Foreign Affairs Committee on Nov. 22nd, 2007

[The Chair, Conservative, Kevin Sorenson]

I call this meeting to order.

Our orders of the day include the commencement of our study on Bill C-9, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

In our first hour we will hear testimony from the Department of Foreign Affairs and International Trade. We have Allan Kessel, legal adviser, and from the international trade side of the department we will be hearing from Robert Ready, director of the services trade policy division.

We are also pleased to have from the trade law division Riemer Boomgaardt, special counsel; Sylvie Tabet, senior counsel and deputy director; and Meg Kinnear, senior general counsel and director general.

In our second hour we will hear from the Canadian Chamber of Commerce, so we will introduce them when we begin that.

This is one of the first pieces of legislation that this committee has looked at, other than a private member's bill, so we look forward to this. This is a fairly small bill. We want to hear from the department to better understand exactly what the bill does and the safeguards it provides for Canadian investment and others.

So we thank you for being here and being part of that.

On the protocol for the committee, we like to hear from you in the first portion of the committee business and then go into the first round of questioning. In the first round we'll begin with the opposition and then go to the government.

We welcome you here and look forward to hearing what you have to say. The time is yours.

Mr. Kessel.

[Alan H. Kessel, Legal Advisor, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chairman. Good morning to you and committee members.

The Minister of Foreign Affairs is unfortunately not able to join us today. He is out of the country. He has asked me to speak on his behalf, and I am delighted to have a very competent team with me who will be able to answer many of your questions when we get to that portion of the discussion this morning.

I am pleased to speak to you today on the subject of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, which I will refer to as “the Convention” in my remarks.

The Convention was sponsored by the World Bank to facilitate and increase the flow of international investment. The Convention establishes rules under which investment disputes between states and nationals of other states may be solved by means of conciliation or arbitration. It also creates the International Centre for the Settlement of Investment Disputes, known as ICSID to administer cases brought under the Convention. Canada signed the Convention on December 15, 2006.

Mr. Chairman, before a country can join ICSID, as it's fondly known, it needs to pass legislation providing for ICSID awards to be enforceable in its courts. Bill C-9, which is under study by the committee, deals with enforcement of ICSID awards for or against the federal government and foreign governments, including constituent subdivisions designated by foreign governments.

There are numerous reasons to support Canada's adherence to the convention. It would contribute to enforcing Canada's image as an investment-friendly country. 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.

International investment arbitration is growing in importance. For instance, the stock of Canadian direct investment abroad in 2005 increased to a record $469 billion. As a result of the globalization of investment, the number of investment disputes has greatly increased in the last five years.

ICSID arbitration has soared. Only 110 ICSID arbitrations have been completed over the past 40 years, but 105 proceedings are now under way. The NAFTA parties alone have faced over 40 investor-state arbitration claims since NAFTA entered into force.

The tremendous growth in investment and investor-stated disputes has made Canada's failure to ratify ICSID the focus of attention by Canadian business, the Canadian legal community, and our trading partners. To date, 143 states have ratified the ICSID convention. The majority of our major trading partners are parties to it, except for Mexico, India, and Brazil. Ratifying ICSID would bring Canadian policy into line with our OECD partners. In a survey conducted by the ICSID centre in 2004, 79% of the respondents said ICSID plays a vital role in their country's legal framework and 61% said ICSID membership has contributed to a positive investment climate.

The ICSID regime provides several important advantages, and compared to other arbitration mechanisms, the ICSID regime provides better guarantees regarding enforcement of awards and more limited local court intervention. Any arbitral award rendered under the auspices of ICSID is binding and any resulting pecuniary obligation must be enforced as if the award were a final domestic court judgment.

Moreover, all ICSID contracting states, whether or not parties to the dispute, are required by the convention to recognize and to enforce ICSID arbitral awards. Investors often prefer to rely on such arbitrations rather than on the local courts of the country whose measures are in dispute, to ensure an independent resolution of the dispute.

ICSID's relationship to the World Bank assists investors in obtaining compliance with ICSID awards and its roster of arbitrators gives investors access to well-qualified arbitrators at ICSID-controlled rates, with extensive experience in international investment arbitration. ICSID also provides important institutional support for litigants.

The ICSID convention is a well-known tool for the settlement of investment disputes, therefore the interpretation of the convention and its usefulness are predictable. It is difficult to quantify how often Canadian businesses active abroad would use the convention for protecting their activities.

Canada already has numerous links with ICSID. Provisions consenting to ICSID arbitration are commonly found in contracts between governments of other countries and Canadian investors. The NAFTA in chapter 11, the Canada-Chile FTA, and most of our bilateral foreign investment protection agreements, or FIPAs, provide for ICSID as a dispute settlement option that can be chosen by an investor if both the state of the investor and the host state for the investor are party to ICSID.

However, Canada and Canadian investors cannot benefit from this choice if Canada is not a member. This is an increasingly important problem. Within Canada the use of ICSID would be consistent with the government's policy of supporting the use of alternative dispute resolution mechanisms, or ADRs, for investor-state disputes. While ICSID is less expensive and more efficient than current alternatives, it is not expected to lead to increased litigation against the government.

For Canada, as a shareholder of the World Bank, there is no additional cost for joining ICSID by adopting the convention.

Provincial and territorial legislation is needed to ensure the enforcement of arbitral awards rendered in a dispute involving a province or territory designated as a constituent subdivision and which has consented to ICSID arbitration. The federal government has provided assurances that any province and territory that so wishes would be designated a constituent subdivision under the Convention.

The provinces and territories have indicated that they support the Convention in principle. They have also recommended that all jurisdictions, including the federal government must be take steps for the adoption of the legislation implementing the Convention.

Ontario passed implementing legislation in 1999. British Columbia, Saskatchewan, Newfoundland and Labrador, and Nunavut passed such legislation in 2006.

The Minister of Foreign Affairs would encourage you to study this bill and improve it in order to facilitate adherence by Canada to the convention as soon as possible.

Thank you, Mr. Chairman.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Kessel.

Are there any other presentations from the other representatives here? You're here mainly to answer questions and help in that capacity; all right.

Thank you for that, Mr. Kessel. It helps inform us more on ICSID and what we're doing.

We'll go to the first round and to Mr. Wilfert.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Thank you, Mr. Chairman.

Thank you for coming, ladies and gentlemen.

I agree with the thrust of it. I just have a quick question.

On the issue of those that have not ratified--our major trading partners, Mexico, India, and Brazil--what are the implications that they have not ratified and what, if any, is the status regarding those particular states? And how does that affect us? Given the fact that we're signed on with another 143-odd states, what is the effect of leaving these three out?

[Meg Kinnear, Senior General Counsel and Director General, Trade Law Bureau, Department of Foreign Affairs and International Trade]

I will take a stab at this.

First of all, in terms of the status, we don't know the status. We know, informally, that Mexico would like to assent to it, but we don't know anything further. This really is an in-house domestic matter for those countries.

In terms of implications for Canadian investors, presumably it means that when they are dealing with those states, resort to the ICSID facilities would not be possible. But what we are looking at of course is that, if we do this, Canadians will have resort when they are dealing with the 143 other members.

So while it's correct that those three are not yet ICSID members, it does give access to ICSID facilities for those 143 others, which is obviously very significant.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

I would agree that they are significant. In terms of the procedure for the three that are not, I would presume that, if this were to pass, our embassies certainly would be in contact with the respective governments, obviously notifying of that, trying to see what the status is in their own particular jurisdictions.

How do we make this information available to investors abroad? Sometimes you pass legislation and people assume it applies to everybody, and obviously in these three cases it does not. What do we do in order to educate people, so that we don't have people coming and saying they didn't know?

[Meg Kinnear]

Would this be Canadian investors in particular?

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Yes.

[Meg Kinnear]

I think Mr. Ready might want to speak to this a little bit as well.

The Department of Foreign Affairs has various links with stakeholder groups, people who are interested. At times they will have companies that are investing in other countries and that are concerned or interested about this issue asking them, “Is there a treaty with this country, with what kind of protection?” So that is done.

As well, our legal group has constant contact with the Canadian Bar Association. We brief them at all times about the status of this. This has been something they are extremely interested in and very supportive of. We brief them on a regular basis about its status.

As well, there are frequent informal contacts where they have, for example, a client coming in saying, “I will be investing in a particular country. What is the protection?” They will often call us and ask the kinds of questions that you're posing as well.

So it's that kind of information process, I think.

[The Chair, Conservative, Kevin Sorenson]

Mr. Ready.

[Robert Ready, Director, Investment Trade Policy, Department of Foreign Affairs and International Trade]

I really have very little to add to that. We are in contact with a number of groups, counsel who regularly handle international investment matters.

The only thing substantively to add is it would be part of the regular communication we have with respect to trade policy and international agreements on our websites and on our communication with the business community and posts abroad.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

My final question, Mr. Chairman, is to Mr. Kessel.

In your comments you said that, “it is not expected to lead to increased litigation against the government”. On what basis do you make that statement?

[Meg Kinnear]

It's not expected to lead to increased litigation because this convention would allow us to have ICSID as an arbitral facility. In other words, it makes it available as a facility, but it doesn't give any substantive rights to start any kind of actions or claims. So it doesn't give you additional rights, those are already there. It just gives you another option, and perhaps a better option, in terms of where you go to have that claim heard. It also gives you a better and easier way if, at the end of the day, you win an award, to have that award enforced.

It doesn't affect the rights you may have, whether you think a right has been breached. It doesn't affect or operate in that realm. It really is a procedural mechanism. It provides you with a forum, the equivalent of a court, and provides you with a much easier, more expeditious way to enforce an award at the end of the day.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Thank you.

Maybe my colleagues have a....

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Wilfert.

Does someone else from the official opposition want to speak to that?

Then we'll move to Madame Barbot.

Ms. Barbot, you have five minutes.

[Vivian Barbot, Bloc, Papineau, QC]

Ladies and gentlemen, thank you for coming to meet with us today.

As you know, Quebec has not expressed its intent to join the Convention. As the Convention does not contain a federal clause, what will it change for those provinces that, like Quebec, have not signed it?

What situation are the provinces that have not signed the Convention in when Canada has ratified it?

[Alan H. Kessel]

Thank you, Mr. Chairman.

In fact, I note that the committee member has in the past supported this particular initiative of the government. We're encouraged by that, particularly because the provinces that have already indicated a strong interest in Canada adhering to this have indicated this is an alternative measure they see as important. Our understanding is that the provinces that have already prepared domestic legislation are prepared to use the federal accession immediately for their own interests, and they will include this in their contracts. Those provinces that haven't as yet done so are, I understand, seriously contemplating domestic legislation in their provinces so that they will also then be able to use this.

Our sense is that there's a strong will throughout the country that the federal government should get on with it and do it.

[Vivian Barbot, Bloc, Papineau, QC]

Moreover, if a foreign investor decides to challenge a Quebec act or government measure under an investment protection treaty that Canada has entered into, or to sue the Quebec government under a contractual agreement, can that person turn to ICSID? Can he continue to do so if Canada ratifies the Convention?

[Sylvie Tabet, Senior Counsel and Deputy Director, Trade Law Bureau, Department of Foreign Affairs and International Trade]

Currently, a foreign investor cannot sue either the Canadian government or the Quebec government under the ICSID rules, since we are not members of the Convention. Once that is the case, under the mechanism containing the ICSID clause—the clause referring to the dispute resolution mechanism—the answer might be different.

For example, if Quebec implements an act at the provincial level, it asks the federal government to designate it as a constituent subdivision. Then it is possible for the Quebec government to include an ICSID clause in its contracts and for a foreign investor to sue the Quebec government.

In the case of international investment treaties, since treaties are generally in the name of the federal government, only the federal government can be sued.

[The Chair, Conservative, Kevin Sorenson]

Thank you.

Thank you, Madame Barbot.

Either Mr. Goldring or Mr. Obhrai is next.

[Deepak Obhrai, Conservative, Calgary East, AB]

I'll go first, and then Mr. Goldring. We'll share the time.

I have two questions. The first question is similar to Mr. Wilfert's, about these countries that have not signed the convention. With Mexico we have NAFTA, and with India we just signed the FIPA agreement in June. It covers investment in reference to protection for Canada.

What is the difference? Let's take the case of India. What would be the difference between the FIPA that was signed and this convention?

Second, just for curiosity, why did it take us so long to bring this thing up in Parliament? This has been in action for such a long time. Why did it take such a long time?

[The Chair, Conservative, Kevin Sorenson]

Go ahead, Ms. Kinnear.

[Meg Kinnear]

If I may, I'll start with the last one. What took so long? That's a really good question. We ask ourselves that, and have for a long time. We always ask ourselves that because, frankly, we see this as a completely good-news story with no bad impacts. It really shouldn't be controversial. Maybe that's why it hasn't been able to capture attention.

We do know that over the years there have been flurries of attention when we've spoken with provinces. All the provinces have told us they support this. Then, for whatever reason, it seems to have slipped to the back of legislative agendas. That's why we are extremely encouraged now that this committee is looking at it today and that we have moved forward.

This was taken and signed at the World Bank in 2006. That was a very significant step and the most progress we've made, and we've received a lot of feedback from people saying it's fantastic that we're finally going to do this.

So your question is very good. I don't have a terrific answer to it except to say that we certainly share the same sentiment.

In terms of the question concerning the FIPA with India--and we have NAFTA, of course, with Mexico--I may not have totally understood the question, so please let me know if I'm not answering exactly what you were asking--

[The Chair, Conservative, Kevin Sorenson]

I think the question basically asked you to differentiate between the protection in FIPA and what this ICSID would enable Canada to....

[Meg Kinnear]

Yes, okay, I can do that.

It goes back to one of the first issues we were discussing this morning. A variety of rights are standard in these treaties, and the FIPA provides substantive protection--the right, for example, not to be expropriated, and the right not to be discriminated against in terms of national treatment. There are a variety of standard rights. That is in the FIPA; in the case of NAFTA, it's in the actual NAFTA.

This treaty does not have any of those substantive rights. It doesn't say “Thou shalt not expropriate” or any of that. All it really deals with is that if one investor thinks another country has, for example, expropriated, then they have a place to go to have the arbitration heard, a facility that's very professional and up and running, and if they are successful in making their case, it provides a way to have it enforced easily, efficiently, and cost-effectively.

It doesn't give substantive rights; it's not substantive obligations. That's what's in the actual negotiated treaty--for example, the treaty we negotiated with India just a while ago, and the NAFTA in the case of Mexico.