Canada-China: Foreign Investment Promotion and Protection Agreement comes into force

Pascal Tremblay
Economics, Resources and International Affairs Division
30 September 2014

(Disponible en français: Canada-Chine : L’accord sur la promotion et la protection des investissements entre en vigueur)

Between 2003 and 2013, China’s direct investment in Canada increased from $216 million to $16.7 billion, while Canadian direct investment in China grew from $838 million to $4.9 billion.

On 1 October 2014, following the 12 September 2014 announcement that ratification had occurred, a foreign investment promotion and protection agreement (FIPA) between Canada and China came into force. The two countries had signed the agreement on 9 September 2012, following several years of negotiations.

Consistent with the Policy on Tabling of Treaties in Parliament, the text of the agreement was tabled in the House of Commons on 26 September 2012. As no changes to Canadian laws were required for Canada to meets its obligations under the FIPA, Parliament played no official role prior to Cabinet’s decision to ratify it.

According to Foreign Affairs, Trade and Development Canada, by stipulating one country’s obligations in relation to investors from another country, FIPAs reduce the risks faced by Canadians investing overseas and attract foreign investment by indicating that Canada is a safe and predictable business destination.

Selected obligations of the Canada–China FIPA are discussed below.

Favourable Treatment

Under the FIPA, Canada and China agree to offer investors of the other country treatment that is as favourable as that given, in like circumstances, to investors from other countries or to domestic investors. The former is known as most-favoured-nation – or MFN – treatment, while the latter is known as national treatment.

That said, like the other 27 FIPAs in force in Canada, the agreement with China does not require the countries to offer treatment that is as favourable as that given to another country as a consequence of a free trade agreement or customs union. For example, the more favourable treatment provided under the comprehensive economic and trade agreement between Canada and the European Union would not have to be extended to Chinese investors.

Unlike some of the other FIPAs signed by Canada, the national treatment provision in the Canada–China FIPA does not apply when an investment is established or acquired. Consequently, when an investor from the other country establishes or acquires an enterprise in its territory, a government is not required to give that investor treatment that is as favourable as that which would be given to a domestic investor.

The FIPA provides several exceptions. For example, state enterprises and government contracts are excluded from the scope of certain obligations, derogation in cases of intellectual property rights is possible, and Canada and China reserved the right to adopt or maintain previously identified non-conforming measures.

Expropriation

The FIPA also stipulates that investors and their investments cannot be expropriated directly or subjected to measures having an effect that is equivalent to expropriation – which is known as indirect expropriation – unless compensation that reflects the fair market value is offered and the expropriation meets specified requirements: it is for a public purpose; it is consistent with existing laws; and it is non-discriminatory.

Under the agreement, a non-discriminatory measure that is designed and applied to protect public well-being in such areas as health, safety and the environment does not constitute indirect expropriation.

Dispute resolution

Like Canada’s other FIPAs, the agreement with China includes a dispute-resolution mechanism that enables an investor in one country to request compensation for damages in relation to an alleged breach of obligations by the other country.

Under the FIPA, the public will have access to an arbitration tribunal’s hearings and related documents in situations where the government that allegedly failed to meet its FIPA obligations determines – in consultation with the disputing investor – that access is in the public interest. The Canada–China FIPA differs from most of Canada’s other FIPAs, which usually ensure public access to hearings and documents unless the information must remain confidential.

Finally, under the agreement, decisions to authorize an investment taken following a review under the Investment Canada Act are not subject to the dispute-settlement provisions.

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