THE STANDING SENATE COMMITTEE ON FOREIGN
AFFAIRS AND INTERNATIONAL TRADE
OTTAWA, Wednesday, March 9, 2016
The Standing Senate Committee on Foreign
Affairs and International Trade met this day at 4:15 p.m. to study foreign
relations and international trade generally.
Senator A. Raynell Andreychuk (Chair)
in the chair.
The Chair: We apologize for being a bit
late. The Senate normally adjourns in time for this committee, but we are 15
minutes late. I'm sure we can catch up. The witnesses will be doing their
presentations and I'm sure our questions and answers will be succinct so we
can get everyone in.
The Standing Senate Committee on Foreign
Affairs and International Trade is authorized to examine such issues as may
arise from time to time relating to foreign relations and international
trade generally. Under this mandate, the committee will continue to hear
from witnesses on the topic of bilateral, regional and multilateral trade
agreements, prospects for Canada.
We have a first panel before us. I am pleased
to welcome by video conference Richard Ouellet, Full Professor of
International Economic Law, Law Faculty and Graduate Institute of
International Studies, Laval University. Professor Ouellet's lectures and
research focus on World Trade Organization agreements, North American
economic integration and investment rights. His current research is focused
specifically on the legal content of the Canada-European Union Comprehensive
Economic and Trade Agreement and the Trans-Pacific Partnership.
I am also pleased to welcome in the room in
person Mr. Gus Van Harten, Associate Professor, Osgoode Hall Law School,
York University. Professor Van Harten is an investment law specialist. He
has published books and numerous studies on international investment law and
on the investor state dispute settlement.
Thank you both for appearing today. We look
forward to your presentations and, as I said, we will have questions. I will
turn first, by video conference, to Mr. Richard Ouellet. Welcome to the
Richard Ouellet, Full Professor of
International Economic Law, Law Faculty and Graduate Institute of
International Studies, Laval University, as an individual: Thank you to
everyone here in the Senate to hear us speak this afternoon. I am very
honoured to be able to contribute to your work.
As instructed, I have prepared a short
presentation and I would like to make five short general comments on the
form that globalization takes today and that I think must influence Canada’s
The first of these comments, which is probably
the most important, is that it seems to me — and I am in good company,
because a number of authors agree — that we are entering a new era of
international economic agreements. For a long time, we heard about
multilateralism, meaning negotiations that brought together all the states
of the world around the same table to negotiate a range of issues at the
same time, unanimously as part of a consensus, a unique commitment.
We also heard about regionalism for a long
time. This refers to states that are in the same region, that share economic
interests, and that choose to negotiate an agreement that is often more
thorough than a multilateral agreement. These agreements often allow for
regional or continental integration.
Today we are dealing with a new form of
agreement. Let me give you a number of examples. First, there is the
Trans-Pacific Partnership. The Trans-Pacific Partnership brings together 12
states whose only common geographical feature is a shared coastline on the
Pacific Ocean. This is certainly not an agreement that could be
traditionally described as regional. And it is clearly not a multilateral
So what are we dealing with? We have an
agreement between 12 states that are described as "like-minded countries,"
countries that basically have the same understanding of globalization and
share the same interests and objectives.
Another important example — and Canada is still
part of this one — is the Trade in Services Agreement, better known as TISA.
Again, we have a group of states, around 30 or so, and, as you know, these
negotiations are not public. So these are states that want to review the
content of the Trade in Services Agreement at the WTO and that come
together, because they basically have the same understanding of trade in
There are two other similar examples that are
trying to show you that we are in an era of agreements between like-minded
states rather than regional or multilateral agreements. These are two WTO
agreements. As you know, since the beginning of the Doha Round negotiations
in 2001, only two agreements have been adopted and will change the state of
the law. The first one is the Trade Facilitation Agreement, which is the
result of negotiations at the last two ministerial conferences, a
plurilateral agreement between a number of World Trade Organization member
states agreeing to ease customs and administrative procedures between each
The other WTO agreement is the Agreement on
Government Procurement, also a plurilateral agreement, an agreement that
includes only certain WTO members. Again, Canada is a party.
What I would like you to grasp is that we have
entered a new era of international economic agreements that bring together
states that share the same understanding of globalization. The states no
longer have to share geography or participate in multilateral negotiations.
My other comments will be shorter. First, I
have a comment about the World Trade Organization. Despite the fact that the
World Trade Organization is seeing some stagnation in its agreements, it
remains an indispensable player in globalization and I would like Canada to
become a champion of the World Trade Organization’s work once more.
The WTO’s dispute resolution system is still
one of the most solid in international economic law. All traditional trading
states are members and no one is currently threatening to leave. So the
organization must regain its former glory, and Canada is particularly well
placed to play a role in enhancing the status of the World Trade
In terms of investments, we must be aware that
business is increasingly demanding the liberalization of investments, often
more so than the demand for the removal of barriers at borders.
My fourth comment is that, in recent years, we
have seen a swing in the economic growth that occurred around the Atlantic
Ocean until the mid-1990s or early 1990s. Economic growth no longer takes
place between states with common borders or shorelines on the Atlantic.
Today, after this swing, the major development vectors and the economic
growth are moving towards the Pacific.
My final remark is intended to provide you with
a context. Today, Europe is a partner that is stuck in globalization. It is
very dependent on its neighbours for energy. Geographically, it is not well
placed to make alliances with regions that are the major drivers of growth.
Militarily, it is dwarfed by its neighbors, and it cannot turn to its former
economic partners in Africa, Latin America and the Middle East. It has to
find friends, allies, and I feel that North American partners, Canada and
the United States, are seen as being of most benefit to Europe. So we must
not hesitate to sign an ambitious free trade agreement which would be good
for both sides of the Atlantic. Europe, despite all its shortcomings and
handicaps, remains the world’s big market of rich consumers, and that is an
opportunity that Canada must seize in order to get into this service economy
that we want to develop.
Those are the comments I wanted to give you. I
will be pleased to answer questions from senators about the content of the
agreements that I am familiar with. But I wanted to establish a context that
I feel has been inadequately described up to now in all the debates we are
having on globalization and Canada’s trade policy.
The Chair: Thank you. Turning now to our
next speaker, Gus Van Harten, welcome to the committee.
Gus Van Harten, Associate Professor, Osgoode
Hall Law School, York University, as an individual: Thank you for the
invitation to speak with you, and thank you to Professor Ouellet for his
Today's trade agreements are about much more
than what the ordinary person thinks of as trade. They touch on many, many
subjects beyond, for example, tariff reduction. One of the very
broad-ranging subjects that trade agreements deal with is called investment,
and within the investment chapters of these agreements, or sometimes simply
in investment treaties themselves, you have something called ISDS, Investor
State Dispute Settlement. It is my specialization so I will talk about ISDS.
ISDS is very controversial. It has become
extremely controversial in Europe the last couple of years and very
controversial in the United States. I would say a little less in Canada. Why
is it controversial?
Well, if you will indulge me, I will describe
ISDS as I would to a student in my class who has never encountered it
before, an informed member of the public. It is basically a
quasi-constitutional reform through the back door of a trade agreement.
Functionally, ISDS is like having a Supreme Court for the world to review
anything that a country does for the sole purpose of protecting property
rights only and only property rights of foreigners, primarily large
multinational companies, except the court does not have actual judges.
Rather, as its centre piece it has a tribunal of three lawyers who sit as
arbitrators but operate effectively in a for-profit manner, which is typical
in arbitration, but not typical and, I have argued for many years, totally
inappropriate, for reviewing what countries do in their public, sovereign
role as a legislator, or a government, or a regulator, or a domestic court.
That's how I would explain it briefly to the ordinary member of the public.
I will now elaborate a little and highlight the
two main aspects of ISDS that I think generate the most challenges and
controversy. The first is the fundamental shift in institutional power from
a country's legislatures at any level, governments at any level and courts
at any level to the three lawyers who sit on the tribunal that will be
established whenever a foreign investor chooses to bring a claim under the
trade agreement. There are some mechanisms for review of what those lawyers
do, but they're quite limited mechanisms and they're not judicial mechanisms
in many instances.
It is that essential institutional transfer of
power that brings with it all kinds of debates and controversies about the
implications for democracy because you are allowing your highest legislative
decisions to be reviewed by a non-legislative and non-judicial body.
Likewise, it has implications for what we think
of as judicial independence, procedural fairness and court proceedings,
because now you have a non-court proceeding that is allowed to review the
highest court decisions of a country. You could have, in Canada — and we
have had in other countries — the Supreme Court of the country reaching a
decision. One would think that it would be the final decision in a case, but
the foreign investor can challenge the Supreme Court's decision under an
investment treaty using ISDS and get a monetary order against the country
for the court decision or, in other cases, legislative or governmental
The second aspect that generates the essence of
the controversy here is the remedy. The crux of the power of the tribunal of
lawyers sitting as arbitrators is they can order payment of compensation.
You might think that is less of a power than ordering a legislature that you
can't pass a certain law, a nonmonetary remedy. However, in some cases a
country, a government, would actually prefer to change its decision rather
than pay a retrospective damages award for a decision taken years earlier.
The power of the lawyers over the public purse
is so great that there is no cap on the amount of compensation they can
order. In cases so far, the awards in the last five years have actually
reached billion-dollar awards. We're not talking about trifling amounts.
What is the implication of that and why is it
controversial? It is because people worry about how that special power of
foreign investors to threaten claims with uncertain but potential
billion-dollar liabilities, behind the scenes with decision makers, will
change decision making dynamics in ways the public is not aware of.
There are debates about regulatory chill and so
on. I would be happy to talk about specific of those debates if you would
like me to, but I wanted to isolate why I think the system is so profoundly
controversial and why it is very important, at the moment in time we are at
now, to think through ISDS, because the moment we're at now is to be on the
brink of an expansion of ISDS in the world from, I would estimate, about 20
per cent coverage of the world economy to 90 per cent coverage.
With the TPP and the U.S.-Europe TTIP, we would
roughly quadruple the existing scope of the arbitrators’ power in ISDS over
countries. In Canada's case, the key agreements that are expansive here are
the TPP and the CETA, beyond what we have now primarily in NAFTA and the
Canada is the only Western, developed country
ever to have agreed to ISDS for comprehensive reviews of its decisions while
in the more vulnerable, we would say capital importing, position. Canada is
the only country ever to have done that with the United States; it was done
in NAFTA. Even to this day, over 20 years later, no other Western, developed
country has taken that step in subjecting its legislative and sovereign
decisions to review by this process. Historically, it has always been
developing and transition countries that have done that.
Why are we on the brink of an expansion? It is
because these few agreements will apply ISDS to relations between developed
economies, which adds to the controversy because the justification for ISDS
was always that we can't trust the courts in — I always say Vietnam; I don't
mean to pick on Vietnam — certain countries. Now, the argument is
essentially we can't trust the courts anywhere because foreign investors, it
is argued, need a right to bring a claim against any country without going
to its courts first, essentially assuming that courts in all countries are
systemically not a reasonable place to resolve disputes involving foreign
investors, without the foreign investor having to demonstrate any rationale
whatsoever for evading the country's courts.
In international law, no other private party
has this kind of options and protection. It is a profoundly powerful part of
Those are my opening remarks.
The Chair: You started saying that you were
going to give us trade law 101, if I can say that, and I am probably still
at the 90 class. You are saying that these tribunals or dispute-resolving
mechanisms were started because we didn't trust other countries that we were
going into, so our investors were looking for assurance on a
less-than-capable court, in our opinion. It now appears that we are trapped
in that system, if I read you correctly.
I am a little confused as to the new expanded
article when we signed on to CETA in this new clarification, multilateral
investment tribunal. Which way is it going on that issue, or does it touch
it at all?
Mr. Van Harten: I should stress that trade
agreements, for a long time, have had dispute resolution arbitration
clauses, and they're traditionally state-to-state, including for foreign
NAFTA was novel. It brought this ISDS mechanism
in. CETA is an example of one of a few agreements that is also including
ISDS in a circumstance where typically you wouldn't have seen that. The
expansion is of ISDS in relations between developed countries, and in CETA's
case between western European countries and Canada mainly, where there's
still no treaty that provides for ISDS between those parts of the world.
That's a part of the investment chapter of
CETA. CETA didn't have to do that. We have other trade agreements that don't
provide for ISDS. The Canada-U.S. free trade agreement did not provide for
ISDS. The United States has a free trade agreement with Australia that does
not provide for ISDS. That's what I meant by the very significant expansion
in the TPP, the TTIP and CETA.
The Chair: Professor Ouellet, I don't know
if this is your area or if you want to comment or can I go to questions?
Mr. Ouellet: Yes, certainly. Professor Van
Harten will forgive me for not being on the same page as he is on these
issues. I feel that the dispute resolution system for investments can
sometimes result in amazing decisions. Overall, it is the best system we
have for protecting investors who are bringing their capital into legal
forums in which protection is difficult because sovereign states are
involved. I feel that entrusting the resolution of investment disputes to
referees was not the best solution, but, as Churchill said about democracy,
it is perhaps the best solution given all the others.
Perhaps the proposal of Europeans under CETA to
create a permanent court might solve a number of problems, including this
unpredictability that exists in investment and arbitration. Having to deal
with a court could stabilize precedents and in some way provide some
reassurance regarding the state’s role in investment. I am also comforted by
the fact that this court would be an idea originating from the European
Union, which fits well in state interventionism in economic matters. I do
not feel the same sense of urgency about this as my colleague.
Senator Downe: Could you tell me how these
arbitrators for the ISDS panels are selected and paid, Professor Van Harten?
Mr. Van Harten: It is usually three
arbitrators on a tribunal. The foreign investor would choose one, the
respondent country would choose one, and if they couldn't agree on the
presiding arbitrator, there will be a default appointing body designated in
the treaty that will impose the arbitrator on the parties. The most
prominent appointing authority is basically the World Bank. You have
different officials at the World Bank exercising that formal, important
default authority to choose who the presiding arbitrator will be.
The second part of your question is how they
are paid. They're conventionally paid by the hour or the day, unlike a judge
who would have a set salary and secure tenure. Of course, these arbitrators
are appointed case-to-case. That gets to the heart of the criticism on
grounds of lack of independence, which is that the arbitrators have an
obvious financial interest in encouraging claims by the only side that can
bring claims. In this system, that's foreign investors. As well, they have
an interest in maybe stretching out the case because it is a day-to-day or
The recent modifications to the CETA agreement
are not changing this aspect because the remuneration of the tribunal
members will still be dependent on appointments to cases. There will be a
monthly retainer, but they will get paid per case again.
That is modelled on the World Trade
Organization's arbitration mechanism for state-to-state dispute resolution,
but the difficulty there is either side can sue each other in that system so
it is regarded as keeping the arbitration process honest. Here, when it is a
one-way system and only foreign investors can sue and they're the only one
with rights under the treaties, that creates a challenge for using
arbitration in that context.
Senator Downe: My next question is about
the changes to CETA. The previous government signed an agreement and told us
it was going through a legal scrub and that would take time. Translation: It
was never formalized. The current company announced in February this year
that they were doing modifications when they did the legal review. It sounds
to me like parts were renegotiated. On the dispute settlement, what are the
modifications between what they had before and what they have now, and how
much of that is a reflection of the deal they hope to sign with the United
States as opposed to their concerns about Canada?
Mr. Van Harten: Two main changes I think
are significant. One is there will be a roster of tribunal members. All the
tribunal members will have to come from this roster, and the roster will be
set by the states. The foreign investor will no longer choose one of the
members of the tribunal. Rather, the tribunal members will be chosen from
the roster, which is a state-based roster, which is, in my view, an
The second significant change is that there is
inclusion of broad language on the state's right to regulate. I describe
this as a euphemism for democracy, courts, regulation. All of that is meant
to be captured in this legal concept of the right to regulate. That gives
some modest counterbalance to the broadly framed investor rights in the
agreement, but it has certain limitations as well. I probably don't need to
go into those.
There are other aspects of the debate that
haven't been addressed in the reform model, but I think those are the two
most significant changes that I would flag.
The European Commission changed its model in
response to the public outcry about ISDS in many European countries. I'm
very familiar with it. It was especially the case in Germany, but also in
many other countries. They were attempting to respond to that political
crisis that they were facing. I think these changes are meant to provide a
kind of cover for this massive expansion of ISDS. I'm personally doubtful
that the Americans will agree to these changes, but it is very hard to
predict at this stage.
Senator Dawson: In the dispute mechanism,
as you have gone through it, what about retaliation against those who
Do you sense that there can be retaliation from
one of the parties in a future negotiation or in a future contract?
I have a question about something else for
Professor Ouellet. You mentioned enhancing the WTO. I think the new
government fully agrees with you. There seems to be a movement toward
multilateralism. However, do you have any specific recommendations about
what could be done quickly by the Canadian government to improve our
relationship with the WTO?
Mr. Van Harten: Do you mean retaliation by
the other country?
Senator Dawson: Yes. If a country loses and
they retaliate, people might hesitate to go back again?
Mr. Van Harten: If a country loses and gets
a very large award against it, the officials in the country might think,
"Well, we just won't pay the award," because in international law you can
get away with that a lot of the time, just ignoring the order against your
With this system, the very smart lawyers who
designed it thought of that. This system piggybacks on the arbitration award
enforcement mechanisms of international commercial arbitration, used when
there are disputes between companies. It allows the award against the
country to be taken by the foreign investor and enforced against assets of
the country abroad in many, many other countries, without further review in
those countries' courts, which is part of the extraordinary power of the
That means that this system tends to operate
separately from the overall state-to-state relationship where you might have
these issues of diplomatic disputes. With a really big dispute, you can see
both operating alongside each other. That is the home country, the investor,
will have other forms of pressure that it might be bringing to bear on a
country alongside the ISDS situation.
Senator Dawson: I understand.
Professor Ouellet, you do have an answer about
Mr. Ouellet: I would like to start with a
quick personal remark. The first time I had the opportunity to visit a
polling station, I was a little boy accompanying my father. We lived in the
riding of Louis-Hébert. So the first time I saw an X written on a ballot
paper, it was next to your name.
Senator Dawson: I was 12 years old. I will
not ask how you voted. What year was it? Did I win or lose?
Mr. Ouellet: You won that time.
To answer your question, yes, there are some
things that Canada could do. Obviously, this is a multilateral context with
over 160 states. It is difficult to make your mark as a middle power.
However, Canada was a central player in the World Trade Organization and in
GATT. But we have lost that aura in recent years. We had an influence that
went well beyond our economic size as a state, and we need to recapture some
of that shine.
What can be done concretely? Negotiations are
currently under way at the World Trade Organization to renew the Dispute
Settlement Understanding. Canada has extraordinary expertise, and Canadians
are renowned for their capacity to resolve things peacefully and easily. We
have long been leaders, and we need to resume that leadership and be at the
forefront of these negotiations.
We also need to return to being the mediator we
have long been. Until the mid-1990s, Canada sometimes organized
mini-conferences between certain players who were particularly influential
in the WTO, but we have not done that for the past 10 or 12 years. It is
time that we start this again, and that we become mediators once more.
We tend to forget this, but several countries
around the world see us as the ideal pivot between the United States and
most of the other WTO member countries. They see us as the central player
who can play the pivot role between the American giant and other countries.
We need to play that card again, resume our place in discussions.
There are two other areas where we could resume
a leadership role, and those are agricultural matters. We know that
negotiations at the WTO stumble greatly when it comes to agriculture. We
have unparalleled expertise in this area. We can be involved on both fronts,
that of reducing trade barriers, because we can take our place on large
markets, and that of protecting agricultural diversity with supply
management. We have a sensitivity for these portfolios. The whole world
wants to listen to us because of our balanced positions. We need to be
leaders once again.
The last point where we can assert ourselves
more is in training. We have expertise in international and economic law in
Canada that few countries of the same size have. We are renowned for that.
There is an enormous need for training in international economic law in
developing countries. We have long provided various kinds of training, which
is no longer the case. We can once again be taking on this leadership role.
There are fairly tangible measures that we can
undertake in the short term to return Canada to the place it held in this
Senator Oh: My question is about TPP and
WTO. Given its scope and the fact that you will be open to the addition of
new members, does the TPP agreement have the potential to influence WTO's
multilateral negotiations? If so, what would be the advantages and
disadvantages for Canada?
Mr. Ouellet: I should say that the ties
between the TPP and the WTO are indirect. The Trans-Pacific Partnership is
first and foremost an agreement between countries with a similar world view.
Its intent is not to integrate all neighbouring states. It is much more a
question of integrating China, for example, into the Trans-Pacific
Partnership. I think that this would not be an easy task, particularly
because of the scope of the chapter on state enterprises. It might be
complicated in the short term to include China in the Trans-Pacific
The partnership could certainly broaden, could
be expanded and cover other countries, but only in the medium term. In
China’s case, it is important not to think that it could happen quickly.
As for the impact of the TPP on WTO agreements,
I see it as a possibility of renewing World Trade Organization negotiations.
A number of very delicate questions, particularly regarding agriculture,
have been addressed partly — and I do mean "partly" — in the context of the
Trans-Pacific Partnership, which restores hope of establishing a connection
between these parties and the World Trade Organization.
Mr. Van Harten: The TPP is a U.S.-led
agreement. The United States decided which countries would participate in
the TPP negotiations from the start. It chose friendly or compliant
countries in Latin America and Asia and Pacific Rim countries, but not all
the Pacific Rim countries. The TPP is a U.S. agreement. Canada, Mexico and
Japan joined the TPP negotiations midway or partway through the
negotiations, once the train was already starting to roll down the track in
a certain direction.
When we evaluate the TPP, most of what we find
is what the U.S. would want to have in the TPP. That means it will help the
U.S. position in multilateral negotiations at the WTO, because the U.S. will
be able to point to this major plurilateral agreement as a reference point.
Senator Rivard: Thank you for being here,
Let’s take the example of NAFTA, the treaty
with the European Union and the future Trans-Pacific Partnership. Do you
think that the House of Commons should decide whether Canada agrees to be
part of it? The chief negotiator for Canada in the European Union treaty
appeared before our committee a few weeks ago. She told us that she had
listened to the provinces. We know that Quebec, with Pierre-Marc Johnson,
among others, and other provinces were represented to protect our interests.
I agree with that, but I have heard several
times that the provinces would like the European Union treaty to be ratified
by each province.
Do you think we should include the provinces in
the ratification process — not only the House of Commons and the Senate —
especially when we think back to the Meech Lake era in the 1990s, when Prime
Minister Mulroney had the unanimous agreement of the provinces and
territories? Then, when it was time for ratification, everyone bailed.
So, when it comes to ratification by the 28
member countries of the European Union, do you think that this is the
formula that the Canadian government should follow, or should we consider
ratification by the provinces?
Mr. Ouellet: Thank you, Senator Rivard. We
know that these negotiations between Canada and the European Union gave the
floor to the provinces. The provinces had a voice when it was time for the
negotiations. I often heard people say that Canada was pleased to be
accompanied by its provincial delegations. Congratulations. I applaud that;
this is good. However, after a few stints in Europe, I was told a few times
that the European negotiators asked the Canadians to make sure there was no
trouble in implementation once the agreement was signed. What was said very
specifically at the negotiation table was that, with regard to public
markets in particular, no one wanted certain provinces to continue to award
contracts individually to Bombardier, among others. That was the example
given during negotiations. An agreement on the public markets between our
two powers, Europe and Canada, should require Bombardier to compete with
Alstom, CAE and other European companies.
The Europeans were mainly the ones who
requested that the provinces be part of the negotiations. It was a good
thing. It made things easier, and no one complained. The problem is that
this exercise was not repeated as part of the Trans-Pacific Partnership,
which would have been more beneficial. Why? Because the implementation of
these agreements depends largely on the provinces. They must put into force
a number of provisions set out in the agreements because of the distribution
of jurisdictions. I am of the school of thought that Canada should
systematically bring, perhaps not 10 provincial delegations, but at least
delegations that represent the provinces to the negotiations.
I am getting out of my comfort zone a bit, but
ratification by the provinces poses all kinds of problems from a
constitutional perspective. In particular, the provinces are not able to
ratify international treaties. This is a mechanism that would have
significant limitations. At the very least, what Canada should encourage in
the future is bringing provincial delegations back to the negotiation table
to ensure that subsequent implementation will not be too difficult.
Things are going fairly well for the
Trans-Pacific Partnership. We have not heard of any provinces grumbling
about it. However, if there were too many issues with dairy product supply
management, and one of the two provinces that benefit the most from this
system decided not to implement it, there would be serious problems.
In my opinion, the solution for ratification is
not a bad solution in itself, but it presents all kinds of obstacles because
of constitutional difficulties. The practical solution would be to have the
provinces take part in the negotiations.
Senator Rivard: I agree. I raised that
possibility because we heard that some provinces wanted to ratify and modify
the agreement. I hope that Canada will continue to consult the provinces.
That is the Canadian position. In Europe, among the 28 countries, I think I
heard that the Czech Republic and Romania continue to use blackmail, saying
that they will ratify the agreement if Canada agrees to remove mandatory
visas for visitors from their countries. I dare hope that a position like
that will not hold. If we had to ask each of the 28 countries to consult
their territories, their provinces or their states, we would never see the
I am pleased to hear that you agree with me
that Canada should allow the provinces to take part in the negotiations. It
is Canada that must decide. We do not want another Meech Lake situation,
which had been unanimous, but was then defeated.
Mr. Ouellet: I would like to follow up on
what you just said. I met with two or three senior officials of the European
Commission last fall. Given the principles of free travel in Europe —
equality of treatment among Europeans — they felt that they had no choice
but to let the Czech Republic and Romania object. They will not put any
pressure on them because all Europeans must have the same freedom of
movement. If two visas concern two countries in particular, the European
Commission will not pressure them. In Canada, we will have to ask ourselves
some serious questions about retaining these visas. That might be a
significant political obstacle.
Mr. Van Harten: Your question puts a finger
on one of the key constitutional outstanding issues arising from, and I'll
focus on, ISDS. If a foreign investor brings a claim against Canada for
something a province has done, the arbitrators may make an award against
Canada. Now, who should pay that award? Should it be the federal government
that is not responsible for the act that violated the treaty, or should it
be the provincial government that never ratified the treaty?
Some treaties in our history have been
submitted to provinces for ratification or passage of implementing
legislation prior to the federal government ratifying the treaty. One recent
example is the International Centre for Settlement of Investment Disputes,
ICSID, Convention. In the case of CETA, provinces were allowed to take part
in the negotiation of some of the chapters, but not all. When I asked an
Ontario trade official if they were allowed to participate in the investment
chapter with the ISDS clause, he wouldn't tell me.
That means in the extreme situation, let's say
a worst-case scenario of a billion-dollar award, that neither level of
government wants to pay, and it doesn't get paid. That award can be enforced
against assets of Canada abroad, potentially including assets of any
province of Canada. That's a complex question. It would depend on the
domestic law of the country in which enforcement of the award was being
The constitutional issue of which level of
government is responsible for a major award of that size, with the prospect
of provincial assets as well as federal assets being exposed to seizure
abroad, should be resolved before Canada ratifies these agreements and not
after, in my view. It's certainly possible for provinces to be asked to
ratify these agreements, and certainly their authority is affected by ISDS.
The Chair: It's an interesting
constitutional question that merits discussion. We're talking about
ratification, but there's a whole constitutional issue as to whether there
is a possibility to ratify. Perhaps we'll explore that.
Senator Poirier: I just have one question
to either of you for your opinion on future trade agreements for Canada.
We've heard some criticisms, such as the ISDS mechanism and other issues, as
well as benefits such as the trades in services. In your opinion, what could
we learn from the outcome of CETA and the TPP to negotiate even more
advantageous free trade agreements in the future?
Mr. Van Harten: I'll answer briefly by
saying that once Canada adds the TPP and the CETA to NAFTA and the
Canada-China FIPA, it's is the end of story for ISDS, because pretty much
our whole foreign-owned economy will be subject to ISDS on the U.S. model,
with some modest variations in CETA.
I could talk about what we would learn for
future negotiations, but it becomes a bit moot because we're already exposed
to claims by foreign investors who own the vast majority of the
foreign-owned assets in our economy.
I'm not as well positioned to comment on other
parts of the trade agreement, so perhaps I can leave that to Professor
Mr. Ouellet: I believe that Canada should
continue to be active in signing regional and multilateral investment
protection agreements. This is part of the game these days. If you examine
the trade policies of the big countries in recent years, everyone is running
the race of signing many agreements. We must take part in this race. We have
a market of 36 million inhabitants that includes a lot of advanced
technology and products and services to export. The markets must be open for
I think we must continue to sign important
free-trade agreements with key partners. With regard to investor dispute
settlement, we need to be stricter with appeals, but I do not think this
should lead to introspection.
Senator Cordy: Thank you to both presenters
today. It has been very interesting. I also would like to speak about ISDS.
Theoretically you can say, okay, I get it, but when you look at situations,
you think it's very unfair.
I'd like to refer to a situation that happened
in Nova Scotia. It was about a case that Canada lost under Chapter 11 of
NAFTA. Bilcon, which was the United States corporation, used NAFTA to
challenge fair environmental reviews done at the provincial and federal
level. So both provincial and federal levels felt they rejected the plans
this company had for developing a large industrial quarry in Digby Neck, in
Nova Scotia, which is my home province, and Digby Neck is a small, beautiful
area of the province.
Bilcon ignored the access to Canadian courts
and instead went directly to ISDS. This was a secret arbitration, but they
lost the arbitration in a two-to-one decision, and the dissenting vote
happened to be the Canadian who was on it. Because they lost the
arbitration, Bilcon was asking for $300 million in damages.
Here we have a dissenting vote — a Canadian
voted against it — and we have a U.S. corporation who was able to do through
the back door what no Canadian company would ever be able to do because both
the provincial and federal governments, after their assessment, said that
Bilcon could not build a quarry.
How do you explain to citizens of Nova Scotia,
particularly Digby Neck, that a U.S. corporation was able to do what no
Canadian company would ever be able to do after the assessments were done,
provincially and federally? How do you explain that to somebody in my
Mr. Van Harten: They should be very
disturbed by it, and Canadian taxpayers should be disturbed by it.
Let me give you one feature of that. If the
foreign investor in that case had gone to Canadian courts to seek judicial
review of the environmental assessment process, the foreign investor would
not have been able to get a monetary award, almost certainly not. They might
have been able to get some kind of order from the court in relation to the
environmental assessment. Here, the foreign investor chose to skip Canadian
courts entirely, although with ISDS they could have done both. They could
have gone to domestic courts to get the non-monetary order and gone to ISDS
to get the money. It's part of the power packed into the system, the ability
of lawyers to manoeuvre and play games by not having to go to domestic
courts, which is the usual rule in international law.
In the case of the decision in the Bilcon case,
the two arbitrators in the majority took a broad interpretation of ambiguous
language in certain foreign investor rights, which is always a risk, which
creates the prospect that in future environmental assessments there will be
a consideration of this risk, and it will alter the decision-making
The specific point I'll emphasize is if the
foreign investor had gone to the courts, the people who live in your
province would have had a right to apply for standing in the courts. If
their interests were affected by the review of that environmental
assessment, they could have gotten standing, which is a long-standing rule
of procedural fairness. One of the criticisms of ISDS is it's procedurally
unfair because not all affected parties whose legal rights, interests and
reputational interests are affected — it might be the Nova Scotia
government; it might be the environmental assessment tribunal itself; it
might be a local citizens group or First Nation — none of them have a right
to standing in the process, and that is fundamentally unfair.
In fact, the model of ISDS reform that the
European Commission made public in November had a clause allowing third
parties to apply for full standing if their interests were affected, and so
far, in my review of the CETA text as reformed, that clause is missing.
There was an opportunity to address this flaw, and as best I can tell in my
review thus far, that opportunity was passed up.
Mr. Ouellet: I would like to make an
additional comment and say that you are right to point out that the
Bilcon case is not very elegant. This case sheds light on one of the
problems that is recognized by many experts in the field, that there is a
lack of transparency in the investment sector and a lack of sharing
information when a case is filed. We must be able to participate in these
cases. I agree with Professor Van Harten on this aspect in particular.
The Chair: If the committee will indulge
me, if it's not the investor process that we have now, what would take its
place if we want to continue to be part of the international economic world
that appears to be unfolding? We can either be in or out, but if we're in,
what alternative to what is being proposed could we propose for future
Mr. Van Harten: We had opportunities. I
won't get into details, but there were opportunities in the case of the CETA
and the TPP to take the position that Canada would not consent to ISDS in
those agreements. From what I'm told by a European Commission official, the
European Commission was very much open to that position in the early stages
of the CETA negotiations. Australia, for a period of the TPP negotiations,
took the same position. That opportunity was there. Unfortunately, in my
view, it was not taken. As a result, the choice is to not consent to these
agreements, or to seek a reform of the ISDS process after the negotiations
are complete, which is very awkward.
If there's no ISDS, I want to stress that
foreign investors are not going to be living in the dark ages. They will be
operating in a global marketplace. They will have to evaluate country by
country where they want to invest. They will do what they've always done and
still do, namely, evaluate the risk level in a particular country. They will
try to negotiate contracts with government authorities in that country to
provide them with protections, including ISDS in their contracts, which they
often do. If they're really concerned, they can buy risk insurance in the
marketplace. ISDS is something that comes in and skews the marketplace
because it's only available to foreign investors and only effectively
available to foreign investors of a certain size. The world marketplace of
foreign investment will be okay without ISDS, and most foreign investment
still exists without treaty-based ISDS.
Mr. Ouellet: Two solutions could be set out
for two different situations.
In the short term, I can imagine that we could
negotiate the terms of FIPAs, or Foreign Investment Promotion and Protection
Agreements, differently. We could provide for a few more exclusions than
As you may know, the Trans-Pacific Partnership
has an exclusion clause for cases involving tobacco. We could have much
broader exclusion clauses that involve the environment, for example.
Another short-term solution would be to
negotiate within these investment protection agreements certain provisions
that would protect investors, but that would not lead to arbitration,
similar to what the European Union did with Korea. It is important to know
about it and to know that this option exists.
I would like to finish by saying that, in the
long term, I think there would be a standardization of investment rights to
slow down this phenomenon of the increasing number of agreements. There
should be a tribunal that could arbitrate in a much more stable way. I am
talking about creating a court that would regularly hear any complaint
related to a multilateral agreement.
The Chair: We have run out of time. Either
guest may want to add to this point, as there are always practical,
constitutional, legal and overall political issues around what you can
negotiate and what you can't. It comes from what strength Canada has
vis-à-vis the other partners. I have heard from both of you that we're
weighing a lot of concepts to see how we can maximize Canada's advantage in
that. Whether at times we have to be practical, theoretical or lead the pack
is what we will continue to study.
Thank you both for appearing, by video
conference and in person, before the committee. It has been helpful in
having this committee understand the concepts. I trust you will move us from
the 101 class to at least the 201 or 301 when we recall you once we get into
the particular trade agreements.
We will continue on the topic of bilateral,
regional and multilateral trade agreements: prospects for Canada with the
second panel before us. Thank you for waiting. We were late out of the
chamber, so we thank you for your indulgence.
I am pleased to welcome Ms. Jacqueline
Palladini, Senior Economist at the Conference Board of Canada's Global
Commerce Centre. Ms. Palladini's work includes the changing nature of trade
with Asia and the importance of services in Canada's trade picture.
I am also pleased to welcome Mr. Michael Geist,
Canada Research Chair in Internet and E-commerce Law and Full Professor,
Faculty of Law - Common Law Section, University of Ottawa. Professor Geist's
research and work focus on technology law issues and intellectual property.
We have had the benefit of more extensive CVs but in the interests of time,
I have curtailed it to those points.
Thank you for accepting our invitation as we
explore trade issues. We look forward to your presentations. As you know, we
always look forward to questions. If you have not decided in which order you
want to start, I will turn to Ms. Palladini as the first one introduced.
Jacqueline Palladini, Senior Economist, Global
Commerce Centre, The Conference Board of Canada: Thank you for inviting
me. I am going to talk about services trade today. There're a few points I
want to make, one being how important services are to our economy.
We like to think of ourselves in terms of
resources and manufacturing, but we are actually quite a dynamic service
economy. Four out of every five jobs in Canada are services job,; and it is
quite a strength for us internationally as well. You wouldn't know it by
looking at the conventional trade statistics, as services make up only 16
per cent of our exports. However, when you take into account the value that
services add over supply chains such as research and development, making our
goods competitive, the marketing services, transportation, you find that our
exports are closer to 50 per cent services. In fact, 44 per cent of the
value comes from services.
A few important trends have emerged in the
services trade, but not recently. First, one important thing to know is that
services are more often sold through foreign affiliates and not exported.
The value of foreign affiliate sales is twice the value of services exports,
which makes sense. Having people close to your markets when you're selling
something like a service is beneficial and sometimes essential. A lot of
insurance law allows only companies operating in that country to sell
insurance. For example, we can't export our insurance services to Vietnam.
We have to have a shop in Vietnam to sell our services.
Trade policies need to recognize that this is
very important for services in general and to address some of the
protections of investments that Canadians might make abroad in the way that
would encourage Canadians to do business in that way.
The second point is the emergence and
prevalence of integrated products. We like to think of goods and services as
two separate things, but more and more products are combining them. If you
think of a smart phone, a tablet, the Internet of things, you have a good,
but it is useless without the telecommunications, the software and the cloud
storage that goes with it. This means that any barriers to services trade
will affect some of your goods as well, and vice versa.
Last, there is a growing trend of manufacturers
wanting to offer full services along with their products. This is making
them more competitive and it is quite profitable. For example, Bombardier
doesn't want to just sell a jet. They want to sell the service contract that
goes along with that jet. Siemens Canada doesn't want to sell a medical
device to a hospital in Italy without also selling the training and support
that comes along with it.
Having a movement of people to be able to
deliver on those services contracts will make our Canadian manufacturers
Michael Geist, Canada Research Chair in
Internet and E-commerce Law and Full Professor, Faculty of Law - Common Law
Section, University of Ottawa, as an individual: Thanks to the committee
for the invitation. As you heard, my expertise focuses on the intersection
between law and technology. That governs a wide range of issues; digital
policy, intellectual property particularly, copyright, privacy, telecom,
broadcast, and Internet governance to name a few.
If I were to go back a few years, trade
agreements rarely appeared on the digital policy radar screen. Digital
policy was largely about domestic policy choices and domestic regulations.
If we were to factor in international considerations, there might be some
international treaties that would either provide requirements or some
guidance on global best practices. Canada was an active participant in those
negotiations, which in many respects were largely transparent and fairly
I would argue that today that has really all
changed. Trade agreements in many respects are now the biggest determinant
of domestic digital policy, with enormous implications for our domestic
rules and regulations. Now those trade agreements are negotiated behind
closed doors and then presented to the public on a take-it-or-leave-it
basis. The trade-offs are much more difficult to assess, and the loss of
policy or regulatory sovereignty is very real.
Further, as you heard from the last panel, with
ISDS, if you get it wrong, you are open to potentially massive liability,
but that is even when we assume that you get to actually implement your own
trade agreement. If you have a deal with the United States like the TPP, the
U.S. maintains its own certification process in which it decides for you how
you go about ratifying your agreement.
How does this play out? The current experience
with the TPP is instructive. There are three main issues. First, Canada's
price of admission into the TPP negotiations and some of the weakness we
faced during those negotiations. As you heard earlier, Canada wasn't an
initial participant in the TPP negotiations. It was only in 2009 that we
began to talk about it, and we put forward a formal request in 2011. The
U.S. held a formal consultation on our entry into the TPP, with some lobby
groups urging the U.S. government to keep Canada out until we passed a
copyright bill that responded to their demands. Our government responded by
saying we would pass a bill, and we signed another trade agreement, the
Anti-Counterfeiting Trade Agreement which died when there was strong
European opposition. The U.S. demands had an enormous impact on the
copyright bill that was passed by Canada in 2012.
Once the U.S. was convinced that Canada would
meet those IP demands, it set two further conditions for entry into the TPP
negotiations. The first was that we wouldn't reopen any chapter that had
already been concluded once we started in the negotiations. The other
probably more important one is that we wouldn't have any veto authority over
any chapter. That meant we couldn't hold up any chapter. You were asking
earlier about what happened if we opposed ISDS. The reality in TPP is that
if we were the lone holdout on ISDS, we had agreed in advance that we would
simply cave on the issue and there was nothing we could do. Those were the
conditions upon which we entered into those negotiations.
Now, as the negotiations neared conclusion, the
lead Canadian TPP negotiator, the departmental deputy minister and the Prime
Minister's Office were advised — and I got this under access to information
— that Canada was at a disadvantage in the negotiations given the lack of
coordination that we had and the lack of transparency between government
negotiators and interested stakeholders. We went ahead anyway and reached
What did we agree to? I will focus specifically
on some intellectual property issues. In copyright, we have now agreed as
part of the TPP to extend the term of copyright. Right now, we're at life of
the author plus 50 years, which is consistent with the international
standard. It is also the standard reflected in half the TPP, where Japan,
Malaysia, New Zealand, Brunei and Vietnam all have the same standard term of
protection. TPP requires us to extend it by an additional 20 years, which
represents a major windfall for the United States and a major net loss for
The Government of New Zealand conducted a study
on what its term extension will cost, estimating that the extension alone
will cost $55 million New Zealand per year. As an economy that is nine times
the size, that estimate suggests that term extension alone will run costs to
education and others in Canada into the hundreds of millions of dollars.
The IP changes don't stop there. TPP includes
changes to digital lock rules, to extending term of patent in some
instances, to the criminalization of trade secret law, to changes to
trademark law, to new border measures and more. It goes even further. One of
the troubles with the TPP is that the IP chapter requires all countries to
ratify or to accede to as many as nine international IP treaties. In other
words, the treaties within the treaty are a core part of the obligations
that come with the TPP.
It is not just about IP. It touches on culture.
In a major departure from Canadian trade policy which typically includes a
full trade cultural exception, the TPP does not. The TPP includes a
restriction on the ability for Canada to extend and expand CanCon
contribution policies. What this means is that contributions to help create
Canadian content are effectively locked into place as they are today, with
the TPP blocking the ability to extend it to new services and technologies.
We're talking about services. It leaves behind
a complex array of regulations for services industries that are almost
certain to result in unintended consequences. Hot button issues like the
regulation of online gambling or regulating ride-sharing services such as
Uber may ultimately be decided by the TPP, not by provincial or municipal
governments when they seek to regulate in this space.
TPP touches on privacy, restricting the ability
for governments to implement restrictions on data transfers or requiring
data localization. It sets a very low threshold — far lower than we would
typically have or would want to see in other places — when it comes to
privacy protection or antispam rules.
Health is also affected, likely leading to
increased pharmaceutical prices, locking in the term of protection for next
generation pharmaceuticals, known as biologics, and even sketching out the
rules for a national pharmacare program if Canada were ever to adopt one.
There is much more that can be said about the
TPP and its regulatory effect. What I think is remarkable is how it touches
on virtually every aspect of our modern economy, particularly in the digital
policy space. It does so in a manner in which domestic policy choices give
way to what was largely backroom, closed-door negotiations.
I look forward to your questions.
The Chair: Thank you. Professor Geist, we
had your colleague here a couple sessions ago. She promised you would
certainly have a different point of view to hers. There are lively debates,
I guess, at your table. We are thankful that we are getting all points of
Senator Dawson: Professor Geist, it is a
little scary because you talked about Uber. We always see the debate going
on, particularly the Quebec perspective between the cities and province and
who is getting involved. Now you are raising it to a much different level of
bringing in the conditions that might be imposed by TPP. This brings me to a
question to both of you about measuring services.
The reality of measuring trade, when you talk
about goods, is quantifiable. It is measured in tonnes. It is measured in
lumber trade. You said that you were comparing trade in services and trade
in goods. How can you measure goods that trade the same way? How do you
measure what's the Canadian component or what's the American component of an
iPad? What's a Canadian component of a BlackBerry? Where do you measure it
as being an import or an export? The content or the cloud has to be measured
too. How can you find units of measurement that are comparative between
Ms. Palladini: That's a tough question. I
think it is better to maybe step away from measuring and accounting for
every single thing and instead look at it from a different way, and that is,
what are the activities that we're engaging in as Canadians along global
There are a lot of services and goods that go
into manufacturing a product. Those tasks can be broken up all around the
world. Some can be performed in Canada, and some can be performed wherever.
When you look at what types of tasks bring the
biggest value to Canada in terms of supporting high-paying jobs, a lot of
them are services that occur right at the beginning, at the design and
research stage, and sometimes right at the end with the servicing and
teaching how to use the goods. It makes a "U" with the highest value
services at either end.
Those types of activities are, I think, what
deserve to get the attention, and not so much accounting for every little
value that goes in and that crosses a border or not.
Mr. Geist: You raised some interesting
issues. When I look at the issue of measurement and services, particularly
from a technology perspective, it is instructive to note that two of the
biggest leaders in the technology space, who focus largely on services, are
the last big tech entrepreneur in Canada — from the prior generation, in a
sense — Jim Balsillie, the co-founder of the BlackBerry, as well as Tobi
Lütke, the CEO of Shopify, the current darling of the technology space. They
are now two of the biggest critics of the Trans-Pacific Partnership. It
behooves us to ask why leaders in that innovation space be critical of the
Part of it stems from the fact that, as people
like Balsillie note, the truth is there are very limited restrictions in
terms of the ability to sell into those markets and offer up services.
BlackBerry became a global distributor and a global player and at one time
was the leader in the smart phone space. It wasn't trade barriers that
represented its biggest challenges. The agreement doesn't address those
kinds of concerns.
When it comes to measuring, one of the real
challenges is that we haven't done a lot of measuring of the impact of these
kinds of deals. I have been doing quite a lot of writing on this issue and,
for example, one of the leading studies on the TPP estimates that Canada, on
a per capita basis, will have the highest number of job losses of any of the
12 countries in the TPP. That's a Tuft's University study, but there are
people that will find other studies which show Canada is among the least
beneficiary of this in terms of economics. The challenge becomes how you
even measure some of this stuff. I think you are right to point out that if
we start taking a look at some of the copyright, cultural, or other
potential service costs, it is not clear that many of these things even get
factored into the equation.
Senator Ngo: Thank you, professor, and Mrs.
Palladini. You talk about the intellectual property protections often
included in trade negotiations. We know that Canada produces about 25,000
patents per year, and China about 1 million per year. According to you, what
are the advantages and disadvantages for Canada to include those provisions
in the trade agreement? Does Canada need to produce more patents in order to
compete with other countries?
Mr. Geist: Thank you for the question. I
don't think the TPP is going to result in us producing any more patents,
quite frankly. We have been down that road before in other areas. For
example, in the pharmaceutical space, we changed our patent rules a number
of years ago, specifically at the behest of the large pharmaceutical
companies, who argued that if we increased the level of protection offered
up by our patents, they would increase the amount of research and
development that takes place in Canada. They provided very strict
identifiable targets, but they have never met those targets. In fact, if
anything, those numbers have decreased rapidly over time. The notion we're
going to keep banging our head against the wall by listening to those sort
of concerns strikes me as a bit foolhardy.
We do see innovation in Canada, but as people
like Balsillie point out, the rules that are embedded in the TPP — the U.S.
literally advertises this agreement as a made-in-America agreement —
advantage those that already have some of that IP. It advantages companies
in the United States. That's why Silicon Valley and some of the large U.S.
entities were so actively engaged. It is surprising to learn that the
Canadian technology companies and Canadian innovators were, by and large,
not included as part of those discussions.
I made reference to the warnings to people like
our lead trade negotiator that we were at a disadvantage in the second-last
round of negotiations. Part of that came from the fact that the U.S. took
the approach to literally go in and were able to disclose text, under
nondisclosure agreements, to their innovative companies and the companies
producing in this space. Canada didn't do that. We didn't have our
companies, in a sense, at the table. We didn't have our innovators at the
Is it any surprise that, at the end of the day,
when warned we were at a disadvantage, that we ended up with text in an
agreement that places us at a disadvantage?
Senator Ngo: That's the TPP you are talking
about. How about CETA? If that's the case, what do you think Canada's
approach should be with regard to negotiation of intellectual property with
Mr. Geist: CETA is interesting. The
Europeans started with some really strong demands when it came to
intellectual property. It turned out that, once we pushed back in a number
of the areas, arguing that the made-in-Canada policy approaches were
actually preferable, they dropped many of those demands. That's not to say
we didn't agree to any changes; we did agree to a number, but they weren't
nearly as far-reaching as the Europeans had initially demanded.
It turns out when you push back a bit and make
a case that there are multiple ways of complying with international law and
meeting your own domestic needs, there are a number of different ways you
can achieve that. If we look at how Canada, for example, in the copyright
area, crafted its rules leading up to 2012, we engaged in about a
decade-long debate, quite literally, about what the appropriate balance was
for Canada. There is any number of rules that other countries are now
looking to to say, "You know what? Canada came up with innovative
approaches, different from what the U.S. has done and different from what
the Europeans have done." It is genuinely breaking new ground on some of
One of the things that is most discouraging, in
particular, about the TPP is that you don't see it reflected in the TPP. We
play almost an exclusively defensive posture where what we do is we say,
"Let's give up as little as possible," rather than trying to be more
proactive and saying, "We have, in some instances, some of the best, most
balanced, innovative rules in this area. We would like to see other
countries adopt those, to the advantage of our own creators in businesses."
Yet that is not something you find reflected in the agreement.
Senator Ngo: Ms. Palladini, do you have any
comments on that?
Ms. Palladini: One of the top obstacles
that many Canadian computer and information exporters have voiced concerns
about is intellectual property. They're hesitant to sell their products in
certain markets where they don't feel like their intellectual property is
In terms of the specifics of how to address
that, and whether it should be addressed in trade policies or elsewhere, I'm
not quite sure. It is a real concern for many people and many companies, and
it is preventing trade, or at least hindering trade, for them.
The Chair: We are still at the stage where
we're not going in-depth into the various agreements. We wanted to get some
information on broad trade agreements.
I grew up in the era where we were tied to
trade to the U.S. We knew the impediments. We also knew that the impediments
weren't really tariffs, all the time. A lot of politics was involved in it.
The FTA became a way to try to address the
irritants, more than anything, and to maximize the advantages, and then
develop some sort of better dispute resolution. It hasn't always worked out
that well because we have the dispute resolutions and then all of a sudden
congress, and its timing, foils that.
I also was around when we decided we would
enter negotiations on the NAFTA. We were not part of that. That was Mexico
saying, "We're going to deal with the United States." Canada had a choice to
make at that time. They were either going to be out or in. For whatever
reasons, we said there were more advantages to being in than out.
I guess the point that we're going to have to
wrestle with is: Is it better to be out of TPP or in it, with all its flaws?
And the same thing with CETA: in it or not? We know there's still a
ratification road. Europe is at a crossroads in many ways now.
How do we evaluate? What are the markers that
we should evaluate going in or out? In the past, we have looked at jobs. You
get more jobs; you get less jobs. You're going to be a loser; you're going
to be a winner. Regarding the global value chain, we don't have measuring
sticks to find out where our trades and services are going, as Senator
The public is engaging, but do they have the
tools to understand the complexity of the movement of services and of goods?
If I were going to dispute something with Senator Dawson, it would be that
it's hard to follow trade figures, because they're not so clear now. An
automotive part starts here, goes to Mexico, to Japan, comes back, and
somebody buys a car.
Do we know the complexity of an already
integrated global system, and how would we evaluate whether we should be
moving into TPP or we should have stayed out? A lot of the choices are not
ours. It's either in or out. What's the bottom line, is a good way of
putting it, Senator Smith. We wish we could have done this; we wish we could
do that. There are windows of opportunity and you take them or not. How do
we engage to make some suggestions and recommendations coming from this
committee on how to approach these agreements?
Ms. Palladini: There are many studies — Dr.
Geist mentioned one — that look at the impacts on Canada as a result of
trade deals, and they always compare a world where things just stay the way
they are now versus we have the TPP and Canada is in it. But it's not a
realistic way of looking at it. TPP could go ahead without Canada, and how
much worse or would we be worse off in that case? I haven't seen much in the
way of in-depth analysis that looks at the specifics of that scenario, which
is actually the more accurate way to decide this.
One approach that comes to mind would be to
look at all of the countries that don't have privileged access to the U.S.
right now, whereas Canada does under NAFTA. How big of a difference would it
make for Australia and Japan to have privileged access to the U.S., and then
compare that to whether we could compete against Japan and Australia when we
maybe don't have as privileged access under NAFTA and where they might have
a stronger deal under TPP? That's the type of comparison that needs to be
made, and I haven't seen it done in a thorough way yet.
Mr. Geist: I'll say a few things. I have
deep concerns about how the TPP negotiations were handled and how input was
provided. I appeared before a number of House of Commons committees and
raised concerns based on leaked documents. The response always was: Wait
until we have the deal and then we can talk about it. Now the response is:
Well, it's take it or leave it. It strikes me as highly problematic when, on
the one hand, during the negotiations those with concerns are told now is
not the time, and once the agreement is done they're also told now is not
the time because the deal is concluded.
In terms of how we decide on some of these
things, I would note first that all you have to do is pay attention to the
news coverage in the United States last night to know that the TPP is far
from a certainty in the United States, with the leading republican and, it
seems, both democratic candidates speaking out strongly against the TPP. In
fact, that seems to have been the lead driver in the state of Michigan. The
TPP will not take effect unless the United States decides to ratify.
At a minimum, it seems to me that it behooves
Canada not to do anything at all until it is absolutely certain that the
United States does, in fact, decide to ratify. With its potential leadership
both indicating they may not do that, it would make no sense at all for us
to make many of these fundamental changes without even the prospect of any
sort of benefits.
Even if we decide to move forward, we do have a
history of not necessarily renegotiating large elements of the deal but
engaging in some amount of side letters to try to clarify and address some
of the outstanding concerns. That has happened in our past. Given the
ever-increasingly good relations that we have with the United States, as
we're seeing even just this week, it seems to me the prospect of identifying
some of those concerns and seeking side letters is a real possibility.
Even if we reach the point of saying we've
tried to address it, are we in or out, let's recognize that you asked both
about CETA and TPP. They're pretty different deals. The CETA deal does
really open up new markets to Canada. We don't have anything comparable with
the European Union. In the case of the TPP, we already have trade deals with
roughly half the TPP, namely, the United States, Mexico, Peru and Chile. We
already have free trade agreements with those countries, and with South
Korea, and we were in the process of negotiating with Japan.
I have to say that I would take issue with the
notion that if you are out, you are truly out of Asia. I don't see that
being the case at all. In fact, given some of the discussion about a
strategic attempt to try to engage China on this issue at a time when in
many respects the TPP is about isolating China, there may actually be far
greater advantages for Canada to renew some of its negotiations with Japan,
explore the possibility with India and China, and actually craft bilateral
trade agreements that put us in a more advantageous position than otherwise
with the TPP, particularly given the fact we already have advantageous
positions with much of the TPP based on our existing agreements.
The Chair: So the discussion would be: Do
we have that advantage with the United States if we stay out? How do we
The other debate that doesn't seem to go on is
that while we're talking about in and out of trade agreements, there is
another school of thought saying trade agreements are one tool. We should be
looking at our productivity and many more factors that make us competitive,
but we seem to be bogged down talking about trade agreements exclusively.
They're one tool. What should a government do beyond that to become truly
competitive in an international market?
Mr. Geist: Even proponents and supporters
of the TPP have acknowledged that concerns around Canada's innovation record
are not addressed by the TPP. I don't think anybody is under any illusions
to suggest that the TPP in any meaningful way addresses some of the core
problems that we have with respect to innovation. What it does is allow us
to sell a bit more beef, pork, canola and a number of other products. It
means that we have committed to the dairy industry $4 billion in
compensation for known losses.
You should invite the wine industry to come
before you. They appeared a week or so ago. They acknowledged they're in no
position at all to take advantage of the TPP. Their bigger restrictions are
interprovincial jurisdictions. Small wineries can't sell across provinces.
How will they sell wine to Vietnam? The idea that the TPP solves these
issues is quite clearly just not the case.
The Chair: I think I wasn't saying solving
it, but should we be looking at the agreements and how they can be one tool
in addressing many broader issues in Canada?
Mr. Geist: It's an important committee and
trade policy is an important issue. I don't think anybody would dispute that
for a moment. My point was that there are lots of ways of trying to put
Canada into an advantageous trade position vis-à-vis many either existing
markets or potentially very strong markets for the future and, at the same
time, take into account that some of these choices involve a genuine loss of
domestic policy choice and domestic policy sovereignty.
Ask the taxi driver that you might try to grab
whether or not he thinks Uber ought to be decided on the basis of the
Trans-Pacific Partnership. The first response will be that he doesn't know
what the TPP is, but once it's explained, he will wonder why an agreement
negotiated behind closed doors amongst these countries has the prospect of
dictating to the City of Ottawa or the City of Montreal whether or not it
can effectively regulate Uber.
The Chair: It's so tempting to talk about
Uber and taxis, but I'll resist totally.
Senator Downe: You referenced the House of
Commons where you were told, "We'll talk about that when the deal is done;"
and now the deal is done and it's take it or leave it. I think the
confidentiality is a major flaw in these negotiations in that they don't
have input from parliamentarians, interest groups or constituencies that
would be affected pro and con that would help the negotiators craft a far
superior deal. Do you happen to know if that's unique to Canada? I know, for
example, that in the United States, particularly senators and congressmen
can go in, sign an oath of non-disclosure and actually see negotiation text
as they're ongoing. You may not know this, but in other countries, is it
more open than it is in Canada or is Canada the norm for these deals?
Mr. Geist: I actually would respond by
saying there is no norm. One of the problems that we face is that we're told
this is the norm when it's not. Many of these issues are typically
negotiated at the United Nations or UN-type organizations. Those
negotiations occur in the open with full text available so people have the
chance to really discuss and deal with these kinds of issues. In the trade
context, Europe provides far greater access, as they did through CETA.
Frankly, there were more leaks on CETA because the stuff was made more
readily available. In the United States, as I mentioned earlier, they strike
NDA deals with many of their stakeholders, granting them a level of access
that we typically haven't seen here in Canada.
The problem with adopting that approach is
that, first, it leads to real skepticism and fear about what's happening
behind closed doors; and second, it leads to a worse deal. The area of
services is a perfect example of this. Many of the trade agreements that you
find on services typically adopt sort of a sector-by-sector approach to try
to identify ways to open it up. For example, how we could allow more lawyers
to practice in the jurisdiction or more doctors or whatever the area happens
to be. The TPP kind of flips that on its head and says it's going to open up
everything and then identify the exceptions to the everything.
As good as those negotiators are, I guarantee
that they cannot think of all the sorts of exceptions that are necessary in
this context. When you operate behind closed doors, you are almost
guaranteed to fail to identify instances where we'd be far better off
creating some level of restrictions or rules, in part because what you've
done is operate entirely behind closed doors.
Senator Downe: What the Canadian government
doesn't share is one thing, but what they give foreign governments which
then make public and not share with us is another thing. For example, with
the TPP, I was trying to find some information. I found through a
parliamentarian in New Zealand, whom I had asked a question, that to join
the TPP, and obviously New Zealand had concerns about supply management, the
Canadian government had to submit a document to say that everything about
supply management would be totally open. I was able to get that document
because it was a public document in New Zealand. At the same time, it was
not even on the website of the Government of Canada, and filing an access to
information got you nowhere. It's a public document in a foreign country.
It's beyond the pale the way in which these deals are conducted.
Mr. Geist: I agree.
The Chair: That's a statement.
Senator Downe: It's a statement of fact.
The Chair: In another statement of fact,
Professor Geist you said that international trade agreements are negotiated
transparently. That's not my recollection of the World Trade Organization.
They work in camera.
Mr. Geist: I suggested international
treaties, like at the World Intellectual Property Organization, the World
Health Organization, and the International Telecommunications Union. Take a
look at the OECD, particularly at the agreements that govern the issues that
I tend to focus on, such as intellectual property and patent or copyright,
telecom and privacy. Those are conducted, by and large, in the open. In
fact, the most recent major copyright agreement that Canada signed, and we
have yet to ratify, is the Marrakesh Treaty, which provides greater access
for the blind and visually impaired. If you take a look at how that was
negotiated, you'll find that everyone had full access to the text. Indeed,
wherever you were, you could see it streamed online and you could see the
efforts to try to massage and engage in those sorts of negotiations. That
didn't hamper the ability to conclude that treaty; rather, it enhanced it.
The Chair: Ms. Palladini, your statement
was crisp and to the point: services, services. I think we've gotten that
Thank you, Professor Geist, for putting another
perspective on the table. We're trying to get as many points of view on
trade to this committee before we determine how we approach our study on
specific trade agreements. Thank you for adding to our knowledge and for
your patience in waiting and then testifying.