On September 26, 2012, the Canadian government tabled a new Agreement for the Promotion and Reciprocal Protection of Investments with China, a bilateral investment treaty (BIT), also referred to as a Foreign Investment Protection and Promotion Agreement (FIPA). The BIT was signed on September 8, 2012 at the Asian Pacific Economic Cooperation Leaders’ Meeting in Vladivostok, Russia. This will be Canada’s third BIT to come into force in 2012 and brings to 24 the number of BITs Canada has signed and brought into force. Canada also has concluded negotiations on BITs with five other countries and is currently in active negotiations with 13 other countries.
Over the last decade or so, BITs have quickly emerged as an important consideration for businesses seeking to understand what protection their investments have in foreign jurisdictions. Traditionally, when investment disputes arose, foreign investors were limited to seeking remedies either through the domestic courts of the host country or through diplomatic channels. These BITs are an attractive alternative because they provide a mechanism for investors to pursue damages claims directly against host states through independent international arbitration.
Negotiations With China
Negotiations for the China-Canada BIT commenced in 1994, but slowed as China prepared for accession to the WTO and as Canada drafted its 2004 Model FIPA. Negotiations were re-started in September 2004. The China-Canada BIT is comprised of 35 articles and some four pages of reservations and exceptions. A typical Canadian BIT contains under 20 articles.
Concluding a BIT with China was seen as a priority given the increasing level of investment the two nations are making into each other’s markets. The stock of Canadian Foreign Direct Investment (FDI) in China was valued at nearly C$4.5 billion at the end of 2011. The stock of Chinese FDI into Canada for the same time period was C$10.9 billion.
Key Substantive Protections for Foreign Direct Investment
Canada’s BIT with China contains, as does its BITs with other countries, three core substantive obligations which can be briefly described as follows:
non-discriminatory treatment: the foreign investor and the investment must be accorded treatment no less favourable than that accorded to domestic investors (national treatment) and investors from any other country (most-favoured-nation treatment or MFN treatment);
fair and equitable treatment: the foreign investment must be accorded fair and equitable treatment in accordance with international law, including full protection and security; and
compensation for expropriation: expropriation, or indirect measures equivalent to expropriation, must be for a public purpose, non-discriminatory, in accordance with due process of law and accompanied by payment of prompt, adequate and effective compensation.
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Source: McCarthy Tétrault LLP