What are the Liberals trying to hide?

By Scott Anderson, NOW magazine, 12-18 February 1998

Ottawa is prettifying a global trade deal that drasically squeezes Canada'a independence - but some Lliberal MPs are starting to panic

Toronto - Early in this century, around the time Canadians rejected reciprocity and gave Wilfrid Laurier, a Liberal, his walking papers for entertaining the idea, the Yanks were whipping neighbouring banana republics into line through an aggressive policy of direct investment.

"Dollar diplomacy" was about exerting influence over a sovereign nation through massive corporate investments (which were often guaranteed by a more persuasive gunboat diplomacy).

With the 20th century coming to a close, the latest pact to liberalize trade -- the pending Multilateral Agreement On Investment (MAI) -- has once again raised the old spectre of corporate interests undermining national sovereignty.

This April, the 29 mostly rich member states of the Organization for Economic Co-operation and Development (OECD), Canucks included, are scheduled to table a draft MAI that will require all levels of government in Canada to give foreign investors from these countries the same first-class treatment they bestow on domestic investors, with few exceptions.

At first, the federal Liberals were hoping that Canadians wouldn't catch on to the fact that they were negotiating an international treaty in Paris that will further erode the government's control over foreign investment within our borders and, more importantly for monied interests, that will clear the way for investors to eventually run roughshod over poor, developing nations.

But last spring, a draft copy of the MAI was leaked to NGOs and found its way into the media. Then trade minister Art Eggleton was immediately put on the hot seat and downplayed the fact that his government was negotiating in secret. Now, only a couple of months before the deal is to be finalized -- a deal that will lock Canada in for 20 years -- opposition in Canada is mounting, and it's got the Liberals worried.

"There are lots of really serious problems in the thing, there's no doubt about it," says Liberal MP Bill Graham, chair of the government's standing committee on foreign affairs and international trade. "It's full of problems."

In fact, both Canada and the U.S. are now indicating that talks may go beyond April.

"Our own minister has said that if the talks were delayed beyond April, then it wouldn't mean they wouldn't keep going," says trade ministry spokesperson Dexter Bishop. "But we are more interested in getting a solid agreement than in rushing talks to conclusion."

Liberals blab

These days, the federal government, which originally wanted to keep a lid on the MAI, can't shut up about it. Current trade minister Sergio Marchi has been sounding like a reassuring mother when he says the MAI will not undermine Canada's ability to make laws. The trade ministry's Web site is full of material on the MAI, including a draft text of the agreement.

A trade subcommittee, set up at the request of Marchi, held short public hearings and submitted a list of recommendations to the government late last year. And Liberal MPs are uttering platitudes about not accepting a deal that doesn't protect Canada's best interests and planning public forums on the MAI to address the growing concern of their constituents.

"A lot of us out canvassing (during the 1997 election) really did get a lot of questions we couldn't answer then," says Liberal MP Carolyn Bennett. "So I think the work of the sub-committee has been imperative to our feeling that these important issues have been looked at and the negotiators given some clear direction."

But while the subcommittee does recommend full consultation with Parliament and the provinces before an agreement is signed, and that the government "should undertake an open and transparent process" in the future, it really doesn't do much more than call for the obvious assurances on culture, labour and the environment. At least it's something the politicians can take back to jittery voters.

"A lot of us are going to take those recommendations as the next step to go back to the public and see if we've gone far enough, and to try to see if there are other things that we have overlooked," says Liberal MP Sarmite Bulte, who sat on the subcommittee.

It's easy for Marchi and the Liberals to stand up and say they will protect culture and our cherished public services from foreign investors. But the real proof is in the details. And unless you're a trade lawyer or a negotiator sitting at the table in Paris staring down 28 other negotiators, at this point it's hard to know anything for sure about the impact of the MAI.

Not to worry. Canada's large, multinational corporations and the business media say the MAI is hardly an ominous threat to national sovereignty. They scoff at nationalists who call the MAI a charter of rights and freedoms for corporations. What it is, they say, is a set of rules designed to level the playing field for international investors, the way the General Agreement On Tariffs and Trade (GATT), the World Trade Organization and the North American Free Trade Agreement (NAFTA) liberalized the global movement of goods and services. For 29 countries to get together and hammer out an agreement, you would think foreign investors must be subject to some pretty unfair discrimination from governments. But when NOW asked the Business Council on National Issues, one of this country's most influential business lobby groups, to give us an example of where an outward investment from Canada has been treated unfairly, they couldn't name one.

"The OECD countries, by and large, don't have enormous investment barriers, but we don't want to see any backtracking from that," says Stuart Carre, a senior associate at the BCNI, who adds, "There are not very many blatant examples in the OECD countries of barriers on investment."

The fact is, Canada already has a nondiscriminatory investment treaty with its largest trading partner, Uncle Sam, included in NAFTA.

In 1996, 68 per cent of all foreign direct investment into Canada came from the U.S., while 54 per cent of all outward investment from Canada went to the U.S.

Ironically, it could be argued that the U.S. also poses the biggest problem for Canadian investors abroad. Just ask U.S. senator Jesse Helms what he thinks of Fidel Castro's friend Sherritt Inc. CEO Ian Delaney. As well, at the moment, president Bill Clinton doesn't have the authority to fast-track any trade agreement, so Helms and his Republican buddies in Congress could turn out to be the MAI's biggest stumbling block.

NAFTA's investment chapter is the model for the MAI, which has been convenient for Marchi and the Liberals, who claim that they are not committing the country to anything new. But critics say that the MAI gives foreign investors more leverage.

"The recognition of investment is very different, it's a lot broader under the MAI," argues Toronto-based international trade lawyer Barry Appleton.

The cornerstone of the MAI is national treatment, which means that a government -- federal, provincial or municipal -- must treat a foreign investor the same as a domestic one. As well, the agreement restricts the right of governments to impose performance requirements on foreign investors that would, for example, force them to hire locally or use local suppliers.

But the most controversial part of the MAI is the expropriation and compensation clause.

It requires a government to pay compensation to a foreign investor if it expropriates the investment. According to Appleton, expropriation is defined broadly in international law as denying a person or company some benefit of property.

The MAI stipulates that even those laws made in the public interest that in any way negatively impact a foreign investment must be accompanied by compensation.

"(Governments) can regulate, but they're going to have to pay for doing it," says Appleton. "They've got to rent their jurisdiction back."

Sound alarmist and farfetched? It's already beginning to happen under NAFTA.

Last year, the Ethyl Corp. of Richmond, Virginia, launched a $350-million lawsuit against Canada's federal government after it passed legislation banning the import and interprovincial trade of a manganese-based fuel additive called MMT. Ethyl, which is the sole producer of MMT in North America, charged that the law violated investment provisions in NAFTA.

The government claims that MMT poses health problems. But Ethyl says the government is just trying to force the company to produce MMT in Canada.

"We had the same issues in the U.S. with the Environmental Protection Agency, but went to court and the court system basically said what we have said in Canada, that there is no health issue," says Jim Hanes, Ethyl Canada's director of sales.

If NAFTA's investment provisions haven't already had an outright chilling effect, they've certainly made the government think twice. NOW has obtained a letter, dated February 23, 1996, from then trade minister Eggleton to then environment minister Marchi, that advises against introducing an import ban on MMT for fear of offending Ethyl and the U.S.

"An import prohibition on MMT would be inconsistent with Canada's obligations under the WTO and NAFTA," the letter states. "It would constitute an impermissible prohibition on imports, particularly if domestic production, sale or use is not similarly prohibited; and it could not be justified on health and environmental grounds, given current scientific evidence."

The letter also states that "Ethyl Corp. may try to advance an argument that such a ban would be a measure tantamount to expropriation of Ethyl's investment in Canada. Thus, Canada may also be susceptible to an investor-state challenge under chapter 11 of NAFTA."

The trade ministry is reluctant to comment on the case while it's before a NAFTA tribunal, but Dexter Bishop says, "If someone were to take us to court they would need to prove that we were discriminatory."

In light of the Ethyl case, it's hard to dismiss MAI critics who charge that the expropriation clause will further undermine Canada's ability to make its own laws.

"The biggest hammer that these agreements are giving corporations now is the ability to extract compensation for almost any government initiative that reduces their profit margin," says Michelle Swenarchuk, a lawyer and director of international programs at the Canadian Environmental Law Association. "And this is not what expropriation law provides in any country. In our domestic regime, they don't get compensation for these kinds of initiatives."

Canada has proposed a number of "reservations" that would exempt certain Canadian regulations from national treatment obligations under the MAI. Key public interest areas like social welfare, health and public education, among others, have been included. They mirror the reservations made under NAFTA. But they are, in most cases, subject to rollback in the future.

And while all levels of government will be subjected to the MAI, there haven't been any reservations put forward so far that would exempt provincial and municipal laws from coverage.

"Based on the final plan, then we would put forward a list of (national) reservations, and at that point it would be time for subnational units to submit their reservations," says Bishop.

The government of British Columbia unofficially opposes the MAI, while Prince Edward Island passed a motion for a moratorium on the agreement until full public hearings are held in that province and across the country. The Yukon has also passed a motion calling on Ottawa to cease negotiations.

Canada's cultural community, meanwhile, is counting on strong assurances from the Liberals that culture will be completely carved out of any agreement. But a cultural exemption in NAFTA hasn't stopped foreign companies from challenging laws protecting Canadian cultural industries, challenges that are likely to heat up under the MAI.

"We have been very clear about the things that would make a cultural exemption unacceptable to us," says Keith Kelly, national director of the Canadian Conference on the Arts. "That is, that if it were subject to rollback and standstill it's not an exemption, and we should have absolute autonomy to pursue whatever domestic cultural policies we see fit, with no threat of challenge or retaliation."

In terms of protecting high environmental and labour standards, critics say the MAI will be toothless.

"There are a few places where they are proposing to put environmental wording in, but it's useless," says Swenarchuk. "One is in the preamble, and another is they're debating the wording about not lowering standards, which is the NAFTA wording, and that hasn't helped us."

Bob White, president of the Canadian Labour Congress, is also president of the trade union advisory committee at the OECD. He is pushing for the inclusion of strong language and an enforcement mechanism in the agreement that would promote core labour standards.

"If people are going to play by rules on investment and other things, there should be a level playing field on the question of workers' rights," says White.

The government says there has been no decision yet as to whether binding language on labour and the environment will be included in the agreement, but it doesn't look likely.

Says Bishop, "We support strong language on it and discussions regarding the inclusion of a provision on not lowering environmental standards, similar to what is currently in NAFTA."