Foreign Affairs Committee on Nov. 22nd, 2007

[Paul Dewar, NDP, Ottawa Centre, ON]

The reason I brought it up—I know it's not something we'd be contemplating presently—is that there is the case in Bolivia right now. You know the issue I'm speaking of.

There seem to be some issues there that we should pay attention to. In a notice for termination, if there were overlaps between those investors who had been party to and privy to the arrangement, and the country decided to withdraw, how would that affect investors?

So I'm just curious about the process of termination.

[Riemer Boomgaardt, Special Counsel, Trade Law Bureau, Department of Foreign Affairs and International Trade]

Article 71 of the treaty provides that a contracting state may denounce the convention by written notice of six months. The denunciation takes effect six months after the receipt of such notice.

You're right that if there were a dispute under way pursuant to the convention, there's been a lot of discussion in the legal community about what the implications of that would be.

There has not been any final resolution of the matter. If there were a tribunal already formed—let's say, in the case involving Bolivia—that tribunal would make a ruling, and then Bolivia might seek annulment proceedings, but we don't know what the resolution of that would be.

[Paul Dewar, NDP, Ottawa Centre, ON]

So it's six months under article 71; that's the basic premise.

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much.

Did you have one more quick one, Mr. Goldring?

[Peter Goldring, Conservative, Edmonton East, AB]

Could you possibly expand a bit on the aspect of accountability of the arbitrators and the arbitration rules on that? Could you expand a little and talk about the accountability of it?

[Meg Kinnear]

Yes, I'd be glad to.

I'm not certain what exactly you're thinking of in terms of accountability, but as we say, these tribunals are three-member panels generally. Generally the hearings are open to the public. Often a treaty will set it up such that one member is appointed by one country, the other is appointed by the investor, and the presiding member will either be by consent of the parties or, if they can't consent, by the ICSID appointing one for them.

The hearing is in public, and then there is this process of annulment. If people feel there is a need to have a review process or an appeal process, decisions are made public, and there is a very active community that looks at, examines, and critiques these decisions.

You will find increasingly that arbitrators cite past decisions. It is not a formal precedent system such as we have in domestic law, but it is becoming increasingly so. So there is a developing, coherent body of law so that we can know much better and predict whether, if we do this certain thing, it will be potentially considered expropriation or will potentially violate a treaty obligation.

I think that's probably all part of the accountability process. I don't know whether there are any particular aspects you're thinking of, but if there are I'd be glad to address them as well.

[Peter Goldring, Conservative, Edmonton East, AB]

One of the aspects would be with 200 settlements. What is the sense of how the settlements were resolved? Were the complainants....? Obviously they'd be generally satisfied by receiving a settlement, but is there a sense that they received generally what the specific claims they could establish would be, or was it arbitrated into much lesser levels?

[Meg Kinnear]

It should be clear that when I spoke of the 200 number, that's 200 decisions.

Sometimes investors win, sometimes they lose. Generally our experience has been that you're satisfied if you win, and you're not happy if you lose, I guess.

[Peter Goldring, Conservative, Edmonton East, AB]

There's a general satisfaction from the investors, then.

[Meg Kinnear]

But in terms of process, that's one of the advantages of ICSID. People feel they get a fair and thorough hearing--that's the key, win or lose. Obviously you're happier if you win, but at least you get a fair, full hearing.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much.

It has a close relationship with the World Bank. If there is a challenge, do they meet, then, in Washington at the World Bank? Is there a place where they come together, or do they go to those countries? Is it right in Washington?

[Meg Kinnear]

The seat of the World Bank is in Washington, so as a general rule the hearings are held in Washington. They have very good facilities for hearings in Washington. There have been some instances...and it is possible to go outside of Washington for these hearings, but the general rule and the general practice is that it's in Washington.

[The Chair, Conservative, Kevin Sorenson]

All right.

We want to thank you for coming to help our committee understand some of these conventions a little better. We appreciate your input on Bill C-9.

We're going to suspend for just a few moments.

Mr. Dewar mentioned earlier that he's never seen a free lunch. Well, there is lunch here. As we do the exchange between the guests and the next group that we're going to hear from, I would ask committee members to avail themselves of that lunch. It's one of the few perks of meeting in this time slot, through the lunch hour.

Thank you again for coming.

[The Chair, Conservative, Kevin Sorenson]

Members, we now have an opportunity to hear from the Canadian Chamber of Commerce. Testifying we have Milos Barutciski, vice-chair of the international affairs committee, and Brian Zeiler-Kligman, international policy analyst.

Recently the Honourable Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, extended to me the opportunity to send a congratulatory message to Donald Stewart, president and CEO of Sun Life Financial on the occasion of his being honoured as the 2007 recipient of the Canadian International Executive of the Year Award. So the committee may want to take a look at the message that was forwarded.

We certainly do appreciate the work of the Canadian Chamber of Commerce, and we look forward to hearing from them.

To our two guests today, we look forward to hearing what you have to say in our deliberations on Bill C-9. I know that some of you were here for the testimony we heard earlier.

Welcome here. The time is yours.

[Milos Barutciski, Vice-Chair, International Affairs Committee, Canadian Chamber of Commerce]

Thank you, monsieur le président et membres. I am in fact, as you said, the chair of the international affairs committee of the chamber. In my day job, I'm a partner with the Bennett Jones law firm and I'm head of the international trade and investment practice there.

Since we were invited to appear here on fairly short notice, I originally thought we might do an overview of ICSID and where the business community comes out on it. Having heard at least a good part of the presentation of Meg Kinnear and her colleagues, I think it would probably be a waste of your time. Everything I heard, we as a business group would have absolutely no concerns about. I think the description of ICSID and the process you heard is entirely accurate and consistent with our views, so I'm not going to go through that blow-by-blow.

What I would like to do in the short time we have is pick up on some of the questions individual members raised during the Q and A portion of the government presentation and try to put a bit of a business perspective on that to make you understand why business specifically supports ratification of the ICSID convention more than 40 years after it was signed.

There's no real order. I'm going to go through these issues as I jotted them down listening to your questions.

I'm going to start with the distinction between process and substantive. The Convention has nothing to do with substantive law. It's simply a process that follows the making of obligations by a member country. It is the process that enables investors to have their Convention rights recognized.

That's a fundamental distinction. A lot of the questions that went to the government members had a bit of that flavour.

Canada has signed NAFTA. Chapter 11 is part of NAFTA and creates the substantive investor rights. Canada has signed some 20-odd foreign investment protection agreements. The obligations Canada has agreed to in those agreements exist and will continue to exist regardless of what you do here.

As you know, there have been NAFTA disputes and Canadian companies have availed themselves on a very few occasions of making claims under the FIPAs. So regardless of your position or your views on the substantive rights, that's not really the issue here. And that's a very important point to bear in mind.

Secondly, once you have the ICSID process.... Obviously you have to ask yourself why it would benefit Canada in general, and secondly, from my constituency, the business community to have Canada as a member of ICSID, recognizing that there 143 countries. Virtually all of our trade and investment partners and virtually all of the countries where Canadian businesses invest have adhered to the treaty.

The answer to that is relatively simple. There are a few parts to it, but from a business perspective, the first thing that's attractive here is that you have a recognized forum, with well-established rules. As Meg and her colleague explained to you, there is a wealth of jurisprudence under ICSID with precedential value in the sense that the cases, while not binding on other panels, provide guidance in terms of the interpretation of investment law--not just ICSID itself, but the FIPAs.

The FIPAs have very specific rights that are roughly repeated, but sometimes in different language from investment agreement to investment agreement, whether it's expropriation, fair and equitable treatment, minimum standard of treatment, national treatment. For all of these obligations, the wording varies slightly but the subject matter is the same. So under the ICSID process you have panels, and an institutional structure that has that institutional history to understand, and to understand why the specific wording in this treaty might lead to a slightly different result because they didn't use the same language in that treaty.

By contrast, ad hoc panels.... Remember, I said the treaty rights exist. Investors will avail themselves of them, unless you would draw from the substantive treaty. So by contrast, under the substantive treaties--again, as my government colleagues explained--there are several different processes that you can avail yourself of. Usually it's an UNCITRAL rules process, which is essentially ad hoc. There's no similar, comparable institutional structure that administers UNCITRAL arbitration the way you have under ICSID. It's basically just a set of rules. So you can invoke that, or perhaps in some instances you can invoke, as you heard, the ICSID additional facility rules of the other country, the host country or the plaintiff country, if the claim is against Canada or ICSID members. But you can't do the main ICSID rules.

As I say, that becomes a bit of an ad hoc process, especially if you do ad hoc arbitration using the UNCITRAL rules. Here you have an institution that has experience in administering this area of law--a wealth of experience now over the past couple of decades, or the last decade especially, of some 200-odd cases.

So that is an important reason--the depth of experience, the knowledge, the understanding that the institution has and can bring to a dispute that benefits not just the business community, but the government as well, on the other side. In my respectful view, there's a lower risk of a rogue panel--and we've occasionally heard governments talking about rogue panels--in the context of an institutional forum like ICSID than you might have in an ad hoc panel.

So both government and investor benefit from an institution that has certain...as I say it's not binding; the panels are free. Panel decisions of the past are not binding on today's panel decisions, but when the panel takes place in an acknowledged forum with an administration, a secretary general, and so on, there is an institutional weight that's given that perhaps might not weigh as heavily on an ad hoc panel. So it gives both government and investor a measure of certainty.

Another key issue is the very limited review, the finality. Under ICSID, if you don't like the decision, there's really only one step you can take, which is to invoke the appeal or review procedure under ICSID—that's it. You don't go through potentially interminable litigation in the national courts. It's not necessarily the national courts of the jurisdiction where the plaintiff is, or the jurisdiction of the host country. They could have put the seat of the arbitration in a third country. In the Metalclad case under NAFTA, the seat was Canada. So the subsequent judicial review of that award against Mexico took place in the B.C. courts.

Our courts are pretty good at acknowledging the limits of judicial review of arbitral awards, but maybe other countries aren't quite as good. The finality of the ICSID process is critical to business and, I would suggest, should be important to government as well. You want things to have an end.

Also, the prospect of finality--one day you're going to be called to account--is an incentive to settlement. If I know I can litigate something repeatedly for years, if not decades, my incentives to settle aren't quite the same. I can grind the other guy down--grind the government down, if I'm a deep-pocketed investor, or grind the company down, if I'm a deep-pocketed government with a smaller medium-sized investor. So that finality is important from a second perspective.

A third point here is enforcement, and you've heard about that. The treaty provides that an award is enforceable, is binding, under international law against the defending government. That has immense ramifications for a business, for the successful investor. My colleagues and friends from the government side are probably at a better place to speak to the institutional extreme. My understanding at least is that since ICSID is in the context of the World Bank's world or penumbra, for reasons that shouldn't be too hard to figure out, host states that have had awards issued against them are probably going to think twice and be a little reluctant to violate the award that's binding on them under international law and a treaty they've signed with 143 other countries.

I've heard talk of instances where host states may have threatened not to make good on an award and then realized what the consequences might be within the World Bank world in terms of loans and grants that they may have outstanding from the bank, or possibly other member states that are sitting at the bank whose governments have bilateral grants or foreign aid and suddenly the bank says, “You know, you might want to think about this. They're just welching on their obligations here”. So there's an enforcement stick. It's an implicit stick more than anything that makes delinquent governments more prone to living up to their obligations.

Fundamentally, the key issue here that primarily is the concern from a Canadian point of view is it's outbound we're talking about, outbound investment. From the standpoint of the Canadian government's liability, the Canadian government is liable already. That happened when the government signed the 20-odd FIPAs, and it happened when the government signed the NAFTA and any future agreements. It incurs potential liability. It behaves contrary to its international obligations. It's not liable; it has obligations. So, signing or not, ratifying ICSID or not, really doesn't weigh one way or the other on it.

However, a Canadian investor looking for remedy overseas for the millions or hundreds of millions or billions they've sunk into the ground in a mine in Latin America and a plant in India or China or whatever, ICSID gives those Canadian companies a remedy and a recourse in the event that their rights are violated that is far more secure, far more attractive than what we have today in the absence of ICSID. That's basically why the Canadian Chamber of Commerce supports it. I think in the Canadian business community at large you'll be hard-pressed to find an association that doesn't support ratification.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Barutciski.

Mr. Kligman, did you have some comments? Please go ahead.

[Brian Zeiler-Kligman, Policy Analyst, International, Canadian Chamber of Commerce]

Thank you.

Good afternoon. My name is Brian Zeiler-Kligman. As mentioned, I'm the international policy analyst with the Canadian Chamber of Commerce.

I will keep my remarks to simply a few comments on what the Canadian Chamber of Commerce has been doing in terms of its long-standing advocacy that Canada should ratify the ICSID convention.

Primary among these is our policy resolution process. We've had a series of policy resolutions over the years that have continually called on the federal government to ratify the ICSID convention. The most recent of these was passed at our 2007 AGM in September, in Markham, Ontario. It was passed unanimously by well over 200 local chambers of commerce, from coast to coast to coast. I have provided to the clerk, in both French and English, copies of that policy resolution, which should hopefully be distributed—if not already, then following the hearing.

As has been mentioned previously, there is a need to have our provinces and territories also implement the required legislation. In addition to our advocacy at the federal level, we have been working with our provincial and territorial chambers of commerce to inform them of the issue and also to get them to engage their own respective governments and put in process the implementation of legislation in those jurisdictions.

I will leave it at that, and I'm happy to answer any questions that you may have.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Zeiler-Kligman.

We'll go into the first round.

Mr. Martin, now that you have a mouthful of food....

As chairmen, we just wait for opportunities like that to call on you, with the clock running.

[Keith Martin, Liberal, Esquimalt—Juan de Fuca, BC]

Mr. Sorenson, you'd make a great dentist.

Thank you for being here today.

From your perspective, are there any concerns in terms of those who have not signed on to this, especially Mexico, and the fact that they are not signatories? Do you have any concerns that they are not a signatory, and what can we do to bring them on as a signatory? Could you also let us know what concerns they had and why they didn't sign on to this?

[Milos Barutciski]

In terms of non-signatories, Mexico is probably the most glaring example of a major trading country and a major investment host that's not a member.

I have concerns from the standpoint that, from a Canadian investor's perspective, once we ratify, assuming we ratify ICSID, it would be much better to have that process available vis-à-vis Mexico. However, the fact that one country out of 143...or a lot of those countries are fairly minor countries. But if you had to pick the top 20 countries where Canadian investment goes, or the top 30, 40, or 50, my bet would be that 49 of the 50 are on that list.

So on balance, while it would be better to have Mexico, on balance its absence--or the absence of any of the other countries--is certainly not a reason. How do you get them on board? That becomes....

I don't know why Mexico isn't on board, so that's something you could put to the foreign affairs people.

[Keith Martin, Liberal, Esquimalt—Juan de Fuca, BC]

Brazil and India are no small players in the international world; emerging markets for both.

[Milos Barutciski]

You're quite right.

[Keith Martin, Liberal, Esquimalt—Juan de Fuca, BC]

I'm just curious whether you know what their concerns are and why they did not.....

Secondly—you may or may not be able to answer this--if you're having a dispute and, say, China is the loser, if you will, in a resolution from ICSID, Chinese judicial structures are not what we would call sound, to put a fine point on it.

What faith do you have that countries like China would actually be able or willing to participate fully in ICSID? A lot of countries sign on to a whole slew of treaties and become signatories but don't live up to them at all in practice.

[Milos Barutciski]

China is a good example. I will get back to your comment about the Indias and the Brazils of the world, but China is a very good example. The country I think would have every incentive to comply with an ICSID award, which is quite different from complying with an award of a Chinese court or a Chinese arbitrator that might have gone to a foreign investor.

You're absolutely right, the rule of law in China, while they are struggling to enhance it, can be a dicey affair for an investor or a foreign claimant--for example, a foreign supplier who is exporting goods to China and gets into a dispute with their buyer. Usually it is the other way around. They are exporting more the other way, but there are Canadian companies that are exporting there too and I've acted for a number of them.

When you get into a dispute there are standard forms that force you into arbitration under the Chinese...and there are several Chinese commercial arbitration regimes. Under their standard form contracts, you are forced into that world. Then if you happen to be lucky enough to win in arbitration there might be a few other challenges in enforcing your award if you got an award.

So yes, you're right, there is a risk. The beauty of ICSID is that it doesn't go before the Chinese judicial system. If the Chinese government loses an award the only way they can have it reviewed is by going to the ICSID treaty review mechanism. Then on enforcement, enforcement when you're dealing with sovereign defendants is always a challenge. You have to find goods that are attachable and so on.

My point here goes a little further. I do not think the benefit of ICSID is an order that can be enforced the way you would enforce a domestic order, register it in a court and get a bailiff to seize assets. The beauty of ICSID is that it is an express international obligation of the member of the host country against whom the award has been made to live up to its obligation including paying the award.

So for a country like China that today is becoming a very significant outbound investor.... My former firm acted for a Canadian company, PetroKazakhstan, where they sold their assets--virtually all of the assets were overseas in Kazakhstan--to the Chinese national oil company. That is just one example. The Chinese have assets here. They have made substantial investments in Canada, which aren't particularly well known but they are here. They are looking for further investments, not just in Canada, the United States, or Europe but all over the world.

For a country like that to welch on its ICSID obligations has some serious ramifications in terms of the receptivity of the countries where it's going to make investment. That is part of the beauty of ICSID. It is a mechanism that everybody who is a party to it has agreed to. If you choose to welch on your obligations you put your own investors' rights and interests at risk. So I think that is an important function.

As to Brazil and India, let me just touch on them briefly. I do not know the facts why specifically they haven't signed on. But last time I looked, while we would love as a business community and I am sure as a country to increase our trade to India and our investment in India, frankly it's a drop in the bucket. I think our outbound trade is about $200 million and our outbound investment is about $500 million. I may be off by a couple of hundred million dollars, but frankly it is insignificant.

Brazil is a little better, but even there we are not--

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Barutciski and Mr. Martin.

We will go to Madame Barbot.