Author Archives: Lawrence Herman

About Lawrence Herman

Counsel on International trade and investment, global business transactions & public policy

TPP – Brief to the House of Commons Trade Committee

Below is a Brief filed with the Standing Committee on International Trade on its examination of the Trans-Pacific Trade Agreement.

HOUSE OF COMMONS

STANDING COMMITTEE ON INTERNATIONAL TRADE

TRANS-PACIFIC TRADE AGREEMENT – WATCHING WASHINGTON

LAWRENCE L. HERMAN

Herman & Associates

Toronto

13 April 2016

  1. While the Standing Committee examines the intricacies of the Trans-Pacific Partnership Trade (TPP) Agreement, it’s important to closely watch what the Americans are doing, both in the Executive and the Congress.
  1. The Committee should proceed diligently with its evaluation, but Canada should not commit to the Agreement and proceed down the path to ratification until it is clear whether, and under what conditions, the US government will agree to ratify the deal.
  1. Obviously, if the Congress refuses to ratify, the whole TPP project will come to an end. Clearly Canada – and the other TPP countries – won’t approve a trade deal if it’s rejected by the US Congress. But even if the Congress eventually approves US ratification, there are some riders that could have major implications for Canada.

Timing Issues and Canadian Ratification

  1. At this point, it is not clear when Congress will even act on the TPP Agreement. Reports out of Washington are fairly certain that the Agreement won’t be tabled before the Presidential election in November. Leaders in both the Senate and the House of Representatives have made that fairly clear.
  1. After the election, the current Congress will reconvene in what’s known as the “lame duck” session, which will last from November to the end of January 2017 when the new President and the newly-elected Congress take office. It is far from clear whether the lame duck Congress will take up the TPPA.[1] There are many politicians, both Democrats and Republicans, who oppose any action until the new administration and the new Congress are in place.
  1. The Republicans control both houses and will continue to in the lame duck session. It’s to be remembered that these Republicans won’t even consider Mr. Obama’s Supreme Court nominee, saying that filling the Court vacancy is up to the new President and the new Congress in 2017. So it’s difficult to see Congress addressing the TPPA until then. This means that matters could remain fluid in Washington for close to another year.

The Implementing Bill Can Move the Goalposts

  1. Under the President’s Trade Promotion Authority (so-called “Fast-Track”), the Congress can only approve or disapprove the TPPA as submitted by the President. It can’t insist on changes to the treaty. It has to vote either year or no for the entire deal.
  1. However, there are other aspects to fast-track that are important. The first is the content of the implementing bill that the President must send to the Congress as part of the TPP package. That bill provides for the necessary changes to US laws and a host of other matters that implement the treaty domestically in the United States. It’s one thing for the US to sign and ratify a treaty. It’s another thing as to how US laws will deal with the treaty and what conditions and caveats are contained in the implementing legislation.
  2. It works in this way. When the President transmits a trade agreement like the TPPA to Congress, the majority leaders of the House of Representatives and the Senate must then introduce the President’s implementing bill on the first day on which the Senate and the House are in session.[2] Neither the Senate nor the House can amend the bill. Their respective committees have 45 days after its introduction to report the bill, or be automatically discharged, and each body must vote on it within 15 days after the bill is reported or discharged.[3]
  1. At this juncture, we don’t know the contents of the President’s bill. We know the Executive and Congressional staffers are working on drafting it but we have no idea what it will eventually contain. Canada needs to know this before it can take a final decision on ratification.
  1. It is possible for the US Congress to agree to approve the TPPA as a treaty but with provisions in the bill that condition that approval through the changes it makes to US laws that somehow alter the negotiated balance in the terms of the treaty. It’s the contents of that legislation, therefore, that are critical. This is something that Canada must examine carefully before it proceeds with its own TPPA ratification.

Executive Action Can Affect the Balance

  1. Even if US implementing legislation itself is consistent with the TPPA, there are aspects of follow-up Executive action that Canada has to be certain about. Congress can separately require the Executive to act in certain ways, regardless of the legislation, that could alter the negotiated gains and concessions in the TPPA and indirectly impose conditions on US compliance with its treaty obligations.
  1. This is illustrated in a report called the National Trade Estimates Report, issued annually by the US Trade Representative.[4] That report lists all of the alleged trade barriers to US commerce in each of the countries where the US does business. The section on Canada[5] contains a list of Canadian measures that the US doesn’t like, such as supply management, provincial wine and beer monopolies, government support to Bombardier and other Canadian laws and policies.
  1. Buried in the 2016 NTE report is a pledge from the USTR to use TPP implementation to pressure Canada on what the US claims are shortcomings in Canada’s intellectual property (IP) protection. The USTR has flagged the patent utility requirements adopted by Canadian courts and complaints by Eli Lilly that their patents have been revoked due to a judicial interpretation for patentability that requires drugs to demonstrate their utility promised by the manufacturer.[6]
  1. There is nothing in the TPPA that requires Canada to alter its patent laws in this area. However, there are many access points in the US system whereby vested interests and their Congressional supporters pressure the administration to support US industry in a variety of ways. The implication is that, bowing to industry lobbying, the USTR will pressure Canada on this front once the treaty enters into force, irrespective of any actual obligations imposed on Canada under the treaty.
  1. This is one of a number of signals that the US intends to press TPP countries following treaty implementation to address irritants the US has, not only with Canada but with other partner countries, whether there is a treaty obligation or not.
  1. All TPP parties can legitimately expect their counterparts to fulfill treaty obligations. That’s fair game. But there are aspects of the TPP and US policies that Canada needs to be clear about. It’s one thing to sign onto a treaty with the United States. It’s another to be told by the US government in advance that it expects Canada to deliver in accordance with US demands and, if not, to be subjected to US pressure in a variety of ways to secure compliance.

Conclusions

  1. The conclusion from the above is that the Standing Committee and the House of Commons at large should review the TPPA in depth and determine whether it meets Canadian negotiating objectives and is in Canada’s interests to ratify. Whether Canada proceeds to this final step, however, should only be taken when the US position on ratification is clear and in full view of the implementing bill and related Congressional and Executive commitments on the matter.

Submitted, 13 April 2016.

Footnotes

[1] “Sources on both sides of the debate said the possibility of a lame-duck vote on TPP remains hard to predict. It depends on the outcome of the election, as well as which party will controls the Senate and the House in the next Congress, one congressional source said. It is impossible to handicap these factors, he said.” TPP Supporters Gear Up Lobbying Campaign Touting Benefits, Avoid Timing, World-Trade On Line, 13 April 2016.

[2] Bipartisan Congressional Trade Priorities Act of 2015, 19 U.S.C. §2191(c)(1).

[3] Ibid., paragraph (e)(1).

[4] https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2016/2016-national-trade-estimate.

[5] Ibid., p. 69 et seq.

[6] The NTE report says that it “continues to have serious concerns about the impact of the patent utility requirements that Canadian courts have adopted.” This issue is also the subject of a NAFTA investment dispute filed by the company against Canada: Eli Lilly and Company v. Canada, http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/eli.aspx?lang=eng.

 

Canada and Investment Disputes-Tallying the Numbers

Canada Pays Out

The federal government just announced that it was paying Mobil Investments and Murphy Oil some $19 million to satisfy a decision of a NAFTA investment arbitration panel last year.

The tribunal found that certain guidelines of the Canada-Newfoundland Offshore Petroleum Board were discriminatory and thereby breached Canada’s NAFTA obligations.

Although the government is disappointed with the decision, the $19 million payment is a small amount measured against the $66 million originally claimed by these two companies.

While not earth-shattering in dollar terms, the case raises significant issues these investor-State dispute settlement provisions (or ISDS), not only under the NAFTA but replicated in the Trans-Pacific Partnership (TPP) Agreement now under active discussion in Ottawa, Washington and other capitals.

Canada a Top Target

It’s a shock to find that Canada is close to the top of the list of countries targeted in these international investment disputes. The UN Conference on Trade and Development’s annual report (2015) puts Canada in fifth place as a respondent state, behind Argentina, Venezuela, the Czech Republic and Egypt.

And all of these cases have been brought under the NAFTA by US investors. There are no arbitrations against Canada under any of our thirty bilateral investment treaties with other countries (that we call Foreign Investment Protection Agreements, or “FIPAs”).

Why is this? Is our legal system so devoid of respect for the rule of law and our policies so bereft of respect for our international treaty commitments that outside investors have no choice but to invoke binding arbitration against Canada more often than against Mexico, Ecuador, India and Ukraine, for example?

Checking the Numbers

Before going too far down this path, there are some things to clarify. First, while Canada is listed a frequent respondent, many of these investor claims have been either dismissed or haven’t been pursued by the claimants. So the numbers have to be adjusted to the actual cases where NAFTA arbitrations have been decided or are continuing to final disposition.

Even with this, Canada still comes out at the top as a respondent under the NAFTA, with some nine active arbitrations on the roster and twelve cases where final awards have been issued – about half of which have been in Canada’s favour.

In terms of the amounts awarded, one also has to be careful with other numbers. Billions of dollars have been claimed by American investors but only a very small amount all totalled has actually been awarded in their favour.

Even with the latest $19 million decision in Mobile Investments/Murphy Oil, the total awards against Canada, in over twenty years of NAFTA litigation, comes to about $37 million. This includes some cases where Canada and the investor settled out of court.

Excluded from this total is the $130 million settlement with Abitibi-Bowater following Newfoundland’s expropriation because it was accepted by the Province from day one that compensation would be paid. The case never reached the active stage.

So the NAFTA totals, while not negligible, aren’t particularly dramatic. And Canada has won some very impressive victories, including the recent dismissal of an $800 million claim by Mesa Power involving Ontario’s Green Energy Act.

Admittedly there are some pending cases that could change the balance, including hundreds of millions claimed by Eli Lily in a patent case and by Lone Pine Resources regarding Quebec’s moratorium on fracking operations under the St. Lawrence River.

Why Canada?

Coming back to the question as to why Canada is such a frequent respondent in these ISDS claims, there are several possible reasons.

The first is that it’s relatively easy for a US investor to sue Canada. We have the same legal traditions – common law – and speak the same language, unlike a claim against Mexico, for example, which would have to be pursued in Spanish and where there’s a civil law tradition.

Second, the Canadian system is open and transparent. Canadian government documents, even where confidential, can be discovered without too much hindrance and, where not immediately available, our access laws make these available to US claimants without too much fuss.

The third factor is a combination of the generally litigious nature of US companies, who see litigation more than their Canadian counterparts as a cost of doing business, and the fact that retaining Canadian counsel to pursue a NAFTA claim is generally less costly than hiring a US law firm and, as an added bonus, there’s the exchange rate factor that’s advantageous when it comes to paying legal bills in Canadian currency.

A final factor is the availability of third-party financing of these investor claims through different mechanisms, a phenomenon that has a growing influence on stimulating investor claims, not only against Canada but in other jurisdictions around the world.

Where Does All This Lead?

The foregoing suggests that, given the existing ISDS provisions in both the NAFTA and the TPP, the exposure of Canada to binding arbitration claims by US investors will not be changed in any substantive way going forward.

While recent improvements have been made to the system in the Canada-EU trade agreement, those won’t change the NAFTA or the TPP investment provisions.

What is of significance, however, is the trend in investment arbitration, including under the NAFTA, showing that tribunals increasingly require investors to discharge a very heavy burden in proving that international treaty obligations have been violated.

While it may not give perfect comfort, there is a clear tendency in these decisions to dismiss investor claims and uphold non-discriminatory government regulation where there is a demonstrable public interest at stake.

…

This piece was published in the Globe & Mail Report on Business, 6 April 2016. To view the published version, click here. http://bit.ly/22bMgiN

Canadian Trade Policy under the Liberals-Some Ideas

As Canada becomes more and more assertive in international markets, particularly the expanding export reach of our SMEs, we need to consider aspects of our strategy aimed at dismantling foreign trade barriers. Preferential trade agreements like the Trans-Pacific Partnership Agreement (TPPA) and the Canada-EU Comprehensive Economic and Trade Agreement (CETA) are one way but there are other instruments and mechanisms that can be employed, including efforts at the political and diplomatic level.

The first step in opening some of these markets is to understand the nature and depth of barriers to Canadian goods, services and investments around the world.

The Department of International Trade, now part of Global Affairs Canada, used to publish an annual compendium of these but hasn’t for several years. Examination of such barriers, to the extent it is done, is now wrapped up into the Department’s Global Markets Action Plan (GMAP).

GMAP was developed under the former trade minister (Ed Fast) but has been adopted by the current minister (Chrystia Freeland) as part of her mandate. The Department’s web-site site still lists GMAP as “The Blueprint for Creating Jobs and Opportunities for Canadians through Trade” and has been updated as recently as March 2016. The update includes the signing of the TPP Agreement on 4 February 2016.

The conclusion is that GMAP, at least for now, remains the official, non-partisan, consolidation of Canada’s trade priorities and, even if promulgated by a previous government, is testimony to its soundness as a policy document.

As noted above, the GMAP doesn’t turn the spotlight on actual foreign trade barriers, even though this is often the first step in identifying problems faced by Canadian companies doing business abroad. This differs, for example, with the approach in the United States, where the US Trade Representative (USTR) reports annually to Congress on barriers to US trade and commerce in its National Trade Estimates Report (NTE).

The USTR report is a combination administrative/legal document and a political document. It serves several purposes, rolling up US trade policy into a comprehensive report but – importantly – shining the spotlight on those countries USTR identifies as impeding American business and commerce in foreign markets.

To some extent, it’s a pro forma exercise but in another sense it provides ammunition to American exporters to press for action at the diplomatic and political level in addressing specific market access problems.

Take the section in the 2016 report on Canada. It reviews Canadian trade policy in general terms, then lists the differences the US has with Canada on things such supply management, aspects of the CETA the US doesn’t like (Canadian recognition of EU geographic indications), provincial support to Bombardier, etc.

None of this is particularly concerning, other than that it focuses attention on some Canadian measures the US doesn’t like and provides opportunities for affected industries to press their political representatives for action.

Interestingly, nothing is said in the 2016 report about softwood lumber or other Canada-US trade irritants or, on the positive side, about the advances made in coordinating bilateral border measures in the Beyond the Border initiative.

That being said, the NTE report can be part of the arsenal available to US companies in pressing for governmental action, leading to the suggestion that Canada’s Trade Department, in spite of resource constraints, should consider re-instituting something similar.

While this in itself won’t reduce barriers faced by Canadian business, it would provide a helpful compendium, particularly SMEs, in gaining insights into where the most serious problems are encountered. Over time, this could help focus Ottawa on the need for governmental action to reduce or eliminate those barriers.

Looking Ahead – The WTO in 2016

The collapse of the Doha Round a couple of years ago left the World Trade Organization with an unfortunate legacy, a wounded reputation as a negotiating forum as 10 years of effort essentially went up in smoke. Funeral rites for the Doha Round are now accepted by all save the most steadfast of believers.

This begs the question whether the multilateral trade negotiating system has run its course, ending an enviable success record, beginning with the 1947 General Agreement on Tariffs and Trade (GATT) through a successive series of rounds, culminating with the historic Uruguay Round and the launching of the WTO in 1994.

Some observers say the international community will never again replicate this degree of multilateral consensus. The result has been a turning away from multilateralism and greater reliance by governments on regional and bilateral trade initiatives, such as Canada-Europe and the recently-concluded Trans-Pacific Partnership (TPP) Trade Agreement.

While the multilateral system is under stress, it’s too easy to write off the WTO as a negotiating forum. Without being overly optimistic and recognizing the challenges, in fact the organization remains surprisingly robust. In spite of the many diverse and often opposing interests among its 162 member States, the WTO manages to make advances, incremental and less dramatic than the Doha Round, but noteworthy nonetheless.

Consider these four WTO-related initiatives.

  • A WTO Trade Facilitation Agreement (TFA) was concluded in 2013 and is slated for entry into force, possibly in 2016, once two-thirds of WTO members ratify. So far the number is 63, still some way to go. However, there is momentum here. Not a fancy bells and whistles kind of agreement but one that sets global rules to ease entry of goods across borders.
  • The Information Technology Agreement (ITA) was concluded in December at the WTO’s Nairobi Ministerial. The deal lowers duties on roughly $1.3 trillion in trade in high-tech informatics products, accounting for a remarkable 10 per cent of world trade in all goods. While less than a fully multilateral deal and awaiting entry into force, the ITA’s successful conclusion is another WTO achievement.
  • The Environmental Goods Agreement (EGA) continues under negotiation among major WTO member economies, including Canada, US, EU, Japan. It aims to reduce tariffs and improve market access on green products that contribute to reducing fossil fuels and carbon emissions. While a plurilateral – as opposed to multilateral – effort and not officially under the WTO umbrella, if it succeeds, reduced tariffs will be available to all WTO members on an MFN basis. Progress is slow but is being made.
  • Conclusion of a Trade in International Services Agreement (TISA) also making progress. It’s not been much in the limelight but is potentially a very big deal, covering telecommunications, financial services, computer services, retail distribution, transportation, environmental services, express delivery, energy services and professional services (e.g. accountants, lawyers, architects and engineers). The 23 participating countries agreed to hold more rounds in 2016 in hope of resolving remaining issues. The agreement envisages an accession process to allow other WTO members to join in the future.

None of these smaller-scale activities are earth-shaking in themselves. However, if these treaties ultimately do come into effect, they will be milestones of achievement in opening specific markets based on WTO-inspired principles of non-discrimination, national treatment, bans on import restrictions and discriminatory treatment for foreign investments and prohibiting unfair preferences for local goods and services.

These efforts are all within the framework of the WTO’s norm-creating (some might say “parliamentary”) functions. Even if comprehensive efforts such as the Doha Round have proven impossible, these smaller-scale initiatives add to the corpus of international trade law.

While focusing on these norm-creating efforts, not to be forgotten are the WTO’s adjudicative functions, deciding trade disputes among members through binding rules applied by neutral panels. While the process is lengthy and cumbersome, at the end of the day it (mostly) works.

Look at the latest Canada-US flare-up over the discriminatory American country-of-origin labelling requirements for Canadian agricultural exports. Canada could have applied retaliatory duties on American imports after winning a succession of WTO panel rulings but the case was settled and a trade war was averted. That’s the way the WTO system is supposed to work.

As the Trudeau government moves ahead on its trade policy agenda – not yet fully articulated– my sense is that Chrystia Freeland will continue Canada’s long-standing support for the multilateral system and for the WTO as an institution, a policy that was largely followed by her Conservative predecessor, Ed Fast.

In this one area at least, Canadian policy has shown a steady course in strong support of the WTO as an institution and demonstrated that it is possible to circumvent partisan politics in pursuit of a larger set of national objectives.

The Canadian International Trade Tribunal — 2015 in Review

The following is adapted from the 2015 update to my book, Canadian Trade Law: Practice & Procedure (Thomson Carswell 2007), which reviews the decisions of the Canadian International Trade Tribunal on an annual basis, summarizing important elements in its decisions under the Special Import Measures Act, R.S.C. 1985, c/ S-15 (“SIMA”),

The Tribunal celebrated its 25th year of existence in 2015, a year in which the Tribunal was fully occupied with proceedings under SIMA. From the final quarter of 2014 up to the time of preparation of this release, the Tribunal held three final injury inquiries, four preliminary injury inquiries, six expiry reviews and one public interest inquiry (http://www.citt.gc.ca/en/dumping-and-subsidizing). This was indeed a busy period for the Tribunal in the exercise of its SIMA jurisdiction.

While 2015 data are not yet available, according to the Trade Remedies Investigation Branch of the Secretariat to the Tribunal, as of 31 December 2014 there were 53 anti-dumping and countervailing measures in place under SIMA. They affected $8.0 billion in Canadian shipments, $0.5 billion in investments, and nearly 22,000 jobs in the domestic industries directly benefitting from the measures. In addition, the measures affected $1.4 billion in imports.

While the number of Canadian anti-dumping and countervailing measures decreased by approximately 59 percent from 1989 to 2014, according to the CITT staff paper, the importance of each measure in terms of its impact on Canadian shipments, investments, jobs and imports has increased. From 1989 to 2014, the average impact per measure on shipments, jobs and imports has increased by approximately 493 percent, 186 percent and 350 percent, respectively. Between 1995 and 2014, the average impact per measure on investments increased by approximately 80 percent.

Those figures do not include the impact of orders issued in the 2014-2015 period, during which the Tribunal was heavily engaged in SIMA inquiries and reviews, as noted.

Injury Inquiries and Expiry Reviews

Final injury inquiries under section 42 of SIMA in 2015 were held in Concrete Reinforcing Bar (NQ-2014-001), Oil Country Tubular Goods (NQ-2014-002) and Photovoltaic Modules and Laminates (solar panels) (NQ-2014-003), the two latter cases of particular significance given the large sectors of the Canadian economy that were involved.

It is worth noting that in each of those three cases, the Tribunal found that the evidence failed to establish past injury due to imports but concluded that the domestic industry faced a threat of injury from imported goods in the future. SIMA duties were ordered in all three cases. These decisions are reviewed below in various sections in this update.

The Tribunal was also busy on SIMA expiry reviews in 2015, holding hearings and issuing decisions in: Certain Fasteners (RR-2014-001); Hot-Rolled Carbon and Alloy Plate (RR-2014-002); Oil Country Tubular Goods (RR-2014-003); Whole Potatoes (RR-2014-004); Greenhouse Bell Peppers (RR-2014-005) and Refined Sugar (RR-2014-006). Several of these cases are also discussed in this update.

Looking ahead into 2016, three existing orders will expire: Copper Pipe Fittings (RR-2011-001); Pup Joints (NQ-2011-001); and Stainless Steel Sinks (NQ-2011-002). This foretells another busy year for the Tribunal, not counting potential new SIMA complaints that may be filed.

Public Interest Matters

Following the Tribunal’s injury finding in Concrete Reinforcing Bar (NQ-2014-001), the British Columbia government and the BC Independent Contractors and Business Association applied for a public interest inquiry under section 45 of SIMA. The Tribunal acceded to the request, one of the rare instances in the last decade where such a proceeding was held. Given the special regional circumstances, the hearing was held in Vancouver, again an infrequent instance where Tribunal proceedings were conducted outside of Ottawa.

The Tribunal’s opinion and reasons were released on 22 December 2015 (PB-2014-001). It decided that, even though SIMA duties would increase the cost of dumped and subsidized Chinese rebar, the overall economic impact would be minimal. As a result, the public interest did not warrant a reduction or elimination of the anti-dumping and countervailing duties applied in NQ-2014-001.

Administration

2014-2015 saw significant changes on the administrative side of the Tribunal’s operations with the entry into force in late 2014 of the Administrative Tribunals Support Service of Canada Act, S.C. 2014, c. 20, and transfer of the CITT’s budget and its entire administrative support, legal and research staff from the Tribunal (as well as10 other federal tribunals) to the single new centralized administrative organization, appropriately named the Administrative Tribunal Support Services Canada (ATSSC).

The result of these changes are that the secretariat, administration and research staff formerly under the supervisory authority of the CITT Chairman are now performed by the ATSSC, including staffing and human resources matters.

The ATSSC is headed by a Chief Administrator responsible for all services covering these eleven federal tribunals. These services include: corporate services (e.g. common functions of human resources, information technology, financial services, accommodations and communications); registry services; and core mandate services (e.g. research, analysis, legal and other case-specific work).

The ATSSC is divided into separate branches for each of the tribunals under its mandate. In the case of the CITT, an Executive Director and General Counsel (Nick Covelli) is responsible for the operations of the Canadian International Trade Tribunal Secretariat, which is further divided into three branches: Communications and Registry; Legal Services; and the Trade Remedies Investigations Branch (comprising the economic research staff) under his/her responsibility.

As practical matter, the staff in these branches are not subject to assignments to other tribunals under the ATSSC umbrella but are dedicated to serving the Tribunal in its various areas of jurisdiction. This ensures staff continuity and ongoing expertise in SIMA matters.

The first year of this reorganization and transfer of function appeared to proceed relatively smoothly, although there were some adjustment issues that had to be ironed out between the ATSSC and the Tribunal. As from 2015 on, the CITT’s continued success is, to a large extent, dependent on the ATSSC’s performance as a service provider.

The challenge in the years ahead is to ensure that the new system functions well and allows the Tribunal to continue to discharge its mandate under SIMA in the most efficient and seamless manner possible.

Procedural Matters

The Tribunal is currently reviewing a number of its Guidelines and Practice Notices. The current versions of these documents have been included in previous releases and can be found at http://www.citt.gc.ca/en/guidelines and http://www.citt.gc.ca/en/dumping-and-subsidizing-practice-notices.

It issued two new pilot Practice Notices in 2015:

  • Measures to Improve Investigative Procedures During SIMA Inquiries and Expiry Reviews;
  • Introduction of Measures to Improve the Tribunal’s Procedures During Preliminary Injury Inquiries

As part of the Tribunal’s efforts to up-date and improve its procedures, the Chairman inaugurated a new internal governance structured within the CITT and appointed a new CITT Advisory Committee in 2015, consisting of representatives of the trade bar, federal government departments and business associations, replacing the Bench and Bar Committee of the Canadian Bar Association as the Tribunal’s consultative organ.

The Tribunal is a court of record under the Canadian International Trade Tribunal Act, R.S.C. 1985, c. 47 (4th Supp.). The current Tribunal membership consists of: Stephen A. Leach, Chairperson, with members Jean Bédard; Peter Burn, Jason W. Downey; Ann Penner; Daniel Petit and Rose Ritcey. Serge Frechette, a member whose full term expired in 2014, was appointed as an interim member in 2015 for a one-year period. The organization, mandate, biographical information and other matters respecting the Tribunal are found on its web-site at http://www.citt.gc.ca/en/organization-0).

References

The Impact of Canadian Anti-Dumping and Countervailing Measures on Domestic Shipments, Investments, Employment and Imports, 1989-2014: Report of the Trade Remedies Investigation Branch, Administrative Tribunals Support Service of Canada, November 2015, p. 3. http://www.citt.gc.ca/en/effects_paper_e.

Keeping Up With Sanctions – a Challenge

The Problem

In concert with its western allies, Canada has instituted a series of trade and economic sanctions against Iran, Syria, Russia, plus about twenty other countries and failed states. These can be tricky seas to navigate for Canadians, doubly treacherous because of the criminal penalties involved when sanctions are transgressed.

The challenges are compounded because these sanctions are in constant flux, meaning Canadian businesses with interests in targeted countries need to be extra vigilant. Businesses with US exposure need to be especially careful in not crossing the line when it comes to American measures. All of this makes for tough navigating.

True, there are all sorts of navigational aids put out by the consulting community and by law firms. Business organizations such as the Canadian Association of Importers and Exporters and the Canadian Manufacturers and Exporters have excellent programs and provide useful information on the state of these Canadian, US and other measures.

The real concern, however, is that while Global Affairs Canada (formerly  Foreign Affairs, Trade and Development or DFATD) provides black-letter factual information on Canada’s sanctions, there is a complete lack of policy guidance for the business community in this area. There is no avenue for seeking even informal views from Ottawa on whether a particular dealing or other activity may be covered, directly or indirectly, by Canada’s sanctions.

Basically, the Canadian private sector is on its own in deciding whether a given transaction is or is not going to run afoul of these measures. This should be changed.

Suggestions for the New Minister

While sanctions and trade embargos aren’t mentioned in the PM’s mandate letter to Foreign Minister Stephane Dion, the letter does talk a lot about openness and engagement. It’s likely that at some point Mr. Dion will take a closer look at how those values apply to Canada’s sanctions regime.

That will be forced on him sooner rather than later. The government has to respond soon to the July 2015 nuclear deal with Iran, approved by the UN Security Council, which calls for a phasing down of western sanctions against that country.

When he does undertake that review, I suggest he make serious improvements by requiring his Department to publish regular policy guidance and compliance notices and initiate outreach programs to assist Canadian business in navigating its way through these sometime treacherous waters.

It’s not being suggested that the government should or could advise companies on the legalities of a specific business decision. That is up to business and their legal counsel. However, compared with the virtual silence now existing in Ottawa, the Canadian sanctions regime would be improved immeasurably by some kind of policy guidance on aspects of sanctions compliance and enforcement. This would be a plus for the private sector.

Need for Policy Guidance

Some ideas for filling this vacuum can be gleaned from looking at the active programs provided to American companies by the US Office of Foreign Assets Controls (OFAC) in the US Treasury Department. They regularly issue interpretive guidance on specific issues related to the application and enforcement of US sanctions. Canada should take a leaf out of the US book.

Here are some areas where policy guidance would be appropriate, without fettering the actions of Canadian enforcement agencies. First and foremost would be informational and outreach programs to supplement those available in the private sector in explaining the background, enforcement criteria and other intricacies of the Canadian system of sanctions to Canadian business. All in the name of openness and engagement, referred to in the PM’s letter.

Second would be publishing regular bulletins and policy guidance on such matters as,

  • How the government applies ambiguous terms in sanctions laws where the meaning is elusive. An example is the prohibition on “financial services”, a term frequently found in the regulations. What is meant by the term? How far does it reach? Does it include all manner of bank transactions and insurance coverage?
  • Cases where remote or indirect business or commercial relations would not be considered within the scope of the sanctions. An example is where personal real estate in a third country is subject to a mortgage held by a bank, financial institution or other person in a sanctioned country;
  • Where Minister’s authorization permits are available to permit a transaction, clarification of the kind of information to be supplied to the Minister and an indication of the wait times for a response to an application;
  • How Canadian and US sanctions in targeted countries work in tandem and where Canadian companies should be aware of critical differences;
  • Hypothetical examples to show when a given transaction or dealing would be considered as running afoul of a particular prohibition; and, most usefully,
  • Information notices on enforcement actions, for example when charges are laid or when a conviction is registered in specific cases.

The above are obviously subject to the caveat that the federal government does not give legal advice on specific transactions. For understandable reasons, government agencies cannot be fettered and their discretion circumscribed in the enforcement of Canada’s sanctions laws. That being said, these are some areas where statements of policy and guidance, with the appropriate caveats, would be of great help to Canadian companies with foreign business ties.

Surely, Canadian companies should have the same advantages as their American counterparts in navigating through our government’s sanctions policy.

 

Trans-Pacific Trade and the Intellectual Property Challenge

Controversy

The IP provisions in the TPPA have been the source of some controversy, not only in Canada but in other countries. In Canada, some say these are responsive to corporate interests and will inhibit local innovation and entrepreneurship. The focus seems to be on the patent provisions in the Agreement, less so on the trademark and copyright parts.

While incorporating existing patent treaties into the TPPA, there is no doubt that the Agreement increases patent protection and enhances the monopoly rights of the patent owner. The question is whether those enhancements work to the benefit of Canadian innovators and inventors or detract from it and put Canada at disadvantage, mostly vis-à-vis the US, the most direct source of competition and aggressive litigation in the patent field.

In its October 5th summary of the TPPA IP provisions – before the actual text was available – the former Conservative government said that the TPP was “in-line” with Canada’s exiting patent regime and that all exceptions under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) will continue to be available “in line” with Canada’s existing laws.

Reading the actual TPP text, it can be seen that the patent provisions are among the most complex in the entire Agreement, comprising dozens of intricately woven articles, annexes and footnotes. It will be a challenge to apply these when the Agreement enters into force.

Where are the concerns focussed about the impact on Canadian innovation?

Data Exclusivity

The data exclusivity issue revolves around the right of a patent applicant to protect proprietary clinical data filed with its application and to prevent third parties having access to or using that data. There is a great deal of money at stake for both sides.

The concern centres on TPPA provisions on data exclusivity specifically directed to biologics – medicines, vaccines and the like based on sugars, proteins or nucleic acids, at the leading edge of pharmaceutical innovation. Some have argued that these data protections will stifle the development of biosimilar pharmaceuticals, causing drug price to increase over time.

Article 18.52 of the TPPA gives Parties two options for protecting such data: the first is to provide eight years of data protection; the second is less precise but allows parties to provide only five years of protection plus unspecified “other measures”, recognizing that “market circumstances also contribute to effective market protection to deliver a comparable outcome in the market”.

Canada currently allows eight years of data exclusivity for biologics. This aspect of the TPP seems correctly described as “in line” with Canadian law, as the Conservative government has said.

One particular concern voiced during the negotiations was that if the data exclusivity provisions were cast too broadly, they could be used to claim data protection for products that were merely derivative and not truly innovative, hence stifling competition. This concern may be covered off by a proviso to Article 18.52 which says no data protection is required for any pharmaceutical that is or contains a previously approved biologic.

Extension of Patent Terms

The second area of concern is about what’s called “patent term adjustment”, giving additional time for the patent to run where the marketing of the product encounters delays in regulatory approval. Those delays can, in effect, negate the value of the monopoly period available to the patent owner.

Article 18.46 of the TPPA requires Parties to extend the patent period if there are “unreasonable delays” in the issuance of a patent, defined as more than five years from the filing date or more three years from the request was for examination by the patent office, whichever is longer.

No time is specified in the TPPA for the length of that adjustment. Article 18.46 simply requires the adjustment to “compensate” for such delays. The Article does allow Parties to exclude in any adjustment period delays “not directly attributable” to the granting authority.

The purpose of Article 18.46 is to encourage Parties to weed out inefficiencies in the patent approval process and maintain as much as possible the integrity of the twenty-year patent term.

The extension provisions in Article 18.46 leave a fair degree of flexibility to the Party concerned. It’s not clear how any change to Canadian law to meet these provisions, if indeed required, would in itself stifle Canadian innovation.

Patent Litigation

The third area of concern has been n the so-called “patent linkage” issue. Patent linkages are laws that tie marketing authorization of a generic drug to the expiration of an existing patent, thereby denying market entry to less expensive medicines.

Linkage also allow patent owners to pursue action in the courts where a competing product seeks regulatory approval and the patent owner claims that the product infringes its existing patent.

Some say that because it allows, indeed encourages, patent litigation, patent linkage further delays cheaper generic drugs from reaching the market. Critics say it gives a license to patent owners to use the linkage option to forestall generic competition by resorting to endless infringement litigation.

Canada together with the US and Japan employs a patent linkage system. Before Health Canada can grant marketing approval to a generic version of a brand-name drug, the generic company must demonstrate that all relevant patents on the brand name product have expired.

TPPA Article 18.51 requires Parties to provide for patent linkages in the sense of “adequate time and opportunity” for a patent holder to pursue, prior to the marketing approval of a competing product, judicial or administrative proceedings for alleged infringement.

However, some have described this provision as merely “soft” linkage, because it requires notification of the competing application to the patent holder but doesn’t compel Parties to hold off granting marketing approval pending the outcome of any litigation.

While the issue of patent linkage is controversial and has many opponents, Article 18.51 does not likely require changes to Canada’s current patent linkage system. As the previous government said, these TPPA provisions seem generally in line with Canada’s existing patent laws.

As a result, it’s not clear how the Agreement in and of itself inhibits innovation in Canada. One possible argument may be that by becoming party to the TPPA, Canada would be preventing from amending those measures to remove patent linkage from regulatory approval.

Careful Evaluation

It will be up to the new Liberal government and any Parliamentary committee examining the TPPA to take a close look at these provisions and get the best expert advice to ensure that the TPPA doesn’t have detrimental impact on Canadian enterprise, innovation and entrepreneurship.

There are two main conclusions to all of this.

The first is that these issues will continue to be controversial in Canada, since all are part of Canadian law now, quite apart from what is in the TPPA.

The second is that, rather than focusing only on the impact in Canada, it is important to consider the benefits of increased patent protection the TPPA will give to Canadian patentees in foreign markets.

Trans-Pacific Trade and Cyber Security

There’s been concern expressed in some quarters about whether the TPP Agreement will limit the ability of governments to take public safety measures, in particular, to require disclosure of encryption information for national security reasons.

The discussion has been focused on provisions on Chapter 8 of the TPPA covering Technical Barriers to Trade. Some are interpreting Annex 8-B, Section A.3 of Chapter 8 as preventing law enforcement or intelligence authorities from compelling companies like Apple or Google from turning over encryption keys to decipher communications used on their devices.

Section A.3 of the Annex says, in a nutshell, that no TPP Party may impose a technical regulation or conformity assessment that requires a manufacturer or supplier of a product to

“. . . transfer or provide access to a particular technology, production process, or other information (such as a private key or other secret parameter, algorithm specification or other design detail), that is proprietary to the manufacturer or supplier and related to the cryptography in the product, to the Party or a person in the Party’s territory.”

According to a recent issue of World Trade On-Line,

“. . . the issue is that these companies are increasingly using so-called ‘end-to-end’ encryption — in which they themselves do not possess the key — and lawmakers and law enforcement authorities are weighing whether to craft new measures to prohibit this technology to foster better intelligence-gathering. Some experts said it is an open question whether TPP would prevent such measures, while others rejected the notion that this was the case.”

It is hard to see how the TPP under Chapter 8 or other provisions of the Agreement can apply prevent any of the TPP countries from taking steps, including requiring disclosure of encryption keys or from controlling or preventing end-to-end encryption where national security interests are involved.

TPP negotiators, especially the United States, were careful to ensure that the treaty did nothing to jeopardize national security enforcement measures. Article 29.2 (Security Exceptions) of the Agreement states that,

Nothing in this Agreement shall be construed to:

(b)     preclude a Party from applying measures that it considers necessary for the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.

It doesn’t take lengthy legal analysis to see that the effect of this provision – with the underlined words – gives full scope to governments to make their own national security decisions. As the chapeau of Article 29.2 says, nothing in the Agreement precludes Parties from enacting and applying these national security measures. And to be certain, nothing in Chapter 8 of the TPPA in any way qualifies the scope of these National Security Exceptions in that Article.

Trans-Pacific Trade – A Primer in Treaty Law

A note – many years ago I was head of the Treaty Law Section in the old Department of External Affairs. What follows deals with the kinds of issues I covered on a daily basis, coming back into prominence so many years later.

Signing the Agreement – What Does That Do?

There’s been a fair amount of media reporting on signature of the TPP Agreement, some of which resulted from comments in Manila by President Obama that he welcomes Prime Minister Trudeau’s commitment to sign the Agreement on behalf of Canada.

There’ve also been many reports on the signing of the deal by the US President under so-called fast track authority, which requires 90 days’ advance notice to be given to the Congress before he can do that.

With all this discussion about who signs and when, it’s important to be clear about the concept of treaty signature in international law.

Believe it or not, there’s even an international treaty on the subject, concluded in Vienna decades ago. Not surprisingly, it’s called the Vienna Convention on the Law of Treaties. Canada and the US are parties to that Convention.

For years, the Vienna Convention was an obscure instrument reserved for academic discussion or arcane application by public international lawyers toiling away in foreign ministries, far outside the hurly-burly of international politics. In recent years, however, the VCLT has become much more prominent as a feature in international relations.

The Convention deals with the legalities of signature, ratification and entry into force of international agreements – treaties – like the TPPA. The key point is that each of these are separate acts and each has separate significance under international law.

Take signature. The Vienna Convention says that States can be legally bound when its representatives sign a treaty – but only if that’s what the treaty says. The TPPA doesn’t say anything about signature.

When a treaty is silent on signature but requires other steps to be taken before takes effect legally, the Vienna Convention says that, in such case, signature means the country must refrain from doing anything that would “defeat the object and purpose” of the treaty pending its entry into force.

That means that when representatives of Canada, the US or other States sign the final text of the TPPA – which isn’t even officially ready yet – these countries are not bound by the TPPA but only have to behave as set out in the Vienna Convention.

What Happens Next?

The Vienna Convention says that you then have to look to the terms of the treaty to find out what follows after signing. In the case of the TPPA, Article 30.5 says that it will enter into force when signatory States have notified the Depository that they have completed all their applicable internal legal procedures. That step is generally called ratification.

By the way, a Depository is the country or organization that has been designated as the record keeper of a treaty. In many cases, the UN or some other international organization is the designated Depository. In the case of the TPPA, the designated Depository is New Zealand.

So where do we go from here?

Signing Ceremony in New Zealand

There’s discussion among the 12 TPP governments to have an official signing ceremony in New Zealand early next February. That’s the appropriate place since it’s the Depository. But before that occurs, the final, official legal text, translated into Spanish and French, will be needed.

Once the official text is ready, what’s called the Final Act of the TPP negotiations will be prepared. That’s the official document that will record the results of the process and append the final TPP Agreement for signature. There will be a lot of hype in the lead-up to the signing ceremony and a media flurry when 12 representatives march to the podium, pens in hand.

Then Back to Capitals

Once the signature ceremony is over, the process reverts to the 12 participating countries to complete their internal legal procedures to bring the TPPA into effect – i.e., to complete the steps needed to ratify the treaty.

The Canada’s case, that will mean a thorough review by at least one Parliamentary committee (I’ve previously recommended a joint Commons-Senate committee) and full debate in the House of Commons. Who knows?

The Trudeau government may even commission cross-country hearings on the TPPA After all that there will be a report to Parliament and legislation introduced and a bill passed to make the necessary changes to Canadian law to implement the TPPA’s obligations.

The point is, even after Canada signs the deal next February, there is a long way to go before Canada is in a position to be bound by it and before the TPPA enters into force as an international treaty.

The same applies in the US, where the Congress will have several months to debate the TPPA after Obama signs it. Once that debate is over, or possibly before, the Administration will present Congress with a draft implementing bill. The Congressional debate over that bill will take many months, possibly extending beyond the presidential election in 2016. After that, it’s anybody’s’ guess.

Bottom Line

It’s important not to be too fixated on signature of the TPPA. That’s only a station along the way to ratification and entry into force. As I’ve said before, the American government drove the TPP process all along and before any country commits to the treaty, they’ll want to see what the US Congress will be doing about it.