The Canada-China FIPA and Impact on Investment Relations

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Exporting to Canada: Where do we Begin?

Canada-China Investment

Covered TopicsCanada-China Investment OverviewForeign Investment Promotion and Protection Agreements (FIPAs)The Canada-China FIPABackgroundSubstantive Investor ProtectionsInvestor-State Dispute Resolution

Woods, LaFortune LLPWoods, LaFortune LLPis an innovative, flexible and proactively cost-effective boutique law firm that focuses on international trade and business, investment, customs, government procurement and government relations. We provide a wide range of services to our clients including advocacy before domestic and international courts and tribunals, strategic advice and analysis, business planning and analytical research.

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Canada-China Investment Statistics1998-2007Canada-China investment increased by 300%China-Canada investment increased by 170%

2011Canadian FDI in China valued CA$4.5 billionChinese FDI in Canada valued CA$10.9 billion

2012$15.1 billion acquisition of Nexen Inc. by CNOOC Ltd.

Opportunities for Increased Investment Inflows of FDI from China are increasingFDI level in 2011 = 36-fold increase over the last decadeInflows of FDI from China remain a small portion of total FDI inflows to CanadaThere is much room for expansion and growthUNCTAD Inward FDI Potential Index consistently ranks China as having a high potential for future FDI

Foreign Investment Promotion and Protection Agreements (FIPAs)

Designed to:

Promote Parties markets as a stable destination for investment;Establish clear investment rules and measures to protect foreign investors;Enhance the predictability of the policy framework governing foreign investments; andProvide effective compensation in the event of expropriation

The Canada-China FIPA (CC-FIPA)Current Status:

Came into force October 1, 2014Challenged by the Hupacasath First Nation Band

CC-FIPA Substantive Investor ProtectionsNational TreatmentMost Favoured NationMinimum Standard of TreatmentProhibition of Certain Performance RequirementsProvisions Governing Expropriation

National TreatmentArticle 6Host state must accord foreign investors of the other contracting party, and their investment, treatment that is no less favourable than the best treatment accorded to its domestic investors in like circumstances, with respect to the expansion, management, conduct, operation and sale or other disposition of investments in its territory.

Restrictions under Article 6Only applies to investments after they come into existenceLimited application to the expansion of investments in specified sectors

Most-Favoured-Nation (MFN)Article 5Canada and China must treat investors of the other contracting party no less favourably than investors and investments of a non-party in like circumstancesApplies at both the pre- and post-establishment stagesApplies with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory.

Restrictions under Article 5Does not extend to treatment accorded under existing treaties Excludes dispute resolution mechanisms

Minimum Standard of Treatment

Article 4Obligations of fair and equitable treatment and full protection and security in accordance with international lawIncludes due process and transparency

Prohibition of Certain Performance RequirementsArticle 9:Certain requirements to the establishment and maintenance of a foreign investment are prohibited

Examples:To export a given percentage of goods;To achieve a given percentage of domestic content; andTo relate the value of imports to the value of exports.

Provisions Governing ExpropriationArticle 10Prohibits nationalizing or expropriating covered investments except where the measures:Serve a public purpose;Follow principles of domestic due process;Are non-discriminatory; andFair market value compensation is provided Includes direct and indirect expropriationDetermining indirect expropriation requires a fact-based, case-by-case inquiryIncludes covered investments and returns of investors

Investor-State Dispute Settlement (ISDS)ISDS under the CC-FIPAC-C FIPAProvisions found in Part C Investors have the right to pursue their rights for damages before an impartial international tribunal directly against a contracting stateDamages are the only available remedyAny citizen investing in the other state is eligible to launch a claim for compensation

ISDS ProvisionsArticle 216 month waiting period between allegation of breach and claim to arbitration 3 year limitation period on all arbitration claimsBefore submitting a claim, parties must attempt to settle a claim Consultations to settle shall be held within 30 days of the submission of the Notice of Intent

ISDS ProvisionsArticle 28 Transparency

The decision of the tribunal is the only document that must be made public, subject to the redaction of confidential information

Arbitral proceedings are only open to the public if a disputing party unilaterally determines its in the best interest of the public

ISDS ProvisionsAvailable Arbitration Rules

International Centre for Settlement of Investment Disputes (ICSID) Convention;Additional Facility Rules of the ICSID; orThe United Nations Commission on International Trade Law (UNCITRAL)

**Canada is not a member of ICSID

18ISDS ProvisionsArticle 243-member arbitral panelEach party nominates an arbitratorBoth parties must agree on a third presiding arbitratorArbitrators must:Have expertise or experience in international law;Be independent of the disputing parties; andComply with any additional rules agreed to by parties