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.