Foreign Affairs Committee on Nov. 22nd, 2007

[Vivian Barbot, Bloc, Papineau, QC]

Thank you, Mr. Chairman.

Thank you for coming to meet with us today.

Investment treaties and bilateral agreements currently enable Canadian investors outside Canada to sue certain governments if they pass legislation on, for example, the environment or social or public health issues that cause them to lose money.

Would the Canadian Chamber of Commerce object if investment treaties stopped exposing governments to such lawsuits when they pass an act or non-discriminatory practice consistent with the common good, but that at the same time would cause companies to lose money?

[Milos Barutciski]

Thank you very much for your question, madam.

First, your question is based on the assumption that the mere fact that a government passes laws on social issues such as the environment, education or public affairs gives a company rights under a bilateral treaty or NAFTA where those laws have the effect of causing that company to lose money. However, that is not at all the case.

Under all these bilateral investment treaties and NAFTA, governments are entirely free to legislate on social, environmental, business and tax issues, in short in any field. These treaties do not at all encroach on the legislative jurisdiction of governments, whether it be the federal government or provincial governments. However, when they legislate, they must take their obligations toward foreign investors into consideration.

That does not mean that they cannot legislate in a way that will in effect impose costs on investors, but it does mean that they will impose costs in an arbitrary manner, utterly without reason. The obligation of a minimum standard of treatment for investors will then be violated. If governments legislate in a way that amounts to an expropriation of an investor's property, that's different. For example, an investor builds a plant, the government doesn't take over the plant, doesn't expropriate it directly, but it puts measures in place that make the plant utterly inoperable.

[Vivian Barbot, Bloc, Papineau, QC]

I'm not talking to you about expropriation, I'm talking about health, for example. The situation is definitely not the same if we talk about expropriation.

[Milos Barutciski]

What I mean is that the situation is the same. Social, health or environmental legislation or an expropriation that make a company lose money will not enable that company to claim it back. But the fact that the government has legislated or acted in a manner that violates national treatment, and thus non-discrimination, obligations, the minimum rights and standards of treatment under those treaties or expropriation, will enable them to make a claim. Some legislation, environmental legislation, for example, has been attacked under NAFTA as being an expropriation, as in the Metalclad affair. Expropriation can even be involved in environmental or social issues.

My point was simple. When the government passes social, environmental, economic or tax legislation, or whatever, such that it encroaches on rights granted under the treaties, it becomes guilty or liable to investors for damages. I cited the expropriation example because that's one of the classic examples in international business law. In Poland, the Chorzów plant was rendered inoperable. It wasn't expropriated, but, as a result of a number of measures that the government took, the owner could no longer operate it. That wasn't done under an international treaty; it was decided by the Permanent Court of International Justice in the 1920s, I believe. The Court held that the country was liable in that matter.

It isn't the subject matter of the legislation that renders the country liable; it's the way in which it legislates. These bilateral treaties promise investors standards of non-discrimination, of fairness, that is to say fair and equitable treatment, standards against unwarranted expropriation, fair and equitable compensation, and so on. That's the operative principle, not the subject matter. The subject matter has nothing to do with liability; it's how the government acts that renders it liable.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Madame Barbot. That was a good question.

We'll move to Mr. Lebel.

Mr. Lebel, you have five minutes

[Denis Lebel, Conservative, Roberval—Lac-Saint-Jean, QC]

Thank you, Mr. Chairman.

Thank you for your very interesting presentation. The presentations of those who preceded you were interesting as well, but yours is more particularly so.

I was recently elected, on September 17. I'm new, but I'm very encouraged by what you said.

Seventy percent of people in my riding live off the forest. Every day, this government works to find solutions for forest people.

This morning, I heard the people from the chambers of commerce, with whom I've worked every day for years now, say that they have been trying for decades to get the ICSID Convention signed here at home in order to promote business people and trade, which would enable our people to earn more and pay more direct and indirect taxes back home.

How is it that the governments aren't ready to join it? If we had to join it, would there be an impact on the forest and timber market? Could we have looked further upstream and found solutions? Would that have promoted trade in the forest industry back home?

[Milos Barutciski]

As Bill C-9 was passed before the final stage in this dispute, which has been going on for some 20 years, I frankly admit I don't believe so.

Lastly, under Chapter 11 of NAFTA, there are already claims against the Canadian government in the softwood lumber affair, but I believe they have been settled in the agreement that the Government of Canada reached with the United States.

For the reasons I explained at the outset, this is a matter of procedure opposing a matter of substance. Certain rights may have helped us in those claims. That was very interesting because the Canadian softwood lumber companies had investments in the United States, but the main investment was made here in Canada. So there remains a legal issue that has not yet been decided. The issue has been raised once again in the disputes over beef, where Canadian claimants, in this case as in the softwood lumber case, also have investments in Canada for the purpose of trade with the U.S. market. They would not make those investments in Canada if the U.S. border closed.

So we wonder if investment treaties enable investors to file a claim over the impact that a foreign country has on investment in a second country, in their country of origin. That issue has not been decided.

That said, the procedural question would have no impact on this question. In fact, it's the way in which the claim was [Inaudible - Editor] rather than individual rights that were referred to in the claim.

Unfortunately, I would have preferred you to give another answer, but that's the necessary one.

[Denis Lebel, Conservative, Roberval—Lac-Saint-Jean, QC]

I wanted the right answer. Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Lebel. We hear you advocating a lot for the forestry industry, so it was a good question to the group today.

Mr. Goldring, you still have two minutes.

[Peter Goldring, Conservative, Edmonton East, AB]

I think it was an excellent question. Certainly, I would think that if it's not directly applicable to it, it would still have a reinforcing aspect to it that would help to bring resolve from another direction, and would be an additional tool, in this particular case, that would be very helpful. It's just too bad it wasn't used.

My question is on another aspect of Canadian investment, and that is the investment by Research In Motion in China, where their product was knocked off very quickly. I would think there'd be patent protection laws, design protection laws, and other things. Would these types of applications come under the sphere of this?

And could you comment if there are maybe other avenues that can be used like those traditionally used in softwood lumber? I really think this type of a situation here would greatly reinforce, at the very least, other avenues and could have brought about a substantial earlier resolution of the concerns.

[Milos Barutciski]

Let me start with the RIM China situation. There are a number of issues for RIM. One is exporting the hardware that's manufactured here to China. Another issue is having the software and licensing the system that is designed with Chinese telecom carriers. A third issue is actually being able to establish there and deliver the backup, the back office, the support services to run the RIM-type service through Internet suppliers and telecom suppliers.

So any of those aspects can trigger an investment obligation. It's not an investment-type obligation. It's either an investment treaty-related obligation and it falls within the parameters of the substantive treaty--which we don't have yet with China, but which is under negotiation--or it isn't. So that's a substantive issue.

Let's say one day we do sign a treaty with China. The fact of having ICSID in place, as I think I mentioned in my answer to Mr. Martin's question, I would say is of huge benefit, because, assuming RIM can fit its claim--whatever the claim might be--within the four corners of an eventual FIPA with China, then having the option of going the ICSID route is one that certainly, I would say as an investor's counsel, I would have recommended.

In one case that I initiated against the Government of Canada, we didn't have that option. I was acting for an American company, and we didn't even get that far. We eventually settled the case, which I think was a good thing for everybody concerned. But certainly, if it had gone further, I would have gone the ICSID option, if we'd had that option, so I think you're right.

Secondly, in terms of softwood lumber, maybe I was a little hasty in saying it wouldn't have made a difference. Substantively, it wouldn't have made a difference, but you know, to the extent.... I don't think it would have made a difference in terms of the Americans' approach to the dispute. The Americans are big fans of the WTO, but, boy, you put zeroing or any of their favourite issues in litigation, they will litigate them to the hilt to the final minute. That's just the American style.

So I don't think the fact that you're in ICSID is going to change that one way or the other. They might even drag their heels on implementation, once they've been found...in the final appeal that the WTO appellate body has gone through, they'll drag their heels perhaps a little bit. But ICSID isn't a monetary award. If there hadn't been a settlement and the softwood lumber companies had had to continue with the suit, and we had been members of ICSID, and etc., etc., it might have actually been a useful thing. I would like to have had it if I had been representing a softwood producer.

So yes, I think there would have been a benefit--marginal, but a benefit nonetheless.

[The Chair, Conservative, Kevin Sorenson]

Mr. Dewar, please.

[Paul Dewar, NDP, Ottawa Centre, ON]

Thank you.

Thank you to our guests for appearing today on fairly short notice.

Chair, while I have the floor, I know we had asked other guests to appear, and they weren't able to, but I wonder if we could ask them for a written submission and if that's been done. I just put that to the clerk. I'm wondering if we could ask the two I had mentioned--the Halifax group and KAIROS--if we could ask them if they wanted to provide written comment.

[The Chair, Conservative, Kevin Sorenson]

Yes, we can.

[Paul Dewar, NDP, Ottawa Centre, ON]

I guess from your perspective and that of investors, Canada--the last time I read so--is doing rather well in terms of attracting investment. Some would say there are some concerns about over-investment, if I can use that word, in terms of who's coming in, and there are some concerns about foreign investment and takeover.

Clearly we don't have a concern about investment, and that's not what this is about. I think there's been some clarification for all of us in terms of what this means. It's not about encouraging investment per se. It's about a place where you can arbitrate and have clear rules and a space to do that. Is that fair enough to say?

To play the other side of this issue, can you make the argument for why we should have to give up some sovereignty? You might not agree with that term. I know the government in its presentation said there are numerous reasons to support Canada's adherence to the convention, and one of the points was that it would contribute to reinforcing Canada's image as an investment-friendly country.

Well, the last time I checked, I didn't know we weren't that friendly. I didn't know that was a problem with regard to the amount of investment coming into the country, so that's a fair point to put forward. So I'd say okay, make the argument for why this is necessary. I'm sure you have a different perspective based on who you represent.

The second issue is that there are those who might say, well, that's fine for you and the group that you represent, but what about everyday Canadians who like things being dealt with here on our own terrain, in our own system, and not in Washington or at the World Bank where, quite frankly, we might not have as much reach? And what if things go wrong, etc.?

I'll leave it at that.

[Milos Barutciski]

I'm glad you're only leaving it at that, Mr. Dewar.

[Voices]

Oh, oh!

[Paul Dewar, NDP, Ottawa Centre, ON]

We haven't seen each other in a while.

[Milos Barutciski]

It has been a few years.

Let's start with the beginning, then. Giving up some sovereignty was the question that particularly caught my attention. I think it's at the core of what you were saying.

No doubt Canada is an attractive investment destination for foreign investors worldwide. We don't need ICSID to attract investment. I think to the extent we use that as a reason it's window dressing. Investors will keep investing in Canada. Why? Because we have an educated, efficient workforce. We're marvellously endowed in resources. We have a good, though perhaps somewhat neglected, infrastructure.

[Paul Dewar, NDP, Ottawa Centre, ON]

Somewhat.

[Milos Barutciski]

But most importantly for investors, we have an effective system of rule of law. So an investor goes in, and ICSID is really meant to get at issues of what happens when the investment goes wrong. If everything's going fine, nobody really cares if the government cuts a corner and raises a tax a couple of points. We're making away like gangbusters. That's not the issue. It's when things go off the rails.

So you're right, we don't need it. On your question about giving away some sovereignty, as I said earlier, I think there's no sovereignty being given away with respect to substantive rights. The rights that we are giving away, if you look at the substantive obligations of ICSID, are rights that we shouldn't have to invoke in the first place. They are the ability to behave capriciously and arbitrarily toward foreign investors, the way we wouldn't dream of behaving toward our own citizens. They are the ability to expropriate property without compensation and due process. That's what the substantive rights of the FIPAs and the investment treaties are about.

So in that sense, yes, we have given up a bit of sovereignty. Why? It's because in a civilized world, just as citizens we give up sovereignty through the members of Parliament and Parliament to legislate and impose obligations on us as citizens, as members of the international community we've given up certain obligations to behave in ways that really are not on. That's under the FIPAs and the substantive investment agreements.

In that sense I don't think we're talking about giving up sovereignty substantively, though there was a kernel of truth to what you were saying. That leads into your second question. We like to have things done here. Well, that's true. You might feel more comfortable having things done here, but what do we say to the companies like RIM, like the softwood lumber producers, like virtually any Canadian manufacturer that exports, period, not just to the United States, but overseas? As I recall, our trade with the U.S. used to be 84%. We're down to 70%. So our trade overseas has expanded considerably in the past few years as well.

The Canadian citizens who work in the plants and with the companies that make those exports deserve at least the backing of the government to secure their markets. So when we give up that bit of sovereignty, what we're giving up is we're saying to foreign investors that we will treat their interests as investors in our country according to certain standards that we expect them to treat our investors. And we will subject ourselves procedurally, in a sense, to a process, if you agree to submit to that process as well.

Yes, perhaps it is giving up sovereignty in terms of the process up to a point, just as there was an element of giving up sovereignty in signing the treaty--any international treaty.

To the citizen who says “I'd rather have it done here”, I'd say if your job depended on manufacturing pipe that was being exported to a pipeline in the Middle East, would you like your employer to have certain rights, and would you be prepared to give up that procedure, a bit of sovereignty, to protect your job? My hunch would be that most employees would say, “Okay, when you put it that way, maybe there's an issue.”

Yes, it is giving up sovereignty, but it's giving up sovereignty in a reciprocal and very incremental way that makes sense for Canadians.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Dewar and Mr. Barutciski.

I think any time we sign any international convention there could be an argument that we sign a human rights convention. We could say that we're giving up a certain degree of sovereignty, but it would be for the greater public good. I think Mr. Barutciski's argument here is that for the investment community and trade it's for the greater public good.

Mr. Goldring.

[Peter Goldring, Conservative, Edmonton East, AB]

Thank you very much.

Reading the information here, I'm really astounded that this was signed on December 2006, when Canada became the 155th country.

I come from a manufacturing background, and I am quite conversant with importing, not so much in the exporting, but the companies I dealt with did considerable exporting too. I fully realize that for companies like Gildan, that are setting up working factories and plants in Haiti, that is a huge risk. What are the risks that can befall them? One of the largest risks of course is to lose their investment and not have any mechanism for recovery. When you have large capital costs on buildings, that is a considerable loss. I would think that would restrict some companies from wanting to go to the unknowns of international investing.

So I'm not sure you can ask what the hesitancy was, to be the 155th country in the world to recognize the benefit of this. Myself, and yourself, representing businesses and corporations...and we just talked about softwood lumber. We talked about Research In Motion. There are probably tens, dozens, maybe hundreds of other initiatives that might have been impacted, that might have been helped in their resolving, by being a signator to this earlier.

Can you comment on what on earth the reasoning would have been by the past government to be so hesitant to sign something that, in my humble opinion, is so obviously of benefit to not only Canadian businesses doing this investment and doing this work in foreign countries but also the number of businesses who were prevented from going into investment in other countries? How much did this hold our business communities back?

[Milos Barutciski]

Thank you, Mr. Goldring.

I'm not sure I can answer the last question in terms of how many business opportunities were prevented, although it's a good question to ask as a rhetorical question, absolutely.

What was the delay? I can't speak to why the six prime ministers we've had since 1966 and their various governments didn't choose to ratify and implement ICSID--well, sign, initially; we only signed it, as you pointed out, less than a year ago.

There are a bunch of considerations. I think one of the things is that for the first close to 30 years of ICSID's existence there was very little activity under ICSID. I gave a talk about a year ago in London on a related topic, to do with international trade investment law. I'd gone through the case law. The point I made is that from 1966 to 1996, the first 30 years of the convention, a handful of disputes--I can't remember if it was 23, or 27, or 29--had gone through the ICSID process.

Since the mid-nineties, in the past 10 years, as you heard from Meg Kinnear, we've had 200 or thereabouts. That's a tenfold increase in the last 10 years relative to the first 30 years. If you start doing the arithmetic, that is a 30- or 40-fold increase.

I think part of the reason was that it was a nice thing to have, but really, what were we losing? If you were looking at this in 1970: “What, six disputes? How many opportunities have we missed?” If you look at in 1980: “Fourteen disputes? Well, whatever.”

There may have been an element of that kind of pure legislative, government--

[Peter Goldring, Conservative, Edmonton East, AB]

From 1993 onward?