Evidence of meeting #21 for International Trade in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was foreign.
A recording is available from Parliament.
2:10 p.m.
Liberal
The Chair Liberal Judy Sgro
Thank you very much, Professor.
We move on to Professor Leblond, please. The floor is yours.
2:10 p.m.
Patrick Leblond Associate Professor, Public and International Affairs, Faculty of Social Sciences, University of Ottawa, As an Individual
Thank you, Madam Chair.
It is an honour and a pleasure for me to address the members of the committee today.
My remarks this afternoon will focus on the logic of the investor-state dispute settlement mechanisms, or ISDS, and on the choice you members of the committee face as part of this study. I should therefore remind you that the objective of investor-state dispute settlement mechanisms is to reassure businesses, that is to say, investors, when they do business abroad.
Those mechanisms, which are set forth in the free trade and foreign investment protection agreements, are designed to provide a neutral—meaning non-politicized and impartial—and efficient conflict resolution framework for determining situations where an investor has suffered a loss of assets, as in an expropriation, or a loss of asset value as a result of discriminatory action by a government against that investor and the investor's investment.
In exchange for a more predictable business environment in which foreign investment is afforded greater protection, foreign businesses are expected to invest more. The purpose of these agreements is to encourage investment in the hope that it will contribute to economic growth. This therefore means, at least in principle, that there is no reason for such a mechanism if a country provides this kind of protective national framework for foreign investment. In other words, if businesses operating internationally can rely on national tribunals, and if those tribunals are effective and impartial, then, in principle, they should not need to rely on international agreements to protect them or on an investor-state dispute settlement mechanism.
As Professor de Mestral mentioned, the issue of compensation arises in certain cases, but this mechanism logically exists because foreign businesses often operate in countries where tribunals are not very reliable. They therefore prefer this kind of supranational protection, as it were.
We in Canada can theoretically offer foreign investors this kind of framework, notwithstanding the factors that Professor de Mestral cited. In fact, the problem is not with us. The question you members of the committee must consider is whether you want to protect the interests—meaning assets—of Canadians and Canadian businesses investing abroad.
If the answer is yes, then we need agreements including ISDS mechanisms. That of course requires reciprocity among the signatory parties. If we ask others to participate in this kind of mechanism, they will in turn ask us to participate in it as a state. We must also offer these protective mechanisms to foreign investors who come to Canada. This is the world we live in. There is this concept of reciprocity. We want to protect the foreign assets of our businesses, and, in exchange, we naturally request that foreign businesses do the same when we negotiate and sign foreign investment protection agreements.
If the answer is no, Canadian businesses will then face greater uncertainty when they operate abroad, but that's one transaction cost among many. Professor de Mestral said they would be dealing with 189 different rules, one for each country. That's true, but the reality is that, every day, companies engaged in international business face rules, procedures and legal and cultural systems that differ from one country to the next.
Businesses operating internationally would theoretically have one more decision to make if there were no investor-state dispute settlement mechanism. They would have to consider how that would affect their sales, production costs and, in some instances, access to inputs, markets and so on.
However, if the foreign assets of Canadian businesses were not protected as well as those of their competitors in other countries, because those of their competitors would be protected by the ISDS mechanisms negotiated by their governments, then those Canadian businesses would be put at a disadvantage.
If we decide to let the market operate and leave businesses to their own devices, because we can protect foreign investors that come to Canada and Canadian businesses operating abroad, then it's up to them to address this additional risk in their business decisions. That's the way it is.
The problem in this case is that, since other countries may protect their businesses by means of these dispute settlement mechanisms, our businesses face operating risks, which entail additional costs. They thus become less competitive.
We find ourselves in a situation where we are somewhat affected by this lack of coordination. We are ultimately talking about a lack of coordination among states. If you withdraw Canada from this kind of mechanism, Canadian businesses will then be abandoned and will face much tougher international competition. They will be less competitive in those markets, and even in Canada.
Consequently, assuming world governments are unlikely to agree to eliminate these agreements, then the problem is the reverse. We then need to focus the energies of the Canadian and other governments on improving ISDS mechanisms to make them more transparent, accessible and fair for all Canadian and international businesses.
My distinguished colleagues have naturally suggested a number of ideas for improving those mechanisms and ensuring that Canadian businesses are competitive with their international counterparts.
I'll stop here. That's all I have to say, since the others were much more eloquent than I on the specific challenges associated with these mechanisms.
Thank you, Madam Chair.
2:20 p.m.
Liberal
The Chair Liberal Judy Sgro
Thank you very much, Professor Leblond.
We will go on to Mr. Aboultaif, for six minutes, please.
2:20 p.m.
Conservative
Ziad Aboultaif Conservative Edmonton Manning, AB
Thank you, Madam Chair.
Thanks to the great witnesses with wonderful testimonies today. We have learned a lot.
Businesses, capital investment and investment in general look for security, for certainty; otherwise, they will not be able to do business. ISDS works because they work in both directions: They work for investment coming our way, and they work for our companies that invest abroad.
We have heard from the witnesses—from Monsieur Fortier, Monsieur Côté, Mr. Appleton and all the great witnesses today—and I would like to say something. In life, we say you don't get what you deserve; you get what you negotiate. With ISDS, we know there are different models that will be tailored to fit the different markets you're targeting or the different agreements you are trying to put together.
I would like to ask the witnesses—I will start with Monsieur Fortier, and then to Monsieur Côté and Mr. Appleton—if they can give us some real-life examples of situations and cases where ISDS was the right solution and having it there was good for Canada and for Canadian companies.
2:20 p.m.
Cabinet Yves Fortier, As an Individual
Madam Chair, would you like me to begin?
2:20 p.m.
Conservative
Ziad Aboultaif Conservative Edmonton Manning, AB
I would like to start with Mr. Fortier, then Mr. Côté and Mr. Appleton, if that's okay.
2:20 p.m.
Cabinet Yves Fortier, As an Individual
First of all, thank you for your question.
I would be remiss if I did not acknowledge and thank my friend Professor de Mestral for his generous comments in the course of his excellent presentation. Coming from an authority in the domain, as Armand de Mestral is, it's a great compliment.
Thank you, professor.
Mr. Aboultaif, I don't know where to start. I could give you so many instances of cases in which I've been involved, either as a counsel or as an arbitrator, where Canadian corporations have benefited.
I'll give you one, because it's a case in which I'm presently involved as a member of an international tribunal. This is on a no-name basis, obviously, because, as I said, the case is pending. It's a Canadian mining company from British Columbia that has a subsidiary in Poland. It was awarded some exploration concessions a few years ago by a department of the Government of Poland. Its competitor was a Polish mining company. After the decision was issued, the then president of Poland complained and asked why they favoured a Canadian company rather than a Polish company. He was followed by a number of influential people in Poland, and eventually the mining concession was cancelled.
Canada has a bilateral investment treaty with Poland, and the Canadian company shareholder of the Polish company availed itself of a provision of the treaty and gave a notice of arbitration against Poland. The case was argued in Warsaw a couple of years ago, when we could still travel.
We are now deliberating, my colleagues and I, and whatever the result is going to be.... Don't expect me, of course, to speak about the merits of the case. This is a case where the subsidiary of a Canadian company benefited from the existence of a bilateral investment treaty with an arbitration clause and instituted proceedings before an international tribunal. I was appointed by the Canadian company. The chairperson of the tribunal is Swiss, and the arbitrator appointed by Poland is a very eminent German jurist.
That's a short answer, Mr. Aboultaif, to your very important question.
2:25 p.m.
Conservative
2:25 p.m.
Liberal
2:25 p.m.
Liberal
The Chair Liberal Judy Sgro
It was a terrific answer and valuable information.
We go on to Ms. Bendayan.
2:25 p.m.
Liberal
Rachel Bendayan Liberal Outremont, QC
Thank you, Madam Chair.
I'd also like to thank all the witnesses here today. I'm very proud to see so many Quebec experts here with us to clarify this important matter for us.
I obviously have many questions, but my speaking time is short.
I'll start with Mr. Fortier.
A few minutes ago, Professor Côté said that the disputes we're discussing today should remain limited matters and that it's a good thing that countries and governments don't need to intervene. I must admit I agree with that.
We also heard from Mr. Appleton, who was talking about a greater public disclosure of information and greater involvement of parliamentarians in the dispute resolution process.
I was wondering if we could get your comments on these views and what you think the government's role should be, particularly as we are dealing with.... It is an alternative dispute mechanism process, but it is a dispute resolution process nonetheless, and we need to respect that.
Mr. Fortier.
2:25 p.m.
Cabinet Yves Fortier, As an Individual
Ms. Bendayan, as you very well know, it's important to be in the right place at the right time. When you practised law at a certain firm with a certain lawyer who is pleased to see you again today, you were in the right place at the right time. That's true again today, because you're the member for Outremont and you sit in Parliament and on this committee, the mandate of which is precisely to provide answers to these many questions.
You have often heard me say that being at the right place at the right time is very important.
You've been in the right place both times, and I congratulate you on that.
2:25 p.m.
Liberal
Rachel Bendayan Liberal Outremont, QC
Thank you very much, Mr. Fortier.
I'd also like to take the opportunity, with my limited time, to ask Professor de Mestral a question. Full disclosure, he is also my former professor.
I have read your book Second Thoughts, Professor. I certainly recommend to all of my colleagues on committee to do the same.
You mention in your book that, originally, the idea of ISDS was viewed by western countries as a way to bring developing countries in line, but quite soon thereafter, western countries were surprised to be sued by many developing nations.
Could you comment on the idea that ISDS is being used by developing countries and is in fact a tool that we should be looking at in order to level the playing field? I'm also interested in any other comments you may have with respect to the importance of ISDS internationally.
2:30 p.m.
Emeritus professor of Law, As an Individual
I think you're right in noting that.... The original treaty, the very first one that's always mentioned, between Germany and Pakistan certainly was designed to protect German investments in Pakistan. There weren't very many in the fifties, sixties and seventies. Things gradually took off, particularly with NAFTA, in fact.
NAFTA was a bit of a wake-up call for Canada. Everybody said that we were going to buy into investor-state arbitration under chapter 11 because we may have to deal with these Mexicans who are a bit unruly. Lo and behold, who got sued first? Canada. Who got sued second? Canada. Then somebody had the good sense to sue the USA and one thing led to another.
In fact, in many ways, in terms of the thinking that went into the lawyership and into the decision-making by arbitrators, NAFTA was certainly an important moment in the development. There was certainly a phenomenon where more developed countries were being sued, but I think over the last 15 to 20 years, we have seen something of a rebalancing. People wondered whether China would ever get into it. Finally they've accepted to be sued and now they're suing other countries themselves. India has been reticent, but Indian investors are out there suing both developing and developed countries.
I think the idea that it is simply some sort of conspiracy to pull down the developing world is no longer true. You have developing country investors, as between each other, and people like Tata in Europe and in Great Britain who have taken cases against European governments.
I think things have rebalanced quite a bit. We have over 700 cases now, and those who are suing really constitute quite a remarkable mix of countries. As Barry Appleton noted, it's not just big corporations, but a great many smaller corporations are using the system as well.
2:30 p.m.
Emeritus professor of Law, As an Individual
I'll hold my peace, Madam Chair.
2:30 p.m.
Liberal
2:30 p.m.
Bloc
Simon-Pierre Savard-Tremblay Bloc Saint-Hyacinthe—Bagot, QC
Thank you, Madam Chair.
Greetings to my colleagues and thanks to the witnesses for being here.
My questions are for Mr. Côté.
Mr. Côté, thank you for your presentation. I've never been a professor, but I was particularly interested in this issue in my former academic life. You provided an overview of the political and legal factors that led to the creation of the investor-state dispute settlement mechanism. However, it seems to me the ideological circumstances in which that mechanism was created can't be overlooked.
When the concept began to spread and the mechanism was introduced under NAFTA, it was a time of neoliberalism and globalization. People talked about the end of states and nations. The purpose of that mechanism was to protect investors and multinationals from certain political decisions. That seems to me a return to the old idea of the invisible hand, according to which the more private interests are freely pursued, the better off a community will be. You can't disregard that now and wonder whether the idea is still relevant.
Earlier you talked about the depoliticization of certain economic decisions and ways of doing things. I think instead that we should go back to politicization. Before NAFTA, we had the Canada-United States Free Trade Agreement, the FTA, under which a business seeking to sue a state had to go through its home state.
Some time ago, I heard you say in the media that the fact this mechanism is no longer included in the CUSMA was good for Canada. I'd like you to comment on that.
My second question is related to the first. You said you were prepared to speak at greater length about the mechanism's flaws during the period of questions. Here's an opportunity for you to do that.
2:35 p.m.
Professor, As an Individual
Thank you very much.
I'll try to be concise.
First, I'll address the initial point you raised, which concerned the political context. As it happens, ISDS was expanded around the time the Berlin Wall fell. However, these treaties and the idea of joint arbitration largely preceded all that. For example, the ICSID Convention was adopted in the mid-1960s, when the European bilateral investment treaties were negotiated and signed starting in the late 1950s and in the 1960s and 1970s.
Why was ISDS not implemented? The first case dates back to 1990 and involved Sri Lanka. Then another case concerned Zaire, as it was called at the time, in 1997. Lastly, yet another case was brought against Canada in 1998.
As Mr. Fortier said, the fundamental feature of arbitration is the parties' consent to it. However, one of the characteristics of ISDS is the dissociation of consent. In short, the states give their consent in advance, whereas investors do so when they file a claim.
Until it was tested, it was unclear whether the technique was consistent with the ICSID Convention, for example. Ultimately, the successful resolution of two or three cases showed that it worked and that the state didn't need to grant authorization on a case-by-case basis. So arbitration took off.
More treaties followed. I'm not an economist, but I've read around the topic and studied the matter, and I believe this happened at a time when developing countries were tapping out and genuinely needed foreign capital. They completely changed their approach to foreign investment and began to promote bilateral investment treaties precisely so they could attract the investment they needed in order to develop. That was the economic reality of the time.
As for a return to politicization, I would have liked to discuss it, but my speaking time is limited. Is ISDS suited to all disputes? That's the question. Should certain disputes be resolved at the state level instead? That's a legitimate question. Beyond a certain amount of damages, doesn't a dispute become too big to be resolved that way? It's an open question.
Then there are cases in which decisions aren't enforced. As someone said, decisions are binding. However, if a state doesn't wish to offer compensation, it must have goods that can be seized. Politicization is therefore still possible. If the ISDS system doesn't work, the state of nationality comes back, reappears and may intervene.
Another way in which the process may be repoliticized is through intervention by the state of nationality, which is not a party to the dispute. It may intervene in two ways, either through arbitration proceedings, if it wishes to raise a point of law in treaty interpretation, for example, which regularly occurs. In some instances, it may agree with the state concerned by the claim against its own investor that, for example, “indirect expropriation” does not mean that in such a case. This is a form of repoliticization.
Or else the states may agree....
2:40 p.m.
Liberal
The Chair Liberal Judy Sgro
I'm sorry to cut you off, Professor, but the time is up.
We're on to Mr. Blaikie, please.
2:40 p.m.
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
Thank you very much, Madam Chair.
Thank you to our witnesses for appearing today.
I doubt it will come as a surprise—to many on the committee, certainly, and perhaps to our witnesses—that I count myself, and New Democrats have counted themselves, among the strong critics of investor-state dispute settlement chapters over the years in trade agreements.
I am going to resist the urge to offer some of the more polemic articulations of that critique today at committee, because I think it's a good discussion. Canada now finds itself, as was mentioned earlier, in many agreements. These are facts that we have to contend with, even if we don't like them.
I want to address my remarks to Mr. Appleton first, and then perhaps if other witnesses want to jump in, they can.
I thought your comment about some of the criticism of investor-state dispute settlement chapters being more about the other substantive content of the deals that they appear in to be an interesting comment. I think there is a fair point there, but it does seem to me that these things are related and that the advancement of ISDS has gone hand in hand with agreements that prioritize a certain way of looking at international trade, agreements that frankly put the interests of large corporations and investors before the interests of working Canadians. I would certainly argue that view; it is hard to tease those things apart.
I think that if you had investor-state dispute settlement mechanisms—or they might need another name if it was no longer solely about the rights of investors but others as well—that had the same teeth to enforce common environmental standards and common standards in respect of human rights, including collective bargaining, you might see more support for those kinds of enforcement mechanisms. It's hard not to notice that the enforcement mechanism with teeth revolves solely around the rights of investors and not anybody else or any other important policy goals.
When we hear calls, for instance, from the Alberta premier to invoke ISDS in response to the recent decision by the new administration in the U.S. on Keystone XL, I think that highlights some of the frustration that people have with ISDS provisions as well. I would argue that the decision on Keystone XL, whether you agree with it or not, represents an important set of issues that have to do with the environment and with the way not just Canada but, in this case, the United States as well treat their indigenous peoples and relate to their indigenous peoples, and the extent to which they respect their rights as well when it comes to major natural resource projects.
Those are not decisions that ought to be taken at an international trade tribunal. Those are decisions that are important. There are a lot of different kinds of values at play, and in a democracy it's appropriate to deliberate publicly about those things and to make those kinds of decisions in a deliberative fashion, preferably in Parliament, but at the very least by a government that is sensitive to those issues and tries to mediate those disputes in the best possible way. That's not the mandate of an arbitrator in an investor-state proceeding.
I am trying to characterize for you a little bit the way critics from the outside see this. It's very much part of a system designed to protect the rights of investors. In so doing, it cuts off debate and decision-making potential for other very important issues. I would say that citizens in general should be concerned to protect their right to deliberate in those ways and to protect the right of governments to make decisions in those ways. The ISDS system doesn't appropriately balance off what is a legitimate concern for investors, who want to have some security that their investment will be protected. ISDS has really put that on such a pedestal that every other kind of issue isn't really even within the scope of the proceedings.
How do you maintain the appropriate space and authority to make those kinds of decisions when you're signing on to quasi-constitutional documents that are narrowing the scope to a very limited conversation about the rights of investors, when those decisions have very clear and far-reaching implications on other issues?
I realize that's a long question, and it's taken up a lot of my time, but if you could begin to hazard an answer, Mr. Appleton, I would appreciate that.
2:45 p.m.
Professor, As an Individual
Mr. Blaikie, I want to thank you because it's a deeply probative question, and I spend a lot my time thinking about exactly these types of issues.
I'm going to try to hit this in bullet points to fit it into your time because I'm worried that we won't have very much time.
On the issue of indigenous peoples.... I'm very committed and focused on indigenous peoples issues. In fact, I want to commend you and all the other residents of Manitoba on the opening of the Qaumajuq at the Winnipeg Art Gallery. It is a new Inuit art centre that was opening today and yesterday.
They're mostly excluded. Canada put very broad exclusions into treaties like the NAFTA, the CUSMA and other treaties like that so that we don't get that conflict.
I would like to focus on labour rights in particular. I've been a strong proponent of labour rights and was actually very concerned when the Government of Canada pushed the NAFTA free trade commission to restrict the meaning of NAFTA article 1105, which gives specific rights to enforce labour rights. I have had detailed discussions with members of the U.S. Congress, as well as many different parliamentarians and legislators in Canada, about my concern of restricting the coverage.
The problem—again, it's still sort of a chicken and egg—is that we have a lot of things we did because we were concerned about cases. I believe that Professor de Mestral mentioned the first two NAFTA cases. I brought them. The first case Canada lost, and the second case, as I said, Canada would never have lost if it had just given an apology or met—