Mr. Chair, I thank the committee for the invitation to participate.
Today's trade and investment treaty negotiations no longer deal exclusively, or even primarily, with trade matters. They are increasingly about putting new types of restrictions on how governments and societies are able to democratically regulate themselves. This is particularly true in the case of TPP negotiations with the U.S. and 10 other Pacific Rim nations, which Canada joined last year. It has been consciously sold as a next generation, 21st century trade and investment agreement that will delve into many behind-the-border regulatory matters. The agreement is designed to tie government's hands in many areas only peripherally related to trade, including patent protection for drugs, foreign investor rights, state-owned enterprises, local government purchasing, orderly agricultural marketing, cultural expression, and public interest regulation.
Canada already has trade and investment treaties with four other TPP members. It is in separate bilateral negotiations with Japan. The other six countries combined account for less than 1% of Canada's exports. With the exception of the Japanese market, there is limited trade expansion upside, yet there are very significant policy risks for Canada in this side of negotiations.
The TPP is primarily a U.S. driven and dominated project. From their perspective, it is a geopolitical exercise with a dual purpose: to construct a trade and investment bloc that reflects U.S. commercial interests and regulatory norms, and to counter the growing dominance of China in the Asia-Pacific region. The U.S. expects the TPP to curb China's influence by providing an advantage to U.S. commercial interests over Chinese competitors within the bloc, and ultimately the goal is to convince China to join the TPP on terms that compel Chinese reform in areas such as state-owned enterprises and currency manipulation. It is far from clear that the TPP will have the desired results in China. It will certainly enable the U.S. to apply intense pressure on other TPP members, including Canada, to accede to their ambitious regulatory demands.
A key problem with the agreement and the processes is that despite its potential to have serious implications on governments at all levels of the citizenry, the negotiations are excessively secretive. There are no opportunities for public scrutiny and debate of negotiating proposals and texts. The 26 draft chapters and other negotiating documents are stamped as classified for four years from entry into force of the TPP agreement, or if no agreement enters into force, four years from the close of the negotiation. Officials and private sector advisers must sign strict non-disclosure agreements. This extreme level of secrecy is unacceptable, especially when one considers that the TPP deals with regulatory matters that go to the heart of democratic decision-making in the public interest. Any agreement would restrict the policy options of future governments for generations.
There are precedents for greater transparency. The draft text of the free trade area of the Americas, FTAA, was publicly released in 2001. The WTO regularly publishes negotiating proposals and draft texts. It is critical that the TPP terms be subject to greater scrutiny by the public, outside experts, and legislators before they are agreed to and essentially set in stone by negotiators.
The rest of my remarks will focus on two important areas where some information has been leaked from inside the negotiations: first, the impact of TPP proposals on drug costs; and second, the investment protection chapter and investor-state arbitration.
The U.S. proposal for intellectual property in drugs has been leaked. It incorporates demands from the brand name industry for WTO-plus patent protection, including longer periods of data exclusivity, stronger patent linkage provisions, and significantly for Canada, patent term extensions, which would add to the term of the patent the time it takes for health regulators to give regulatory approval to a drug, up to a maximum of five years.
The U.S. has made these proposals for longer periods of patent protection conditional on a so-called access window. This would give brand name drug companies access to the stronger IP protections only if they stopped marketing approval for a drug in another TPP country within a certain as yet unspecified period of time, after first obtaining marketing approval in another country. But the access window is little more than window dressing. The proposed changes would invariably reduce the availability of cheaper generic medicines and drive up costs to consumers and governments.
Currently Canada does not have a system of patent term extension, although it is widely expected that the CETA will move us in this direction. The estimated cost of implementing a full system of patent term extension is around $2 billion annually. Containing rising drug costs is essential, and these U.S. demands could deal a further blow to the sustainability of Canada's universal health care system.
The U.S. has also proposed new rules that would undermine important drug cost containment policies, including price regulation and reimbursement levels. A proposed annex to the TPP transparency chapter would deal specifically with pharmaceutical and medical technologies. It includes procedural rights for drug companies to participate in the decision-making process for reimbursement, and substantive rights, which are quite vaguely worded but were based on prices as set, for example, by the Patented Medicine Prices Review Board on the value of the patent or market-based prices.
The potential impact of these transparency proposals, which I would be happy to discuss in further detail, including the costing facts, should be studied fully and debated widely.
I would like to turn now to investor-state arbitration. A draft text of the TPP investment chapter was leaked last year. It revealed a U.S.-style investment protection agreement modelled on NAFTA chapter 11 and U.S. bilateral investment treaties, BITs. Significantly, the chapter includes an investor-state arbitration mechanism.
Four investors have already used chapter 11 and BITs to challenge a wide range of government measures that allegedly diminished the value of their investments. Since most government regulations or polices affect property interests, NAFTA's investor-state rules and similar mechanisms have been strongly criticized for giving multinational corporations far too much power. Investors do not need to seek consent from their home governments and are not obliged to try to resolve complaints through the domestic court system before launching an investor-state claim. There has been a steady rise in the number of actions against Canada, particularly in the area of environmental protection. We are also witnessing the use of more aggressive arguments, such as in Eli Lilly's investor-state challenge to a Canadian court decision to deny patent protection on one of its drugs.
Agreeing to investor-state arbitration in the TPP will greatly expand the pool of foreign investors who have the right to invoke the severely flawed mechanism. The leaked investment text notes that Australia is refusing to be bound by this mechanism. Australia adopted this position in 2011 after a thorough independent review of the costs and benefits of investor-state arbitration. Such a review is long overdue in Canada and until one is completed, Canada would be wise to follow Australia's example.
There was also a growing problem of incoherence in the various investment protection treaties that Canada is negotiating. For example, in the Canada-EU agreement, Canada is under pressure to agree to stronger investment protection rights in certain areas, such as minimum standards of treatment. NAFTA's most-favoured-nation provisions require that all protections given to the European investors be extended to investors from the U.S. and Mexico. As a result, these investors will be able to mix and match investor rights from NAFTA chapter 11 and the CETA to construct the most favourable challenge. This problem of treaty shopping will only worsen under the TPP.
To close, the astonishing range of matters being negotiated within the TPP underlines how far this process has strayed from bread-and-butter trade issues. New disciplines on state enterprises, ostensibly aimed at China, could impact CBC and Canada Post. Both the U.S. and New Zealand are insisting on significant access to Canada's dairy market, as we've heard, which would threaten the viability of supply management. As you will hear from other witness, TPP treaty commitments to the free flow of commercial information may undermine domestic privacy policies. The U.S. has never accepted the legitimacy of Canada's cultural exemption in trade treaties, and this will be up for grabs once again. The list goes on, and may well include new issues and matters that are net yet public knowledge.
The role of Parliament in examining this treaty and how it may affect Canadian interests is critical. There needs to be a much fuller discussion of the range of potential costs and benefits, but meaningful discussions and debate are hampered by the unprecedented level of secrecy and the difficulty in obtaining proposals and negotiating texts.