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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 23 - Evidence


OTTAWA, Wednesday, November 21, 2001

The Standing Senate Committee on Banking, Trade and Commerce met this day at 3:50 p.m. to examine the present state of the domestic and international financial system; and to examine Bill C-31, to amend the Export Development Act and to make consequential amendments to other acts.

Senator E. Leo Kolber (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, we are here to examine and report upon the present state of the domestic and international financial system, in particular concerning Canada-United States border issues.

We have with us today Mr. Serge Charette, who is the National President of the Customs Excise Union.

Since this will be a protracted series of hearings, obviously everything related to the border will concern us, but I would point out that our mandate is basically an economic one. Of course, senators may ask any questions they want, but it is my hope that we concentrate on the economic effects of the clogged borders on Canadian business and the economy. That is really our mandate.

For us to get into matters of whether we build more guard towers is not exactly irrelevant, but I believe it is beyond the mandate of this committee. Honourable senators can disagree with me and, of course, ask whatever questions they like.

It is my hope that we will concentrate our efforts on our mandate and come forward with a meaningful report that will demonstrate how wounded we are getting.

With that in mind, I invite Mr. Charette to proceed with his presentation.

Mr. Serge Charette, National President, Customs Excise Union: Honourable senators, today the U.S. is largely preoccupied by homeland security. They see the safety of Americans, their way of life and the very lives of their citizens at risk. Billions upon billions of dollars are being spent on protection. They see this as no laughing matter and they mean business.

Given the events of September 11, it is no wonder that they have looked for weak spots in their security measures. They certainly cannot be blamed for trying to fill the gaps they find. Since September 11, the Canadian media has on a daily basis reported on how Canada is lax about administration of refugee and immigration matters and processes, how we have 27,000 people wanted for extradition who cannot be found and how our border enforcement is seriously flawed.

CSIS published a recent report stating that Canada is a haven for terrorists. One member in the House of Commons actually stood up in that House and publicly called Canada a huge jihad airline carrier waiting to strike at the United States. A U.S. senator likened border security after 10 p.m. at more than 60 crossings from Canada into the U.S. to an orange rubber pylon. Similar anecdotes abound.

Moreover, stories reported in The Globe and Mail and the National Post on October 23, 2001, quoted Mr. James Ziglar, commissioner of the U.S. Immigration and Naturalization Service, as saying that he plans to activate the entry and exit registration system, calling for the name of all who enter and leave the U.S. to be recorded at airports and seaports by 2003 and at the 50 largest border crossings by 2004.

Americans needed little more to convince them that the way they had secured their border with Canada was unreliable at best, inadequate at times, and that their security measures posed serious threats and that they needed to remedy these.

It is no mystery why the Americans see their border security with Canada as a problem - honourable senators, it is a problem. That is a fact, a reality. We are not doing the job we should be doing. We do not have the right people, we do not have enough people, and staff members are not properly trained. They are not properly equipped either. Many do not have the right powers of enforcement. Almost half lack access to computers, while others are not provided real-time access to lookout and other intelligence information.

Honourable senators, from an American perspective we are seen as bush league when it comes to enforcement. We are fielding kids who have just enough training to play the customs game. We have to take steps that will convince the Americans that our enforcement is of major league calibre. We are America's biggest trading partner. We share the longest undefended border in the world. We pride ourselves as being a gateway to the U.S., and what scares them is that we view customs enforcement as a hassle, not as the first line of defence.

U.S. authorities inspect people and goods entering the U.S. We have no control over those inspections, nor should we. However, not all goods entering the U.S. come from Canada or originate in Canada. Many of these goods and people transit to the U.S. from abroad via Canada. This means that, although we play no role in their processes, rightly or wrongly, Americans no longer trust our processes. If we want the U.S. to ease up at the border, we must learn to talk the talk and walk the walk on enforcement, so to speak. This means that we need to show our big league procedures.

Minister after minister has told us that they do not want a police force at the border and that customs is not a police force. Honourable senators, when we dress like a cop, act like a cop and enforce the Criminal Code and over 70 other pieces of legislation, guess what? We are cops.

Why do we have increased security by Americans along our shared border? They do not trust the job we are doing. This translates into more physical inspections and more questions being asked by our American counterparts. Unfortunately, this leads to delays. Americans are looking for improved security. That is why they talk and walk enforcement while we wonder whatever happened to facilitation.

Ministers are now going South to lobby Americans and asking, cap in hand, for them to ease up on the security and return to the good old days of facilitation. Instead of begging Americans to trust us again, we must show that they can and should trust us and that we do our job as well as they do theirs. Once they are convinced of that, measures will follow that will help Canadian businesses. We have done nothing to convince our friends that we are serious about security. We have done nothing to lead them into a comfort zone where they can trust us again.

We have thrown crumbs - 130 customs officers at airports and seaports - while the Americans propose to add 3,546 new officers. A figure of Can. $6 million has been allocated for new equipment, while the Americans will spend U.S. $304 million, or Can. $495 million, for new equipment.

Parliament recently passed Bill S-23, basically a customs facilitation bill with few teeth for enforcement.

The Minister of Finance spoke about spending Can.$500 million for infrastructure, highway expansion and bigger bridges to the U.S., et cetera. Are the Americans reciprocating? Will they want to spend money on these highways and bridges? Nothing has been done to really increase our border security.

The U.S. is not opening its door to our people and goods so they can enter faster into the U.S. The U.S. is spending upwards of Can. $1 billion to put up barricades, to make it harder to get into the U.S. They are slowing down our ability to deliver just-in-time goods to U.S. manufacturers. How can we satisfy the U.S. that what we send South is safe?

Honourable senators, for more than 100 years, customs has operated on an enforcement model called transaction-by- transaction review. One by one, we check goods and people before they come into Canada. Today, Canada Customs is pushing and moving that process of inspection to after the fact. That means that Canada Customs management today believes in voluntary compliance, self-assessment, self-declaration and a post-audit model to enforcement that we see as a standard in the accounting practice. However, we do not even have enough people to do post-audit checks. For example, at the Port of Vancouver, from April 1 to October 31, 2001, 134,760 shipments arrived. Of those, 3 per cent, or 4,749, were targeted by intelligence for referral to examination. Unfortunately, because we do not have sufficient staff, 1,640, or 35 per cent of those, were never inspected; they were released without verification. What will auditing a paper trail long after a shipment has moved on do to help enforcement?

Accounting processes do not stop a criminal or terrorist wanting to cross or ship goods across that border. The Americans know that. Why else would they triple their border guards? You cannot live in the world we live in today and believe that people and shipments of goods will all be moved in a complaint manner and that those that do not will be caught in an after-the-fact audit paper chase. Since September 11, Americans have seen old risk assessment schemes thrown out the window. Everything has a higher risk than before and, as a consequence, we see slowdowns at the border.

Customs needs to be an organized law enforcement institution, not an accounting one. We need to stop daydreaming about facilitation and stop thinking that by throwing crumbs at customs enforcement we will appease the Americans. We need to tangibly demonstrate to Americans that we mean business about security. If we want to help Canadian business, let us make its easier and simpler for Americans to inspect our shipments going South.

Assuming a worst-case scenario, where the Americans will never be satisfied enough about our national security or customs enforcement measures, we must make it easier for them to feel secure about the commercial loads we want and need to ship South.

Honourable senators, let us build massive commercial inspection facilities on our soil a few kilometres inland from the U.S. border and invite Americans to staff them with U.S. customs officers who would inspect Canadian loads, clear them, seal and bond them and send them on their way to the U.S. border for unimpeded rapid crossing.

I am pleased to inform honourable senators that the Government of Ontario has announced today that it is prepared to issue certificates to U.S. customs officers to carry firearms so they can work in Ontario and pre-clear commercial shipments. That idea is so simple, it is a wonder, when we ship over Can. $600 billion to the U.S. per year, it does not exist today.

Thank you for this opportunity to make this presentation to you today. I look forward to your questions.

Senator Tkachuk: It is obvious that the events of September 11 have exacerbated some of these problems. Could you tell the members of the committee some of the major issues before September 11, what happened after September 11 and how they got worse?

Mr. Charette: In our view, the problems included a number of decisions made over the years in order to improve facilitation over enforcement. Particularly, during the 1990s, the thinking was that because we had a specific number of individuals working at the border, if you were to improve on either of those - facilitation or enforcement - you had to sacrifice the other.

Over the course of several years, we sacrificed enforcement to ensure that facilitation became more the norm. That has been a significant concern for us. It has meant less training for our officers because they do not have the staff to backfill while those people are being trained on various pieces of legislation. It has also meant a greater use of students, and those students only receive two weeks of training. We are concerned that the students do not have the knowledge necessary to enforce the 70 different pieces of legislation for which we have responsibility for the primary enforcement at the border.

Honourable senators probably received a letter from me in June with regard to the student issue. You may recall that, at that point, we were concerned by the fact that those individuals had received limited training and that they were basically given a line to operate with minimal supervision. There is a standard operating procedure that states that as long as a student has access to a telephone, in order to call someone to receive additional guidance, he or she is considered to be supervised. That is a major concern for us.

With September 11, all of these issues have now taken on a life of their own. We are more concerned than ever at the fact that this additional training is not only necessary for students but for our members.

The events of September 11 have also brought to light the additional concerns the Americans have with our weaknesses. In response to those weaknesses, the Americans have decided to increase their numbers on the Canada-U.S. border. That has caused a number of delays, which, unfortunately, should not be happening. We should be able to do the job to a point where they are convinced that we are doing as good a job as they do.

Senator Tkachuk: Before the events of September 11, in order to increase the flow of goods, we just checked less; is that correct?

Mr. Charette: That is what happened.

Senator Tkachuk: After the events of September 11, it is the opinion of people that we must increase the speed of goods; but we must check at least as much as we should have done before September 11; is that correct?

Mr. Charette: That is correct.

Senator Tkachuk: Did the Americans do the same thing? Was that their theory, to check less and move the flow of goods, or did they have more people to move the flow of goods more quickly?

Mr. Charette: On both sides of the border, the philosophy was one of facilitation, given the Free Trade Agreement and other issues. The economy was moving along full blast, and there were fewer security concerns. However, following the events of September 11, which is now the American's major concern, the U.S. immediately took steps to improve the enforcement ratios by asking more questions, et cetera. We did something similar in Canada, but by using overtime rather than by employing additional staff. The Americans immediately decided that they needed more staff, so they hired more people to do the work. Our reaction was more or less to treat it as a bump in the road, a bump that would smooth over quickly. We simply tried to handle the additional workload by assigning people to work overtime on a significant basis.

As a result, a number of our officers are experiencing burnout. They cannot work the additional overtime, so the rate of overtime has been reduced. The questioning and the actual verification of goods, et cetera, has been reduced in turn. We are returning to more facilitation than we had on September 11. That is for sure.

Senator Fitzpatrick: You will have to help me because I am having difficulty with your presentation.

We are talking about moving goods from Canada into the United States, goods that need to be cleared through U.S. customs, and through U.S. Immigration when that movement involves people.

The first part of your presentation deals with the inadequacy of our officials. I do not see how that affects the American side. Further on, you talked about ways in which the process can be improved by the utilization of American officers, with arms, on Canadian soil. Frankly, I do not see how that helps to process goods more efficiently, either. It seems to me that we should be addressing the process, the types of inspection equipment we use and other procedures, which could be integrated with both countries.

I apologize, but I am having some difficulty pulling together what you said in that respect. Perhaps you can elucidate a little on this.

Mr. Charette: Our interpretation of the current situation, or problem, is this: because we do not enforce, or our enforcement procedures are not similar to theirs, or are not perceived by them to be similar to theirs, their reaction has been to increase their questioning.

Keep in mind that many of the goods that are received in the United States arrive from abroad via Canada. They can be unloaded in Halifax, in Montreal, in Toronto or in Vancouver and then sent to the United States by truck, by train or by some other mode of transportation.

They also know that many travellers come to Canada, then travel on to the United States. Because the Americans do not think we enforce the rules as efficiently or as strongly as they do, they ask more questions, and they want to look at more goods when they reach the border. Often they are goods that we have not even looked at.

The Chairman: I am also becoming confused. You talked about goods and travellers. Are you interposing them as the same thing?

Mr. Charette: Basically, they present the same concerns, but you are looking at commercial goods, mostly.

The Chairman: I do not think immigration has anything to do with this committee, nor is it our concern. It is good to become informed, but that is not the information that we need for this committee.

Mr. Charette: I will focus on commercial goods at the border. With respect to commercial goods that come to Canada from elsewhere and then go into the U.S., there is no way the Americans can know just by seeing a shipment where it originated. They want to look at the documentation and they want to ask questions of the truck driver, et cetera.

Senator Fitzpatrick: Are you talking about goods coming in that would be received in Canada in bond? Then, of course, it is still the responsibility of the United States to clear whatever arrives in bond. It is not our responsibility to check into goods that are in bond. I do not understand why there is criticism of the Canadian process, when we are dealing with bonded goods.

I agree with the chairman that we are dealing with the movement of goods and that we want to know what can be done to expedite the movement of those goods. It seems to me that we should be coming up with ideas and suggestions that could be presented to the Americans, rather than review or criticize our side of the board.

The Americans may have some complaints about our people and their shipment of goods into our side, but that is not what I understood your position to be.

Mr. Charette: Canadian goods going to the U.S. have to be reviewed or inspected by American customs officers. We are suggesting that about one-half dozen facilities should be built near the higher-volume ports and that we could jointly operate those, with the Americans. It would demonstrate to the Americans that our procedures are similar to theirs. It would also demonstrate to them that we also inspect those goods, and it would allow them to inspect the goods prior to their arrival at the border. Those facilities would be modern, with all the necessary equipment to unload and reload vans, containers, et cetera.

Without the proper equipment, containers can be very difficult to unpack and repack. They are so tightly packed that you cannot open the door and begin to look at those goods without actually unloading them.

Senator Fitzpatrick: I believe that there are some joint facilities being built at the border. Certainly, in British Columbia I know of one. You are suggesting that more such facilities be built, where there is a joint service that could handle goods going either way.

Senator Oliver: I would like to follow along Senator Fitzpatrick's questioning. Mr. Charette, you asked what it is that we need to do in Canada so that the Americans know that the goods we are shipping South are safe. In your argument, you discounted some things that are not safe, and then you said that we have to build a series of massive commercial inspection facilities. You went on to say that it was announced in the paper that the Minister of Finance would put $500 million toward these facilities. Is it your understanding that most of those dollars will go to the building of the facilities that you are recommending?

Mr. Charette: No, that is not my understanding. My understanding is that $500 million will be earmarked to build highways that will help expedite the shipment of goods. I am not sure yet how much of that $500 million will be used to improve customs procedures or customs enforcement facilities. That has not been announced yet.

Before we commit to any of these major modifications, such as bridges and highways, we should ensure that the Americans intend to reciprocate. There could be a four-lane highway in Canada heading for the border, but if there is only a dirt road on the American side the situation will not be improved.

Our suggestion is that there needs to be agreement that if we do the Canadian side, the Americans will do theirs. We should both agree that that is the way to proceed. Otherwise, it would be investing money in the wrong way and at the wrong place.

Senator Oliver: The main thrust of your presentation today seems to be that you want us to construct and build more of these large commercial facilities. Senator Fitzpatrick has indicated that they already exit in British Columbia. Are there any in Ontario or Quebec?

Mr. Charette: Windsor is the only place I am aware of that has an offsite processing facility. I just learned about that one recently. I am not aware of this type of facility in B.C, but I can certainly verify that.

Senator Oliver: If they were to be built facilities in Quebec and Ontario, close to the border - the type of facilities you feel would facilitate trade - how much money would it cost to build them?

Mr. Charette: The buildings themselves would not be costly; and the land would not be very expensive because it would be basically empty fields close to the border. Also, regarding the facility, all you need is a shell to protect the people inside from the weather.

Senator Oliver: What about the modern equipment, the technology?

Mr. Charette: The modern equipment might be more expensive. One of the things we might want to consider is X-ray equipment, the type that is in about six or seven locations in the U.S. With that equipment, it is possible to X-ray an entire van in one fell swoop. Those machines expedite the process significantly, but they are extremely costly. I do not know what the actual cost is. We do not have a single one in Canada.

Senator Fitzpatrick: I wanted to make it clear that my comment was with respect to a joint port facility being built in Osoyoos that will house both Canadian and U.S. officers. The facility and infrastructure would service both.

It is under the T-21 program that has been announced in the United States that is providing a north-south corridor for moving trade between Canada and the United States. They have a budget of some $281 billion to develop this. It is a highway, but it includes customs facilities to improve the movement of goods from Mexico to the United States to Canada. Included in the American legislation, surprisingly enough, is that they can spend money in Canada up to within 50 kilometres of the border.

Obviously, that needs to meet our requirements, but I am amazed that as part of their proposal they will spend money on facilities in Canada up to within 50 kilometres of the Canadian border.

Senator Kroft: I would like to understand a little better the perspective from which you speak. The people you represent do what specific jobs in the process?

Mr. Charette: We represent all the customs inspectors across the country. We also represent some excise officers and a few taxation people. We are here today to voice the concerns and proposals of our members, from a customs perspective, mainly the customs inspectors.

Senator Kroft: Your concern is with the flow of goods into Canada only; correct? The people you represent deal with goods coming into Canada. We have no function, particularly, on goods going out?

Mr. Charette: We have absolutely no right to look at goods going out, unless we suspect that they are goods that are prohibited from export to certain countries.

Senator Kroft: Your concern, and I think it is the concern of this committee, is to make sure that there are not obstacles to goods flowing into this country? That is our trade problem. The Americans are doing what they feel they have to do to look at the goods flowing out of our country.

Your focus is on the incoming side; correct?

Mr. Charette: The main focus for us is always goods coming into Canada.

Senator Kroft: Let me turn to something Senator Oliver touched on. Yesterday, in an American airport, my carry-on bag was opened and looked at in detail; on the return trip, the bag was never opened. It was placed on a conveyor belt through a machine, and handed back to me at the other end. Presumably, based on a technological reliance, the person running the machine was satisfied that he or she knew enough from the X-ray about the contents of my carry-on bag.

I should like to have your perspective as to where the answer to these problems lies in an investment in technology, which is not inappropriate to your point of view. Your focus has been on the people involved.

My assumption is that we are not going to answer this problem of movement of goods or people just by adding more people to the job. There will be technological answers that will speed things along by a factor of many times rather than just the addition of more hands. Can I hear more from you on the role of technology?

Mr. Charette: Basically, Bill S-23 provides for a significant increase in technology. We are hoping that it will lead to all of our customs offices being equipped with computers and having links to police networks. There is also the question of a lookout system.

In Victoria, B.C., for example, there is no automation at that port, and there are a million travellers leaving Canada from that port on the ferry.

Yes, we would certainly welcome additional equipment. We would certainly welcome the new types of equipment that are being proposed, such as the scans and the palm readers.

Keep in mind that the equipment will generate a lot of intelligence, a lot of data, all of which will need to be analyzed and massaged, so that the customs inspectors can use that information.

We recognize that new technology will assist greatly in those areas, as well as in commercial. Commercially, we can be provided electronically with all of the information on a commercial shipment, which can then be reviewed before the goods actually show up in Canada. It basically means that, when the goods arrive at the border, the decision to either review or release has already been made.

That does not mean that the work is no longer being done. It means that you can do a more thorough job because you have a greater number of information sources available to you.

Yes, I agree that some of the answers lie in an increased use of technology. In front of the committee that was reviewing Bill S-23, I stated that we welcome new technology and hope that we can do a better job using it. However, it does not automatically follow that, because you have more technology, you need fewer people or you can operate with the same number of people.

I will give you an example. Bill S-23 requires airlines to provide passenger manifests. That is all well and good, but somebody has to analyze that information and pick out the spelling errors, et cetera. Sometimes you key in the wrong number for a passport, so that information needs to be verified in some way.

Technology is a fantastic tool, but I do not think that it will replace the customs inspectors. In fact, I think we will need more customs inspectors to deal with and to massage the information that will be generated by these new systems.

The Chairman: After September 11, it would appear that things became very bad; however, as Senator Tkachuk points out, they were not so good before September 11. Briefly, why did they get so much worse? Is it that people are paying more attention to what goods are crossing the border?

Mr. Charette: What happened is that we immediately went to what we call a level one alert. The instruction given to both our people and the American customs officers was to verify as many goods and individuals as possible. Hence, more questions were being asked -

The Chairman: Let us stay away from the individuals; let us keep with the goods.

Mr. Charette: All of the goods were being examined, the truck drivers were being questioned in more detail.

The Chairman: I am getting the general drift. Could you advise this committee on the following: in the next month or two, if we wanted to begin to quantify how much worse things are than they were before, where would we get that data? Would the U.S. customs service provide it? In other words, if Canada is shipping $600 million a year, and it was so much per month last year, how much is being shipped per month this year? I do not know what the yardsticks are. What would be the best source for that information?

Mr. Charette: Do you mean volume of goods or the actual processing times? For the actual processing times of Canadian goods going to the U.S., the source would probably be the American customs people.

The Chairman: And for volume?

Mr. Charette: For volume, the agency generates what it calls a G-11 report on a monthly basis.

The Chairman: Which agency?

Mr. Charette: The Canada Customs and Revenue Agency. The G-11 reports are statistical reports that would be exchanged with the Americans. We have an agreement with the Americans that, instead of keeping our own export statistics, we just exchange our import statistics - and they do the same. I am pretty sure that they would have that available.

The Chairman: Thank you for your advice and for attending here today. It has been educational. Have a pleasant day.

Mr. Charette: Thank you.

The Chairman: We will now turn to the second part of our agenda, Bill C-31. We will invite both the departmental officials and the witnesses to come forward to give evidence. I do not know how many witnesses there are, but I am hoping that the witnesses will nominate one person to lead off.

My instruction to the other witnesses is this: you are all welcome to be heard, but I will stop you if you are making the same points as the first witness. We have gone through this many times previously, where NGOs or interest groups keep repeating themselves, which does not do us much good. However, if someone has something new to say, we would welcome that.

We have before us Mr. Pat O'Brien, who is the Parliamentary Secretary to the Minister of International Trade, Ms Marie-Lucie Morin and Mr. Martin H. Jensen, from the Department of Foreign Affairs and International Trade; and Mr. Peter Cameron, from the Department of Finance.

Mr. Pat O'Brien, Parliamentary Secretary to Minister for International Trade: Honourable senators, I am pleased to be here to represent my colleague, the Minister of International Trade, as his parliamentary secretary. The officials who are here with me have the technical expertise, and will be pleased to answer any questions, if necessary.

Bill C-31 grows out of a legislative review process that was mandated in 1993 when the Export Development Act was previously amended. The 1993 amendments expanded EDC's commercial powers significantly, and Parliament felt it was important to monitor how those changes worked out in practice. A legislative review was launched in due course in 1998, and involved both the House Standing Committee on Foreign Affairs and International Trade and, of course, this committee. We had reports from both committees and a great deal of interdepartmental work has been done on the recommendations that were made.

In May of this year, ministers approved a number of legislative and policy changes that grew out of parliamentary review of EDC and the work by officials. The legislative result is Bill C-31. It is tied to a number of policy initiatives that are important to note, but not directly reflected in the legislation, and I would like to take a few minutes to discuss both.

On the legislative side, we will see EDC's name changed to Export Development Canada, in English, and Exportation et développement Canada, in French. This change of name will permit use of the well-known brand name EDC in both official languages. It will strengthen EDC's identification with Canada both here and abroad, and it should also facilitate the corporation's outreach marketing, especially to small exporters throughout Canada.

There are also two amendments affecting corporate governance. The first will permit EDC's board to delegate certain powers to subcommittees made up of directors with special expertise in a given area. EDC's board already employs such specialized committees, and this amendment makes statutory what is simply a common practice on well-run corporate boards.

The second governance amendment will confirm the board's powers to enact bylaws for the administration of the corporation's new pension plan. This plan took effect in April 2000 with all appropriate authorizations and is consistent with Treasury Board policy on pension plans for Crown corporations.

If we look at the original terms of references for the Gowling study, this was the first stage in the legislative review. You will see much emphasis on EDC's commercial operations and the degree to which these were satisfying the needs of Canadian exporters. In the course of the review, it became evident that the corporation was a well-run and much valued participant in Canada's export trade. Many of Gowling's recommendations were taken up by the House committee, which examined them in detail, while others were considered less relevant given EDC's strong export support performance. In some occasions, the principle of some recommendations was endorsed, even while the full recommendation was not accepted, as it was felt that the government should not jeopardize EDC's ability to serve Canadian exporters.

On the other hand, it was felt that EDC could do more to ensure and to demonstrate publicly that its activities were consistent with the social and environmental standards that Canadians would expect of an agency of their government. The main amendments proposed in Bill C-31 address this concern.

First, they establish a legal requirement for EDC to conduct environmental reviews of the projects it is asked to support. EDC already does this, but this amendment would make it a legal obligation. Second, the Auditor General would be required to conduct periodic examinations of EDC's environmental review framework. These expectations would occur at least once every five years and would be reported to Parliament. EDC has already undergone one such examination and is using the Auditor General's findings to help revise its current framework.

I might digress from my text to note that the current Minister of International Trade has been proactive on this point of ensuring the Auditor General's input on a regular basis, and I think that is a positive step.

The legal framework that Bill C-31 contemplates establishes a general environmental mandate, while leaving its detailed implementation to EDC's board of directors. It is the approach that is current in the case of one of our chief international competitors, the United States.

After analyzing a number of models, it is the approach that both the House committee and the Gowling report endorsed. The approach we have chosen is consistent with emerging practice in the international community and with our work on this issue in the OECD. It will provide a uniform process for EDC's projects and permit rapid adaptation to changing technical circumstances. The Auditor General's oversight will ensure that both its design and operation continue to be sound.

There were a number of recommendations that are not reflected in Bill C-31 but which the government and EDC have taken other means to address. These include, for example, EDC's corporate disclosure practices and its attention to human rights issues in the countries where it does business. EDC has recently developed an information disclosure policy that will provide information on its business activities, as well as the environmental and social impacts of its projects. On human rights questions, the Department of Foreign Affairs and International Trade is working with EDC to refine mechanisms for continuous information exchanges on human rights in specific countries.

There was one recommendation made by this committee with respect to the establishment of a guaranteed program for commercial banks. This recommendation has been the subject of intensive study by the government, though no legislative changes are being proposed at this time.

Following your recommendation, government officials have explored this possibility with Canadian and foreign banks, as well as international trade experts. Certain measures may be proposed that would address the gap in capacity that the committee had identified. Those would have to be done in a manner that does not disrupt EDC current programs. In due course, officials propose to take recommendations to their ministers on this important question.

Mr. Chairman, there is one other issue I should like to bring to your attention. It is not included in the printed remarks that have been distributed to you today, as it has just come to our attention.

An article in the press yesterday alleged that a section of this bill criminalizes free speech about EDC by creating penalties for unauthorized use of the corporation's name. With all respect to the author's view, this is a great misapprehension of the purpose of the clause. In fact, the clause is a standard provision in federal financial law. It targets fraudulent behaviour, hardly free speech. The Business Development Bank of Canada has a similar clause in its act, and there are similar clauses in several other acts.

Furthermore, as a criminal matter, enforcement of this section would rest with the Attorney General of Canada. Let me stress again this is purely an anti-fraud provision. It has nothing to do with limiting free debate of important public policies.

In bringing Bill C-31 to Parliament, the Minister of International Trade has taken a balanced approach to policy reform at EDC. On the one hand, this bill would leave significant responsibility in EDC's hands for the development of credible and effective environment and social policies; on the other hand, both government oversight and public accountability would be brought to bear on these policies through regular public consultation and the office of the Auditor General.

I thank you for your attention, and I would encourage all members of the Senate to support this proposed legislation.

The Chairman: I would ask you to introduce your colleagues, and then we will ask questions.

Mr. O'Brien: With me today is Marie-Lucie Morin, Martin Jensen and Peter Cameron.

Senator Oliver: You referred to the studies done by the House of Commons committee and by this committee, the Standing Senate Committee on Banking, Trade and Commerce. We did study the export development bank in considerable detail. We made recommendations, which were considered by the government along with the recommendations of the House of Commons.

This committee spent considerable time on some of the environmental concerns with which this bill does not seem to deal directly. We also spent a lot of time on what we call corporate governance, which is adverted to in this bill but not as clearly as perhaps some of us would like.

I would like to deal with corporate governance first. You said in your presentation that the detailed implementation would be left to EDC's board of directors, that is, that it contemplates establishing a general environmental mandate. One of the difficulties with this is that if you leave it only up to the board of directors, and it is not in any legislation or regulation, the board of directors can change its mind from day to day. One day there could be a certain policy, and the next day another one.

Who is protected? The board says that it is discharging its fiduciary obligations by having done what it was supposed to do. Where is the poor exporter and where is the poor Canadian?

My concern is that there should be something in the statute to make sure this happens because the poor Canadian cannot look it up under the Access to Information Act because you are not subject to that. This, in my opinion, is an incredible weakness in this piece of legislation, and I would like you to address it, please.

Mr. O'Brien: As you can imagine, I am not the technical expert on this bill. I am going to turn to Mr. Jensen.

Mr. Martin H. Jensen, Export Finance Officer, Export Financing Division, Department of Foreign Affairs and International Trade: Thank you for your question. It is true that this bill creates great discretion in the board of EDC, but that discretion is not discretion unfettered.

Senator Oliver: I think it is.

Mr. Jensen: It is unfettered in law, but not unfettered in fact. For instance, this bill includes the provision for regular, periodic and public review by the Auditor General of Canada in both the design and implementation of the bill. In May, earlier this year, included in the briefing book, the Auditor General completed a very a comprehensive audit.

Senator Oliver: I read it and analyzed it yesterday in my speech.

Mr. Jensen: I am trying to make the point that that is one important aspect of oversight. The bill establishes a five-year interval after EDC adopts a new framework for the Auditor General to return and conduct another such audit. In fact, my minister has asked the Auditor General to return within two years to conduct that audit.

What is the Auditor General going to do when he looks at the design and implementation? The Auditor General applied a number of criteria to EDC's design and implementation. The Auditor General derived those criteria from a study of other international financial institutions. There is a body of environmental assessment practice that includes rational procedures and generally accepted international standards. They are the basis for the criteria that the Auditor General will apply in future audits. We can reasonably expect that, because they did that in the past.

For consistency's sake, assuming they apply similar criteria, they are going to be bringing to bear in their public examination of EDC's practice the current state of environmental assessment practice for international financial institutions. That is a very real quality control on what EDC does, both in terms of design and implementation.

Senator Oliver: In terms of implementation, if EDC were to assist in a loan and the net effect of that were to cause serious environmental damage to that particular country, what protection do Canadians have? How would that be consistent with other environmental Canadian rules that Canadian companies must abide by? Why would EDC be the exception?

Mr. Jensen: They are not the exception. In fact, Canadian companies doing business outside of Canada, who are not under this regime because they are not using EDC services, will not be subject to EDC's framework. They may be subject to the host country's laws, and those laws may be good or bad. They may be enforced or not enforced.

We have to bear in mind that a very important parallel policy of EDC's new framework will be their disclosure policy, which will provide for notification and fairly detailed social and environmental reporting on its environmentally sensitive projects. Canadians will be informed so that they can make their own decisions.

Senator Oliver: Will there be any reports on environmental assessments to which Canadians would have access before EDC makes a commitment?

Mr. Jensen: EDC has proposed a disclosure policy that would provide, as proposed, a 45-day advance notice of such projects before approval. That is correct.

The Chairman: It is an interesting discussion, but I think we should make it clear that EDC does no business within the Canadian area. Everything they do is outside of Canada.

It is true that someone exporting any product is not dependent on EDC for money and is really only subject to the laws of the host country. We do not export our environmental laws for other people. The line of questioning suggests that we export our environmental standards to other countries. That may be a good idea, but I do not say it is good idea or a bad idea. Rather, it is only for a government agency and not for private exporters.

Senator Bolduc: Bonjour, Mr. O'Brien. Yesterday, Mr. O'Brien was a witness before the Foreign Affairs Committee. At that time, he was asking for discretionary power; today, I notice, not only is he asking for government discretionary power, he is asking for government corporation discretionary power. Mr. O'Brien, you are improving every day.

My question is for Mr. Jensen. You give discretion to the board for handling that type of environmental issue. Is that because you want to protect the powers of the Minister of Foreign Affairs for the purpose of trade negotiations where there might be accompanying environmental considerations? Is that done to protect the minister?

Mr. Jensen: Yes, it could have that effect, although we have not explicitly addressed that point in the analysis that led to the creation of this bill. However, it is true that Canada is, for instance, participating in the development of international environmental guidelines under the auspices of the OECD. The OECD is creating a framework agreement that will create a floor of standards and procedures. All the OECD export credit agencies, if that agreement comes into effect, will be expected to perform to the minimum established by that framework.

Some export credit agencies will go further. EDC will go beyond what the OECD agreement requires. The United States will do that, as well. The U.K. is currently revising its procedures, but they likely will go beyond those requirements. In fact, because of the work in the OECD and domestic political pressures in OECD countries, there is great progress in the multilateral realm. It is important that any export credit agency, including our own, for both technical and competitive reasons, be able to adjust its policies quickly and that it have the discretion to do so, without being bound by hard, statutory criteria that can actually take years to amend.

If that sounds unreasonable, I would point out that in the Canadian Environmental Assessment Act, we see more in the way of procedural standards what must be done to ensure that there are fair hearings and due consideration of the environmental factors; however, we do not see a hard prescription of environmental criteria.

In fact, there is a section in the act that states that the Minister of the Environment, by guidelines, may give assistance to people applying the act to help them determine what factors should be considered. They are not prescribed in the statute, so that there is flexibility.

Senator Banks: If statutes were limited to their titles, there would be a great deal of flexibility.

The question that you have raised about the environmental issue was raised to us by the Auditor General. I forget which section it is of the Financial Administration Act that provides that agencies of government are subject to a "special examination." Is EDC subject to such a special examination?

Mr. Jensen: Yes, EDC is.

Senator Banks: Beyond an audit in the normal sense of the word, if the Auditor General were to examine the questions of either governance or environmental responsibility, then the Auditor General would have access to the operations, practices and policies of EDC in order to make such a report; correct?

Mr. Jensen: I believe that is true, but I am not expert in special exams under the FAA. I do not know.

Senator Banks: Are you sure that your first answer is right - that the EDC is subject to special examinations?

Mr. Jensen: I am certain of that because I have seen summaries of them.

Senator Banks: There are two ways in which they can happen. They can happen by virtue of the government agency being excluded from the exclusions that exist under the FAA, in which case special examinations happen at the pleasure of the Auditor General and usually every three or four years. Alternatively, they can be invited, as they are from time to time by the Canada council, which is excluded from those organizations under the FAA that are subject to, on an automatic basis, special examinations. Sometimes, they invite them for their own purposes. Which category does EDC fall under? Does it invite special examinations? Is it subject to them at the pleasure of the Auditor General?

Mr. Jensen: I will answer to the best of my knowledge, which I believe to be true. EDC witnesses that follow will be able to give you a definite answer. However, I believe they are subject to a legal requirement that they have a special examination every five years.

Senator Banks: Following along the question of the chair, I will present a hypothetical situation: if I were a manufacturer in Canada and I required, or applied for and qualified for, assistance and financing from EDC, if I were exporting a good to a country that had the low end of environmental protection laws, and were manufacturing a product that conformed to those low end laws but which offended against Canada's laws, could I manufacture that good in Canada and export it?

Mr. Jensen: Yes, I believe that you are eligible to do that under the current law.

Senator Banks: We are not exporting our environmental laws. We could be, with public money, assisting in the export of something that might be dangerous.

Mr. O'Brien: Maybe I could jump in. I suppose what you said is correct. However, what we cannot do, and we resist attempts of other countries to do it to us, is impose our law on them, extraterritoriality. We have seen examples of Canadian corporations and executives who have been subject to laws very unreasonably by countries close to us. I do not think we would want to act in the same fashion.

Senator Banks: Absolutely not. The question is this: which way does the ramp go? I am wondering whether, theoretically, it would be possible for us to manufacture in Canada something that would offend Canada's laws and then export it.

Mr. Jensen: Perhaps I can come back to that question with a bit of assistance from my finance colleague. EDC's environmental review framework, the current and the proposed soon-to-be- revised one, targets projects in foreign countries. If you are talking about goods that may be hazardous wastes or armaments, such things are subject to the regime of export permits. I am not an expert in the export permits regime. That regime tends to control such things. However, the environmental framework under this proposed act, which the Export Development Corporation applies, really targets Canadian involvement in projects and is intended not to examine the character of a good itself but the character of the project to which goods and services are being supplied. It looks at a much larger set of considerations. It is possible that good Canadian products, which satisfy all Canadian laws, could be supported in supply of a project that was itself environmentally deleterious.

Senator Banks: If I am manufacturing electrical transformers, there is a constraint in Canada on my use of PCBs. Can I have one production line producing those things for use in Canada by Company A and another production line, also at Company A, producing things, which, on the outside, look exactly the same but on the inside have levels of PCBs that would not be permissible in Canada, which we are building here and exporting? Is that a true scenario?

Mr. Jensen: I have two answers, and you are really pressing the limits of my knowledge of the law. With respect to hazardous materials, I think you might come up hard against the export permits regime. I do not know that for a fact, but I think you might come up hard against it.

I would say, however, as a practical, realistic matter, Canadian-manufactured products tend to be designed to high standards and would not so offend.

Senator Oliver: Mr. O'Brien, you said earlier in your speech that the House of Commons and this Banking Committee did a study of EDC and, following that, the Government of Canada made a pronouncement and issued a statement on those two reports.

In dealing with the environmental assessment component of the House of Commons report, the Government of Canada said - and I am paraphrasing here - that, as a crown corporation, EDC is expected to reflect Canadian values on the environment and in its activities overseas.

That is the statement of public policy from the Government of Canada.

Mr. O'Brien: That is correct.

Senator Oliver: Therefore, if they are producing things that can do harm in Canada and that would be prohibited in Canada, it is not expected that EDC would finance a company that will be selling that product abroad. That is a statement of Canada's public policy in this regard. It is prohibited.

Mr. O'Brien: Thank you for that, Senator Oliver. We certainly like to think that in Canada the public would support the statement that you just quoted. It is clear that we would want to follow the accurate quotation that you just made.

Senator Fitzpatrick: I understand it is a legal requirement to conduct an environmental review. However, it does not have to be an independent review. Is that correct? Who is that review conducted by? Is it conducted by the corporation, or is it conducted by an independent consulting firm?

Mr. Jensen: As a general matter, it would be conducted by the corporation itself. It has a large engineering staff. It has specifically specialized environmental engineers, and it is my understanding - I do not know if there has been a press release on this - that it has recently hired an international authority. He is, I believe, a Canadian, but he is the dean of international environmental assessment studies. He co-authored the World Bank's book on environmental assessment in an international context. He was the co-author of the international study, which, I believe, will eventually be published, that the Auditor General used to derive the criteria that she applied in her audit of EDC's framework. We think EDC is going to be well-advised in these matters as a consequence.

Senator Fitzpatrick: By and large, even though the individuals may have high credentials, it is an in-house study, and if that report is negative, it can be overridden by the board of directors, according to this. The board of directors has discretion not to conform to it, and it can proceed to make a loan even in the light of a negative or unacceptable environmental report. Am I correct in that?

Mr. Jensen: That is correct as stated, but we would have to say what are the criteria for acceptability. Environmental assessment is not about determining whether there are any negative impacts, and, if there are, saying nothing can happen, because if that were the case, this city would not exist.

Senator Fitzpatrick: There is always mitigation. Then it is a question of whether the mitigation is acceptable. Further to that, what gives me some concern is that there is not necessarily full public disclosure on this. That also would be discretionary to the corporation or to the board of directors. Therefore, it does not seem to me that this is a transparent process.

Mr. Jensen: The proposed disclosure framework that would accompany and be integral to the operation of EDC's environmental review framework does provide for extensive disclosure on environmental aspects of projects supported by the corporation, including, in some cases, pre-disclosure for the most sensitive project.

Senator Fitzpatrick: Does it provide for the full disclosure of the report, which is done by the corporation in-house, or does it provide for the board of directors of the corporation to be making a report on the findings, which could be interpreted differently? I realize we have a wonderful board of directors on the Export Development Corporation, but that is a problem.

Mr. Jensen: In all honesty, I cannot answer your question, because that policy is not yet in place, and I would defer the question, if I might, to the officials from EDC who are here today.

Senator Fitzpatrick: What responsibility do the directors of the corporation have? If you are a director of a Canadian corporation doing business in Canada that does not meet very strict environmental requirements and criteria, that is one of the areas in which directors can be directly sued, and directors and officers liability insurance may not cover you. Is there a possibility that in a country where an installation was made with EDC providing the funding they can pierce the veil of the country and sue directors of EDC?

Mr. Jensen: I believe that to be true, but I am not an expert in these matters. I believe this is enforceable by action at law.

Senator Tkachuk: Senator Oliver stated that, as a Crown corporation, EDC is expected to reflect Canadian values on the environment in its activities overseas, but that is not necessarily so. As Senator Banks said, you can finance products that fit the environmental laws of the country that you are selling to but that may not meet environmental standards here in Canada.

Mr. Jensen: I said I thought that would be captured by the export permits regime in this country. We have quite stringent controls on hazardous wastes and materials, for instance - and I am not an expert in this area of law - if you are talking about the export of goods.

Senator Tkachuk: I differentiate between a Crown corporation that uses public money versus General Motors that may make an automobile here in Canada and put in seat belts because that is the law. However, if they are then sending automobiles to a country where seat belts are not required, they may take them off or not put them in. They are using private money, but, as they are also a public company, what they do is exposed much more than is a Crown corporation. With a public company, everything is audited; as well, there are things happening all the time that expose them. Their directors are exposed to lawsuits from other countries, as I recall happened to Firestone and to Ford.

However, you are a Crown corporation, so in actuality you could do that and we would never know. You say that you have audits and you have this and you have that, but you are a Crown corporation; you do not have shareholder meetings where Canadian citizens get together every year and question you. We have to do that. My point is this: EDC can do this, right?

Mr. O'Brien: I would respond this way. We hope that the Senate will pass the bill and it will become law. It is the government's feeling that EDC will be held to among the highest standards in the world in any comparable corporation that you would care to look at. Nevertheless, we are in a very competitive situation; we do not want to constrain EDC in such a way that would disadvantage it, disadvantage Canadian exporters and threaten Canadian jobs.

Having said that, the statement that Senator Oliver paraphrased was apropos: The expectation is extremely high, and in our society expectations are not only legal expectations but also political and public opinion expectations. The minister and the government feel that EDC will be more sensitized to that through this process. Many sets of eyes will be looking at how they perform, including the minister, the public and the government generally.

Senator Tkachuk: Mr. O'Brien, you mentioned the point that was raised in the National Post regarding the use of the name "EDC" by Richard Owens, who is going to be here later on. I want to ask your opinion.; I will ask EDC; and then I will follow-up with Probe.

The article says that Probe International, a respected non-profit organization dealing with Third World trade and foreign aid issues, has for 20 years been critical of EDC. It goes on to say that, in disseminating its policy writings, Probe puts EDC's name and logo on their Web site and, needless to say, Probe International was not using EDC's name or logo for commercial purposes but to draw attention to criticism of Canadian government policies in supporting EDC. However, they did get a letter from EDC's legal counsel requiring that it cease and desist from the use of EDC's trademarks, including the name "Export Development Corporation," an EDC-alleged trademark and copyright infringement.

You commented on it, so I assume that you know the situation - is this what happened?

Mr. O'Brien: I do not know the specifics of that situation because, as I said in my remarks, it only came to our attention yesterday. I was trying to clarify that this is in no way an attempt to limit free speech in our society. However, there is fraudulent behaviour that needs to be addressed. I would ask Mr. Jensen to speak to this as well.

Mr. Jensen: I did not see what was originally on the site but I understand - I am sure EDC can clarify this if I am wrong - that the corporate logo was in effect defaced. They asked Mr. Owens to take that off, and that was done. The Export Development Corporation's name is still on their Web site. It now has the word "Stop" superimposed over "EDC" - and there it sits to this day. There has not been further complaint.

Senator Tkachuk: Thank you.

The Chairman: Our next group of witnesses are from the Export Development Corporation. Mr. Siegel, please proceed.

[Translation]

Mr. Eric Siegel, Executive Vice-President, Medium and Long Term Financial Services, Export Development Corporation: Mr. Chairman, thank you for giving EDC this opportunity to appear before the Committee again. The review process launched over three and a half years ago is now coming to an end. You will recall that the last time EDC appeared before you was February 2000.

[English]

At that time, the committee noted the importance of the EDC continuing to strengthen its corporate social responsibility practices. Indeed, we have done that. EDC created one of the most comprehensive disclosure policies of any export credit agency worldwide. Public consultation is now the foundation for changing policy from the way in which we disclose information to the processes used for environmental assessments. EDC sought out eminent representatives from business, academia and non-governmental organizations to establish an advisory council.

This council, comprised of members from such well-respected organizations as Transparency International Canada, the United Nations Environmental Programme and the Canadian Chamber of Commerce will provide advice on best practices on all aspects of corporate social responsibility.

EDC prepares Canada's future through our Education and Youth Employment strategy - EYE, for short. We generate learning and employment opportunities for youth, and we have an established million-dollar scholarship fund for international business studies, all aimed to build a stronger export culture for Canada's future. EDC has taken a leadership role in the OECD negotiations with export credit agencies. On behalf of Canada, we are negotiating the establishment of common and stringer environmental practices internationally. This is critical so that Canadians compete on a level playing field.

EDC established an environmental review framework in 1999 and has recently been holding public consultations across Canada to strengthen that framework. With the assistance of Stratus, a recognized expert in environmental management, we intend to implement the strengthened environmental review framework in 2002. In 2000, EDC launched its environmental exporters initiatives, which expands the opportunities for a key Canadian sector of expertise - environmental technology and solutions.

In addition to corporate social responsibility, the committee also noted that while EDC plays an integral role it cannot do it alone. EDC took this sound advice and worked with banks and financial institutions across Canada to build cooperative initiatives that increase the financial capacity available to Canadian companies.

[Translation]

A full list of these successful arrangements has been provided to you. So, I will list but a handful to you now.

[English]

EDC insures the medium-term loans that Northstar Trade Finance Inc. makes to its SME customers. Northstar is owned by several Canadian banks, the Government of British Columbia and its founder. The London Guarantee-EDC accounts receivable insurance alliance provides comprehensive receivables insurance for both export and domestic transactions. The master accounts receivable guarantee provides small exporters with less than $10 million in sales with additional operating line financing from nine participating banks. Working capital risk-sharing guarantees with CIBC is a risk-sharing facility to provide working capital to SME exporters in knowledge-based industries.

In total, EDC has been leveraging annually some $4 to $5 billion in financing from both schedule 1 and schedule 2 banks. It has also provided core support valued at $10 million to these banks through various insurance and guaranteed programs. In addition, EDC does over $100 billion in business with banks in terms of its treasury operations.

[Translation]

EDC believes that this kind of partnership approach can continue to expand.

[English]

In broad strokes, the bill before you today includes the following proposed changes: It provides measures to ensure the environmental sustainability of EDC's practices; it provides EDC with the ability to strengthen its brand in the marketplace; and it makes some technical changes to the board's governance.

If I may just spend a minute on yesterday's National Post article that criticized a clause in the proposed legislation that provides trademark protection to EDC. This is a standard legal provision for financial institutions, such as banks and insurance companies. However, Crown financial institutions, such as EDC and BDC, are not subject to those same provisions. It is only logical that similar protection be provided under legislation to prohibit the fraudulent use of the name. EDC has no intention of stifling free speech by groups who wish to express opposition to EDC.

A case in point that has been referred to: A defaced EDC logo appeared on an organization's Web site, and we requested that it be removed. It was replaced, as you heard, with the letters EDC with a large red stamp mark with the word "stop" across it. EDC found the response acceptable.

Another case in point: The letterhead of an organization bearing the name "The EDC Working Group" created misunderstanding and confusion among our customers who were receiving such letters from the organization. Upon notification of our concerns, the group changed its name to "NGO Working Group on the Export Development Corporation," and we were satisfied.

EDC continues to work with these groups, and we have launched a series of initiatives designed to better demonstrate our commitment to encouraging an open dialogue and consultative process.

It is worth repeating that such provisions target fraud, not freedom of speech. In the unlikely event that legal action ever must be taken, as referred to earlier, it is the Attorney General of Canada who would be the authority responsible for pursuing such charges; it would not be EDC's responsibility to pursue the charges.

[Translation]

I will conclude by noting that today, EDC's mandate is more critical than ever. Canadian companies face not only an economic slowdown, but intensified political risks. EDC is committed to providing the trade finance and insurance that can keep trade alive and sustain jobs at home.

[English]

In a time of wavering business and consumer confidence, EDC's risk-management services are an essential tool available for companies of all sizes, especially small business. The review process, including this committee, confirmed the soundness of EDC's strategic direction, and with this sound direction we are taking action to meet the needs of all Canadian companies, not only through our services, but also through partnerships with Canadian banks and financial institutions.

Senator Oliver: Mr. Siegel was here when we questioned the previous witnesses, so I will not repeat those questions. I will read you five or six lines of a critique, after which I will ask you to comment on it. It relates to the issues of corporate governance of the Crown corporation: "The EDC's Board of Directors would have complete discretion to establish the contents of the environmental directive, including the definitions used, the criteria that EDC would apply when making a determination, and the exceptions that would remove the board's obligation to make an environmental determination in the first place. As a result, EDC itself can establish its own terms of reference, and the board of directors can exempt EDC from the requirement to make a determination with respect to any transaction."

In essence, the board of directors can make the rules and decide when it does not have to obey them.

Could you comment on that in terms of being an example of good principles of modern corporate governance?

Mr. Siegel: I would be pleased to, and I may call upon my colleague, Mr. Ross, to supplement my answer. The governance framework that EDC operates and understanding that framework are critical to establishing the confidence in the proposed regime.

First, it is important to understand that EDC is not creating an environmental review framework. We have one right now. We voluntarily introduced one in 1999.

Second, that framework has been reviewed by an independent party, who actually compared that framework to a number of institutions that are not just export credit agencies. We were compared to international financial institutions such as the World Bank, the IFC and the EBRD.

In the results of that review of the design of that framework, the Auditor General concluded that most of the elements are of a suitably designed framework. The Auditor General also said that it was a leadership framework, and EDC took a leadership position when they introduced that. At the same time, we understood that it was an evolutionary field and that we would have to revisit it, because there would be changes. The Auditor General identified certain changes in that respect.

What have we done since that time? We have since conducted a cross-Canada consultation. We have gone to over 300 interested entities, including NGOs, academia and business associates. We had over 70 participants in a series of cross-country consultations, and we took that framework, the Auditor General's report, the guidance that we received from the DFAIT, the OECD agreement, which is currently being discussed in draft in the international community, and put them all on the table and had a comprehensive discussion as to what should be in EDC's environmental review framework.

We have the results of that from an independent third party, Stratus, who are recognized experts in this particular field. All of that will be incorporated into the drafting of an environmental framework, or I should say, into revising our existing framework to reflect these concerns and any changes that have taken place.

In terms of governance, remember that at EDC, as a Crown corporation, the Board of Directors is appointed by the government. EDC is subject to the Financial Administration Act. It must file a corporate plan, and the government must approve that corporate plan so that EDC may continue operations from year to year. As well, you have already heard reference to the fact that the Auditor General, according to this legislation, will be required to revisit EDC's framework and to continue comments on the suitability of its application. While the requirement is every five years, they have already been invited by the minister to revisit in two years' time.

Finally, the suggested proposal is entirely consistent with the only other export credit agency that has a legal requirement to do that - the U.S. Ex-Im Bank, where their board is the party that sets the framework up by way of directive. Mr. Ross, is there anything you would like to add?

Mr. Gilles Ross, Senior Vice-President, Legal Services and Secretary, Export Development Corporation: Honourable senators, I would add the fact that, as was discussed earlier, the corporation is also subject to a special examination every five years by the Auditor General in addition to the audit of the environmental review framework, the ERF, as we call it. Clearly, that is a legal obligation. It is the strongest special examination by the office of the OAG.

Finally, under the Export Development Act, the Governor in Council can regulate the activities, or some of the activities, of the corporation by way of regulations. There is a strong kit of tools to control the corporation, both under our own act and under the Financial Administration Act.

Senator Oliver: Has the board set certain guidelines for environmental assessments - which are available now? You have a policy, I understand.

Mr. Siegel: Yes, we do.

Senator Oliver: Are there forms of directives? Are there details on how these directives will be drawn and tested? Are they available?

Mr. Siegel: We currently have a framework that was approved by our board of directors before we implemented. The current regime, under which we operate - while it is not a legal requirement, the board has, by way of policy, made it a requirement that EDC conduct environmental reviews when it is engaging in a project-related application of its services. We will now be moving, by way of directive, to a legal requirement.

The framework that exists right now is the policy, and they are the policy and processes that the Auditor General looked at when they determined the suitability of the design. As I said, they concluded favourably in that respect.

Senator Fitzpatrick: I wish to follow up on the question of the environmental review. EDC provides insurance and back-up financing. I assume that, primarily, in your environmental review, you would be relying upon the environmental review that the primary supplier would provide.

For example, if the review were of an installation of plant and equipment for a mine in Chile, the mining company would have to do an extensive environmental review. Presumably, you would review that to satisfy EDC that it is in compliance with the requirements of the country of installation and to satisfy yourself that, by providing this insurance, you would be in compliance, as well.

Is that a correct explanation of what you do?

Mr. Siegel: Yes, that is right. Perhaps to elaborate somewhat, obviously, our environmental review reserves the right for EDC to make the judgment, not for a foreign party to make the judgment, as to what is environmentally acceptable. If EDC is not satisfied, it does not matter whether it meets host country laws or host country practices. We reserve the right to make that judgment independently and to turn down transactions that we feel do not measure up to an acceptable standard.

For matters of efficiency, though, obviously, we turn first to the project sponsors, who are compelled to analyze that risk. We ask them to submit to us their environmental impact assessment. We use that as the starting point of the review, but it does not mean that we are limited to that. We can supplement in any way that we want, by our own analysis or by a third-party analysis.

The standard under which that is done is our choice. Projects often do not meet host country law and international benchmarks that are accepted - the World Bank standard, USAPA, Canadian standards, or a variety of those taken together. Mining would be an example. Sponsors do not benefit by undertaking transactions that have an arbitrarily low standard that will ultimately run them into problems.

The actual analysis itself will be based on a standard that is considered appropriate and achievable against the backdrop and the type of project, et cetera. That is all that EDC takes into account.

Senator Fitzpatrick: I believe you were present when the last witnesses made their presentations. I asked them this question: Do you carry out an independent review? They said: No, this is not a review; it is in-house. Going back to that mine, presumably, if the primary supplier or contractor is doing the installation, they would need to have an independent review in many jurisdictions.

Mr. Siegel: In many situations where we are lending, we are often not the sole lender, but rather we are lending with a group of banks. It is a condition of the banks that an independent party review and advise the banks on the environmental assessment that has been done by the project sponsor themselves. Then we do our own analysis. We reserve the right to do our own analysis obviously for efficiency. We do not want to do unnecessary duplication and we reserve the right, where appropriate, to bring in an independent party on our behalf, as well.

That applies not just to the initial assessment but to the ongoing monitoring of the project on a going-forward basis. Typically with these projects, the lender will have the benefit of an independent, environmentally knowledgeable consultant who will help to monitor the project to ensure that mitigants and standards are being maintained, as they were contemplated in the design.

Senator Fitzpatrick: Is it correct to say that, in most cases, there will be a layered environmental review process - the operator, the bank and then EDC - to satisfy that those reviews are sufficient? That could be done either in-house or by an independent group, if you had some concern.

Mr. Siegel: That is correct. Another thing is that, obviously, the extent of the analysis will be reflective of the potential for environmental risk or environmental damage. You do not want a one-size-fits-all, where large projects that have higher potential for environmental damage are getting one level of assessment and the same level of assessment is being used for things that are relatively benign.

In the consultations that we have run across the country, there has been strong support amongst business, academia and NGOs to the extent that you should focus your analysis where the risks are most severe, and try not to have a process that is top heavy, if you will. It would only prove to be a cumbersome and competitive disadvantage for companies, and not necessary.

Senator Fitzpatrick: I asked the previous witnesses a question with respect to the liability of the directors under your loan support arrangement and the concern that would be needed. I realize, this is a Crown corporation, that there may be differences with respect to a non-Crown corporation. However, could you give me your opinion with respect to the vulnerability of a board member.

Mr. Ross: That is somewhat difficult to address without a specific factual scenario. However, assuming that the corporation were to finance or support a project that would cause harm to the environment in a foreign country, and it were demonstrated that the corporation knew or ought to have known that the project would have such effects, and assuming the corporation was the only lender in the deal, there are some grounds for the corporation to be liable itself. It is not because EDC is a Crown corporation that it would not be exposed to legal suits in foreign countries. It is not immune from suit in foreign countries, necessarily. Depending on the factual scenario, the board of EDC could be liable as well, depending on the level of participation in the decision-making process, depending on the extent of due diligence that was carried on. In certain scenarios, it is not impossible that that happen.

Senator Angus: The article - and I gather this has been the subject of some questions - that appeared in yesterday's National Post, at page FP-15, which, as far as I can determine, is the brief that the next witness has prepared for this committee, is a fine example of getting the best bang for your buck. You had an opportunity to refute it in your opening statement. I think that is fair ball.

With respect to the witness from Probe International, I do not think you have had an opportunity to refute what Ms Adams will say. Perhaps I could ask you a few questions about that and give you the opportunity, by way of anticipation.

We understand, for example, that Probe International does not like you too much. I say that advisedly, having in my most rudimentary way gone to the Internet to see who they are. On their logo on the Internet, they have a big "stop" across the word EDC. They say that you are evil and that you must be stopped, that you are doing terrible things and making mistakes, that you cover up and you doom other Canadian agencies.

It is quite a lot of rhetoric. What is the story on this? What have you done to them?

Mr. Siegel: I certainly hope we have not done anything to Probe International.

Last year, on behalf of Canadian business, we were in over 200 counties, and this year we will conduct business in about 165 countries worldwide. Many of those countries are developing countries. They are evolving. They are in need of development capital in order to grow. There is considerable international literature and research that shows that the faster countries are able to grow their GDP, the better they are at alleviating poverty, reducing mortality rates and improving education and the general well-being of their citizenry. Canadian companies are at the forefront of helping to make those investments in those countries and helping that development take place.

At the same time, some of those countries struggle with human rights issues. In their evolution, they struggle with antiquated industries that are today not operating at the same standard as we operate in this country or in North America or in Europe. However, they are in need of that kind of development in order to raise their standards, evolve and get up to a higher level.

There is no question that we, as many financial institutions who are part of arranging that development capital, are engaged in projects that can create controversy.

Senator Angus: I do not wish to interrupt your answer, but notwithstanding my introduction, is the issue not one of transparency? Is it not the thrust of the Probe position that you folks are, in their words, doing too much in secret, and you are now trying to legislate yourself some exemption from the Access to Information Act and so forth? I am trying to get to the nub of that concern.

Mr. Siegel: Thank you for zeroing in on that. I would like to make a couple of comments, and then I would invite Ms Grover-LeBlanc to comment.

Senator Angus: It is an important criticism, and I expect you might have a good answer.

Mr. Siegel: This is an area where EDC is termed "secretive," and that allegation is interesting when you consider the disclosure of information that EDC operates under and the augmentation that it has made to its disclosure practices and continues to make over that.

First off, as a Crown corporation, we must file annual reports that speak in great detail as to what we are doing, where we are doing it, our exposures by country, by industry, et cetera. We have been cited by the Auditor General for excellence in that reporting, not once, but actually four times in the last seven years and nominated in each of the other years.

EDC has also been augmenting its disclosure practices. We introduced, effective October 1 of this year, after considerable consultation with, again, interested parties outside, a new disclosure policy. That disclosure policy augments the data that we put out about all of our operations, insurance and financing, where we are doing it, the type of sectoral concentrations. With respect to our financing programs, it now has EDC listing each and every financial transaction that it is engaged in. If we are providing political risk in respect of a loan or equity financing, we list those transactions and basic details about those transactions: the exporter, the country, the project and the range or amount of our participation. Therefore, the public can actually see where EDC is engaging with its services around the world. We do that as we sign a transaction.

In addition, with respect to highly sensitive environmental projects, EDC has committed to insisting that sponsors of those projects release their environmental impact assessment study in advance of EDC making a decision and that they release it publicly so that interested parties can express to the corporation any concerns and views that they have.

In addition, we have introduced some positions of compliance within the organization, to allow the interested parties to go to someone within EDC when they have a concern with respect to disclosure of information or whether their concerns are being addressed.

We have also engaged in a host of consultations at regular meetings with stakeholders like Probe where we create a venue to discuss projects and concerns. It is in that regard, and perhaps the advisory board, that Ms Grover-LeBlanc could respond as well.

Ms Mary Grover-LeBlanc, Vice-President, Corporate Reputation and External Relations Export Development Corporation (EDC): We at EDC have done a great deal lot of work in the past few years in corporate social responsibility. One of the key elements is to engage stakeholders such as NGOs. We have hired a corporate social responsibility adviser, whose key role is to liase with the NGOs - Probe International being one - sometimes on a daily basis and to answer any of the questions they might have. The adviser will meet with them on a regular basis if they have concerns about a particular project and link them up with our environmental engineers to go through the due diligence of the process in which we applied and reviewed these projects.

We are open and transparent in that fashion. We are meeting with a group of them tomorrow to talk about what we are doing in the area of supporting environmental technologies. We have been very transparent in how we deal with the NGOs.

There is a fine balance. There is confidential information in certain transactions that anyone would not want to have disclosed in dealing with financial institutions.

Senator Angus: What you have been doing all seems good stuff. It has been an evolution of disclosure and transparency. In the light of what you have both said, why do you need this broad exemption from the Access to Information Act, which does have, as you know, provisions in it that enable government agencies to hold back certain secret stuff?

Ms Grover-LeBlanc: The Access to Information Act would not actually provide the kind of information they would be looking for. It would actually white out or black out any of the information on the transactions. Our disclosure policy, which is the most comprehensive of all export credit agencies, goes far beyond what can be accessed through the Access to Information Act. There is certainly a leadership role and a willingness on the part of the EDC to move forward and disclose more information than you could ever access through Access to Information.

Senator Angus: So you do not mind if that exemption was taken out.

Mr. Siegel: No, we would mind very much. The corporation was exempted from the Access to Information Act for the very good reason that it deals with commercially confidential information. Parties dealing with the corporation must have the confidence that the information they are submitting will be treated in that regard.

The important thing here is timeliness. NGOs are looking for information on a timely basis so that they can influence it. The disclosure policy is designed to get that information out at a time when they can use that information to educate themselves and to comment.

The Access to Information Act is not the vehicle that would help the NGOs in getting timely information with which to influence or to provide comment on individual transactions. One of the NGOs expressed that very view during the consultation sessions and in the hearings before the Commons committee.

Senator Angus: Have you had problems heretofore in your dealings with commercially sensitive information on behalf of the clients, if you will, because of the then application of the act?

Mr. Ross: We have problems in the sense that, whenever we are requesting information from foreign parties to evaluate their projects or their transactions, they require that we enter into very comprehensive confidentiality agreements. The corporation was exempt from the application of ATI when it was introduced in the early 1980s because of the concern that foreign parties would be reluctant to provide the corporation with the information. We believe that that concern is still there today and is even greater as a result of privatization, for instance, in foreign countries.

Infrastructure projects are now built by the private sector, not by foreign governments. For the corporation to participate in these projects by way of financing, it must participate to join syndications of financing where our purpose is to attract Canadian supply by our financing. We must convince not only the sponsors but also the foreign banks, to provide to us the information.

While they would recognize that there are exceptions to disclosure under the act, their concern would be that if those exceptions were applied they would have to come to Canada and actually enter the jurisdiction and defend their information, which is a hurdle that they do not have to cross if they are dealing with an American bank.

Senator Angus: Do you have other Crown agencies that have exemptions of the type you are seeking here?

Mr. Ross: Yes, there are other Crown corporations.

Senator Angus: For similar reasons?

Mr. Ross: I cannot speak for other Crown corporations, but they do have similar reasons, I believe, yes.

Senator Angus: On the issue that was covered in Mr. Reid's article in the National Post, you said that it is standard and that we must have the protection of our name against fraudulent use and so on. As a member of various corporate organizations around the country, it struck me that they do not have statutory protection. However, there is the general law of the land with trademark and copyright protection against the fraudulent or other improper use of your name or your intellectual property. What do you say to that? Do you not have normal injunctive relief of that kind anyway?

Mr. Ross: Yes, we do. That provision was not designed for EDC. That is a standard provision in the Bank Act and in the Insurance Companies Act of Canada, which do not apply to EDC because we are neither a bank nor a regulated insurance company. We are subject to the Export Development Act. Therefore, the only vehicle to extend the provisions in question to EDC or to another Crown corporation such as the BDC, for instance, is to incorporate it in its own legislation.

Senator Angus: Mr. Siegel, you said in your opening that this is getting toward the end of the review process. We have had the hearings here on the Gowling report. I am wondering if this proposed legislation flows from that review and from the recommendations made in the Gowling report or is this based on some new proposals?

Mr. Siegel: No, this flows directly from that, the remaining recommendations of the Gowling report, which require amendment of the EDC Act.

Senator Angus: You mentioned the company Northstar, which I have read something about recently, and you talked about several shareholder banks and its founder. Who was its founder?

Mr. Siegel: Its founder is a man by the name of Scott Shepherd, a former employee of EDC who went out and developed this idea himself. He and his shareholders, who are the banks and the Government of British Columbia, have established a financing institution that focuses on doing relatively small loans - on average in the area of $3 million, sometimes up to $5 million - in foreign countries.

The partnership that EDC has is that we stand behind in insuring those loans. They take a portion of the risk; we take a large portion of the risk on the basis of your our insurance. We are not an owner of that facility. They own it. They pursue it as their own separate name. As such, they are bringing additional capacity into the market by marketing themselves as Northstar, but EDC stands behind in helping them with the risk absorption issues.

Senator Angus: Is that credit insurance, that element?

Mr. Siegel: That is credit insurance.

Senator Angus: Would that fall under the rubric of export credit insurance?

Mr. Siegel: Yes, it is export credit insurance.

Senator Angus: One of the things we have discussed in the past is your approach as export credit insurers, in that you are allegedly in direct competition with the private sector. I am told - it is only an allegation made to me, unsubstantiated - that your activities as export credit insurers have prevented there from growing up in Canada a private market in that field. Is there truth in that?

Mr. Siegel: I would say to the contrary. First, as has been demonstrated by third-party evidence at the time of the last hearings, EDC does not compete on price. In fact, in many cases EDC is more expensive than some of the other private sector export credit insurance offerings in the market. EDC's service, however, is what has been an important component.

Second, EDC insures a broad spectrum of exporters. We are not just insuring a small number of large exporters; we are insuring a large customer base, 90 per cent of which are small and medium-sized exporters. In many cases, they are not attractive to the private sector because they are not big enough and the risk return equation is not an acceptable one.

We invited and welcomed private participation into the market because export credit insurance has tended to be utilized at a lower rate than in Europe, for example. It is a valuable tool. There is a requirement for more than one player in the market, and we coexist.

There was a concern at the time of the last hearings: Should EDC be involved in domestic insurance, which we had the right to offer to clients who were exporters, such that they would have one-stop shopping, if you will? We entered into an alliance with London Guarantee. We are not the writer of that insurance any longer; the private sector is the writer of that insurance. In our view, we are not supplanting or crowding out insurers, but we are providing valuable, consistent coverage. We are pleased that there are other insurers in the market and that we are not the only option available to Canadian business.

Senator Tkachuk: To follow up on the issue of disclosure and some of the environmental issues, I have a concern with the government's policy and the response of EDC to the House of Commons report on the EDC. In that report you said: "As a Crown corporation, the EDC is expected to reflect Canadian values on the environment in its activities overseas. The government, therefore, will take immediate action to involve the office of the Auditor General."

I am sure you are familiar with the rest of that statement. Would the Three Gorges Dam in China be an exception, or did it meet the standards of the Government of Canada?

Mr. Siegel: We are respecting the values. We agree with that statement. As I indicated earlier in my responses to some of the questions about the environmental analysis, we do not subject ourselves strictly to the host country's standards that we face when we support exporters abroad. We employ standards and benchmarks that we believe are internationally accepted and appropriate for the project in question.

There is no question that a hydroelectric project - any hydroelectric project - whether it be the Three Gorges Dam or our facilities here in Canada, will have a significant environmental impact. They also have significant benefits associated with them. The important aspect is the mitigants and standards being applied to ensure that those impacts are not, at the end of the day, adverse in a significant way and unjustified.

Our willingness to support the Three Gorges Dam project, or any other project of that nature, would be based on an analysis of that first, and then we would reach a conclusion that, at the end of the day, the risks are being appropriately mitigated and that the benefits far outweigh any residual risk that may exist as a result, from an environmental or social perspective.

Senator Tkachuk: The answer is yes.

Mr. Siegel: Yes, that is correct.

Senator Tkachuk: In respect of the environmental impact assessments, throughout the testimony from EDC and from departmental officials, we have heard that everything is wonderful and that you comply with everything and everyone - the House of Commons, the Senate, and the Auditor General.

When you do an environmental assessment, why do you have a voluntary disclosure? Why do you not just make it mandatory? That would eliminate much of the criticism and many of the problems, and we would not be asking these questions. If you have nothing to fear, then why is that not mandatory?

Mr. Siegel: We have already commented on that, and I will not repeat the fact that these are commercial projects, in many cases, and they are subject to commercial confidentiality agreements that exist amongst sponsors and lenders. There are certain restrictions in EDC's ability to just make information available. That said, as I indicated, our disclosure policy actually deals directly for projects that have the potential for significant adverse environmental impact, and for sponsors, EDC insisting that sponsors make that information available publicly before we take the decision on support.

We are encouraging the party that owns the information to make that information available and consult. One essential component of an environmental impact assessment itself, for which the components are set out in our current environmental review framework and would be embodied in any subsequent environmental review framework, is consultation with the affected parties. In effect, the appropriate party is making that information public, so that affected parties can understand and can provide their comments and influence in respect of the final decision being taken. EDC knowing all of that before it makes its review is very much a part of our practice.

Senator Tkachuk: If the public feels that the EDC is violating its disclosure policy, what recourse do we have?

Mr. Siegel: I will let Mr. Ross speak to the legal ramifications as we adopt the legal requirements. There are options available to the public, many of which worry exporters deeply.

Mr. Ross: The new VRF, the so-called directive that is required by legislation, directed us to be established by the board. If the corporation does not follow that directive, as required, then its decisions will be subject to judicial review. In other words, if the corporation fails to follow the directive that the board will implement and pass pursuant to the new provision, any decisions that would be made in the application of that directive would be open to ...

Senator Tkachuk: I understand what happens if the board makes a decision and you do not follow that decision. My point is, what if the board does not make a decision? If I feel that it is violating this disclosure policy, what recourse do I have, as a citizen? Do I have any resource at all, or none whatsoever? How would I know?

Mr. Siegel: The board's decision does not apply only to transactions approved by the board. It applies to all transactions that the corporation approves, whether by the board or by way of delegated authority, that relate to that directive. If it is project activity the EDC is engaged in, it sets out a legal requirement for EDC to respect that. Otherwise, it is operating outside the powers of its act, or it can be alleged that it is operating outside the powers of its act.

Mr. Ross: With our disclosure policy, whereby we will disclose the activities of the corporation as they are entered into in relation to financing, which was your question, the public will know what activity and what transactions the corporation has concluded. It will be open to the public to ask, by virtue of the fact that we will be disclosing the transactions that are being entered into, in the cases of financing, political risk insurance of loans as indicated, or equity financing.

The Chairman: I would now ask Ms Adams, Ms Revil and Mr. Owen to come forward.

Please proceed, Ms Adams.

Ms Patricia Adams, Executive Director, Probe International: Honourable senators, it is my pleasure to appear before this committee on Bill C- 31, an important bill before you.

In my written submission to you, I have explained in detail our grave concerns about Bill C-31, which would amend the law governing the Export Development Corporation. I will briefly review those concerns now, and I would be pleased to discuss them later in question period.

Probe International, the organization I represent, has investigated the environmental, financial and social consequences of EDC's activities for 20 years. We have 20,000 supporters from across the country who are concerned about EDC's long history of financing damaging projects, including nuclear technology to military hot spots in Pakistan and India, mines that dump cyanide into rivers and hydro dams that destroy fertile valleys in poor countries and force millions of people off their land.

Bill C-31 will not stop EDC from financing these dreadful, damaging projects in the future. Bill C-31 establishes in law an environmental review procedure in which EDC is entirely in charge of the environmental and legal goal posts. It will be subject to no standards except those it chooses. It can choose different ones on different days. It can even choose to exempt itself entirely from conducting an environmental review of a project. Bill C-31 will allow EDC to write the rules, establish the criteria, define the terms, assess itself and then decide whether it is justified in supporting a project that will destroy the environment.

The effect of this, according to Parliament's own legislative summary, is to give EDC's board complete, unlimited freedom to make any decision that would be virtually immune from judicial review.

This process of applying infinitely adjustable standards is known as benchmarking. It has been roundly condemned by environmental groups from other OECD countries as nothing more than a public relations exercise that misleads taxpayers and legislators into believing the environment will be protected, when, in fact, it will be business as usual.

The second major flaw with Bill C-31 is that it fails to subject EDC to the Access to Information Act. During the review of the Export Development Act that has culminated with Bill C-31, the government has heard from over 140,000 Canadians who have demanded that EDC be subject to the Access to Information Act. The Access to Information Act is a good law. It is not always evenly applied. It is often under threat from the government of the day, but it is one of the most important democratic tools the citizenry in this country has to define and obtain what it wants to know about government activities rather than the other way around.

Without it, public oversight of EDC's activity is handicapped, allowing this Crown corporation that operates on Her Majesty's credit card to escape effective accountability.

To placate public demands that EDC be subject to the Access to Information Act, EDC has offered up a wholly inadequate substitute, its new disclosure policy. Just as Bill C-31 creates a toothless exercise in environmental review that is designed for public relations, EDC's new disclosure policy is similarly designed to convince the public that EDC will be more transparent while it largely maintains the status quo.

If you read EDC's new disclosure policy carefully, you will see that EDC and its corporate beneficiaries will continue to determine what the public sees, not the other way around.

If the public is dissatisfied with EDC's disclosure practices, it will have no access and no recourse to judicial review.

The failure to subject EDC to the Access to Information Act will allow EDC to continue to hide its mistakes. It will also provoke distrust among the Canadian public, our trading partners and bodies that govern international trading regimes, such as the OECD and the WTO.

These two major flaws in Bill C-31 severely limit public oversight of EDC, creating an environment for cronyism, corruption, and a recklessness that leads to unacceptable environmental, financial and social costs.

Clause 24.2 of Bill C-31 threatens even more public oversight. This clause could silence public debate about EDC altogether. As written, clause 24.2 could prohibit any public mention of the Export Development Corporation's name in writing, in speech, in any circumstance that could be characterized as a business circumstance or advertisement, unless written permission has been obtained from EDC. The penalty for doing so would be a fine of up to $10,000, six months imprisonment, or both.

The potential for this egregious infringement of free speech is real. In July of this year, before Bill C-31 was introduced, EDC warned Probe International to stop identifying this Crown corporation on its Web site by its name and its logo "to avoid the costs associated with litigation."

This draconian provision reflects a disturbing intolerance from EDC for critical public debate of its operations. EDC has told us that, when time is short, it will first answer the questions of NGOs that it considers to be reputable and put those questions from NGOs it considers not to be reputable or objective on the back burner.

In another example, EDC invited public comment on its draft disclosure policy last summer and stated that it would post submissions on its Web site. Yet it refused to post Probe International's critical review, saying that it contained "inaccuracies or unsubstantiated statements."

When I pressed EDC to substantiate its accusations, it could not.

EDC seems to think it can act as the thought police. Bill C-31 would give it that power. As written, we could not communicate with the public or even with our supporters, without threat of fine or imprisonment. Our Parliament must remind EDC that it is an agent of the Crown, that it has created some $90 billion in liabilities for taxpayers, and that it cannot silence its critics.

We urge the Standing Senate Committee on Banking, Trade and Commerce, at a minimum, to strike clause 24(2) from Bill C-31. We also urge the committee to amend the bill to ensure that, as long as EDC exists, it is subject to effective and thorough public oversight.

[Translation]

Ms Emilie Revil, Coordinator, NGO Working Group on the Export Development Corporation, Halifax Initiative: Mr. Chairman, thank you for inviting me to appear today to present our views on this bill.

[English]

I represent the NGO Working Group on the Export Development Corporation. The NGO Working Group has been working on this file for three years. I must say, unfortunately, that we are deeply disappointed with this bill. Our case studies of EDC-supported projects detail the kinds of impacts this institution can have on people's lives, on the environment, on our international commitments and on our reputation abroad if it operates without proper regulation.

Not only does Bill C-31 fail to provide appropriate checks and balances, or much needed direction, it proposes to reinforce, in law, a status quo that is highly problematic. Over 140,000 Canadians have written to the government, up to a few months ago, to express dismay over the status quo. Pages of newsprint have been dedicated to the failures of EDC as a public institution. Yet, Bill C-31 is silent in all areas of public interest, with the exception of the environment. Basically, it merely states that the EDC can decide what it will do.

Bill C-31 legislates the process of autonomy that EDC already enjoys today. It puts in law the kinds of loopholes that, if used, will put to shame Canadian standards for environmental assessment. No other government-owned institution that we know of has the legislative power to define its own environmental assessment process, which Bill C-31 gives the EDC.

The majority of public institutions in this country are regulated under the Canadian Environmental Assessment Act. Bill C-31 not only allows EDC's board of directors to define the environmental assessment process, it allows them to exempt its own activities from the environmental assessment process, and it allows them to go ahead with a project, even if the environmental assessment process indicates serious adverse impacts.

These loopholes have been clearly exposed in the summary and analysis of the bill on the government's Web site. The delegation of decision-making authority to the board of directors of EDC with no limits or criteria to this delegation is "unusual."

Bill C-31 gives control to EDC, although EDC has failed to show itself capable of steering itself in the public interest. EDC's current environmental framework was widely criticized by Gowling, Strathy and Henderson, by the House of Commons Standing Committee on Foreign Affairs and International Trade in its report "Canada and the Future of the World Trade Organization," 1999, and most recently criticism has come from the Auditor General's office.

In its response to the SCFAIT report in December 1999, the government asked the Auditor General to review the current environmental review that EDC developed on its own. Of no surprise to anyone who has read EDC's environmental review framework or learned of some investment that EDC has made after the ERF was adopted by the board, the Auditor General's office found it lacking and poorly implemented in 92 per cent of the cases they reviewed.

EDC's environmental framework will be finalized this spring, because they are currently working on improving the one they have. How can Parliament decide that the environmental framework will be satisfactory if it does not require EDC, in law, to adopt good practice and that it has not finalized yet?

Bill C-31 asks the Auditor General to review the EDC's implementation of its own directive every five years. What resource does the public have when EDC gets a failing grade? What recourse does the public have to hold EDC accountable, when it exempts itself from an environmental process or when it approves a project that has known, serious, adverse environmental impacts?

This bill should lay out criteria that it expects EDC to follow, criteria such as the following: all transactions with potential or known significant adverse impacts must undergo an environmental assessment; all environmental assessments or transactions with known significant adverse impacts must include the consultation of locally affected populations; and information collected on impacts, through an assessment process, must be made public at least 60 days before the transaction's approval by the board of directors.

The bill must address this pre-approval disclosure. It has not been put into the disclosure policy yet and it will be finalized only when the ERF is finalized, this spring.

EDC's board must be required to review all transactions with known or potential severe impacts. This last criterion is important because few of EDC's transactions are actually approved by the board of directors, as EDC has recently taken a decision that transactions of less than $25 million can be approved solely at management's discretion. Also, note that the World Bank board of directors approves all transactions and that the U.S. Ex-Im Bank approves all projects greater than $10 million.

Bill C-31 empowers EDC's board of directors to develop its own policies on areas of public interest. The government should not abdicate its responsibilities to a board of a commercial public organization, to ensure that EDC acts in the public interest. The government must define and direct EDC in these areas. Bill C-31 fails to set out the parameters within which EDC can operate to achieve its commercial objectives.

The NGO Working Group advocates that the EDC should be brought under the Canadian Environmental Assessment Act. The inclusion of a clause in Bill C-31 that reinforces EDC's current exemption from CEAA ties the hands of policymakers. CEAA does not need to be amended to bring EDC under it. However, the act would need to be amended if the government decided to apply CEAA, as one hopes it would by example, after such an appalling review by the Auditor General's office.

There is a case to be made that EDC's Canada Account should fall under the "projects outside Canada" regulation under CEAA. This case is being made in the courts right now, but Bill C-31 might pre-empt this court decision with the inclusion of this clause.

Turning to the subject of human rights, Bill C-31 does not strengthen EDC's respect of Canadian international commitments and obligations, which was suggested by SCFAIT and the Gowling report. EDC's purpose in clause 10 must be changed to include consistency with Canada's international obligations. I have made more specific recommendations in a letter that I sent to the members of this committee.

In 1995, then Minister of Industry, Trade and Commerce, Mr. John Manley, made a commitment before this committee that Crown corporations such as the Business Development Bank and private business banks would be required to disclose information about where their money goes. Under Bill C-8, the Financial Consumer Agency of Canada Act, there is the requirement for private banks to disclose information; however, nothing has been done since then to require the same disclosure from Crown corporations, and this bill does not help repair this weakness.

Mr. Richard C. Owen: Honourable senators, good evening, it is a pleasure to be here.

While I am delighted to appear with these distinguished panel members, I do not represent them, nor am I affiliated with their groups. I appear purely on my own behalf.

I am an intellectual property lawyer. I was in practice for many years. Until quite recently, in fact, I was the chairman of the intellectual property department of one of Canada's largest law firms, and then I ducked out. I have now taken a position as Executive Director for the Centre of Innovation Law and Policy at the University of Toronto. I am here as an academic.

You have my submission, which is not quite the same as the article I wrote yesterday. I will speak to clause 24.2 of the bill. I should be fairly brief, my academic leanings notwithstanding.

This clause is broad. It covers matters normally dealt with by trademark law. It criminalizes speech bluntly and, as such, to whatever extent it does or may not do that deserves the greatest scrutiny. It is too broad and too unclear to survive such scrutiny. It is unnecessary. It covers matters that are dealt with in competition law, trademark and copyright law, passing off and other torts. We have a panoply of laws that have been evolved by the courts to deal with the use of trademarks and the use of corporate names. We do not need another one. This one only makes matters worse.

Those trademark laws that are sufficient to protect the interests of every other business in their trademarks are held in a careful equilibrium balance with a right to speech by the courts. There are innumerable decisions that exemplify those trends. With this discriminatory provision, that equilibrium is upset. Why should we discriminate in favour of one Crown corporation carrying on its business and not grant the same thing to non Crown-owned corporations?

This discrimination is especially problematic with trademarks. It is even more problematic with corporate names. Names are useful. Journalists have a need for using names to describe the actions of an entity. Even if there is a Crown interest in restricting use of a name - and, frankly, if there is one, it is not clear to me what it is - there is a stronger contrary interest in respect of a Crown corporation that individuals be free without even the slightest perception of risk to discuss and, indeed, criticize in whatever terms they consider appropriate the policies of the government as expressed through that Crown corporation.

Much has been made of the intent of that provision before this committee today. I cannot tell what it is. The intent is far from clear, and I am just a poor lawyer, ultimately. I do not get to know the intent. We have to deal with the words. Even the judges who may one day decide a case based on this provision cannot intuit the intent. Intent is only obvious to the extent that it is clearly expressed in the words of a statute.

My criticism here today has nothing to do with the good or bad intentions of the Export Development Corporation. I do not know a great deal about it and I do not carry a brief for or against it. My concerns are formalist. I am here because I would like to think that I can make a contribution to prevent a bad law from being passed and maybe save myself some trouble dealing with it in the future.

As I say, we deal only with words. We need to know how to apply those words. The provisions of clause 24.2 put a practising lawyer in a situation where, for instance, were a client required to disclose in a prospectus that it had acquired EDC financing, making that disclosure without the consent of EDC would be criminalized. Leaving aside for the moment that that is probably an unacceptable interference in provincial securities laws, is it reasonable to put corporations in this dilemma of having to break one law in order to obey another? Similarly, communications about investor relations or, indeed, the activities of NGOs can be perceived to be affected by this provision.

I want to briefly address in closing the objections that have been raised to my criticisms of the bill. Frankly, I do not think that they are telling. The first of these is that the clause is intended to deal only with fraud. There are three points with respect to that. It does not say that. It says nothing about fraud. It merely says that you cannot use the name in a wide array of prescribed circumstances without consent. I have looked; there are not that many words. I think I would have seen the word "fraud." It is not there. Indeed, if it deals with fraud, why do we need it? The last time I checked, the laws dealing with fraud, both civil and criminal, had not been repealed. Let us not pass redundant laws.

Finally, if the intention is to restrict fraudulent behaviour, that is an in rem kind of defence. In other words, it is not the kind of problem that we would get at by denying consent to indulge in it. It is an oddly constructed statute to get at fraudulent behaviour.

It has been suggested that this is a standard provision of financial services legislation. That is absolutely not so. I know those bills. I have appeared before this committee as a representative of members of the financial services industry in the past, participating in the evolution of financial services laws. I know those statutes. There is one act, and that relates to the Business Development Corporation. That is the only one that my researchers and I have been able to find that actually includes a similar provision. I realized from that that the mistake of passing this clause could be made, and it lent some urgency to my coming up here.

In terms of the other bills, for example the Bank Act, the analogous provisions, frankly, are not. One cannot in business describe oneself as a bank. That is true. There are good reasons for that because the privilege of being a bank is one that has a certain standing in society. It is one in which one's obligations are backed up by FDIC insurance, for instance. It represents certain things to the community of consumers, but it is not a law that says you cannot call yourself a bank. It is a law that says you shall not refer to the Canadian Imperial Bank of Commerce or the Bank of Nova Scotia for any business purpose or in an advertisement. That is a gross extension of the law relating to those institutions. It is not clear why EDC should benefit, if it is a benefit from it.

It may be that if that is the closest analogy we can find, it exemplifies the drafting problem we have. How this provision made the transition, took the long road from "cannot call yourself a bank" to "cannot use EDC without consent" may be an interesting story, but it is one that should be nipped in the bud.

To return to the other criticism, which is that I misapprehend the intent, I may very well. I simply cannot intuit the intent perfectly. I must deal with the words. The way this provision is stated is not consonant with the stated intent of the provision. If the intention is fraud, we need different words to embody that intention.

Statutes are about drawing bright lines, making clear statements of government policy for the citizens. Those laws are hard enough. A law this vague is hard enough for someone who has the benefit of high-priced legal talent like me to deal with it. Surely, we are writing laws for the citizens who at least need to get some rudimentary understanding of how their liberty can be taken from them and who may not have the benefit or even know that they need to retain intellectual property counsel for its interpretation.

In closing, my brief is not for or against EDC. It is with the actions of the legislators in this case who are proposing to inflict on us a provision that we are much better off without.

The Chairman: Senators, I will limit questions to 15 minutes, if you agree, and give notice to the senators here that at tomorrow's meeting we will go clause by clause.

Senator Angus: First, I wish to commend all three of you on the panel for what I feel was a constructive and articulate criticism of some proposed public policy measures. This is what we need in this town, especially these days when this type of alternative approach is quite lacking. Therefore, I feel it is great that you are here.

First, in your case, Mr. Owens, I was struck when you characterized yourself as a poor lawyer, and then toward the end of your remarks you said "high priced legal talent like myself," but I suppose these things are part of being a lawyer.

Mr. Owens: I cannot afford to sell myself cheap.

Senator Angus: Ms Adams, I read your material with interest. As I mentioned earlier, we had access to some of your information on the Web site. I was struck by the near virulence of your negativism versus the EDC. I wish to pursue that. On your Web site, you have the word "stop" superimposed over "EDC," and you have used some strong language, as I suggested earlier. I must get to this, because it is more than just a moderate thing. You have an axe to grind with an organization that, at least on its face, is a government agency that is in place to fill a void and to assist Canadian exporters do business internationally. You are criticizing certain things.

There are other organizations out there, such as banks, that you are not holding to the same test - whether it is the CIBC, the Scotiabank, the Royal Bank, BMO and so forth. Can you help me with that? I tend to be sympathetic to the points that you are all making, but you are going so strongly at it that I must wonder.

Ms Adams: First of all, this issue is not one between Probe International and EDC, although I know it seems that way today because of Mr. Owens' article and because we are here. The issue is one of public accountability of a large Crown corporation that has business operations of $45 billion a year.

We are not so concerned about private banks for this reason: we generally find in our work that the private sector does a good job of internalizing environmental costs. If you went to the private bank and asked them to finance a nuclear reactor in China, they would not touch the deal. They will not touch it for very good reasons: it is not economic; it is a dangerous project; it is a long-term project; it came close to bankrupting Ontario Hydro. There is no debate any more that nuclear power is not economic. That is one example.

We have also found, because we have monitored hydro dams for 20 years, that the private sector will not finance large hydro dams. The only institutions that will do so now are export credit agencies like EDC, and to a lesser extent the World Bank and other multilateral development banks.

We do not find that the private banks are as bad as the public banks. The private banks become involved when they can transfer the risk to taxpayers - in other words, when they can receive support from EDC. That is the only time that we find the private banks becoming involved in these environmentally damaging projects. That really is a short answer to that part of your question.

Why are we filled with so much passion about this issue? The reason is that we see the consequences. We work now with citizens' groups and individuals in China who, for example, have been arrested because they tried to go to Beijing with evidence of corruption associated with the Three Gorges Dam. Thousands of peasants are not being given their due compensation, because of this corruption, with funds being siphoned off by local bureaucrats. When they went to Beijing to try to make their case to higher officials, they were arrested and thrown in jail. They have been there since March, and as far as we know they have not been sentenced yet.

What did they do? What was their crime? They documented corruption and they tried to get compensation that was their due. These are people who have lost their farms, homes, temples and communities. The devastation in the case of Three Gorges is wide: approximately 2 million people will be displaced by this hydro dam, with some 250,000 to 300,000 people to be moved over the next year. It is the largest forced resettlement in the world. It will be chaos.

Having said that, let me go back to something Mr. Siegel said, which is that they can only justify these projects when there are benefits. The problem with export credit agencies and certainly with EDC is that the cost-benefit calculations are secret. Eventually the truth comes to the surface.

What we now know about Three Gorges is that the power from Three Gorges will be two to three times more expensive than the power from the competition in China - high-efficiency gas turbines, co-generation and so on. Three Gorges power is simply not competitive.

The other main reason for the Three Gorges project was to prevent floods. There is correspondence at the highest level between officials in the Chongqing environment department and one of the fellows who is actually responsible for designing the project, in which he says: "We now know that the flood control benefits are not there. They are not what we predicted, but we must never let the public know this." We received this correspondence from some very brave Chinese citizen who sent it. We translated it and put it up onto an Internet news service that we publish in Chinese and English.

The last benefit of Three Gorges was supposed to be navigation. However, in the last year, one of the mechanisms for moving these massive ships up the Yangtze, called the ship lift, has been quietly abandoned. Why? Because it was so experimental that it was never feasible from the beginning.

When institutions are not accountable through Access to Information and so on, what tends to happen is that they will do these self-serving assessments in which they will come to a conclusion that they want to come to. Only with public scrutiny and with a firm, legally enforceable environmental review procedure that discloses all of this information and forces accountability can you actually expose these problems before they happen. That is why we have so many dangerous projects.

The Chairman: Could you keep your answers a little shorter please.

Ms Adams: Sorry, it is the concern about these issues. Let me mention another very important example that I gave in my brief to you - that is, the Chamera dam on India's Ravi River. This was the largest joint finance loan from CIDA and EDC in the 1980s.

We used the Access to Information Act and managed to get documents recently through CIDA. We had heard that there were technical problems with the dam. We received close to 2,000 pages. We went through them carefully. We discovered that an independent engineering monitor who had been hired by CIDA was reviewing the progress of the project and had determined that at one point it became so unsafe that it recommended that all local and national officials in India be informed immediately to avert the potential loss of life of citizens downstream. In this particular case, I think they were suggesting that there should at least be an evacuation order in place.

We were only able to obtain that information because CIDA was subject to the Access to Information Act. Unfortunately, CIDA and EDC were supposed to fund another dam 30 kilometres upstream of this particular dam. However, CIDA backed out and now EDC is the only institution that is financing this other dam. The area has much geological instability in it. Given what happened with the first dam, there is a very clear reason to be concerned about the stability of these dams. The public will not know in the case of the second dam, because we will have no right to get this information from EDC. That is why we care.

Senator Angus: I understand that.

Your focus is the environment and human rights in other countries; is that right? I do not think you challenge the EDC generally. Do you think there is a good reason to have an EDC in Canada?

Ms Adams: No, I do challenge that. I do not think that there is a legitimate public policy purpose for EDC to exist.

Senator Angus: I would disagree, but we have the right to disagree with each other.

Ms Adams: Right.

Senator Angus: There are many businesses in Canada that have been able to operate in the international sphere because of the facilitation of EDC government to government that little companies cannot do on their own. I am trying to help you find a balance, but the EDC is not on your good list and therefore anything is bad.

Ms Adams: I do not accept that. I think that if a project is good enough to be financed by the private sector, then it will be; if it is not good enough to be financed by the private sector, then it probably should not be, because the private sector does a pretty good job of internalizing economic and environmental costs.

Senator Angus: I understand. Thank you.

Senator Tkachuk: My colleague stated that Probe International was quite virulent in some of its writings on EDC, and I just want to quote from one of their documents on the Three Gorges dam. It reads:

While I realize the building of this dam would provide Canada with substantial business opportunities, is it worth the cost? The dam will impoverish and dislocate millions of people, it will spread debilitating diseases such as malaria and schistosomiasis, endanger rare species such as the Chinese river dolphin and the Siberian crane, ruin a magnificent canyon, and in the end may not even fulfill its main objective of providing hydroelectricity for China.

The interesting thing is that letter was written in 1989 by then member of Parliament for the Liberal Party, Christine Stewart, criticizing the Mulroney government for the Three Gorges dam.

Some Hon. Senators: Oh, oh.

Senator Tkachuk: I have not found anything in the information that I have gone through on Probe International that is anywhere near as virulent as Ms Christine Stewart. I wanted to read that into the record.

The Chairman: This meeting is adjourned. Thank you very much.

The committee adjourned.