Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 26 - Evidence - November 8, 2012
OTTAWA, Thursday, November 8, 2012
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:30 a.m. to study the subject- matter of those elements contained in Divisions 1, 3, 6 and 14 of Part 4 of Bill C-45, A second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures.
Senator Céline Hervieux-Payette, P.C. (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: I would like to welcome Minister Thomas Hockin and Mr. Thomas Bernes and to thank them for helping us as we study Bill C-45.
At this meeting, our committee will be looking at two of its provisions and we have set aside an hour for each of them. During the first hour, we shall look at Division 6 of Part 4, which would amend schedule 1 to the Bretton Woods and Related Agreements Act. These amendments pertain to the rules and regulations of the International Monetary Fund's Executive Board. I have already introduced Mr. Hockin and Mr. Bernes.
During the second hour, we shall look at Division 14 of Part 4, which would amend the Agreement on Internal Trade Implementation Act to reflect changes made to chapter 7 of the Agreement on Internal Trade. It provides primarily for the enforceability of orders to pay tariff costs and monetary penalties. I will introduce the other panelists later.
[English]
Hon. Thomas A. Hockin, P.C., Executive Director, International Monetary Fund: It is a pleasure for me to be back here with you. I used to come before this committee in a different decade. I must confess: I used to have to defend the estimates. I spent four years doing so, and I thought the most thorough and stimulating meetings were the ones with this committee. It is very nice to be back. It is also very nice to see old friends and colleagues.
My job is a pretty well-focused one. Sitting beside me is Thomas Bernes, who is probably Canada's authority on the IMF. You could not have a better person to give you a historical background, as well as a contemporary read, on the IMF. Hopefully the two of us can answer your questions adequately.
I arrived just after the financial crisis in 2009, so you cannot blame me for the crisis, but I guess I must take part of the blame for why we are not out of it yet. I would be foolish to say that I am in a position to answer broad-ranging questions about the IMF because that is for the Government of Canada to do. I represent not just Canada but Ireland and the English-speaking Caribbean countries. Therefore, I have to articulate the interests of a wider constituency.
Thank you for the invitation. As Canada's Executive Director of the IMF, I welcome this opportunity to speak about the work of the institution and Canada's important role there. This is an opportune time to speak with you, given the implementation of the 2010 quota and governance reforms, which I am pleased Parliament ratified earlier this year. However, there are clearly some legislative housekeeping aspects now to complete.
Let me begin with some opening remarks on the role of the IMF. I will then turn to the specific item in Bill C-45 that relates to the governance aspect of the IMF reform. The governance aspect is particularly interesting.
The role of the IMF, as you all know, is to ensure stability in the international monetary and financial system. It is a key institution, then, for international cooperation on economic matters, and that has been especially true for the last three years. It is increasingly on the front line of combatting this global financial crisis. It also acts on many items as a resource for the G20.
The IMF helps member countries to adopt and maintain sound economic policies. We do this through Article 4. All 188 countries get a visit and a report. We provide technical assistance as well, thanks to contributions from member governments — not all member governments, but Canada is a major contributor to technical assistance.
The IMF lends to countries facing financial difficulties. It usually shows up on a balance-of-payments crisis, and that is when we lend. However, we lend with conditions, as you know, to ensure that we have an approved performance by an authority at the end of the assistance.
The IMF only lends money to countries that agree to enter programs that guide them, and that often lays down pretty rigorous reforms that are expected — all of this to put them on a sustainable path. We look at their debt projections into the future and say, ``Okay, if you borrow this money from the IMF, what do you have to do to not only pay us back but to have a sustainable debt profile going forward?''
Let us move to governance. The board of the IMF is like this room, if a little bigger and with 24 directors. Nineteen of us represent a cluster of countries each and five directors represent just their country. I remember walking in my first week into the board with the Chinese delegate, whom I sit beside. He said, ``Tom, look at this board. There are eight Europeans, plus the European managing director. That is 9 out of 24. Does that really reflect the world economy?'' The Chinese are not particularly obstreperous on this subject, but he just mentioned it.
That is what is behind what I will speak to today: How can we get an improved balance in the board? To be effective, the IMF's role must reflect the interests of all of its 187 members, and for this reason its governance structure must reflect today's world economy.
While many emerging market and developing countries' economies have grown very rapidly in recent years, their share of IMF voting power and the representation at the board has evolved much more slowly. Therefore, enhancing their voice and representation, the dynamic emerging market countries — and this includes countries not just in Asia but also Eastern and Central Europe — is essential to maintain, not only the effectiveness of the IMF and the fairness of decisions made at the board, but the credibility of the institution, the credibility of its policy recommendations, and the credibility of the kind of surveillance we do. We do surveillance of each country.
Do we reflect this new reality? We have to make some tough decisions about what kind of conditions we are laying down for loans. Therefore, the board has to be credible when it is doing that, as well.
An important step in the process came in the fall of 2010 when IMF member countries reached agreement in principle on a comprehensive quota and governance reform package. It is kind of a three-part set of reforms. It started with the Korean G20 summit. When the G20 summits meet, they sort of ensure that these reforms are carried out.
I say it is a three-part process. I understand that earlier this year, this committee studied the first element of the reform package, which pertains to IMF quotas. As you may remember, overall quota resources were increased at the IMF — this is the amount that is contributed by all members. Country quota shares will be realigned to give greater weight to emerging markets and developing countries. That first step spoke, to some degree, to realignment. This increase in quotas was necessary to ensure that the IMF had sufficient resources to play its role in safeguarding global economic and financial stability; but as you know, the IMF does not turn its back on countries when they are in need, provided they are willing to help themselves through reform efforts.
The IMF needs to demonstrate to markets that it stands behind its members, so having the capacity to draw on large amounts of liquidity in times of crisis is an important backstop to stem crisis contagion and act as a firewall. That is why the quotas were doubled. In my opinion, the IMF is now adequately resourced, though some members decided recently to go beyond that and temporarily boosted their resource contributions to the IMF, given the challenges in Europe. It has gone from about $500 billion to close to $1 trillion. However, the $0.5 trillion that recently came in is in place temporarily to boost our resources, given the challenge in Europe. Whether we will have to expend any of it, we have not decided. This morning, we will get an update on Greece. Even a new program from Greece has not been brought forward yet.
As you likely know, Canada did not participate in this last voluntary exercise because it was not related in any way to the 2010 quota agreement. This is quite a separate thing.
The second element in this three-part reform package pertains to an amendment to the Articles of Agreement of the International Monetary Fund that will change the voting procedure for determining the composition of the executive board — how you compose the board and how the votes by member countries are worked to compose the board. This is the improvement of the governance structure that I mentioned at the outset, which is our focus today.
To give you some background, the executive board manages many of the day-to-day operations of the IMF. We have been meeting about four days a week since I have been there because it has been so busy. Frankly, committees do not seem to work very well at the IMF. People do not like delegating to committees, so everyone shows up for every committee meeting. The day-to-day operations of the IMF are really run by the board of 24 executive directors. Currently, 19 of these directors are elected under the name of a country, while 5 are appointed by the largest shareholders. The largest shareholders — the U.S., Japan, Germany, the U.K., and France — represent themselves. The 19 elected directors operate under a constituency system whereby each director represents a number of countries. These constituencies are determined by an election held every two years. Voting for a particular director or country effectively joins the constituency of the country represented by that director. Last week, we had the vote and, once again, the Caribbean countries and Ireland wanted to stay with the Canada constituency.
Currently, the IMF Articles of Agreement stipulate that the five appointed directors cannot participate in the election and, therefore, cannot form constituencies. For example, the Americans or the French or the Germans cannot gather a flock of other countries to join them to increase their voice and their vote. The amendment approved by Parliament, which we are talking about today and will be reflected in the Bretton Woods Act and Related Agreements Act through Bill C-45, will eliminate appointed positions, thereby allowing all IMF members to participate in the constituency system. I do not think anyone will want to join the Americans because they would probably never be listened to, or most of these countries. We did this because it will allow the advanced European countries, such as France, Germany and the U.K., for example, to deliver on a commitment they made as part of the 2010 agreement to reduce their overall representation at the board in favour of emerging markets. That is why the elected board is sort of a precondition to this. More specifically, the number of executive director positions held by advanced European countries would be reduced by two in favour of emerging and developing economies. If you walked in the door with me this afternoon, you would see two fewer European directors.
The proposed board reform amendment will enter into force formally once the fund certifies that three fifths of the members, currently 113 members representing 85 per cent of the total voting power, have accepted the proposed amendment. You will be pleased to hear that 125 members, 69 per cent of the total voting power, have ratified. As a result, while a sufficient number of countries have ratified the proposed governance amendment, the voting share of these 125 countries does not represent a sufficient share of the total voting power for the reform to take effect because it has to be 85 per cent. With the U.S. election behind us, we expect the U.S. to ratify these reforms. They have 16.75 per cent of the vote, I believe, so their ratification alone will be sufficient for the reforms to take effect.
I am optimistic that the 2010 reforms will be ratified soon by sufficient countries, even though in the board today there has been some realignment formally negotiated already. We are making some progress toward giving these dynamic emerging markets more representation and a little less European representation, which was the key motive behind this reform.
[Translation]
The Deputy Chair: Thank you, Mr. Minister.
Mr. Bernes, are you finishing the minister's presentation? You will be able to answer questions from our colleagues. We have one hour; perhaps you can briefly provide some additional analysis.
[English]
Thomas A. Bernes, Distinguished Fellow and Former Executive Director, Centre for International Governance Innovation: Thank you; it is an honour to be here. The last time I had the pleasure of appearing before a parliamentary committee, I was a public servant, which put a different constraint on what one could say or could not say. I was used to appearing with a minister who said, `` I have the expert right here beside me, so if you have any difficult questions, you know where I will punt them.'' Now that Mr. Hockin and I are in the same position, we will both deal with them.
The question of governance of the international financial system, of which the IMF is at the heart, is very important. The proposed legislation before you, which Mr. Hockin described, deals with giving effect to an agreement reached within the G20 and the IMF in 2010. Some characterized that as historic reform. I refer to it as baby steps forward. The reforms are welcome and necessary. This bill gives effect to those and is, therefore, appropriate; but it is only a first small step.
With respect to the resources of the IMF approved earlier, this was the 14th time that the resources of the IMF have been increased. There is a review every number of years; and this was the fourteenth time. It is interesting that, in effect, this most recent increase gave the IMF the resources that returned its total resources to about where they were in 1998 relative to the size of the global economy. Since 1998, the global economy had expanded 125 per cent; global trade had grown 200 per cent; and capital markets had developed much more significantly than that. With this increase, we are back to about where we were in 1998 in terms of the IMF's ability to respond to global crises, be that backstop, and give confidence to capital markets that the fund is there if there is an emergency.
In my mind, that was catching up.
In addition, when you talk about the finances of the IMF, it gets very complicated, and I am sure Mr. Hockin will agree. There was a supplementary financing mechanism called the New Arrangements to Borrow, which was actually a Canadian initiative that came out of the 1995 Halifax summit. A group of countries, which more or less mirror the G20, agreed to, under certain conditions, make additional resources available to the fund in the event of a crisis. At the outbreak of the crisis in 2008, 2009, they agreed to increase the amount that could be drawn upon. When this last increase in quotas comes into effect — it is not yet fully in effect — the commitment through the New Arrangements to Borrow will decrease by an equal amount so the reality is the fund will not have any new net additional resources with which to backstop the system.
I might just make one comment on resources. I think it is important that when Canada or other countries make a commitment, I always like to say that the IMF is sort of like a credit union. You put money in on deposit and you take money out when you need it. When a country makes a commitment and those funds are drawn upon to help support an IMF program, it gets paid interest on that money and it gets returned. If it finds itself in a crisis, it can withdraw that money out at any time, so the money is not locked in. It does get interest on it. As Bob Rubin said when he was Secretary of the Treasury when testifying before a U.S. finance committee, the IMF has never cost the U.S. taxpayer a single dime. I think I would make the same argument here in Canada. It is important to understand that it is different than the World Bank and regional development banks where we put capital up, which is then locked in and for which there is a real budgetary cost.
That is on the financial side.
On the governance side, as Mr. Hockin said, if you look at the 24 members of the IMF board, nine of them came from Europe. Any way you want to size up the global economy, Europe does not represent nine twenty-fourths of the world economy. There was agreement in 2010 that they would give up two chairs. What that has meant, as I understand it, is they have given up two developed country chairs. For instance, rather than having Belgium as the chair of a constituency, one of the European chairs is now Poland. Yes, Poland is an emerging market rather than Belgium, which is a developed economy, but the reality is that that still remains as a European chair.
I would argue that the rebalancing that needs to occur has not yet taken shape. The provisions to allow for the election of all chairs, rather than having the five largest shareholders simply appoint their chairs, is necessary to be able to move forward. However, there is a big path ahead.
As an example is that we are talking about the International Monetary Fund and the European Central Bank does not have a formal role on the board of the IMF. Here you have the European Union, and the European Central Bank — which is arguably the second, third, fourth, most important central bank in the world — does not have a formal role yet. There is a huge job ahead in terms of reshaping what should be the appropriate role and representation for Europe within the board of the IMF.
How do we have an effective balance between the various emerging economies of China, Brazil, Mexico, South Africa is a question as well. A lot of the discussion on governance reform has focused on the small steps and the quota issue. They are about to launch into the fifteenth quota review, which is supposed to be completed within the next year. I suspect we may miss that target.
While these are symbolically important, I think there is a much larger governance agenda out there. First, what is the relationship between the G20, which has declared itself as their premier economic forum for cooperation, and the IMF? That has not been defined.
Second, what is the role of ministers of the member countries with respect to the IMF? There is what is called the IMFC, the International Monetary and Finance Committee, which is a ministerial committee that meets twice a year, but it is advisory only. It has no formal powers. There is a question, in terms of good governance and accountability, as to whether ministers should not have a more formal role and be held accountable for the actions that are taken. At the end of the day, the decisions by the IMF reflect the decisions of the member countries.
With respect to the board of the IMF — we have the current executive director and I was executive director for Canada from 1995 to 2001 — there is a question as to whether it should be a supervisory board or an operating board. What should the responsibility be? It has important implications for something like surveillance, which lies at the heart of the fund's role. Mr. Hockin referred to Article 4, which is the annual review by the IMF of all of the economies of the world that at the end of the day are approved by the board. This leads to a process whereby staff try to anticipate to some degree how the board will react.
There is a question of whether the surveillance function should not be independent and whether staff should not be allowed to say their view without it having to go through a formal approval process. There is a trade-off between technical efficiency and views versus the political role. However, if you look at some of the independent studies that have been done on IMF surveillance — and I used to head the independent evaluation office at the IMF — I always used to say it was sort of like the Auditor General of the IMF. It was independently appointed, decided what it would study. It did not look at the financial side, but it looked at the policy accountability of the IMF.
They have done a number of studies. If you look at the studies they did, for instance, on the role of the IMF in the lead-up to the 2008 crisis on the surveillance of the U.S. economy, it was clear that they missed it, as did many people. However, it became a perfunctory exercise in part because staff were afraid to challenge the United States at the board. There is a real question of accountability and responsibility with respect to the surveillance function, and that goes to the question of what the role of the board should be. Are they really there as the best economists in the world, who are passing judgment on the views of what arguably is the best economic group of experts we have in the world, or are they there for a much broader purpose, which is to ensure accountability of the institution?
Another element of the reform agenda is the appointment of the head of the institution, other senior staff and ensuring diversity on staff. As you know, there has been a tradition where the head of the IMF has always been a European. In trade-off, the President of the World Bank has always been an American. There actually was an election this last time. Lo and behold, the European won again. Canada, fortunately, in my view, supported another candidate who I thought was strong.
However, I think as we have gone through the European crisis the question was raised whether a finance minister of a major European country is really the best person to move into an institution to then be responsible for coming to views in terms of the operation of the European economies.
Second, with respect to other senior appointments, the number two position at the IMF traditionally goes to an American. Without any discussion — really, a perfunctory approval by the board — he was appointed.
The third thing is diversity of staff. Most of the economists come out of the Ivy League schools in the United States. There is little room within the IMF to bring in graduates from other schools around the world and to obtain a diversity of views.
This whole range of issues affects the operation and governance of the fund; it is part of the broader reform agenda. What has been done and what is included in this legislation is but a small step forward down that reform agenda.
[Translation]
The Deputy Chair: Thank you, Mr. Bernes. My colleague Senator Tkachuk would like to make a general comment on Mr. Hockin's presentation. I will let him speak first.
[English]
Senator Tkachuk: Welcome, Mr. Bernes and Mr. Hockin. I would like to say this is not Mr. Hockin's first appearance before the Standing Senate Committee on Banking, Trade and Commerce. The first time was probably a quarter of a century ago when he was Minister of State tasked with strengthening oversight of our financial system. People forget that the regulatory system of the 1970s and 1980s was rather weak. Two banks failed: The Northlands and Canadian Commercial. A third bank, the Bank of British Columbia, came very close to failing.
Mr. Hockin brought in legislation that created a single, powerful regulator, the Office of the Superintendent of Financial Institutions. His legislation gave the Canada Deposit Insurance Corporation stronger powers to protect the interests of insured depositors and other creditors. Federal regulators gained stronger and clearer powers to take control of financial institutions that were insolvent or that might violate the regulatory requirements. Insolvency standards were tightened.
Together with the introduction of strict, tier-one capital standards by his successor Gilles Loiselle in 1992, his reforms helped make Canada's banks the strongest in the world. For that we thank you, Mr. Hockin.
That was a long time ago. Being an old guy, I remember some of that stuff. I think it is important to remember and to thank politicians who do wonderful things.
The Deputy Chair: You have one minute for your question.
Senator Tkachuk: Thank you, Madam Chair. I really do appreciate that, but we have to go through this.
I do not have a lot of knowledge about how the IMF operates. However, what was its original purpose when it was first started by the member nations? Was it seen almost as insurance or as you mentioned, a credit union — a pooling of resources to benefit its own members or to look at areas outside its membership? I will start with that.
Mr. Hockin: That was at a Bretton Woods hotel, but in what state?
Mr. Bernes: New Hampshire.
Mr. Hockin: I have been there. There are pictures in the dining room of the meeting with John Keynes and so on. What were they thinking of?
Mr. Bernes: Essentially, it was an insurance program. There were 44 original members of the IMF. Remember back then, we were on the gold standard; it was a different system. However, it was a way to be able to provide support for their members that found themselves with a short-term balance of payments problem. ``Short term'' was meant to be one to three years. At that point, there were fixed exchange rates, so if a country faced a crisis, it could not adjust. It would seek permission from the to change its exchange rate and would be able to borrow to finance some of the adjustment costs associated but to be paid back within a one- to three-year period.
Senator Tkachuk: What triggers access to the funds? What triggers the crisis? Today, I would say a large group of the IMF members are facing tremendous financial problems. They cannot all qualify, obviously.
How will those decisions be made? You have Ireland and Greece. Britain has problems, and America has serious issues. How does the IMF decide what requires its financial aid?
Mr. Bernes: A country applies for a program. It has been one of the problems that no country wants to go to the IMF for a loan because that is seen as a black mark. Essentially, you would be shut out of capital markets. Countries not addressing some of their problems until they really have their backs against a wall has been one of the problems.
The fund has been developing what are called precautionary loans. They are loans in principle that can be drawn upon, if necessary, to try to provide a bit more confidence and allow countries to take some reforms earlier. At the end of the day, however, a country — whether Russia or Mexico during the earlier crisis or today with some of the European countries — has to make that decision. The fund will then look at it. It will work and design a program with conditions that say, ``We expect you to undertake these reforms in exchange for which we will provide a loan.'' The reforms are necessary because we want to ensure we will be repaid.
The track record of the fund is very good. I think there is only one African country that has never repaid its loan. Essentially, fund money is repaid.
Staff will develop a program. It then goes to the board for approval.
Mr. Hockin: I have a brief update. We have 60 countries out of the 188 now in programs.
In the last 18 months, it has been viewed as a little less of a stigma to apply than it used to be. I do not mean the precautionary thing, because you do not get the precautionary loan unless you are a good performer anyway. Some countries think, ``Look, this will help our reputation in the capital markets if we have an IMF program going on,'' so there is a bit of a shift in terms of the stigma.
Senator Tkachuk: Not desperation.
Mr. Hockin: Right.
Senator Harb: I have a basic question. We talk about the five largest economies. Anyone will tell you if you are in grade 3 and you are asked what the second-largest economy is now and you say Japan, you flunk. The second-largest economy in the world now is China. In fact, Japan is third. After that you have Germany, France, Italy, and so on.
What were they thinking when they came up with the five permanent members and not including China? They do a reform. We have an election in the United States where one of the major candidates wanted to declare China as being a hostile nation when it comes to their monetary policies. What were they thinking in excluding China from the table?
Mr. Hockin: Do you know the history on China, Mr. Bernes?
Mr. Bernes: China was an original member of the IMF but because of developments, Taiwan took the chair and China was out for many years.
Going back, the five directors were essentially decided upon in 1944 with the original Bretton Woods Agreement and a formula that determined the quotas. The formula was partly arithmetic and partly political at the time and was locked in place. Each of these quota reviews, of which we have had 14, is very difficult to change because you require the agreement of those who have the power; and those who have the power of the votes do not like to give them up.
I was on the board when there was discussion then about bringing China up. Many technical discussions were held. Staff came up with a calculation that showed that China should have the same quota as Canada — not the Canadian constituency but as Canada. I remember some of my colleagues in the G7 at the time came up to me and said, ``Is this really acceptable to you politically when it will put them at the same level as you?'' Our response was yes. Economically, they are bigger and they will be bigger and that made sense, but it was a political problem locked in place and has been too difficult to change.
Senator Harb: This is the kind of discussion that we should be having, in a sense, because it does not give a lot of credibility to these institutions in terms of governance. The World Bank has the same formula, I presume, as they have the same five large countries and the usual suspects. The European Union is an economic powerhouse, and it is great to have three seats in the United States. They are ganging up, obviously, on anything and everything that comes in and does not fit their agenda.
Mr. Hockin, how much discussion is taking place at the board level in order to trigger some sort of logical move that makes good economic sense?
Mr. Hockin: I want to give you the texture that I have observed over the last three years.
First, the Chinese are constructive participants and write comments on everything. They do not seem yet to have a design in mind as to how they would like the board to be. They are not a disruptive presence but are constructive. However, they do not seem to have an overall strategy for multilateral institutions generally, I would argue, and the IMF, in particular.
Second, Meg Lundsager, the current U.S. executive director, has been there through three presidents. I asked her how this happens, and she said: ``I think they have forgotten I am here.'' She is very good, is very low key and does not throw her weight around. In terms of the texture of the meetings, you do not get that feeling of the Americans throwing their weight about. You feel that a bit in Europe because of the crisis. They have caucus meetings before the board meetings to ensure they all say the same thing. That has been more of a foreground problem for us.
Senator Oliver: You are both experts in the IMF. We are legislators and we are here because of the bill before us; and you have read clauses 185 to 192. Are you satisfied that the bill before us, which this committee is studying, reflects the updated IMF Articles of Agreement?
Mr. Bernes: Yes.
Mr. Hockin: Yes.
Senator Oliver: My next question relates to some of the things you said about who makes the decisions and the relationships between certain major bodies. You talked about the G20 and the role of the IMF. You both said that we are all here today because the G20 in Korea decided they wanted some changes in quota and governance. Quota was done before, and governance is today. As a result of what the G20 said, they made the changes.
Does that not mean the G20 is the group that determines what happens in terms of governance of the IMF? Is there any other group that could make that decision to make us come here today with these changes? Do you understand my question?
Mr. Bernes: Yes. One issue that I try to highlight is the question of the nature of the relationship between the G20 and the IMF. The G20 came to a political decision on these reforms; and the IMF formally endorsed them.
The G20 countries represent the largest in terms of voting power and share of the global economy — the largest membership of the IMF. In a sense, if they come to an agreement, they can force it through if they want to do so. The problem is that there are some 170 other countries who wonder about themselves. They would like to have some say in the matter. One of the questions about the relationship between the IMF and the G20 is: How do you get that right so that the other countries feel that there is a sufficient consultative process so that their views are taken into account?
The good thing is that the G20 is more representative of the G7. Going back 20 years, the G7 was making these decisions. We have made some progress, and it has been broadened. However, emerging markets such as China, Brazil, and so on, still feel as though they do not have a sufficient say within the IMF. The World Bank faces the same problems that you just talked about. The BRIC — Brazil, Russia, India, and China — announced recently that they are looking at establishing a BRIC's bank, which would be just like the World Bank but one where they would have a lot more power and influence. It shows that a tension still exists where many members still feel that they have an insufficient say.
Mr. Hockin: I do not know where I can improve on what Mr. Bernes has said. In a wider context, when the global crisis hit in 2008, it was a financial crisis. The G20, representing 85 per cent of the world economy, had to do something. Even the UN stood back and said, ``Let us see what you can accomplish.'' At London, Pittsburgh and Korea, the G20 naturally tried to pull the world out of this economic crisis. The IMF ended up being central to all of this because it acts as their experts, in a way.
Last month I attended the big UN meeting of the Economic and Social Council, ECOSOC, and found that they are in search of a mission. They are kind of jealous of all the things that the G20 and the IMF are doing. I think that is because this is not permanent and is because we are trying to get out of the economic crisis that has led to the predominance of the G20 in world affairs. As other issues start to emerge, such as the environment, and so on, you might see the G20 trying to broaden its scope.
Senator Ringuette: Who chairs the board?
Mr. Hockin: The managing director chairs the board. She is a very good chair, although she is not there all the time. She chairs about one third of our meetings. The first deputy managing director, who is the American, David Lipton, is also very good. He chairs the meetings one third of the time. As well, there are four other deputy managing directors who come in and chair the board.
Senator Ringuette: How many people work at the IMF — the group of people who manage it, either in a staff position or a country-designated position? How many people are occupied by the IMF?
Mr. Hockin: There are two big buildings, 14 stories each, and 2,500 staff. Seventy per cent of those are economists, a few sociologists and then lawyers. About 7 per cent of the budget goes to the board. In my office, I have eight people from Ireland, Canada and the Caribbean advising me, and in touch with the capitals, to ensure that I do not freelance too much around what the capitals expect. That is how it works.
Senator Ringuette: You have a trillion dollars and a trust fund. How many of your 188 members that have put money into that trust fund are legitimate — not in legal terms — shareholders of the fund?
Mr. Hockin: You cannot vote unless you have put forward your contribution. Now you should know that quotas are like contributed capital or subscribed capital; they are not necessarily paid up capital. They can be called on. You subscribe to it.
Senator Ringuette: You are saying that all 188 countries have subscribed or committed to a quota —
Mr. Hockin: Yes.
Senator Ringuette: — that is designed as per their level of economic development, and so forth?
Mr. Hockin: Right.
Senator Ringuette: I honestly believe that shortly you will be caught in an infrastructure or operational dilemma big time, as I think Mr. Bernes has indicated. I see that you are a huge infrastructure to manage not even $1 trillion in real terms because some of the quotas have not been put into the kitty, if I understand you correctly.
Mr. Hockin: Yes.
Senator Ringuette: I have concerns with regard to the distribution of the board members and of the requested quotas to be eligible to vote, et cetera. All my inquiries probably cannot be answered today in the short time that we have, but if you have any comments on my comment, please do so.
Mr. Bernes: We could spend a lot of time on it, as you suggest.
Senator Ringuette: Yes.
Mr. Bernes: I think that the question you raise of who chairs the board — and as Mr. Hockin said, the managing director chairs of the board — raises a question as being part of the reform agenda. Obviously there is debate about whether should there be a separate chairman from the CEO. If the senior management person and the fund are one in the same, the managing director appoints the secretary who works with staffer to draw up the minutes, the record of the discussion; the legal counsel is appointed by the managing director. This has been part of the debate. Should there be a separate chair? Should at least some of the senior appointments, the secretary of the board and the general legal counsel, be joint appointments so that they feel there is some responsibility and accountability to the other institution?
There is a huge governance agenda here and that is what I was trying to argue, which is only beginning to be tackled.
Mr. Hockin: I would like to concur with what Mr. Bernes said. I think we are making progress but there are dimensions to governance that he has mentioned that are still to be taken care of.
Senator Ringuette: Who appoints the managing director?
Mr. Hockin: The board.
The Deputy Chair: Knowing that there is the fund but also operational expenses, are the operational expenses divided according to the same quota as the contribution to the fund? If you have 2,500 people on the payroll, you probably also need to put them in a building and pay for the rent, et cetera. That is a separate thing. Canada certainly writes the cheque there.
Mr. Hockin: Mr. Bernes can refine my answer but that is roughly the case. It is roughly $9 million a year to operate the IMF operationally, but there are trust funds set up to give technical assistance to help with countries in poverty, and so on. Those are separately funded by countries like Canada and Japan and Britain. It is not entirely the case that everyone contributes to the running of the IMF. Certain pieces of it, such as special trust funds, are separately funded.
Senator Massicotte: Obviously we are talking about specific provisions and amendments to existing bills. To be very clear, my question is to Mr. Hockin. Mr. Bernes summarized very well the matters to improve the governance of the IMF. I think there have been many articles written in newspapers saying that we need to get to a better division of representation and governance.
From what I hear from you, you do not disagree with that, but what is being proposed for review is progress and is not satisfactory. It is not where we want to go, but it is progress. Therefore, you support these amendments. Am I correct?
Mr. Hockin: That is correct, but there is a three-part play and I have not mentioned the third part which is: How do you calculate quota? What are the qualities you look at? It is GDP, openness, variability of your economy, and the size of the reserves. We are looking at that, too. The dynamic emerging market countries have strong views on how the formula should be calculated. Mostly they want to use PPP and put much more weight on that rather than market GDP. That is the dilemma I have to live through over the next few weeks because we will have to make a decision on that. That will be part of the governance story, but it is not for today. I will probably appear before you on that in the winter time.
Senator Massicotte: As a question of interest, I read your quarterly report. I think it is well done and summarizes the issues. However, I am disappointed that it does not get more coverage or credibility in Canada, for instance. I gather you are quite satisfied. You made reference saying that in your mind you have the best economists in the world. However, when you provide a report and the explanation is that it is approved by the board and therefore it is too political, why does not it have more weight in causing impetus to get us to change? Look at Spain. It is the same thing. Are there any comments?
The Deputy Chair: Senator Stewart Olsen, we have to finish in a few minutes so ask your question and we will have an answer for both.
Senator Stewart Olsen: You mentioned that you have increased the quotas 14 times and now you are reviewing that one more time. In 2010, I believe we said yes to the increased quotas.
How do you decide? You have a big trust fund and it is in the trillions of dollars. How would you decide how much you will need in that trust fund to come back for, because 14 is a lot of times to come back and keep increasing quotas for countries, especially in a global downturn. How do you decide how much you will need in that trust fund?
Mr. Hockin: It is a guess. It is a guess on how the world economy will unfold. That is really what underpins it. We are never sure if we have enough.
Senator Stewart Olsen: How far do you let that trust fund go before you would ask for more in the quotas? You are not just building up a big, huge fund there and just kind of letting it grow, are you?
Mr. Hockin: There is not a mechanical answer to your question.
The Deputy Chair: It is a general question about how we build the reputation of the IMF with the population of Canada. I think it is a big challenge, but maybe you have some ideas. We will conclude with that.
Mr. Bernes: The billion dollars a year has been paid out of the interest earned on loans put out. Going back to my comment quoting Bob Rubin, the U.S. and Canadian taxpayers have never paid a dime for the IMF. Those operating costs are being paid out of those who borrow.
On the 14 reviews, the quota has not been increased every time. Sometimes there is a decision saying, ``No, there is no justification for an increase.'' However, the last increase, as I tried to say, took place in 1998, so this is catching up with the growth in the economy. That is a question of figuring out what should the size of the fund be relative to the size of the overall economy and what are the potential problems that could occur.
We say ``getting traction on Article 4,'' but it is how to have more impact. This is a debate. Traditionally, the IMF staff have looked at themselves more as sort of confidential advisers to government. We come in, produce this report and polish it up.
Many are arguing — and I think it is right — that in today's world they need to be more than just advisers to the government; they have to be prepared to take more of a public role. That means they have to develop the capacity to release these and to engage with the community, parliamentarians and the media to get the story out. In Greece, for instance, what was going on was known and they should have been and could have been out there making that case earlier, before the crisis blew.
To go back to a Canadian example, I think the reports of Canada have been very good. One of the traditional points they always make is the need to reform unemployment insurance in Canada. You can imagine what a group of economists will say about an unemployment insurance scheme with regional dimensions, and the political reaction we know we get in this country.
That is always the tension you get and why some governments prefer to keep a lower profile to the report.
Mr. Hockin: Also, on the Canadian report, every year for the past four or five years, they have called for a national securities commission. That sometimes hits the headlines in the business pages. It does not get more publicity because it is good news. In most countries, these Article 4s get a lot of publicity. Do not forget that the authorities have to agree to publish the report, and not every authority will agree to publish the report. I am proud that Canada has always agreed to publication, but not all countries do.
The Deputy Chair: Thank you very much, Minister Hockin and Mr. Bernes. I think we know a little bit more about where we are. I think you have some work to do, Minister Hockin, in your job now. Thank you.
[Translation]
Today we welcome to our committee the Honourable David Ramsay, MLA, chair of the Committee on Internal Trade. He is also Minister for Industry, Tourism and Investment for the Northwest Territories. We also have Carole Presseault, Vice-President, Government and Regulatory Affairs, from the Certified General Accountants Association of Canada.
From the Canadian Council of Chief Executives, we also have Joe Blomeley, Policy Analyst, and John Dillon, Vice- President, Policy, and Corporate Counsel.
Welcome to all our expert witnesses.
[English]
Mr. Ramsay, you have the floor for the first presentation. We have a little less than an hour. Can you make your presentation in about five or six minutes?
Hon. David Ramsay, MLA, Chair, Committee on Internal Trade, Minister of Industry, Tourism and Investment of Northwest Territories: Yes, I can. Good morning, everyone. It is an honour to be here today, representing the federal- provincial-territorial Ministers Responsible for Internal Trade. I am the Chair of the Committee on Internal Trade and the Minister of Industry, Tourism and Investment with the Government of the Northwest Territories.
As Chair of the Committee on Internal Trade, I am pleased to inform the Senate committee that the Committee on Internal Trade supports the federal budget implementation bill, which would amend the Agreement on Internal Trade Implementation Act and repeal subsection 28(3) of the Crown Liability and Proceedings Act in order to reflect recent changes to the Agreement on Internal Trade.
The Agreement on Internal Trade is an intergovernmental trade agreement signed by Canadian first ministers in 1994. The Government of Canada, all of the provinces, the Yukon and the N.W.T. are all parties to this agreement. Nunavut is presently working towards signing the AIT.
The intent of the agreement is to reduce and eliminate, to the extent possible, barriers to the free movement of persons, goods, services and investment within Canada and to establish an open, efficient and stable domestic market. The Ministers Responsible for Internal Trade meet regularly to discuss and consider actions and amendments to the agreement that would facilitate the further reduction and elimination of barriers to trade, investment and labour mobility across Canada.
In 2004, the Council of the Federation also directed the Committee on Internal Trade to improve the dispute resolution procedures. To that end, the committee recently made amendments to the agreement.
In order to give effect to changes to the agreement that are reflected in the tenth and fourteenth protocol of amendments to the agreement, legislative change is needed. Changes to the dispute resolution procedures chapter of the agreement are reflected in these protocols of amendment and include the introduction of monetary penalties and changes to dispute resolution procedures.
More particularly, ministers responsible for internal trade signed the Tenth Protocol of Amendment in 2009. As a result, monetary penalties have been added to the government-to-government resolution process. The Tenth Protocol of Amendment provides that parties shall take steps necessary to, first, ensure that any order for tariff costs made by a presiding body may be enforced in the same manner as an order for costs against the Crown in that party's superior courts; and, second, ensure that any order for monetary penalties made by a compliance panel may be enforced either in the same manner as an order against the Crown in that party's superior courts or through a standby deposited with the secretariat.
Ministers responsible for internal trade also approved in principle the Fourteenth Protocol of Amendment in June 2012, which incorporates the basic structure of the government-to-government dispute resolution process into the person-to-government dispute settlement process and includes a number of other changes resulting from the procedural fairness review of the entire dispute resolution procedure chapter. The changes are designed to ensure procedural fairness, while ensuring consistency between the government-to-government and the person-to-government dispute processes.
Due to the common-law principle that the Crown may not be sued without its permission, each of the parties to the agreement must ensure that it has legislation in place and provides the authority to give effect to the processes established through the tenth and fourteenth protocols of amendment. All of the provinces and territories that are parties to the agreement, including the Northwest Territories, have taken steps to either enact or amend appropriate legislation to establish the mechanisms required to enforce the changes.
The Northwest Territories recently amended its legislation. The Commissioner of the Northwest Territories assented to Bill 7, An Act to amend the Judicature Act, on November 6 this year. This bill added a provision to the N.W.T. Judicature Act that provides the trade orders against the N.W.T. under the Agreement on Internal Trade may be filed with the Clerk of the Supreme Court of the Northwest Territories. Once filed, an order would be enforceable against the Government of the Northwest Territories in the same manner as other orders of that court. The addition of this provision will bring the N.W.T. in line with other signatories to the agreement.
The Committee on Internal Trade agrees with the proposed changes to the equivalent federal legislation before you today. The recent changes made to improve the dispute resolution chapter of the agreement are a significant step that indicates to industry that the Committee on Internal Trade is listening and continuously looking for ways to improve the Agreement on Internal Trade Implementation Act.
Once again, I want to thank you very much for the opportunity to present to your committee today.
The Deputy Chair: Thank you, Mr. Ramsay. You must be proud of your accomplishment according to your agreement.
[Translation]
I will ask Ms. Presseault to make her presentation. However, given that your text is a little long, I would ask you, if possible, to leave some time for honourable senators to be able to ask you questions and to restrict yourself to four or five minutes.
Carole Presseault, Vice-President, Government and Regulatory Affairs, Certified General Accountants Association of Canada: Madam Deputy Chair, I assure you that my text is longer than the presentation I intend to make. However, there are some messages I would like to pass on.
Thank you very much for this opportunity to make a presentation. It is a pleasure for me to be at this table to discuss a matter that is very close to the hearts of our 75,000 CGA and student members in Canada and in more than 90 countries.
As trusted advisors to Canadian businesses of all sizes, our members understand well that interprovincial barriers to trade and labour mobility can hinder the growth of businesses. As the minister indicated, the agreement came into force in 1995. Its objective was to reduce and, where possible, eliminate those barriers. Over the years, however, weaknesses in the agreement became apparent. CGA-Canada gained unique insight into those weaknesses through our involvement with three disputes arbitrated under the AIT's rules. It is that insight that we seek to share with you today.
[English]
We are pleased to support the proposed amendments. As the minister indicated, the proposed amendments contained in Division 14 are essential so that the federal government meets its obligations under the Agreement on Internal Trade. Previous to these amendments, which were agreed to by the Committee on Internal Trade, there was little incentive for governments to comply with panel rulings; and this is why we support it. As the minister explained, this past June, the Committee on Internal Trade extended the penalty and enforcement provisions to the person-to- government dispute resolution procedures. This is something that CGA-Canada and a number of other businesses and professional associations have called for, for a number of years. After all, it is the people, businesses and private sector organizations that encounter barriers to trade and labour mobility. I will come back to this theme.
We applaud federal-provincial-territorial ministers for recognizing this and agreeing to this change and, in particular, we acknowledge the leadership of Minister Ramsay, who has been Chair of the Committee on Internal Trade for the past year.
There are two central points that I would like to make this morning. The first is with respect to the fact that we understand that despite these changes, individuals would not access penalties imposed on governments but, rather, those funds, after the expenses have been defrayed, would be deposited in something called an ``internal trade advancement fund.'' This came as a bit of a surprise to us and to others. It had not been discussed publicly and you cannot see this in the bill. However, we understand that it is part of the changes. We will not see those changes, we are told, until the Fourteenth Protocol of Amendment, agreed to in June, is published. That will not be until all parties have ratified the changes, which could take upwards of 18 months, we were told. We understand that the fund is created to further the objectives related to internal trade, and we agree with that. However, we do not have an answer to the question of why individuals who have been hindered by barriers are not compensated for their injuries.
The second point is with respect to the process that led to these changes. As I mentioned earlier, businesses and organizations like ours and our members and others are faced with the barriers, yet these organizations are not involved in the changes. This point relates to the lack of transparency and stakeholder engagement in the establishment and reform of the AIT Implementation Act.
We have looked at this over the years and have done some work on the issue of governance of the AIT. We concluded that the process of reform of the agreement has to be more inclusive of stakeholders. Greater transparency of the whole process is essential for legitimacy and public trust.
As I wrap up my brief comments, I would like to comment on the opportunity the federal government has in the coming year, as it takes over the Chair of the Committee on Internal Trade in December. Last June, the ministers agreed to explore the possibility in parameters of a new chapter on technical barriers to trade. Progress on this issue would help businesses tremendously, and would advance the government's agenda on two key files: international trade and the reduction of regulatory red tape.
The government has made good progress on addressing the problem of red tape, but as our members and their clients repeatedly remind us: It is not just the number of regulations they face that is problematic but the duplication and overlap of different regulatory jurisdictions. A harmonized federal-provincial-territorial approach to addressing these regulations is required, and an AIT chapter on technical barriers to trade may very well be the tool to do so.
[Translation]
Finally, we have some further ideas on how to streamline the dispute resolution process to make it more accessible and more timely. We would be happy to discuss these ideas with you.
Thank you for giving us this brief opportunity today. I am ready, willing and able to answer your questions.
The Deputy Chair: Thank you. I would like to ask Mr. Bromeley to get straight to the point, so that we have at least 30 minutes for questions.
[English]
Joe Blomeley, Policy Analyst, Canadian Council of Chief Executives: Thank you for the opportunity to appear this morning to discuss Division 14 of Part 4 of Bill C-45.
My name is Joe Blomeley and I am an analyst with the Canadian Council of Chief Executives, where I largely focus on domestic economic issues. The council is a not-for-profit non-partisan organization composed of CEOs of 150 leading Canadian enterprises.
The Canadian Council of Chief Executives believes that the free flow of goods, services, people and investment within Canada's borders is essential to the competitiveness of our economy and the future prosperity of all Canadians. As a country, we hold ourselves out to be one of the most open economies in the world, yet Canadian businesses and individuals continue to face internal barriers that cost the Canadian economy close to $14 billion annually. Influential international bodies such as the OECD and the IMF, as well as the landmark report of the Competition Policy Review Panel, have repeatedly singled out interprovincial trade barriers as a major factor explaining Canada's poor productivity performance. Furthermore the perception, legitimate or not, that Canada is rife with internal impediments affects the way international investors regard our country.
It is therefore an opportune time to discuss Canada's Agreement on Internal Trade and how the country's economic union can be strengthened in the future. In particular, I appreciate being given the opportunity to discuss the dispute resolution process. A truly effective process is essential for achieving the goals of the AIT.
To that effect, the council would like to applaud the Committee on Internal Trade for the recent amendments to the dispute resolution process, particularly those focused on ensuring a more effective person-to-government process. By further opening up the process to individuals, private firms and associations, the Committee on Internal Trade has taken a major step towards enabling a free market within Canada.
The council was among those who welcomed the significant strengthening of the agreement in 2009, in particular the introduction of monetary penalties, the removal of dispute resolution privileges in situations of non-compliance, and further changes to the appeal process. These enforcement mechanisms appear to be significantly altering the trend of too frequent non-compliance by governments. We hope the Committee on Internal Trade continues to monitor the effectiveness of these amendments and builds off their success. The stronger the dispute resolution process, the more it will dissuade provinces from maintaining or legislating discriminatory policies in the future.
Finally, the council urges governments, particularly the federal government which will chair the next meeting of the Committee on Internal Trade, to move forward on other pressing issues, including corporate registration, business licensing discrepancies, technical barriers to trade and labour mobility. Labour mobility is particularly pressing. Over the past year, our members have continually reiterated the need for the council to engage on issues related to filling skill shortages and addressing mismatches between the supply of and demand for skills. Without qualified individuals to do the job, many promising economic development opportunities may be delayed or lost altogether. The aging of our population means that such shortages are likely to become more serious and frequent in the years ahead, making it increasingly important for Canada to encourage the free flow of people within our borders.
While the Committee on Internal Trade has made welcome progress, particularly through the Labour Mobility Coordinating Group's work with professional associations, the labour market chapter remains imperfect, as provinces can still unilaterally require certain professionals to receive additional training should they deem the occupation as an ``exception.'' As well, significant differences in occupational standards and certification requirements remain. The committee must work towards the reconciliation of all occupations to create full labour mobility, strengthening the economic union and improving Canada's competitiveness and productivity.
In closing, let me thank you again for giving us an opportunity to discuss the recent amendments to the AIT and we would be happy to answer any questions.
[Translation]
The Deputy Chair: I would like to ask for some clarification.
[English]
In both cases, your organization and Ms. Presseault, do I read that you would like to participate in the process for evolution of the whole process? I believe all of this seems to have escaped your own involvement. Am I right or am I wrong?
Ms. Presseault: I think you are right. We have had opportunities. We have limited opportunities to interact with the Committee on Internal Trade, and that has been part of the tradition of its reform mechanism. We are not shy to share our points of view and we have significantly involved ourselves in the revision to labour mobility provisions that my colleagues here speak about. We have voiced our concern. We have published much information about our experience with the Agreement on Internal Trade. In fact, we have led a coalition of organizations that the Council of Chief Executives belong to and we make our statements, but there is that interaction is missing. For us, as I explained, the creation of this fund is a bit of a surprise. It is not contained in the legislation; it is contained in a briefing document we have obtained. If not, we would not have known that.
We come back to the discussion on governance. It is members of our organization and other organizations and Canadian businesses that are affected by the barriers. They should be somewhere at the table.
The Deputy Chair: I would ask Minister Ramsay to comment about the future for the participation of the various organizations to the evolution of these agreements.
Mr. Ramsay: Certainly, the issue of participation is a big one. My belief is that the more we can include representatives like the presenters today to the Committee on Internal Trade, the better decisions will be made. As a group of ministers, FPT meetings are usually only once a year. Even the opportunities for ministers to get together is only once a year, so the opportunities to get that group together are slim. When those opportunities arise, participation is a big part of that. If folks feel there has to be more participation, it is something that can certainly be discussed at the next FPT on internal trade.
The Deputy Chair: Perhaps the proposed changes or amendments in the future could be made public to get some reaction before you meet, and at least use a sounding board before you move to the next step. That is just a suggestion. Our committee is always here to help to progress economically as a country. I guess it would certainly be appreciated by all the industries in Canada and for those concerned. Even though you meet once a year, I presume you also have staff who work for you who could also be in contact with the various groups. I would say this is a small step, but I know that a lot more has to be done.
Senator Massicotte: Thank you for being with us. Everyone agrees, and has for decades now, that internal trade is significantly important, and better internal trade is very important. It could even increase the quality of life of Canadians far beyond the many trade agreements we have with other countries. It is a big dollar amount. Every province agrees until there is an issue that is sensitive politically to one province, and all of a sudden we find ourselves with excuses of why this theory does not hold with our province.
I will ask Mr. Ramsay, because you are the politician representing the other provinces: Is this legislation finally going to avoid that pitfall where finally we can really seek free trade among the provinces? Is it adequate as a policing mechanism?
Mr. Ramsay: Certainly we look at the government-to-government resolution process and the monetary penalties involved as being a way forward and a way to address that. We believe that will be a good step forward, yes.
Senator Massicotte: Mr. Blomeley, do you agree with that?
Mr. Blomeley: Since the amendments were put in place in 2009, according to the AIT secretariat, every dispute brought to a panel has resulted in the offending government changing course, which was not the case prior to 2009. My colleague Ms. Presseault may have more to say about it, considering her organization was actually involved in the dispute resolution process.
Ms. Presseault: Your question is: Is it adequate? My quick answer is of course it is. We have an enforcement mechanism, so there is a stick and it was not there before these changes were made.
That was necessary; in fact, it is necessary for Parliament to pass Division 14. The federal government currently does not have the right to dispute the resolution process and will not until it adopts this legislation. It is off-side, if you want.
The governments of Manitoba, British Columbia, Alberta and Saskatchewan took a dispute for us against the Government of Ontario and it was resolved very rapidly. I have a copy of the panel report. It is instructive in the kind of direction it gives to implement Chapter 7 provisions, Chapter 7 being the labour mobility provision. It is clear; there is a lot of clarity. I have read every panel report since Chapter 7 was implemented. As Mr. Blomeley said, it is clear and governments are now committed.
Will it eliminate barriers? There is a strong incentive to do so.
The Deputy Chair: Is the report available?
Ms. Presseault: Absolutely. It is available online.
The Deputy Chair: Could you give a copy to our clerk for distribution to our members?
Ms. Presseault: Yes.
[Translation]
Senator Massicotte: Ms. Presseault, is this about your accountants' ability to work in other provinces without conditions or obstacles?
Ms. Presseault: The issue is that, under chapter 7 on labour mobility, it was possible for the government to issue a notice of exemption —
[English]
— that met a legitimate objective of public protection, health or consumer safety. The governments under the new Chapter 7 provisions had the opportunity to file a notice of exception to chapter.
Our members, because of that notice of exception, did not meet the requirements in Ontario. We argued, along with the western governments, that this went against the principles contained in Chapter 7. Briefly, the principle is that if you are certified by a regulatory authority in one jurisdiction, you should be recognized to be certified in the other jurisdiction without any additional material, requirements or education, assessment or examination.
In the end, the panel put forward that the Government of Ontario had not demonstrated that the notice of exception was valid. That is rather strong, because the notice of exception can be an effective tool for the right reason, but it could also be a disguised barrier to trade. In this case, the panel found that it was a barrier.
Senator Massicotte: Many provinces have used that same approach with other professions and it is a big issue.
Ms. Presseault: This committee would probably understand that. There is a reasonable exception for the legal profession, because the civil tradition and the common law are not the same. That would be an exception that is valid. However, there are other exceptions that may not be as valid.
We understood that there were exceptions being considered by various provincial governments, but they were awaiting the outcome of our case to be able to understand the implications of the revised labour mobility chapter. This is new, so it must be tested and there was a good test recently.
Senator Harb: Mr. Ramsay, are you aware if all of the provinces and territories are World Trade Organization compliant?
Mr. Ramsay: Yes, of course.
Senator Harb: Are they?
Mr. Ramsay: Yes.
Senator Harb: My second question is —
Mr. Ramsay: Maybe I could get the senator to repeat the question.
Senator Harb: Are the provincial and territorial governments up to standard when it comes to World Trade Organization standards? Are they compliant?
Mr. Ramsay: I cannot speak to all jurisdictions and I would not be able to answer that question on behalf of all jurisdictions in this country. That is a difficult question for me to answer.
Senator Harb: It is fairly important, though, because you would want to have what one would call a ``level playing field'' — that is, everyone playing by the same rules. One would say that is probably the easiest rule to comply with because Canada is compliant as Canada.
Mr. Ramsay: That is the objective, senator. Certainly we are complaint. However, again, my belief is that is the case, but I would not want to answer on behalf of other jurisdictions.
I agree with you, though.
Senator Harb: In every trade arrangement, you always have what one would call two components. One is precautionary and the second is exclusionary. In the precautionary, governments can take measures because they do not want the health and safety of their population to be impacted, so they set measures. In the exclusionary, governments set limitations to trade because they want to protect certain products within their province, territory or nation.
Specifically, I want to mention the following. I imagine you have had discussions with your colleagues at the provincial level dealing with labour standards, for example, because if you do not have labour standards that are the same, you will have problems; health and safety standards; environmental standards; and mobility standards in terms of technical people — an engineer or accountant, for example, who could go from one province to the next without barriers. Have there been any discussions or agreements on that? Can you enlighten us in terms of what is going on there?
Mr. Ramsay: As a small jurisdiction — our population is 43,000 — it is in our best interest to have a free flow of labour and goods. That is certainly something that we strive for. We do not like to see barriers put up. Thank you for your question.
Senator Moore: Mr. Ramsay, did you hear the evidence given by Ms. Presseault with regard to the Internal Trade Advancement Fund; were you paying attention when we mentioned that?
Mr. Ramsay: Yes.
Senator Moore: In it she said individuals would not access penalties imposed on governments but rather those funds would be deposited in something called the Internal Trade Advancement Fund. Why would someone harmed by a barrier not be awarded the penalty, if one were awarded? Second, what will happen to the money in that fund as it is now proposed?
Mr. Ramsay: Perhaps I could have my deputy minister answer that question. He is here with me.
Senator Moore: Go ahead, please.
Peter Vician, Deputy Minister, Department of Industry, Tourism and Investment, Government of the Northwest Territories: Thank you. I am not sure if this is coming through on the screen. It is the intent that the fund be established for the purpose of moving toward dissemination of those dollars to the costs associated with the actions brought forward. That is the intention over time.
Those discussions have not been resolved yet at the committee level; they continue at this point. However, the intent was to establish the fund and move towards the ability to disburse those at that time.
Senator Moore: Is the idea that the money would be used to pay for the costs of a party? What party? If it is an individual, are you saying that the money would be used to pay the cost of a government in an action taken by an individual?
Mr. Vician: Yes.
Senator Moore: What about the individual?
Mr. Vician: The intention under consideration at this point is the opportunity to seek cost recovery from that fund. However, that has not been fully resolved yet between the jurisdictions. Those discussions continue.
Senator Moore: There would be an opportunity for the individual to seek compensation from that fund afterward for the cost that he or she incurred; is that right?
Mr. Vician: Yes, for costs associated with the action. Again, that is the discussion underway currently, senator.
Senator Moore: Is it anticipated that those would be full costs, or are they much lesser court costs?
Mr. Vician: I suspect it would be a lesser proportion.
Senator Moore: I see. Do you think that this discussion or negotiation would lead at some point in time to an individual being able to access the full fund? If an award is made and that person has been the harmed party, why would that person not be able to get full compensation as if the person were standing in the same shoes as a government party to an action? I do not understand that.
Mr. Vician: On principle, senator, that is the intent. That process has yet to be resolved between the jurisdictions. The intent with the penalty provisions associated with dispute, which hopefully will not have to be applied, is that if a cost were incurred because of an action and a decision made by the panel, penalties would be imposed, the intent being that those penalties would be used toward remediation of the costs. My challenge today is not being able to convey to you definitively that that has been resolved at this point. The intent is to establish the penalty structure and establish the funds so the penalty fund would be there.
Senator Moore: Could both parties, including the one found negligent, apply to have access to those funds or the successful party only?
Mr. Vician: That has not been determined yet, senator. That would be matter of discussion.
Senator Moore: In the hypothetical, a losing government party could seek compensation, even though they were acting wrongly.
Mr. Vician: Under the two provisions in Article 17, one provides for the government-to-government resolution of disputes and monetary penalties are proceeded with. In principle, it is a similar scenario to the person-to-government dispute. The parties would have access to the fund. However, the process of that fund disbursement has not been finalized.
Senator Moore: The concept is that both parties, the winner and the loser, can have access to those funds.
Mr. Vician: Yes. That would be the discussion.
Senator Moore: I do not understand that.
The Deputy Chair: We have figured out that maybe there is some work to do. It is not the end of the process.
You talked about the representatives of the Canadian consulates and productivity. Could you give us a concrete example? I will tell you about my knowledge of the barrier.
When we talked about barriers in Canada, the traditional product used to be beer. You could not send a beer from one province to another province. Tourists wondered why that was so. Since then, has that changed? Can you make a fair assessment that it will cost the consumer less?
I want to show the effect of removing the trade barrier on a day-to-day basis. This has to do with what we consume or projects that have to be done. I guess we will go ahead with a lot of exploration of our mind as to what people can come here to work, et cetera. I want you to give us more background on that.
Mr. Blomeley: I can think of two examples, one being the need for labour. We have companies with labour shortages in their jurisdictions that are looking across the country for people to work. If they cannot find people quickly, it can result in higher costs due to significant delays in projects, which could be passed on to the consumer.
The second example that comes to mind is economies of scale when it comes to things such as business registration practices and discrepancies. If a company is pan-Canadian and needs to register in various jurisdictions, it raises costs and reduces the opportunity to create economies of scale. Our companies are larger and tend to be able to deal with some of these barriers more easily than a medium or small business. Small or medium businesses looking to expand operations would feel pressed by some of the barriers currently in place.
If the dispute settlement resolution process will contain the teeth it needs with these amendments, that might help to take care of some of these issues.
The Deputy Chair: Mr. Ramsay, years ago I was involved in manpower and labour issues in my province. At the time, we were under the impression that the Interprovincial Standards Red Seal Program solved many of the problems with manpower. What happened to that program? Are we passing accord after accord but still retaining all these barriers? Is it more open for a certified carpenter or other certified tradesperson in one province to work in any province without barriers? I have heard that in some areas of Alberta, people from China were brought in to work. Under what rules can foreigners work on construction sites when our own workers cannot move there? I want clarification on this. Will this help to remove such barriers? Does the Red Seal Program have some weight?
Mr. Ramsay: Certainly the intent is to make it help. In the Northwest Territories, the labour side is handled by the Minister of Education, Culture and Employment. My responsibility is for economic development.
In terms of resource development in the Northwest Territories, we have 3,000 migrant workers that come from other parts of Canada to work here. Certainly, it is an issue for us as we continue to develop our mining resources in oil and gas, so we need migrant labourers to work in the Northwest Territories. It is an issue that we are alive to. Being a small jurisdiction with much resource potential, it is important to us. Whether other jurisdictions in Canada share that opinion is up to them. Certainly, other jurisdictions would have a different approach.
The Deputy Chair: Do I understand that you have welcomed some foreign workers, or just people from other provinces to your territory?
Mr. Ramsay: Like other jurisdictions, we have a small number of foreigners. We probably would not have as many foreigners as you would see in larger jurisdictions. As I mentioned, 3,000 migrant workers have come from all corners of Canada to work in the Northwest Territories at our diamond mines and in our developing oil and gas industry. We have had oil development in the N.W.T. since the 1920s, but we are advancing a big project in the central Mackenzie region of our territory. We have a good deal of migrant labour in the Northwest Territories that we depend on to grow our economy.
Senator Moore: I have a question about access to the fund. We have heard from everyone that they are pleased with this change to the legislation because it will give some teeth to the agreement with its monetary penalty. I do not see how the guilty party, say a province, can pay a penalty and then get some of the money back. I am questioning the deterrence. It does not make sense to me. I do not think the party that was foot-dragging or did not adhere to the agreement should be able to look for money from the penalty that it just paid. That does not make sense.
The Deputy Chair: Do you have a comment on that, Mr. Ramsay? Are we right to think that the plaintiff and the guilty party are both sharing the penalty?
Mr. Ramsay: I appreciate that comment. I will take that back to my colleagues and commit to getting a response to the committee on that important issue.
The Deputy Chair: Mr. Dillon, do you wish to comment?
John Dillon, Vice President, Policy, and Corporate Counsel, Canadian Council of Chief Executives: Yes. I would add a different perspective here.
As my colleague mentioned, most of the cases we are aware of that have gone to the dispute settlement process have ended not in the government having to pay a fine, but eliminating the discriminatory practice or policy. That is what we are all after here.
I do not think many governments, provincial or territorial, would like to be in the position of saying we will continue this practice and pay the fine. We are certainly hopeful that as this process unfolds, the governments would look at the possibility of making more of those funds available to the parties that brought the case. However, in most of these cases the real solution that those companies or individuals were looking for was to end the discriminatory practice.
[Translation]
The Deputy Chair: You had a comment?
Ms. Presseault: I would like to give a little historical perspective.
[English]
In one challenge we took under the previous person-to-government procedures which we won, we were awarded costs in that case. The case took about 15 months and was not resolved at the end of the 15 months. The costs we were awarded were in the amount of $30,000. We all know the cost was more than $30,000.
Second, I now understand that the objectives of the fund are still in discussion. We did not know; this came to us as a surprise. We understand that the objective was to avoid vexatious or non-meritorious complaints. Once the complaint has reached that level, it has some merit to be heard. I think there is a screening process to ensure that complaints have merits before they get to the panel.
I agree that having a great agreement with the right teeth is necessary to ensure that those barriers be removed.
The Deputy Chair: Minister Ramsay, I do not have any more questions. I would like to thank you for taking the time. It is great to be at such a distance and yet see how close you are to Ottawa. We welcome your clarifications. We know that you have some work to do, so we wish you all the best for Canadians.
[Translation]
I would like to thank Ms. Presseault for her presentation and for her willingness to continue participating directly in the development of this process. Mr. Blomeley and Mr. Dillon, thank you very much.
(The committee adjourned.)