I recently received a number of email communications from my constituents regarding Canada’s Foreign Investment Promotion and Protection Agreement (FIPA) with China. I would like to provide the perspective of the federal government on this agreement.
A FIPA is a bilateral agreement aimed at protecting and promoting foreign investment through legally-binding rights and obligations. FIPAs are part of the growing body of international law governing foreign investment, where Canadian investors can look to a comprehensive and specific set of obligations with recourse to international arbitration for their enforcement. The added security and predictability provided by a FIPA supports and enhances Canadian investment activities in foreign markets.
Canada signed its first FIPA over 20 years ago, with Russia in 1991. Since coming to office, our government has concluded or brought into force FIPAs with 14 countries, and are actively negotiating with 12 others. The Canada-China FIPA is very similar to these others, containing all of the core substantive obligations that have become standard in these agreements.
A core piece of the FIPA is the investor-state dispute settlement, which allows a Canadian investor in China or a Chinese investor in Canada to take the national government to arbitration if the investor feels that the government is unfairly discriminating against them compared to their treatment of other companies.
Note that this is an investor-state dispute settlement. Foreign investors cannot bring lawsuits against Canadian municipalities or provinces, although it is true that decisions made by these levels of government could potentially result in legal action being taken by the investor against Canada.
A lot of the hype and misinformation over the FIPA revolves around what constitutes “discriminatory” treatment.
To be clear, discriminatory treatment would be cases where the foreign investor is being denied benefits or protections that domestic or other foreign investors enjoy.
For example, let’s say a Canadian company builds a factory in the Chinese city of Shenyang, next door to a factory owned by a Chinese firm. The local government decides to build a freeway through the sites currently occupied by the Canadian- and Chinese-owned factories.
The sites are expropriated, and the government buys out the Chinese firm but decides to give the Canadian firm nothing. With a FIPA in place, the Canadian company can bring a lawsuit against the Chinese national government (not the city of Shenyang) and argue in front of an international arbiter that their status as a foreign investor caused them to be discriminated against. This same set of rules will apply to Chinese companies in Canada.
That is what the investor-state dispute settlement process is about — ensuring that foreign companies have the same rights as domestic firms. It is not about foreign firms having more rights than Canadian firms, or riding roughshod over our laws and regulations.
Both Canada and China will still have the right to regulate in the public interest, and Chinese investment in Canada will continue to be subject to the Investment Canada Act for both for acquisitions of Canadian companies and for national security concerns with respect to any investment. Decisions by Canada under the Investment Canada Act are excluded from challenge under the provisions of the FIPA.
Overall, the government believes that expanding Canada’s relationship with China is desirable, but we want to see it expand in a way that produces clear benefits for both sides.
By ensuring greater protection against discriminatory and arbitrary practices, and enhancing predictability of a market’s policy framework, this FIPA will allow Canadians to invest in China with greater confidence.