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Six Steps to Protect Canadians from Flaws in China Trade Deal

FIPA can't be revoked, but citizens deserve its effects be independently tracked and reported.

Gus Van Harten 30 Sep

Gus Van Harten is a law professor at Osgoode Hall Law School at York University.

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Trade treaty expert Van Harten lays out ways FIPA governments can 'disclose, monitor, and limit the harm done by this treaty.' Image: Shutterstock.

The Harper Cabinet quietly ratified the Canada-China FIPA on the afternoon of Friday, Sept. 12, 2014. Lately I have received messages from people asking if the FIPA can still be stopped and what else might be done to limits its potential harm.

Sadly, there is no longer anything that any legislature, government, or court in Canada can do to avoid the FIPA taking effect on Oct. 1, 2014. The time for action was two years ago when the FIPA was made public. Many thousands of Canadians responded to this need at that time and since. Yet our institutions -- especially the federal government -- evidently did not.

In particular, it is remarkable that no thorough and public study of the FIPA was done by the federal government before the treaty's ratification. As a result, there was no basis for a serious and well informed public evaluation of the treaty. If the decision to ratify was a mistake -- for example, because it may commit Canada to a dependent status as supplier of raw and unprocessed resources for the Chinese economy or because it does not ensure a level playing field between Canadian and Chinese companies -- the consequences of that mistake will now be unavoidable by Canada for decades.

Incidentally, due to the efforts of the Hupacasath First Nation and those who supported and funded their legal challenge to the FIPA, a review of the treaty by a Federal Court judge did take place. Yet the judge who took the case, at the urging of the federal government, focused narrowly on the FIPA's implications for the Hupacasath alone, and not for any other First Nation let alone Canadians as a whole.

Also, again at the government's urging, the judge adopted an exacting standard of proof in his scrutiny of the Hupacasath's anticipatory claims about impacts of the FIPA (the claims were of course necessarily anticipatory because the FIPA's impacts will come only in the future and over decades). In turn, it was easy for the judge to accept the government's argument that concerns about the FIPA, again for the Hupacasath only, were too speculative to require consultation with those affected before the FIPA could be ratified.

The Hupacasath appealed this decision but the appeal was made largely moot when the federal government ratified the FIPA while the appeal was pending. Readers can judge for themselves whether this timing of ratification was a respectful response to the ongoing legal process to determine aspects of the FIPA's constitutionality.

The important point here is that the Hupacasath legal action could have led to a broad and thorough review of the FIPA to inform the public and support a more careful decision on whether to ratify. However, the federal government urged, and a Federal Court judge accepted, that the review should instead be very narrow.

Beyond this legal challenge by the Hupacasath, the only detailed public study of the FIPA, which focused on its unique or non-reciprocal terms, was by me. And I am the first to admit that it is a pathetic state of affairs when a lone academic supplies the only detailed public analysis of the text of a treaty that will have important and long-lasting implications for Canada in our economic relationship with one of the world's most powerful countries.

In any event, my own study is forthcoming in the Canadian Yearbook of International Law and a near-final draft was made public and shared with members of the federal Cabinet in May 2014. For the record: the offices of federal Ministers James Moore, Jason Kenney, John Baird, Tony Clement, Lisa Raitt (my MP in Burlington, Ontario), Leona Aglukkaq, Bernard Valcourt, and Ed Fast were all given a copy of the study last May. None replied. As I thought when I sent them the study: at least they will not be able to say that no one ever told them in detail, before ratification of the FIPA, how its terms favour China and how they differ from Canada's other FIPAs.

What can and should be done now

Whatever the background, it is now clear that the efforts of many of us to ensure closer study and informed public evaluation of the FIPA before its ratification were in vain. Now the question is what might be done to limit its potential harm? I suggest that future governments could be asked to take various steps.

1. The federal government could in future commit to renegotiate the FIPA to address its non-reciprocal elements and unique concessions to China.

Barring agreement from China, the government could give notice to terminate the FIPA at the earliest opportunity. The earliest date that Canada can terminate the FIPA, according to its terms, is Oct. 1, 2030. If the FIPA is terminated at that time, it will continue to apply to existing Chinese investments until 2045. In light of this, the option of termination provides no relief in the foreseeable future.

2. Critically, then, Canadians need an institutionalized way to learn how this FIPA is affecting governments, legislatures, and courts at all levels in Canada.

Unfortunately, the China FIPA is uniquely secretive because of the international legal right it gives the federal government to keep lawsuits by Chinese investors against Canada confidential until an award has been issued. This means that the government can settle a controversial lawsuit by changing its decisions, or paying out public money, without public knowledge.

The Harper government has said that it will disclose lawsuits by Chinese investors against Canada on a website, as it has done for several dozen investor-state lawsuits by U.S. investors under NAFTA. Yet there are problems with the credibility of this commitment.

• First, no other trade or investment treaty concluded by Canada provides that the federal government can keep these pre-award documents confidential. For many years, Canada was a leader in the international push for openness in investor-state arbitration. Why the change in this FIPA? If the Chinese government insisted on secrecy in lawsuits against China, why did the federal government not include a requirement that lawsuits against Canada be made public? The FIPA is non-reciprocal in ways that disadvantage Canada. It could have been made non-reciprocal in its provision for openness in investor-state arbitration to ensure at least that Canadians would be informed of Chinese investor lawsuits against Canada.

• What happens if a government faces a lawsuit by a Chinese investor that would be controversial if made public? Can we trust that all governments over the 31-year minimum lifespan of the treaty will not succumb to the temptation to keep the lawsuit secret? The federal government cannot commit future governments to a policy of openness in investor-state arbitrations under the FIPA, other than by binding Canada to that commitment in the FIPA itself. It did not do so.

• China is clearly less committed to openness in investor-state arbitration than Canada's NAFTA partners. It seems reasonable to expect that the Chinese government may in some cases want to pressure Canada to block publication of information about a lawsuit under the FIPA. The very fact that the federal government agreed to conclude a FIPA that is non-reciprocal in important respects indicates that the government might also accede to demands by China in the FIPA's implementation.

• Chinese investor lawsuits against Canada are of interest to Canadians because they may cause our governments to change decisions under pressure from China or Chinese investors. They may also lead to very large pay-outs of public money to Chinese companies in settlements behind the scenes. This makes it essential that the lawsuits be public so that Canadians can evaluate the costs and benefits of the treaty.

• Canadian investor lawsuits against China are also of interest to Canadians. Yet, under the treaty, China has full discretion to withhold information about such lawsuits and the treaty appears to bar Canada from releasing any pre-award documents it obtains about such lawsuits. This is not in the interest of Canadians or Canadian investors seeking to evaluate business conditions and political risk in China.

• Despite the federal government's claims, its disclosure of documents in U.S. investor lawsuits against Canada under NAFTA has not been as timely and fulsome as would be the case in a Canadian court process. Also, the details of settlements of NAFTA lawsuits that appear to have involved payments of compensation by a provincial government to U.S. investors are murky; in my experience, the federal government and affected provincial governments have been unwilling to confirm whether provincial funds were paid to settle specific NAFTA lawsuits. If governments are not forthcoming with such information when sued by U.S. investors under NAFTA, why would we expect them to disclose it under the China FIPA?

• Ultimately, the federal government's commitment to release information about investor-state lawsuits under any treaties that provide for investor-state arbitration should be made part of a law that clearly binds the government. It is unacceptable that governments in Canada, without public knowledge, may change decisions about proposed legislation or regulations, or pay out public money to foreign companies, due to lawsuits or threats of lawsuits by foreign investors.

3. For these reasons, the federal government and provincial governments should introduce legislation to require officials to make public any information they obtain about the use of the FIPA (or Canada's other treaties that allow for investor-state arbitration) by foreign investors and by officials themselves in order to allow the public to know when and why the treaty has been invoked.

This is essential for the public to be able to evaluate government responses to their exceptionally powerful obligations under the FIPA and similar treaties.

4. Under the China FIPA, a future government could also commit to rigorous Investment Canada Act reviews of proposed Chinese takeovers of Canadian companies in the face of increasing ownership and control of the resource sector by Chinese companies.

The utility of the Investment Canada Act is limited in this respect by monetary thresholds and other conditions -- and the FIPA gives China broader rights to block Canadian investments than vice versa -- yet even so the Investment Canada Act can play an important role.

5. The exceptionally long lifespan and significance of the FIPA calls for careful and ongoing independent evaluation of its costs and benefits over the long term.

For example, it is possible that concerns about the FIPA are overblown. Many of the FIPA's defenders have said this over the last two years, albeit without serious analysis to back up the claim. The next 16 years present an opportunity, indeed a necessity, to study the FIPA's impacts closely.

Will Chinese investment help Canada to obtain value-added benefits from new resource development in Canada? Will the environmental impacts for Canada be managed appropriately? Will the rights and interests of Canadian workers, communities, and First Nations be respected? Will Canadian businesses suffer a competitive disadvantage due to the FIPA's non-reciprocal rights for Chinese investors in Canada and China? Will Canadian investors be protected from mistreatment in China despite the FIPA's allowance for all governments in China to keep their existing laws, rules, and practices that discriminate against Canadian companies?

Monitoring and evaluation of the FIPA will need to be broad-ranging and, above all, public and independent. Perhaps an independent commission could be established to play this role for all of Canada's treaties that provide for investor-state arbitration as part of a broader review of Canada's national economic strategy. The commission would have to reflect genuinely a range of viewpoints. It must not be left to the usual crowd of promoters in and around the federal Department of Foreign Affairs and International Trade and in the investor-state legal industry.

Given that the current federal government failed to do any public and independent review of the FIPA before it was ratified, we cannot expect the government to carry out a proper review now. From my perspective, the government appears more interested to deny the non-reciprocal and unique aspects of the FIPA and downplay the costs and risks of investor-state arbitration.

With this in mind, Canadians deserve an explanation for why the federal government would agree to a non-reciprocal treaty with China that departs from Canada's past FIPAs in significant ways. Did China pressure the federal government to conclude the treaty by, for example, detaining Canadian nationals in China? What role did lobbyists in Canada play behind the scenes and who were they working for? What role was played by law firms that stand to benefit by representing Chinese investors in takeovers of Canadian companies and in lawsuits against Canada?

More broadly, an independent review could examine the role of investor-state arbitration in all of Canada's trade agreements and other FIPAs. Investor-state arbitration is a controversial mechanism with important implications for democratic accountability and judicial independence and significant risks for public finances. Pending a review of these matters, the federal government should not conclude any more treaties that provide for investor-state arbitration.

6. Finally, I suggest that the federal government needs to develop a national economic strategy that prioritizes the interests for Canadian businesses, workers, and communities to benefit from value-added activities in resource extraction in Canada, while remaining open to trade and investment with China and other countries.

The federal government has drifted far from this priority. Resource extraction and associated infrastructure in Canada should not go ahead where it will leave behind massive environmental damage in Canada or where the lion's share of the wages and profits will go to foreign workers or companies.

These are ideas about how those of us concerned about the China FIPA could ask future governments to disclose, monitor, and limit the harm done by this treaty. None are satisfying when compared to the stark reality that the Harper Cabinet has locked in Canada to a non-reciprocal treaty for at least 31 years. Yet it is also not a reason to despair. Public scrutiny seems all the more important now as a safeguard against further concessions by the federal government to foreign companies in the brave new world of the FIPA and investor-state arbitration.  [Tyee]

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