Trade deals’ investor-state provisions: A sub-criminal conspiracy?

There is a glaring disconnect in the world between economic growth, and trade and investment agreements.

At the same time that Canada and other countries are pushing hard for huge multi-national deals — the TPP, CETA and the U.S.-EU deal, the TTIP — all the evidence suggests that global trade is on a long-term downward trend. Nothing in the near or middle term future suggests that it will recover to anything like its China-driven peak.

Financial Times analyst Martin Wolf recently argued bluntly that globalization no longer drives the world economy.

He points out that “…ratios of world trade to output have been flat since 2008, making this the longest period of such stagnation since the second world war. According to Global Trade Alert, even the volume of world trade stagnated between January 2015 and March 2016…”

In addition, says Wolf, “The stock of cross-border financial assets peaked at 57 per cent of global output in 2007, falling to 36 per cent by 2015.” Foreign direct investment has also declined.

So if global trade isn’t going to pull the world economy out of its persistent doldrums, why are countries putting so much political energy into signing these agreements? They do little or nothing to enhance growth in global trade — trade is driven by global demand — also flat. Amongst the countries primed to sign these agreements trade is already virtually tariff free.

Even the government’s Global Affairs department’s recent analysis estimates the Pacific Rim deal, the TPP, would increase GDP by a minuscule .127 per cent ($4.3 billion in a $2 trillion economy) — but not until 2040! In short, we will gain virtually nothing.

If these deals don’t enhance trade or growth what do they do? Investment agreements like CETA, TTIP and the TPP are all aimed at making international investment by multinationals as risk free as possible. Corporations always try to externalize costs — but these deals and their ISDS clauses allow then to externalize risk — and it’s taxpayers who take the risk.

In a global economy that has virtually no prospect of recovering in the foreseeable future, one road to continued profitability lies in treaties that protect a company’s “projected future profits” against any government action in the public interest.

But it gets far worse. Over the past 10 years ISDS provisions in literally thousands of agreements have become tools for criminals, greedy law firms, and “investors” in ISDS cases.

In an excellent four-part series, Pulitzer Prize-winning investigative journalist Chris Hamby reveals that: “Companies and executives accused or even convicted of crimes have escaped punishment by turning to this special forum.”

Hamby cites several cases: “… an Egyptian court had declared a foreign company’s purchase of a factory corrupt and nullified the deal, court records show. But after the company filed an ISDS claim, the government agreed to pay $54 million in a settlement…”

In another, two financiers had been convicted of embezzling $300 million from an Indonesian bank but used an ISDS finding to force Interpol to back off, protect their investment, and “…effectively nullify their punishment.”

Hamby found more than 35 cases where “…the company or executive seeking protection in ISDS was accused of criminal activity, including money laundering, embezzlement, stock manipulation, bribery, war profiteering, and fraud.” One ISDS lawyer admitted privately: “You have a lot of scuzzy sort-of thieves for whom this is a way to hit the jackpot.”

If it’s it not criminals escaping justice, it’s corporations gaming the system, perverting it so that the profit comes not from a planned or existing investment but from the increasingly enormous settlements demanded of governments if they win an ISDS arbitration.

A Canadian example is the U.S. quarry company, Bilcon, whose application to build a quarry in Nova Scotia was rejected by federal and provincial environmental review panels. It sued and a NAFTA arbitration panel ruled in its favour. Bilcon is seeking $300 million (an appeal is pending) for lost future profits — many times the potential profit on an actual investment that it will never make.

But it goes beyond just large companies seeking out-sized awards.

Lawyers taking these cases can make millions on a single case. The fat rewards has led to ISDS lawyers creating ISDS business by linking companies with potential cases, but limited resources (cases can cost as much as $8 million to litigate), to investors willing to finance the case for a big cut of any award.

Burford, a U.S. financier increased its profits nine fold in 2011 as a result; Juridica, its British competitor, managed an increase of 578 per cent, based on ISDS business. A 400 per cent return on investment is typical.

Selvyn Seidel, a New York attorney heads up a firm exclusively devoted to promoting ISDS cases. He told Hamby: “Some lawyers monitor governments around the world in search of proposed laws and regulations that might spark objections from foreign companies.”

Then they identify potential client companies and offer to head up a challenge. Litigation lawyers handling ISDS cases for corporate clients also regularly end up on arbitration panels where it is in their interest to find for the complainant — to encourage other companies to try their hand at an ISDS windfall. This glaring conflict of interest has prevailed for over 20 years.

This sleazy perversion of the ISDS provisions (originally intended to stop rogue governments from actually seizing assets) is blithely ignored by the Canadian government, by provincial premiers, mainstream economists, business writers, legal scholars, and just about anyone else with any influence over public policy.

It is, quite frankly, a disgusting abrogation of responsibility in all these quarters. Whether it is rooted in sheer laziness, willful ignorance, deliberate obfuscation, opportunism or intellectual dishonesty hardly matters, the results are the same: our government is determined to sign agreements that will expose public policy making to aggressive assaults by the most powerful corporations on the planet.

This sorry state of affairs is in stark contrast with Europe where there is growing public opposition to ISDS provisions in CETA and the TTIP — and extensive, detailed media coverage of the debate.

Government ministers in Germany and France have denounced ISDS and basically declared CETA and TTIP dead in the water because of it. Australia in 2011 stopped signing agreements with ISDS clauses in bilateral deals, and many other nations — such as South Africa, Indonesia, Brazil and India — have done the same or are planning to.

But Canada? No, we continue to be eager patsies, willing victims of corporate greed and blasé about our sovereignty and our democracy.

 

Canadian media is failing citizens with its reporting on corporate rights deals

The Trudeau government is hell-bent on ratifying two massive investment agreements — the Comprehensive Economic and Trade Agreement (CETA) and Trans-Pacific Partnership (TPP) — that will radically undermine Canadian democracy. Yet very few Canadians are informed about these deals because our mainstream media has been so irresponsible in reporting on their impacts. The first-order irresponsibility is the media’s absolute determination to cast these deals as “trade deals” when even a casual reading reveals that they are corporate rights agreements which, because they are treaties, trump our courts and constitution. They are, in large part, investment protection agreements — protecting the largest corporations in the world from citizens who have the temerity to desire laws and regulations protecting their health, environment and quality of life.

For 25 years, the media has steadfastly refused to come anywhere near the truth of these deals and the recent Brexit crisis has fostered another round of media groupthink. The new favourite media frame to dismiss people opposed to these agreements? Isolationism.

Three prominent Canadian media personalities serve as typical examples of journalists eager to dispense their wisdom while demonstrating an abysmal ignorance of the actual nature of these agreements — and the fact more and more people (in Britain, the U.S. and especially in the EU) are learning about them and rejecting them.

First up is Chris Hall, the usually thoughtful and careful host of the CBC’s The House. Interviewing federal trade minister Chrystia Freeland about the summit of the three NAFTA leaders, he asked: “Were the three amigos tying to send a message to the world about isolationism?” That was a softball for Freeland who opined about “[a]nti-globalization sentiment … [which] is in some places [expressed] as vociferously anti-trade sentiment.” This, of course, is utter nonsense: critics of CETA and the TPP never express “anti-trade” sentiment. Why? Because both critics and advocates of these agreements know that they go far beyond simply reducing tariffs on imports. The targets in the latest round of agreements are things that governments do “behind the border” — government regulation, government subsidies, government purchasing from local companies, publicly owned corporations. Hall would know this if he bothered to read any of the think-tank pieces that provide the corporate rationale for the latest wave of agreements.

Then there’s Doug Saunders of The Globe and Mail in a column entitled “Isolationism and the fear of the foreign.” Saunders muses about the irrational, popular response when “[i]nequality rises and life becomes harder” — which is “to put up walls, blame foreigners and try to isolate yourself from the world.”  He uses the term isolationism or isolate seven times and then declares: “Arguments in favour of cutting off trade and political relations have almost always been, at root, election bids based on fear of the foreign.” Again, the classic straw man — phantom millions calling for an end to trade and the severing of diplomatic relations.

And lastly, there is The Globe and Mail’s John Ibbitson, in an otherwise excellent article about Canada’s admirable openness, slipping easily into the anti-trade groupthink: “Arguments about the need to close borders in order to husband jobs do less well here because so many Canadians know their own job depends on access to foreign markets.” For the record, nearly 80 per cent of Canada’s economy is domestic and despite such agreements, in May we recorded a near-record trade deficit of $3.2 billion.

Of course, not one of these A-list journalists can identify a single article or opinion piece by critics of these deals arguing either that we should close our borders to trade or “cut off” political relations. It raises the question — have any of them actually examined these agreements? They cannot, surely, have missed the fact that most critics have focussed on the investor-state dispute settlement (ISDS) provisions that allow corporations to sue governments for passing laws or regulations that affect their profits.

 When it comes to signing new investment agreements, Canada is like a barroom brawler who repeatedly goes back to the same bar regardless of how often he gets beaten to a pulp. Canada already has a humiliating record of getting sued by corporations exploiting the ISDS provisions of investment agreements. Out of 129 countries who have signed these agreements, Canada ranks sixth regarding the number of investor-state suits taken against it and has been sued far more often than the U.S. Canadian taxpayers have had to cough up tens of millions of dollars either because tribunals awarded damages against Canada or because our government has given in and paid off companies that have launched investor-state suits.

Yet with CETA, the Canada-EU deal, we are inviting an exponential increase in these lawsuits from the corporations of the 28 EU member states. European corporations love to litigate through investment treaties and are responsible for roughly half of all the cases worldwide, three times the number taken up by U.S. corporations. Seven out of the top 10 countries that are the home base of companies suing under investment treaties are European Union members.

What corporate CEO would sign a contract knowing that it would dramatically increase the odds of their company getting sued? But that’s what successive Canadian prime ministers have been eager to do. It would be wrong to think that this is done out of stupidity. If you shift your perspective, and think of government trade officials as negotiating not for us but for corporations, then the behaviour seems quite rational.

Transnational corporations are not content with their existing ability through investor-state suits to force governments to pay if they choose to regulate. Provisions inserted into CETA will help corporations strangle regulations in their cribs.

Among CETA’s many affronts to democracy is how it dictates foreign involvement in domestic decision-making about new regulations, even when these regulations would not treat foreign companies any differently than domestic ones. CETA actually guarantees foreign corporations (“persons” in trade lingo) the right to participate in public consultations about proposed regulations on terms no less favourable than provided to Canadian citizens.

Picture a post-CETA Canadian hearing on bottled water standards and imagine seats at the table automatically reserved for European corporations like Evian. If you find it hard to believe that trade officials would forever erode Canadian democracy in this way, read the wording for yourself in the actual CETA text posted by the government: p. 19, Article 4.6.1.

Seriously, you need to read this.

Canadians are being portrayed by our media as good little globalizers, supportive of these agreements in contrast with the badly behaved Brexiters and Trump and Sanders supporters. But a recent Angus Reid poll revealed that just one in four Canadians think NAFTA has been good for the country and that we should keep the deal as-is. Forty per cent think it has been bad for workers and 60 per cent think it has mostly benefitted corporations. Just eight per cent think Canada got the best deal of the three NAFTA countries.

But if the elite journalists can’t bear to listen to the unwashed, angry masses, perhaps they would listen to someone with impeccable elite credentials: Lawrence Summers, a former U.S. Treasury secretary and former chief economist with the World Bank. In a July 6 article in the Financial Times, Summers executed one of the most dramatic turn-arounds in support for these agreements. Summers stated that if we replaced “reflex internationalism” with “responsible nationalism” then “international agreements would be judged not by how much is harmonized or by how many barriers are torn down but whether citizens are empowered.” By that standard, the new agreements that Trudeau and the media cheerleaders are pushing are a disaster. Until Hall, Saunders and Ibbitson do some serious study of these agreements, maybe they should quit writing about them.

Murray Dobbin has been a journalist, broadcaster, author and social activist for 40 years. He writes rabble’s State of the Nation column.

 

As NATO war-mongering against Russia intensifies, Canada faces a difficult choice

No area of public policy is so shrouded in secrecy, obfuscation and outright deception than foreign policy. Most of the time it doesn’t seem to matter much to the majority of voters who have more pressing things to worry about. But when Canadians read a headline that says “Russia mobilizing for war” one would hope they would take notice. A more absurd declaration is hard to imagine but there it was — coming out of the offices of CSIS, the Canadian Security and Intelligence Service. It was just the latest alarmist rhetoric in a steady stream of anti-Russian propaganda that coincided with the largest NATO military exercise — dubbed Anaconda — since the end of the Cold War.

As with almost every aspect of foreign policy, context is everything and this particular gem only begins to make sense if you go back to a February 1990 meeting between Soviet President Mikhail Gorbachev and the U.S. Secretary of State, James Baker. That meeting saw a deal concluded (regrettably only with a handshake) whereby Gorbachev agreed to dismantle the Soviet Union and the Warsaw Pact (the NATO equivalent), in exchange for Baker’s promise that

NATO has steadily expanded since that time, absorbing many former Soviet republics — including Poland, Hungary, Bulgaria, Lithuania, Latvia, Estonia and Romania. It is scarcely surprising that Russia would perceive this expansion as a gross violation of trust in the West and a potential military threat given that the only reason for NATO’s existence was as a bulwark against Soviet communism. By that mandate, NATO should have been disbanded in 1990.

The one important country remaining on NATO’s wish list is Ukraine, which shares a 1,400-mile border with Russia. It is here that Russia drew the line. When the U.S.-sponsored coup (aided by explicitly neo-Nazi collaborators) deposed the pro-Russian Ukrainian president Viktor Yanukovych in 2014, the NATO writing was on the wall for Vladimir Putin. The illegal seizure of Crimea and the militarization of eastern Ukraine followed.

Given events since then it is likely that this was exactly what the U.S. wanted: it needs a Russian “threat” to justify the continued existence of NATO. The U.S., which totally dominates NATO, has used the annexation of Crimea to promote the notion of Russian “aggression” towards its former Warsaw Pact allies. Yet despite the rhetoric, there is no evidence to suggest that Russia is suddenly going to invade Latvia, Lithuania, Estonia or Poland and then bear the huge burden of occupying them.

Nonetheless, eastern European NATO members have dutifully jumped on the Russian “aggression” bandwagon. Poland is key in this dangerous charade, with its president, Andrzej Duda, recently visiting Ottawa and asking Prime Minister Trudeau for military support. According to the CBC, Duda said: “[i]t is ‘beyond any doubt’ that Russia has an ‘expansionist, imperial policy,’ and he would like to see Canada increase its military personnel and equipment in Poland.”

It’s not just compliant eastern European governments that are promoting this madness. American think-tank Rand Corporation helpfully suggests “[t]he Baltic states — Latvia, Estonia and Lithuania — could conceivably be overrun within 60 hours unless the West was willing to station several, heavily armoured brigades in the tiny nations.” Well, yes, and the U.S. could overrun Southern Ontario in 24 hours. But will they? Jane’s Defence Weekly, a supposedly objective journal on global military developments recently featured the headline: “Canadian frigate encountered ‘heavy Russian presence’ in Black Sea.” Really? Russians in the Black Sea! The Black Sea has essentially been a Russian lake for centuries and that status is even enshrined in a 1936 treaty limiting the presence of foreign naval ships.

A quick reality check on which country — the U.S. or Russia — is expansionist and imperialist seems appropriate. It is the U.S. that has military bases in over 80 countries —  and military personnel in 80 more. The U.S. accounts for 95 per cent of all foreign bases in the world and has a quarter of a million troops stationed outside the U.S. Russia has eight foreign bases, all in former Soviet republics with which it shares borders. And it is the U.S. which is establishing an anti-ballistic missile system in Romania, severely destabilizing the nuclear strategic balance that has prevented a nuclear holocaust for over 60 years. The U.S. is also moderninizing its nuclear weapons to make their use more likely. The B61-12 is a mini-bomb, and according to author John Pilger, “General James Cartwright, a former Vice Chairman of the Joint Chiefs of Staff, has said, ‘Going smaller [makes using this nuclear]weapon more thinkable.'”

That’s the context for recent developments. Earlier this month in Poland, NATO launched its largest “exercise” since the end of the Cold War. Dubbed “Operation Anaconda” it lasted 10 days and involved over 30,000 troops (including 200 Canadians), 3,000 vehicles, 105 aircraft and 12 ships. There was nothing ambiguous about the purpose of this massive military demonstration. The president of Poland declared: “The goal of the exercise is clear. We are preparing for an attack.” NATO Secretary General Jens Stoltenberg said nothing to contradict him.

Now the U.S. and NATO are suddenly seeking full Canadian membership in the madness. NATO (read: the U.S.) is requesting that we join the U.S., Britain and Germany and commit up to 1,000 troops to a new, 4,000-troop contingent that would be permanently stationed in Latvia, Estonia, Lithuania and Poland. Though the number is small, this permanent NATO presence in countries bordering Russia is arguably even more provocative than the recent military exercise.

Prime Minister Trudeau faces an exceptionally difficult choice between now and the NATO summit on July 8-9. But if he makes the courageous one, and sides with those calling for more dialogue and diplomacy (which is, after all, Trudeau’s stated objective with Russia) he will in the long run be on the side of the angels. Stoking Russian nationalism at a time when many Western and eastern European countries are witnessing the rise of right-wing nationalist sentiment themselves is a recipe for disaster.

Trudeau does seem to have one ally, but an unusual one — German Foreign Minister Frank-Walter Steinmeier. Calling for more “dialogue and co-operation” with Russia, Steinmeier stated: “What we shouldn’t do now is inflame the situation further through sabre-rattling and war-mongering.”

Let’s all hope Trudeau takes his advice.

 

Israel’s Silent Allies Are Its Worst Enemy

By now anyone even vaguely aware of the Israeli-Palestinian conflict has heard the phrase ”the new anti-Semitism.” It is a clever propaganda piece aimed at anyone who dares criticize Israel for its illegal occupation of the West Bank and its continued brutalization of Palestinians in Gaza.

But in the space of two days, new critics emerged from within the highest positions of Israel state power. Moshe Ya’alon — until recently the Israeli Defence Minister — and Major General Yair Golan, the Israeli army’s deputy chief of staff, confirmed what many of Israel’s most vociferous (and vilified) critics have been saying for years: that Israel is heading down the road of extremism and racism.

Golan issued a warning that linked attitudes and actions in pre-war Germany with trends in Israel today. ”It’s scary to see horrifying developments that took place in Europe begin to unfold here,” he said.

Moshe Ya’alon, then the defence minister, defended Golan. Within three weeks, he was pushed from the defence post and resigned rather than accept another role. Ya’alon too offered a warning about ”phenomena of extremism, violence, and racism in Israeli society that threaten its fortitude.”

But even such dire public warnings from members of the Israeli governing and military elite are having no discernible impact on the West’s carte blanche support for the Netanyahu government. It raises the question: Is there any development in Israel that would cause Western nations to intervene in the longer-term interests of Israel and say enough is enough? Just yesterday, Uri Ariel, the Israeli minister of agriculture made a proposal to annex a huge chunk of the West Bank and expel 300,000 Palestinians. Does that cross a red line? Does the West even acknowledge a red line?

Israeli political commentator Michael Brizon, who writes under the pseudonym B. Michael, concluded the failure of Western governments to criticize what is happening in Israel is itself a new form of anti-Semitism. Writing in a Haaretz op-ed titled ”Yet Again the Jewish People Face Great Danger and the World Is Silent,” Brizon lamented the fact that the greatest danger to Israel is now from within, not from its traditional enemies. ”With our very own hands, we anointed the Huns who rule over us.”

The irony for Michael is palpable: Israel’s promise has been lost, he wrote, and ”all that remains is a big mouth, brandished fist, and endless hidden hatred, militarism, paganism, and self-righteousness. And the world is silent.”

That silence is what terrifies Michael: ”…if you persist in your silence, you indifferent world, that will be categorical proof that you really are anti-Semitic, exactly as we’ve always been told.”

As if to prove the point, just days after this piece was published, New York Governor Andrew Cuomo signed an executive order intended to punish companies and groups that join the BDS campaign — the Boycott, Divest, Sanction campaign to peacefully pressure Israel to comply with international law and recognize Palestinian rights.

”If you boycott Israel, New York will boycott you,” Cuomo said. Officials have been directed to compile a list of companies and groups that have signed on to the BDS campaign.

Did Cuomo read Golan’s comments?

”The Holocaust should bring us to ponder our public lives and, furthermore, it must lead anyone who is capable of taking public responsibility to do so,” he said in his speech. ”Because if there is one thing that is scary in remembering the Holocaust, it is noticing horrific processes which developed in Europe — particularly in Germany — 70, 80, and 90 years ago, and finding remnants of that here among us in the year 2016.”

Does Cuomo know the history and character of the new defence minister, Avigdor Lieberman, an ultra-right nationalist who has said Arabs living in Israel who are ”disloyal” should be killed?

”Those who are with us deserve everything,” Lieberman said in a 2015 campaign speech. ”Those against us, it cannot be helped, we must lift up an axe and behead them — otherwise we will not survive here.” Lieberman has also threatened to have former Palestinian prime minister and Hamas leader Ismail Haniya killed.

Did Cuomo’s staff inform him that as a result of Lieberman’s appointment, former prime minister Ahud Barak declared that Netanyahu’s government ”is exhibiting signs of fascism?”

Of course Cuomo knew all these things. But they were not enough to persuade him, or other supporters, to intervene with real consequences for their ”friend and ally.”

Prime Minister Justin Trudeau showed the same blindness with his abject surrender to the Israel lobby in supporting a Conservative motion ”to condemn any and all attempts by Canadian organizations, groups or individuals to promote the BDS movement.” This McCarthyite assault on freedom of expression should have been widely condemned but barely caused a ripple.

In the midst of these disturbing developments and high-level confessions there is a new peace initiative led by France, which is suggesting ”rigid deadlines for every stage” of negotiation.

Yet it is an exercise in futility. Everyone involved knows that Netanyahu will never agree to a two-state solution and continues to expand settlements to make it all but impossible. The alternative is both hideous and unsustainable — a continuation of the current apartheid state.

Just uttering the word apartheid in relation to Israel makes me guilty of the ”new anti-Semitism.” But the political elites of the West had better soon come to grips with the far more dangerous anti-Semitism — their persistent silence and studied indifference to the future of Israel. Because if Israel is to survive and flourish as the democratic nation it claims to be, the status quo cannot continue.

Response to Tax Dodging by Rich Will Show Trudeau’s True Colours

Note to Prime Minister Justin Trudeau:

We will not be distracted forever by your explanation of quantum computers and yoga poses. Or even by the admittedly impressive list of low-hanging fruit (most recently, the return of the long-form census) you have picked thanks to Stephen Harper.

It’s a comforting distraction to think that we might actually have a government that isn’t totally in the thrall of Bay Street billionaires and transnational corporations. But everything we know about your party suggests that nothing fundamental has changed. The litmus test will be how you deal with KPMG over an outrageous tax-avoidance scheme, and with the giant firm’s apologists in the Canada Revenue Agency.

By now most people are familiar with the KPMG tax “sham” uncovered by CBC News. The scheme involved at least 26 wealthy clients (minimum contribution, $5 million) for whom KPMG set up shell companies in the Isle of Man, one of many tax havens for the rich and large corporations.

The Canada Revenue Agency initially said the scheme was “grossly negligent” and “intended to deceive.”

 

But 15 of the 26 participants would end up getting special treatment. Some of the first ones caught were assessed huge penalties, but later KPMG clients were offered a secret deal. The “amnesty” agreement granted rich KPMG clients immunity from civil and criminal prosecution and freedom from any penalties, fines or interest as long as they paid the taxes they had dodged. Secrecy was written into the agreement: “The taxpayer agrees to ensure the confidentiality of the offer and will not inform any person of the conditions of the offer…”

Dennis Howlett of Canadians for Tax Fairness [disclosure: I am on the board] said KPMG should be charged with facilitating tax evasion. Other tax experts said a criminal investigation is warranted.

Canadian anti-fraud lawyer Martin Kenney thinks Canadian authorities should be prosecuting more often. “If there’s clear tax evasion, you have to put some people in jail to make it clear people should not be playing games with their tax returns.” And Duane Milot, a Toronto tax lawyer with middle-income clients who end up in court agrees: “It’s outrageous. The CRA appears to be saying to Canadians, ‘If you’re rich and wealthy, you get a second chance, but if you’re not, you’re stuck.'”

People do go to jail for tax evasion, but the richer you are and the more tax you evade the more likely it is that you’ll get away with it. The CRA justifies the practice, saying it’s too expensive to take the big fish to court and fight the best lawyers money can buy. “CRA practice also recognizes that the earliest possible resolution of disputes is in the public interest, as lengthy litigation is costly to all parties and the outcome of complex, tax-related litigation processes may be difficult to predict,” CRA media relations officer Philippe Brideau said in a statement.

Better to have the justice department prosecute the small fish and cut deals with the wealthy. But this isn’t justice — it’s expediency. The CRA and the justice department have a moral obligation to the Canadian people to name and prosecute those who have grossly and arrogantly flouted the law.

Right now, the CRA seems uninterested in pursuing these cases. In spite of the renewed focus on tax havens and the unprecedented revelations of the Panama Papers, the stalling and obfuscation on the part of the CRA and KPMG continues.

The revenue agency’s investigation into KPMG’s tax scheme has been stalled for more than three years, and no one will explain why. According the CBC’s investigation, “In February 2013, a federal court judge ordered KPMG to turn over a list of unidentified multimillionaire clients who placed their fortunes in an Isle of Man tax shelter scheme.” KPMG has still not complied and the fact that the CRA has not requested a court date to enforce its court order has been described as “mysterious.” Maybe not.

The practice of making deals and providing amnesty for the biggest offenders seem rooted in the cozy relationship between senior CRA officials and senior management figures from the accounting firms that facilitate the scams. The CBC uncovered five years of expensive receptions hosted by KPMG and other accounting and law firms for senior agency executives — including those involved in overseas compliance.

“Senior enforcement officials from the Canada Revenue Agency were treated to private receptions at an exclusive Ottawa club, hosted by a small group of influential tax accountants that included personnel from KPMG — even as the firm was facing a CRA probe for running a $130-million tax dodge in the Isle of Man,” the CBC reported.

Despite strict rules stating employees must “not accept gifts, hospitality, or other benefits that will, or could, have a real, apparent or potential influence on your objectivity and neutrality in performing your CRA duties,” these unseemly get-togethers became routine. One that took place at the exclusive Rideau Club in June 2014 saw more than 20 “high-ranking CRA executives” wined and dined by accountancy and law firms including KPMG. CRA executives were actually “required” to attend by the agency. The same day they had been treated to a luncheon followed by a session where they were lobbied by KPMG and other firms.

Confronted by this obvious conflict of interest, CRA assistant commissioner Ted Gallivan had the gall to say “We try to have a culture in CRA where executives are trying to be responsive to the citizens that we serve, which includes large accounting firms. I don’t think it’s a problem.” It’s an attitude shared by Gallivan’s boss, CRA commissioner Andrew Treusch, who dismissed any notion of impropriety by saying he had never discussed the KPMG litigation with any representative of the firm. That’s hardly the point. Sharing “scallop ceviche, duck rillettes crostini and herb-roasted rack of lamb” has a moderating impact on prosecutorial zeal.

Regrettably, there is a distinct lack of public outrage at this disgusting display of privilege, contempt for the public interest and for the law. Why are Treusch and Gallivan still in their jobs? And why did MPs let KPMG executive Greg Wiebe, with an arrogance matching the CRA executives, stonewall the parliamentary committee examining the issue by citing “client confidentiality?” This is sheer nonsense. There is no legal basis in Canada for accountant-client confidentiality, and any claim is outweighed by parliamentary privilege.

If Justin Trudeau can’t deal with the rot in his own rogue agency, his carefully crafted political persona will be permanently tainted. What will remain is the same old Bay Street Liberal Party unashamedly serving the rich and powerful.

 

Murray Dobbin: Here’s hoping the Liberals really will rethink free trade, low corporate taxes

Murray Dobbin, Special to Financial Post | May 5, 2016 11:16 AM ET

If the federal Liberal government is on the verge of a major shift in economic and industrial policies, as Terence Corcoran suggests in his April 20 column, “Ghosts of business past — and future,” then all that can be said is thank goodness.

Since the mid-1990s Canada has basically been without any coherent or deliberate industrial policy, as federal governments embraced the ideological lunacy of “getting out of the way of business.” That meant leaving one of the most important processes in any country — capital allocation — in the hands of individual CEOs all acting in their own narrow interests. That approach was vigorously promoted by the Business Council of Canada, the group that Corcoran’s column focuses on. (It was originally called the Business Council on National Issues, but was renamed for awhile the Council of Chief Executives, and I always wanted to ask their former president, Tom d’Aquino if they changed it because they realized that, as far as they were concerned, there were no national issues.)

As Corcoran states, the organization successfully pursued a number of key fiscal and economic policies in the 1980s and ’90s including “free trade,” slashing corporate taxes, labour flexibility and balanced budgets. So, not only was government removed as manager of the economy, it also radically reduced its own spending capacity through draconian tax cuts for high-income earners and corporations (former finance minister Paul Martin cut $100 billion over five years; Jim Flaherty cut $60 billion over three years, and lopped two points off the GST).

Actually, it is not quite accurate to say there was no economic policy. There was one: more and more trade agreements (the domestic economy — accounting for nearly 80 per cent of GDP — was simply ignored). But these treaties have never accomplished what they set out to do.

Even its strongest promoters knew the Canada-U.S. Free Trade Agreement (FTA) was a leap of faith. Peter Nicholson, a free trade guru, former Scotiabank vice-president and later a personal adviser to Martin, acknowledged that supporters of the FTA thought it would “cause Canadian firms to pull up their socks … and compete in the North American market.” Instead, Nicholson lamented, many companies adjusted to the FTA “by simply moving across the border … taking the path of least resistance.”

Or by selling out to the highest bidder. Foreign direct investment soared but, on average, over 95 per cent of it went to buying up Canadian companies. Meanwhile, a 1997 study by Industry Canada concluded, “the impact of (free trade) after controlling for other variables on Canadian exports to the U.S. was modest, (just) nine per cent… the strong U.S. economic expansion and the real exchange rate were mainly responsible for the large expansion of Canadian exports to the U.S. in the 1990s.”

What those promoting the Business Council’s policies either neglected or simply failed to understand is that Canadian corporate culture is chronically risk-averse and fails time and again to invest in new technology, management techniques, or research and development — things that actually increase productivity and make companies competitive.

Two separate studies on competitiveness by Harvard Business School’s Michael E. Porter concluded that “The U.S. is just much more entrepreneurial … Research uncovered key weaknesses in the sophistication of (Canadian) company operations and strategy.”

Porter observed that, where Canadian companies did compete successfully, it was on the basis of cheap labour and access to natural resources. Cheap labour came courtesy of the Chrétien government’s brutal labour flexibility policies: slashing eligibility for unemployment benefits, killing the Canada Assistance Plan, and maintaining punitively high interest rates through most of the 1990s — keeping unemployment above nine per cent for most of the decade.

Canada’s free-trade treaties have never accomplished what they set out to do.

The results of these policies and their continuation under the Conservatives are glaringly obvious today. Cheap labour and ridiculously low corporate taxes have resulted in the accumulation of $650 billion of idle capital “allocated” to corporate bank accounts rather than productive investment. Tax cuts have depleted federal coffers of over $50 billion a year that could be used in ways to actually create an innovation-based economy. Meanwhile, any economic stimulus consumers might offer is restricted by wages and salaries that have stayed flat since the early 1980s, with our economy kept afloat by the most indebted population in Canadian history.

So what’s the endpoint of the Business Council’s policy preferences? Corporations have capital and won’t spend it; the government, starved of capital, can’t spend; and workers, deprived of their share of productivity increases, have no discretionary income to spend. But how’s that trade policy working out? The trade deficit from October 2014 to October 2015 reached $17.4 billion — the worst one-year total on record. With a record like that it’s no wonder the CEOs keep changing the name of their organization.

It would be interesting to listen to an analysis of our economy by the Liberals’ new guru, Dominic Barton, who, Corcoran says, likes big government with big ideas. Barton is fond of lessons from South Korea and China. They can make capital-allocation decisions on a dime. China became the world’s largest producer of solar panels and windmills in less than 10 years because it could make big decisions virtually overnight. Of course it helps when you have an authoritarian regime or an outright dictatorship.

Nonetheless, the Canadian government needs to get a grip on its own reality. First, by rejecting the idiotic “trade” agreements that make industrial policies increasingly difficult. Then, it has to recognize that having faith in Canadian corporations to provide leadership on their own has proven to be a monumental failure and that only with an aggressively activist government can Canada join other developed countries in creating the new economy. Lastly, Trudeau and his new guru will have to deal with the fact that, without replacing revenue lost through almost two decades of irrational tax cuts, rebuilding the Canadian economy will be almost impossible.

 

Saudi arms deal signals Mideast policy betryal

It is difficult to predict what kind of misstep can seriously tarnish a government’s reputation. Some mistakes have legs and others, inexplicably, don’t.

But the stunningly stupid decision to go ahead with a $15-billion sale of light-armoured vehicles (LAVs) to Saudi Arabia has the potential to expose Prime Minister Justin Trudeau as a phony.

You could hardly design an issue so perfectly fitted to reveal a government with a progressive public face contradicted by a ruthless disregard for human rights. It raises the question of whether the spin doctors simply misjudged the extent of public revulsion or whether there is something deeper going on. Is it really just about jobs or is there a hard-nosed commitment, inherited from the Conservatives, to a backward Middle East foreign policy?

Foreign Affairs Minister Stéphane Dion has been severely damaged by his performance on the Saudi arms sale file. First he said the government couldn’t get out of the contract, claiming it was legally committed by the Conservative government’s actions. That was not true.

Dion compounded his credibility problem with another misleading claim that he was following Canadian law in signing the export permits.

After a Globe and Mail editorial accused him of hypocrisy for approving the sale, Dion attacked the newspaper, claiming that “the Foreign Affairs Minister may block the exports permits at any time if there were serious evidence of misuse of the military equipment.” That is, presumably, after our LAV’s have been used to attack civilians.

But in fact the export control guidelines don’t refer to “serious misuse” but to whether “there is no reasonable risk that the goods might be used against the civilian population.”

Saudi Arabia’s hideous human rights record is amongst the worst of the worst. And in fact the Saudi government has used exactly this kind of armoured vehicle against its own dissenting citizens.

According to Belkis Wille, Yemen researcher for Human Rights Watch, “The Saudis have used such vehicles to violently suppress peaceful protests in eastern Saudi Arabia in 2011 and 2012.”

Is there a “reasonable risk” that it will do so again? Everything we know about the new and far more aggressive regime in Riyadh today says yes. In January the regime executed 47 prisoners (most by beheading) on a single day. The regime executed 151 in 2015 — the most in 20 years.

The Saudi government described those on Jan. 2 executed as “terrorists,” but the law defining terrorism includes anyone who demands reform, exposes corruption or otherwise engages in dissent or violence against the government. We don’t know how many were executed for acts of violence and how many for “dissent.”

The arms sales guidelines aim to protect the civilian population of the country buying the weapons. But surely the Trudeau government should consider the use of its exports against civilians anywhere to be a human rights deal-breaker.

Saudi Arabia’s brutal bombing campaign in Yemen against the Houthi rebels has sparked outrage in most Western capitals. The United Nations Panel of Experts on Yemen “documented 119 coalition [bombing] sorties relation to violations” of the laws of war.

It is precisely this situation that has prompted Canada’s allies in the European Parliament “to launch an initiative aimed at imposing an EU arms embargo against Saudi Arabia.”

Dion and his boss would like us to believe that Saudi Arabia’s total disregard for civilian lives and its targeting of medical facilities in Yemen (a possible war crime) are irrelevant when it comes to signing arms exports permits.

But many governments, international agencies and NGOs disagree. In swimming against the international tide Dion’s new foreign policy philosophy — “responsible conviction” — might better be called “conviction when convenient.”

But putting all this down to a botched political calculation regarding Canadian jobs is not very convincing. Does this ugly bit of Trudeau policy reveal something more substantive? What does it say about the government’s overall Middle East policy?

One of the reasons Dion has given for the arms sale is that Saudi Arabia is an ally in the fight against Islamic extremism. But anyone with knowledge of its roots knows that Saudi Arabia is the motherland when it comes to radical Islam. Right now in the U.S. there is a fierce debate about whether to release a secret 28-page section of a 2002 congressional report on 9/11, dealing with possible involvement of elements of the Saudi regime in the terror attacks.

While it is still early days in the Trudeau government, signs of a significant shift in Mideast policy are still nowhere to be seen. A 2013 assessment of Trudeau’s likely approach to the Israeli-Palestinian conflict suggested major shifts in balancing the interests of the two sides. But so far Canada’s support for Israel seems unwavering.

Trudeau supported a Conservative resolution that would have the government “condemn” any advocacy for the BDS (boycott, divest, sanction) campaign for Palestinian rights. He also opposes the European Union’s new initiative that require products from Israeli settlements in the occupied Palestinian territories to be clearly labeled. And there seems to be little if any movement on Trudeau’s commitment to re-engage with Iran.

In short, so far, Trudeau’s Mideast policy looks disturbingly like Harper’s.

While policies supporting both Israel and Saudi Arabia may seem contradictory, they are in fact quite consistent. The two countries share a number of common enemies, including Shia Islam, Iran, pan-Arab nationalism, the Assad regime in Syria, and Hezbollah. They are also the most vociferous regional opponents of U.S. and EU efforts at achieving a rapprochement with Iran. If Canada doesn’t move on its pledges of policy change, it will find itself increasingly at odds with the U.S. and EU. At no time in the past three decades has the tension between the U.S. and Israel and Saudi Arabia, its two principal Middle East allies, been greater.

One way for Dion to indicate he’s not offside on rebalancing Canada’s Mideast policy would be to end his self-righteous posturing on the Saudi arms deal and reverse the export permits.