SPECIAL COMMITTEE ON THE MULTILATERAL AGREEMENT ON
INVESTMENT
SECOND REPORT
Third Session, Thirty-sixth Parliament
June 29, 1999
HOUSE OF COMMONS
Standing Committee on Foreign Affairs and
International Trade
April 26, 1999
Testimony of Ms. Joan Smallwood
(Chair, Special Committee on the Multilateral Agreement on Investment, and MLA for Surrey-Whalley, Province of British Columbia):
"Thank you. I'd like to start by thanking the committee for the opportunity to present to you and say how pleased I am to start off a Monday morning with you.
"Having chaired the legislative committee for British Columbia, I know what a choice time this is to be able to speak to you first thing in the morning rather than last thing on the last day of the last week.
"As chair for the B.C. Legislative Assembly Special Committee on the Multilateral Agreement on Investment, I'd like to welcome you formally.
"Many British Columbians were disappointed that the federal committee studying the MAI held abbreviated hearings last year and only in Ottawa. B.C. citizens are gratified that your committee is now consulting British Columbians on these important issues here in British Columbia. So thank you for coming. It's taken as a sign of hope, and we're looking forward to your report.
"In the very short time available today, I'd like to briefly describe the work of B.C.'s Special Committee on the MAI and outline just a few of the many fundamental concerns B.C. citizens have about the proposed MAI and on existing NAFTA investment provisions upon which it was based.
"I'll explain why to date the federal government's proposal for addressing these concerns is unsatisfactory, and I will highlight the widespread public concern about the fact that NAFTA's investment rules have enabled a California investor to bypass British Columbia's court to challenge B.C.'s environmental policy preventing bulk water removal from the province.
"Finally, I'll communicate to you a vitally important message from the many British Columbians who spoke to our committee, that there is another, much better way ahead than the unbalanced approach to international agreements now being used. It's time Canada took a leadership role in pursuing international rules that strengthen rather than weaken our communities and that reinforce democratic governance at all levels.
"The multiparty Special Committee on the MAI was appointed by a unanimous vote of the British Columbia legislature on April 27, 1998, to review the MAI and related international issues and to increase public awareness about them.
"The committee has conducted itself in two stages. During the first stage we held last fall, the committee heard over 80 expert witnesses, not only from British Columbia but from across Canada and the United States, as well as from France and the European Union. Copies of the committee's first report, which was issued in January, are being provided to each of you today.
"The second stage of the committee's work involved engaging British Columbia in a dialogue about the MAI and related international investment issues. The committee was privileged to have very thoughtful presentations from citizens in Terrace, Prince George, Nelson, Courtenay, Surrey, Kelowna, Kamloops, Victoria, at UBC in Vancouver and in Burnaby.
"The committee's second stage report will be tabled in the legislature later this spring. Reports from all of the proceedings of the committee are available free to the public through the clerk of committees and on our committee's web site.
"British Columbians have grave concerns about the provisions that were proposed in the MAI and actively supported during extensive negotiations by the government of Canada.
"Let me emphasize one of the main conclusions of the committee. The MAI is fundamentally flawed and should be discarded in favour of a fresh approach for future international negotiations. Moreover, MAI-style provisions should be removed from the existing North American Free Trade Agreement.
"Let me try to make this abundantly clear by putting it in a slightly different way. You may have received suggestions that the main elements of the MAI, which failed at the OECD, should essentially be transferred intact for consideration during the World Trade Organization negotiations. Indeed, Canada, Japan and the European Commission have reportedly been pushing just such an approach. Our conclusion, based on the most extensive public hearings on these matters to date, is that this would be a grave mistake.
"During the negotiations on the MAI, Canada's position was that NAFTA's investment chapter should serve as a model for the MAI. Canadian representatives repeatedly referred to their intention of replicating NAFTA.
"There is every indication that Canada has not changed this negotiation position for the WTO or for the FTAA. Again, many British Columbians told us this approach would be simply unacceptable. While the world clearly needs international rules for investment, rules like those contained in the MAI and in the NAFTA investment chapter are headed in the wrong direction.
"In the FTAA and the WTO negotiations, Canada's dogged, single-minded pursuit of unbalanced, inappropriate and discredited MAI-style investment rules is a recipe for failure. The Canadian government should stop pushing for the negotiations of the MAI and NAFTA-style investment rules in the WTO. Canada should fix the NAFTA investment chapter's very serious flaws, instead of seeking to expand these investment rules to all of the Americas through the FTAA.
"If there were more time, I would have liked to expand on the many ways in which MAI-style rules not only undermine government's ability to provide certainty for international investors, but also undermine citizens' democratic control over their communities. I urge you to examine the committee's first report and the expert testimony, where many of these issues are considered in detail.
"Here are just a few of the highlights of the committee's report on some important provisions in the MAI that enjoyed, and by all accounts still enjoy, strong support from the Canadian government.
"First, on national treatment, the committee recommends that the MAI's top-down approach, in which all sectors measured are covered by the agreement unless specifically exempted, should be discarded in favour of the traditional bottom-up approach, in which governments negotiate positive lists of industries or sectors that will be covered.
"On performance requirements, extensive restrictions on performance requirements are unacceptable. Governments must be free to negotiate for local, provincial or national economic benefits, and to apply specific conditions aimed, for example, at job creation or improved environmental protection.
"On investment protection, investor protection provisions of the MAI extend well beyond domestic law. Adopting these provisions would constitute an unacceptable, unnecessary, even reckless surrender of sovereignty and democratic accountability.
"On investor-state dispute procedure, this process, which enables a foreign affiliated investor to bypass the domestic court system and challenge government's measures before international arbitral panels, subverts the rules of law and undermines domestic processes.
"Although we are somewhat encouraged by the Canadian initiative with its NAFTA partners to narrow the meaning of expropriation and bring greater transparency to NAFTA's investor state process, these initiatives do not go nearly far enough. In the view of our committee and the great majority of British Columbians from whom we have heard, NAFTA's investor state mechanism should be eliminated and should not serve as a model for any future international agreement.
"On general exceptions and reservations, country-specific reservations provide only limited and temporary protection and are therefore inadequate to protect vital Canadian and British Columbian interests. Provisions that fully safeguard democratically elected governments' freedom to protect the environment, conserve natural resources and provide health care, education and other social services, strengthen its culture and achieve its citizens' economic development priority must not be relegated to afterthoughts in the treaty negotiation process. Future negotiations should exclude the concepts of standstill and rollback.
"It is these and many other substantive concerns that spurred the committee to reject the fundamental basis of the MAI negotiations and call for a set of guiding principles for a more balanced approach to international trade and investment agreements.
"Before we consider the importance of these alternative approaches, I'd like to share one example of how NAFTA's rules can be used and are being used by a U.S. investor to attack B.C.'s protection of its vital fresh water. The Sun Belt NAFTA case, as it is commonly known, came up again and again in our public hearings. To many citizens it crystallizes some of the most objectionable features of NAFTA's investment chapter.
"I'd like to spend a little time on this, because British Columbians know that the control of our province's fresh water is of critical import and we take that very seriously. At this point it is useful to review some history, and I'll be brief.
"B.C. has always shown a keen interest in protecting fresh water in this province.
Ever since the fierce debate over water inclusion in the Canada-U.S. free trade debate in
the
1987-88 round, British Columbia has demonstrated their strong opposition to bulk water
exports and to schemes to divert B.C.'s rivers to California.
"When then Premier Bill Vander Zalm's Social Credit government issued several licences for bulk water export by marine bulk tanker in 1991, determined opposition caused the government to backtrack and place a moratorium on bulk water shipments. This moratorium was extended, broadened and made permanent in 1995 when Premier Harcourt's New Democrat government passed the Water Protection Act to prohibit bulk water removals and large-scale water diversions. It's also important to recall that in the lead-up to the 1993 federal election, the B.C. government repeatedly highlighted NAFTA's treatment of Canada's control over water.
"British Columbia ministers repeatedly urged then federal Liberal leader Jean Chrétien to fulfil 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 implementation legislation without obtaining first full protection of water. As we all know, no meaningful protection for water was obtained, and the NAFTA was adopted without a single change. Now the chickens are coming home to roost.
"Just last December, California-based Sun Belt Water Inc. announced its intention to use NAFTA's investment rules to seek compensation for damages allegedly arising from B.C.'s environmental prohibition against bulk water removals. This action is separate from the company's domestic legal case. This case is historic. It is the first challenge of a provincial measure by an investor using NAFTA's investor state dispute process.
"I raise it here for your consideration because this case starkly highlights the risk to provincial legislative authority of the federal government's continuing support for broadly worded investor protections backed up by the investor state dispute process.
"Whether this extrajudicial challenge to B.C.'s water protection policy ultimately succeeds or not, it raises many disturbing questions. How is it that the federal government can expose provincial measures to binding international arbitration without the province's consent? How can a valid provincial policy that addresses a vital environmental issue and that enjoys overwhelming public support come under direct attack in this way? Who will pay if the provincial measure is found to violate the federal government's treaty obligations? If a provincial government maintains an inconsistent measure, might the federal government be required to pay ongoing damages?
"Setting aside the jurisdictional issues, is it fiscally responsible for the federal government to negotiate an agreement that exposes it to open-ended liability for provincial government measures? Faced with an adverse ruling, what step might the federal government take to try to force provinces, municipalities or first nations to remove offending measures? What role will provincial, local and regional governments and first nations have in NAFTA cases concerning measures these governments have implemented? These are important issues.
"The committee is also concerned about the potential of future international lawsuits using NAFTA's investor-state provision to exert a chilling effect on provincial and other governments' ability to govern in the public interest. It's sobering to think that the Sun Belt case will be just the first of a long string of NAFTA challenges attacking the public interest of our province and of Canada. B.C. didn't negotiate NAFTA; the federal government did. B.C. warned about NAFTA's threat to water; the federal government didn't listen.
"To address this specific concern, B.C. passed legislation to safeguard our water, and now, because of NAFTA investment rules, the B.C. government is forced to spend valuable time and resources defending the provincial interest. It even has to fight with the federal government about the provinces' legitimate role in the NAFTA process.
"And who pays for all of this? Taxpayers do. Canadians are threatened with a claim for well over $100 million. That's another reason many British Columbians are so personally offended by the Sun Belt NAFTA challenge. More broadly, the committee believes 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. Your committee should know that B.C. takes these issues very seriously, as they go to the heart of how we govern ourselves.
"I would like to draw your attention to the recommendation of B.C.'s legislative committee on the MAI that when negotiating any future investment treaty such as the FTAA or WTO, the federal government must ensure the agreement does not apply to matters within provincial jurisdiction, including local government matters, without the express consent of the Legislative Assembly of British Columbia. If the federal government fails to provide for such consent, then the provincial government should explore all means, including legal action, to defend vigorously its own jurisdictional rights and those of local governments to represent the interests of British Columbians.
"I'd like to conclude by encouraging your committee to examine new approaches to international investment agreements.
"Developing such alternative approaches animated many British Columbians during the second stage of our regional public hearings. Many citizens rose to the challenge of examining approaches that would define clear objectives, build on a firmer foundation than NAFTA's investment rules, use democratic negotiation processes and respect provincial government jurisdiction. In a nutshell, they began to define the essential preconditions for any future international investment agreements negotiated by the federal government.
"British Columbians began defining an entirely new international approach. Much of this testimony is as exceptional as it is compelling, and I urge you to review the committee transcripts. Witnesses focused on a need for international agreements that would help people address the everyday challenges they face in their communities. Such agreements should be designed to increase the quality of their lives and the lives of citizens everywhere. They should strengthen Canadian culture and public health, education and social services. They should bolster environmental protection, natural resource management and conservation. They should enhance human and labour rights, respect the authority of first nations and provincial and local governments, and strengthen democratic institutions.
"In short, the current model of negotiation should be abandoned in favour of an entirely new and constructive approach. This is a vision of future investment agreements that we would like you to take from British Columbia back to Ottawa for further deliberations and action.
"Thank you again for the opportunity to speak to you today. We will ensure that each of you receives the final report of our committee."
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