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 years.
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 in China.
Briefly, the Canada-China FIPA includes provisions that will ensure:
- 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. TheInvestment 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.