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International Trade Negotiations (July 1999)

INTERNATIONAL TRADE NEGOTIATIONS: COMMENTS ON APPROPRIATE POSITIONS AND OBJECTIVES FOR CANADA

Public Interest Advocacy Centre

General

  • The Public Interest Advocacy Centre (PIAC) represents the interests of Canadian residential consumers, with special attention to low income, senior, rural and other vulnerable groups. PIAC has particular expertise in the fields of public utility regulation, telecommunications, banking, consumer protection, and privacy. PIAC has been engaged in national consumer advocacy since its inception in 1976.
  • PIAC recognizes the value and importance of international trade to Canada’s economic well-being. We are concerned, however, that overly hasty or overly broad trade agreements will have serious adverse effects on Canada’s economy and society, which could well outweigh their economic benefits for Canadian companies. Recent cases under chapter 11 of the NAFTA(1) highlight the danger of agreeing to trade rules which put corporate interests ahead of the public interest in health, safety and environmental protection.
  • At a minimum, it is essential that Canada refrain from agreeing, or rescind its agreement, to any trade rules which jeopardize its ability to protect public health, safety, and the physical environment, to promote and enforce human rights, labour standards, and consumer protections, and to facilitate the achievement of other social objectives. Domestic regulation that is clearly designed to achieve these ends (such as the ban on MMT) should be immune from prosecution as a trade barrier.
  • With the increasing globalization of trade, however, such a defensive approach to social concerns will not be sufficient. As long as other countries tolerate business practices which jeopardize consumer health and safety, fair marketplace competition, consumer privacy, the health of the global environment, or generally accepted consumer protection standards, Canadians will be vulnerable to the harm caused by such practices. In addition, where compliance in Canada with reasonable standards has a cost to industry that is not incurred in other jurisdictions, the threat of capital flight may be used by some business interests to justify an otherwise undesirable weakening of Canadian standards.
  • Canada should therefore promote the establishment of enforceable international minimum standards (i.e., floors, not ceilings) in key areas such as competition policy, privacy, and consumer protection, in the same way that minimum standards of intellectual property protection have been established internationally.
  • This can be done in either of two ways: through the WTO and its existing enforcement mechanism (as was done with intellectual property rules), or through the creation of equally effective enforcement mechanisms under other international agreements and institutions dealing with non-trade issues. In either case, it should occur before we go any further down the road of trade liberalization.
  • When promoting and establishing minimum international standards of consumer protection (for example), it is essential that no country be required to lower its standards or refrain from establishing higher standards than the minimum. The objective of such a process is to raise standards in those countries which do not yet meet an internationally agreed-upon baseline; it is not to lower standards in those countries where the minimum standard is exceeded.
  • In this respect, it is essential that trade agreements do not take precedence over international environmental, social and human rights agreements. Indeed, the latter should have primacy over trade obligations where conflicts arise. As the recent Report of the Standing Committee on Foreign Affairs and International Trade(2) states,

”…active consideration by WTO members is required to ensure that its rules help to reinforce, rather than trump, international environmental, social, and human rights obligations.”

  • Given the obvious risks inherent in proceeding further down the road of trade liberalization without adequate attention to its impact on social, economic, and environmental well-being, it is only prudent to hold back on further trade liberalization until the results of the Uruguay round have been fully evaluated, and until an equally effective regime is in place for the enforcement of minimum standards in such areas as human rights, environmental protection and consumer protection (as well as intellectual property rights).
  • PIAC notes with some regret that establishment of international rules for intellectual property protection owes much to the fact that such protections benefit large multinational corporations. It can be expected that corporate interests will continue to push their self-interested agenda in the trade arena, even where it conflicts with the public interest. Canadians expect their government to develop negotiating positions which reflect the broad public interest, rather than the heavily promoted corporate interest. In particular, Canadians expect their government to maintain its ability to regulate effectively in such areas as human rights, culture, health and safety, education, social programs, the environment, labour standards, privacy, consumer protection and the delivery of essential services.
  • Attached to this submission is a copy of PIAC’s presentation to the House of Commons Standing Committee on Foreign Affairs and International Trade, dated March 16, 1999. In that brief, PIAC recommends:
    • greater consultation by DFAIT with consumer and public interest groups, and with other government departments (both federal and provincial) on trade issues;
    • that Canada take care to ensure that the establishment of international trade rules does not undermine the authority of domestic governments to fulfil their mandates, obligations and responsibilities to citizens;
    • that Canada’s position in any international trade negotiations recognize the importance of such domestic instruments as subsidies and performance requirements in achieving national objectives;
    • that current trade exemptions and reservations claimed by Canada be lifted only on a case-by-case basis, and only after substantial research and consultations on the implications of such a move; and
    • that Canada not agree to any “standstill” or “rollback” commitments with respect to domestic legislation, regulation or standards.

The following comments fall under four main headings: Consumer Health and Safety, Electronic Commerce, Intellectual Property, and Competition Policy

Consumer Health and Safety

The record to date of GATT panel reports and WTO rulings on disputes involving consumer health and safety has seriously undermined consumer confidence in the WTO. In each case before it, the WTO has found the impugned environmental or health regulatory measures to be non-conforming. It seems clear that the WTO places higher value on commercial market access than on consumer health or safety. This must change.

As suggested in the Standing Committee’s report (p.12-9),

”….the whole concept of non-discrimination on the basis of national treatment rules needs to be reconsidered and clarified in order to better accommodate valid environmental, health, social and sustainable resource-use concerns about the manner in which tradeable goods are produced for export.”

In particular, the requirement for conclusive scientific evidence of adverse environmental, health or safety consequences in order to justify the adoption of a given standard, import prohibition, or other trade-restraining policy under WTO rules must give way to a precautionary, adaptive approach aimed at preventing damage before it has been caused. It is reckless and irresponsible for any country to put the health and safety of its citizens at risk simply because the scientific evidence of damage is inconclusive. As long as a serious risk to consumer (or environmental) health or safety exists, national measures to contain that risk are appropriate and should not be treated as violations of trade agreements.

Continued adherence to the “scientific justification” standard for sanitary and phytosanitary standards will lead to further erosion of public confidence in the WTO, and to a widespread credibility crisis for the WTO. Indeed, the EU’s refusal to abide by the WTO’s ruling on bovine growth hormone suggests that failure to address this issue may jeopardize the future of the WTO itself.

Despite its status as a complainant in a number of cases involving environmental and health risks, Canada should recognize the inappropriateness of a rigid requirement for conclusive evidence of damage in order to justify trade restrictions, and should advocate new rules based on a precautionary approach which allows for adaptation as new scientific evidence becomes available.(3) The Sanitary and Phytosanitary (SPS) Agreement, in particular, should be modified as necessary to clearly adopt a precautionary, adaptive approach.

The efficient and effective operation of a competitive marketplace is premised on the availability of full information to consumers. Consumers cannot exercise informed choice unless they are properly informed. Product labelling is thus a legitimate, and indeed essential, subject of national regulation. The Technical Barriers to Trade (TBT) Agreement should therefore clearly treat the provision of information to consumers, via labelling or other means, as a legitimate objective of regulation.

Electronic Commerce

PIAC supports Canada’s goal of becoming a world leader in electronic commerce through a multi-pronged strategy centered around the establishment of a solid regulatory framework designed to cultivate consumer trust and confidence in this new medium (and especially in Canadian companies doing business on the Internet), and so to create an electronic marketplace environment in which small, upstart businesses – not just large corporations with brand name incumbency (and thus residual consumer trust) – can thrive.

Two key elements of this strategy are the protection of personal information in the marketplace, and the protection of consumers from deceptive business practices online as well as offline. It is critical that Canada avoid any trade-related obligations which compromise its ability set high standards of consumer protection and to regulate effectively in these areas. Otherwise, electronic commerce will fail to achieve its potential due to lack of consumer confidence. Or, consumers will continue to flock to well-known and trusted brands which are dominated by US corporations. (In this respect, Canada’s interest is clearly different from that of the USA.)

Electronic commerce is part of a broader trend toward globalization of trade. As vendors and consumers go online, the number of cross-border consumer transactions can be expected to increase substantially. With the increase in distance transactions will come an increase in problems associated with distance transactions: lack of full information, misunderstandings, and obstacles to consumer redress across borders.

In addition, the electronic medium raises new problems of its own, such as the risk of keystroke or clicking error, the vulnerability of personal data, cost shifting in electronic marketing (“spam”), corporate control of navigation tools, and new opportunities for fraudulent and unscrupulous actors.

For global retail electronic commerce to reach its potential, we will need more than a defensive approach to consumer protection and trade. We will need international cooperation on the establishment of a consumer-friendly global marketplace, in which consumers are able to:

  • assess the legitimacy and reliability of merchants;
  • distinguish between promotional gimmicks and binding contracts;
  • control the collection, use and disclosure of their personal information;
  • avoid liability in respect of unfair contract terms;
  • avoid liability in the event of vendor failure to authenticate consumer identity, to provide significantly relevant information to the consumer prior to contracting, or to provide the consumer with a reasonable opportunity to correct any errors in an online order;
  • prevent the receipt of unsolicited commercial email;
  • obtain redress without unreasonable effort;
  • rely upon the consumer protection laws of their own jurisdiction, where they engaged in a transaction while in that jurisdiction;
  • have recourse to the courts of their own jurisdiction in respect of transactions conducted by them while in that jurisdiction.

To this end, not only must reasonable, relevant domestic regulation be insulated from trade disputes. In addition, minimum standards of consumer protection are needed worldwide so as to provide more certainty for business, more reassurance for consumers, and a more level playing field for countries. In particular, an international agreement on minimum standards of consumer protection is needed to avoid the creation of “consumer fraud havens”. Canada should take a leadership role in promoting such an agreement.

Such an agreement would be based on a recognition that consumer transactions in competitive markets suffer from persistent, pervasive market failures (e.g., severe information asymmetries, unequal bargaining power, and barriers to collective action by consumers), and that government has an important role to play in correcting these failures. It could be combined with an agreement on competition policy, the rationale for which is similar (see below).

It is important that international agreement on consumer protection proceed simultaneously with international agreements on other aspects of electronic commerce (e.g., authentication, Internet protocol, domain names, general commercial law). Otherwise, there is a real danger that retail electronic commerce, at least, will never reach its potential.

The Trans-Atlantic Consumer Dialogue has produced a set of recommendations on Electronic Commerce which closely reflect the position of PIAC as set out in this submission. While not a member of the TACD (because it is restricted to EU and US organizations), PIAC is generally supportive of these recommendations, which we attach for your information.

Finally, Canada must not allow trade agreements to get in the way of another key element of its electronic commerce agenda: “Connecting Canadians”. Under this policy pillar, Canada has committed itself to a number of national programs designed to improve public access to the Internet. If universal access to the Internet in Canada is to be achieved, much more effort will be required in the form of financial subsidies and other government support for such programs as SchoolNet, LibraryNet, VolNet, Community Access, and Smart Communities. Mandatory industry contributions for the purpose of universal service will also continue to be required if Canada is to maintain its current level of telephone subscribership, let alone Internet access. Under no circumstances should Canada risk allowing such programs to be the subject of complaints or lawsuits under trade agreements.

Intellectual Property

Canada’s positions on rules regarding intellectual property must reflect the underlying public interest rationale for such rules. We create and protect rights in intellectual property not because we believe that all labour deserves to be rewarded or because of some inherent private right to reward, but rather because we perceive a public interest (the advancement of science and the arts) in rewarding certain kinds of labour. Before creating new property rights or expanding existing ones, it is essential that a full analysis of the public interest implications of any such proposal be conducted. Only where it is conclusively shown that the granting of such exclusive privileges will have net social, environmental and economic benefits, should Canada agree to any expansion of intellectual property rights.

As noted above, it is no coincidence that intellectual property is the only area under the WTO regime in which countries have agreed to minimum standards of domestic legislation. Large multinational corporations accountable to no one but their shareholders have an enormous private interest in expanding their property rights. They have been remarkably successful to date in having their interests promoted through the WTO. Yet trade would be facilitated by the establishment of minimum standards in many other areas as well. Canada should work toward correcting this imbalance within the WTO.

Given the tremendous implications of intellectual property protection for Canadians, and for the public interest at large, Canada should take a cautious approach to future WTO negotiations in this area. Before agreeing to any expansion of intellectual property rights, it is especially important that Canada develop a clear national policy based on widespread public consultations that include a balanced representation of private and public interests.

(a) Copyright

Article 13 of TRIPS requires member countries to limit copyright exceptions “to certain cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder”. Unlike Article 30 of TRIPS (dealing with patents), this wording allows for no consideration of the public interest, or the interests of third parties. Indeed, by linking legitimate exceptions to “the legitimate interests of the right holder”, the clause is effectively circular. Yet, as noted above, the purpose of copyright is not to protect some pre-existing private right. Rather, it is to advance the overall public interest.

For example, copyright laws should not unduly restrict the ability of educators to share information with students in ways that are equivalent to current practices involving more conventional teaching methods. They should not unduly limit the ability of competitors and others to develop interoperable computer products (through reverse engineering, for example). They should permit exemptions for “fair use” or “innocent use”. And they should avoid the creation of rights that lead to anti-competitive or monopolistic market behaviour.

Canada should therefore call for the addition of language in Article 13 of TRIPS to acknowledge the appropriate role of public interest considerations in copyright protection.

Electronic commerce and the rise of the Internet as a communications medium have led to new concerns about the ability of copyright holders to enforce their rights online. Yet, methods used to protect copyright online may run up against individual privacy, the protection of which is equally important for the development of electronic commerce. For example, software copyright holders may wish to surreptitiously track usage by consumers in order to be able to identify copyright violations. It is essential that any such conflicts between copyright protection and privacy protection be minimized. In this respect, Canada should promote the inclusion of a clause in TRIPS establishing the principle that governments and private actors should avoid copyright protection mechanisms that unreasonably intrude upon personal privacy, particularly when less intrusive mechanisms are technologically feasible.

The issue of database protection raises serious concerns for consumers. Proposals currently before WIPO to create a sui generis right in non-original databases remain unacceptably vague in key respects and risk creating a seriously anti-competitive marketplace. This issue continues to be actively debated. Meanwhile, the market in databases continues to thrive, despite the fact that copyright provides limited protection for database compilers. It is therefore premature for the WTO to take any steps toward recognizing or encouraging a property right in databases. In any case, Canada needs to have a much fuller public debate on this issue before formulating a Canadian position.

(b) Patents

It is essential that any international rules regarding patent protection be made subservient to multilateral agreements on environmental and public health protection, and in particular to the need to protect biodiversity. Canada should promote the inclusion of a clause in TRIPS to this effect. Corporate interests must not be allowed to dominate the agenda in this respect; the global public interest in biodiversity and public health must be paramount.

(c) Business Practice Patents

Research in the USA indicates that patents are increasingly being issued for business practices (especially in the context of electronic commerce), rather than for technological innovations.(4) This creative use of patents by businesses in order to obtain competitive advantage should be of concern to patent authorities and competition watchdogs worldwide, especially as it could have a stifling effect on the development of electronic commerce. To the extent that such patents are unnecessary, anti-competitive, and socially wasteful, they should not be granted.

In light of the disturbing trend in the USA toward patenting of business practices, PIAC urges the Canadian government to review this issue domestically, and to initiate a public discussion of the policy issues associated with granting patents on business practices. Given its potential effect on global trade, this issue should also be examined internationally.

(d) Parallel Importation

Parallel importation can be an important way in which consumers avoid price discrimination, and achieve the promises of free trade. Where essential drugs are involved, the ability to import at a lower price may mean the difference between life and death. In any case, attempts to restrict parallel imports are destined to be subverted as electronic commerce grows. Canada should therefore resist any attempt to renegotiate Article 6 of TRIPS so as to restrict parallel importation. Instead, consumers worldwide should benefit from the free flow of goods through the international exhaustion of intellectual property rights.

Competition Policy

PIAC supports the Canadian government’s emerging position in favour of an international agreement on minimum standards of competition law and policy.

In general terms, the focus of multilateral trade negotiations and agreements has centered around the liberalization of the investment policies for individual countries, allowing improved access by international capital in key commercial markets. Accompanying liberalized trade has been a trend towards lessening government regulation of the delivery of goods and services and a corresponding reliance on market forces to protect consumers. It is obvious that consumers will be denied the benefits of such a strategy if industry conduct inhibits or sabotages real competition. As the Centre for Trade Policy and Law of Carleton University noted in a report prepared for the Office of Consumer Affairs of Industry Canada:

“As a competitive marketplace is important for consumers, the effectiveness of competition law in maintaining competition and in eliminating anti-competitive behavior is an important matter for consumers”(5)

PIAC acknowledges the difficulties inherent in “multilateralizing” competition policy and especially in using WTO dispute settlement mechanisms to obtain compliance with such policy standards. A number of issues will have to be addressed, including the standard of review, the appropriate economic and statistical analysis to be used in any review, the level of deference to be accorded to domestic expert tribunals; choice of applicable remedy, and compatibility with national export policies.

In addition to the above, however, there is considerable trepidation that the establishment of minimum standards of competition policy could degenerate into a harmonization process under which Canadian competition law is watered down in order to achieve international consensus. If the multilateralization of competition policy leads to a weakening of existing standards, we do not support it. However, we do support the development of minimum standards, above which domestic policy is permitted to rise.

There are also concerns that effective enforcement measures would abrogate national control over commercially sensitive areas of business standards, should national competition authorities be provided with the opportunity to submit decisions to the WTO for oversight and review.

However, the challenges to international rulemaking and enforcement in this area should not induce lethargy. The process of ensuring that increased globalization of trade does not bring with it a patchwork quilt of differing competitive standards with attendant negative results for consumers requires examination of all relevant competition issues, not just those which are of immediate interest to business.

For one thing, there can be little sovereign interest in preserving the ability of certain industry players to commit what the Competition Bureau’s discussion paper has termed “hard core cartel” offences. These include such matters as tied selling, bid rigging, exclusive dealing, price fixing, and output restraints. PIAC would also add to this list anti-competitive offences that impact directly upon the customer, such as misleading advertising and other deceptive business practices.

PIAC is also of the view that conduct associated with abuse of dominant position, or the use of market power in a way which inhibits competition, is an issue of critical importance in an era of liberalized trade. The interest of industries seeking access to foreign markets in putting in place market dominance provisions may be motivated by the desire to restrict the powers of state-owned industries. However, consumers and competition itself may be menaced in the long term by the ability of multinational corporations to squeeze out domestic competition.

Any agreement on competition policy must be enforced in a matter consistent with the principles of transparency, open access to effective remedies, and independence of competition authorities. The existence of appropriate laws and policies is meaningless if such laws and policies are not enforced, or if consumers have no means to effect redress.

PIAC is, in general, supportive of the “peer review” proposal put forward by DFAIT in its discussion paper on Competition Policy. However, PIAC believes that such a peer review process must result in more effective sanctions than negative publicity for the offending nation. Given that the benefits of liberalized trade depend upon common approaches to anti-competitive behaviour, failure to comply with agreed-upon competition rules should have serious consequences, such as affecting the offending nation’s status in the WTO.

PIAC is therefore strongly of the view that competition policy is a matter which should be pursued in WTO negotiations in lockstep with any agreed further trade-liberalizing agreements. Minimum standards should include both hard core cartel offences as well as abuse of dominant position and deceptive business practices that are well known to North American competition authorities.

July 12, 1999

PIAC

1. e.g., Ethyl Corporation’s successful lawsuit against Canada over the MMT gasoline additive ban; Methanex’s proposed lawsuit against the US government over California’s phase-out of another gasoline additive.

2. “Canada and the Future of the World Trade Organization: Advancing a Millennium Agenda in the Public Interest”, June 1999.

3. See, for example, the International Institute for Sustainable Development (IISD)’s “Principles for Trade and Sustainable Development”, http://iisd1.iisd.ca/trade/princip2.htm .

4. See, for example, http://www.public-domain.org/patent/business/ .

5. ” p.25 International Trade Negotiations, Canadian Trade Policy and the Role of the Consumers”, Centre for Trade Policy and Law, 1998

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