FAIT Committee Meeting

STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 16, 1999

• 1541

[English]

The Chairman (Mr. Bill Graham (Toronto Centre—Rosedale, Lib.)): I call this meeting to order.

Members, we have only until 5.10 p.m. today, because there will be votes at 5.15 p.m.

We have a good, high-powered panel here, as usual. We're talking about disputes and dispute resolution.

We'll take everybody in order, as you appear on the agenda. As usual, I'll ask you to keep your introductory comments to about ten minutes. That way we'll have more time for questions.

We'll start with the steel producers, Ms. Van Loon and Mr. Belch.

Ms. Van Loon, it's good to see you back before the committee.

Ms. Jean Van Loon (President, Canadian Steel Producers Association): Thank you, Mr. Chairman.

The Chairman: Mr. Speller is here. Mr. Sauvageau is here. We're all here. It's just your usual family. Consider yourself part of it.

Ms. Jean Van Loon: We're very pleased to have an opportunity to come back and talk about priorities for the WTO talks.

I am the president of the Canadian Steel Producers Association, and with me is Mr. Don Belch, director of government relations for Stelco Inc. and chair of our trade committee.

I would like to start off by sketching in our broad perspective on the forthcoming WTO negotiations and reminding committee members who already know, and informing others, about some of the basic information with regard to our industry.

Our association represents Canada's primary steel producers—in fact, all of Canada's primary steel producers. The industry these days is a very high-value-added, sophisticated manufacturing industry. It's a major customer for high-tech engineering services and environmental service industries. It employs over 33,000 people directly and supports 150,000 jobs when you consider the indirect employment as well.

Our sales in 1997 were well over $11 billion; exports, $3.6 billion. So we're a substantial industry, and exports are very important to us.

Most of our exports are to the United States, but that doesn't mean we're immune from world competition. If you look at the numbers for 1998, you'll see that steel imports came into this country from 65 different sources.

In order to keep up with this intense competition from around the world, the industry has made substantial capital investments over this decade, some $4 billion. That has enabled us to achieve significant growth in productivity.

The GDP per employee has increased over the 1990s by 44%. That's in constant dollars. That's a substantial increase by any standard, and compared with manufacturing generally, which is only 27%, it's a really strong performance in productivity growth.

Despite the fact that we have made this productivity growth and the fact that in 1998 we had very strong domestic demand conditions, we actually wound up shipping slightly less than in the previous year. That was because of the onslaught of imports from other parts of the world, which is a dramatic illustration of how open our steel economy is to the rest of the world and how vulnerable we are to problems that may exist in other steel-producing countries.

When the Asian domestic market collapsed, it meant not only that Asia started shipping to here but also that they stopped importing from a number of other countries that were strong exporters. They had traditionally absorbed about half of the exports from Russia, the world's leading exporter of steel, and about half of Japan's exports.

• 1545

With economic problems in the domestic markets in Russia and Asia, it then wound up with about a third of the world's steel-producing capacity being in areas that have problems with domestic demand. So there was a huge influx of imports into North America, which was the only strong market remaining in the world.

A number of characteristics of the industry make it particularly vulnerable to unfair competition. It's a highly capitalized industry, so companies will have an incentive to keep on producing and exporting even if they don't recover their full costs. This incentive is even stronger when you're talking about a country like Russia, where there's a strong demand for hard currency from abroad and where many steel companies employ huge numbers of people, not only in producing steel but also in running schools and hospitals and so on.

You thus can have a situation where there's a demand problem temporarily in another part of the world that can potentially lead to permanent damage to the Canadian economic fabric unless there are tools to combat unfair competition.

The priorities for the steel industry, in terms of international trade negotiations, are to have a strong, vibrant, growing world economy through an open trading system. Trade brings economic growth. Economic growth drives demand for steel. Open trade, therefore, is good for the steel industry, but we need to combine that with tools for combating the minority of imports that come in unfairly such that no commercially operated company can compete with them on a sustained basis.

Looking specifically at our priorities within the WTO negotiations, obviously we would like to maintain strong remedies against unfair trade. We would also like to gradually reduce barriers to market access elsewhere, whether there are tariff barriers or non-tariff barriers.

We would like to reduce some of the technical barriers to trade, such as inconsistencies in the definition of country-of-origin rules or differences in customs procedures.

We would like to see national competition laws strengthened but not a replacement of anti-dumping laws, which are very important to us.

We would like to encourage countries like China and Russia to accede to the WTO on the same terms and conditions as other participants.

We would like to see rules that would help create stable international financial markets.

To come to the official topic for today, we would like to see strong and effective WTO dispute settlement mechanisms. Our industry, in fact, has not been directly involved in WTO dispute settlement. However, in the last few months we've clearly been affected by a WTO dispute settlement procedure that didn't satisfy all the parties. We have been threatened with retaliation because both parties didn't come out of the WTO settlement, on the magazine bill, with an outcome that satisfied them.

Mr. Chairman, that's my basic statement.

The Chairman: Was Mr. Belch going to add something to that?

Mr. Donald Belch (Chair, Trade Committee, Canadian Steel Producers Association): Thank you, no.

The Chairman: Everybody will be asking questions, but the question I'm going to ask you, Madam Van Loon, is this: If you don't like being side-swiped by somebody else's dispute—and obviously in the banana war people are getting side-swiped in disputes with which they have nothing to do—are you going to make a recommendation to us as to what we should recommend to the WTO to replace the retaliation as a means for...

In other words, are you going to suggest that general damages be awarded, or something like that? I mean, there has to be an answer. If you don't like what's happening to you, what's your solution?

That would be the question I think we'll get back to you on.

By the way, I agree with you—I don't like it either—but we're looking for solutions.

Mr. Fréchette, with Thomas and Davies.

Is that a Vancouver firm?

[Translation]

Mr. Serge Fréchette (Lawyer, Thomas & Davies): In fact, Mr. Chairman, the practice was initially founded in Vancouver, and now has a branch in Ottawa.

The Chairman: Mr. Christopher Thomas is your president?

Mr. Serge Fréchette: That's correct. He's one of my associates.

• 1550

Thank you for your invitation, Mr. Chairman. Due to my experience as a negotiator in the last round of negotiations leading to the WTO agreement and as counsel representing governments and private parties in dispute settlement procedures, I wish to share with you some of the priorities that Canada might adopt in the context of the upcoming negotiations.

It is difficult to discuss settling disputes without speaking of the institution itself, namely, the dispute settlement mechanism that aims to ensure that the rules developed under the agreements are respected.

You will recall, and have no doubt heard on a number of occasions, that the dispute settlement mechanism dates from the very first agreement in 1947. Over the years, the dispute settlement mechanism has been improved to reflect the practices of the parties and the reality of implementing the decisions made in this context. The parties realized, during the last negotiations, that the mechanism required much more development, and they negotiated the present dispute settlement mechanism, namely, the understanding on the rules of procedure that support the mechanism itself.

All of these rules of procedure have been developed, but in many cases they represent the first attempt by the parties to develop such rules, and many things still have to be clarified. When we talk of the next cycle of negotiations, we have to think of the approach that will be adopted by the parties. From the institutional point of view, does the mechanism that has been applied for five years correspond with the intention of the parties when the agreement was adopted, and are there things that should be changed?

Basically, when we look at the institution itself, we can see that the dispute settlement mechanism has worked quite well. In view of the existing rules, the panels, special groups and the appellate body have issued interpretations of those rules based on the agreement among the parties. The rules themselves are not always very clear, with the result that, ultimately, the decisions made by these special groups and reviewed by the appellate body result from interpretations that will satisfy some parties and dissatisfy others and this gives rise to conflicts, particularly in the implementation of the decisions. The bananas case is the perfect example. At the present time, we are hearing a lot about the periodicals case which involves Canada and the United States.

In general, it must be noted that the mechanism itself is operating very well, and that it allows parties to settle their disputes when they are unable to achieve results in the preliminary consultations through a dispute settlement procedure. It should be noted that out of some 150 cases that were discussed in one form or other in the context of consultations, approximately one-third of those were settled by the consultations, before even going to the final dispute settlement procedure and this speaks to the ability of the parties to agree to settle their differences before initiating formal procedures.

As for the Canadian approach to this matter, it is very easy to view all of this from the point of view of gains or losses, namely, how many cases Canada has won or lost. In doing this type of analysis, it is important to take into account reasonable expectations at the outset. The results achieved have to take into account the rules and measures adopted by governments, be they federal or provincial. We have to ask ourselves whether the analysis carried out by the appellate body or the special group took these rules into account. This is the important point in determining the Canadian government's approach in assessing the results achieved subsequent to negotiations.

• 1555

Obviously, once we have discussed the institutions, we have to discuss the rules that support the dispute settlement mechanism, and these rules are found in the Understanding Concerning the Settlement of Disputes (DSU).

There have been many discussions in Geneva in the past two years concerning the need to review the rules as they were negotiated originally in 1994 and implemented in 1995. The parties are having great difficulty deciding on an approach to adopt, because, in many respects, everything is still developing. It is difficult to decide whether discussing certain aspects of the dispute settlement mechanism might open a Pandora's box and result in a need to review the entire mechanism. Many participants, lawyers and other parties who have had to operate within the dispute settlement mechanism will tell you that in many cases, the mechanism should be allowed to continue, that is, allow things to develop and enable panels and the appellate body to determine the meaning of these rules as they gain in experience.

This is being noted in many respects in the context of the decisions that are being made by the panels and the appellate body. The parties are no longer reluctant to raise procedural questions relating to the interpretation of the rules themselves. Panels, special groups and even the appellate body are specifying the meaning of these rules and issuing decisions that have a bearing on subsequent interpretation of issues such as the admissibility of evidence, the confidentiality of evidence, or how to deal with procedural questions.

So we have to keep in mind the question of whether Canada's priority is to reopen the whole discussion on procedure or to adopt a very focussed approach, namely, to look at the specific questions that have been raised in the cases to date. In this respect, we could deal with the question of transparency and the ability of parties who are not directly involved, namely, the States themselves, to appear and make representations on certain specific dispute settlements. The ability of such parties to make representations challenges the whole basis of dispute settlement, namely, State-to-State dispute settlement. These are basic questions that challenge the fundamental principles.

But there are other questions that are equally important with respect to the rules of procedure. A while ago I mentioned the area of the administration of evidence. Some recent cases have shown that the parties might have prejudices concerning how to present their interests, whether it be on the offensive, namely by attacking another party's measure, or on the defensive, by defending themselves against another party's attacks or with respect to their inability to protect certain information that they might have to use to demonstrate the legality or illegality of the measure. For example, in the context of cases involving subsidies, much of the information comes from business practices. This type of information is very often classified, in domestic law, as privileged trade information. In domestic law, this type of information benefits from some type of protection.

In international law, as it is currently set out under the WTO, the rules are not clear. It is left up to the panel and, ultimately, the appellate body to decide how this type of information will be protected. Therefore, the question is as follows: are the parties satisfied in the way that the panels have dealt with these questions up to the present time, or do they intend to more clearly define the rules in the context of the negotiation? These are the questions that face Canada as well as a considerable number of parties with respect to what should be raised during the negotiations.

Canada was a participant in the last WTO negotiations concerning the dispute settlement mechanism. Canada now has to decide whether it wants to take advantage of this experience and the credibility that it gained in the last negotiations to promote its opinions very specifically in the context of the new negotiations.

• 1600

The final question concerns the link that might exist between what has been announced for July 1999, namely a mechanism outside the negotiation cycle to review the dispute settlement mechanism, and the next cycle of negotiations. Will there be parallel exercises or will there be one exercise that starts in 1999 and, that, ultimately will become part of the multilateral negotiations. One of the issues will be to decide whether the exercise in July 1999 should constitute a first step to draw up a list of priorities for the negotiations, a list that would then be utilized in the negotiations themselves, or whether the parties would be better off to deal with some of these issues in a more global context.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Fréchette.

Mr. Donald McRae.

[English]

Welcome back before the committee.

Mr. Donald McRae (Individual Presentation): Thank you.

I would like to say that I agree with most of what Mr. Fréchette has said, and to some extent will be duplicating some of his comments. I think we agree that the WTO dispute settlement system is widely regarded as a success story of the WTO. In general, I think the system is working well, so probably it's premature, in my view, to make any changes to it. As Mr. Fréchette suggests, the system needs more time for the panels and the appellate body to develop and mature before any amendments are contemplated.

That's not to suggest that there are not problems with the way it functions. I'm going to talk about some of the problems, probably more technical and specific in some cases.

I think these problems are, by and large, ones that can be managed, although the issue of compliance, which you've already raised in the context of the bananas case, I think is a problem that to some extent is external to the dispute settlement system as such but nevertheless could undermine the whole of the system.

I'd like to make a few general remarks and then refer to some specifics of the procedural aspects of the functioning of the system where I think changes should be contemplated and perhaps made. In doing this, I'm drawing on my experience in both writing and teaching about international trade law and in serving on the Canada-United States Free Trade Agreement and NAFTA panels and advising governments on WTO disputes. But what I say here, of course, is said purely in a personal capacity.

The key elements of the WTO process, of course, are the state-to-state consultations, the hearing before the panel, and the appeal to the appellate body. What makes it unique, I think, amongst international dispute settlement systems is that it's compulsory, the decisions are binding, and there is a provision for an appeal of those decisions. They all contribute to the fact that we have a very sophisticated international dispute settlement system, which, the other international lawyers here will not like me to say, is probably much more sophisticated than the International Court of Justice or the Law of the Sea tribunal.

In saying this, though, I think in assessing the dispute settlement system there are a few contextual things one has to take into account. They have been partly mentioned already by Mr. Fréchette.

The first is that the WTO law is really very new. The GATT, of course, has been around, as was mentioned, since 1947, but GATT obligations were often expressed with a high degree of generality. What the new WTO agreements do is take that generality, elaborate on it, and define it. As a result, new language has been introduced that hasn't been interpreted or defined, so there cannot be a high degree of certainty in predicting the outcome of WTO panels. There's nothing much more than the words of the agreement to go on.

I think the second important factor to remember is that the World Trade Organization is a very important new step in trade liberalization. As a result, many states do have on their books protectionist measures, and these measures are going to be challenged by other states. I think it's borne out in practice; complaining states win more often than defending states. It's much better to be a plaintiff in the WTO than it is to be a defendant.

I think this is likely to continue until states catch up in their domestic laws with the degree of trade liberalization that the WTO demands.

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I think the third important factor when looking at the process as such is to remember that the trade can't be separated from other issues and looked at in isolation. The WTO agreements deal with a lot of matters that traditionally states have seen to be matters that they can regulate domestically, on their own. On the other hand, the regulation of trade—and we're seeing this more clearly in the WTO—has implications for areas not dealt with directly in the WTO agreements—environmental regulation, human rights, and even potentially business ethics.

We see that some of the most contentious issues before the WTO deal with trade and the environment. They deal with sanitary health measures. They deal with disciplines on agriculture. They deal with intersection of trade and culture.

So I think it's important, in looking at the dispute settlement process, to try to distinguish problems one has over the rules of the WTO with problems one might have over the mechanisms and procedures for settling disputes about those rules.

Let me refer to some of the things that I see as potential problem areas at a procedural level. The first is the area of consultation. Consultation is a prerequisite to requesting a panel for a particular dispute. States have to meet in formal consultations. The object of these consultations in principle is to see whether the dispute can be resolved.

In reality, the formal consultations are not much more than a ritual. By the time the states get together in consultations, they've disputed over the matter, argued about it, and negotiated about it. Therefore, the complaining state is seeking at that stage to simply bolster the position it's going to take before the panel. The defending state is making sure it doesn't say anything that will prejudice its case before the panel. So this is nothing like a pretrial hearing or a compulsory mediation that we've become familiar with in some domestic jurisdictions in Canada.

In my view, the consultation process would be more effective if it was conducted, instead of just the states themselves, in the presence of a mediator of some kind. A person who could serve on the panel, but obviously wouldn't serve on that panel, would try to determine whether arguments have credibility, and try to help the parties work towards some kind of solution. That doesn't exist at the present time, and it seems to me it would make more sense out of the consultation process.

The next issue I would like to refer to is the process of panel selection. In principle, the secretariat nominates to the parties a list of names from the indicative list, and the parties are meant to object to those names only for compelling reasons.

Well, the reality is otherwise. Panels are meant to take 20 days to set up, but they take considerably longer than that. The member states simply reject the names and call on the secretariat to produce more names. The Europeans are reluctant to have North American panellists. The United States is reluctant to have European panellists. Some governments only want government diplomats and not lawyers. Others, heaven forbid, don't want professors on the panel.

The Chairman: How does anybody get on any panel?

Mr. Donald McRae: I thought I'd get some sympathy in this audience.

Voices: Oh, oh.

The Chairman: Mr. Turp was ready to leave for Geneva until he heard this information.

Mr. Donald McRae: The result is that the concept of compelling reasons is being quite inordinately stretched. In short, there ought to be much more automaticity in the panel selection process, and I think we need some kind of articulated standard of conflict of interest as really being the only basis on which objections should be made.

I also have comments that in the written version of these remarks relate to third parties, panel hearings, and interim review, but in the interests of trying to keep close to the chair's time constraint, let me refer simply to two other aspects.

One is the question of non-governmental access and an issue that is frequently debated, the issue of, to some extent, transparency, which Mr. Fréchette raised—whether or not the process should be limited to governments. One aspect of this is simply the secrecy with which the process takes place. Written submissions are confidential unless released by the parties. Panel hearings are in private.

Of course, another concern relates to the ability of non-government parties to make submissions and participate actively.

There are two kinds of non-governmental parties that potentially have an interest. One would be the commercial interests directly involved in the substance of the dispute, and the other would be non-governmental organizations particularly concerned with such matters as trade and the environment. Perhaps Mr. Mann will talk about this a little later on.

The NGO community has already won a battle with the appellate body in shrimp/turtle, saying that submissions from these non-governmental parties can be considered by the panels and the appellate body. I think we have to wait and see how that works. In principle, that would apply to submissions from non-governmental sources as well.

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In my view, the best way to deal with the commercial interests is domestically. I think what we need in Canada is the opportunity for commercial interests to formally petition the Government of Canada in order to require the Government of Canada to determine whether or not it is taking a matter to the WTO, and to respond formally if it decides not to take a matter to the WTO.

The United States has such a procedure, and the European Union has such a procedure, but we don't have that in Canada. It seems to me there is a strong argument for instituting such a domestic procedure that allows commercial interests affected by the trade policies of other countries to make a submission to the Government of Canada that a matter be taken up in the WTO dispute settlement process.

The final point I wish to refer to, Mr. Chairman, is the problem of implementation, which of course in the public eye, as a result of the bananas case, is one of the most pressing issues raised in the WTO.

As I mentioned, in many respects this is not really a dispute settlement issue. It's really a question of how states, particularly large and powerful states, that refuse to comply with international law, whether international trade law or any other body of international law, can be convinced that compliance is in their interest and in the interests of the international community as a whole. This is a pervasive problem of international law; it is not just a trade law, or a WTO problem.

In the bananas context, I think there's no doubt that the threat of the United States to retaliate, without WTO approval, undermines the WTO system, but equally, the failure by the European Union to comply with the decision of the appellate body also undermines the system. I think the systemic problem is that the WTO has a fairly inefficient process for identifying where the compliance by a state is real or just facial.

At the present time, even the expedited process involves the reconvening of the panel that considered the matter originally, or of another panel, with the possibility of an appeal of that decision. With some justification, I think, the United States sees this as simply offering the European Union the opportunity to drag out compliance with an endless series of proposed compliance measures, followed by panel and appellate consideration.

I understand that Professor John Jackson in the United States has suggested that a single arbitrator should decide whether a measure complies with the decision of a panel. I would endorse that proposal. I also think that in order to expedite the process, states should have to have proposed measures approved by this arbitrator before adopting them, not wait until the measure is formally adopted by the domestic system.

As well, there ought to be a time limit put on the putting forward of proposed measures, after which a state would have to be obliged to remove the offending measure—whether or not a replacement measure has in fact been approved. I think an approach of that kind might go some way towards trying to get away from the allegation, on the one side, of non-compliance, and on the other side, the allegation that it is complying and simply needs to comply in its own way.

I think at this stage, Mr. Chairman, I'll stop.

The Chairman: Thank you, Dean McRae.

The final witness is Mr. Howard Mann, who I believe appeared before us in the MAI hearings.

Welcome back, Mr. Mann.

Mr. Howard Mann (Individual Presentation): Thank you. It's a pleasure to be here.

[Translation]

First, Mr. Chairman, I wish to apologize for having provided only the English version of my comments. I must tell you that I spent all weekend coaching my son's hockey team. Let's just say that I decided to focus on Canadian culture rather than international trade.

Mr. Daniel Turp (Beauharnois—Salaberry, BQ): Isn't hockey the priority?

The Chairman: That's two fathers talking.

Mr. Daniel Turp: Yes, that's right.

The Chairman: That's the most important thing.

Mr. Howard Mann: Although my presentation is in English, I would be willing to answer your questions in both languages, Mr. Chairman.

[English]

The issue of dispute resolution is probably a lot less flashy and a lot more technical than a lot of the other issues your committee has looked at, but I don't think it's any less important to the work of this committee.

In effect, there are two times when the rubber hits the road in terms of international trade rules. The first is at the end of a negotiation and the second is at the end of a dispute resolution, when one side wins and the other side loses.

• 1615

So it's quite critical. In short, dispute resolution counts, and it counts, as my kids would say, big time.

I wanted to make some comments on five particular areas today. The first is the widening context of dispute resolution, to which Professor McRae has alluded; transparency; the issue of dispute resolution in the investment context in the event that investment is indeed included in the millennium round; compliance with and reliance on the dispute resolution process; and some considerations on balancing interests in the current dispute resolution process regardless of whether it gets changed during the course of the millennium round or in some parallel process.

In terms of the widening context of dispute resolution, I don't think there are too many people who want to see the WTO directly regulating the environment, or directly regulating human rights. There are probably a few more who want to see it get involved directly in labour, but still, not the majority of people that I'm aware of. They would like to see those issues regulated in the bodies set up to do that.

At the same time, as Professor McRae has already mentioned, it's very important, indeed critical, to be cognizant of the impact trade rules have on how those regulations in those areas are made, and how governments do their job in those areas. While I agree with Don's point that we need to distinguish concerns over the rules, or the substance of trade law, versus the process of the dispute resolution, there is some connection there as well, particularly in some of the transparency issues. I think those are quite important.

Turning to the issue of transparency, I think certainly compared with what we see in the investment side under NAFTA today, the initiation of the process within the WTO is very transparent. The notice of an intent to initiate an arbitration is provided to the public through the WTO dispute resolution site. They update it every week or two. It's all quite public and available. Certainly in terms of the initiation of a dispute, they're showing quite a bit of progress there compared with what was seen in the GATT.

In terms of looking further down the road in the process, though, I think there's still significant room for improvement. I've listed a few in the handout I've had passed around. I think there has to be openness of the arguments when filed. I know there are issues of commercial sensitivity, and perhaps that might be the one exception, but if one begins to talk about “public” versions of the arguments filed, then we're going down quite a road to fairly sanitized versions of the arguments filed, and individual citizens will quickly find themselves losing track of what their governments and other governments are arguing are their rights and obligations in the trade process.

With the potential exception of trade secrets, I would suggest that when we talk about openness of arguments, or public accessibility to the arguments, there should not be—quote, unquote—“public” versions of those arguments.

With regard to accessibility of the process to the media and to the public, I read through Minister Marchi's comments at the beginning of your sessions, where he talked about trade being a local issue today and having to make it a local issue so that people would understand its importance. It becomes rather difficult to do that when nobody but governments are allowed into essentially the back rooms of the WTO facilities in Geneva. If we want to make it accessible, we have to provide the means and tools for what goes on in the process to be accessible to Canadians and to citizens elsewhere.

In terms of acceptance of what is called “civil society briefs”, whether it be from industry interests, commercial interests, or NGO interests, as Professor McRae has mentioned, there is now, after the WTO's ruling in the shrimp/turtle case, some opening for that. At the same time, the appellate body there also said that they weren't actually going to consider what the NGO submitted in that case because it differed from what the government said, and thus they were really just going to consider what the government said.

• 1620

It seems to me kind of self-defeating to say on the one hand that you're going to open it, and on the other hand that you're not going to consider it if it differs from what the governments say. I think that's an issue that needs to be further explored and looked at and dealt with.

Finally, there's the question of immediately accessible decisions to the public, subject to being translated into the three languages.

I have noted here one more issue. I don't know Professor McRae's experience here; I suspect it differs radically from what I've heard out of Geneva, which is that a number of panel decisions, and some very key ones, are in fact written by bureaucrats within the WTO and not by the panel members themselves. That is certainly the word that comes out of all the NGOs in Geneva at this time.

I don't know the extent to which that is true in practice or not, but it's certainly discrediting to the panel process that this is the commonly understood practice in many quarters. It's damaging to both the credibility and the objectivity of the process as well as the role of the WTO to the extent that practice is true. I think it's something the committee could quickly and simply address.

In terms of the dispute resolution in the investment context—and this is under the rubric of “if” investment is included in the next round; I'm not convinced it ought to be in the WTO, although I know the WTO secretariat would dearly love it to be there—it seems to me that transparency has to be a critical issue in looking at the particular dispute resolution process that goes with investment issues, the model of which we'll draw from chapter 11 of NAFTA.

Transparency in the initiation of the process, which we do not have now, is something that I think the committee would need to address and make a recommendation on in the investment context. It seems to me it's quite an extraordinary situation when a foreign company can challenge the Canadian government on having passed a law in the public interest, and the Canadian public is not entitled, as a right, to know that challenge has been made and is proceeding. There's a fundamental democratic issue that I think arises in that kind of context.

The last two points I've put on that particular slide deal with the question of balancing of rights and responsibilities in the investment context.

When the OECD first began its work on multinational enterprises in the 1970s, they were involved with four areas: non-discriminatory national treatment of foreign investors; regulating investment incentives and disincentives by government; preventing conflicting requirements and overlapping taxes on multinational corporations; and a code of conduct or guidelines for multinationals.

In the MAI process, the first three of those were brought into the context of the legal negotiations to develop an international agreement. The responsibilities of industry, of multinationals, were not brought in. They were specifically and deliberately left outside the legal framework being developed.

When one looks at that history, back to the 1970s, of the four pieces moving up the chain together, and then one comes to the MAI negotiations, leaving out the responsibilities from the legal context, it makes it a little bit easier to understand how some groups were able to label the MAI process as the development of a charter of rights for big business. Their responsibilities were not included; their rights were.

With that background, my view is that if investment is brought into the millennium round, the responsibilities of multinationals ought to be included as well as the other issues that might be addressed in the context of that agreement.

I would then go on to suggest the next two points—or the last two points on this particular slide—that one way to enforce those responsibilities is to condition the investor-state dispute resolution mechanism, which investors can have unilateral recourse to, on the ability to demonstrate that they have exercised or complied with their responsibilities.

• 1625

That would be one mechanism to do it, but a second one worth considering is some kind of split system, with home-state approval for challenging certain legislative-type activities that a corporation might challenge—for example, another state's environmental laws having infringed their investor right.

That would at least provide some check in the system that could prevent certain types of challenges that we have seen already under the investor state and that raise a lot of important questions.

Either of those two types of approaches would help establish a bit of a quid pro quo between rights and responsibilities in the investment context, looking at the dispute resolution side of it.

Given the time, I'm not going to say very much more about the issues of compliance with and reliance on the dispute resolution process. I think others have already dealt with that, and have said all I would need to say.

If I can indulge myself for perhaps another minute or two, I think it is important to look today at some considerations on balancing interests within the existing WTO processes, not just looking ahead. I think that's important for the credibility of the WTO system and the ability to sell it, as it were, both within Canada and elsewhere.

Let me preface my closing comments here by saying I unequivocally support and endorse a strong rules-based trading system. I think it's going to be of enormous benefit to Canada, and I have no issue with that, but I do think there are occasions where the support for a strong rules-based system needs to be balanced with other issues and other concerns.

I again reference Minister Marchi's comments on February 9 to this committee, where he talked about “reflecting Canadian values” in the course of promoting free trade.

I'll give one very current example that, to me at least, raises some questions. Canada, as I understand it, is one of the countries that is now leading the charge against any requirement to use information labels on genetically modified food produce or food crops. I don't want to get into the substance of the issue, but if that kind of issue goes to a dispute, it may create risks simply beyond an interpretation of trade law.

The case would pit the EU and Japan on one side against Canada and the United States on the other side. Essentially, almost the entire northern half of the trading system will be squaring off over what the media will undoubtedly play out as an issue of trade rules versus the right to know what we eat. That's already the play that the issue gets in the media in Europe.

The prospect of that, when one looks at this kind of dispute beginning, as the millennium round is about to begin, creates what I would think is an enormous political obstacle to launching the kind of negotiation to deepen and broaden trade rules at the very time that an issue as fundamental as the right to know what we eat is on the table and actually in dispute.

I also question whether or not participating in that kind of a challenge really does reflect Canadian values or whether it reflects a primacy of trade over some other basic rights.

The last thing I want to mention very quickly in this context is the balancing of north-south issues. In particular, there is now a process to try to develop an advisory centre on WTO law in Geneva. That has been launched by a number of countries. I do not believe Canada is one of those countries, or at least not yet.

It seems to me Canada ought to be supporting a process like that, which would essentially provide a well-qualified, legal-aid-type—for lack of a better word—clinic for developing countries to participate in trade law by providing them with properly qualified trade lawyers to initiate or defend trade law proceedings against developed countries.

It seems to me one might also consider expanding that process to providing legal advice in the negotiations to level out the playing field a little bit there as well.

The Chairman: More work for the professors.

Mr. Howard Mann: I'm not a professor—

The Chairman: I know; I'm thinking of Professor McRae here.

Mr. Howard Mann: —but there would be more work for them and for others.

The Chairman: Great. We'll send Mr. Turp.

Thank you very much. That's all very helpful. I mean, I agree with you; it's a dry, rather expert subject, but one with tremendous consequences if we don't get it right, because the integrity of the system depends on it working right. So it behooves us to try to understand how it works.

• 1630

I must say, I'm a little terrified about getting too much into the details, but Mr. Penson loves this type of thing, so we'll turn it over to him.

Mr. Charlie Penson (Peace River, Ref.): Mr. Chairman, the last point made by the last speaker, Mr. Mann, intrigued me a little bit on the food labelling side.

I don't think most Canadians would have a problem with food labelling, but what they would have a problem with is if we don't use a scientific process at places like the World Trade Organization to determine what is a trade barrier and what is really just a safe product.

It seems to me that when you get into genetically altered things—canola, for example—we are using some non-tariff barriers and scare tactics, and I believe it needs rather to be based on sound science. I believe that's the basis that the World Trade Organization has been using in the past, and should use, and should continue to use, on these products.

Canola, for example, and other Canadian grains that are being sold have been genetically altered for centuries. It's a different method, and it's moving faster than before.

I'd like to ask Mr. Mann if he would agree that it should be based on sound science, and if that should be the basis for this decision of whether it is traded into other countries in the World Trade Organization.

Mr. Howard Mann: I think an important distinction has to be drawn here. One is whether it gets traded, or is allowed to be traded, and the other one is whether we know actually what is being traded.

I'm not talking about a label that says, “This food is dangerous”, and I don't think that's what the EU or Japan has proposed, but given some growing scientific uncertainty over at least some types of genetically modified food, and given the very different nature of the genetic modification that's now going on... I mean, if we look at some of the terminator seeds that are being developed, or where they're inserting antibiotics into grain crops—

[Editor's note: Inaudible]

Mr. Daniel Turp: —

Mr. Howard Mann: We're not talking about the traditional kind of genetic crossbreeding and manipulation that farmers have indeed done for centuries. We're talking about a radically different kind of process that raises a whole lot of different issues.

I agree with you that trade barriers should have a scientific basis, subject to the application of the precautionary principle, which the appellate body endorsed in the beef hormone case. I think there needs to be a risk assessment, but that becomes a somewhat different issue when we talk about information labels versus actually imposing a trade barrier.

As long as we're talking information labels, the balance between the level of scientific proof to implement a trade ban versus to require an information label is significant—

Mr. Charlie Penson: I agree, but I think we have to be careful here. These types of issues can be used as trade barriers very easily. I think we have agreement that as long as it's based on sound science... If the jury on it isn't in yet, maybe the decision on whether or not it's allowed has to be delayed to allow for the proper type of assessment, scientifically, that's needed.

Would you agree with that?

Mr. Howard Mann: I'm not sure I would agree with that.

Mr. Charlie Penson: Well, when would you make a decision, then?

Mr. Howard Mann: I think that's when one has to be able to balance... and again, I'm talking about an information label, not a ban on the import or export. I think there is a critical difference there.

When we're talking about an information label, when there is sufficient public concern and some science that says, okay, let's stop and take a look... And that science, that half, is now beginning to emerge. It might not be there for canola, but it is there for other products, and it is increasing as the range of genetic manipulation increases.

I don't want to get into the specifics of saying a label is good or bad under trade law, because I don't think that's what we're here to do. My specific concern is that the perspective looming here is using trade law to argue against the basic information label, a straightforward information label.

I realize there's a scare tactic behind it, but the spectre of saying that trade law means you are not allowed to require the public to know what it is eating, or the public doesn't have the right to know what it is eating, is a very difficult proposition to sell at the beginning of a millennium.

• 1635

Mr. Charlie Penson: A big debate in this whole area has to take place.

Mr. Howard Mann: Yes.

Mr. Charlie Penson: I want to move on to another area if I can, though, Mr. Chairman, and it has to do with the idea of the very future of the World Trade Organization on the compliance factor, which we touched on earlier. Mr. McRae has made some suggestions in terms of how this might be improved.

Mr. McRae, I think you said that some person in the United States suggested that there be a single arbitrator. I'd like to explore that a little bit further, but there's just one other point I'd like to throw into the mix.

Let's just take a hypothetical case of Canada taking the softwood lumber issue to the World Trade Organization and winning. The problem with that is that it takes a year or a year and a half to accomplish that, and there are duties that have been applied in the meantime. So even though the World Trade Organization says to the country that has put those duties on that they can do longer do so and they accept that and stop doing it, what about the problem of the duties that have been assessed during that period, which could be pretty substantial? Is there anything that can be done to change that, to refund them, in order to reflect the “win”, if you like?

Mr. Donald McRae: Change the rules, I suppose... The attitude of the GATT and the WTO, I suppose, has been incrementalist, that is, we're better off getting some gains rather than getting everything. Therefore, removing the measure has always been the objective of WTO and GATT dispute settlement. If you can remove the measure you may not have solved the problem for the past, but at least you've solved the problem for the future. To go back and try to solve the problem for the past is probably pushing for more than one is likely to get the States to agree to.

But I agree with the objective. The objective is, if you're wrong, you're wrong from the time that you are wrong, not from later on. The equity argument you make is very strong. How you would get a large number of states to agree to that is something I'd be a bit doubtful of.

Mr. Charlie Penson: Is there starting to be a bit of a record or a bit of case law there? As you know, some countries have been hit and have seen the negative effects of these things, such as duties that have been applied that they can't get back. Do you sense any common interest anywhere in countries that have had cases at the WTO which we can use and which might advance that?

Mr. Donald McRae: I don't believe it has been tried in the regular GATT kinds of cases, but it would always be possible to ask the panel, as part of the recommendation, to make recommendations along those lines and to push it and see how far it can go. I know some people have advocated that, but it may take a bold panel to make that kind of order and a very bold appellate body to uphold it.

The Chairman: Mr. Penson.

Mr. Charlie Penson: Maybe at some point you can ask about the single arbitrator, Mr. Chairman.

The Chairman: Yes. The single arbitrator on the compliance issue was one thing... Yes, we'll do that.

Maybe Mr. Turp is going to ask about it. Oh, it's Mr. Sauvageau.

[Translation]

Mr. Benoît Sauvageau (Repentigny, BQ): We are presently reviewing the WTO decision on the Bombardier-Embraer case. Mr. McRae, you have been a member of various panels, and you could probably tell us that opposition parties have to be very cautious in their attacks, because it could be used against them in the case of complaints. We can see that on five or six occasions, it mentions a study tabled by the Reform Party. I don't know if you have had time to review this document, but it reminds us of the need to be cautious as parliamentarians, even when we are in the opposition.

The Chairman: What wisdom.

Mr. Daniel Turp: We don't tend to complain about what is happening in the West.

Mr. Benoît Sauvageau: I will ask Ms. Van Loon a question, before the Chairman cuts me off. I noted that you had said that you wished to see an excellent trade dispute settlement mechanism at the WTO. I want to ask you if you are satisfied with the present one. If not, how could or must it be improved? This is my question for Ms. Van Loon.

• 1640

I have a second one. In your document, at point 2.8 of your specific priorities, you say that we should establish stable international financial markets. Could the WTO play a role in this regard? If yes, how?

Ms. Jean Van Loon: I must say that I feel somewhat uncomfortable surrounded by so many experts. We are the only ones here who are not appearing as experts, but as people living the consequences of international disputes.

Having said that, it is the periodicals and the American threats that have led us to conclude that the dispute settlement system should be improved. This case obviously deals with a problem of compliance implementation. It would seem that both States have a different interpretation of what the World Trade Organisation decided.

Mr. Belch also has opinions to express, but I think that there should be some mechanism, perhaps arbitration, as Mr. McRae mentioned, or some other mechanism to resolve these differences of opinion earlier and to avoid the damages with which we are being threatened.

[English]

Mr. Donald Belch: I honestly do believe that it's a question of perception. One party believes that the process is quite cut and dried and that a win is a win, whereas most of the other parties believe that the process is one that decides whether rules and laws are consistent with the WTO and would like to bring those rules into consistency with the WTO. There needs to be an opportunity to do that, and a single arbitrator would be one way of doing it. Another way would be to have a period of time for parties to actually adjust their rules to be in compliance with the WTO; you'd remove the threat of retaliation initially, until that compliance was made.

[Translation]

Mr. Benoît Sauvageau: Mr. Fréchette, if I have clearly understood you, you said that we should give ourselves time to live with the dispute settlement process. Does this mean that you would be in favour of making few or no changes starting in July 1999 in the next cycle of negotiations, to allow the process to demonstrate its application? This is my first question.

Further to what Ms. Van Loon said, in the documents that were supplied there is talk of good offices. It mentions using good offices procedures for conciliation and mediation on a voluntary basis. Should we suggest that these rules of procedure concerning mediation, conciliation and good offices become mandatory?

Mr. Serge Fréchette: Let me go to the first question. If you had asked me the question two or three years ago, I would have said that we immediately need to start reviewing the mechanism adopted in 1995. Why? Because the first decisions of the special groups and the appellate body showed very clearly that there were major differences in the perception of the parties and even among the members of the panels and the appellate body concerning the implementation of the rules.

A very obvious example is the dispute between Canada and the United States concerning the implementation of the original appellate body decision in the periodicals case. The appellate body, although Canada's missions made it obvious, refused to make certain clarifications with respect to what was possible or impossible under the agreements, so that fundamental questions were left pending. Consequently, we still do not know whether or not the new Canadian measure complies with the original decision.

• 1645

You asked me whether we should reopen the existing rules. In my opinion, we will succeed in improving the process through development of those rules. The appellate body, much more than the panels, is already being asked to determine basic questions, and its decisions show that it is much more aware of the need to give the parties more detailed directives concerning what is acceptable or unacceptable under these rules.

Mr. Belch said, and I had said a little earlier, that the rules themselves are not always clear. Therefore, the parties need more clear decisions. This is where the dispute settlement mechanism becomes very important, since it must help the parties determine their rights and obligations. This is what, ultimately, will facilitate the implementation of the rules, be it in the banana case, the periodicals case, or in other future cases.

Therefore, in my opinion, this is the ideal way, at the present time, to improve the dispute settlement mechanism. Nevertheless, I think that the WTO members can examine very specific questions, related to systemic issues, for example, questions concerning transparency and the participation of certain parties in the dispute settlement mechanism. Depending on the interest group involved, there may be national measures used to facilitate greater participation, even when private interests are involved. Canada already has mechanisms that allow private stakeholders to make representations to the government and even to help the government in defending their interests in questions raised in the context of the dispute settlement mechanism.

Therefore, in my opinion, there are two sets of questions, and each requires a different approach. For the basic questions, those that are more visible at the present time, including the implementation, in my opinion, we should allow the mechanism to function and give the appellate body the opportunity to clarify the interpretation of those rules.

The Chairman: Excuse me, Mr. Sauvageau, I must stop you here, because I am limiting everyone to eight minutes for the moment, so that everyone has a chance to ask questions. I think that we will be able to have a second round of questions.

Mr. Speller.

[English]

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): Thank you, Mr. Chair.

I want to thank the panellists for presenting to us today.

Mr. McRae—

[Translation]

The Chairman: Mr. Bachand, you weren't on my list. Do you want to ask a question?

Mr. André Bachand (Richmond—Arthabaska, PC): I thought that I was automatically on the list, Mr. Chairman. I thought that according to an agreement that we have had for several years, you and I, that I was always on the list.

The Chairman: Well, no. If you don't raise your hand, you're not on my list.

Mr. André Bachand: My goodness!

The Chairman: Your presence is impressive, but not...

Mr. André Bachand: Not to that extent.

The Chairman: No, not to that extent. Go ahead.

Mr. André Bachand: Thank you, Mr. Chairman. Please excuse me, Mr. Speller.

I shall proceed very quickly, and probably won't use my allocated eight minutes. My questions are for Mr. McRae, but the other witnesses should also feel free to answer them.

Without dealing specifically with the case at hand, I would like to talk about the process for the composition of panels. Canada and France are currently constituting a panel to review a complaint from Canada against France concerning the asbestos ban.

There spending a ridiculous amount of time constituting the panel. We are told that if the countries have not agreed after 20 days, the director will be able to appoint a panel in conjunction with the other countries, provided that one country requests this. My question is: do you think that this procedure is acceptable and correct? According to the WTO rules of procedure, this can take a very long time. The countries may agree to stop the procedures. Things can get dragged out. Only for the composition of a panel, if neither of the parties asks the director to constitute it, things can drag on for months and months. There's no set deadline.

I understand that a country like Canada may file a complaint to please a certain domestic constituency, but the fact is there is no onus to achieve results. This is my first question.

Secondly, we were talking about the obligation to comply with the outcome. I won't refer to Bill C-55, but what obligation is there for a country that has lost a decision to comply? Moreover, and this may annoy the Americans somewhat, Canada has already lost on the periodicals issue, but it's still fighting on.

• 1650

Without any further information than what Mr. Fréchette said about the appellate body, order to obtain additional information on how to improve rules of procedure, could there be any changes to make with respect to compliance implementation?

I am a complete neophyte in this field, and I would like to know whether, in your opinion, the dispute settlement mechanisms under the FTA and NAFTA are better than those under the WTO, or vice versa. Can we draw any lessons from one or the other? Could either provide examples?

[English]

Mr. Donald McRae: In terms of the question of the dragging out of the panel selection, my view is that it is a little bit like delays in court proceedings, that is, both parties actually have an interest in delaying and therefore they will delay—it's usually the lawyers who delay—because it's in both of their interests to keep the process delayed. I think that in some instances in panel selection that's precisely what is happening. Either side can expedite the process if it's in their interests to do so. They are often quite happy with having the delay go on for an extended period of time, and at the end of the day, if one wants to insist, the matter can go to the director general in order to resolve it.

If governments really were concerned about the delays, they would hurry up and select the panel members themselves. My feeling is that there perhaps should be more incentive to do that, to expedite the process.

In terms of the implementation of the WTO decisions, I think, as Mr. Fréchette has pointed out, that one of the difficulties is... To go back to my comment about the object of the WTO, of the GATT, which was to get member states to withdraw the measure, maybe if we just stuck with that and said that's what they have to do, we'd be focused on the right thing. When we start to talk in terms of trying to give prior approval to an alternative measure, maybe we are really going beyond what the system is able to deal with.

Of course, there is a question about it. Most states are not prepared to simply withdraw the measure and have nothing. They want to put something in its place. So there is a question that I think the panels and the appellate body really haven't come to terms with, and that is, how to define what is an acceptable measure. If the panels and the appellate body say it's really not their responsibility to do that, I think they will be seen as simply trying to compromise somehow and as saying to one party, “You lose, but here is an acceptable way of getting what you want.” That's a dangerous area to get into.

In a sense, the same issues have come up in NAFTA and in the Canada-United States Free Trade Agreement, where there is even less of an obligation to implement what the panels say, because the Canada-U.S. obligation and the NAFTA obligation is simply to implement—I forget the precise words—normally conforming with the decision of the panel. There's quite a lot of room for manoeuvre in how that is being done and in what is negotiated. In fact, I think that of all of the decisions under the Canada-United States Free Trade Agreement, none were implemented precisely in the way the panel said. All were amended slightly through negotiation by the parties; all were something negotiated.

So if one adopted the approach of going back to the parties and saying that they must negotiate a solution, I'm not sure that's really the answer. I don't think that's the answer in the WTO. It seems to me that an obligation to remove the offending measure is really what has to happen. Set aside the issue of what happens when you try to reinforce it. In other words, we should get the offending measure removed as soon as possible and not give time to delay while you implement some alternative measure.

• 1655

The Chairman: Mr. Speller.

Mr. Bob Speller: May I just follow up on Mr. McRae's answer?

You've indicated that these panels should become more automatic, that there should be incentives for the countries. What sort of incentives were you talking about?

Mr. Donald McRae: The incentive I was suggesting was perhaps less than an incentive and simply an agreed rule on what is a legitimate compelling reason for objecting to a panellist. In my view, nationality is not a legitimate reason. Yet, if you take the view from side of the Atlantic that if it's a United States-EU case that then eliminates Canadians, for example, it eliminates many people in the world from those sorts of panels.

If you take that view, you're going to guarantee that there are opportunities for delay. In the appellate body, we accept that nationals of states that are participating can sit on the cases. If we accept that in the context of the appellate body, why not accept it in the context of the panels? I think we still have that old GATT practice of selecting people who are involved in national delegations in Geneva; we're not saying, “let's set up a list of people who have expertise in the settlement of trade dispute and get them to sit on the panels”. We could have a smaller list and perhaps something like the appellate body—automatic rotation.

Mr. Bob Speller: Talking about experts, Mr. Belch, I have a question for you. I'd like you to comment on some of the things that Mr. Mann was saying with regard to the dispute resolution process and how that works. He was talking about openness of arguments when filed, about being accessible to the media and to civil society and about the acceptance of civil society briefs. As somebody who has represented his company at many of these dispute panels, particularly NAFTA panels, what do you say about that sort of process? Would it be workable? Would countries or companies accept something like that?

Mr. Donald Belch: When you're into an appeal process it should be feasible to do that. It should be feasible to present arguments even with respect to confidential information, but to present those arguments in such a way that they can be conveyed to other interested parties. I do get concerned—and I've seen this—where counsel have argued that argument has to be in camera in certain sessions. To me, a smart lawyer is one who can talk about confidential issues without revealing any confidences. I would be on side with what he is proposing.

Mr. Bob Speller: What about civil society and allowing them into the process?

Mr. Donald Belch: There are situations where that is warranted. I don't think it's warranted in every situation. Many of the panels that we've been involved in are about what I would call very technical issues. If you're dealing with calculations by government agencies, that's really something that's perhaps specific to the corporation, but when you get into an issue that does have a broader impact on competition, on the marketplace, I don't see any reason to object to the involvement of civil society groups.

The Chairman: Before I go on with some of the others, just let me just follow up. It seems to me that the compliance thing is at the heart of this and that if we don't have a system for proper compliance it'll all unravel and discredit the whole thing and we'll really be going backwards.

In a curious way, the reason the previous GATT sort of worked was that it was compliance by consensus, but then we got so sophisticated that it didn't work any more and we had to move on.

I always remember a great American lawyer giving a series of lectures years ago at our law school. He said that it was the Americans who were calling for a more legalistic system, and said, “When we lose five cases in a row, we're going to be crying to go back to the old system.” This is the problem of where we're going now: nobody assumes that they're the ones who are going to lose.

• 1700

If we look at the compliance, Dean McRae, you said, that your first preference would be that the obligation is to remove the measure. But the rule now, if the measure is not removed—and you can't force a sovereign state to remove a measure—is that the other state is entitled to take a retortion move, which is proportionate and equal to the damage they suffer because of the measure that has not been removed. That's the rule, isn't it?

Now, as you say, if the person—or the other state or whoever—who has the offending measure says they've removed it by doing something else, as in Bill C-55, to give a precise example, you would like to see at least a single arbitrator decide that rapidly so you don't get into the banana case situation, where you get into confusion as to whether or not it's been adhered to. That's your single arbitrator proposal, as I understand it.

Mr. Donald McRae: I would go slightly further than that, Mr. Chairman, and suggest that before a state even removes a measure there should be a specific time from the decision of the appellate body, a two-month or three-month period or whatever it is, and they must put before the arbitrator what they propose to do to remove the measure.

The Chairman: Then the arbitrator could give some guidance as to whether or not that's going to satisfy the judgment. You don't get into the other party interpreting it and you don't get into self-interpretation, the way it is with the banana war at the moment and with the Bill C-55 thing.

But assuming it doesn't happen, it seems to me that if you look at both bananas and Bill C-55 as instructive instances, the proposed measures chosen by the United States have two problems. The first problem is that they're unjust in the sense that they're hitting people who have nothing to do with this. Why should people who produce pecorino and cashmere sweaters pay for the fact that there's a dispute over bananas between the United States and Europe, neither of which produce bananas?

It's so weird and sort of unjust in the eyes of those people that it's difficult, it seems to me, to persuade people to get on board such a system, on the one hand, and on the other hand, the problem of the state trying to apply the retortion is that, as you know, also in the banana case, the United States looked at hitting washing machines for Europe and then discovered they couldn't hit washing machines because there were U.S. components in washing machines. They would be shooting themselves in the foot if they hit washing machines.

Canada found that in the dispute we had with the United States—remember?—over chips and whatever it was. We wanted to hit computer parts and various things and for everything we tried to hit we were going to hurt ourselves more than we were them. We ended up blocking Christmas trees or something totally ridiculous.

The retortion thing doesn't work, it seems to me, either from the point of view of the party being hit or from the point of view of the party trying to hit. So don't we have to move to monetary damages, where at least the general taxpayer would bear the burden? Maybe this is too much of a question, but it seems to me that if we get many more of these judgments, the present system is going to lead us down the road to where the rest of the community says they won't accept this. If I had in my riding some constituents like the Scottish people with the sweaters or like those people in the north, I'd be out asking, “What the hell are we doing in this system?”

Mr. Daniel Turp: That's why it works so well.

The Chairman: Well, okay, but is it possible to go to monetary damages? That's my question.

[Translation]

Mr. Serge Fréchette: This is not a new question. It was raised at the end of the last cycle of negotiations, exactly when it was time to review whether the proposed provisions, those that authorize a party to adopt retaliatory measures, were really the way to achieve compensation. The question of monetary damages, of compensation in the form of payments to a country that would have won a dispute settlement, was also raised, but very quickly rejected, because, obviously, it depends upon the capacity of some countries to pay.

The Chairman: But you have to pay, one way or another.

Mr. Serge Fréchette: Exactly, so that at the time, at the end of the cycle, the parties were left in a situation where they were completely unable to achieve consensus. It was very clearly decided, at that time, that this is one of the questions that would have to be reviewed in a broader context. But it is obvious, as you have mentioned, that when the time comes to implement retaliatory measures, the parties are dealing with all sorts of political and economic considerations that may finally flaw the process by which they can obtain compensation, and this still ignores the question of the value of the compensation to be achieved.

When we hear some parties requesting billions of dollars for something that, in fact, is worth a lot less, this raises other questions concerning the retaliatory measures. However, this is a basic question and one that should be raised in a systematic fashion in the coming discussions.

• 1705

[English]

The Chairman: We have Mr. Penson, Madam Bulte, Mr. Turp and Madam Debien, so we'll keep going back and forth on stuff like that until the bell goes.

Could you be fairly brief, Mr. Penson? Then we can get Mrs. Bulte in and hopefully get back to the others.

Mr. Charlie Penson: Just to follow up on the same area, because that, I believe, is the problem for the future of the WTO, you people who work in this trade area... I see that Barshefsky of the United States is saying that if they can't get countries to abide by the ruling, they're essentially not going to be a part of it or something to that effect, or they're threatening that they have to be able to force some kind of a decision, that once a decision is made it has to be accepted.

Of course that's not the way it works right now, so that would move it. The chairman just identified how it works. You can either conform or else you can accept retaliatory measures to the equivalent effect. They seem to be trying to move the goalposts, to move the yardsticks forward one step, by saying that once the decision is made and somebody is found to be non-compliant it would have to stick as such.

I'm just wondering if there are any other suggestions coming forward that you're hearing about from the United States, about how they might want to do that. Or what pressure are you seeing at the WTO from member countries that might want to use that same logic, that is, that you have to accept the ruling that's made and move away from that retaliatory aspect?

The Chairman: Would the Americans have accepted to remove Helms-Burton if they'd lost the case?

Voices: Oh, oh.

The Chairman: Would they accept, ever...

Mr. Charlie Penson: But Mr. Chairman, given the size of their economy, given the importance of the United States in all of this, I think it's an important question. If they have some ideas on trying to move this beyond the framework that it has now, what are they, and are they workable? That's the question. Maybe you have to ask them. I don't know.

The Chairman: Dean McRae.

Mr. Donald McRae: There are very few answers because, with all due respect, it's an impossible question in a way. We really are confronting what we confront in a whole variety of areas of international law: how do you deal with the state that simply refuses to comply? In an odd way, we're way ahead in this area because we at least have a process whereby we know that they are refusing to comply, whereas before, in other areas, we were simply arguing that they'd refused to comply and no one had actually formally said it. So I sort of start with the glass being at least half full on this; I don't quite know how you fill up the rest of it.

The question is whether the United States is prepared to risk the falling apart of the WTO by pushing too hard on this. I think damages is one way of dealing with the problem, and states could negotiate. If the United States and the European Union wanted to negotiate a form of compensation to resolve this matter, they could do that. The fact that they are not able to negotiate compensation suggests to me that they're unlikely to agree that in the future these disputes will be resolved by an automatic award of compensation.

Of course, if one can look at the side agreement on the environment under NAFTA, Canada was not prepared to have awards of damages placed against it in respect of conclusions of panels on environmental matters. I think states are reluctant to have that. I've always thought that retaliation is a good idea as long as it isn't used.

Voices: Oh, oh.

Mr. Donald McRae: It's great as a threat, but it is very ineffective as a matter of practice. It's sort of trite to say that under the GATT there was only one example of authorized retaliation. That was the Netherlands against the United States, and the Netherlands didn't even bother. It realized there was no point to it.

Retaliation may work from the United States to some other country or from the European Union to some other country, but we're not talking about real reciprocity here. As a result, it's a good threat, but the system starts to fall apart if it is used.

The Chairman: Thank you. Madam Bulte.

Mr. Howard Mann: Mr. Chairman?

The Chairman: May I very quickly go to Mr. Mann?

Mr. Howard Mann: Don, you got it wrong—I usually wouldn't say that—on the question of the monetary penalty. It's Canada that accepted the monetary penalty and would not accept the tariff snap-back that is otherwise involved under the environmental side agreement. In place of this tariff snap-back, we did accept the idea of a monetary penalty as damages.

Mr. Donald McRae: I stand corrected.

Voices: Oh, oh.

The Chairman: Yes, that's my understanding as well. In fact, we didn't want to let them raise tariffs and get into an anti-dumping sort problem, a sort of environmental dumping problem.

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Madam Bulte.

Ms. Sarmite Bulte (Parkdale—High Park, Lib.): I have a question regarding WTO dispute settlement, NAFTA, forum-shopping, and now, as we're going into the FTAA, possibly the time limit may be less there... I understand—and please correct me if I'm wrong—that right now the retaliation proposed under Bill C-55 is going to be as a result of NAFTA. There are different rules because we have one set of lawyers who say we can't forum-shop and that this is what the Americans would be doing under NAFTA, and we have another set who says this is a different item, so therefore we can shop. Then we have somebody else saying the retortion doesn't apply because we haven't assumed an obligation for advertising services, so it's a little more complicated than... Bill C-55 isn't all that simple. I feel that a lot of it is smoke and mirrors.

Anyways, I want you to help me here with the paramountcy of forum-shopping and how we make it clear. Should we enforce no forum shopping? Should it be that you go one way and you're stuck that way? If we now get an FTAA dispute settlement in place too, which one is going to govern?

Mr. Serge Fréchette: I'm not sure that I can answer the question about what will happen under the FTAA, but presumably there would also be a provision that would deal with forum-shopping.

But let's come back to the situation of Bill C-55. The only reason that people are talking about potential forum-shopping is because of the fact that, as Canada has claimed, this is a brand new measure. It's not the same measure as the measure that was found to be non-conforming to Canada's obligation.

The United States looked at that measure and determined its characteristics and the USTR determined that it's a cultural industry measure, a measure with respect to the cultural industry, and that therefore they can treat it as if it were completely independent from the original measure.

They've looked at the sets of rights and obligations that exist between Canada and United States. They've assessed that. If they look at Canada's obligation under the NAFTA as they bring in the FTA disciplines with respect to cultural industry measures, what they're saying is that in their view this would be a measure that would violate Canada's obligation under the FTA, which raises their right, under paragraph 2 of article 205, to adopt retaliatory measures. That's where the debate takes place. That's why, in Bill C-55, we're dealing with this debate as to whether or not there is forum-shopping.

Ms. Sarmite Bulte: I understood that the Americans' position was that we claimed it was a different measure, and they are saying that it was exactly the same measure, so we caught them. If they were saying that it was the same measure, they couldn't go to NAFTA.

Mr. Serge Fréchette: It basically depends on which rights and obligations you're looking at. If they're looking at whether or not Canada is right in implementing the original decision in the way it is implementing it, they have to deal with that issue in the WTO context.

The intention would be to compare the new measure, Bill C-55, with the original WTO appellate body decision to see whether or not it conforms with the directive of the appellate body in respect of the type of measure that can be adopted. That's where they would have to deal with it. They could not bring that issue in the context of the NAFTA. The only way they can technically bring it in the context of NAFTA, in my humble opinion, is if they claim that the measure is a brand new measure that is totally independent from the original measure that Canada had in place and which was found to be illegal by the appellate body.

Ms. Sarmite Bulte: But this is a—

The Chairman: But the problem this raises, Ms. Bulte... If we get a third system, we may as well say that if we won on that one, well, we'll move to this or move to that one...

Ms. Sarmite Bulte: Do we not have something in the WTO that says there is no forum-shopping? If we decide on the WTO forum, should that not be part of the new negotiations? Pick the WTO and that's the forum.

Mr. Donald McRae: That's really a NAFTA problem rather than a WTO problem. WTO simply recognizes the WTO system. NAFTA provides that if there's an issue that could be brought under either NAFTA or the WTO, you have a choice. But having made that choice, you have to stay with the system that you go with. The argument presumably would be as Serge has said: having chosen the WTO on that particular measure, the United States is stuck with the WTO on that particular measure. In any new measure that is put forward, the option again exists: the WTO or NAFTA. That's the choice of whoever takes the dispute.

• 1715

Ms. Sarmite Bulte: Have the Americans chosen on this one?

[Translation]

Mr. Daniel Turp: There will never be a valid solution unless links and connections are established among the dispute settlement mechanisms and the regional systems are subject to the multilateral system under the WTO. But in the current state of affairs, I think that no one wants to integrate the dispute settlement mechanisms to that extent. The only thing that we can do, and this is what is being done at the WTO, is to choose one or the other of the procedures.

But the true solution would be for panel decisions, those under NAFTA, for example, to be subject to appeal before the appellate body when the treaties deal with the same subject, and this is happening. It would then be possible to create a uniform jurisprudence and implement measures to punish failures to comply.

There is still something that surprised me. I have a few questions, and Ms. Debien also has one. You spoke basically about the general mechanism, while there are other mechanisms and there might be others if, for example, the WTO were to take a greater interest in the environment than it presently does, in human rights, or social justice. I would like to know your opinion on a dispute settlement mechanism that would apply to other instruments. Would we have to refine the system, because we know that the general mechanism does not presumably apply to other agreements, or do you think that it should apply to all existing or new agreements?

Here's my second question. Do you think that there should be a tribunal of first instance, since there is a problem related to the ad hoc judges or members of panels? If there is no tribunal of first instance to deal with the question of nationality, could we proceed as under NAFTA, to have a cross-nomination system, whereby one party appoints members of the nationality of the other party, and cannot, subsequently, challenge the appointment of someone of the other nationality? Could the current system be replaced by another system?

Finally, I realize that it is not correct to say that no changes should be made when the system is working well. Obviously, you think that there should be changes. They may be minor, but there should be changes.

The Chairman: I think the bells are calling us to vote. We'll check to see how much more time we have.

Ms. Maud Debien (Laval-Est, BQ): It's a 15-minute bell.

Mr. Daniel Turp: We have 15 minutes.

The Chairman: Yes, but many people want to speak. So please ask your question quickly, Ms. Debien.

Ms. Maud Debien: Mr. Speller asked a question about NGOs. Mr. Mann and Mr. McRae, you broached this matter. You answered, Mr. McRae, and please tell me if I've understood you correctly, that NGOs should be able to submit complaints to the WTO. And Mr. Mann said that the WTO would henceforth give greater consideration to the observations of NGOs as part of the dispute settlement mechanism. You suggested that appeal procedures make allowance for taking into account observations from NGOs or special groups.

The question I'd like to ask is whether it would be possible or preferable to provide for a new mechanism for hearing complaints and observations from NGOs as part of the existing range of instruments available to the WTO.

Mr. Daniel Turp: Yes, that's it, the NGO that is the Reform Party of Canada.

An Hon. Member: It'll never be a governmental organization.

Mr. Daniel Turp: Exactly, it'll always be an NGO.

[English]

The Chairman: Bear in mind, members of the panel, that we're almost ready to run for a vote. Can you take a very quick cut at answering those questions?

[Translation]

Mr. Serge Fréchette: To give a brief answer to the first question put by Mr. Turp, that is, should there be dispute settlement mechanisms for dealing with certain matters, I would note that this is a question that was dealt with during the first cycle. There were a great many dispute settlement mechanisms; we attempted to bring them together as a single one.

• 1720

As for whether the matters should be brought before a dispute settlement tribunal, this raises the question of the existence of rules dealing with the interface between two areas such as the environment and trade. Once this has been clarified, the ideal solution would be in my opinion to retain the integrated dispute settlement mechanism we have now and simply make it possible for decisions to be handed down on the legality of measures in the light of these new disciplines. That was the idea behind the implementation of the present mechanism, that all future disciplines would be able to be reflected in it. So the existing mechanism already makes provision for this.

The basic question is the existence of rules aimed at facilitating the interface between the subjects you have raised, the so-called new issues such as human rights and trade, culture and trade, etc..

The other question is whether direct access should be permitted in certain circumstances to NGOs. According to my understanding of the decision of the appeal body, it is appropriate for a party to the affair, a party being a government, to include as an attachment to its own brief a paper from an NGO. It would appear that this practice is acceptable to the appeal body at the present time. But it does not constitute as such a mechanism by which the appeal body could determine the rights and obligations of the NGO or any other civil party. That is an entirely different matter.

For the time being, international agreements—and that appears to be the intention of the WTO members—set out to maintain the rights and obligations among members themselves and insofar as NGOs do have interests to uphold, the aim is that this be done through their respective governments. Canada already has in place a mechanism allowing for this to a large extent, and the same is true for other governments. That is why the United States were able to include with their own brief that of the relevant NGO.

[Editor's note: Inaudible]

Ms. Maud Debien: —for the government and the NGOs to be on the same wavelength.

Mr. Serge Fréchette: I see. That is the other matter already alluded to by Mr. McRae. Should a mechanism be set up compelling governments to intervene at the request of private interests or other organizations? That is an entirely different question.

[Editor's note: Inaudible]

Mr. Daniel Turp: —that mention be made of third parties in the settlement process among States as is the case everywhere else.

[English]

The Chairman: Thanks very much to our panellists for their very interesting presentations.

We're adjourned until 9 a.m. on Thursday, when we'll be dealing with the general financial architecture.