Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 6 - Evidence
OTTAWA, Wednesday, December 8, 1999
The Standing Senate Committee on Foreign Affairs, to which were referred Bill C-4, to implement the Agreement among the Government of Canada, Governments of Member States of the European Space Agency, the Government of Japan, the Government of the Russian Federation, and the Government of the United States of America concerning Cooperation on the Civil International Space Station and to make related amendments to other Acts, and Bill S-3, to implement an agreement, conventions and protocols between Canada and Kyrgyzstan, Lebanon, Algeria, Bulgaria, Portugal, Uzbekistan, Jordan, Japan and Luxembourg for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, met this day at 3:30 p.m. to give consideration to the bills.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, our first order of business is consideration of Bill C-4, the Civil International Space Station Agreement Implementation Act.
Before we begin, I understand that Senator Corbin has a point of order.
Senator Corbin: I notice that in recent meetings we have received copies of the proceedings of the standing committees of the House of Commons in relation to the bills we are studying. Is this going to be the practice henceforth? Why are we getting this?
The Chairman: I would off the top of my head say that it was just for information of senators as to what took place in the House of Commons. But I will ask Peter Berg, who is our research assistant.
Senator Corbin: We have never had this before. I think we can do our own work without necessarily taking cognizance of what went on before. It is an awful lot of paper that is being recycled.
The Chairman: It is a lot of paper, all right.
Senator Corbin: I do not have time to read it, frankly.
Mr. Berg: I just confirm what the Chair said. It was just in the spirit of being helpful, if you need more information as to what happened to the bill in the other place.
The Chairman: Honourable senators will remember that last evening, when we adjourned, Senator Andreychuk had some questions to put to the officials. I call on Senator Andreychuk to continue with her questions.
Senator Andreychuk: Thank you, Mr. Chairman.
When we adjourned, I felt that there were a number of points that needed clarifying, and I want to thank the officials for saying behind for a lengthy time to go through the points that worried me. They were most helpful and forthright both in attempting to follow my arguments and in giving some justification to certain areas.
I had raised two issues. One was under the aspect of "reasonable and probable grounds." How would we define that, if a minister requested information? The other was clause 7.
I was given sufficient answers that the current jurisprudence would probably be sufficient. Although it might have been more tightly drafted, I think there is sufficient jurisprudence to guide both the minister and the courts on that basis. So I was satisfied with that first point.
On the second point -- and the officials can correct me if I am wrong here -- we ended up really saying that it is a whistle-blower situation. Subclause 8(1) says:
8(1) No person in possession of information or a document that has been provided under this Act or the Agreement and that is subject to a claim that it is confidential shall knowingly, without the written consent of the person who provided it, communicate it or allow any person to have access to it.
That prohibition was clear to me. However, as one exception to that, someone would be justified in releasing the information, if that person believed that
... the public interest in the communication or access in relation to public health or public safety outweighs in importance any financial loss or prejudice to the competitive position of any person ...
et cetera, as the section states.
My concern was that we are talking about a space station and I had no idea what a public health concern or public safety would be in outer space as opposed to on the Canadian soil. Again, while there may be some new or virgin territory involved in this, perhaps the normal interpretations and jurisprudence would be the guidance here. It is a section that we should monitor, but perhaps it is more of a whistle-blower concept that we should look at for all cases as opposed to this particular act. Most notably, we have heard of health safety issues and so on.
In any event, I am prepared to accept that interpretation at this time.
The two issues that gave me the greatest concern -- and they were raised by Senator Bolduc and others -- had to do with clause 4, which states:
This Act is binding on Her Majesty in right of Canada or a province.
I wanted to be assured that this was normal language, binding the provinces, and I wanted to know whether in fact the provinces had been consulted. Mr. Roy would have the answer to that, and I think perhaps it would be better on the record, because it involves more than just my concerns.
The Chairman: Thank you, Senator Andreychuk.
Our witnesses this afternoon are Mr. Yvan Roy, from the Department of Justice, and Mr. Richard Ouelett, from Industry Canada.
Would you proceed, please, Mr. Roy.
Mr. Yvan Roy, Criminal Law Policy Section, Department of Justice: Mr. Chairman, to answer the question asked by senator Andreychuk, we conducted a very brief search this morning of some legislation that has been passed by this parliament in the last few years.
Clause 4 is for the purpose of binding Her Majesty the Queen in right of Canada, but also Her Majesty the Queen in right of the province. This clause is used on a more than regular basis in federal legislation. Indeed, we have been able to find a large number of those pieces and, if the Chair would welcome my offer, I am more than willing to give to your clerk a copy of the pieces of legislation that we have found where that was done.
For instance, as is the case in the documents that I have here, it is done with respect to international treaties that are passed by the executive and are implemented through legislation. It is done in some pieces of legislation actually emanating from the Senate, and it is done, generally speaking, when there is an intent on the part of Parliament to make sure that the immunity that the Crown has at common law, and recognized under the Interpretation Act, is not to be used in those particular circumstances.
So this is something that is done on a regular basis in a very large number of areas and, in particular, areas where you are talking about implementing an international treaty. That has been done and I would suggest that should continue to be done.
Senator Andreychuk: I have had an opportunity to review the previous bills that have that clause and my concern for that has been answered.
My second concern was to find out in this particular case whether the provinces had in fact been given notification or consultation. It would be worthwhile to have that on the record.
Mr. Roy: With respect to what particular consultations there may have been in this particular case, it would not be possible for me to tell, Mr. Chairman, because I am simply not responsible for this area. Perhaps for the purpose of your committee, I could state that it is common practice in the federal government to deal with the provinces on a regular basis on all sorts of issues, including making sure that they are aware of things of that nature, if only to ascertain whether or not there is disagreement.
My experience, Mr. Chairman, has been that once we advise the provinces of things of that nature, we seldom get anything in return as to whether or not they would agree. It is more for information purposes that these things have been done. But I cannot vouch for this particular piece of legislation because I am not responsible for it.
The Chairman: This involves a space station, and it might be a bit difficult to find a provincial component to a space station. That is just a thought.
Senator Andreychuk: The enforcement is on provincial legislation.
I made a point yesterday about the terms "space flight" and "flight element" and tying those into the interpretative section. Perhaps Mr. Roy could walk us through that. That would be simpler than my trying to put forth my position again. He did it more succinctly than I did, and I thank him for that.
Mr. Roy: I will do that gladly, Senator Andreychuk. Mr. Chairman, I would invite the members of the committee to go to page 4 of Bill C-4. You will remember that yesterday we discussed at some length the jurisdiction that is to be given to Canadian courts. Under subsection (2.3) of section 7 of the Criminal Code, which is the first subsection that you find under clause 11, Canadian courts would take jurisdiction when a Canadian national commits an offence on a space station.
Subsection (2.31) would give Canada jurisdiction to prosecute foreigners on those stations committing certain types of offences. The first type of offence is one that would be threatening the life or security of a Canadian crew member. That is not where the problem lies.
The problem lies with paragraph (b). In the English version, it is drafted in the following fashion.
(2.31) ... if that act or omission
(b) is committed on, or in relation to, a flight element provided by Canada or damages a Canadian flight element.
Senator Andreychuk pointed out to us yesterday that the words "Canadian flight element" are not defined in the legislation. What you have is the definition of "flight element", which is found at the bottom of page 5. That definition has two components: it is provided by Canada or it is provided by one of our partners. In the first half of paragraph of (2.31)(b), where you have a flight element provided by Canada, it is clear that we are talking about the Canadian component, particularly given the discussion that you heard yesterday about the Canadarm. If such a piece of equipment is damaged, we want to be able to go after those people to give Canadian courts jurisdiction.
Senator Andreychuk said that that was fine and dandy, but when you go to "or damages a Canadian flight element", what does that mean? Quite candidly, we were taken aback. So we went back to our drafters today to see what was intended by those words.
The explanation is quite simple, Mr. Chairman. The drafters were trying to be elegant in their drafting. They did not want to repeat twice in this paragraph "a flight element provided by Canada" so that the section would have read:
(b) is committed on, or in relation to, a flight element provided by Canada or damages a flight element provided by Canada.
The formula that they used for that was to go back to the flight element and refer only to the Canadian element. Is that introducing a measure of ambiguity in the paragraph? We do not think that it does. Senator Andreychuk, I think, is right in pointing out that you have introduced a bit of a discrepancy here. But we think that the discrepancy does not introduce ambiguity, because the only thing that this can be referring to is the Canadian component of the space station, which is the Canadian flight element.
If there were any kind of uncertainty following an explanation like that, as we all know, both versions of an enactment are the law of the land. Judges, if it were to come to that, would, in all likelihood, go to the French version of the piece, which is crystal clear. In all fairness, in hindsight, knowing the concern that was raised by Senator Andreychuk, had we had to write again the English version of (b), we would probably, Mr. Chairman, have gone a different route and have been a little bit less elegant. That is the bottom line from my perspective.
In order to summarize my short presentation, we think that there is no ambiguity in the way this is drafted. There is certainly a discrepancy, and Senator Andreychuk was right in pointing that out; but there is no ambiguity, and any kind of difficulty that might emerge would be clearly, in our view, resolved through a reading of the French version.
Senator Andreychuk: This act, it was pointed out to me yesterday, was drafted in French and translated into English, which is a curious situation in that it is usually the other way around. We have more English translated into French.
Senator Corbin: We have two separate teams now, supposedly.
Senator Andreychuk: We were told that in fact they had been working fairly closely with the French. So when you look at it, it is not ambiguous. I think there is an ambiguity in the English that could be interesting. At the moment, of course, I do not have the expertise to argue what in future on a space station could be a Canadian flight element as opposed to an element provided by Canada. I see a Canadian flight element having to go back to how we define Canadian goods or services, et cetera, and I have not done that. It is less of a point now, having had the opportunity to discuss it, than the discrepancy that I had thought before, that we had actually created a fairly distinct category.
Something has to be done about it. I do not think we can ignore it. The question is whether it would be appropriate to have an amendment to change the wording from "Canadian flight element" to "flight element provided by Canada", or some alternative. I understand there will be an omnibus bill coming forward soon that would cover this, and if there were a departmental undertaking to clean this section up, that might be another alternative to consider.
Mr. Roy: Mr. Chairman, I would give that undertaking with pleasure, if that helps resolve this matter.
The Chairman: Is that satisfactory, Senator Andreychuk?
Senator Andreychuk: Yes, Mr. Chairman. Those were my four points on that aspect of the bill.
On another point, Senator Carney raised some questions yesterday about the fact that there will be a code of conduct and regulations pursuant to this act, which are in the process of being drafted and which include not only Canada, but all the other countries involved. Clause 10 of the bill was amended in the other House to say:
The Minister shall, by order, amend the schedule to incorporate any amendment to the Agreement as soon as it is feasible after the amendment takes effect, and shall cause the amendment to be laid before Parliament on any of the first fifteen days...
The question to the two officials is whether that would include tabling the code of conduct and/or regulations and whether there would be an undertaking by the department to file those regulations or code of conduct with this committee specifically?
Mr. Roy: Mr. Chairman, the way I read clause 10 as amended is that the section targets the agreement between the partner states. I am going now to clause 9, which is the regulation-making power that you have in the legislation. It says:
The Governor in Council may make regulations that the Governor in Council considers necessary for carrying out the purposes of this Act and giving effect to the Agreement, including the code of conduct and a memorandum of understanding or another implementing arrangement that the Agreement refers to.
That seems to suggest that what Senator Carney was asking for is already provided for in clause 10, if the agreement is to include these other elements.
I note, however, in passing that the president of the agency, who testified before you yesterday, indicated that if this committee was interested in getting these documents, he would be more than willing to make arrangements with your clerk for the purpose of making them available as soon as they become available.
Senator Carney: It is clause 9 that I am talking about. The enabling legislation is set out here, but the regulations that flow from that legislation is what I wanted to have brought to this committee. It is not a question of our asking for it. We would ask, through the Chair, that the regulations together with the code of conduct be referred to this committee in the course of any follow-up to this bill. That is a perfectly ordinary transaction that is carried out with other legislation. It is a simple matter that, at such time as the regulations are drafted, not only do they go to the special committee of cabinet, but they come back to this committee so that we know what the regulations implementing this agreement are.
The Chairman: Senator Carney, I have no problem with that, there being so many regulations, but I have to admit that I have not experienced a situation like this with any other committee that I have been a member of, other than Regulations and Statutory Instruments, but it certainly does not bother me.
Senator Carney: Thank you. It is important for the record to have the regulations, including the code of conduct. I look forward to reading them.
In an enabling act like this, most of the power of the act is in the regulations. Therefore, this committee should know exactly what it is that we are in fact legislating. "When in doubt, regulate" seems to be the motto, because it is a lot easier than bringing in legislation.
[Translation]
Senator Robichaud: I have a supplementary as a follow-up to senator Carney's question. Are we not getting into a process we will never see the end of? In case of a disagreement concerning regulations, which are usually published in the Canada Gazette before becoming part and parcel of an act, we refer them back to the Minister who himself refers them back to Cabinet. I think it could be extremely cumbersome if we were to demand that things be done in this particular way.
The Chairman: As you say, I cannot remember an instance where any committee had regulations referred to it. I have no problem with that at this time. I believe that with the help of our clerk and of the Subcommittee on Programs and Procedures we could study the matter. For the time being, I think we should listen to senator Carney's suggestion.
[English]
Senator Carney: There is precedent for it, and I can give you an example from my own experience with the Canadian Environmental Assessment Act, where the regulations that flowed from the enabling legislation were brought back to the committee so that the committee knew how the act was being implemented. That is what I am asking for, because this is new ground.
Senator Lynch-Staunton: I should have been here yesterday, Mr. Chairman, because I think there was someone here who could have answered my questions, which are mainly on the financial side. However, the witnesses are, I believe, the drafters.
I have not been able to find anything is this bill concerning the financial commitment that Parliament is engaging in here. Is there anything in this bill about putting a cap on it or putting a limit on it, or anything along those lines? I understand that figures were given yesterday of $1.4 billion, I believe, over 20 years, and $35 million a year in operating costs. Those estimates are today's estimates in an area that is still hard to estimate.
In five years, those figures could double or they could be halved; we just do not know. In effect, Parliament has committed itself over the next 20 years to devote a minimum of $1.4 billion to that project. Is that correct?
Mr. Roy: Mr. Chairman, my understanding is that the amount of money that we are talking about has already largely been spent. The president of the agency yesterday indicated that a lot of the work needing to be done has already been done; and, indeed, the Canadarm is something that already exists.
To answer your question more directly as to whether this bill is doing anything on the money side of things, the answer is no. The most important elements, I would say, of this bill are found in clause 11, which is the clause that amends the Criminal Code for the purpose of giving Canadian courts jurisdiction to prosecute these cases.
During the exchange that took place yesterday, it was indicated to the honourable senators that, indeed, if it were not for clause 11, it is not completely clear that there would be a need to have enabling legislation, given the arrangement that already exists. This legislation is not for the purpose of spending more money; it does not give the agency anything of that nature. That is my understanding.
Senator Lynch-Staunton: I will go to the transcript of yesterday and get more details.
The Chairman: As we agreed last night to do the clause-by-clause consideration, perhaps I could proceed.
We are considering Bill C-4, to implement the agreement among the Government of Canada, governments of member states of the European Space Agency, the Government of Japan, the Government of the Russian Federation and the Government of the United States of America concerning cooperation on the Civil International Space Station and to make related amendments to other acts. It has been moved by the honourable Senator Corbin that the committee complete clause-by-clause consideration of Bill C-4.
Is it agreed, honourable senators?
Some Hon. Senators: Agreed.
Senator Grafstein: Mr. Chairman, for the purpose of the record here, having had the opportunity to read the transcript from yesterday, for which I thank the reporting staff very much, I would like to restate again what I stated last night: For the reasons I gave yesterday, and as noted in yesterday's transcript, I intend to abstain from the clause-by-clause approval, abstain from the report, and abstain on third reading.
The Chairman: Thank you for clarifying that, Senator Grafstein.
Shall I postpone consideration of the title?
Hon. Senators: Agreed
The Chairman: Carried. Shall clause 1 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 2 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 3 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 4 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 5 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 6 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 7 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 8 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 9 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 10 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 11 carry?
Senator Andreychuk: Mr. Chairman, I would suggest that clause 11 could be carried with the understanding that there is an undertaking, which will be noted in our report, that when the omnibus bill is proposed consideration will be given to clarifying further clause 11(2.31)(b) with respect to "Canadian flight element".
The Chairman: I think that that was clearly stated in the testimony of the witnesses.
Senator Andreychuk: I think it should be in our report.
The Chairman: And, yes, it will be in our report.
Senator Carney: I would like to make a suggestion. Sometimes undertakings are contained in a letter to the minister.
The Chairman: I am sure that we can do that.
Senator Grafstein: I am not clear, because of my previous experience on this same point in another committee, whether or not my abstention can be noted in the report. Perhaps we might seek some advice on that; otherwise I would hope that you would bring to the chamber's attention, when you table the report, that it was approved, save and except for one abstention. If that is not possible I would hope to be given the opportunity to raise that point at the report stage. It is important for me to be consistent in saying that I have abstained and to give my reasons for doing so, either then or at third reading.
The Chairman: Senator Grafstein, the usual procedure is that at report stage you are completely free to speak and make your position known.
Honourable senators, shall clause 11 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 12 carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 13 carry?
Hon. Senators: Agreed.
The Chairman: carried. Shall the schedule carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall I report to the Senate that Bill C-4 has been adopted without amendment?
Senator Andreychuk: Mr. Chairman, I hate to interrupt again, but Senator Carney has quite rightly pointed out that we should also have a letter to minister; perhaps in the same letter we could request that the regulations be tabled.
The Chairman: Senator Andreychuk, that will be in the minutes and certainly that is what we will do.
Senator Corbin: Senator Carney, you do not want the draft regulations. You want the regulations as published in the Canada Gazette.
Senator Carney: I want the first-phase regulations, which is when they are first published in the Canada Gazette, because by the time they are published for the second time they are the law and there is nothing we can do if we have a concern. The committee should be sent the regulations at the time they are gazetted for the first time.
The Chairman: I have no problem with any of that, but I should like to continue this procedure, because it does not look good in the midst of the minutes to have an add-on. It is in the minutes that we will do this.
Senator Carney: And it will be conveyed to the minister so that it does not get lost?
The Chairman: It will be conveyed to the minister in the way in which you have suggested.
Senator Taylor: I do not see why Senator Carney's proviso cannot be included in the report we file. That would, for two reasons, be better than just saying it is in the minutes. First, it will attract attention in the House, when they look at it; second, it will attract the attention of the media, and, consequently, is more likely to get done.
The Chairman: I see no reason why that cannot be done in the speech reporting the bill to the senate. However, Bill C-4 has been adopted without amendment. I do not think the members want an amendment, because, of course, then the bill would have to go back to the House of Commons. There is a clear understanding of what Senator Carney has said.
Senator Grafstein: On the same point, Mr. Chairman, there are two practices here and both are fair.
I believe Senator Andreychuk will recall that in the Committee on Legal and Constitutional Affairs we had a healthy discussion several times with regard to approving a bill without amendment. The practice adopted in that committee was to include the directions or acknowledgements received in the heart of the report, because that is the document that is tabled and is found in the Journals. Other documents are advisory, but a report has a different standing.
I do not think the staff would have a problem in incorporating a paragraph or so in the report, and it could be left to the steering committee to come up with the appropriate wording so that it would not have to come back to committee. That could be done expeditiously.
That was the practice we eventually arrived at, after a long debate, in the Committee on Legal and Constitutional Affairs. I see Senator Andreychuk nodding her agreement; she was part of those discussions. The committee then concluded that it would be more appropriate to incorporate such comments and undertakings not only in a letter, but also in the heart of the report.
The Chairman: Senator Grafstein, I went through this report clause by clause, which some committees apparently do not do, precisely so that people could speak up at a particular clause, and Senators Andreychuk and Carney did so. That does not alter the fact that we are a committee reporting a bill unamended. We have a clear understanding, it seems to me, of what Senator Carney and Senator Andreychuk have suggested, and there is agreement that that is what we will do.
In the meantime, we do have parliamentary procedures and one of them is that I have to move on to the next step in order to have this bill reported unamended.
My next question is: Shall I report to the Senate that Bill C-4 has been adopted without amendment?
Hon. Senators: Agreed.
Senator Andreychuk: With a paragraph putting the two points that Senator Grafstein has just put and adopting the procedure that we have done routinely in Constitutional and Legal Affairs, because it is for the benefit and assistance of the Senate to understand.
Senator Carney: In the Energy and Environment Committee, we once had a bill before us that contained 31 errors in the translation. Senator Hayes was the chairman and I was the deputy chairman. We were faced with a choice: either to make 31 amendments or to write a letter to the minister asking for a commitment. We wrote the letter, saying, "We will pass this bill subject to your promise that within the year you will correct the 31 errors in the translation."
Since the clerk wrote that letter the first time, I am sure that she is competent to write the letter the second time, so that you can move on with your agenda. We can have the confidence of the clerk that she will write the necessary report and the necessary letter, because she has done it before.
The Chairman: Thank you, Senator Carney. It is moved by the Honourable Senator Corbin that Bill C-4, an act to amend the agreement among the Government of Canada, be reported. Agreed?
Hon. Senators: Agreed.
The Chairman: Carried.
We will move on to the next order of business today, honourable senators. It concerns Bill S-3, to implement an agreement, conventions and protocols between Canada and Kyrgyzstan, Lebanon, Algeria, Bulgaria, Portugal, Uzbekistan, Jordan, Japan and Luxembourg for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
As senators are aware, the fact that we are dealing with this bill is somewhat unusual in that, as a tax convention bill, it was routinely sent to the Committee on Banking, Trade and Commerce, where it was duly reported without amendment; nevertheless the bill has now been referred to us for our consideration.
I would ask our witnesses to introduce themselves and give us a brief description of the bill.
Mr. Brian Ernewein, Director, Tax Legislation Division, Tax Policy Branch, Department of Finance: Thank you Mr. Chairman. My name is Brian Ernewein. I am Director of the Tax Legislation Division in the Tax Policy Branch of the Finance Department.
I am joined by my colleague, David Sénécal, who is with the same division and is head of our treaty negotiation section in the Tax Policy Branch.
Ms Ann Collins, Director, Eastern Europe Division, Department of Foreign Affairs and International Trade: Mr. Chairman, my name is Ann Collins. I am Director of the Eastern Europe Division of the Department of Foreign Affairs and International Trade.
Ms Adèle Dion, Director, Human Rights, Humanitarian Affairs and International Women's Equality, Department of Foreign Affairs and International Trade: My name is Adèle Dion. I am the Director of the Human Rights, Humanitarian Affairs and International Women's Equality Division of the Department of Foreign Affairs and International Trade.
Mr. Ernewein: Mr. Chairman, you had invited us to be brief and I am happy to accept the invitation. We appeared before the Banking Committee a week ago today to discuss the contents of the tax treaties. As you indicated, it is normally the Banking Committee before whom we appear in the Senate to explain and answer questions in relation to bills to implement the tax treaties we negotiate.
As you have identified, in this circumstance we have nine agreements in the bill. Seven of those represent brand new treaties -- that is, treaties with countries we have not had treaties with before, or at least not directly; two of them are agreements with countries with which we have had prior agreements. In the case of Luxembourg it is a new treaty, but it is a replacement of an existing one; in the case of Japan it is a protocol or a set of amendments to the existing treaty.
The basic purpose of tax treaties, as is stated in almost all of their preambles, is the elimination of double taxation and the prevention of fiscal evasion. We are quite confident in saying that all of these treaties would serve those tax policy objectives. There are differences between the treaties but, in the main, they all have the same general thrust. They all limit the application of withholding taxes that each country can impose on certain categories or classes of income being paid to residents of the other country.
The principal classes of income to which my comments would apply are dividends, interest and royalties. Generally, rates applying between 5 per cent and 15 per cent of the total payment are subject to withholding tax in the country from which the payment is made; the country where the person receiving the income resides taxes the income at whatever domestic rates apply.
As I have mentioned, and as you have mentioned as well, Mr. Chairman, we have already been before the Banking Committee, where we addressed, we hope, questions as to the details and the contents of the various treaties. My understanding, and I hope it is not a misunderstanding on my part, is that this committee's interest is in discussing the existence of a proposed agreement between one or more countries, not on the basis of tax policy issues, but on the basis of other possible considerations.
I should perhaps stop there and offer to answer any questions in relation to the contents of any of the agreements that form part of this bill; if there are then questions on other aspects of our relations with other countries beyond the question of tax policy, perhaps my colleagues from Foreign Affairs could speak to those.
Senator Andreychuk: Are we going to hear from the representatives of the Department of Foreign affairs?
The Chairman: Ms Collins, would care to say a few words about the bill?
Ms Collins: Once again, please correct us if we are wrong, but it is our understanding that there were some questions raised in particular about the proposed agreement with Uzbekistan. In that light, perhaps a bit of background is in order.
Canada signed a double taxation agreement with the USSR in 1985. At the time of the dissolution of the Soviet Union, most of the states chose to not be successor states to that treaty and Uzbekistan was one that chose not to be a successor state. Consequently, new agreements had to be negotiated with the newly independent states of the of the former Soviet Union.
Following a mutual agreement in 1994 to pursue discussions on a double taxation agreement, negotiations between Canada and Uzbekistan got underway in 1995. The initiative was in response to Canadian companies' interest in, and their sense of the potential of, the market in Uzbekistan, particularly in the natural resource sector. Uzbekistan is one of the world's largest gold producers; it has significant deposits of the minerals: copper, silver, and zinc; and it also has considerable natural gas reserves. It was considered a market of potential for Canadian companies.
Legal instruments such as double taxation agreements safeguard the interests of Canadian companies and individuals by providing them with greater clarity and predictability when they choose to develop business in, in particular, difficult and challenging markets like those in the former Soviet Union.
Canadian companies continue to be interested in Uzbekistan, although trade with that country has been modest to date. The negotiation of a double taxation agreement is consistent with our policy to encourage economic and other reforms in the countries of the former Soviet Union to help to promote their transition to market-based economies. These types of instruments help to promote transparency, predictability and respect for the rule of law in our bilateral economic relations.
Ms Dion: Perhaps it would help if I added a few general comments about our overall policy approach to human rights and foreign policy.
Canada's approach to human rights since 1986, and through successive Canadian governments, has been one of engagement and dialogue. Very much as my colleague has said, in engaging and dialoguing on a variety of levels with countries where we have human rights concerns, we attempt to promote transparency, adherence to the rule of law, and a stable environment both in the country itself and within the international community as a whole. We do consider that a stable and peaceful international environment is one where there is greater potential both for monitoring human rights performance in countries and for promoting full respect of international human rights standards.
Because Canada is a mid-sized trading nation, the government's view has been and continues to be that our interests are best served through such active support and engagement in promoting international human rights standards both bilaterally, with countries such as the countries of the former Soviet Union, and at the multilateral level.
Senator Andreychuk: Mr. Chairman, for the sake of clarity, it is not quite accurate to say that all of the double taxation agreements have gone to the Banking Committee, because certainly this committee has dealt with one series of taxation agreements. There is a growing understanding that there is more to these agreements than just the financial aspects. There are implications on foreign policy and on other issues that are dealt with in the main by this committee. That is why we have taken an interest in this bill.
At the last go-round there were two areas that certainly preoccupied me and other members of this committee. Certainly, businesses want to get the best tax advantage possible for themselves, and avoidance of double taxation is an obvious choice. I do not need to go into that. However, I am not sure that all businesses, particularly smaller businesses, are aware of the fact that once you enter into a double taxation agreement, the other country gets access to information about you and your company.
We know that the agreement points out where and how that information can be obtained and dealt with and whom it can be disclosed to; but our concern has been, and continues to be, whether your department does a sufficiently good investigation to determine whether the reciprocating country has the capacity, institutions, capability and track record to ensure that their level of confidentiality and adherence to the taxation agreement will be the same as it is in Canada? We previously sounded a warning that we would want to know that that had been done on a case-by-case basis before we would agree to proceed.
Another and equal concern is that, once you make that assessment on institutions, we want to be sure that the other country is one that Canada should be promoting trade in. While I appreciate the comment by Ms Dion that this could be a tool for promoting transparency and the rule of law, equally, we do not want to be doing "business as usual" with a government that has intolerable levels of human rights abuses.
In other words, we have to draw the line somewhere and we have to make choices. The country that has been singled out by some members of our caucus is Uzbekistan.
I would like, first of all, a series of answers as to whether an assessment has been made, country by country, of the ones listed here to determine that they have sufficient institutions, practices, safeguards and track records to give us confidence that they will abide by the agreement.
Second, has the Department of Foreign Affairs, as was noted in our previous report, made an assessment on the desirability of entering into a bilateral agreement, having surveyed the human rights record case by case?
Mr. Ernewein: I will begin and then turn it over to my colleagues from Foreign Affairs. I speak only from my personal experience in appearing before the Banking Committee. I believe the majority of treaty bills go before the Banking Committee. I had not meant to say that they exclusively go before the Banking Committee. I stand to be corrected if perhaps the majority do not, although I think that is actually the case, but certainly they have not been exclusively before them, and we recognize the interest of this committee in the contents and implementation of our treaties, including tax treaties.
On the substantive question, the question is quite rightly put. If we cannot place reliance on the tax administration that the other country has, then we cannot attach much value to the exchange-of-information provisions with them. We would have doubtful ability to get information from them on the occasions we would like to have the information coming in this direction, and we would have no confidence in what they were doing with the information we might send them.
With respect to the nine countries covered by this treaty, seven are new treaties for us, so we do not have experience with them directly in terms of exchange of information. Implementation of the agreements is what is required before we can even begin to develop such experience. However, in determining whether or not it is appropriate to enter into such a treaty, to start such a process we consult formally and informally -- sometimes more productively through the latter route -- our other treaty partners and trading partners, particularly through the OECD, where the Committee of Fiscal Affairs has a working group devoted exclusively to the negotiation, implementation and ongoing revision of tax treaties.
When a treaty is implemented, which includes an exchange-of-information provision, it is not the case that Revenue Canada immediately opens up its databanks to the other country. These are questions of individual application and that will only be done by the Canada Customs and Revenue Agency on a one-by-one basis. In general, there may be other arrangements with countries with which we have had a longstanding relationship, but certainly, for any of the new treaty countries, it would be done on the basis of a particular taxpayer with respect to a particular piece of information.
Exchange of information is only undertaken if there is confidence in advance that it will be used only for the intended purposes, the administration of the other country's tax system, and should that reasonable projection -- it is not even a presumption -- that reasonable projection prove wrong and in fact the information is not used for the purpose expressed or expressly applied under the income tax treaty, further information will not be exchanged. The Canada Customs and Revenue Agency will not send information again, at least not until their concerns are resolved.
In the case of all the countries we have before us here, our understanding through our contacts at OECD, through the CCRA, are such that we do not have any reason to believe that the other country will not be able to comply with the exchange-of-information provisions; that is to say, we have no reason to believe that they will not be able to provide information to us on request and we have no reason to believe that they will not use information we provide to them only for the intended purposes. If there is any information that comes to us or, more precisely, to the CCRA, in terms of any abuse of information that has been obtained from any country, including Canada, I can only assure you that there will not be any further exchange of information until that concern is resolved.
The Chairman: The other half of the question was on human rights.
Mr. David Sénécal, Acting Chief, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance: It is important to remember that we are not unique in negotiating a treaty with Uzbekistan. The majority of OECD countries now have a treaty with Uzbekistan, either by virtue of the fact that they continue to apply the treaty that they had with the USSR or because they have negotiated new treaties. That includes the United States, Japan, Germany and Belgium. We are in constant contact with these people, and there has been no indication that they have had any troubles to date.
The United States is going beyond just applying the old USSR treaty. It is my understanding that they are currently negotiating a new treaty with Uzbekistan. I doubt that that would be the case if they had had a bad experience using the treaty with the former USSR.
Ms Dion: Obviously, I cannot speak to the ultimate desirability of entering into a bilateral agreement; that is the decision of the Minister of Finance in consultation with my minister. However, perhaps I could just say a few things about the international standards that apply equally to Canada and to Uzbekistan.
Uzbekistan has ratified all six major human rights agreements. There is an international legal framework to which they are accountable and treaty committees to which they are expected to report and which will monitor their human rights performance on an ongoing basis.
Uzbekistan also is a member of the Organization for Security and Cooperation in Europe, as is Canada, and the OSCE does have human rights monitoring mechanisms. Of course, Uzbekistan is also a member in its own right now of the United Nations, and again the United Nations has various mechanisms designed to monitor states performance in the area of human rights.
Certainly, in our provision of advice to our colleagues in the bilateral relations division and ultimately to our minister, we would consider favourable the fact that a country has acceded to these instruments, has subjected itself to the international human rights monitoring regime and is prepared to engage with countries on a bilateral basis and multilaterally at the UN or at the OSCE. That certainly is something that we would consider a favourable aspect of its relations.
Senator Taylor: Kyrgyzstan is referred to both as Kyrgyzstan and the Kyrgyzstan Republic. I think it was changed to the Kyrgyzstan Republic about a year ago. Does it make any difference in the way you refer to it? Can you use it interchangeably?
Ms Collins: It is the Kyrgyzstan Republic now.
Senator Taylor: Can you give me any idea of the dollar value? What are we talking about in Canadian taxation dollars, and can we deal with A to F inclusively?
Ms Collins: I am sorry, but just to clarify, do you mean for all of the countries concerned?
Senator Taylor: Yes, for each one. When we are talking about equalization for tax exchange, do you know how many dollars Canadians would be taxed if we did not have this agreement? The Kyrgyzstan Republic is a good example because there is a big Canadian gold mine there.
The Chairman: Senator Taylor, there is also Japan in here, which must be massive.
Senator Taylor: If you were listening, I said I would go as far as F, but if you like you can include Japan. Do you have any idea, if this agreement was not in place, what Canadians would be penalized in their taxation? Do the businessmen really get anything out of this?
Mr. Ernewein: I can answer the last question first. We serve the dual purpose of keeping us happy and pleasing business as well. That is the driving force behind many of these treaties in terms of reducing the double taxation.
To try to answer your earlier question, I cannot give you a dollar figure, but I can tell you that oftentimes the difference between having a treaty in place and not is the difference between a Canadian firm being able to compete and not being able to compete for an investment in the particular jurisdiction. If they are suffering, say, a 30 per cent withholding tax on any dividends they are paying out of the country, or if they are paying 30 per cent or greater withholding tax on interest payments or royalty payments coming out of the country, it is not surprising to hear that in many circumstances that would be sufficiently high to make an investment there, if not unprofitable, then uncompetitive. In such a circumstance, they would not be able to get the deal or to price themselves at the right level to be the chosen investor.
Senator Taylor: What is driving this? Is it because the U.S. has them and Japan has them so we have to have them too? Is there a drive by Canadian businesses to argue for this type of tax agreement, or are we trying to conform to what the other industrial countries are doing?
Mr. Ernewein: International competitiveness certainly has a role in this. Even if you were to somehow factor that out, there is a value, independent of that, in having tax treaties and in trying to standardize the rules that apply between ourselves and the other country. We have to try to make sure that the same rules apply as far as their taxation threshold for our investors over there -- that is to say the level of activity that our investors will have to have over there before that other country has the right to start taxing them as a business carried on there -- and to make sure that we apply the same principles in terms of our taxation of their investors here, so that we are not simply going after them because the money somehow started from the other country. We need to have a significant degree of activity in the other country before we will start treating it as effectively connected, to borrow a U.S. expression, with this country sufficient to start taxing it ourselves.
I do not want to sound too abstract or lofty, but quite apart from the matter of competitiveness, standardizing and harmonizing the tax rules also has the distinct value of developing commerce. If you have a common set of rules, then you avoid or minimize at least the grating effect, the deterrent effect, if you will, in terms of investment as between the two countries.
The Chairman: As I understand it, the issue is essentially double taxation or paying your taxes twice, is it not? If there is no tax treaty and you are a Canadian company working in country X, then your profits will be taxed in country X and also in Canada. Is that not the underlying reason for all of this?
Mr. Ernewein: The two stated principal objectives of tax treaties are the elimination of double taxation and the prevention of fiscal evasion. Most countries do have in place under their domestic law foreign tax credit rules or some system to try to alleviate double taxation even when a treaty is not in place. However, treaties improve on that. The other thing that treaties do is reduce or eliminate the application of a lot of source-based taxes that are effectively in excess of net income on a venture.
To take a simple example, if a domestic withholding tax applying to all interest payments made by one country to people resident outside that country is set at a rate of 40 per cent, one might conclude that 40 per cent is not outrageous in relation to the marginal tax rate applying in Canada and that, therefore, that would not seem to pose a problem of double taxation. When you take into account the cost of financing loans for a bank that does not simply lend equity but raises a lot of borrowed funds in order to lend those funds, a 40 per cent tax on the gross amount of interest it receives may translate into an attack on the net income in excess of 100 per cent. So, while you do eliminate double taxation, you also eliminate excessive taxation.
Senator Taylor: If they are taxed heavily, they can file for a credit back in Canada, but say they are taxed too lightly; does Canada come in then and make up the difference? In other words, you have a set rate that you want to get from the Canadian company's profits; if the other country does not take it, then you will come in and take it. If on the other hand they take more than you would have taken, you will give the company a credit when it is filing its income in Canada. Is that correct?
Mr. Ernewein: Our system contains the possibility of either result, depending on the circumstances. For an individual -- that is, a natural person -- or for a Canadian company carrying on business in another country through a branch -- not through a separate entity -- the system you have described applies; that is to say the foreign country will impose whatever taxes it may impose. Canada will come in and impose its own tax and provide a credit for the other foreign tax. The net result is you pay the greater of the two taxes in those circumstances.
Senator Corbin: Mr. Chairman, I thought we were going to look at the human rights aspect of this legislation.
The Chairman: Yes. Presumably, the entire issue of financing was dealt with by the Banking, Trade and Commerce Committee, which reported the bill without amendment.
Go ahead, Senator Taylor, but keep in mind that we are not supposed to be dealing with an aspect of this bill that has already been dealt with by another committee.
Senator Taylor: I beg your pardon if I do not know what the other committees are doing. Quite often I do not know what this committee is doing.
The Chairman: There is a system.
Senator Corbin: That is a reflection on our work.
The Chairman: The bill has already been reported to the chamber without amendment by the Banking Committee, which the senate mandated to look at such bills. That is what it means.
Senator Taylor: What I want to find out on the finance side has to do with royalties. There are provinces in Canada that charge royalties. Is the treatment given a foreign company charging a royalty for gold or for oil or, as you mentioned here, for nickel or zinc, the same treatment, taxation-wise, as you give to a corporation that pays royalties to a provincial government?
Mr. Ernewein: If I have taken the question correctly, the treatment is not the same. Perhaps a loose definition of what we mean by "royalties" would be of some help. A royalty is a charge imposed by a government in the form of a tax, not in the form of some way of extracting its profit as a vendor of property. Rather, it is a way of imposing a tax on a payment stream going generally between two private parties.
Correct me if I am wrong, but the provincial royalty you have described is the charge a province levies in respect of land rights for production within its borders. First, we do not credit provincial taxes as we do foreign taxes against federal and, indeed, provincial income tax. Second, although the term "royalties" is applied in both contexts, we are really talking about a royalty that is a tax in the circumstance of our tax treaties.
Senator Lynch-Staunton: I want to repeat quickly what I said before the Banking Committee last week. I would like to congratulate the authors of the briefing book. I have seldom seen such a complete and informative background to a bill and to the general issue, which is tax treaties. It is very helpful and it will be a reference work after we are through with this.
I certainly understand why we have tax treaties with countries whose governments we may or may not approve of and whose activities we disapprove of. We do that to protect Canadian citizens and Canadian investments. However, I understand that in Uzbekistan there is no significant, if any, Canadian investment to date. There is potential -- I think Ms Dion or Ms Collins used the word "potential".
I disagree with Ms Dion that by negotiating with such regimes we may be able to draw them away from their, as in this case, human rights violations and bring them closer to our ideals and practices. My feeling is that, if you isolate them or ignore them or do not entertain relations with them, the chances are that maybe they will wake up and realize that what is happening to them is not fruitful for either the government or the citizens.
What I am trying to say was best said yesterday by Senator Wilson, who told us that she had been named a special envoy to the Sudan peace process. She said:
If it becomes evident that oil extraction is either exacerbating the conflict in Sudan or resulting in violations of human rights, then consideration will be given to using economic or trade restrictions or other instruments that may be at hand.
That is where I stand. This instrument that we have before us will be better off suspended for the time being, which will be a message to the regime that we have no financial interest in their country at the moment so that no Canadian citizen or company would be penalized <#0107> at least not so far as I know. Maybe you can correct me on that, but so far I have not heard of any significant, if any, investment in Uzbekistan by Canadians. The trade is minimal. I think it was $18 million in 1998 and they are not paying with hard currency.
Our disagreement lies in how best to get reform in countries where human rights violations are being so blatant, as in this one. According to your briefing note on that country, is is a really spooky place to be. Even if I had the potential for looking for gold and oil and gas, I do not know whether I would want to go to that place. It is extraordinary what they are doing to students, to opposition leaders, to their families, to a fixed referendum. You call it dubious.
Sure, they have signed on to various international agreements on human rights, but nothing in the experience to date suggests that they are going to honour those agreements. I suppose it is a philosophical approach in a way, but it is one that some of us feel very strongly about. In fact I have amendments prepared to subtract the Uzbekistan tax treaty from the bill. I do not say that that will be done. Indeed, I am delighted that you did come before the Foreign Affairs committee to explain that aspect of the government's approach, because I am waiting to be convinced.
Ms Dion: I can perhaps speak to the question of isolation as opposed to engagement and also the question of punitive measures such as sanctions. As a policy advisor and giver, I am not in a position to talk specifically about the situation in Uzbekistan. My colleague might want to say a few words about that.
Generally in terms of economic sanctions, certainly the prevailing view is that economic sanctions are generally ineffective. From a Canadian perspective, Canada is not a large enough partner on its own to coerce change in a country's human rights practices through unilateral sanctions. Even when sanctions are multilateral and well enforced, they are not always particularly effective. We only have to look at the situation in Iraq where, in spite of extensive multilateral UN sanctions, there is sufficient oil and food getting through to keep the regime alive.
To date, Canada has adopted sanctions endorsed by the UN against only South Africa, during the Apartheid era, and Libya and Iraq. Canada applied unilateral sanctions against Burma in 1997 after it became clear to us and to the United Nations that there was no prospect for an immediate improvement of human rights through dialogue and negotiation. The ruling junta made it clear that they were simply not prepared to enter into dialogue, either multilaterally or bilaterally.
In the case of Sudan, Sudan is clearly another international pariah. Again, Minister Axworthy has been making best efforts to enter into dialogue with the Sudanese government, both bilaterally and through the United Nations. Of course, you are absolutely right that it is very much an important philosophical debate in terms of approach and what works in each individual situation.
Perhaps I could turn to my colleague for specific Uzbekistan comments.
Ms Collins: Canada does have concerns over Uzbekistan's human rights record in areas such as freedom of assembly, freedom of speech for opposition parties, freedom of religion and freedom of the press. We work both bilaterally and multilaterally to urge Uzbekistan to improve its human rights record and to move forward with democratic reforms.
CIDA, for example, has supported a number of human rights projects in Uzbekistan, including supporting the attendance of representatives from Uzbekistan at an OSCE major conference on human rights that was held in 1998. At the recent OSCE summit in Istanbul, Canada strongly supported inclusion of articles in the Istanbul Declaration dealing with increased OSCE involvement in central Asia, including efforts to strengthen the rule of law in respect of human rights, fundamental freedoms, and the development of civil society. We use the mechanisms that we have and also our bilateral dialogue to encourage Uzbekistan to improve its record.
Senator Lynch-Staunton: In the table under Schedule 1, there is a list of 75 countries with which Canada has signed tax treaties. They are not all in force, like the nine we have here. I have extracted from that list those countries with which we do not have treaties, and that gives me a list, which is not complete, that includes Cuba, Colombia, Venezuela, Guatemala and Haiti, in which Canada has significant investments and citizens at work and residing. Somehow, Canadian participation in those countries is very active and yet there is no tax treaty.
Is the conclusion simply that a tax treaty is either a great impediment or a great encouragement to Canadian investment? Maybe this is an exaggeration, but it seems that a tax treaty is nice to have, but is not really, if you do not have it, an impediment to investment or, if you do have it, a strong encouragement to invest.
I am sure there must be other countries like Cuba, because I only did this list this afternoon and it is by no means complete, but looking at Cuba, in particular, we have major investments there and no tax treaty according to this table. There may be other reasons for that, and perhaps our friends from the Finance Department can explain how we can be so active without a tax treaty and whether we would be even more active if there were a tax treaty.
Senator Taylor: That was my original argument.
Mr. Ernewein: There are two sets of considerations that form the basis of whether or not we have tax treaties with another country. The first is the existence of relations at some level with the other country, and from that we, at Finance, take our cue from the government's policy generally. It is generally informed by Foreign Affairs' position on it, but it will, I assume -- because I cannot speak to it from direct knowledge -- take into account a wide variety of considerations.
Having crossed that threshold, having determined that this government has full diplomatic relations with another, then from our perspective we enter into tax treaty negotiations, and I apologize because I am going to repeat myself as far as Senator Lynch-Staunton is concerned, but we then turn to tax policy and investment considerations. We may have personal views about human rights issues or environmental issues or what have you in the other country, but we do not think they inform our role as bureaucrats in the Finance Department and our role in determining whether or not it is appropriate to have a tax treaty with another country.
In terms of whether to have a tax treaty with another country, we look to such things as the level of actual or potential investment, the interest of our government for tax or non-tax reasons in pursuing a treaty with the other country, the interest of the other country for non-tax or tax reasons in having a treaty with us. To narrow it down to tax issues, we talked earlier about the tax administration in the other jurisdiction, their reliability and what gains we would hope to make from having, as part of a tax treaty, an exchange-of-information provision with them.
I have put the cart slightly before the horse here in talking about a tax administration before the existence of a tax system, but we, as tax policy people, do look for the existence of a tax system in the other jurisdiction. We generally do not like having tax treaties with countries that do not have a tax system. First of all, we do not make any gains from that. We are not negotiating down any taxes on their part. They are already at zero. Secondly, we do not have, as I have just touched upon, the ability to advance one of the two principal goals of tax treaties, which is the prevention of fiscal evasion. We do not have the ability to foster any exchange of information in an attempt to ensure that our residents are not evading tax and their residents are not evading theirs.
In terms of the countries you have identified, I am frankly not in a position today to respond specifically to them, but in some cases it is because of lack of pressure on us to enter into negotiations. It may be concerns we have with respect to the tax system of that particular country. It may be informed by their lack of interest in having a tax treaty with us.
Senator Lynch-Staunton: How essential is a tax treaty for Canadians to be attracted to another country? How does a lack of a tax treaty discourage them? So far what I have heard is that we will only go in those countries where we are satisfied that their tax system is structured in such a way that a tax treaty can work and avoidance of taxes and so forth can be eliminated or reduced.
Getting back to Uzbekistan, where we have no investments, from what I have heard the absence of a treaty is not going to hurt any Canadian, as far as I know, and having none elsewhere where there are Canadian investments does not seem to discourage Canadian investments. I am just trying to figure out how essential a tax treaty is in the ordinary course of deciding where you are going to invest and how and to what extent.
Mr. Ernewein: I would rather not refer to any country in particular. I would suggest that it would depend on what you get with and without a treaty. If you are talking about a country in which you are looking to invest that has no taxes, then the existence of a tax treaty will not have much influence on your decision as to whether or not to invest there. In other circumstances where the country in question has substantial taxes, indeed taxes far above our own and applied let us say in an arbitrary manner, then the absence of a tax treaty to regulate that system to somehow get the application of the taxes and the rate of those taxes in line with Canadian rates may be crucial to any investment. So a treaty has varying degrees of influence.
Senator Lynch-Staunton: Does Cuba fall into that category where there are significant mining investments and tourist-related investments?
Mr. Ernewein: I have to say that we have not taken a position with respect to Cuba. David could speak a little more comprehensively about some work that CCRA is doing in terms of work with Cuba and the development of a tax system, but not in terms of tax treaty negotiations. We have not bridged that yet with them, nor they with us.
Mr. Sénécal: I just know of this at second hand, but the CCRA has a very extensive, ongoing project in Cuba, a multi-year project to help the Cuban tax authorities develop their tax system in order to meet our standards. Perhaps one of my colleagues from the agency can inform us or give us some details, but I believe they have had some people there full time over the last several years, working very closely with the Cuban tax authorities in designing a tax system that would be acceptable to us or other OECD countries. I do not think they are being totally ignored. It is perhaps more a question of time.
Senator Lynch-Staunton: If you do not know the answer to this, I will understand, but does the absence of a tax treaty lead to double taxation in Cuba? I am springing this on you, I realize, but I think you know why I am asking it.
Mr. Ernewein: We are always afraid to say we do not know, but that would be the honest answer in the circumstances. If things have not changed and they have not implemented a tax yet, then there would be no double taxation in question.
Senator Lynch-Staunton: Do you know what the Canadian presence in Uzbekistan is at this time in terms of investments?
Ms Collins: Senator, you are correct in saying that at this time there are no Canadian investments in Uzbekistan, but these treaties are also put in place to deal with anticipated and potential investments. Uzbekistan was recognized among the countries of the former Soviet Union as a country where there is and continues to be a potential for Canadian companies in areas where we have strengths and capabilities. We know that there is continuing interest. These markets are challenging markets. They are long-term markets. It takes a long time to develop these markets.
Even though I should not generalize, we do hear from companies that difficulties with taxation and the need for predictability in the taxation regime are a recurring challenge in these countries because, in many cases, they are reforming their taxation system and it can lead to a lot of unpredictability and high levels of taxation. Therefore, having these types of tax treaties in place provides greater clarity and predictability for our companies.
Senator Grafstein: The witnesses have gone over the ground pretty well, but I would like to address some questions to Mr. Sénécal. I take it that the OECD countries have entered into tax arrangements with Uzbekistan?
Mr. Sénécal: Yes, that is the case.
Senator Grafstein: I take it that that incorporates the EU countries?
Mr. Sénécal: I cannot say all of them have, but I would say that the greater majority have.
Senator Grafstein: The majors, Germany, France?
Mr. Sénécal: Germany, France, Belgium. The United Kingdom was one of the first.
Senator Grafstein: When we turn to the countries of Europe that are not members of the EU, have you any information to give us with respect to their trade relations with Uzbekistan? By that I mean Austria and the Scandinavian countries -- not the eastern Europeans, but the developed countries that are not members of the EU. Do they have bilateral trade agreements?
Mr. Sénécal: Austria currently uses the treaty it had with the USSR.
Senator Grafstein: They, in effect, have an ongoing treaty that is acceded to; so it is in place?
Mr. Sénécal: Yes.
Senator Grafstein: What about the others? I am talking about the non-EU developed countries, not the underdeveloped countries. Do you have any information on that?
Mr. Ernewein: We want to be careful that we are following your categorization to make sure we are not miscategorizing according to your standards. There are 11 treaties in force with Uzbekistan now and another four signed. The ones that are in force currently are Belgium, Finland, India, Greece and the U.K. The treaties that are currently in force through the application of the treaty with the former USSR are Austria, Denmark, Japan, Netherlands, Spain and the United States. The four treaties that are signed but not yet in force are France, Germany, Luxembourg and Switzerland.
Senator Grafstein: They have negotiated them but they have not been ratified?
Mr. Ernewein: Those last four have been signed but have not yet been entered into force.
Senator Grafstein: Is it fair to say that all of our major trading partners do already have bilateral tax relationships with Uzbekistan?
Mr. Ernewein: Yes.
Senator Di Nino: The same list that Senator Lynch-Staunton referred to I too took a look at. One of the countries on the list was Nigeria. That prompted a couple of questions in my mind.
Have we ever refused to sign a treaty with a country because of human rights abuses or for reasons explained, because of lack of a proper tax system or what have you?
Ms Dion: Just as a point of clarification, are you asking about a tax treaty or any treaty?
Senator Di Nino: One of these types of treaties.
Mr. Ernewein: With respect to tax treaties, there will have been situations in which we will not have started negotiations with countries because the Government of Canada does not have full diplomatic relations with another country. The reason it does not have diplomatic relations with the other country may be attributable to a host of factors, including human rights concerns.
I give you the example of a treaty that was terminated as a result of concerns. That was the treaty with South Africa in the mid-1980s, as was earlier identified.
Senator Di Nino: Other than that one example, or a declaration of war, do we have any other examples of treaties that were terminated because of human rights abuses or other similar abuses?
Mr. Ernewein: Tax treaties again or more broadly?
Senator Di Nino: I am only referring to these kinds of treaties.
Mr. Ernewein: Again, there will be occasions on which we will not enter into negotiations because of the lack of full diplomatic relations, but I believe that the only tax treaty that was terminated was with South Africa.
Senator Di Nino: So with respect to Nigeria, even though we had some difficulty in accepting their government and their position, we never terminated the agreements with them as far as you know?
Mr. Ernewein: In fact, the treaty with Nigeria has been negotiated but has not entered into force.
Senator Di Nino: Most of the questions have been asked, but I wanted to ask this specifically: If we do not sign the agreement with Uzbekistan, do you believe that it will hurt Canadian business?
Mr. Ernewein: I can only respond to the question in the abstract. It will hurt Canadian business to the extent that they would have been able to participate in ventures there with a treaty that they are not participating in without a treaty.
Senator Di Nino: And you think they would not, if the treaty was not there?
Mr. Ernewein: Again I cannot answer specifically, but it is often the case that a tax treaty can make the difference between an investment being viable and not being viable or between our company's bid being the successful one and its not being the successful one.
Senator Di Nino: This question may have been dealt with previously. Before we enter into a tax treaty with any country, is there consultation with Foreign Affairs and other ministries dealing with human rights and other issues of that nature?
Mr. Ernewein: We in the Department of Finance rely most heavily on two other departments: the CCRA and Foreign Affairs. We rely on our colleagues at the CCRA, the revenue agency, for on-the-ground advice and for providing technical support to the negotiations; we rely on Foreign Affairs to act as an emissary and to act sometimes in the substantive negotiations. All three departments are involved.
Senator Di Nino: The issue of human rights is addressed?
Mr. Ernewein: Again from our perspective, the existence of diplomatic relations with the country automatically, in our mind, turns the treaty over to us to analyze on tax policy principles. We do not, as finance staff, second guess the government's decision as to whether or not there should or should not be diplomatic relations with another country.
Senator Di Nino: I would like to ask Ms Dion this question: Is that an issue that comes up when you are having these discussions with Finance on signing tax treaties with other countries?
Ms Dion: Yes, it is very much an issue that is discussed internally in providing advice to our minister and to the Department of Finance.
[Translation]
Senator Robichaud: We have mentioned only one country, Uzbekistan. A little earlier on, you raised a number of concerns about human rights. Can we assume that you have no such concerns with respect to the other counties mentioned?
[English]
Ms Collins: Mr. Chairman, as I mentioned, I am the Director of the Eastern Europe Division, which is responsible for the republics of the former Soviet Union, except the three Baltic states. In my case, I cannot comment on the countries that are outside that area.
The only other country I believe that is in the former Soviet Union is the Kyrgyzstan Republic. The Kyrgyzstan Republic has had a good record of economic and democratic reform; so we do not have concerns in that area.
[Translation]
Senator Robichaud: You also say that the signing of this type of treaty provides an opportunity to observe the human rights situation. In certain cases, it is possible to take steps such as inviting a group from a given country to take part in an international human rights conference. What initiatives could you take in a particular country to better safeguard human rights?
[English]
Ms Dion: There are various steps that we can take when we have, as you say, engagement with a country. It, of course, depends very much on the country and the specific situation, but one approach that we frequently take is to provide technical assistance to the country to strengthen its national capacity.
We do a great deal of training of lawyers and judges, people in the judiciary, in the hopes of strengthening their legal system. That helps not only to improve the rule of law, but to address questions such as corruption, tax evasion being a case in point. We also provide technical assistance in the form of building national human rights institutions.
You may know that the Canadian Human Rights Commission has achieved quite a remarkable record and expertise in providing assistance to other governments to create independent human rights institutions. That certainly is an approach that we have found works very well.
As Senator Andreychuk knows, we are very active multilaterally in the United Nations human rights bodies. In those fora, we speak out publicly about our concern for situations in individual countries, but we also work with other countries to promote technical assistance through the UN human rights monitoring. There are independent human rights experts who will visit a country, monitor the situation, report on the situation and make recommendations for actions to be taken.
Those are just a few of the things that we are very actively involved in.
Senator Andreychuk: We have a tax treaty with Zambia. How would you rate Zambia and its human rights abuses presently against Uzbekistan?
Ms Dion: I am sorry, but I am really not in a position to answer that. For specific country situations, country assessments, we rely very much on the expertise of our colleagues in the relevant geographic division. We could certainly obtain the information and pass it back to you through the clerk.
Senator Andreychuk: This question is for Ms Collins. With respect to Uzbekistan, there are ongoing possibilities for investment in oil exploration, in gold, and in some other resources. Are human rights violations in that area likely to be exacerbated by that investment or would it be neutral?
I am mindful of what Senator Lynch-Staunton said about Sudan. The oil exploration there is directly tied to the increases in human rights violations, the displacement of people, slave trading, et cetera. All of that is directly tied to the investment we have there by virtue of the fact that the oil exploration is displacing people and causing political manipulation and death.
What would be your comment about the kinds of trade opportunities and investment opportunities we have in Uzbekistan? Would they exacerbate the human rights difficulties or not?
Ms Collins: Canadian companies are exploring opportunities in the market. Some of them are in the natural resource sectors, others are in other sectors. One area of increasing interest recently has been education, education reform and cooperation with developing business schools in Uzbekistan. There are interests in other areas as well. I am afraid I could not really say.
Senator Taylor: Why is Israel, who is one of our big trading partners, not on the list of tax agreements, or did I miss it?
Mr. Ernewein: I think you must have missed it. It is one of the treaties in force. I am not sure what materials have been reproduced, but we do in fact have a treaty with Israel.
Senator Lynch-Staunton: Senator Di Nino asked the last question I intended to ask, and that is: What would happen if we did not have a treaty with Uzbekistan? I gather it would not be fatal.
I want to end with an editorial comment, if I may. I agree that Canada may be a middle power at the moment, but that does not mean that it should not play anything but a forceful role in human rights. Our human rights activities over the years have been growing timid; being forceful only when the UN decides to be forceful is not enough. There is more to life than shareholder values and return on investment and elimination of double taxation. Human rights should be a major preoccupation, even if not the only one.
If the Parliament of Canada decided to exclude Uzbekistan from this bill -- perhaps to reintroduce it another time, when we are getting signals from that country that they are starting to head in the right direction -- that would be a small, modest message, but it would still be the right message. Knowing what we know about that country, knowing what we know about the lack of Canadian involvement in it, and that to do a tax treaty at this stage would in a sense be a form of support for the regime, I do not think that at this stage I would feel comfortable doing that.
Senator Atkins: I have a general question for Ms Dion. What is your best source of information on human rights abuses?
Ms Dion: It is difficult to say that there is a best source, because, again, it depends very much on what country we are looking at. As a general rule, it is a combination of UN independent human rights experts and human rights non-governmental organizations. In 1997, Minister Axworthy launched a project called "For The Record: The UN Human Rights System". Now in its third year of publication this document is essentially a compilation of all of the reports of human rights independent experts. That, combined with the various other UN databases, is obviously a key source for us in our analysis.
We rely heavily on non-governmental organizations to provide front-line, on-the-ground information. These are both national organizations working in the various countries -- Colombia or wherever -- and international organizations such as Amnesty International and Human Rights Watch. Those are two of the very large ones. They produce annual reports that we receive on a regular basis, and we certainly give a lot of credence to those reports as well.
Senator Grafstein: I listened with care to the editorial comment of the Leader of the Opposition in the Senate. He raised an important issue that I have no quarrel with. Moreover, I agree with him that the material presented here is absolutely superb. It is more intensive as it relates to human rights and trade issues than we have normally had before this committee, and we have dealt extensively with bilateral tax treaties.
Having said that, I feel that there are numerous reasons why we have not adopted at External Affairs the American model, which is essentially to make an analysis, either yearly or bi-yearly, of every country with which they have trade, publish it and then make it available to Congress, which then decides, if it chooses, to link or delink any particular trade or tax or economic relationship. We have chosen not to do that.
Rather than do that, the ministry have indicated to us that they are prepared to coagulate this material at the United Nations, and we use that as a database and as a secondary source. We do not use it as a primary source. Therefore, based on this report, for which again I thank the ministry, we decided to more heavily rely on our multilateral relationships through the UN for dealing with these particular problems.
I speak of these things, not from second-hand knowledge, but from first-hand knowledge, because I am a member of the extended bureau of the OSCE and have attended numerous meetings at which these issues have arisen. I was asked to speak in Georgia, where parliamentarians from Armenia, Georgia, Azerbaijan and the other "stans" attended for a three-day conference, fostered by the OSCE, all of which was looking at the question of minority rights, democratic freedom, the right to organize for labour purposes and so on.
We heavily rely on multilaterals because at this precise moment we do not have full representation in any of the "stans". I do not think we have a full ambassador in any of these three or four countries. We have one ambassador 1,000 or 2,000 miles away who is responsible for all of these relationships.
I find the approach taken by Senator Lynch-Staunton is appealing, but I still think that we have to develop a more systemic approach to this issue. It would be unfair to them for us to exclude Uzbekistan without allowing them to respond, to have an intensive hearing, to go into this at length. We systemically, from the department's standpoint, have not done that as it relates to these relationships.
It is important that we note this, that it is on the record. Obviously this could be a matter of discussion with the ambassador or whoever represents that country in Canada, but for us, at this juncture, to go further than the issues and to delink Uzbekistan might have ramifications that we have not at all considered.
In my opinion, Mr. Chairman, we have had a thorough discussion about this whole issue, and I thank the department for that. I will be supporting this legislation, including support for all the bilaterals without amendment.
The Chairman: I thank the witnesses for being so kind as to come and assist us in our deliberations.
Honourable senators, we have heard evidence on Bill S-3, an Act to implement an agreement, conventions and protocols between Canada and Kyrgyzstan, Lebanon, Algeria, Bulgaria, Portugal, Uzbekistan, Jordan, Japan and Luxembourg for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
It is moved by the Honourable Senator Grafstein that the committee complete clause-by-clause consideration of Bill S-3. I shall group some of these clauses together, because there are many.
Shall the title stand?
Hon. Senators: Agreed.
The Chairman: Shall clause 1 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 2 to 7 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 8 to 13 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 14 to 19 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 20 to 25 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 26 to 31 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 32 to 37 carry?
Senator Lynch-Staunton: Mr. Chairman, I will not suggest any amendments because I recognize that we must be practical in our approach to these matters. However, I do want to indicate my disagreement in passing that section since that is the section that deals specifically with Uzbekistan.
The Chairman: Just so we are clear, it is clauses 32 to 37, on division?
Hon. Senators: Agreed.
The Chairman: Shall clauses 38 to 43 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 44 to 47 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 48 to 53 carry?
Hon. Senators: Agreed.
The Chairman: Shall Schedule 1 carry?
Hon. Senators: Agreed.
The Chairman: Shall Schedule 2 carry?
Hon. Senators: Agreed.
The Chairman: Shall Schedule 3 carry?
Hon. Senators: Agreed.
The Chairman: Shall Schedule 4 carry?
Hon. Senators: Agreed.
The Chairman: Shall Schedule 5 carry?
Hon. Senators: Agreed.
The Chairman: Shall Schedule 6 carry?
Senator Lynch-Staunton: On division.
The Chairman: On division.
Shall Schedule 7 carry?
Hon. Senators: Agreed.
The Chairman: Shall Schedule 8 carry?
Hon. Senators: Agreed.
The Chairman: Shall Schedule 9 carry?
Hon. Senators: Agreed.
The Chairman: Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Shall I report to the Senate that Bill S-3 has been adopted without amendment, on division?
Hon. Senators: Agreed.
Senator Di Nino: I believe that it is important that this committee deal with these treaties. These treaties involve more than taxes and pure economic issues, as we have heard today and as we certainly heard the last time we dealt with a similar treaty. There was a great deal of interest expressed in this bill by this committee.
The questions Senators Lynch-Staunton and Andreychuk asked incorporated part of my questions, particularly as they dealt with the type of information and how that is treated and so forth. From the standpoint of examining human rights and so forth, I would suggest, Mr. Chairman, that unless my colleagues have any objections, we ask that these bills be referred to this committee so that we can consider them from a point of view which differs from that generally adopted by the Banking Committee. I would make that request unless we can be assured that the Banking Committee will deal with the issues in which we have expressed some interest.
The Chairman: I certainly have no problem with what Senator Di Nino has suggested.
My personal view is that we may run into difficulties if we remove one country.
Senator Di Nino: We are not talking about taking out a country.
The Chairman: I understand and accept what you say. I believe we all think what you say has merit.
Senator Di Nino: Do senators agree that we should ask that these types of bill be referred to this committee?
Senator Corbin: We should make that request on a case-by-case basis. If a senator raises grave concerns on issues such as those that have been raised in this committee, then I agree that we ought to ask for a reference to this committee. However, I do not think we need an automatic reference because we have our other work to do.
On a number of occasions, senators have expressed the wish to set up a human rights committee of the Senate. If we are ever divided on such issues, that is where these sorts of issues should be dealt with.
Senator Di Nino: If another committee considers such issues, then I would be satisfied. I agree with my colleague. We have enough on our plate. However, instructions should be given to whatever committee considers these bills that they should also consider these human rights issues.
The Chairman: Senator Di Nino, your colleagues and some of the officials heard what you said. As you know, there are discussions between the leadership regarding which committee shall deal with certain bills.
The committee adjourned.