Chinese companies that own assets in Canada will be able, at their option, to challenge federal or provincial legislative, executive, or judicial decisions outside of the Canadian legal system and Canadian courts. Under similar treaties, investors have received awards in the hundreds of millions or billions of dollars. Taxpayers are in effect underwriting long-term business and political risks assumed by Chinese investors in Canada.
The treaty is de facto non-reciprocal because in-flows of Chinese investment are likely to outstrip Canadian investment in China. Assuming this, Canada will be much more exposed to Chinese lawsuits and the corresponding constraints on our governments. Usually, the capital-importing position under these treaties is occupied by a developing or transition economy.
To sue under the treaty, a Chinese company needs only a minority share in any Canadian enterprise or other asset in Canada. Based on numerous cases to date, a Chinese investor can acquire ownership in Canadian assets via a holding company in a secrecy jurisdiction such as the Cayman Islands without losing its right to sue under the treaty.
The only comparator for Canada in terms of fiscal risk and sovereignty impacts is NAFTA. NAFTA was concluded before the recent flood of investor claims under these treaties. Also, under NAFTA Canada received preferential access by Canadian exporters to the U.S. market in exchange for the de facto non-reciprocal protection of U.S. investors. With the Canada-China treaty, preferential market access for Canadian exports to China is reportedly off the table for at least ten years. The deal is a win for China.
The Canada-China treaty goes beyond NAFTA in its application to the provinces and probably increases Canada’s exposure under NAFTA on a non-reciprocal basis. Unlike NAFTA, the treaty allows Chinese investors to sue Canada for existing provincial measures that require the use of local suppliers, for example. This also increases Canada’s NAFTA exposure due to NAFTA’s most-favoured-nation requirements for U.S. investors. The NAFTA exposure is non-reciprocal because the U.S. has not extended the same restrictions to state governments and thus would not trigger its NAFTA most-favoured-nation obligation to Canadian investors.
As such, the treaty will likely frustrate, in ways that NAFTA does not, the ability of governments in Canada to ensure that value-added benefits of resource exploitation accrue reasonably to Canadians.
Canada’s biggest loss under NAFTA Chapter 11 apparently came last May in a claim by Mobil Oil and Murphy Oil over R&D expenditure rules for Hibernia and Terra Nova. The decision reportedly undermined Canada’s standard approach to reservations in investment treaties with possible implications for the Canada-China treaty. It is not possible to confirm this because the federal government has not released the award. This highlights the concern that the government has, in the treaty, reserved the right to withhold documents filed in Chinese lawsuits against Canada if the government deems this to be “in the public interest.” Other Canadian FIPAs state clearly that all the documents will be made public.
Because arbitrators under the Canada-China treaty operate outside the Canadian legal system, the Canada-China treaty appears to contravene the judicature provisions of the Constitution concerning the role of the superior courts. The treaty also clearly impacts provincial jurisdiction over natural resources, for example, since there is a real possibility that Canada will face awards and orders, due to provincial decisions, that are not reviewable in Canadian courts.
The federal government should not ratify this treaty. At least, it should also refer the question of the treaty’s constitutionality, due to its impact on provincial and judicial powers, to both the provinces and the courts before locking us in for 31 years. If the federal government is not prepared to do so, then the provinces should seek an injunction to block ratification pending resolution of the constitutional issues.
Gus Van Harten is a professor at Osgoode Hall Law School who specializes in international investment law. His research is available at http://ssrn.com/author=638855 and
Original Article
Source: hill times
Author: GUS VAN HARTEN
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