Canada-China Bilateral Investment Treaty: Smart Stepping Stone, or Bad Deal for Canada?

By Keith Edmund White 

Editor-in-Chief

Two reports on iPolitics show the interesting tug-of-war over the policy wisdom of the Canada-China Bilateral Investment Treaty (BIT).  (Note:  These type of treaties are also called Foreign Investment Promotion and Protection Agreements or FIPAs.)  In short, it's clear Canada is not getting an even deal with China on investor protections.  But, in return, Canadian businesses may be rewarded with greater access to the Chinese market in the future.  And in a time where international competition for China is stiff, and the strong role of the Chinese government in the Chinese economy, Canada may (1) have gotten the best deal it could and (2) be effectively playing the trade long-game.

iPolitics brings out Scott Sinclair’s concerns over the Canada-China BIT.  Summed up, Sinclair laments the lack of debate over—let alone public knowledge—the deal.   Here are Sinclair’s concerns, boiled down:

• Not Reciprocal on its Face. The big trade-off?  Performance requirements on foreign investments.  China “can continue to impose conditions on foreign investors, such as requirements to use local suppliers, take local business partners, train local workers and management, and transfer technology.”  Under NAFTA, Canada is already boxed out of this.   The lingering question?  Why would Canada negotiators give China such a considerable gimme? 

• Is investor-state arbitration really an equal benefit to Canadian investors in China and Chinese investors in Canada?  With “the persuasive role…of the Chinese government in all facets of its economy, it would be a brave or foolhardy Canadian investor would invoke investor-state arbitration against the Chinese government.” 

• Chinese investors could take Canadian environmental regulations to arbitration.

• Weaker transparency requirements for arbitration rulings. 

So, the big question:  Why is the Harper government so pumped to push the deal through?   It may be the first step to a bigger deal between Canada and China.  iPolitics gets some great China-Canada BIT context from John Bosariol, one of the authors of a great primer on the deal.   In short, Bosariol talks up just getting China to agree to arbitral tribunals and suggests that the China-Canada BIT could open the door to a larger agreement down-the-road:

In other words, the investment treaty is really just a stepping stone to something larger — potentially dealt with in a free trade agreement — though Minister Fast said on Monday that it’s a little early to start talking about that.

“When that happens, you’ll see that we’ll have an investment chapter in that agreement and that’ll supersede this. But still the principle here that China has opened itself up to being sued in front of an independent arbitral tribunal — I think is a big step for Canada.” 

Unsolicited and perhaps simple insight on trade negotiations with China:   with China’s market is so much bigger, and sought-over by other nations, it seems clear any trade deal—whether on investments only or on bigger trade deals—will always be slightly titled in China’s favor. 

But the DeSmogBlog.com does show the regional aspect of this investment deal in Canadian politics.  Osgoode Law Faculty member Gus Van Harten notes that this deal isn't really designed for Canadian manufacturers (read:  think Ontario and Quebec), but rather for Canadian energy producers (read:  Alberta).  Naturally, the Conservative Party finds its greatest strength in Canada's central region--so it's no surprise that the party's economic growth plan would be pegged to the energy economy, which can often be at odds with pro-manufacturing policies.  From Carol Linnet's excellent series of interviews with Gus Van Harten:

Yes, I mean, it’s pretty clear that the Harper government does not have as its priority support for the established manufacturing sector, and that its higher priority is to get investments into the resource sector to get the resources out of the ground and generate economic activity in that way. It’s not a bad short-term strategy if you want to create some growth, but as a long term strategy it’s not good because it puts too many of our eggs in one basket. And because resource prices are notoriously unreliable, and finally because if the resource extraction activities are owned by foreign companies, then over the long term they will be earning the profits from the exploitation of our resources rather than Canadian companies. (Note:  Emphasis taken from the original posting.)

But, then again, there's another way to look at this.  Canada wants access to China's market.  What does Canada offer China?  Energy.  So Harper is opening the door with the carrot, in hopes of getting a more balanced deal in the future.  Is this the right way to go?  For a middle power like Canada it seems like, overall, yes.  Now on the particulars of the deal, could Canada have gotten a better deal?  Well, that's for a post-Harper government policy book that explores, with the actual decision-makers, the Harper government's trade and economic strategy.  (Shameless plug:  I, for one, would be thrilled to help put together such a work!)

In any case, CUSLI-Nexus gives props to iPolitics and DeSmogBlog.com for bringing some needed attention to the China-Canada BIT/FIPA.