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THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

EVIDENCE


OTTAWA, Wednesday, November 21, 2018

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:15 p.m. to study the subject matter of those elements contained in Division 13 of Part 4 of Bill C-86, a second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures; and Bill C-47, An Act to amend the Export and Import Permits Act and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments).

Senator A. Raynell Andreychuk (Chair) in the chair.

[English]

The Chair: Honourable senators, we are meeting today to begin our examination on the subject matter of those elements contained in Division 13 of Part 4 of Bill C-86, a second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018, and other measures.

Before I turn to our panel, I’m going to ask the senators to introduce themselves.

Senator Bovey: Patricia Bovey from Manitoba.

Senator Cordy: Jane Cordy from Nova Scotia.

Senator Dean: Tony Dean from Ontario.

[Translation]

Senator Saint-Germain: Raymonde Saint-Germain from Quebec.

Senator Massicotte: Paul J. Massicotte from Quebec.

[English]

Senator Oh: Victor Oh from Ontario.

Senator Ngo: Thanh Hai Ngo from Ontario.

The Chair: I’m Raynell Andreychuk from Saskatchewan.

We are pleased to have to the committee government officials from Global Affairs: Ms. Katharine Funtek, Executive Director, Trade Controls Policy Division; and Ms. Isabelle Ranger, Counsel, Market Access and Trade Remedies Law; and, from Finance Canada, Michèle Govier, Senior Director, Trade Rules, International Trade Policy Division

Thank you for coming before us. We have a very specific, small portion of a huge bill, but what we need to know is what the existing clause says and how it’s been implemented and what the change will offer the minister and the departments and why that change was asked for and what it will do. If you can guide us through and then I’m sure there will be questions. Welcome to the committee.

Michèle Govier, Senior Director, Trade Rules, International Trade Policy Division, Department of Finance Canada: Thanks very much. I’ll start with an overview, as requested. Hopefully it will answer some of those questions and, of course, we’re happy to take questions as a group afterwards.

As you noted, the Budget Implementation Act, 2018, No. 2 enacts one amendment to the Export and Import Permits Act in relation to the minister’s determination of import access quantities in order to establish a method for allocating and issuing import allocations.

To talk first about the act, the Export and Import Permits Act provides the Minister of Foreign Affairs with the authority to control the import and export of goods through permit requirement. The Minister of Foreign Affairs currently has the authority to determine import access quantities, to determine a method for allocating those quantities, and to issue allocations for goods included on the Import Control List for the purpose of implementing an intergovernmental arrangement or commitment.

The Budget Implementation Act includes one amendment to the EIPA to add one additional authority under which the Minister of Foreign Affairs may determine import access quantities in order to allocate those quantities. The additional authority would be for goods that are added to the Import Control List for facilitating the implementation of certain trade actions that are taken under the Customs Tariff that may require the use of import permits. This includes safeguard measures, which are used in exceptional circumstances to respond to import surges that may harm Canadian producers and workers, and trade measures that respond to actions taken by other countries that adversely affect Canadian trade.

This amendment will allow the Government of Canada to administer such trade actions in a more predictable manner, which will contribute to market stability when they have to be used.

That’s the high-level overview. I’m happy to take questions.

The Chair: Is anyone else making a presentation? Perhaps I can start. I’m trying to figure out the discretion that the minister has and how it will be different. Is it to various industries, or is it just goods coming and flowing? How will the change affect the operations?

Katharine Funtek, Executive Director, Trade Controls Policy Division, Global Affairs Canada: Under the EIPA, the Governor-in-Council can put certain items on the Import Control List or other lists under the EIPA, and there are certain purposes for which goods can be put on the Import Control List. One of those purposes is to implement an intergovernmental arrangement or commitment. Another one is to support supply management. So there are various purposes.

Once the Governor-in-Council for one of these purposes has placed certain goods on the Import Control List, the minister has authority under the act currently to determine import access quantities for those goods that have been put on the Import Control List to implement an intergovernmental arrangement or commitment. Once the minister has done that, and that’s under section 6.2 of the EIPA, she may then determine how those quantities will be allocated to Canadian residents and to issue allocations to Canadian residents. But right now, that is the only purpose under the act for which the minister has that discretion.

There is also another provision under the Export and Import Permits Act, which is section 5(6) of the act, and that is the section under which the Governor-in-Council can put certain goods on the Import Control List to implement actions taken under the Customs Tariff, as my colleague alluded to earlier.

Right now, for goods that are put on the Import Control List under section 5(6), the only means of administering the goods that are on that list for control are on a first-come, first-served basis. Generally speaking, importers are not that keen on a first-come, first-served basis. If there’s not much demand for that particular product, it doesn’t matter. If there’s considerable competition to be allowed to bring those goods into Canada at a favourable tariff rate — which is what is allowed if you get an allocation or if a good is on the Import Control List and you have a permit — then there’s a rush to the border. Generally you don’t have the predictability of knowing that you will be able to bring in a certain quantity of that product and have it come in at a within-access rate of zero per cent or a low tariff versus a higher tariff rate.

For example, for steel safeguards, the surtax is 25 per cent. If you’re bringing product in and you are requesting permits on a first-come, first-served basis, you may be out of luck when you get to the border with your goods because a couple of companies before you have been able to get those permits and they are the ones who are benefiting from the within access rate. So you are now at the border, you are no longer able to get a permit for your goods because the quota has been filled, and so you are now facing the charge of 25 per cent on the value of your goods, which can be a tremendously high cost.

The amendment that we are putting into place here adds one more purpose to the EIPA for which the minister may determine an allocation. In addition to the current purpose, which is to implement an intergovernmental arrangement or commitment, like a free trade agreement, we will now add section 5(6) of the EIPA. Therefore, actions that would be taken under section 5(6), whereby the Governor-in-Council puts certain things on the Import Control List to implement actions taken under the Customs Tariff, the minister will now have authority to determine the quantity of those goods and therefore to determine the allocation methodology for those goods, and to issue allocations for Canadian residents for those goods.

The Chair: And the impetus for this change came as a result of the steel industry and the tariffs? Could you explain that? Did they approach department officials and government, or how did that come about to get the amendment, which I think is targeted? It can be used for other purposes, but was the impetus from the steel industry because of resulting tariffs?

Ms. Govier: Where it came from, there were two particular things we were looking at during that time. One was the steel safeguard, which is something we’ve been examining for some time. The other thing was in the context of the U.S. section 232 steel and aluminum tariffs when the government was considering its potential response to those tariffs. Now eventually it was in the form of a tariff and not a tariff-rate quota. But had it been in the form of a tariff-rate quota or some kind of quota against Canada, our countermeasures might have taken that form as well. It was in examining those options that we became aware of the lack of authority for allocation if we were to move forward with those types of actions.

Senator Oh: I want to follow up on the question the chair was asking. The quota system, how does it work? Before in Asia, when they had a quota going to the U.S., quota becomes a trading commodity. You can buy a lot of quota and you’re not necessarily in manufacturing — I can sell my quota to whoever wants to export to the U.S. How is that controlled?

Ms. Funtek: I’m not entirely sure I quite follow the question. We, in fact, have tariff-rate quotas right now for a number of goods, agricultural goods and other goods. If you have an allocation for that, you must be a Canadian resident and you must be active in the sector. That will depend on the policy or the regulation. But essentially it means that if you are a Canadian resident, you can apply for an allocation in order to import those goods or, on the export side, in order to export those goods.

Under the Export and Import Permits Act, the minister may allow the transfer of allocations. If you are an allocation holder under a tariff-rate quota and you wish to transfer some or all of your allocation to another allocation holder, then you would come to the department and seek permission to transfer your quota.

That is how that works. Does that answer your question?

Senator Oh: No. You might want to look into it in detail, because it was a similar thing in Asia when they tried to export things to the U.S. They had the quota system, but the export and import companies could buy all the quotas and then sell to the manufacturer.

Ms. Funtek: You can’t buy quotas here.

Senator Oh: Are you sure?

Ms. Funtek: We administer the tariff-rate quotas, so if it’s first come, first served, you just ask for a permit. You pay for the permit, and the cost of the permit depends on the value of your good.

You just ask for the permit and that permit is what you then present at the time of accounting to CBSA. If you don’t have a permit, you pay the over-access tariff. If you have a permit, then you bring it in at the within-access level, whether the zero per cent or 3 per cent, whatever it is.

If we are talking about an allocation system in Canada, then we would, at the Department of Global Affairs, publish a notice to importers. That notice to importers would set out what the minister’s policy is in terms of how that tariff rate quota is allocated.

There would be an application form and you would have to have an affidavit and activity and that sort of thing. You would present that to the department. The department would then look at all the applications that have come in, determine whether the applications are consistent with the minister’s policy. For those that are not consistent and that are not eligible, they would be advised that they are not eligible and the reason for which they’re not eligible. If they are eligible, then those applicants whose applications meet the policies would then be given an allocation based on how the minister’s policy is established.

You don’t pay for that. You do have to pay for the affidavit from the lawyer and this kind of thing and the accountant’s letter, but everybody must do that. For the actual allocation, you do not pay in Canada. Once you have an allocation, then, yes, you can transfer it to another allocation holder. You cannot transfer it to a non-allocation holder.

What you cannot ever transfer is a permit. If you have an allocation, you can draw down as many permits as you need to use your allocation. You can transfer the allocation, but you cannot transfer a permit.

On a first-come, first-served basis, for example, you could ask for a permit, but you cannot transfer the permit under the act.

Senator Oh: I will follow up on this later.

The Chair: I thought that was your question. I will put you on the second round.

Senator Bovey: You talk about the minister setting the allocations. What are the considerations the minister uses to determine the import access quantities, and what criteria does the minister use for calculating the import access quantities? What are the criteria, what are the factors, and is there consistency, or can minister X do one thing and minister Y do another thing? What’s the consistency

Ms. Funtek: Right up front, the first thing that the minister would be looking at is the import allocation regulations. We do have regulations. There are certain things that the minister must take into consideration.

When the minister is considering it, the regulations set out a series of considerations. I won’t read through all of them, although I’m happy to do so if you wish, but, for example, it’s whether the applicant has complied with the conditions of the Export and Import Permits Act and all the regulations that apply. There is the potential impact of the issuance of an import allocation on the Canadian sector and the applicant’s involvement in the applicable sector in Canada, including the production or distribution of like goods during the 12-month period preceding the allocation.

There is also whether the applicant or another person has applied for an import allocation for similar goods already and whether the applicant for an import allocation has furnished false or misleading information in connection with any reports required by the act.

These are the regulations, but the minister then will take other considerations into account, as well. For example, if we were talking about supply-managed goods, then based on the purpose for which a good was placed on the Import Control List, which is to support supply management, then clearly the minister would be taking into account whether an allocation method would cause long-term harm to the sector.

In this particular instance, on steel, it would be for the purposes for which it was put on the Import Control List further to the Customs Tariff, which my colleague is better placed to speak about.

Really, the considerations depend very much on what the sector is, what the products are, and what the purpose is for which it was placed on the ICL.

Senator Bovey: Do people make their applications responding to those questions? Is it so transparent that, if I was in the field and making an application, would I know those questions? Would I have to address those questions?

Ms. Funtek: We have application forms which you must fill out and which you must then present to us.

Senator Bovey: Do they ask these questions?

Ms. Funtek: Some of the questions, yes. There are some questions that you have to answer. For example, if we’re measuring your activity in a sector just to see what your involvement is, generally speaking, you would have a reference period. In that reference period, you would be asked to fill out a monthly accounting of what your activity was, whether you were a producer, a distributor or a retailer. Whatever sector of the supply chain you happen to be, you would have to show how it is and to what extent you’re active in that particular sector.

Senator Bovey: So if I’m asked by Canadians, I can honestly or not honestly say this is absolutely transparent and the criteria and the mechanisms are known to all?

Ms. Funtek: We publish the notice to importers. It’s the notice to importers that sets out all of the policies that apply: who is eligible to apply, what the quantity of the quota is, and how that will be allocated to specific stakeholders, et cetera. If you’re asking whether all the considerations that went into the minister’s decision are made public, not generally, no.

Senator Bovey: Thank you.

Senator Massicotte: Thank you for being with us today. Let’s look at the big picture just for a sense of education.

In Canada, my understanding is that the minister or the order-in-council has the authority to impose tariffs or duties as they so wish without any parliamentary oversight. Is that accurate?

Ms. Govier: For the types of things in the Customs Tariff that are referred to here, for example, the safeguards and the countermeasures for trade actions of other countries, that’s true. It’s a Governor-in-Council decision. For regular tariffs, those are under Parliament because it’s within the Customs Tariff itself. It is part of that act.

Senator Massicotte: Does the minister need a specific reason that he must initiate? In the United States, they must initiate for a security reason, otherwise you’re in contravention of your WTO partnership or treaties you have with many different countries. What’s the legal basis of the minister or order-in-council having that authority to do so without offending all our other agreements?

Ms. Govier: The provision within the Customs Tariff that is about responding to actions by other countries is typically used in cases where, for example, there has been a WTO dispute and Canada has won that dispute and we have the right under the WTO to retaliate. It does permit that, in exceptional circumstances, that might occur without that WTO dispute taking it into account.

It’s not based on national security. We don’t have a similar type of provision that the U.S. does under which they have applied the section 232 tariffs. But it’s certainly not, I don’t think, worded in the way that it would be used capriciously. It’s never been used in the past in this type of way, because this is really an exceptional circumstance that we’re under right now with the U.S. actions.

Senator Massicotte: Obviously, the order-in-council can’t do anything. But with the presumption that we don’t want to offend our agreements, there are some limitations. In other words, you can only retaliate. Can you initiate?

Ms. Govier: No. I don’t have it in front of me. The wording does specifically refer to trade actions taken by other countries.

Senator Massicotte: You can respond, but you cannot initiate?

Ms. Govier: Yes.

[Translation]

Senator Saint-Germain: Thank you for being here, and also for the quality of your presentation and your pragmatic answers.

I am interested in the additional powers that will be granted to the Minister of Foreign Affairs under the proposed amendments to the EIPA, but also in knowing how those powers will help to implement trade measures under certain provisions of the customs tariff, including overall safeguard measures. What are those additional powers granted to the minister and how will the amendments make the safeguards easier?

[English]

Ms. Funtek: For actions that are taken under section 5.6 of the Export and Import Permits Act, those would be actions that are initiated either by the Minister of Foreign Affairs as a recommendation to the Governor-in-Council or together with the Minister of Foreign Affairs.

I will ask my colleague to speak further to that.

Once those goods are on the Import Control List, the additional authorities that the Minister of Foreign Affairs would have would be to then determine the quantity of goods allowed to enter Canada at the within-access tariff rate, and then to determine how allocate those goods and then to allocate them to Canadian residents.

When I say that the Minister of Foreign Affairs has the authority then to determine an access quantity, in practice, while she has that discretion, in practice the quantity has always been determined under a free trade agreement negotiation, for example, or by actions which my colleague will speak to, but it has not ever been, to my knowledge, the Minister of Foreign Affairs that has determined that import access quantity, although she has the discretion to do so. That is done through other instruments, mostly through negotiations or actions taken elsewhere.

Ms. Govier: With respect to the safeguard, specifically, just to confirm, the overall quantity of steel that is within-quota, if you will, was established through the Customs Tariff based on a decision by the Governor-in-Council on recommendation by the Minister of Finance. It was based on historical imports of the products in question.

In terms of how this amendment potentially could change the way that that would be administered, currently, as my colleague had mentioned, the only way to allocate is on a first-come first-served basis. With the safeguard in place now, that is the basis on which permits are being allocated, which does give rise to these problems in terms of predictability for importers to know whether their export is going to be subject to surtax or not.

With this authority, there is the potential to allocate the permits on the basis, perhaps, of a company’s historical share of imports of that product. It does give more predictability and stability to know that it might not be as much as I want but at least I know for this amount, that is mine; I will be able to import that amount surtax-free.

Right now, we are in a period of provisional safeguards. They are only in place for 200 days. The Canadian International Trade Tribunal is conducting an inquiry right now to determine whether more long-term safeguards are warranted. I think if we get to the point of imposing those longer term safeguards and they take the form of a tariff-rate quota, this would be a very welcome option and flexibility for the government in implementing that.

[Translation]

Senator Saint-Germain: Thank you. Can you explain further how section 415 coming into force will help to obtain import licences for goods that will be on the import control list? Which specific factors will make the process easier?

[English]

Ms. Funtek: As my colleague mentioned, if we have the ability to allocate the quantities, it will no longer be a case of every company rushing to get a permit. By way of example, when we put the safeguards into effect, on October 25, that was a Thursday, I think, we have seven safeguards, administered as tariff rate quotas on a first-come, first-served basis. By the following Tuesday, one of the safeguards had already been filled. That means that until December 14, nobody else can bring product in. So there’s a real rush to make sure that you can get your product in at the within-access rate.

If we have the authority for the minister to determine how to allocate those methods, we would then undertake consultations with industry and across government to determine how those quantities should be allocated.

There are different methods of allocation. The minister would then determine an allocation method based on the outcomes of the consultations, as well as the considerations I spoke about earlier. Then every company or every applicant who was given an allocation, that allocation works a little bit like a — let’s call it a bank account, as an example. You have x amount of this product for which you have been given an allocation, and you can import that product basically any time you wish for the year. It’s generally done on a tariff-rate quota year. You can bring all of it in at one time, with one permit, or can you bring that quantity in over time with a number of permits. You really manage that account as you wish.

Or you may also then determine that for some purpose you wish to transfer that allocation to another allocation holder. There are very good reasons for doing that. It may be that it’s easier to bring product in. If you’re bringing it from overseas, it’s cheaper to consolidate product; therefore, two or three allocation holders may wish to consolidate their allocations — and you must always be the importer of record for one permit — so that you could have transfers and it would all come in as one permit. But all of you would know how much you can bring in; therefore, you have predictability and transparency.

You can put in a purchase order with a supplier and a country, or you could have a contract to do something with a buyer here. You’re in a position where you can make business decisions with some foresight and some forward planning, which our companies tend to prefer.

I don’t know if that answers the question sufficiently.

Senator Saint-Germain: Yes, very well.

Senator Massicotte: Let me ask the question that I think Senator Ngo was trying to get at.

Allocation, in your example, the one that currently exists where the person who got in quicker got a large allocation because he was first out of the gate. Can he transfer that allocation to another allocation holder? Can he transfer it for a profit? Can he sell his allocation and earn money on that allocation?

Ms. Funtek: This is where we have to clarify our terminology a little. We do not allocate the current safeguards. The minister has no authority to allocate. All we can do is issue permits on a first-come, first-served basis. Permits can never be transferred. They cannot be sold. If you draw a permit, you must use that permit. If you don’t use that permit, it’s either cancelled or it expires.

Right now, you cannot transfer a permit. If you draw a permit, you can use it or lose it.

For an allocation, however, you can transfer your allocation. Under the regulations in the act, if you choose to charge for that and the person to whom you’re transferring wishes to pay for that, that is allowed, but that is not something that the government gets involved in. We have no window or insight into what those transactions might cost.

Senator Massicotte: You realize you’re creating a market based upon urgency of getting to the front door. It seems odd to me that you would allow people to profit from the fact that they got in first, or they knew somebody opened the door first, compared to the other one. It seems to be unfair.

Ms. Funtek: I didn’t explain myself sufficiently clearly.

If you have an allocation, it’s not a case of coming in first to the door.

If my colleagues apply to the department — they’re not my colleagues, they’re companies — for an allocation, we go through their allocation and we determine if their applications meet the minister’s policies and the regulations that may be in place. If they do, then they are given an allocation. If they do not, they don’t get an allocation.

There is an application period by which you must apply and provide substantiating documentation.

Senator Massicotte: I appreciate all of that. If you’re all qualified — and you’re all in the industry so you should be qualified — you could be allocated a portion of the import and you can sell that allocation to another party who is so qualified for a profit. Am I correct in saying that?

Ms. Funtek: That’s correct.

Senator Massicotte: Therefore, what I’m saying is that you’re creating a mini market where people are going to profit from simply making a demand and they get an allocation, whether or not they intend to use it. That doesn’t smell right.

Ms. Funtek: As I’ve already stated, you do need the consent of the minister by which you would have to apply to us to request that transfer.

However, as you note, yes, the department gives you permission to transfer your allocation to somebody else and you may charge for that for profit. That is true. That is currently allowed under the act. As I mentioned, there are good reasons for why transfers may happen and why they would be permitted.

Are you creating a secondary market? Possibly. But back in 1992 when the Canadian International Trade Tribunal was looking at how you should be allocating supply management tariff-rate quotas, one of the things they were very much in support of at the time was transfers in order to allow a secondary market, because it introduces fluidity to allow products to move where they are needed at different periods of time.

Senator Massicotte: I buy that, but there are many contracts. Even in housing, for example, the standard listing contract when you buy a home makes it very clear you cannot transfer that purchase offer to another party without the approval of the vendor. I’m surprised you don’t have that in your permits saying you can do so, but you need approval, because otherwise you’re creating an artificial market where people may be making significant sums of money simply from playing around with the bureaucracy.

Ms. Funtek: May I clarify so that I understand what you just said. You’re saying that, in addition to seeking and obtaining permission to transfer, that there should be another element related to —

Senator Massicotte: If we need to go back to get permission — I’m surprised that the initial allocation doesn’t say that this is for your interest only and if you wish to sign it you need approval, and one of the criteria is there should be no profit on the transfer. I’m sure you have good arguments otherwise.

Why wouldn’t that occur? Why wouldn’t you have a standard clause in the permit or in the allocation that you cannot allocate without my approval? And your approval should only be given if there’s no profit to the transaction and it’s only for efficiency reasons?

Ms. Funtek: I take note of your comment. I’m not quite sure how we would track that in fact a profit is being made or not. I don’t know how we would track that. I take note of your comment.

Senator Massicotte: They do it all the time.

The Chair: We do track it. I want to follow up, and Senator Oh has further follow-ups in the same area.

Have there been incidences of transfers under the existing system? Are you aware of any, the department, et cetera, where the allocation has been transferred over? In other words, have ministers signed off on those transfers, if I understand your process correctly?

Ms. Funtek: Yes. Although, keeping in mind that when we talk about the minister that the department acts as the minister. Yes, we approve many transfers under the various tariff-rate quotas that we administer every year. Yes.

The Chair: Have there been any disputes or — I don’t know what word to use because there’s no appeal to that — dissatisfaction? Someone saying that someone is making money on this and you shouldn’t have given them the allocation in the first place? Or has the system worked in that sense, to your knowledge? I appreciate you don’t know everything that’s going on, but there has to be some knowledge when there’s a transfer.

Ms. Funtek: Our trading partners have certainly objected to the transfers and the rents. On the other hand, they have also objected not so much to the rents, as to the fact that the rents go to Canadians as opposed to their exporters.

There really isn’t much complaint about the ability for people to charge for the transfer, except in those cases where people are not eligible for an allocation at all. Those are the circumstances under which I am aware of dissatisfaction with the fact that people can charge for a transfer.

The Chair: The allocations have to be to another Canadian company or entity?

Ms. Funtek: You can transfer allocations only to another allocation holder in the same tariff-rate quota. You can only transfer between or among companies or allocation holders who have been deemed eligible in the first place to have an allocation under that tariff-rate quota.

The Chair: So there’s a pool of people who have received allocations and the transfers are within them?

Ms. Funtek: That’s right.

Senator Oh: I want to follow up on the triangle.

Your explanation is blurred, not clear. I’m an exporter, importer or trader in the steel business, and I don’t have to own a plant in Canada or anywhere else. I can buy the steel and export it to the U.S. You call it licence or quota, it’s the same. So I can still buy and sell the quota, if I have it. I can get the steel and then sell it to the U.S. and make a profit, or sell my quota under the name with the manufacturer here and make a profit.

Ms. Funtek: I’m really not following your question. Forgive me.

Senator Massicotte: I think the answer is yes.

Ms. Funtek: I heard somebody not being a Canadian bringing product in and selling it to the United States. It doesn’t work that way.

If you are an importer, you get an import allocation. If you are an exporter of Canadian goods, you get an export allocation.

Senator Oh: We are talking about exporting to the U.S., though.

Ms. Funtek: We’re talking about imports of steel into Canada. Do you want to explain how the safeguards work?

Ms. Govier: Yes. This is limited to imports into Canada, for one thing. If you had two companies, for example, that are operating on one of the products that’s covered by the safeguards, and if an allocation were done, presumably it would be based on some kind of historical measure of what these companies imported in the past. There are different ways it could be done, but I think that’s logically how people have been coming forward and saying it would make sense if we were to do this. Perhaps one of the companies would not need the full amount that has been allocated, because of whatever business reasons they are not needing to import as much, perhaps another one needs more. That’s the circumstance under which a transfer might take place. It’s hard to envision a company not importing anything after receiving an allocation, unless perhaps they have closed.

I don’t know if you have examples, Ms. Funtek, in other sectors where that has happened and there was a more wholesale transfer.

Based on the feedback that we’ve heard from the importers who are involved in the safeguards, they are very interested in using all of the quota they have and not interested in transferring it to competitors.

Senator Massicotte: His use of words is different. He was using “quota.” The proper use of the word is probably “allocation.” I think that is concept where he is coming from.

Let me ask, relative to steel, or the most common product that you get allocations of, how many firms are eligible? For the one that was just passed, where you had x amount, how many people got allocations of the most common products?

Ms. Govier: We aren’t doing allocations right now.

Senator Massicotte: The one that was done some time ago which expires in a couple of months.

Ms. Funtek: We can look at, for example, the cheese tariff-rate quota under the Canada-European free trade agreement. Under that, we have four different pools. I don’t know the numbers, but let’s say — I’m trying to think in my head — 100 or 150 allocation holders, and we publish all the names of the allocation holders and their contact details on the website.

Senator Massicotte: In steel, how many allocation holders do you think you will have?

Ms. Funtek: I don’t know how many we will get. I could certainly find out for you and revert back to —

Senator Massicotte: Is it more than 5 or 10?

Ms. Funtek: It’s certainly more than 5; it may be around 10 companies that are importing right now. I can get you the number of companies importing right now.

Senator Massicotte: You realize you do have five. It’s supply and demand and, given you have a limited quantity, they get an allocation of it, and there’s no question they can make significant sums of money because you’re saving a significant tariff. You could know if you wanted to do so, but it could be a lot of money. For sure, they’re not going to complain. The buyers will not complain. Who pays for the price? The consumer will pay.

What seems odd is that what you’re trying to do from the start is to make sure the consumer does not get penalized from this tariff war, and yet you’re allowing somebody to profit and it would be passed on to the consumer. It seems odd to me, but I know you appreciate the difficulty. That’s not how the legislation is worded. Thank you.

The Chair: The change we’re dealing with in this bill is to give more flexibility to the minister in the discretion of the allocations. Am I correct? Other things that we may think work or don’t work may continue on, like this transfer of allocations. That’s not new, in other words?

Ms. Funtek: You’re absolutely correct that the only amendment, the only change that is envisaged here, is to allow the minister to determine allocation methods for goods placed on the Import Control List further to actions under the Customs Tariff. Everything else remains as it is. None of the regulations are changing and none of the other aspects of the Export and Import Permits Act are being amended.

The Chair: Following up on Senator Massicotte, it might be interesting for this committee to have you back with a more fulsome look at the whole process rather than just this one amendment, which I think is self-explanatory, but we need to know more about it, and we may have comments on the other parts of the system.

If there are no other questions, I’d like to thank you for not only educating us on certain aspects of the bill and the Export and Import Permits Act, but it has given us a broader interpretation of it. That’s helpful for our study, but also will be helpful in our opinion back on this amendment. Thank you for appearing before us.

Our next panel for our next bill, which is going back to Bill C-47, we could have a short in camera meeting, or we can just suspend for 10 minutes.

We have one witness coming by video conference from Geneva. The others are here, but I hear that one witness has not yet arrived. In fairness, we should wait for all the witnesses.

If we don’t have an in camera, then I will ask the steering committee to see where we go with this amendment, and you can reflect on whether you are going to have an opinion that we agree with this amendment and whatever other comments we want to make. We can do that in camera rather quickly, or you can think about it until tomorrow, whichever you wish.

Let’s go in camera.

(The committee continued in camera.)

(The committee resumed in public.)

The Chair: Honourable senators, we have our second panel before us. We are resuming the meeting of the Standing Senate Committee on Foreign Affairs and International Trade. We are now meeting to begin our examination of Bill C-47, An Act to amend the Export and Import Permits Act and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments).

I’m pleased to welcome, by video conference, Mr. Alex Neve, Secretary General of Amnesty International Canada. I presume you’re there with the Human Rights Council and other issues, but we’re thankful that you found time from Geneva to be with us. It accommodates our schedule and the preference to proceed with this bill expeditiously.

Accompanying you here in Ottawa is Mr. Justin Mohammed, Human Rights Law and Policy Campaigner, Amnesty International Canada. We also have Mr. Milos Barutciski, a Partner at Borden Ladner Gervais LLP, here with us in person. Last but not least, we have Mr. Christian Leuprecht, Professor, Department of Political Science and Economics, Royal Military College of Canada.

Thank you all for accepting to appear before us today. I’m going to take the witnesses in the order, but before I do that, it would be helpful for Mr. Neve in Geneva and others if we reintroduce ourselves in this session.

Senator Greene: Stephen Greene from Nova Scotia.

Senator Housakos: Leo Housakos from Quebec.

Senator Ngo: Thanh Hai Ngo from Ontario.

Senator Oh: Victor Oh, Ontario.

Senator Massicotte: Paul Massicotte, Quebec.

Senator Dean: Tony Dean, Ontario.

Senator Cordy: Jane Cordy, Nova Scotia.

Senator Bovey: Patricia Bovey, Manitoba.

The Chair: I’m Senator Andreychuk from Saskatchewan.

We’re now ready to hear from our witnesses, and I’m going to take them in the order that I introduced them. However, I understand Mr. Mohammed will be starting on behalf of Amnesty International, followed by Mr. Neve. Welcome, and the floor is yours.

Justin Mohammed, Campaigner, Human Rights Law and Policy, Amnesty International Canada: Thank you, senator, for the opportunity to testify before this committee on Bill C-47.

Let me start off by stating that Amnesty International is a strong proponent of Canadian accession to the Arms Trade Treaty, which I’ll refer to as the ATT. For decades, we have researched and campaigned about massive human rights violations associated with the arms trade. We view the ATT as an important measure in the prevention of the most serious international crimes, including genocide, war crimes and crimes against humanity.

Since the ATT was adopted in April 2013, we have pressed governments to ratify and accede to it, and adopt laws that will fully implement its terms. In five and a half years, 130 states have signed this treaty, and 99, which is just over half of the world’s nations, are already parties to the treaty, including many of Canada’s closest allies.

Canada’s accession matters very much for two key reasons. First, we have a significant arms trade industry. Recent high-profile cases illustrate that Canada currently trades arms with countries where concerns about serious human rights violations are very real. Witness the General Dynamics deal to sell $15 billion of light armoured vehicles to Saudi Arabia; the proposed deal to sell military helicopters to the Philippines, which has now been abandoned by the Duterte government; and the STREIT Group’s sales of armoured cars to South Sudan, Libya and Sudan through its offshore operation in the United Arab Emirates.

Second, Canada’s accession is crucial in shoring up respect for the ATT. Consider the conflicts in Myanmar, Yemen or Syria. There are no global arms embargoes in place for any of those countries. That would require a UN Security Council resolution, which is so often plagued by political deadlock. As a participant in the global arms trade, Canada has a moral responsibility to contribute to initiatives that seek to regulate this international trade at the international level.

We very much welcomed the government’s decision to strengthen Bill C-47 through the introduction of the mandatory substantial risk provisions, which can be found at section 7(3) of the Export and Import Permits Act — the new amended legislation. Notably and very importantly, the government included mandatory risk provisions with respect to gender-based violence.

However, we remain concerned that Bill C-47 fails to meet key requirements of the ATT. We have joined with four other organizations to highlight five areas of concern, which can be found in our brief. I will now turn to my colleague Alex to outline those five specific areas of concern.

Alex Neve, Secretary General, Amnesty International Canada: Thank you very much. Good evening. I should say good very late night from Geneva, committee members. Thank you for making it possible for me to join you.

Our first concern is that Canadian arms sales to the United States will continue to be exempt from Canada’s arms control regime. This is related to the concern that Bill C-47 does not guard against arms sales to one country being unlawfully diverted to a third country.

Consider the following: Over one half of Canada’s arms sales are to the United States. While the U.S. has signed the ATT, there is no realistic prospect that the U.S. will take the further step of ratifying it. Between 2015 and 2017, the U.S. delivered $7 billion of arms and weapons to Saudi Arabia and $2 billion to the United Arab Emirates. U.S. arms have been used extensively by Saudi and UAE forces to commit war crimes and human rights violations in Yemen. That includes combat aircraft, air-delivered munitions, armoured vehicles, artillery and small arms. U.S. light armoured vehicles have been used by UAE-backed militias responsible for arbitrary detention, torture and ill-treatment in Yemen.

Since 2015, Canada has transferred $329 million worth of tanks, other fighting vehicles, parts and components to the United States and more than $262 million worth of bombs, grenades, torpedoes, missiles and parts. Canada is a major supplier of parts to the U.S. aerospace industry as well, but there are no available statistics regarding military versus civilian use.

We have no way of knowing what happens to any of those weapons or parts once they’ve been sold to the United States. Some may have found their way to Saudi Arabia or the UAE. Article 11 of the ATT requires states to take measures to prevent any such diversion to third countries. Canadian law currently requires the possibility of unauthorized transfer or diversion to third countries to be considered but contains no clear prohibition, and Bill C-47 goes no further.

A second concern is Bill C-47’s failure to ensure that all relevant government departments and agencies are subject to Canada’s arms control regime, notably the Department of National Defence and the Canadian Commercial Corporation. The CCC, of course, was at the heart of finalizing the contracts for the Saudi LAV deal without any obligation to first assess related human rights risks. That gap is not addressed by Bill C-47.

We point to three other areas of concern in the brief: cabinet discretion to exempt particular deals from arms control, the need for parliamentary oversight of regulations, and concerns about commercial confidentiality.

Let me end with this: Three years ago I was in the Sudanese state of South Kordofan, where civilians had been cut off from the world since 2011, while Sudanese armed forces carry out unrelenting aerial bombardment, rolling unguided barrel bombs indiscriminately out of Antonov aircraft, killing and maiming thousands of civilians and forcing hundreds of thousands of people to flee. One elderly woman described to me a terrible attack that had killed several members of her family and she asked a heartbreaking, obvious question, to which there was no reassuring, obvious answer: Who keeps giving them the bombs?

Canada must join the ATT on the basis of legislation that offers the strongest possible commitment to ensuring there is an answer to that haunting question. Thank you very much.

The Chair: Thank you, Mr. Neve. We’ll now turn to Mr. Barutciski for his presentation.

[Translation]

Milos Barutciski, Partner, Borden Ladner Gervais LLP: Thank you, honourable senators. I have been practising in the area of international law and international trade regulations for more than 30 years, both in Canada and abroad.

My comments will be made in the spirit of a lawyer working in the private sector and representing companies and businesses generally, but not exclusively, in the field of armaments.

[English]

My perspective is from a lawyer who advises a range of companies — technology companies, manufacturing companies, services companies — many of whom produce goods that are otherwise controlled from encryption, including armaments and the hard, cold face, the front, the really clearly military.

Bill C-47 is intended to implement the Arms Trade Treaty. As I think the committee is fully aware, it was signed after a resolution of the General Assembly of 153 countries with three against. Yes, a number of countries have not ratified it and, as Mr. Neve just pointed out, there’s no reasonable prospect to expect that the current U.S. administration will ratify the ATT.

It’s uncertain whether a future administration would, as well, for the simple reason that you require a super-majority in the U.S. Senate to ratify international treaties. There is contingency with respect to our key ally and, as others have appointed out, the key destination of many of our military exports. Those are relevant considerations that you and Parliament as a whole need to take into account.

That being said, the purpose of the ATT is to introduce order and regulation in a difficult field of trade in conventional arms. We have some order — albeit precarious — in nuclear arms, and various countries, with the two principal ones constantly rocking the boat, including a few rogue nations, but we do have binding treaties and commitments. In this area, conventional arms, we’ve got less than that.

Essentially, for the first time the treaty introduces, by way of binding international rules — as opposed to hortatory resolutions and instruments — that call for governments to take careful consideration of or make best efforts to or to support the kind of language that diplomats, lawyers and I occasionally resort to in order to smooth over differences and essentially delay real action. This treaty and the legislation, Bill C-47, allow and achieve the objectives set out in the treaty by requiring exporting governments to conduct risk assessments of proposed export transactions to determine if the products, or the export of the products, would contribute to or undermine peace and security.

Let’s remember what we’re talking about. We’re talking arms. They can be used for all the nefarious consequences that Mr. Neve and others have pointed out in previous hearings, but fundamentally the immediate threat is peace and security. But also, the government is required to conduct a risk assessment if arms can be used to facilitate violations of humanitarian, human rights and a range of other specified offences, including sanctions, anti-terrorism and so forth. They’re required to deny authorization if the government determines there’s an overriding risk of these negative consequences occurring.

[Translation]

The treaty, like Bill C-47, will impose regulations on brokerage in the armaments sector, even if the transactions take place outside Canada.

[English]

When I first looked at the Arms Trade Treaty a number of years ago, I was reminded of a play by George Bernard Shaw,Major Barbara, where you have the Salvation Army daughter having it out with her arms dealer father. The arms dealer father — top hat, tails and all — didn’t have to think about arms trade treaties or legislation, and many dealers in arms don’t and don’t have to. What this legislation does, and the Arms Trade Treaty requires us to do, is to start introducing rules in that area and it’s an incredibly important area.

In conclusion, Bill C-47 allows Canada to live up to its ATT commitments and gives the government the tools to do so. It does incorporate measures of discretion, and the treaty itself allows governments to use discretion.

Let’s not forget why discretion is important in this area. Regulating arms trade requires a consideration and a balancing of fundamental interests — yes, including humanitarian and human rights law — but it also requires consideration of regional alliances, global alliances, and conflicts between countries and parties that we may not necessarily find it easy to pick sides.

Yet, as Mr. Neve and others have pointed out, there are consequences on the ground. There are consequences with civilian deaths and there are consequences in combatant deaths. There are child soldiers. Sometimes we have to, in circumstances where there are no easy choices, take sides.

The idea that we should have one and only one overriding interest, even something as important as human rights or humanitarian law, is, while noble, misguided.

I leave it to you, as parliamentarians, ultimately to hold government to account. The treaty and the bill introduce discretion for government, which I think is essential given the issues I’ve been discussing, but at the same time it does nothing to prevent Parliament from holding government to account.

I’m happy to answer questions.

The Chair: We’ll now turn to our final speaker, Mr. Leuprecht.

[Translation]

Christian Leuprecht, Professor, Department of Political Science and Economics, Royal Military College of Canada, as an individual: Good evening, everyone.

[English]

That’s probably a good segue into my own thoughts on this particular issue. We have to remember that we live in a security environment that is highly unpredictable. If we look, for instance, at the deployment of our Canadian Armed Forces, we’ve not done a particularly good job over the past 100 years anticipating where we would need to deploy them, in what capacity and what sort of threats we would be facing.

This is part of the logic behind why legislation gives discretion to the minister and to the political executive when it comes to defence policy and why, ultimately, these decisions are prerogatives of the Crown or of cabinet. They are important strategic considerations that need to be part of the overall conversation.

It is very clear that the security environment in which we live is going to become more difficult rather than easier over the coming decades. A combination of rapid population change, climate change and other factors are combining to ensure that it’s going to continue to be a very interesting world.

If we say that we have an interest broadly in global peace and stability, arms sales aren’t first and foremost about killing other people. First and foremost, the reason why we spend a lot of money in a democracy to defend ourselves — in Canada, give or take 25 per cent of direct federal program spending on defence — is precisely because we want to prevent conflicts, and precisely because we want to be able to signal that we’re prepared to defend our interests, and precisely because we want to make sure that our allies and strategic partners have those same capacities. There’s an important strategic investment to be made here.

We’re also under considerable criticism by both the United States and other key strategic allies on what is commonly known as burden sharing. What is Canada doing with regard to paying and doing its fair share when it comes to its obligation to its most important strategic alliance, which is the one with the United States, and it’s second most important strategic alliance, which is with our partners in Europe?

That requires capacity and commitment that Canada can bring to bear. One of the capacities that Canada brings to bear is a highly developed research and development and manufacturing capacity when it comes to weapons and weapons components. This is in our own strategic interest. We’re a top-10 arms exporter for a reason: it is a dangerous world and democracies are not to be taken for granted. Democracies need to be defended.

There are ample provisions, both in the act and with regard to the Automatic Firearms Country Control List, as well as in the regulations approved by cabinet in 1986, with regard to all the caveats that the executive of the day needs to take into account with regard to this regime.

There are also important considerations about Canadian prosperity here. This is, whether we like it or not, an important part of the Canadian economy and there are a significant number of small- and medium-sized manufacturers and research and development companies that make their living off this. In particular, for the smaller companies that don’t have a wide palette of exports, it is existential for them to be able to export their goods.

We know from, for instance, reporting by the National Post earlier this year that there has been a significant slowdown by the minister with regard to approval of permits, a slowdown that is now putting into peril the existence of companies in this country and of their employees and their research and development capacity.

Canada needs to think about whether it is in its strategic interests to put companies, its international standing and its research and development on the line.

Canada also has more leverage. When it exports weapons, countries understand that if contracts then are put on ice because of the way that they behave, this is ultimately not in their interests. With the decisions that other allies have already made with regard to countries that behave in a questionable fashion — look, many of these products are available from other scrupulous vendors around the world. We need to think about whether we’re just going to go with the substitution effect where we’ll have absolutely no leverage, or whether we can at least exercise some leverage with the relationships that we’re able to build here.

I will table this for the committee. Many of you will probably have already read it. If you have not read it, it is absolutely imperative before making any decision on Bill C-47. The Global Affairs Canada exports of military goods report, available in both official languages, puts some data behind some of the claims that people often make in this particular realm. It points out, for instance, that Saudi Arabia is a tiny component of our overall arms export regime and it is not fair to put our entire regime in peril because of one relatively small concern that we can deal with under the regime that is in place, including the legal challenges that my colleague Daniel Turp has launched with regard to the legality or not of that particular government decision.

I would point out that there is one key alignment here between the Canadian Association of Defence and Security Industries and what Mr. Neve and the articulate colleagues from Amnesty International have pointed out here. We can’t deal with these human rights concerns downstream. We need to deal with them upstream. This is where the critics and the industry seem to be in agreement that the current regime does not provide for sufficient ability to fence and articulate concerns much earlier on in the process.

I shall close on one final point, and I think that is a major downfall of the current regime where Canada can play a significant role. When it comes to considering whether we freeze or break contracts that may be in place, each country is currently on its own in making decisions in that regard. What we ultimately need is probably a concerted effort among like-minded countries in order to establish and get closer to international norms with regard to what kind of behaviour is acceptable.

Of course, the conversations that we are having with regard to Saudi Arabia, Germany, for instance, is having as well. There are certain countries that will probably not join in such an arrangement, but if Canada and some of its key weapons-exporting allies — Germany, Sweden, Austria, the Dutch, maybe even the French, the Brits and the Spaniards — get together and establish an international regime where they collectively decide whether somebody has fundamentally violated the terms of the agreement under which the weapons were sold to them, it would be a much greater deterrent for countries to break those norms and it would be a much greater encouragement for countries to stick to the obligations under which they originally procured weapons from Canada.

[Translation]

Thank you for your attention. I will be pleased to answer your questions.

[English]

The Chair: Thank you. We’ve heard all our witnesses. Yes, you’ve generated a list of questioners.

Senator Housakos: I have a couple of questions. My first one I would direct towards the lawyer on our panel of witnesses today. If there’s more than one lawyer, of course, feel free to engage in trying to give me a response.

It has to do with the term “brokering.” This bill, of course, refers to the elimination of brokers in terms of the arms trade, but the bill is also very ambiguous in the definition of what constitutes a broker.

The additional questions I have are more directed to Mr. Neve. My understanding, from your commentary, is that Canada hasn’t had a long history of being viewed as a direct supplier of military weapons, and I think by and large we have a pretty respectable track record of not being known as an aggressive supplier to this problem like some of our European Union allies or the United States or even some other countries that are not allies.

According to what Mr. Neve shared with us as testimony today — and I hope he’s still with us. I see he’s not on the screen.

The Chair: We’re having a bit of a technical problem. He was back on. Mr. Neve, can you hear us? No, I guess is the answer.

They’re going to try and reconnect.

Senator Housakos: Shall I continue?

The Chair: If you can place the question to the panel now, then we’ll requestion later.

Senator Housakos: It has to do with the indirect side of the arms trade and the fact that, as we all know, weapons trading today doesn’t necessarily have to be in munitions, tanks or aircraft. There are many, many elements and components to selling weapons of war. It has to do with artificial intelligence technology, for example, which Canada is a leader in; software technology; telecommunications; chemical technology; and raw materials. Canada is, of course, a huge exporter of raw materials around the world. How can we ever be 100 per cent certain that those aren’t transformed and sold by a broker or a third party to those that are aggressive manufacturers of weapons of mass destruction?

Of course, the ultimate resource — which this bill hasn’t touched at all and I don’t think any legislation has touched upon — is the most important reserves of all, which is cash. Canada is a huge participant in supporting foreign aid to underdeveloped countries around the world. Many of these underdeveloped countries are war zone nations. What secure measures do we have and what does this bill do to make sure that the foreign aid that Canada gives in good faith to these underdeveloped countries doesn’t fall into the wrong hands and isn’t used for the development of exchange and sale of military equipment?

In large part, the question was for Mr. Neve. I don’t know if he heard most of it or not, or he got just the tail end of it.

The Chair: Mr. Neve?

Mr. Neve: I did hear the tail end of it. Maybe I’ll start with the tail end of it and hopefully work on what I missed.

Obviously, we couldn’t agree with you more, Senator Housakos, that this bill is not by any means the complete package. There is a much wider set of actions that must be taken, including as you have talked about — from international development relationships.

Canada does have some legislation in place with respect to some of those issues. We have the Official Development Assistance Accountability Act that was passed by Parliament a number of years ago, for instance, which requires a clear human rights framework to be brought to decisions about international development assistance. In our view, that’s an act that has actually been underutilized in government and could certainly benefit from being increased in its use.

I’m just looking here to see if I have a summary of the rest of your question. You were raising questions about the fact that Canada’s history and involvement globally with respect to arms issues, et cetera, differs from the United States and differs from Europe. We’re not on par with the levels of the arms industries in those countries, for instance, around the world where it’s different. Absolutely, and I think it’s really important to note that Bill C-47 is not simply a stand-alone piece of legislation. This absolutely is legislation in that wider context of moving towards having all states eventually being bound by the Arms Trade Treaty, and we’ve got a long journey to get there. I’ve pointed out, and others have reminded us, that the United States is not likely to be in this family of arms control very soon. But we are moving there.

More than half of the world’s nations — yes, including some of our closest allies, including important arms trading nations like the United Kingdom and France — have taken this step. Even having taken this step, Amnesty International has criticized both the United Kingdom and France for having authorized arms deals that violate the treaty.

We know that international law is not perfect. A treaty doesn’t deliver the goods overnight. We recognize this is going to be a process that plays out differently from country to country. It’s certainly a process that is going to play out over many years, and it’s so important that Canada is about to take that first step.

Senator Housakos: Anything you would like to add?

The Chair: He wanted a response from a lawyer or two.

Senator Housakos: Particularly on the definition, or lack thereof, in my opinion, regarding “brokers.”

Mr. Barutciski: The treaty itself I don’t believe defines brokerage. It’s really up to you. You draft the laws. Let me step back a little. You raised the issue not from the standpoint of brokering specifically but intermediaries. The principle and what the treaty at the front end does is to say, “Thou shalt not authorize exports that will essentially be put to improper use,” like violations of humanitarian and human rights, et cetera.

When your interlocutor — whether it’s your purchaser, the destination, or destinee — is Saudi Arabia, that’s a perfectly legitimate debate and discussion that is taking place. I’m not going to express any views. That is the government’s job. That’s why discretion is there. Even in that instance, I testified to this before the Senate Human Rights Committee about two years ago, and I flagged the same issues. It is an awkward place. The Middle East is an awkward place. It’s not just Saudi Arabia, which is a very awkward place for making human rights. I’m using euphemisms. I could use harsher language. I won’t. You can fill in the blanks.

Having said that, the intermediaries, that’s the whole risk. We’re talking about the risk of diversion, for starters, and the risk of unregulated trade by brokers. You read spy novels about shady arms dealers and all of that kind of thing. Yes, it does exist, oddly enough. Certain governments play a part in it by allowing diversion to take place.

What the Arms Trade Treaty and Bill C-47 do is to impose a structure and an alliance at least of the 90-odd countries that have already ratified — and hopefully Canada will soon — and creates a common interest of the kind that Mr. Neve was talking about.

The fact that the United States is not a part of it is unfortunate, but there’s nothing we can do about it. Nor is imposing a mandatory we-shall-not-export-to-the-United States rule, which some commentators appear to want in the legislation, at least that’s how I understood it. Nor will that solve any problems because, as you can imagine, unless we’re prepared to say we will simply not export military arms or components to the United States, because as you can imagine, the U.S. Defence Department is not going to allow us to verify their end-use certificates.

Let’s not forget the strategic alliances that Professor Leuprecht was talking about. There are some rather important issues vis-à-vis the United States and, to some extent, whether we like the current administration or previous administrations or future administrations, we are neighbours. We have common security and defence interests. Taking draconian action that jeopardizes those interests will not serve either our interests as a country, nor will the objectives that the Arms Trade Treaty in Bill C-47 is intended to implement.

As to the definition of brokerage, to come back, it’s really about intermediaries. The language in the bill makes, I think, a valiant effort to identify what we’re trying to capture. Can it be expanded or improved? Possibly.

One thing I’ve learned during my 31 years as a lawyer is that when we start adding language that is repetitive or redundant — there’s a Latin maxim,inclusio unius est exclusio alterius. Once we start trying to get too specific, courts look at it and say, “They included that, so that must mean they excluded this” or vice versa.

As a lawyer or in advising governments or clients about drafting, I prefer broader language that allows you to capture a wide range of circumstances, some of which we haven’t even envisioned yet. Who would have dreamed of Bitcoin 10 years ago? This may sound far-fetched, but in the world we’re talking about, where the Internet is weaponized, with nanotech and so on — I don’t know anything about those things.

Again, brokering or trying to be too specific falls into the same category. The types of transactions that might be covered might not fall within precise language. It is a lawyering and governance issue in that sense. If people are saying the definition is too narrow, then I’m all ears, as you should be as well.

The Chair: Thank you.

We have a long list, and I’m mindful of the time.

Senator Dean: I have one general question. I wasn’t here last week when we opened up these discussions, but Canada’s obviously the last one in here in terms of G7 countries and NATO partners — or toward the end of the line. There’s a delay, and that delay has spanned part of the course of two governments.

What’s your understanding of why Canada is so late to this party? How does the government explain that to you? Also, what’s your perception of the reasons for delay?

Alex?

Mr. Neve: Others will probably have views on this.

It is safe to say — and I’m not at all making partisan political comments here — the previous government was not a big fan of the Arms Trade Treaty. They had, for instance, chosen not to be one of the co-sponsoring nations of the General Assembly resolution when the Arms Trade Treaty was passed at the UN. We did vote for it, but they were not big supporters of it.

There was a concern, we believe — entirely misguided — that the Arms Trade Treaty might have implications for domestic gun ownership, which we highlighted was simply not the case. There are actually even provisions in the preamble to the Arms Trade Treaty that make that clear. The only risk that the Arms Trade Treaty would have to a hunter or a farmer in Canada would be if he or she is intending to ship their shotguns to Syria. It has nothing to do with the use of guns domestically.

I think that’s part of what has slowed us down from 2013 until 2015.

The Trudeau government did make a campaign promise to bring Canada into the Arms Trade Treaty. We are disappointed it wasn’t one of first issues out of the gate, but it was a busy time; there was a lot competing for the legislative agenda. The bill has now been in front of us for more than a year and a half. It was tabled in June 2017, so we are working at getting it there.

That’s my sense of some of the explanation for the delay.

Senator Dean: That’s sufficient. Thank you.

Senator Saint-Germain: Thank you for your presentation. My question is mainly for the lawyers, but not exclusively.

In the briefs submitted by Canadian civil society organizations, including yours, regarding U.S.-destined military goods and technology exports, you claim that the exemption breaches the ATT’s first article and that it also breaches Article 2, Scope, and Article 5, General Implementation, both core articles of the ATT.

We have a legal opinion from Global Affairs Canada that indicates that the Canada-U.S. military trade exemption is consistent with international law since the ATT does not stipulate how countries are to structure their export control regimes.

Could you refer us to any authority or case law to support your position that the Canada-U.S. military trade exemption breaches the ATT?

Mr. Neve: We would agree that if we did have a process in place right now, before Bill C-47, that ensured that arms shipments to the United States were being reviewed to consider whether they posed a risk of the considerations at the heart of the ATT — in other words, crimes against humanity, war crimes, genocide and now gender-based violence — then that would probably be okay. There’s not a necessity that Canada have one system that applies to all arms shipments. That would be coherent and makes it easier to run the system, but you could have two or three different systems, assessing risk through different means, but that isn’t the case.

Right now, arms sales to the United States are simply exempted from scrutiny. They don’t go through a process of determining whether there’s a risk that they could lead to human rights violations and war crimes.

This would have been the moment to remedy something that we had already been concerned about even before the ATT and Bill C-47 came along, but which we now say is a matter of international legal obligation. We have to ensure that any arms shipments going to any country — and that certainly applies to arms shipments that constitute more than half of the industry — are subject to an adequate review to make sure that risk is not there.

That’s why we’re concerned that we’re going into the ATT on the basis of pre-existing and new legislation that does not carry out that risk assessment with U.S.-destined deals.

Senator Saint-Germain: You have a proposed amendment — the last one in your brief:

Bill C-47 should prohibit contractual provisions regarding secrecy beyond the narrowest limits necessary to protect sensitive proprietary and related information.

According to you, what are these narrowest limits with regard, for instance, to national security and commercial confidentiality? It’s interesting, but it’s a very vague recommendation. I’d like to hear more on this.

Mr. Neve: Absolutely. All of the civil society organizations would be very pleased to work with senators and the government to come up with specific wording. We haven’t actually drafted the amendment itself, so much as we’ve identified what we think the amendment needs to accomplish.

This concern has come out of the experience that Canadians have had around the Saudi LAV deal, especially in these last two or three months with the Khashoggi murder and the growing realization of how devastating Saudi responsibility for war crimes in Yemen has been. People are very troubled — more troubled than ever — about that deal, and the question has come up about how we get out of it. How did we get into it? What are the terms of the contract?

All we’re told back are very general indications that there’s going to be a massive penalty provision, perhaps $1 billion or even several billion dollars, but none of us can know anything about that, because everything about the contract — everything about the contract — is confidential. It’s not that certain aspects of the contract have to be held confidential; we’re not even allowed to know what the penalty provisions are so that Canadians and legal experts, for instance, could engage in a debate about whether there is a way to deal with this contract and still ensure we’re not contributing to human rights violations.

We want to see that in some provisions — not ones that will erase commercial confidentiality; we recognize that’s an important part of doing business in the world. But we want to make sure that it is tailored as narrowly as possible when it comes to the specific provisions of this treaty.

Senator Saint-Germain: I will have other questions for the second round.

[Translation]

Senator Massicotte: Thank you all for joining us this afternoon.

My question goes to Mr. Barutciski. There is talk of an amendment to the proposed agreement that has been signed by 99 countries. In terms of this agreement, is it appropriate to propose an amendment incorporating our own sections, which will clearly be different from those of the other 98 countries? In your opinion, would it be possible to propose amendments of that kind without adversely affecting an international agreement that 99 countries have agreed on together?

Mr. Barutciski: In principle, yes, it is possible because the treaty allows member countries some latitude to implement obligations stemming from their national laws, their own specific legislation.

As an example, brokerage is not well-defined in the treaty but our bill tries to define it. The same goes for other aspects. Mr. Neve talked to us about provisions that would have the effect of restricting confidentiality. Not all confidentiality because, clearly, it is recognized that there will be occasions when it is perfectly legitimate. But if we try to be too precise in this act, we will be doing something that we do not do at all in all the other acts dealing with national security.

So once something affects national security, basically, transparency is completely out of the picture. There are good reasons for that because, even though politically for NGOs and for partisans on either side, they would really like to disclose the provisions, they are not in the same situation as the government, which has access to everything that could affect security in the medium- and long-term.

That is why our legislation gives almost complete discretion on matters of national security. It is not just about our acts, but also our international treaties, like the WTO treaty and so on. Exclusions based on national security are not self-evident, but they almost are.

Senator Massicotte: That actually means that we could end up with 99 different technical agreements.

Mr. Barutciski: We could. Unfortunately, that is the reality of international law. We are all sovereign, we reach agreements that have shortcomings or different points of view. That does not mean that we are not going to reach an agreement, although we may not have resolved all the details.

Senator Massicotte: For the sake of argument — this is not very appropriate at the moment, given what is happening with Saudi Arabia these days — but if we do not agree with the export of armaments to that country and how they may use the armaments, nothing is changed whether we sign the agreement or not, because we assume the right to send the armaments as such. That is a condition of the agreement we signed. Even if we accept the treaty as is, it does not prevent us from delivering the armaments.

Mr. Barutciski: There are two separate questions, even though they are actually linked.

First, a commercial contract between countries can be legally challenged. I have not seen this contract, because it is not public. I do not know whether the contract is subject to Canadian, British or Saudi law, but someone has probably indicated the law that applies to the contract. I have no idea. As for the commercial aspect, breaches of contract are judged according to the law chosen.

Second, it is a matter of public law. If, today or after Bill C-47 and the treaty come into effect, the Government of Canada has the power to freeze those transactions, it can refuse to issue the permits even if there is a contract.

We have to remember that the exporter is not the government or the Canadian Commercial Corporation, it is the manufacturer. He can send nothing abroad without a permit. So the law changes nothing in that respect, and the bill changes absolutely nothing.

Senator Massicotte: In the industry in general, how does it work when a contract contains conditions to suspend delivery when a country violates the provisions of our treaty? When we sign an agreement on munitions or armaments, is it the norm to refer to the treaty? If the treaty is violated, can we stop a delivery without suffering financial consequences?

Mr. Barutciski: Typically, military contracts are subject to the issuance of the appropriate permits. So, when I advise a client in those situations, as in any commercial transaction, there are always conditions and before the obligations become final, those conditions must be fulfilled.

As for the negotiations, it’s a matter of finding out which party incurs the risk of not fulfilling the conditions, and I have not seen the contract, so I have no idea. Is Canada going to assume the risk if the permits are not obtained? Possibly. I do not know. Both situations are possible.

Senator Massicotte: What is typical in the industry when you sign a contract to buy or sell equipment? Is it typical to refer to the treaty if the Government of Canada believes that there is a risk of the rules being broken? The contract is commercial, it’s not based on the treaty.

Mr. Barutciski: First, as this treaty is not yet in effect, we cannot use it, but permits required under the Export and Import Permits Act are often mentioned. There are other permits. A number of permits must be obtained for exports, such as in the nuclear sector, as a specific example. It is the same thing, a number of programs may be involved.

All I mean is that, whether the risk falls on the purchaser or the seller depends on the circumstances. It’s like any negotiation. The one with the more power in the negotiations will basically put the risk onto the other party. There are no normal rules that apply in those situations. It is not like a real estate sale, where the general conditions are found in the contracts. Even in those cases, sections are regularly crossed out.

[English]

The Chair: I still have two senators and we have to end at 6:15 because of another committee, unfortunately. Could I put you on a second list and ask Senator Cordy? Then we’ll come back to Senator Saint-Germain.

Senator Cordy: I have two questions, but luckily one of them has been asked by Senator Saint-Germain.

Mr. Barutciski, you said the purpose of this will be to promote order, but you also talked about the risks between government and industry and who you’re exporting to. In particular, you mentioned peace, security and balancing the fundamental interests and beliefs of countries.

Mr. Leuprecht, you spoke about the security environment being unpredictable.

I think a lot of countries are going through what Canada is going through in terms of should we be selling LAVs to Saudi Arabia? Should we be selling arms to certain countries? It’s not just military equipment; I think it would hold true across the board. Society seems to be getting more attuned to those kinds of things and more engaged, so they don’t always approve when they find out what certain countries are doing.

Mr. Leuprecht, you spoke about perhaps countries getting together, like allies. You spoke about Germany, I remember, Canada and maybe the U.K. Are there any discussions at that level now? Are the allies that we trust coming together and making collective agreements on those kinds of things, namely, the risks, going back to Mr. Barutciski’s comment about the risk and the balancing of risks?

Mr. Leuprecht: Thank you for the question, Senator Cordy. I think there are two ways to look at this. One is as a counterfactual.

Why do we export arms to certain places in the world? In part because the counterfactual of not exporting, in some ways, is worse. If we look at the Middle East and the mess that the Middle East is, we have a strategic interest in stability in the Middle East. We already know how difficult a region it is and, for better or for worse, we’ve chosen certain strategic partners in the region with our allies and we’re going to have to go with the bets the way we’ve hedged them, because the counterfactual of now changing course is probably worse.

I think we’re conflating two separate problems. We’re putting the urgent ahead of the important here, letting one particular case derail a conversation, discussion, about the principles behind an entire bill.

If we have concerns about a country, we already have mechanisms other than — for instance, in the previous question with regard to contracting — imposing constraints or penalizing a country. We can remove a country from the Automatic Firearms Country Control List, for instance. There are only three countries in the Middle East that are currently on that list: Kuwait, Saudi Arabia and Israel. Other than having these intricate conversations about whether a contract is valid or whatnot, we can simply decide to remove a country and that will send a very clear signal to that country, because it will now make it much more difficult for that country to acquire Canadian arms technology. This is exactly the reason why, in Africa, as far as I know, there is only one country that is currently on the Automatic Firearms Country Control List, which is Botswana.

We have other mechanisms in place already. The question is: How many safeguards beyond what we have in terms of cabinet regulations, beyond what’s already in the bill, beyond the other conventions to which we’ve acceded and as a result of which we’ve established export control lists, country lists, brokerage lists? How many more mechanisms do we need to put in place as other mechanisms to exercise leverage and send a clear signal that we’re unhappy?

I will close with a short comment that the unfortunate thing is we’re too keen on the export side and I think we haven’t thought enough about what we do when the bellwether changes, as is the case here, and what leverage do we have? Inherently I think that’s where there’s currently not enough conversation.

I propose to members of both sides of the house that Canada could lead the way here in terms of getting at least some key group of countries together. Because everybody, let’s face it, ultimately is interested in Western weapons technology. The Americans will never agree to this type of regime. However, I think we can send strong enough a message with our allies, but it requires somebody to step up. This might be the way to alleviate some of the concerns that have been levelled with regard to vague aspects that remain within this bill.

The Chair: I have two on second round and we have about two minutes.

[Translation]

Senator Saint-Germain: My question goes first to Mr. Leuprecht. The brief that has been sent to us recommends that the accelerated procedure with the United States be suspended and that all exports should be subject to the Export and Import Permits Act, including exports of the Canadian Commercial Corporation. How is it even possible to manage all that in terms of transparency? The Canadian and American industry you mentioned is so integrated that we re-import the things we have exported. Parts for armaments are exported, then re-imported and exported again. In other words, in practical terms, is it even possible to implement a recommendation of that kind?

Mr. Leuprecht: Everything is possible, madam. The issue is whether it is worthwhile to do so.

Senator Saint-Germain: So is it worthwhile if it is possible? Can you at least say that it is complex and that it might be worthwhile?

Mr. Leuprecht: If you want to pour more money into departments to give them many more resources to administer that kind of program, and to deprive small departments of even more of the programming that they are delivering to Canadians, then yes, in principle, it is possible. However, it seems to me that that approach is not very useful and does not make for a strategic way of investing our public funds, given the extent and complexity of the integration, as you have pointed out. Senator, let me also remind you about the following.

[English]

With the Kingston Dispensation and the Ogdensburg Agreement of 1938 and 1940, we have had a strategic alliance with the United States that has deliberately kept the world’s troubles away from North American shores and that has made us the most prosperous, the most harmonious, stable and desirable continent arguably in the world’s history.

We can demonize the Americans or we can consider that, for better or for worse, we have a common geographic destiny and we have a common interest in working with our American partners collaboratively to secure our way of life and our values.

I remind you that we take democracy for granted, and democracy is something that needs to be defended, and we have all seen that the world is getting much tougher in that regard, and the Americans, in terms of the international security permit, whether we like it or not, are at the top of that permit, followed by the Five Eyes community. If we want to jettison that strategic relationship, we do it at our peril.

The Chair: I know Mr. Neve wanted to add a very short response. Alex, can you do that?

Mr. Neve: I can. Thank you for the opportunity, just on this last point in particular. There’s much else I’d like to say as well.

I’m confident that right across the country, Canadians would be deeply troubled if they knew that there was a real possibility that parts or arms being sold to the United States were, in turn, finding their way into Saudi and UAE hands and being used to commit war crimes in Yemen.

Yes, it may be a tall order to figure out the right system to ensure that we bring scrutiny to those deals with the United States; and yes, it may cost money; and yes, it may pose tensions and difficulties in our security relationship with the United States. But what is at stake here is too fundamental, and I would say too precious to the values that we hold dear as Canadians, to let that be the reason not to do this. It’s an absolutely crucial step to take and I think Canada needs to rise to that challenge.

The Chair: Thank you, and thank you to all the witnesses. I should make two comments. I haven’t entered into the debate too much because, as you see, the appetite to engage you is very important.

I think we have focused on Saudi Arabia, but this treaty agreement is a worldwide agreement and we have only to look to Africa to see the glut of arms there and trace where they come from. Fortunately, Canada doesn’t figure significantly there, but certainly a lot of our allies do, as well as other partners.

I want to draw — and Senator Cordy will probably appreciate this — to the attention of this committee that we actually looked at parts of this issue of increasing the human rights deliberation by the government in the process of any contract they make. Unfortunately, the government responded that they would not accept the recommendations. However, I think it would be useful background for this committee to have the Human Rights Committee report and the government’s reply as background. I’m going to ask the clerk to give us the links or provide copies.

On that note, senators, we’ll reconvene tomorrow. Thank you all for remaining. I apologize to technicians and interpreters if we ran over five minutes.

Thank you again to the witnesses. You can see the interest that you generated. It’s very helpful to this committee. Thank you.

(The committee adjourned.)