Proceedings of the Standing Senate Committee on
Energy, the
Environment and Natural Resources
Issue 12 - Evidence, February 19 (3:25 PM)
OTTAWA, Wednesday, February 19, 1997
The Standing Senate Committee on Energy, the Environment and Natural Resources, to which was referred Bill C-29, to regulate interprovincial trade in and the importation for commercial purposes of certain manganese-based substances, met this day at 3:25 p.m. to give consideration to the bill.
Senator Ron Ghitter (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we have with us today two distinguished constitutional law experts who will take us through the constitutionality of Bill C-29 or the lack thereof.
Please proceed.
Mr. Patrick Monahan, Osgoode Hall Law School, York University: Mr. Chairman, I am pleased to be here to make submissions to you today on Bill C-29.
I will be speaking to two issues. I understood from the Clerk when I initially spoke to her that I should address two issues. The first is the constitutional validity of Bill C-29 and the second is whether it violates the Agreement on Internal Trade, which is the 1994 agreement signed between the Government of Canada and the governments of the provinces and territories. I will be speaking to that as well.
I have submitted a brief to the committee. I understand that brief has only now just been circulated. It is a fairly detailed brief. I will not try to take you through it, but I will refer members of the committee to the brief for further detail on the arguments I will make to you.
Regarding the constitutional validity of Bill C-29, when I first read Bill C-29 -- it is fairly short -- I was rather puzzled by the suggestion that the legislation was unconstitutional. It seemed to me that it was obvious that there was no question at all that the legislation was valid. I came to that conclusion immediately because the legislation only applies to the interprovincial movement of a product or the importation into Canada of a product.
It is true that the courts, and particularly the judicial committee of the Privy Council when it was the final court of appeal for Canada, imposed very significant limits on the power of Parliament to regulate trade and commerce. Yet, it was always understood that only Parliament could regulate interprovincial trade or the importation of goods into Canada because, under the theory of federalism that the Privy Council developed, there was an exhaustive distribution of powers between the federal Parliament and the provinces. In other words, the entire range of powers must be distributed between Parliament and the provinces. It has been clear for over 100 years now that the provinces cannot regulate the importation of products into Canada or the interprovincial movement of products into Canada. Given that the provinces cannot regulate, it must be that Parliament can regulate.
The courts, in interpreting the trade and commerce power, have said that there is a fundamental distinction to be made between the regulation of interprovincial trade and the regulation of what might be called local trade or trade within a province. While the courts have put very significant limits on the ability of Parliament to regulate transactions taking place in a single province, there has never been any suggestion that Parliament was prevented from regulating interprovincial trade.
If you look at the statute books, you have literally dozens of different statutes dealing with a whole wide range of issues that regulate interprovincial trade and importation of goods. I have given you a reference to some of those statutes in footnotes 3 and 22 in my brief. I will not go over those, but that will give you a flavour. That is a partial listing of the kinds of things Parliament does. It limits its regulation in many of these cases to interprovincial trade.
It is obvious to constitutional lawyers that those statutes are valid. We do not get any constitutional challenges to these statutes because people are not prepared to waste money on lawyers. Notwithstanding what people say about lawyers trying to encourage people to litigate, when it is obvious you do not have a chance to win a case, then it is not worth spending money to litigate that case.
One example that I do give in the brief is a case called Dominion Stores v. The Queen. That is at paragraph 2.10 on page 4 of my brief. In that case, there was a challenge to Parliament's power to regulate the establishment of standards for apples and other natural products in a province. That statute had two parts to it. One part of it regulated the local sale of apples, and another part regulated interprovincial trade in apples.
The Supreme Court of Canada ruled in that case that the local trade regulation was invalid, but the people challenging the legislation conceded that the interprovincial regulation was valid. I want to emphasize that they conceded the point. In other words, they did not even get up and argue it. It was not worth arguing. It was obvious; it was just clear. We know that. That is established doctrine, so we will not even insult the judges by trying to get up and make an argument; it would be thrown out.
If you apply this to the context of the subject of Bill C-29 and the subject of the regulation of fuels and the regulation of emission controls in vehicles, what do you see? You see that over the last 25 years in the Motor Vehicle Safety Act, the Parliament of Canada has established standards to regulate emissions in motor vehicles. They have reduced those emissions by over 90 per cent through the Motor Vehicle Safety Act.
How have they done it? They have done it exactly the same way they do it in Bill C-29. They say you cannot move a vehicle across a provincial border, and you cannot import a vehicle into Canada unless it meets these emission standards.
Now that legislation is obviously valid, in my view. It has enabled Canada to reduce emissions over the last 25 years by about 90 per cent. That is perfectly valid.
When I look at Bill C-29, I say that they are doing exactly the same thing. They are not regulating transactions in a province, so it must be valid.
Then I say, what is the problem or what is the argument that is being made about this legislation? I consider the arguments that are made against the legislation. They have been brought to my attention. A letter from a lawyer, Mr. Bruce Campbell, makes certain statements about the unconstitutionality of the legislation. I do not want to deal with that in any detail, but I do have some discussion of that in my brief at pages 5 and 6. Senators, you can look at what I have there. Mr. Campbell is not here at the table, so I do not want to get into any great detail about that other than to say, with due respect to him, that he has misconstrued the relationship between international trade agreements and the internal division of powers between Parliament and the provinces. I think he has mistakenly attempted to say that because something in his view might be contrary to NAFTA or contrary to standards in the United States, that somehow that affects the internal division of powers between Parliament and the provinces. I suggest to you, senators, that that is simply not the case.
My colleague and friend, Professor Frémont, is an esteemed constitutional lawyer. He has prepared a very detailed opinion for Ethyl Canada. I understand Ethyl Canada has appeared before you. Professor Frémont has prepared an opinion arguing that the bill may be unconstitutional. I do not want to put words in Professor Frémont's mouth, but I note that at some points he is rather tentative in the brief and says that there could be an argument in favour of it or against it. He will tell me in a moment why I have misconstrued his argument.
If I understand his argument, he says the problem with the bill is that it is somehow a colourable attempt to regulate local trade, that they are focusing on these interprovincial transactions, but that they are really trying to regulate local trade. He says that under this colourability doctrine, the bill is unconstitutional.
Let me just make two brief points about that. First, on the notion of colourable legislation, Professor Hogg states that arguments of colourability rarely succeed. There are not very many cases. It is very difficult to make an argument about colourability. In fact, the cases where it has succeeded most often have involved provincial legislation, not federal law.
Let us put that aside. That is fine. That argument rarely succeeds. Professor Frémont would say that this is one of those rare cases where there is a colourable law. They are trying to regulate local trade. I have made an argument in more detail in the brief, but I would simply say that, with all due respect, the cases Professor Frémont cites are cases where Parliament was not limiting its regulation to interprovincial trade; it was trying to regulate local transactions. In those cases, the court said that is a colourable attempt. Given that Parliament is trying to reach down into the province and regulate these local transactions, that is unconstitutional and colourable. However, that is not this case.
Indeed, if Professor Frémont is right that Parliament cannot use this international trade power so as to affect what happens in a province, then the entire Motor Vehicle Safety Act that we have had in Canada for 25 years to regulate these emission standards is also unconstitutional. We could not have these emission standards in Canada. Of course, the purpose of these emission standards, even though they regulate interprovincial trade, is to regulate what happens when cars are manufactured. Given that 95 per cent of the cars travel across borders, the regulation effectively does reach down to the province, but it is not colourable. The doctrine of colourability does not apply, I say, when you have a regulation limited to interprovincial and international trade.
My sense of puzzlement is still there. I am anxiously awaiting Professor Frémont to tell me why, in addition to the arguments he has raised in his brief, it is unconstitutional. In my view, senators, it is an obvious case where the bill is constitutional. There is no serious, significant argument to be made that this bill is unconstitutional. It is plainly and obviously constitutional.
I want to say a few words about the Agreement on Internal Trade. It is difficult to make conclusive judgments about the Agreement on Internal Trade because it is a new document. We do not have any cases on it. We do not have any interpretation of it by tribunals, although we could look to international trade cases to see how it might be interpreted.
The thing to understand about the Agreement on Internal Trade, senators, is that it is a first step, but it is a very small first step. Governments were very cautious in wording that agreement so as to ensure they would have a lot of room to enact regulations. There is a specific chapter dealing with the environment, and they specifically provided that enacting an environmental measure, even if there is some doubt about the scientific evidence in support of that measure, does not mean it violates the Agreement on Internal Trade. The argument that it violates the Agreement on Internal Trade seems to be based on a lay person's view that you are preventing the movement of some goods across the border of a province. Therefore, does it violate the Agreement on Internal Trade? Does that agreement not want us to have free movement of goods?
The answer is, I am sorry to say, senators, that that is not what the agreement states. The agreement states that you can regulate the movement of goods across provincial borders as long as it is for a legitimate purpose. In this case, the question would be: Do you have some evidence to support the environmental purpose underlying the enactment of this legislation? If you do, a specific provision, Article 1505.8, which I refer to in my brief, says that that type of provision is not subject to challenge.
In this case, I have reviewed the testimony tendered before this committee. What you have is the testimony of 21 car manufacturers from around the world who have come here and said that they think MMT in gasoline impedes the effectiveness of emission control systems. I was struck by the president of Mercedes Benz who comes in here and states that they make 640,000 vehicles around the world, and there is no problem with 635,000 of them. However, they sell 5,000 in this one country called Canada where there is MMT, by God, and they have this problem with their emission control devices in Canada. He thinks that this is a problem.
If you take the precautionary principle, which is specifically provided for in the Agreement on Internal Trade, you are very unlikely -- I do not think it is as conclusive as the judgment I am making in terms of the constitutional question -- that a successful complaint would be brought under the Agreement on Internal Trade. In this respect, I have searched through the testimony before the committee. I have reviewed the submissions provided to the committee, and I have been unable to find any analysis of the Agreement on Internal Trade that goes through the provisions of the agreement and tells us why the agreement is breached.
I note that last week when representatives of the Government of Alberta were here, Mr. Chairman, you said to the witness at the time, "Could you please explain what is it in the agreement that is being violated here?" I read the answer, which was, "Well, we have got some legal opinions, and some lawyer, somewhere, told us that we have a case; therefore, we will be bringing a case."
I am left puzzled as to what is the basis of a claim. When you look at the environmental chapter of the agreement, it specifically precludes a challenge to Bill C-29.
The Chairman: Thank you, Professor Monahan.
Please proceed, Professor Frémont.
[Translation]
Mr. Jacques Frémont, Faculty of Law, University of Montreal: Thank you very much, Mr. Chairman. First of all, I would like to thank the committee and its members for inviting me here to testify. I will be making my presentation in English to facilitate the discussion around this table. However, I will be delighted to answer your questions in the language of your choice.
[English]
You will have received a copy of the paper I prepared in relation to the constitutional validity of Bill C-29. This paper was prepared at the request of the Canadian Petroleum Products Institute.
I have to point out that in this paper I was not asked to deal with the issue of the conformity or absence of conformity of Bill C-29 with the agreement on interprovincial trade. Therefore, this paper does not address this issue, and I must say that I am not specially competent to answer the questions you might have concerning the interprovincial trade agreement.
From the outset, I would like to say that when I read the bill, like my colleague and friend Mr. Monahan, I was rather puzzled. I did not understand how environmental legislation or legislation aimed at protecting the environment was framed so narrowly and exclusively in terms of interprovincial and international trade. It was and remains a puzzlement. I reread yesterday Minister Marchi's comments at third reading before the House of Commons. It was absolutely staggering that there was not a single word about the technique used by the bill. Clean air and health are discussed, but I did not even find the words anywhere in the act.
It is striking and remarkable that if this legislation is truly aimed at protecting the environment, why is it not environmental legislation? We will get back to that.
Professor Patrick Monahan is absolutely right. I am not here to tell you this afternoon that the bill is squarely unconstitutional. That would be going too far. What I will tell you is that there are serious questions, and these are the types of questions which will undoubtedly be raised before the courts if the bill is ever passed. This is Supreme Court of Canada stuff. We are going straight to the Supreme Court with the legislation and the terms framed as they are. God knows if the bill will affect the oil industry, but it will certainly have a good impact on the constitutional industry. In this respect, we are all grateful.
Senator Nolin: That is why you guys are smiling.
Senator Kenny: Let the record show that the lawyers smiling.
The Chairman: Professor Monahan does not seem to be smiling. Perhaps he has not been retained yet.
Senator Nolin: It is a matter of hours.
Mr. Frémont: It would be useless to repeat here the nuts and bolts of the discussions which you will find in the paper in front of you. I would prefer from the outset, however, to say a few words about what I would call, for the purposes of the discussion, a common-sense understanding to the assessment of the constitutionality of this piece of legislation. I say "common sense" because the bottom line of constitutional law has much to do with common sense and the way a country does and should function and the way a legal system does and should function.
It is the very essence of constitutional law and of the rule of law that the provinces or the federal state cannot behave in any way they please under a federal regime. Sets of rules exist in order to determine how our Parliament or a legislature may legislate. The Canadian Charter of Rights, for instance, imposes many constraints. The federal nature of our country imposes other types of restrictions upon the plenary legislative powers of Parliament and, of course, the legislatures. In other words, neither Parliament nor the legislatures can legislate in any way which pleases them. They must follow the rules.
Second, constitutional law has developed a rule of common sense inspired from the well-known saying that one cannot do indirectly what one cannot do directly. Indeed, the rationale behind this rule, which is called colourable legislation in constitutional law terms, is easy to understand. No legal and, indeed, constitutional rule would survive if it could constantly be circumvented. The system would simply collapse. This is also true of constitutional law.
The rules and the logic set out by the Constitution Acts are important and must be respected. Whenever possible, these rules ought to be taken into account at the legislative level, therefore avoiding long and expensive judicial debate and the legal uncertainty which comes with these debates.
Third, and in relation to the previous points, it remains important in constitutional law, as well as in life, to, as we say in French, call a cat a cat. If an act of Parliament or a legislature is aimed at fighting an evil, it should do so both directly and rationally. It should do so directly because it is an important dimension of the rule of law that things are clear and non-equivocal. The courts, as well as the public, are entitled to have the exact measure of the aims pursued by Parliament or a legislature. Rationally in life, as in constitutional law, one does things with a purpose in mind. It is not in this respect an accident that rationality is an explicit requirement of the tests developed by the court under the Canadian Charter of Rights. It is also an implicit requirement of the Constitution of this country in matters of the distribution of powers that the means chosen by Parliament must fit the aims which are pursued.
Fourth, and lastly, in order to be direct and rational, it is therefore a requirement of the Constitution that laws pursue constitutionally proper objectives through constitutionally proper means. In my humble respect, this is probably where Bill C-29 could fail to pass the constitutionality test.
My colleague Mr. Monahan has explained my position with respect to Bill C-29. The starting and finishing points of the determination of the validity of Bill C-29 are the true nature of that piece of legislation. In constitutional terms, we call it the pith and substance, the essence, the subject matter, the dominant or most important characteristic and the leading feature of this legislation. These expressions are all used by constitutional lawyers to determine the pith and substance of legislation.
On this point, I agree with my colleague Mr. Monahan that the pith and substance of the legislation is clearly trade legislation. We are not dealing with an environmental, health or criminal legislation. We are clearly dealing with trade legislation.
It is important in this respect not to confuse the objectives which might be pursued by the legislature. The objectives might be eventually environment, health or criminal law; but, in this case, the techniques used are clearly related to trade.
The basic question is this: Is it possible for Parliament, under its trade and commerce powers in the Constitution of Canada, to adopt the legislation as it is?
In reading Hansard, it struck me that not a single word was said about trade and that many things were said about environment and health matters. I was puzzled and I wondered why the government chose not to use its environmental or criminal law powers to deal with health, the way it has done, for instance, in the tobacco case a few years ago and the way it is doing in the tobacco case right now before the House of Commons.
When you examine the jurisdictional problems which would have come if the federal Parliament had chosen to legislate squarely in health matters or in environmental law matters, I can understand. I agree with the analysis made by the Department of Justice that with the evidence which is before the scientific community and the industry, it will be extremely difficult to pass the test before the courts to demonstrate that the impact and the potential harm to health is so grave that it will justify a criminal law approach in health matters, as was done in the tobacco case. In my paper, I discuss at length the impact of the recent Supreme Court decision in the tobacco case and apply it to Bill C-29. I doubt that it would be a good line to justify a federal intervention.
What was left for Parliament to intervene on was the federal trade and commerce powers, section 91.2. However, it is important to stress that we are in a federal system, and these powers do not exist in a vacuum. My colleague Professor Monahan said that the powers are distributed exhaustively between the provinces and the federal authorities. As is crystal clear under the Canadian Constitution, the provinces have full jurisdiction in relation to the production and the manufacture of products of goods, including gasoline.
Although Bora Laskin is a staunch federalist, you would not suspect him of being a provincialist. In the potash case, he clearly indicated that the manufacturing process is a provincial jurisdiction. Mr. Justice Pigeon, in the agricultural products reference in 1978, said the same, as did Mr. Justice Estey in Labatt v. A.G. Canada in 1980. You have three recent, forceful dicta. They are the last cases which discuss these issues before the court. They clearly acknowledged that the basic competence or the basic power relating to the manufacturing of goods or products is provincial, although that does not mean there is no room for federal competence. I agree with Professor Monahan that there is a clear federal jurisdiction related to interprovincial and international trade. That is not in issue here.
What is in issue here is how you apply both these jurisdictions to this bill in front of you. That is where it becomes less clear, and my brief suggests that a strong argument could be made before the courts that Parliament cannot, under the pretext of its jurisdiction in international and interprovincial trade, regulate the production processes of gasoline within a province. Some very strong arguments could be made before the court. I will not tell you this afternoon that it is unconstitutional, because I do not know. If I had to bet, I could be very embarrassed. It could go one way or the other. You never know with the Supreme Court, especially on these issues. The Supreme Court has not issued any ruling recently, so we do not know where the court stands on that. However, I am telling you that a strong case can be made to demonstrate that, by relying on international and interprovincial trade, Parliament is aiming at what is happening in the plants where gasoline is refined. If that is the case, and it is what I suggest in my paper, it could qualify as a disguised legislation -- in French we would say a colourable legislation -- and it answers all the parameters defined by the courts as far as colourable legislation is concerned. I would like to give you a few examples.
In R. v. Morgentaler, Mr. Justice Sopinka said that if you want to know whether you have colourable legislation, you must examine two things: the legal impact of the legislation and the practical impact of the legislation. It is agreed that there is a presumption of constitutionality, so the burden is on the person who wants to demonstrate that the law is unconstitutional. It is not easy to show there is colourable legislation.
What are the legal aspects? These points are raised in my brief. Each of these points on their own is not, per se, conclusive; however, when you consider all these points, it makes you suspicious. In French, we would say it does not smell good. It smells bad, and something is hidden behind the legislative technique. Parliament is aiming at something other than what appears at face value on this bill.
Three points about the legal effects are raised from pages 8 to 10 of my brief. First, Bill C-29 would not regulate trade as many of the other bills and the other statutes on the books do. It prohibits trade. It squarely prohibits trade of a product. There is no possibility for that product, except for experimental purposes, to circulate from one province to the other. It is agreed that Parliament can prohibit the circulation of goods, and that is usually the case in criminal law. However, when we are dealing with a trade matter and there is a prohibition, it is fairly strange.
Second, Bill C-29 aims at a single product. It does not aim at industry in general or a large chunk of the industrial world. It aims at the oil industry and the refining industry. The court cases are constant that Parliament cannot regulate, under its general powers, a single industry.
Third, the impact upon provincial legislative powers in trade matters for production of oil and gas is massive. There is nothing left. If this bill passes, any federal statute will be able to effectively control the production and manufacturing of gasoline within a province.
These are the legal effects, but what are the practical effects of the legislation, or what could they be? What could they be shown to be before a court of law, since that is what we are talking about? We are talking about evidence.
I am certainly not a specialist on the refining process by any stretch of the imagination, but it looks as if it will force a complete change in the local production processes of gasoline. If there is one importer, the importer will not be able to import any more, and the MMT will not be available to be added to gasoline. Therefore, the way gasoline is made will be substantially and integrally modified. In this context, it looks as if the bill will force one industry to completely end the use of MMT additives for local and external commerce.
However, what is the real impact of that law?Where does the law act? It acts on the plant; it acts on the manufacturing process. The circulation comes after. It is aimed at the way gasoline is made, and that is how the legislation becomes suspicious. The effects of Bill C-29 will not mostly be felt at the interprovincial or international level. The gasoline is not made at that level. Parliament is aiming to change the recipe for making gas in this country. If that is the aim, the way the manufacturing process functions is clearly a provincial jurisdiction, and there is no question about that.
It is a matter of evidence of the impact on the industry. If you are interested, I can give you examples of pieces of legislation which have been found colourable in the last few years.
I agree that normally it is provincial legislation which is aiming at something outside the province, but this time nothing prevents Parliament from aiming at the way oil and gas are refined. If that is found to be the pith and substance of the bill, I think the courts would not hesitate to step in and declare it unconstitutional.
With due respect for the contrary position, Parliament is concerned here not with interprovincial trade as such, but with the process through which gasoline is produced.
In 1980, Mr. Justice Estey in Labatt v. A. G. Canada, a very similar case dealing with the beer manufacturing process, said that when you are attempting to deal with the legal recipe -- how beer is made or how gasoline is made -- it is confined to the regulation of trade within a province, and it is not open for Parliament to intervene in that respect.
I will not tell you this afternoon that the bill is squarely unconstitutional, although I admire my colleague and friend Mr. Monahan for having said so. I think we are very much in the grey zone. As I said, as a citizen and not as a constitutional lawyer, I will feel sorry to have another federal-provincial debate about that before the courts. Maybe this country needs clearer things. If Parliament chose to take criminal law powers or environmental law powers, at least things would be clearer and we would know where we stand.
I will be pleased to answer your questions.
The Chairman: Professor Monahan, is there anything you wish to raise before we move to questions?
Mr. Monahan: To ensure that the record is clear, I only commented on Parliament's powers in relation to interprovincial trade. I did not comment on its ability to use any other head of power, including peace, order and good government. If Professor Frémont suggested I would agree that this could not be justified under peace, order and good government, I want to be clear that I do not agree with that.
I am not suggesting that there is not some other basis upon which the legislation could be justified. I am saying that here is a clear basis. This one seems obvious to me and, if this one is right, you do not have to worry about any others. The other arguments are not as strong as this one, and that is why I chose to focus on this one.
Professor Frémont said that this is colourable legislation because it is really trying to reach down to regulate local trade. Why are they doing it through this device? Why are they using this ban on interprovincial trade and importation? It seems odd. I guess it is a "heads I win, tails you lose" kind of argument against Parliament.
I agree that this is being done for environmental purposes. They are doing this to regulate the compatibility of fuels with emission control devices. Speeches which have been made make it clear that that is why they are doing it. However, if they tried to regulate that directly, the cases Professor Frémont cited would be relevant. Therefore, they decided to do it this way because it is absolutely rock solid. There is no doubt that this is vulnerable to constitutional challenge. That is exactly the same with the Motor Vehicle Safety Act. The speeches made in the House of Commons and the Senate about the Motor Vehicle Safety Act show that these emission control devices are required in order to have clean air. They use this device of regulating the interprovincial movement of vehicles because that is clearly within Parliament's authority and they effectively regulate the standards on vehicles. It is exactly the same here.
After Labatt v. A.G. Canada was decided, Parliament amended the Food and Drugs Act so that it only applied to the interprovincial movement of foods. This is exactly the same thing. The court, in the Labatt Breweries case, said that this statute reaches down into the province. It is commonplace. It is in dozens of statutes. There is nothing unusual about this.
Senator Beaudoin: The debate is exactly as you have both said very clearly. The only difference between your positions is that you, Professor Monahan, say that it is valid legislation because it is interprovincial trade. For internal provincial trade, I understand you apply the accessory or the ancillary doctrine and everything is included. Professor Frémont says that it is colourable because in pith and substance it is the production and the manufacturing process of a good or a product within a province, because there is one industry -- oil -- and one product -- manganese. You quote the Labatt case which is not debated at length.
If you are right, Professor Monahan, it means that the Parliament of Canada may -- and I do not disagree with you on this -- legislate in relation to international and interprovincial trade. However, we must admit, following the decisions of the Supreme Court and the Privy Council, that internal trade within a province is provincial. All jurists agree with that.
However, you say that because clause 4 of the bill deals directly with interprovincial trade and international trade, which are obviously within the jurisdiction of the Parliament of Canada, that the whole legislation is valid. I am not sure about that. The fact is that one product is controlled in one industry in the interior of a province, and of course at the exterior, but the two are regulated at the same time. This is what worries me in the reasoning behind that brief.
Mr. Monahan: I say that because clause 4 is valid, the rest of the bill is valid. Clause 4 is the charging clause of the bill. The remainder of the bill deals with authorizations to transport. Then various information must be provided, such as the regulation-making power. The charging clause is clause 4.
Senator Beaudoin: I agree with you.
Mr. Monahan: Clause 4 states:
No person shall engage in interprovincial trade in or import for a commercial purpose a controlled substance except under an authorization.
My point is simple. Had the government drafted the bill in a way that it attempted to fasten upon a local transaction, then there might have been an argument that it was unconstitutional. In my view, it would still be valid because the compatibility of vehicle emissions equipment with fuels and the contribution to smog that that would involve is sufficiently important to justify Parliament regulating the direct mixing of MMT in gasoline. They could possibly have gone farther, but they would know that in that case arguments might be made that you cannot regulate. That is because of the Labatt Breweries case which said, "You cannot regulate the recipe for beer." In the Labatt Breweries case what they were trying to do was say, "Labatt, in mixing beer to make light beer, you have to make light beer like this." They said, "Let's not do that; let's do it this way."
After the government lost the Labatt case, they said, "Let's amend the Food and Drugs Act so that it only applies to interprovincial trade." I say to you, senator, that if this is bad, then the Motor Vehicle Safety Act must also be bad. It also regulates a single trade. It regulates motor vehicles and the equipment that you put in motor vehicles.
With all due respect, senator, if there is a problem here, then you have one there. You will then have problems with dozens of statutes on the statute books that employ precisely this device in order to regulate local trade.
Senator Beaudoin: I should like to understand the other side of the question. You say that if this is unconstitutional, then many other bills may also be unconstitutional. We have enough in the one that is before us this afternoon. I direct my intention to this bill because, obviously, the pith and substance of it is to regulate the production of a product in one industry. We cannot escape that. It is true that the bill talks about interprovincial trade and international trade. Obviously, as you say, they are on a solid rock footing in that regard. However, the fact is that many cars are running in the provinces and the whole industry is taken care of in those provinces. I should like to hear Mr. Frémont on this.
Mr. Frémont: First, I am extremely uneasy with the argument which says that, "Well, there are 12 or 15 laws which use that technique." What is the point? Clearly, laws are not challenged every day. It is very rare that legislation is challenged.
Second, Mr. Monahan referred to the Energy Efficiency Act and the Meat Inspection Act which established a national marking system. In many respects, they deal with agriculture, which is a responsibility shared by federal and provincial governments. We are dealing with marketing schemes. We are dealing with a sort of structure, not just one prohibition. It is a whole package involving the regulation of trade. It is genuine regulation of trade, while here in the bill before this committee, what are we dealing with? It is one product. It is one industry and one part of an industry with one product. I do not see the trade in that. I read the comments of the minister in the house. I do not see the trade aspect. It is an environmental regulation.
However, it cuts across provincial powers. That is what makes me extremely nervous. If I take Patrick Monahan's argument that Parliament can do whatever it wants with interprovincial trade, then it can become the Trojan Horse of Canadian federalism. What will be left to the provinces? It will always be possible, for whatever reason, to use trade powers and to control the way things are done within the provinces. That is something which hurts the federal principle, which is why I am suggesting that it is probably colourable legislation.
Mr. Monahan: Mr. Frémont commented earlier in his submission that somehow it is a Trojan Horse that if you let them do this, then they can do all these other things. I say that is not right. The reason why this is effective is because MMT is not produced in Canada. No one is producing it in Canada. It is imported. Therefore, the only way this product can be put in gasoline is to bring it across the border. It is being produced in the United States and people want to bring it into Canada. They are able to control effectively using just the ban in clause 4 because it is a foreign product not available or produced here in Canada.
With all due respect, senator, it is not a Trojan Horse. It is not a case of being able to say, "Now we can prevent the selling of apples that local growers are growing in British Columbia." That is not the case because MMT is not produced here.
Senator Beaudoin: I have no quarrel with that. When we are dealing with the importation of manganese, of course it is federal. However, once the manganese is in Canada and it is dealt with interprovincially, then it is federal. When it is not interprovincial trade, what happens? Does it become federal by the ancillary power?
Mr. Monahan: No. You have admitted, senator, my exact point. Of course, they can control the importation of a good. All I am saying is that we will control the importation into a province either from the United States or from another province, and there is nothing which prevents you from doing anything you want with it in that province. That is my point exactly, senator. All they are doing is preventing you from bringing it in, which is exactly my point.
Senator Beaudoin: When you use it, what do you do with it?
Mr. Monahan: If you have this product in a province, you can do anything you want with it. This bill does not tell you that you cannot do something in a province. There is not a word in the bill about that. That is exactly my point, senator.
Senator Beaudoin: There is still the argument which concerns the production of a product.
Mr. Monahan: If you want to put this product in gasoline and sell it, there is not a word in this bill to prevent you from doing that. It says that if you want to bring it into Canada or travel with it across a provincial border, then you cannot do that. However, if you want to put it in gasoline and then sell that gasoline in a province, you are perfectly entitled to do that. There is not a word in this bill to stop you from doing that.
The Chairman: I would like to finish off that point, if I may. It has been a long time since I sat in a constitutional law class. I can understand the federal government dealing in tainted meat and all those types of other things which concern the health of the country and taking those things across boarders. I can understand them setting standards for emission controls, as you have stated. However, let us say you are dealing with a product against which there is no evidence that it is deleterious to health, and it could even be beneficial in terms of smog, air pollution and NOx emissions. The precautionary principle, then, does not apply under those circumstances; is that right?
Mr. Monahan: That is right.
The Chairman: Now you are basing an environmental law under the guise of trade legislation but no evidence upon which to make the judgment. Is that not a problem?
Mr. Monahan: Let us make it even a harder case. Let us say not only is there no evidence that it is harmful, but let us say that there is evidence that this is a healthy product and that we should have this product in Canada because it will make us feel better. However, someone in the Parliament of Canada, in government, says, "We do not want to allow it to be imported into Canada." Would that be valid?
Senator Beaudoin: Importation, yes, but after that is the problem.
Mr. Monahan: Exactly.
In 1951 we had a case on exactly these facts. The Parliament of Canada said you cannot import margarine into Canada. It was perfectly healthy. In fact, it was probably better for you than eating butter. You should not be eating butter; you should be eating this margarine. However, you cannot bring it into Canada. Why? Because we want to protect the dairy farmers. We want to stop this perfectly healthy product from coming into the country. The Privy Council in that case said you cannot regulate the local manufacture of margarine.
Senator Beaudoin: Yes, it is colourable.
Mr. Monahan: But you could perfectly well regulate the importation into a province. In other words, senator, in 1951 in the margarine reference, the answer given to your question is this: As long as you are only affecting and controlling interprovincial movement, you do not have a problem. That is what this bill does. It does not tell you that you cannot put MMT in gasoline in a province.
Senator Beaudoin: But in the margarine case, they said the law was colourable.
Mr. Monahan: No, senator. There were two aspects to that. There was the question of importation and there was the question of the sale in the province. Mr. Justice Rand in the Supreme Court of Canada said, as to the local sale of margarine, no, that is unconstitutional, that is colourable and that is not criminal law, but he said the importation ban was perfectly valid.
In that case, they could not sever the good from the bad, so the whole thing fell. The statute fell in that case because of the bad part, which was the sale locally. However, Mr. Justice Rand said specifically in that case that Parliament can ban, not just regulate, the importation of margarine, a perfectly healthy product.
The Chairman: Do you want to add to this, Professor Frémont?
Mr. Frémont: One thing is clear. If the logic of what my colleague maintains is right, it means that Parliament can prevent the importation but can also prevent the exportation of all the local production, which would effectively infringe upon very clear provincial powers.
Let us imagine that to protect the mineral water industry in B.C., a law was drafted that would prevent all mineral water from Ontario from being exported. I think there is a problem, or it could impose standards. There is a very clear federal problem in that case. Here, because of the very specific fact that there is one industry and it is outside Canada, Parliament does not need to go further than to ban the import of manganese-based products. It could just ban the import and that would do the job, I understand. However, if it is not a means of controlling the recipe for gasoline, I do not know what it is.
The Chairman: What if MMT was made in Canada, say, in the province of Alberta, and it was not imported?
Mr. Frémont: My guess is the bill would not be framed this way. They would have to squarely face this issue: Do we have the power under criminal law to prohibit the use of that product?
Senator Robichaud: I am new to this committee, and I do not know much about the background of this bill. However, I am delighted to be a witness with my colleagues this afternoon to a confrontation -- maybe a battle -- between two prominent lawyers. One says that a bill before us is clearly constitutional. The other says that he is not so sure and that it is not that clear in his mind. However, he said certain things that left me ill-at-ease. He said that there was something fishy -- he called it smelly -- in the bill. He said the legislation was suspicious. If it is fishy, smelly and suspicious in his mind, does that imply that the sponsor of the bill would have an ulterior motive?
Mr. Frémont: If I ask my students, or anyone, to read Bill C-29 as it stands, they will say it is trade legislation concerning one product, and that is it. What is amazing is that when you look behind the bill, all the explanations which come up have nothing to do with trade. The rationale behind the bill has to do with everything but trade. Trade is an artifice; it is just a trick you use. Because you cannot do things directly, you use that trick to go behind and you impose your logic. I am saying that when I as a lawyer looked at the bill and at the explanations behind the bill, I wondered if I had read the right bill.
Look at the presentation in the house and then look at the terms of the bill. They have very little relationship. Usually when Parliament legislates to protect the health of Canadians, it says so. Read the tobacco legislation. It is crystal clear and the means are crystal clear. Here, we are using this as an artifice. It is an artificial trick to get to where you want. What Parliament wants, if it adopts this legislation, is to control the way gasoline is made in this country.
I am just making the point that it is still a federal country and that the production processes are a provincial responsibility, so there might be a problem.
Senator Robichaud: Is there anything illegal or immoral, or new, in the whole process? I am talking about the introduction and the study of Bill C-29.
Mr. Frémont: I do not think so. I am not familiar with the introduction and study.
Senator Robichaud: But with a bill as suspicious, in your language, as this, is there anything new?
Mr. Frémont: No. Some bills are; others are not. We discover after the fact that there were parts which were unconstitutional. In this case, a clear argument will be made.
I can tell you that next summer we will have some warm and sunny days and next winter we will have snow. It is as clear as that.
This is going to court, and I am just saying that since it is so obvious, why not do things properly? I would urge Parliament to do things properly. To do things properly means not using tricks to legislate and achieve an aim. Do it directly and then we will see if it is legal and constitutional. My suspicion is that to do things properly, you would have to ask the provinces to legislate because it is a provincial responsibility.
That being said, there is nothing abnormal. Parliament will pass the bill, and it will go to court. In the meantime, I do not know what the industry will do, but it is a perfectly normal process as far as I am concerned.
Senator Robichaud: I think you are saying, in essence, that you would recommend to the industry that it go to court.
Mr. Frémont: If the bill passes, I would certainly recommend it to that part of the industry because I understand another part of the industry is for the bill. Very clearly, it is a strong argument and it will be made.
The problem for the industry in the meantime will be what do they do? Do they change their processes? If they win in court, it will be too late. That is probably part of the calculations.
The court process being what it is, you cannot go directly to the Supreme Court of Canada. One interesting solution could be to ask for a reference to the Supreme Court of Canada. That would be very clever. I do not know. It will be an interesting solution.
[Translation]
Senator Nolin: Mr. Frémont, I would like you to explain to us once again why you have doubts about the validity of this bill. Senator Robichaud queried you about this. Why would the Minister of the Environment not be allowed to table a bill like this? Why do have concerns?
Mr. Frémont: It is quite simple. Jurisdiction over environmental matters has been assigned neither to the federal government nor to the provinces. In fact, this is an area of shared jurisdiction.
Senator Nolin: Your response is not clear to me. You say that this an area of shared jurisdiction, but in the same breath, you maintain that the federal government cannot table a bill like this.
Mr. Frémont: What I am trying to say is that in order for Parliament to enact environmental legislation, its jurisdiction over this area must be clearly recognized. For example, Parliament has jurisdiction over fisheries. It can enact environmental legislation to protect the fishery resource.
Senator Nolin: It has been a while since I took any constitutional law courses. That is why we invite experts to come here. In order for the Environment Minister to enact legislation of this nature, federal jurisdiction over this area must be clearly established. In this particular instance, are we talking enacting legislation to address a public health concern?
Mr. Frémont: Based on what I have read in the House of Commons' documents, the issue here is very clearly the health of Canadians and the quality of the air that they breathe. We are talking about health problems and costs associated with the fact that substances containing MMT apparently cause air pollution.
Senator Nolin: If I were to tell you that this committee has heard, or has in its possession documents to the effect that the Department of Health denies the existence of any health problems associated with the use of MMT, what would you say to that? We have proof of this.
Mr. Frémont: Quite clearly, that is where the problem lies.
Senator Nolin: That is why I am asking you the question. Is the Environment Minister saying that he has the authority to introduce this legislation on the grounds that the public's health is involved?
Mr. Frémont: From the time the lawmakers at the Justice Department drafted the bill, the tendency was to approach the matter through the criminal law process. Federal jurisdiction over the field of health protection flows from section 91(27) via the criminal law. I do not agree with this as a Quebecker. However, this is part of the game. The Supreme Court confirmed this in the ruling in Imperial Tobacco two years ago. It set very clear parameters, one of which was that the "harmful effect" of a substance must be proven. In the case of tobacco, the Court stated that tobacco kills. It maintained that there were mountains of evidence to prove that it does. There was no question at all about that and no evidence to disprove the claim that tobacco kills was received.
Senator Nolin: Let us get back to the subject at hand.
Mr. Frémont: Yes, but you are saying you have proof. I saw a Health Canada press release issued two years ago which stated that there was no evidence whatsoever to support this claim.
Senator Nolin: No evidence that MMT poses a public health threat...
Mr. Frémont: ... or that it is harmful or more harmful than any other product. This being the case it is difficult to enact legislation under criminal law provisions. The normal process must be followed if it is a matter of public health or the air that we breathe and the environment. This has always been the approach taken in similar cases from the very beginning.
Quite probably it can be clearly demonstrated that motor vehicle emissions are a public health hazard. Therefore, we can tie this to section 91(27) which comes under federal jurisdiction. Parliament can enact legislation. However, when this cannot be proven, and direct action cannot be taken because there is no clear jurisdiction established over environmental matters, Parliament cannot proceed through criminal law provisions. However, since the federal Parliament has jurisdiction over interprovincial and international trade, it has decided to resolve the problem this way. It has decided to use a roundabout approach, namely interprovincial trade, to do what it cannot do directly, that is impose restrictions on the manufacturing of this substance.
It is not surprising that the provinces are reacting this way. These matters are their responsibility.
Senator Nolin: You heard Professor Monahan say that the federal Parliament can very well go ahead and ban the importation of a perfectly legal product, even one beneficial to people's health, if that is what it decides to do. Do you agree with that?
Mr. Frémont: I agree that it can do whatever it likes.
Senator Nolin: Take the margarine reference. This is a very good example. The federal government banned the importation of margarine.
Mr. Frémont: That is correct.
Senator Nolin: Parliament is required to hear the justification for this ban.
Mr. Frémont: I would imagine so.
[English]
Senator Nolin: In the margarine case, the government at the time must have clearly stated the reason why they were doing that.
Mr. Monahan: Yes. It was to protect the dairy farmers.
[Translation]
Senator Nolin: Do you see this in the current legislation? Has the government or Parliament clearly indicated why it wants to prohibit the importation of this product?
Mr. Frémont: In the case of margarine, the important thing was that the government was using its trade powers to regulate trade in the margarine industry or in other words, to protect the domestic butter industry.
In this case, Parliament is invoking its trade powers to exercise its authority over environmental or public health issues, whereas there is clearly no evidence on the table.
Here is where something starts to smell fishy. Parliament is taking a roundabout way to achieve the same results. My question is this: is this not legislation thinly disguised to regulate the interprovincial movement of goods? Is this not a case of the government really targeting the way in which gasoline is produced? If that is the case, this is a purely provincial matter.
Senator Nolin: Why would the federal government be proceeding this way?
Mr. Frémont: It has no other alternative, because there is no evidence that this is either an environmental or a public health risk. It is using a clever device. It works particularly well in this case because there is a producer outside the country. The solution is to cut off the supply and then everything will fall into place.
[English]
Mr. Monahan: I wanted to comment on these questions because the senator asks precisely the right question.
Senator Nolin: Thank you. I try to do that every time.
Mr. Monahan: Senator Nolin asks how the Minister of the Environment can have the power to introduce this bill. Does it not fall to the federal minister to introduce this bill? My answer is that if the federal Minister of the Environment cannot introduce this bill, then no one can. What we would then be faced with is a situation where the provinces cannot prohibit the importation of a product. That is clear and well established.
I am not worried about the local production. This bill does not affect what people can do in a province. The province can regulate what you do in a province, but the province cannot prevent someone from bringing a product into the province. That was decided in 1896 in a case involving liquor regulation. It was decided that the province cannot regulate the act of bringing something into the province.
If the federal Minister of the Environment cannot do this, that means we would have a vacuum of legislative authority. We would have a sovereign country in a situation where no Minister of the Environment could enact a clause like clause 4 of this bill. We have the provinces. They might enact a law dealing with the mixing of MMT in gasoline. However, if this argument is right, no one in Canada could do that.
First, that does not make any sense. How can it be that no one can do it? Second, it is contrary to the way the courts have interpreted our Constitution, which is to say, of course, that someone must be able to do that.
Senator Nolin: We have seen the Minister of Justice introducing all kinds of prohibition law and criminal law and changes to the Criminal Code. He would have been probably a good minister to introduce that or the trade minister. Why not?
Mr. Monahan: Let me get to the other point made by Mr. Frémont. It has to be the federal Minister of the Environment because he is the only minister of the environment who can do that. Mr. Frémont said the environmental power is shared, so you could use the environmental power in relation to fisheries, for example. As part of its fisheries power, they can enact laws for environmental purposes or power over the regulation of railways. The courts have said they could regulate for environmental purposes.
This is using the ability to regulate interprovincial trade for an environmental purpose. There is nothing colourable about it. The government has been up front. There is nothing secret here. The minister has given speeches saying this is why we are doing it. We need to ensure the compatibility of the fuels with emission control systems. There is nothing disguised here. It is for an environmental purpose, and we have shared powers in Canada. Of course we are a federal state, but a federal state means that the federal Parliament has powers, and it can use its international trade regulation powers for an environmental purpose, which is what it is doing here.
The Chairman: One last thought. There is no gap as you suggest Mr. Monahan, because if there were environmental evidence, he could pass the legislation as Minister of the Environment. Where is the gap?
Mr. Monahan: That gets back to my example of the margarine, senator. I am saying that it is not that Parliament can only regulate products shown to be harmful that are coming into the country. A country might decide for any number of reasons that it does not want certain products in its country. That is just the way we like to live. There is nothing harmful about that. We choose not to have these products come in. Part of a sovereign country's right is to conduct itself as it wishes. Canada, I submit to you, has that right.
It is not a question of saying, "If they could prove this was the case, then it would be okay." I am saying that there would be a vacuum to the extent that the only products Canada could prevent from coming into its territory would be products shown to be harmful to its population.
I say to you, Mr. Chairman, that that is a vacuum of legislative authority. That means that unless you can show some harmful effect, you cannot control this importation of products. In any event, that was decided in the margarine case. They can keep out a healthy product if they want.
Mr. Frémont: I was going to address the question of the vacuum and the pith and substance.
Our discussion shows that we have problems identifying the pith and substance of the bill. It is the same problem all the time. The courts will have to choose what the pith and substance will be. What was the pith and substance of the tobacco advertising regulation? We fought for years over that, and we are still fighting. We will probably fight next week when the bill is adopted in the house.
Mr. Monahan seems to say that the pith and substance is the prohibition of the entrance of that product into Canada. I am suggesting that the pith and substance of the bill is the production of gasoline with additives. This is the recipe aimed at by this bill.
In that respect, there is no vacuum. If the pith and substance is what I am pretending it is, then it is a provincial responsibility, and the provinces can legislate and prevent the use of manganese-based additives in gasoline.
Senator Grafstein: I have not followed the debate as carefully as others, but I have been asked by my whip to be here. When I listen to the names of Mr. Justice Laskin, a teacher of mine, or Mr. Justice Sopinka, a classmate of mine, I have to perk up my otherwise somnambulant ears.
Quite frankly, I have concluded that this is not a constitutional issue. You have both made strong arguments saying that the matter is not constitutional. This matter is really a political decision taken by the government and Parliament to make a particular political decision which may or may not be politically attractive.
As a University of Toronto grad, I rarely agree with someone from Osgoode Hall, but clearly, on the face of it, the legislation is within the four corners of the Constitution. Clearly it is within the pith and substance of interprovincial trade. Clearly, on the face of it, it does not involve the localization or the undue restriction of manufacture within a particular province which would be generic to that province.
Gasoline, of its essence, is interprovincial. Gasoline moves around like fish move around. It never stays, as our former Prime Minister says, within the boundaries of a particular province. It moves around. Gas moves around and manganese goes across the border.
In Mr. Justice Sopinka's practical test, this is clear. I will ask for comments on the face of the legislation. What Mr. Frémont is raising is a good political argument. I do not quarrel with the political argument, but it is a political argument. It is not a constitutional argument because, on the face of it, the document is clean and Mr. Monahan has made that point more than once.
The intention, mischievousness and lack of directness of this bill are all political. All those arguments are political things, and that is what we do every day.
When you read this document and take it to the first-year law class, they will look at it and, on the prima facie case, realize that it is within the four corners of the interprovincial trade and commerce rule.
Perhaps you could respond to that notion because Bora Laskin also reminded us constantly that we should not make distinctions without differences. Here I see some distinctions, but I do not see the differences because they fall so clearly within the commerce clause.
I have listened. I have read the briefs carefully in the time allotted to me. However, I see it as a political argument in response to Senator Robichaud, who raises the moral and political question, but it is not a constitutional question.
In this country, we do not look to intent to transform the issue into a constitutional issue for the purpose of examining intent.
Using the Sopinka practical test, we can restrict whatever we want. We may be criticized politically for doing that, or we may be kicked out in the next election.
Mr. Frémont: I am glad to hear your comments. I will share with you the secret which I share with my first-year students. Normally, by the end of the year, they have had a demonstration of it. If you still think that constitutional law is something other than politics, then you are wrong.
Senator Grafstein: So we agree.
Mr. Frémont: We agree. Judges, like politicians, are questioning or debating morality and fairness. We might do something, and it is two or three years before the Supreme Court of Canada hears of it. What will the judges do? They will draw the line the way Parliament is drawing the line now, or they will refuse to draw the line.
Constitutional law is simply politics disguised, and it is a second guess given to judges, important people in our society, to try to ensure that things do work properly according to the basic social contract and, in this case, to the federal contract we have in this country. It might very well pass the test. I suggest it might raise some serious problems. We will see. It is all about constitutional law.
Senator Grafstein: It also strikes me that this case could be challenged. The nature of the challenge will very much depend on the facts of the challenge. In other words, if there is a difference between the two of you, it depends on how one attacks this piece of legislation.
Mr. Frémont: It also depends on the evidence which will be submitted.
Senator Grafstein: It is difficult for me to prejudge a particular case. We are responsible for giving this a second look and to ask whether it fulfils a legal standard. On its face, it seems to fulfil a legal standard. We can say it might be mischievous and therefore we should not do it; however, on the constitutional face, it seems to be clear.
The Chairman: I thank you both. If I were the judge having to decide, I would reserve judgment for three years and hope it goes away. It has been an interesting hour and a half. Thank you for attending.
Colleagues, we will now hear from two distinguished lawyers on international trade matters.
Mr. Ivan Feltham, Q.C., Consultant in International Trade Law and Competition Law: Mr. Chairman, I will conduct an overview of the NAFTA questions which I understand have been raised from various quarters and then rest to respond to your questions.
Generally speaking, there are three elements of the NAFTA international trade environment. I have to ask you to change gears from the esoteric details of the constitutional debate to which you have just been subjected, to the picture in the international scene. We will examine NAFTA in particular and, in this instance, the application of what is described as GATT 1994 which is part of the world trade agreement arrived at just a year or two ago.
Within that framework, two or three questions arise. Is this a border measure which Canada cannot enact without violating its international obligations? Is this a national treatment issue equally involving a measure which Canada could not enact without violating its obligations under the national treatment provisions of NAFTA? Is it an investment problem? We shall undoubtedly have considerable discussion about that. Is it an expropriation within the terminology, the framework, of Chapter 11 of NAFTA, which does not have an equivalent in the World Trade Organization agreements?
It is clearly a border measure, as you discussed during the previous session this afternoon. However, is it justifiable under the NAFTA and GATT provisions? My submission to you is that the relevant provisions of NAFTA and the GATT, taken together, permit measures necessary for the protection of health, including prohibition of imports of designated substances, provided that such measures are not disguised restrictions on trade.
In NAFTA Article 2101, Canada, the United States and Mexico explicitly agreed that protection of health includes:
...environmental measures necessary to protect human, animal or plant life or health....
Because GATT and the NAFTA recognize that there must be exceptions to the general rule against import restrictions, the burden lies on the country relying on an exception, so called, to justify its measure under that exception. However, in the case of health and environmental measures, those measures assume the proportions and importance of paramount rules.
Through the 50-year history of the GATT, and similarly in connection with the Canada-United States agreement and its successor, the North American Free Trade Agreement, there has been universal acceptance that nations reserve to themselves the sovereign right to regulate for the protection of health. In the NAFTA context, as I have said, the parties to the agreement dispelled any doubt which might have existed that health did not include environment. To the contrary, they explicitly agreed that it does.
I say to you, with respect, that the reservation of national sovereign rights is so universally understood and accepted that it hardly needs justification. However, for your assistance, if you would like to dig into some of the background material, you will find it in the paper and more extensively referred to in the backgrounder.
In the implementation of NAFTA, bringing it up to recent days, the statement of the administration of the United States, when they presented to Congress the bill approving NAFTA, explicitly referred to the sovereign power of the United States to continue to regulate in certain areas, and this is one of them. High levels of the environment is one of the things that they were explicitly concerned about. The Canadian statement that came out from the Department of Foreign Affairs and International Trade was essentially to the same effect. The North American Agreement on Environmental Cooperation contains similar language explicitly recognizing the sovereign right of the members of the North American Free Trade Agreement to regulate for the protection of the environment.
Of course, a country cannot simply declare that a measure is necessary for that purpose. It must be able to demonstrate a substantial reason for adopting the measure. That is where the legal words of the GATT and the NAFTA have to be considered and applied in the light of the scientific evidence.
However, the evidence in the international law framework does not have to be universally accepted as conclusive. If that were the case; if it had to be proven, if it had to be accepted as conclusive, the sovereign right of individual nations to make policy decisions on their own evaluation of the evidence would be overridden and neither the GATT nor the NAFTA have done that.
The relevant GATT interpretations have been developed over many years through many cases. The latest is a decision of the new appellate body of the World Trade Organization which involved an attack on certain legislation in the United States. The quotations are in the material before you. The principle is explicitly set out by the appellate body. They came to the conclusion that the United States was in violation of its GATT obligations but they said:
It is of some importance that the Appellate Body point out what this does not mean. It does not mean, or imply, that the ability of any WTO Member to take measures to control air pollution or, more generally, to protect the environment, is at issue.
They said that is within the sovereign rights of independent nations.
Another well established aspect of the GATT is that a country relying on so-called exception must also show that the measure it has selected is the least restrictive among the available measures to achieve its policy objective. That is well set out and, again, I have supplied you with background material to which you may refer.
The Minister of the Environment has stated that the government's policy objective is cleaner air. You have heard evidence that this goal cannot be attained with MMT in fuels. There is, therefore, no alternative to Bill C-29 that would achieve this objective and be less restrictive of trade. At the international level, the debate in which you have just engaged, with the assistance of Professor Monahan and Professor Frémont, is not relevant. That is internal to Canada. No one outside of Canada can tell us how to confuse our constitutional structure any more than we have already done.
At the international trade level the question is whether this is justifiable under the GATT in substance, and all international trade law tells us that it is the substance, the actual impact and the actual circumstances of the case, that determines whether it has the effect which is either prohibited or permitted under the international agreement.
I do not want to dwell extensively on the evidence because I know that you have probably had more of that than you care to have in your briefcase. However, I must draw your attention to it because when you mesh the legal principles with the facts of the case, it is like the lawyer with the expert witness. In the courtroom, the lawyer must show that the expert witness is right. In this case, all the lawyer has to do is come to the conclusion that the expert witnesses -- namely, the experts on the subject of emission control and the ultimate objective of cleaner air -- have some reasonable basis on which to act to protect the quality of the air in Canada.
The precautionary principle which was referred to in the context of the agreement on internal trade is similar to the principle that applies at the international level. I submit to you that, on the evidence before you, there can be no doubt that there is a very significant, scientifically-based concern.
I notice that the chairman has indicated his disagreement with that. That is a matter on which we might have some discussion later.
I do not want to dwell on the national treatment principle. There are two bodies of thought on it. One is that the national treatment principle does not come into operation until a product has passed the border. Once it is inside the border, then it is entitled to the same treatment as products that are made in the country. Even if you extend it beyond that to the situation that exists in this case, there is no manufacturer of MMT in Canada. Therefore, there is no Canadian production which is benefiting from discrimination by virtue of the import ban.
In any event, the health and environment principle, the paramount principle that a nation is entitled to legislate to protect its health and its environment, overrides the national treatment principle in the NAFTA and the GATT.
Let me move on to the Chapter 11 provisions of the NAFTA. Here we become fairly specific. Ethyl Corporation, the exporter of MMT to Canada, has given notice of a complaint, filed by my colleague Mr. Appleton, that the implementation of Bill C-29 would have the effect of expropriating his investment in Canada, namely, the Ethyl Canada facility in Ontario. He claims, therefore, that his company is entitled to substantial compensation pursuant to NAFTA Chapter 11.
I submit to you that a principal consideration is that Chapter 11 does not outlaw expropriation. Again, expropriation for public purposes is within the sovereign right of a nation or province or municipality, depending on the internal constitutional structure of our country. However, it is well established within our domestic system that if there is expropriation, there are principles to determine the appropriate compensation to be paid for expropriation.
The issue in this case is this: If Ethyl Corporation proceeds with the claim of which it has given notice to the Government of Canada, the arbitrators who will be appointed will decide, first, whether the effect of the bill, if passed, would be expropriation of Ethyl's facilities in Canada and, possibly, expropriation of any ancillary property rights including any goodwill that may be attached to its operations and, indeed, to the products of that operation.
It certainly is not expropriation in the traditional sense of taking. We think of expropriation as taking land for highways and the like. NAFTA added the words "tantamount to expropriation." The question then is whether the effects of Bill C-29 amount to expropriation in the sense of being "tantamount to expropriation."
I have one simple proposition to lay before you in that connection. Throughout the history of our country and more particularly in recent years -- I was chief counsel for General Electric Company in Canada for some 14 years and know this only too well -- every new regulation imposes costs on industry. When unleaded gasoline became the norm, when the use of lead in gasoline was prohibited, according to information that I have seen, an enormous cost was imposed on industry as a result of those changes. I have some numbers in my briefcase produced by Ethyl Corporation itself that is simply the evolution of quality standards. That is simply the evolution of rules designed to achieve cleaner air.
It is inconceivable to me, honourable senators, that the negotiators for the Government of Canada and the other two countries could have come to the conclusion that every regulation which imposes costs on industry should give that industry a right to compensation for whatever additional costs or losses it might suffer. That just has not been the case in the world to date. Whatever the notion of creeping expropriation is, which is how it is described in some of the literature, it has not gone so far as to justify that.
I thank you for your courteous attention. I look forward to your questions.
[Translation]
Mr. Barry Appleton, Appleton and Associates, International Lawyers: Mr. Chairman, before I make my presentation today, I would like to thank you for inviting me here. I will speak in English, but I will be happy to answer any questions put to me in French.
[English]
I am Barry Appleton. I am an international lawyer. I am a member of the bars of Ontario, New York and the U.S. Court of International Trade. I am the managing partner of Appleton and Associates, International Lawyers, which is the largest international law firm in Canada.
As a lawyer, I specialize in international trade, especially the NAFTA. In 1993, I served as the trade advisor to the Ontario cabinet committee on North American free trade. I have advised a number of governments across this country on the NAFTA. In addition, I am the author of a book entitled, Navigating NAFTA. You have some excerpts from my book, in English and in French, before you today, as well as a brief in both languages which may give more depth to my comments today.
My firm acts as the international trade counsel to Ethyl Corporation. However, I am here today to advise you on the NAFTA and to try to make something which is a difficult subject somewhat easier.
NAFTA is a very complicated book. It is some 3,000 pages of material. Everything that you read in it is a little bit like tax legislation, for those of you who look at that type of material. What appears to mean one thing in fact means something else. My job today will be to try to guide you through this. I look forward to your questions.
Today, I would like to discuss how Bill C-29 measures up to the NAFTA. In particular, I would like to make four points. First, NAFTA is the law. Second, NAFTA imposes rules on how the government deals with foreign investors. These rules are strict because they are the very same rules that give protection to Canadian investors operating in the United States and in Mexico. It is a case of quid pro quo. Third, the obligations in the NAFTA do not prevent Parliament from passing laws; however, they do protect foreign investors who have investments in Canada through a special compensation process. Fourth, because Bill C-29 deals with the regulation of trade, the Government of Canada is put in the position of violating several of its key NAFTA obligations if this legislation becomes law.
I can tell you, without hesitation, that Bill C-29 is in conflict with at least three provisions of the NAFTA. These are national treatment, performance requirements and the NAFTA expropriation provisions. All of these deal with investment. At the end of my remarks, I will address some of my colleague's comments because I think we need to put this into perspective in simple, everyday terms.
National treatment requires a government not to discriminate between foreign businesses and domestic ones. Performance requirements stop governments from acquiring foreign investors to purchase local goods or services. The NAFTA expropriation provisions require governments to pay foreign NAFTA investors whenever they harm their property interests. They do not stop expropriation, but they require compensation. This is not an option; it is a requirement. There are no reservations at all from that requirement.
Ethyl Canada is the sole importer into Canada and the sole distributor across Canada of MMT.
Ethyl Canada purchased all of its supply of MMT from Ethyl Corporation, and has since 1978. Bill C-29 only allows for the sale of Canadian-made MMT and would require Ethyl Canada to purchase Canadian-made MMT if it wished to stay in the MMT-distribution business. MMT is not made in Canada. Bill C-29 only prohibits the sale of foreign-made MMT in Canada. There is no reasonable or plausible explanation why domestically produced MMT is permitted for sale in Canada while imported MMT is not. There is no difference in nature or kind between MMT produced in the United States and MMT produced in a province. Bill C-29 therefore gives an unfair marketing and promotional advantage to investors based in Canada over non-Canadian investors selling the same product. This violates NAFTA.
Bill C-29 constitutes disguised discrimination aimed at Ethyl Canada and Ethyl Corporation. This measure violates the Government of Canada's national treatment obligation to NAFTA investors as set out in NAFTA Article 1102. The ban on importation and interprovincial trade of MMT is a completely arbitrary measure. It was recognized as early as the day of introduction of Bill C-94, the precursor of Bill C-29, by the then Minister of the Environment Sheila Copps, who acknowledged that that legislation would not remove MMT from use in gasoline as MMT could still be made and used locally. This violates NAFTA as well.
The Government of Canada has chosen to remove MMT from the market in a peculiar way. It has not banned the use of MMT in unleaded gasoline explicitly or directly. Rather it is banning its importation and interprovincial trade. A domestic manufacturer, if there were any, could manufacture and distribute MMT entirely within a province and not violate Bill C-29. You had testimony on that earlier today.
Bill C-29 violates NAFTA's rules against imposing a requirement for the purchase of local goods. If Ethyl Corporation wants to maintain its national presence in the Canadian market, it would be required to build manufacturing and blending plants in each province and territory in Canada. That also would violate the NAFTA.
Let us talk about expropriation for a moment. In his letter to the Minister of the Environment on February 23, 1996, Canada's Minister of International Trade pointed out that Bill C-29 could constitute a measure tantamount to expropriation. Minister Eggleton was right. The Government of Canada's actions interfere with the effective enjoyment of Ethyl Canada's property. This constitutes a measure tantamount to expropriation under the NAFTA. Ending Ethyl Canada's business is the same as expropriating it, and the NAFTA requires companies to be compensated for their expropriated investments. This is the law. This is in the NAFTA. This is new. It is something that came into force in 1994, but it is exactly as it is written.
The NAFTA is now the law. It imposes requirements upon governments that do not meet their obligations under the NAFTA agreement. Bill C-29 is a piece of legislation that violates Canada's obligations under NAFTA. It violates it not once, not twice, but three times, and in so doing, it leaves Canada vulnerable to paying compensation for the violation of the NAFTA as well as to retaliation from our trading partners.
Before I conclude, I should like to address a few of the points made by my colleague. I thank my colleague for giving you a very good introduction to the general overview of the NAFTA but we have a fundamental disagreement. I will assist you in coming to an answer. I will not tell you the answer. You can look for it on your own.
The first issue is as follows. My friend says there are exceptions, and he gives you, as an example, Article 2101 of the NAFTA. I have a copy of the NAFTA here. Let me read what 2101 says. That may help you in your assessment of the NAFTA consistency of Bill C-29.
Article 2101 states:
General Exceptions
1. For purposes of
(a) Part Two (Trade in Goods), except to the extent that a provision of that Part applies to services or investment...
What does that mean?
It means that the general exceptions apply to everything except services and investment. So when my friend says that there are general exceptions and we can look to the GATT, he is unfortunately mistaken. He has looked at the beginning, but not at the end. The exceptions available under the GATT do not apply to investment.
To make it even more clear, my friend talks about trade in goods but not trade in investments. The NAFTA has broadened the range of obligations. It is the broadest multinational investment agreement ever entered into by developed states and developing states in the world. The GATT only deals with trade in goods.
When my friend says national treatment only applies when there is a border measure, he is right under the GATT, but the GATT has changed and NAFTA has changed. NAFTA changes the impact of that. When you deal with investments, national treatment applies whether you cross the border or not.
The provisions and protections of national treatment were done to protect Canadians investing in Mexico. Those of you familiar with the history of investment protection in Mexico will know it is not particularly good. The governments of the United States and Canada jointly came up with a very tough code to protect our investors in Mexico and, if the NAFTA is expanded, in Chile and other countries, to ensure that our investors will be treated fairly. It is a tough code.
The same code has been put into NAFTA. The same code is before us in Chapter Eleven of NAFTA today. It does not say that you may not pass laws. You may pass whatever laws you wish, but it does say that if you wish to pass laws which are inconsistent with NAFTA and Canada's NAFTA obligations about investments, you are required to compensate. That is what it says.
With relation to the expropriation provisions, do not ask me; the Minister of International Trade has set it out in his own letter. He says this is a measure tantamount to an expropriation. The NAFTA has incorporated the high-water mark of international law of expropriation. To give greater protection to investment, it does not just rely on the decisions of international tribunals; it set it out. It spells out in great detail what an investment is and it sets out in great detail what an expropriation is.
You do not have to take it from me. It is all there. There are no reservations permitted there. There is no reservation permitted to the area of investment except by the NAFTA reservations in Annexes I and II of this agreement. None of those reservations gives any type of exception to an action taken by the Government of Canada in this area.
That is our problem. When the Government of Canada negotiated the NAFTA, it did not put in a provision to deal with a situation like this, and Bill C-29, whether it is a good piece of legislation or a bad piece -- and I leave that judgment, of course, to you -- it triggers three inconsistencies with the NAFTA. That, I am sure, will be a matter of some discussion before us. I am pleased to answer any questions that you would like on that.
The Chairman: In fairness, I should say, for the record, that I do not think Minister Eggleton said exactly what you said he said. Reading from his letter:
Also, Ethyl Corporation may try to advance an argument that such a ban would be a measure tantamount to expropriation of Ethyl's investment in Canada.
He did not say that he agreed with it. He said that was Ethyl's claim. You may put forward that argument.
Mr. Feltham, do you have more comments?
Mr. Feltham: My first point was the one you have just made, and I thank you for it. We may discuss other aspects of the minister's letter in due time, and I will be glad to answer questions on the substance of it.
I do want to make plain that if I appeared to give the opinion or to draw your attention to the health exception, as I may call it for the purposes of this discussion, the health and environment power, I did not intend to say that it applies to investment. It clearly does not. My colleague is correct in that respect. That provision of NAFTA and the GATT only applies to trade in goods, and it only applies to the general provision dealing with national treatment, which is Article 309 of the NAFTA and an equivalent provision of the GATT.
Our difference of opinion, I think, lies in the investment area. I am delighted that my colleague has not challenged me on some of my other propositions, and I welcome your questions.
Senator Beaudoin: My question is for Mr. Appleton. The previous speaker said that, having in mind the basic principle of both the NAFTA and the GATT and that foreign exporters should not be discriminated against vis-à-vis domestic producers, one might be anxious about the fact that Bill C-29 prohibits importation and international trade but does not prohibit the production of MMT in Canada.
There is no MMT production in Canada, and apparently it will not happen. My question is purely a question of information. Do you agree with that statement?
Mr. Appleton: Given that I did not comment on the full range of my colleague's discussion does not mean that I incorporate it. I have many differences.
You point out a very good question, senator. National treatment is a very important issue. I fundamentally disagree with my colleague's characterization, so let me just walk members of the committee through this important observation. It makes a fundamental change to the way we, as Canadians, have to look at law.
National treatment has been interpreted by the GATT to mean both procedural and substantive due process. You must have fairness not only procedurally but substantively. A very important decision of the GATT in 1989 regarding a certain section of the U.S. Patent Act said that there must be a quality of competitive opportunity. That means that in a situation where it is known that there is an American producer in this context and the producer is foreign, if you take a measure, it is not enough to treat them equally. You have to do even better to have due process. To have national treatment, you must bend over backwards and have fairness on all sides.
This is not my opinion as to what national treatment means. This is the decision of a GATT tribunal. It has been incorporated in a number of other decisions.
The quality of competitive opportunities in this case is important because the Government of Canada clearly knew that MMT was only made outside of Canada. Therefore, by banning foreign MMT and not banning domestic MMT, they knew that they would cause harm to Ethyl Corporation. They knew that they would cause harm to this particular market player, and they knew they would cause harm to an American company. That violates the NAFTA national treatment obligation for investments. That is very important.
The national treatment obligation for investments triggers a special process. It is a process where investors are involved directly and seek compensation. It is not an issue where you have a suit or where the American government can take trade action, though they can separately. It is a situation where they seek compensation for where they have been harmed.
The Government of Canada, by passing the NAFTA, has created an international contract. Like any other contract, it says you can do what you want, but if you cause harm under the contract to the expected gains, you must pay compensation.
I disagree with my friend Mr. Feltham. I feel there is a serious national treatment issue. The national treatment issue was relevant because it was known that this was the only player. You cannot do indirectly what you cannot do directly, and you cannot do that directly.
Does that answer your question?
Senator Beaudoin: Yes.
Mr. Feltham: With regard to the case to which my colleague referred, it dealt with the application of section 337 of the U.S. tariff act of 1930 in which the GATT panel made a distinction between imported goods, to which the U.S. patent laws and procedures applied at that point, and goods made in the United States that might infringe a patent with respect to which the procedures did not apply until some other point in the process. The foreign exporter was faced with a border prohibition. He got his leg in a bear trap. The moment he tried to get the goods across the border, the domestic producer said, "I have the patent, and you cannot come in here." However, if a competitor down the road was infringing his patent, he would have had to go through an entirely different process. The foreign exporter suffered discrimination.
I agree with my colleague that the national treatment principle is enshrined in the NAFTA. It is enshrined in the provision. The only question is, what does it mean? It means a situation which, in practice, discriminates. In this circumstance, there is no discrimination because there is no Canadian producer.
The classic illustration of the operation of the national treatment principle is where there is a differential level of taxation applied. One of the great cases in the field was a situation in which the Italian government imposed more restrictive requirements on imported agricultural machinery than they did on domestically produced agricultural machinery. That is the classic national treatment illustration.
In this case, that situation does not exist. If there were two producers of MMT in Canada and the importation by one of them were prohibited, that would be a national treatment issue, but not now.
Senator Kenny: Mr. Feltham may have dealt with my question, but if I understand Mr. Appleton correctly, he described a situation where if investors in Canada were producing MMT, they would have an unfair advantage over investors in the United States producing MMT; is that correct?
Mr. Appleton: Yes, that is correct.
Senator Kenny: Who are the investors in Canada producing MMT?
Mr. Appleton: Article 1139 of the NAFTA defines investor of a party as:
...a Party or state enterprise thereof, a national or an enterprise of such Party, that --
-- and these are the useful words --
-- seeks to make, is making or has made an investment...
I did not make up these words, senator. They are here. An investor of a party under the NAFTA is not just someone who is here, but someone who seeks to make an investment, specifically an investor under the NAFTA. There may well be people who seek to make an investment here.
I disagree only on this point with my friend. There is no territorial limitation as to the obligation for national treatment. Basically, you must give national treatment under the NAFTA to all Canadians, Americans and Mexicans. That is the government's obligation under the NAFTA, just as they must give to us in their countries.
Senator Kenny: I guess I was not clear whether we were discriminating against no one vis-à-vis Ethyl Corp. in the United States or we were discriminating against Ethyl Corp. vis-à-vis Ethyl Corp. in the United States. That part was fuzzy in my mind.
Mr. Appleton: Other companies at some point could manufacture MMT in the United States. MMT is, in fact, manufactured by a different company in any event.
Senator Kenny: When those companies appeared, then perhaps you would have a case?
Mr. Appleton: No, senator, I disagree with you, but I will take your point under advisement.
Senator Spivak: Does Ethyl not have a patent on MMT?
Mr. Appleton: Senator, I cannot comment. There are a number of patents, some of which have run out and others of which are still in force. I am not an intellectual property lawyer, so I could not tell you which are involved and which are not.
The Chairman: We were told by Ethyl that their patent had run out.
Mr. Appleton: The patent on MMT may very well have expired, but there may be other process issues.
Senator Spivak: You are basically telling us that even if there is no competitor, there might be a competitor. Therefore, this bill is in violation of the NAFTA. Is that not a reductio ad absurdum of the law?
Mr. Appleton: It is an absurd part of the NAFTA. It is not reductio ad absurdum. That is what the NAFTA says.
Senator Spivak: Your legal opinion is that even if there is no competitor, there might be, perhaps by the year 2000, and, therefore, we are in violation of the NAFTA. That is your legal opinion.
Mr. Appleton: Senator, the year 2000 is only three years away. Yes, that is exactly what it says.
Senator Spivak: That is your legal opinion?
Mr. Appleton: Yes.
Senator Kenny: When a tribunal deals with this, if it ever goes the NAFTA route, will they conclude there is a problem?
Mr. Appleton: This legislation says, if you want to sell MMT, in Canada, you have to create a plant in each province in which you want to sell. They would, in my opinion, say that that violates at least two provisions of the NAFTA, yes.
Senator Kenny: A Canadian producer, of course, would not be able to move it across the boundaries, either.
Mr. Appleton: The Canadian producer can sell into a market and there is no difference in MMT produced in Canada and MMT produced in the United States.
Senator Kenny: This bill does not say that Ethyl Corporation cannot come and build a plant in Quebec or Ontario. They can build a plant wherever they want. I understand there are no plants under way right now.
Mr. Appleton: Senator, this bill requires them, if they wish to stay in the market with their distribution methods and their blending plants and everything else, to create that investment and those jobs in Canada. That is a violation NAFTA. That is one of the things we gave up.
We gave that up not only in Canada but in the NAFTA zone. With the performance requirement obligation under the NAFTA, Canada unilaterally gave up its ability to create performance requirements with any country in the world, not with just these three.
Senator Kenny: I defer to you, Mr. Appleton, but it sounds very much like a Canadian company would be required to build a plant in every province where it wanted to produce it.
We are not asking Ethyl Corporation to do anything that a Canadian company would not have to do. If a Canadian company wanted to produce MMT in Quebec and sell it in Ontario, it could not do it. If I understand what you have told us, they would have to build two plants, one for Quebec and one for Ontario. I suppose that is how it will work for Ethyl Corporation.
Mr. Appleton: Senator, the NAFTA created a continental market. That was the whole idea. We entered into the NAFTA agreement to ensure we did not have to create a widget plant in every jurisdiction.
The Canadians who wanted to sell to the United States did not have to create plants in Michigan, Illinois, Ohio and Florida. It gave us access to the whole U.S. market. In return, we gave access to Americans and Mexicans.
Senator Kenny: But we are not giving Canadians access to the whole market. We are not giving a Canadian plant producing MMT in Ontario access to British Columbia.
Mr. Appleton: I do not mean to be argumentative, but that is what our obligation is under NAFTA. I am sorry, sir.
The Chairman: That is not surprising. Is that not what NAFTA is all about?
If I am producing something in the United States, and we have a Canadian market and I am all of a sudden excluded from that market, is not NAFTA to try to ensure that we do not unilaterally take away people's markets, that we are opening up these markets? I am not as surprised as Senator Kenny, I thought that was the intention of NAFTA.
Mr. Appleton: In fact, that was one of the guarantees we wanted to seek. We did not want to be excluded from the U.S. market or from the potentially large Mexican market.
Senator Kenny: In response to the chairman, presumably, if there was a product that could not be shipped from state to state in the United States, we would not expect, as Canadians, to be able to go in and ship to any state. We would expect the same treatment that the Americans had.
Mr. Appleton: Mr. Chairman, once the NAFTA came into force, it changed the meaning of "reasonable expectations."
The NAFTA creates new entitlements and new obligations and, fundamentally, all three governments have created contracts with hundreds of thousands, if not millions, of businesses in each of the three countries.
The Chairman: If NAFTA is in conflict with Canadian law, which one prevails?
Mr. Appleton: They are not in conflict, Mr. Chairman. The Government of Canada, for example, can pass any law it wishes. It does not proscribe the action the government can take. It does require that the Government of Canada pay compensation.
If the Senate wishes to pass this bill, and the Government of Canada wishes to bring it into force, they are entitled to do that. However, there will be an added cost. That is something which the chamber of sober, second thought should consider.
Mr. Feltham: First, the bill would prohibit trade in the sense of importation into Canada of this particular product. It is a trade measure. It is a measure designed to prevent the importation into Canada, just as other substances which have been determined to be undesirable or potentially undesirable are prohibited. One cannot import leaded gasoline, DDT, PCBs and many other substances which have been determined to be harmful to the environment. It is basically a trade measure.
On the investment front, the basic purpose and core of the investment section is to provide equal treatment for investments owned by Canadians and investments in Canada either owned by or contemplated by a foreign investor.
If there is an MMT producer in Canada, we could not prohibit the importation under chapter 11. We could prohibit it under the other provisions to which I drew your attention, but there is no production in Canada so that is not an issue.
Senator Buchanan: This whole exercise is beginning to sound very much like the negotiations for the free trade agreement back in the 1980s. I was present for all of them. We heard all kinds of lawyers with all kinds of different opinions, but that is what lawyers are about in an adversarial system.
I am confused about something here. Fundamentally, when you look at the border measures, there is no question, at first glance that Canada, the U.S. or Mexico has a right to pass legislation or have government policy that protects health, including environmental measures necessary to protect human, animal or plant life or health.
Now, if that is the case, then that means, if a bill is passed in Canada, and they pass it by virtue of this clause in NAFTA, that it is to protect health and environmental measures. This bill does not do that because, in little old Nova Scotia, if Ethyl wanted to come in and build a plant, this bill does not prevent that. It does not prevent anybody from building a plant in any province in Canada. It cannot go across the borders from one province to another, but it can build the plant.
Therefore, if the plant can be built in Canada, then, of course, how is this bill protecting the health of Canadians and protecting the environment in Canada? Nova Scotia is still a part of Canada. Therefore, it is not a bill that is covered under article 2101; am I right or wrong?
Mr. Appleton: It is not, in fact, covered by article 2101 anyway. However, you are absolutely right that this legislation does not ban MMT. That causes one of the largest international trade issues.
If the Government of Canada wishes to ban a product for reasons of health and safety, there are other ways to do that. This legislation just says that foreign-made MMT is bad. We all know that American-made MMT is bad and Canadian-made MMT is good -- it is the same stuff. There is no difference.
That is national treatment. That is the type of stuff that NAFTA was created to stop, because we were worried, fundamentally, that that would happen to us in Mexico or other jurisdictions.
Senator Buchanan: If an investor wanted to build an MMT plant in Nova Scotia, this bill would not prevent that.
Mr. Appleton: That is correct.
Senator Buchanan: So this bill is nothing but a trade bill.
Mr. Appleton: That is correct, in my opinion.
Senator Buchanan: MMT is not a hazard?
Environment Canada told us they have not carried out any studies on the environment re MMT. How can it be a bill to protect health and environment when both these federal government departments say it is not? We could build one in Nova Scotia, and we are Canadians.
Mr. Feltham: With regard to the nature of the bill, it is my understanding that the Honourable Minister of the Environment has yet to appear to describe his bill. It is not my purpose, of course, to anticipate anything that he might say but rather to draw your attention to the fact that a bill is introduced into law in particular circumstances, particularly when you look at it from the point of view of its effect in relation to international trade law, NAFTA and the GATT.
The current state of affairs is that MMT is made only in the United States. It is the only plant in the world, according to our information. It is not made in Canada. If someone wished to build a plant in Nova Scotia or elsewhere, then the government would have to address that if they wished to prevent MMT from being used in Canada. All the government must do now to effect its purpose of banning MMT -- the reason it wishes to ban MMT is another issue -- is use its trade power. That is all they have done.
Senator Buchanan: How does that violate NAFTA?
Mr. Feltham: It does not. What they have done does not violate NAFTA.
Senator Buchanan: I meant it the other way around. If the Government of Canada wanted to ban MMT for health and environmental reasons, then why would they not have enacted amendments to the Environmental Act of Canada or the Dangerous Goods Act rather than this bill?
Mr. Feltham: That is the government's choice. I am simply saying that, in my opinion, it is a trade measure which is within the ambit permitted to a government by NAFTA in these particular circumstances.
Mr. Appleton: The Government of Canada chose, in my opinion as an international trade lawyer, the wrong mechanism. They chose a mechanism that, in my opinion, will subject the Government of Canada to unnecessary exposure of paying compensation to effect a law which does not ban the substance. Every Parliament or legislature in the NAFTA zone is entitled to pass whatever laws they want, good laws or bad laws.
Senator Buchanan: Except they would be subject to payment of compensation.
Mr. Appleton: That is exactly it, Senator Buchanan. In this case, the NAFTA is the law. There are three violations of the NAFTA. If this law goes ahead, there will be a requirement on the Government of Canada to pay compensation. It is just that simple.
I did not make up this law. It is there. It is available to protect our investors as well. It is a new reality, and it will take some time for all governments and all the NAFTA countries to appreciate the ramifications of this.
In this particular case, this company is being harmed specifically because of this measure, and it is entitled, under the NAFTA, to be compensated.
Senator Spivak: Mr. Appleton, I am sorry that you were not the counsel for the Council of Canadians when they were busy agitating against the free trade bill, because you make a very persuasive comment on how much this infringes upon sovereignty.
Mr. Appleton: I have advised the Council of Canadians on this point. This is certainly a question about what governments do. Governments gave up something of their sovereignty when they passed this. I do not remember much debate about this when it happened. The fact is that it is there, and it is part of the new reality.
Senator Spivak: The Yankees are better traders than we are.
Given what I understand about national treatment for investment, and supposing that that is a strong case, what is the legal defence based on the sovereignty principle? For example, suppose that Ethyl wanted to import lead-based gasoline. Obviously we could not prevent them. We could, but we would have to pay a horrible compensation, if what Mr. Appleton says is true.
Does the government need to specifically state in a law that it is the health principle, or do they have a wide choice? Is the precautionary principle sufficient to make the basis of the health case? In the United States, over 17 years, the EPA refused Ethyl four times, based on the fact that they did not want Americans to be a laboratory for Ethyl. What is the legal defence?
Mr. Feltham: The honourable senator has asked at least four or five questions.
One must look at the defence for chapter 11 bit by bit. It is simply that it does not amount to expropriation. It is not expropriation of a facility. It is not expropriation of a property or an intangible property. The national treatment principle applies in circumstances to which this situation does not fit.
Senator Spivak: Is there no defence under the sovereignty principle?
Mr. Feltham: My colleague and I agree entirely that the Parliament of Canada can expropriate property. If it amounts to expropriation of property, then foreign investors have a right to arbitration to determine what if any compensation is appropriate for the taking of their property.
If Mr. Appleton's house is taken for the building of a road in Toronto, there is no question about his right to be compensated for that. That is what we are talking about in that context. If there were a measure to prohibit the importation of leaded gasoline, which I think does exist, then there would be no basis of complaint against that for the same reason. It is an outright prohibition applicable to anyone who would propose to export leaded gasoline or motor vehicles which do not meet the motor vehicle safety standards or whatever.
Senator Spivak: In other words, there is no exclusion on the basis of health.
Mr. Feltham: We are entirety in agreement on that. The health and environment justification, that whole area of consideration, has nothing to do with the Chapter 11 investment provisions of NAFTA. They have to do with other provisions of NAFTA.
Senator Spivak: What is the basis of those agreements which deal with environment and labour law, if this is a paramount principle? I am not a lawyer, so perhaps I am not putting it properly.
Mr. Appleton: You are asking how a government passes legislation which deals with bona fide health and environmental interests and yet deals with its obligations under the NAFTA investment chapter?
Senator Spivak: I am asking which principle is paramount under the law.
Mr. Appleton: The precautionary principle is not part of the law. The only exceptions are the ones specified. Therefore the NAFTA, as it is written, is the law.
If there is a product that is unsafe, for example, tainted meat --
Senator Spivak: Let us talk about leaded gasoline.
Mr. Appleton: Let me talk about tainted meat first, because it is a little easier, and then I will speak about anything else you wish. That is my job here today.
If there is a product such as tainted meat which is offered for sale and the government wishes to ban it, it is entitled to ban. Nothing prevents it from doing so. However, there is then the question of compensation. What is the value of tainted meat? The answer is, "Very little." If there is a product which is proven to be unsafe, the value is dealt with by the compensation issue, not by the obligation. The NAFTA creates an opportunity which governments must follow or compensate.
In this case, I think my friend was trying to say that there is no defence if this is a violation of NAFTA, and there are three distinct, interdependent and separate heads of damage. In other words, each of those three violations are, on their own, capable of compensating Ethyl Canada for their claim. You do not have to get all three. Any one of the three will give Ethyl Canada and Ethyl Corporation compensation. Bill C-29 is designed to put Ethyl Canada and Ethyl Corporation out of business.
Senator Spivak: You are saying that there is no defence by virtue of the fact that a government is legislating for the health of its citizens. The only question is what the compensation is. Therefore, someone who wants to import tainted meat into our country can do so, the only issue being what the compensation is. So there is no principle in here. Is that what you are saying?
Mr. Appleton: No, senator. You have put a couple of different issues together. The issue about importation and trade in goods is different from that of investments. To use an absurd example, assume that we do not allow the cultivation of ostrich meat in Canada but they do allow it in Greenland, and a company is involved in the importation and sale of that meat. If we have an agreement that guarantees us the type of things that are in the NAFTA, that is an investment issue. However, if it is just the sale of bad stuff, such as bringing plutonium across the border, the Government of Canada has every right to block that plutonium at the border. That is because that is trade in goods.
As my friend said, there are different obligations and different issues. However, if it is a product that is considered to be safe in the United States and is sold there -- as is MMT -- and it is not banned here -- and it is not because we can make and sell it here -- that raises international trade issues. Because there is an existing investment here which deals with distribution, blending, et cetera, that is where it comes together.
Senator Spivak: Therefore, it depends on whether it is safe for sale in the United States. It is not enough for the Government of Canada to say that it does not think it is safe and use this kind of legislation to ensure that it does not come into Canada?
Mr. Appleton: I am not certain I understand your question. I am sorry.
Senator Spivak: You said that if MMT is safe for use in the United States, there is an issue of compensation here.
Mr. Appleton: They are not related. There is an issue for compensation, period. The issue of compensation is here. Whether or not it is safe in the United States has nothing to do with it. The fact is, though, that MMT is safe for sale in the United States and, under this legislation, MMT is safe for sale in Canada. One of the most offensive elements of this bill is that it creates a performance requirement.
Mr. Feltham: We should pay closer attention to the facts. I understand that MMT is banned in California where there is more gasoline usage than in all of Canada. It is banned in many other areas of the United States which have so-called ozone non- attainment problems, air quality problems.
I believe that there is also evidence before the committee that major manufacturers of petroleum-based fuels in the United States do not intend to introduce it. The administrator of the Environmental Protection Agency has said, without qualification, that the EPA remains opposed to it.
The Chairman: I am sorry. That is going too far. I just read that judgment.
Mr. Feltham: That is my understanding of what Ms Browner said. Senator Buchanan made reference to the position of Health Canada. I believe that this committee has before it a statement by a senior official of Health Canada that they support the bill.
The Chairman: Let us not get into that.
Mr. Feltham: I just wanted to put that on the record since my colleague is making some comments about that aspect of it which, it seems to me, should be drawn to the attention of senators.
The Chairman: For the record, I do not think your interpretation is quite in line with the evidence, but that is neither here nor there.
Senator Nolin: Mr. Feltham, you mentioned in your brief that a country is entitled to adopt a precautionary approach to potential health and environmental problems. In another document provided to us by you, you refer to principle 15 of the Rio Declaration. Can you explain to us how that principle applies in Canada?
Mr. Feltham: It is my submission to you, sir, that in the interpretation of an international treaty, which NAFTA and the GATT are, one looks to declarations which have been made from authoritative sources. My colleague has pointed this out very well in his own brief with regard to some work which has been done in determining the appropriate principles at the international level
One of the sources of the current state of international thinking about health and environmental matters is to be found in the Rio Declaration which was adopted by Canada and many other countries.
Senator Nolin: That is the introduction.
Mr. Feltham: Yes.
Senator Nolin: Let us say that is part of the rules that Canada obeys on the health and environment sector. How does the respect of that principle apply in Canada?
Mr. Feltham: The question before us is whether Bill C-29 would violate Canada's international obligations. In determining what Canada's international obligations are, one has regard to WTO panel decisions and other sources of principle. It is in connection with the determination of international law that one invokes the precautionary principle in the context of environmental protection legislation and either comes to the conclusion or does not come to the conclusion that a nation is operating within the umbrella of the precautionary principle.
Senator Nolin: How could Canada be seen as being respectful of those principles? You wrote on page 10 of your backgrounder:
The precautionary principle has been adopted by both the United States and Canada in their domestic environmental legislation. For example, both countries require preliminary environmental assessments before major activities that may affect the environment may be undertaken.
You indicate in a footnote that that is taken from the Canadian Environmental Protection Act, which is our basic law.
Have they followed that with regard to MMT?
Mr. Feltham: That goes to the evidence before you. Some of you will point out that if I trespass beyond my province, I am not an expert and I do not appear before you as an expert on scientific evidence. However, I do appear before you as a lawyer who deals with expert witnesses and I know that one must understand the evidence that an expert will bring forward.
I have looked at statements made by consultants engaged by Environment Canada. I have looked at some of the record before this committee. I have looked, in particular, at the evidence that has been submitted to you by the motor vehicle manufacturers. I have looked at the statements from Health Canada and other materials that bear on the question of whether the government was justified in the circumstances, within the framework of the international legal principle that I have set out, in applying the precautionary principle. It is my opinion, as expressed in the documentation before you, that given the latitude that a nation has to adopt its own standards, make its own judgment about standards and make its own judgments about how it wants to achieve cleaner air, the bill does not infringe the international requirement against border measures.
Mr. Appleton: Senator Nolin, perhaps I might be able to answer your question slightly differently. I have attempted to take this complicated set of documents on the NAFTA and try to put it as simply as I can in everyday language. The NAFTA is very complicated and has all types of provisions which run through it.
One of its provisions deals with its relationship to other agreements. My friend, who is very knowledgeable and who is attempting to help this committee as much as he can, has given you a general principle of international law which is changed by the NAFTA. I refer specifically to NAFTA Article 103 which deals about its relationship to other agreements. It states:
In the event of any inconsistency between this Agreement --
That is the NAFTA.
-- and such other agreements, this Agreement shall prevail to the extent of the inconsistency...
It then sets out a series of international environmental agreements where there is a trade inconsistency and states that they would take priority.
These agreements are important. They include the Convention on International Trade in Endangered Species of Wild Fauna and Flora, the Montreal Protocol, the Basel Convention and the Migratory Birds Convention. However, it does not talk about the Rio declaration at all.
My friend might be correct in saying that this is becoming more and more part of international law, although that is debatable. The NAFTA says specifically what you look at and what you do not. Therefore, you do not look at that. It is not that we do not want to look at it; it tells us what we can and cannot do. It is very specific when it is specific.
Senator Nolin: How does a border measure work?
Mr. Appleton: In which case?
Senator Nolin: What kind of evidence is needed before the minister is convinced that he can take the right actions?
Mr. Appleton: If the issue deals with trade in goods, the minister can do whatever he likes. That falls under Chapter 3 of the agreement, the trade in goods chapter. However, where you have a company which has operated legally in the past and it continues to operate, after January 1, 1994, when the NAFTA came into effect, that is when the investment chapter kicks in. If it is there after January 1, 1994, and it is investment and not just simple trade in goods, that is when it kicks in.
One other point that is very important is this. One of the GATT cases, the Thai cigarette case, decided specifically that it is not enough for us to show that there is an actual discrimination, but if there is potential discrimination, then international trade law will stop that. They will compensate for that.
Our problem here is that the realm of international trade law has become more a subject of what we do as domestic policy makers. The implications here are significant. The minister can make whatever decision he or she thinks is best to protect citizens across Canada; but if they affect investments, then they must deal with the NAFTA.
The Chairman: Mr. Feltham, have you heard of any evidence relative to MMT in gasoline in that it causes a threat of serious or irreversible environmental damage?
Mr. Feltham: We are into the area of scientific, engineering evidence. My understanding of the documents I have seen is that MMT-laden gasoline in Canada will prevent the attainment of --
The Chairman: That is not the question.
Mr. Feltham: It is sir, with respect.
The Chairman: I know that evidence. I do not mean to interrupt you. I want to know whether you know of any evidence where MMT has been said to cause serious or irreversible environmental damage. You are talking about the precautionary principle, and I want to know if you are into the precautionary principle.
Mr. Feltham: I am indeed.
Senator Spivak: It is not the precautionary principle, with all due respect.
The Chairman: Yes, it is.
Mr. Feltham: I submit with the greatest respect that the evidence is sufficient to justify a concern by the Canadian government and the Canadian Parliament which entitles the Canadian Parliament to take action to protect cleaner air in Canada on the basis of the precautionary principle which is widely accepted at the international level.
The Chairman: I am reading from the precautionary principle and it states what I have said. The precautionary principle from Rio, as approved by Canada, a party to the agreement, states:
Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.
You must have the threat of serious or irreversible environmental damage to come within the context of the precautionary principle. If I knew of evidence like that, then I would be there. However, I have not heard any.
Senator Nolin: We will ask the minister tomorrow.
Senator Kenny: I would like to ask Senator Spivak to read what she has in front of her.
Senator Spivak: I have a statement from Carol M. Browner, the Administrator of the EPA. She talks about the ads of Ethyl Corporation. She states:
The ad quotes the U.S. Environmental Protection Agency as saying that "the EPA concedes that it has no data showing MMT to be a (health) threat at low levels of exposure." While it is true that EPA does not have data showing MMT to be a threat, that lack of date is exactly the problem. EPA does not have data proving that MMT is not a threat.
The reason for the precautionary principle is to reverse the onus of proof.
The Chairman: Agreed.
Senator Spivak: It is not that I have to show to you that there could be irreversible damage. It is the opposite. You who are manufacturing the products must have the data that shows that there will not be irreversible damage, and that is the principle.
Senator Kenny: Finish the statement, please, senator.
Senator Spivak: It continues:
EPA initially denied Ethyl Corporation's request to sell MMT as a fuel additive because the company refused first to undertake health effects testing prior to putting their product into commerce. The only reason MMT will now be available as a fuel additive is because the court rejected EPA's argument that the public health impacts of "fuel additives" should be fully evaluated prior to broad use.
EPA believes that the American public should not be used as a laboratory to test the safety of MMT. EPA believes more testing should be done before cars across the country begin emitting into the air this additive -- which contains the heavy metal manganese.
The Chairman: I have read that, senator. I think the courts have held that the EPA did not have the jurisdiction to get into these areas because it was not within the legislation that would allow them to do it. However, I think we are digressing.
Thank you. We appreciate you being with us.
We welcome our next panel of witnesses. Please proceed.
Mr. Don Ingram, Vice President, Refined Products, Husky Oil Operations: Before our panel proceeds, I would note that we will not repeat the points made previously by the CPPI panel on February 4. We fully support our colleagues' position on the need to amend Bill C-29 because of the precedent it creates and its fundamental inequity. This panel is more concerned with the economic and environmental impacts of the proposed legislation. However, we would like to conclude with a proposal which we believe might help resolve this issue.
Mr. Alain Ferland, President, Ultramar: Ultramar is a refining and marketing corporation of petroleum products in Eastern Canada -- Ontario, Quebec and the Atlantic provinces -- as well as in the North-eastern United States. Ultramar is a subsidiary of Ultramar Diamond Shamrock, a new corporation formed following the merger between Ultramar Corporation and Diamond Shamrock Inc. on December 3, 1996.
In Canada, Ultramar Limited employs, directly and indirectly, more than 10,000 people. It owns and operates a refinery located near Quebec City with a capacity of 150,000 barrels per day. The refinery produces gasoline, diesel, heating oil and other products. Yearly refinery expenses are more than $100,000, of which more than $30 million are paid in wages. Our retail network has about 1,300 service stations, of which about 1,000 are in Quebec.
For a regional refiner, the issue of Bill C-29 is one of efficiency and competitiveness. While we are all members of the CPPI, as a regional refining company, Ultramar is different in several ways. First, we are not an integrated company. We do not have upstream and chemical operations. Therefore, we have less flexibility in terms of absorbing or resourcing capital investment. Second, our operations are centred around one refinery. This refinery provides products to an original retailing network that includes many independent retailers. Third, we are regional in nature so we must first succeed on our home ground. Fourth, our growth depends on our ability to expand and develop new markets.
For example, Ultramar has moved into the north-eastern United States' market. If this legislation proceeds, it will obviously complicate our efforts to secure a profitable market share in the United States. It will increase our operating costs. It will also reduce our competitiveness in this market where we have to compete against refiners in the United States using MMT in their gasoline.
Part of being competitive includes the need and the ability to reinvest and upgrade our operations. We have made considerable investments in environmental improvements: removal of lead from gasoline; vapour pressure reduction of gasolines; vapour recovery at loading racks; low sulphur diesel; waste-water treatment; underground storage tank replacement; double-bottom and double-hulled tankers. This list also includes the introduction of various new fuels mentioned previously to the committee.
To recover these costs, the consumer must find value in what we do. Otherwise, absorbing unnecessary and unrecoverable costs impacts our financial viability.
Since there is easy access to product from other domestic refiners in Canada and from large American and European refiners, we, as a regional company, face truly global competition. Ultramar competes against the potential importation of petroleum products from more than 200 refiners in the Atlantic basin.
Moreover, in recent years, federal government programs have created some new financial obligations for us; namely, covering Coast Guard operational costs for maintenance of the St. Lawrence River Seaway response centres for marine environmental protection.
Taken as a whole, in this environment, we cannot simply pass on higher costs as some observers have suggested. We have succeeded in remaining competitive in this industry in several ways. One is our partnership with governments that has always allowed us to plan our investment programs. Second, we have been successful in serving and keeping as clients large independent retail networks. Third, our companies have succeeded, through innovation, in differentiating ourselves to consumers at the retail market and refining level. Some initiatives are value pricing, convenience stores and specialty crude processing.
For us, Bill C-29 represents a break with our traditional partnership with the federal government. Without a health or environmental justification, the imposition of capital costs on our refining operations will affect all areas of our operations. We are ready to make investments that provide clear benefits, but as a regional refiner, we need a better process than has been seen to date in Bill C-29.
However, today we have a solution to propose to this committee which we honestly hope will solve the issue of Bill C-29 for all parties involved. It is an opening for your committee to create a win-win situation.
Mr. Ingram: Husky Oil is a Canadian-based petroleum company that ranks among Canada's top producers and is a leading niche marketer in transportation fuels and services across Canada. Husky is involved in the exploration, development, production and transportation of crude oil, natural gas, natural gas liquid, sulphur and refined products.
Husky is also one of Canada's leading truck stop operators with stations from Kingston to the Yukon. Husky has two refineries. One is in Prince George, British Columbia, serving Central and Northern British Columbia and the Yukon. We also operate an asphalt refinery at Lloydminster, Alberta. Husky Oil has approximately 1,400 employees and our dealer network employs over 30,000 people.
I would like to address the question of the economic impact of Bill C-29 as it relates to my company. If government decision-making becomes capricious and arbitrary, as it appears to be concerning Bill C-29, then how can we assure ourselves, our employees, our shareholders and our customers that we will continue as a competitive company in the downstream business? How do we justify capital being dedicated to solutions when legislation is passed with no basis in fact?
We must rely on the government at all levels to defend and support the principle of science-based decision-making. We are now relying on you, Mr. Chairman, and your committee, to do the same.
In Canada, the technical capacity of most refineries makes it close to impossible to economically replace octane lost through a ban on MMT. We will become less independent commercially and we will become totally dependent on the larger competitors.
Already, one company noted that Bill C-29 will reduce the future efficiency savings of a refinery that processes 80,000 barrels a day by as much as 40 per cent. Imagine the effect this bill will have on our 10,000-barrel-per-day refinery in Prince George and the effect it will have on pricing throughout northern British Columbia and the Yukon.
The precedent of restructuring interprovincial trade in oil products seriously affects a company such as ours, which depends on products and exchanges with other companies in other provinces. Here, the precedent set by Bill C-29 is relevant and it is reflected in other legislation now under review. For example, the same principle of forbidding interprovincial trade in fuels which do not meet the unknown criteria of a fuel market, is present in the proposed fuel section of Bill C-74, to revise the Canadian Environmental Protection Act.
Husky's survival in the downstream business depends on our ability to remain flexible through the use of product exchange across provincial borders.
Obviously, the economic impact of this legislation will affect each of our companies differently. The keys to our refinery's economic survival are: its location in Prince George, British Columbia; ensuring that new capital spent on environmental solutions has the opportunity to be returned; having a science-based process that is understood in order that decisions can be made on the basis of fact and not arbitrarily changed because of political bias; and environmental legislation that is structured to solve regional problems, not to apply across the country to solve problems that do not exist in all constituencies.
Finally, Husky operates in a very competitive market. We have joined the CPPI and have worked with the government to be part of the Canadian environmental solution. This mutual consultation has worked in Ottawa and in every province in which we operate, allowing us to make informed decisions in the best interests of commerce and the environment.
Why is the political process intent on destroying the agreed-on process that has been so successful in the past and has protected the environment and the competitive nature of our business? The political process has ensured continuous improvement in the industry and the environment to the benefit of the Canadian public. All of these gains have been achieved through a cooperative effort of our companies and the government in establishing a pattern of mutual consultation, goal setting and targeting resources to areas of recognized need.
Bill C-29, in its formation, content and impact is totally contrary to this spirit, and the process challenges our competitive position in the future.
Mr. Michael O'Brien, Executive Vice President, Sunoco Group, Suncor Inc.: Sunoco is a wholly-owned refining and marketing subsidiary of Suncor Inc., and Suncor is a widely held, Canadian-owned integrated oil company, probably the most integrated oil company in Canada at this time. We have a single refinery in Sarnia, Ontario, marketing and distribution assets spread across Southern Ontario, and product sales of about 85,000 barrels a day. We are a significant player in the gasoline market in Ontario, with about 20 per cent of the market. We market under the Sunoco brand and, through our joint ventures, Pioneer Petroleums, which is independent, and UPI, which is a brand name of the Farmer's Co-op in Ontario.
Bill C-29 is not a survival issue. The issue is lack of due process. We are concerned that it sets a dangerous precedent. During a time when we have a significant number of issues in terms of fuel reformulation changes on the horizon, and when industry and government are working hard towards meeting those challenges and improving the environment, we believe that the passage of legislation without due scientific process could result in not only ineffectively dealing with improving the environment but also could threaten the viability of our refinery.
We have two major issues with Bill C-29: the cost and competitiveness impact and the environmental impact. In terms of cost and competitiveness, Bill C-29 will raise our operating costs without any chance to recover these costs in the marketplace.
Our product prices must be competitive with imports from Europe and South America to the East of Ontario, and from imports from the U.S. to the south. Therefore, it is absolutely imperative that Suncor maintain its efficiency and flexibility to compete effectively against these imports.
We are already under tremendous pressure to reduce operating costs and increase flexibility to compete with larger U.S. and offshore refineries.
It is this drive for cost control, competitiveness and improving the environmental performance of our products that recently led us to introduce ethanol as a component in our gasolines and we need to continue the use of MMT.
Unless prevented by Bill C-29, in order to be more efficient, we would blend both ethanol and MMT in all grades of our gasoline. Removal of MMT, on the other hand, would force us to change refinery operations to replace the lost octane, limit our flexibility to compete, raise our operating costs and, in the process, impair our competitiveness.
Looking at the environmental impact, we at Suncor strongly believe that to be successful in the long term, our products and operations must not only be cost competitive but must be sustainable from an environmental perspective. We have a long history of introducing and marketing alternative transportation fuels, including propane, methanol, natural gas and, for about the last four years, ethanol-enhanced gasolines.
We, along with other members of the CPPI, have worked diligently to support the federal government's work in advancing world-class gasoline standards for our reformulated fuels in Canada, and these regulations are now nearing the stage of being published in the Canada Gazette.
I believe that Bill C-29 is in direct contradiction to the above beliefs, efforts and spirit that we have been working under. There has been some discussion during these committee hearings that MMT should be removed based on the concept of the precautionary principle. At Suncor, we agree, within the bounds of reason, that we must be proactive in situations where there is potential risk of significant adverse environmental consequences which outweigh the cost of implementing specific actions. For that reason, Suncor is and has been an active participant in the voluntary challenge to combat global climate change. Our oil sands plant in Alberta and our Sarnia refinery are making substantial economic and cost-effective investments to improve our energy efficiency and to reduce greenhouse gas emissions. We are working hard as a company to operate within the spirit of the precautionary principle.
When we turn to Bill C-29 and the precautionary principle, our concern is that we know the economic and environmental consequences of an 8 per cent increase in NOx emissions by removing MMT, however we have yet to see the environmental benefit of Bill C-29 quantified.
At the risk of doing some math in public, a simple calculation suggests that MMT would have to completely disable the OBD-II systems and the catalysts on 720,000 cars to offset the reduction in NOx benefit that we get with MMT in the gasoline pool and remain smog neutral. That number of cars is approximately equivalent to the number of new cars we sell each year in Canada.
To put that into perspective, we did some studies on OBD-II with Ortech Corporation and Protect Air. Some people have complained about the quality of that study, but we did a study, and out of 185 vehicles, 184 had no problems at all. One vehicle had some fouled spark plugs that could be attributed to MMT if we stretched our imagination. That relates to a less than 1-per-cent malfunction rate. It is difficult for us to see how the precautionary principle can be applied in this case. We do not believe Bill C-29 is a valid application of that principle.
In summary, for cost effectiveness and competitiveness and to reduce emissions, Suncor wants to use both ethanol and MMT. We firmly believe that ethanol and MMT are complementary for emission reduction, as the former reduces carbon monoxide and the latter reduces nitrogen oxide.
Bill C-29 leaves us with great uncertainty with regard to the reasoning for this bill and also with regard to the rationale and the process that the government may use in the future to legislate additional changes to fuels.
For greater certainty, I strongly urge this committee to encourage the federal government to end this debate once and for all by using good due process. I hope this demonstrates the need for a test as proposed by my colleagues not just for due process and scientific foundations, but also to protect the environment.
Mr. Jack Donald, President and CEO, Parkland Industries: I am from Parkland Industries, which is a public company traded on the Toronto Stock Exchange, with a market cap of $38.5 million. We have about 700 shareholders, with our stock is trading near $7, below book value of $8.55 per share, just to give you a bit of a feel for the somewhat difficult business we are in from time to time.
Parkland is based in Red Deer, Alberta, and our staff of 179 persons makes us one of the major payrolls in our city. We are perhaps the only pure domestic refining and marketing company to appear before you. We do not have any ability to produce our raw material. Parkland markets motor fuels through a network of 307 service stations across Eastern B.C., Alberta, Saskatchewan, Northern Manitoba and the Yukon, under the FasGas, Bi-Low, Payless, Thrifty, Mr. Petrol and Northern brands. We have a brand to fit almost everyone. Another 2,450 persons find employment in our service station outlets. Our sales this year will be approximately $250 million, plus taxes collected of $106 million for two levels of government.
Our refinery at Bowden is unique. It uses condensate, a by-product of natural gas production as its feed stock. We do not use crude oil at all. It is the smallest refinery in Canada with 6,000 barrels per day of feed stock input. Our production consists of 87-per-cent gasoline and 3-per-cent diesel. The MMT issue obviously is important to us because of our high gasoline proportion of manufactured product. We have virtually no sulphur in our gasoline. We are presently conducting engineering studies on effective benzine removal prior to government relations being passed. We are working towards what we think the future will demand from us.
Obviously the Bowden refinery is the major employer in Bowden, with 30 full-time, high-skilled jobs. Our refinery manufactures two-thirds of our service station chain needs, and we purchase one-third on the open market.
Corporately, on behalf of our own company, we feel that the cost of obtaining extra octane to replace lost MMT if it disappears will need to be purchased from outside sources. Any extra costs cannot be passed on, as the market is very competitive. In fact, it is so competitive in Western Canada that our company has lost money over the past two quarters on refining and marketing operations. I am trying to make the point that our business certainly works very close to the bone most days.
I would like to make some concluding remarks and propose a solution to this issue that we hope you will consider seriously. We have indicated to you the strategic consequences on our regional companies of passing Bill C-29 in its current form. We have also demonstrated the potential harm to the environment that could result, the exact opposite to what the other side of the issue claims.
Our CPPI colleagues in the provinces have explained to you the consequences of adopting a law that denies due process to one industry,that infringes on provincial jurisdiction and probably contravenes the provisions of the recently signed Agreement on Internal Trade. As has been repeatedly pointed out, the significant opposition to this legislation has come from the provincial governments and the premiers of Liberal, Conservative, New Democratic and Parti Québécois governments.
What can be done at this late stage of the proceedings to resolve this issue fairly for both industry and the federal government, a solution that would represent a consensus view of the provinces? First, you could direct that further consideration of the bill be deferred until an independent test is concluded, as part of your requirements to table interim reports on the legislation. Second, you could amend the bill so that final promulgation is dependent upon receiving the results of a test program. This allows passage of the bill without further opposition. When the amended bill goes back to the House of Commons, we will, on the record, support the amendment and encourage all parties to expedite it promptly. This allows the process issue to be resolved.
The Government of Canada, through your department, is represented by the appropriate agencies. Two provinces -- one for and one against Bill C-29 -- would represent their CCME colleagues. The CPPI and the Motor Vehicle Manufacturers Association will be at the same table, both using a strong incentive to resolve the issue.
The process could be guided by the Royal Society of Canada, which your government recently convened to conduct an independent and scientific review of the rationale for France's import prohibition on Canadian asbestos. If the study focuses simply on the Motor Vehicle Manufacturers Association claims, we are certain that testing will not take more than a few months. We suggest three or four as a timetable. All the issues raised by your department after the Ortech study will be addressed -- mileage, sample size, driving and maintenance.
The two new key points in our proposal are as follows: The study will be conclusive and the experts will have presented the evidence. It will not be a battle of competing experts; rather, it will be an opportunity to give your officials the real data on vehicles equipped with the latest emission control systems. In the end, the government makes its policy decision. We will follow the government policy. If the process is fair, CPPI members will abide by the results voluntarily.
Whichever way the government concludes, the need for enhancing this bill at this time disappears. If it leads to our industry withdrawing the use of MMT voluntarily, the trade and constitutional challenge to Bill C-29 will also vanish because it will be a commercial decision made by private sector companies. Of course, the same result could be achieved if the CPPI and Environment Canada had an agreement outlining the above. In the absence of such agreement, the amendment is the only way to ensure that due process is respected and to stop all further actions against the bill.
We have delivered this proposal to Minister Marchi. We have not received a reply yet. As you are all aware, Minister Marchi is appearing tomorrow, and we would be grateful for a positive reply.
I would like to thank you for your consideration of our proposal, and we would be happy to answer any questions you might have of any of us.
The Chairman: When did you deliver this proposal to Minister Marchi?
Mr. Donald: Monday.
Senator Kenny: Mr. Ingram, do you have any competitors currently selling gasoline without MMT?
Mr. Ingram: Chevron does not use MMT, and we compete with them in the Vancouver market.
Senator Kenny: Mohawk?
Mr. Ingram: Mohawk uses MMT in part of their fuel.
Senator Kenny: Not in other parts?
Mr. Ingram: Probably in over half their fuel. We compete with them, but they use MMT along with their ethanol blend.
Senator Kenny: How will your company respond if you find more of your competitors selling MMT-free gasoline?
Mr. Ingram: We have to make decisions with respect to the cost of our product. The cost of our product is the major influence with respect to being competitive. MMT is one of the costs that, in today's market, will make us uncompetitive if it is removed. It will cost us a fairly significant amount of money. We will have to review our refinery economics to determine if it is competitive in the future.
Senator Kenny: From the perspective of your customers, or Canadian voters, witnesses who have come before us have said that the additional cost of MMT if eliminated will be $5 per year per customer. They have also told us that if MMT remains in gasoline, hundreds of dollars of extra service calls will be incurred by customers. What is your comment in that regard?
Mr. Ingram: Given the information we have received, we would not agree with those numbers, sir.
Senator Kenny: What numbers would you offer to the committee?
Mr. Ingram: We have not quantified the total amount on any of these issues. We feel that the profits of our refinery would be reduced by about a third. We feel that the process is more important here. We know that we have a tremendous number of costs coming down because of environmental solutions. We want to understand the process. Our concern in making this presentation is making certain that the process allows us to make sound economic decisions, understanding the pros and cons of making further investment. In this case, that has changed. That is our biggest concern with respect to these issues.
Senator Kenny: Mr. Donald, you gave compelling testimony that MMT will help auto companies achieve higher or better emissions standards. If that is the case, why do you believe that all major auto manufacturers are opposed to the use of MMT?
Mr. Donald: We take the view that if even one automobile has problems under warranty, it will obviously cost one side of the debate something, whether it is a real problem or a perceived problem. If a light burns out, the automobile goes back for potential repair. It costs the manufacturer something under that warranty. By simply avoiding the issue totally, that entire problem goes away forever. That is one reason on the other side as to why they would like to see the elimination of MMT. It simplifies their world.
[Translation]
Senator Nolin: Mr. Ferland, I will speak to you in French. We do not often speak French here, but when we have the opportunity, we take advantage of it. Is the Quebec government aware of this proposal?
Mr. Ferland: Yes, it is. It is no big secret. Letters were sent in which it was basically suggested that tests be carried out before proceeding any further and that scientific facts be taken into account. This is somewhat similar to what we are suggesting this evening in an effort to make the debate less political and more scientific.
Our proposal this evening will confirm this, but we believe the Quebec government will probably stand behind our suggestion that tests be conducted on actual motor vehicles to verify if emission control systems are in fact affected by MMT.
[English]
Senator Nolin: Are you aware, either one of you, if other provincial governments were informed of that and, if so, their reaction?
Mr. Donald: I am not.
Mr. O'Brien: I am not aware.
Mr. Ingram: Neither am I.
Senator Taylor: I have trouble understanding why your competitive positions will be worse if everyone is in the same boat. Your competitive position vis-à-vis the next fellow will be the same. I am thinking more of Ultramar and Parkland Industries. If your competition is not able to put in manganese and you are not able to put in manganese, you might be starting at a different part of the race track, but you are still starting together. Why would your competitive position be worse if you did not use MMT?
Mr. Ferland: Perhaps I can answer on behalf of Ultramar. As I indicated in my brief, the competition to an eastern refinery is the Atlantic basin. Gasoline, for example, is being imported into Montreal on a daily basis, and it is coming from Europe.
You may not know that Canada is the only country in the world totally open to outside competition. For example, a cargo of gasoline could be sent to New York or Montreal. If it is sent to New York, duty will be paid by the shipper to the United States. If it is sent to Montreal, there is no duty. For those importing the finished product, there is a natural tendency to go to Montreal at a discount cost. As a refiner, we need to purchase the crude, put it on a ship, ship it to Quebec, refine it in Quebec, add up the costs and try to market the product at a better cost than the import party.
They do not currently put MMT in the gasoline, but I can tell you that, with the duty advantage, they are competitive. We have the MMT as a tool to better compete because the costs of manufacturing octane to make the gasoline suitable for cars is much lower with MMT than natural processes.
Senator Taylor: It is still difficult for me to understand. If I were competing with you and having gasoline shipped in, and if you were beating me by using MMT, all I would have to do is put in eight grams per litre. Have they not discovered your secret?
Mr. Ferland: In Europe, lead in gasoline is still permitted. Because lead has not been banned, they are not at the stage of putting in MMT. If lead is banned in Europe, they will put in MMT as the best alternative.
Senator Taylor: You also mentioned that you wanted to secure a profitable market in the U.S. Yet, evidence has been presented here that roughly 80 per cent of the gasoline sold in the U.S. is MMT-free. If you are hoping to penetrate the U.S. and you are using MMT, it seems to me you are a turkey looking for an early Christmas, are you not?
Mr. Ferland: As you may be aware, it is now permitted in the U.S., and more refiners and marketers are using MMT in their gasoline. It is not known to me exactly who is doing that, because when the EPA authorizes a refiner or marketer in the United States to put MMT in the gasoline, it is confidential. You do not know exactly who is doing it. We do know there are a few of them already doing that, and it will grow because the small refiner will be after every means and tool to improve his competitiveness. The same small refiner in the North-eastern states will compete with Ultramar, trying to penetrate that market.
Senator Taylor: You are going after a smaller MMT market and forgetting about the MMT-free market here. The U.S. has more gas sold without MMT than with it. If you did not have MMT, you could go after that big pie instead of the small pie.
Mr. Ferland: It is a big pie in the U.S. It is our growth. We want to grow there.
The simple point is that I am one tool less in my ability to compete there. There is a technical subtlety there. You are not able to put MMT in your gasoline, and you must comply with all kinds of specifications in this market. It is becoming difficult to blend gasoline without MMT in this market.
Senator Taylor: Perhaps that applies to you.
As an Albertan, I do not like to phrase it in this way, but you are exporting into British Columbia, and British Columbia is talking about changing their fuel rules in order to qualify to keep these on-board diagnostic units going. It looks as though they will be disallowing manganese in the lower mainland. Does that not bother you? Again, are you not trying to compete in a market that is getting smaller instead of getting rid of the MMT and going after the big market?
Mr. Ingram: The market in the lower mainland has a specific problem. The British Columbia government has indicated to us that they will rely on this federal process to look after MMT. They have a problem down there. The Prince George refinery services predominantly Northern British Columbia and the Yukon. We do not have anywhere near the problems of the lower mainland with respect to air quality, et cetera. From our conversations with the British Columbia government, particularly with respect to benzene and sulphur, they are actually drawing lines around the major, populated areas. There will be demarcation lines where the specifications may vary in different parts of the province.
Senator Taylor: Mr. Donald, as you know, we are turning out a new product, and I am speaking of the MTBE plant. We are making about 1,600 barrels a day or so, and 100 per cent will be produced in Edmonton, and all of it will be exported to the U.S. because it is a substitute for MMT.
You are sitting right next to what refineries in the U.S. have fallen over themselves to come up to Alberta to buy as a substitute for MMT, and it is there under your toes. Why would you not use MTBE as a substitute in your gasoline?
Mr. Donald: It is probably for the same reason that MMT is valuable to us. We are a small fish in a big ocean with some large fish swimming around us. The only reason we survive with our small 6,000-barrel-a-day refineries is because we make a great deal of gasoline and little of the lower value products. It is important to keep the cost of gasoline down. I am speaking here of 0.25 cents per litre or 0.5 cents per litre, small amounts of margin, and MMT does provide that.
MTBE, the product to which you refer, provides octane and oxygen. Oxygen is a requirement for gasoline additives, particularly in the South-western states and the Houston market where much of that product goes. Indeed, MTBE is an expensive additive. The last time we checked, it was about 200 per cent of the cost that we sell our gasoline for. The more we add, the more we add to our costs.
Senator Taylor: It is quite a bit more expensive.
Mr. Donald: Definitely. No domestic refiners use MTBE, and it is all exported. We cannot afford it in Canada.
Senator Taylor: I have a question for Suncor. On page 11 of your brief, you say:
We have worked diligently with other members of CPPI to support the federal government in advancing new standards for reformulated fuels.
We have heard evidence that it is impossible to put MMT in a reformulated fuel.
Mr. O'Brien: Reformulated fuel, as designated in the U.S. market, has to have an oxygenate and does not allow MMT. It was never tested with MMT in the system.
Senator Taylor: However, you are going to try to get into that market.
Mr. O'Brien: When we talk about reformulated fuels in Canada, we are talking about the cocktail that we have been negotiating with the CCME in terms of lower benzene levels, lower vapour pressures, et cetera. That is the difference.
Senator Taylor: So in the reformulated gasoline that you are thinking about for Canada, you think you can use MMT?
Mr. O'Brien: Exactly.
Senator Taylor: Yet you cannot use it in reformulated gasoline in the U.S.?
Mr. O'Brien: In those non-attainment areas -- which is really what the U.S. EPA has ruled -- you have to have reformulated gasoline. You cannot use MMT.However, given that the EPA and the car manufacturers could not support their positions, they have had to allow it everywhere else.
To build on that, in the U.S., car manufacturers are currently undergoing a $12 million study to prove to the level of detail that would be acceptable to the EPA, that you should not be able to use MMT. That is saying de facto that they do not have the evidence to prove that it is a problem. That is our issue. If it is a problem, we will take it out, but there is no evidence to that effect.
Maybe I could take a minute to show a couple of slides. Obviously, some people will agree with our argument and some will not. This is what we understand to be the rationale of the Minister and the Department of the Environment for taking MMT out. They say that it is a health and an environmental issue.
The logic follows that if MMT coats oxygen sensors and stops them from working and impairs the catalyst performance, the three things that happen are: first, the catalyst performance decreases; second, you get false warnings from your dashboard warning light; third, because people will complain that there must be something wrong with their cars because of the false warnings, the automakers may choose to disconnect the sensors. The argument is that if they disconnect the sensors, that will result in increased undetected pollution, and, therefore, they apply the precautionary principle. The key point for us is that Environment Canada has never quantified the risk associated with that assumption.
Let us do some math. This goes back to the question of whether there is a precautionary principle. Is there a significant environmental threat? Our view is that you have to come to a conclusion on that before you apply the precautionary principle.
As this slide shows, total nitrous oxide emissions from gasoline combustion is 400,000 tonnes a year. That is about 25 per cent of all the emissions of nitrous oxide in Canada.
Tests that the EPA have done suggest that if you take MMT out of gasoline, you will raise NOx emissions by 8 per cent. That is their view. At the other end of the spectrum is Ethyl, who would say it would be as high as 20 per cent. However, let us conservatively accept the 8 per cent. Therefore, if you take MMT out, you dump 32,000 more tonnes of NOx emissions into the environment.
Let us try to determine how many cars would have to go bad to make that neutral. Let us look at what was happening in terms of NOx pre-1971; that is, before we had catalysts or any kind of emission control equipment on cars. The emissions were 4.1 grams of NOx per mile. With the emission control equipment on the 1996 and 1997 models, there is a dramatic improvement. It is four-tenths of a gram per mile.
Effectively, they have improved it by 3.7 grams per mile. The opposite of that is that if a new car goes bad and goes all the way back to a pre-1971 car, you will start adding 3.7 grams for every mile driven on that car.
The average mileage for a Canadian vehicle is 12,000 miles per year. If the system fails because of MMT, what happens? The end result will be 44 kilograms of NOx per year per vehicle in the worst-case scenario.
Therefore, is the precautionary principle relevant? Is there a serious threat to the environment based on what we know? If you take MMT out, how many cars would have to go totally back to pre-1971 levels before you would have a balanced equation? The answer is 720,000 cars, which is equivalent to the entire new car sales in Canada each year. Effectively, 100 per cent of the cars would have to go bad to make this equation neutral.
Senator Taylor: To average the emissions is to play with math a bit. The greatest problem is in the areas of high concentration of cars.
Mr. O'Brien: You would still have the same number of vehicles.
Senator Taylor: You are playing with statistics.
Mr. O'Brien: I do not think I am. The proportion of cars going bad would be representative of the distribution in urban areas, because 90 per cent of our cars are there.
I agree there is some static in the statistics, but I think that 8 per cent is a conservative assumption. We did some tests with Ortech, an Ontario government corporation, on 300 vehicles. Of those, 186 vehicles had the OBD-II system. We did a three-month test which we thought was legitimate, although people have complained about it. It was done by an independent. Only one of the 186 cars had a failure that could possibly have been related to the problems we are hearing about from the MVMA. That is less than 1 per cent.
There has to be 100-per-cent failure to become smog neutral, and the size of the problem that we are seeing from our vantage point is less than 1 per cent. That is our basic problem. That is not a significantly adverse threat to the environment. That does not support a precautionary principle. We think there is enough evidence to suggest that we should do the test. They are doing the test in the United States for $12 million. Why not do the test? We will stand by the results.
That is our logic. If we had evidence that 80 per cent of the cars were failing, we would not be at this table. The bottom line is that we have seen 1-per-cent failure. That is the only test data that we have seen, and we had to collect it ourselves. We have offered to do this a number of times with the MVMA. They do not want to pick up the ball, and the reason they do not want to is that they want to build a world car with one fuel. If I were a car manufacturer, I would want to do exactly the same thing.
The bottom line is why should we give up competitive advantage in Canada and do things that are not financially beneficial and go without that environmental benefit? Why would we make that kind of trade-off decision in Canada without doing the homework?
Senator Spivak: My problem with your statistics is this: It seems to me that the central question here is that the Government of Canada has mandated certain emission standards, and the 1998 cars are geared to achieve those emission standards. The point about those emissions is that they are not just concerned with the reduction of NOx. They include CO2, carbon monoxide and hydrocarbons. According to the testimony of the automobile people, these new cars using MMT-free fuel will reduce that. You cannot just talk about NOx; there are other things.
The car manufacturers did all kinds of tests and they have come out with different results. The point of the precautionary principle is not that the government has to prove a serious threat -- which is somewhat unfortunate, and a bit unfair to business, but there you are -- but that business has to prove that there will not be any adverse consequences to the environment. For example, they do not know about chronic low levels of manganese, and that is the reason this bill was not introduced as an environmental one.
We have these new emission standards. In terms of the reduction of emissions, you would have to show that using MMT will produce the same reductions. According to the car manufacturers, that is impossible for several reasons, not just the effect on control lights and the fact that you would not be able to detect malfunctions, but it just will not work in the same way to reduce the emissions.
Mr. O'Brien: Senator, that is why they are doing a $12 million test in the United States to try to prove that it will have the desired impact on the emission control equipment. That is the point.
Senator Spivak: What they are saying is that MMT fuel will not produce the reduction in emissions of all the greenhouse gases that I have mentioned in order to meet those standards. We are not just talking about NOx. We are talking about carbon dioxide and carbon monoxide. Are you saying that even with MMT fuel and these new 1998 machines, you will be able to reduce emissions in all of those gases? Surely, you are not saying that.
Mr. O'Brien: What we are saying is that we have not seen any evidence from car manufacturers that it will, in fact, be an impairment. They have not proven that. When we are asking our shareholders, customers and employees to take on the burden of extra costs, there should be a benefit. We should be in a position to stand up and support that.
We do believe that by taking MMT out of gasoline, we will run refineries much harder to produce the same amount of gasoline. We will run more crude. We will create more CO2 emissions, which is in direct contradiction to what we are trying to do in regard to global climate change. Many of these things are implicitly contradictory. We are asking to be able to do the homework.
Mr. Donald: The supposition is that if new automobiles in Canada use MMT fuel, then the systems, catalysts and sensors will fail. That is where the argument comes apart.
Senator Spivak: They will not reduce emissions.
Mr. Donald: If the systems fail, they will not reduce emissions. However, the systems have to fail first. We are trying to make the point that we should have conclusive evidence. We are prepared to meet in the middle. We are not even specifying what the test should show, should it be 2 per cent failure, 1-per-cent failure or whatever. We are leaving it in the hands of other responsible people. After having conducted a test fairly, with respected people involved in it -- not us and not the motor vehicle manufacturers driving the agenda -- we are prepared to live with the results.
Senator Spivak: I understand your point on this.
Mr. Donald: We are on the team, but we want to be sure.
Senator Spivak: The Association of Petroleum Producers told us that, in fact, their refineries could turn on a dime, that in 24 hours they could produce MMT-free fuel. They told us that a number of companies are already producing MMT-free fuel because every car that rolls out of the car manufacturing plants must have a tank of MMT-free gas in it. However, you cannot do that.
The Chairman: After they said that, they sent us a letter in which they stated that they could not turn on a dime; that it would take longer for them to do that. They told us in their letter that that was a slip of the tongue.
Senator Spivak: Nevertheless, some of them -- and I do not know how many of them -- already manufacture MMT-free gas.
What you are saying is that you are smaller, and I understand that. What I have to ask you relates to questions asked by Senator Taylor about the market. You are saying that if we adopt this compromise position, then the trade and constitutional challenges to Bill C-29 will also vanish. However, that is Ethyl. Ethyl Corporation admitted that they want to establish a beachhead in Canada so that they can increase their market for MMT.
Mr. Donald: If the market disappears and none of us buy product from them, it is a commercial transaction and it goes away.
Senator Spivak: They will not pursue these constitutional challenges.
The Chairman: Ethyl has said that as well. They have said that they would abide by the decision of the independent tribunal, whoever constitutes it. As I understand it, they are all on the same wavelength as to their acceptance of that proposition.
Mr. Donald: We think it is a fair middle ground.
Senator Taylor: The auto manufacturers said, and there was a certain amount of truth in it, that the bid for clean emissions has fallen almost entirely upon them in the last 10 years. They have made the improvements which you have pointed out. They have said that big oil has done nothing, outside reformulating gas that is in the U.S. They tried to sit down with you to work out something with them, but big oil has always hammered through and your gasoline today is no different from what you turned out 10 years ago. You will do all the stalling you can.
The Chairman: You are waving a red flag.
Senator Taylor: Has their gasoline improved at all in the last 10 years? I do not think it has, being an old farm boy.
Mr. Ferland: We have removed lead from gasoline.
Senator Taylor: That was as a result of a law that was passed. You would not have done it on your own.
Mr. Donald: We supported it.
Mr. Ferland: We also reduced the vapour pressure of gasoline, whose natural tendency is to evaporate. We also reformulated, in some manner, by having ever tighter and tighter specifications on various components.
As Mr. O'Brien suggested, currently, we are in a dialogue with our government to design, with the help of everyone, the formulation of the new Canadian reformulated gasoline, an initiative that we have taken on with the government. We like to work with the various agencies, including Environment Canada. We like to design solutions for Canada.
We talked about MTBE. It is compulsory in the United States to have oxygenates. We do not need that component to cope with the problem here in Canada. We need different solutions. We have been working with the government to propose a reformulation of gasoline.
We would control benzene. There are various technical specifications that we have been addressing. It is wrong to say that we have done nothing. To the contrary, we have been active.
What is happening today is that it seems that we are losing the process. In other words, we used to work with governments and, suddenly, for some reason, it is not based on hard facts and science. We are wondering where this will lead us. Is this the new rule?
Senator Taylor: If all you big, rugged, free-enterprisers in the automobile and oil industries would get down and solve your problems, we would not be sitting here today. It is the big businessmen who have not reached a solution.
Mr. O'Brien: Just to give you a little bit of perspective, the issue of fuel reformulation started in the U.S. and, like a lot of things, it happened later in Canada. The nature of the problem was much more dramatic in the U.S. We are now facing what the U.S. refiners were facing five years ago. In fact, we made a proposal to the government and said that we would increase the quality of our gasoline. The standard to which we have agreed with government is, effectively, the best national standard in the world, and the CCME will probably support that.
Senator Spivak: Do you mean the California standard?
Mr. O'Brien: No, California is in a situation all by itself in a world-wide context.
Senator Spivak: We are reaching that situation in Toronto and Vancouver.
Mr. O'Brien: Senator, even the car manufacturers would like to get rid of the California standard.
Senator Spivak: I know, but they have to breathe. They have a problem.
Mr. O'Brien: As a national standard, ours will be the best. Comparatively, our problems are less severe. We are moving to the front edge. The U.S. oil industry has spent $8 billion or $9 billion investing in reformulated gasoline.
I would give the motor vehicle manufacturers all the credit in the world. They have done many things. We will always be in this struggle of who will pay the piper and who gets the benefit and what is the benefit. That is where we are now. We are saying you should do some homework so you can make government policy decisions based on fact, not on innuendo or speculation.
Senator Kenny: In terms of the contribution your companies have made, have any of your companies instituted Phase I and Phase II vapour recovery?
Mr. O'Brien: We are complete on Phase I. We have not committed to Phase II yet.
Mr. Donald: Our situation is the same.
Mr. Ferland: No.
[Translation]
Senator Nolin: Mr. Ferland, could you tell us a little, for the committee's benefit, what kind of relationship you have with the Canadian Council of Ministers of the Environment and in particular with their task group on the reformulation of gasoline? Several witnesses referred to the "due process" that should be observed. Are you part of this process?
Mr. Ferland: Perhaps I can give you an example. There are two locations in Canada we need to pay special attention to in view of automobile pollution. I am referring to the lower Fraser Valley in Western Canada and to the Windsor-Montreal corridor in Eastern Canada.
The work with the CCME and the officials involved in these matters consisted initially in analyzing Canadian data and comparing it with US figures. The conclusion reached was that Canadian cities are by far less polluted and at lower risk than US cities. Working with these individuals, we have discovered a way to reformulate our gasolines. The new formulas have been designed to address the problems we face here in Canada, instead of us simply applying US solutions to problems that we do not have here at home. Environment Canada supplies the scientific data and work has been ongoing over a period of several months. Progress has been made.
For example, the industry took the initiative of drafting a memorandum of understanding announcing that it was voluntarily reducing sulphur levels in diesel fuel by a considerable margin, further to discussions and to a request from Environment Canada.
Senator Nolin: Is it reasonable to conclude that your researchers and the technicians from the various provincial and federal environment ministries have an ongoing working relationship?
Mr. Ferland: Within the Petroleum Products Institute Group, each business assigns its best technicians to work with government agencies and departments to develop solutions that meet the objectives of the government's pollution reduction plan. There are economic objectives pursued as well and it is important that the rug must not be pulled out from under us. Ultimately, different interests are reconciled. We have been doing this for a number of years. We have no choice but to continue along the same lines.
How is it that we have strayed so far from the process in the case of MMT, because we would normally not be here this evening. We say that tests should be conducted. What does the committee stand to lose by agreeing to these tests? I cannot imagine one valid reason for the committee to reject this suggestion because it will uncover the real truth for all to see within three months.
Senator Nolin: That is what we want, the truth.
Mr. Ferland: And that is what you would be getting. You could agree to adopt this legislation conditional upon the outcome of the tests. In my opinion, the provinces would have no problem with that. Earlier, I spoke somewhat on behalf of the province of Quebec. Other provinces are demanding tests, facts and information. They are prepared to live with the findings. No one in Canada wants to promote gasoline that is hazardous to Canadians' health and to the environment.
This solution is based somewhat on the traditional model which we use in our work with all government agencies. Why set aside an approach that has worked so well over the years?
This entails no risk to you. If it did, I could understand your advocating one solution over another, but there is no risk involved whatsoever.
[English]
The Chairman: Could I ask you about the tests in your conclusion? How realistic are you about the time that would be consumed by your proposal?
Mr. Donald, you set out in your conclusion that you thought you could do it in two to three months. Yet you are testing 1,000 cars and the protocol you have set out appears to be an initiative which would take much longer than that.
We are hearing from the automobile people that their systems are coming out now and they would like it resolved now. I have some trouble with that argument because it will not happen in the first year. These systems will not fail until there are 100,000 kilometres on the car. I am not sure I understand their anxiety, but I also understand that these things can take much longer.
Do you feel your three-to-four-month suggestion is realistic?
Mr. Donald: We discussed that. We feel it is a reasonable time frame. It may take a month to get the program organized, but we are told it is possible to properly organize it under the auspices of the Royal Society of Canada. They would supervise it and set it up properly so that it is, indeed, an unbiased survey. Then, at the end, we can all support it.
The Chairman: If you take a new car with the most modern diagnostic systems, you have to run it for 100,000 kilometres before you make a determination. How can you do it so quickly? Did I misunderstand the testing?
Mr. O'Brien: We can run them on tests for 24 hours a day.
Senator Kenny: You have to do stop and start testing; you have to check different weather conditions. There will be many factors that arise.
Mr. Ferland: They are planning to use some rental cars that are running almost 24 hours a day. That is another avenue that will be utilized by this test program.
The Chairman: You feel it can be done?
Mr. Donald: Yes.
Mr. O'Brien: Yes.
Mr. Donald: At the end of the day, senator, indeed, we could be at four months and three weeks; we are not certain. We are trying to project as best we can, but we feel it an approachable and a reasonable time frame.
Senator Anderson: Mr. Ingram, in your presentation, you asked how do we justify capital being dedicated to solutions when legislation is passed with no basis in fact?
We were told by 21 auto manufacturers that MMT fuel interferes with the proper operation of the OBDs and various other components of the emissions system. How do you explain this apparent discrepancy?
Mr. Ingram: Our answer is that we have not seen any conclusive results. Our solution has always been -- and we have suggested this since about 1994 -- let us just do the tests, and if you are correct, we will change, but if we are correct, we are asking you to change. We have received no cooperation with respect to that proposal. We have not seen that happen. We have Ethyl showing us different statistics, and our solution has always been, going back to 1994, let us get together and do the test. If we had done it in 1994, we would not be talking about three to four months today. This thing would never have come to this committee because there would have been an agreed-to solution.
The Chairman: When the City of Montreal was here today, they were concerned that their refinery may close down even though the larger refiners, when they were here, said that was not something they were facing at this time. Do any of you see that as a potential, the closure of any of your refineries, if this legislation passes?
Mr. Ferland: No. The refineries will not be closed as a result of an MMT ban. The issue for us is the issue of several million dollars per year, which is a fairly large proportion of our annual profit. I would not be specific in front of my competitors, but it is significant for us. However, we will not close our refinery as a result of the MMT ban.
Mr. Ingram: Our situation is slightly different. We have a number of major capital expenditures that are occurring over the next ten years. We want to make sure that our facility is competitive. The added cost of octane for us is significantly higher on a per unit basis than it is for ESSO or Shell or Petro-Canada. It will be a contributor if we do have to close. Currently, it is not anticipated that we will close down if we remove MMT. However, we are very concerned that by removing the MMT, we will increase the NOx and be faced with new legislation to reduce the NOx, which would make our refinery uncompetitive in a sensitive area of supply in the country, and that bothers us significantly. We have to evaluate each of these requirements against the hoped-for environmental solution each time they come forward.
With regard to MMT, if it was the wrong thing to do, we would pull it out and evaluate our competitiveness. However, in the current case, we cannot make qualified decisions if the process changes in the middle of due diligence, and this is what has happened. It would be a contributing factor if the cost is high.
Mr. Donald: Mr. Chairman, we have said to you that, in order to make up for octane loss by the removal of MMT, we would have to buy octane from third parties, and it is expensive. You have outlined one source, the plant in Edmonton. We have told you it costs about twice the price of gasoline. The removal of MMT is one more straw on the back of the camel.
We are currently conducting engineering studies to determine the cost and the process involved to reduce benzene in our gasoline. We know that is coming. At the end of those studies, we will know quite definitively the long-term life of our refinery. We have not completed those studies, but it is one more pebble in the pond. We are not sure at the end of the day whether or not our refinery will make the cut, as it is the smallest one in Canada, but we are struggling to stay in the game. Any help we can get is certainly appreciated.
Mr. O'Brien: In our case, the issue is the same as for Mr. Ferland, a few million dollars a year. It is not a knock-out issue. We do have, as I have said, the next wave of environmental reformulations coming. A key one is sulphur in gasoline and reducing particulates, and that could be a major dollar item, which could force refineries to almost recapitalize their entire book value to stay in business. That proposition could put us in a viability situation. It is interesting that, in that forum, we are sitting with an independent body on health and performance, the government and the MVMA, to do a study to determine the appropriate levels of sulphur in gasoline.
Regarding MMT, the important thing for us is the process. We need to understand how we will come to conclusions because if we are investing money today to solve MMT, we want to know what will be the formula for making the decision tomorrow. If we do not know, maybe we are just wasting this money and we should get out of the business today, because we will not be able to survive that kind of a process.
Senator Bosa: How long has this controversy gone on?
Mr. Donald: Three years.
Senator Bosa: And within this period, neither side has been able to prove that MMT or the equipment on the cars is the problem?
Mr. Donald: It is my understanding that the motor vehicle manufacturers have not shared their information with us.
Mr. O'Brien: In 1994, we sat down with the MVMA and agreed on a test protocol to prove it one way or another. That was mainly with Ford who was their representative. When it went back to the MVMA board, they said no, they would not get involved in that kind of a test, so that fell apart. About a year later, we got involved in a show-and-tell exercise with our data and had an independent body analyze the information, and they could not come to any conclusion. They said that, on the one hand, it looks like MMT does not have a problem; on the other hand, it does. We have been arguing through this whole process that a test be done. The MVMA has consistently said they would not get involved. They do not want to do a test. That is why we did our Ortech tests and got that information. It has convinced us more than ever that either we are all wet or we need a test to support making the investment.
It has been a stepping-stone type of process that has not really gone anywhere. We have asked the government to push us together to negotiate, which is what happens in the U.S. There is an auto-oil program. In Europe, there is a tough negotiating process on how to cut the cloth regarding solutions to environmental problems. In Canada, the Environment Minister said, "You guys try to negotiate, and if you can't, I'm going to take MMT out of gasoline." We were negotiating with one hand tied behind our back. We have never had a forum to solve this problem. That is what we are asking for today. We want the government to push us together, so we can get the facts. We can do it quickly. Let the government decide its policy based on some facts and we will be happy. The process will have been fair.
Senator Nolin: My question is a follow-up to the chairman's, based on the testimony of the representative from the City of Montreal. They were talking about the Petro-Canada and Shell refineries. None of these witnesses can testify about what is going to happen with Petro-Canada and Shell, right?
Senator Kenny: Mr. Chairman, just for the record, both Petro-Canada and Shell have appeared and told us that they are not going to close. While these gentlemen cannot testify for Petro-Canada and Shell, Petro-Canada and Shell have testified and they were definitive on that point.
Senator Nolin: If I may, you have to understand the problem of Montreal which in the last 15 years has had four refineries close.
Senator Kenny: I do not deny that.
Senator Nolin: So we are sensitive when you talk about refining in Montreal.
Senator Bosa: My question is unrelated to MMT and relates more to competition.
When I fill up my car at the service station, and I see that gas is up to 54 cents a litre, that two hours later it is 57 cents a litre and that if I go to another station, it is 57 there as well, I often wonder how do you communicate with one another so quickly?
Mr. O'Brien: The communication comes because our consumer is price sensitive. If you are off the market by two-tenths of a cent per litre, you will lose about 20 per cent of your volume in a 48-hour period.
Senator Bosa: I am talking about Toronto.
Mr. O'Brien: Our people do price surveys four times a day.
The Chairman: Thank you for your testimony, gentlemen.
The committee adjourned.