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The Governments of Canada and China are currently engaged in negotiations toward concluding a bilateral investment agreement. The negotiators for the two countries have met twice thus far, and a third meeting is expected this month (April 2006). At the present time, Canada clearly appears to be the "demandeur" in the negotiations, and it is primarily the Canadian negotiators that are seeking commitments from China. The Chinese negotiators are focused on not making more commitments than necessary to conclude an agreement. However, Chinese businesses may well have good reason to encourage their negotiators to take a more active role in securing robust commitments for the protection of Chinese investments in Canada.
Bilateral investment treaties are binding commitments under international law whereby each country agrees to minimum standards for the treatment of the other country's investors and their investments. Among the typical commitments found in such treaties are:
- national treatment (i.e., or the obligation to treat the other country's investors at least as favourably as domestic investors);
- most-favoured-nation treatment (i.e., the obligation to treat the other country's investors at least as well as investors from third countries);
- fair and equitable treatment of the investor, and full protection and security according to law;
- the right not to have one’s investment expropriated except for a public purpose and subject to fair compensation; and
- the right of the investor to claim damages for contravention of the treaty before an independent arbitral tribunal.
Although China has concluded bilateral investment treaties with 71 countries over the past 25 years, most of these treaties are not as favourable to investors as compared with the standards of investment treaties of certain other countries. One of the exceptions to the foregoing is the Agreement between the People's Republic of China and the Federal Republic of Germany on the Encouragement and Reciprocal Protection of Investment, which may well serve as a benchmark for a higher standard of protection for Chinese businesses overseas and not just for foreign investors in China.
Recent events in North America and elsewhere suggest that Chinese businesses may well benefit from stronger rights to protect their investment interests. For example, private and government opposition in the United States ultimately prevented the proposed acquisition of Unocal by CNPC. While China Minmetals' potential interest in acquiring Noranda, a major Canadian resource company, provoked some vocal opposition in Canada, no action was taken to prevent the proposed acquisition. Since investment is not generally covered by the WTO Agreements, and since China does not currently have a bilateral investment treaty with either the United States or Canada, there was little that either of these Chinese companies could do to counter the opposition to their proposed acquisitions. Similarly, European governments have increasingly reacted negatively to proposed acquisitions by foreign investors, including other European companies. These developments indicate that Chinese businesses have an interest in securing basic protections with regard to their current and proposed investments overseas.
It is important to note that bilateral investment treaties confer rights on investors with respect to proposed investments, and not just with regard to those investments that have already been made. Thus, a Chinese firm that encounters political or regulatory obstacles in regard to a proposed acquisition or investment may well have binding legal rights to invoke in the face of political opposition or bureaucratic interference in the host country. Chinese interest in investments in the natural resources sector in Canada, for example, may well benefit from a comprehensive and robust bilateral treaty between Canada and China.
It is our understanding that, to date, the Chinese officials negotiating with Canada have focused primarily on defensive concerns with regard to Canadian investments in China. Accordingly, it is important that Chinese businesses with an interest in overseas investment make their views known to the Chinese government and its negotiators so that their interests as investors are also taken into account in these negotiations.
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