China: New Foreign Investment Protection Agreement With China


The foes of free trade are at it again! The Council of Canadians and others on the political left are decrying the very idea that Canada and the People's Republic of China would enter into a foreign investment protection agreement (FIPA). The same opponents predicted that Canada would sacrifice its sovereignty by entering into the Canada-US FTA and after that, the North American FTA.

When Canada, the United States and Mexico incorporated the standard terms of a bilateral investment treaty in the NAFTA, three large neighboring economies agreed for the first time to provide basic investment protection to each others' investors and to allow them to submit claims for damages for breach of that obligation to an independent arbitral tribunal. Eighteen years later, the NAFTA parties have between them defended 33 investor-state claims. Although Canada has experienced a few bumps – most recently when Newfoundland expropriated Abitibi-Bowater's power generating assets – its experience has been generally positive.

Canada assumed the risk that our biggest and most frequent foreign investors would initiate investor-state claims when the NAFTA entered into force. Contrary to the naysayers' predictions, the sky did not fall. It is disingenuous for critics now to contend that Canada's new FIPA with China will expose Canadians to new or unreasonable risks.


Canada has been seeking a FIPA with China since 1994. The on-again, off-again negotiations were reputedly frustrated by China's intransigence on the important question of dispute settlement procedure.

Of central concern to Canada has been the ineffectiveness of the Chinese legal system to protect foreign investors from unwarranted interference by the state and politically connected Chinese partners. Lack of an independent judiciary, in particular, was a problem.

China was only willing to allow arbitration of disputes in very limited circumstances. It was prepared to permit arbitration to decide how much an investor should be paid if its investment was expropriated, but not whether there had been a breach of a treaty amounting to an expropriation. This was not satisfactory to Canada, because actual expropriations of foreign investments are relatively rare. More frequently regulatory or administrative action (or inaction) amounts to an indirect expropriation or other treaty breach entitling the investor to damages. A FIPA with China that lacked an effective mechanism to impartially adjudicate investors' claims would be of little practical benefit to Canada.


Investment treaties traditionally have been sought by capital exporting states anxious to protect investment by their nationals in developing countries, and by developing countries seeking to attract foreign investment. The rapid growth of China's economy and rise in its demand for natural resources have made it into a capital exporting state that needs to protect its own investors. According to Canadian government figures, Canadian direct investment in China was valued at nearly $4.5 billion by the end of 2011, whereas Chinese investment in Canada had reached $10.9 billion. Thus, the shoe is now on the other foot, at least in part.


The Canada-China FIPA provides the same treaty protections that appear in the NAFTA and Canada's post-NAFTA trade and investment treaties, with some nuanced but important differences:

  • Most Favoured Nation Treatment – Canadian investors are entitled to treatment no less favourable than China accords to investors of third states, in like circumstances, in connection with "the establishment, expansion, management, conduct, operation and sale or other disposition of investments in its territory". This is equivalent to the commitment in the NAFTA.
  • National Treatment – Canadian investors are entitled to treatment no less favourable than China accords to its own investors, in like circumstances, in connection with "the expansion, management, conduct, operation and sale or other disposition of investments in its territory". Note the omission of "establishment". This is less rigorous than its equivalent in the NAFTA (more on this below).
  • Minimum Standard of Treatment – Each party is required to accord "fair and equitable treatment and full protection and security, in accordance with international law" to the covered investments of investors of the other party. Properly interpreted, this provides basic protection against serious arbitrariness, unfairness, lack of due process and discrimination. However, as under the NAFTA, it only applies to an investment after it has been established.
  • Expropriation – The parties are prohibited from expropriating or nationalizing the investments of each other's investors – and from taking "measures equivalent to expropriation" – except on payment of compensation based on the fair market value of the investment immediately before the expropriation occurred. Although more narrowly worded, when read with the explanatory notes, this provides Canadians with effectively the same level of protection as under the NAFTA.
  • Transfers – Each party is required to allow the prompt repatriation of capital and earnings of the other's investors in a freely convertible currency at a market based exchange rate, subject to limited exceptions that apply only in the event of a currency crisis. However, these exceptions are broader than those in the NAFTA, likely at China's insistence.
  • Performance Requirements – The parties have agreed to abide by their commitments in the World Trade Organization Agreement on Trade Related Investment Measures. The prohibitions on measures which require particular levels of local procurement by an investor, and which tie the value of imports an investor can purchase to the level of products it exports, one similar to, but not as rigorous as, the equivalents in the NAFTA.
  • Investor-State Arbitration – A Canadian investor that has suffered damages as a result of a breach by China (or a Chinese governmental entity) of any of the obligations described above may submit a claim for damages to arbitration under (for now) the ICSID Convention Additional Facility Arbitration Rules or the UNCITRAL Arbitration Rules. As in the NAFTA and Canada's other FTAs and FIPAs, there is a notice requirement followed by a cooling-off period, in this case four months. However, unlike the vast majority of Canada's other treaties, there is also a requirement for the intended claimant to resort to administrative review for at least four months before submitting a claim (see below).

There are two important nuanced differences from the NAFTA that may affect Canadian investors in China.


The omission of the word "establishment" from the national treatment provision discussed above denies Canadian investors in China – and Chinese investors in Canada – the same rights to establish investments in particular businesses and industries accorded to domestic investors. The NAFTA does give the parties national treatment for the establishment of investments, subject to various exceptions and reservations. The NAFTA negotiations also included commitments by the parties to liberalize foreign investment in certain sectors and industries. Under the new FIPA with China, Canadian investors will have to rely on China's movement to a more open economy, that began with its accession to the WTO in 2001 and continues with the progressive relaxation and simplification of its foreign investment laws.

However, the inclusion of "establishment" in the most favoured nation provision of the Canada-China FIPA means that Canadian investors will be entitled to whatever rights of establishment in China are accorded to their American, European and Asian counterparts. If the United States obtains special rights of establishment for its investors in its upcoming bilateral investment treaty negotiations with China, those rights should be granted to Canadian investors as well.

The main potential impediment to Chinese investment in Canada is the review provision of the Investment Canada Act, which Canada has reserved the right to apply. This entitles the federal government to review proposed acquisitions of Canadian companies by foreign investors exceeding (currently) $330 million to determine whether they will result in a "net benefit to Canada". Presently under consideration are the proposed $15.1-billion takeover of Calgary-based Nexen Inc. by a state-owned Chinese energy company, and the proposed $6 billion takeover of Progress Energy Resources by PETRONAS, Malaysia's state-owned oil company.


Generally, any investor planning to initiate a treaty-based claim must carefully consider whether to first invoke any available domestic legal remedies. Canada's treaties typically allow an investor to seek a judicial declaration that does not involve the payment of damages at the same time as arbitrating under the treaty. An investor must carefully weigh the potential benefits and pitfalls of continuing litigation in the courts or administrative tribunals of the host state.

But the Canada-China FIPA requires Canadian investors to seek administrative review under the Law of the People' s Republic of China on Administrative Reconsideration for four months (if available). If a satisfactory solution has not been reached within four months (or if no remedy is available), the investor may submit a claim to arbitration under the FIPA. However, a FIPA claim may only be submitted if the investor discontinues court proceedings relating to the dispute (other than the administrative reconsideration proceedings) before judgment is granted.

While this may seem to present nothing more than a four month delay that will run at the same time as the four month cooling-off period, it will also add a level of complexity and uncertainty to any case where there has been a problem with the issuance of permits or other administrative action that the investor considers to amount to a breach of the treaty. China's aim, it appears, is to divert as many cases as possible to its domestic courts and tribunals, in the hope that the outcomes will either resolve the problems or ameliorate the elements of unfairness that might form the bases of treaty claims. Depending on the circumstances of a given case, a Canadian investor may find itself in a quandary about whether to pursue domestic remedies at the risk of prejudicing an eventual treaty claim.


If not a "great leap forward", Canada's new FIPA with China certainly represents a substantial improvement in the level of protection and security for Canadians that establish investments in China. Whether the United States is able to secure better terms in its negotiations with China (which Canada will be able to take advantage of) remains to be seen. Meanwhile, Chinese investors in Canada will enjoy a level of protection similar to those accorded to American and Mexican investors under the NAFTA, and soon to be accorded to members of the European Union as well. There is no real reason to fear that the sky will fall as a result of Canada entering into this long-awaited treaty. It will enter into force as soon as it is ratified by the governments of both parties.

About BLG

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions