International Trade Committee on March 22nd, 2021

[Angella MacEwen]

They would absolutely, but I question why we would want to insure Canadian companies that are behaving contrary to our international obligations under labour or environmental rights. I don't think we have the responsibility as a government or as the people of Canada to insure them through this supposedly costless to us investor-state dispute settlement mechanism.

We should make them buy insurance, if they want to invest, because if they want to invest, it's because they expect there to be profits; isn't that the case? It's not our responsibility to insure them against their own bad action in generating profit.

I know that you hear from us politically on a regular basis about the bad behaviour of these corporations in the global south anywhere. Having ISDS does not diminish the political pressure that we're applying to you about the bad behaviour of some of these Canadian—

Really, Canada is a flag of convenience for mining companies. It's awful, it is horrible, and I don't think that most Canadian citizens would support our public dollars or our foreign policy backing these organizations.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you.

[The Chair, Liberal, Judy Sgro]

We move on to Monsieur Savard-Tremblay for six minutes.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Madam Chair.

I want to say hello to my colleagues and thank all the witnesses.

My first question is for Mr. Van Harten.

You explained why you think the investor-state dispute settlement mechanism was politically damaging. I completely agree with you. The UN published a report on prosecutions not only in Canada, but around the world. The data may not be quite up to date. Be that as it may, according to the report, about 60% of those prosecutions resulted in the state losing the case or in an out-of-court settlement. In 60% of cases, the political will backed down to for-profit companies.

What's more, according to a report by the European Union, the mechanism has non-quantifiable impacts. Take for example the permanent pressure the provisions of that mechanism apply on states and the atmosphere of self-censorship they create. In other words, leaders avoid adopting policy to avoid being prosecuted.

To your knowledge, have any studies in a Canadian context been carried out to determine whether states have indeed suffered setbacks or been subject to pressure?

[Dr. Gus Van Harten]

I entirely agree. A report that counts the number of wins and losses isn't telling us that much about the impact of ISDS because the real impact is behind the scenes. To get at that impact is very difficult for an outsider—I have tried by interviewing officials.

I think there are many examples of governments' changing their decisions as a result of ISDS risk. Now whether or not the change was good or bad could be argued, but I can tell you that there are many examples in many countries where behind-the-scenes decisions have been changed, and sometimes in ways that are pretty alarming.

The Ethyl case is one of the most famous settlements in the history of NAFTA. It's one of the early cases where Canada had a very concessionary settlement, including the withdrawal of proposed legislation. It's a long story. I don't want to draw us into that rabbit hole.

I would say that what happens with ISDS is that the question of the merits of a decision is no longer left to the institutions of the country ultimately—to the government, to the legislature, to the Supreme Court. The ultimate decision-maker becomes a panel of arbitrators whose role is triggered by a multinational. That extraordinary change in the decision-making infrastructure of your sovereign country leads to all kinds of pressure behind the scenes. I would say that, above all in a crisis—any kind of crisis—this behind-the-scenes pressure is going to be bad for any Canadian perspective that differs from that of someone who can claim to be a foreign investor and has enough money to bring a credible threat of a claim.

That means it could be an economic crisis, a financial crisis, an environmental crisis or a public health crisis. It's not good, and I fear we're going to face more of those crises in the future. There are plenty of examples of this.

Quickly, I'll just highlight that many trade agreements do not allow for ISDS. The new NAFTA has removed ISDS between Canada and the United States. That's one of the most positive things I've encountered in my couple of decades following ISDS, and it came from the Americans. The Americans decided that ISDS was too much of a constraint on their own sovereignty, and among other things, it created incentives for American companies to move manufacturing abroad. That was a concern.

I'm saying that U.S.-Canada relations will always be fundamental for us. By the way, I completely respect and defer to the wisdom, expertise and experience of others on the panel. I'm just saying that it's case-by-case, treaty-by-treaty-specific how you withdraw in a non-provocative manner that doesn't offend relations with the United States, that doesn't offend multinationals, that doesn't say that Canada's going back to the bad old days of the 1970s where Pierre Trudeau was friends with Fidel Castro or I don't know what.

It's looking forward. We need to free ourselves from ISDS because of the crises that are coming in the future and just because, at this point, we cannot have our governments being deterred behind the scenes from essential steps they need to take to protect Canadians.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We will move on to Mr. Johns for six minutes, please.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Thank you.

Thank you to all the witnesses for their testimony.

Ms. MacEwen, in your opening statements you mentioned the investor-state dispute settlement provisions in relation to vaccine production. Can you explain to the committee more fully what the TRIPS waiver is and how it demonstrates exactly how dangerous the ISDS provisions are?

[Angella MacEwen]

TRIPS is a treaty on intellectual property rights at the World Trade Organization and there's a TRIPS council that meets regularly. They have, in the past, allowed waivers of intellectual property in certain circumstances. And so, in the middle of the pandemic, India and South Africa—which have both been badly hit by COVID-19—proposed to this committee at the World Trade Organization that they suspend the intellectual property rules to allow them to produce generic versions of vaccines because they have generic manufacturers there where they could do that. That would allow their population to be vaccinated more quickly, which would protect global health. They also wanted to be able to manufacture parts for ventilators, PPE and other things that might have intellectual property restrictions on them. Now, what Canada and other rich countries have said in this council is, “Well, prove to us that this is delaying your response. We think that you can resolve this on a case-by-case basis. We think that these huge global profitable corporations that have never seen more money come into their bank accounts—we think that right now, they're probably going to be in a good mood and they'll let you do this. We don't have to go to this extreme of lifting this whole provision.”

The countries came back and said, “Here's an example of where we've been trying to do this and it's been stalled. It's taking us a really long time and it's hurting us. There are people dying in our country because we're not able to provide the stuff that you need to do—the testing—and we're not able to provide these things on an affordable basis because of this intellectual property restriction that you're refusing to lift on our behalf.”

Canada has still said, “Well, no. We think that you're probably fine, that we don't need to do this.” We think, in the interest of global public health, human rights and basic decency, that in an emergency like this pandemic, it makes sense to lift that intellectual property rule that says these companies get to negotiate how much they can be paid. It's a little bit like Uber drivers with the surge pricing. In the absence of this waiver, the global north is protected; we're vaccinated. But you're going to keep seeing more variants produced in South Africa, in India. You're going to see more people in the global south dying from COVID-19 because we did not act swiftly and allow these things to be produced in a generic way that would be affordable for these countries.

[Gord Johns, NDP, Courtenay—Alberni, BC]

I want to drill down a little more on this. Maybe you could talk to the committee about how many countries have signed the waiver, how many groups have been pushing the Canadian government to sign onto the waiver. When is the next opportunity for the Canadian government to sign onto that waiver at the WTO? Has the Canadian government responded to any of your concerns around signing onto the waiver? Maybe you could also speak to how there's a lot of public money going in right now to the crisis and how responsible this is right now.

[Angella MacEwen]

Yes. You raise a good point. The major vaccines were actually funded mostly through public money. The innovation behind the Moderna vaccine was created by publicly funded scientists in the United States, and they have the patent for it. But still, somehow, Moderna and the other companies have a right to license the end vaccine. The trials were funded by public money, and Moderna, which is completely publicly funded—everything about Moderna's vaccine actually was funded by public dollars—had the highest price for its vaccine, which is completely unacceptable. They're looking at making a huge profit from this vaccine.

But yes, the majority of countries have signed onto the waiver. Canada, the U.S., the U.K.—we're dragging our feet. We haven't said no, but we've said, look, we need more evidence that this is causing a problem. We've written letters. Many of our members have written letters, including, the Canadian Union of Public Employees, the Canadian Labour Congress, Doctors Without Borders, Amnesty International, Public Services International. There are global campaigns pushing governments to make this decision that would save lives, and we've heard no response. So what the Trade Justice Network did—what I did—was to start a petition with the House of Commons, an official e-petition. We have over 500 signatures already. That petition will close at the end of March and the government will have to respond to our petition. So we are expecting that we will get a response from the Government of Canada at that time, but we've had no response to date from them.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Johns.

We'll go to Mr. Lobb for five minutes, please.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thank you, Madam Chair.

It's been a great conversation so far this morning.

I just want to ask Mr. Warner a question in regard to the WTO dispute mechanism and the ISDS mechanism. When is it in the country's best interest to go forward through WTO, or when would a company decide it's in their best interest to go through ISDS, or is it concerted effort to go to a dual approach? I just want some thoughts on that.

[Mark Warner]

They are obviously two very different processes. I think, from the point of view of a company, that the decision to go to the ISDS gives it more direct say, because, of course, the WTO proceedings are state-to-state proceedings, so the best a company can do is go to you, the Government in Canada, and say, “Will you take our case and will you argue it in the Geneva proceedings and go through the consultations with the governments, etc.?” Governments defend in ISDS cases, but they aren't the proponents, and so the investor, I guess, has more sovereignty to make the arguments it wants to make.

If you're well funded and you can afford to do that, it might give you a better resolution than trying to rely on the state-to-state dispute settlement process. I think it's really the kind of calculus that a company goes into in deciding whether to ask its government to pursue the matter through any number of trade agreements, including the WTO, or to take matters into its own hands.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Maybe you don't want to comment on a particular case or a potential case, but do you believe that Huawei will have a great case if Canada makes a decision one way or the other?

[Mark Warner]

I think I should, if you don't mind, refer your question to Mr. Herman, because he's written, I think, a very good article on this subject. Why don't I put him on the hot spot?

[Ben Lobb, Conservative, Huron—Bruce, ON]

Mr. Herman.

[Lawrence Herman]

As I indicated, we have an investment treaty with China. Most people don't think about it or talk about it. It gives Chinese investors rights to bring binding arbitration against the Canadian government for breaches of the treaty, and that means breaches of the obligation to provide fair and equitable treatment to investors, but that Canada-China investment treaty has an exception for national security interests. My sense is that the exception would cover Canada in the event that Huawei were to bring arbitration proceedings against Canada.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Okay, that's good.

Ms. MacEwen, the one I was interested in is Keystone XL. Maybe you don't want to comment, maybe you do. It is an old file that predates USMCA. Do you think that a company like TC Energy, TransCanada PipeLine, should be able to sue the U.S. government or state government because of the cancelling of Keystone XL? Do you have any thoughts on that one?

[Angella MacEwen]

Sure. I can just tell you factually that, because it is an old case.... ISDS is not completely out of CUSMA. It's being slowly weaned out, so investments like that one would still be covered by ISDS. Whether I think that's a good idea or not is a different matter.

[Ben Lobb, Conservative, Huron—Bruce, ON]

But in that one—and I'm not trying to make you say one way or the other; you're free to answer any way you like—it would seem to me that is a good provision to have to protect the TransCanada PipeLine from a decision that's covered three presidents and billions of dollars of investment.

[Angella MacEwen]

Absolutely. My argument there would not be with the specific investors. It would be with the government for not providing clear direction and guidance ahead of time when it was clear that the investment would likely not go forward.

To be fair to the government, they were trying to follow a process, as Mr. Warner states, that would allow them to say no, so whether they intended to say no from the beginning or not, they had to go through the environmental protection process to allow them to deny that investment, and in doing so, they dragged the investors along potentially longer than they should have.

[The Chair, Liberal, Judy Sgro]

Thank you, Ms. MacEwen.

We'll go on to Mr. Arya for five minutes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Madam Chair.

Mr. Mark Warner, thanks a lot for bringing up the history of these mechanisms and emphasizing the importance of these mechanisms in depoliticization. That's an excellent point that many of us forget. Also, you mentioned twice that we are becoming a capital exporter. The capital export is still growing.

Mr. Lawrence Herman, I did read the note that you circulated. Let me just quote the last part of your note. You mentioned the need for modernization to make the ad hoc arbitration process more efficient, effective and consistent. That is very important. You also touched on state-to-state obligations. Once again, many of us forget about that. The foreign investment protection and promotion agreements are a fact of life today. Canadian companies earlier, in the previous generation...a few mining companies were investing abroad. These days, a lot of Canadian investment is going from the Canada pension plan, the OMERS or the teachers' pension and we have been investing elsewhere.

To take a specific example, Canadian investments in India are about $52 billion. We don't have a FIPA yet. We don't have any foreign investment protection agreements with India. What is the mechanism available for Canadian capital exporters to protect our investments?

Just because a few Canadian mining companies acted in a wrong way, to paint all Canadian companies as bad actors is something I don't agree with. I think we need to have a mechanism where the funds of an average Canadian that are invested through our pension plans, whether the CPP, OMERS or the teachers'....

What is the mechanism available when they invest in Asia and South America, or for example, in India, where we don't have any protection agreements?

[Lawrence Herman]

When it comes to India, we don't have a FIPA, so there aren't any state-to-state obligations that Canada could rely on. In that case, it would be up to the investors to assess their risks and make decisions accordingly. That's just the way the market works. Some people say that investment protection agreements unfairly—I guess that is one way of expressing it—underwrite investor risks and that it's up to the investors to make the decision of whether they want to invest in a particular jurisdiction.

To answer your question, there would be no way in which an investor in, let's say, India, could be protected other than recourse to Indian law in the event of some behaviour that was illegal or improper. That's the short answer to your question regarding India in particular.

[Chandra Arya, Liberal, Nepean, ON]

We have a practical case here. When I say Canadian investment, I'm talking about mining company investment. An average Canadian investment—for an average Canadian like you and me—gets invested through our pension plans in various countries because we need to invest in other countries to generate returns for our pensions. When we make investments in countries in South America or Asia, does that emphasize the need for having these investment protection agreements?