SPECIAL COMMITTEE ON THE MULTILATERAL AGREEMENT ON
INVESTMENT
SECOND REPORT
Third Session, Thirty-sixth Parliament
June 29, 1999
One of the most consistent themes of the presentations was concern that negotiations on such a far-reaching agreement as the MAI could have proceeded so long and so far behind closed doors. Witness after witness condemned the secrecy of the MAI talks.
Prince George resident Alvin Dome expressed typical anger. "It is shocking that our own government was developing the MAI in secret and would quite likely have signed it if it had not been leaked to caring people who exposed it and launched an effort to inform the people and have it debated and modified or cancelled." (A. Domes, Prince George, Feb. 18, 1999, p. 496) Similarly, Steve Hvenegaard of the Evangelical Lutheran Church in Canada (ELCIC) tabled a motion passed at his church's convention on April 23-26, 1998, in Kamloops. "That the B.C. synod call upon the National Church Council, on behalf of the ELCIC, to issue a letter of protest to the government of Canada regarding both the secretive nature of the multilateral agreement on investment negotiations and the undemocratic policies proposed in said agreement." (S. Hvenegaard, Nelson, Feb. 23, 1999, p. 528)
Witnesses
also reproached the corporate interests backing the MAI for their lack of transparency.
Multinational corporations and the international business lobby groups pushing for the MAI
were strongly criticized for pursuing their policy goals through backroom lobbying rather
than public debate. Mr. Hvenegaard, for example, stated: "The very secrecy of the
negotiations is frightening, because multinational corporations are in effect
demonstrating a way of doing business which is oppressive, covert and devious. To allow
such underhanded negotiations to result in trade agreements which supersede government
control is clearly a move toward a new form of far-reaching bondage and subjugation."
(S. Hvenegaard, Nelson, Feb. 23, 1999, pp. 528-9)
There
was also widespread concern that federal trade negotiators had been captured by the
interests and ideology of international business lobbies. Robert Hagman of Texada Island
remarked: "[A]ny trade agreement similar to the MAI that purports to diminish or
undermine Canada's sovereignty and government's rightful role in ensuring that corporate
behaviour [must be] tied to corporate responsibility in fulfilling the public good and
interest not be negotiated in secret, behind closed doors, without the benefit of public
scrutiny and public debate. It is completely unacceptable and a denial of democracy itself
to have a political and corporate bureaucratic elite determine in secret the nature and
extent of Canadian civil society. The content of the draft MAI clearly shows how removed
that bureaucratic elite is from mainstream Canadian civil society and its communitarian
values and how fully integrated the values of the political and corporate elite in our
society are." (R. Hagman, Courtenay, Mar. 2, 1999, p. 545)
During
the expert phase of public hearings, William Dymond, the federal government's chief
negotiator, had reacted to charges that the MAI talks were secret by protesting that the
existence of the talks was well known but that for two years or more no one, including the
media, had paid any attention. (W. Dymond, Sept. 30, 1998, p. 96) Linda Crosfield, a
Nelson writer, expressed her surprise and scepticism at the claims she encountered when
searching the OECD internet site. "The first thing that jumped out at me...was that
'the MAI negotiating parties are committed to a transparent negotiating process and to
active public discussion on the issues at stake in the negotiations.' This was interesting
in view of all I'd previously read and heard about how everything was kept secret until
the original draft was leaked just before it was to be signed. Is it possible that members
of the OECD had in fact 'conducted press briefings and issued numerous public documents
throughout the course of the negotiations describing the progress to date in detailed
terms'? Was nobody paying attention?" (L. Crosfield, Nelson, Feb. 23, 1999,
p. 517)
Clearly there is a considerable gap between the rhetoric of the Canadian negotiators and
the OECD and the perceptions of most witnesses concerning the transparency and openness of
these important negotiations. Certainly the existence of talks, though scarcely reported,
was in the public domain. However, as many witnesses noted, it was not until the
negotiating text was leaked that public concern about and opposition to the MAI began to
grow.
It was only when the text became publicly available that analysts were able to contrast the reassuring rhetoric of the OECD negotiators and governments about the MAI with their own analysis of the potential implications of the draft text. Controversy ensued.
Citizens and NGOs, having obtained the text, shared and refined their analyses worldwide via the Internet. There is little doubt that skilful use of new communications technology by NGOs and citizen groups played a key role in contributing to the groundswell of opposition to the MAI. This worldwide opposition grew despite the very limited attention paid to the MAI by mainstream media.
In the Internet age it is increasingly difficult, if not impossible, for governments to keep negotiating texts confidential. As the Lalumière report observed: "The development of the Internet is shaking up the world of negotiations. It allows for the instantaneous distribution of texts under discussion, the confidentiality of which is increasingly theoretical, and for the sharing of knowledge and expertise across borders." Furthermore, citizens and non-governmental organizations require access to the actual texts and are capable of drawing their own conclusions about the impacts of such agreements. As the quality of presentations before this committee and in debates about the MAI worldwide has demonstrated, "on a subject that is very technical, representatives of civil society appear to be fully informed, with critiques that are legally well-argued."20
Almost
all witnesses felt that there is simply no justification for secrecy. International trade
and investment negotiations should be recast to allow open negotiating meetings and public
access to all negotiating documents, including the draft texts. Again, as the Lalumière
report noted: "There is as much opposition to the negotiating method as to its
contents and results. There is more or less legitimate opposition to the secrecy
surrounding the negotiations and the underlying motivations of the participants."21 Closed negotiations are longer defensible, or perhaps even
practical. The MAI negotiations may well represent a watershed, an "irreversible
change" in international economic negotiations.22
Many British Columbians reinforced this message. Wil Holland of the British Columbia Old Age Pensioners Organization stated: "There is no reason for MAI negotiations to be carried on in secret. The democratic process is still the best political system we have and must be a guiding principle in all discussions." (W. Holland, Surrey, Mar. 4, 1999, p. 672) And UBC student Nora Danielson appealed: "...the MAI likes to hide away in dark corners, shrouded in secrecy. Don't let it. Expose it and share developments surrounding the MAI regularly by releasing information to the public via press releases or advertising in newspapers or on the radio. Either way, we implore you to keep us informed." (N. Danielson, Surrey, Mar. 4, 1999, p. 684)
This committee is dismayed by the secrecy surrounding the MAI negotiations. During the MAI debate, many citizens and NGOs demonstrated that they were capable of developing a sophisticated understanding of technical issues and had the ability to share that analysis and other developments rapidly across international boundaries. This can only be regarded as a positive development. It is incumbent upon the traditional actors in international economic negotiations -- trade ministers, senior government negotiators and international business lobby groups -- to engage with these new actors and the Canadian citizenry in open, public debate based on full disclosure of all relevant documents and information.
RECOMMENDATION 23
Your committee recommends that prior to engaging in any future international trade and investment negotiations that the Canadian government ensure that there must be an open negotiating process, full consultation with all interested citizens in all regions and that draft negotiating texts are made publicly available to Canadians as negotiations proceed.
The implications for democratic governance of the investor-state dispute procedures and the proliferation of such disputes against Canada was another major preoccupation of witnesses. Greg McDade of the VanCity Credit Union, for instance, stated: "We believe that the MAI contains serious restrictions on the legitimate role of governments. Such policies contained within it would limit the ability of governments to develop and promote balanced economic policy and, together with the right of investors to seek compensation outside of our domestic court system and private challenges to government provisions, provide investors with the capacity to undermine legitimate government regulatory ability." (G. McDade, Vancouver, Mar. 11, 1999, p. 768)
As discussed in the first report of the committee, under MAI-style investor-state
dispute settlement procedures, a foreign-affiliated investor can directly challenge a
government measure that it alleges breaches the agreement.23
The arbitral panel hearings are closed, and all testimony and documents, except for final
awards, are confidential unless both parties agree otherwise. While the panel cannot
strike down government measures that are inconsistent with the agreement, it has binding
authority to award monetary compensation to investors harmed by MAI-infringing measures.
Such fines are legally enforceable in the domestic courts of the government complained
against. Awards are final; there is no appeal.
Steven Shrybman of the West Coast Environmental Law Association pointed out, in commending the committee for continuing its inquiry: "The basic architecture of the MAI is currently in place in chapter 11 of the North American Free Trade Agreement and in several dozen bilateral investment treaties that Canada has negotiated with very little public fanfare over the last several years. Moreover, the Canadian government has made clear its intention to extend these treaties when and if the opportunity to do so arises." (S. Shrybman, Vancouver, Mar. 11, 1999, p. 769)
Such concerns have been greatly heightened by the recent proliferation of
investor-state disputes against Canada under NAFTA chapter 11. The most well-known NAFTA
investor-state suit, the Ethyl Corp. case, received much attention during the expert phase
of the committee's hearings. Since the committee concluded the first phase of its hearings
in October 1998, there have been three additional investor-state suits against Canada.24
Each of these cases is discussed in turn below.25
The first investor-state case against Canada, by Ethyl Corporation of the U.S., sparked widespread public concern across Canada and ultimately, when brought to the attention of European MAI negotiators, contributed to the demise of the MAI negotiations at the OECD. The implications of this landmark case were vigorously debated in both the expert and public phase of the committee's hearings.
Table 1: Investor-state suits against Canada
| POLICY CHALLENGED |
DATE |
INVESTOR |
ALLEGED NAFTA |
DAMAGES |
|
|---|---|---|---|---|---|
| Ethyl Corporation | Environmental regulation (MMT restrictions) |
Sept. 10, 1996 | Ethyl Corp., Richmond, Virginia |
Art. 1102 national treatment Art. 1106 Art. 1110 |
$251 million (US) |
| S.D. Myers | Environmental regulation (PCB exports) |
Oct. 30, 1998 | S.D. Myers, Tallmadge, Ohio |
Art. 1102 national treatment Art. 1105 Art. 1106 Art. 1110 |
$20 million (US) |
| Sun Belt Water | Environmental regulation (bulk water removals) |
Dec. 8, 1998 | Sun Belt Water Inc., Santa Barbara, California |
Art. 1105 minimum standards of treatment Others? |
$105 million – $219.5 million (US) |
| Pope and Talbot | Natural resource management (softwood lumber quotas) |
Dec. 24, 1998 | Pope and Talbot Inc., Portland, Oregon | Art. 1102 national treatment Art. 1103 Art. 1105 Art. 1106 Art. 1110 |
$205 million (US) (minimum) |
In
April 1996 the Canadian government introduced legislation which effectively banned MMT,26 a manganese-based gasoline additive, by prohibiting its
import and interprovincial trade. The legislation was motivated largely by concerns that
emissions of manganese, a known neurotoxin, might have harmful health effects and claims
by automakers that MMT interfered with the proper operation of pollution emission controls
in automobiles. While in neither case was the evidence conclusive, Environment Canada
chose to err on the side of caution.27
In September of the same year Virginia-based Ethyl Corp. filed a "notice of intent" to submit a claim against Canada under NAFTA chapter 11. Ethyl alleged that the MMT legislation was "tantamount to expropriation" of Ethyl's investment in Canada and violated several other NAFTA provisions. In its formal statement of claim filed on October 2, 1997, Ethyl sought damages of $251 million (US).
In a preliminary ruling released on June 24, 1998, most of Canada's arguments were not accepted by the NAFTA investor-state panel. Apparently sensing defeat, the Canadian government chose to settle "out of court."28 By any standards, the terms of the Ethyl settlement announced in July 1998 were extraordinary. Not only did the Canadian government agree to pay $20 million (Cdn) in damages to Ethyl, it also agreed to rescind the ban on MMT, although it was not required under NAFTA to do so. The Canadian government also issued a public statement suggesting that MMT poses no health risks. This statement has widely been interpreted as a public apology to Ethyl.29 In return, the company agreed to drop its NAFTA case.
International
trade lawyer Lawrence Herman has referred to the Ethyl case as "one of the most
important in the annals of Canadian trade law. Even though it was settled out of court, it
has established a far-reaching precedent."30 The case,
according to Herman and other legal analysts, established a new meaning of expropriation
that "illustrates governments are at peril if they adopt measures having the 'effect'
of expropriating foreign-owned assets, directly or indirectly."31
Maple Ridge resident Ricardo Cordoni characterized the MMT decision as a "wake-up call." (R. Cordoni, Vancouver, Mar. 11, 1999, p. 782) And Doris McNab of the Voice of Women reflected the concerns of many witnesses when she stated: "The spectacle of our present government giving in to Ethyl Corp. because of a million-dollar lawsuit is the portent of what is ahead if the MAI or a similar corporate power agreement is passed by either the OECD or the WTO." (D. McNab, Vancouver, Mar. 11, 1999, p. 779)
On October 30, 1998, U.S.-based S.D. Myers Inc., a toxic waste disposal firm, commenced the second formal NAFTA investor-state claim against Canada. The company is seeking damages of not less than $20 million (US) for losses it alleges to have incurred during a one-and-one-half-year ban (1995 to 1997) on the export of PCB wastes from Canada.32 S.D. Myers Inc. charged that the ban violated four provisions of NAFTA, including that it amounted to an expropriation of its investment in Canada. The company is proceeding with its NAFTA chapter 11 claim even though the Canadian PCB export ban was revoked in 1997.
The Canadian federal government enacted the ban on PCB exports in order to implement federal policy that Canadian PCBs should be destroyed in Canada. Then Environment minister Sheila Copps had publicly pledged to end the export of hazardous wastes from Canada. Environment Canada also asserted that Canada was bound by international conventions that stipulate that PCBs must be destroyed in an environmentally sound manner and that U.S. standards for PCB disposal are not as high as Canada's.
Documents obtained by S.D. Myers under freedom of information indicate that trade and industry officials within the federal government strongly opposed the ban when it was proposed, arguing that it violated NAFTA obligations.33 These documents, along with a similar letter from DFAIT opposing the MMT ban,34 provide a rare inside look at "the chill effect that the NAFTA, a forerunner of the MAI, has already had on governments in Canada and probably elsewhere." (J. Penner, Nelson, Feb. 23, p. 514)
Mr. Penner noted several other examples. "We have the NDP government in Ontario proposing a provincial auto insurance similar to ICBC but retreating when threatened by a U.S. firm, State Farm Insurance, with a multibillion-dollar suit. We have the example of the Ethyl suit and of the federal government's humiliating capitulation. There are the further examples of the Myers suit, the Sun Belt Water suit and, most recently, the Pope and Talbot suit. Even more crucially, we are left with a suspicion that an unknown number of proposals have been cancelled or not even proposed, due to a fear of being attacked by one corporation or another. In short, our government has been partly emasculated by the FTA and the NAFTA, and the MAI would finish the job." (J. Penner, Nelson, Feb. 23, p. 514)
It is apparent from both the Ethyl and Myers cases that the NAFTA investment rules are a powerful deterrent to Canadian regulatory policy-making. The same federal ministry that ritually denies that Canadian regulatory authority has been compromised by trade and investment agreements is revealed to have argued behind the scenes that these environmental protection initiatives were NAFTA-inconsistent. Ironically, these same officials must be relied upon to defend Canadian policy measures in the closed dispute settlement processes.
A
decision in the S.D. Myers dispute is pending. Canadian officials publicly dismiss the
suit as "frivolous" and have not even consulted, as required by NAFTA chapter
11, with the company. Despite this rhetoric, however, the outcome in the Ethyl dispute
does not inspire much confidence in Canada's prospects for winning the S.D. Myers case. As
in the earlier case, federal officials' own statements that the proposed measure violated
NAFTA are certain to be turned against them. There is a strong possibility that, in the
wake of the federal government's surrender in the MMT case, Canada will either be forced
to settle or be found liable and made to pay damages.
The next two investor-state suits filed against Canada struck even closer to home for British Columbians. As Steven Shrybman, among other witnesses, noted, these cases "related to investment activity that is taking place in or was planned for British Columbia." (S. Shrybman, Vancouver, Mar. 11, 1999, submission, p. 1-2) The challenge mounted by Sun Belt Water Inc. and its implications for British Columbia's environmental policy prohibiting bulk water removals will be discussed in the next section of this report. The other case closely affecting British Columbia involves the December 24, 1998, notice of intent served on the Canadian government by Pope and Talbot Inc., a U.S.-based lumber company with three sawmills and two forestry divisions in British Columbia. Liz Ball of the Terrace Women's Resource Centre remarked: "Even as we speak, the Pope and Talbot lumber company, headquartered in Portland, Oregon, is using the NAFTA rules to sue the Canadian government.... The suit says that the softwood lumber agreement is being managed in a way that is discriminatory and unfair." (L. Ball, Terrace, Feb. 17, 1999, p. 442)
As Ms. Ball indicated, in 1996 the Canadian and U.S. federal governments signed the five-year Canada-U.S. Softwood Lumber Agreement. Softwood lumber exports from Canada to the U.S. have been the subject of long-running trade disputes and repeated protectionist pressures from the United States. In the mid-1990s Canada, once again faced with the threat of punitive tariffs from the United States, reluctantly agreed to limit its exports to the U.S. market. In order to implement the softwood deal, the federal government applied an export control regime to regulate exports of softwood lumber from four Canadian provinces, British Columbia, Alberta, Ontario and Quebec. While tariff-rate quotas were applied to producers in these four "listed provinces," softwood lumber producers in the other "unlisted provinces" were not affected.35
Pope and Talbot alleges that the different treatment of producers in the listed and unlisted provinces violates the NAFTA investment requirements regarding national treatment, most-favoured nation treatment, minimum standard of treatment and performance requirements. In addition, the company alleges that the manner in which Canada has implemented the softwood lumber agreement, and the consequent reduction in the complainant's quota of duty-free lumber to the U.S., amounts to an expropriation without compensation of the investor's investment within British Columbia.
Don
Sachs of Kamloops ably encapsulated the perplexities of this extraordinary lawsuit.
"The situation that created this dispute can only be described as bizarre. It seems
that free trade under the FTA and NAFTA is only free when the Americans want it to be. The
U.S., in order to protect the American timber companies, has forced Canada, under the
threat of tariffs, to sign a softwood lumber accord to limit Canadian export of lumber to
the U.S.... While one may certainly take issue with the current distribution of the export
quota, there is no doubt that this is a matter of internal Canadian politics, ultimately
caused by a protectionist action by the U.S. So now our friends at Pope and Talbot are
suing the Canadian government, under NAFTA, over the unfair allocation of export quota
because their ability to export B.C. lumber to the U.S. has been diminished. Am I the only
one who thinks this is absurd? Here we have a U.S. company suing the Canadian government
over the implementation of an agreement forced upon Canada by an act of the U.S.
government. Apparently Pope and Talbot expected to have its cake and eat it too. Their
American mills are being protected by the actions of the U.S. government, and they want to
sue Canada for damages inflicted by the same act of the U.S. government." (D. Sachs,
Kamloops, Mar. 9, 1999, p. 696)
Nelson resident Joyce Macdonald concluded, concerning the Pope and Talbot case: "As Canadians, all we can do is sit and await the decision of the panel -- a panel that's not obliged to consider Canadian laws or principles of justice.... To add insult to injury, no Canadian corporation can expect similar remuneration, because these rules apply only to foreign investors. I don't know why Canadian companies aren't upset with that." (J. Macdonald, Nelson, Feb. 23, 1999, p. 531)
The testimony heard by this committee reveals deep-seated public anxiety and "concerns about the establishment of investor rights as part of Canada's international treaty obligations."36 These public concerns were substantiated by much of the expert testimony heard earlier by this committee during the first phase of its hearings.
During the expert phase, supporters of the investor-state dispute mechanism argued that NAFTA investor-state disputes should be expected only infrequently. Opponents of the process argued that in the wake of the Ethyl settlement more cases should be expected. The Ethyl case is no longer an isolated incident; since the committee's expert hearings ended in October 1998, there have been three more suits launched against Canada under NAFTA's investment chapter. The total amount of damages alleged in these four cases alone exceeds $1 billion (Cdn).37 And the measures challenged include important, sensitive policies that should be determined by Canadians through democratic debate and decisions. The critics who argued that the MMT case represented only "the tip of the iceberg" have, sadly, been proven correct.
More
fundamentally, the success of Ethyl in using NAFTA to overturn Canadian legislation and
the threats posed by additional suits substantiate the expert and public concerns about
the dangers of broadly worded investment protections enforced through secretive dispute
resolution processes. As the committee's first report concluded, the special right
accorded to foreign investors to bypass domestic courts and to force governments into
binding arbitration "subverts the rule of law and undermines democratic
processes."38
Subsequent events have given greater urgency to the committee's recommendation that the investor-state mechanism should be eliminated and that NAFTA's broadly worded investment protections need to be considerably narrowed. A national debate on these provisions is long overdue.
RECOMMENDATION 24
Your committee recommends that before engaging in any future international trade and investment negotiations the federal government undertake a comprehensive public review of current Canadian international trade and investment policy with particular emphasis on the implications of NAFTA's investment provisions. Such a review should result in substantive changes in the Canadian government's existing international investment commitments as well as its negotiating objectives in any future negotiations.
RECOMMENDATION 25
Your committee recommends that the federal government end its support for including NAFTA-style investment rules in bilateral investment treaties, the Free Trade Area of the Americas talks and in the next phase of negotiations at the World Trade Organization.
During the public hearings, witnesses from all parts of the province repeatedly raised the recent Sun Belt NAFTA case. To many B.C. citizens, it crystallizes some of the most objectionable features of NAFTA's investment chapter.
In December 1998 California-based Sun Belt Water, Inc. announced that it would use NAFTA's investment rules to sue the Canadian government for damages allegedly arising from B.C.'s environmental prohibition against bulk water removals. The investor's notice of intent makes sweeping charges. It alleges unfair treatment in British Columbia's administration of its bulk water prohibition, a systemic bias against Sun Belt in the B.C. courts, and corrupt practices on the part of certain U.S. citizens.39
British Columbians have always shown a keen interest in protecting fresh water in the province. Ever since the fierce debate over water's inclusion in the Canada-U.S. Free Trade debate in 1987-1988, British Columbians have demonstrated their strong opposition to bulk water exports and to schemes to divert B.C. rivers to California.
When the Social Credit government issued several licences for bulk water export by marine tanker in 1991, stiff and determined opposition caused the government to backtrack and place a moratorium on such bulk water shipments. This moratorium was extended, broadened and made permanent in 1995 when then Premier Harcourt's New Democrat government passed the Water Protection Act to prohibit bulk water removals and large-scale water diversions.
Sun
Belt alleges that B.C.'s export prohibition cost it a potential 1991 contract with a
California buyer and that B.C. subsequently settled with Sun Belt's Canadian business
contact without coming to terms with Sun Belt. The investor seeks damages not only for its
out-of-pocket expenses, but for its potential lost profits -- or, in the words of the
investor: "The present value of the present Sun Belt interest in the business that
would have been created had the B.C. government action not been taken." The company
estimates these damages at between $105.2 million (US) and $219.5 million (US).40
Sun Belt's NAFTA action is separate from the company's domestic legal case. The company has not proceeded with its court action, since a judge ordered it to post a bond of $27,800 (Cdn) as security for costs. The company has not posted this bond, choosing instead to seek hundreds of millions of dollars of damages through the NAFTA investor-state process. Under NAFTA's rules, an investor is not required to exhaust domestic remedies, nor is there any threshold of evidence or requirement to post a bond that might discourage unfounded claims. As was pointed out during the expert phase of hearings, the investor's right to initiate a claim is virtually unqualified.41
Whatever the merits of Sun Belt's claim, it casts a long shadow. It challenges the administration of a critical environmental policy having broad public support. It may discourage other North American governments from following British Columbia's example and acting decisively to protect fresh water resources. It may encourage copycat claims by other investors. And it is the first challenge of a Canadian provincial measure by an investor using NAFTA's investor-state dispute process. According to the Canadian Environmental Law Association: "The case also raises the fundamental issues of the uses of the investment chapter to evade the result of an action in a domestic court, and to challenge a non-discriminatory policy and legislation by a subnational government."42
Moreover, the case underlines the lack of action by successive federal governments to enact legislation to prevent Canadian bulk water exports -- inaction that many attribute to fear of offending NAFTA. Despite repeated promises to do so, neither the current Liberal federal government nor its Progressive Conservative predecessor enacted legislation to ban water exports. In the lead up to the 1993 federal election, many free trade critics, including the B.C. government, repeatedly highlighted NAFTA's threat to Canada's control over water.
British Columbia ministers repeatedly urged then federal Liberal leader Jean Chrétien to
fulfill his party's promise to renegotiate NAFTA, in part to exempt water. When NAFTA was
passed unchanged, B.C. urged newly elected Prime Minister Chrétien not to proclaim
Canada's NAFTA-implementing legislation without first obtaining full protection for water.
However, no meaningful protection for water was obtained, and the NAFTA was adopted
without a single change. The consequences of this inaction -- the Sun Belt case and
continuing federal failure to bring forward legislation banning bulk water exports -- are
now all too clear.
Many witnesses urged governments to take decisive action: a ban on water exports by the federal government and legal steps by the British Columbian government to defend its own legislation against the extrajudicial NAFTA lawsuit. Steven Shrybman of the West Coast Environmental Law Association, for example, appealed: "[I]t is now incumbent upon this province and others to bring these issues before Canadian courts so that the constitutional uncertainty that swirls around these international arrangements can be resolved." (S. Shrybman, Vancouver, Mar. 11, 1999, p. 769)
There can be no denying that NAFTA has greatly complicated and undercut the federal government's ability to protect Canadian water by prohibiting bulk exports. This committee calls on the federal government to negotiate a clear exemption with the U.S. and Mexico stating that NAFTA does not cover water -- whether classified as a good, service or investment. The Canadian government must also ensure, preferably by eliminating the investor-state process altogether, that NAFTA is never used again to challenge federal or provincial water protection policy.
The complexity and uncertainty created by NAFTA must not be an excuse for inaction. The federal government is now proposing a voluntary federal-provincial accord to prevent bulk water removals from defined watersheds. Under the proposed accord, however, if the federal government, as now seems probable, agrees to leave open the door to water exports from within watersheds or from some provinces, then NAFTA problems immediately arise. Stronger legislation in provinces like British Columbia could come under attack as investors demand the best-in-Canada "national treatment." Instead, the federal government should act decisively now to prohibit bulk water exports from Canada. The longer it delays and the longer the queue of potential exporters and investors grows, the greater its exposure to future NAFTA disputes and potential damages.
Nor
can the provincial government afford to stand by while its water protection legislation is
attacked under NAFTA. While the federal government has the authority and responsibility to
prohibit cross-boundary removals of water, it is the province that is the owner of water
and has the basic responsibility for its management within its borders. The Sun Belt NAFTA
case highlights the risks to provincial legislative authority of the federal government's
continuing support for broadly worded investor protections backed up by an investor-state
dispute process.
A substantial case can be made that the federal government has exceeded its constitutional authority by exposing this provincial measure, the administration of the Water Protection Act, to binding international arbitration without the province's consent. The committee also believes that the practical effect of the NAFTA investor-state dispute process is to alter the balance of Canada's constitutional division of powers. This NAFTA provision creates an effective constraint on British Columbia's legislative and executive authority and on its political sovereignty. Therefore, this committee wishes to add its voice to those British Columbians that urged the province to mount a legal challenge to the constitutionality of the federal government's undermining B.C. environmental policy measure and authority by exposing this important B.C. measure to binding international arbitration under NAFTA's investment chapter.
RECOMMENDATION 26
Your committee recommends that the federal government act immediately and decisively to reinforce B.C. legislation banning bulk water removals by enacting federal legislation to prohibit bulk water removals from Canada.RECOMMENDATION 27
Your committee recommends that if the Sun Belt NAFTA challenge proceeds, the province initiate a legal action challenging the federal government's authority to submit British Columbia's environmental prohibition on bulk water removals to binding international arbitration and potential monetary damages under NAFTA's investment chapter.
It is difficult to do justice to the range and richness of ideas on the interplay of international investment rules and economic development that were presented to the committee. Some significant themes that recurred throughout the public hearings were:
The committee heard a variety of different views and perspectives on the contribution of foreign investment to the Canadian and B.C. economies and on the nature of the rules to protect and regulate that investment. Such debate is healthy and, in the committee's view, necessary. The great majority of witnesses, including many strong critics of the MAI, recognized that foreign investment contributed importantly to the Canadian and British Columbian economies and that transparent rules to provide stability and predictability to foreign investors were desirable.
Jim Stevens, B.C. and Yukon director of the Investment Dealers Association of Canada, made the case of: "Investment flows by non-Canadians into Canada and by Canadians into the international community are an important part of our economic life. Investor protection, which would flow from more certain international rules, is also an important consideration." (J. Stevens, Burnaby, Mar. 12, p. 863) He also warned against the notion that we "can somehow hermetically seal off British Columbia from external forces...." (J. Stevens, p. 865) In Mr. Stevens' view: "We are not price-setters; we're price-takers. We have to compete, and that's the bottom line." (J. Stevens, p. 865)
While not commenting on "the specifics of the proposed MAI text," Mr. Stevens suggested that "it is important for us to look at this debate on the MAI as an opportunity to demonstrate to the world that we understand the importance of international investment to our economy and that we understand the value of a uniform set of standards for the efficient operation of capital markets." (J. Stevens, p. 864) It was the specifics of the MAI, however, that preoccupied most witnesses.
One
presenter, for example, argued that accepting the reality of globalization did not entail
submitting to proposals that privilege investor rights. "I don't believe that
international trade and investment is necessarily a bad thing. Even if I did, it would be
rather pointless, because it's happening.... But agreements must start from, must be based
on, the rights of citizens and their governments, not on the rights of corporations."
(D. Macdonald, Nelson, Feb. 23, p. 519) While almost all witnesses accepted that the world
clearly needs international rules for investment, most believed that rules like those
contained in the MAI and in NAFTA's investment chapter were headed in the wrong direction.
While the Canadian government has dismantled controls on foreign investment in all but a few sectors, the public hearings indicated that there remains a significant amount of public concern about the high level of foreign ownership and control of the Canadian economy. Many feared that the MAI or similar agreements would increase these levels yet further.
Retiree John Pousette observed: "The problem that I see is that international capital seeks and searches the whole world for profitable investment opportunities.... There's no loyalty in international capital, and there's no empathy. It flees, regardless of the consequences, whenever it feels threatened. We have to ask ourselves: will they have a different attitude to us as Canadians? I don't think so." (J. Pousette, Terrace, Feb. 17, 1999, p. 446) Mr. Pousette's suggestion was to provide greater incentives to Canadians to invest in Canada. "I think that we have to examine the rates earned by capital and increase the rate paid to people who are prepared to invest in Canada and take the risks involved in entrepreneurship." (J. Pousette, p. 446)
Dr. Shane Koscielniak invited Canadians "to make a reality check" on DFAIT claims that "a $1 billion increase in foreign direct investment in Canada helps to create an estimated 45,000 new jobs, directly or indirectly, over a period of five years." (S. Koscielniak, Burnaby, Mar. 12, 1999, p. 878) Dr. Koscielniak, a physicist with the TRIUMF research facility, plotted the new investment each year, from '87 through '97, against Canadian job creation figures, concluding: "It's fairly obvious that [billions of dollars] in FDI [foreign direct investment] has done absolutely nothing to create jobs." He suggested that the "solution to the conundrum" that billions of dollars in FDI has had little impact on job creation is that "since 1985, 94 percent or more of FDI goes towards purchasing existing Canadian companies and not to creating new ones."43 (S. Koscielniak, p. 878)
Marc Lee, an economist with the Canadian Centre for Policy Alternatives, argued: "It's important that we think about the ownership of this capital. Canada is already a nation with a huge amount of foreign ownership. Almost every year, Canada records a trade surplus, but every year, this turns into a current account deficit, due to profits that flow out of the country. Today's imported investment is tomorrow's exported profits." (M. Lee, Vancouver, Mar. 11, 1999, p. 830) And accountant Dereck Sale warned: "Now that the Canadian dollar is on a downward spiral, we can expect the heights of the economy to look more and more attractive to foreign capital. At the end of the road, we will be no different from the poorest countries, which have been forced to open up their economies to foreigners and which have therefore become poorer." (D. Sale, Prince George, Feb. 18, 1999, p. 491)
Kelowna witness Bill Woolverton, among others, noted: "Under performance requirements, the MAI sets out a long list of government measures that could not be imposed on foreign corporations even if these same measures applied to domestic companies and investors." (italics added) (B. Woolverton, Mar. 10, 1999, Kelowna, p. 738) Combined with the MAI's extremely broad definition of investment, these would restrict many public policy choices that currently fall outside the disciplines of international agreements.44
Small
businessperson Vanessa Hammond stated: "I think that the loss of those requirements
is one of the major problems, and that's part of the down-bidding process ... I think it's
completely fair and reasonable to say: `We have these requirements for our local companies
who are bidding. They will apply equally to any other company.' I think it would be wrong
to say that they apply only to foreign companies ... but they should be equally
applicable." (V. Hammond, Victoria, Mar. 3, 1999, p. 602)
Support
for the right of governments and communities to negotiate commitments to local benefits
and employment was especially strong in resource-reliant regions of the province. Liz Ball
of the Terrace Women's Centre argued that denying "the right to levy performance
requirements on corporations -- requirements like employment equity practices, local
hiring preferences, etc....leads to the link between economic downturns and increased
violence toward women and children. This is especially marked in resource-based
communities. At the Terrace Transition House, there is a direct and statistical
correlation between the off-season layoffs of resource-based workers -- loggers, fishers,
mill workers -- and an increase in the number of women and children seeking shelter from
violence at home." (L. Ball, Terrace, Feb. 17, 1999, p. 442) Don Allen suggested:
"If timber sale licences were not tied to local economic activity, our forest
resource would simply be exported, and local employment would be reduced." (D. Allen,
Surrey, Mar. 4, 1999, p. 644)
Barry
Baskin believed that performance requirements should not be regarded as discriminatory.
"It's not that we are opposed to foreign investors; it's just that we want them to
follow our environmental and labour laws and to give back to the community from which they
take." (B. Baskin, Surrey, Mar. 4, 1999, p. 684) "To promote
sustainability," stated Bill Woolverton, "we must work together to build more
diverse resource economies, to encourage sustainable, local economic development, to
foster environmentally sound technologies and to ensure just transitions for affected
workers. The MAI would have made each of these far more difficult, if not impossible, to
achieve." (B. Woolverton, Mar. 10, 1999, Kelowna, p. 739)
Not
all criticisms of the MAI's outlawing of performance requirements focused on their impact
on the resource sector. Witnesses also explained how Canadians had used performance
requirements to meet important public policy objectives in many other sectors. Sid Shniad
of the Telecommunications Workers Union, for example, explained: "In Canada, the
licensing process for communications systems and services, and for the development of new
technologies and services, has traditionally included performance requirements as
conditions for getting licences. Depending on governments' priorities, these have included
specific levels of job creation, provision of service to rural areas, promotion of
Canadian content or the provision of funding for research and development. In the past,
successful applicants have been required to meet such conditions on a continuing basis.
But the terms of the MAI would have eliminated governments' use of these and other
mechanisms designed to ensure that service is provided on a universal and affordable
basis." (S. Shniad, Burnaby, Mar. 12, 1999, p. 848) Health worker Sandra Ford was
concerned about the potential impact on the Canadian health-care system. "The MAI's
prohibition on performance requirements means that our government could not require the
use of local labour or goods, or transfer technology to a local agency. This has
significant implications for health information systems and for who owns and controls the
software. Patient information is a mass of data banks. [There are] issues of
confidentiality, selling of information for market development, ownership of the database
and software...." (S. Ford, Prince George, Feb. 18, 1999, p. 464)
The
outcry against the MAI's proposal to prohibit performance requirements is part of a
broader reaction to what most perceived as a lopsided agreement. Overall, there was strong
support for committee recommendation 5: "As long as such requirements are transparent
and apply equitably to domestic and foreign investors, an international investment treaty
should not prevent governments from negotiating or enforcing performance requirements
intended to meet economic development, environmental, or other legitimate
objectives."45 Witnesses objected to rules that would
create corporate rights without responsibilities or would give foreign investors greater
rights than domestic enterprises and citizens.
There was nearly universal acceptance of the need for international rules to protect and to regulate foreign investment. This recognition, however, was qualified by a widely shared determination that the competition for investment not be based on competitive austerity or a "race to-the-bottom."
Witnesses saw risks in an economic development strategy focused only on attracting foreign investment. "Competing for the favour of foreign investors as our job strategy," argued Marc Lee, "only enhances the position of those whose concerns for the province are limited to their own bottom lines. It makes us susceptible to lowering labour, environmental and health standards and to providing subsidies and tax breaks in order to attract or retain foreign capital." (M. Lee, Vancouver, Mar. 11, p. 829)
Labour representatives were especially critical of deals to increase international capital mobility without enhancing international labour standards. George Desjardins of the Terrace Labour Council stated: "Labour standards -- whether it's wages, benefits or health and safety conditions -- become the shock absorber when corporations are able to pit region against region. Whichever region is prepared to offer the lowest cost is the one that gets the work. It's a downward spiral that never ends. As long as corporate power grows and the rights of workers are pushed aside, the prospect of finding yet another region that will work for less guarantees that the downward spiral will continue. Some have called it a race to the bottom; others have called it a race with no finish line. Either way, it's a race in which the workers suffer." (G. Desjardins, Terrace, Feb. 17, 1999, p. 458)
City
of Nelson councillor Donna Macdonald recounted a different development path in
"Nelson's experience, its success story and how the MAI would have stopped or
interfered with our efforts to create the community that we have, the community that we
love and are very loyal to." (D. Macdonald, Nelson, Feb. 23, 1999, p. 518) "In
the early eighties, trouble hit Nelson. We lost our university, our sawmill and plywood
plant and a quarter of our provincial government employees; CPR and B.C. Tel
downsized...." But, explained Ms. Macdonald, "we weren't forced into joining the
so-called race to the bottom. We didn't cheapen ourselves by going out begging for
investors, offering deals and compromising our values. Instead, through standards,
policies and regulations, we created a desirable place to be for ourselves and for
investors who wished to join us in our quality community...demonstrating that people and
investment come to places where quality of life is high." (D. Macdonald, p. 519)
She cautioned that Nelson's strategy "only worked because the city used and continues to use the tools at its disposal: rules and regulations and bylaws applied equally to businesses -- resident or non-resident, brand-new or been here for 100 years.... Many or all of those expressions of community will would, under an agreement like the MAI, be vulnerable. They would or could be seen as infringing on investor's rights. This is simply not acceptable." (D. Macdonald, p. 519) Councillor Macdonald's comments provide a practical example of an alternative economic development model and of how an MAI-style agreement would stifle such alternatives.
Emeritus professor of economics Edward Shaffer also rejected the monolithic approach of investment treaties that grant unqualified investor rights. He observed: "Not all types of investment are desirable. Among these are investments in narcotics, tobacco and those industries that severely damage the environment. Second, even the more desirable investments, while generating high rates of returns, may inflict harm on society." (E. Shaffer, Mar. 11, 1999, Vancouver, p. 805) Rev. Dean Houghton's testimony reinforced this point, arguing: "We need to place community ahead of the corporate bottom line. While capital may be fluid, community is not. I can't, nor do people in this community want to relocate to whatever country and locale the latest surge the Dow-Jones industrial average suggests is the hot spot of the day." (D. Houghton, Terrace, Feb. 17, p. 438)
As an
open, export-oriented, and largely resource-based economy, British Columbia is highly
vulnerable to external shocks and must adapt to global economic pressures. Consequently,
the province has a strong interest in rules that could both provide stability to foreign
investors and curb the worst competitive pressures associated with free global capital
movements. In most witnesses' opinion, however, the MAI would do neither. Privileging the
rights of already powerful investors could pre-empt community-based alternatives and
provoke a societal backlash against corporate globalization. Instead British Columbians
called for a new approach to international agreements that would embed investor rights
within the broader rights of community and citizenship, respect the authority of
democratically elected governments to regulate investment in the public interest and
ensure that investment rules help advance broader community goals of economic development
and environmental sustainability.
The Asian financial crisis and its knock-on effects in Russia and Brazil provided the backdrop to the collapse of negotiations at the OECD in the autumn of 1998. The radical deregulatory bias inspiring the MAI rules appeared destined to worsen the turmoil in global financial markets. French Prime Minister Lionel Jospin spoke of this disjuncture between the MAI draft and world events when he announced that his country was withdrawing from the negotiations. And the Lalumière report upon which the French decision was based explicitly recommended that any future international investment treaty "exclude portfolio investment and transactions on money markets."
Many mainstream economists were also openly voicing their concerns about further liberalization of capital flows. Prof. Edward Shaffer brought to the committee's attention: "In a report on the Asian crisis, issued last December, Dr. Joseph Stiglitz, chief economist of the World Bank, said: `The heart of this current crisis is the surge of capital flows. The surge is followed by a precipitous flow out. Few countries, no matter how strong their financial institutions, could have withstood such a turnaround, but clearly, the fact that financial institutions were weak and their firms highly leveraged made these countries particularly vulnerable.'" (E. Shaffer, Mar. 11, Vancouver, p. 805) Another witness, Prof. Alex Michalos, quoted prominent Canadian economist Gerard Helleiner, who stated: "`As policy makers noted in the early postwar years, the liberal international financial order is not necessarily compatible with a liberal international trading order. The Bretton Woods negotiators worried that speculative and disequilibrating capital movements would disrupt trade patterns and encourage protectionist pressures. Recent experience has to some extent borne out these fears.'" (A. Michalos, Oct. 14, 1998, p. 367) And another pointed out that Jagdish Bhagwati, who was the main economic policy adviser to the director general of the GATT from 1991 to 1993 and a fervent critic of protectionism, was also arguing against the continued deregulation of capital flows and strongly opposing the MAI.46
Today, in the middle of 1999, global financial markets appear to have settled somewhat and there are tentative signs of a fragile recovery in some of the hardest-hit Asian economies. Last year's turmoil has, however, resulted in a consensus that there must be, at a minimum, far better monitoring of short-term capital flows and in a growing momentum behind the view that reregulating capital flows is necessary to avoid future crises. And even if further crises can be avoided, the devastating social effects of the 1998 financial meltdown will continue to be felt for many years; in Asia alone ten million people lost their jobs as a result of the crisis.
The effects of the crisis have also been felt by British Columbians. "We in northern B.C. are very aware of the cycles in the economy," stated Doug Tedford of Prince George. "Thankfully, we in the early eighties escaped the downturn that affected so many in eastern Canada. But we've been severely affected lately by the so-called Asian flu and have seen the resulting degradation in our communities and the real impacts on our neighbours and ourselves." Mr. Tedford argued: "We must put political mechanisms in place to control the transnational corporations, in order to institute measures like the Tobin tax and put teeth into social and environmental agreements that we have already negotiated." (D. Tedford, Prince George, Feb. 18, 1999, p. 465)
Other
witnesses agreed that the impetus for reform must not be lost and many supported the Tobin
tax as a worthwhile initiative. Such a tax, first proposed by Nobel-prize winning
economist James Tobin, would consist of a small (perhaps as little as 1/20 of 1 percent)
transaction tax on purchases and sales of foreign exchange. Such a tax, Prof. Alex
Michalos explained, "should be universal, uniform and apply to all
jurisdictions." The Tobin tax would have many benefits including curbing currency
speculators, giving governments greater control over their own monetary policies,
encouraging shareholders to pay more attention to longer-term development and generating
worldwide revenues four times bigger (an estimated $60 billion to $70 billion a year) than
what is required to eliminate the worst forms of world poverty. (A. Michalos, Victoria,
Oct. 14, 1998, p. 368 ff.)
On a closely related theme, many British Columbians -- especially those who had emigrated from developing countries or who had worked there for parts of their lives -- were convinced that the MAI would worsen global inequality, poverty and underdevelopment. Prof. Paul Bowles showed that globalization had been accompanied by rising inequality, stating: "In 1870 the difference between the average income of someone living in the richest country and the average income of someone living in the poorest country was 11 to 1. By 1960, this had moved to 38 to 1; by 1985, to 52 to 1; by 1992, to 60 to 1." He argued: "We need to reconstitute the international economy -- but based upon the principles of equity, democracy and social justice. Any constitution for the global economy must be judged on these terms and not on the basis of whether it supports the interests of those that are already powerful. (P. Bowles, Prince George, Feb. 18, 1999, p. 493)
Richard Morrow of Oxfam Canada explained: "For 35 years, Oxfam has assisted
communities to become self-reliant and develop democratic decision-making processes.
Structural adjustment programs and the MAI go in precisely the opposite direction.... The
big decisions affecting development, whether in Bolivia or British Columbia, are made in
northern money centres, not in villages or provinces. There is a need in trade and
investment agreements for a recognition of the asymmetries amongst countries and amongst
different segments of the population within countries, particularly poor women and first
nations people. These agreements need to build in the means for a greater distribution of
wealth. Let's level this playing field as well." (R. Morrow, Victoria, Mar. 3, 1999,
pp. 594-5)
Terrace resident Frances Birdsell, who had lived and worked for many years in Central America, declared: "For me, the MAI is just the most recent extension of the economic elite's plans for unfettered access to whatever and wherever they want to go.... The developing world is certainly a target -- countries that can be bought at bargain-basement prices because they are desperate for investment and desperate to create jobs for their people. (F. Birdsell, Terrace, Feb. 17, 1999, p. 430) And Dereck Sale, who had emigrated to Canada from his native Jamaica, denounced the effects of "bold-faced speculation, which has driven millions into abject poverty and which would be perfectly reasonable and acceptable under the MAI." He warned: "Are Canadians listening? We are not safe from economic devastation, either as a rich South Korea or as a poor Brazil. So whether in our interest or as a caring First World leader, it is incumbent on Canada to promote justice and fair dealings with other countries." (D. Sale, Prince George, Feb. 18, p. 491)
Ms. Birdsell, among others, asked the committee to support "a hope-giving relief measure [that] has been proposed in `A Call to Jubilee'...an ecumenical petition...to cancel the backlog of unpayable debts to the most impoverished nations by the year 2000, in the belief that the start of the new millennium should be a time to give hope to the poorest populations of the world." (F. Birdsell, Terrace, Feb. 17, 1999, p. 430) The Jubilee initiative, raised repeatedly by faith community representatives, is a worldwide movement to mark the millenium by forgiving the debt of the world's 50 poorest countries. Massive petitions calling for the cancellation of debt were presented to the leaders of the G-8 countries at their June 1999 summit in Cologne, Germany. At the previous four summits, world leaders have agreed to partial debt relief. The Jubilee initiative aims for 100 percent relief.
Taken together, the Tobin tax and the Jubilee debt forgiveness would be significant -- and achievable -- steps toward global financial reform. Broader and complementary initiatives might include support for capital controls to cope with economic crises, regulation of hedge funds and derivatives trading and reform of the IMF and World Bank. This could move the international community closer to the original principles of Bretton Woods, which Prof. Paul Bowles pointed out "sought to implement...restrictions on international capital flows -- [and] support for trade flows, which was designed to enable nation-states to follow full employment policies." (P. Bowles, Prince George, Feb. 18, 1999, p. 492)
RECOMMENDATION 28
Your committee recommends that the provincial legislature consider a resolution endorsing the development of a Tobin tax on international financial transactions that could curb the flow of short-term, speculative capital flows and raise resources to promote global economic development and reduce world poverty.RECOMMENDATION 29
Your committee recommends that the provincial legislature consider a resolution endorsing the Canadian faith communities' Jubilee initiative to forgive the debt of the world's poorest nations.
When confronted with public opposition, the proponents of MAI-style agreements frequently protest that outsiders are loading up the trade agenda with extraneous issues. For example, Kathryn McCallion, Canada's head of delegation in the FTAA talks, recently told a parliamentary committee: "It's really important that the message we send out is that this is a trade negotiation. While we're open to the linkages of various elements of our societies with trade negotiations, the empowerment of trade negotiators to solve social issues is very limited."47 Mexican Trade minister Angel Gurria was even more blunt at a recent OECD meeting when explaining why protecting labour and environment standards should not be part of the upcoming WTO round. "The question is one of not overburdening the agenda with issues that are being taken up in other institutions."48 Trade and investment agreements were never intended, their backers claim, to address -- let alone resolve -- environmental protection, labour standards, human rights, consumer safety, cultural diversity or other social concerns.
After
hearing hundreds of presentations from experts, NGOs and British Columbians from all walks
of life, this committee respectfully takes a different point of view. The serious concerns
of citizens and civil society representatives about the social, cultural and environmental
impacts of MAI-style agreements do not appear to be misplaced. Indeed, in the committee's
view, it would be fairer to say that the new international investment agreements are
"overburdening" democratic institutions at all levels.
Measures aimed at environmental protection, public health, and cultural diversity can be,
and have been, challenged under Canada's existing international trade and investment
obligations. If Canada proceeds further down this path by adopting broadly worded investor
rights like those proposed in the MAI, these conflicts can only increase. It should
surprise no one that many Canadian citizens have reacted with alarm. Canada's experience
under NAFTA's investor-state process, reviewed in this report, demonstrates how such
agreements have evolved into an effective tool for special interests to challenge and, as
in the MMT case, to overturn public interest regulation. They accomplish this by creating
new legal rights and secretive dispute settlement processes that empower investors to
bypass domestic courts and legislatures to attack government measures adopted in the
public interest.
At a deeper level, by increasing capital mobility and the leverage of global investors
in pitting country against country and region against region in bids to attract investment
capital, these new treaties also reinforce structural pressures that reduce the scope of
action for governments and democratic institutions. One witness remarked that
"citizens and societies have roots, but capital has wings. Treaties such as the MAI
which privilege the latter -- privilege winged capital -- inevitably impose costs and
impose limits on governments, citizens and societies. Governments have less power to
manage their economies. Workers are subject to the threat of firms moving elsewhere.
Societies face a loss of governance and control, and the democratic deficit increases. So
privileging the rights of corporations inevitably weakens other groups." (P. Bowles,
Prince George,
Feb. 18, 1999, p. 492) Both legally and structurally, the new international investment
agreements are powerful instruments for global deregulation -- as many citizens and civil
society groups are keenly aware and determined to address.
This
committee was impressed by the breadth and diversity of British Columbia citizens and
groups who took time to express their views on the MAI. They included many ordinary
citizens from all regions and walks of life. It was apparent, with the exception of big
business and international trade lawyers, that representatives from virtually every sector
of society -- environmentalists, cultural creators, the labour movement, health care
activists, women's groups, farmers, faith communities, education groups, anti-poverty and
human rights activists, small businesses, first nations, and local governments -- were
united in opposing the MAI. The very fact that the base of support for the MAI is so
narrow and the interests ranged against it is so broad calls into question its democratic
legitimacy.
Indeed, the MAI draft fell well short of any reasonable democratic benchmark. The first report of the committee and the transcripts of the expert testimony explored these shortcomings in some detail.
These and many other substantive concerns spurred the committee to "reject the fundamental basis of the MAI negotiations" and call for "a new set of guiding principles for a more balanced approach to international trade and investment agreements." After the public phase of the hearings, the committee believes even more strongly that adopting the recommendations in its first report are essential to address many of the concerns that we heard from British Columbians.
An
immediate priority for Canadians is to get rid of the worst elements of the NAFTA
investment chapter, including the investor-state process and the unacceptably broad
meaning of expropriation. It is encouraging that the federal government has placed these
issues on the NAFTA ministers' agenda, but the Canadian government's demands do not fully
address the substantive concerns, and the response to date of its NAFTA's partners is far
from encouraging.
As difficult as it appears now to achieve meaningful changes in NAFTA's investment chapter, certain developments may ease reform. Adverse investor-state rulings against Mexico or the U.S. may cause them to reconsider their current position, or result in domestic legal or congressional resistance that forces their hand. Domestic public pressure will certainly be needed to strengthen the Canadian government's position and to stiffen its resolve. The government of British Columbia can also play a role by vigorously defending any of its own measures that are challenged, especially if the Sun Belt Water case proceeds to formal dispute settlement.
In the meantime, the problems encountered by the federal government in achieving even its modest objectives expose the hollowness of its public reassurances during the MAI debate. Until agreement can be reached to change or reinterpret these harmful NAFTA features, the federal government must stop pushing for them to be replicated through other international investment agreements.
A longer-range task, and more difficult challenge, is to create the conditions for negotiating more balanced and inclusive international trade and investment rules. A basic question -- perhaps the basic question -- underlying the debate about the MAI, NAFTA chapter 11 and similar provisions in other treaties is: "Are democracy and globalization compatible?" For citizens and their democratically elected governments, there can be only one answer to this question: "They must be made to be compatible." And it is the rules guiding globalization that must be transformed to conform to democratic imperatives. The democratic benchmark is the standard against which citizens rightly insist that legislators judge such international treaties.
Witnesses were emphatic on this point. "As a citizen of Canada," stated Kate Brauer, "I'm just completely appalled that a group of trade negotiators...can simply negotiate away the federal government's right to govern." (K. Brauer, Nelson, Feb. 23, 1999, p. 530) Eva Lyman argued: "We cannot afford to have unelected, unaccountable multinational corporations rule Canada by intimidation." (E. Lyman, Vancouver, Mar. 11, 1999, p. 811) And student Uri Straus warned: "[N]o government that is seriously committed to democracy will be allowed to get away with supporting an MAI-like agreement." (U. Strauss, Surrey, Mar. 4, 1999, pp. 683-4)
One frustration of the committee's work was the decision of certain key backers of the MAI not to participate. The Business Council on National Issues, the Canadian Council for International Business and the United States Council for International Business all declined invitations. The committee benefited greatly from those B.C. and Canadian business organizations that did appear. And the committee remains convinced, as reflected in the first report, that practical rules to protect Canadian investments abroad and to ensure reciprocal fair treatment for foreign investors in Canada are achievable.
But the overwhelming majority of witnesses felt that the path proposed under the MAI would shift the balance of power radically in favour of multinational corporate power. Undergraduate student Alex Pitoulis, for instance, remarked: "In my mind, what most of these issues come down to is power -- power over who controls land and resources, who controls governments and who controls banks but, most importantly, who wields the decision-making powers for the rules of the international economy.... What I don't understand nor agree with is an agreement that gives more power to the groups or bodies that already have the most assets in this department. The world does not need an MAI that is written in favour of benefiting large investors." (A. Pitoulis, Prince George, Feb. 18, 1999, p. 493)
Multinational business organizations can ill afford to appear to be more comfortable advancing their interests through closed negotiations and secret dispute processes than through public debate. The successful public backlash against the MAI indicates that the old paradigm of international economic negotiations -- where export and import industries vied for influence and government negotiators could safely discount other social groups and interests -- is discredited and obsolete. International business organizations, as the prime movers of such treaties, are obligated to engage in the public debate. And they risk much in vacating the field to the many articulate critics of these agreements.
An even greater frustration for British Columbians who appeared at these public hearings is that the Canadian government, despite some reassuring rhetoric, remains a determined proponent of such unbalanced rules. Canada's negotiators, still working behind closed doors, continue to doggedly pursue an MAI agenda. Canada could play a very different and more far-sighted role in shaping a new international architecture. Most witnesses believed that it is time that Canada took a leadership role in pursuing international rules that strengthen, rather than weaken, their communities and that reinforce, rather than undermine, democratic governance at all levels.
The 22
recommendations in its first report and the 12 recommendations added in this report are
the committee's effort to articulate British Columbians' view of the essential
preconditions for any future international investment agreement negotiated by the federal
government. Until they are fulfilled, the federal government cannot hope to gain broad
acceptance and legitimacy among British Columbians for its international investment
agenda.
In the interim, this committee calls for a pause, a moratorium, on Canadian support for further international investment negotiations. A national debate on the impact of Canada's existing investment treaty obligations and of the federal government's current negotiating objectives is overdue. Such a debate must directly involve all governments that are ultimately to be covered under any treaty, tap the expertise and analysis of non-governmental actors, build broad public knowledge of and support for a multilateral framework for investment and create a stake in the results for a range of interests beyond just those of international investors. It should result in a new mandate for Canadian negotiators that advances citizen rights, balances investor rights with corporate responsibilities and avoids conflict with Canada's other international treaty obligations to uphold human rights, labour standards, and environmental protection. This new mandate must also respect the role that democratically elected governments, at all levels, must fulfil in balancing and reconciling diverse interests and in regulating to meet its citizens' social and economic needs.
This
committee is eager to participate in such a debate. Our experience confirms that thousands
of well-informed British Columbian citizens also desire the opportunity to do so. This
committee recommends that the province of British Columbia take steps (recommendations 33
and 34) to ensure that the B.C. public and the Legislative Assembly are fully prepared to
engage. The MAI was temporarily defeated by an alliance of ordinary citizens, activist
non-governmental organizations and progressive governments. If its revival is to be
avoided, all will need to be prepared and to build their capacity to engage productively
in the creation of a new -- more just and sustainable -- multilateral framework for the
regulation of investment.
RECOMMENDATION 30
Your committee recommends that prior to engaging in any future international trade and investment negotiations, the federal government undertake a comprehensive public review of Canadian international trade and investment policy. Such review should include an assessment of the environmental, social and economic impacts of investment rules in existing agreements. It should also consider substantive changes in the Canadian government's existing international commitments as well as its negotiating objectives in any future negotiations.RECOMMENDATION 31
Your committee recommends that prior to engaging in any future international trade and investment negotiations, Canadian federal and provincial governments, business, civil society and interested citizens develop a new Canadian negotiating mandate that ensures that new international rules fully integrate social, environmental and cultural priorities with trade and investment concerns.RECOMMENDATION 32
Your committee recommends that prior to engaging in any future international trade and investment negotiations, the federal and provincial governments develop a framework that ensures that Canada's international trade and investment obligations respect Canada's constitutional division of powers and provide for the express consent of provincial legislatures before Canada makes commitments involving matters falling within provincial jurisdiction.RECOMMENDATION 33
Your committee recommends that the province establish an advisory committee comprised of business and civil society representatives to advise the provincial government on developing B.C.'s position and advancing B.C.'s interests in future international trade and investment negotiations.RECOMMENDATION 34
Your committee recommends that the Legislative Assembly consider creating a special committee to advise the provincial government on developing B.C.'s position and advancing B.C.'s interests in future international trade and investment negotiations.
20 Lalumière report, p. 4.
21 Lalumière report, p. 3.
22 cf. "The MAI thus marks a step in international economic negotiations. For the first time, we are witnessing the emergence of a 'global civil society' represented by non-governmental organizations, who are often active in several countries and communicate across borders. This is no doubt an irreversible change." Lalumière report, p. 3.
23 See "Special Committee on the Multilateral Agreement on Investment: First Report," December 29, 1998, Part II, pp. 71-8.
24 The first investor-state dispute against the United States was also initiated on October 30, 1998. There are also at least two ongoing suits against Mexico.
25 Basic facts about these suits are presented in Table 1.
26 Methylcyclopentadienyl manganese tricarbonyl (MMT) is a fuel additive designed to enhance the level of octane in unleaded gasoline. Ethyl Canada is the sole importer of MMT into Canada. Once imported, Ethyl processes MMT in its Ontario manufacturing facility for distribution to purchasers across the country.
27 The federal government apparently decided that there was not enough conclusive evidence of MMT's harmful health effects to support a direct ban under the then-existing Canadian Environmental Protection Act, so it opted instead to apply an effective ban by restricting imports and interprovincial trade.
28 On June 12, 1998, an Agreement on Internal Trade (AIT) panel ruled that the federal ban on interprovincial trade violated the AIT. The AIT, however, is not a legally binding agreement. And even if the federal government had abided by the AIT ruling and removed the interprovincial restrictions on MMT movement, the import ban would continue to have effectively prohibited the use of MMT in Canada. MMT is not manufactured in Canada, and Ethyl is the sole supplier.
29 See Laura Eggerston, "Liberals lift ban on controversial gas additive," Toronto Star, July 21, 1998.
30 Lawrence Herman, "Expropriation takes on new meaning: MMT case sets far-reaching precedent," Financial Post, July 28, 1998, p. 13.
31 Ibid.
32 "Notice of Intent to Submit a Claim to Arbitration under Section B of the North American Free Trade Agreement," Americas Trade, September 3, 1998.
33 An internal memorandum to Minister Copps warned the minister to "expect strong opposition from PCO (Privy Council Office), DFAIT (Department of Foreign Affairs and International Trade) and Industry Canada who, at a meeting with DOE (Department of Environment) staff, viewed PCB export as a trade issue." November 1, 1995. Obtained under freedom of information and released by S.D. Myers on October 30, 1998.
34 Trade minister Art Eggleton took the remarkable, if questionable, step of writing publicly to his colleague, Minister of Environment Sergio Marchi, to oppose the reintroduction of Bill C-94, the legislation banning MMT. Eggleton asserted that "an import prohibition on MMT would be inconsistent with Canada's obligations under NAFTA and the WTO" and warned that "Ethyl Corp. may try to advance an argument that such a ban would be a measure tantamount to expropriation of Ethyl's investment in Canada. Thus, Canada may also be susceptible to an investor-state challenge under Chapter 11 of the NAFTA." This letter, obtained by Ethyl Corp., was presented to the NAFTA dispute panel as evidence that Canada had knowingly violated NAFTA. (Arthur Eggleton, Minister for International Trade, letter to Sergio Marchi, Minister of Environment, February 23, 1996)
35 Under the 1996 softwood lumber agreement, 14.7 billion board feet of Canadian lumber can enter the United States duty free. Exports above that level are subject to escalating tariffs. The five-year agreement expires in 2001.
36 WCELA brief, op. cit., p. 1.
37 $695 million (US) @ an exchange rate of $1.45 (Cdn) / $1 (US) equals approximately $1,007,750,000 (Cdn). See Table 1.
38 Op. cit., "First Report," pp. 77-8.
39 See "Notice of Intent to Submit a Claim to Arbitration between Sun Belt Water, Inc. and Her Majesty the Queen in Right of Canada," December 2, 1998.
40 Ibid.
41 See WCELA brief, "Submissions to the Special Committee on the MAI Regarding the Investor-State Provisions of the MAI," September 1998.
42 Canadian Environmental Law Association, presentation to forum on FTAA at Miami meeting of FTAA negotiators, April, 1999.
43 Koscielniak, along with a number of other witnesses, cited research by Mel Hurtig showing that Industry Canada data indicate that between mid-1985 and 1997, "... of the $186.3 billion in total investment recorded by Ottawa, 93.4 percent was for takeovers and only 6.6 percent was for new business investment." Mel Hurtig, "How much of Canada do we want to sell?" Globe and Mail, Feb. 5, 1998.
44 See "First Report," pp. 51-57.
45 Ibid., p. 57.
46 Bhagwati's views were referred to by Mark Weisbrot when he testified to the committee on October 14, 1998. Prof. Bhagwati's condemnation of the MAI was published in the Financial Times of London in October 1998, and a copy can be found on his web site at http://www.columbia.edu/~jb38/papers.htm.
47 Kathryn McCallion, assistant deputy minister, DFAIT to the Subcommittee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade, February 11, 1999.
48 Diane Coyle, "Ministers clash over freeing up trade," The Independent, May 28, 1999.
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