International Trade Committee on Feb. 25th, 2014

[The Vice-Chair, NDP, Don Davies]

I would like to call this meeting to order.

This is meeting 19 of the Standing Committee on International Trade. If everybody could take their seats, we have some very interesting testimony today.

Today we have Mr. Onuoha from Xerox Canada, and appearing as an individual, Professor Van Harten.

We are going to begin with Mr. Onuoha. You have up to 10 minutes for your opening statement.

[Emechete Onuoha, Vice-President, Global Government Affairs, Canada, Xerox Canada]

Thank you, Mr. Chairman, and honourable committee members.

Good morning, ladies and gentlemen. I am very happy to be here today to participate in the discussion on the Comprehensive Economic and Trade Agreement.

My name is Emechete Onuoha and I am the vice-president for global government affairs for Xerox Canada. It is a great pleasure to have the privilege to be before you today.

I thought, Mr. Chair, I would talk a little bit in terms of the background of our circumstance here in Canada and our presence. We will focus primarily on the innovation aspects of trade and the trade liberalization agenda as it relates to creating conditions for innovation and excellence, particularly in the ICT industry.

We were pleased with the Prime Minister's most recent pronouncements in the context of his trade summit in Mexico, linking innovation with the Canadian trade agenda. In that regard, let me share with committee members a little bit about our company to situate the discourse.

Xerox globally is a $22.3 billion corporation. We employ 140,000 employees worldwide. We operate in 163 countries around the world. We have five R and D centres in four countries, including Canada, the United States, France, and India. We are a leader in business process services, document management, and commercialization of research. This latter point is of strategic importance in the Canadian context, and I will elaborate on that a little bit, Mr. Chair.

We've been operating in Canada since 1954. Canada is one of the most strategically important markets for Xerox Corporation. We employ about 3,000 here in every region of Canada represented at this committee table. For several years, Canada has been considered one of the top performing operating companies in the Xerox world and we are one of Canada's top 100 employers. We've also established a world-class R and D centre in Ontario, which has received most recently the coveted Green Chemistry Award from the Chemical Institute of Canada for outstanding achievement in research in engineering.

The Xerox Research Centre of Canada, or XRCC as it's called, has a global materials mandate and generates roughly 160 patentable ideas per year. That's three inventions a week, which makes it one of the most productive and prolific knowledge platforms in the world for us. We have managed to attract some of the world's top materials scientists from 35 countries, who now work, live, and pay taxes here in Canada. The XRCC also hires 42 high potential university co-op students, primarily from research-intensive universities right across Canada.

Xerox Corporation is one of the top 100 spenders on R and D in Canada across all industries. At the moment, nearly all of our foreign direct innovation investments come to this province. We're also proud of our Canadian advanced manufacturing operations and our supplies development centre, both of which are located in Ontario. In fact, every digital imaging device and technology that we sell through sprawling market channels worldwide contains intellectual property that was either invented or developed right here in Canada at our research centre. No other IT company in our established competitive space can say that.

We have a mutually beneficial record of achievement. Innovation is recognized by us internally and by Canada as a critical success factor for economic resilience and long-term sustainable development, so these strategic investments in applied research and commercialization are critical success factors for innovation. Given that innovation is the difference between good ideas and great outcomes, or the difference between knowledge, thought leadership, and market leadership, we feel that the creation of an environment that allows for the free flow of individuals and skilled labour mobility is of critical importance. This is one of the provisions with respect to the CETA arrangement that is of strategic importance to Canada, given the amount of business we do in terms of exchange of skilled personnel between our European counterparts and our Canadian research facility.

As a leading information technology company, Xerox continues to attract talent worldwide. In order to enhance Canada's continued economic resilience well into the 21st century, results-based private sector investment in value-added R and D and commercialization of research is mission critical. Foreign direct investment, which is another thing we focus on to try to ensure that our corporate colleagues understand the utility and the value of foreign direct investment in Canada, is something that is critical for our success going forward.

In addition to financial resources, many companies with promising ideas and/or technology lack the research, development and engineering, RD and E, infrastructure, processes, and management expertise required to move potentially profitable products and services from mind to market through effective commercialization. This free market movement, again one of the hallmarks of a liberal trade agenda, is a critical success factor for us as well.

This kind of commercialization expertise is not necessarily widespread in Canada, but it does exist. In collaboration with the private sector community of practice and relevant industry stakeholders, the Government of Canada, Industry Canada, may want to consider development of an accurate inventory of private sector enterprises that have established, robust RD and E capabilities that could be utilized by promising businesses that do not have said capabilities. By virtue of accurately mapping out these capabilities, opportunities would exist for collaboration.

Currently we're investigating using our RD and E facilities to enable small and medium-size Canadian enterprises that do not have the capacity for commercialization to actually undertake prototype and advanced research and development using our facilities to help them become export ready, which, as you know, is a critical success factor going forward and will be enhanced by enhanced market access through the CETA instrument.

Xerox continues to leverage the Canadian advantage through our global materials mandate assigned to the XRCC, which, as I stated, generates over three inventions a week. As a result of this prolific IP turn, we continue to see Canada as a favourable destination for foreign direct investment for my corporation.

I should state that in various areas that are of strategic importance to Canada, whether it is health and biomedical research, or energy research, as well as ICT-related research, material science is of critical importance and positions Canada to be a globally unrivalled competitor in this space. Insofar as material science research runs through some of the most important and strategically prioritized areas of scientific inquiry in Canada, we feel that our contribution through the globally mandated Xerox Research Centre will continue to generate value on a go-forward basis.

With that in mind, we are happy to participate in any discourse that speaks to the long-term economic resilience of Canada and also speaks to the importance of trade liberalization and a rules-based trading framework. We believe that Canada is a natural platform for innovation. We believe that when we are coordinated and focused on such things as commercialization of research, development and engineering, Canada presents largely unrivalled opportunities going forward.

With that, Mr. Chair, I will conclude my remarks. I'm happy to yield the floor to my colleague.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Onuoha.

Mr. Van Harten, you have the floor for up to 10 minutes.

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

Thank you very much, Mr. Chair. It's always an honour to have the opportunity to present to this committee.

The Canada-EU CETA was announced in October as having been a completed deal. Since that time over four months ago, still no text of the deal is available publicly, so it makes it very difficult for someone like me, who is a specialist in investment aspects of the deal and could look very closely at the investment chapter, to say much about what the deal actually does.

I ask myself, why is there no text at this stage?

One explanation seems to me to be because the negotiations are still ongoing. The second explanation seems to me to be that there's some other reason not to disclose the text. Whatever the reason, I would like to stress that the text is very important to evaluate the cost and benefits of any trade or investment agreement. There's really no basis for informed public scrutiny or analysis or debate or evaluation of a trade and investment agreement without a public text of the agreement.

I would compare this to real estate agents telling you to buy a house, that it's a really good deal, but they're not going to let you look at the actual buy and sell agreement, the actual agreement to sell the house, and they're not going to let your lawyers look at that agreement; you should just commit to buy it. We wouldn't buy a house in those circumstances, and I suggest that from my perspective as a specialist in the details, it really is not a good idea for anyone to be lauding an agreement without the ability to have informed public scrutiny and debate about a text.

I should add, if you disclose a text, that allows for a certain seriousness and rigour in the evaluation. In my own experience, when I reviewed the text of the Canada-China FIPA about a year and a half ago, it's only by peeling away various layers of how certain provisions work that you can uncover things like the fact that in that FIPA, Chinese investors were given full market access in principle to the Canadian economy, and Canadian investors were not given any market access in principle to the Chinese economy.

Carrying on to the Canada-EU CETA, how can we judge this trade agreement in the absence of the text? I rely primarily on two sources.

First is a technical summary. It's called a technical summary of the CETA that was released by the government in October. That summary has a number of bullet points on investment that make certain statements or claims about what's in the CETA.

Second, I'm aware of what purports to be a leaked draft of the investment chapter of the CETA. That draft is dated mid to late November, so it comes a month after the announcement of the CETA deal being concluded.

Having reviewed those two documents, I'd like to highlight just a few issues that I think are important.

First of all, in the leaked draft text, clearly portions of the investment chapter are not yet agreed. The text is marked in certain colours of ink to indicate which side has proposed text that has not yet been agreed. While you might expect there would be some minor issues that you'd be cleaning up after the deal was done, the items that are not agreed in the leaked draft that I've seen from November are quite significant issues.

For example, in any trade or investment agreement that provides for investor-state arbitration, Canada has never agreed to a so-called umbrella clause, but there's a proposal from the European Union to include an umbrella clause in the Canada-EU CETA, and that is marked as outstanding.

If an umbrella clause were included in the CETA, the way umbrella clauses have been interpreted by some tribunals, in effect that would mean that they elevate any obligation of any governmental entity in Canada to the level of a treaty obligation.

For example, if you are a municipality that has concluded a contract with a European company, and that contract provides for disputes under the contract to be resolved in Canadian courts via an umbrella clause in the CETA, there will be imported into that contract a right of the European company to take any disputes with you about the contract outside of the Canadian courts and have the contract itself interpreted separately through the investor-state arbitration process.

In effect, you're rewriting many, many public sector contracts around the country if you include an umbrella clause. I'd just highlight that as a very significant decision that is not yet agreed, if we can rely on the leaked text that's gone around, dated November 2013.

Another point is that in the technical summary of the CETA, there is a statement that the Investment Canada Act has been carved out of the CETA. However, in the leaked text of November 2013, that's not yet agreed. There's red ink to describe a Canadian proposal to carve out the Investment Canada Act from the dispute settlement provisions in the CETA.

It's very typical for Canada to carve out the Investment Canada Act in that way from other concluded treaties that provide for investor-state arbitration, but it seems to me that this has not yet been agreed by the European Commission. Of course, whether it's been agreed to or not, I don't know, but it's impossible to really verify that until we see an actual text.

If the Investment Canada Act were not carved out of the CETA, it would mean that not only European companies in Canada, but also American companies, based on most favoured nation treatment principles in the NAFTA, would be able to raise objections about Investment Canada Act decisions, for example, on national security issues, in the context of investor-state arbitration. That is outside of any judicial process, whether Canadian, European, or international in some other way.

Mr. Chair, please do let me know if I reach the end of my time.

[The Vice-Chair, NDP, Don Davies]

You have about three minutes left.

[Dr. Gus Van Harten]

Okay. Thank you.

Maybe I'll just highlight one other aspect that I thought was significant in light of both the technical summary and the leaked draft.

The technical summary makes a claim that the right to regulate of Canada and of European governments has been preserved. There's also a reference to a protection of sovereign control over natural resources.

I word-searched “sovereign” and I word-searched “regulate” in the leaked draft. I looked at it closely. No provision states that the right of anyone to regulate is protected, or uses the words “sovereign control”. Perhaps it is in the treaty—we can't verify it, of course, until the text is public—but based on the leaked draft of the investment chapter I have seen, there are, I think, some significant issues that are outstanding.

The last point I'd like to highlight is this: why have an investment chapter that provides for investor-state arbitration at all in a trade agreement between Canada and the European Union? This is a question which a lot of people ask. When we think about the history of investor-state arbitration, really it was to provide security to foreign investors in countries where the domestic courts were not thought to be reliable and independent.

I really don't think that claim can be made about Canadian courts and European courts. If there are concerns about some of the accession countries in Europe, Canada already has FIPAs with almost all of those countries. For Canadian investors in Romania, for example, or in Poland, if we had concerns about those courts—I'm not saying we should, but if we did—Canadian investors already have access to investor-state arbitration in existing FIPAs for those countries.

My question really is this: what's wrong with the European Court of Justice, with the European Court of Human Rights, with Canadian courts, with the Supreme Court of Canada, such that foreign investors need to have the right to opt out of the court system and bring claims against the public purse in Canada and Europe to an arbitration process that is clearly not independent, open, procedurally fair, and balanced in the manner of a judicial process, whether domestic, regional, or international?

That concludes my comments. Thank you very much.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Van Harten.

Monsieur Morin, you have the floor for seven minutes.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Thank you, Mr. Chair.

Arbitration mechanisms are a serious cause for concern for anyone who has seen the repercussions they can have. Questions come to mind. Who participates in these arbitration mechanisms? Who will be the arbitrator? Who appoints them? Those are some of the questions that come to mind.

[Dr. Gus Van Harten]

I'm afraid my French is not that good, but I understood you to ask who the persons are, in a sense, in the arbitration process.

I don't have a translation device.

[The Vice-Chair, NDP, Don Davies]

There should be a translation earpiece close by.

[Dr. Gus Van Harten]

Thanks very much. I obviously need to come here more often.

[Ed Holder, Conservative, London West, ON]

Chair, without taking away from his time, if Mr. Morin wants to ask that question again, I think it's only fair.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Holder. That's very generous of you.

Monsieur Morin, would you like to repose the question?

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

In French?

[The Vice-Chair, NDP, Don Davies]

Yes.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

We now have simultaneous interpretation.

I was asking myself a few questions. Who are the members of the arbitration tribunals? Who appoints those people? Do we have a say in it or is that yet another thing out of our control?

[Dr. Gus Van Harten]

If it were a judicial process, there would be a roster of individuals who are members of the court. They would be assigned case by case based on some rules of the court, whether through rotation or random assignment, some decision of the chief justice of the court.

In this case there are three arbitrators. One would be chosen by the claimant, the foreign investor. One would be chosen by the respondent country. It would be the federal government if Canada were sued. If they couldn't agree on the third arbitrator, that arbitrator would be chosen by a World Bank official. These arbitrators tend to have a background in commercial arbitration. Some of them are academics. A lot of them are very good people. I don't wish to cast aspersions on anyone, but from an institutional point of view, this is not the judicial process we would be used to when matters of what I would describe as public law importance.... What can a sovereign entity do in the exercise of its sovereign authority? How much is that going to cost the taxpayers? Elsewhere, that's always something that can be ultimately resolved in a court. Here it's taken out of a court process and given to, in effect, a private arbitration process.

That's the semi-long answer.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

How are those people chosen? Are they chosen from a pool of recognized experts in the field? Do they come from law firms specialized in trade? Are they chosen at random? It is impossible to tell whether political influences are at work in their appointment.

[Dr. Gus Van Harten]

I personally have raised concerns. In the literature, in the discussion about it in the field, it's usually called the club. The arbitrators come from the club of arbitrators. I think it's fair to say they appear to have an interest in favouring claimants, because if claimants don't bring more claims, they're not going to get more appointments. They get paid by the day or the hour, per appointment. They're not like courts with judges who have secure tenure and have a guaranteed salary from the state, and so on.

Yes, you always have to wonder if the arbitrators will be thinking about who has the power to appoint them in future cases. When you give executive officials the power to appoint the judge case by case, that just doesn't satisfy basic requirements of judicial independence that we've recognized for a long time, at least in a common law context.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

The other question we have to ask ourselves is this. Is there a right to appeal or are these decisions irrevocable?

[Dr. Gus Van Harten]

It depends a bit. If the claim is brought at ICSID, which seems quite possible under the Canada-EU CETA, there would be an opportunity to seek annulment of an award. The annulment committee would be made up of three other arbitrators, all of whom are appointed under the authority of the president of the World Bank. They tend to take a light-touch approach in review. For example, they wouldn't correct what they would consider to be errors of law.

With ICSID, this is entirely outside of any judicial process. This is simply arbitrators. There's no opportunity for review in any court.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

I believe you said in previous testimony that Canada had never won any similar cases before a tribunal like that.

[Dr. Gus Van Harten]

Canada has won about half of the time when they have been sued. But Canadian investors, when invoking the investor-state arbitration mechanism under NAFTA against the United States, or in a number of FIPAs against a number of countries, have a record of zero wins and eighteen losses. That's quite striking when you consider that typically investors have about a fifty-fifty success rate.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

With similar agreements, could a municipality or province that has privatized a public service regain control—I am thinking of a water system, for instance—if the quality of the service was bad or if the terms of the contract were violated? For example, could a city that privatized its water system take it back?

[The Vice-Chair, NDP, Don Davies]

Monsieur Morin, your time is up. I'm going to allow the witness just a brief opportunity to respond.