International Trade Committee on Jan. 28th, 2014

[The Chair, Conservative, Rob Merrifield]

We'd like to call the meeting to order. If members would take their seats, we'll get started.

We are continuing our study on the Canada-European Union comprehensive economic and trade agreement, CETA. We will be doing that today and again on Thursday. Then we'll be in all-day hearings in Vancouver next week, one on CETA and one on the TPP, the Trans-Pacific Partnership.

We are excited to have with us today in our first session two witnesses. From the Canadian Health Coalition, we have Michael McBane, executive director, here with us in the room. Also, from the Council of Canadians, we have Stuart Trew, trade campaigner.

Stuart, can you hear us? Are we coming through okay?

[Stuart Trew, Trade Campaigner, Council of Canadians]

Yes, thanks.

[The Chair, Conservative, Rob Merrifield]

We can hear you, so we're all set to go.

We'll start with you, Mr. McBane. The floor is yours.

[Michael McBane, Executive Director, Canadian Health Coalition]

On behalf of the Canadian Health Coalition, I want to thank the chair, Rob Merrifield, and members of this committee for the opportunity to raise with you serious concerns about the negative impact of the Canada-European Union comprehensive economic and trade agreement on Canada's health care system.

The Canadian Health Coalition has been working on international trade issues as they impact on public health care for over 20 years. Despite the announcement of the agreement in principle in October 2013, the text of the CETA itself remains a secret. Nonetheless, the parliamentary committee mandated to study the CETA must have access to the text itself.

I would like to raise two issues with you. The first one is the general threats to Canada's health care system from the flawed reservations for health care in the CETA. In the second point, I want to raise the specific threats to the sustainability of Canada's prescription drug plans from pharmaceutical provisions in the CETA.

For the first point, the legal principles in the Canada Health Act which governs Canada's public health care system are in blunt opposition to the principles that regulate the market. The Canada Health Act removes the delivery of health services from market rules to ensure access based on need; so-called unprofitable services, unprofitable populations, and unprofitable regions are not abandoned by a reliance on the market.

Canada's public health care system reflects Canadians' values. In the words of the Romanow commission, “Canadians view medicare as a moral enterprise, not a business venture.” Health care in Canada is legislated with federal legislation as a public good, not a commercial commodity.

Our public system is based on the Canada Health Act, as I mentioned, wherein health care is delivered solely on the criteria of the need of patients, without regard for their ability to pay, or their socio-economic status, or, I may add, regardless of where they live. The act also offers the best guarantees, by the way, of cost-effectiveness and sustainability.

On the other hand, the central objective of international trade agreements, including the CETA, is trade liberalization through the reduction of barriers to trade. The rationale is that goods and services are to be allocated solely on the basis of purchasing power. Concern with equity of distribution and access is seen as a barrier to trade.

The mix of public and private interests on the delivery side of the health care system makes it difficult to draw a sharp line between what is public and what is private. This causes problems when applying Canada's reservations and exemptions in trade agreements like NAFTA and GATS, as well as CETA. These trade agreements assume a clear demarcation between public and private.

Both Canada and the European Union, as you know, have said that they intend to exclude health care services from the CETA. However, one of the EU's highest priorities in these negotiations was to expand access to provincial and local government services.

Accordingly, the EU has demanded that Canada abandon the general reservation in NAFTA's annex I, which provides some protection for health services. Canada has reportedly agreed to abandon this reservation, which means that provincial and territorial governments will be required to negotiate exemptions for specific non-conforming measures in the health sector or else rely exclusively on protection in the annex II reservation. It would be interesting to know which provinces have submitted a list of exclusions.

The annex II reservation does not shield the health care sector from the full force of trade agreements. Instead, it is a limited and qualified reservation that only shields a health service to the extent that it is a social service “established or maintained for a public purpose”. The scope of this protection is uncertain, because Canada and the United States do not agree on the interpretation of this language. As a result of this uncertainty in annex II-C-9 of NAFTA, and responding to pressure from provincial and state governments and civil society, including a legal opinion commissioned by the Canadian Health Coalition in 1996, the Government of Canada negotiated a second general reservation with the United States and Mexico. This reservation will be removed under the CETA.

To address the seriously flawed nature of the one reservation the Government of Canada is relying on to protect federal, provincial, and territorial health systems, the Romanow commission on the future of health care recommended that Canada negotiate a new, more effective exemption for health care in all future trade and investment agreements. In order to provide maximum protection for health services and to safeguard its ability to expand coverage of public health insurance, the new exemption for health services required a complete carve-out for health services, like the NAFTA completely carved out law enforcement.

Therefore, the one recommendation I would make is that the Government of Canada negotiate a new exemption that reads: “Nothing in the CETA shall be construed to apply to measures adopted or maintained by a party with respect to health care, health services or health insurance.”

The second point I want to raise concerns drug costs.

Canadians are very concerned by the fact that the Harper government has negotiated a trade agreement that will result in higher prescription drug costs. According to a recent independent study, the announced details of the CETA will likely cost Canadians hundreds of millions of dollars more for prescription drugs annually. The report says that concessions by the federal government to cement the deal will delay the arrival cheaper generics. This delay will add between $850 million and $1.65 billion annually, an increase of 13% to the total drug bill paid annually by Canadians, who will be paying either directly or through insurance plans.

The study examined the latest revelations about the tentative trade agreement and finds it will: one, commit Canada to creating a new system of patent term extension that will delay the entry of generics; two, lock in Canada's current terms of data protection, making it difficult or impossible for future governments to reverse them; and three, implement a new right of appeal under the patent linkage system, again designed to create further delays.

On a per capita basis, Canadian drug costs are already the second highest after the United States. According to the study, the federal government has promised to compensate provinces and territories for any additional costs; however, that simply means instead of Canadian taxpayers paying at the provincial level, they will be paying at the federal level. Importantly, people paying for their own drugs at the pharmacy out of pocket or through private insurance will be hit twice: through the higher costs and through their taxes.

While the text of the CETA is being kept secret, one thing is clear: the agreement will seriously impact the ability of Canadians to afford quality health care.

It is also a matter of public record that the Minister of International Trade told Canadians a while back that it is a myth that a Canada-EU free trade agreement would increase drug and health care costs.

Canadians are being misled by the Harper government's claim that the CETA provision dealing with the pharmaceutical industry strikes a balance “between promoting innovation and job creation...and ensuring that Canadians continue to have access to the affordable drugs they need.”

A critical examination of the pharmaceutical industry's economic performance—and I would really urge this committee to examine the performance of the brand name drug industry in Canada—reveals that there’s no link between higher drug profits and innovation or job creation. There's no link whatsoever. Nor is it credible to claim that Canadians will continue to have affordable prices when cheaper generic drugs are further delayed.

According to the federal government's own agency, the Patented Medicine Prices Review Board, in its most recent annual report, “Several comparator countries, which have patented drug prices that are, on average, substantially less than prices in Canada, have achieved R and D-to-sales ratios well above those in Canada”. For example, France and the United Kingdom have an R and D-to-sales ratio that’s twice that of Canada's and have prices between 10% and 20% lower than Canada's prices.

It should be noted in this context that with the adoption of changes in 1987, the brand name drug industry made a public commitment to increase their annual R and D expenditures to 10% of sales by 1996. The Rx and D industry ratio of investment has been less than 10% for the last 10 consecutive years. These are the facts.

This means that Canadians began paying 15% to 20% more for new patented drugs since the Mulroney government brought in these changes in exchange for a promise they have systematically broken, a promise of innovation and jobs. The higher prices in Canada for new brand name drugs are costing us at least an additional $2 billion a year through the methodology used by the Patented Medicine Prices Review Board. Add to that another billion dollars through the CETA, and that's another $3 billion extra. This amounts to a subsidy to the drug industry coming out of health care budgets, but to make it worse, it’s coming out of provincial governments’ budgets to pay for a federal concession.

To add salt to the wounds, imagine how the provinces and territories feel about being lectured to by Prime Minister Harper about getting their health care costs under control.

To make matters worse, the drug industry uses this money not for innovation, but to buy influence with the federal regulator, physicians, politicians, consumers, and the media through their advertising departments. Is there a word for being bribed with our own money?

Canadians get nothing in return for these massive concessions.

[Ed Holder, Conservative, London West, ON]

On a point of order, Chair, with great respect to the witness, and it's never my intent to challenge, but when we use a word like “bribe” as it relates to any government, I don't care what government it is, I would just caution our witness, who I'd very much like to hear from, just to be mindful of the language, please.

[The Chair, Conservative, Rob Merrifield]

It's not a point of order but the member will have a chance to question the witness later on that.

Go ahead, Mr. McBane.

[Michael McBane]

Some say this one single concession, as we mentioned, close to $1.6 billion, is worth more than all the savings on the reduced tariff barriers with the European Union, which are estimated to be only $225 million. That's a massive concession. What are we getting back?

[The Chair, Conservative, Rob Merrifield]

You are over time. Very quickly, I'll let you wrap it up but I'm not going to—

[Michael McBane]

Okay, the second recommendation, in light of these concerns of seriously inflated drug costs, is that the Government of Canada remove all matters related to pharmaceutical patents from trade agreements, including CETA, and that instead, Canada needs to impose conditions on the pharmaceutical industry that benefit the public interest to protect the public good from private monopoly.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Trew. The floor is yours, sir.

[Stuart Trew]

Thanks very much, Chair and committee, for this opportunity to come to address you again about the Canada-Europe trade negotiations. I'm a trade campaigner with the Council of Canadians. We're Canada’s leading social justice citizens advocacy organization, with over 100,000 supporters across the country.

We were here way back in 2011 to present to committee some of our concerns with the agreement as it was shaping up at that point. I'm going to repeat some of that today because, from the information we've learned from the technical briefing that was released by the government at the end of October and from some more leaked documents, we still feel very concerned about these specific areas. I'm going to make the case that our views are actually shared by a lot of Canadians, by a majority of Canadians in some cases, such as on procurement, and that these concerns are shared across the political spectrum as well.

For the sake of not running out of time, because you have the presentation in front of you, I'm going to skip to the main points here.

In November we did a poll where we tried to look behind some of the numbers we were seeing around support for CETA. The government statistics for polls saying—

[The Chair, Conservative, Rob Merrifield]

Excuse me for just a second. Just for clarification, your remarks have only come in English so the committee doesn't have them, just to let you know that during your presentation.

[Stuart Trew]

Okay. I appreciate that.

Polls have consistently shown that there's fairly high support for the idea, or the general idea, of a trade deal with the European Union. We've seen this in the range of 70% to 80%. We got those same numbers when we polled Canadians in November. We decided to ask a few extra questions around some of the more controversial aspects of the deal, because we felt that those polling numbers showing high support don't actually get behind this. They might be concealing more than they're telling us.

I'll focus on procurement, investment, and pharmaceuticals.

For example, in procurement rules in the Canada-Europe trade deal, they will essentially force Canadian municipalities, crown corporations, and other provincial agencies to treat all bidders on public contracts equally, regardless of whether they're from Canada or from Europe. Not only that—I would say that's a minor part of it—they will prohibit covered public entities, which will include cities according to the technical briefing note, from putting local content requirements into contracts, no matter who is bidding on the projects, or from considering other offsets that would increase local development benefits from public spending.

Together these changes will stop communities from being able to give extra consideration, or perhaps extra points in the RFP process, to firms that can guarantee more economic activity in Canada or more jobs being kept in Canada.

We asked Canadians how they felt about that: Should municipalities retain the right to prefer bids from local or Canadian companies? In fact, an impressive 77% of people said they should hold on to that right. That was highest among NDP and Green supporters. We had 87% of NDP supporters, 82% of Greens and Bloc, 76% of Liberals, and even 71% of Conservatives agreeing that local preferences on public spending are important.

This is also, we find, the sentiment of a lot of municipalities in Canada, including the municipality of Toronto. They want to be excluded from the deal and specifically these procurement rules. The technical briefing note suggests that they have not been excluded.

I would say that this is odd when the federal government itself acknowledges that buy Canadian policies work. They acknowledge this specifically in military procurement. It's backed by several studies, including one called “Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities”. Let me quote from that study for a moment:

The significant number of success stories in Canada demonstrate clearly the value of a supportive, proactive procurement strategy and the exceptional long-run economic impact that can result when government investment is well-targeted.

The report talks about the use of offsets, requiring companies to invest a certain amount of the money and the profits they make back into the economy. It talks about getting the best return on investment by using these buy local conditions, about high-value Canadian jobs, high-growth companies, all these things encouraged in military procurement and yet now banned forever through this Canada-Europe trade agreement for municipalities or crown corporations or provincial entities. I would suggest there's a contradiction, if not a hypocrisy, in banning that very successful policy from our municipal governments.

We asked about pharmaceutical policy changes. I won't go into that in much detail, simply because the previous speaker dealt with it in his presentation. Suffice it to say that I think 65% of Canadians, according to our poll, oppose extending patent protections in the trade agreement with Europe. It was highest in Atlantic Canada, at about 70%. It was high among earners in the high-income bracket: 74% of people whose incomes fall between $100,000 and $1 million would oppose that, as would 55% of Conservative supporters.

Now, the federal government acknowledges that there will be additional costs to public health plans and has promised to compensate provinces, but like the previous speaker, I would argue that this is simply transferring the money around. It's transferring the public cost around. Essentially we're padding the budgets of these already highly profitable brand-name drug sectors without really producing any jobs here in Canada in the process.

The third polling question we asked was around investment protection. I think this is again the sleeper issue in the CETA negotiations. This is the NAFTA chapter 11 that allows companies to pursue governments in private tribunals when they feel their investments have been impacted by a government decision. Despite the obscurity of the issue, 54% of Canadians don't like the idea of including this with the CETA negotiations.

Canadian negotiators have suggested at this committee that they've learned the lessons of NAFTA and that the CETA investment chapter will make frivolous cases less likely. But as you heard a few weeks ago from Howard Mann at the International Institute for Sustainable Development, in fact CETA might give investors more opportunities and more rights than ever before, even more than existed in NAFTA, and he says this was done knowingly and deliberately.

I would argue that the international trend is moving in the opposite direction. For example, we've seen South Africa cancelling investment treaties with European countries, finding no economic benefit but a large risk of costly lawsuits against public interest legislation. We've seen Australia not including this process with its deal with the United States as Canada has and still resisting it in the Trans-Pacific Partnership. Of course Brazil in Latin America attracts more foreign investment than any other Latin American country, but it does not have any of these treaties ratified. Clearly there is not a good connection between investment quantities and the existence of a treaty.

Right now the commission itself has paused its negotiations with the European Union, at least on investment, while it holds a public consultation. I would argue that this committee and the federal government in general should probably use this opportunity, and I would encourage them to use this opportunity, to review Canada's policy of signing these investment treaties and including investor-state dispute settlements in free trade agreements as the European Union is doing right now. There would be broad support for this. Again, our poll found very high support among Green and NDP supporters to oppose NAFTA-like investment rules, and even less than half of Conservative Party supporters actually support the idea of a right to sue, a right for corporations to take these challenges outside the courts before private arbitrary tribunals, with little accountability and no accountability to voters, we should say.

To sum up, our poll also asked about the idea of holding a public consultation. A previous speaker mentioned this as well. It's great that we're having this discussion now on the technical briefing. It's not enough information to make an informed decision regarding how we feel about the deal. I would urge that probably the whole text should be made public. There is 80% support across the board, across political parties, for cross-Canada public hearings when that happens. Before the deal can be signed, after which we know it's impossible to make any changes—and it's going to be a knock-down vote in Parliament after a little bit of debate—Canadians are asking that this deal be brought to them, that you go out across Canada, hold public consultations and have those consultations actually be able to affect the outcome of the agreement before it's signed.

I'll wrap up there. The alternative course of action for the government if they don't do this is basically to tell Canadians that a deal that was negotiated without their input is going to be finalized without their consent. I think that's not a good alternative. I think it's best if we do take this to the public at some point in the next few months.

Thanks very much.

[The Chair, Conservative, Rob Merrifield]

We'll start our questions and answers with Mr. Davies. The floor is yours, sir.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Trew and Mr. McBane, for being with us today, and welcome to the committee.

I agree that process is important. We know that the negotiations started in 2009 and took about four or five years. We also know that the government has consulted quite actively with a number of private sector...and private actors in Canada. Many of them have testified before this committee. They've had to sign confidentiality agreements.

Mr. Trew, was your group, the Council of Canadians, consulted by the government at any stage during the last five years?

[Stuart Trew]

We were part of briefings that took place after the first of the nine negotiating rounds. These were briefing sessions held with many different groups, academics, and NGOs. We felt that they were mostly one-way communications. Of course there was an opportunity to ask questions, and it was quite a useful exercise to some extent, but it wasn't a consultation in the sense that there was no way to determine if the input groups were providing was being taken into consideration.

I'm not sure if I mentioned this in November 2011—I don't think I did—but we were told that, in fact, the input was not being recorded and there were no minutes taken of those briefing sessions. We felt they weren't really consultations in the strict sense, and we would argue that they weren't happening in a very public way. When we think of public consultations, we think they should be accessible to more people than are perhaps on those telephone calls.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Trew, did you have to sign a confidentiality agreement prior to taking part in those negotiations or consultations?

[Stuart Trew]

No, we didn't.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay.

Mr. McBane, was your group consulted by the government throughout negotiations?

[Michael McBane]

I wouldn't say we were consulted exclusively. We did request a meeting with a previous minister of international trade and were given a meeting, so our concerns were presented, but there was no participation in any technical consultations.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

I'm trying to get the difference. We've heard witnesses testify that they had access to negotiators and had to sign confidentiality agreements. Both of you have confirmed that wasn't the case. I'm just wondering if we're talking about the same thing. Are we talking about your groups providing input to the government and having access to what was being negotiated, or are we talking about just briefings?

[Michael McBane]

For the Canadian Health Coalition, we had access like citizens in a democracy to our elected officials. There was no consultation on technical matters. In that sense, we were not treated the way industry is being treated in terms of inside information.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. McBane, you said, “The annex II reservation does not shield the health care sector from the full force of trade agreements.” You went on to say that, “In order to provide maximum protection for health services and to safeguard its ability to expand coverage of public health insurance, a new exemption for health services is required.”

Can you expand on that for us? Specifically, I want to know your opinion. Are you concerned that something in CETA may prevent the future expansion of Canadian medicare, for instance the national pharmacare program or dental care, or some other expansion?

[Michael McBane]

There are a number of problems with the clauses in the reservations, in that, as I mentioned, they were not complete carve-outs for the sector. They were conditional. There's also ambiguity in Canada's health care system as to what's public, what's private. So there is a concern about international health industries using the trade agreements to push back government policy. In fact, we saw a case launched recently by Eli Lilly against the Government of Canada under NAFTA, so these are not theoretical problems.

I guess what we don't understand is if there is this risk, why take it? We don't take risks with our law enforcement, a complete carve-out, so why is there a limited carve-out for health care? That's playing with fire. We don't understand why we'd want to take a risk, especially since U.S. negotiators are already on public record as disagreeing about what constitutes a public service in health care. I think we're asking for trouble in not having a much stronger carve-out for health care.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. McBane, you quote Minister Fast when he told Canadians that it is a myth that a Canada-EU free trade agreement would increase drug and health care costs. What is the coalition's position on that? Do you believe that CETA will increase Canadian drug and health care costs? If so, do you have an estimate for the committee?