Canada’s Foreign Investment Protection Agreement With China Takes Effect on October 1, 2014

Chinese Version

This article is also available in Mandarin version.

The Canadian government has announced that the bilateral investment treaty  (BIT) between China and Canada has now been ratified and will come into force on October 1, 2014, more than two years after the agreement was concluded and signed by the two countries. The BIT contains substantive protections for foreign investment in each country and binding enforcement mechanisms, including a controversial investor-state dispute settlement mechanism allowing investors to sue the Chinese and Canadian governments for damages arising from their failure to comply with BIT obligations.

For a detailed analysis of the provisions of the China-Canada BIT, please see A Primer on the New China-Canada Bilateral Investment Treaty. A full copy of the agreement can be found here. Below is a brief summary of some of the key obligations and mechanisms.

The BIT requires each of China and Canada (a "Party") to extend basic investment protections to investors of the other country, including:

(i) most-favoured-nation (MFN) treatment - each Party must accord treatment to investors of the other Party that is no less favourable than that accorded to investors from a non-Party;

(ii) national treatment – each Party must accord treatment to investors of the other Party that is no less favourable than that accorded to its own investors;

(iii) minimum standard of treatment – investments must be accorded fair and equitable treatment and full protection and security in accordance with international law;

(iv) performance requirements – Parties may not apply measures that are prohibited under the World Trade Organization Agreement on Trade-Related Investment Measures, such as investment measures that require the purchase or use of domestic products; and

(v) compensation for expropriation – investments or returns of investors shall not be expropriated or subject to measures having an equivalent effect, unless certain conditions are satisfied, including the payment of prompt, adequate and effective compensation to the investor.

These investment protection obligations are subject to numerous exceptions. For example, unlike the MFN obligation which applies, inter alia, to the establishment and acquisition of investments, the national treatment obligation applies only on a post-establishment basis. Further, all existing non-conforming measures maintained by China and Canada at the time the BIT enters into force are exempt from the MFN and national treatment obligations.

In addition to the government-to-government resolution of disputes under the BIT, there is an investor-state dispute settlement mechanism that enables investors of one country to sue the government of the other where they have incurred loss or damage arising out of that government’s breach of the BIT. Such a claim for damages may be submitted and heard by an arbitral tribunal under the auspices of the ICSID Convention or pursuant to the UNCITRAL Arbitration Rules.

Further analysis of the key obligations, exceptions and remedies under the China-Canada BIT can be found here. The BIT provides important strategic opportunities for Chinese and Canadian investors seeking to protect their interests in each country. This is Canada’s 28th BIT to come into force. Canada has signed and/or concluded BITs with 13 other countries which have yet to come into force and is currently negotiating BITs with another 12 countries.

McCarthy Tétrault’s International Trade & Investment Law Group has significant knowledge and experience in dealing with investment and trade agreements and works closely with our China Group in addressing specific foreign investment and trade issues facing our clients in the Chinese and Canadian markets, including advising on remedies available to foreign investors under bilateral investment treaties and international trade agreements, anti-corruption laws and policies, economic sanctions and export controls, government contracting, customs and tariff issues and other investment and trade matters.