council of Chief Executives said:

—we are worried that the change announced in the budget may seriously undermine the competitiveness of Canada’s homegrown champions—the companies that are most active and most successful in building global businesses from head offices in Canadian communities. It may also damage Canada’s standing as an international centre for financial services.

Nancy Hughes Anthony, president of the Canadian Chamber of Commerce, said:

The proposal appears to be driven by revenue enhancement rather than a desire to build a competitive advantage....It's a real step in the wrong direction.

How about Len Farber, senior adviser at the law firm of Ogilvie Renaud, who said:

I thought this government was interested in Canadian companies having a competitive edge...This takes away that competitive edge.

What can I say? If members of Parliament cannot have their words accepted by the government, we have to look at the words of those who are responsible, the leaders within the business community, the leaders who look to having a competitive economy, to making Canada a real force not only domestically but certainly abroad.

In his March 19 budget, the minister said that he was intending to end the deductibility of interest incurred on loans to invest overseas. The budget was very clear that he meant all interest deductibility on foreign investment would come to an end by 2009.

We have gone through a litany of changes and the minister has flip-flopped on many occasions, saying that he is open to changes to the measure and the next day saying that there will not be any changes. At some point in time we have to take a decision, but when we keep changing direction, it makes it very difficult for the investment community to understand where we are.

On May 14, this past Monday, we saw the finance minister in full retreat in Toronto. He was taking advice in fact from the Leader of the Opposition. We even had an opposition day to encourage and to urge the government to fix this serious mistake that would damage competitiveness in Canada. He came up with a cute slogan. He said that today the budget was known as the anti-tax haven initiative.

We can keep calling things by different names, but the fact is there is back pedalling going on, and we need some clarity. That is really important in this issue.There has to be some clarity on these important matters on which Canadian businesses make decision.

There is something particularly interesting about how this issue has played out over the past six weeks. As legislators, we know that on every decision we can always find a number of interest groups or experts who are able to support a point of view or attack a point of view. In this case, however, everyone in the country, every serious commentator on this issue, were unanimous in their condemnation of the measure. In fact, as I read in some of the quotes, they basically said that this was the single most misguided policy Ottawa had seen in 35 years.

The chair of the task force, Jack Mintz, also backed away from the government on this one. As I indicated, the president of the Canadian Council, the chief executives and the chair of the Canadian Chamber of Commerce were quick to tell the government it made a mistake and to fix it before the damage is irreparable.

A minister stood alone defending the merits of the policy until last week when he said he would clarify his position. It turns out, according to the minister, that every CEO, every commentator and journalist in the country had simply misunderstood his intentions. It is hard to make that argument when the statement in the budget is as clear as clear can be.

I think it is pretty clear to all Canadians that the finance minister is in full retreat from his original plan, thanks largely to the efforts of the leader of the official opposition who saw this was a bad policy for Canada.

It is absolutely clear, once again, that the finance minister did not think things through before acting. He tried to change the very complicated area of tax policy with a very simplistic blanket solution.

This is key. There is a pattern of not thinking things through. There are consequences and they are not linear, they are multi-dimensional. When we get situations, for instance, on income trusts, where there is a gap between the tax paid by income trusts compared to dividend-paying corporations and we close that gap so there is some equity, we want to be sure that there are no other consequences. What were the consequences? It was to tax the income trusts and not only close that gap, but actually tax it so much that we had a $25 billion meltdown.

It even gets worse than that when we look a little further down the road. Ever since the Halloween massacre of income trusts, there have been 20 or more takeovers of income trusts by private equity, a couple Canadian, but mostly foreign. Why? Because the value of these income trusts were driven down enormously. Private equities can purchase these at fire sale prices. They can structure their affairs so they do not pay taxes to Canada.

Now it gets more complicated. In fact, those 20 income trust takeovers, because their structure permits them to no longer pay Canadian taxes, will pay in a foreign jurisdiction. What is the loss of tax revenue to the Canadian government, in fact, to the taxpayers of Canada? It is $6 billion per year of tax hemorrhaging, lost revenue to the Government of Canada. The problem the finance minister said he was trying to fix was that there might be about $5 billion of tax leakage over six years. This seems to indicate the minister did not think it through.

That is the issue. We cannot take a nuclear bomb to every problem. Sometimes it takes a little thinking and a little consultation before these snap decisions are made, which have such devastating consequences not only to Canadians, but to Canada's credibility and integrity in terms of foreign investor relations.

[Ted Menzies, Conservative, Parliamentary Secretary to the Minister of International Trade and Minister of International Cooperation]

Mr. Speaker, it is a pleasure to speak to Bill C-53, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.

The convention is also known as the ICSID Convention. We are renowned in the House for using acronyms but it is far simpler to use that when we are referring to the International Centre for the Settlement of Investment Disputes established by the convention.

I was first made aware of ICSID by a constituent of mine, a Mr. David Haigh, an internationally renowned dispute settlement arbitrator and a lawyer with Burnet, Duckworth and Palmer in Calgary, who has long advocated for Canada to bring ICSID into force. This gentlemen brought this to my attention back in my dark days when I was in opposition. We tried at that time to bring it forward at that time but were unsuccessful. However, now that we have a new government in this country we are actually able to get on with creating a business environment that is friendly to businesses.

I know that David, along with many Canadian investors, will be pleased that the government is moving forward with Bill C-53, and it is my pleasure to take part in the debate today.

Before a country can ratify the ICSID Convention, it needs to pass legislation providing for ICSID awards to be enforceable in its courts. For Canada, this means that it must pass and bring the act into force. In addition, any province or territory that is designated a constituent subdivision must bring similar legislation into force.

I would first like to discuss some of the pressing reasons for hastening Canada's ratification of the convention. I hesitate to use “hasten” because, as my hon. colleague just raised, we have been working on this since 1966.

There are three reasons why Canada should become a party to the ICSID Convention. It would provide additional protection to Canadian investors abroad by allowing them to have recourse to ICSID arbitration in their contracts with foreign states. It would also allow investors of Canada and foreign investors in Canada to bring investment claims under ICSID arbitral rules where such clauses are contained in our foreign investment protection agreements and free trade agreements. Also, it would contribute to reinforcing Canada's image as an investment friendly country.

I will tell the House more about the other advantages. When Canada ratifies the ICSID Convention, Canadian businesses investing abroad would finally be afforded the same level of protection as their competitors. There are numerous disadvantages associated with the absence of Canada from this convention. Canadian businesses are hurt. Even though Canadian investment abroad continues to rise, the ability of Canadian businesses to arbitrate investor state disputes is hurt by the fact that they must arbitrate without the infrastructure that ICSID would and could afford them.

Investors prefer ICSID to other arbitration mechanisms for many reasons, such as: the ICSID regime is an extremely efficient mechanism for the resolution of investment disputes; it provides better guarantees regarding enforcement of awards and more limited local court intervention; and ICSID's roster of arbitrators gives investors access to well-qualified arbitrators at ICSID at controlled rates and with extensive experience in international investment arbitration.

Since Canada has not ratified ICSID Convention, we are not granted a voice on ICSID's administrative council and cannot vote on changes to the ICSID arbitral rules.

I will turn now to the second advantage of ICSID: improving the dispute settlement process available under our treaties.

NAFTA and Canada's foreign investment protection agreements, or FIPAs, provide for ICSID dispute settlement as one of several options. However, up to now this option could not be used. Ratification of ICSID will provide investors with the option to use ICSID to resolve certain investor state disputes.

Chapter 11 of NAFTA provides that ICSID arbitrations may be used in cases where both the state of the complaining investor and the state complained against are party to ICSID. The U.S. is party to ICSID but not Mexico.

In the case of FIPA, most of our FIPA partners are already party to the ICSID convention. Consequently, when Canada ratifies the ICSID convention, arbitration using ICSID will become available under those agreements.

My final point is a simple one. Canada's absence from ICSID does little to augment our international image as a country which is open to free trade and foreign investment.

Already, as earlier mentioned, 143 countries are party to ICSID. It is time for Canada as well to become a party to ICSID. I will now explain why ratification is increasingly urgent.

First, we do not know when an investment dispute might arise in which Canadian membership in ICSID might be an important factor in preserving a Canadian investor's rights. Periodically, and again this year, we have been approached by investors who could have benefited significantly if Canada had already ratified the convention.

Second, some states that have ratified ICSID restrict enforcement of investor state arbitral awards unless such awards are made by an ICSID tribunal. It is difficult to persuade such a state to modify this practice when a solution is as simple as Canadian ratification of ICSID. Yet, until there is a solution, Canadian investors lack the protection provided by the availability of effective investor state dispute settlement mechanisms.

The Canadian business and legal communities support Canada's ratification of the ICSID convention.

The provinces and territories support ICSID. The convention allows Canada to designate provinces or territories as constituent subdivisions that will also be able to use the ICSID arbitration for disputes with international investors.

The Chamber of Commerce passed a policy resolution unanimously. Over 200 local chambers of commerce from coast to coast, at their AGM in September of 2006, passed a resolution which calls on the Government of Canada to ratify this convention.

I urge the House to listen to the call of Canada's investors, legal community and constituents like Mr. Haigh, and give expedient consideration to the bill in the interests of Canada's continuing international stature and healthy economy.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, it sounds like a good idea to ratify this convention with Bill C-53. I initially think, of course, of Canadian oil companies in a country like Venezuela, for example, where Mr. Chavez has gone on a rampant nationalization program. I am not sure if we have Canadian companies in Venezuela but I think it would be a good thing to be part of that if the compensation is fair.

However, another thought occurs to me. What would happen if foreign countries, through state-owned enterprises, were to come to Canada to try to nationalize some of our energy assets or some of our national resource companies? What comes to mind is the case of China Minmetals, a state-owned enterprise in the People's Republic of China, that made a proposed takeover bid of Noranda but which did not proceed.

With the failed policies of the government with respect to energy trusts and with respect to the non-deductibility of interest, many energy and natural resource companies will become subject to takeovers.

The more preferred way, certainly from my perspective, would be to make changes to the Investment Canada Act so that the government would need to deal with these in terms of the national interest. However, the government has been totally silent on that issue.

Will this convention at least help with the nationalization of Canadian companies by foreign and state-owned enterprises?

[Helena Guergis, Conservative, Simcoe—Grey, ON]

Mr. Speaker, it is with great pleasure that I speak at second reading of Bill C-53, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The convention is an international treaty establishing the International Centre for the Settlement of Investment Disputes, ICSID. Bill C-53 will implement the ICSID convention for Canada.

Allow me to give hon. members of this House, first, a description of what ICSID is, second, an overview of the bill and what it does, and lastly, an explanation of the benefits of this convention for Canada and Canadian businesses.

ICSID is an organization devoted to the resolution of international investment disputes between states and nationals of other states through arbitration and conciliation.

ICSID provides mechanisms for arbitration and conciliation of such disputes provided that both the state of the investor and the host state are parties to ICSID. This means that once Canada ratifies ICSID, a Canadian investor abroad in any of the 143 countries that have already ratified ICSID may have recourse to ICSID to resolve disputes that may arise with the country in which it is doing business.

ICSID is a highly reputable World Bank institution based in Washington, D.C., and one of the most frequently used institutions for investment arbitrations.

ICSID and international investment arbitration have traditionally been used in cases of expropriation or nationalization. A hypothetical example is a takeover by a host government of a Canadian business exploiting natural resources such as oil or minerals. Such an expropriation may represent a substantial loss for the investor and fair compensation is not always easily obtained.

However, the Canadian investor may have insisted on an investment agreement with an ICSID arbitration clause before investing, or Canada may have an investment treaty with the host government making reference to ICSID arbitration. If so, once Canada ratifies ICSID, the Canadian investor owning the business will have the right to use ICSID arbitration to pursue fair compensation for its losses before an independent arbitral panel.

ICSID provides an efficient, enforceable mechanism for such dispute resolution. This is why our government believes ICSID is a good way to protect Canadian business and its investment in foreign countries. It also complements our investment protection treaties and existing arbitration clauses in investment contracts of Canadian businesses.

Bill C-53 will implement this convention. This bill needs to be passed before Canada can ratify the convention. This bill will make an ICSID award enforceable in a Canadian court. It will ensure that persons using conciliation under the convention cannot abuse that process. This bill also provides for governor in council appointments of persons to ICSID lists of potential panellists and it provides privileges and immunities as required by the convention.

The key provision making ICSID awards enforceable is clause 8, which states:

(2) The court shall on application recognize and enforce an award as if it were a final judgment of that court.

This provision will apply to an ICSID award for or against Canada or a foreign government. This provision is the key to the ICSID system for enforcing arbitration awards.

An ICSID award is reviewable by an ICSID tribunal, but not by national courts. Once final, an ICSID award will be recognized and enforced in Canada as if it is a final judgment of a Canadian court.

While Canada will be giving full effect to awards, in turn the convention guarantees similar enforcement in all states that are party to ICSID. Thus, Canadian businesses with an ICSID award in their favour have a very powerful tool to ensure the award is paid. This ensures the protection of their rights and interests in foreign countries.

There are three important related provisions. Clause 6 makes the act binding on the Crown. This ensures that awards against the federal government can be enforced.

Clause 7 prevents a party from seeking court intervention by way of judicial review applications or applications to a similar effect. A party cannot therefore attack the validity of a final ICSID award.

Clause 8 also gives all superior courts, including the Federal Court of Canada, jurisdiction to enforce ICSID awards.

The provisions with respect to conciliation are brief. Clause 10 ensures that the ICSID conciliation process can be conducted in a manner that is without prejudice to the rights of the parties. In other words, testimony given during conciliation cannot be used in other proceedings. This gives investors a further option to ensure their rights are respected.

I should also mention that the bill proposes provisions ensuring the required privileges and immunities for the centre, its employees and its arbitrators. Such immunities guarantee the independence of the tribunal when seated in Canada.

As I indicated before, once adopted, the settlement of international investment disputes act will allow Canada to ratify the ICSID Convention. In today's world, there are many situations where Canadian businesses could be significantly harmed by foreign governments' activities or decisions.

Canadian businesses are increasingly active in foreign markets. They invest in foreign countries by buying plants, establishing new businesses or acquiring rights to natural resources, for example. While disputes with foreign governments affect only a small portion of the $465 billion in assets owned by Canadian investors abroad, when disputes do arise, mechanisms such as ICSID are necessary to ensure that the dispute is resolved fairly and efficiently.

We as a government have worked hard to promote Canada abroad, facilitate the free flow of international investment and help Canadian businesses succeed abroad.

To date, Canada has negotiated 22 foreign investment protection and promotion agreements, or FIPAs, and is actively negotiating others. These agreements provide for investor state dispute settlement by means of arbitrations.

ICSID arbitration is an option under these agreements but only if both countries are party to ICSID. These agreements create a more predictable and transparent climate for Canadian investors abroad by setting out rules for the treatment of investors and offering dispute settlement to adjudicate claims when their rights have been violated.

Canadian investors who need to use dispute settlement to enforce their rights, whether those rights exist pursuant to a FIPA, an FTA or an investment contract with an arbitration clause will welcome this bill. Promoting fair trade rules and equitable treatment for our businesses must go hand in hand with efficient dispute resolution mechanisms that allow investors to obtain redress.

We have proposed this bill today to pave the way for ratification of the ICSID Convention. Canadian businesses demand that Canada join this important convention to ensure protection of their investments abroad and because it is consistent with our foreign trade investment policy.

This convention entered into force in 1966, over 40 years ago, and 143 states have ratified the convention, including most of our major trading partners. This represents virtually three-quarters of all the states in the world. By way of comparison, there are 191 states that are members of the UN.

The ICSID Convention represents one of the most ratified treaties in the world and Canada is not yet a party to it.

This government is committed to fair international trade rules. We are committed to protecting Canadians' interest throughout the world and this is why we take action today for the implementation of the ICSID Convention.

Canadian businesses support the adoption of this convention. The convention is good for investment in this country, as well as Canadian investors abroad. It ensures efficient resolution of disputes between governments and foreign investors. Those are the reasons that our government presents Bill C-53 for second reading.

[Carol Skelton, Conservative, Saskatoon—Rosetown—Biggar, SK]

moved that Bill C-53, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), be read the second time and referred to a committee.

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, as you are aware, this week is strengthening accountability through democratic reform week. It has been a busy week for the democratic reform family of bills.

We sent out invitations for the first birthday of Bill S-4, the Senate tenure bill, which Liberal senators have been delaying for almost a year now.

While we are disappointed with the behaviour of Bill S-4's caregivers, we did have some good news this week with the successful delivery of two new members of the family: Bill C-54, a bill to bring accountability with respect to loans; and Bill C-55, a bill to expand voting opportunities.

There is more good news. We are expecting.

Tomorrow, I will be introducing an act to amend the Constitution Act, 1867, on democratic representation, which is on today's notice paper.

Bill C-16, fixed dates for elections, was finally allowed by the clingy Liberal-dominated Senate to leave the nest when it was given royal assent last week.

With respect to the schedule of debate, we will continue today with the opposition motion.

Friday, we conclude strengthening accountability through democratic reform week with debate on the loans bill, possibly the Senate consultation bill and, hopefully, Bill C-52, the budget implementation bill.

Next week will be strengthening the economy week, when we will focus on helping individuals, families and businesses get ahead.

Beginning Monday, and continuing through the week, the House will consider: Bill C-52, the budget implementation bill; Bill C-33 to improve our income tax system; Bill C-40, to improve the sales tax system; Bill C-53, relating to investment disputes; and Bill C-47, the Olympics bill, which help us have a successful Olympics. Hopefully, we can get to Bill C-41, the Competition Act.

If time permits, we will also call for third and final reading Bill C-10, the minimum mandatory sentencing bill.

Thursday, May 17 shall be an allotted day.

Wednesday, May 16, shall be the day appointed, pursuant to Standing Order 81(4)(a), for the purpose of consideration in committee of the whole of all votes under Canadian Heritage of the main estimates for the fiscal year ending March 31, 2008.

Thursday, May 17, shall be the day appointed for the purpose of consideration in committee of the whole of all votes under National Defence of the main estimates for the fiscal year ending March 31, 2008.

Finally, there is an agreement with respect to the debate tomorrow on the 13th report of the Standing Committee on Public Accounts. I believe you would find unanimous consent for the following motion.

I move:

That, notwithstanding any Standing Order or usual practice of the House, the debate pursuant to Standing Order 66 scheduled for tomorrow be deemed to have taken place and all questions necessary to dispose of the motion to concur in the 13th Report of the Standing Committee on Public Accounts be deemed put and a recorded division be deemed requested and deferred to Wednesday, May 16, 2007, at the expiry of the time provided for Government Orders.

Settlement of International Investment Disputes Act

[Jay Hill, Conservative, Prince George—Peace River, BC]

moved for leave to introduce Bill C-53, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

(Motions deemed adopted, bill read the first time and printed)