Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 5 - Evidence
OTTAWA, Thursday, November 27, 1997
The Standing Senate Committee on Foreign Affairs met this day at 9:19 a.m. to consider the consequences for Canada of the emerging European Monetary Union and other related trade and investment matters (Multilateral Agreement on Investments).
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, let us begin. This is our first meeting under our second reference, which deals with the European Monetary Union and other related trade and investment matters, and it falls under the "other related trade and investment matters" clause of that order of reference.
Today we are beginning to look at the proposed Multilateral Agreement on Investments. We have several witnesses this morning. From the Department of Foreign Affairs and International Trade, we have William A. Dymond, Chief Negotiator for the MAI, to introduce the topic. From Industry Canada, we have Mr. Rob Ready, Acting Director for International Investments and Services. From the Department of Finance, we have Mr. Douglas Anderson, Chief, Trade in Services and Investment. Also from the Department of Foreign Affairs, we have Mr. Blair Henkey, Senior Associate Counsel for Trade Law.
Mr. Dymond, since this is our first meeting on this topic, I think the most expedient way to proceed is for you to make an opening statement.
Mr. William A. Dymond, Chief Negotiator, MAI, Department of Foreign Affairs and International Trade: Thank you, Mr. Chairman.
Honourable senators, it is my pleasure to be here today with senior members of the negotiating team. I propose to speak to a statement given by my minister, the Honourable Sergio Marchi, a few weeks ago to the Standing Committee on Foreign Affairs and International Trade. It is, in fact, the government's policy statement on these negotiations, and copies are available. I will just speak to the main points of it, and then, of course, we would be pleased to take your questions.
The Multilateral Agreement on Investment, the MAI as it is known, is about establishing rules to ensure that international investment and trade continues to mean jobs and prosperity for Canadians. It has been our history and our record that we do much better when transparent and enforceable rules, and not the whim of more powerful nations, govern the way in which business is done.
The committee will be aware of the vigorous criticism of the potential agreement, that some will use this deal on international investment to attack free trade, globalization, open borders, and the participation of foreign-owned companies in our economy. As the minister has made clear, the government will listen to those voices, but those voices need to be weighed against other voices in the Canadian reality. It seems to us indisputable that we are a country that relies heavily on trade and that our future well-being will be tied to our ability to compete in global markets and not run away from them.
We will only be able to compete if there are clear rules that both encourage foreigners to invest in our country and protect Canadians, both corporate investors and individuals, when they invest abroad. Through initiatives like the MAI and other areas where we are pursuing investment protection, the government is looking ahead with a vision to secure the country's economic future.
Let me answer, then, three basic questions on the MAI which appear in the public debate: What is it? Why does the government consider that an MAI is required? And what are the objectives which Canada is seeking in the negotiations?
There are 29 countries participating in this negotiation. These are the member countries of the OECD, and their objective is to negotiate an agreement to establish multilateral rules to promote a secure and predictable framework for global investment. Two overriding principles inform the MAI: Non-discrimination between national and foreign investors, and fair and equitable compensation from governments in the case of expropriation.
Mr. Chairman, it is not the case that the world lacks investment rules. If anything, there are too many investment agreements. The current patchwork of international rules and agreements, some 1300 bilateral investment agreements worldwide, do not serve Canadian interests. We have, ourselves, concluded 24 agreements with 24 countries based on these principles of non-discrimination, and we are in the process of negotiating another 33.
The total value of foreign direct investment in the world is estimated at $3 trillion, and investment, like trade, is increasingly important to the global economy. The government has determined that it is clearly in Canada's national interest to establish one set of multilateral rules to promote investment in Canada and to protect Canadian investments abroad.
I should also like to underline what the MAI is not. It is not a charter of rights for multinational companies. It does not mean the end of Canadian sovereignty. The government will retain the right to enact laws in all areas -- social policy, health care, corporate rules, labour and the environment -- and to have these laws apply equally to foreign-owned and domestic companies.
We will still be able to impose restrictions on foreign investors in sectors critical to Canada, such as culture. We will be able to impose new restrictions when privatizing Crown corporations, but, as in the NAFTA, Canada will not accept any general commitment to put on a freeze -- the so-called stand-still, phase-out, or roll-back restrictions on foreign investment.
Furthermore, the MAI will not force Canada to lower its labour or environment standards. In fact, the opposite is intended; it is to keep other countries from lowering theirs in order to attract investment away from Canada. Nor would the MAI remove regulations requiring foreign companies operating in Canada to hire Canadians first; and the government will continue to have the possibility of linking the receipt of investment incentives to conditions like job creation and research and development.
Finally, the minister emphasized that the MAI will not make it easier for foreign-owned companies to sue the Canadian government. Under Canadian law, all companies, whether foreign or domestic, can submit claims to Canadian courts, if they believe they have been unfairly treated by the government.
The question is: Why do we need an MAI? The answer lies in the increasing importance of trade and investment to Canada. Trade and investment are the twin engines of Canada's economic future. The Throne Speech clearly identified the government's commitment to improve Canada's economic performance by expanding our trade base and making Canada an attractive place for global investment. With one in three Canadian jobs directly tied to trade, any other policy would be costly indeed.
The committee will be aware of our heavy reliance on foreign direct investment for capital and the critical importance that foreign direct investment plays in the Canadian economy in the creation of jobs, the attraction of new technology, and the stimulation of growth. In 1996, foreign investment in Canada amounted to $180 billion. That is a two-fold increase in ten years. Studies by Industry Canada show that $1 billion of foreign direct investment creates an estimated 45,000 new jobs over five years.
While it is clear that Canada is one of the most competitive places in the world in which to invest and do business, the competition is fierce. Our share of global investment has been sliding; it has gone from almost 9 per cent in 1985 to 4 per cent in 1995. The government considers, therefore, that adhering to the right kind of MAI will reinforce Canada's attractiveness as a first class destination for investors.
It is also evident that Canadians are increasingly more aggressive investors overseas. Our investment abroad totalled $171 billion in 1996. That is an increase of 164 per cent in ten years and is almost equivalent to the amount of foreign direct investment in Canada. Investment abroad by Canadians provides better market access for Canadian companies, introduces them to new partners in technology, and allows them to grow and create new jobs here in Canada.
An MAI which meets our interests would ensure protection for these investments, both for big companies and small companies, and for individual Canadians who invest through their mutual funds, their pension funds, or their RRSPs.
What are we trying to achieve? First let me emphasize that Canada's participation in the negotiations for an MAI continues a proud tradition at the forefront of international rule-making. Given the importance of international trade to our economy, establishing rules and promoting freer trade makes eminent sense. That is why Canada was a founding member of the GATT in 1947 and of its successor organization, the WTO.
We believe that Canada has been well-served by this global framework for trade in goods and services and by our regional and bilateral trade agreements. What we seek now is a similar multilateral framework for investment, starting with the MAI.
The minister emphasizes that a successful MAI will not turn Canada's current investment rules, policy, practices or, indeed, legislation on their heads. The task which has been given to the negotiating team is to replicate in the MAI the investment rules and exemptions that Canada secured in the NAFTA -- that is, that we acquired significant rights of investment protection from the United States and Mexico and we gave significant obligations. Our task and our mandate is to acquire those same rights and offer the same obligations to the rest of the OECD.
The MAI rules, then, would not be new. They would be consistent with Canada's existing legislation and policy, namely, non-discriminatory treatment as between foreign and domestic investors, that the expropriation of investment property be for a public purpose, be done fairly and be accompanied by prompt and equitable compensation, and that access to effective dispute settlement be incorporated into the agreement.
It is also our hope that these negotiations will help address issues such as the U.S. Helms-Burton Act. Canada, with the support of the European Union, has tabled proposals to curb unilateral and extraterritorial measures targeted to investment.
The question of environment and labour standards is a major one, not only for Canada but for many countries around the negotiating table, and here the minister has been clear that the government would never accept an agreement which would limit our ability to protect the environment or maintain high labour standards. We are also pushing for strong language in the agreement so that other countries do not lower their standards.
In this regard, as the committee will be aware, labour and the environment are shared jurisdictions in Canada and we are currently consulting intensively with the provinces on these matters, as well as on all matters connected to the negotiations, and we are consulting as well with interested stakeholders in Canada.
Whatever solution is found here will have to be agreed to by other countries, and we will have to ensure that we balance the different viewpoints in a responsible fashion. So it is this area in particular on which we are looking for advice from committees of Parliament and from stakeholders in order to come to a Canadian position. The minister made it clear that the government's preference is that the rules be as strong as possible.
The last point I wish to make, Mr. Chairman, is that we are engaged in a most intensive and broad-ranging program of consultations with interested stakeholders. These consultations with the provinces began even before the negotiations commenced in September of 1995, and they are intensive, with regular meetings, full access to the documentation, delegation reports, and frequent phone calls, particularly after each negotiating session. We are relying upon the government's consultative network through the international trade task forces and sectoral task forces, but we have gone beyond that in going out to groups and inviting them to come in and talk to us.
I have met with representatives of the Council of Canadians, the Canadian Environmental Law Association and the Canadian Labour Congress, and I anticipate more meetings in the future. Briefing packages have been sent on the MAI to all members of the House of Commons and to all senators, and we look for your contribution to play a vital role in the development of Canadian positions.
The draft text of the agreement, which is, in fact, the MAI text, is now in the public domain and copies of it are available for the committee. We also have available copies of our first draft submission on reservations to that text.
I want to emphasize that the MAI is a work in progress. The draft text is an assembly of the product of various groups working on individual issues. There is no commitment by any government to any bit of that draft text. These are working documents and are important to look at and study, but they do not represent the agreement of the Government of Canada to any position recorded therein.
Perhaps I will stop there, Mr. Chairman. My colleagues and I would be pleased to respond to any questions which the committee has. Thank you.
The Chairman: You say that Canada is signatory to 24 investment agreements, and you mentioned NAFTA particularly. Would you tell us something about some of the others -- I do not want to say "the most important ones", because that may not be diplomatic language, but some of the others that have been of greatest significance in investment either into Canada or into another country?
Mr. Dymond: Mr. Chairman, you are quite right, we do have 24 bilateral agreements on investment. They are NAFTA-modelled agreements based on these principles of non-discrimination and effective dispute settlement. We consider that the most modern state-of-the-art investment agreement anywhere is the NAFTA; specifically, Chapter 11 of the NAFTA. Certain other chapters of the NAFTA are also pertinent.
The important point to emphasize here is that the Canadian business community has had a great interest in seeing the government negotiate these agreements. They have emphasized to us the importance of not stopping at the MAI as a multilateral agreement but launching, as soon as we can, global investment negotiations with the WTO.
What is of most interest is the assurance provided to Canadian foreign investors operating in what are sometimes risky markets abroad that some basic rules of the road apply -- those rules of the road that we follow in Canada and have followed for a number of years -- and that in the event of disagreement, there are mechanisms to resolve the dispute. These are the sorts of agreements that establish a framework, and it is not anticipated that we will have to invoke the rules every single day in order to get the protection our investors are seeking.
The Chairman: Given the fact that so much of our trade and investment is with the United States and Mexico, how much new ground, quantitatively, are you breaking? I know that in terms of simplifying the situation, it is important, but, in NAFTA, we already have a state-of-the-art agreement with our principal trading partner, so neither from the positive nor the negative side, is this all that ground-breaking.
Neither those who are in favour of it, nor those who are opposed to it, can say that this is going to have a massive impact upon Canadian trade and investment, given the fact that most of our trade and investment is within North America, covered by the NAFTA already, the state-of-the-art situation.
Mr. Dymond: Mr. Chairman, if I may, I will respond in two ways. We are looking at a NAFTA-modelled agreement in the MAI. The policy decisions required of the government with respect to the NAFTA have already been taken, so, in terms of substantive policy issues, there are no great issues out there. Now, it is clear that there are proposals on the table from certain countries that go beyond the NAFTA. We are resisting those, but it is certainly within the right of those countries to make proposals that go beyond the NAFTA, and it is our duty to oppose them.
Second, on the quantitative side, 54 per cent of our inward foreign investment comes from the United States. That has been a rapidly declining number over the years. Ten years ago, 68 per cent of our inward foreign investment came from the United States. That is quite a significant drop.
Within the OECD as a whole, we are talking about almost 81 per cent of inward foreign investment coming from all of the OECD countries. Only with the United States and Mexico and with the Czech Republic do we have investment protection agreements. We have no such agreements with any countries of the European Union. There are no investment protection agreements. The trend that we see over time is to a greater diversity of sources of foreign investment coming into Canada, and we particularly see a greater diversity of destinations for foreign direct investment abroad by Canadians, particularly into developing countries.
Senator Stollery: Those are fewer today than last week, maybe.
Mr. Dymond: Possibly. That accounts for the emphasis that the business community has been putting for several years on the need to negotiate foreign investment protection agreements and why they see it as so important to include a high quality, high standard MAI as a launch pad into the WTO, which is, in fact, where the government wants to go.
The Chairman: I can understand why Canadians wishing to invest abroad in countries outside the NAFTA, for example, would be in favour of such an agreement. This committee was told in our study on Canada in Asia-Pacific that our record as a place attracting foreign investment has not been all that great. For example, in the automotive industry, Ontario did not rate, as I recall, in the top six or seven. The same was true even in the pulp and paper industry. We were well down. Now, one can explain that in various ways. The question that is relevant today is: Are potential foreign investors in Canada abstaining from investing in Canada because they lack the kind of protection that they would have if an agreement such as this one were in place?
Mr. Dymond: Senator, in my view, a variety of factors will determine the flow of foreign investment to and from destinations. The standard of investment protection is clearly one of them, but it is not the whole story. I cannot present to the committee any evidence, even of anecdotal character, of a particular investment being considered for Canada but going somewhere else because it was considered that our investment standards were inadequate. We indeed consider that in the NAFTA we have the state-of-the-art set of investment protection standards, but the government has a strategy. That strategy, consistent with long-standing Canadian trade policy, is multilateralism and multilateral investment agreements.
The MAI is not the whole story. We want to get into the global investment treaty, and we want to replicate for international investment a set of rules based on the very principles we have for trade in goods and trade in services embodied in the GATT. Many other factors clearly affect foreign investment.
The Chairman: Surely. What I am trying to discover is how much weight one would give to the argument that investment in Canada from foreign sources is good for Canada because it produces an increasing number of jobs. You have just told me that you do not even have anecdotal evidence of potential foreign investors staying away because of the lack of an agreement such as this.
Mr. Dymond: Yes. I think the economic benefits of foreign investment in the Canadian economy will be undisputed.
The Chairman: Yes, we agree with that.
Mr. Dymond: The facts speak for themselves. We have in Canada over the last ten or twelve years, perhaps longer, been adhering to international treaties on investment. The first one we adhered to, in fact, was the investment provisions in the Free Trade Agreement with the United States; these were limited in scope and were considerably expanded in the NAFTA. The rationale for that is that our economy is becoming, and has been for many years, more and more export oriented, and in a global economy where trade and investment go hand-in-hand, investment protection agreements, which were not significant 20 years ago, have become a far more significant part of the picture because of the exponential growth of global investment around the world. That is why the government has for a number of years been in the forefront of countries arguing for a global investment treaty.
The Chairman: I understand the general theory. I was trying to discover what evidence could be adduced to support the argument that this agreement would be likely to make Canada a more attractive place for investment from countries with which we do not now have an agreement. The fact that you say that you do not have even anecdotal evidence leads me to think that perhaps, aside from the general proposition that it would be good to have a rule-based global system, the real thrust would come from Canadians who, either in a corporate aspect or as purchasers of mutual funds or investors in registered retirement savings plans, want to be able to put their money in far away places and feel reasonably secure.
Senator Whelan: Like Malaysia.
The Chairman: Well, you may want to put your money there. Some of us did not. Do not confess your financial failings, Senator Whelan.
I would like a reaction to that.
Mr. Dymond: It is almost, Mr. Chairman, a chicken and egg question. Let me respond in the following way. Many years ago, when I served in our mission to the European Community in Brussels, we had frequent representations from European authorities about the Foreign Investment Review Act, as it existed at that time, before it was transformed into Investment Canada. The argument of the Europeans was that FIRA was scaring away foreign investment in Canada. Our response was that there had never been a case of a proposed foreign investment being denied by FIRA. That was almost a dialogue of the deaf, because you do not know what is there, if people refuse to take a chance because they are worried. They do not come to you and say, "If you would only do this, we would invest in you."
On the other hand, in cultural policy, for example, where the government is determined to maintain the cultural exceptions that we have in the NAFTA, we do know that, in the absence of cultural exceptions, there might well be investment in Canadian cultural industries that would be unwelcome to the government and unwelcome to the cultural industries themselves. That is precisely why we maintain those restrictions, administered principally through the Investment Canada Act. We do know that investment restrictions have a powerful effect because we use them in the pursuit of government policy in the cultural industries.
Senator Andreychuk: Mr. Dymond, I would like to follow up on what Senator Stewart commented on. Have we not tracked what Chapter 11 has done in NAFTA? You indicated that our investment flows with the United States have been dropping, and yet we put like investment terms into NAFTA. Is there any data to point out whether that clause has been of any benefit, or has it been insignificant? In other words, do we not know why we have a drop in investment flows? Is our energy going elsewhere?
Mr. Dymond: It is not the volume; it is the percentage over a long period, and investment figures do move over a long period. I want to emphasize that when you put in place a system of treaty-bound investment protection with all the rules that you need, we as the government then in fact stand back and let investment flow. It is not something that we have to be, or should be, involved in every day.
We would regard the greater diversity of the sources of foreign investment into Canada and the greater diversity of destinations for Canadians abroad as a very healthy sign -- indeed, of a vigorous and robust investment climate.
Senator Andreychuk: If this agreement goes through with the countries that are presently negotiating, plus the 24 countries with which we already have some bilateral agreements, what extent of our investment flow outward is that, and what extent inward? In other words, are we covering a significant portion of our investment both ways?
Mr. Dymond: In the MAI, if it succeeds, and there is a lot of negotiating to be done, we would, according to current figures, the 1996 figures, be covering some 26 to 27 per cent of the volume of FDI, foreign direct investment, inward. I say that, because the 50 plus per cent that we have with the U.S. and Mexico is already covered under the NAFTA.
The volume of our non-OECD foreign investment outward is about 20 per cent now, but I do not have figures to break down how much is in those countries where we have foreign investment protection agreements and how much is elsewhere, but we could develop those figures. Of course, these are agreements for the long term.
Senator, in response to some questions on investment impacts and broad macro-economics, my colleague, Mr. Ready, drew to my attention a document produced by Industry Canada in early November, which is in the public domain, entitled "Canada Investment Rules in the World Economy". I think it is a good presentation of the movement of investment flows. It is the basic economics of facts and figures. We would, of course, be pleased to make it available to the committee.
Senator Andreychuk: I have one other, perhaps more substantive, question. Basically, this will be the start into WTO, so the strategy probably will be, as Senator Stewart said, nothing new and nothing too shocking, if you are able to maintain your position on reservations.
Mr. Dymond: Yes.
Senator Andreychuk: What is the process on reservations? You have draft reservations. This is Canada's position. You continue negotiating, and these things are square bracketed but must be accepted at some point; therefore, other countries are preparing draft agreements. Is that correct? You do what you can first and then you come to the arguable. The arguable really is the essence of whether we do better or worse in this agreement. When will that crunch come?
Mr. Dymond: Yes, senator, you are quite right. We are in the process now of getting at the really hard issues, and the hard issues are centred around reservations.
Inevitably, in a negotiation of this type, there is what I call a dance between the reservations and the text. If you do not get your way in the text, you have to turn to the reservations. Sometimes, things that you needed to have in the reservations will be covered in the text. So we have submitted draft reservations. We say they are "draft" for a variety of reasons. The principal one is that we have to see how the negotiations on the text will evolve.
All 29 countries have deposited a list of reservations. There are some common elements of them which will be non-controversial. For example, all countries have reserved from the agreement what I call the "regulated services sector": financial services, transportation sector, telecommunications -- all are excluded.
Telecommunications and financial services will be excluded from this agreement because there are separate negotiations in the WTO which bear on investment and other matters. I do not want to leave the committee with the impression that we are not negotiating on those areas. We are, but we are not in Paris.
Then each country has some reservations. I will not speak for other countries, obviously, but it is evident from looking at them that there are some really hard-core, sensitive areas. These differ from country to country. A number of countries attach the greatest importance to the protection of cultural industries. Each of us who attaches that degree of importance to cultural industries places a different emphasis on it. Canada's interest in protection of cultural industries is not the same in every detail as that of France or Belgium, for example. We have to defend our own corner.
Health, social, and education services, for which we achieved a complete carve-out in the NAFTA, is an area of great sensitivity for Canada generally and one on which we will achieve a complete carve-out.
Privatization is another area. Here we are not different from other countries. We will wish to maintain the right of the government to devise special privatization rules in the disposition of Crown property, rules which would discriminate in favour of Canadian ownership and against foreigners, as we have done in some of our privatizations. This is one area which may be fully protected in the text of the agreement, but, if it is not, we will take the necessary reservations.
The continuing review provisions that we have in the Investment Canada Act for a variety of types of mergers and acquisitions are areas protected in the NAFTA and we will protect them in the MAI. We are making our draft available to you, but, as a handy reference guide, when in doubt, refer to the NAFTA. That is what we are trying to achieve, in terms of both the substantive provisions and the reservations.
Finally, on the process, yes, you are quite right, there will be negotiations; so far they have been at a rather modest level of intensity, but over the next several months negotiations between delegations on the extent of the reservations will increase in intensity. So far, no country has come to us and said, "Listen, we would like you to deal with this reservation or that reservation." I do not exclude that. It is certainly open to us to go to other countries, but we indicated loudly and clearly in Paris what the minister said a few weeks ago of what our bottom lines are and in what areas we will not accept the jurisdiction of this agreement.
Senator Andreychuk: I am not sure of the process here, if there is no agreement. Can you sign the agreement and file the reservations excluding you from those portions, or is it a take-it-or-leave-it situation like NAFTA?
Mr. Dymond: The agreement, as and when it emerges, will have two parts of equal legal status. The first will be the text; the second will be the schedules of reservations: Canada, France, United States, and so forth. Both are equally valid; therefore, you will have to read and understand both in order to assess the value of the rights and obligations that are at play.
The legal process is that you deposit or lodge your reservations upon signature of the agreement. Clearly, though, there has to be an overall balance in the agreement as a whole. Some countries may not be able to accept this agreement inclusive of the reservations. Some countries may say, "Well, if our reservations are not accepted, we will not be part of this agreement." That is not uncommon practice in international treaty-making.
The treaty as a whole has to be acceptable, and "as a whole" means inclusive of the reservations which we take. We have to be satisfied that the reservations taken by other countries are of such a character that the agreement will continue to convey value to Canadian investors.
Senator Andreychuk: If the whole process was intended to make the system more manageable, more efficient, and more enticing for investment, nevertheless, it is like being in a minefield to walk through reservations, and that in itself is a disincentive, if I can use that word, to investment, as perhaps trade is when you try to go through the minefield of Brussels, as you well know.
Senator Stollery: Mr. Dymond, when we talk about the MAI, we are, in effect, talking about the 29 OECD countries. Of course, Canada already has an agreement with the U.S. by virtue of the FTA and the NAFTA, and, really, we can more or less forget about Mexico, because it is the U.S. with which we do most of our trade and investment. As for most of the OECD countries, one is struck by the fact that we do not have a problem with them because they have legal systems that govern their international relations. In other words, they are not the countries with the problem of corruption which we have discussed in this committee.
I suspect, however, that, in a large sense, we are getting into a negotiation with the Americans, and having read Gordon Ritchie's book, I am afraid that we are once more going to open to attack our protection of the cultural industries, which they hate, and our agricultural system, which they have consistently tried to break. We are going to open those when we get into negotiations on the MAI and give them one more chance to do us in. And there will be others, I am sure.
I am not clear just what benefits will come to us from the MAI, when in fact we have no real investment problem with any of these 29 countries. The one with the least reliable legal system is Mexico, but Mexico is a part of the NAFTA and we therefore already have an agreement with Mexico. South Korea is also unreliable, but, as it is collapsing, I doubt that anybody will be investing there for a while. So I do not understand the benefits, when we are dealing overall with industrialized countries with legal systems that protect their agreements, and when our main investment is with the United States, our largest customer, with whom we are tied up in the FTA. Are we going to give them another opportunity to attack us on two of their favourite subjects: our cultural industries and agriculture? Where is the benefit to us in all of this?
Mr. Dymond: Let me respond to your questions. There is not much on Canadian trade policy that I agree with Gordon Ritchie on, and that will become apparent in my observations.
We have to deal with the facts on the ground. The facts on the ground are that a negotiation was launched at the OECD ministerial meeting in May of 1995 with the full concurrence of the Canadian government and with the Canadian minister in attendance; that negotiation is proceeding, and we see in it, if we can get the kind of agreement that is acceptable to the government, the opportunity to launch us into the WTO.
We have a duty to try to shape that negotiation so that it meets our needs. We do not believe that we have the option to sit this one out and then carry into the WTO, because, in fact, the record of the MAI will establish the starting point for the WTO negotiations, which we hope will come in the not too distant future.
On the specific questions that you raise, I can reassure you on agriculture that, since we are talking about investment and not trade -- we are talking about the investment dimension, the issues that have arisen in agriculture are ones that we are monitoring very closely. However, they have to do with provisions in the NAFTA which we are seeking to replicate; essentially they govern the operation of monopolies and state enterprises, and we are in very close touch with Canadian agricultural organizations on that.
With respect to the cultural aspect, I regard it as an opportunity. Judging from the consultations and presentations we have had, the Canadian cultural industries regard these negotiations as an opportunity to advance our interests in the protection of cultural industries from trade and investment agreements. Of course, we have the NAFTA exclusion for culture, and that will remain insofar as the United States and Mexico are concerned.
We are looking at a variety of options which have been presented to us by the cultural industries, and we have not heard from all of them yet, to see what is the best way to shape a cultural exception in the MAI to meet our needs. The point has been pressed upon the government by various cultural groups that the MAI, although it is indeed important, is not the only negotiation that we are likely to see touching on these matters in the foreseeable future. What we are doing in the MAI is of intense concern to the industry and to the government because of the important and precedent-setting value for eventual negotiations in the WTO and other fora. I, therefore, welcome the opportunity to defend and assert these interests, and I look at it as an opportunity to establish the way ahead for the WTO.
Senator Stollery: MAI appears to me to be an OECD make-work project that is being taken over by international events. Naturally, you say that is not the case, and that the MAI does not seem to have much of an effect on actual investment policy at all because, with maybe one exception, we do not have a problem of investment in these countries because they have legal systems.
I am still not clear what is the actual benefit of the MAI, other than, following on what you say, it setting a precedent for negotiations with the WTO to establish a larger investment policy. That is the real purpose of the MAI.
I cannot understand how Mexico became part of the OECD. However, generally speaking, these 29 countries are industrialized countries. That is the whole raison d'être of the OECD. These are the countries that are the industrialized countries with legal systems, countries with which we do not have difficulties. It does not have an effect on our investments in these countries. It really is a precedent for the WTO.
Mr. Dymond: I am not sure I can wholly agree with you, senator. We are talking about 26 per cent of our foreign direct investment in OECD countries which is not covered by the NAFTA, and not, in fact, covered by any investment protection agreement at all.
Let us assume that we did not have the MAI or the prospect of a global investment negotiation down the road. What the business community would be telling us would be important, but we must bear in mind where their priorities lie. Their priorities are where the increasing direction of foreign investments is, which is in developing countries. That is fair enough, but I think the government has a duty and a responsibility to think about this currently unprotected investment. You can say there is no problem now and that is why we do not hear from them, but the fact of the matter is, it is unprotected.
Senator Stollery: How is it unprotected?
Mr. Dymond: It is unprotected by any treaty obligations compelling, for example, the Belgians to treat Bombardier, which has important investments in Belgium, fairly, on a non-discriminatory basis.
Senator Stollery: Would that not be so under the Belgian legal system?
Mr. Dymond: If there were a problem, the Canadian government would have no instrument with which to help any Canadian investor in Europe defend itself against capricious or arbitrary treatment. You may wish to make a judgment that capricious and arbitrary treatment does not occur very often, and that is possible.
Senator Stollery: I would assume that any securities I would hold on the Paris Stock Exchange are protected under French law.
Mr. Dymond: If the French were to pass a law tomorrow declaring that foreign owned securities, for example, shall be expropriated without compensation, there is no instrument which our government could deploy.
Senator Stollery: Would that not be the same as breaking a treaty?
Mr. Dymond: That is my point: There is no treaty.
The Chairman: Senators, our time is running out. I regard this to be a ground breaking operation, and I would like all senators to have an opportunity to get their plows in the ground.
Senator Di Nino: I will try to be brief. The information we have to work on is the information provided to us by the ministry and our own intelligence.
From a Canadian prospective, what is the impetus for this particular agreement? Is it the need to protect Canadian investment in other countries, or is it the need to increase the protection for foreign investment in Canada so that we can attract more foreign investment?
Mr. Dymond: Senator, current numbers indicate that the volume of FTI inward is only slightly greater than the volume of FTI outward. Certainly, as officials who have been involved in these issues over many years, we have been accustomed to thinking about foreign investment almost exclusively as foreign inward investment: What ought to be the policy of the government; should it be restrictive; should it be liberal; and are we worried about any particular sector?
I believe a shift is taking place. We now have an agenda of protecting foreign investment abroad. As we look at these figures we see the amount in as compared to the amount out is almost equal, so I do not think we can say that one is more important than the other.
The emphasis is clearly different. The emphasis in this negotiation, as in any negotiation, on the inward side, is to ensure that we retain protection from foreign investment in those critical sectors which have been important to Canadian governments for many years.
We spent a great deal of time in the negotiating team and with our ministers looking at issues like culture, health and social services and others.
When we focused on the outward side, we spent a great deal of our time, in this stage of the negotiation, on basic investment protection, on the efficacy of the dispute settlement mechanism, and on the wording of various detailed articles because with the OECD countries, we do not have the experience of investment protection agreements. This is our first time through.
Senator Di Nino: Are you saying that both are equally important?
Mr. Dymond: Yes.
Senator Di Nino: In looking at this draft of the MAI, which lists the exclusions of all of the 29 countries we mentioned, plus those of the other 24 which may join in the near future, it looks to me, when considering the Canadian lists of reservations, that it may be a larger document than the actual agreement itself. Is that normal? Was that the case with the NAFTA negotiations, for example?
Mr. Dymond: Yes.
Senator Di Nino: I gather from reading the material that the U.S.A. has said that the cultural reservations may be a deal breaker. Are there other countries in this process of negotiations that have presented such inflexible positions and, if so, which countries are they?
Mr. Dymond: Canada has presented an inflexible position. Let me first comment on the document. The reason the reservation section will, by weight, be greater than the agreement is that the text of the agreement will be common to all signatory countries. The reservations are highly particular. For reasons of transparency, if you look at our reservations, we cite the legal authority. In some cases we cite the regulatory authority. We provide a succinct description.
When we describe, for example, the reservations that we have on foreign ownership in the air carrier industry, air transport industry, those are Canadian reservations. You could not use those to describe the Americans situation or the French situation. Every country has to itemize those for sake of transparency.
If we were to make the blanket statement that, say, air transport is excluded, nobody would know what that means. Our rules on air transport dictate a 25-per-cent limit of foreign participation. The U.S. and other countries have different rules. All of them, in one way or another, are a breach of non-discriminatory practices, so they must be reserved in fairly precise terms. That is why the document is longer.
There are eight countries which have a cultural reservation to which protection of the sector from foreign investment has been declared to be absolutely essential. Those are Canada, France, Belgium, Spain, Portugal, Italy, Australia, and one country which I will not mention because a delegate has said, "Well, maybe we are part of that group or maybe we are not. I do not know yet." He is in consultation.
The United States has said that a general exception, that is, taking that out of the agreement as a whole, is a deal breaker. That is their position. We have said that it is essential that the agreement provide, either by exception or reservation, the degree of protection which the government requires for the Canadian cultural industries.
If you want to attach the label of inflexibility on that point, it applies to the Canadian delegation.
Senator Di Nino: You are saying a number of countries may take similar positions.
Mr. Dymond: Absolutely.
Senator Di Nino: The difficulty encountered in the negotiations of NAFTA which involved only three countries was severe. I think, with 29 countries involved, this will be a mess. Good luck.
I am a concerned about the degree of consultation with the provinces. I am not reassured that those consultations are going on at a speed or in conditions which would include the provinces to the degree that they would be satisfied. Am I correct?
Mr. Dymond: Senator, the procedure that we are following for consultation with the provinces is the one that we have followed in previous negotiations going back over a number of years. I am thinking particularly of the North American Free Trade Agreement, and the recently concluded Uruguay Round of trade negotiations. We have not invented something. We are relying on established processes and procedures and, in many cases, dealing with highly experienced provincial trade officials who know as much about these subjects as we do. In that sense, the consultation has been very fruitful.
The provincial governments have access to all the documents directly from the OECD through an on-line system, so they do not need to rely on us. They get the documents at the same time we do. We make available to them all delegations' reports. I have a conference call with them, with my colleagues joining me, after each and every negotiating session.
We started off meeting roughly once a quarter as part of a larger meeting covering general trade issues. We are now moving into intensive, individual meetings which are focused on investment. We held such meeting in September, one in October, and we will have a half-day meeting in December. We will be considering a schedule for the new year.
I think it is fair to say that the provinces, at the level of their provincial trade and industry officials, know everything that we know about these negotiations. I believe that their level of comfort on the degree of information shared and the transparency of the federal government participation is quite high.
The decision which the provinces will take with respect to measures under their jurisdictions, of course, is a substantive one, and will not be driven by the efficiency of the consultation process but by what they eventually think of the agreement. That is why it is our duty to keep them informed and respond to their concerns.
Senator Di Nino: You are responding to their concerns.
Mr. Dymond: Yes.
Senator Di Nino: You say you are including in your negotiations the concerns of the provinces.
Mr. Dymond: Yes. I would say that, in many cases, their concerns are identical to those of the federal government. For example, the provinces, as a whole, place great emphasis on the protection of health, social, and education services from foreign investment. While this is principally a provincial government jurisdiction, the federal government has important constitutional responsibilities in the area. I can say that our sensitivity on the issue is no less than that of the provinces.
Similarly, the emphasis on cultural protection varies from province to province. You can understand where Ontario and Quebec would stand be on the subject. The sensitivity of the federal government on cultural industries is very deep indeed and does not differ from that of the provinces. Yes, we are reflecting provincial concerns and we do not find it difficult to do so because they are the concerns of the federal government in most cases.
Senator Whelan: Mr. Chairman, at the outset I want to state that I have a very strong reservation about MAI.
I remember my first experience with OECD. I arrived at the meeting in Paris with three officials from Canada. Within the first hour, we found the press release relating what we were supposed to have done over the three days. It was to be released in three days. The press release had already had been written. We were to be a rubber stamp. I told them it would have been a lot cheaper if we had sent a rubber stamp from Canada to the OECD than to send a minister and four or five officials.
Did the idea of MAI come from the OECD? You may get the impression that I have little respect for the OECD. We brag about many of those organizations being democratic, but any resemblance between their concept of democracy and our democratic institutions or associations is purely coincidental. They run the show.
Mr. Dymond: Not so far as this delegation is concerned, senator.
The Chairman: Things have improved since your day.
Senator Whelan: I hope so.
Mr. Dymond: Senator, there is a long history within the OECD of attempting to negotiate investment agreements. There are two limited investment agreements: A code on capital movements; and a code on invisible transactions, both of which go back many years.
The OECD was the venue in the 1970s for the negotiation for the creation of the International Energy Agency in which investment in that sector was an important part of the discussions.
In the late 1980s and early 1990s, driven really by the facts on the ground, and that is the exponential growth of foreign investment, a number of countries within the OECD, including Canada, the United States, and countries of the European Union, began to very seriously look at the basis for a multilateral agreement on investment.
Prior to the decision of OECD ministers to launch in September of 1995, in May of 1995, there was a two- or three-year analytical phase of intense examination of the basis for such a negotiation. Within the regular committee structure of the OECD, two committees address investment issues on a normal basis.
This is not a new issue. It is not driven by one country more than another. We have been part of the process, and we support the process. The government joined in the decision to launch this negotiation and is negotiating for a agreement which meets our interests.
As for the views of the OECD Secretariat, they are, of course, interesting, but without relevance to a negotiation.
Senator Whelan: Mr. Chairman, I also have strong reservations about the NAFTA and the WTO. Soon we will have the MAI. These are huge organizations. The head of OECD is paid three or four times as much as the Prime Minister of Canada. Will the head of MAI be paid similar wages?
The public does not really know what is going on, and many Members of Parliament do not know what is going on either because they are not involved in the discussions. MAI comes as a shock to some of them. I have strong reservations about these big, so-called "world" organizations.
I see increasing chaos in the world, including the Asia-Pacific problems. Will this organization be able to stop people like Soros who disrupted the British pound and made billions of dollars? That was a case of one person who, by instantaneously being able to transfer billions of dollars, worked the money market. Will this organization be able to stop that sort of activity?
The Chairman: Senator Whelan, I have a problem. I am looking at the clock.
Senator Whelan: I know, but I was looking at the clock all the time you were talking and you took more time than anybody else did.
The Chairman: I think it is unfair to the witnesses to ask them to deal with as important a question as that one is in the general context of this meeting, given the time that is available. That is my problem.
Senator Whelan: My problem is that almost every member of the committee has been allowed to ask any kind of question and make any kind of statement that they wanted to, without interruption, yet I am being interrupted.
The Chairman: Senator, if you have an objection, you can move a motion that I be asked to leave the chair.
Senator Corbin, will you forego your question? Our time has run out. That is the problem.
Senator Stollery: We started late.
The Chairman: Yes, for reasons which we all understand.
Senator Corbin: These witnesses will eventually come back.
The Chairman: Yes. As I said, this is ground breaking.
Senator Corbin: We really only scratched the surface.
The Chairman: I think they should have an opportunity to address their minds to Senator Whelan's question. They should not be expected to deal with it off the cuff. Is that agreed?
Senator Corbin: Are we really that tight for time?
The Chairman: It is 10:30.
Senator Corbin: Is somebody knocking on the door?
The Chairman: No, but other committees are scheduled to meet in this room very shortly.
Senator Corbin: That is fair.
The Chairman: Honourable senators, our time has run out. It is very often said that it is well to stop before you have dealt with all of the matters because you leave with your attention still engaged. This has been a very useful, ground-breaking operation, Mr. Dymond and gentlemen. We shall look forward to your return with any additional information you may have.
I have a couple of questions which I will not put on the record but which I will give to you in writing so that you will be ready to deal with them fully when next we meet. Thank you very much.
Senator Corbin: Mr. Chairman, could we ask the members of the committee to restrict themselves to putting direct questions to our witnesses and desist from making statements and talking about their past experiences? I do not beat around the bush. I have a question, I pose it, and that is it.
The Chairman: I think we should all bear that admonition in mind.
Senator Di Nino: Another way of doing it, of course, is to impose time limits on each member.
The Chairman: One of the great advantages of Senate committees is that we do not proceed in that way. That is the procedure in another place and it often results in a line of questioning being cut off and people leaving in a state of frustration.
Senator Di Nino: I totally agree, but I feel for my colleagues who did not have the time to be able, as I did, to ask some questions.
The Chairman: I agree, and I apologize to Senator Corbin.
The committee adjourned.