On October 1, 2014, a new foreign investment promotion and
protection agreement (FIPA) between Canada and China came into
force. This investment treaty has been long in coming, with drawn
out negotiations and delayed implementation spanning more than 10
The FIPA creates favourable conditions for foreign investment by
business enterprises located in each of the two countries by
codifying the application of international investment law
principles on a reciprocal basis, enforceable through an
investor-state dispute resolution arbitration mechanism, and
thereby creating protectable mutual rights and obligations,
including against discriminatory treatment, failure to provide fair
and equitable treatment, repatriation of capital and income, and
safeguards against expropriations and regulatory takings.
Broadly, the FIPA covers measures taken, and also measures not
taken, by government authorities of one country at any level that
materially affect investors of the other country resulting in loss
or damage. The losses or damages, however, are required to be paid
by the national government, and awards rendered are enforceable
under multilateral conventions. Any pre-existing non-conforming
measures of governmental authorities, however, are
"grandfathered" and therefore not subject to the
disciplines of the FIPA.
This FIPA is remarkable not only because of the safeguards it
provides Canadian companies investing in the fastest growing major
economy in the world, but also because it is one of the few
investment treaties entered into by China that provides a very
effective and comprehensive dispute resolution mechanism based on
international law principles and rules as well as an enforcement
mechanism for any damage awards that may be issued by independent
arbitration panels. As yet, with difficult negotiations still
ongoing, the U.S. government and the EU have not been able to
achieve similar protections for their businesses making investments
Briefly, the Canada-China FIPA includes provisions that will
Most-Favoured Nation Treatment and National Treatment:
These provisions ensure that Chinese investors in Canada and
Canadian investors in China are treated at least as well as other
foreign investors and domestic investors. The Investment Canada
Act will, however, continue to apply to new Chinese
investments in Canada above certain monetary thresholds based on an
exclusion within the FIPA insisted upon by Canada. Consistent with
this reservation, the treaty does not protect potential investors
from discrimination in the period before they make an investment,
referred to usually as pre-establishment protection.
Expropriations and Transfers: These provisions protect
foreign ownership by ensuring any expropriation is
non-discriminatory, subject to due process, restricted to public
purposes and adequately compensated. The treaty also protects an
investor's ability to repatriate capital and income.
Dispute Resolution: Disputes between investors and the
foreign state may be arbitrated. The investor and the state must
attempt to resolve the dispute with pre-arbitration consultations,
failing which the investor can proceed to seek resolution for the
dispute through independent arbitration. The arbitration will
follow the International Centre for Settlement of Investment
Disputes (ICSID) or United Nations Commission on International
Trade Law (UNCITRAL) rules.
Canada has been aggressively negotiating FIPAs since 2003, when
it implemented a new Canadian model FIPA (at which time it had 20
treaties in force), and more recently with a focus on African
countries. Canada currently has over 28 FIPAs in force, two that
have been signed but are not yet in force, 11 where negotiations
have been concluded but are awaiting signature, and 12 where
negotiations are ongoing.
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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