International Trade Committee on March 8th, 2011

[The Chair, Conservative, Lee Richardson]

We will resume.

We welcome back to our committee, from the Council of Canadians, Steven Shrybman, who has been with us several times before. He is an international trade and public interest lawyer. From the Macdonald-Laurier Institute, we have Brian Lee Crowley, managing director. As an individual, we have Gus Van Harten, associate professor, Osgoode Hall Law School, York University.

We're going to again have brief opening statements. We won't have a lot of time for questions, because we're going to have an opening comment from each. I'm going to ask you to keep them as brief as you can.

Let's begin with Mr. Van Harten.

[Prof. Gus Van Harten, Associate Professor, Osgoode Hall Law School, York University, As an Individual]

Thank you very much, Mr. Chair. It's an honour to present to you today.

My name is Gus Van Harten. I'm an associate professor at Osgoode Hall Law School. I previously taught and studied at the London School of Economics, where I did my doctorate in law on investment treaty arbitration and public law.

I have four main points to make about the AbitibiBowater case and settlement.

First, the case and settlement are examples of how NAFTA chapter 11 and other investment treaties concluded by Canada that provide for compulsory investor state arbitration may, by their operation, conflict with a basic principle of Canada's system of constitutional democracy. This is the principle that Parliament or a provincial legislature is supreme and that it may legislate or regulate on any matter within its constitutional authority without payment of compensation to private parties whose economic interests are affected by the legislation.

This is a longstanding principle of parliamentary democracy and the common law tradition as recognized by A. V. Dicey and others. By ratifying NAFTA, the federal government in effect determined that this principle would be subordinated to decisions of arbitrators who are appointed in cases brought by private parties under the treaty.

To date, there have been 28 cases against Canada under NAFTA chapter 11. A number of these cases never led to the establishment of a formal tribunal; however, a number of these cases have arisen from legislative acts or from decisions adopted pursuant to broad statutory schemes.

For example, there is an ongoing Dow Chemicals claim against Canada involving a challenge by a U.S. chemical company to the Quebec prohibitions on the cosmetic use of pesticides pursuant to Quebec's Pesticides Act. The Gallo claim arises from legislation introduced in Ontario to end, finally, a scheme to dispose of Toronto's garbage at a quarry in northern Ontario. The Centurion Health Corporation claim arose from a challenge to the Canada Health Act by a U.S. private health care provider. The Ethyl claim was one of the first under NAFTA claims that arose from federal legislation that put restrictions on a gasoline additive. That case was settled by the federal government for, amongst other things, payment of compensation. All those cases involve legislative acts.

The second point I would like to make is that this constraint of the authority of Parliament or a provincial legislature could have major implications for the federal-provincial division of powers if it were to lead to affirmative orders issued by arbitrators against a provincial government, or if it were to lead the federal government to seek payment by a province of international awards issued against Canada.

As a matter of international law, it was the federal government on behalf of Canada that ratified NAFTA. So it is the federal government on behalf of Canada that is responsible for Canada's treaty obligations under NAFTA.

As a matter of Canadian constitutional law, which of course is a distinct source of law, since the federal government did not seek the consent of the provinces and passage of provincial legislation in order to implement NAFTA chapter 11 awards where they arise within matters of provincial responsibility, it is the federal government that is very likely responsible for those awards as issued against Canada.

This is so because of the constitutional principle recognized in the Labour Conventions case of 1937, which is that the federal government cannot avoid the federal-provincial division of powers in the Constitution merely by entering into treaties with foreign countries that could encroach on provincial authority.

The third point I would like to make is that sometimes the word “court” is used to describe the dispute settlement process under NAFTA chapter 11, and I would just like to clarify that the decisions are made by arbitrators. We should not confuse the arbitrators with the courts or tribunals, both domestic and international, that enjoy certain institutional safeguards of judicial independence. On the contrary, the arbitrators who decide the NAFTA chapter 11 cases lack such safeguards in important respects, especially the safeguards of judicial security of tenure, prohibitions on outside remunerative activities by the judge, and an objective method of appointment of individual judges to particular cases.

In the absence of such safeguards, reasonable perceptions may well arise that the arbitrators have been influenced inappropriately by the financial incentives that arise to please prospective claimants, to respond to the interests of executive officials in the appointing authorities for the arbitrators as well as the major governments and other actors that have the greatest influence over whether or not to include arbitration clauses in the treaties.

This makes it all the more significant that arbitrators, quite exceptionally in this regime of international adjudication, have been given the authority--in fact, to a greater extent than any other international court or tribunal--to decide public law claims by private parties, without a requirement to resort to the domestic courts or tribunals before an international claim is brought, and without a robust review process by an international or domestic court, and also to award public compensation to private parties for legislative, executive, or judicial acts. This is a quite different dispute-settlement process from anything that you would find in customary international law, or indeed under any other international treaty, including treaties that allow private claims against states.

The fourth point I'd like to make is to simply highlight the experience to date of the Canadian government and Canadian investors seeking protection in arbitrations pursuant to investment treaties. The information is drawn from a database of known investment treaty cases, as maintained by me and others at Osgoode Hall Law School.

Overall, the experience to date of Canada as a respondent has been average. For NAFTA chapter 11 arbitrations against Canada that have led to a final resolution on the merits, either by way of an award against Canada, or in favour of Canada, or by a settlement, the result was four wins for Canada and four losses. That's an average result and it compares to the experiences of other countries, although one might expect a little better, given that Canada is a mature democracy with mature domestic judicial institutions and so on. But it's not a lot of data.

More striking, however, is that in known cases brought by Canadian investors against the United States under NAFTA chapter 11, as well as in some cases brought against other countries under bilateral investment treaties, Canadian investors have zero wins and 16 losses. There are many possible explanations for this poor record. It could be that Canadian investors brought bad cases or had bad lawyers. It could be coincidence. There's not a lot of data.

But more worrying is that the investment arbitration industry, which is based in Paris, London, Washington, New York, and the Hague, may not be a particularly favourably forum for Canadian interests. I suggest only that it's an issue that warrants greater attention and scrutiny by policy-makers and treaty negotiators.

I also have a summary of all the known cases involving claims against Canada or by Canadian investors, which I will happily share with the clerk of the committee.

Thank you for the opportunity to speak to you today.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Van Harten.

We'll now hear from the Council of Canadians and Steve Shrybman.

Mr. Shrybman.

[Steven Shrybman, International Trade and Public Interest Lawyer, Council of Canadians]

Thank you, Mr. Chair.

Good morning, members of the committee.

I am going to address the impact of Canada's decision to settle this claim under chapter 11 on public ownership and control of natural resources, and in particular, water, a principal concern of the Council of Canadians.

I've provided a copy of my remarks to the clerk. Unfortunately, they were prepared only yesterday, so I don't have them translated, but he has indicated that they will be translated and placed on the record. I commend them to you. I'll give you a short praecipe of that paper. It begins with the following summary.

The settlement by the Government of Canada of an investor-state claim by Abitibi effectively allows foreign investors to assert a proprietary claim to Canadian water, including water in its natural state, where those investors have acquired a right to use water resources by permit or otherwise. By doing so, the Government of Canada has essentially transformed Canadian freshwater resources, most of which are owned by the provinces as a public trust, into a private property right, to the benefit of foreign investors that have acquired a right to use water by provincial permit.

It would be difficult, in my submission, to overstate the consequences of such a profound transformation of the right that Canadian governments have always had to own and control public natural resources. Moreover, by recognizing water as private property, the government has gone much further than any international arbitral tribunal has dared to go in recognizing a commercial claim to natural water resources.

For this reason, not only will the AbitibiBowater settlement invite similar claims against Canada, but it is likely to also be taken up internationally by corporations seeking to establish proprietary rights to water in a world where this non-renewable resource is becoming increasingly scarce.

That's the summary and introduction.

I go on to describe briefly the circumstances that gave rise to the claim. I know that the committee has considered them in some detail this morning and I won't repeat or try to cover that ground, but I will say that I have reviewed Bill 75. It clearly did expropriate some of the assets that belonged to AbitibiBowater, but also, it recovered to public use water and forest licences that were never the private property of AbitibiBowater.

It's in asserting a claim to those rights, the right to use resources for a particular public purpose--in this case, to create employment in Newfoundland--that the government settlement of the claim gives rise to the concerns that I have just summarized.

I'll just note one point in regard to Bill 75 that may have been overlooked this morning. Bill 75 did not take Abitibi's property without the consideration of compensating the company for that taking. The legislation explicitly provided the government the opportunity to compensate Abitibi for property; it simply didn't set out a value for the property that was taken or the compensation that might be paid to the company.

That is the way our Constitution works in Canada. Governments have always had the right to appropriate private property for a public purpose, and whether or not or the extent to which compensation would be paid was a matter for governments to determine. That's the way our Constitution works.

When it was proposed in the early 1980s that we incorporate to the Constitution a protection of private property, Canadian governments rejected that norm, a norm which you know is embedded in the U.S. constitutional framework.

So what we've done is effectively transform the constitutional landscape of the country by writing into an international agreement a right to compensation in all cases that property is taken--and to the fair market value of that property. That's not our constitutional arrangement, but it is the rule that Canada agreed to when it negotiated, first, the Free Trade Agreement with the United States in the mid-eighties, and then consolidated that commitment with chapter 11 in NAFTA, which also established for the first time the right of foreign investors to assert a claim for compensation should Canada violate the norms of that international agreement.

The settlement of the dispute between Abitibi and Canada is set out in a consent order of the arbitral tribunal. You can find that on the NAFTA secretariat website. The committee may have already done this, but if you review the terms of the settlement, you will find in article 5 this statement: “As consideration for the above-cited final settlement” with AbitibiBowater “relating to the assets and rights cited therein...”.

You'll have my remarks, and I re-cite this provision of the settlement agreement, but what's important about it is that it's clear from the terms of settlement that compensation is being paid not just for the assets of the company--the power plant and the mill--but also for the rights that it was asserting. If you look at the company's claim, you will see a long list of water licences, forest permits, and other interests the company had acquired over the years, and in fact over decades, under various political administrations and through various transactions with other companies: rights to use provincial forest resources and provincial water resources.

The settlement clearly indicates that compensation is being paid on account of those rights, but doesn't distinguish among them in any way. So in effect, on the face of the settlement itself, every assertion of right made by Abitibi is deemed worthy of compensation by the Government of Canada, because it made no attempt to exclude from its settlement agreement any of the rights that Abitibi was asserting. Moreover, by recognizing a proprietary claim to water-taking and forest-harvesting rights in this manner, Canada has gone much further than any international tribunal established under NAFTA rules or, to my knowledge, under the rules of any other international investment treaty.

What's even more problematic about the settlement is the precedent it will create. If you look at the terms of the settlement, you will find a provision that stipulates that.... I'll read it for you:

This Settlement Agreement shall not constitute a legal precedent for any person, and shall not be used except for the sole purpose of giving effect to its terms, and shall not prejudice or affect the rights or defenses of the Parties or the rights of any other person except to the extent provided herein.

Now, that proviso is entirely ineffective, and the Government of Canada knows it, because it fully understands that under article 1102 of NAFTA, it is obliged to provide “national treatment” to all other foreign investors in like circumstances. It cannot contract or legislate its way out of that obligation. If it wants to amend that obligation, it has to go back to the United States and to Mexico and say that article 1102 needs to be revised.

This is so we are not stuck having to pay precisely this type of compensation to every other company operating in Canada that has a water-taking permit or a forest licence when a government of this country decides that, for whatever reason, for the purposes of sustainable development, because there's some higher and better use for those resources, or because the company has no longer honoured its obligation to create employment as a condition of accessing those forest and water resources. Those conditionalities are a feature of laws from one end of this country to another. Canada would be on the hook to honour the kinds of claims or to pay the kinds of claims that would be asserted by companies in like circumstances to those of AbitibiBowater.

Therefore, in my view, it's not an overstatement to describe the consequences of this settlement as effectively representing a coup de grâce for public ownership and control of water and other natural resources with respect to which some licence or permit has been granted.

I'm out of time. If you have regard to my remarks, you'll see that I attempt to explicate what this means in terms of a company with a permit to use water to water a golf course in Quebec, to run a power plant in Ontario, or to provide the water resources for bitumen extraction in Alberta.

It has profound and far-reaching consequences and implications for Canadian ownership and control of natural resources from one end of this country to the other. If this were a settlement for $1.3 billion, it wouldn't be about the money: it would be about this profound loss of public right with respect to public natural resources.

Thank you, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

Thank you. It's an interesting point. I'm not sure this is the forum to say it in, but it's an interesting point.

Mr. Crowley.

[Brian Lee Crowley, Managing Director, Macdonald-Laurier Institute]

Thank you, Mr. Chair.

I'm the managing director of the Macdonald-Laurier Institute, which is a public policy think tank based in Halifax.

As I understand it, the committee is charged with studying a matter of great national importance that falls into two parts: first, $130 million paid by the federal government to AbitibiBowater as a settlement of its claim under NAFTA's investor provisions, and second, the impact of this settlement on future democratic decisions taken in the public interest by Canadian governments at all levels. Those are two separate issues, and I'm going to speak to both of them.

Like Mr. Van Harten, I intend to make four points with respect to these issues today.

Point one: the chapter 11 provisions of NAFTA provide no bar whatsoever to Canadian governments acting in the public interest through law and regulation, but they properly require that the government pay the legitimate costs associated with their decisions, including compensating parties whose property is confiscated or nationalized.

Let me expand on that point. The successful actions against Canadian governments under NAFTA's chapter 11, including AbitibiBowater's, have not been decided on the basis that Canada did not have the power to act in the public interest. That has not been the basis of these decisions. Indeed, there is no such provision under NAFTA, and no government would have signed it if there had been. What NAFTA does require is that where the legitimate interests of foreign investors have been damaged by policy decisions of those governments, those investors should receive appropriate compensation.

In the case of AbitibiBowater, for example, the chapter 11 challenge did not seek to roll back the decision of the Government of Newfoundland and Labrador to nationalize those assets. Instead, the challenge sought compensation for the damage the decision did to the legitimate interests of the company and its investors.

The claim that no compensation should be forthcoming in such circumstances is not, in my view, a defence of the sovereignty of governments in Canada. It is a defence of the unprincipled position that governments should be able to ignore the rights of parties damaged by government action, that individual rights should be hostage to the whims of government, and that the rule of law is an annoyance to be dispensed with when it inconveniences policy-makers.

Point two: paying compensation for expropriation is a matter of basic fairness and is a fundamental principle in Canadian law, not just NAFTA. Such a need for compensation is quite deeply entrenched in Canadian law and practice, quite separate from the constitutional question that Mr. Van Harten quite properly raised, which is that constitutionally there is no bar to this happening. That doesn't mean that governments have to not provide compensation.... On the contrary, the ability of governments in Canada to seize my home or your farm for matters of high national interest is undisputed. No one challenges that.

What is equally undisputed is that individuals should not be forced to bear the cost of important public policy, but that the cost of policy should be borne by governments and the taxpayers they represent. That is good policy when we consider that Canada has benefited enormously from the inflow of foreign investment over the course of its existence, since such investment brings with it not only employment but expertise and productivity improvement.

But it is in the nature of such investments that they have to be made up front, with often billions of dollars paid in the first year to, say, build an oil sands cracking plant, whereas the payback period is normally measured in years, if not decades. This long payback period after the initial investment subjects investors to various kinds of risks.

One of the principal risks is the risk that governments will change the law or break promises they have made in order to attract the investment in the first place. This political risk, I am glad to say, is relatively low in Canada, precisely because of our long-established tradition of the rule of law, the independence of the courts, and our deep commitment to fairness. As a result, we've been a very popular destination for foreign investors, but actions such as those of the Government of Newfoundland and Labrador endanger that hard-won reputation.

I think it's important to underline that the investor protection provisions are in no way an obstacle to democracy, because democracy here does not refer only to the ability of majorities to make decisions. We in Canada believe in a particular kind of democracy, where even the will of the majority is bound by rules and laws.

We believe, in other words, that even majorities may be wrong, and there are certain things majorities ought not to be allowed to do, such as oppress minorities. This means that constitutionalism and the rule of law are an integral part of democracy in Canada and that the investor protection provisions in particular and rules against uncompensated confiscation of property in general are firmly within the Canadian democratic tradition.

Point three: as a country with huge investment in other jurisdictions, we benefit enormously from such investor protections in other countries, and failure to apply such protections domestically would damage our credibility and harm Canadian investors. Let me expand on that point a bit.

In Canada, we don't actually have that much of a problem with uncompensated seizures of property. It's not chiefly a domestic issue because such seizures are, thankfully, quite rare. The larger problem is that Canada, in addition to being a major recipient of foreign investment, is also a major source of foreign investment for other countries. In fact, Canada has usually been a net exporter of capital since the late 1990s. In my brief, I include some data that will allow you to establish the truth of that proposition.

This means that a great many Canadian companies have invested millions of dollars in far-flung places like Peru, Ecuador, Mongolia, Vietnam, and Jordan, in industries as diverse as telecommunications, mining, and transportation. The profits earned by these companies help to pay for jobs and economic activity here, they generate tax revenue in Canada, and they help to pay for pensions and other retirement savings. In addition to benefiting Canada, these investments benefit the host country for similar reasons.

But the fact of the matter is that many countries that do not have the benefit of Canada's deep tradition of the rule of law and fair treatment under independent court often indulged in the kind of uncompensated seizure of foreign assets that the AbitibiBowater decision dealt with, because foreign investors could not be certain that their capital would be safe. The levels of investment required to lift many of these countries out of poverty were not available, and the political risk was simply too high. As a result of decades-long efforts by Canada and other western countries, we have increasingly brought such countries to understand the necessity of providing a stable and safe climate for foreign investment, achieved largely through bilateral treaties, but also through multilateral negotiations. The result has been a significant increase in the flow of capital to such countries and measurable improvements in their levels of growth and employment. Again, I include a chart which documents this.

A key factor, however, in helping such countries to see the worth of negotiating such investor protection has been the credibility of western partner nations, such as Canada, in arguing that they are not seeking to apply a double standard, but are asking third-world countries to apply the same standards that we have applied to ourselves.

Even if the net consequences of Newfoundland's decision in the AbitibiBowater asset seizure had been positive, I think the damage done to our credibility and the safety of Canadian foreign investments would far outweigh the benefit. As I hope I have made clear, I believe the consequences of Newfoundland's decision were negative, not positive.

The final point is that the AbitibiBowater case points out a damaging inconsistency in Canada's constitutional legal framework, whereby Canada has the treaty-making power and is therefore responsible for ensuring that we meet our treaty obligations, but provinces are not bound to respect the NAFTA provisions. A mechanism can and should be found to oblige provinces to take responsibility for their decisions and to prevent them from passing the costs of provincial decisions on to the federal taxpayer.

One of the questions that must seem mysterious to many outsiders is why Ottawa and the federal taxpayer had to pick up the cost of a decision that went against the Government of Newfoundland and Labrador for an issue falling under provincial jurisdiction. I'm scarcely saying anything this committee does not know when I observe that this anomaly arises because only the Government of Canada has the power to make treaties with foreign countries.

As the sole Canadian signatory of NAFTA, Ottawa is the respondent in NAFTA actions such as chapter 11 cases and, therefore, is responsible for ensuring that we meet our treaty obligations. The fact remains, however, that provinces can and do have the power to take actions that are contrary to NAFTA's provisions. At present, there is no mechanism for holding them responsible for these actions when they result in Canada's having to pay damage to other NAFTA partners. This asymmetry exits despite the fact that a large majority of provinces were supportive of the original free trade agreement, and later NAFTA, and indeed have recently sought the extension of NAFTA's benefits to state, provincial, and local government procurement in the face of the Buy American provisions of many of the stimulus programs in the recent recession.

If there is any kind of democratic deficit in the AbitibiBowater decision, it is that the Government of Newfoundland and Labrador was able to force the federal government and federal taxpayers to pick up the tab for its bad behaviour. Surely one of the principles of democracy is that voters should have to face the true costs of such decisions so that they can make a balanced assessment of the pros and cons. The current arrangements reward such bad behaviour and force innocent federal taxpayers, who have no hand in choosing provincial governments in other provinces, nonetheless to pay the tab. This is a classic perverse incentive.

I would therefore urge this committee to recommend that some kind of formal mechanism be established, by federal legislation if necessary, to ensure that the potential for such destructive gaming of the system by provinces be eliminated. Ideally, this should be done by negotiation, but the principle at stake is serious enough that Ottawa should consider giving itself the legal power to claw back from federal transfers amounts equal to the costs of the legal defence of such actions by provinces and the amount of any eventual awards. I realize that this is a complex area, but I cannot believe that a reasonable accommodation cannot be found.

Finally, I observe that precisely because provinces escape the obligations that NAFTA imposes, the European Union was keen to have the provinces represented at the bargaining table for the ongoing Canada-EU free trade negotiations. If the provinces are going to insist on sitting at the table and helping to negotiate such agreements, they should accept up front to be bound by all the obligations that result. To do otherwise is to confer on them power without responsibility, which, in my view, is another combination that has been found to be poisonous to the success of democratic institutions.

Thank you very much.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Crowley, for a fascinating commentary. I'm sorry that we don't have a whole lot more time. We only have about 20 minutes to go.

We're going to have to limit these rounds to five minutes in the first round. That's all we're going to get in today. So in fairness to each one, I'm going to ask that our questioners and our witnesses try to keep each segment to five minutes.

We're going to start with Ms. Hall Findlay, followed by Monsieur Guimond.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Thank you very much, all three of you.

I have a quick comment, Mr. Crowley. On your last point, we did earlier have the discussion about the frustration and complete lack of negotiation and discussion between the provincial government and the federal government before putting that liability on Canadian taxpayers. I hope that in all of this we may have learned some lessons.

I say that out of full respect for the need for the process, the understanding of chapter 11, the need for that and the international responsibilities that this entails, and indeed from a positive perspective.... But your last point, I think, was the most telling, and I think is something that the federal government needs to work on, if not officially, very much in increasing the level of negotiation, interaction, and cooperation with the provinces.

[An hon. member]

Hear, hear!

[Martha Hall Findlay, Liberal, Willowdale, ON]

My question, though, is for Professor Van Harten.

As an Osgoode graduate, I'm particularly glad to see you here. This is great. My question for you relates a little bit to Mr. Shrybman's comments.

We're very short of time, but I was interested in your list. I'm glad that's coming to the clerk, because Don Stephenson from the department had said that this is the first time there has been--I think he said this is the first time--a settlement by the federal government under a chapter 11 expropriation. You've suggested there were a bunch more, so I'm looking forward to that.

But can you comment on Mr. Shrybman's comments about what this does from an international law perspective to some of those other rights such as water and forests?

[Prof. Gus Van Harten]

There's one other publicly known settlement, which is the Ethyl settlement, very early in the NAFTA experience. The United States has never settled a case.

On Mr. Shrybman's comments, as a matter of international law, for example, NAFTA itself defines assets extraordinarily broadly, and I have no doubt that the assets in question here would qualify under the definition of investment in NAFTA chapter 11. As a matter of customary international law, they might qualify as property, but there would be a lot of debate about the amount of compensation to be paid. NAFTA reflects the Hall standard of customary international law, which is the U.S. approach, historically, and most other countries in the world supported other standards such as appropriate or just compensation in general assembly resolutions in the 1960s and the 1970s.

As a matter of Canadian domestic law, I would probably just wish to defer to Mr. Shrybman on his evaluation of that. The one point I would make is that NAFTA covers indirect expropriations, whereas in Canadian law indirect expropriations, compensation is available only if there has been a direct taking of title. That is not the case under NAFTA chapter 11. Furthermore, of course, it's always subject to legislative supremacy, and legislative supremacy, as I indicated, has been in effect subordinated by NAFTA chapter 11 to the decisions of the arbitrators.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Given the lack of time, Mr. Chair, I'll allow colleagues to continue.

[The Chair, Conservative, Lee Richardson]

Monsieur Guimond.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Chair, I am somewhat disappointed that we have received no documentation, either from the officials or from the people appearing today. We have not received anything. I do not know if it is because we travelled to Washington last week, and there was no time as a result. Mr. Laforest and I have made this observation. We would have appreciated the witnesses sending us their notes.

I have been a member of this committee for two years. We have often discussed chapter 11. We must acknowledge that it is a sensitive issue. We are talking about legal drift and uncertainty. We are hearing all kinds of things. I appreciate the arguments made by Mr. Shrybman when he talks about what the future will bring in terms of natural resources. Last Sunday noon, I listened to a Radio-Canada program that was discussing potential shortages of oil, water and food. If we are not careful and if we do not take the necessary steps immediately, we risk facing serious consequences.

Mr. Van Harten, in your presentation, you spoke about arbitration and about judges being influenced, but particularly about the fact that Canada has not had much success until now. That shocked me. If that is the case, there must be case law that shows it. I would like to know what your statement is founded on, and, given that case law exists, how we are going to manage to salvage anything.

[Prof. Gus Van Harten]

Yes. What's significant that the tribunals give interpretations to broad language of standards in the treaties. So the tribunals interpret what a very important concept of indirect expropriation or regulatory expropriation means. They interpret what is discriminatory. They interpret what is fair and equitable treatment.

When you look at the legal interpretations arrived at by tribunals, I understand there are differences between cases and facts, but the general law should more or less remain the same from case to case, regardless of respondent state, nationality of claimant, and so on.

I teach international investment law to students. In the NAFTA chapter 11 context, it is quite striking to see that clearly state-friendly interpretations of NAFTA arise under all the key standards in claims brought against the United States by Canadian investors, whereas the more investor-friendly interpretations in existing cases have involved claims against Mexico or the United States. I can cite the ADF award on national treatment.

I will give you an example. The Glamis Gold lawsuit against the United States involved a fair and equitable treatment claim. It involved a claim--the same as the one by AbitibiBowater against Canada here--that there was a failure to live up to legitimate expectations and maintain a stable business environment. That component of fair and equitable treatment was denied as a component of article 1105 in the Glamis claim against the United States, but it has been accepted in the subsequent and very recent claim against Canada in the Chemtura case.

Chemtura was won by Canada, but the interpretation of the law is significant, because in the experience to date--and there are not that many cases--it's quite clear that the United States has enjoyed more state-friendly interpretations of the core standards than have Mexico and Canada. If you extend that to other countries, the trend is the same.

[Steven Shrybman]

Could I add something to that, but in plain language? What Mr. Van Harten is effectively saying is that because tribunals are not independent, because they're not like Canadian courts, and because arbitrators depend upon having cases referred to them, no arbitrator would decide a case against the United States. Because they understand that the Congress of the United States would not put up with a private international tribunal deciding that something a U.S. government has done would give rise to compensation to a foreign investor. It's that simple.

Those arbitrators also know that Canadian governments will put up with precisely that type of abuse. That explains the asymmetry in the results between cases brought by Canadians against the United States and cases brought by Americans against Canada--in plain language.

[The Chair, Conservative, Lee Richardson]

Thank you.

Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you.

There's so much I'd like to ask all three of you, but I only have five minutes, so I'll get right to it.

Mr. Shrybman, I have a question for you. You've been clear about the danger of the payout made last summer to AbitibiBowater in setting a precedent, both for water rights that AbitibiBowater has and for potentially those of any other company. Do you think the federal government did an appropriate evaluation of what the impacts were of making this decision before they made it?

We've found out so far today--and this is the first hearing--that it's not just the $130 million; it's another $30 million for severance payments, environmental remediation...we're talking about hundreds of millions. So we're probably talking about a gift to AbitibiBowater of anywhere up to half a billion dollars. The government obviously didn't do an evaluation on the financial side. Did they do an evaluation on the legal side?

Mr. Van Harten, thank you for your comments. Given that the arbitrators who make the decisions in the chapter 11 provisions receive money from the companies that they're called upon to judge, and you raised the issue of judicial independence, do you think we've established a type of kangaroo court, for lack of a better word?

Evidence today has shown that AbitibiBowater is a Canadian company headquartered in Montreal that's using an escape clause to get chapter 11. We've seen other companies like Pacific Rim use similar investor-state provisions to change their nationality.

Does the decision on AbitibiBowater encourage any company that wants to file legal papers anywhere else on the planet to use the chapter 11 provisions to sue the Canadian government for decisions made in the public interest? That's a question that I've asked all three of you.

We will start with Mr. Shrybman.

[Steven Shrybman]

There are two possible explanations for why the Canadian government decided to settle rather than defend against this claim. One is that AbitibiBowater was in distress, the government wanted to provide some funding to it, and this was a convenient way to do that without creating a precedent that would cause every other company in financial straits to come knocking at its door. That's one explanation.

The other explanation is that the Canadian federal government doesn't much believe in public ownership and control of Canadian natural resources. It would rather see those privatized in every domain, from forest to water. There was no way it could proceed with a political agenda of that character, so this was a way through the back door to arrive at the same place.

What matters is not what their motives were, but what the consequences of their decisions are. Under NAFTA, Canadian governments, both provincial and federal, have an obligation to provide national treatment, which is the most favourable treatment accorded to any foreign investor in similar circumstances.

There are tens of thousands of companies operating in this country with permits to take water or harvest forests from public land as natural resources. Every single one of them, through the simple expediency of finding a foreign investor in the United States, can now tell others that they cannot recover any of the water that the company is entitled to take by permit to water its golf course, to irrigate its crops, or to bottle Coca-Cola to sell in U.S. markets, unless they pay the company, even though, until this very moment, these resources have always been understood to be public property, held in public trust by Canadian governments, for the benefit of Canadians, both present and future.

That's the consequence and that's what matters. Whether it was a diabolical plan to undo public ownership of public natural resources or just a politically expedient way to funnel money to a company in distress, I don't care. They didn't defend the case and its consequences are clear to anybody who practises law in this domain.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you.

Mr. Van Harten, please comment on the kangaroo court, and on the nature of AbitibiBowater using chapter 11.

[Prof. Gus Van Harten]

On the second question, this is the practice of forum shopping or round-tripping. In forum shopping, you set up a holding company in a third state in order to gain access to that state's investment treaty to sue the state in which you own assets. That's common in investment treaty arbitration. Not all countries allow it, but Canada certainly does.

Round-tripping is more controversial. That allows domestic investors to set up a holding company abroad in order to sue their own country. The most significant case is the Tokios Tokelès decision against the Ukraine, where a holding company in Lithuania was 99% owned by Ukrainians but was allowed to bring a claim under a bilateral investment treaty between the Ukraine and Lithuania by the arbitrators on the basis--and I quote from the award--that “the origin of the capital is not relevant” to the definition of investment.

That was a decision of two of the arbitrators in that case. Quite remarkably, the presiding arbitrator dissented from that decision on the basis that it violated the purpose of the ICSID convention, which was to promote foreign investment. The presiding arbitrator resigned in that case.

[The Chair, Conservative, Lee Richardson]

Thank you.

Very quickly, for one minute.

[Brian Lee Crowley]

Just on--

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Sorry, I would like Mr. Van Harten to reply on the kangaroo court settlement.

[The Chair, Conservative, Lee Richardson]

I'm sorry, Mr. Crowley.

We're going to have to move on with your time, Mr. Julian, if you're going to give him fair comment.

Mr. Crowley, did you want to finish?