By Probe International

Letter to Pierre Pettigrew: PI objections to the Gowling review of EDC

October 8, 1999

Probe International believes that the Gowlings report is biased in favour of those who wish to maintain EDC’s privileged status.

The Honourable Pierre S. Pettigrew
Minister for International Trade
Department of Foreign Affairs and International Trade
125 Sussex Drive
Ottawa, ON
K1A 0G2
Fax: (613) 996-8924

Dear Minister Pettigrew:

We wish to express our objections to the Report on the Review of the Export Development Act
by Gowling, Strathy & Henderson, commissioned by your predecessor
to review the trade finance activities of the Export Development
Corporation (EDC).

Probe International believes that
the Gowlings report is biased in favour of those who wish to maintain
EDC’s privileged status, and that it discounts the views of parties who
believe EDC’s commercially viable activities should be privatized and
its high-risk (“lender of last resort”) activities eliminated.

Probe International has investigated EDC’s costly and damaging
activities for the past decade. Our evidence of EDC-caused
environmental, social, and economic damage is more extensive than that
collected by any other independent think-tank – or any other body – in
this country. We have communicated this information to our 20,000
supporters across the country, many of whom regularly write to your
department to express their concerns about EDC. We urge you to review
their correspondence and Probe International’s original submission to
Gowlings.

In particular, Probe International disagrees with the Gowlings report on the following issues:

1) Gowlings recommends that the government create a guarantee
facility to support greater participation by the private banks in
officially supported transactions (pages xiii and 69). We disagree.
Private sector risks should not be socialized. EDC’s commercially
viable activities should be privatized, i.e., the private sector should
internalize the risks without having taxpayers backstop them.

2) Gowlings does not recommend that EDC be subject to the Access
to Information Act. Probe International believes this is a profound
mistake. EDC is a public institution, backed by Canadian taxpayers. It,
and its clients, therefore have a duty to account to the Canadian
public. Without the right to see details about its books and its
activities, taxpayers cannot ensure that EDC is operating in the public
interest.

From our experience, the Access to Information Act gives the
private sector adequate means to withhold commercially confidential
information – Probe International has used the Access to Information
Act for years to obtain information about Canadian government and
corporate activities around the world. We believe that if the private
sector doesn’t like these conditions attached to the use of public
resources, then it should seek financing elsewhere. Under the current
conditions, it is impossible for taxpayers to know what projects and
companies EDC is supporting and what risks EDC is creating for
taxpayers. Even the World Trade Organization criticized the Canadian
government for withholding information about EDC support for Bombardier
in the recent trade dispute with Brazil. I might also add, it appears
that your government is not properly informed about EDC’s activities
either. In April of this year, I submitted an Access to Information
request to your department for a copy of the Auditor General’s 1994
Special Examination Report of EDC and was told that no copy could be
found in your departmental files and that the Auditor General’s Office
never sent a copy to your Department.

By failing to recommend that EDC be subject to the Access to
Information Act, Gowlings defends EDC’s power to decide what
information to release about its activities, rather than letting
taxpayers decide. We think this erodes democracy in this country.

3) Gowlings recommends that EDC assess the environmental
consequences of significant projects on a voluntary basis and release
the results no later than when projects are approved (page xv). As
other submissions to you will explain, self-regulation is ineffective,
unreliable, and inadequate. Probe International goes further and argues
that environmental assessments – public or otherwise – are useless if
the power to decide to proceed with the project is in the hands of
parties other than those whose environment is at risk. In any case,
environmental assessments are meant to inform decisions, and that can
happen only if they are subject to public scrutiny before decisions are
made. Gowlings proposal and EDC’s environmental framework are
half-measures that seem designed to silence critics, appease exporters,
and provide public relations cover.

4) Gowlings distorts the language in order to justify EDC’s
existence. For example, Gowlings argues that putting the brakes on
EDC’s evolution would be unproductive, as that evolution is clearly
driven by market demand (page 35). True, certain exporters (we suspect
a handful of large companies, but Gowlings does not help elucidate
this) demand EDC support. But to call this “market demand” is
misleading. EDC operates under many advantages that it derives as a
Crown corporation, indicating that EDC is not operating under market
conditions. Indeed, Gowlings admits this on page 17 where it explains
that EDC does not pay income tax or the large corporation tax, it does
not normally pay dividends, it may benefit from reduced borrowing costs
as an agent of the Crown, it benefits from government debt relief
provided ex gratia under “Paris Club” agreements to countries that
experience financial distress, and it is compensated by the government
for administering the Canada Account.

On page 102, Gowlings then argues that making EDC subject to the
Access to Information Act might undermine EDC’s ability to remain
“competitive.” But EDC is not competitive in a market economy. It is
competitive only because it has privileged access to public resources
to subsidize Canadian exports more than the next country’s export
credit agency. But competition between different nations’ taxpayers is
not what people understand when Gowlings and EDC use “competition” in
this misleading way. Such obfuscation only befuddles this important
public policy debate.

The Gowlings report does make one important contribution to the
debate over EDC’s future: It confirms that EDC must mine the profitable
private financial services sector (banking and insurance) to finance
the high-risk projects that the private sector is too prudent to
support ‚Äì its “lender of last resort” activities. Otherwise, EDC would
have to appeal to the government for annual taxpayer infusions. “In
short,” says Gowlings, “without commercial quality business to offset
its higher risk business, EDC would require substantially more capital
as well as annual government appropriations.” In other words, so it can
finance the likes of money-losing Candu reactors in Eastern Europe and
the Third World, the destructive Three Gorges dam in China, polluting
gold mines in Guyana and Kyrgyzstan, and so it can win contracts for
favoured firms in politically important constituencies, EDC has been
given the legislative right to make money by competing unfairly with
the private financial services sector. EDC’s corporate welfare,
pork-barrel activities are bad for the Canadian economy and offend a
good portion of the Canadian public.

Gowlings also ignored the widely recognized distortions that
export credit agencies introduce into markets, and the moral hazards
that publicly-financed export credit creates in business decisions. But
most importantly, the Gowlings report discounts the challenges to the
public policy purpose of EDC. Probe International agrees with those in
the private sector who argue that EDC’s commercially viable activities
should be privatized. What remains ‚Äì the “lender of last resort”
activities – should not be financed or insured in the name of the
Canadian people.

For your information, I enclose copies of articles that I have written about EDC.

Yours sincerely,

Patricia Adams
Executive Director

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