SINT Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL TRADE, TRADE DISPUTES AND INVESTMENT OF THE STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

SOUS-COMITÉ DU COMMERCE, DES DIFFÉRENDS COMMERCIAUX ET DES INVESTISSEMENTS INTERNATIONAUX DU COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 18, 1997

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[English]

The Chairman (Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.)): Colleagues, if we could begin.

We're continuing the study into the MAI, the Multilateral Agreement on Investment. We have with us today four different groups. From the Sierra Club, Robin Round, coalition coordinator for the Halifax initiative; from the Pulp and Paper Association, Steven Stinson; from Appleton and Associates, Barry Appleton; and from the Mining Association of Canada, George Miller.

Welcome. You've been told generally that what we've had about 10-minute presentations and then we've opened it up for questions and comments from members. In those questions and comments, as you respond, the other members of the panel will be able to respond also to your answers. We've found that's been very useful for our use in terms of getting to know the issues.

As you know, the MAI's quite a technical study. What we've asked witnesses to do, when they're using terms regarding MAI, is to make sure the terms would be understandable to school children. That's useful for members of Parliament also.

We'll hear first from Robin Round.

Ms. Robin Round (Coalition Coordinator, Halifax Initiative, Sierra Club of Canada): Thank you very much. I don't know if I'll be able to keep it that simple, but I'll do my best.

Thank you very much for the opportunity to appear before you today. The Sierra Club of Canada is a national, member-based environmental organization, with regional groups in B.C., the prairies, Ontario and the Maritimes. Together with the Council of Canadians, the Canadian Environmental Law Association, the Canadian Labour Congress and other groups, we formed the common front on the WTO organization. The common front advocates environmental and social justice and democratic rights on matters related to international trade and the full participation of the public in national and multilateral trade policy development. I coordinate that coalition.

The Sierra Club of Canada believes the potential ecological and social impacts of increased foreign investment are significant. A liberalized investment climate could support the introduction of cleaner technologies and increase Canada's ability to compete in emerging grain markets globally and create new jobs at home. Alternatively, a liberalized investment climate could also speed up the shortsighted environmental destruction for short-term economic gain. A comprehensive international legal framework is necessary to ensure that investment supports rather than threatens long-term environmental sustainability.

The Multilateral Agreement on Investment, in its current form, shows nearly complete disregard for environmental activity aimed at environmental protection by protecting investment at the expense of the environment. It is fundamentally flawed. Under the MAI, the polluter-pay principle will become “pay the polluter”.

I will briefly raise five points. The first one is that the MAI would restrict Parliament's freedom to legislate, without fear or threat of financial penalty to Canada, to protect the environment, public health and other non-monetary interests deeply valued by Canadians.

Minister Marchi said before you on November 4 that the Canadian government would never accept an agreement that would limit our ability to protect the environment. Yet at the very heart of the MAI is the right of foreign investors to claim compensation from Canadians for our existing and future laws that have the effect of expropriating their existing and future profits. While the proposed MAI wouldn't stop governments from enforcing environmental laws or enacting new ones, the MAI would allow those foreign investors to turn around and sue taxpayers to recover lost profits.

That's the chilling effect of the MAI. It is our primary concern. Governments aren't going to think once, they're going to think fifty times before enacting future environmental legislation.

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Parliamentarians need to ask what is the likely cost of compensation to multinational corporations of new laws and regulations, of enforcement of existing laws, and perhaps of high court rulings.

What might be the cost, for example, in compensatory damages to multinational forestry companies operating in B.C. and New Brunswick, where courts have ruled that trees on crown land belong to first nations? If these decisions hold, will governments face claims for effectively expropriating the corporation's harvesting licence, and with it some future profits?

What might be the cost, for example, in compensatory damages to the foreign makers of bovine growth hormone for Canada's long delay in approving the product for sale in Canada? At least one U.S. firm has already filed a NAFTA chapter 11 claim against Mexico, alleging damages in part due to delays.

Ethyl Corp. claims it's owed $350 million from Canadian taxpayers for a bill introduced by the current Minister of Trade and designed to ban the import and interprovincial trade of the toxic gasoline additive MMT. The case is the first to proceed against Canada under NAFTA chapter 11, which contains the investor state rights the MAI would greatly extend.

The case is significant because it will test NAFTA provisions on national treatment, performance requirements, and expropriation. If Ethyl wins, a precedent could be set whereby the legal right of corporations to be compensated when environmental and public health regulations affect a company's bottom line is given the same weight as the public's right not to be harmed by industrial toxins. This could send a message to investors that seeking compensation from the public for the cost of complying with environmental regulations constitutes a legitimate business strategy.

The implications of the Ethyl case are profound. The likelihood that agreements like NAFTA and the MAI will effectively restrict the ability of democratically elected governments to legislate on matters such as the environment and public health are downplayed by advocates of investment liberalization, for obvious reasons.

Second, NAFTA would greatly extend the major enforcement tool found in chapter 11 of NAFTA, the right of multinational corporations to claim compensation directly from the Government of Canada. The MAI, like key provisions in NAFTA's investment chapter, grants corporations private legal standing; the ability to sue governments directly and to seek monetary damages. This investor-to-state dispute-resolution mechanism differs from previous international economic agreements because it gives corporations equal legal standing with democratically elected governments and allows for financial compensation. There is no corresponding right of governments or their citizens to take actions against investing multinationals.

We are gravely concerned that if claims like Ethyl's are successful, they will proliferate and the cost to governments could be excessive. Under the dispute-settlement mechanism, corporations can seek compensation for actual and future earnings as well as the cost of repairing tarnished images. If such cases become commonplace, governments will have to give serious consideration to fiscal costs before passing needed environmental and public health regulations. The MAI must not extend similar investor state dispute-resolution mechanisms until Canadians can be assured that this is not going to be the case.

Third, environmental protection is virtually absent in the draft MAI text. While the history of decisions by international trade tribunals, including NAFTA and GATT-WTO, outlines how environmental protection through trade and investment agreements has been undermined, the MAI would not offer even basic measures to ensure a liberalized investment climate does not undermine environmental protection. The draft MAI contains no acknowledgement of, or precedents for, international environmental commitments as NAFTA does. Except for a specific exemption from performance requirement obligations, the MAI does not include any environmental exemption clauses to permit governments to override other MAI obligations. Additionally, Canada has not filed any environmental reservations, which would at least temporarily exclude Canadian environmental law from being overridden by the MAI.

By omission, Canada is clearly abdicating pre-existing and future responsibilities to protect the Canadian environment and binding itself to obligations that protect investments over the environment. Moreover, according the MAI commentary on reservations, countries would agree to the principles of standstill and roll-back. While Minister Marchi has assured Parliament that Canada will not agree to roll back and stand still in key areas, we do not yet know what those areas are. Atlantic fishers, for example, will need guarantees that reservations to protect foreign vessels from entering Canada's exclusive economic zone are protected.

In light of these concerns, Canadian negotiators should insist the MAI require a notwithstanding clause, similar to article 7 on financial services, to allow contracting parties to take prudential measures to ensure the integrity and stability of the ecosystem, upon which, of course, economic activity is based.

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Point four is that Canada's ambiguous position on the application of the MAI to provincial and municipal governments must be resolved. In recent years the federal government has handed off its environmental responsibilities to the provinces at an alarming rate. Meanwhile, it is very uncertain how those interests would be protected at the sub-national level in the MAI.

In its February 1997 submission of reservations, the government said the agreements application to Canadian provinces “depends on a satisfactory overall balance of rights and obligations in the MAI”. We're not confident that the federal government has demonstrated an understanding of balance in the MAI, and are deeply concerned that the provinces have not been engaged in the MAI debate to date.

If the provinces are to be exempt, the federal government must explicitly and publicly state that they will be exempt. The U.S. federal government is clearly concerned that the MAI would impinge on state and local government sovereignty, and has filed reservations that would exempt all state and local governments' laws from MAI obligations on national treatment, most favoured nation, performance requirement, and senior management and boards of directors.

Last, the MAI is profoundly an undemocratic document negotiated in a profoundly undemocratic manner. Canadians have a right to know why this agreement has been negotiated in secrecy without any public participation or disclosure of information. Canadians deserve an explanation as to why the federal government did not seek a mandate from the Canadian public in the June election; and why they are not being broadly consulted now. Canadians must know why the federal government would support a dispute resolution mechanism that would allow corporations the right to sue government for failure to protect profits, but no compensatory mechanism to allow citizens to sue governments and corporations for failure to protect the public good. The federal government must answer the questions: Who will benefit from the MAI? Who will bear what costs and risks, and why?

In conclusion, International Trade Minister Marchi has promised that Canada's foreign investment objectives “will not be achieved at the cost of Canada's rigorous labour and environmental laws”. Our reading of the draft MAI text and advice from international environmental law experts leads us to conclude that Mr. Marchi will be unable to keep his promise.

To address the concerns raised in this brief, and by those Canadians who would not be able to appear before you but have expressed concerns about the impacts of the agreement on their lives and the environment, we call on the committee to recommend the following measures to the House.

l. Canada should undertake an independent and comprehensive assessment of the environmental, social and developmental impacts of the MAI with full public participation. Negotiations must be informed by a broad range of opinion on the MAI's impact on national and sub-national governments, local communities, employment and existing international obligations; and domestic laws to safeguard the environment, public health, consumer protection, labour and human rights.

2. Canadian negotiators should press for an extension of the April 1998 deadline until such time as the MAI impacts assessment has been complete.

3. Draft text of the agreement, country-specific proposals, and lists of reservations should be publicly released and widely distributed to ensure informed public debate on this critical issue. A series of national public hearings on the MAI should be held to allow Canadians, the provinces and municipalities to participate in the decision making around their futures.

Thank you very much.

The Chairman: Thank you. Mr. Stinson.

Mr. Steven Stinson (Director, Finance and Business Issues, Canadian Pulp and Paper Association): Mr. Chairman, I'd like to thank you and the members of this subcommittee for the opportunity to address you today.

I'm director of finance and business issues at the Canadian Pulp and Paper Association, and I have two of my colleagues here today. With me is Joel Neuheimer, manager of market access, and Claude Roy, senior director of environment, health and safety programs. They'll be here to assist me in the discussion period to follow.

I'd first like to indicate our broad support of the federal government in its initiatives to negotiate a multilateral agreement on investment with the other member countries of the OECD. We see substantial benefit to negotiating a clear set of rules to ensure the equal treatment and protection of foreign and domestic investors around the globe.

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As such, we welcome this initiative, since we believe it will both enhance the attractiveness of Canada as a place to invest and help protect Canadian investments abroad.

At the same time, we remain a strong advocate of sustainable development. It is important to emphasize that these two positions are not incompatible.

CPPA has been and is a strong supporter and active participant at the industry level in a number of initiatives to support sustainable development, nationally and internationally. To demonstrate our commitment to sustainable development, the Canadian pulp and paper industry invested $6.6 billion between 1989 and 1995 to increase recycling capacity and to reduce mill emissions and effluents.

Between 1989 and 1995 we have seen a doubling of recycling capacity; a 94% reduction in the use of elemental chlorine for bleaching pulp; a 99% reduction in the generation of chlorinated dioxins and furans; an 81% reduction in organochlorides in mill effluent; and a 28% per tonne reduction in greenhouse gas emissions. It is important to note that in the industry, 75% of the energy currently used by our mills comes from renewable sources.

These achievements have been realized despite the exclusion of explicit, detailed environmental rules in existing bilateral and multilateral agreements on investment.

Canada's experience with the investment provisions of the North American Free Trade Agreement is that we have so far shown no serious adverse effects, despite the dire warnings of the critics. In fact, evidence of increasing trade and investment flows among the three signatory countries suggests the agreement has been of broad benefit. To a large extent, investment and trade provisions of NAFTA have provided the foundation for the expanding presence of Canadian-based companies in the North American marketplace.

As we see it, the MAI will simply extend the benefits we have achieved through NAFTA to Canadian investments in other parts of the world as well as to investment in Canada from non-NAFTA countries.

In view of Canada's positive experience with NAFTA, it seems sensible to use these investment provisions, including the clauses relating to the environment, as a template for the MAI. Surely there may be some room for improvement, but for the most part it works.

A central principle of the MAI is to treat foreign investors the same as domestic investors. One concern we have is that foreign investors, through recourse to an expedited dispute settlement mechanism, may be treated differently from domestic investors. In such cases we will also need to ensure that domestic investors are treated in a fashion similar to that used for foreign investors, and this may require some changes in domestic law and legal processes in order to achieve a similar effect.

The Canadian forest industry has a strong interest in ensuring that international trade in forest products is conducted on a level playing field. The last thing we want to see is the international competitiveness of our industry threatened by new investment in other countries by virtue of their lax environmental regulations and/or enforcement. In this we share the objective of our counterparts in the environmental movement to encourage the sustainable development and responsible stewardship of Canada's forest resources. Ensuring the sustainability of our industry is central to the way we do business.

Recognizing the potential spillover of investment considerations into other areas such as environmental protection, the challenge we face is how we secure liberalized investment access while ensuring that the objective of sustainable development is met.

As a first step we would suggest that the MAI should probably include a general anti-dilutive clause on the environment similar to that contained in NAFTA. If carefully drafted, such a clause should be sufficient to prevent the race for the bottom in environmental standards that some people fear. In addition, we would ensure that the agreement in no way impinges on Canada's right to apply or even to strengthen its environmental laws in a non-discriminatory manner.

Beyond that, however, we would argue that the MAI is not the place for a detailed prescribed list of environmental rules for a number of reasons.

First, the inclusion of additional complexities of environmental and other issues makes the task of negotiating an agreement on investment much more difficult, significantly raising the prospect for failure.

Second, it is beneficial to investment and the environment to include as many countries—including developing countries—in the agreement as possible. Some countries are unlikely to accede to the agreement if they view it as impinging on their right to set environmental regulations to reflect their circumstances. If they are not part of the MAI, many of the opportunities to transfer the environmental best practices of large multinational corporations to these countries will be lost.

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Third, given the long time horizons that are usually associated with the negotiation of multilateral agreements on trade and investment, it is unlikely that we will be able to amend or revise the MAI for many years. This risks locking us in to current environmental standards, thereby reducing the incentive to adopt new, more effective environmental technologies in the future.

Finally, there is the ever-present danger that inclusion of detailed environmental rules in the MAI will be less a means to ensure sustainable development than a tool for protectionists. The use of such rules as an anti-competitive device would inhibit rather than facilitate investment and probably do little for the environment as well.

Consequently we think it is best to pursue global environmental concerns through other vehicles than an agreement on investment. The Canadian Pulp and Paper Association believes that through other multi-stakeholder approaches we can successfully redirect development to a path that is socially desirable, economically viable and ecologically sustainable.

The CPPA has been involved in several voluntary and multi-stakeholder initiatives, many of which are outlined in the publication we brought along with us today. These include the development of Canada's national forest strategy, efforts to provide consumers with meaningful and credible information on the environmental impacts of our products, and the quest for a legally binding international forest convention. We believe our efforts have put the Canadian forest industry on the path of sustainable development, and we will continue to build on this base.

Thank you.

The Chairman: Thank you. Mr. Appleton.

Mr. Barry Appleton (Partner, Appleton and Associates): Mr. Chairman, hon. members, before I begin my presentation I'd like to thank the members of the subcommittee for inviting me to appear here today. I want to make it clear that I appear here as an international trade lawyer and not as a particular lawyer or representative of any organization or particular corporation.

The tension between free trade and environmental protection has never been greater. Governments are forced to deal with conflicting goals of accommodating environmental protection and at the same time expanding trade liberalization. Attempts by states to address environmental issues have often run into problems. This conflict is complicated by a lack of international consensus on environmental measures. Against this backdrop of countries having a need for environmental protection there is an ever-expanding framework of international trade agreements.

The environment is basically not discussed in the MAI, other than preliminary wording in its preamble and a reference to a limited exception to certain performance requirements there is no reference to the environment at all. Furthermore, Canada has not yet proposed any reservations to permit it to take environmentally protective measures.

The narrow environmental exception in the MAI is set at a very high standard. All measures must meet each of the following three tests. One, it must not be arbitrary or unjustifiable; two, it must not be a disguised restriction on investment; and three, it must be necessary to protect human, animal or plant life or be necessary for the conservation of living or non-living exhaustible natural resources.

This limited exception does not apply to the entire MAI, only to two sub-parts of one obligation in the MAI. The MAI does not contain any general exception clause that would clearly permit governments to take environmental regulatory measures that would otherwise offend the provisions or the other obligations in the MAI.

What types of actions can cause liability? There are a number of types of environmental measures governments could take that would trigger liability under the MAI. Some of these measures might include toxic seepage remediation orders; changes to existing concession licences to protect fisheries, flora or fauna; changes to land use regulations causing harm to the property of a foreign investor; preventative measures to protect public safety that cause loss or harm to foreign investors; or requirements that only environmentally acceptable resource extraction techniques be used to pass along costs to foreign investors. Each and every one of these types of actions can be the basis for liability for a claim under the MAI.

It's been suggested that there may be no need to make reservation to the MAI for the environment because this agreement may contain a number of environmental exceptions.

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To assist the subcommittee, my written submission, which I believe you have copies of, makes reference to the historical failure of the use of environmental exceptions. The use of these exceptions in the past has demonstrated that they are not an effective means for governments to take measures to protect the environment.

GATT panels have interpreted these exceptions very narrowly. One of the key concerns over the use of GATT exceptions is that they can lead to a distortion of international trade. For example, to justify an environmental measure governments must prove the necessity of a measure. Under international trade law this means the measure must be the least trade-restrictive measure possible. Thus, Parliament's role as the ultimate judge has been replaced by international trade panels, which are empowered to second-guess whether Parliament has acted properly.

The MAI may include a reference to the Rio declaration on the environment and development in its preamble. Incorporated in the Rio declaration is the precautionary principle, which states:

Where there are threats of serious or irreversible damage, scientific uncertainty shall not be used to postpone cost-effective measures to prevent environmental degradation.

This sets a very high threshold for governments to meet.

In any event, the MAI preamble and the precautionary principle are not binding elements of international law. The permanent International Court of Justice has held that a treaty provision must take precedence over a general rule of international law. This principle was recently reflected in the WTO beef hormone case. In that decision the panel held that the precautionary principle could not be used to override the explicit wording of treaty obligations. Thus, without clear, broad exceptions or reservations, the investment obligations of the MAI will override environmental measures taken by governments.

So what can be done? In each and every conflict between the specific trade obligation and a narrow environmental exception, the ability to protect the environment has been compromised. It is clear that new international trade agreements must make specific reference to the ability of governments to take environmentally protected measures. Clarity is essential to demonstrate to international trade panels that these agreements were clearly intended to permit environmental measures to exist without triggering financial responsibility.

An example of a broad exception clause in the MAI can be seen in the financial services section. Part 7 of the MAI contains a broad exception that allows member countries to fully regulate financial service providers without triggering trade disputes. This prudential carve-out reads:

Notwithstanding any other provisions in this agreement, a contracting party shall not be prevented from taking prudential measures with respect to financial services.

This is a blanket exception that permits governments to take wide-ranging policies for the protection of their citizens. Indeed, the only limit on this exception is the limit on the meaning of the undefined term “prudential measures”.

It is difficult to comprehend why governments would be careful to ensure that they retain the ability to regulate financial institutions without retaining a similar ability to regulate public health, safety or the environment. The addition of a simple clause based on the prudential carve-out could easily permit governments to protect the environments and defend themselves against claims brought by foreign investors, including foreign investors who pollute.

The goal of environmental protection has suffered from every decision taken by international trade tribunals. The history of loss, including cases involving Canada, clearly indicates that the present wording of environmental exceptions is inadequate. The trade obligations of the MAI are broad and they carry with them the ability to allow investors to directly bring claims for the failure of governments to meet those obligations. Thus Canada must be very careful in agreeing to undertake broad obligations without requiring the inclusion of permissive environmental language.

I suggest that what is missing is a clear environmental exception to the MAI, at least as broad as that given to banking regulators. Only with the addition of such language will governments be in a position to take actions for environmental safety and protection without first consulting international trade lawyers.

It's very late in the negotiations to introduce such broad wording. However, its inclusion is essential if governments are to be able to effectively engage in environmental protection without constantly being concerned about international compensation claims. Without the inclusion of broad, easily accessed exceptions or reservations, the MAI's broad investment rules may result in new limits on the ability of governments to freely meet environmental challenges. In the absence of these broad environmental exceptions Canada should be taking broad, unbound reservations to permit it to take actions to protect the environment.

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Currently Canada has failed to propose reservations to protect its ability to take environmental measures that would otherwise violate the MAI. But even with such reservations, in some cases, Canada would have some liability to pay damages to harmed foreign investors. However, as it now stands, without broad exceptions and reservations, Canada has chosen to voluntarily bind itself, its provinces, and its municipalities to obligations that protect investments over environmental protection.

I'd like to thank you, Mr. Chairman, and other members of the committee, for allowing me the opportunity to appear before you. I would be very pleased to answer your questions in simple, jargon-free language.

Thank you.

The Chairman: Thank you, Mr. Appleton. Were you suggesting there that the government shouldn't use international trade lawyers?

Some hon. members: Oh, oh.

The Chairman: From the Mining Association of Canada, George Miller.

Mr. George Miller (President, Mining Association of Canada): Thank you, Mr. Chairman, and members of the subcommittee.

I want to say up front that the Mining Association of Canada supports the government's initiative to negotiate the Multilateral Agreement on Investment.

As you said, Mr. Chairman, I am the president of the Mining Association of Canada, which we call MAC. It is the national association of the Canadian mining industry. The association comprises companies engaged in mineral exploration, mining, smelting, and refining. Our member companies account for the vast majority of the production of metals in Canada, and they produce also major quantities of other industrial materials. We're very pleased to have an opportunity to assist you in your study of the proposed MAI.

I would like to reflect on trade, investment and the environment, three areas with which the Canadian mining industry is vitally concerned. I wanted to begin with a short historical overview of our industry, which I hope will illustrate some general principles relating to investment and environment.

The Canadian mining industry can be said to have its roots in the arrival of Martin Frobisher on our shores in 1576. Frobisher gathered iron pyrites to take back to Europe. Some say it was because he thought they were gold nuggets. This may be the first example of misplaced confidence in reported exploration results.

Some hon. members: Oh, oh.

Mr. George Miller: Early iron-smelting operations were carried out in the 1700s at the Forges Saint-Maurice in Quebec. In those days, small mines—and I mean small—dotted the Canadian landscape.

The development of the modern industry began close to a century ago with the discovery of nickel at Sudbury, lead and zinc in southern B.C., and gold in the Yukon. Other major discoveries followed in this century.

During the Great Depression of the thirties mining was one of the few industries that continued to operate normally, providing much-needed support for the Canadian economy. The industry expanded quickly in the post-war years to supply a world that was rebuilding and hungry for resources.

My purpose in mentioning these facts is to point out that the early mining developments were all started with financing from beyond our borders. American, French, and British investment and technology were instrumental in jump-starting the world-class industry that now exists in Canada.

Today Canada is the world's largest exporter of minerals, turning a handy trade surplus of around $10 billion every year. Canada has also become the leading world centre for mine finance. Canadian capital markets and financial expertise provided an estimated 40% of global mine financing in 1996. Canadian mining investment and know-how are in demand worldwide. Just about every week I receive letters and faxes from foreign governments advertising their promising deposits and seeking Canadian partners in the development of those deposits.

Trade follows investment. Because of the expertise gained in Canada and the entrée provided by Canadian mining investment, which acts as a kind of flagship for Canadian exports, our suppliers of mining equipment and services are welcomed to Latin American countries and other parts of the developing world. Finning Tractor of British Columbia has a highly profitable branch in Chile. Similarly, Lakefield Research of Ontario also has a laboratory there, serving clients in the whole Latin American region. These are just two examples of many. The same export opportunities are enjoyed by Canadian environmental consultants and suppliers of other environmental goods and services.

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Because the Canadian mining industry is a world leader in environmental research and environmental management, our consultants have developed specialized expertise in the design of safe, modern, environmentally sensitive mines, regardless of the country in which they are located. Mines developed by Canadian companies use the best technology and design features, often superior to those of existing local or national mining companies.

This is a good-news story for Canada and for the countries that are the destination of Canadian mining investment, but I need to tell you there have also been difficult times in this story.

In the 1960s and 1970s a wave of economic nationalism swept the world. The natural resource industries were prime targets of this movement. For example, Latin American countries expropriated mineral rights and nationalized mining operations, sometimes without compensation. The same was true in Asia, Africa, and other parts of the developing world. This is clearly a blatant violation of the principle of national treatment, which is, of course, the basis, the fundamental principle, of the MAI.

Even Canada was caught up in this misplaced enthusiasm. Some provinces imposed punitive taxes on mineral profits, running to more than 100% of marginal tax rates. Resource tax wars broke out between the provincial and federal governments, with the mining industry caught in the middle. Some provinces took over mining operations.

At the federal level, the Trudeau government imposed foreign ownership controls on mineral resource companies, a mistaken policy now largely abandoned. The federal government also interpreted events of the 1970s in such a way as to embark on the notorious National Energy Program.

The results of this national revolution were uniformly negative. Third World countries set back their economic development by decades. Protectionist policies designed to speed economic development had exactly the opposite effect. In Canada, foreign investment review provisions for mining delayed the creation of needed jobs, and soured relations with our OECD partner countries. The economic and political damage caused to Canada by the National Energy Program is legendary. Eventually the errors of economic nationalism were recognized, but not until incalculable human cost was incurred.

During the past several years the pendulum has swung back. Countries that liberalized their economies have reaped the benefits. More and more countries are following suit, and for good reason.

Now, what's all the relevance of this to the MAI? I hope I have given a strong hint as to my industry's position on the MAI. We certainly support it.

Investment is the lifeblood of economic development. Interference with investment, widespread interference, is invariably accompanied by negative economic and social consequences. While there may be reasons to limit foreign investment in certain sensitive sectors or to treat it in a non-national treatment way, each case must be carefully examined to ensure the benefits exceed the costs.

What about the alleged downside? The MAI will be in agreement among OECD countries. As such, it will clarify and simplify the patchwork of existing agreements to liberalize investment in developed countries. Some claim that Canadian sovereignty will be drastically weakened. In the face of government intentions not to go beyond the undertakings already contained in the NAFTA, I have trouble believing these negative consequences will actually come to pass.

Similarly, an agreement among developed countries, which all have generally high standards of labour and environmental regulation, is very unlikely to have negative consequences for workers or the environment. The phrase “levelling down” just has no meaning in this context.

The major advantage of the MAI is to impose consistent discipline on policy and to safeguard the public interest. Let me explain how that works.

Governments are often asked to protect the interests of some special group at the expense of the national interest. If this group is influential, and we all know examples of that, such a request may be difficult to counter. An agreed international system of disciplines that recognizes and is built upon protecting the broad public interest can assist governments to make sound decisions and avoid expediency.

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The mining industry hopes that a successful MAI in the OECD would attract developing countries to sign as well. The long-term benefits of investment disciplines could then be made available to the countries that most need investment and can least afford costly nationalist experiments.

As in the federal-provincial harmonization initiative, my association is strongly in favour of a provision requiring countries not to weaken environmental protection to attract investment. Environment is a major priority with our member companies. However, in their experience, an agreement such as the MAI would actually lead to enhanced environmental protection by promoting investment and hastening the adoption of advanced technology.

This concludes my submission. I thank you for the opportunity to speak.

The Chairman: Thank you.

I turn now to Mr. Penson for the first round of questions. It will be 10 minutes.

Mr. Charlie Penson (Peace River, Ref.): Thank you, Mr. Chairman.

I'd like to welcome the panel here this afternoon to help us work through this MAI process. It was interesting to hear quite a bit of discussion about what the exemptions might look like, and that's a question I also have. Until we see what Canada's taking in exemptions, it really makes it very difficult to judge whether the draft agreement that we had a look at is going to provide us with the kind of investment protection that everybody's worried about. The minister has said they will be trying to get specifically the same kinds of exemptions we've taken under NAFTA, so that gives us some guidance.

It seems to me there are two sides of this puzzle. The one side, of course, is what will happen in Canada with foreign investment. But there's another side, and that is protection for Canadian investors outside Canada when we are investing something like $160 billion of Canadians' money in places such as Chile and others, and Canadian companies and Canadian individuals are also asking for protection through things such as national treatment.

The panel this afternoon has raised a couple of questions.

Mr. Stinson, I'd like to start with you. You've raised the idea that foreign investors might be treated better under a dispute process and that it might be more quickly resolved. I'd like to ask you for an example of that. How would you see that happening?

Mr. Steven Stinson: The best example might be that if a foreign investor in the forest industry had access to timber on provincial lands, and the province decided to withdraw those rights to cutting on those lands, a foreign investor might have access to this dispute settlement mechanism to demand compensation. If a Canadian-owned company were to face the same problem, they would have to go through the processes domestically and would not have the right to an expedited process of that nature. It can drag out in the courts for years.

Mr. Charlie Penson: So in that case it would be better protection for a foreign investor than a domestic.

Mr. Steven Stinson: Conceivably, yes.

Mr. Charlie Penson: Is that something you're suggesting we need to change?

Mr. Steven Stinson: Well, I think we need to look at the rights accorded to foreign investors to ensure that domestic investors have similar access to processes that in effect are the same, and to ensure that they are not disadvantaged because of it.

Mr. Charlie Penson: Yes, I certainly agree with you, and I'm glad you've raised that, because it's an area I've been concerned with as well.

It seems to me that when we negotiate international agreements, it's important to negotiate to attract investment, to attract trade into Canada, but we don't want to be giving foreign investors something we're not giving Canadian investors. To that extent, I would support what you've just said, in order to try to clean that up.

Mr. Steven Stinson: If my interpretation of it is right, probably the most prudent way for any Canadian company to proceed would be to seek a foreign partner so they would have access to that dispute settlement mechanism.

Mr. Charlie Penson: But that's ludicrous, really, isn't it?

Mr. Steven Stinson: It would be if they were motivated to do that for that reason, yes.

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Mr. Charlie Penson: So we should be able to design a process to cover ourselves in this negotiation that would treat domestic investors in a dispute settlement process just as well as foreign investors are treated, with access to just as timely a process.

Mr. Steven Stinson: Yes.

Mr. Charlie Penson: I'd like to ask a question of all of the panel members. I guess Canada doesn't have to sign this agreement. We do have it under NAFTA with Mexico and the United States. It seems to me it's working well.

Why should Canada sign this, or why not? I'd like your reaction to that. What would happen if Canada were not to be part of this international agreement?

Mr. Barry Appleton: If I were the lawyer for the Government of Canada and I was given the MAI, told to look at the document and say whether they should sign it, right now I'd say no, don't sign this agreement, because it's very badly drafted. We have some expertise now, after having an agreement like NAFTA, which has a very significant investment protection regime, to know that there are some difficulties with that.

My colleague just talked about one area, and very rightly pointed out that in fact there is an absurd conclusion to the NAFTA and the MAI in that foreign investors are in fact treated better. They are treated better than domestic investors for two reasons.

One, they have access to a fast-track international arbitration system, which, by the way, is not appealable. When they get an award, it's not appealable. It has the same force or effect as a decision of the Supreme Court of Canada.

Two, the level of compensation they receive under international agreements is higher than what they would receive under domestic law. So not only do they have an incentive because it's a faster process, they also have an incentive because they receive better payments.

In order to prevent that type of challenge coming from governments exercising bona fide regulatory measures, you would want to have provisions inside the agreements.

You talked about “exceptions”, but in fact what you were really talking about was “reservations”. Reservations are different from exceptions. Reservations are a band-aid. You put them at the end of an agreement, after the treaty is negotiated, to allow you to do something that would otherwise be inconsistent. It's an admission that your policy is inconsistent with the agreement.

An exception is different. It permits you to engage in policy-making without having to justify.

Mr. Charlie Penson: But, Mr. Appleton, wouldn't it be better, when you spot these kind of inadequacies as you've identified, to be at the negotiating table, to try to build in that type of process, to correct it, than to walk away from it?

Mr. Barry Appleton: What I said is, if I was advising a client as to the agreement as it now stands, I would say don't sign it, because it's going to cost you a lot of money. What I'm saying, in other words, is that there are significant flaws in the wording of this agreement that would be very costly, or would impinge on the fiscal capacity of government. That is my answer.

The Chairman: You're not suggesting, then, that we shouldn't have an MAI. You're suggesting that there should be different wording.

Mr. Barry Appleton: I'm saying that the wording that is currently here is very problematic.

The Chairman: Can you suggest wording, or...?

Mr. Barry Appleton: I already gave one example of a general exception that could be used to give much better protection in, for example, the areas of environmental protection, health and social services, culture. Such a general exception would be much better in this agreement, and would make it stronger.

Unfortunately, Mr. Chairman, a number of areas need work in this agreement. This is not the only one. But that might be a better route for the negotiators to take right now.

The Chairman: I wonder if any of the other panellists want to respond to that question.

Mr. George Miller: I'm not qualified to discuss the wording of the agreement, but I think it is in Canada's interest to pursue a multilateral agreement on investment for the reason that Canada has already entered into literally dozens of bilateral investment agreements and is now engaged in an effort to renegotiate some of those to bring them in line with NAFTA provisions.

• 1620

Canada is in the unusual position of being the developed country that is most dependent on trade and investment. We have the most to gain from an agreed international system of disciplines to protect foreign investors.

As to whether foreign investors are getting a better deal than domestic producers and domestic investors, there may be a difference in degree, but certainly in the cases I'm familiar with, where governments have taken away mineral rights or rights of other kinds, Canadians are generally assured of fair compensation. There have been a few cases where governments attempted to avoid that by legislating, but in the end those attempts have fallen down. Our system of natural justice and our legal system can produce the right result, so I would say this is no reason to steer clear of an MAI.

The Chairman: Ms. Round, please; and could you also specifically speak to his point on whether or not you feel Canada should have any type of MAI or agreement on investment?

Ms. Robin Round: I think we have to look at why we shouldn't sign this at this time, from two perspectives. I agree with Mr. Appeleton that we shouldn't. It's clear from a close read of the text that the environment is insufficiently protected within the current agreement, less so than it is in any other trade agreement we have. We have to be concerned with how the Canadian public will perceive it when they see that Canada has no reservations, it's not advancing any exceptions, and it's not advocating a notwithstanding clause to protect the environment.

I'll give you some statistics that I think you should be aware of. As you may know, Environics, from Toronto, last week released a survey of 27,000 people in 24 countries, including Canada, which made it clear that far from going away as an issue, the environment promises to once again dominate public debate within five years in many countries. Asked if their children's health had been affected by environmental problems, 84% to 95% in 23 of 24 countries replied “a great deal” and “a fair amount”.

Of Canadians surveyed, 73% agreed that environmental protection is more important than economic growth and, along with 23 of the 24 countries, agreed that, in fact, “clean-up and protection of the environment in itself will contribute significantly to the growth of our economy”.

So I think it's very clear that when you're looking at the MAI you have to be very aware of the wellspring of public opinion here that says, “Don't sell us short; don't give away the keys to the farm here”.

On the other side, there are very clear concerns about democracy and the Multilateral Agreement on Investment. There's an imbalance between the rights that are given to corporations and the compensatory responsibilities. The government gets all the obligations and the corporations get all the rights.

That's particularly evident in the investor state dispute mechanism. There is no way that Canadians concerned about how their environmental regulations are being undermined by this agreement will have any way to bring their claims forward. They have no access. There's no dispute settlement for them. I think that will be of deep concern to Canadians and I think you're perhaps already hearing that in some of the interventions.

As to whether or not there should be an international agreement, I think we have to ask how Canadian investments are being impeded by the existing agreements. I think it's clear from the people who have spoken on behalf of the mining and pulp and paper industries that they seem to be doing quite well with their investments in the OECD. I think we need a further assessment of how Canada's relations with the OECD are in fact impeding the abilities of Canada, either to bring foreign investment into the country or to facilitate investment abroad.

The Chairman: Mr. Stinson.

Mr. Steven Stinson: With respect to the question on whether or not it would be in our interest to sign an MAI, I think it's useful to point out that under existing arrangements, particularly with the NAFTA agreement, about 70% of foreign direct investment in Canada is already covered under these investment provisions. Yet Canada's outward investment in other countries, to NAFTA signatories, is, I think, 50% plus, so in effect there's already a lopsided benefit now. The benefits are accruing to foreign investors in this country and yet a considerable portion of Canadian investment abroad is not subject to the NAFTA agreement. I think we should keep that in mind in terms of the benefits of signing an MAI.

• 1625

The other thing I think is useful to point out is that by not signing an MAI we lose a chance to do something good for the environment in the sense that if international investment is impeded, we really lose out on the transfer of technology of environmental best practices from the sophisticated, large, multinational corporations in the OECD to other countries, particularly if we can get developing countries to sign on. Without that investment, their systems will be far less sophisticated, and in effect we'll be probably doing much more damage to the environment than otherwise.

The Chairman: Thank you. Mr. Reed.

Mr. Julian Reed (Halton, Lib.): Thank you, Mr. Chairman.

Mr. Miller, your comments allow me to segue into hopefully clearing up a myth that seems to exist. Yesterday in our debate the same one seemed to exist.

There is somehow a concept that international companies or multinational companies are large corporations. Statements are made from time to time that these big corporations are going to end up in control of the world.

I had occasion to attend a conference in Toronto a few weeks back, one that's held every ten years, on mining exploration. I was one of the guest speakers there. There are literally hundreds of mining exploration companies in Canada that export their talent, their expertise, to other countries, and they're all small business. If you look at what constitutes a multinational, the vast majority of them, and the vast majority of the ones that employ most of the people, are small and medium-sized business. So I think it's probably fair to clear up that myth.

That brings us to the business of why an MAI in terms of our investment in other countries. Surely small companies do not have the financial wherewithal and so on to compete in the jungle the way the large companies have. Therefore, it would seem that having an agreement, having a set of rules that a lot of the OECD can live by, would therefore protect or add more protection for those small and medium-sized businesses, which actually constitute the majority of the multinationals.

I also heard the comments by Ms. Round in terms of the ability to seek compensation and to sue. I don't know of any situation—and maybe I'm wrong, Mr. Appleton; I'm not a lawyer, so I'm at a distinct disadvantage here—where either an individual or a company cannot sue a government, or whether an individual cannot sue another company. We even write some of these compensatory things into our environmental laws in Ontario, and in the Environmental Assessment Act. If I remember correctly, the law says any person can stop a project if they consider it to be deleterious to the environment. Even after that, if it's discovered that the accusation is specious and it stops the project for a period of time, the proponent can walk away without any financial liability whatsoever.

I don't know whether that covers all the mechanisms that are available for people to seek compensation, and maybe it doesn't, but I would submit that there are mechanisms in place at the present time that give both individuals, organizations, and so on, the ability to seek redress in the courts.

• 1630

I would make one other comment, if I may. Negotiations are not yet over. The reason we're having these hearings is to receive the input so that our negotiators can have that wisdom, share your wisdom, and be able to proceed with negotiations. Negotiations have in fact not begun, as you know. All the countries have been throwing cards into the hat and those drafts you see that are produced, that every now and again get onto the Internet and so on, are simply that; they're drafts and they represent no finality at this point.

We're depending on your wisdom so that when the negotiations start in January and hopefully finish by May, they'll go with some renewed information and perhaps a renewed view of the positions they're taking.

The Chairman: Mr. Appleton, would you like to respond to any of those comments?

Mr. Barry Appleton: Sure. In fact, if you'll permit me, I have just a brief point.

Mr. Reed, you made some very interesting statements. For the most part, I think they're correct, but I'd like to give you some information to assist you. I know you had an illustrious career in the provincial legislature of Ontario and I know you spent a lot of time working on the Environmental Assessment Act in Ontario.

Mr. Julian Reed: It was hardly illustrious.

Mr. Barry Appleton: There are a number of areas where governmental regulation would not be compensable under Canadian law. There are quite a few. In fact, the general rule can probably best be summarized by saying that if it's a general regulation, it is not an expropriation under domestic law. An example of that might be municipal zoning. If you change the zoning on a property, that doesn't mean it's an expropriation, a taking.

In the United States, they spend a lot of time looking at issues as to what constitutes a taking, because they have a right to property in their constitution. Canada does not have a right to property in our Constitution Act, and in fact the only right to property there is in Canada comes from agreements like the NAFTA or the MAI.

There is a difference between the MAI and the NAFTA. The MAI is a broader agreement and the substantive obligations of the MAI are broader in a number of areas. For example, in the relationship about reservations from the NAFTA, they're not sufficient to cover the differences. The fact of the matter is, under international law, expropriation is defined differently.

Let's use the NAFTA as an example, because that is a final treaty, as opposed to the MAI, which Mr. Reed says is a work in progress. Under the NAFTA, general regulation is compensable. That means if I do something as a government regulatory mechanism to a mine or to a pulp and paper producer and they are a foreign entity covered by that agreement, government must compensate them. They would not be compensated under domestic processes.

So we're talking about a radical type of change in domestic law to allow that to occur, if what Mr. Penson said would be correct.

Mr. Julian Reed: To follow up on that, would you then be in favour of incorporating property rights in the Constitution?

Mr. Barry Appleton: I'm not going to comment on that. All I'm saying is it's an absurd situation. In fact, to be honest, I was a constitutional negotiator; I worked on the Charlottetown round. I would not advocate any constitutional negotiations right now, having survived that process.

What I would suggest is that it does seem to be an absurd situation where you have better levels of property rights to foreign investors than to domestic companies. As my colleague pointed out, it may be that Canadian companies partner with foreigners to get the benefit of this protection, but it's Parliament that will be responsible and Parliament that will have to pay.

That's why it might be better in this work in progress, which you say the MAI is, to be able to clarify now that a number of things that we see as not being expropriations are excluded. Under the current wording of the agreements that's not clear, and certainly under the wording of the NAFTA they would be covered. That's the problem. That's why I raise this issue now for this committee.

The Chairman: Mr. Appleton, how then do the MAI and the NAFTA differ with regard to reservations? Is there a difference in how they handle reservations?

Mr. Barry Appleton: The final rules on reservations are complete in the MAI, but the obligations of the MAI are broader. For example, the whole area of advantages, which are subsidies and other government benefits, concessions, grants, all types of things like that, are all included in the coverage of the MAI. They're not included in the coverage of the NAFTA. That is a very significant amount of government programs. They will all need to be considered.

• 1635

The whole issue of culture has to be considered very carefully, because we've already seen that when you don't have a general exception that cuts them out the cultural industries will be affected. We saw that earlier this year with the WTO decision about split-run editions.

So the problem about reservations in general is that reservations are narrowly interpreted under international law. It's so well done that in fact there is a Latin expression, which I can read to you, if you like—or you could just believe me—

The Chairman: I'll believe you.

Mr. Barry Appleton: —that it is well established in international law that reservations are interpreted narrowly. So exceptions are interpreted very narrowly. It is very well established.

As a result, the reservations the government makes have to be very carefully worded to cover every possible interpretation, because it's not the negotiators who are interpreting them, it's a international trade panel that has no connection to this. That's why I'm suggesting that you need to fix the wording in the agreements, because it's the very wording of the treaty that takes priority, not the exception, and then not the reservation.

So even though the wording of the reservation process isn't there yet—and I do have some opinions on that—the fact of the matter is, what this committee needs to do more than anything else is correct the problems in the treaty texts. That's where the binding obligation is. That's where the liability on the government will be. That's where the infringement on the fiscal capacity of governments will be in future.

The Chairman: I'm wondering if at some time you could give me an idea—and don't have to do it today; you could write it down—of how you would see the wording in terms of reservations for culture, for the environment, for social services; how it should relate to the provinces; and specifically, why it isn't in there now.

Mr. Barry Appleton: I'd be pleased to assist you, but just as a general guideline, the best place to start is the words of the agreement. I have negotiated domestic agreements, multilateral agreements, which are similar to the types of the agreements like this. They are difficult to get, but remember, our reservation list will also need to be accepted. What you've seen is a proposed best-case scenario reservation list, so what we need to talk about is what will be substantive protections. They best come by spelling it out in the agreement.

For example, Mr. Reed talked about the need to protect small business. The best way you protect small business is to make it easy to understand so that everybody understands what you're getting into. That's what we do with a contract. That would be my recommendation as to what you would do in an agreement. That way small business knows, because small business is a job creator in this country. But right now, in my opinion, the only people who can understand these types of agreements are very large businesses that can afford to have very good legal assistance to interpret these agreements and it may be that you can do some service here by getting some changes in the agreements to make it easier to comprehend.

The Chairman: We sometimes have a hard time here comprehending.

Ms. Round.

Ms. Robin Round: If I could make a quick point on that, I think in both of our interventions Mr. Appleton and I suggested that a notwithstanding clause in the agreement would very clearly protect the environment. Very simply, given the difficulties with exemptions and reservations...negotiating a notwithstanding clause. It's important enough that we're going to protect our financial services sector, so why not our environment?

I'd also like to quickly pick up on Mr. Reed's concern that anyone can seek compensation and sue. That really is not the case under the proposed MAI investor-state dispute mechanism. Like the provisions under NAFTA, it's a non-democratic process. The decisions are made by a panel, one of which is actually appointed by Ethyl. Those who have concerns on the case cannot get intervener status. This actually includes Canadian refiners who are opposed to the legislation, motor vehicle manufacturers and environmentalists. They can't get intervener status at this.

• 1640

From a citizen's point of view, again, there is no appellate function within the MAI. If an investor comes in and challenges, say, a loan or rebate program for energy efficiency that a utility is putting into place to try to encourage demand-side management in a community, if that's taken away under the performance requirements, I as a citizen who wants to support that kind of thing has no access to a panel to say this is something that was put in place for the public good, and I have a right to come before a hearing process to advocate on behalf of the citizens who will have this taken away from them.

So that is not an option under this kind of process.

The Chairman: Thank you. Mr. Sauvageau.

[Translation]

Mr. Benoît Sauvageau (Repentigny, BQ): I think that the representative for the pulp and paper industry wanted to add to this, but we got a good idea of Mr. Appleton's position, particularly on side agreements or the addition of environmental clauses. I'd like to hear Mr. Stinson's and Mr. Miller's position on this.

First, we heard from the Minister that Canada was in favour of side agreements to deal with the environment and social rights. In my view, such a position is too weak and I think the two previous speakers were saying the same thing.

I'd like to know, Mr. Miller and Mr. Stinson, whether you don't believe that we should, as the other witnesses just stated, include in the MAI some agreements on the environmental clauses, and I'd ask all members of the panel whether they think that it would be important to add a clear clause which would prevent any country from lowering their environmental and social standards in order to attract investors.

That was my question.

[English]

The Chairman: Mr. Stinson.

Mr. Steven Stinson: I think we made it fairly clear in our presentation that we would advise that any references to environmental protection be limited to basically stating a nation's right to legislate in this field and that it not be allowed to diminish the protection offered under its law. I think something of that nature is necessary to ensure we don't get into this competitive environment in terms of attracting industry by virtue of weak environmental protection.

I think we have to be very careful when we use reservations or add rules to an agreement on investment, because it will complicate the whole process. I think it will make it very difficult to achieve an agreement. I recognize the concern for protecting the Canadian environment, but I'm not so sure something such as a notwithstanding clause is the appropriate way to approach it.

Basically it would mean that almost anything can get caught under it, which would be used as a vehicle or a pretext to stop almost any investment. They would just say, okay, notwithstanding clause—there's some environmental aspect to it.

It would also inhibit investment by Canadians in other countries. These other countries could very well invoke something similar.

Certainly the MAI is going to have an impact on our right to legislate on environmental law, but I think we have to differentiate between what is legitimate and what is discriminatory. Many of the arguments I've heard about how our environmental laws are somehow coming under attack really relate to whether we have the right to write environmental legislation that discriminates on the basis of where the investment comes from.

I think most people recognize that it's fair and reasonable to treat foreign investors the same way in which we would treat domestic investors. If that's the case, and it is applied on a national treatment basis, then I have a hard time seeing how our environmental laws will come under attack, even with these comments about compensation. If it's applied generally and equally to both domestic and foreign investors, then I would think we should certainly make sure this is within our right to legislate. That would be extent to which I would include something on the environment.

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The Chairman: Mr. Miller.

Mr. George Miller: Mr. Sauvageau, I agree with my colleague, Mr. Stinson. We would like to see a principle stated that countries will not degrade their environments willingly in order to attract investment. This is clearly a counterproductive activity.

On the other hand, I'd like to refer to Canada's history since the free trade agreement and the NAFTA have been in place. There has been no impediment to provincial and federal governments to pursue regulatory activities in the environment.

As has been brought to your attention, there has been one challenge under the MMT matter. This is a very weak case to base a general concern on, though, because first, this was an Order in Council. It's very controversial in Canada. There are some serious questions as to whether the chemical in question is in fact toxic. Everything is toxic. The question is, how acutely toxic is this particular chemical in comparison with other materials that are regulated?

It could be seen as discriminatory in the same way as European eco-labelling schemes are discriminatory against Canadian products on the basis of where they are produced and the methods used to produce them. I feel that in fact under the NAFTA, under rules similar to the NAFTA, there is no evidence at all that Canada would have any trouble regulating on the environmental side.

The Chairman: Do you want to jump in there, Mr. Appleton? Aren't you a lawyer, sir?

Mr. Barry Appleton: Mr. Sauvageau, I want to address the question you asked about whether I would support a clause that would deal with attracting investment by lowering standards.

The fact of the matter is, I wouldn't support a clause. That is, I believe a clause, something that's general, is in fact misleading.

The proposal that's currently in the MAI is also similar in some ways, though not identical at all, to that in article 1114 of the NAFTA, which says that you should not attract investment by lowering standards. But if you look at the MAI version of that, there is no way whatsoever that can ever be the basis of any type of dispute between governments under this agreement. In other words, the Government of Canada couldn't take up the matter with another foreign government. They can have a consultation with a view to avoiding any such “encouragement”; that was the word. I don't believe that's strong enough. I don't believe that's accurate.

If you look carefully at the wording of article 1114 of the NAFTA, you will see that in fact it is possible to bring an investor state claim under the NAFTA if there's a lowering of standards. That's because it's in part A of the NAFTA. I do not believe that was the intention of the negotiators, but like so many things, it's as it reads. In other words, the fact of the NAFTA, which is a negotiated agreement.... If there is a lowering of environmental standards, an NGO, for example, can bring a investor state claim against the government that is not following the rules.

That is clearly not permitted under the MAI, so the alternative wording currently suggested here is not good enough. What it does is to say, well, we shouldn't do it, but if we do it, oh well.... It's like when I go past the trolley cart out here and I see the danishes. I think, well, I shouldn't have one, but if I eat one, what's going to happen?

The same type of situation can occur here. That's a problem, because these agreements tell people what they will do. That would be my concern. A clause on its own is not good enough, because it will be misleading. It needs to be a very clear clause that has some impact, some meaning to it.

Mr. Benoît Sauvageau: Merci.

The Chairman: Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you.

In the spirit of non-partisan, constructive opposition—I'm a Conservative—I feel compelled to point out some of the opportunities and problems, potentially, with liberalized trade agreements, in particular on the environment.

• 1650

The environmental impact of liberalized trade on Mexico, for instance, is largely acclaimed. Mexico has achieved significant steps in bootstrapping its environmental policy as well as its democratic reforms, which have been in fact revolutionary. These resulted in part from pressure from trading partners and also from participation in Rio and other multilateral discussions and engagements. So engagement has the capacity to improve the conditions of environmental practices. That's an observation; I'd appreciate your feedback on that.

My specific question is relative to the expansion of the chapter 11 investor state dispute mechanism provisions. We have an expansion in scope of the chapter 11 provisions of NAFTA. We've an expansion in scope of these provisions under MAI and expansion to 29 countries. We have the Ethyl suit now, and there are two other suits now where the plaintiffs have not revealed their identity. There is an exponential increase in the potential for this type of action against the Canadian government. Couple this with the fact that there has not been an impact analysis of MAI on current federal, provincial, or even municipal programs, and there's huge risk here for Canadians.

So while we're supportive of the general principle of liberalized trade and recognize the opportunities of it, we do have concerns specifically about this agreement. I'd appreciate your feedback on the opportunity of liberalized trade for the environment and on my fears relative to the chapter 11 expansion and the investor state provisions.

Thank you.

Mr. Steven Stinson: Your point about the experience in Mexico demonstrates that investment often brings with it improvement of environmental protection and the methods used in their production processes. That's one reason it's useful to encourage this kind of investment.

The other thing the Mexican example demonstrates as well is the efficacy of public pressure in bringing to light those practices, which forces them and those companies that deal with them to respond and ensure that these kinds of regulations are met. In effect it is ratcheting up their level of standards. It's not only from the point of view of increasing standards of living but also by their involvement with the developed economies that they've been achieving these improvements. So it's a very valid observation.

The Chairman: Mr. Appleton.

Mr. Barry Appleton: I would agree with Mr. Brison in that I'm really concerned that we might not have looked at the impact of what these agreements will mean. I have a fear that we're in a situation where governments will be concerned about acting, and if they do act, they'll be in a situation where they have to rent back the jurisdiction they might otherwise have, because they're going to have to pay compensation.

Let me give you an example. You might all recall that a number of years ago there was a tainted tuna issue and Health Canada froze tuna; they said it couldn't be sold. In fact every year there's always something that there's a risk about, so the government acts immediately to protect the public. Under agreements such as the MAI, you have to compensate only the foreign entities that are supplying that food. The fact of the matter is if you have to pay to do it, governments are clearly going to think twice or three times and wait. I've a concern as to whether or not that's going to actually have an impact on everyday people. I'm not certain any analysis has been done on that.

The whole area of municipal regulation, which involves zoning, historic designation, and all those areas, which are all covered, the whole area of provincial coverage.... By the way, constitutionally, investment is fundamentally an area of provincial jurisdiction. They're all covered, but they haven't had an opportunity to look at this.

• 1655

So my concern would be simply that it may be best to have more time to look at how the impact would be on a federal state such as Canada and to look at what the impact would be in terms of government operations.

Mr. Scott Brison: Those were concerns actually raised by the Western Governors Association as well in the U.S. There's significant concern about state programs and the impact of MAI on it.

The Chairman: I think Mr. Miller wanted to comment first.

Mr. George Miller: I merely wanted to say that, in our experience, the ability to bring new technology through accepting foreign investment has been quite important to countries in Latin America. Mexico, Chile and now Argentina are moving in that direction. Brazil is moving in a kind of halting way toward liberalization. It has been faster now in the last two weeks, but it was rather halting before that.

In just about every case, Chile is the most well developed from our point of view. Canadian companies are bringing technology that was developed in Canada. Canadian consultants are carrying that technology. Canadian universities and colleges are working with the mining industry in Chile to set up training schools for mining technicians, who will then be able to apply the best management practices. So it certainly does work that way.

Ms. Robin Round: I think I made my views fairly clear on what I feel about the investor-state mechanism, but I wanted to comment very briefly on the role of developing countries in this.

We focused our discussion primarily on impacts on Canada and investors abroad, but because this agreement will be opened up to developing countries that have not been a part of this negotiation—I expect there will be pressure for them to participate—I think we have to look at the impacts on those countries, especially in terms of investment, such as the notion that investment brings improvement in Mexico. I think we have to look more closely at the Mexican peso crisis and the fact that the MAI will in fact open up portfolio investments and speculative capital flows more broadly and will mandate limited controls on these things.

Given the situation in southeast Asia, in Thailand and Malaysia, I think we have to examine very closely what the MAI will in fact do to encourage the kind of speculative capital flows that have wreaked havoc on economies in southeast Asia and around the world, frankly, as a result of the contagion effect. There are also implications for Canada in particular, as a contributor to the IMF bail-out packages in Thailand and Malaysia and the recent increase in the 45% quota that Canada is going to have to allocate from its reserve.

What are the risks associated with increasingly opening the flow of capital to these countries? I think even George Soros, one of the biggest speculators implicated in the events of southeast Asia, made it very clear that it is anarchistic and potentially quite dangerous to the real economy. It should be controlled now by further opening these markets and liberalizing investments under the MAI.

Nothing will take precedence over the MAI. The only thing that will do so is the IMF's articles of agreement. There is current pressure to liberalize this, which the G-24 is strongly resisting.

I think we have to be very careful to analyse those impacts. I realize it's sort of beyond this discussion specifically on environment, but there are environmental implications here. There are economic implications.

Noranda, as recently as this week, was concerned about what has happened in southeast Asia and how it's affecting its ability to do business there. With the devalued currency it's hard to compete. The markets aren't there all of a sudden to sell pulp and paper products, etc. There are all sorts of implications that I think should be more broadly addressed before we jump into an agreement that would open up that kind of investment.

Mr. Scott Brison: I have actually another point to make, but you raised the issue of currency speculation.

The only significant opportunities for currency speculators exist when a country's monetary policy is inconsistent with that of its fiscal policy. When a country is operating a monetary policy that is inconsistent with that of its fiscal policy, speculators can in fact bring it in line with sound economic policy.

The results may be traumatic in the short term, but it only hastens the inevitable and what would have to occur in that country domestically at some point in any case if we're in a liberalized economy.

• 1700

Now, that wasn't the point I was going to make, but I think it's important to bring that forward. I'm in opposition, for God's sake. You guys should be doing that.

Some hon. members: Oh, oh.

Mr. Julian Reed: Well, it's nice of you to be on our side.

Mr. Scott Brison: Not completely, Julian. You know that.

With respect to the fast-tracking issue, Clinton has failed to secure fast-track negotiating powers from Congress. I would be interested in your feedback.

How do you feel that will impact the U.S. participation in the MAI? In fact, how do you feel that may impact Canadian participation in MAI?

Ms. Robin Round: Frankly, we're delighted that essentially there's been some some sand thrown in the gears of this thing. The MAI has been moving at such a pace, in secret and without consultation with affected communities and the public, that the slowdown is excellent, I think, in terms of what needs to be done, like doing the homework on an impacts analysis, consulting more broadly with people who are going to be affected, and making sure that if Canada decides to go into an agreement it's going in fully informed and with full public support. In so far as it slows the process down, I think that's a good thing. How much will it slow down? I can't speculate.

The Chairman: Mr. Miller.

Mr. George Miller: I think recent examples in more than one area of U.S. disengagement are quite troublesome, not only in the MAI but also with respect to the ability to pursue free trade in the Americas. In fact, even in regard to the outcome in Kyoto, because of Senate opposition there is no assurance that the U.S. will ratify something that the rest of the world may be prepared to agree to. I think that leaves all of us hanging out to dry. I have a lot of concerns about the immense influence the United States can wield in international relations and yet how difficult it is to get a clear decision from them.

The Chairman: Mr. Appleton.

Mr. Barry Appleton: The American government has never expressed any indication that it's going to require fast-track capacity in MAI. In fact, it is my impression—and I recently was in Washington, and will be back there at the end of this week to have some discussions—that it's going to try to treat this as an executive agreement, and therefore it's not going to require fast track at all.

In fact, I believe the failure of fast track to be granted to the President at this time will, if anything, increase the attention on an agreement like the MAI and increase the pressure to be able to keep President Clinton's foreign trade policy moving. I believe all agreements that do not require fast track or that have already obtained fast track under earlier agreements like the GATS financial service negotiations will be pushed to the front of the burner.

That causes certain problems. Recently I was in Washington meeting with members of the U.S. trade representative's office, and it was clear to me that they might not have considered all of the ramifications of some of the key provisions of the MAI. Certainly we talked about some of them, and they thought it was rather interesting, but in fact it was old stuff, old hat. But it's in that type of agreement.

So I suspect the MAI agenda will stay right on track and, if anything, there will be increased pressure. I'm not certain, though, whether at the end of the day the MAI will actually need congressional attention. I believe there are legislative changes that will require congressional attention. I am a U.S. lawyer as well as a Canadian lawyer, and from my knowledge of the law there's a requirement for some implementing legislation.

I understand in Canada there's some debate—and perhaps the parliamentary secretary may respond here—as to whether or not the Government of Canada intends to have implementing legislation for the MAI or whether it wants to have it done as an executive agreement. In my opinion, at a minimum there will certainly be a requirement to make legislative changes dealing with the investor-state process. That will require legislation.

I know you're not used to having your witnesses ask questions of members of the committee.

Some hon. members: Oh, oh.

Mr. Julian Reed: That's all right. I don't have the answer to that, but I would expect it would be treated the same way as NAFTA.

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Mr. Scott Brison: Quick question, Mr. Chairman. I was wondering, when you asked Mr. Appleton for advice on something, and he agreed, whether in fact there was a contractual—

The Chairman: A contractual agreement?

Voices: Oh, oh.

Mr. Scott Brison: I don't know if we have in our budget the ability.... He works in the U.S. and Canada. The question now is whether we'll pay him in Canadian dollars or U.S. dollars. I think that's something we should work out. He agreed very quickly, and then he made notes. He wrote down the time.

The Chairman: I assure you that Mr. Appleton, before the meeting started, offered his services.

Mr. Barry Appleton: I'd be happy, for the record, to make it clear—because I've argued today that you need to make everything clear in these agreements—that I'm very prepared to provide guidance to this committee without any charge for my legal services.

Some hon. members: Oh, oh.

The Chairman: Thank you, Mr. Appleton.

Colleagues, that brings the questions to a conclusion.

I want to thank all the panellists for their participation today. It was very insightful. I would ask, though, as we move along in our deliberations, if I might call on you for further clarification of what you said today.

Our committee has asked Canadians from all across the country, if they have concerns on the MAI, to write to us. Not surprisingly, for those of you on the Internet, it's fairly easy now to get information from all across the country into us. We have piles of people who have been e-mailing us on it, which I think will continue to help us in our deliberations.

We stand adjourned until Thursday.