International Trade Committee on March 22nd, 2021

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call this meeting to order.

This is meeting number 20 of the House of Commons Standing Committee on International Trade. Today's meeting is being webcast and is taking place in a hybrid format, pursuant to the House order of January 25, 2021.

Before I go into the issue we're dealing with, I had said we would deal with the two motions Mr. Savard-Tremblay wanted to speak to.

Can I make a suggestion, Mr. Savard-Tremblay? Would you be okay with dealing with these two motions at the end of the meeting?

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

I don't see any issues with it, as long as we deal with them today.

[The Chair, Liberal, Judy Sgro]

Okay. Thank you.

Pursuant to Standing Order 108 and the motion adopted by the committee on October 23, 2020, the committee will proceed with its study of investor-state dispute settlement mechanisms.

I welcome our witnesses on this panel. As individuals, we have Gus Van Harten, professor of law at Osgoode Hall Law School, York University; Lawrence Herman, counsel at Herman & Associates; and Mark Warner, principal counsel at MAAW Law. We also have, from the Trade Justice Network, Angella MacEwen, co-chair.

Mr. Van Harten, you have the floor to start, please.

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

Thank you, Madam Chair, and good morning, everyone.

I have been studying ISDS for many years, maybe 20 years, and I have some simple advice for you today: Canada should adopt the perspective of quiet determination to withdraw from its ISDS risks and costs where possible and whenever possible.

Let me elaborate a little. The context, obviously, is that we're in the midst of a crisis, a global pandemic. That crisis has revealed the vulnerabilities and possibly the limits of our era of globalization. We have a lack of vaccine manufacturing capacity. We have a lack of other manufacturing capacity in Canada and in North America. To give you one anecdotal example, an electrician told me I was lucky to be able to get a breaker for my electrical panel a couple of months ago. There's only one factory producing them in North America, and it was shut down by an outbreak in the summer.

Besides the pandemic and what it's revealed in terms of vulnerabilities, we have all kinds of complex risks coming at us—environmental challenges, climate disruption, rising debt burdens, economic inequality, loss of jobs and businesses, and the rise of political extremism. In this context, I would suggest, while not wishing to be sensationalist at all, that we need to prepare for the prospect of some winding down, or further winding down, of the globalization era of the last 30 years or so. It certainly has dominated my adult life, this era. I'm not sure if the winding down will be gradual or sporadic or jolting, but I think it would be wise for us to think about planning for some sort of winding down.

That means a shift in strategy more to a national capacity, likely with more of a North American regional orientation as opposed to a global orientation. Global markets will still always be vitally important, but we need to have some kind of robust plan B to deal with changing circumstances and the crises yet to come, whether they are public health-related, environmental, financial or economic. To do that, we need to strengthen the regulatory manoeuvring space and governmental capacity in Canada, nationally and subnationally. To do that, we have to free ourselves from ISDS risks and costs. This is a different order of risk and cost compared with all other forms of adjudication, whether international or otherwise. There are potentially billions at risk, with a huge deterrent impact on governmental decision-making. I've been documenting that for years in various countries.

ISDS creates this really difficult-to-justify shift in bargaining power within governmental decision-making. I would say it's even leading to a kind of reconfiguration of the state, the governing apparatus of the state, in favour of foreign investors and against anyone in Canada who has a different interest on any issue. There are also long-standing issues in ISDS about this underlying taint of the process because of the extraordinary power of lawyers sitting as arbitrators to interpret vague language in the treaties in order to order retrospective damages amounts running into potentially billions of dollars against states. The process is not independent. It's not fair. It's not balanced. It's also not respectful to domestic institutions. Those criticisms have been out there for a long time.

Basically, in summary, with ISDS treaties we've been writing cheques that have an unknown amount on them. Where it says the amount, this cheque is blank. It's to be determined by very wealthy foreign investors and by the lawyers and arbitrators who interpret the treaties in the event of a claim by one of those foreign investors, usually big multinational entities or billionaires.

ISDS treaties haven't cost us catastrophically yet. There have been very serious impacts in the context of some other countries, but I think it's just a matter of time. As we respond to challenges and crises in the future, eventually ISDS treaties are going to cost us. They're going to hamper us more and complicate and deter our efforts to protect Canadian interests. ISDS treaties will do the same to other countries, too. I think, broadly speaking, we want those other countries to have national capacity to respond to crises as well.

How should we respond? Very briefly, we need to retain and strengthen governmental capacity and flexibility and strengthen our domestic institutions based on Canadian law that protects all investors and based on the customary approach to international law and relations between states and foreign nationals, a customary approach that frankly has been departed from dramatically and, at times, simply mangled by ISDS arbitrators over the last 20 years or so.

ISDS is the clearest and riskiest obstacle from a legal point of view to building this governmental capacity going forward. That's why my advice is fairly simple: withdraw from ISDS.

There are various ISDS reform efforts, but in summary, they're sort of scattered, painfully slow, generally flagging or not that promising. That's why I say develop a strategy of withdrawal from ISDS however possible. We have a window to let the clock tick down on existing ISDS treaty commitments, and we should start taking advantage of it now. I'm not trying to be provocative or inflexible about how we withdraw; I would just say to prioritize it. The tactics will depend on the particular treaty in which we already have ISDS commitments, but we really need to take ourselves on this path, in my view.

Very briefly, in summary, I've heard a lot of arguments for ISDS treaties. I understand what is at stake for Canadian companies operating abroad. I understand that alternatives to treaty-based ISDS are viable, but they're certainly not perfect. In my judgment, however, ISDS treaties are just not worth the national loss and future constraints in any context where we've agreed to ISDS, and so we need this attitude of quiet determination to get out and, in the meantime, otherwise limit ISDS risks as best we can.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Van Harten.

We will go on to Mr. Herman, please.

[Lawrence Herman, Counsel, Herman and Associates, As an Individual]

Thank you very much. I'm very pleased to be able to present my views.

Let me just say that I have followed Gus Van Harten's writings for years now. He is one of Canada's leading experts on this matter, and I have a great respect for his points of view.

I'm going to approach this a little bit differently, from the point of view of a former diplomat many years ago when I used to serve in Geneva at the Canadian mission to what was then called the General Agreement on Tariffs and Trade. I've been involved in these matters for years since. It's been a long time since I've been in government service.

ISDS is a fact of life in international relations, and it is not going to disappear. In my view, as meritorious as Professor Van Harten's points are, and they do have a lot of merit, it's going to be impossible to change the ISDS system. It's ingrained and it's built in to not only trade agreements but separate foreign investment protection agreements. There are between 2,500 and 3,000 of these agreements globally, and of course Canada has a number of them.

As the committee knows, ISDS is built into our regional trade agreements like the NAFTA, now the CUSMA. ISDS is built into the Trans-Pacific Partnership agreement, the CPTPP. ISDS is built into the Canada-European agreement, and it is part of bilateral trade agreements we have with Latin American and Caribbean countries, including a bilateral trade agreement we have with South Korea.

Withdrawing from ISDS, frankly, is politically, diplomatically and legally very difficult, and I would say it's probably not going to happen. The question is, what do we do about this?

There are a couple of things I want to point out to the committee, and they're relevant.

Professor Van Harten is correct. ISDS was initially conceived of as a means of stabilizing the investment situation for wealthy countries—northern countries, if you like—the industrialized countries that would help to stimulate investment flows to the developing world. That was the basic rationale. It has morphed into a system where private enterprises can challenge national measures for a variety of reasons. We can go into the details during the question and answer period.

By the way, I should say that if the committee wants a good review of the issues and the facts respecting ISDS, there was an excellent study done by the Canadian Centre for Policy Alternatives a couple of years ago. I reread it over the weekend and it still is very pertinent. I'm not saying I agree with the Canadian Centre for Policy Alternatives in many respects, but as a review of ISDS, there isn't, I don't think, a more useful document. I recommend you have a look at that.

There are a couple of things about ISDS that do indicate where Canada and the Canadian provinces are exposed. One of the things I would mention, which is not widely appreciated, is that Canada has a bilateral investment treaty with China. It was concluded in 2012 and entered into force in 2014. It lasts for 16 years after entry into force. It runs until 2030, with a carry-over period for investors, providing them with rights for 15 years after that.

One question before the committee is, does that give Canadian investors practical legal rights vis-à-vis China when they invest in China? On the other hand, is Canada exposed to private investment arbitration brought by Chinese companies that have invested in Canada? That's an issue, and it's not going to go away.

I want to mention the Canada-European Union trade agreement. There have been improvements in the ISDS process in the Canada-European Union agreement, CETA. I don't believe those will enter into force. CETA is being applied provisionally. The parts of CETA on ISDS with the reforms in the system require ratification by all of the member states. I am very skeptical that will come about, so CETA will continue for some time without those ISDS provisions.

The factor that I think has to be weighed in all of this is whether ISDS gives Canadian investors advantages, rights and certainty in their investments abroad. That's an issue that has to be examined.

The Centre for Policy Alternatives study rightly points out that most of the treaty provisions, the protective rights for investors, have been used by the Canadian mining sector, the extractive sector. However, there is arbitration going on beyond the extractive sector where Canadian investors have sought recourse to these provisions in ISDS. There is a benefit to Canadian outbound capital that has to be considered in all of this.

The final point I would make about withdrawing from ISDS is, as I indicated before, that where ISDS is embedded in our international bilateral or regional trade agreements, we can't simply withdraw from ISDS. That's because it's embedded in our trade agreements, including in the CPTPP and the NAFTA-CUSMA. CUSMA carried over some of the NAFTA provisions for three years, so you can't just withdraw from ISDS when it's embedded in trade agreements. It is possible for Canada to abrogate its bilateral investment treaties, but one thing that has to be mentioned—and it's very important—is that investment protection treaties, our foreign investment protection agreements, contain two things.

They contain rights of private investors, ISDS rights of private Canadian investors, to bring binding arbitration, but they also contain important obligations of governments to respect the rights of investors. This means that Canada can bring arbitration proceedings against a foreign government that doesn't give adequate protection to Canadian investors.

The state-to-state obligation in these treaties is of great value. Withdrawing from these treaties would mean that no longer would there be any binding treaty obligations between the host government abroad and Canada. In my view, that would limit, as a policy option, withdrawing from these foreign investment protection agreements.

What can be done? Picking up on points that have been made by others, in Canada's future negotiations of foreign investment protection agreements I think strong consideration should be given to not having ISDS provisions in those bilateral treaties.

My final point is that the options, realistically speaking, are regrettably quite limited in this area.

Those are my comments. I'd be happy to answer any questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Herman.

We will go to Mr. Warner, please.

[Mark Warner, Principal counsel, MAAW Law, As an Individual]

Thank you. This is the first time I'm doing this, so thank you for the invitation.

I am a Canadian lawyer, an Ontario lawyer, but I'm also a New York lawyer. Before I was a lawyer, I was an economist. I worked for Professor Alan Rugman who was one of the big advisers during the Canada-U.S. Free Trade Agreement negotiations, and one of the leading experts on investment.

That's how I started out thinking about investor–state dispute settlements. I thought what I would do, to be useful to your committee today, is to take you through my experiences with ISDS as a way of illustrating the advantages and disadvantages, and some of the things that sometimes get lost.

When I was working with Alan Rugman in the late 80s in the lead-up to the Canada-U.S. Free Trade Agreement, Canada was coming out of a very difficult environment. We had the National Energy Program, which had led to one of the greatest outflows of capital from any country at that point in recorded history. It's probably still true. We had the Foreign Investment Review Agency, FIRA, which was the subject of a dispute settlement proceeding in the old GATT, General Agreement on Tariffs and Trade, where Canada lost.

One of the first things Brian Mulroney did when he got elected was to change FIRA to make it more of a welcoming system toward investment, and then gradually to repeal the National Energy Program.

Wearing my two hats as a Canadian lawyer and an American lawyer, I have always been struck by the Canadian version of the history of the Canada-U.S. Free Trade Agreement. It tends to forget something, which is that the Americans wanted ISDS to be in the original Canada-U.S. Free Trade Agreement. It didn't get in the final draft, in large part because the Americans were happy with other things. One of the main motivations for the Americans in wanting to negotiate a free trade agreement was what we had done in investment and energy in the 70s and 80s. In other words, when you look back to that period, Canada was a net capital importer. Fast forward to today, Canada is a net capital exporter.

As a net capital importer, we had put in place all of these restrictions on foreign investment, and had acted in a way that our major trading partner regarded as very arbitrary. The way we disciplined that was with all these provisions in the investment chapter of the Canada-U.S. Free Trade Agreement that later got repeated in what became the NAFTA minus this investor-state dispute settlement mechanism.

When it came time to negotiate NAFTA, it was very clear the Americans wanted that agreement with Mexico. One of their chief objectives, again, was energy. At that point, I was a practising lawyer in Washington for a law firm that represented Pemex, the Mexican version of what I will call Petro-Canada.

In a sense, that was the prime objective. Since the Americans were going to go forward with that, and they weren't going to go forward with an agreement with NAFTA without having an investor-state dispute settlement, they were able to get through the back door in NAFTA something they didn't achieve, but wanted in the Canada-U.S. Free Trade Agreement, and that's the investor-state dispute settlement.

It's important to note that, because as we saw the world that Professor Van Harten talked about seeming to recede from globalization, and people going back to those 70s policies of nationalism that we ran away from in the 80s, we realized they were hurting our economy, and we stepped back from that. We learned a lesson from that experience. I don't think we should go back to it. We should continue to learn from those lessons.

Apart from that, we're now a capital exporter, as Mr. Herman said. We have mining companies operating the extractive sector. We are in the position that the Americans were vis-à-vis Canada in the 70s and 80s. We are in a position of having to protect our outward investment. How do you do that?

The origins of investor-state dispute settlement go right back to the beginning of the 1800s. Before that, Americans would go to various Latin American countries with what they called gunboat diplomacy. The idea was, how we can tone these disputes down? How can we avoid having to send in the marines to Venezuela and the Dominican Republic? Well, we can have arbitrations over disputed investments. That's part of the long history of this.

When people talk about getting rid of this investor-state dispute settlement channel, they are really talking about ramping up disputes between countries, bringing them back up to the national level.

In other words, if a mining company has a dispute in an African country, rather than having that dispute take place between the company and the country in a nice setting in Paris, it then becomes people lobbying you, knocking on your door as parliamentarians and as a government, asking you to put pressure on that government. It basically brings back up to the national level disputes that we brought down to the private level precisely to depoliticize them. I think that's a lot of what's lost in the current discussion of investor-state dispute settlement.

The last point I'd make is perhaps just from my world tour of investor-state dispute settlement. I was at the OECD, working in the trade directorate, when they were negotiating the multilateral agreement on investment. I happened to be there right around the time when the ISDS provisions of NAFTA chapter 11 began being used in a dispute involving the Ethyl Corporation, so I understand why all these sensitivities began to emerge. I think it's worth noting how politically sensitive ISDS has become. That might speak to how broad it is. It's no longer just covering the subjects of the old-fashioned expropriations, such as Fidel Castro coming to power in Cuba and taking over the telecom company. Now we're talking about things that are tantamount to expropriation, regulatory changes. Maybe that's something we would need to pare back, and I'm willing to accept that this might well be a frontier that we should work on.

The last part that I really want to come back to is my experience in working in the Ontario government as the legal director of the Ministry of Economic Development, Job Creation and Trade. There I had the opportunity to advise governments a lot on these NAFTA chapter 11 disputes. My observation is that when you listen to critics of investor-state dispute settlement in Canada talk about it, they tend to exaggerate the extent to which the Canadian government has lost. The truth is that Canada has a winning record. Most of these cases get dismissed, by a margin of about three to one, and we don't even lose.

The sexy part of this discussion is always expropriation, but most of the cases really turn on something to do with fair and equitable treatment. They talk about minimum standard of treatment.

Then the question that is interesting for us as Canadians to think about, based on my observations, is that oftentimes although the critics of ISDS like to focus on the subject matter of the arbitration, a lot of where we lose, when we lose, is because of the process. We lose because municipal governments or provincial governments acted arbitrarily. In reality, because we don't have a right to property, essentially, in our Constitution, a lot of people don't have a remedy for those kinds of arbitrary actions under Canadian law. That's why companies go and seek recourse to ISDS.

Just as support for that, I'll say that as a blanket statement, but I'll invite you to look at some of the writings of Professor Armand de Mestral at McGill University for the CIGI where he actually documented, looked at all the cases and looked at those where there might be a remedy in Canadian law, and concluded that there really wouldn't be in most cases.

For me, that's why it's there. For those of us who believed it and hoped for it, it was because we would like to see a situation where our governments don't act arbitrarily. If a government has a concern for the environment, great, legislate, but don't legislate it in the dark of night with nobody looking.

If you have a concern with environmental causes, don't apply it only to one company, to a foreign company; apply it equally.

Those are my thoughts about investor-state dispute settlement. I'd be happy to answer your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Warner.

Ms. MacEwen.

[Angella MacEwen, Co-Chair, Trade Justice Network]

Thank you for inviting me to appear on behalf of the Trade Justice Network. We're a coalition of environmental, civil society, student, indigenous, cultural, farming, labour and social justice organizations that came together in 2010 to call for a new global trade regime founded on social justice, human rights and environmental sustainability.

Our members include the Canadian Labour Congress, Unifor, CUPE, the United Steelworkers, Climate Action Network Canada, The Council of Canadians, the Communications Workers of America, the National Farmers Union and many other groups that represent people in Canada from all walks of life.

The new standard that has been set in the Canada-U.S.-Mexico trade agreement is that ISDS or other investor-state dispute settlement courts are unnecessary and in fact harmful. Outside this deal, as you've heard from the other panellists, Canada is still part of dozens of agreements that include an ISDS mechanism. We want to reiterate the reasons we think Canada should permanently shift from including these mechanisms in our trade and investment deals.

An ISDS mechanism is the clearest embodiment of the ways in which trade deals prioritize corporate rights and not just corporate rights, but foreign corporate rights, because if we legislate something, an ISDS claim would only apply to foreign corporations, not Canadian corporations. If there is no remedy in Canadian law, that's because Canadian legislators have determined it would be inappropriate to have a remedy, that it's okay. Why would we put a remedy in an international trade agreement that is not available under our Canadian law? Why would we allow foreign corporations to have different rights from domestic corporations? I think that is the crux of where we disagree with ISDS mechanisms.

It also constrains citizens and governments in their ability to voice and protect the public interest. As you've heard, ISDS reinforces and protects corporate rights by allowing foreign corporations to sue government for alleged appropriation, discriminatory treatment or loss of potential profit. It often goes beyond protecting investors, so the obligation to compensate investors for their losses of expected profits has been applied even where the rules are non-discriminatory, and where the company's profits are made from causing public harm.

In a 2016 report from Gus Van Harten, “Foreign Investor Protections in the Trans-Pacific Partnership”, he outlined how these types of protections have historically only benefited very large companies and very wealthy individuals. The suits often target and suppress government action towards the public good, both in Canada and internationally. Under NAFTA chapter 11, Canada has been brought to investor-state arbitration more times than the U.S. or Mexico.

This is a problem, whether we win or lose the suit, because it takes significant energy on behalf of provincial and municipal governments to determine whether or not they will be in violation of an ISDS suit, and they don't have the expertise that the New York lawyers have, who often deal with these suits. It can be very difficult for local legislators to determine if their action will be acceptable. Often they determine it is too risky to even try, so that problem of “chill” is a problem, having to deal with a suit once it comes up is a problem, and then losing is the third problem, obviously.

Some of the laws or regulations that have been challenged in Canada include a proposed ban on fracking, domestic court decisions around drug patents, a ban on the gasoline additive MMT, and provincial water and timber protection policies.

The problem is that the letter of the law matters in an ISDS success; Van Harten said who makes decisions is fairly arbitrary. They don't generally have precedent, so you can't predict the outcome of a decision. They themselves don't have a clear process that's easy for people to be able to tell, so there is a great deal of difficulty on the government side to establish a process that will protect them from an ISDS claim—and again, they don't have the capacity.

As we've said, Canada is now the most sued developed country under ISDS. These cases clearly illustrate the danger of this mechanism in preventing the Canadian government from implementing policy, law or regulations in the public interest. As two of the panellists have also mentioned, Canadian investors are bad actors on the international stage on this front. They have used ISDS to disproportionately target environmental policy in developing nations when they file investor-state lawsuits outside North America.

A 2019 report by Hadrian Mertins-Kirkwood and Ben Smith, “Digging for Dividends”, finds that Canadian investors have initiated 43 ISDS claims against countries outside North America since 1999, and that these are often mining companies and they are against environmental protections in these countries.

In the report, Mertins-Kirkwood also raises concerns about third party profiteering from the ISDS system, whereby financial speculators engage in for-profit financing of cases. This speculative funding is used to encourage and sustain ISDS cases that would not otherwise be able to go forward. This acts as a huge barrier to climate action for developing nations, which are most affected by the severe climate impacts of global warming and climate change.

As Gus Van Harten mentioned in his opening statement, ISDS threats have also hindered effective public action during the pandemic and could possibly cost nations millions of dollars in ISDS claims in the years to come and prevent governments from taking action that would protect the public health of their people.

Several of the actions that governments have taken in the past year that could make them a target for ISDS include restricting and closing business activities; securing resources for their health system; preventing foreign takeovers of strategic businesses that have been affected by the crisis; ensuring access to clean water for handwashing and sanitation when they freeze utility bills and suspend disconnections; and ensuring that medicines, tests and vaccines are affordable.

For example, in Italy, after a private manufacturer failed to deliver critical parts for ventilators and refused to share the design specifications, government researchers reverse-engineered the part and 3-D printed the parts for a fraction of the cost that the private supplier had been charging. The manufacturer threatened to sue, and the government had to back down from producing this life-saving piece.

The Columbia Center on Sustainable Investment has made a call for a complete moratorium on ISDS cases during the pandemic. In June, the National Union of Public and General Employees, a member of the Trade Justice Network, wrote an open letter to Prime Minister Trudeau criticizing the threat of ISDS cases and highlighting six calls to action, including restricting ISDS cases and prohibiting ISDS in any future agreements. These calls are very important, as is the need to continue to educate the public and politicians about the risks of ISDS.

Finally, as the committee knows, Canada failed to support a motion at the World Trade Organization that would waive restrictions on making sure that vaccines and other medical supplies for the pandemic would be affordable for developing nations. Should these nations go ahead with generic vaccine production anyway in order to protect their people from COVID-19, they would be subject to expensive ISDS lawsuits from pharmaceutical manufacturers, whose vaccine development and trials were largely funded by the public sector in the first place.

We argue that trade and investment should be viewed as a means to enhance material and social well-being, not as an end in their own right, and that if investors—even if they’re Canadian investors investing abroad—are violating our environmental or human rights codes, we should not be allowing them to be protected by ISDS suits. Any protection of investor rights, whether within Canada or globally, should be accompanied by an enforcement of their responsibilities to the public good.

Thank you very much.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Ms. MacEwen.

We'll go on to Ms. Gray for six minutes, please.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you, Madam Chair, and thank you to all the witnesses for being here today.

Mr. Warner, would you say that Canadian businesses would be less inclined to invest in countries if ISDS measures were removed or did not exist?

[Mark Warner]

That's a complicated subject. The economic evidence, the statistical evidence, is not conclusive one way or the other. Going back to my origins, as I told you, working for Alan Rugman, who was one of the guys who worked long on these origins of foreign direct investment, I can tell you that when economists look at it, they say the greatest determinant of foreign direct investment is the size and growth of markets. That pretty much swamps any other effects that you try to look at, whether it's taxation or anything else.

At the margins, I do think it would hurt Canadian investments in other countries. It depends on their stage of development—more emerging markets. It tends to be something that companies need. As a practical matter what it means is this. If companies want to invest in a country, if they can't get a remedy through something like ISDS, they're going to look for some kind of insurance. Where are they going to look for that insurance? You can say, “Well, let them pay for it.” Well, we live in Canada. Let's be frank about it. They're coming to you, or some bank you will set up, and they're going to ask that bank that you set up, “Can we fund this...Canadian taxpayers to pay for it?” It's not some great, independent insurance market where they're going to get it.

ISDS allows you not to have to fund it through some really highly subsidized insurance scheme. Without the insurance and without ISDS they won't invest, it seems to me. You can have it either on the front side or the back side, but one way or another if we want our Canadian companies to go into those jurisdictions, we're going to end up having to have something like that to deal with it.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Some worry that ISDS provisions would prevent Canada from enacting legislation, such as on the environment or maybe other factors, without facing challenges from corporations. Would you say this concern is valid?

[Mark Warner]

It is fair to say that where we have tended to lose cases or where we see cases brought is under this idea of the fair and equitable treatment of the investor. It's not really under the expropriation heading. It's not that we're losing because panels have come in and said, “Canada, what you did is really bad by implementing this new substantive, legal obligation.” Where Canada loses is when people say, “Wait a second, you told the investor one thing one day and the next day, somebody else gave you some more money and you changed your mind,” or they say, “We had a deal with you. We gave you some money. You told us there were these regulations. We incurred costs and then you just changed your mind because some municipal government said it didn't have to pay because the federal government's going to pay for it in effect.” Those are the cases we actually lose.

I don't think it changes our ability to enact environmental law or pharmaceutical policy that we choose. What it says is that we have to be more careful when we legislate so that we don't discriminate against particular investors when we do it, and that we do it in a way that conforms to some sort of notion of due process, for lack of a better word. I don't think it really does hurt our ability to substantially legislate in those fields.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

It sounds like you're saying a lot of it has to do with certainty if someone's going to be investing.

What risks do you foresee for Canadian businesses abroad if Canada were to remove foreign investment protection agreements it has signed with countries across the world?

[Mark Warner]

I think if we didn't have investor-state dispute settlements, then Canadian companies would have to figure out where to go to get a remedy.

As I said before, they're going to either not invest—so we will lose out on the returns that come to us through taxation—or pay for it in the form of insurance. Thirdly, they're going to ask you as a government to make the decision for them, and every time you sit down with representatives of their government.... There may be cases, particularly in Africa, where our foreign policy demands that we have a good relationship with a country that has a huge mining industry. But if every time that we sit down with that country, the top of the agenda is that investment dispute, we won't be able to pursue some of the foreign policy objectives we have on a bilateral basis with that country, and, let's be frank, on a multilateral basis in larger international institutions. I think it hurts us.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

We've heard that the government is in consultations for a trade agreement with Indonesia, and, according to the World Justice Project, has a rule of law index score of 0.58, compared to Canada, which is 0.75. Would you recommend that Canada seek to negotiate some form of ISDS provisions in a potential Canada-Indonesia free trade agreement?

[Mark Warner]

The short answer is yes, I would. I think there's no reason to depart from our practice so far. We are a capital exporter.

I think the norm so far is to have ISDS in those provisions, even regionally, because, of course, it is in our existing CPTPP agreement regionally. I would see no reason to depart from that.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Ms. Gray.

We will go on to Mr. Dhaliwal for six minutes.

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

Thank you, Madam Chair, and thank you to all the presenters. That was excellent information.

Madam Chair, most of the questions I had were touched on by Ms. MacEwen, on the pandemic, and the environment and social justice.

I'm going to start with pandemic. To what extent could pandemic-related measures implemented by our government expose it to legal repercussions under ISDS provisions in Canada's international trade agreements, as we have many trade agreements that have this provision?

[Angella MacEwen]

There is the Columbia Institute that I mentioned, and other legal organizations in Europe have definitely made lists of potential cases. I can share that with the committee.

There was a lot of concern at the beginning of the pandemic that these would be coming. What we saw were letters of threats from some, and then backtracking from government. Unfortunately, we don't know that, because often those communications are in private.

I can send you the list of the extent.... I think it's significant.

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

Do any of the other witnesses want to chip in? No?

Because our government is big on environment and social justice policies, and we are signing those agreements, some have expressed concern, and you have expressed concerns as well, that ISDS provisions hamper environment and social justice policy by imposing some penalties on any country that attempts to regulate in the public interest.

Could you please give your thoughts on whether this may be the case when it comes to these issues and how the government can improve on it if we sign the agreement and we have a chapter on environment and social justice policies?

[Angella MacEwen]

These trade agreements that we find...for example, with the one with Europe where we have an investor court system in place, the investor protections are guaranteed at this tribunal or at this court, but the environmental protections don't have the same weight. We mentioned environmental protections, labour protections—we have wonderful language—but there's no enforcement of them and there's no relationship between the investor protection and the commitment we have referenced in the environmental or social justice chapters, or the other treaties we've signed on to, for example, at the International Labour Organization on labour rights or the Paris Agreement.

Therefore, if you take action as a government to meet your climate targets under the Paris Agreement, that does not protect you from an investor dispute if you are appropriating rights. You can't use that to justify action that you've taken. We would call for binding restrictions in the agreement, binding references to other international treaties that we've negotiated either for climate or for labour.

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

ISDS provisions are implemented in many of the trade agreements, as mentioned by Mr. Herman.

When I look from the other angle, if we do not have these ISDS provisions incorporated in those agreements, by not having that dispute settlement system with some of the trade agreements that we sign, the companies, particularly the Canadian companies, would face challenges if we do not have those provisions.