A FIPA is not a full-blown free trade agreement, but rather a
bilateral agreement between two signatory states intended to
protect and promote foreign investment through legally-binding
rights and obligations to protect foreign investors. Specifically,
a FIPA grants foreign investors from each signatory state the right
to claim damages against the host state when the guarantees
contained in the FIPA are contravened. These claims are heard by
international arbitration tribunals, which have the power to grant
legally binding awards against host states, and whose decisions are
not reviewable by domestic courts.
The Canada-China Trade Relationship and the Energy
Canada's energy industry has been a particular benefactor of
China's recent investment relationship with Canada. As the
largest foreign investor in Canadian energy, China has invested
over $30 billion in Canadian oil and gas assets over the last six
years. The ratification of the Canada-China FIPA may therefore
facilitate further Chinese investment into the Canadian energy
Perhaps more important, however, is the impact that the
Canada-China FIPA may have on Canadian investment in the growing
Chinese energy industry. Canadian players have already entered
China's oil and gas market, providing energy expertise and
services. With the new protections afforded to investors under the
ratified Canada-China FIPA, Canadian investors in all sectors have
an even stronger incentive to enter China's growing market.
Content of the Canada-China FIPA
Protection Against Expropriation and Discriminatory
The Canada-China FIPA protects investors by guaranteeing that
all investments, subject to exceptions outlined in the agreement,
will be protected against government expropriation. Specifically,
the Canada-China FIPA states that investments will be granted
"fair and equitable treatment and full protection and
security, in accordance with international law". Since
customary international law recognizes a host state's right to
regulate in order to protect or promote the public interest,
Canadian investors in China, and Chinese investors in Canada, will
not be granted protection against regulation when legitimate public
policies are uniformly applied. Customary international law also
recognizes, however, that targeted regulation which deprives an
investor of expected benefits of its investment can – in some
circumstances – amount to deemed expropriation. The
Canada-China FIPA is therefore designed to reassure investors in
each country that they will benefit from the rule of law insofar as
targeted measures are concerned.
Exceptions in the Canada-China FIPA
The Canada-China FIPA does include several exceptions to the
protections afforded to investors. For instance, the Canada-China
FIPA allows host states to advance legitimate public objectives
through the regulation of areas such as health, safety, and the
environment. The Canada-China FIPA also excludes "cultural
industries" of each state from application of the agreement,
and grants each state considerable power to regulate securities,
and to take action in times of financial difficulties.
Additionally, the Canada-China FIPA does not allow claims to be
made against existing non-conforming measures maintained by each
host state. Therefore, the Canada-China FIPA only protects
investors against new expropriation and discriminatory measures
enacted by the Canadian and Chinese governments after October 1,
Expiry and Termination
The initial term of the Canada-China FIPA is 15 years. After the
expiration of the initial 15 year term of the agreement, the
Canada-China FIPA may be terminated by either the Canadian or
Chinese government by giving one year's prior written notice.
However, any foreign investment made prior to termination is
protected for an additional 15-year period.
Given the predominance of Chinese investors in the Canadian
energy landscape, the ratification of the Canada-China FIPA should
provide Chinese investors with further incentives to participate in
the continued expansion of Canada's energy industry. More
significantly, however, the new protections granted to investors
under the Canada-China FIPA could provide Canadian energy investors
a better opportunity to participate in China's growing domestic
energy industry, resulting in greater participation by Canadian
technology and service providers into the Chinese energy
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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