On September 8, 2012, Canada and the People's Republic of China signed the Canada-China Foreign Investment Promotion and Protection Agreement (Canada-China FIPA). The specific provisions of the Canada-China FIPA will not become public until the treaty is tabled in Parliament for ratification. In general terms, however, bilateral investment treaties of this kind are reciprocal international legal agreements that states enter into to provide their national investors with protection against arbitrary or discriminatory government actions when investing abroad, while at the same time promoting their domestic market as an investment destination.
These treaties oblige host states to adhere to a certain standard of treatment with regard to counterparty foreign investors and their investments, and often set out arbitral mechanisms to resolve any disputes that arise related to such investments to ensure foreign investors receive impartial judicial treatment.
The execution of the Canada-China FIPA marks the formal end of a series of negotiations that spanned an 18-year period, with efforts beginning in 1994, tapering prior to China's accession to the World Trade Organization and redoubling from 2004 onward.
Scope of Agreement
China has historically negotiated bilateral investment treaties characterized by significant limitations with regard to non-discrimination and dispute resolution. The Canada-China FIPA may reflect China's recent tack toward allowing more robust protections in its international investment treaties, as evidenced in its recent bilateral investment treaties with Germany and the Netherlands.
It is likely that the Canada-China FIPA will include substantive investor protections by providing for:
- non-discrimination rights, such that investors and their investments are not disadvantaged relative to investors from the counterparty or other countries;
- a minimum standard of treatment to be accorded to investments, consistent with international law;
- transparency in the passage of laws or decisions that have an impact on investors and their investments;
- the ability to transfer funds arising from investments; and
- compensation for expropriation of investments.
Additionally, Canada's Department of Foreign Affairs and International Trade (DFAIT) notes that the Canada-China FIPA will grant investors access to "investor-state" dispute settlement arbitration. Dispute settlement mechanisms of this sort allow aggrieved foreign investors to seek remedies against the host country outside of national court systems, pursuant to the rules and procedures of one of the various international arbitration regimes, such as the International Centre for Settlement of Investment Disputes (ICSID). Canadian bilateral investment treaties (referred to in Canada as Foreign Investment Promotion and Protection Agreements or FIPAs) typically include robust investor-state dispute resolution provisions that feature detailed rules on standing of the investor, procedural requirements and judgment enforcement.
Strengthening Economic Ties
The signing of the Canada-China FIPA comes amid a period of intensification in Sino-Canadian investment activity. Examples of this activity include CNOOC Limited's proposed $15.1-billion acquisition of Nexen Inc. and the Bank of Nova Scotia's pending purchase of the Bank of Ghuangzhou. This milestone is also reflective of a deepening economic relationship between the countries, noted in the August 15, 2012 release of a joint Canada-China study that recommended fostering even deeper trade links. To this effect, before the end of the year, Canada and China may announce the beginning of formal negotiations to strengthen their bilateral trade relationship through a free trade agreement.
Ratification and Implementation
Now that the parties have signed the Canada-China FIPA, Canada and China will subject the treaty to their respective ratification processes. In Canada, the ratification process will involve a 21-sitting-day period, during which the Canada-China FIPA will be tabled in the House of Commons for examination and debate. The treaty will be brought into force pursuant to an Order-in-Council authorized by the Governor General, Canada's head of state. Prime Minister Stephen Harper indicated that the Canada-China FIPA will be tabled during the fall session of Parliament. We have no reason to believe that it will not be ratified and implemented by Canada.
Companies that have made or are considering investments in Canada or China would be well served to educate themselves about international investment treaty protections that the Canada-China FIPA will afford.
The Canada-China FIPA will be particularly helpful to Canadian businesses looking for greater certainty and security when making investments in China.
To view our previous Blakes Bulletin on International Trade & Investment discussing Sino-Canadian trade and investment matters, please click here.
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