Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 9 - Evidence
OTTAWA, Wednesday, February 26, 2003
The Standing Senate Committee on Foreign Affairs met this day at 3:48 p.m. to examine and report on the Canada- United States of America trade relationship and on the Canada-Mexico trade relationship.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: I should like to introduce our three witnesses. We have Mr. Armand de Mestral, Mr. Richard Ouellet and Mr. Steven Shrybman. This is one of our legal meetings.
We are continuing our study on the Canada-U.S. trade relationship and on the Canada-Mexico trade relationship with particular emphasis on the disputes between us. The committee spent last week in Vancouver, Calgary and Winnipeg listening to an extensive list of witnesses who gave us much information.
We are delighted that you could come here today to speak to us. If you could give us a brief summary of what you would like to say, then we will have time for questions. My experience has been that the questions can be quite extensive.
[Translation]
We will begin with Professor de Mestral, followed by Professor Ouellet and then Mr. Shrybman.
Mr. Armand de Mestral, Professor, Faculty of Law, McGill University, as an individual: You have a text in English but if I may, I would like to make my remarks in French.
By way of background, I would like to say that my interest is in the general field of international trade. I have served on a WTO panel and have also been involved in a number of cases relating to various chapters of NAFTA. I have been following the evolution of NAFTA since the first negotiations began. I am a professor in European Community law at McGill University, something that might give me another outlook on what one might call international economic integration law.
My main theme relates to the fact that NAFTA is a successful and very complex agreement. It is the most complex free trade agreement in the world, but it appears to be running out of steam. There seems to be no follow-up. We do not quite know where this agreement is heading. I feel it is imperative that it evolve and develop further. But it is difficult to see how the agreement, as it now stands, can indeed evolve.
That, for the most part, is due to the very nature of a free trade agreement. Such an agreement is a type of very complex contract signed by three States, Mexico, the United States and Canada. It is a very detailed contract that was determined over time with no mechanisms to ensure its survival and evolution. There is no real institution to effect changes. And unless the three ministers — or one of the three — takes the matter to heart, NAFTA may very well remain as it is today, an excellent agreement but nothing more. And it will eventually become somewhat outdated. I think it needs a little sprucing up.
However, if we want to revisit NAFTA, it is clear that we will be faced with a number of the constraints that were present in 1984 when the first free trade agreement with the United States had already been signed, followed by NAFTA in 1994. For various reasons, the three governments did not seek to establish a customs, monetary or economic union. These constraints are most probably political in nature. I believe that there would be excellent reasons for establishing some type of customs union. But I am starting from the perhaps regrettable principle that it would be extremely difficult to have a customs union, much less an economic one. We must accept these limitations, one of them being, no doubt, related to the fact that one of the three States is reluctant to accept the idea of a supranational institution with legislative powers binding upon all three nations.
In the text, on pages 2, 3 and 4, there are a certain number of proposals to progressively and pragmatically change NAFTA. I am starting from the principle that NAFTA will be maintained in its present form with progressive changes made to only a certain number of areas.
My long term objective would be to create an awareness of a North American economic environment. I believe that is one of the great shortcomings of the present NAFTA. We continue to have three separate States, three broadly distinct regulatory jurisdictions and, in the long term, it seems to me that we will need one big North American market. We have to develop an awareness of that market. In doing so, we will have to reset our sights since free trade is essentially intended to deal with barriers to the trade in goods and services — and to a certain point, capital — for the most part leaving aside any human criterion.
It is very easy for those who criticize NAFTA to say that this is an agreement intended to facilitate the trade of commodities. Economic interests are well represented, but that is not quite the case when it comes to human interests.
I am not suggesting that we adopt the European model, but if we look at what has been done over the past 40 years in Europe, it is clear that European citizens understand that their interests are being served. Europeans enjoy great freedom as consumers and the Community protects their interests when it comes to benefiting from the environment. The Community takes a direct interest in protecting their environment, and so on.
Any proposal or attempt to change NAFTA should seek to create a greater awareness of its citizens, consumers, and should demonstrate that they are truly involved in this effort, and that the idea of creating a North-American economic space would be beneficial to everyone, and not simply limited to economic interests.
Time does not permit me to go into any great detail, but I have given you an inventory in the document. I would simply like to raise one fundamental point. I do not think we can suggest that supranational institutions be created. If there is some way of strengthening certain existing institutions, I would go along with that, whether it be the NAFTA Commission itself or other commissions dealing with the environment and the work. I do not believe that supranational institutions would ever be acceptable.
There is perhaps once institution that has been accepted and is respected throughout the world, that enjoys a certain level of moral authority, and that is the courts. I believe that one way to move NAFTA forward would be to take certain chapters, particularly chapter 3 — but there could be others as well — and give the chapter a direct effect. Citizens and companies would be allowed to invoke the provisions of chapter 3 amongst themselves or against their government, as is being done now within the European community where it has proven to be an extremely powerful weapon. The European court and national tribunals dealing with community law have done a great deal to strengthen and implement the rules for the free trade in goods, services, persons and capital.
This is being done individually, progressively before the courts, through individual decisions. We could suggest that as a means to be used in North America in order to give new life to NAFTA and make it more relevant for North- American citizens.
I will not go any further, but, in my document, there are 22 concrete proposals that relate to what I have just said. This could be done with NAFTA as it now stands by adopting a protocol that would amend some of its features.
Mr. Richard Ouellet, Assistant Professor, Faculty of Law, Laval University, as an individual: I am not as experienced as my two colleagues. However, I would like to express my views to the committee as they relate to the studies that I have undertaken as well as the research that I am doing now on NAFTA and the World Trade Organization.
I have two general comments to make after which I will deal more specifically with NAFTA. My first comment deals with NAFTA's dispute resolution mechanism.
You are aware that NAFTA, unlike many other international agreements for economic integration, does not include any supranational institutions. When NAFTA was signed, the parties were expecting the accord to evolve, and on that score I agree with the remarks made by Professor de Mestral. The interpretation given to the agreement could be done through various types of dispute settlement models within the agreement. The settlement of differences between Canada and the United States has attracted a great deal of attention over the past few years. Many Canadians have paid more attention to the disputes and have lost sight of the benefits. Canada's economy derives enormous benefits from this agreement and, unfortunately, public perception does not really do justice to what NAFTA really means for our country.
Along with Professor Bernier, an associate professor at Laval University, who to a certain extent has influenced my way of seeing these issues, I conducted a number of interviews in Geneva dealing with dispute settlement within the context of the World Trade Organization. It became obvious that there were some strong trends in dispute settlement when it came to international economic law.
Through these interviews, it quickly became obvious that we are now in a new era of economic dispute settlement.
The consultation process for dispute settlement that is found in almost all of the text has lost a great deal of its effect. Canadian, American and European representatives whom we had the opportunity to meet along with those who work within the WTO have stated that bilateral, State-to-State negotiations, outside the scope of memorandums of understanding, outside the actual agreements, are becoming more and more commonplace. It is within the context of negotiations and discussion that an attempt is made to settle the issues. Once the dispute resolution process is underway, the consultations provided for in the terms of the agreements become less effective and rarely achieve the desired results.
There is a new generation of litigation because the implementation of decisions made by special groups, through arbitration, generally speaking, are creating more and more problems. It has become quite common to require two or four stages before the States, the parties involved in a dispute, agree amongst themselves or through a report from a special group to implement the decisions that have been rendered.
I can give you examples that have directly affected Canada's economy; you are no doubt aware of the Canada/ Brazil, Bombardier/Embraer litigation, relating to civil aircraft, milk, periodicals, softwood lumber, and various other appeals that speak volumes about this type of dispute.
These disputes evolved somewhat differently than was anticipated, because the implementation is given a much greater importance. Once again, political pressures have taken on a greater importance than that which had been anticipated when the dispute settlement texts were first drafted.
Since today we have an American administration that is not particularly concerned with tensions, Canada must be at the forefront of any dispute settlement mechanism that will allow for a smoother resolution of these disputes with the least amount of political friction.
Another prime example involves binational groups that were created through NAFTA to review or re-examine decisions made under chapter 19 by national bodies. These groups, according to a study undertaken by someone from Canada's trade tribunal, have demonstrated that three quarters of the decisions made by Canadian bodies and reviewed by binational groups pursuant to chapter 19 are confirmed. That is not the case for decisions made by American organizations where two out of three such decisions are quashed.
There is also a problem with the implementation of decisions made under chapter 19.
Canada must therefore ensure that its dispute resolution mechanism will allow us to continue to smooth over any difficulties that arise with our neighbours to the south, and to refocus attention towards the benefits derived from NAFTA rather than emphasizing the problems. Canada must continue to promote a standard and proper application of the dispute settlement instruments while working towards an evolution of the agreement, whether it be through the free trade zone of the Americas or a review of NAFTA. We must certainly seek to facilitate many aspects of the dispute resolution process.
I have a second general comment on the services market. Canada has recently reaffirmed, through the World Trade Organization, the fact that it did not intend to make any specific commitments relating to access to social services, health care and public education. This was the subject of much debate within Canadian society and the Government of Canada seems to have taken a very firm stand on the issue.
Canada is tightening up the access to its service markets through two different mechanisms within NAFTA and the WTO.
In NAFTA, this is done through exceptions, and I refer to those in the schedules as well as to chapters 11, 12 and 14. These exceptions exclude this type of service from the application of a number of NAFTA provisions.
With the WTO, the lack of any specific undertaking means that many provisions would not apply to the whole of these services in Canada. The means to protect health care and public education, exceptions in NAFTA and the absence of specific commitments within the WTO will not necessarily lead to a mechanism involving a legal interpretation. We are in a context where, both within the FTAA as well as the WTO multilateral plan, specific commitments made by various signatories are being reviewed.
Canada is pursuing very different legal mechanisms in order to achieve more or less the same result. We are beginning negotiations that are fraught with meaning and broad in scope, and the interpretations given to these two mechanisms must be reconciled so that a single implementation will apply to Canada.
I would suggest that Canada be very careful in pursuing these two routes in order to seek the same type of protection. I believe it can promote a certain vision relating to limits placed on commitments for access to certain markets. That has already been done since Canada was a key participant in creating the Cairns Group for agriculture to defend certain interests as they related to individual economies. Canada is also a promoter of the protection of cultural diversity. Without putting an end to the negotiations, we will have to ensure that a certain level of protection exists, that there is some integration and cohesiveness in opening up the market to services for which Canadians are seeking some type of balance between free trade and the supply of public services.
I have some technical comments to make on the operation of NAFTA. I believe that the Free Trade Commission, even though its mandate is not very broad, could be put to better use. For example, it is responsible for a very healthy interpretation of certain provisions of chapter 11. In my opinion, this commission should play a greater role and intervene more often in interpreting some provisions of the agreement.
Finally, I have one last comment on NAFTA committee 2022 which is examining the settlement of private disputes. I was amazed to learn that this committee functions on a purely voluntary basis. Two of my friends sit on the committee to represent Canada and they must pay their own expenses to attend the meetings.
When the committee meets in Mexico, for example, they must ask their employer for time off and then pay out of their own pockets for their travel and accommodation. I think that type of committee could be much more active, but the parties do not seem to have given it too much thought. Those are all of the comments that I had prepared.
[English]
Mr. Steven Shrybman, Lawyer, Sack Goldblatt Mitchell, as an individual: I am a law partner in the firm Sack Goldblatt Mitchell, which basically is a labour law firm based in Toronto. Prior to joining the firm three years ago, I spent 20 years working in an NGO community as a lawyer for the Canadian Environmental Law Association and then as executive director of the West Coast Environmental Law Association. I have been working on trade issues from an environmental policy perspective since 1988.
My practice has broadened since entering private practice. Among other activities, I have prepared legal opinions for governments, for public institutions, for the Canadian Library Association, for governments in British Columbia and Manitoba, for trade unions, and for civil society organizations. I drafted a convention on cultural diversity for something called the International Network on Cultural Diversity. That network is working in parallel with a significant initiative spearheaded by the Department of Canadian Heritage to establish a new international agreement preserving the capacity of nation-states to pursue policies of cultural diversity, notwithstanding the challenges presented by the agreements of the World Trade Organization and other international trade agreements.
I have represented the postal workers and the Council of Canadians who have sought standing before an international tribunal convened to hear a challenge by United Parcel Services of America, UPS, concerning the activities of Canada Post, and concerning Canadian policy related to postal services in this country. We brought an application on behalf of those same two groups in the Superior Court of Ontario challenging the constitutionality of the investor-state suit provisions of NAFTA which we believe improperly delegate the authority of Canadian superior courts, preserved by our Constitution, to those courts by section 96 of the Constitution Act.
As part of a group organized under the auspices of the Canadian Centre for Policy Alternatives, we prepared an opinion for the Romanow commission concerning the impacts of globalization on Canadian health care policy and law.
I am no fan of trade liberalization. I do not think that NAFTA has served the interests of this country well. I believe that is true economically. I am not an economist, but I certainly believe that is true with respect to the robustness of our democratic institutions, the integrity of our Constitution and the capacity of governments to respond to the needs of Canadians not only today but tomorrow. I believe that many of the claims to the effect that NAFTA has been a great success do not bear up under any real scrutiny.
I was out of the country last week. I only yesterday understood that I might have the opportunity to appear before you today. Therefore, I do not have any formal written submissions for you. There are three issues that I would like to raise.
First, in the review that we conducted for Mr. Romanow, it was our opinion that the reservation that Canada had declared for social services that provide a bulwark against the application of free trade disciplines to Canadian health policy would not prove to be effective if it was tested. A similar opinion was expressed by Mr. John Johnson, a lawyer who practises in the international trade law sphere. Mr. Johnson might be more credibility on the subject than those of us who are critics of the free trade agenda because he was very much a part of the negotiating process that led to the agreements and still continues to do quite a bit of work for the federal government.
Notwithstanding those concerns, and the very different view of the reservation that Canada has declared under Annex 2 that has been expressed by the United States, in tabling proposals for the free trade of the Americas initiative Canada has not sought to strengthen that safeguard. Many of us feel that is problematic and I want to raise the question with you.
Second, I gather you have heard quite a bit about chapter 11 and the investor state suit mechanism of the agreement and do not need to hear from me.
The Chairman: We have not heard a great deal about chapter 11. We have heard a bit. We have a lot of information but do not assume that we have heard a lot about chapter 11, because that is not correct.
Mr. Shrybman: I do not have the time to get into the details with you, but I would be happy to discuss the cases. As I indicated, we are involved in one of them. We made submissions to the federal government after a panel ruled against Canada in a case brought by SD Meyers that it was important for Canada to bring an appeal or to seek judicial review of that decision in the Canadian courts. It has subsequently sought to do so. Representing Greenpeace Canada, the Sierra Club of Canada, and the Council of Canadians, we sought standing in those proceedings and were denied by the Federal Court trial division. We appealed but we failed in the Court of Appeal. We sought leave to appeal before the Supreme Court of Canada and were denied there as well. We were unhappy with that result.
The case involves, as you may know, a challenge to actions taken by Environment Canada that the department claims — and we believe properly so — were necessary and mandated by the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal. Nevertheless, those actions were successfully impugned by a United States investor seeking — somewhat surprisingly — access to Canadian PCB waste.
I mention that case because one of the concerns that civil society often expresses about these regimes is their lack of transparency and their lack of access to non-corporate interests. This is another case where even when the issue is raised before a Canadian court, it is very difficult for groups with a clear demonstrable commitment to the issues addressed in the case to have their voices heard.
A similar thing happened when we tried to intervene in this claim by UPS against Canada concerning postal services. The implications of that case are extremely important because they would apply equally to other areas of public service, including health care and water service delivery. UPS argues that it should have access public service infrastructure to be able to compete on a level playing field with a public monopoly provider. This argument could be made by a U.S. health care service corporation with respect to public health care service infrastructure such as hospitals.
The case I mentioned in passing is a challenge to the investor state suit mechanism. Under our constitutional arrangements, we believe that when corporations have a complaint with public policy and law established or promulgated by Canadian governments that arises outside of any commercial context or relationship with that corporation, those disputes have historically — and properly should still — be resolved by Canadian courts, not by international tribunals which can operate entirely free from any judicial supervision or oversight by a Canadian court. We filed that case two years ago. We are still in the process of gathering the evidence and we need to support it but we expect that we will have accomplished that part of the process within a month or so and may be going to a hearing before the superior court this fall.
You have material from me on my final point, by way of submissions we made to the National Energy Board. This is a smorgasbord of NATFA issues. In proceedings that took place last summer having to do with the export of natural gas from Maritime Canada to the United States, at first instance, an application by the Province of New Brunswick seeking greater transparency about the export approval process. The second instance concerns an application by a subsidiary of Duke Energy, one of the big U.S. transrnationals, wanting to increase its capacity in the United States.
The issue there for New Brunswick was that it believed that many of its industries and many of its consumers were being shut out of the market for Nova Scotia and offshore gas. They simply were not being given an opportunity to even bid before export commitments were made to U.S. markets. The legal issue that I want to raise with you, and which I deal with in some length in my brief on behalf of the Communications Energy and Paperworkers Union of Canada to the National Energy Board, concerns the way in which export approvals are now being given and granted by the National Energy Board.
Under the National Energy Board Act, before an export licence can be issued by the board with respect to natural gas, it must be satisfied that the gas being exported is surplus to reasonably foreseeable Canadian needs, notwithstanding NAFTA requirements with respect to energy exports. That public interest safeguard, however, does not apply when short-term export permits are issued. Where the permit is issued for a period of less than two years, even though it may be for an unlimited quantity of natural gas, the board need have no regard to Canadian needs.
The interesting situation that has arisen is this: Most Canadian natural gas flows to the United States pursuant to short-term export permits. In fact, from Maritime Canada, 90 per cent of all gas flows pursuant to those short-term permits. The problem arises when one acknowledges that there is a real question about whether or not those permits are actually short term or whether they give rise to ongoing entitlement. That is precisely the claim that the Canadian Association of Petroleum Producers and other industry interveners in those proceedings, take. Under the rubric of offering short-term approvals, ongoing entitlement to Canadian natural gas exports is being accorded U.S. consumers without any regard to Canadian needs. We believe that the practice of the National Energy Board is actually ultra vires their enabling statute.
This practise raises serious concerns, not only for the energy security of Canada but also in light of the commitments that Canada has undertaken under Kyoto for the economic viability of regions of the country that are not serviced by natural gas. A number of the pulp and paper mills in which my clients work in Maritime Canada are in that difficult situation. Meeting New Brunswick's obligations to reduce its greenhouse gas emissions — and we do not know how that will be allocated province-to-province — will be much more difficult if the province does not have access to this fuel of choice with respect to reducing greenhouse gas emissions.
Thank you for being tolerant in allowing me to go through such a diversity of issues. Those are my submissions to the committee.
Senator Austin: I would first like to look at a premise that our first two witnesses, Professor de Mestral and Professor Ouellet, used in introducing their presentations. That is that NAFTA has been a success.
I am not arguing with the premise one way or the other, but I wonder if you have anything quantifiable to support the statement that NAFTA has been a success. One has to compare our trade advantages since NAFTA with the quantitative barriers that existed before. One has look at the impact of the Canadian currency in trading with the United States dollar, and remove that from the NAFTA benefit equation. Do you have any comments to make on that currency equation, or anything specific on the benefit issue?
My second question relates to benefits to be gained by improving the NAFTA agreement. I understood Professor de Mestral to say clearly that it would be very difficult to change the existing NAFTA agreement. I am sure Professor Ouellette would agree. However, some other side arrangements might be possible. I wonder, with our trade with the United States already at 86 per cent, whether there are any measures that we should be taking to improve that trade, or whether there really would be a very high cost compared to the incremental benefit. These are non-legal questions, but both of you are experienced in the way in which NAFTA works.
My third question has to do with that day on which some tribunal awards Canada the right of retaliation against the United States, and whether you think, in practical terms, there is any utility to the theoretical right to retaliate against the United States in our trade relationship. Do we really have any sanctions that are practical?
I would like to ask those three questions of the first two witnesses, and say to Mr. Shrybman that I found his presentation very interesting but I am allowed only a short amount of time to pursue my questions.
Mr. de Mestral: I am a professor of law, not of economics, but I will give your questions a try. If one analyzes NAFTA in its own terms — that it set out to reduce a certain number of barriers, particularly tariff barriers, to trade — it has worked very well. Industry came forward on both sides of the border and asked for it to be done faster. We have also seen in the service area a number of barriers being removed. It seems to me that if one examines NAFTA in its own terms, it has been working to that extent.
My concern is where we go next. It seems to me that one can say that those are the benefits; that that is what was attempted and that is what has been achieved. With regard to the question of going further, that we have gone so far and we need not go any further, I look at the European Community, where immense efforts have been made to give individuals and companies the equivalent of a constitutional right to move their goods across borders. Individuals can move across borders and set up shop, set up their professional activity. Capital can move. People can move.
It seems to me that situation has released a great deal of energy and new economic opportunity, which, in the aggregate, is beneficial. I think the same can be said for NAFTA. We look at movement of trade in goods, but that may not be the whole story. There are large areas where barriers still remain. Compared with Europe, immense barriers remain. I am not sure it is fair to say that because we have 85 per cent, there is nothing more we need to do.
The Chairman: To be fair, I do not think Senator Austin said that. I think what he meant to say is that there would be diminishing returns with the cost of going higher than 85 per cent or 86 per cent. He did not say we could not go to 100 per cent, but what would be the cost of going further than we are?
Senator Austin: Yes, thank you.
Mr. de Mestral: The cost would be to the advantage of those who wish to move — move themselves or move their goods.
Senator Austin: Are you arguing for a customs union?
Mr. de Mestral: Yes, I said that. As for your last question, we have seen interstate retaliation at WTO and at NAFTA. People think it is a good thing, but in fact, it is a disaster. Once you get it, it is awful. It does not get you where you want to go. It is curious that outside the trade field, people look at trade law and say, ``This is marvellous. If only we could have these kinds of sanctions, our law would be strong, too.'' As you suggest, when you get to the sanction, you really do not want it because you are shooting yourself as well as the other side.
We do not need a binational panel to say, ``Okay, Canada, now you can take sanctions against the United States.'' We need some court to tell the American softwood coalition, ``It is over. Stop it. Let the goods move from Canada.'' Talk to the private parties and, if necessary, the government that is backing up the private parties, and let the courts rule and let them settle it. That is how it has been working in the European Union. That works in a much less political fashion. Those interested are directly confronted on their own merits and they do not bring their governments and their peoples behind them. It is much less politicized.
Senator Austin: Would you argue that Canada and the United States should concede some measure of trade sovereignty to a quasi-judicial process of some kind?
Mr. de Mestral: Yes. European experience suggests you need institutions to move that forward. I assume we are not in a position to adopt the European model. However, for certain purposes in certain areas, there might be a room to give a much bigger role to the courts to make certain decisions. I think they could do it effectively and their decisions would be accepted.
The Chairman: Mr. Ouellet, would you like to respond?
Mr. Ouellet: I have three brief answers to those three relevant questions. First, regarding the benefits that we have gained from NAFTA already, I am not an economist, either. I could give you a very political answer to that question.
With the American administration and Congress that we now know, without NAFTA we would not be protected from any current running through Congress. For instance, they have so many measures to protect the American economy. With NAFTA, we have some sort of minimum entrance to their market, and there are a few things that they are not allowed to do without breaching the agreement. There is at least some protection there.
In respect of benefits to be gained, I agree with Professor de Mestral. For the right to retaliate and for the practical sanctions we can bring in case of an unsettled dispute regarding the implementation of a decision rendered by a bi- national group, it is much better to have a quasi-judicial institution determining a few ways to settle a dispute. It is much better than the political pressure and the economic pressure that we could face. We would not go any further, and we could not gain much without making sure that those institutions and those quasi-judicial institutions are stronger and efficient.
The Chairman: I am reading here, from the Department of Foreign Affairs and International Trade, publication entitled, U.S. Trade Remedy Law: The Canadian Experience, Second Edition. Paragraph 12.2 says:
Binational panels determine whether a final determination is in accordance with anti-dumping laws of the NAFTA country in which the decision is made. If a panel finds that the determination was in accordance with domestic law...
I call that the ``big catch.'' In the European Union, countries have given up that right. In the United States, Congress will not give up that right, thus the ``big catch'' on page 29. It would be great if they would, but they will not.
Senator Di Nino: If I can follow up on Senator Austin's comments regarding the way to settle disputes, both of the witnesses responded about the quasi-judicial role of the courts, et cetera. Could you comment on your thought on having something similar to the International Joint Commission, which we have had over the years, as a permanent sort of court-based or court-type institution, to be able to deal with the disputes that we have. Would that be something you would have in mind?
Mr. de Mestral: The IJC responds to requests for opinions. It is seized by the government. My thought is that one should allow citizens to have a role in this process. We should certainly try to build upon any institutions that we have — and that is a venerable and highly successful one in its field. However, it seems to me that the International Joint Commission model would not be sufficient. I would like to give citizens and companies the capacity to raise these things directly before the courts.
Senator Di Nino: What kind of an institution — the existing court system or a permanent dedicated institution for only this purpose?
Mr. de Mestral: I would be prepared in limited areas to use the existing courts in Canada and in the United States.
[Translation]
Mr. Ouellet: In my estimation, NAFTA institutions are under-utilized in many respects. I will answer your question indirectly by talking to you briefly about the Commission for Environmental Cooperation and the Commission for Labour Commission, both of which are largely under-utilized. The public has access to these institutions and is free to lodge complaints. In some instances, the response received from these commissions is very succinct.
We need to open up the NAFTA institutions in order to involve the public, to give it confidence in the free trade process. I also think that the various NAFTA committees — there is a plethora of them — do good work, but they are not visible and active enough. The people making up these committees are largely members of the public service, therefore not necessarily elected. These committees could be much more energized and their work more publicized. It is not easy to find out what a NAFTA committee is doing on, for example, sanitary or phyto-sanitary measures. Many agreements are made and many harmonization measures are undertaken through the work of these committees. It is extremely difficult to find the results of that work. I think this type of institution could be made much more active and the institutions that are more closely involved with dispute settlements could be provided with much more in terms of means. Access by the public to these institutions could be made easier.
[English]
Senator Di Nino: Along the same lines, we have seen a number of disputes over the years, and it is fair to say that Canada has probably won the majority of them. However, we are seeing what I would call a ``toughening up,'' particularly in regard to the softwood lumber, the wheat board and some other agricultural products. We have seen a toughening up by the Americans in dealing with us. As we saw yesterday, Minister Pettigrew threw up his hands and said he cannot deal with these folks any more — those are his words, not mine — they are asking far too much. They broke off the discussions on trying to settle the softwood lumber.
During these hearings, we heard a variety of opinions. In B.C., we heard the industry suggest that we try to reach a settlement with the U.S. and put this thing to bed — something like the Softwood Lumber Agreement that has since expired. We have heard others say that we should continue to fight and to fight through the WTO, which would probably give us a better opportunity to win the case. I wonder if our lawyer representative, Mr. Shrybman, and the professors have an opinion on whether we should hang tough and go through the WTO process or try to reach an agreement with the Americans on these issues.
Mr. Shrybman: I agree with the chairman's comment that the big catch in NAFTA is the fact that we did not get assured access to U.S. markets. It was a fundamental misrepresentation of that agreement to suggest otherwise.
The U.S. may establish its countervailing and anti-dumping duty law as it sees fit. Our only recourse is to insist that a law, however unfair, be applied properly. That is the chapter 19 dispute process. We got little, if anything, in terms of assured access to U.S. markets and the softwood lumber disputes are good evidence of that.
Whether or not we try to seek an agreement with the United States or proceed to formal dispute resolution under the WTO, which does offer some formal constraints on U.S. unilateralism that we did not achieve in NAFTA, is a strategic decision. I cannot answer that.
My clients, the Communications, Energy and Paperworkers Union, have negotiated an agreement with their brothers and sisters in the United States. I think other unions such as the International Woodworkers of America have also been involved. They have come up with a suggestion that bears consideration, but I am afraid I cannot tell you much about the details.
Mr. de Mestral: It seems to me that in the present context, we should continue, and we are likely to succeed if we continue before the WTO. The WTO dispute settlement process is a stronger one than NAFTA, in the final analysis. Chapter 19 was a political compromise as well as a legal solution to a political impasse, reached in about five weeks in extremis when negotiations failed. We have made agreements before; once their duration is over, we are back to square one. We do not seem to have gotten any further ahead. As long as we maintain the existing rules, I think it would be preferable to keep the matter before the WTO, rather than abandon it.
In the last case, we violated the first principle of charter 3 of NAFTA, which says no quotas and no export taxes. We threw out the rules of the very agreement we said we had made for good policy reasons in a difficult situation. Nevertheless, it did not hold. Once it was over, we were back to square one. I think we have little alternative but to take it before the WTO.
Mr. Ouellet: I believe our strategy has to adapt to the American attitude in most cases. When we feel that it is possible to settle on reasonable grounds, we have to do it. I do not think the American position is fair and reasonable in the softwood lumber case. I too think we should keep going before WTO tribunals. We win our cases when we get there, so I think we should keep going.
The Chairman: Mr. Shrybman, you said something about short-term contracts and the National Energy Board and that 90 per cent of the gas exports from the Maritimes do not require approval from the National Energy Board. Are you saying that somehow they can avoid, at some point, whatever compliance is required — that they just avoid this by continuing on short-term contracts?
Mr. de Shrybman: I do not think so. I suppose I was not clear enough.
Under section 118 of the act, before issuing a licence, the National Energy Board must be sure that the gas is surplused to Canadian needs. If it issues a permit under a regulation and the permit is for a short period of time, it does not have to have regard to the public interest safeguard. It is 90 per cent for the Maritimes; it is about 75 per cent or 80 per cent for the rest of Canada. The Maritime region is not terribly anomalous.
The U.S. companies are saying there is nothing short-term about those permits. When one expires, a new one will be issued or we will have breached our obligation to provide them with proportional access to Canadian energy resources. There are those provisions of chapter 6 that require Canada to continue a proportional flow of resources to the United States in perpetuity. We may cut back on overall production in Canada, but if we are cutting back one-third in Canada, we can cut back one-third in exports. We cannot favour Canadian consumers who may be subject to energy rationing. That is the problem.
The short-term permit on the premise that it really is not long-term, there is no requirement to have regard to future Canadian needs, but yes, the U.S. companies are saying that under NAFTA rules, there is nothing short-term about those permits. They will continue. That is a good argument.
Senator Grafstein: I think we are dealing with the heart of the heart of our relationship with the United States trade, which is the essence of our terms of reference when we come to these mechanisms. While 90 per cent of our trade is carefree, it is the 10 per cent of the trade that causes all the pain and suffering. We are talking about the 10 per cent. In softwood lumber, it is obviously devastating.
Let us look at remedies and where we can go. I think you all said we must improve our remedy process. Even Mr. Shrybman, who disagrees, thinks we should improve our remedy process.
It would be useful if each of you could provide the clerk with a list of any of the mechanisms under any treaty, or any convention, or any practice with which you are familiar that might give us a complete list of the mediation mechanisms. Such a list would be most helpful. I think we have not fully explored this question from a governmental or private-interest stand.
Is there a difference under the dispute settlement mechanisms in the Canada-U.S. Free Trade Agreement versus the NAFTA? If there is a conflict between the two, does that conflict still exist, or has one been merged into the other? That is a very narrow technical question and I would be interested in your view.
Have a comment about the politics. I agree with the chairman and others that we are dreaming in technicolour if we think that Congress will improve the NAFTA dispute mechanisms in the short run without some extraordinary leverage, which I do not see happening. We have to deal with what we have and see if we can improve it. Nothing that I have seen in the last six or seven years will convince me that Congress is prepared to give up jealously its domestic law remedies. We are stuck with that for the moment. I agree with Mr. de Mestral, if we could have it, based on his methodology, it would be great. However, I cannot see the political leverage.
On the existing front, have you explored the ambit of the terms of reference of the IJC to see whether or not we could include some of the transborder dispute issues under that existing formula, which is well established and working very well on both sides? I would ask you to explore, if you can, the terms of reference to see if that can be expanded. It is now used very narrowly for certain things. The science on both sides is very good. The tribunals are set up. They are working well. My reading is that they could be used in a broader context. We will have the IJC here, and I wondered if you, as legal experts, had a view of that, and you share my view that perhaps we could expand the terms of reference to include the IJC as another dispute resolution mechanism.
Finally, on the domestic front, I agree with Mr. de Mestral that we have not utilized the American domestic law at all in these dispute mechanisms. I think on softwood lumber, our domestic producers have a real claim in the domestic courts against the American processes because they did not fulfil due process under American domestic law — the American Constitution. What do I mean by that? In a nutshell, the Americans have intervened directly in an administrative process; and politically, from the executive branch and the legislative branch. In my view, based on what I have heard, the have effectively interfered in due process before those tribunals. Have you explored that, and do think that would be a good American domestic remedy?
Mr. de Mestral: I would be pleased to go through other remedies. My approach is somewhat focused on the European community, the direct effect of laws and trying to apply them in a rather limited way. However, there certainly are other ways. I suggest we should look at whatever mechanisms we have, including everything existing under NAFTA, and try to strengthen them. I would be happy to send in any other ideas that I might have.
Technically, the difference between the FTA and NAFTA is that the FTA would snap back if NAFTA were removed; but, for the moment, the dispute settlement mechanisms of the FTA are certainly subsumed under NAFTA, which, in a variety of ways, goes further. There are four NAFTA procedures. Each one in its own way goes further than what is envisaged in the FTA. The FTA is not totally dead. It is still alive on agriculture. It would revive, if NAFTA were removed.
You are better placed than I to judge the mood of the U.S. Congress, but I have always assumed there is not much room for a lot of negotiation with the U.S. Congress. That is why I am trying to explore the one area. Canada and the U.S. are litigious societies. We did accept chapter 19 — for better or for worse — and that has adapted to the realities of two rather litigious societies. I am trying to explore whether there might be some way of proceeding with integration along those lines, using this concept of NAFTA provisions in certain limited areas.
The IJC is certainly a tempting avenue. It has been in place since 1909. It makes recommendations and nothing more. That may be part of its success — namely, no one is afraid of it because, in the end, it is as strong as the value of the arguments it makes. It has done marvellous work in fact-finding and, for instance, whether the Canadian Wheat Board is doing certain things that the Americans allege, even though we have had one dispute settlement panel say that it was not. Perhaps a totally impartial fact-finding exercise by a body such as the IJC might assist in clearing the air. I certainly would not rule it out. It would give us recommendations, reports and facts. I do not think it would give us decisions.
I do not feel I am competent to give you an answer on whether there has been any technical violation of due process by the rather vigorous forms of intervention of the softwood coalition. Perhaps that is the case. American lawyers familiar with American administrative law would be better equipped to give you an answer.
The Chairman: Mr. Shrybman, do you have a comment?
Mr. Shrybman: I have three comments. First, there was a question about the differences between the FTA and NAFTA. There is a difference — namely, investor state litigation, which was not present in the FTA; it is in NAFTA. Giving corporations who have no obligations under this agreement the right to take us to international tribunals that can award damages against Canada is a rather extraordinary development in international law.
Second, I would caution anyone considering the need for new dispute resolution processes to have regard to their larger societal implications. I understand the dispute with the United States around softwood lumber is extremely irritating; it costs the Canadian economy in a significant way. However, we can do no more damage to Canada, as I believe we did in creating this investor state suit mechanism that wounds the country in terms of the integrity of its constitutional institutions, including Canadian courts. We need to be alive to those consequences before we leap at some solution that looks like it will provide a pragmatic answer to a particular practical problem without looking at the larger context.
When it comes to trade in goods, there may be less concern. As we know, the softwood lumber dispute is about international trade in goods. When it comes to services, investment, and intellectual property, we are dealing with Canadian domestic public policy, which may have little to do with international relations, other than the fact that Canadian governments may be doing things that foreign investors and large corporation do not like. When we create dispute resolution mechanisms that exist outside the context of our Constitution and our Canadian courts to resolve disputes about domestic policy and law, then we have a real problem. I caution anyone looking for new, convenient answers to deal with these international irritants to have regard to the larger context.
Finally, I would look to the WTO and to multilateral solutions. I do not think we are in better shape now because we depend to a greater degree on trade with the United States than we did when NAFTA was established. Not putting all your eggs in the same basket is a wise and good adage. We would be better off if our international trade policies were more diversified. We are in better shape, particularly in the North America context where we have this enormous elephant next to us to invest our resources in multilateral solutions.
[Translation]
Mr. Ouellet: Senator Grafstein's five questions essentially concern dispute resolution and the political attitude on either side of the border. Whether we are talking about chapter 19, chapter 20, or more specifically issues such as softwood lumber, that involve domestic legislation, it always boils down to a certain political will to protect, a certain attitude that needs to be counteracted. The mechanisms that we will use or that we will try to improve — we have to work with what we already have — will always be a hindrance to that political attitude. Mechanisms will always need to be found in order to soften the effect of that political will.
You are absolutely right in raising the problem of a certain attitude on the part of Congress. What can one do to counteract the attitude of the legislative authority of the other party? We would be the first to complain about infringement on our legislative authority. One must insist each time on a division of powers, one must emphasize the need to settle disputes without undue intervention on the part of the political power. That is what institutions must be able to do.
We do have before us, in fact, a serious problem. We are confronted with an attitude that may change depending on relations between both countries. There will always have to be a way of extricating, I would say, issues from too great an influence exerted by American political power.
[English]
Senator Graham: Mr. de Mestral, I did not hear your formal presentation but I did listen with great interest to Senator Austin suggesting — if I remember correctly — that you favour a customs union. Is that true?
Mr. de Mestral: Yes.
Senator Graham: We have had many witnesses before this committee who discussed a customs union — some of whom said it is not in the cards and it is unrealistic. One witness said that he favoured a customs union. A couple of witnesses indicated that a customs union might be down the road. Do you think we should be entertaining a customs union at the present time and moving quickly towards that goal?
Mr. de Mestral: My view is that it would be preferable. We are in a situation where the degree of integration of the Canadian economy to the American economy is already in excess of that prevailing between many of the European community countries. It is quite extraordinary the degree to which the Canadian economy is integrated. Given that situation, it would be in our interest to remove the kind of barriers that now exist under our free trade agreement and to have, for instance, the customs union's goods move freely between without any hindrance.
Following the events in New York, we are being asked to set up essentially a North America outer perimeter, which is the very nature of a customs union. You cease to have a customs barrier between the two countries. We are being asked to do something close to the change Schengen agreement, which takes customs union beyond the normal requirements of customs unions. We are in a situation where that would be the natural thing to do.
Of course, the question is: Could we go to the United States and say formally, we want one and this is what we should have and let us negotiate it? My concern is that it is not likely that we could negotiate the kinds of institutions that we should have. It is not likely that we could negotiate a formal customs union.
In my text, I have suggested ways in which we might proceed modestly, yet I hope significantly, in that direction and down that road.
Senator Graham: Do you feel that we would not be overwhelmed by the United States and that it is indeed realistic?
Mr. de Mestral: We are already living in many ways in a virtual customs union without the legal advantages. We might as well pursue that avenue.
Although I share the public policy concerns of my colleague, Mr. Shrybman, I look at the European Union, where they have the equivalent of a constitutional right of free movement of services, goods, people and capital. You get to a border and, if they stop you, you get your lawyer and you get your goods or yourself across that border. They cannot stop you constitutionally. Yet, public institutions, public health, public education, the kind of public values that we share and wish to defend so deeply in Canada have survived and are not under attack. I think that can be done in North America as it has been done in Europe. Although I share many of the concerns in terms of defending Canadian values, I am not fearful that these things cannot be reconciled.
Senator Graham: Perhaps I can ask Mr. Shrybman to comment on the same question. Let me recall the great debates of 1988, when those who opposed the FTA used as their principle argument the fact that we did not have a guaranteed access to the market of the United States and that we did not have a binding dispute settlement mechanism. I believe those are the two main arguments that were used by those opposing the FTA.
Mr. Shrybman, you said that you are not a fan of free trade liberalization; you said that NAFTA has not served Canada well and that claims to the effect that it has, do not stand up to careful scrutiny. Yet, there are those who say that millions of jobs have been created for Canadians as a result of the FTA and, indeed, the NAFTA. I suppose that you would argue that millions of jobs have, perhaps, been lost as a result of these agreements.
Do you see anything good about the FTA and NAFTA, any benefits or any net gains for Canada? Perhaps you would like to comment also on the customs union while you are responding.
Mr. Shrybman: That is an interesting question. Actually, I have never been asked whether I find any benefits in it.
I suppose not. The alternative would have been as it is, the World Trade Organization. Fundamentally, that is a more sound agreement. It does begin to constrain U.S. unilateralism in a way that NAFTA does not. The concessions we have made in NAFTA with respect to energy are extremely problematic. Building private enforcement into the investment disciplines of NAFTA is problematic. I did qualify my comments about it not having served the Canadian economy well as really more bias than informed view.
However, there is an element of informed view about that assessment and that is this: The largest portion of the Canadian manufacturing trade with the United States has to do with the production of autos and auto parts. We would not have an auto industry in Canada, I do not believe, but for the Auto Pact. The Auto Pact is based on a simple principle: If you want access to Canadian markets, you will invest in Canada's economy. If you want to sell cars here, you will build cars here. That is fundamentally, antithetical to the principles of free trade. That is basically a protectionist arrangement. I know now that when we compete for foreign auto investment we are talking about substantial public subsidies.
I am sure members of the committee are more familiar with this than I, but I have read stories in the press lately about the very substantial public subsidies that are now being contemplated in order to attract the next auto plant because we do not have that principle well-established in Canada. I also realize that, with the value of the Canadian dollar and with the substantial subsidy that public health care offers manufacturers in the auto sector that we may not need the Auto Pact tomorrow. I believe we have disproportionately more investment in this country as a result of these other factors than the Auto Pact would require.
Manufacturing trade with the United States is often offered as evidence of the success of NAFTA, yet it arises from its antithesis. That is why I talked about the claims not bearing up under scrutiny. A lot of other trade we have with the United States would take place in any event. That is certainly true of unprocessed resources. I believe that we would not have a dispute with the U.S. lumber lobby either if we were able to export unprocessed logs to the United States. Much of it has to do with whether we can add value in this country. Where we are not adding value, the U.S. is more than happy to have our energy resources or mineral resources, and that trade would be taking place with or without NAFTA. The claims need to be examined.
As for the customs union, I am sorry, I cannot offer an informed view but to say that in the European community there is a parliamentary institution with a community-wide mandate. No one is talking about anything similar in the North American context. When we give up the jurisdiction and sovereignty of our own parliaments and our own courts, it disappears. It is not invested in a super-national institution that can guard the full array of public interests that may be at issue when large corporations and nations have disputes about trade issues. That is a very important difference.
There is also an important difference to be found in the Treaty of Rome and other European agreements that do engender community-wide commitments to environment protection and to the provision of social services and public services that do not exist as matters of international law in the North American context. As to whether we would be better off ceding sovereignty and the jurisdiction of our courts to some North America institution, the only other difference is that in Europe there would be some balance between the economic giants of Europe: Great Britain, France, Germany and other countries. We have a very lopsided equation that exists in our context, which would make we wary as well.
The Chairman: Senator Grafstein and I were members of this committee in 1988 when the Free Trade Agreement was negotiated. We remember those arguments. The WTO did not exist, of course. The WTO has come along since then and it is one of the things that has changed the landscape.
[Translation]
Senator Corbin: What you said about the 2022 committee, regarding the panel on private dispute resolutions, must be the strangest story I have ever heard in this committee. It is strange that people would consent to go at their own expense to a meeting, wherever it was, whether it be in Maine, Colorado or Mexico. They go at their own expense, they have to pay for all of their expenses. I assume that the same rule applies to all the other members of such a panel, whether they come from the private sector or elsewhere. Why would your colleague go to these meetings at their own expense? Is it in order to have something to add to their curriculum vitae? I would assume that they would have something to contribute to the dispute settlement discussion. I think this is a very strange exercise. I have never heard of such a thing in my whole blessed life. We know that government and the private sector spend enormous amounts in order to defend their interests. I would like to have some more information so that I can understand what these people are motivated by. If they are not doing this out of Christian charity, why are they doing it?
Mr. Ouellet: The two people I spoke to about this told me that the other NAFTA committees are mainly made up of members of the public service. Therefore the people participating in those committees do not pay for their expenses. The 2022 committee is different in that it deals with private disputes and the people participating in that committee are either industry representatives or academics.
In the vast majority of cases, when these meetings are held, you can find out which of my 51 colleagues sit on the 2022 committee, and it is easy to find this out. That person must pay for himself. I cannot speak for anybody else, but I imagine that the reason is to make contacts. This is also a committee that does some useful work and I think they want it to succeed. Like yourself, I was shocked by this. The other person who talked to me about this is a lawyer with McCarthy Tétrault, in Quebec City. He works for a large Canadian firm and so his employer was happy to pay the expense of his participation in that committee. You need to be pretty solid in order to follow the committee's work and I was shocked to learn that you have to pay to participate in the committee's work.
Senator Corbin: Are you suggesting to this committee that we make a recommendation for the purpose of having these people's costs covered?
Mr. Ouellet: I do not think — and I did not come here to make a very specific recommendation — that it is normal that these expenses not be covered. I am told that only minimal costs are covered for participating in the committee and I do not understand why.
[English]
Senator Corbin: Americans control the whole operation of gas exports from Sable Island to the United States. I fully appreciate the approach you took in your comments, Mr. Shrybman. I do not dispute that. However, we met with some of the developers and we were told in no uncertain terms that there was no way they would get gas across to northwest New Brunswick and on to the rest of Canada by way of a pipeline unless the government provided subsidies. Government policy currently, as has been the case for a number of years, is that there are no subsidies for gas pipelines. That is regrettable because we must think of ourselves first and foremost in terms of our resources and the exhaustion of them over time. It is essential, from the point of a national energy strategy, to have Canadian fields linked to each other. That would be the wise thing to do.
I fully comprehend what you said, but as a New Brunswicker I regret very much that we could not follow through and establish a national gas pipeline link between the western fields and the eastern existing and potential fields.
Do you have any comment in that respect?
Mr. Shrybman: I hope that may still be possible. I did read that the Deep Panuke development has been put on hold temporarily. The concern is that, in building all of this infrastructure — these almost bullet lines to the United States — and increasing their capacity and in allowing the developers to lock up long-term contracts with the pipeline, we are foregoing the opportunity to serve Canadian markets and to build an infrastructure that would complete the network in Canada.
My clients are concerned that has not occurred already and they will be advocating for that outcome. Many of them work in the mills in northwest and northeast New Brunswick. They are concerned about being at a competitive disadvantage. The deregulation of the electricity market that the province has recently announced may add to that.
The status quo is problematic and needs to be addressed. Hopefully, that will happen.
Senator Corbin: Thank you for putting those comments on the records.
The Chairman: I wish to thank our witnesses for their presentations.
The committee adjourned.