Canada-China Investment

Covered Topics

• Canada-China Investment Overview

• Foreign Investment Promotion and Protection Agreements (FIPAs)

• The Canada-China FIPA• Background

• Substantive Investor Protections

• Investor-State Dispute Resolution

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Michael Woods Catherine Walsh

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Canada-China Investment Statistics

• 1998-2007• Canada-China investment increased by 300%

• China-Canada investment increased by 170%

• 2011• Canadian FDI in China valued CA$4.5 billion

• Chinese 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 increasing

• FDI level in 2011 = 36-fold increase over the last decade

• Inflows of FDI from China remain a small portion of total FDI inflowsto Canada

• There is much room for expansion and growth

• UNCTAD Inward FDI Potential Index consistently ranks China as havinga high potential for future FDI

Foreign Investment Promotion and Protection Agreements (FIPAs)

Designed to:

• Promote Parties’ markets as a stable destination forinvestment;

• Establish clear investment rules and measures to protectforeign investors;

• Enhance the predictability of the policy framework governingforeign investments; and

• Provide effective compensation in the event of expropriation

The Canada-China FIPA (CC-FIPA)

Current Status:

• Came into force October 1, 2014

• Challenged by the Hupacasath First Nation Band

CC-FIPA Substantive Investor Protections

1. National Treatment

2. Most Favoured Nation

3. Minimum Standard of Treatment

4. Prohibition of Certain Performance Requirements

5. Provisions Governing Expropriation

National Treatment

• Article 6• Host state must accord foreign investors of the other contracting party,

and their investment, treatment that is “no less favourable” than the besttreatment accorded to its domestic investors in “like circumstances”, withrespect to the expansion, management, conduct, operation and sale orother disposition of investments in its territory.

• Restrictions under Article 6• Only applies to investments after they come into existence

• Limited application to the expansion of investments in specified sectors

Most-Favoured-Nation (MFN)

• Article 5• Canada and China must treat investors of the other contracting party “no less

favourably” than investors and investments of a non-party in “likecircumstances”

• Applies at both the pre- and post-establishment stages• Applies with respect to the establishment, acquisition, expansion,

management, conduct, operation and sale or other disposition of investmentsin its territory.

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

Minimum Standard of Treatment

• Article 4• Obligations of “fair and equitable treatment and full protection and security

in accordance with international law”

• Includes due process and transparency

Prohibition of Certain Performance Requirements

• Article 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; and

• To relate the value of imports to the value of exports.

Provisions Governing Expropriation

• Article 10• Prohibits nationalizing or expropriating covered investments except where

the measures:• Serve a public purpose;

• Follow principles of domestic due process;

• Are non-discriminatory; and

• Fair market value compensation is provided

• Includes direct and indirect expropriation

• Determining indirect expropriation requires a fact-based, case-by-case inquiry

• Includes “covered investments” and “returns of investors”

Investor-State Dispute Settlement (ISDS)

ISDS under the CC-FIPA

• C-C FIPA

• Provisions found in Part C

• Investors have the right to pursue their rights for damages before an impartialinternational tribunal directly against a contracting state

• Damages are the only available remedy

• Any citizen investing in the other state is eligible to launch a claim forcompensation

ISDS Provisions

• Article 21

• 6 month waiting period between allegation of breach and claim to arbitration

• 3 year limitation period on all arbitration claims

• Before submitting a claim, parties must attempt to settle a claim

• Consultations to settle shall be held within 30 days of the submission of theNotice of Intent

ISDS Provisions

• Article 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 partyunilaterally determines it’s in the best interest of the public

ISDS Provisions

• Available Arbitration Rules

• International Centre for Settlement of Investment Disputes (ICSID)Convention;

• Additional Facility Rules of the ICSID; or

• The United Nations Commission on International Trade Law (UNCITRAL)

**Canada is not a member of ICSID

ISDS Provisions

• Article 24• 3-member arbitral panel

• Each party nominates an arbitrator

• Both parties must agree on a third presiding arbitrator

• Arbitrators must:• Have expertise or experience in international law;

• Be independent of the disputing parties; and

• Comply with any additional rules agreed to by parties