Finance Committee on Nov. 6th, 2017

[The Chair, Liberal, Wayne Easter]

Mr. Boulerice, go ahead.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

In other words, for years, Canada lacked the power or authority to enter into these kinds of arrangements in a simple, clear, and specific manner, so we got creative and relied on other statutes to achieve the same ends. Is that more or less the situation?

[Antoine Brunelle-Côté]

Yes, exactly.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Why the long wait before these changes were made?

[Antoine Brunelle-Côté]

Making the changes is a complicated endeavour. When the government authorized a $15-billion contribution to the IMF, it came to recognize the importance of making the changes. A large contribution was being made, so there was a desire to clarify things for future generations.

[The Chair, Liberal, Wayne Easter]

Does anyone else have any other questions?

Okay. Thank you both very much.

We'll turn to division 2, the Asian Infrastructure Investment Bank agreement act.

We have Ms. Nicole Giles, director, international finance and development division, international trade and finance branch; Ms. Nadarajah, economist, multilateral institutions, international finance and development division, international trade and finance branch; and Mr. Saravanamuttoo, who is the chief of multilateral institutions, international finance and development division.

Welcome, all three. The floor is yours.

[Nicole Giles, Director General, International Finance and Development Policy Division, International Trade and Finance Branch, Department of Finance]

Thank you, Mr. Chair.

The first issue to address is the Asian Infrastructure Investment Bank, the AIIB, so part 5, division 2. By way of context, international financial institutions, including multilateral development banks, are an important part of the international order and are key mechanisms for international development.

Launched in 2016, the AIIB is the newest international financial institution. It is focused on economic development by addressing what are very significant financing infrastructure gaps in Asia. The AIIB has 57 founding members, including Australia, China, France, Germany, Italy, South Korea, and the United Kingdom, and there are currently over 80 current or prospective members.

By way of context, in December 2015, cabinet approved Canada's strategy to join the AIIB, with the Minister of Finance as the governor. Canada then applied for membership at the AIIB and was accepted in principle by the board of governors in March 2017. Budget 2017 then allocated funding for the purchase of Canada's initial shareholding and announced Canada's strategy for joining the AIIB.

The AIIB articles of agreement, along with an explanatory memorandum, were tabled in Parliament for 21 sitting days, between May 3 and June 8, 2017. As a budget 2017 measure, the corresponding legislation is thus being proposed as part of this budget implementation act.

There are a couple of quick points on the operations of the AIIB. The AIIB is working very closely with other international financial institutions to maximize the impact of their investments. For example, in April 2017, the AIIB signed an MOU with the World Bank in areas of common interest, including development financing, staff exchanges, and analytical and sector work.

The AIIB has adopted best practices from other IFIs and multilateral development banks, again such as the World Bank, and that includes on operational policy such as corruption sanctions; social, environmental, and labour laws; and safeguards. There's not an interest in reinventing the wheel. It's rather trying to draw from best practices that have demonstrated their effectiveness and that are already in play.

Lastly, I'd like to highlight a couple of benefits for Canada and Canadians that could potentially accrue from Canada's membership to the AIIB. First, by addressing the significant infrastructure financing gap in Asia, the AIIB will help to enhance crucial trade links that create jobs in Canada and help to bring goods and services to market.

Second of all, by supporting sustainable economic growth and economic development through infrastructure, it could represent significant private sector opportunities for Canadian companies. Canadian membership could give Canada a seat at the board table and provide an opportunity to influence governance and sound policy-making in line with Canada's priorities, and provide Canadian visibility into AIIB project pipelines, which could be used to support Canadian commercial interests.

Thirdly, this is part of reaffirming Canada's renewed commitment to multilateralism. As committee members know, Canada is committed to economic development globally. We invest time and resources into economic development based on the belief and the research that Canadians are more prosperous when the world is growing and is stable. This is sometimes called the “rising tide raises all boats” principle.

Lastly, this is an opportunity, through joining the AIIB, to reinforce the government's priority to strengthen relationships in the Asia-Pacific region.

I welcome questions.

[The Chair, Liberal, Wayne Easter]

Thank you, Nicole.

We're starting where...? I'll start, then, while others are thinking.

You said “could” provide Canada a seat at the board table of the AIIB. Does that mean we don't have one? How many people are on that board? Where do they come from? You don't need to name them all.

[Nicole Giles]

It was “could”, in that if we did choose to join—if the legislation goes through—that opportunity would present itself to Canada. In terms of the specifics of the board, I'll hand that to Neil.

[The Chair, Liberal, Wayne Easter]

My question really relates to how we're putting in this amount of money to basically buy our way into this investment bank. We do not necessarily have a seat at the table or do we automatically have one when we make this infusion of money?

[Neil Saravanamuttoo, Chief, Multilateral Institutions, International Finance and Development Division, International Trade and Finance Branch, Department of Finance]

Chair, to answer that question, there are 12 board seats that are provided. Nine are for Asian countries, countries that file from the Asian region, and three are for non-regional members. Currently, those three are chaired by the U.K., Germany, and Egypt. As Canada joins the bank, we would enter into one of those constituencies. There's negotiation as to who leads a constituency and when. Because there are multiple countries involved, there's no set promise as to any one country getting a chair.

That said, the expectations are that Canada would be the largest member if it were to join the constituency that is currently chaired by Egypt. In being the largest member, there's a significant probability that we would end up with the chair.

[The Chair, Liberal, Wayne Easter]

There's another question I had. When you named various countries, I didn't catch them all. Did you name the U.S.?

[Nicole Giles]

No, Mr. Chair, I did not.

[The Chair, Liberal, Wayne Easter]

Okay. The U.S. is not a participant.

That's all I have at the moment. Do people have any other questions?

Mr. Boulerice.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you, Mr. Chair.

I have a few questions to help me better understand this.

In budget 2017, the government indicated that it planned to invest $256 million over five years in the Asian Infrastructure Investment Bank. The bill before us, however, is going to authorize the Minister of Finance to transfer $480 million to the bank. What is the reason for the sizable increase?

[Nicole Giles]

That's an excellent question.

Because Canada was not a founding member of the AIIB, there's been a little bit of uncertainty regarding the possible shareholding. There is a shareholding allocation formula for the AIIB. The government's decision to join the AIIB envisioned Canada purchasing up to a total of $375 million U.S. in shares, depending on availability. That is the maximum possible amount of shares Canada would have been able to purchase based on the AIIB's shareholding allocation formula.

However, because we're a late joiner, at this point there is only $199 million U.S. in shares available to purchase. If other potential members choose to not purchase all of their shares, there could be an opportunity for Canada to purchase additional shares up to that maximum of $375 million U.S. In that case, however, any potential increase or purchase would be brought back to Parliament through the estimates process.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

I see.

I understand that Canada wants to make a large investment by purchasing shares. Aside from promising trade ties and possible opportunities for Canadian companies in future projects, what return on Canada's investment do you foresee? Do we write a cheque, and it ends there, or will taxpayers see a return on their investment?

[Nicole Giles]

There is the potential for dividends to be paid back to members of the banks, as there is for most multilateral development banks and international financial institutions; however, to my knowledge, that hasn't occurred. There are normally not dividends that are paid back, but that is an option that could potentially be pursued.

If there are concrete questions about the exact return on particular investments, that really happens on a project-by-project basis, and it depends on each individual country, but if your question is about money that would potentially flow back to Canada concretely in terms of the shares we've purchased, there are dividends that are accrued, but normally those are not paid back to shareholders, and I don't believe that's ever been the case.

[Neil Saravanamuttoo]

No.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Does this relatively young infrastructure bank tend to favour privatization opportunities in countries, broadly speaking?

You'll no doubt sense that my question is tied to my political stripe.

[Neil Saravanamuttoo]

It's not sufficiently clear to know what that record is. The record doesn't exist. There certainly has been an emphasis to encourage private sector participation in infrastructure projects. Given the scale of the needs that are envisaged in Asia, which is estimated at about $1.7 trillion annually, there is a sense that there would have to be a role for private capital in some of these investments. The approach the bank has taken so far has been to look for public-private partnerships as opposed to pure privatization opportunities.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Very well. I see the difference.

I have one last question.

You mentioned existing international protocols in terms of environmental and labour best practices. I'd like you to provide more details on that. You'll appreciate that these are issues of concern to me. I want to make sure I have a good understanding of the situation.

[Nicole Giles]

Of course.

I can take you through a couple of the specific policies, and then we'd be happy to provide you with additional information, if required.

The first one to take is the policy on prohibited practices. The AIIB has a very specific policy on this and this applies to sanctions malpractices, which include coercive practice, collusive practice, corrupt practice, fraudulent practice, misuse of resources, obstructive practice, and theft. As you can see, it's quite a comprehensive policy. Again, if it would be of interest to the members, we'd be very happy to share copies of that policy with you.

As I mentioned in my opening remarks, because the AIIB is a new bank, it is relying on its MDB partners in putting some of these practices in place. By way of example, nearly 75% of their projects to date have been co-financed with other MDBs, including the World Bank. When that happens, that means there has to be full alignment in these safeguards and practices.

The social and environmental safeguards parallel existing ones, as I'd mentioned, and they were formalized in spring 2016, quite early in their infancy, following a round of public consultations that had taken place in 2015. Those were led by former World Bank staff and so were quite comprehensive. While the AIIB had received considerable feedback during that public consultation phase, there has not been that much public criticism following the publication of the final version, which was largely seen as addressing any concerns that had been raised during those practices.

For example, the restrictions on child labour requires project conformity with the International Labour Organization's minimum age convention. They've signed on to that international convention. There are requirements around consideration for environmental damage, including pollution abatement processes, biodiversity consideration, and sustainability of land and water use. There are also considerations around involuntary settlement either for physical or economic displacement, and a series of other pieces as well.

An entire section is also devoted to managing relationships with indigenous people under a client project, which is quite progressive. It requires a client to design and implement projects in a way that fosters full respect of indigenous peoples' identity, dignity, human rights, economies, and cultures as defined by the indigenous peoples themselves so that they receive culturally appropriate social and economic benefits and do not suffer adverse impacts. It's also so they can participate actively in the projects that involve them.

Those are a couple of examples, but we'd be very happy to provide you with additional information.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Boulerice and Ms. Giles.

Now we have Mr. Kmiec and Mr. Poilievre.