Published on November 27th, 2012 | by Jayson Phillips0
Protection and growth: should Canadians be worried about China, the FIPA, and their economic future?
In the past month there has been significant public outcry towards the Canada-China FIPA (Foreign Investment Promotion and Protection Agreement) and the CNOOC takeover of Nexen. Within days of the announcement of impending ratification, 50,000 Canadians signed an on-line petition calling for repeal of the agreement. Worry has been expressed in regards to the agreement not being discussed or debated in parliament. Fear has been expressed in regards to public worry that Chinese companies will pillage our vast booty of national resources. Anxiousness has been expressed at the details of the agreement itself. Injustice has been expressed about how Chinese companies will have more rights than Canadian companies. However, there are some interesting facts about the agreement that have not been readily covered in the mainstream media and that have been overshadowed by the public outcry and petitions.
Canada already has FIPAs with 24 other countries and 6 are currently in the works. These agreements are designed to protect Canadian investments in foreign countries (by ensuring compensation for lost income or expropriation) and encouraging foreign investment in Canada by ensuring the same compensation for foreign investors. An agreement of very similar nature is present in NAFTA. There are also some positive things in this particular agreement. This particular FIPA is China’s first to include language about the transparency of the proceedings. Our agreement also gives us ‘Favoured Nation’ status which ensures that we are treated as equally as other nations who have agreements with China that may be better than ours.
There’s no doubt that in this time of economic uncertainty Canada could benefit from foreign investment. Currently, Canada receives just 3% of available foreign investment worldwide. Canada also needs roughly $600 billion to develop our energy resources and get that product to the market. Furthermore, Canadian investment abroad has significantly increased over the past 30 years. Engaging in FIPAs with other nations helps to protect our investments abroad. By 2020, China is expected to rise as the world’s largest economy. Engaging in a foreign investment agreement with China is not something that Canada can just turn its back on.
However, all things considered, there are really some valid reasons for concern. On November 15, US-based Lone Pine Resources, Inc. announced their plans to sue the Government of Canada under Chapter 11 of NAFTA over Quebec’s decision to impose a moratorium on all gas and oil exploration in the Gulf of the St. Lawrence. Even though the decision was completely democratic, and supported by the majority of Quebecer’s, Lone Pine is arguing that the decision was arbitrary. This is the kind of thing that should be a reason for concern. With recent reports of contaminants accumulating in the snow near the Alberta oil sands it is possible that sometime in the future operations are scaled back, or altered to be more environmentally sound. There is also an extremely distant and remote possibility that the operations are halted, or not allowed to expand in search of more bitumen. Under the FIPA with China, Chinese investors would be within right to sue the Government of Canada or Alberta for lost profits even though the decisions were made to protect the environment (or even the citizens of the area). It should be noted that in Canada’s history of FIPAs, Canada has paid out $170 million (in four cases) to foreign investors who have sued the Government for loss of expected profits or expropriation while Canadian investors have never won any compensation in 16 known lawsuits.
China could also sue the Government of BC if it chooses to block The Northern Gateway project, a proposed pipeline, even if 100% of the residents of BC support the decision. The case would be held in a secret hearing that the Government of Canada could choose not to release information about to the public if they consider it not to be in public interest. The case would be heard outside of the authority of the Canadian legal system and would be attended by three arbitrators: a Canadian, a Chinese, and a neutral represented by the World Bank. Currently, the Government of Belgium is in the midst of such arbitration to the tune of $3 billion. Having an arbitration hearing to decide the fate of such a huge sum of money in secret is an angst-inducing prospect. Where will that money come from should the hearing decide in favour of the Chinese?
The company taking over Nexen is another valid concern. Last year CNOOC had two offshore wells leak and contaminate an area of ocean nine times the size of Singapore and waited a whole month to report it. This spill not only killed a vast amount of ocean life but also significantly affected tourism. A major lawsuit by US investors in CNOOC also accuses CNOOC of not being in compliance with environment law and regulation, and concealing both the extent and severity of the spill. If CNOOC is so environmentally irresponsible at home how can we expect the company to behave responsibly abroad? Furthermore, CNOOC has received a score of 3.9 (a failing score) in an international ranking of transparency and ability to fight corruption; this places CNOOC amongst similarly corrupt and opaque companies such as Philip Morris, Citigroup, and the Commercial Bank of China. Although the Nexen takeover stipulates that 50% of the board of directors must be Canadian (so long as it doesn’t interfere with profits) it’s hard to tell if it will make much difference in wake of CNOOC’s behaviour and corruption.
The Canada-China FIPA deserves greater scrutiny. Although there are strong arguments and reasons as to why a Canada-China FIPA is a good thing for Canada, this agreement must be fleshed out, discussed, and debated in open parliament. An agreement of this nature would be greatly beneficial for Canada if the Chinese economy does become the world’s largest in seven years. It would also be much better negotiating an agreement now, as negotiating with China once it has the power of the world’s largest economy might result in an even worse deal. However, this agreement needs to be more transparent and include more concern for Canadian interests. Furthermore, the takeover of Nexen by CNOOC is a terrifying prospect for Canada’s environment. CNOOC has clearly shown they are not a company to be trusted in regards to following the law or being a responsible corporate entity. Although CNOOC would be bound by Canadian laws while operating in Canada, it’s hard to imagine they would operate differently in Canada than in China. I implore any and all to write your MP, sign a petition, or share this information (or other information) with others. 30 years is a long time to be responsible for an irresponsible (and possibly others) entity.
Sources and further reading: MP Elizabeth May’s office writes a piece on the NAFTA lawsuit | Ottawa Citizen opinion piece on the Canada-China FIPA | Bridge River Lillooet News opinion piece on the FIPA | Times Colonist commentary on China and the FIPA | Canadian Business article investigation the details of the FIPA | Montreal Gazette opinion piece on the FIPA | The Tyee provides a link to an Explanatory Memorandum of the FIPA (link to PDF) | The Province’s news piece on toxins found in oilsands snow samples
Image courtesy of Royal Dutch Shell.