Sneaky Trade Deal with China

Canada-China Foreign Investment Promotion and Protection Agreement

Canada Newswire: First Nations Demand Harper Government Honour Constitutional Duty to Consult Regarding the Canada China FIPPA, Dec 14, 2012

The Union of BC Indian Chiefs has passed a resolution threatening to go to court if the federal government proceeds to ratify FIPPA “without fulfilling its constitutionally-enshrined and judicially-recognized obligation to consult with First Nations. …Any further effort to ratify this agreement will adversely impact our inherent rights and territories forcing First Nations to take immediate legal action.” UBCIC is being supported by the Council of Canadians and Leadnow.

Jamie Biggar and Emma Pullman, The Tyee: Investment Treaties Like FIPA Spin Huge Profits for Lawyers, Nov 30, 2012

The main point of this revealing article is that the main proponents of FIPA — the ones who have been making their views public in the media — are involved with law firms that stand to gain from the deal. Note this lovely little bit in the comment section: “Holy $h!t.”

Will Horter, Dogwood Initiative Blog: China treaty uproar signals growing rift between Ottawa, grassroots conservatives, Nov 15, 2012

Probably unscientific, but a recent survey by the folks at Dogwood Initiatve show widespread disapproval of FIPA among 7000 donors to the Conservative Party. Across the country, seventy-two per cent said they would consider withdrawing their financial support if the treaty was signed. In Alberta the proportion was even larger: eighty-seven per cent.

Gus Van Harten, The Tyee: Taking apart Tories’ Party Line on China-Canada Treaty, Nov 5, 2012

Conservatives have been distributing their latest talking points, or to call a spade a spade: propaganda. This time it’s the party line on FIPA. Gus Van Harten analyzes their nine claims one by one, and points out the fallacies.

Diane Francis, Financial Post: Canada-China trade deal is too one-sided, Nov 2, 2012

Here’s a piece from what many of us would see as the “other side.” Even this business-friendly columnist from probably the most business-oriented media outlet in the country is putting a big black mark on Harper’s trade deal. Here are some of her most striking statements:

In fact, the Tories, backed by a naïve Canadian Chamber of Commerce and a handful of big, conflicted business interests, have demonstrated the worst negotiating skills since Neville Chamberlain.

The terms agreed to by Ottawa are unprecedented and would be laughed out of Britain, Brussels, Canberra or Washington.

I am a free enterpriser, a free trader, a small “c” conservative and an experienced business person and believe this agreement represents a naïve, shocking lapse in judgment.

Graphic by Beth Hong

Beth Hong, Vancouver Observer: Canada needs more democratic debate about future of China relations, experts say, Oct 25, 2012

“Canada is entering a brave new front in its relations with China, starting with a Canada-China foreign investment agreement pending domestic approval. Experts call for more democratic debate on the agreement, and the future of Chinese investment in Canada’s natural resources.”

Andrew Nikiforuk, The Tyee: Five Reasons to Pause on Canada-China Treaty, Oct 25, 2012

Gus Van Harten, Globe and Mail: What if the Canada-China investment treaty is unconstitutional? Oct 23, 2012

Elizabeth May, Blog: The threat to Canada’s sovereignty — what we are giving to China, Oct 19, 2010


Letter from CUSP member, Peter Globensky

– to Prime Minister Harper and Minister Fast (in charge of Asia-Pacific trade), enclosing a previous letter from Professor Gus Van Harten of Osgoode Hall Law School

Sent: Monday, October 29, 2012 5:39:37 PM
Subject: The Canada-China Foreign Investment Promotion and Protection Agreement (FIPA)


On October 12th last Gus Van Harten, an Associate Professor at Osgoode Hall Law School in Toronto and a widely-read and respected global authority on investment trade negotiations and international arbitration panels wrote to you expressing in a comprehensive and detailed manner his grave concerns about the The Canada-China Foreign Investment Promotion and Protection Agreement (FIPA). It is my belief that this treaty agreement will have profound implications for Canadian sovereignty and democratic standards, environmental regulations and Canadian labour law. If enacted by Nov. 1, the trade promotion deal will give unprecedented powers to China’s state owned enterprises (SOEs) that are now investing billions in Canada’s natural resources.

As a courtesy, I include below a copy of Professor Van Harten’s original letter. He makes a compelling series of arguments that demand attention. I am particularly concerned that Canada’s elected representatives in the Parliament controlled by your government have not had any opportunity to discuss either the content or the implications of this agreement. I do commend Professor Van Harten’s letter to your immediate attention and trust that he will be extended the courtesy of a thoughtful and considered response at your earliest convenience.

Thank you for your urgent attention to this matter,

Peter Andre Globensky
Thunder Bay, ON

and herewith the letter from Professor Van Harten:

Dear Prime Minister Harper and Minister Fast,

I am an expert in investment treaties. As a Canadian, I am deeply concerned about the implications for Canada of the Canada-China investment treaty. As I understand, the treaty is slated for ratification by your government on or about Oct. 31. I hope you will reconsider this course of action for these reasons.

1. The legal consequences of the treaty will be irreversible by any Canadian court, legislature or other decision-maker for 31 years after the treaty is given effect. The treaty has a 15-year minimum term, requires one year’s notice prior to termination, and adds another 15-years of treaty coverage for assets that are Chinese-owned at the time of termination. By contrast, NAFTA for example can be terminated on six months notice.

2. Other investment treaties (aka FIPAs) signed by Canada have a similar duration and, in this respect, are exceptional among modern treaties. Yet none put Canada primarily in the capital-importing position. As such, the Canada-China treaty effectively concedes legislative and judicial elements of our sovereignty in a way that other FIPAs do not. Chinese asset-owners in Canada will be able, at their option, to challenge Canadian legislative, executive, or judicial decisions outside of the Canadian legal system and Canadian courts.

3. To elaborate, the treaty will likely be largely de facto non-reciprocal due to anticipated in-flows of Chinese investment to Canada outstripping Canadian investment in China. The deal gives Cadillac legal status to Canadian investors in China and vice versa. Yet Canada will be much more exposed to claims and corresponding constraints as a result of the de facto non-reciprocity. Two awards of a billion dollars-plus, and many over $100 million, have been issued against countries to date under these treaties, with more likely on the way. The awards are immune from judicial review, largely or entirely, and are often extra-territorial, depending on how the investor’s lawyers frame the claim.

4. Usually, the capital-importing position under these treaties is occupied by a developing or transition economy. Under the Canada-China treaty it is occupied by Canada. This poses a serious fiscal risk. Notably, to sue under the treaty, a Chinese company requires only a minority share in any Canadian enterprise or other asset in Canada. Based on interpretations by arbitrators in numerous cases, a Chinese investor could obtain, or may already have obtained, ownership in Canadian assets via a holding company in a secrecy jurisdiction such as the Cayman Islands, without losing its right to sue under the Canada-China treaty. What steps have you taken to ensure that there is not now and will not be in future Chinese-ownership of assets of which the government is unaware?

5. The only comparator for Canada in terms of fiscal risk is NAFTA. Canada has been sued about 30 times under NAFTA Chapter 11 although many cases were minor. Canada has paid out around $170 million in compensation in four cases to date. Other countries have been ordered to pay much more. Our biggest loss apparently came last May in a claim by Mobil Oil/ Murphy Oil involving R&D expenditure requirements in the Hibernia and Terra Nova projects. To my knowledge, a damages award has not yet been issued in that case although Canada was found by the arbitrators to have violated NAFTA. The decision reportedly undermined Canada’s standard approach to reservations in investment treaties with potential implications for the Canada-China treaty. It is not possible to confirm this because your government has not released the Mobil/ Murphy award against Canada in spite of your commitment to openness in these arbitrations. Would you please send me a copy of this award?

6. This heightens my concern that you have, in the Canada-China treaty, retained the right of the federal government not to release documents filed in Chinese investor lawsuits against Canada under the treaty if the government deems it not “in the public interest” to do so. This is not consistent with longstanding Canadian government policy to make such documents, and the arbitration hearings, public as a matter of course. If you intend to release the documents in any event, then why have you retained the right not to do so in the treaty? Other Canadian FIPAs state very clearly that all of the documents will be made public.

7. In terms of the fiscal risks, the Canada-China treaty goes beyond NAFTA in important respects and probably increases Canada’s exposure to lawsuits under NAFTA itself, on a non-reciprocal basis. Under NAFTA, the fiscal risk is contained by carve-outs of existing state and provincial measures from various NAFTA disciplines. The Canada-China treaty goes beyond NAFTA by extending a ban on performance requirements to existing provincial measures, including legislation. This ban will extend to Canadian provincial treatment of U.S.-owned, as well as Chinese-owned, assets due to the most-favoured-nation requirement under NAFTA. However, Canadian investors in the U.S. will not receive reciprocal treatment in relation to U.S. state measures. This will likely frustrate the ability of any federal or provincial government to ensure that value-added benefits of resource exploitation in Canada accrue reasonably to Canadians. Have you analyzed the risk-benefit comprehensively in light of all existing provincial measures?

8. Other legal protections that will be extended to Chinese investors under the treaty involve topics of expropriation and fair and equitable treatment, among others. These concepts sound straightforward but arbitrators in many cases have taken them in unanticipated and investor-friendly directions by requiring public compensation for foreign firms whose “legitimate expectations” were not met by a government or who were denied a “stable regulatory framework” over the lifespan of an investment. These arbitrator-made disciplines are far- reaching because they may preclude any changes to legislation that affect negatively a Chinese investor, without taxpayer compensation to the investor for its business losses. The possibility of the arbitrators reading such requirements into the Canada-China treaty adds to the fiscal risk and illustrates the concession of sovereignty under the treaty. So-called “stabilization clauses” are usually found in investment contracts signed with governments in developing countries, not treaties agreed by Canada.

9. The arbitration process itself is a long story. Briefly, it does a lot for the lawyers and arbitrators in the field, for investors from major capital-exporters (here, China or the U.S.), and for major multinationals able to entangle governments in never-ending legal contests of attrition, especially in the resource sector. Philip Morris has used these mechanisms to attack, for example, anti-tobacco measures in Australia and Uruguay. On the other hand, the arbitration process does little for, and may harm, anyone else. Above all, the process is not judicial in the manner of domestic or international courts and thus not reliably independent.

10. Canadian investors have never won compensation in any of their 16 known lawsuits against the U.S. and other countries under NAFTA and FIPAs . I have not heard this mentioned by Canadian lawyers and arbitrators who champion these treaties. It may be that Canadian companies have benefited by their ability to pressure governments to settle disputes in cases that are not public, but if so this reaffirms the danger that Chinese investors will pressure governments in Canada to back away from laws or regulations without public knowledge.

11. Because the arbitrators under the Canada-China treaty operate outside of the authority of the Canadian legal system and Canadian courts, the treaty appears to contravene the judicature provisions of the Constitution concerning the role of the superior courts. In various historical cases, the Supreme Court of Canada struck down legislation that contained broad privative clauses precluding review of tribunal decisions by the superior courts. The treaty’s transfer of judicial authority to arbitrators is analogous and, arguably, more far-reaching. Notably, the arbitrators may make non-monetary orders against states as well as issue damages awards for potentially massive amounts.

12. The treaty clearly impacts on provincial powers on natural resources, taxation, land and property rights, and other matters. It applies to provincial legislation, regulations, or court or tribunal decisions that affect Chinese-owned assets, with limited exceptions. It does not contain a NAFTA-style carve-out for provincial performance requirements or any carve-outs for provincial measures regarding the treaty’s expropriation and fair and equitable treatment provisions. Thus, there is a real possibility that, over the lifespan of the treaty, Canada will face billion dollar-plus awards due to provincial decisions that are not reviewable in Canadian courts. Does your government intend to assume the fiscal risk and have you obtained formal provincial consent for the proposed ratification of the treaty in light of its constitutional implications?

13. This quote by one of the arbitrators emphasizes the significance of a decision to ratify this treaty, including its arbitration mechanism:

“When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all” … “Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.” — Juan Fernández-Armesto, arbitrator from Spain.

14. This treaty will have major implications for core elements of Canadian legislative and judicial sovereignty. It will tie the hands of all levels and branches of government in Canada in relation to any Chinese-owned asset in ways that many governments in Canada, I suspect, have not considered closely. The implications will be legally irreversible by any Canadian court or other decision-maker for at least 31 years.

I urge you please to reconsider your decision to proceed with ratification of this treaty, without provincial consent or a serious public debate, on or about Oct. 31. I request replies to the questions posed in paragraphs 4, 5, 6, 7, and 11 above.

Yours sincerely,

Gus Van Harten
Associate Professor, Osgoode Hall Law School