Foreign Affairs Committee on June 8th, 2010

[The Chair, Conservative, Dean Allison]

Pursuant to the order of reference of Wednesday, March 3, 2010, Bill C-300, an act respecting corporate accountability for the activities of mining, oil, or gas in developing countries, we will commence. This is meeting number 22.

I want to thank our witnesses for being here today. We have Audrey Macklin, a professor of the faculty of law at the University of Toronto. Thank you for being here today.

We've also got Thomas Shrake, chief executive officer and president of Pacific Rim Mining Corporation. Thomas, thank you for being here today.

Before we get started, I have Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Chair, I've submitted a motion that we use the second hour of today's proceedings for clause-by-clause. When we initially went through this last week, we were given the impression that there was literally quite a number of witnesses who wanted to come before the committee to talk about Bill C-300. The result is what you see: two witnesses.

We have a drop-dead date of June 11 on this bill. I think it would behove the committee to at least attempt a clause-by-clause for the second hour of this committee hearing, so that we can at least make an effort to introduce the amendments, which in my view strengthen the bill and make it possibly more acceptable to the government members. I'm not quite sure that it does, but nevertheless, it is a step in some direction.

I was just wondering whether I could seek to have you solicit the opinion of the honourable members as to whether we could use the second hour for clause-by-clause.

[The Chair, Conservative, Dean Allison]

Mr. Abbott.

[Jim Abbott, Conservative, Kootenay—Columbia, BC]

Mr. Chairman, I believe that our clerk worked diligently to get the witnesses who did want to present here this morning. Due to time differences, a full 12-hour time shift between where they presently reside and where we are, it turned out to be insufficient time for us to make that happen.

If I recall correctly, it was Mr. McKay who, when we had witnesses previously, made a very compelling argument that when witnesses have had things said about themselves, their company, and events going on in their country, it's very important that they have the opportunity to at least have a counterbalance to the testimony that has been given. Regrettably, because of the time differences, that wasn't possible. As a consequence of those efforts, however, and in the hope that such was going to be happening, we have not had an opportunity to make any preparations whatsoever for clause-by-clause. Therefore, we would not be prepared to enter into clause-by-clause in the second hour of this meeting.

[The Chair, Conservative, Dean Allison]

Okay. It sounds to me like there's going to be more discussion on this. Could we defer this discussion until after the witnesses? You've got a notice of motion, John, so there's going to be some more discussion when they're done.

[John McKay, Liberal, Scarborough—Guildwood, ON]

What I'm concerned about is that it does affect how we proceed today, Chair, because if in fact the decision is to turn down the motion, then what do we do? Do we take the second hour and continue on with the witnesses, or do we effectively adjourn and lose the hour?

[The Chair, Conservative, Dean Allison]

Well, my thought is that since we have two witnesses here, why don't we hear from the witnesses and then come back to this motion right away, as soon as we've heard them? I'm sure we're not going to need more than an hour.

You've got a notice here, and we can discuss that right away. I know I've got a bunch of names on the list. Can we proceed in that direction? Okay, we'll deal with this soon enough.

We'll do what we do normally. We'll start with Mr. Shrake.

[James Lunney, Conservative, Nanaimo—Alberni, BC]

On a point of order, Mr. Chairman, could you clarify if we're going to do one round of questions?

[The Chair, Conservative, Dean Allison]

Yes, we are. As I said, some witnesses have taken the time to be here. We'll deal with the witnesses, and then we'll deal with the motion.

The floor is yours for ten minutes, sir. What we'll do is hear from both of you, and then we'll go around the room for hopefully a couple of quick rounds of questions.

Welcome, and thank you for taking the time to be here. The floor is yours.

[Thomas Shrake, Chief Executive Officer and President, Pacific Rim Mining Corp.]

Thank you.

Members of the committee, thank you for the invitation to appear.

I'm the president and CEO of Pacific Rim Mining Corporation. My purpose in coming here today is to set the record straight on a very disturbing and fictitious allegation made here in a prior committee meeting by Mr. Richard Steiner, who has made similar allegations elsewhere. I will document our experiences to demonstrate to you why the bill you are considering simply will not work.

Pacific Rim began a new business initiative in 2001. In this initiative, management sought to build a cutting-edge company that set the highest standards for environmental protection and social responsibility. Our strategy is to explore and develop only a certain type of gold deposit called low sulphidation epithermal deposits. These are among the most environmentally clean metal deposits on the planet. Our El Dorado deposit in El Salvador is such a deposit.

El Dorado currently has a resource of 1.4 million gold ounces, a resource that was growing steadily until we were forced to discontinue our work as a result of a program of systematic expropriation by the government of El Salvador. In December 2006, former President Saca ordered the Minister of Economy and MARN, the environmental and natural resources ministry, to stop granting concessions and environmental permits respectively. Slowly the existing concessions are falling off the books, using an obviously planned strategy. With no environmental permit, there's no way a company can fulfill its work program and maintain its mineral rights. Eventually they expire. Every mining company in El Salvador has been damaged.

El Salvador has a relatively new mining law, a competitive investment law, and a new environmental law. We have obeyed and/or exceeded the requirements of all these laws. We entered into El Salvador at the invitation of the highest levels of government. Our $80 million investment created an asset with a market value of hundreds of millions of dollars. Today our market cap is $20 million. Obviously our company has been severely damaged.

We submitted an application for an exploitation concession in late 2004, almost six years ago. Included in that application was a feasibility study for an underground mine, which sets new precedents for environmental protection in the Americas. In our numerous community consultations, we determined that water was a major concern for the people of Cabañas. With this knowledge, we designed a system to collect water in the rainy season for use during the dry season, making extensive use of recycling. This runoff would otherwise flow into the Pacific Ocean.

Mr. Steiner states that the El Dorado impacts include competition for surface water resources. In reality, we will increase the availability of surface waters in the dry season when they are most needed, as we discharge cleaned waters. Water that will flow into this reservoir has been sampled and analyzed for years. It is currently polluted with bacteria, fertilizers, defoliates, pesticides, and detergents. The water leaving the operation will be cleaner than the water that arrived.

The cyanide content of the tailings water is less than the cyanide content of the average cigarette smoker's blood, in sharp contrast to Mr. Steiner's claim that the mine impact includes water contamination from cyanide. The ores in our El Dorado deposits are alkaline. Mr. Steiner incorrectly states that there will be acid mine drainage from this mine site. The waters from the historic workings are alkaline, and our extensive chemical testing demonstrates the lack of acid potential, as is typical with low-sulphidation deposits. The El Dorado ores have a very low accessory metal content. Mr. Steiner incorrectly claims that El Dorado impacts will include contamination by heavy metals.

As exemplified by Mr. Steiner's misinformation, grossly exaggerated statements, if not outright lies, are commonly used in the opposition to extractive industries by certain NGOs—not all, but certain NGOs. These rogue NGOs use the environmental argument as a tool to increase the political cost of a mining decision. Many are ideological groups who oppose foreign investment in developing countries, and their opposition is not limited to mining.

Worst of all, Mr. Steiner testified that Pacific Rim is involved in the murder of anti-mining activists. This accusation is simply outrageous. It is contrary to everything we believe and practise. There are suspects in jail awaiting trial for these crimes, and there is no known connection between the criminals and our company. A three-page investigative piece in the local paper concluded that there was no connection. These allegations are completely unfounded, but through repetition they have gained traction. They have served their designated purpose of increasing the political cost of the mine permit and damaged the good reputation of the company.

Mr. Steiner has made the same murder accusations in El Salvador--Gold, Guns, and Choice:, a report he wrote while being hosted by a local Salvadorian NGO, ADES. ADES is a rogue NGO with a long and disturbing history of violence against our company. They are also the originators of these groundless murder allegations. In fairness to Mr. Steiner, we have no knowledge that he was aware of ADES's violent history, but he did rely on their testimony in his reports.

We attempted to mediate this violence when the first signs of it appeared in 2006. ADES was passing out flyers that read “Death to the Canadian miners”. We met with a well-known American NGO, who is a primary source of funding for ADES activities. We suggested that perhaps we could work jointly to look at a way to improve the social and environmental quality of our project. The response was a cool, “Do you know who we are?”

We then turned to the flyer and we expressed our hope that violence would not be used in the debate. Unfortunately, violence has become a commonly deployed tool. I'll provide a few examples of this violence, almost all of which has occurred not at El Dorado, our development project, but at our Santa Rita exploration project, whose remoteness makes it an easy target. On one occasion, a local water quality NGO and a company environmental scientist were fired upon while sampling a spring.

We sponsor an eye care NGO for the extremely poor. While providing a free clinic, the eye doctor and his team were threatened and forced to leave the community without providing the free eye care. Company employees were held against their will, while others fled on foot in panic.

On two occasions while drilling on our private property at Santa Rita, we were invaded by armed gunmen, some with assault rifles, some hooded, and almost all of them from well outside the community. Mobs damaged the property as well as hacked down the trees we planted as part of our reforestation effort that now totals 50,000 trees. ADES was responsible for planning and executing all of these violent attacks.

We anticipated confrontation early on and continued to meet with our workers on a regular basis to reinforce our policy that confrontation of any kind is strictly forbidden: if you confront, we lose. Our people are instructed to behave like Mahatma Gandhi. They may speak to the issues, but always in a passive manner. At none of these violent incidents have company employees retaliated or confronted their aggressors.

NGOs play a valuable role serving an important balance in the investment and development process. We support the right of NGOs to oppose, to demonstrate, and to lobby. Unfortunately, there are bad actors who spread fabricated lies and operate under the credo of the end justifies the means. There is little in the way of checks and balances for NGOs. They are beyond reproach, and rogue NGOs take full advantage.

Let's not forget who else has been victimized. Cabañas is the single poorest department in El Salvador. Two years ago we reduced our activities, and 200 direct exploration jobs were lost, as well as hundreds of indirect jobs. Our polls clearly show that the vast majority of the people in the area of the El Dorado mine favour the mine. In August 2008 only 25% of Salvadorians were opposed to mining, in general.

El Salvador has been hard hit by the global crisis. U.S.-based foreign investment has plummeted by 60%. Unemployment approaches 40%. Those living in extreme poverty constitute 40% of the population. Our company would be the single greatest taxpayer in the country. Not only would our operation provide desperately needed employment; it would set the bar high for environmental standards for future mine development. Additionally, it would send the message to future foreign investors from all economic sectors that El Salvador obeys the rule of law and is open for business.

Our company has been damaged beyond repair by rogue NGOs. Our mine has been made to appear as an environmental disaster when it is the opposite, a model for environmental protection. We've been cast as demons, responsible for violence, when in reality we are the victims of the violence. There is no place for violence in the mining debate.

To use our company as an example of why this bill is needed turns the truth on its head. The truth is that we attempted to raise the bar for environmental and social responsibility, but we have been victimized by a planned strategy of misinformation and intimidation. The bill before you will create a gridlock. It will add further delay to the already lengthy development process. The business will suffer and the consumers will pay.

Thank you.

[The Chair, Conservative, Dean Allison]

Thank you, Mr. Shrake, for being here.

Now we're going to move to Ms. Macklin. Thank you for being here. The floor is yours for ten minutes.

[Professor Audrey Macklin, Faculty of Law, University of Toronto, As an Individual]

Thank you.

I've been asked to comment more broadly on Bill C-300, so I will not be responding directly to Mr. Shrake's remarks.

I was a member of the national roundtables on corporate social responsibility and the Canadian extractive industry in developing countries. I was also a member of the Harker mission in 1999 that went to Sudan to investigate allegations with respect to Talisman Energy in that country.

What I want to say today about Bill C-300 is fairly straightforward. Let me begin with this point. I think we would all agree that the Canadian government has a legitimate interest in how its money is spent--that is to say, how its financial support, or investments, or tax incentives are used by those who are the recipients. This is true whether that money goes to support domestic or international projects, or whether the recipient of government funding is a non-governmental organization that is part of civil society or a corporation.

In other words, the Government of Canada, I hope you will all agree, has an interest in accountability for how its money is spent, and Bill C-300, in short, is nothing more or less than a mechanism for accountability. That is to say, the government supplies export credit and investment and undertakes promotional activities for Canadian corporations in their activities abroad. Bill C-300 is, I think, directed at ensuring that the financial support that the government provides is not spent on conduct that would run contrary to Canada's public policy commitments or international human rights obligations.

It seems to me that in the government expenditure of funds for overseas projects, whether that's through CIDA or the IDRC, there too the government has a legitimate interest in ensuring that the money it provides is used for purposes that are consistent with Canada's own obligations and its public policy with respect to, say, international development in the case of CIDA.

So, really, Bill C-300 is no more or less than simply a mechanism for holding those recipients of government financing—corporations—accountable for how they use government money, and a way of saying, “We, the government, the taxpayers of Canada, don't want to spend our money on activities or conduct that we think are inimical to Canadian public policy or our international human rights obligations.”

I hope that by saying that, I've made one point very clear: in no way is this bill about extraterritoriality, any more than Canada acts extraterritorially in deciding whether CIDA is going to fund some project in another country. We don't say that's an act of extraterritorial regulation, and neither is this; this is about how the government is going to spend its money. No company, no corporation, has a legal entitlement to that money, and there's nothing wrong with holding it accountable for how that money is spent.

Now, what does this bill suggest or indicate will be the criteria for accountability? Well, it indicates a couple of codes of conduct, most notably, I think, the voluntary principles on security and human rights and the International Finance Corporation's policy on social and environmental sustainability, performance standards on social and environmental sustainability, etc.

These are codes of conduct that many companies have voluntarily signed on to--though not all companies. These are also standards or principles that the International Finance Corporation, which is the commercial branch of the World Bank, uses to decide who it's going to lend money to. These principles also form part of what are called the “equator principles”, which private lending banks around the world have used as criteria for deciding to whom they will lend money.

So for the Canadian government to bring these principles to bear in assessing accountability for recipients of government support is not to stray far beyond and is not to extend its reach beyond what we already see in play among financial actors worldwide.

These principles are evidently not so vague that international banks can't apply them or that the companies that want loans from these international banks can't meet them. They're not so vague or general or devoid of meaning that companies are unwilling to sign on to them for fear that they are signing on to principles they cannot understand or operationalize.

This is a way to bring those same principles and standards of accountability to bear on the forms of government support that Canada provides to companies. In so doing, I think Canada is simply acting in a way that is consistent with what the special representative of the Secretary General, John Ruggie, proposes as a good way to ensure corporate social responsibility worldwide. It encourages individual states to use instruments within their jurisdiction and authority. So it's consistent internationally. It's not inconsistent with what host states can do or will do. In the end, then, it is just a mechanism for Canada to take part in the global trend toward ensuring accountability for how transnational corporations engage in their activities in various states.

I think that you have already heard my colleague Penelope Simons' response to a concern that this form of accountability will somehow drive Canadian companies to incorporate elsewhere, that it will encourage corporate flight, so I won't reiterate what she said. I will only say that all over the world countries are adopting various mechanisms for holding their corporations accountable for their activities abroad. They aren't identical to what Bill C-300 does; some are much more interventionist. The United States, for example, has in place a whole system of tort liability.

This statute in no way creates a new ground of civil liability. It's not as if anybody can use this statute to go and sue a Canadian company in a Canadian court. Nor does it create any kind of criminal liability, an even more significant form of regulation. It doesn't do any of those things.

Some people, some organizations, take the position that perhaps Canada should await the outcome of special representative John Ruggie's report sometime in 2011 before taking any steps. I would simply point out that John Ruggie has in fact come out in favour of home state regulation. Some people take the position that if states are the ones to regulate it should be the host states and not the home states of corporations that do the regulating.

There are three responses to this. First, not all host states have the rule of law infrastructure to effectively regulate themselves. Second, they do not necessarily oppose or find a conflict between a mechanism like this and the actions they may take. These are not substitutes; they may be complementary. Third, it's important to realize that a claim that companies will flee Canada if they are held accountable in the way that Bill C-300 proposes is in a sense a threat. It's a mechanism of intimidation that companies use. If you regulate in this way, they say, firms will leave. Canada's a pretty strong country. It's a fairly financially secure country. If those kinds of mechanisms of intimidation are used against a country like Canada, imagine what corporations are saying to the host states, which are weaker, less able to regulate, and more desperate for investment. They might ask a host state to sign a contract that exempts them from their national regulation. They might demand that a foreign government sign an agreement not to pursue disputes against them in their national courts.

I'd encourage members of the committee to be mindful of these strategies of intimidation that are used to discourage home state regulation. If your view is that it is appropriate for the host state to regulate, you should know that they, too, are being subjected to similar kinds of challenges and they are even less able than a country like Canada to deal with them effectively.

Thank you.

[The Chair, Conservative, Dean Allison]

Thank you, Ms. Macklin.

We're going to start our questions with Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

Thank you both for coming. I particularly thank you, Mr. Shrake, for coming and talking to the committee about a real live situation.

I want to direct my question to Professor Macklin, because Mr. Shrake does, in effect, put a live example in front of the committee. He talks about his company putting $80 million in, and that at one point it was valued at several hundreds of millions. Now he's written it down to $20 million. He's being effectively forced to withdraw his company's presence in the community because the government isn't renewing its licences.

They've got pretty serious allegations--which he describes as gross misstatements, if not outright lies--about murder and various other activities. It's a bit of a difficult situation, to say the least. And he's come here to defend his company's reputation, which is one of the things the mining companies are very concerned about, their reputation, and the ironic effects of a country with 40% unemployment having a significant employer withdraw from activity in El Salvador.

Ironically, as I was listening to his testimony, I was thinking this is actually the case for Bill C-300, because there's no place for Mr. Shrake--or for that matter Mr. Steiner--to go. These kinds of allegations will go on and on and on and on because there's no resolution to these allegations. And whether the NGO is motivated by good motives or motivated by bad motives, or something in between, it just carries on.

So using Mr. Shrake's I think heartfelt presentation to this committee, make the case as to why Bill C-300 would actually be good for Pacific Rim.

[Prof. Audrey Macklin]

I recall that when I was part of the mission to Sudan there were certainly conflicting reports from Talisman Energy and from non-governmental organizations about what was going on there. Sitting in Canada, it was difficult to know what was really going on.

If a company is, as Mr. Shrake suggests, the victim of wrongful accusations and allegations that have a detrimental effect on its reputation, it would seem advantageous to have a forum within which those allegations can be considered in a reasonable and attentive way. It seems to me that what Bill C-300 does is provide a forum for that. Rather than being judged in the court of public opinion, which as I understand from Mr. Shrake's assessment is deeply damaging to his corporation, it might be beneficial--indeed it might well be more than beneficial--to have a neutral forum where allegations that are brought can be tested against the response the company would make and dealt with in a constructive way. I could imagine that under this legislation, if one got to the point of devising regulations under it, you would want to establish a process by which that could be done.

Ultimately, if Mr. Shrake is correct that there is no basis for these allegations, then presumably the outcome of this process would vindicate his corporation in a way that cannot satisfactorily be done at present.

There is provision in this for a rapid disposition of what is termed here to be frivolous and vexatious complaints. I have no view, obviously, on the complaints that are brought with respect to this corporation. But I would note that if Mr. Shrake is correct that they are merely frivolous and vexatious, this provides a mechanism for disposing of them quickly. If it turns out there is some evidentiary basis to them, it provides an opportunity by which they can be fully ventilated. So in either case I would think it would be to the benefit of all concerned to provide that forum.

Again, if Mr. Shrake is correct that there are organizations whose actions are not motivated by good faith, then I would think a process like this would discredit them ultimately and thereby deflate their potency, all of which would be done to the benefit of Pacific Rim or other corporations in his situation.

I say this, of course, taking no position on the allegations that were made against his company, or indeed Mr. Shrake's response to them. I'm in no position to assess that.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Let me direct this to Mr. Shrake.

I accept that your positioning is quite heartfelt, and you certainly have a strong and coherent view about your company's activities in El Salvador. Yet if Bill C-300 doesn't pass—and certainly, if this government has its way, it won't—you will continue with this press war forever and a day, with extraordinary reputational damage to your company and the industry and, I would even argue, to Canada's reputation.

Given that I think your view would be that you would prefer the ombudsman's report, the 2007 report, which the government has chosen not to proceed with, and given that Bill C-300 is, at the end of the day, the only forum in which you could actually clear your name in any kind of a serious way, why would you be fighting Bill C-300 so vigorously?

[Thomas Shrake]

First of all, let me backtrack a little bit on your statement. We are not just throwing our hands up and walking away. We are in the process of international arbitration at the World Bank through ICSID in a CAFTA filing, which started last week. I was in Washington, D.C., last week for the preliminary objection phase of the CAFTA hearing. So we're not throwing up our arms and walking away.

Another important point here is that I'm an American economic geologist. I'm really not that familiar with Bill C-300. I came here just so that you can understand and see what life is like for us out in the field. I know this inside and outside, because I've lived this nightmare for five years. So I can answer any questions specifically that relate to what is going on in the field.

It's not unique to El Salvador. I've done systematic exploration programs in Argentina, Chile, Peru, Costa Rica, El Salvador, and Mexico over the last 25 years. While the tone of the opposition has changed dramatically in the last 25 years, this is not a very unusual event. Armed mobs have taken over exploration camps in three countries that I know of. Basically, the idea or design is by the same group of people.

I do not oppose regulation at all. I think there's a place for responsible regulation. Again, I have limited knowledge of your bill, and I apologize for that. I only found out I was testifying here on Friday, and I spent my entire weekend preparing my statement. Because of CAFTA, I must have lots of lawyers involved as well.

I don't think any company is afraid of oversight. I think what we're afraid of is providing a tool to irresponsible NGOs to just stop the process. I think there is a concerted effort.... I don't want to sound like I'm a conspiracy theorist, but I think there are certain groups out there that are ideologically opposed to this, and will basically do anything they can to slow the process and thereby stop the process. If the time value of money reaches the point of being ridiculous for investing in the minerals business, then nobody is going to invest.

[John McKay, Liberal, Scarborough—Guildwood, ON]

We understand that, with a lot of sympathy.

[The Chair, Conservative, Dean Allison]

Thank you, Mr. McKay.

We're now going to move on to Madame Lalonde, for seven minutes.

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

Thank you.

Mr. McKay used some of my questions, but there are certainly others.

You have described the situation surrounding these crimes with a lot of passion. What have you done to put an end to the situation?

[Thomas Shrake]

We have not rolled over and accepted all of this. We have filed charges against some of the perpetrators. We have gone to the Government of El Salvador. I've worked closely with the American embassy over the last five years and kept in constant contact with them. So we haven't rolled over.

I described this sort of assault on the eye care NGO program, where we were trying to provide eye care. We document everything, and we've been trying to get video documents of some of these violent exchanges. But every time, the first thing they do is destroy the cameras. In this incident, we filed charges for assault and kidnapping. But the only charge that stuck was for the destruction of the camera. Witness testimony in the court system of El Salvador is basically not used. So when it comes down to one witness versus the other, it's a flip of the coin in the courts. Plus, our witnesses were intimidated to the point where they wouldn't testify anyway.

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

Given your answer, I am inclined to ask Mr. McKay's question again.

Under these circumstances, given that you have to use the justice system and to put pressure on the United States and El Salvador, don't you think that Bill C-300 can prevent this escalation since a decision will be made in all fairness? It is a process that you can start with.

[Thomas Shrake]

I'm not opposed to oversight or Canada's having legal teeth, and I don't have any problem with a bill that would accomplish this. But my understanding of the bill is that it provides too much power to.... I would be afraid of the irresponsible NGOs that might want to use this bill to stop the process, or even delay it. That's my fear. You don't have to stop it. People who are opposed to foreign investment in the extractive industries recognize that you don't have to stop it. All you have to do is slow it down to the point where people won't want to invest in it, and it won't happen. They're very sophisticated.

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

Your answer is strange. Actually, on the one hand, you are saying that the bill should not have too much power, while on the other hand, at the end, you are saying that more aggressive means are needed to deal with those crafty NGOs. There is a kind of contradiction there.

In your opinion, what measures should the bill include? On the one hand, you are saying that there could be reasonable and responsible regulations, and on the other hand, you are saying that there is too much power.

[Thomas Shrake]

I don't have the answer. Sorry. I only know how it is in the field. I am not opposed to regulation. We need regulation for business, industry, government, and NGOs. I think everybody has to have some form of oversight. I am not familiar with all the details of this bill. The thing I fear is the provision that would allow people to just put a halt to what we're doing. I've been accused of so many things I haven't done that I just....