International Trade Committee on Nov. 22nd, 2016

[Pierre Marc Johnson]

Thank you very much. I'll make my comments in French and answer any questions in whatever language is coming from the floor.

Mr. Chairman, I'd like to first of all, thank you for having me appear at this committee's meeting. I'm sorry, I have to go in 48 minutes because I'm chairing a meeting here in Lyon.

Essentially, it's a very good agreement because, first and foremost, it is balanced. It responds to Europe's main offensive objective, meaning the Canadian public markets and, on the Canadian side, our willingness to open up the market to 500 million Europeans in the European Union.

It's also a good agreement, a balanced agreement because it ensures openness in the service sector, while preserving the quasi-monopolistic nature of the provincial governments and the federal government on issues related to social services, health and education. This means that these services, which we see as being largely state-controlled, can be preserved.

In terms of investment, I think the agreement is very balanced if we remember that Canada has almost as much stock invested in Europe as Europeans have in Canada. We're talking here about approximately $180 billion on both sides. I think this movement of capital finds a little more certainty in the text, which is always very important when it comes to investments. The text is very clear about the obligations of the governments, whether they are member states of the European Union, of the European Commission, the Canadian government or the provincial governments, in terms of non-discrimination and fair and reasonable treatment of investment from Europe.

If I may, Mr. Chair, I would add that the participation of the provinces has been very fruitful. The federal government agreed to have the provinces at the negotiating table for one reason: the provinces had to agree to a number of measures to ensure that bargaining succeeded, particularly in the exclusive provincial jurisdictions. Given Canadian constitutional law, these measures require the consent of the provinces in order to implement the agreement.

In addition to being able to establish our positions very clearly, to make them heard and to see them applied in this negotiation, our interests in economic issues have also been heard in a perfectly adequate way. This gave rise to a rich and attractive Canadian offer for Europe, which was, I remind you, a bit skeptical at the very beginning of negotiations.

Lastly, the agreement is interesting because it is “of a new generation”, meaning that it includes chapters on cooperation on sustainable development, environment and work. It also provides for the establishment of a series of committees that broadly cover issues of technical barriers to trade and the certification of goods. This will facilitate the movement of goods between Europe and Canada.

Generally speaking, as the chief negotiator of the Government of Quebec, I am putting forward the positions of the Government of Quebec, which is satisfied with the agreement and intends to take the action required to implement it in its territory.

Thank you, Chair.

[The Chair, Liberal, Mark Eyking]

Thank you very much, Mr. Johnson, and thanks for being on time. We're moving along pretty well.

We're going over to the United Kingdom now, to Jason Langrish.

Go ahead, sir. You have the floor.

[Jason Langrish, Executive Director, Canada Europe Round Table for Business]

Thank you for inviting me to be here today.

First, I agree with Pierre Marc's comments wholeheartedly. We collaborated and worked closely with him and his government. Quebec was central for CETA in getting the negotiations going and ensuring that they ran smoothly.

I think it's fair to say that the Canada Europe Round Table, the group that I represent, has been the most active business group, and we've been the earliest mover on this agreement. We've been pushing for some form of liberalized trade between Canada and the EU since 1999. We've lived through various iterations of this. We pushed for the TIEA agreement, the Canada-European Union Trade and Investment Enhancement Agreement, which was a precursor to CETA. We're very pleased that the EU and Canada came together and were able to sign CETA recently.

I'm not going to get so much into the specifics. We can do that during questions. I'm just going to talk about why it's in the strategic interest of Canada to conclude this agreement.

First, one of the reasons we were always an advocate for this agreement was that we thought the architecture that governed the relations between Canada and Europe was underdeveloped and that there was further potential that could be tapped, but it was also for a measure of trade diversification. I think that view was prescient in light of developments with the U.S. presidency and the comments on NAFTA. We'll see what that amounts to, but it does show that it pays to have diversification and other options.

The other reason, to use a formula in international trade, is that if we take a wheel where you have a hub and the spokes, what you don't want to be is just a spoke. You want to be the hub. You want to be the middle of that wheel where all the different spokes, or all the different countries, come through you and funnel their trade and investment through you. You want to be a participant in global supply chains. CETA really does this for Canada.

It will mean that Canada, in addition to its NAFTA agreement, will be the only advanced country to have a free trade investment agreement with the EU, and it will be the most comprehensive and advanced agreement that has ever been signed on a bilateral level.

I think this will have some unintended as well as intended consequences. Essentially, it will place Canada as a liberalized trade investment zone that stretches from the tip of Mexico all the way to the eastern border of Poland. It's an area that encompasses one billion people. This will be attractive to both European investors and Canadian exporters to Europe.

Also, as I said, there is the unintended consequence, I believe, of drawing American investments into the Canadian marketplace. As I'm sure you're aware on the committee, the negotiations between the Americans and the Europeans have essentially come to a halt, and there is no indication that they're going to make progress any time soon. This leaves Canada with a hugely lucrative advantage with the EU. It won't be lost on American competitors that it might be in their interest to relocate activities into the Canadian marketplace so that they can have that duty-free access into the massive European market, so it positions Canada beautifully between these two massive marketplaces. It says to the world that we're really open for business, that we're an open, inclusive, welcoming society, and that we're free-traders at heart.

I will say one thing with regard to the specifics of the agreement. When Canada made its commitments to this agreement, you were opening certain chapters or acts to conform to the treaty. I understand that there can be a tendency sometimes to take it even a little bit further and make further reforms. I would just say that we should exercise caution in that regard, because while it may seem like it's a good opportunity to make some further changes to regulatory structures—for instance, with regard to the Patent Act—that can have the effect of reducing some of the gains that have been accrued by the parties in the negotiations, and that can be reciprocated by the Europeans as well. Therefore, when Canada goes down the path of implementation of this agreement, I encourage really sticking to complying with the treaty and its obligations and leaving it at that.

Overall, I think it's a fine agreement. It's not a perfect agreement; no agreement is. As they say with trade negotiators, if everybody is unhappy at the end of the day, they've done their job. I don't think that's necessarily the case with this agreement, although there are of course some people who are not pleased, but I think that overall it's a very good agreement for Canadian business and Canadian citizens.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to go over to Toronto now, and we have Ms. Louise Barrington.

Go ahead. You have the floor.

[Louise Barrington, Fellow and Chartered Arbitrator, Chartered Institute of Arbitrators, As an Individual]

Thank you very much.

I should mention that I'm an Ontario lawyer originally, but now I'm an independent arbitrator working out of Hong Kong, Toronto, and Paris. I lived in the European Union, in Paris, for about 12 years.

I endorse the comments of both Pierre Marc and Jason that this is a really positive thing for Canada, because it does give us a very privileged position with the European Union, which is an enormous trading bloc. Also, perhaps we can be a gateway for the United States to Europe, as Jason just mentioned.

However, my comments are going to be focused on the new dispute resolution mechanism of CETA.

For decades—in fact, since the New York convention was born in 1958—international arbitration has been the way people resolved international business disputes. Privacy of the proceedings; confidentiality; efficiency; avoidance of inexperienced, corrupt, or otherwise unreliable courts; and the ability to choose a decision-maker, someone who was trusted by the parties remain valid reasons for choosing arbitration, even though it is becoming increasingly expensive and lengthy.

The stakes, of course, are extremely high. They are enormous. We have more than 3,000 bilateral investment treaties and multilateral treaties in the world, NAFTA being our favourite, of course. The classic dispute resolution system has always been international arbitration, which is more or less an ad hoc system.

The tendency, though, for business people to go to these BITs, these bilateral investment treaties, has been quite recent. It's been in the last two decades that it's mushroomed. A couple of years ago I was in England interviewing the top arbitration partner of a big firm there, who said that it's now the very first stop they go to. When a new client comes in, the first thing they do is look to see if there is a possible treaty claim for their client. It's a multi-million-dollar, even billion-dollar, business.

Also, these awards are getting a lot of publicity. Of course, now that Canada is on the paying end of some of these, we're much more aware of them than we were, say, two decades ago.

It's one thing to want to avoid courts where the ethics are sketchy and the procedures are mysterious or interminable, but some courts are very good and unbiased, so we don't have perhaps the same necessity to avoid the courts.

I think what's happened today is that creative plaintiffs and lawyers have begun to use the treaty system because of the huge possible payoff, and it may be being misused at times. Certainly the secrecy doesn't help, because people are looking at these awards of figures you can't even count anymore and saying, “We are, as taxpayers, going to pay for this.”

I think there's pressure, in fact, from both ends of the political spectrum. You have conservatives saying that these huge awards are going to put pressure on governments and even erode the ability of national governments to legislate for the protection of the public interest. On the other hand, you have small-l liberals saying that big business is getting these markets for its clients, and they lobby for these trade agreements. Then there is also an expense that comes to consumers in health and safety protection, and there's also the labour element.

One other thing is that there's also a perception now that in some cases businesses are using these treaties as a safety net or an insurance policy, and they are actually creating a reverse discrimination in that foreign investors have better rights than local investors. That is a tough argument to counter.

Of course, the secrecy, as I said, has always been a serious problem. ICSID cases are now all published, so we're seeing lot of decisions now and finding out a little bit about what was behind these big decisions.

In 2014, UNCITRAL brought in rules for transparency in international investor state arbitrations, which is going to be a help for future treaties, but I think what has happened with CETA is that we now have this new system that has come about at the very last moment, and there are three main changes that CETA has brought in regarding dispute resolution.

The first one is that instead of an ad hoc tribunal of three arbitrators, with one chosen by each party and then those people choosing a third, we're going to see a roster of 15 arbitrators. There will be five from Canada, five from the EU, and five from outside nations, with the chair from the outside nations.

[The Chair, Liberal, Mark Eyking]

Excuse me. Could you wrap up?

[Louise Barrington]

Okay.

The second one is the possibility of an appellate tribunal, which is going to allow for a review on law rather than just on procedural defects.

The third is the preamble, which I think is maybe the most critical. It recites that investors are going to be protected and business stimulated, but without undermining the right of the parties, of governments, to regulate in the public interest within their territories. I think this may be a real key to the success of this new system.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to move on to Montreal and Martin Valasek.

Welcome, sir. You have the floor.

[Martin Valasek, Partner, Norton Rose Fulbright Canada LLP, As an Individual]

Thank you very much.

It's my honour to appear before you as a witness. Thank you for inviting me. I will provide my opening remarks in English, but I'm bilingual—I'm a Montrealer—so feel free to interact with me in either language.

I'm a partner in the law firm Norton Rose Fulbright, which is a global law firm. We have an important presence in Canada, with offices across the country. I'm based in Montreal, and I'm the head of the international arbitration practice for the firm in Canada. My practice is devoted almost entirely to the practice of international arbitration. It's split about evenly between commercial arbitration between private parties, generally businesses, and investor state arbitration disputes between investors and host states.

I endorse many of the comments I heard from the first two speakers, in particular those relating to the benefits of the agreement in respect of opening up trade and investment. I have perhaps a slightly different perspective on the investor state dispute resolution mechanism in the treaty, which, as Ms. Barrington mentioned, has gone through some changes in the last little while. Let me also make it clear that I'm speaking in my personal capacity. My comments really reflect my own views and not the views of my firm generally or of any clients for whom I might appear in proceedings.

What are my general views on the investor state dispute resolution mechanism as currently reflected in the treaty? I think we need to step back and recognize, as Louise Barrington did, that there have been criticisms of investor state arbitration.

I recall being at a number of conferences a few years ago where isolated voices claimed that these were secret tribunals that were biased against countries, and so on. Frankly, it was a bit of a niche criticism. I thought it was often misinformed and tended to exaggerate certain information. We've seen, over the last year or two, this criticism amplified by various movements, including by groups who are opposed to globalization generally, in my view. This has resulted in some of the opposition we've seen, in particular during the negotiation of both CETA and the transatlantic partnership.

In the context of CETA, it appears to me that there's been an effort to appease the critics by making successive changes or various promises regarding the mechanism. First there was a move away from the traditional investor state dispute settlement model that Louise Barrington described. That's the traditional model of arbitral tribunals established for each individual case, where the investor and the host state can each appoint an arbitrator. Usually there's a third arbitrator who is appointed by those two to resolve the dispute. We've moved now, in the text, to the model of a permanent tribunal selected only by the states, with individual cases to be decided by so-called divisions of the tribunal. This model is being referred to as the “investment court system”, even though it's still very much based on a model of arbitration because the rules applicable will be various arbitration rules.

Most recently, in order to get the treaty adopted in Europe—I think this is very important for members of the committee to realize, although you probably already do—there's been an agreement to suspend the application of even this new model. There's been an agreement to suspend the application of the dispute resolution model until all 28 national parliaments in Europe ratify the treaty. To my understanding, based on published reports out of Europe, there is a serious risk that at least Belgium, anyway, does not have the political will or the support in all of its federal and regional parliaments to ratify CETA's investment court system in its current form.

Where are we right now with CETA? It looks as though the appeasement has not worked. The critics are not appeased. They want a fully fledged, multilateral investment court and an appellate mechanism, with all traces of the arbitration mechanism removed. You can see this in the text of the treaty. Article 8.29, I believe, refers to that effort to continue working on some sort of multilateral investment tribunal.

I'll wrap up with these next two points.

What does this mean for Canada and Canadian companies and investors? For now, CETA has no investment protection regime, because it will be suspended during provisional application. Basically, unless you have that kind of mechanism, none of the substantive protections for investors can be enforced, so what is the future of the investment protection regime? It's highly uncertain. In my view, Canadians would have been better served with the traditional arbitration model in CETA. As I said, much of the criticism, in my view, has been misguided or misinformed, and frankly—

[The Chair, Liberal, Mark Eyking]

Excuse me, sir—

[Martin Valasek]

Yes.

[The Chair, Liberal, Mark Eyking]

Can you wrap it up? You're way over time.

[Martin Valasek]

This is my last point. Thank you.

According to my watch, I've been speaking for five minutes.

[The Chair, Liberal, Mark Eyking]

It's six and a half Ottawa time.

[Martin Valasek]

Oh, sorry.

It's not clear that a consensus will be reached on a new system to replace it.

Finally, if the current system is ratified, it's not clear that it implements a fair system. The members of the tribunal are paid by the state. There's no input from investors, and arguably that's not an independent investor state dispute model.

Thank you very much.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

Before we go to the MPs, I have a quick question for Jason. We just recently had parliamentarians from England here. Of course, they have left Europe and are quite interested in having more dialogue with us on trade. What buzz do you hear in London about having a stand-alone trade agreement with us?

[Jason Langrish]

It's interesting, because we were just talking about that today.

They seem very keen, but if I may be blunt, I've spent quite a bit of time here recently and I think they're struggling to understand what Brexit means. I'm encountering all kinds of discussions among individuals who seemingly don't understand the differences between a soft and a hard Brexit, a soft Brexit being some kind of arrangement that keeps it in the single market and a hard Brexit including unilateral removal from the EU and going back to the WTO schedules.

My thinking is it's more aspirational than real at this stage. I think they have a two-year window, once they invoke article 50, if indeed they are even able to. The initial comments of the courts in England were that this has to be voted on in Parliament.

My personal view is that in the two-year time frame they have, if they could only get through the list of directives in the EU and prioritize which ones they would like to keep and which ones they maybe do not wish to keep, and if they could just commence negotiations, they'd be doing well.

I think their backs are really up against a wall. They are interested, but I think it's a very long-term and more aspirational goal.

[The Chair, Liberal, Mark Eyking]

I guess we have to give them time to digest it.

We're going to start off with the Conservatives.

Mr. Ritz, you have five minutes.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Thank you, Mr. Chair.

Thank you, ladies and gentlemen, for your great presentations today.

Of course, the major theme here is the ISDS and the arbitration process. We welcome the clarification you bring to that.

Mr. Johnson, that you started out by saying this is a balanced, excellent agreement. I couldn't agree with you more. I do think that the major winners here will be services and investment back and forth between the two partners. To that end, I am very concerned that with the attempts to drop last-minute, eleventh-hour changes into place regarding the ISDS system, we've actually ended up with worse, rather than less. There's a vacuum that will create almost a chill that will offset some of the early-on services and investment dollars that need to happen, because there isn't that backstop. I know there were downsides to what was there, but it was a known quantity.

At this point, as has rightly been pointed out, there's an agreement to suspend all coverage until all 28 states ratify, and then we'll start to look at it again. That's quite some time out into the future. I'm just wondering if any of you, with your expertise, can shed some light on why that last-minute change was made, which actually creates more problems than solutions?

[Pierre Marc Johnson]

Mr. Chairman, I will respond to Mr. Ritz, if I may.

I agree with you that the services and investment sectors are sectors out of which Canada can profit the most. Indeed, the suspension of protection of investment and the investment court system that was set up create a certain level of—I wouldn't say uncertainty, but confusion. Why? It's because we're not sure how it's going to be applied.

That said, we have to have in mind that Europe had about $180 billion worth of investment in Canada before we ever signed this treaty, and reciprocally, so there are means, nevertheless, for the parties to decide on that in terms of investment decisions. Canada is a jurisdiction where you can use the domestic jurisdiction to face issues that might come up with investors and, reciprocally, in most European countries you can do the same.

It's not as if we're back to nothing. We're just with the status quo when it comes to investment, largely, and foreign direct investment will take place as it does now.

My colleague, Monsieur Valasek, also has brought about something fundamental. We've decided to depart—for essentially political reasons and the nature of the communications around the issue in Europe—and to land with a system that might be interesting, but really departs from the stability that we used to know. In that sense, it became inevitable at the end that the European Commission and some major countries, including Germany and France, wanted to depart from the traditional model.

I think it actually establishes a floor from which any negotiation from Europe will start. It doesn't mean that it establishes a floor for Canada, which might decide along the way to stay with the traditional system of arbiters, which are appointed by each party and who co-op a third arbiter. In that sense, I would say that it's preoccupying, but not dramatic.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Okay.

Do I have a little bit of time left?

[The Chair, Liberal, Mark Eyking]

You have half a minute.

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Mr. Valasek, do you have any other comments to add to that?

[Martin Valasek]

I agree with Mr. Johnson's remarks.

I believe your specific question asked why this came about, and I tried to explain it in my opening remarks. I think there are critics of investor state dispute settlement. As I said, you can really find a lot of information on this.

I do think that much of that criticism is misinformed. For example, arbitration is traditionally secret or confidential in the commercial setting—

[Gerry Ritz, Conservative, Battlefords—Lloydminster, SK]

Yes—