International Trade Committee on Feb. 25th, 2014

[Dr. Gus Van Harten]

Many of the disputes under these kinds of treaties involve what I would call privatizations gone wrong. A privatization contract has been concluded, is put into effect, and there is public concern—public opposition, or the government has concerns—about how the private operator is conducting itself.

These lead to arbitration claims, and much to the surprise of, for example, a municipality, what they thought they had agreed about dispute settlement in the privatization contract—the privatization contract might refer disputes, for example, to domestic courts—it regularly has not provided any kind of block on the treaty arbitrators' inserting their role and, for example, awarding public money to the private operator, including for revenues that the operator would have earned going forward had the problems with the privatization contract not taken place.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Van Harten.

Mr. O'Toole is next, for seven minutes.

[Erin O'Toole, Conservative, Durham, ON]

Thank you, Mr. Chair. I'd like to say that it's good to see our vice-chair serving in this capacity today.

Thank you to both witnesses for appearing.

Mr. Onuoha, I appreciate your comments. I'm going to restrict most of my time to Mr. Van Harten, but I find the bookends that you signify together very appropriate today. In many ways your talk about innovation, about the centre in Ontario as part of the globalization of clusters or centres of excellence, is something we've heard before, in particular in relation to appearances on CETA and to the fact that many global companies are developing that cluster concept.

Mr. Van Harten, as I said at the outset, I feel as though I know you, because I see your name in so many e-mails. You have a very impressive academic background, and your passion is evident.

Do you have experience outside the academic setting in the private sector? I recognize that you have clerked and been involved with some very important inquiries as well. Have you worked in the private sector as a lawyer or researcher?

[Dr. Gus Van Harten]

Have I worked in the private sector as a lawyer or researcher? No.

[Erin O'Toole, Conservative, Durham, ON]

Generally, at the outset is it fair to say that you're in favour of liberalization of trade and of globalization of trade, or would you consider yourself more of a skeptic or someone concerned about the process of liberalized trade?

[Dr. Gus Van Harten]

It's interesting. When I first encountered this stuff about 15 years ago as a student, I was quite skeptical. I encountered it especially through an agreement called the Multilateral Agreement on Investment, and at that time I had a lot of reservations. Since doing my Ph.D., I've come to view, for example, the World Trade Organization as a very important institution.

I certainly support classical trade liberalization, that is, removal of tariff barriers and other kinds—direct and obvious non-tariff barriers. But I think the trade regime has extended into a lot of new areas, and investment is probably the most significant, in which this has gone beyond the classical debate about trade liberalization. I think there can be positive aspects of that extension, but there can also be quite significant negative consequences. We've seen those emerge in, I'd say, the last five to ten years, with the increasing invocation of these kinds of investment provisions by companies in areas that you really wouldn't associate with the typical trade liberalization agenda.

[Erin O'Toole, Conservative, Durham, ON]

The reason I asked the previous questions is that my experience prior to Parliament was as a lawyer. I certainly wasn't smart enough to go on to my Ph.D., but for five years I was a lawyer for a global company operating in Canada—actually the largest private sector employer in this part of Ontario—making and manufacturing products that are now sold around the world. That was a result of NAFTA, under which they specialized their manufacturing, and now in Brockville and Belleville they make products that are sold not just in Canada but around the world.

In the private sector there's a comfort level with arbitration, for certainty and reduced cost and delay. You're called to the bar in Ontario. Are you familiar with the mandatory mediation aspect of the rules in Ontario?

[Dr. Gus Van Harten]

Yes, I'm loosely familiar with it.

[Erin O'Toole, Conservative, Durham, ON]

This is a rule of civil procedure which actually mandates mediation in some cases and mandates it specifically to reduce the costs and delays associated with litigation.

Do you have any comments on the fact that Ontario, the jurisdiction you're called in, actually recognizes that litigation can be costly, can lead to delay, and can lead to uncertainty that businesses tend not to like?

[Dr. Gus Van Harten]

Frankly, that's an excellent question which I very much appreciate.

First of all, I fully support mediation. ADR, alternative dispute resolution, is very positive, if it can save costs, if it can speed up the resolution of disputes. If the parties are more comfortable with resolving a dispute that affects them primarily or only, I completely support it. I don't think courts should in any way try to interfere with those kinds of processes.

I think there are some contexts to which arbitration is just not well suited. In a basic public law context, let's imagine that criminal law or charter disputes could be resolved through arbitration without any possibility for review in a court. How would, for example, the accused person feel, if the accused person knows that the arbitrators, whose business, really, is arbitration, are not going to get appointed anymore unless there is a certain number of successful prosecutions? It's just not a context in which arbitration is used, and it shouldn't be used.

When we took commercial arbitration out of commercial disputes, disputes between companies, and put it into the investment chapters of trade agreements and FIPAs, that dejudicialized the dispute resolution process.

That is an essential concern that I have. You can make arbitration much more judicial than it is in investor-state arbitration. State-to-state arbitration, for example, under NAFTA is far superior to investor-state arbitration.

[Erin O'Toole, Conservative, Durham, ON]

You referenced the fact that it's taking disputes out of the traditional judicial process in some of the countries you discussed in your remarks. I know you're an expert in public international law. Private international law is also an example of an area in which there has been years of delay and millions of dollars spent for arguments related to choice of law, choice of forum, even in cases in which it is specified in a bill of lading.

Do you not understand that at least arbitration, and we're talking about specialized arbitration, provides certainty in a time when companies really can't afford three to four years to argue choice of law and choice of forum before getting to the root dispute?

[Dr. Gus Van Harten]

Yes. I support international commercial arbitration, what I would call forums of arbitration where it's classical, it's reciprocal. Either side can sue each other. The companies can sue each other under the contract. If it's a state and a company, they can sue each other under the contract.

We have a situation, though, in which the treaties allow treaty arbitrators to override the contractually agreed arbitrators, so that you have a contract between a state entity and a company that provides for arbitration, and the treaty arbitrator says no, they'll decide that dispute, even though the contract—

[Erin O'Toole, Conservative, Durham, ON]

If the parties have agreed to that level of power, is it not something that sophisticated parties can agree can happen on rare occasions?

[The Vice-Chair, NDP, Don Davies]

I'll allow a quick answer, please.

[Dr. Gus Van Harten]

My point would be yes. That's the point: the contract includes agreements to go to commercial arbitration. That's entirely appropriate. But the treaty arbitrators have not done what courts would typically do, which is show deference to party autonomy based on the contract. They don't use forum non conveniens principles, for example, to show deference, to allow the contractually agreed forum to run its course.

If there's a problem and the state tries to override that forum and won't enforce the award, then fine, the treaty arbitrators can become involved.

[Erin O'Toole, Conservative, Durham, ON]

The body of case law—

[The Vice-Chair, NDP, Don Davies]

I'm sorry, but you're out of time.

[Erin O'Toole, Conservative, Durham, ON]

—in forum non conveniens shows the delay and uncertainty again.

[The Vice-Chair, NDP, Don Davies]

Mr. Pacetti is next, for five minutes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chair, and welcome to your new position.

Thank you to the witnesses for coming forward today. It's an interesting panel.

I have a question for you, Mr. Onuoha. From your presentation, it sounds as though you're already doing well. It sounds as though you have everything you need. You're able to attract top researchers, scientists, whatever highly skilled people you need.

What do you need CETA for? What's in it for you?

[Emechete Onuoha]

It's a great question, and thank you.

Our objective is really around sustainable, profitable growth. Even though we've been conducting our business in Canada since 1954, and we've been conducting our value-added advanced materials research in this country since 1974, our objective is really to grow investment. We don't necessarily take comfort in the status quo of our business, and our business is changing. The nature of our business in 1954 and even beyond that in 1974 is far different currently from what it was previously. As an example of that, traditionally our business was driven by generating profit and revenue from selling technology hardware that puts marks on paper. The Xerox brand has been made world famous as a result of the art and science of basically selling boxes that put marks on paper.

About 15 years ago, well over 85% of our revenues was generated by the sale of those technologies. Today, I stand before you representing a company that has less than 50% of our revenues generated by traditional hardware technology sales worldwide. We are moving into the distribution of services and advanced business process outsourcing.

The short answer to your question is that our markets and the nature of demand are changing, so the nature of the research, development, and engineering that we have to do in this country is changing as well in order for us to maintain a competitive edge against our external competitors. Indeed, the most intense competition for foreign direct investment for my company is internal versus external. As I mentioned in my remarks, there are no other companies that are doing this type of research.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

This leads me to my next question.

You can't tell me there's no scientific research going on in other parts of the world by Xerox. You're a worldwide company. Why choose Canada? In future years, why choose Canada over the European countries?

[Emechete Onuoha]

As a proud Canadian, born and raised in Canada, my priorities are always to feature the best interests of our country. I honestly believe, although it is parochial, given my citizenship, that Canada is a favourable destination for foreign direct investment.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Even though the market is bigger in Europe?

[Emechete Onuoha]

Absolutely. We're talking about how we incubate our research, development and engineering framework. When you look at the framework conditions here in Canada, we have one of the most prolific knowledge platforms. You're quite right, Mr. Pacetti. We have research centres in France, two in the United States, a joint centre in Japan, and a new research centre in India, but the single most productive research, development, and engineering platform in the world for us is right here in Canada. That's not necessarily because of our geographic location. It has a lot to do with the critical success factors for knowledge work, which is the flow and settlement capacity for foreign....

At our research centre, our researchers represent 35 countries around the world. Canada is seen as a favoured destination for some of the world's most respected and talented researchers because we have a framework that allows for immigrant settlement and integration of not only our researchers but also their families. Therefore, the labour mobility provisions are critical in terms of the CETA.

We also have a framework that our research centre exists in the proximity of some of the world's most pronounced research-intensive institutions focusing on material science.