International Trade Committee on March 24th, 2009

[Dick Harris, Conservative, Cariboo—Prince George, BC]

If I can interrupt, though, the process of arbitration works in so many different cases. I think it's unfair to suggest that an arbitration process that works in.... In Canada we use it all the time in labour disputes. They don't automatically go to court. The court isn't the only place to decide the outcome of a dispute.

So arbitration shouldn't be painted as something that's not useful.

[Steven Shrybman]

No. I think that's an excellent question.

The difference between arbitration and investor-state litigation is this. In an arbitration, there's a contract. There are two parties to a contract. It's a reciprocal arrangement. They both have obligations under the contract and they can decide if they would rather resolve their disputes before an arbitral tribunal, as happens under collective agreements, rather than before the courts. In the case of NAFTA, there is no contract and there is no reciprocity. Private investors who have been given the right to enforce this regime have no obligations under it. It's a completely asymmetrical arrangement. It's a non-reciprocal arrangement.

International treaties are agreements among nations. If there is a breach of those treaties, the nations are entitled to enforce them, and that's true under NAFTA. There is no reasonable basis for giving private parties, who have no obligations under those treaties, those enforcement rights. There's no contract. There's no privity of contract. There's no reciprocity.

That's what distinguishes investor-state litigation from arbitration, which, I agree with you, has a very important role to play in sorting out commercial and other disputes.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Okay. So just answer this final question, then: if Quebec wins this case, will you still be of the same opinion about chapter 11?

[Steven Shrybman]

Yes, I would be. We will have dodged another bullet.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Thank you.

[The Chair, Conservative, Lee Richardson]

Mr. Silva.

[Mario Silva, Liberal, Davenport, ON]

Thank you, Mr. Chair.

I want to like to thank the witnesses as well for their comments and for allowing us as a committee to get to know about and familiarize ourselves more with some of the issues of chapter 11. I agree with some of the statements that have been made. Although I'm not quite sure of all of the complexities, I do understand that there is a need to make it a fairer system. I'm not sure whether it needs to be replaced or whether there's a need to put some new mechanisms in place that would in fact deal with some of those concerns.

I would like to ask the witnesses if they could share some of their comments about what they think would be some of the ways we could improve the systems in chapter 11 without necessarily ripping the whole thing out. If the idea is to rip it all out, I'm not sure how it can be done within the framework of NAFTA. I'm not an expert on that particular aspect of the law, but I certainly would like to know whether there's a possibility that we, as legislators, could introduce some mechanism that could in fact make it a little better.

Maybe Professor Amos could reply.

[William Amos]

Thank you for the question. I think it's a good one, and I think it starts moving us towards solutions. While we're dealing with the conflict in this scenario, it does point us towards the need for changes. It also gives me a chance to provide what I think is a different perspective from what Mr. Shrybman provided in relation to Peter Julian's questions on Canada's negotiations of bilateral investment treaties and what direction they have taken on investment negotiations.

First, in terms of distinct improvements that could and should be made in the future, it's very clear that we need the Canadian government to negotiate very clear, bright-line distinctions as much as possible between what are compensable expropriations—whether they're direct or indirect expropriations—and what are non-compensable public regulations. That's absolutely critical.

The second area where the bilateral investment treaties or chapter 11 types of provisions could be improved in terms of promoting sustainability while we're promoting international trade and investment...and this goes back to a point that Mr. Shrybman made earlier, that chapter 11 is a decidedly one-way street. It guarantees foreign investor protections by the host state that the foreign investor can enforce through arbitration; however, there are no corresponding obligations on the foreign investor. There are no mechanisms to hold foreign investors accountable for breaches of international law—for instance, international human rights law and environmental law—through a binding arbitration mechanism. They have a mechanism to challenge measures that they feel affect their investment, but citizens of the states of the party or the parties themselves don't have that same mechanism to challenge their actions. So I think it has to be made a two-way street.

I would simply say, though, to return to Mr. Julian's question—I don't think it would be fair to say that the Canadian government has been standing still in relation to its investment treaties. I think they have definitely made some improvements, and the history of chapter 11 disputes has assisted them in moving towards improved investment protection processes. In 2001 the NAFTA Free Trade Commission issued an interpretive statement on chapter 11—this was really one of the first steps forward—and it issued guidelines on non-disputing party participation in chapter 11 arbitrations. Those are people like us who want to be part of the process. They made it clearer that the arbitrations would be open to the public and that the draft negotiating texts, when they're negotiating these deals, would be made open to the public.

Canada has released--and this is old news, from 2004--a new model foreign investment protection agreement, a FIPA, which serves as the template for negotiations of bilateral investment treaties and for chapter 11-like provisions in trade agreements.

I would certainly not suggest that the 2004 FIPA is perfect; I think there are a lot of things that could be improved with it. This is simply to say that since NAFTA has been signed, Canada has been moving forward and they've been making suggestions for changes in these bilateral investment treaties in relation to issues that we're talking about here: scope of expropriation, a minimum standard of treatment, and access to hearings.

The yardsticks have been moving forward, but not enough. I'm happy to speak to some of the areas where they have moved forward. I don't want this to be all doom and gloom. I think a balanced perspective is necessary on this issue. I don't think it's necessarily helpful to have a really polarized discussion about chapter 11. But if chapter 11 were to be reopened, if there were a will to do that, I think many measures could be taken to ensure not only that investors are protected but also that civil society is protected and the measures go in both directions.

[The Chair, Conservative, Lee Richardson]

Thank you.

I'll remind our witnesses as well as our committee that on the second round the questions and answers are five minutes, so we can't have six-minute answers.

[Steven Shrybman]

If I just might add something—

[The Chair, Conservative, Lee Richardson]

I'm sorry, we finished that question. It's a five-minute round. We're at six and a half minutes. I just wanted to make that clear. So you could maybe answer a little later in the next round.

Mr. Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair, and thank you to our witnesses for being here this morning.

I appreciate, Mr. Amos, your comments about a balanced approach. I think that's important as we try to find constructive ways of moving forward so Canada can expand its trade agreements around the world, as we've been falling behind for the last decade-plus. I appreciate your comments.

I have just a couple of follow-ups. I'm going to share my time with my colleague Mr. Keddy.

We've heard in Newfoundland about the AbitibiBowater case, that the company has indicated that it is examining all the legal options. I'm just wondering what the time line is. What's the statute of limitations on when a company can initiate a claim and throw that kind of fear into the community, the province, and the country? How long do they have to take action?

[William Amos]

There's a limitation period of three years from the time they're aware of the measure. I can't remember if it's article 1117 or article 1118. It's somewhere around there.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

We're going back to the Dow situation. They've initiated, and now they're in discussions. It's not just a matter that, if talks break down between the province and the Government of Canada and Dow, it would proceed on to the tribunal?

[William Amos]

It's difficult to speculate. To tie this back in to your question about the limitation period, the 2,4-D ban was enacted by Quebec in April 2006, so by my math, we would be in theory coming up quite close to this limitation period. However, there's an open issue as to whether or not this measure is an ongoing measure. The ban is still in place, so I'm uncertain and don't have an answer as to whether or not a limitation period issue is raised here in this case.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I'm aware that it's been an outstanding issue. I was nine years in local government, and I was involved in Communities in Bloom and integrated pest management seminars and all the rest.

You mentioned that Ontario, Toronto, and Halifax have also instituted bans. What is the rationale from your perspective as to why Dow hasn't initiated any action against those two municipalities?

[William Amos]

I can speculate. Municipalities are small fish. Provinces are bigger fish. Quebec and Ontario are among the bigger fish in Canada. I think with Quebec enacting the first ban, it's quite conceivable that Dow decided they were going to try to draw a line in the sand and try, at best, to prevent future bans and repeal this ban, and at worst, to delay the other provinces' decisions in enacting bans through this NAFTA chapter 11 discouragement process, if you will. While there's uncertainty as to the outcome of the litigation, other provinces might be less enticed to move forward, as well as municipalities.

Right now, it would appear that Ontario is moving forward strongly. Municipalities close to home—I live in Chelsea here, one of the leaders in this issue, and they're not going to back down either. They welcome the challenge. I guess municipalities are smaller battles, so maybe they decided it wasn't worth it.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Obviously it takes time to get through this arbitration and to tribunal. Who covers the costs? You are representing different organizations.

[William Amos]

As legal counsel with Ecojustice Canada, my services are pro bono for the environmental groups that I work with. Ecojustice Canada is a non-profit charitable organization. We are funded by public donations and by private foundations. We don't receive a penny of government money, so all of our work is being done for free minus the photocopies and phone expenses.

The Canadian taxpayer, quite obviously, is paying for the legal fees associated with the defence of this claim and Quebec's ban.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I have one last comment with regard to Mr. Shrybman.

In your opening preamble, you talked about the tribunal and the perception of it being sort of an American body. As you alluded to, it's one Canadian, one American, and the third member of the tribunal is at the agreement of both parties. Do you feel it's American biased because it's located in Washington? Is that what your reference is to, or how would you be able to clarify your comments?

[Steven Shrybman]

No, I wouldn't suggest that it's an American body. It's a private adjudicative or a quasi-private adjudicative body.

I mentioned the fact that the cases are often heard in Washington, which doesn't make it an American regime. I also made a point, though, about the place of arbitration. That's a determination the tribunal makes, and in claims against Canada that's usually some place outside the country, which means that only a court in that jurisdiction has the authority to review an arbitral award.

So it's the removal from the purview of Canadian courts and from the purview of Canadian elected officials that I find problematic with this regime--and I think you should as well--not necessarily to an American body but to one that sits outside the framework of Canadian law and outside the framework of the Canadian Constitution. It exists in an international law space largely created to resolve commercial disputes, not disputes about public policy and law. That's the concern.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

In the spirit of trying to improve chapter 11 and Mr. Amos' comments, that would be part of your recommendation, then, to try to find a better mechanism, not just as my colleague Mr. Harris said.... You still have arbitration, but are you totally against chapter 11 and for removing arbitration out of this part of the dispute resolution mechanism?

[Steven Shrybman]

I think it's very difficult to argue that it serves a useful purpose. I just don't think the evidence is there. When you look at the studies the World Bank has carried out of whether the mechanism even works, you have to have questions about it.

When we had a free trade agreement with the United States in 1988, we had an investment chapter, but we didn't have investor-state dispute resolution. So there's a basic question about whether you need the mechanism, and I think the evidence is that it has not served Canada well and certainly hasn't served Canadian investors. If you wanted to cooper it up, there are ways to do that, exhausting local remedies. There are a number of technical changes that you would make to the regime to make it more transparent, to make it possible for people to participate in the process.

We've intervened in disputes. I'm now intervening in the Merrill & Ring case, but I don't get to see the evidence. So it confounds any notion of fairness that certainly would apply to labour arbitrations or proceedings before Canadian courts.

It's a system that wasn't created to resolve public disputes. I don't think it's the appropriate forum for that type of argument or legal claim. It could be fixed up, but I think you really have to answer the question first as to whether or not it's serving a valid purpose.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I know the courts prefer to go to mediation rather than litigation.

Thank you.

[The Chair, Conservative, Lee Richardson]

Monsieur Guimond.