FIPA-China Could Shackle Canada

Prime Minister Stephen Harper and Hu Jintao, President of China - Photo from pm.gc.ca

The Foreign Investment Promotion and Protection Agreement between Canada and China will slip suddenly into law any day now, without parliamentary ratification or debate.

The agreement is a highly controversial trade deal, which will empower investors and boost trade between the two countries. But it will also legally bind the management of Canadian natural resources to the interests and legal whimsies of Chinese financial investors, opening the door to potential lawsuits levied against the Canadian government (and taxpayers) by Chinese companies.

And those lawsuits could be “fiscally catastrophic,” explains Osgoode Hall Law School Professor Gus Van Harten. “And the larger the project the more potentially catastrophic the risk is, the more bargaining power the lawyers for the foreign investors have to pressure the government, including behind the scenes.”

The federal Conservatives, for their part, have been placing the emphasis on how this deal will help Canadian investors in China, presenting it in a way that suggests the playing field is simply being leveled, bringing Canadian investors in China up to par with Chinese investors in Canada.

“For almost two decades,” declared Prime Minister Stephen Harper in the House of Commons, “Canadian governments have been trying to get a foreign investment protection and promotion agreement with China for one very simple reason: Canadian investors have not had the kind of protection in China that Chinese investors have in Canada.”

In reality, the deal does far more than that.

Most alarming, says Van Harten, is the unprecedented way in which it leaves Canadian governments — federal, provincial and municipal — open to future legal action.

“If you lose in the World Trade Organization you get a chance to fix the problem,” explains Van Harten. “And only if you don’t fix the problem are you subject to monetary trade sanctions. But with this the arbitrators award compensation to the investors going back to the original decision — so if the arbitrators don’t reach a decision until five or six years down the road you could of racked up hundreds of millions of dollars in liability in that time, not knowing whether what you did was lawful or not. And that is quite exceptional, for governments to face that kind of open ended liability.”

While the potential legal ramifications apply to all industries, they’re particularly disturbing when it comes to the management of natural resources and energy — principally, the future of the Alberta tar sands, an area of substantial future investment from Chinese companies.

FIPA will solidify all investment-in and the expansion-of the tar sands for the duration of the agreement, which is set to last 31 years from the moment it’s officially ratified. It can be terminated with one year of notice but investments already completed get a 15 year grandfathering-out period.

“If you change the rules at all, anything in which you’re changing the terms in which the investment was made, you would not necessarily be sued but you would be running significant risk,” says Van Harten. “And you just won’t know until you’ve already racked up a potentially massive liability.”

Considering the current level of difficulty and lack of political will toward making hard sacrifices in the battle to reduce greenhouse gas emissions in countries around world, the shackles of a trade deal such as this one are significant. The potential for legal action in the face of policy change brings the added disincentive of billions of dollars in fines and reimbursements — fines and reimbursements to be paid by tax-paying voters — in the event that tar sands expansion is curbed, or even halted, for the sake of reducing greenhouse gas emissions.

The likelihood of future Canadian politicians subjecting themselves to that scenario is therefore very low. And so is then, by extension, any Canadian commitment to going green, any time soon. Because going green in Canada has to mean a rejection of the tar sands, either in part or in full — but either leaves the door open for legal catastrophe.

Chinese investment in Canada reached 10.9 billion dollars in 2011 — without FIPA, without the pipelines, and without turning all of northern Alberta into a giant bitumen extraction facility. With FIPA, with the pipelines, and with an ever-expanding tar sands industry that number will explode.

And so imagine a future someone or political party having the nerve to shut it all down, or even slightly slow its growth, and imagine the fallout: the lost jobs, the lost revenue, the legal action and the ensuing billions of dollars in fines.

Imagine the lost votes.

And then you can imagine why it won’t happen. Why it will all be set in stone. Why this Canada-China FIPA deal will saddle Canadians with a total commitment to outsourcing the world’s dirtiest oil to the world’s largest greenhouse gas emitter. And why it will set Canadian energy policy for at least the next 15 years, and likely far beyond, due to the financial interests of foreign investors.

  • Dan

    Wow, this article has presented a very troubling situation in a concise, intelligent manner.

  • Thanks Dan, appreciate the feedback.

  • John

    How will FIPA go into force without parliamentary ratification?