Formal Response to the SCFAIT Report (January 2000)

This submission analyses the report of the Standing Committee on Foreign Affairs and International Trade (SCFAIT) entitled "Exporting in the Canadian Interest: Reviewing the Export Development Act". Our recommendations are primarily concerned with Chapter 9 of the Report on the Review of the Export Development Act (hereinafter the Gowlings report).

The SCFAIT report is a positive step forward from recommendations made in the Gowlings report. We believe recommendations made by SCFAIT, if implemented, would assist EDC to better balance its public mandate and the private sector nature of its business and increase the level of policy coherence within government. The report from SCFAIT is silent or superficial, however, on a few key areas of public interest, namely labour and human rights, social impacts and the debt-creating aspects of the Export Development Corporation. We propose specific recommendations on these issues -- recommendations that, if implemented together with those of SCFAIT, will make EDC a public institution we will be proud to call Canadian.

What follows is our analysis of the SCFAIT report "Lists of Conclusions and Recommendations", and recommendations on issues not adequately addressed by SCFAIT.

Recommendation 1

We applaud the Committee' s first recommendation that would oblige EDC to "give due regard& to the commitments and obligations undertaken by Canada under international agreements". It is critical that this demand for policy coherence be made explicit in the Export Development Act, as it would place a statutory requirement on EDC to adopt policies and monitoring practices to ensure harmony between EDC activities and Canada.'s international commitments.

Recommendation 20

We support certain elements of this recommendation that would require EDC to disclose the information listed in the Gowlings report, to submit its disclosure framework to a full public consultation and to subsequent independent review. EDC should be required by law to disclose to the public the type of information noted by Gowlings at least 60 days before consideration of the project by EDC's Board.

However, while we applaud the recommendation to establish an Ombudsman to address the impacts of EDC-supported projects, it would be inappropriate to have an internal Ombudsman to administer public access to information and appeals. This is best done by an Access to Information Commissioner. The EDC should be brought under the Access to Information Act.

Recommendation 21

We welcome this recommendation, in particular the establishment of environmental criteria on which to determine the eligibility of project proposals, as well as the disclosure of environmental assessments and impacts. Specifically, we support SCFAIT's points regarding the inclusion of language in Section 2 (Interpretation) of the Act, the creation of an Ombusdman post and adding a provision to the Auditor General Act to make the EDC accountable to the Commissioner of Environment and Sustainable Development.

We disagree with the SCFAIT recommendation to "give statutory weight to EDC's environmental review framework" due to the numerous problems with the Framework outlined in Appendix II of our policy paper. The Export Development Act, in our view, should be amended to include specific statutory environmental and social criteria to guide the EDC's decision making process. The EDC should be bound by statute to refuse support for those projects that have unacceptable environmental and social impacts. The Minister needs to place the goal post for EDC in regards to environmental and social assessments in the Export Development Act - a goal post requiring public participation and transparency in environmentally and socially critical projects.

We welcome SCFAIT's recommendation that the Environmental Review Framework be put out for public consultation. The EDC should be required to conduct a comprehensive public consultation on the ERF, report on the outcome and report on how the public comments will or will not be incorporated into the ERF.

EDC should also be brought under the Canadian Environmental Assessment Act.

The report is silent on the issue of social impacts. Whereas an environmental assessment may include possible impacts on the health of communities, for example, the requirement to look at the possible impact of the project on local communities, as well as the natural environment must be made explicit, or as history indicates, it may not happen. The Export Development Act should be amended to require social considerations of the EDC. The definition in CEEA, "any change that the project may cause in the environment, including any effect of any such change on health and socioeconomic conditions, on physical and cultural heritage, on the current use of lands and resources for traditional purposes by aboriginal persons, or on any structure, site or thing that is of historical, archaeological, paleontological or architectural significance", and World Bank policies on indigenous peoples, safeguarding cultural property and involuntary resettlement should act as baselines.

Recommendation 22

The Ombudsman provides a potentially effective appeal mechanism for human rights abuses brought on by EDC-supported projects, but at present there is no meaningful mechanism to screen out and mitigate potential negative human rights impacts from projects before they happen. A Code of Business Ethics does not provide the necessary detail to assist EDC clients or staff with the tools to adequately assess and mitigate against possible human rights impacts of a project.

EDC should be obliged to conduct a human rights assessment to ensure that projects that it supports are consistent with DFAIT country guidelines in a fashion suitable to the nature of the project. Where the project cannot be conducted without contributing to repressive capacity or human rights violating activity, support should not be extended. DFAIT should be requested to actively assist EDC by developing country guidelines in consultation with stakeholders. SCFAIT's recommendation "& [o]ngoing elaboration of its Code of Business Ethics, Environmental Review Framework, and future public disclosure framework, learning from implementation experience through periodic public evaluations conducted in collaboration with DFAIT" is important but inadequate. A statutory requirement to link human rights conditions to decision-making must be put in place as it has for the US export credit agencies.

Recommendation 23

We would like to reiterate our support to bring EDC under the AG's Office.

The Act should explicitly empower the EDC Board of Directors to withhold financing support after taking into account adverse environmental, human rights or social effects of the project.

Recommendation related to Debt

The report makes no recommendations on this issue. Canadian taxpayers will continue to carry the losses for uncollectable loans made by EDC to the heavily indebted and poor countries, creating moral hazard and irresponsible lending. Currently, the Department of Finance cuts a cheque from the current account addressed to EDC when a debt to the poorest countries is uncollectable.

The level of external debt of the highly indebted and poor countries is now widely recognized as a key impediment to their economic and social progress. The debt-creating aspects of EDC must therefore be addressed.

Unlike commercial bank loans, EDC lending may result in private debts being transformed into public ones. The guarantees that are provided by the host government create, in effect, subsidies to Canadian businesses seeking to export, encouraging them to engage in trade and exports that would otherwise be economically not viable. To an extent, the increase in export credit lending reflects an "export driven" desire for expanded business rather than a need for funding on the part of the borrower. This encourages a process of excessive and unproductive lending, unchecked by a lack of transparency and responsibility to local communities.

The poorest people in the world owe Canada through the EDC ~2.5 billion dollars. Of these debts, $76 million is in arrears - debt that is unpayable by these countries and uncollectable by EDC.

The Corporation has written off commercial debts that it cannot collect, but the situation is different for sovereign loans. EDC relies on the government of Canada to cover its losses.

We recommend that new sovereign loans by the EDC should not be made with the expectation of reimbursement by the government of Canada. This will in effect require EDC to include the highly indebted nature of the poorest countries in its risk assessment of projects.

Our policy paper is enclosed, that further elaborates our analysis and recommendations. We hope that the Senate Committee agrees with our analysis of the SCFAIT report and in its own report, makes clear recommendations in the areas of public interest outlined above.