I call this meeting to order.
Our orders of the day include the commencement of our study on Bill .
In our first hour we will hear testimony from the Department of Foreign Affairs and International Trade. We have Allan Kessel, legal adviser, and from the international trade side of the department we will be hearing from Robert Ready, director of the services trade policy division.
We are also pleased to have from the trade law division Riemer Boomgaardt, special counsel; Sylvie Tabet, senior counsel and deputy director; and Meg Kinnear, senior general counsel and director general.
In our second hour we will hear from the Canadian Chamber of Commerce, so we will introduce them when we begin that.
This is one of the first pieces of legislation that this committee has looked at, other than a private member's bill, so we look forward to this. This is a fairly small bill. We want to hear from the department to better understand exactly what the bill does and the safeguards it provides for Canadian investment and others.
So we thank you for being here and being part of that.
On the protocol for the committee, we like to hear from you in the first portion of the committee business and then go into the first round of questioning. In the first round we'll begin with the opposition and then go to the government.
We welcome you here and look forward to hearing what you have to say. The time is yours.
Thank you, Mr. Chairman. Good morning to you and committee members.
The is unfortunately not able to join us today. He is out of the country. He has asked me to speak on his behalf, and I am delighted to have a very competent team with me who will be able to answer many of your questions when we get to that portion of the discussion this morning.
I am pleased to speak to you today on the subject of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, which I will refer to as “the Convention” in my remarks.
The Convention was sponsored by the World Bank to facilitate and increase the flow of international investment. The Convention establishes rules under which investment disputes between states and nationals of other states may be solved by means of conciliation or arbitration. It also creates the International Centre for the Settlement of Investment Disputes, known as ICSID to administer cases brought under the Convention. Canada signed the Convention on December 15, 2006.
Mr. Chairman, before a country can join ICSID, as it's fondly known, it needs to pass legislation providing for ICSID awards to be enforceable in its courts. , which is under study by the committee, deals with enforcement of ICSID awards for or against the federal government and foreign governments, including constituent subdivisions designated by foreign governments.
There are numerous reasons to support Canada's adherence to the convention. It would contribute to enforcing Canada's image as an investment-friendly country. It would provide additional protection to Canadian investors abroad by allowing them to have recourse to ICSID arbitration in their contracts with foreign states. It would also allow investors of Canada and foreign investors in Canada to bring investment claims under ICSID arbitral rules, where such clauses are contained in our foreign investment protection agreements and free trade agreements.
International investment arbitration is growing in importance. For instance, the stock of Canadian direct investment abroad in 2005 increased to a record $469 billion. As a result of the globalization of investment, the number of investment disputes has greatly increased in the last five years.
ICSID arbitration has soared. Only 110 ICSID arbitrations have been completed over the past 40 years, but 105 proceedings are now under way. The NAFTA parties alone have faced over 40 investor-state arbitration claims since NAFTA entered into force.
The tremendous growth in investment and investor-stated disputes has made Canada's failure to ratify ICSID the focus of attention by Canadian business, the Canadian legal community, and our trading partners. To date, 143 states have ratified the ICSID convention. The majority of our major trading partners are parties to it, except for Mexico, India, and Brazil. Ratifying ICSID would bring Canadian policy into line with our OECD partners. In a survey conducted by the ICSID centre in 2004, 79% of the respondents said ICSID plays a vital role in their country's legal framework and 61% said ICSID membership has contributed to a positive investment climate.
The ICSID regime provides several important advantages, and compared to other arbitration mechanisms, the ICSID regime provides better guarantees regarding enforcement of awards and more limited local court intervention. Any arbitral award rendered under the auspices of ICSID is binding and any resulting pecuniary obligation must be enforced as if the award were a final domestic court judgment.
Moreover, all ICSID contracting states, whether or not parties to the dispute, are required by the convention to recognize and to enforce ICSID arbitral awards. Investors often prefer to rely on such arbitrations rather than on the local courts of the country whose measures are in dispute, to ensure an independent resolution of the dispute.
ICSID's relationship to the World Bank assists investors in obtaining compliance with ICSID awards and its roster of arbitrators gives investors access to well-qualified arbitrators at ICSID-controlled rates, with extensive experience in international investment arbitration. ICSID also provides important institutional support for litigants.
The ICSID convention is a well-known tool for the settlement of investment disputes, therefore the interpretation of the convention and its usefulness are predictable. It is difficult to quantify how often Canadian businesses active abroad would use the convention for protecting their activities.
Canada already has numerous links with ICSID. Provisions consenting to ICSID arbitration are commonly found in contracts between governments of other countries and Canadian investors. The NAFTA in chapter 11, the Canada-Chile FTA, and most of our bilateral foreign investment protection agreements, or FIPAs, provide for ICSID as a dispute settlement option that can be chosen by an investor if both the state of the investor and the host state for the investor are party to ICSID.
However, Canada and Canadian investors cannot benefit from this choice if Canada is not a member. This is an increasingly important problem. Within Canada the use of ICSID would be consistent with the government's policy of supporting the use of alternative dispute resolution mechanisms, or ADRs, for investor-state disputes. While ICSID is less expensive and more efficient than current alternatives, it is not expected to lead to increased litigation against the government.
For Canada, as a shareholder of the World Bank, there is no additional cost for joining ICSID by adopting the convention.
Provincial and territorial legislation is needed to ensure the enforcement of arbitral awards rendered in a dispute involving a province or territory designated as a constituent subdivision and which has consented to ICSID arbitration. The federal government has provided assurances that any province and territory that so wishes would be designated a constituent subdivision under the Convention.
The provinces and territories have indicated that they support the Convention in principle. They have also recommended that all jurisdictions, including the federal government must be take steps for the adoption of the legislation implementing the Convention.
Ontario passed implementing legislation in 1999. British Columbia, Saskatchewan, Newfoundland and Labrador, and Nunavut passed such legislation in 2006.
would encourage you to study this bill and improve it in order to facilitate adherence by Canada to the convention as soon as possible.
Thank you, Mr. Chairman.
Yes, okay, I can do that.
It goes back to one of the first issues we were discussing this morning. A variety of rights are standard in these treaties, and the FIPA provides substantive protection--the right, for example, not to be expropriated, and the right not to be discriminated against in terms of national treatment. There are a variety of standard rights. That is in the FIPA; in the case of NAFTA, it's in the actual NAFTA.
This treaty does not have any of those substantive rights. It doesn't say “Thou shalt not expropriate” or any of that. All it really deals with is that if one investor thinks another country has, for example, expropriated, then they have a place to go to have the arbitration heard, a facility that's very professional and up and running, and if they are successful in making their case, it provides a way to have it enforced easily, efficiently, and cost-effectively.
It doesn't give substantive rights; it's not substantive obligations. That's what's in the actual negotiated treaty--for example, the treaty we negotiated with India just a while ago, and the NAFTA in the case of Mexico.
In terms of costs, the cost of the running of the organization essentially is already covered by the contributions Canada makes to the World Bank. So that's basically covered.
Now, the fact is that in each individual arbitration, a tribunal has, at the end of the day, the right to say that one party or the other will cover the costs of the tribunal, that kind of issue. Again, it's very similar to domestic law where at the end of the day a judge can order a party--often the losing party--to cover the costs.
In terms of conciliation settlement, I think it's important to note that ICSID is certainly best known as an arbitral facility, but they also have conciliation facilities with the ability to conciliate. So there is yet another way, hopefully, to try to settle disputes and resolve them before they get into a formal dispute settlement process.
The third thing to note in that respect is that Canada's model, FIPA, and all of our investment treaties actually have built in a first layer that says the two parties who are adverse in interest must sit down and try to resolve the dispute before going ahead into formal dispute settlement procedures.
There's a last thing I wanted to note. You asked if it set out rules, etc. You might have seen us referring to this, the ICSID convention, the governing rules. Then they have attached special rules that apply in an arbitration process.
We have many copies of this. It's also on the website. We can provide web addresses, certainly, but in terms of having rules to go to, these would be those rules.
First of all, in terms of appeal, part of the appeal process allows parties to go to what's called an annulment process. If a party wants to take an award that they're unhappy with one step further, they ask the ICSID to set up an annulment panel, and the annulment panel will hear and determine. At the end of the day, once that's done, that's the end of the road in terms of further appellate mechanisms.
Secondly, in terms of the makeup of the panels, the ICSID has rosters, and every country is entitled, upon accession to ICSID, to name four individuals to that roster. Those individuals are usually well-known judges, well-known advocates, well-known arbitrators, and they are named to the list. Then any country and any investor that has a dispute is then able to go to that roster and say, “Here's a list of 100 eminent authorities or eminent arbitrators. We think we would like to nominate Mr. or Ms. So-and-So as our arbitrator.”
Many treaties, including Canada's treaties, also allow you to nominate what's called off-roster. In other words, if you aren't keen on any of the names in the actual formal roster, you can put forward your own names. That is the makeup of the panels.
In terms of MAI, that covers, again, the substantive obligations: you shall not expropriate, you shall not discriminate, etc. It did not affect anything that would be done under the ICSID convention. It doesn't cover the same materials.
Again, I go back to the basic distinction between the treaties, which provide your substantive rights, versus the ICSID, which gives you a place to prosecute those rights and a better, easier way to enforce them at the end of the day.
So they really are two separate things. This is not part of MAI or the MAI debate, whatever one might think of it.
I'm not certain what exactly you're thinking of in terms of accountability, but as we say, these tribunals are three-member panels generally. Generally the hearings are open to the public. Often a treaty will set it up such that one member is appointed by one country, the other is appointed by the investor, and the presiding member will either be by consent of the parties or, if they can't consent, by the ICSID appointing one for them.
The hearing is in public, and then there is this process of annulment. If people feel there is a need to have a review process or an appeal process, decisions are made public, and there is a very active community that looks at, examines, and critiques these decisions.
You will find increasingly that arbitrators cite past decisions. It is not a formal precedent system such as we have in domestic law, but it is becoming increasingly so. So there is a developing, coherent body of law so that we can know much better and predict whether, if we do this certain thing, it will be potentially considered expropriation or will potentially violate a treaty obligation.
I think that's probably all part of the accountability process. I don't know whether there are any particular aspects you're thinking of, but if there are I'd be glad to address them as well.
Thank you, monsieur le président et membres
. I am in fact, as you said, the chair of the international affairs committee of the chamber. In my day job, I'm a partner with the Bennett Jones law firm and I'm head of the international trade and investment practice there.
Since we were invited to appear here on fairly short notice, I originally thought we might do an overview of ICSID and where the business community comes out on it. Having heard at least a good part of the presentation of Meg Kinnear and her colleagues, I think it would probably be a waste of your time. Everything I heard, we as a business group would have absolutely no concerns about. I think the description of ICSID and the process you heard is entirely accurate and consistent with our views, so I'm not going to go through that blow-by-blow.
What I would like to do in the short time we have is pick up on some of the questions individual members raised during the Q and A portion of the government presentation and try to put a bit of a business perspective on that to make you understand why business specifically supports ratification of the ICSID convention more than 40 years after it was signed.
There's no real order. I'm going to go through these issues as I jotted them down listening to your questions.
I'm going to start with the distinction between process and substantive. The Convention has nothing to do with substantive law. It's simply a process that follows the making of obligations by a member country. It is the process that enables investors to have their Convention rights recognized.
That's a fundamental distinction. A lot of the questions that went to the government members had a bit of that flavour.
Canada has signed NAFTA. Chapter 11 is part of NAFTA and creates the substantive investor rights. Canada has signed some 20-odd foreign investment protection agreements. The obligations Canada has agreed to in those agreements exist and will continue to exist regardless of what you do here.
As you know, there have been NAFTA disputes and Canadian companies have availed themselves on a very few occasions of making claims under the FIPAs. So regardless of your position or your views on the substantive rights, that's not really the issue here. And that's a very important point to bear in mind.
Secondly, once you have the ICSID process.... Obviously you have to ask yourself why it would benefit Canada in general, and secondly, from my constituency, the business community to have Canada as a member of ICSID, recognizing that there 143 countries. Virtually all of our trade and investment partners and virtually all of the countries where Canadian businesses invest have adhered to the treaty.
The answer to that is relatively simple. There are a few parts to it, but from a business perspective, the first thing that's attractive here is that you have a recognized forum, with well-established rules. As Meg and her colleague explained to you, there is a wealth of jurisprudence under ICSID with precedential value in the sense that the cases, while not binding on other panels, provide guidance in terms of the interpretation of investment law--not just ICSID itself, but the FIPAs.
The FIPAs have very specific rights that are roughly repeated, but sometimes in different language from investment agreement to investment agreement, whether it's expropriation, fair and equitable treatment, minimum standard of treatment, national treatment. For all of these obligations, the wording varies slightly but the subject matter is the same. So under the ICSID process you have panels, and an institutional structure that has that institutional history to understand, and to understand why the specific wording in this treaty might lead to a slightly different result because they didn't use the same language in that treaty.
By contrast, ad hoc panels.... Remember, I said the treaty rights exist. Investors will avail themselves of them, unless you would draw from the substantive treaty. So by contrast, under the substantive treaties--again, as my government colleagues explained--there are several different processes that you can avail yourself of. Usually it's an UNCITRAL rules process, which is essentially ad hoc. There's no similar, comparable institutional structure that administers UNCITRAL arbitration the way you have under ICSID. It's basically just a set of rules. So you can invoke that, or perhaps in some instances you can invoke, as you heard, the ICSID additional facility rules of the other country, the host country or the plaintiff country, if the claim is against Canada or ICSID members. But you can't do the main ICSID rules.
As I say, that becomes a bit of an ad hoc process, especially if you do ad hoc arbitration using the UNCITRAL rules. Here you have an institution that has experience in administering this area of law--a wealth of experience now over the past couple of decades, or the last decade especially, of some 200-odd cases.
So that is an important reason--the depth of experience, the knowledge, the understanding that the institution has and can bring to a dispute that benefits not just the business community, but the government as well, on the other side. In my respectful view, there's a lower risk of a rogue panel--and we've occasionally heard governments talking about rogue panels--in the context of an institutional forum like ICSID than you might have in an ad hoc panel.
So both government and investor benefit from an institution that has certain...as I say it's not binding; the panels are free. Panel decisions of the past are not binding on today's panel decisions, but when the panel takes place in an acknowledged forum with an administration, a secretary general, and so on, there is an institutional weight that's given that perhaps might not weigh as heavily on an ad hoc panel. So it gives both government and investor a measure of certainty.
Another key issue is the very limited review, the finality. Under ICSID, if you don't like the decision, there's really only one step you can take, which is to invoke the appeal or review procedure under ICSID—that's it. You don't go through potentially interminable litigation in the national courts. It's not necessarily the national courts of the jurisdiction where the plaintiff is, or the jurisdiction of the host country. They could have put the seat of the arbitration in a third country. In the Metalclad case under NAFTA, the seat was Canada. So the subsequent judicial review of that award against Mexico took place in the B.C. courts.
Our courts are pretty good at acknowledging the limits of judicial review of arbitral awards, but maybe other countries aren't quite as good. The finality of the ICSID process is critical to business and, I would suggest, should be important to government as well. You want things to have an end.
Also, the prospect of finality--one day you're going to be called to account--is an incentive to settlement. If I know I can litigate something repeatedly for years, if not decades, my incentives to settle aren't quite the same. I can grind the other guy down--grind the government down, if I'm a deep-pocketed investor, or grind the company down, if I'm a deep-pocketed government with a smaller medium-sized investor. So that finality is important from a second perspective.
A third point here is enforcement, and you've heard about that. The treaty provides that an award is enforceable, is binding, under international law against the defending government. That has immense ramifications for a business, for the successful investor. My colleagues and friends from the government side are probably at a better place to speak to the institutional extreme. My understanding at least is that since ICSID is in the context of the World Bank's world or penumbra, for reasons that shouldn't be too hard to figure out, host states that have had awards issued against them are probably going to think twice and be a little reluctant to violate the award that's binding on them under international law and a treaty they've signed with 143 other countries.
I've heard talk of instances where host states may have threatened not to make good on an award and then realized what the consequences might be within the World Bank world in terms of loans and grants that they may have outstanding from the bank, or possibly other member states that are sitting at the bank whose governments have bilateral grants or foreign aid and suddenly the bank says, “You know, you might want to think about this. They're just welching on their obligations here”. So there's an enforcement stick. It's an implicit stick more than anything that makes delinquent governments more prone to living up to their obligations.
Fundamentally, the key issue here that primarily is the concern from a Canadian point of view is it's outbound we're talking about, outbound investment. From the standpoint of the Canadian government's liability, the Canadian government is liable already. That happened when the government signed the 20-odd FIPAs, and it happened when the government signed the NAFTA and any future agreements. It incurs potential liability. It behaves contrary to its international obligations. It's not liable; it has obligations. So, signing or not, ratifying ICSID or not, really doesn't weigh one way or the other on it.
However, a Canadian investor looking for remedy overseas for the millions or hundreds of millions or billions they've sunk into the ground in a mine in Latin America and a plant in India or China or whatever, ICSID gives those Canadian companies a remedy and a recourse in the event that their rights are violated that is far more secure, far more attractive than what we have today in the absence of ICSID. That's basically why the Canadian Chamber of Commerce supports it. I think in the Canadian business community at large you'll be hard-pressed to find an association that doesn't support ratification.
Good afternoon. My name is Brian Zeiler-Kligman. As mentioned, I'm the international policy analyst with the Canadian Chamber of Commerce.
I will keep my remarks to simply a few comments on what the Canadian Chamber of Commerce has been doing in terms of its long-standing advocacy that Canada should ratify the ICSID convention.
Primary among these is our policy resolution process. We've had a series of policy resolutions over the years that have continually called on the federal government to ratify the ICSID convention. The most recent of these was passed at our 2007 AGM in September, in Markham, Ontario. It was passed unanimously by well over 200 local chambers of commerce, from coast to coast to coast. I have provided to the clerk, in both French and English, copies of that policy resolution, which should hopefully be distributed—if not already, then following the hearing.
As has been mentioned previously, there is a need to have our provinces and territories also implement the required legislation. In addition to our advocacy at the federal level, we have been working with our provincial and territorial chambers of commerce to inform them of the issue and also to get them to engage their own respective governments and put in process the implementation of legislation in those jurisdictions.
I will leave it at that, and I'm happy to answer any questions that you may have.
China is a good example. I will get back to your comment about the Indias and the Brazils of the world, but China is a very good example. The country I think would have every incentive to comply with an ICSID award, which is quite different from complying with an award of a Chinese court or a Chinese arbitrator that might have gone to a foreign investor.
You're absolutely right, the rule of law in China, while they are struggling to enhance it, can be a dicey affair for an investor or a foreign claimant--for example, a foreign supplier who is exporting goods to China and gets into a dispute with their buyer. Usually it is the other way around. They are exporting more the other way, but there are Canadian companies that are exporting there too and I've acted for a number of them.
When you get into a dispute there are standard forms that force you into arbitration under the Chinese...and there are several Chinese commercial arbitration regimes. Under their standard form contracts, you are forced into that world. Then if you happen to be lucky enough to win in arbitration there might be a few other challenges in enforcing your award if you got an award.
So yes, you're right, there is a risk. The beauty of ICSID is that it doesn't go before the Chinese judicial system. If the Chinese government loses an award the only way they can have it reviewed is by going to the ICSID treaty review mechanism. Then on enforcement, enforcement when you're dealing with sovereign defendants is always a challenge. You have to find goods that are attachable and so on.
My point here goes a little further. I do not think the benefit of ICSID is an order that can be enforced the way you would enforce a domestic order, register it in a court and get a bailiff to seize assets. The beauty of ICSID is that it is an express international obligation of the member of the host country against whom the award has been made to live up to its obligation including paying the award.
So for a country like China that today is becoming a very significant outbound investor.... My former firm acted for a Canadian company, PetroKazakhstan, where they sold their assets--virtually all of the assets were overseas in Kazakhstan--to the Chinese national oil company. That is just one example. The Chinese have assets here. They have made substantial investments in Canada, which aren't particularly well known but they are here. They are looking for further investments, not just in Canada, the United States, or Europe but all over the world.
For a country like that to welch on its ICSID obligations has some serious ramifications in terms of the receptivity of the countries where it's going to make investment. That is part of the beauty of ICSID. It is a mechanism that everybody who is a party to it has agreed to. If you choose to welch on your obligations you put your own investors' rights and interests at risk. So I think that is an important function.
As to Brazil and India, let me just touch on them briefly. I do not know the facts why specifically they haven't signed on. But last time I looked, while we would love as a business community and I am sure as a country to increase our trade to India and our investment in India, frankly it's a drop in the bucket. I think our outbound trade is about $200 million and our outbound investment is about $500 million. I may be off by a couple of hundred million dollars, but frankly it is insignificant.
Brazil is a little better, but even there we are not--
Thank you very much for your question, madam.
First, your question is based on the assumption that the mere fact that a government passes laws on social issues such as the environment, education or public affairs gives a company rights under a bilateral treaty or NAFTA where those laws have the effect of causing that company to lose money. However, that is not at all the case.
Under all these bilateral investment treaties and NAFTA, governments are entirely free to legislate on social, environmental, business and tax issues, in short in any field. These treaties do not at all encroach on the legislative jurisdiction of governments, whether it be the federal government or provincial governments. However, when they legislate, they must take their obligations toward foreign investors into consideration.
That does not mean that they cannot legislate in a way that will in effect impose costs on investors, but it does mean that they will impose costs in an arbitrary manner, utterly without reason. The obligation of a minimum standard of treatment for investors will then be violated. If governments legislate in a way that amounts to an expropriation of an investor's property, that's different. For example, an investor builds a plant, the government doesn't take over the plant, doesn't expropriate it directly, but it puts measures in place that make the plant utterly inoperable.
As Bill C-9 was passed before the final stage in this dispute, which has been going on for some 20 years, I frankly admit I don't believe so.
Lastly, under Chapter 11 of NAFTA, there are already claims against the Canadian government in the softwood lumber affair, but I believe they have been settled in the agreement that the Government of Canada reached with the United States.
For the reasons I explained at the outset, this is a matter of procedure opposing a matter of substance. Certain rights may have helped us in those claims. That was very interesting because the Canadian softwood lumber companies had investments in the United States, but the main investment was made here in Canada. So there remains a legal issue that has not yet been decided. The issue has been raised once again in the disputes over beef, where Canadian claimants, in this case as in the softwood lumber case, also have investments in Canada for the purpose of trade with the U.S. market. They would not make those investments in Canada if the U.S. border closed.
So we wonder if investment treaties enable investors to file a claim over the impact that a foreign country has on investment in a second country, in their country of origin. That issue has not been decided.
That said, the procedural question would have no impact on this question. In fact, it's the way in which the claim was [Inaudible - Editor] rather than individual rights that were referred to in the claim.
Unfortunately, I would have preferred you to give another answer, but that's the necessary one.
Let me start with the RIM China situation. There are a number of issues for RIM. One is exporting the hardware that's manufactured here to China. Another issue is having the software and licensing the system that is designed with Chinese telecom carriers. A third issue is actually being able to establish there and deliver the backup, the back office, the support services to run the RIM-type service through Internet suppliers and telecom suppliers.
So any of those aspects can trigger an investment obligation. It's not an investment-type obligation. It's either an investment treaty-related obligation and it falls within the parameters of the substantive treaty--which we don't have yet with China, but which is under negotiation--or it isn't. So that's a substantive issue.
Let's say one day we do sign a treaty with China. The fact of having ICSID in place, as I think I mentioned in my answer to Mr. Martin's question, I would say is of huge benefit, because, assuming RIM can fit its claim--whatever the claim might be--within the four corners of an eventual FIPA with China, then having the option of going the ICSID route is one that certainly, I would say as an investor's counsel, I would have recommended.
In one case that I initiated against the Government of Canada, we didn't have that option. I was acting for an American company, and we didn't even get that far. We eventually settled the case, which I think was a good thing for everybody concerned. But certainly, if it had gone further, I would have gone the ICSID option, if we'd had that option, so I think you're right.
Secondly, in terms of softwood lumber, maybe I was a little hasty in saying it wouldn't have made a difference. Substantively, it wouldn't have made a difference, but you know, to the extent.... I don't think it would have made a difference in terms of the Americans' approach to the dispute. The Americans are big fans of the WTO, but, boy, you put zeroing or any of their favourite issues in litigation, they will litigate them to the hilt to the final minute. That's just the American style.
So I don't think the fact that you're in ICSID is going to change that one way or the other. They might even drag their heels on implementation, once they've been found...in the final appeal that the WTO appellate body has gone through, they'll drag their heels perhaps a little bit. But ICSID isn't a monetary award. If there hadn't been a settlement and the softwood lumber companies had had to continue with the suit, and we had been members of ICSID, and etc., etc., it might have actually been a useful thing. I would like to have had it if I had been representing a softwood producer.
So yes, I think there would have been a benefit--marginal, but a benefit nonetheless.
I guess from your perspective and that of investors, Canada--the last time I read so--is doing rather well in terms of attracting investment. Some would say there are some concerns about over-investment, if I can use that word, in terms of who's coming in, and there are some concerns about foreign investment and takeover.
Clearly we don't have a concern about investment, and that's not what this is about. I think there's been some clarification for all of us in terms of what this means. It's not about encouraging investment per se. It's about a place where you can arbitrate and have clear rules and a space to do that. Is that fair enough to say?
To play the other side of this issue, can you make the argument for why we should have to give up some sovereignty? You might not agree with that term. I know the government in its presentation said there are numerous reasons to support Canada's adherence to the convention, and one of the points was that it would contribute to reinforcing Canada's image as an investment-friendly country.
Well, the last time I checked, I didn't know we weren't that friendly. I didn't know that was a problem with regard to the amount of investment coming into the country, so that's a fair point to put forward. So I'd say okay, make the argument for why this is necessary. I'm sure you have a different perspective based on who you represent.
The second issue is that there are those who might say, well, that's fine for you and the group that you represent, but what about everyday Canadians who like things being dealt with here on our own terrain, in our own system, and not in Washington or at the World Bank where, quite frankly, we might not have as much reach? And what if things go wrong, etc.?
I'll leave it at that.
But most importantly for investors, we have an effective system of rule of law. So an investor goes in, and ICSID is really meant to get at issues of what happens when the investment goes wrong. If everything's going fine, nobody really cares if the government cuts a corner and raises a tax a couple of points. We're making away like gangbusters. That's not the issue. It's when things go off the rails.
So you're right, we don't need it. On your question about giving away some sovereignty, as I said earlier, I think there's no sovereignty being given away with respect to substantive rights. The rights that we are giving away, if you look at the substantive obligations of ICSID, are rights that we shouldn't have to invoke in the first place. They are the ability to behave capriciously and arbitrarily toward foreign investors, the way we wouldn't dream of behaving toward our own citizens. They are the ability to expropriate property without compensation and due process. That's what the substantive rights of the FIPAs and the investment treaties are about.
So in that sense, yes, we have given up a bit of sovereignty. Why? It's because in a civilized world, just as citizens we give up sovereignty through the members of Parliament and Parliament to legislate and impose obligations on us as citizens, as members of the international community we've given up certain obligations to behave in ways that really are not on. That's under the FIPAs and the substantive investment agreements.
In that sense I don't think we're talking about giving up sovereignty substantively, though there was a kernel of truth to what you were saying. That leads into your second question. We like to have things done here. Well, that's true. You might feel more comfortable having things done here, but what do we say to the companies like RIM, like the softwood lumber producers, like virtually any Canadian manufacturer that exports, period, not just to the United States, but overseas? As I recall, our trade with the U.S. used to be 84%. We're down to 70%. So our trade overseas has expanded considerably in the past few years as well.
The Canadian citizens who work in the plants and with the companies that make those exports deserve at least the backing of the government to secure their markets. So when we give up that bit of sovereignty, what we're giving up is we're saying to foreign investors that we will treat their interests as investors in our country according to certain standards that we expect them to treat our investors. And we will subject ourselves procedurally, in a sense, to a process, if you agree to submit to that process as well.
Yes, perhaps it is giving up sovereignty in terms of the process up to a point, just as there was an element of giving up sovereignty in signing the treaty--any international treaty.
To the citizen who says “I'd rather have it done here”, I'd say if your job depended on manufacturing pipe that was being exported to a pipeline in the Middle East, would you like your employer to have certain rights, and would you be prepared to give up that procedure, a bit of sovereignty, to protect your job? My hunch would be that most employees would say, “Okay, when you put it that way, maybe there's an issue.”
Yes, it is giving up sovereignty, but it's giving up sovereignty in a reciprocal and very incremental way that makes sense for Canadians.
Reading the information here, I'm really astounded that this was signed on December 2006, when Canada became the 155th country.
I come from a manufacturing background, and I am quite conversant with importing, not so much in the exporting, but the companies I dealt with did considerable exporting too. I fully realize that for companies like Gildan, that are setting up working factories and plants in Haiti, that is a huge risk. What are the risks that can befall them? One of the largest risks of course is to lose their investment and not have any mechanism for recovery. When you have large capital costs on buildings, that is a considerable loss. I would think that would restrict some companies from wanting to go to the unknowns of international investing.
So I'm not sure you can ask what the hesitancy was, to be the 155th country in the world to recognize the benefit of this. Myself, and yourself, representing businesses and corporations...and we just talked about softwood lumber. We talked about Research In Motion. There are probably tens, dozens, maybe hundreds of other initiatives that might have been impacted, that might have been helped in their resolving, by being a signator to this earlier.
Can you comment on what on earth the reasoning would have been by the past government to be so hesitant to sign something that, in my humble opinion, is so obviously of benefit to not only Canadian businesses doing this investment and doing this work in foreign countries but also the number of businesses who were prevented from going into investment in other countries? How much did this hold our business communities back?
Thank you, Mr. Goldring.
I'm not sure I can answer the last question in terms of how many business opportunities were prevented, although it's a good question to ask as a rhetorical question, absolutely.
What was the delay? I can't speak to why the six prime ministers we've had since 1966 and their various governments didn't choose to ratify and implement ICSID--well, sign, initially; we only signed it, as you pointed out, less than a year ago.
There are a bunch of considerations. I think one of the things is that for the first close to 30 years of ICSID's existence there was very little activity under ICSID. I gave a talk about a year ago in London on a related topic, to do with international trade investment law. I'd gone through the case law. The point I made is that from 1966 to 1996, the first 30 years of the convention, a handful of disputes--I can't remember if it was 23, or 27, or 29--had gone through the ICSID process.
Since the mid-nineties, in the past 10 years, as you heard from Meg Kinnear, we've had 200 or thereabouts. That's a tenfold increase in the last 10 years relative to the first 30 years. If you start doing the arithmetic, that is a 30- or 40-fold increase.
I think part of the reason was that it was a nice thing to have, but really, what were we losing? If you were looking at this in 1970: “What, six disputes? How many opportunities have we missed?” If you look at in 1980: “Fourteen disputes? Well, whatever.”
There may have been an element of that kind of pure legislative, government--
Well, from 1993 onward, that's where it starts getting really interesting.
Think of the initials MAI. When MAI was under negotiation, it was well down....
I remember being an adviser to the industry department back in the early days, in 1994, when the MAI issue started percolating as prenegotiations; negotiations were launched officially in 1995. I'd bet you dollars to doughnuts that you could count on one hand the parliamentarians who knew that the MAI negotiations were under way. You could count on two digits the ones who actually knew what it was about. And that might or might not have included the minister of the day.
Voices: Oh, oh!
Mr. Milos Barutciski: It was a totally bureaucratically driven process that was completely under the radar. But then in 1996 or 1997, there was an election, and it showed up in the campaign.
I don't know which of you here were running then, but I just don't envy the poor candidate who might have been asked--let's say by Maude Barlow--“So what do you think of the MAI?” The answer was probably, “The what?” I mean, what do you do?
The MAI quickly became a tar baby. So in fairness to my colleagues and friends at the foreign affairs and justice departments, while I know for a fact...because acting for the chamber and the Canadian Bar Association, where I was chair of the international section back in those years, we were urging Ms. Kinnear and her friends to push this forward. There was not a lot of take-up by governments of any stripe.
That was the first issue. But at that point, MAI, and anything to do with international investment, started to become a little bit of a tar baby, the fifth rail of electoral politics.
Then you got the Cancun fiasco, and that comes up. There was a lot of diversion. And finally, perhaps most importantly, you have two provinces, Alberta and Quebec—certainly Alberta, and I think Quebec as well—whose companies and business communities are probably among the two most outbound-oriented business communities. Think of the companies like Alcan, think of companies like Bell International--well, they're becoming a little less international right now--but think of companies like Hydro International—
A voice: They're in Kandahar.
Mr. Milos Barutciski: Yes, exactly.
Or in Alberta, think of all those energy and resource companies, mid-cap companies, the $1-billion and $2-billion plays, that have assets, interests, exploration plays in the Middle East, all over the world, who could have easily benefited, but their governments, for one reason or another, have chosen to use the ICSID thing as a chip in the federal-provincial game: we won't let you do it unless you agree to certain things that are fundamentally unrelated.
So that's your answer. I think it was inertia initially, and then it became, as I said, a bit of a third rail. Then the federal-provincial thing kicked in.
I credit this government, and even the last government, frankly, for having made the efforts they did, but the fact that it was signed, I think, is a real credit to the government.