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 committee.


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 choices.

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 agreement.

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 services.

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 other.

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 Organization.

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 remarks.

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 decisions.

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-China FIPA.

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 international law.

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 investment disputes.

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 hourly rate.

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 improvement.

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 exercise it?

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 country.

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 system.

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 the WTO?

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 system.


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 Partnership.

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, gentlemen.

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 end.

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 sought.

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 Ouellet.


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 Canadians.

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 province?

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 dynamics.

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 reference?

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 exist currently.

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 more competitive.

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 open.

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 the deal.

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 Canada.

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 view here.

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 countries?

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 value chains?

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 agreement.

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 table.

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 other countries?

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 these policies.

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 protected.

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 Dawson said.

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 improve that?

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 point.

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.

(The committee adjourned.)

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