Sellout: Stephen Harper and the Canada-China FIPA

The imperial Chinese government, as Dr. Henry Kissinger lovingly relates in his recent On China, was in the habit of giving Panda bears, among other things, as gifts to barbarian states and tribes, in the belief that barbarians were easily distracted and susceptible to flattery.

It seems the modern Communist Party have not abandoned that particular policy. And alas, it seems it still works.

Stephen Harper came back from a visit to China last fall, which received really quite sparse coverage in the Canadian media, with two panda bears. He presented them to the Toronto Zoo, where fawning crowds were waiting to watch them eat.

I can only guess as to his motives.

Because what he didn’t make anywhere near as clear, upon his arrival back in the country, was that he had signed a massive trade deal with China. It’s only really been prominent in the news for the past week, when it’s almost imminently going to pass. Here it is.

Did you click the link? Did you attempt to read it? Did you give up in despair before you’d even really scrolled through the first articles?

Don’t worry. So did I. That’s what you were supposed to do. You weren’t actually supposed to read it. You’re not supposed to be able to understand it.

The thing about this treaty is that it’s actually impossible to read without legal training, as a good friend of mine going into her second year of law school informed me when I showed it to her. It’s such an impenetrable thicket of legalese that the layperson is simply unable to read it. It’s likely that not that many MPs have read it. Not all of them are lawyers.

Why?

Because it’s quite literally selling the ground out from beneath you.

If you knew that, you’d probably kick up a fuss. Which would be inconvenient, to say the least. So Harper hid it in plain sight.

It’s got some truly horrifying implications for Canadian law, which neither I, nor my friend, claim to understand fully, not having spent several years studying international trade law.

But we’ve at least read the damn thing. And we’ve found some terrifying things buried in there. Buried at the back. Long after the point any sensible human being has given up reading.

But not a law student. Like my friend Kylie Thomas. Or Osgoode Law School constitutional scholar Gus van Harten, who thinks it’s unconstitutional, for what it’s worth. And even from our cursory, fumbling reading of the bill, the evil comes through pretty palpably.

Article 11, for example, which obliges both governments to recoup losses that companies suffer due to ‘war, a state of national emergency, insurrection, [a] riot, or [an]other similar event.’ This effectively gives the Canadian government justification to deem a protest a riot, and break it up citing its need to protect Chinese investments under this FIPA.

Or Article 17, in which both parties are ‘encouraged’ to ‘publish in advance any measure that it proposes to adopt’, and ‘provide interested persons and the other Contracting party [with] a reasonable opportunity to comment on the proposed measure.’

Encouraged. Not obliged in any way.

Or Article 18, in which it is deemed ‘inappropriate’ for either party to encourage investment by waiving, relaxing, or otherwise derogating from domestic health, safety or environmental measures.’

Inappropriate. To override almost all provincial law regarding our health care system, our police forces, and our environmental regulations.

But the real kicker is this one. Article 21. While observance of most Canadian laws are merely ‘encouraged’, and the overriding of almost all provincial legislation is merely ‘inappropriate’, both parties ‘shall,’ the strongest binding legal term used in this document, ‘first hold consultations in an attempt to settle a claim amicably’ when there is a treaty dispute.

Those claims will be settled by a three-person tribunal. One Canadian, one Chinese citizen, and one foreign national, whose identity will be mutually agreed. That’s in article 24.

So basically, the tie breaking vote on this tribunal will always be a citizen of a country who is infinitely more interested in currying China’s favor than in protecting Canadian citizens.

This tribunal ‘shall’ have its findings made publicly available, ‘subject to the redaction of confidential information.’ But only when it’s ‘in the public interest.’ Which is straight out of Yes, Minister.

But the contracting governments ‘may share with their officials of their respective federal and sub-national governments.’ May. They don’t have to.

And if a third party is affected by a dispute? Like a first nations band? Or a provincial government that is about to see its environmental protections gutted? They can submit to this tribunal.

But their submissions cannot be more than twenty pages long. Their application can only be five. Essentially meaning that the exercise of trying to protest this tribunal’s decisions would be ultimately pointless and unrewarding. That part’s buried in Annex C-29. Literally at the end of the document.

In the idiotic preamble on the Harper clique’s website explaining what FIPA’s actually are, it gets pointed out that Canada has signed FIPA’s in the past with countries including Hungary, Latvia, Trinidad and Tobago, Barbados, and Venezuela.

But of course, none of these countries remotely compare to China in size and power. We are the junior partner in this agreement. The one who can be safely ignored.

Much as we were with NAFTA. The last trade treaty Canada signed that had this kind of scope and significance. Of course, we fought a bloody election over it, and freely chose as a people to sign it when we voted for Brian Mulroney. We didn’t have it snuck through the legislative backdoor by a vicious and corrupt petty despot and his henchmen.

Because that’s what’s happening. Right now. In your country.

If you’re angry, you should be. And you should tell people so. That’s the only chance we have of stopping this from happening. I’ll be publishing Kylie Thomas’ more detailed dissection of the treaty later next week.

In the meantime, I would ask that you share this. People should really know.

4 thoughts on “Sellout: Stephen Harper and the Canada-China FIPA

  1. While there are many things for a patriotic Canadian to be outraged about these days, I don’t think this agreement is one of them. On the procedure, i.e. the way, Harper and the government ratified the treaty, I have nothing to say. But on the substance of the agreement, I think that most of the fears outlined in the article are misplaced. If anything, Canada is getting the better deal.

    Let me address some of these fears in turn:

    1. “It’s quite literally selling the ground out from beneath you.”
    While I know this is hyperbolic and metaphoric language written for effect, I want to make clear from the outset that this treaty does not actually mandate the sale of any land, product or service. It may incentivize trade by protecting Chinese and Canadian investments, in Canada and China respectively; but it certainly does not make such trade inevitable. We should keep in mind that it still takes willing buyers and sellers, investors and recipients of capital, consumers and producers to create any sort of commerce between nations. (This is true of commerce within a nation as well.)

    2. I don’t know whether this particular treaty is within the bounds of the Canadian constitution. But my hunch is that if this treaty is unconstitutional, for substantive and not procedural reasons, then I don’t see how the many other BITs Canada has ratified are constitutional, let alone NAFTA.

    3. Article 11: this is a clause that protects foreign investment from internal political strife. Why is it here? It’s to insure investors that if, for political reasons beyond their control, their assets are destroyed, they have a cognizable cause of action against the host (receiving investment) state in a neutral forum. It’s like saying: keep your house in order, make sure your discontents don’t mess up our stuff while we are there; that’s your business, not ours, and I don’t want to get caught in the cross-hairs.

    I would not be surprised that that this clause was pushed for harder by the Canadian government than the Chinese government. After all, it is China, and not Canada, where there is greater risk of political turmoil in the near future. If Bombardier were to open a plant in Chongqing, they would want to make sure they can litigate and hold China responsible for any civil strife that might occur there. I doubt that Sinopec would have the same concerns in Fort McMurray.

    4. Article 17: This is a law promoting transparency. Something that any governments, but especially the Chinese, could use a lot more of.

    Section 2 ensures that both governments will make its laws and administration thereof clear and apparent to each other. I think this will make both governments, but especially the Chinese much more cognizant of its commitment to the rule of law: sunlight is the best disinfectant.

    You should not be concerned that the governments are encouraged, rather than obligated, to publish and provide information in advance on changes to its laws. It would be too burdensome to create an obligation; it would create a legal claim every time a country failed to let the other know that it was thinking about changing something about its laws. I don’t even think governments have that obligation to its citizens!

    5. Article 18: “The Contracting Parties recognize that it is inappropriate to encourage investment by waiving, relaxing, or otherwise derogating from domestic health, safety or environmental measures.”

    I don’t see the problem. This means that the countries should not encourage the relaxation of health and environmental standards. This is a win for those who are worried that Chinese companies are going to run roughshod over Canadian regulations for health, safety etc. This Article attempts to ensure that Chinese companies will not pressure Canada, nor will Canada be pressured, to dilute its laws and regulations to attract Chinese investment.

    Concretely, it prevents Harper from saying to Sinopec: “hey you wanna invest in Keystone XL, but are worried about all our cumbersome rules and regulations? And all those first nations peoples in the way? No problem, I’ll be sure to take care of that.”

    6. Article 21: You’re right that this is the real kicker – the lynchpin of the whole treaty. But again, it’s nothing to be worried about, especially if you are a Canadian citizen.

    Without this provision, what would an investor do if the country they are investing in decides to “expropriate” their property, that is if the country decided it was going to enact targeted unfavorable legislation to extract assets, unfairly, from the company? Or if the country decides to simply seize assets of the company? (Again this is a greater fear for Canadian companies in China than the reverse.)

    Without this provision, the company would likely have to sue in the country’s own courts. So, if the Chongqing government decided to implement an exorbitant tax for Canadian aerospace companies (and this wouldn’t be all that unlikely if Bo Xilai were still running the place), what could Bombardier do about it? Sue in Chinese courts? Do you think that would go well for Bombardier? (It could try to sue in Canadian courts, or another court, but that would get nowhere for jurisdictional and enforcement reasons. E.g. what good does a Canadian court judgment do if you are trying to get compensation from the Chinese?)

    So what this provision does is it allows Bombardier to seek recourse in a neutral forum in front of disinterested Arbitrators (there are established procedures for selecting natural arbitrators). The dispute would be governed under well established procedural rules, UNCITRAL, and held in the preeminent place for this type of dispute, ICSID, which is to say it’s going to be as legit as a investor can hope for in this day and age.

    There is a lot of ink-spilled over the efficacy and impartiality of these procedures, and I do not claim to be an expert on ICSID arbitration. But I am confident in saying that it would be a far better recourse for most, if not all, investors than to bring their claims in a foreign court. Also, Article 21 allows companies the exact same legal recourse as they had before this treaty; as far as I can tell, the treaty doesn’t preclude them from bringing their claims in the foreign court. But I doubt any company would choose this path for the reasons already discussed.

    6.b. I don’t see how ICSID arbitration pursuant to UNCITRAL rules tilts the scales one way or the other. Generally for these disputes, each side would pick an arbitrator, and then the two arbitrators appoint a head arbitrator. I don’t see how the “tie breaking vote … will always be a citizen of a country who is infinitely more interested in currying China’s favor than in protecting Canadian citizens.” Bombardier’s hypothetical dispute could be presided over by a head arbitrator from Madagascar for all we know.

    6.b. Your concern that arbitrator is confidential is well noted. There is a vast literature debating the merits of arbitration. Some have even called it “lawless.” These concerns aren’t without merit. But again, I reiterate the fact that this treaty doesn’t take anything away from Chinese and Canadian investors, only gives them more legal avenues to pursue their claims.

    To summarize, this treaty is a good thing because it protects both Canadian and Chinese investment. It affords legal protections that companies from these countries previously would not have had. In theory, this will in turn promote trade and investment. Whether it will actually do so remains to be seen. Remebmer that this is a legal treaty, not a business contract for a sale of goods or services. Canada and China have simply agreed to protect each other’s investors when they are investing in each other’s countries by providing.

    And yes, Pandas are political tools for the PRC. BUT, they are just sooooooo damn cute.

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  2. Thanks for your response James. It was measured, considerate, and reasonable. We’re grateful for the perspective, and appreciate any insights we can get.

    To your first point: yes, it’s hard to deny that the language is meant to be inflammatory. We acknowledge that the treaty won’t force anyone to sell or buy anything. No treaty ever does.
    To your second: Our worry is not that trade agreements are in themselves unconstitutional. Our worry is that the language of this treaty would commit the government to situations where it would have to choose between upholding this trade agreement and upholding the constitution. To our knowledge, no other trade agreement that Canada has signed puts our government in a situation as difficult as this.

    On Article 11, while we take your point that investors should be protected from political exigencies, our problem is with the fact that the unnecessarily broad language will protect the rights of investors over and above the rights of, say, workers to strike for better conditions. In Fort McMurray or Chongquing.

    The problem is simply that this language provides a new justification for the government to break up domestic dissent in the name of protecting foreign investors, which just seems perverse to us.

    On Article 17, while you make a valid point about saving time and hassle from unnecessary claims, our problem was actually with clause b), where the two governments are not obliged to provide interested persons with ‘reasonably opportunity to comment’ on proposed measures. We’d really prefer that stakeholders, such as provincial governments in both Canada and China, be fully aware of the fact that they have to take this agreement into account while writing their laws.

    On Article 18, what you’re saying would be true if the language was more binding, but the fact remains that simply recognizing something as inappropriate is not a clear enough safeguard against what you’re describing. If they were genuinely serious about protecting health, safety, and environmental regulations, they’d have used more binding language. As it is, this reads like lip service.

    Also, I suspect that that’s exactly what Harper is saying, or will say, to Sinopec. But under this treaty that’ll be ok.

    On Article 21, I refer you to the recent case of Chinese Insurance giant Ping An, which is currently seeking 3 billion dollars in damages from the Belgian government in a closed arbitration regarding losses it suffered when it invested in Belgian bank Dexia, which went under in 2008. Here’s the link. http://in.reuters.com/article/2012/09/24/pingan-fortis-idINL5E8KO9V520120924

    If Belgium’s government is liable to compensate Chinese companies for having made a risky investment, under the terms of the BIT they signed, then it seems Canada’s government will be just as liable for bad decisions made by Chinese companies. That’s our problem.

    As to the intricacies of UNCITRAL and ICSID, we’re going to have to get back to you once we know more. It’s really very complicated stuff, and neither of us are as well-versed as you in this area. When Kylie posts her follow up in a few days, we’ll try and address this.

    When it comes to expropriation, our problem isn’t with arbitration per se, for the reasons you correctly outline. Our worry is that the language allows an overly broad definition of expropriation. According to the treaty, ‘indirect expropriation results from a measure or series of measures of a contracting party that has an effect equivalent to direct expropriation without formal transfer of title or outright seizure.’

    Take the recent case of the Mega Quarry in Ontario. A massive public outcry eventually forced the government of Ontario to rescind planning permission for a huge quarry on the outskirts of Toronto, which would have been environmentally disastrous for the region. Under this treaty, if the quarry’s owners had been Chinese investors, couldn’t they have had grounds to claim that this was expropriation before the tribunal?

    The nightmare scenario could be similar to the case of Metalclad vs. Mexico, which you can find details of here. Ultimately, we just don’t want Chinese companies to be able to sue Canadian governments for having taken measures to protect health or the environment. It just seems perverse.

    As to the neutrality of the third arbitrator, I merely note that Canada has been screwed by situations like this before. As in the Alaskan Panhandle dispute in the 1890s, where both countries sent three arbitrators to a panel to decide how far inland the border between Canada and America would be located. Canada wanted access to at least one port along that coast. America wanted them all to be American. The Americans sent three arbitrators to the panel, Canada was forced to send two Canadians and a Brit. The Brit sold out the Canadian interest in order to preserve his government’s relationship with the United States, which he deemed more important than Canada’s economic well-being.

    We’re just worried that the third arbitrator will always have in the back of his mind that his home country’s economic relationship with China will be directly impacted by his decisions. I don’t deem it likely that he’ll always do the right thing, with the imperative of good relations with China always at the back of his mind.
    We agree that this is a very good treaty for current investors. We don’t, however, feel it’s very good for the citizenry of either country, or the governments that represent them. That’s our fundamental problem.

    But all this is ultimately for the lawyers to sort out. Our chief objection to this treaty is that they don’t seem to be able to do so in the broad light of day. The treaty is being rushed through Canada’s parliament, and indeed may already be in force, without having been subjected to any significant public scrutiny.

    This is either a minor procedural tinkering, or a fundamental realignment of our relationship with the world’s new rising superpower. In either case, we simply feel that the Canadian public have the right to know more about this treaty than they’ve been told.

    But it may already be too late.

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  3. Article 11 is merely a codification of an inevitable consequence; if Chinese investors lose money, by way of war etc, in an investment that they made in Canada, they will be afforded the same compensation they would have had the investor been Canadian or Nigerian and vice versa. This article puts forth a no more stringent requirement that is already in Canadian or Chinese law, it is purely a comity article.

    Article 21 is intended to establish a line of recourse for either party. Without this article there would be no way to enforce a judgement as, to the best of my knowledge, Canada and China don’t have a treaty to do this. Arbitration ends in a binding arbitration contract which, as a result of this article, will be enforceable in both Chinese and Canadian courts as both are parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. International arbitration bodies such as ISCID have very detailed procedural rules that always ensure that tribunals act fairly and reasonably. I also think that this treaty would preclude the parties from bringing a claim in a foreign court. In England, for example, when a claim form is served on parties who agreed to arbitrate one can apply to the court stay proceedings, I think it’s section 9 of the arbitration act. I would presume other countries have such provisions, regardless, judgement enforcement issues would arise so it’s irrelevant.

    “If Belgium’s government is liable to compensate Chinese companies for having made a risky investment, under the terms of the BIT they signed, then it seems Canada’s government will be just as liable for bad decisions made by Chinese companies. That’s our problem.”

    The damages awarded by the arbitration weren’t because it was a risky business investment, it was because Belgium breached an investment treaty.

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