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 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.
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.
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 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.
I entirely agree. A report that counts the number of wins and losses isn't telling us that much about the impact of ISDS because the real impact is behind the scenes. To get at that impact is very difficult for an outsider—I have tried by interviewing officials.
I think there are many examples of governments' changing their decisions as a result of ISDS risk. Now whether or not the change was good or bad could be argued, but I can tell you that there are many examples in many countries where behind-the-scenes decisions have been changed, and sometimes in ways that are pretty alarming.
The Ethyl case is one of the most famous settlements in the history of NAFTA. It's one of the early cases where Canada had a very concessionary settlement, including the withdrawal of proposed legislation. It's a long story. I don't want to draw us into that rabbit hole.
I would say that what happens with ISDS is that the question of the merits of a decision is no longer left to the institutions of the country ultimately—to the government, to the legislature, to the Supreme Court. The ultimate decision-maker becomes a panel of arbitrators whose role is triggered by a multinational. That extraordinary change in the decision-making infrastructure of your sovereign country leads to all kinds of pressure behind the scenes. I would say that, above all in a crisis—any kind of crisis—this behind-the-scenes pressure is going to be bad for any Canadian perspective that differs from that of someone who can claim to be a foreign investor and has enough money to bring a credible threat of a claim.
That means it could be an economic crisis, a financial crisis, an environmental crisis or a public health crisis. It's not good, and I fear we're going to face more of those crises in the future. There are plenty of examples of this.
Quickly, I'll just highlight that many trade agreements do not allow for ISDS. The new NAFTA has removed ISDS between Canada and the United States. That's one of the most positive things I've encountered in my couple of decades following ISDS, and it came from the Americans. The Americans decided that ISDS was too much of a constraint on their own sovereignty, and among other things, it created incentives for American companies to move manufacturing abroad. That was a concern.
I'm saying that U.S.-Canada relations will always be fundamental for us. By the way, I completely respect and defer to the wisdom, expertise and experience of others on the panel. I'm just saying that it's case-by-case, treaty-by-treaty-specific how you withdraw in a non-provocative manner that doesn't offend relations with the United States, that doesn't offend multinationals, that doesn't say that Canada's going back to the bad old days of the 1970s where Pierre Trudeau was friends with Fidel Castro or I don't know what.
It's looking forward. We need to free ourselves from ISDS because of the crises that are coming in the future and just because, at this point, we cannot have our governments being deterred behind the scenes from essential steps they need to take to protect Canadians.
Thank you, Madam Chair.
Mr. Mark Warner, thanks a lot for bringing up the history of these mechanisms and emphasizing the importance of these mechanisms in depoliticization. That's an excellent point that many of us forget. Also, you mentioned twice that we are becoming a capital exporter. The capital export is still growing.
Mr. Lawrence Herman, I did read the note that you circulated. Let me just quote the last part of your note. You mentioned the need for modernization to make the ad hoc arbitration process more efficient, effective and consistent. That is very important. You also touched on state-to-state obligations. Once again, many of us forget about that. The foreign investment protection and promotion agreements are a fact of life today. Canadian companies earlier, in the previous generation...a few mining companies were investing abroad. These days, a lot of Canadian investment is going from the Canada pension plan, the OMERS or the teachers' pension and we have been investing elsewhere.
To take a specific example, Canadian investments in India are about $52 billion. We don't have a FIPA yet. We don't have any foreign investment protection agreements with India. What is the mechanism available for Canadian capital exporters to protect our investments?
Just because a few Canadian mining companies acted in a wrong way, to paint all Canadian companies as bad actors is something I don't agree with. I think we need to have a mechanism where the funds of an average Canadian that are invested through our pension plans, whether the CPP, OMERS or the teachers'....
What is the mechanism available when they invest in Asia and South America, or for example, in India, where we don't have any protection agreements?
Just as a prelude, let me say, withdrawal is not going to happen quickly. Withdrawal will take a generation.
To withdraw fully from the obligations we have assumed under existing treaties, my view is that our general stance should be to prioritize withdrawal, where possible, depending on the treaty and depending on the context, and certainly not to agree to ISDS anymore.
How will this affect our investment relations, and how will it affect Canadian investors abroad? I think it's so hard to predict how investment relations and the economic benefits of investment, which are clearly tremendous, are affected by current ISDS treaties, let alone future ISDS treaties and the prospect of withdrawal.
I would say the risk of negative impact simply from withdrawing from ISDS treaties would be low, and we can keep it even lower if we do it in a quiet, unprovocative way, which was essentially South Africa's approach when it withdrew from its bilateral investment treaties that allowed for ISDS in the last 10 years or so. They did it in a way that reassured foreign investors there were other protections available, and new legislation was passed to make those protections more robust in South Africa.
For Canadian investors abroad, yes, you're not going to have access to the treaty ISDS anymore, but for many investors the most important Canadian investors' assets we're concerned about are the really big ones, the multi-billion dollar assets that we do not want to leave completely open to abuse by some government abroad. Here, there is always a very complex set of contracts between the foreign investor and the state entities in the host country. A large multinational is sophisticated in its ability to negotiate contracts that protect its interests, including by providing for ISDS. You could have ISDS under a contract; it leads to essentially the same process. I think that is preferable for a host country because you can be more selective in when you're making these extraordinary concessions of your sovereignty and your regulatory flexibility.
That has to be one component of a gradual plan to withdraw, which is to make sure the contract-based ISDS is well-known to major Canadian investors abroad, and that they have capacity to pursue that means of protection.
Secondly, political risk insurance is available. Mr. Warner has referred to it. It could be state-backed, it could be in the marketplace. It's far from perfect. I would stress that the insurers are much smarter than the drafters of the treaties because they limit the obligations. You don't get an obligation to insure for breach of fair and equitable treatment in a political risk insurance contract. You get safeguards against the more obvious and more controllable risks, like nationalization and expropriation, which we absolutely should be protecting investors against.
I think Canadian investors will have some setback. They will not be as well off, but if you look at it in terms of the benefit to Canada, overall, what we pay monetarily, what we pay in our loss of capacity to respond in a future crisis.... I am telling you, when the future crisis comes, government officials will be thanking the heavens if they don't have to worry about ISDS risks in the billions of dollars. That will be well worth it to ensure Canadians can be protected even when one multinational, for whatever reason, fights really hard behind the scenes to stop our doing what's right for Canadians. We just need to get that obstacle out of the way.
I think a Canadian investor who sits down and looks at the quid pro quo will say, we can manage to protect ourselves with governmental support, and we're Canadian too and we can see the value of protecting our country against these broader risks.
All that sounds a little provocative, I'm sure. I don't mean it to be provocative. I've been banging on about reform of ISDS for a long time. I have just come to the view: keep it simple, withdraw and then reform ISDS. Don't stay stuck in it.
Thank you, Madam Chair.
Thank you to all of our witnesses for this very thoughtful discussion this morning.
As a point of disclosure, I should mention that previous to my political career, I was a lawyer in international commercial arbitration and did represent several companies, including some that we are very proud of here in Quebec, such as Bombardier, against foreign states under arbitration provisions, similar to what Mr. Van Harten was just describing as ISDS provided through contracts. I also did some ISDS through our trade agreements. Nevertheless, without putting any of my personal opinions on the table, I think it is important to discuss how Canada should move forward, particularly as we negotiate new trade agreements.
Before I ask a question, as a point of clarification or correction, Mr. Van Harten did say on the record that it was the United States that asked that ISDS be removed from the new NAFTA. I don't think that any of us who were not in the room should presume how those negotiations went down or what Canada's position had been at the outset.
Also, with respect to the previous conversation regarding the United Kingdom-Canada transitional agreement, I note that the ISDS provision is suspended in that agreement and would only come into force much later if the ISDS provision in CETA were ratified, which, as we heard earlier today and as we all know, is possibly not going to ever happen.
Let me get to a substantive question, perhaps for Mr. Warner and Mr. Herman.
I wonder if you could comment generally on your feeling about taking a case-by-case approach. Perhaps in some situations dealing with certain trading partners, ISDS could be used, whereas in other circumstances, for example, when dealing with partners whose judicial system we have great confidence in, it could be unnecessary in those cases.
Perhaps we could start with Mr. Herman.
First of all, Ms. Bendayan, your reputation before you took the political turn is well known, and your involvement in these cases by those of us in the field is well appreciated.
I would make just one comment about withdrawal from current ISDS provisions. Our first investor-state treaty was with Russia. I would ask, at some point, Mr. Van Harten to answer this question: Is it in Canadian interests to withdraw from that treaty with Russia?
Your point, Ms. Bendayan, is whether we should approach it on a case-by-case basis. I think that is a viable approach. We are eliminating investor-state disputes with the U.S. They are eliminated, for all practical purposes, with the Europeans. Where are the Canadian interests affected? If we're not going to be subject to investor-state arbitration from American investors, and the same for European investors, where are the Canadian interests that are somehow in jeopardy?
My point is that the withdrawal from existing foreign investment protection treaties is fraught with difficulties. It is possible in future cases, to come to your point, to be selective and to decide where we need some ISDS provisions, with the guarantees that have been built into the CETA provisions where you have an appellate process and a standing arbitration court. That, to me, improves the system remarkably, and that could be part of a policy going forward for any new treaties that Canada is seeking to negotiate.
In most contexts, treaty-based ISDS is not going to do anything for companies that have assets below hundreds of millions of dollars at stake in the country abroad. There should be a sequenced approach to managing the Canadian interest in withdrawal and the Canadian investor interest in still having sufficient protections that are tailored to that investor's needs.
For example, the highest priority was always NAFTA. We're out of ISDS under NAFTA, box ticked, great, thank you very much, . I emailed her at the time to thank her for basically asking for Canada what the Americans were demanding for themselves. The Americans wanted to keep ISDS for Canada and Mexico but not have the obligations themselves. Well, that was a non-starter for our government, and I thank you for that.
Beyond that, I say keep CETA provisionally applied and keep ISDS out. Do it quietly, but make sure ISDS is not coming in. Also, don't leave it just to European member states to not ratify. Make it clear that ISDS is never going to be applied under CETA. I will be so happy for Canada on that day.
Next, on the CPTPP, oh, dear, that was a turn in the wrong direction. At the time, we were changing ISDS on CETA and actually getting ready to get out of it in NAFTA. Look at the example of New Zealand and Australia: They have side deals under the CPTPP that remove ISDS as between them. I don't see how we can't conclude similar side deals with those same countries in the CPTPP.
As for the bilateral investment treaties, it's a bit of a different story, but if you want to protect Canadian SMEs, there are far more important measures that can be pursued at a lower level than the grand claims of treaty-based ISDS.