Deal with China triggers public concern, lawyer’s warning

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Public concern appears to be mounting over a Canada-China investment agreement that was quietly signed in September and, despite almost no discussion in Parliament, could take effect as early as next Thursday.

The critics include MPs speaking out this week in the House of Commons and ordinary citizens flooding their MPs’ offices with many thousands of email messages.

The controversy comes as polls show growing concern about Chinese investment in Canada. One poll, a Nanos Research survey this week, found Canadians consider China this country’s greatest national security threat, even higher than Iran.

And concern in B.C. about China was even higher, where 24 per cent of respondents named China as the top threat compared to 17 per cent who named Iran.

Opponents of the Canada-China investment deal warn that Canadian taxpayers could be exposed to billions of dollars in potential damages if Chinese firms claim they were wronged by government actions in Canada.

The most provocative charge is that Chinese companies invested heavily in Enbridge Inc.’s proposed $6.5-billion Northern Gateway pipeline project could receive a huge payoff if the B.C. government blocked the megaproject.

The B.C. government was urged this week by a Toronto law professor to seek a court injunction preventing ratification of the investment deal, which would protect Chinese investors in Canada and Canadian investors in China for a minimum of 15 years.

“The B.C. government must take legal action if it is to defend its constitutional position from potential irreparable harm due to the ratification of the Canada-China treaty,” Osgoode Hall professor Gus Van Harten wrote in a letter to Premier Christy Clark. “If ratified, the treaty will change fundamentally the position of provincial legislative, executive and judicial powers in relation to any Chinese-owned asset in the country.”

The federal government argues the concern is overblown. The deal will enhance protection for Canadian investors in China and, in the words of Prime Minister Stephen Harper, “create jobs and economic growth in Canada.”

There are also complaints that Parliament is not getting enough time to debate the treaty, which will be locked in for a minimum 15 years once enacted, sometime after Nov. 1.

The truth, as usual, is somewhere between those two positions.

On the economic front, Harper’s promise of jobs and growth isn’t backed up by his government’s preliminary analysis, which says the economic effects in Canada will likely be “minimal.”

That same analysis, however, supports the argument of the government and some trade experts that the deal won’t have much effect for Canada and, because Chinese officials will still be able to make life difficult for investors there, only of modest benefit to Canadian firms.

Federal officials note Canada has a relatively open regime that treats foreigners the same as Canadian investors. China has a famously complex and corruption-prone system that is an enormous challenge for Canadian firms.

“Canada has had a situation with the People’s Republic of China for some years where its investment has been virtually unrestricted here, but we have had more difficulty with our investment there,” Harper told the House of Commons this week in defending the treaty.

Senior Canadian officials told the House of Commons trade committee this month that foreign investment promotion and protection agreements – better known as FIPAs – are designed to favour developed countries seeking better access to countries with systems “less developed or (which) may be subject to political influence.”

“All we’re really doing is undertaking a legal obligation to do what we’re already doing,” said Ian Burney, the assistant deputy minister for trade policy.

The treaty’s imbalance in Canada’s favour is one reason why business groups – including the Canadian Chamber of Commerce, the Canadian Council of Chief Executives, the Vancouver-based Asia-Pacific Foundation of Canada, and the Canada-China Business Council – have endorsed it.

The Canada-China FIPA is aimed at protecting investors from expropriation and other costly state interventions. It is one of more than 200 struck by various nations around the world and Canada’s 24th such bilateral deal.

The China agreement is more limited in scope compared to other FIPAs in that it applies only to companies after the investment has been made. Thus the foreign investment review processes of both countries – including Canada’s current review of the proposed $15.1-billion Nexen takeover by the state-owned China National Offshore Oil Co. – will not be changed.

“In other words, if the Chinese screw you when you’re trying to set up a company you can’t invoke the treaty. Once you set up you can invoke the treaty,” according to trade lawyer Milos Barutciski.

The deal prohibits signatories from expropriating or nationalizing foreign assets “except for a public purpose, under domestic due procedures of law (and) in a non-discriminatory manner.” Fair compensation is also required.

The most controversial feature, and by far the most useful for foreign investors, is a provision allowing investors to seek arbitration if they feel their rights are violated. An arbitration panel would be made up of one expert from the investing country, one from the host country, and a third chosen by the first two arbiters from a country that has diplomatic relations with both countries.

A majority in the three-member panel can assess damages if they deem the complainant’s rights have been violated. The national government is responsible for covering the costs of those penalties, Barutciski said.

The award must be made public, as long as “confidential information” is not released, but the hearings can be held in private.

The agreement excludes sensitive sectors such as culture and military equipment. Environmental and health measures are also exempt as long as there’s no evidence they’re disguised attempts to discriminate against foreign firms.

Both Barutciski and Michael Hart, founder of Carleton University’s Centre for Trade Policy and Law, said Canada is a winner in a deal that won’t have a dramatic overall impact.

“Most criticisms of FIPAs is that they don’t really do much. They’re relatively innocuous agreements,” Hart said.

While Van Harten argues the Chinese could launch a potentially costly claim if the Northern Gateway project doesn’t proceed, Hart and Barutciski say that is unlikely.

Governments are allowed under the agreement to protect the environment and all Northern Gateway investors knew – or should have known – that the project faced numerous roadblocks, Barutciski said.

Pitman Potter, chairman of the Institute of Asian Research at the University of B.C.’s law faculty, said the deal brings “important” benefits to Canadian firms in China but “does not appear” to increase Canada’s obligations beyond what is already provided under international trade law, including World Trade Organization provisions. “Nonetheless, I should think a robust public process of consultation and debate would be useful,” he said.

The lack of public debate was a burning issue in the House of Commons this week as MPs complained that the public concern about the treaty isn’t being matched by MP scrutiny. NDP MP Don Davies and Green leader Elizabeth May said roughly 60,000 emails have been sent to each of their offices complaining about the deal.
© Copyright (c) The Vancouver Sun

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