Canada and China Sign Investor Protection Accord (February 2012 Negotiated FIPA) in Midst of CNOOC/Nexen Review
Bloomberg has reported that Canada and China have signed the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA) in the midst of the proposed CNOOC/Nexen transaction, in which an application for review for Investment Canada Act approval was filed about a week and half ago.
Following the filing of the application for review by CNOOC, which presumably tracks previously announced commitments by CNOOC to meet the net benefit to Canada criteria under the Investment Canada Act, there have been persistent rumblings both by members of the ruling Conservatives and media that any approval of the proposed CNOOC deal would need to include some assurances for reciprocal Canada/China investment – i.e,, not merely “one-way” investment as has been alleged by some in relation to investment by the Chinese in Africa and other regions.
Chinese President Hu Jintao and Canadian Prime Minister Stephen Harper signed the new FIPA agreement yesterday at the Asia-Pacific Economic Cooperation Summit in Russia, which is intended to provide stronger protection for Canadians investing in China (including presumably Scotiabank’s recent efforts to expand its business into China) and is also meant to protect investors against discriminatory and arbitrary practices, while creating a process to settle disputes with either Canada or China.
In announcing the new agreement, the PM said:
“Our Government is committed to creating the right conditions for Canadian businesses to compete globally … this agreement with China – the world’s second largest economy – will provide stronger protection for Canadians investing in China, and create jobs and economic growth in Canada.”
Last February, during the Prime Minister’s trip to China, Foreign Affairs announced the newly negotiated FIPA agreement as follows:
“On February 8, 2012, during his visit to Beijing, Prime Minister Harper announced the conclusion of negotiations of the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA), and witnessed the signing of a Declaration of Intent by Canada’s Minister of International Trade and Minister for the Asia-Pacific Gateway, Ed Fast, and China’s Minister of Commerce, Chen Deming.
Canada and China began negotiation of a Foreign Investment Promotion and Protection Agreement in 1994. Negotiations were put aside until the completion of China’s accession to the WTO, and then resumed in September 2004. The last formal round took place in January 2012 in Beijing. With the conclusion of negotiations, Canada has secured a high-standard agreement with comprehensive scope and coverage and substantive obligations pertaining to national treatment, most-favoured-nation treatment, minimum standard of treatment, transparency, transfers and expropriation. Additionally, this Agreement will grant investors access to investor-state dispute settlement that is governed by detailed rules in the Agreement on standing, procedural requirement and enforcement. While the FIPA may be a positive and important factor in investors’ decisions on whether to invest in the territory of the other party, it will be but one of many factors. The main purpose of a FIPA is to ensure greater protection to foreign investors against discriminatory and wholly arbitrary practices, to provide adequate and prompt compensation in the event of an expropriation and to enhance predictability of the policy framework affecting foreign investors and their investments. The FIPA will preserve the right of both Canada and China to regulate in the public interest.
The stock of Canadian FDI in China was valued at approximately C$5 billion at the end of 2010. Though current Canadian investment in China is modest, the potential for further investment is substantial. Canadian investment in China covers a broad range of sectors including transportation, biotechnology, education, finance, information technology, manufacturing, and natural resources. As China’s economic importance continues to grow, it will remain a priority market for Canada. The United Nations Conference on Trade and Development (UNCTAD) Inward FDI Potential Index consistently ranks China as having a high potential for future direct investment.
The stock of foreign direct investment into Canada from China reached approximately C$14 billion at the end of 2010. Chinese firms are actively investing abroad and have expressed a strong interest in investing in Canada. Sectors of interest include natural resources, renewable energy, information and communication technology, food processing, pharmaceuticals and natural medicine, and advanced manufacturing.”
On the issue of reciprocity, a rather predominent theme in Canada/China relations lately as debate has increased in relation to the proposed CNOOC/Nexen deal, Canada’s Prime Minister said before his departure to the APEC Summit:
“We want to see this economic relationship continue to expand, but we want to see it expand in a way where it is a clear two-way flow and clear benefits for both sides.”
A few weeks ago, I went out on a limb to hazard a guess that it was more likely than not that the CNOOC/Nexen deal would clear, largely based on Canada’s recent pro-China investment stance and a (at that time) largely silent amount of significant opposition (see: CNOOC/Nexen: Some Thoughts Whether the Deal Will Clear).
With this most recent development, I would say that Investment Canada Act clearance is now, short of calamity, more certain yet, despite some apparent dissention within Harper’s own cabinet and calls from the opposition for a more transparent net benefit to Canada review process.
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