International Trade Committee on Nov. 21st, 2023

[Claude Vaillancourt]

Thank you for your question.

Yes, I think that the investment chapters in agreements signed by Canada, more particularly the one with Ukraine, should be removed. In the past, they have shown how far they serve businesses, but not necessarily the common interest. You've discussed that here on several occasions, I believe. So I don't think there's any need to go back over that line of argument.

What's important is that a precedent was set during the negotiations for the Canada-United States-Mexico Agreement. These kinds of provisions are no longer in force between Canada and the United States, and I think Canada-U.S. relations are doing very well without them.

These kinds of investment chapters are now being challenged around the world, as I said in my presentation. Many countries systematically reject them. I think it would be a simple and possible matter to remove this chapter from the agreement. That's also Stuart Trew's position. I think we agree on that point, and I believe the committee could respond to that request.

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

Thank you.

How do you explain why we still persist, despite the precedent established in the Canada-United States-Mexico Agreement? We agree this is the most important agreement for connecting Canada and its economy. How have we managed to survive, with everything in good shape, even though we've retained these provisions, and we're aware of all the consequences.

Why continue on this path, especially, as you pointed out, in the midst of a crisis?

[Claude Vaillancourt]

I believe we're in a kind of dilemma over whom governments are supposed to serve. I think these agreements are very useful for certain businesses, including Canadian businesses that are based and invest outside Canada but that would like to disregard domestic regulations. In my view, it's up to states to regulate that, and they should be able to do so in the interest of their citizens.

It seems to me there's a conflict between the interest of certain businesses that want to set up outside Canada and that of the citizens of countries that want to defend themselves and feel it's up to the government to regulate in this area.

In any conflict between a business and a government, there have to be state-to-state negotiations and not this kind of shortcut that businesses can take advantage of. The tribunals are especially established for them, which then enables them to attack states directly. I don't think that's the best possible way to proceed.

In the interest of citizens, it's preferable to proceed in another way, by using justice systems, which incidentally exist in most if not all countries. Sometimes it's felt that they aren't as good as people would like, but the fact remains that this is how you should proceed.

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

Mr. Trew, earlier you said that this mechanism was a one-way street. What do you mean?

[Stuart Trew]

It's a system available exclusively to foreign investors. Some people call it a justice bubble. It allows foreign investors going into a host country to bring with them a series of standards for the treatment of investors, taken mainly from U.S. and U.K. law, and then apply those outside of the courts and have arbitral panels decide for them.

That's why I think Mr. Vaillancourt was saying it's not a very democratic process. There's no recourse in this treaty for countries to hold investors to account for their projects, say, if they're not actually doing anything or if there are illegal activities or whatnot.

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

Thank you very much, Mr. Trew.

I would like to use my last minute to introduce a motion on a completely different matter. I know we'll be discussing it later, but I'm going to take this opportunity to introduce it now.

[The Chair, Liberal, Judy Sgro]

We don't have translation. From when I gave you one minute, we lost translation. I know it's very important that we understand exactly what you're putting forward, so just hold on for a second, please.

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

All right. Then I'll start over.

The motion I wish to introduce, which we will assess later, reads as follows:

That the Committee undertake a comparative study of the Government of Canada's process for awarding contracts for the procurement of defence aircraft, in comparison with similar processes in other countries, paying particular attention to the impact of the Government of Canada's process on Canadian companies' ability to develop leading-edge expertise that is competitive in both the Canadian domestic and international markets; that the Committee devote four meetings to conducting this study, and report its observations and recommendations to the House.

Thank you, Madam Chair.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Savard-Tremblay. You've given us notice of a motion that we can deal with at another time.

Mr. Cannings, you have six minutes, please.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you, and thank you to all of the witnesses here today.

I'm going to start with Mr. Trew and this discussion of the investor-state dispute mechanisms.

You point out that the inclusion of this in the agreement is inconsistent with the trend whereby other countries are moving with ISDS, including what we saw in CUSMA with the United States and Mexico. You implied that it wasn't too late to change this. You gave an example, and I'd like you to expand on that.

Also, if it is removed, what does that do to our existing FIPA with Ukraine, the foreign investment protection agreement?

I'd like you to comment on just those two aspects.

[Stuart Trew]

I'll answer the second part first, with respect to what it does to the FIPA. That would depend on how the government reviews that section.

Currently in the treaty, as I understand it, even if this comes into force, the FIPA protections for existing investors remain in place for 10 years. That would be to challenge events that occurred before the signing of the treaty. That might be another thing the committee could consider—taking out that long sunset clause. Obviously, the FIPA is very much like the current investment chapter in many ways, and it should be diffused, I think, as well, in the interest of Ukrainian postwar recovery.

I would say also, with regard to the first point, that the inclusion of this chapter is inconsistent with Canadian policy on investment protection, as well. We heard about the CETA. We heard about removing this arbitration-based investor-state dispute settlement from CETA to put in place this new so-called “investment court system”, with a standard sitting body of arbitrators, for example, something that has an appeals mechanism. This was supposed to be the top-of-the-line version, according to the government, for investment dispute settlement. It's something that we were getting away from in the old model.

The other alternative, as Monsieur Vaillancourt said, was the NAFTA model, whereby we simply removed ISDS. We said that the investment chapter's substantive protections remain, but we don't need investors to be able to directly invoke those protections through arbitration where we cannot guarantee that we're going to get consistent results and where the awards are outrageous and whatnot, and all the other problems.

Some kind of state-to-state option would be preferable, I think, in the Ukraine situation, and it would be consistent with Canadian policy.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

We've heard testimony here from the Canadian side that it was Ukraine that asked for this to be included, yet in your opening remarks you talked about the effects that this might have on Ukraine if Canadian companies use this avenue to bring actions against the Ukrainian government and ask for large sums.

Can you expand on that? Why would Canadian companies really need this to be able to invest in Ukraine?

[Stuart Trew]

The point I was trying to make briefly in my presentation was that Canadian companies don't need this to make investments. The only things stopping Canadian companies from investing in Ukraine right now are war, mines and uncertainty about where the borders are going to be drawn after this all settles. There's been a FIPA in place since 1994, and Canadian investment in Ukraine has been pitiful over the past 20 years. It's not like the treaty is going to attract more investment.

As I was saying in my presentation, it simply continues to tie the hands of the Ukrainian government, I suppose. They're signing these treaties because they need investment, and they're desperate. People like the OECD and other countries tell them that these treaties are essential for that.

The evidence of their existing 60 agreements is that this is not the case. They obviously need something more than these agreements to attract investment, and that's going to come post war, whatever the situation is. It's going to be difficult, but the treaties themselves clearly don't provide that incentive to get in there.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

I would like to ask Monsieur Vaillancourt to comment on those similar concerns.

[Claude Vaillancourt]

I absolutely support what Mr. Trew just said. I entirely agree with his position. I think his analysis is truly excellent.

I'd also like to add that the number of disputes tends to increase in times of crisis. For example, we've observed that six complaints were filed against Ukraine between 2020 and 2022, but only two a year before that. In a vulnerable situation like the one Ukraine is in, I don't think that having to deal with disputes leaves the country very comfortable with all this. It isn't very positive.

That's another reason to remove it from the Canada-Ukraine agreement.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Baldinelli, you have five minutes, please.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you, Madam Chair. I'd also like to thank the witnesses for being here today.

Professor Charlebois, first of all, thank you for your comments and suggestions with regard to the investment in agricultural technologies and how we can strengthen supply chain infrastructure, and your comments on market access strategy being needed. I want to build on your testimony in response to my colleague Mr. Martel regarding the inclusion of a carbon tax and carbon leakage in this agreement.

You mentioned in your response to Mr. Martel that we should not be looking to impose our standards or values on Ukraine, particularly now, as Ukraine seeks to rebuild and recover.

Her Excellency the ambassador was here at our previous meeting, and she indicated that a rebuild would cost about $411 billion at a minimum and would look at five key areas: infrastructure, energy and agriculture, of course, as well as IT, military technology and demining.

You mentioned that Ukraine is a prisoner of its own geography, so wouldn't the imposition of a carbon tax in this agreement hurt or delay Ukraine's recovery and its food security?

[Dr. Sylvain Charlebois]

I would see it more as an imposition, to be honest. On the one side, I would see this as a very western value being imposed on a country that has been devastated by war. Second, we also need to question the mechanism itself, the carbon tax. There is literature out there suggesting that sometimes the carbon tax may not actually achieve the goals we're trying to reach from an environmental perspective.

We need to make really sure that whatever we're imposing on Ukraine actually works, that it actually can make a difference, and I'm not sure there's consensus there.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you for that, and again, maybe this is in terms of the examples here in Canada, but how would the imposition of a carbon tax and discussions of carbon leakage hurt Ukraine's ability in terms of food security? It's the breadbasket of Europe, so how would that hurt its ability? Again, that's one of the five key priorities for Ukraine coming out of this war, when it's successful over Russia, for its rebuild. Agricultural development is a key priority. How could that hurt its chances at that and potentially hurt the world because of it?

[Dr. Sylvain Charlebois]

I see opportunities for Canadian companies to actually help empower farmers in Ukraine to use cleaner, more effective technologies. We often focus on clean and green, but clean and green also mean more efficiency. In Ukraine we know there's lots of corruption, and right now farmers don't have access to the best technologies possible. I think Canada can actually play a role. If we do that, we'll actually make the agricultural sector in Ukraine greener over time.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Technology, not taxes, would be a suggestion you're putting forward.

[Dr. Sylvain Charlebois]

Technological empowerment would be. That's correct.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Mr. Trew, earlier in your testimony you said that nothing precludes the government from amending this free trade agreement right now.

Can you just explain that? We've heard from the government and officials that we can't amend it, so could you just explain that?

[Stuart Trew]

Just briefly, countries can do whatever they want. There's nobody above Ukraine and Canada saying when the final moment is. Once it has been ratified and royal assent has been achieved, then, yes, the treaty law would say that's when it comes into force, but until that moment, we can do whatever we want, and in the case of CETA, we did. A year after it was initially signed, the ISDS section was pulled out and replaced by an investment court system and then resigned. That happened in the USMCA as well—the CUSMA—when Democrats were opposed to some of the long data protection terms on biologic drugs, so those were changed on the American side and then it was kind of repackaged.

It's possible.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

I ask that question because in our previous hearings we considered whether it would not have made sense to talk about energy security and having a chapter with regard to that included in this free trade agreement. Again, the ambassador is saying that a rebuild of Ukraine is going to be about $411 billion, at a minimum, and that's not only for infrastructure. One of their key aspects is energy and energy security, so we were asking, why don't we include it? Can we in this committee, at a minimum, make those recommendations?

I'll just get your thoughts on that.