By Probe International

Letter to EDC President and CEO

Patricia Adams

March 1, 1996

Mr. Paul Labb
President and Chief Executive Officer
Export Development Corporation
151 O’Connor
Ottawa, Canada
K1A 1K3

Dear Mr. Labb:

We have received a copy of your January 26 letter to Ms. Beryl Gaffney, M.P. (Nepean), in which you accuse Probe International of publishing misleading and inaccurate information. Your evidence, however, is demonstrably incorrect, and a shameful distortion of reality. Let me correct the record.

EDC Finances the World’s Worst Environmental Disasters

Rather than being an environmentally responsible export credit agency, as your letter claims, EDC has tenaciously lobbied against having to comply with Canada’s environmental assessment laws which would force EDC to conduct thorough and public environmental assessments for such EDC projects as the notorious Omai gold mine in Guyana and the Three Gorges dam in China. I might add that the Three Gorges dam is now regarded as one of the world’s largest environmental, social, and financial disasters as it will flood over 100 cities and towns, forcibly displace over 1.3 million people from their homes, cause irreparable environmental harm to the Yangtze River valley, and lose money in the bargain.

Your claim that EDC ensures that the high environmental standards embedded in Canadian technology and products are made available in other countries is fictional. Here are the facts. In the case of the Three Gorges dam, for which EDC recently extended a $12.5 million loan, an investigation by the Complaints Committee of the Association of Professional Engineers of Ontario found that the standards used by the Canadian engineers in their feasibility study for that dam differed from those that would be used in Canada. I might add that the companies – including engineering giants Hydro-Quebec, BC Hydro, SNC-Lavalin and Acres International – failed to complete an environmental assessment for the dam, and instead relied on a thoroughly discredited Chinese assessment to declare the project feasible.

Your argument that if EDC did not finance these environmental disasters, others would, rings hollow. While the world’s foremost dam building institutions, the World Bank and the US Bureau of Reclamation, are not financing the Three Gorges dam in China and have called it environmentally and economically unfeasible, EDC stands out as this project’s lone foreign financier. While the US public agency, the Overseas Private Investment Corporation, has withdrawn its political risk insurance policy to Freeport-McMoRan’s gold and copper mine in Indonesia for environmental infractions, EDC continues to insure Cambior Inc. of Quebec, even after its tailings pond failed, disgorging 2 billion litres of cyanide-laced effluents into Guyana’s major waterway.

EDC’s attempts to establish a “multilateral framework to facilitate stronger international environmental standards” have no credibility. EDC and the other export credit agencies have been discussing this “multilateral framework” for so many years to no avail that, frankly, these negotiations appear to be nothing more than a public relations ploy to avoid any legal responsibility to uphold decent environmental standards.

EDC Blatantly Misrepresents the Guyanese Commission of Inquiry’s Findings Into the Cambior Cyanide Spill

You grossly misrepresent Guyana’s Commission of Inquiry into Cambior’s massive cyanide spill by claiming falsely that the Commission’s report “does not indicate the company was responsible for the spill,” and by omitting the Commission’s most important finding that the company:

knew that the tailings pond was built as a receptacle for the storing of large quantities of a noxious substance, to wit, water with a high concentration of cyanide, and that if it were to escape, it could foreseeably cause harm to the environment, and in particular the Essequibo river, as well as result in financial loss to the residents and all other users of the river. Therefore, the company had a legal obligation to ensure that the substance did not escape; and it is no excuse that they employed competent engineers to execute the work. Therefore, in the Commission’s view they would be liable for all the foreseeable loss and damage that was a direct result of the effluent entering the Essequibo River.

Furthermore, your claim that had EDC not insured this gold mine, the mine would still have been financed and opened by others and the spill might still have occurred is an unprincipled attempt to blame others for your own agency’s actions and to evade responsibility for this disaster.

EDC Is Costly For Canadian Taxpayers and Economy

Your argument that EDC does not cost taxpayers money because it operates on “a self-sustaining basis” is incorrect because, by borrowing its funds on the good faith and credit of the Canadian taxpayer, EDC weakens Canada’s credit rating, and increases the government’s borrowing costs. Furthermore, were taxpayers to withdraw their guarantees of EDC’s borrowings on international financial markets (and the contingent liabilities that taxpayers accumulate responsibility for, as a result), EDC would cease to function.

In addition, your claim that Canadian taxpayers did not lose millions of dollars as a result of EDC’s subsidization of the Candu reactor sale to Argentina is patent financial nonsense. I refer you to the testimony of your predecessor, Mr. Richardson, before the Parliamentary Standing Committee on Environment on May 10, 1990, in which he states that the Argentina Candu deal was being rescheduled through the Paris Club. “So there will be delays in the repayment of the loans,” Mr. Richardson confirmed. As you know Mr. Labb, Paris Club reschedulings involve a lowering of the interest rate, the extension of repayment dates, or outright repayment holidays, something Eugene Rotberg, a former treasurer of the World Bank, called “de facto forgiveness.” Your claim, Mr. Labb, has no merit and is one you can attempt only by hiding the facts under the guise of commercial confidentiality.

Your claim that EDC contributes to the competitiveness of Canadian exporters is economic make-believe. EDC uses taxpayer-backed funds to subsidize the cost of Canadian exports. When Canadian exporters win contracts, thanks to EDC support, it is not because Canadian firms have produced a better product for less money than their competitors: rather, it is because the Canadian government has subsidized its exporters more than other governments have subsidized theirs. The effect of this on a nation’s economy is unhealthy. Studies have documented the economic waste and distortions created by publicly subsidized export credits. According to a French study, “Export-credit subsidization wastes France’s scarce public resources in promotion of the wrong industries exporting the wrong products to the wrong markets.” Nothing more than corporate welfare and patronage, export credits have been unparalleled failures, creating coddled and uncompetitive enterprises that depend for their survival on continuing state subsidies.

You insist that EDC does not subsidize its insurance rates but sets them at a level consistent with the underlying risk of the transaction and with the Corporation’s financially self-sustaining mandate. Once again, I refer you to my earlier point: all of EDC’s services, thanks to taxpayer guarantees, are subsidized over private sector competitors. Furthermore, if EDC is not subsidizing the price of its political risk insurance, why does the private sector not offer political risk insurance at the same low rate? Is the private sector wrong in its assessment of the underlying risk of these transactions?

EDC Is Unaccountable to Canadian Taxpayers

Finally, your theoretical argument that EDC is accountable to the people of Canada through the Minister for International Trade is, in practice, nonsense. As you know, Mr. Labb, EDC is not subject to the Access to Information Act, thereby profoundly circumscribing its accountability to Parliament and to the Canadian public. Let me give you just a few examples of how this undermines the ability of Canadian taxpayers to know how EDC, a Crown corporation, is acting in their name. Your agency has refused to release the political risk insurance policy with Cambior Inc. of Quebec, for its Guyanese gold mine tailings pond which recently collapsed. And just last month, in response to a Probe International inquiry, you refused to discuss, even to confirm, EDC’s political risk insurance for a Union Bank of Switzerland loan for the Lihir Island gold mine in Papua New Guinea. How, sir, can you call this behaviour accountable? EDC discredits all public institutions by violating the fundamental right of citizens to know how it is using public resources.

In conclusion, your letter to an elected representative of the Canadian people distorts the facts, falsely accuses Probe International, and grossly misrepresents EDC’s role and responsibilities. It is unworthy of a public official.

We look forward to your response and a realistic accounting of EDC’s position.

Yours sincerely,

Patricia Adams
Executive Director

cc: Beryl Gaffney, M.P.
Hon. Art Eggleton, Minister of International Trade
Hon. Paul Martin, Minister of Finance

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