ARCHIVED — Vol. 146, No. 9 — April 25, 2012

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Registration

SOR/2012-81 April 10, 2012

EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT AGREEMENT ACT

Order Amending the Schedule to the European Bank for Reconstruction and Development Agreement Act

P.C. 2012-404 April 5, 2012

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 4.1 (see footnote a) of the European Bank for Reconstruction and Development Agreement Act (see footnote b), hereby makes the annexed Order Amending the Schedule to the European Bank for Reconstruction and Development Agreement Act.

ORDER AMENDING THE SCHEDULE TO THE EUROPEAN BANK FOR
RECONSTRUCTION AND DEVELOPMENT AGREEMENT ACT

AMENDMENTS

1. Article 1 of the Agreement set out in the schedule to the European Bank for Reconstruction and Development Agreement Act (see footnote 1) is replaced by the following:

ARTICLE 1

PURPOSE

In contributing to economic progress and reconstruction, the purpose of the Bank shall be to foster the transition towards open market-oriented economies and to promote private and entrepreneurial initiative in the Central and Eastern European countries committed to and applying the principles of multiparty democracy, pluralism and market economics. Subject to the same conditions, the purpose of the Bank may also be carried out in Mongolia and in member countries of the Southern and Eastern Mediterranean as determined by the Bank upon the affirmative vote of not less than two thirds of the Governors, representing not less than three fourths of the total voting power of the members. Accordingly, any reference in this Agreement and its annexes to “Central and Eastern European countries”, “countries from Central and Eastern Europe”, “recipient country (or countries)” or “recipient member country (or countries)” shall refer to Mongolia and each of such countries of the Southern and Eastern Mediterranean as well.

2. Article 18 of the Agreement set out in the schedule to the Act is replaced by the following:

ARTICLE 18

SPECIAL FUNDS

  1. 1. (i) The Bank may accept the administration of Special Funds which are designed to serve the purpose and come within the functions of the Bank in its recipient countries and potential recipient countries. The full cost of administering any such Special Fund shall be charged to that Special Fund.
  2. (ii) For the purposes of subparagraph (i), the Board of Governors may, at the request of a member which is not a recipient country, decide that such member qualifies as a potential recipient country for such limited period and under such terms as may seem advisable. Such decision shall be taken by the affirmative vote of not less than two thirds of the Governors, representing not less than three fourths of the total voting power of the members.
  3. (iii) The decision to allow a member to qualify as a potential recipient country can only be made if such member is able to meet the requirements for becoming a recipient country. Such requirements are those set out in Article 1 of this Agreement, as it reads at the time of such decision or as it will read upon the entry into force of an amendment that has already been approved by the Board of Governors at the time of such decision.
  4. (iv) If a potential recipient country has not become a recipient country at the end of the period referred to in subparagraph (ii), the Bank shall forthwith cease any special operations in that country, except those incident to the orderly realization, conservation and preservation of the assets of the Special Fund and settlement of obligations that have arisen in connection therewith.

2. Special Funds accepted by the Bank may be used in its recipient countries and potential recipient countries in any manner and on any terms and conditions consistent with the purpose and the functions of the Bank, with the other applicable provisions of this Agreement, and with the agreement or agreements relating to such Funds.

3. The Bank shall adopt such rules and regulations as may be required for the establishment, administration and use of each Special Fund. Such rules and regulations shall be consistent with the provisions of this Agreement, except for those provisions expressly applicable only to ordinary operations of the Bank.

COMING INTO FORCE

3. (1) Section 1 comes into force seven days after the day of the formal communication referred to in paragraph 2 of Article 56 of the Agreement.

(2) Section 2 comes into force seven days after the day of the formal communication referred to in paragraph 1 of Article 56 of the Agreement.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issue and objectives

Canada is a member and shareholder of the European Bank for Reconstruction and Development (EBRD), an institution created after the fall of the Berlin Wall for the purpose of promoting the transition to multiparty democracy, rule of law, and market economics in Central and Eastern Europe and the former Soviet Republics. Canada’s relationship with the EBRD is governed by the European Bank for Reconstruction and Development Agreement Act, which includes the related treaty (the Agreement Establishing the European Bank for Reconstruction and Development or the “Agreement”) as a Schedule.

At the G8 Deauville Summit on May 27, 2011, in response to the events that took place in parts of the Middle East and North Africa in early 2011, the G8 Leaders called upon the EBRD to expand its operations into that region. On September 30, 2011, the EBRD’s Board of Governors (of which Canada is a member) approved amendments to Article 1 of the Agreement in order to expand the EBRD’s geographic mandate to include the Southern and Eastern Mediterranean. This will expand the potential scope for the EBRD’s operations to all the countries with a shoreline along the Mediterranean, as well as Jordan, subject to certain restrictions. Like the EBRD’s existing members, the countries in this new region will be required to demonstrate a commitment to applying the principles of multiparty democracy, pluralism and market economics in order to access EBRD resources.

The EBRD’s Board of Governors also endorsed measures to allow the EBRD to operate in the region on a timely basis. A set of amendments to Article 18 of the Agreement will therefore allow for the use of Special Funds in “potential” recipient countries, subject to certain conditions. The amendments to both Article 1 and Article 18 must be ratified by the EBRD’s members in order to take effect.

In addition, the United States has made the ratification of these amendments a priority for its chairmanship of the G8 in 2012. Canada’s ratification of the amendments to the Agreement will therefore allow Canada to follow through on a G8 priority and signal our commitment to a pluralist, democratic Middle East and North Africa as well as the value of fostering development through private sector-led growth.

Description and rationale

In order for Canada’s domestic legislation to match the changes being made to the Agreement, this regulation modifies the Schedule to the EBRD Agreement Act to reflect the amendments to Articles 1 and 18 of the Agreement. Since all the EBRD’s members are required to ratify the amendments to the Agreement, the precise date upon which the amendments will come into force is not known for certain. To avoid any asymmetry between the Schedule to the EBRD Agreement Act and the corresponding Agreement, this regulation will only come into force on the date that the amendments to the Agreement come into force.

The Minister of Foreign Affairs has already fulfilled Canada’s obligation to ratify the amendments to the Agreement.

The Middle East and North Africa’s successful transition to a region consisting of stable, multiparty democracies with robust private sectors is in Canada’s national interest. Economic stagnation and high levels of unemployment, particularly among youth, are significant barriers to that transition process.

The EBRD represents one tool that Canada can use to contribute in a cost-effective way to the region’s stability and prosperity. The EBRD’s capital and its particular expertise in private and financial sector development will be valuable additions to the bilateral and multilateral efforts already underway in the region. The EBRD’s ability to leverage existing shareholder capital and incentivize private sector participation in projects also makes it an efficient way to support the region’s development.

This regulation will involve no cost to Canada as it will be financed entirely from the EBRD’s existing capital base. It will therefore allow Canada to increase its support to the countries in the Southern and Eastern Mediterranean by leveraging its existing EBRD capital contributions and combining it with the expertise of a respected multilateral institution.

Since the EBRD will maintain its projected business volumes in its current region of operations, the expansion of the EBRD’s operations into a new region will necessarily limit the scope for the EBRD to respond to any new and additional demands for financing in the near future. This risk is acceptable given the international community’s clearly expressed desire for the EBRD to support the development of the private sector in the Southern and Eastern Mediterranean.

Consultation

The Department of Finance Canada has led the negotiations at the EBRD since they began in early 2011, in consultation with the Department of Foreign Affairs and other key members of the EBRD. As noted above, the discussions over the expansion of the EBRD also took place at the G8, culminating in the G8 Leaders’ Declaration on the Arab Spring at Deauville in May 2011.

The amendments to the EBRD Agreement represented a compromise between the views of various members of the EBRD. The phased approach, which allows the EBRD to quickly begin operations in the new region, but on a restricted basis, represents a compromise between the need to provide early support to the region’s economic transition and the uncertainty over the future direction and speed of political reform. In addition, the decision to expand the geographic mandate to the Southern and Eastern Mediterranean represented a compromise between those EBRD members who sought to include a larger geographic region and those who wished to restrict operations to a smaller group of countries, as well as the resource constraints of the EBRD.

The specific EBRD amendment proposals were subsequently reviewed by the G8 finance ministers in mid-September, and ultimately approved by EBRD members on September 30, 2011. On December 5, 2011, the amendments to the Agreement were tabled for consideration in Parliament for 21 sitting days. No comments were received during the tabling period.

Contact

David Hart
Economist
International Finance and Development Division
International Trade and Finance
Department of Finance Canada
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-6763
Email: David.Hart@fin.gc.ca

Footnote a
S.C. 2006, c. 4, s. 214

Footnote b
S.C. 1991, c. 12

Footnote 1
S.C. 1991, c. 12