Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 4 - Evidence - Meeting of February 27, 2008
OTTAWA, Wednesday, February 27, 2008
The Standing Senate Committee on Foreign Affairs and International Trade, to which was referred Bill C-9, An Act to implement the Convention of the Settlement of Investment Disputes between States and Nationals of the Other States (ICSID Convention), met this day at 5:06 p.m. to give consideration to the bill.
Senator Consiglio Di Nino (Chair) in the chair.
The Chair: Welcome, everyone, to this meeting of the Standing Senate Committee on Foreign Affairs and International Trade. Today, colleagues, we are looking at Bill C-9, an act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention.)
Our witness today will be enlightening all of us here, but I suggest to you the bill was introduced in the Senate and received support from both sides. It is not a controversial bill, but it is, as I think you will find from the minister's comments, important to trade and investments in the world, particularly for Canada.
Our witness is the Honourable Helena Guergis, M.P., Secretary of State, Foreign Affairs and International Trade Canada. Minister, I understand you have some comments to make, after which we will invite our colleagues to ask some questions. I understand our colleagues have agreed that we will do clause-by-clause consideration immediately thereafter, and hopefully you will have your bill tomorrow.
Hon. Helena Guergis, M.P., Secretary of State, Foreign Affairs and International Trade Canada: Thank you. That sounds like good news to me.
Honourable members of the committee, I am pleased to speak with you today on the subject of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which I will refer to as ``the convention'' in my remarks.
The convention, which was sponsored by the World Bank, establishes rules under which investment disputes between states and nationals of other states may be solved by means of conciliation or arbitration. It also creates the International Centre for the Settlement for Investment Disputes, known as ICSID, to administer cases. Such disputes arise in a variety of situations. For example, they can arise when a state where a foreign investor has invested adopts laws affecting the activities of the investor in a discriminatory manner, or nationalizes the investment.
International arbitration is a recognized method for resolving disputes. It provides a way of resolving legal issues without resort to the domestic judicial process. It has long been recognized that when parties to dispute have recourse to arbitration, the result of the arbitral process ought to be recognized by the courts. Thus, for example, the awards resulting from commercial arbitration in Canada, arbitrations between business enterprises, are recognized and enforced by courts.
The decision as to whether to have recourse to arbitration or to the judicial process is a decision of the parties involved. This flexibility is welcomed in many types of situations. The arbitration mechanism established by the ICSID convention is one that is used for disputes between investors and states. The convention has been ratified by 143 states, making it one of the most widely ratified of all international instruments.
The distinguishing feature of ICSID and what makes it uniquely valuable, is the enforcement mechanism, which Bill C-9 will implement for Canada. The ICSID enforcement mechanism is very effective. This effectiveness contributes to the protection of investment. ICSID's enforcement mechanism lies at the heart of the effectiveness of the ICSID convention.
An arbitral award from any other arbitral body is subject to review by a domestic court before it can be enforced, but an ICSID award merely has to be presented to a domestic court with a request that the court enforce it. With this recognition, enforcement mechanisms become available immediately. Enforcement could include payment seized by officers of the court.
In the great majority of cases, the losing party in an arbitration will pay the award of an arbitral tribunal without the need for the successful party to take any enforcement proceedings. The same is true for investor state arbitration.
In Canada, arbitral awards, including investor state arbitral awards, are currently enforced pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The New York convention permits a limited review of arbitral award by domestic courts. It allows a court to refuse to enforce an award if to do so would be contrary to public policy. In addition, it permits the state to exclude certain subjects from the application of the convention and thus from enforcement.
ICSID provides a better enforcement mechanism. It does not permit a state to exclude from dispute settlement any matter which the state has consented to committee to arbitration. ICSID awards are enforceable as they were final decisions of local court. This simple, efficient mechanism guarantees better protection for Canadian investors abroad.
As a result of the globalization of investment, the number of investment disputes has greatly increased in last five years. ICSID arbitration has soared. Only 110 ICSID arbitrations have been completed over the past 40 years but 105 proceedings are now underway.
The convention entered into force October 14, 1966. The majority of our major trading partners are parties to it. Ratifying ICSID would bring Canadian policy into line with our OECD partners. Canada signed the convention on December 15, 2006.
Before Canada can proceed to ratify ICSID it needs to pass legislation providing for ICSID awards to be enforceable in Canadian courts. Bill C-9 deals with enforcement of ICSID awards for or against the federal government and foreign governments, including the constituent subdivisions designated by foreign governments.
The convention would provide additional protection to Canadian investors abroad by allowing them to have recourse to ICSID arbitration in their contracts with foreign states. It would also allow investors of Canada and foreign investors in Canada to bring investment claims under ICSID arbitral rules where such clauses are contained in our foreign investment protection agreements and free-trade agreements.
International investment arbitration is growing in importance. The stock of Canadian direct investment abroad in 2005 increased to a record $469 billion. Provisions consenting to ICSID arbitration are commonly found in contracts between governments of other countries and Canadian investors.
The NAFTA parties alone have faced 40 investor-state arbitration claims since NAFTA entered into force on January 1, 1994. The NAFTA in Chapter 11, the Canada-Chile Free Trade Agreement, and most of our bilateral foreign investment protection agreements, or FIPAs, provide for ICSID as a dispute settlement option that can be chosen by an investor if both the state of the investor and the host state of the investment are party to ICSID. However, Canada and Canadian investors cannot benefit from this choice if Canada is not a member.
The tremendous growth in investment and investor-state disputes has made Canada's failure to ratify ICSID the focus of attention by Canadian business, the legal community and our trading partners.
ICSID's relationship to the World Bank assists investors in obtaining compliance with ICSID awards. Its roster of arbitrators gives investors access to well-qualified arbitrators at ICSID-controlled rates. These arbitrators have extensive experience in international arbitration. ICSID also provides important institutional support for litigants.
The ICSID convention is a well-known tool for settlement of investment disputes. Therefore, the interpretation of the convention and its usefulness are predictable. For Canada, as a shareholder of the World Bank, there is no additional cost for joining ICSID by adopting the convention.
Provincial and territorial legislation is needed to ensure the enforcements of arbitral awards rendered in a dispute involving a provincial or territory designated as a ``constituent subdivision'' and which has consented to ICSID arbitration. T
The federal government has provided assurances that any province or territory that so wishes will be designated a constituent subdivision under the convention. The provinces and territories have indicated they support the convention in principle. They have also recommended that all jurisdictions, including the federal government, take steps for the adoption of the legislation implementing the convention. Ontario passed implementing legislation in 1999 under the Mike Harris government. British Columbia, Saskatchewan, Newfoundland and Labrador and Nunavut passed such legislation in 2006.
Honourable senators, I encourage you to study this bill and to approve it in order to facilitate adherence by Canada to the convention as soon as possible. I know that, of course, my speech has probably answered every question you could possibly come up with. However, just in case, for the lawyers who may be around the table, I have three lawyers with me. Thank you very much.
The Chair: Thank you minister. Let me take the opportunity to introduce the folks that are with you. I understand they are all from Foreign Affairs and International Trade Canada. We have Mr. Alan H. Kessel, Legal Adviser; Mr. Ray Boomgaardt, Special Counsel, Trade Law Bureau; and Éric Leroux, Deputy Director and Senior Counsel, Trade Law Bureau.
Minister, are any of the gentlemen with you going to make any comments or do we go to questions?
Ms. Guergis: Right to questions, please.
The Chair: Thank you. I agree with you: We understood everything you said. However, I am not sure I understand everything the bill does. Hopefully we will get a few answers.
Senator Corbin: I have one question. You stated: ``For Canada as a shareholder of the World Bank there is no additional cost for joining ICSID by adopting the convention.''
However, as I understand it, under section 5, article 17, we would be subject to a liability if I understand that paragraph. I will read it:
If the expenditure of the Centre cannot be met out of charges for the use of its facilities, or out of other receipts, the excess shall be borne by Contracting States which are members of the Bank in proportion to their respective subscriptions to the capital stock of the Bank, and by Contracting States which are not members of the Bank in accordance with rules adopted by the Administrative Council.
Therefore a potential liability exists.
Ms. Guergis: ICSID is part of the World Bank. Since Canada is a member and a shareholder of the World Bank, there are no additional costs for joining. However, the parties to a case, the investor and the defending government pay the costs of each arbitration. The tribunal can generally award costs — for instance, they can decide that the losing party shall pay the costs, and there is an application of ``loser pays'' rule that exists.
The Chair: Before we go on, I have let my colleagues know that a vote has been called in the chamber for 5:40 p.m. I have to do this because you know the system. I will allow 15 more minutes and then I have to suspend. We may be finished with the minister, we may not. For your information, I will suspend proceedings at about 5:35 p.m.
Senator Corbin: I appreciate the information. The minister is telling us that there would be a potential liability for Canada in as much as we are a party to a dispute. However, it would exist only in that instance.
Ms. Guergis: My legal advisers have checked and told me that to their knowledge, what you have suggested has never happened.
Senator Corbin: Nevertheless, is there a provision to cover that possibility? The drafters were forward-looking. In the best of worlds, things happen. It is not a big deal.
Alan H. Kessel, Legal Adviser, Foreign Affairs and International Trade Canada: It is a very good question. I think this is simply a prudent drafting on the part of the original drafters which would say that the parties to this institution would be responsible in the event that it needed extra funds. It is correct that it has not come about in the time that we are aware of. However, yes, it is prudent drafting in any institutional drafting exercise.
Senator Corbin: It would only apply if we were one of the parties to the dispute, is that correct? I am not sure you are getting my point.
Ray Boomgaardt, Special Counsel, Trade Law Bureau, Foreign Affairs and International Trade Canada: Article 17 is a provision dealing with the financing of the centre. In practice, what has happened is there is an annual budget item in the World Bank budget for the centre; the centre has not been totally self-financing.
As you know, we do not actually finance the World Bank by giving money to it. As a shareholder of the World Bank, we have contingent liability, but the World Bank has always been totally self-financing. They use the funds they get from the repayment of loans they have made to finance their operations, including the operation of ICSID. That has been the mechanism by which ICSID operates.
We have that liability for ICSID already as a member of the World Bank; that does not change when we join ICSID. We become a beneficiary of the ICSID process, but the liability does not change because it is a liability that arises by virtue of our membership in the World Bank.
Senator Downe: Does the minister have any indication of any provinces that are opposed to this? You indicate that they are trying to make best effort, but why have others not passed the legislation?
Ms. Guergis: My understanding is that there are not any provinces that are opposed to this. You could ask the same question of us. Why has Canada taken so long? However, we are here and we are getting it done now, so they will follow in our footsteps.
Senator Downe: I notice that Ontario passed it in 1999 and no one else for seven years. Was that because the federal government was delaying?
Ms. Guergis: I would suspect that is the reason. They cannot proceed unless we do, so there is no rush to do something that they cannot do.
Senator Downe: That makes sense.
Senator Johnson: This has been implemented by 143 countries. What about Mexico, Brazil and India? What is the problem with those countries? They are important trading partners but they are not signatories.
Mr. Kessel: They have not yet done that.
Senator Johnson: Do you expect they will?
Mr. Kessel: We have encouraged them to do that in chats with them. Others of the 143 states have also encouraged them, as they have encouraged Canada also. I am glad we will be in a good position, once this bill is passed, to do it with a certain amount of credibility.
Senator Johnson: Do you think the dispute settlement mechanism is efficient through the process of the ICSID convention?
Ms. Guergis: Absolutely.
Senator Johnson: If a state is uncooperative, could it prolong a dispute for a long time or not?
Ms. Guergis: I do not understand the question.
Senator Johnson: How efficient do you think the settlement process is under the convention?
Ms. Guergis: Judging from the information I have received and what I have learned, it is extremely efficient. That is why the business community is encouraging us to head down that path. The other processes cost considerably more money. Litigation can draw out over a longer period of time — most of us know that can happen — and it can be more costly.
If both parties decide they want to go to arbitration, which has been proven often to be a less costly, more amicable approach to dealing with the situation, they are more inclined to do that. That is what the business community has been recommending.
Senator Johnson: There has been a positive reaction from the business community in this country, is that right?
Ms. Guergis: Yes, absolutely, and the Canadian Bar Association as well.
Senator Johnson: That is absolutely essential.
The Chair: Minister, if I understand this bill, it is really to simplify solutions to disputes between those states that are participating or have signed. This bill makes it more efficient and economical to settle existing disputes; is that correct.
Ms. Guergis: Absolutely; in fact, in some of the foreign investment and protection agreements we are putting in place now, this is being included in them. If you go country by country, if Canada becomes a member, then it makes it easier for a number of countries, instead of going to them individually.
The Chair: As soon as we pass this bill, we can start using the dispute mechanism.
Ms. Guergis: Yes.
Senator Downe: Can we use it before the provinces have passed it? Is it implemented even though the provinces have not passed their legislation?
Ms. Guergis: Yes. They do require legislation; but for the provinces that have it in place, it is implemented. It is there.
Senator Trenholme Counsell: I think your first answer, minister, was that it did not matter about provincial legislation. Are you clarifying yourself by saying that it will be in effect only in those provinces and territories that have enacted legislation?
Ms. Guergis: Absolutely; it is up to the province to make the decision if they want to be part of this.
Senator Trenholme Counsell: The only provinces listed here are British Columbia, Newfoundland and Labrador, Nunavut, Ontario and Saskatchewan. Are the others working on appropriate legislation?
Ms. Guergis: Yes, they are.
Senator Downe: To follow up, I am not clear how Canada can enter into an international agreement where they cannot deliver coverage in all parts of the country.
Ms. Guergis: There is federal jurisdiction and then provincial jurisdiction.
Senator Downe: I am aware of that, but what agreement is Canada entering into? The countries that would see Canada has ratified this would assume all of Canada is ratifying it. You are telling us that under federal responsibilities, that has been ratified, and under the provinces that have agreed so far, that has been ratified, but for the others, no. Are other countries aware of this and do not object to Canada partially signing or partially ratifying?
Ms. Guergis: I will let Mr. Kessel answer, but my clear understanding is no. The provinces have to make their own decision as to how they want to participate. We have done our homework and we have had conversations with them; they are all in support of this legislation.
Some of them, as you noted, ran immediately to implement because they saw the benefits. That is why you saw a province like Ontario signing it in 1999, as soon as they possibly could. Other provinces have followed along with the expectation it will be happening.
When it comes into place, there are provinces that we need to work with, to respect that they have even made that decision to go forward. The federal government puts it in place; and for the provinces that want to proceed and are onside and have legislation, it is there for them to do it. The other provinces will come along with their legislation in their own time. I understand that all of the provinces are in support of this bill.
Senator Downe: Minister, what happens if they decide not to sign on?
Ms. Guergis: Then they do not have to be part of it.
Senator Downe: Then Canada is party to an agreement where six-tenths of the convention can be enforced?
Ms. Guergis: Yes.
The Chair: Am I correct, minister, that what we are talking about here is those who would use this tool would be signatory to the convention; those who are not would not be able to use this tool.
Ms. Guergis: That is correct; it is voluntary.
Senator Johnson: It is the same as the countries who are not signatories yet.
Ms. Guergis: Yes, it is voluntary all across the board, even for those members who are in the situation. They both decide; they volunteer to be part of that dispute process. If you want to work with your business community in your province, and this is what they are asking for, and they clearly are —
Senator Johnson: Do you know why the other provinces are not moving forward more quickly with implementing the legislation?
Ms. Guergis: The reason is that the Government of Canada, for whatever reason, had not proceeded. In the same way I answered your question earlier, why rush to something they do not need to? It is not an option or an opportunity for them. You know, senators, you all have priorities.
Senator Stollery: Mr. Chairman, if we need to vote, do we want the minister back or not?
The Chair: I think not. Is everyone satisfied with the questions? We can thank the minister and suspend. We can come back for the rest of our meeting and do clause by clause.
Thank you, minister, and your officials. We appreciate your presence, and we will let you know what happens when we finish with this, once we resume after the vote takes place.
Ms. Guergis: Thank you very much.
The Chair: Honourable senators, the meeting is suspended until after the vote has taken place in the chamber.
The committee suspended.
The committee resumed.
The Chair: Honourable senators, I would like to propose that we proceed to clause-by-clause consideration. We will do it in public without the TV.
We still have the officials. I want to thank them first of all for staying and waiting for us. Honourable senators, do we need the officials for clause-by-clause consideration? Is there any reason why we should keep them here instead of releasing them?
Senator Stollery: They could stay here just in case. It will only take us a few minutes to do the clause by clause.
The Chair: I would think so, also. Are the witnesses alright with that? We need a motion to begin clause-by-clause consideration of the bill.
Is it agreed, honourable senators, that the committee proceed to clause-by-clause consideration of Bill C-9, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention)?
Hon. Senators: Agreed.
The Chair: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chair: Shall clause 1 which contains a short title stand postponed?
Hon. Senators: Agreed.
The Chair: Shall clause 2 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 3 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 4 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 5 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 6 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 7 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 8 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 9 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 10 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 11 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 12 carry?
Hon. Senators: Agreed.
The Chair: Shall the schedule carry?
Hon. Senators: Agreed.
The Chair: Shall clause 1 which contains a short title carry?
Hon. Senators: Agreed.
The Chair: Shall the title carry?
Hon. Senators: Agreed.
The Chair: Shall the bill carry without amendment?
Hon. Senators: Agreed.
The Chair: Shall I report the bill to the Senate without amendment?
Hon. Senators: Agreed.
The Chair: Honourable senators, thank you.
That is the completion of Bill C-9. I can now discharge the officials. Thank you for coming.
Honourable senators, I have one other quick item that I need on which I need your concurrence. If you remember, we had passed a draft reference for the study that we are doing. We made a couple of minor changes. I wanted to make sure that you agree with it. I will read it to you, if I may:
The Order of Reference will state that the Standing Senate Committee on Foreign Affairs and International Trade be authorized to examine and report on the rise of China, India and Russia and the global economy and implications for Canadian policy.
We originally had ``implications for the world and Canadian policy.'' The steering committee felt we should just focus on Canadian policy. However, we will comment on the world. We have withdrawn the words ``the world and.'' Also, we changed the date of report to no later than October 1, 2009, and to retain all the powers necessary to publicize its findings until March 31, 2010. Otherwise, it is exactly as we had discussed the last time.
Could I have a motion to that effect?
Senator Downe: Other than geographical reasons, why did we drop Brazil? I was not at the last meeting.
The Chair: We had some discussion on Brazil. The question even arose whether we should include Russia. We did because a great part of is still Asiatic. As you have heard in discussions, our experts have told us that keeping Brazil probably would have added a great deal more time. The whole committee agreed to remove it some time ago.
Senator Downe: Thank you.
The Chair: Could I have a motion? Senator Downe, are you moving?
Senator Downe: Yes.
The Chair: Thank you. All in favour?
Hon. Senators: Agreed.
The Chair: It will be done tomorrow. The only other item that remains is to inform you that we will have meetings next week. We are dealing with Bill C-293 on Tuesday. We have a couple of witnesses. On Wednesday, we have invited some other witnesses on Bill C-293. Otherwise we may bring someone in on the study. The next meeting will be next Tuesday, when the Senate rises, no earlier than 5:30 p.m.
Senator Stollery: Regarding Bill C-293, to give everyone perspective, it would be nice to know who the witnesses.
At what point are we now going to dispose of Bill C-293 and get rid of it?
The Chair: This committee has the authority to do that. We should tell you we have invited the minister to come on the bill and she is tentatively confirmed. She has informed us she is available on Wednesday, March 12.
Senator Stollery: The Senate, as we understand it, is going to be adjourning shortly thereafter. Having heard from all sides — we all know what we think about it — that might be a good time to dispose of it and give it to the chamber.
The Chair: Other witnesses have expressed an interest and we have to decide whether we want to hear them; otherwise, that is what is on the agenda.
We will adjourn until next Tuesday at 5:30 p.m. or when the Senate rises but not before.
The committee adjourned.