Chinese companies can sue BC for changing course on Northern Gateway, says policy expert
The Canada-China Foreign Investment Promotion and Protection Act (FIPPA), which will come into effect at the end of October, is Canada's biggest foreign trade treaty since NAFTA. What are its implications for BC?
Posted: Oct 12th, 2012
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Graphic by Craig Fleisch (craigfleisch.ca) for The Vancouver Observer
A Canada-China investment treaty, known as FIPPA, will hamstring BC from negotiating a greater share of profits and creating regulations related to the proposed Enbridge Northern Gateway pipeline for the next 31 years once it comes into effect at the end of October, an international investment law expert warns.
"This treaty, in effect, will pre-empt important elements of the debate of the Northern Gateway pipeline and may frustrate in a very significant way the ability of the current BC government or any future government—if the NDP were to win in spring—from stopping that pipeline or bargaining a better deal for BC," said Gus Van Harten, an Osgoode Law professor who specializes in international investment law.
Van Harten noted that arbitrators in foreign investment agreement disputes will most likely judge in favour of Chinese investors in cases where the host country attempts to impose new or updated regulations that may interfere with the investor's bottom line.
"If this treaty comes into effect, and there's any Chinese ownership whatsoever in assets related to this pipeline—minority ownership, ownership we generally don't know about—then Canada will be exposed to lawsuits under this treaty, because the BC government will be discriminating against a Chinese investor, which is prohibited by the treaty."
The treaty will protect investors' rights for 31 years as of November 1.
The Northern Gateway is a controversial pipeline project proposed to run from the Athabasca oil sands in Alberta to the north coast of BC. It would build a twin pipeline running from Bruderheim, Alberta, to Kitimat, BC.
The eastbound pipeline would import natural gas condensate and the westbound pipeline would export bitumen from the oil sands diluted with the condensate to the new marine terminal in Kitimat, where it would be transported to Asian markets by oil tankers. The project is currently under review from the National Energy Board, which is set to make a decision on whether or not the project will go ahead by the end of 2013.
The proposed pipeline has polarized BC politics. BC Liberal Premier Christy Clark has demanded a "fair share" of its profits for the environmental risks the pipeline could pose to BC's northern coast. Meanwhile, the BC NDP has taken a firm stance against Northern Gateway, asserting a "Made in BC" environmental assessment that would involve consideration for First Nations rights and environmental concerns.
Disputes can be decided in secret tribunals under FIPPA
Van Harten wrote in another op-ed for The Toronto Star about the unprecedented secrecy around the three-person tribunals which judge the disputes between a foreign investor and the host country. Harten called this an "about face" from previous Canadian government policy.
"The turn to secrecy is an about-face for the government. Canada was until now a champion of openness in investor-state arbitration," Van Harten wrote.
"The Canada-China deal undermines basic Canadian principles of public accountability and open courts. It raises dramatically the stakes of Chinese takeovers in the resource sector. If ratified, it will tie the hands of future elected governments for at least 31 years."
Canada paid out $160 million in investor-state compensation since 2001 under NAFTA, Canada's last major international trade-related agreement, with another payout pending in a case involving research and development rules in Newfoundland.
"We have lost about half of the decided cases against the government, all by U.S. companies under NAFTA," Van Harten wrote, as a warning against the investor-state clause in FIPPA.
Liberal MP and Committee on International Trade co-chair Wayne Easter, who has been a Member of Parliament representing Prince Edward Island since 1993, recalled the case of Ethyl Corporation vs. the Government of Canada in 1997. The Canadian government paid the Corporation $13 million after its ban on the import and inter provincial trade of the gasoline additive MMT—a suspected neurotoxin-- was found to violate the investor corporation's rights under NAFTA.
"Even though we were doing it for an environmental reason, under the investment rules it affected their future profit, and so the Government of Canada had to cut a check to Ethyl," Easter said.
"And that's what can happen when a government makes a decision in the public interest that affects a company's future profits of something they're selling into the marketplace. It really takes your ability of public policy out of public interest hands, being the government, and puts into private investor hands."
Harper government muffling debate: opposition MPs
The majority Harper government is continuing a trend of muffling democratic debate in the House of Commons by ignoring calls to study, debate and clarify a major foreign investment agreement between Canada and China, say opposition MPs.
"There is no mechanism that the Conservatives have permitted in this case to allow stakeholder input and full discussion about FIPPA," said International Trade critic for the official opposition Don Davies.
Davies proposed a motion on October 2 in the Standing Committee for International Trade to gather expert opinions, clarify ambiguities, and debate contentious clauses in the wide-ranging agreement.
After the majority Conservative committee voted for a confidential, in-camera meeting, the motion was removed from the Committee's agenda.
Easter said that this was "typical" for the Conservatives when they don't want to engage in a critical debate.
"The problem is with this particular government is they typically go in-camera to defeat a motion," he said.
"We should be doing what Parliament is supposed to do and hold a consultation so that we know just exactly what is happening under the investment agreement, and so that we can look at the implications."
One of the implications that Easter says he worries about is the investor-state arbitration clause, a controversial clause (Article 28) in the FIPPA that allows for a three-person tribunal to judge cases of investor-host country disputes in confidential hearings.
Policy watchers and opposition MPs have raised alarms about this clause, raising examples in the past where multinational corporate investors sued government of Canada in secretive tribunals ratified under NAFTA.
Harper government's consultation with House "unprecedented": Minister of International Trade spokesperson
"This treaty, in effect, will pre-empt important elements of the debate of the Northern Gateway pipeline and may frustrate in a very significant way the ability of the current BC government or any future government—if the NDP were to win in spring—from stopping that pipeline or bargaining a better deal for BC," said Gus Van Harten, an Osgoode Law professor who specializes in international investment law.
Van Harten noted that arbitrators in foreign investment agreement disputes will most likely judge in favour of Chinese investors in cases where the host country attempts to impose new or updated regulations that may interfere with the investor's bottom line.
"If this treaty comes into effect, and there's any Chinese ownership whatsoever in assets related to this pipeline—minority ownership, ownership we generally don't know about—then Canada will be exposed to lawsuits under this treaty, because the BC government will be discriminating against a Chinese investor, which is prohibited by the treaty."
The treaty will protect investors' rights for 31 years as of November 1.
The Northern Gateway is a controversial pipeline project proposed to run from the Athabasca oil sands in Alberta to the north coast of BC. It would build a twin pipeline running from Bruderheim, Alberta, to Kitimat, BC.
The eastbound pipeline would import natural gas condensate and the westbound pipeline would export bitumen from the oil sands diluted with the condensate to the new marine terminal in Kitimat, where it would be transported to Asian markets by oil tankers. The project is currently under review from the National Energy Board, which is set to make a decision on whether or not the project will go ahead by the end of 2013.
The proposed pipeline has polarized BC politics. BC Liberal Premier Christy Clark has demanded a "fair share" of its profits for the environmental risks the pipeline could pose to BC's northern coast. Meanwhile, the BC NDP has taken a firm stance against Northern Gateway, asserting a "Made in BC" environmental assessment that would involve consideration for First Nations rights and environmental concerns.
Disputes can be decided in secret tribunals under FIPPA
Van Harten wrote in another op-ed for The Toronto Star about the unprecedented secrecy around the three-person tribunals which judge the disputes between a foreign investor and the host country. Harten called this an "about face" from previous Canadian government policy.
"The turn to secrecy is an about-face for the government. Canada was until now a champion of openness in investor-state arbitration," Van Harten wrote.
"The Canada-China deal undermines basic Canadian principles of public accountability and open courts. It raises dramatically the stakes of Chinese takeovers in the resource sector. If ratified, it will tie the hands of future elected governments for at least 31 years."
Canada paid out $160 million in investor-state compensation since 2001 under NAFTA, Canada's last major international trade-related agreement, with another payout pending in a case involving research and development rules in Newfoundland.
"We have lost about half of the decided cases against the government, all by U.S. companies under NAFTA," Van Harten wrote, as a warning against the investor-state clause in FIPPA.
Liberal MP and Committee on International Trade co-chair Wayne Easter, who has been a Member of Parliament representing Prince Edward Island since 1993, recalled the case of Ethyl Corporation vs. the Government of Canada in 1997. The Canadian government paid the Corporation $13 million after its ban on the import and inter provincial trade of the gasoline additive MMT—a suspected neurotoxin-- was found to violate the investor corporation's rights under NAFTA.
"Even though we were doing it for an environmental reason, under the investment rules it affected their future profit, and so the Government of Canada had to cut a check to Ethyl," Easter said.
"And that's what can happen when a government makes a decision in the public interest that affects a company's future profits of something they're selling into the marketplace. It really takes your ability of public policy out of public interest hands, being the government, and puts into private investor hands."
Harper government muffling debate: opposition MPs
The majority Harper government is continuing a trend of muffling democratic debate in the House of Commons by ignoring calls to study, debate and clarify a major foreign investment agreement between Canada and China, say opposition MPs.
"There is no mechanism that the Conservatives have permitted in this case to allow stakeholder input and full discussion about FIPPA," said International Trade critic for the official opposition Don Davies.
Davies proposed a motion on October 2 in the Standing Committee for International Trade to gather expert opinions, clarify ambiguities, and debate contentious clauses in the wide-ranging agreement.
After the majority Conservative committee voted for a confidential, in-camera meeting, the motion was removed from the Committee's agenda.
Easter said that this was "typical" for the Conservatives when they don't want to engage in a critical debate.
"The problem is with this particular government is they typically go in-camera to defeat a motion," he said.
"We should be doing what Parliament is supposed to do and hold a consultation so that we know just exactly what is happening under the investment agreement, and so that we can look at the implications."
One of the implications that Easter says he worries about is the investor-state arbitration clause, a controversial clause (Article 28) in the FIPPA that allows for a three-person tribunal to judge cases of investor-host country disputes in confidential hearings.
Policy watchers and opposition MPs have raised alarms about this clause, raising examples in the past where multinational corporate investors sued government of Canada in secretive tribunals ratified under NAFTA.
Harper government's consultation with House "unprecedented": Minister of International Trade spokesperson
A spokesperson for the Minister of International Trade Ed Fast responded to questions directed at the Minister about consultation about FIPPA with the House through written responses to The Vancouver Observer.
"In the name of transparency, our government introduced an unprecedented process for putting international treaties before Parliamentarians in the House of Commons. The NDP have already had two opportunities to debate the FIPPA with China and have chosen not to."
However, critics of the government's handling of FIPPA say that this is not enough, calling for consultation from provinces and territories and committee hearings at the very least.
Scott Sinclair, a senior researcher and director of the Trade and Investment Research Project at the Centre for Policy Alternatives, said that the federal government should be consulting provinces and territories about such a wide-ranging agreement.
"There isn't nearly enough consultation, and the intenton of Parliament to not even going to have a vote raises some very important issues about right to regulate and the rule of law," he told The Vancouver Observer.
"There isn't nearly enough consultation, and the intenton of Parliament to not even going to have a vote raises some very important issues about right to regulate and the rule of law," he told The Vancouver Observer.
"I think there's a strong case that the federal government consult each and every territorial government before this treaty is ratified. At the very least, there should be Parliamentary committee hearings to look at this agreement from every angle."
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