Fraser Institute warns of proposed mining law

Current Events (C:*CURRENT)
Thursday May 20 2010 - Street Wire

by Fred McMahon and Jean-Francois Minardi of the Fraser Institute

A Liberal private member's bill with serious economic consequences for the mining sector is making its way through Parliament. Bill C-300 seeks to regulate the business activities of Canadian-owned mining companies operating in other countries. The rationale for the bill is based on false premises, unproven accusations and the misguided notion of corporate social responsibility, also known as CSR.

In an April 15 speech to support the bill, Liberal MP John McKay insinuated that Canadian mining and oil and gas exploration companies behave badly abroad, abusing human rights and the environment. However, Mr. McKay provided no evidence, other than a laundry list of unproved charges levelled against the Canadian mining industry by politically active foreign-based, non-governmental organizations.

Supporters of Bill C-300 claim the legislation would ensure that Canadian corporations engaged in mining, oil or gas activities behave in a manner consistent with international environmental best practices and with Canada's commitments to international human rights standards.

In reality, the bill is a solution looking for a problem.

The mining industry itself has already adopted practices that mirror the principles behind CSR, not because of a government imposed set of rules, but because it has economic incentives to do so. As a document on the website of the Prospectors and Developers Association of Canada states, "The business value of CSR is that it can help safeguard license to operate; facilitate access to capital; contribute to reputation, and enhance stakeholder engagement, including with employees."

Mining companies create enormous socio-economic benefits from their business activities. The best social program of all is a job and prosperity for families. Policy makers should beware of the alternatives. Discouraging mining by raising the costs of doing business risks the loss of the economic benefits that accrue to people in developing countries: less mining means fewer jobs. Mining companies also typically pay above average wages in local labour markets, often supplying health care and education benefits for employees as well.

Bill C-300 has little to do with improving corporate behavior but a lot to do with anti-mining ideology. Here is some history. In 2006, the Canadian government initiated the national round table process on CSR and Canadian extractive industries in developing countries with different stakeholders. As a result, an advisory group prepared and delivered a consensus report in March, 2007, calling on the government to create a comprehensive framework. The government's response to the report was the publication, in March, 2009, of a strategy for the Canadian international extractive sector.

However, some NGOs were not happy with the outcome. To quote Mining Watch: "The government's response is highly inadequate as it contains no effective complaints mechanism and no possibility of sanctions for companies not complying with voluntary guidelines. Bill C-300 remedies these flaws." If the bill is passed, the federal government will have the power to investigate complaints made against Canadian resource companies operating abroad, regardless of whether the complaints come from Canadian citizens or citizens of the nation in which such activities are alleged to have occurred or are occurring. If the companies are found to be responsible for human rights or environmental abuses, they could be denied Canadian government funding from Export Development Canada and investment from the Canada Pension Plan.

Bill C-300 will effectively allow anti-mining NGOs to paralyze mining exploration and development by launching a never-ending stream of complaints and investigations. It will not matter whether or not the allegations are unfounded. When one is dealt with, another can be dreamed up. Bill C-300 turns the concept of justice on its head. Mining companies will bear the consequences of false accusations. It will be a legal nightmare for the mining industry which would have to deal with undue damage to its reputation and significant expenditures for its defence. Meanwhile, NGOs will suffer no costs for making false charges.

Bad laws often have disastrous consequences for the economy and Bill C-300 is no exception. Mining and exploration companies based in Canada account for 43 per cent of global exploration expenditures and in 2008, more than 75 per cent of the world's exploration and mining companies were headquartered in Canada. Yet, Bill C-300 will deter Canadian-based mining companies from investing abroad because of the uncertainty of the mining projects and their limited ability to attract investment. The result will likely be the flight of mining companies out of Canada. Mining companies will face powerful economic incentives to relocate to jurisdictions without such legal burdens.

This is neither good for Canada or for poor people in developing nations for whom mining can be a route out of poverty and into hope for the future, just as it was for Canadians in the early phases of our national economic development.

Fred McMahon is vice-president of research at the Fraser Institute. Jean-Francois Minardi is a senior policy analyst with the Fraser Institute.

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