The Narwhal | News on Climate Change, Environmental Issues in Canada

Rush to Ratify: FIPA May Violate Constitutional Protection of First Nations Rights

Carol Linnitt — Wed, 31 Oct 2012 22:52:33 +0000

The Canada-China Foreign Investment Promotion and Protection Agreement (FIPA) may be ratified as soon as tomorrow, November 1. This despite a massive demonstration of Canadian opposition to the investment trade deal that will lock the federal government into a dangerously undemocratic agreement with China and Chinese investors for 31 years.

The proposed agreement, signed by Stephen Harper in Russia on September 9 and kept secret until September 26, is being strong-armed through the house of commons after the required 21-day session in Parliament.

Political action and environmental groups, opposition party leaders and experts in the field of international trade law are urging the Harper government to reconsider the agreement’s immediate ratification, demanding an open parliamentary debate before the trade deal’s future is decided.

So far all requests to throw out the deal, host a national debate, investigate the deal in emergency Parliamentary discussions, or indefinitely delay the deal’s ratification, have gone unheeded by the Harper government.

Under FIPA the federal government is obliged to protect investor rights and profits, even to compensate for lost profits. That means when it comes to disputes involving Chinese investors, like the one over the future of Enbridge’s Northern Gateway Pipeline, the Canadian government will have a duty to protect investor profits and not necessarily the jurisdictional rights of the British Columbian government, people or First Nations.

But as West Coast Environmental Law (WCEL) pointed out yesterday, First Nations people in Canada have a unique constitutional standing in the country, a standing that restricts the federal government from making decisions — without prior consultation — that affect First Nations’ constitutionally-protected Aboriginal Rights.

It appears the Stephen Harper government has not fully considered the fact that, as WCEL puts it, “by giving new rights to Chinese investors, the treaty risks undermining Canada’s obligations to deal in good faith with First Nations.”

When it comes to the China-Canada Investment Deal, not only has the Harper government failed to deal in ‘good faith’ with First Nations, but has failed to deal with First Nations at all. For this reason, the details of the treaty may be inconsistent with Canadian law.

According to WCEL Canada is hoping to ratify the trade deal through an “Order of Council,” which will see the deal implemented via Cabinet without any legislation. However, Canada is only meant to implement international treaties this way “once the treaty is consistent with Canadian law.”

Treaty implementation occurs in Canada this way because we’ve got what is called a dualist model: “a treaty that has been signed and ratified by the executive still requires incorporation through domestic law to be enforceable at the national level…Canada cannot ratify an international treaty until measures are in place to ensure that the terms of the treaty are enforceable in Canadian law.”

(This is different than America’s monist system where Congress has the power to ratify treaties, making them, in principle, U.S. law, adds WCEL).

So, are the terms of FIPA ‘enforceable’ in Canada?

Well, no. Not according to Section 35 of the Canadian Constitution which states that the Crown must make decisions “leading to a just settlement of Aboriginal claims.” The Crown also has a duty to consult and accommodate First Nations before adversely impacting Aboriginal Title and Rights.

Aboriginal Title and Rights include the right to exercise sovereignty over territorial lands, to fish and hunt traditional foods and to partake in ceremonial practices. What is immediately obvious to BC First Nations is that Canada’s duty to protect and ensure these rights runs into conflict with Canada’s proposed duty and obligation to promote and protect the rights of Chinese investors eager to make a profit of the country’s production and export of tar sands oil.

Yesterday the Union of BC Indian Chiefs addressed Stephen Harper directly on this issue.

As they outlined in an open letter, BC’s First Nations are concerned Canada’s ability to honour negotiations with aboriginal peoples will be limited while the legal threat of international arbitration hangs over the government’s head. This is especially pertinent to the development of the tar sands and the construction of bitumen pipelines — both of which pose a significant threat to First Nations’ territorial sovereignty and traditional, land-based ways of life.

“On behalf the Union of BC Indian Chiefs, we are writing to firmly express, advise and direct the Government of Canada to reject the Foreign Investment Promotion and Protection Agreement with China as the Government of Canada has breached its fiduciary duty to consult First Nations on our respective constitutionally-enshrined and judicially-recognized Aboriginal Title, Rights and Treaty Rights.

Furthermore, as both Canada and China have adopted the United Nations Declaration on the Rights of Indigenous Peoples, both countries are bound by Article 19 which states: “States shall consult and cooperate in good faith with the indigenous peoples concerned…in order to obtain their free, prior and informed consent before adopting and implementing legislative or administrative measures that may affect them.”

As designed, we believe that through the ratification of this agreement, China will be granted protection and would thus greatly increase their investment in the development of the Alberta tarsands, pipelines, mining projects and possibly future offshore drilling projects, all at a great cost to our Aboriginal Title, Rights and Treaty Rights.”

Source: Globe and Mail

As this map illustrates, the pipeline traverses the territories of numerous First Nations in both Alberta and British Columbia and will supply Asia-bound supertankers with tar sands bitumen to ship through territorial waters.

When it comes to deciding whose rights ought to be protected, WCEL suggests FIPA could lead the government to favour foreign investors over First Nations:

“FIPA itself may violate the constitutionally-protected process of negotiations between the Crown and First Nations. There is a reasonable probability that the threat of multi-million dollar investor-state suits under FIPA will create a disincentive for the Crown to negotiate honourably with First Nations (for example, regarding environmental and cultural protection measures in treaties or other legal agreements). The question is whether this effect is so significant that it can be said that FIPA therefore ‘substantially interferes’ not just with First Nations preferred outcomes, but the very process of negotiation. If so, then on the basis of Charter jurisprudence in Canada, a court could hold any legal action taken by Canada to ratify or implement FIPA to be unconstitutional, and it is possible that a First Nation could seek an interim injunction preventing its ratification until they have their day in court.”

WCEL adds “given the lack of consultation with First Nations on FIPA it is very difficult to see how Canada could justify its infringement of First Nations constitutional rights.”

What can you do?

The countdown is running low, with the deal’s potential ratification expected as early as tomorrow.

If you haven’t already signed a petition, or you are looking to sign another, be sure to check out these options:

Leadnow.ca and SumofUs.org’s Stop the Sellout: Canada is Not for Sale

David Suzuki’s Stop the China-Canada Trade Deal

Change.org’s Prime Minister Harper: Stop FIPPA Deal with China NOW and allow debate in House of Commons

The Council of Canadians Open Letter to Stephen Harper

Sustainable Living and Urban Gardening Anti-FIPA Petition

You can also email these pivotal members of the Standing Committee on International Trade:

Rob Merrifield rob.merrifield@parl.gc.ca

Ron Cannan ron.cannan@parl.gc.ca

Russ Hiebert russ.hiebert@parl.gc.ca

Ed Holder ed.holder@parl.gc.ca

Gerald Keddy gerald.keddy@parl.gc.ca

Bev Shipley bev.shipley@parl.gc.ca

Devinder Shory devinder.shory@parl.gc.ca

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

China-Canada Investment “Straitjacket:” Interview with Gus Van Harten Part 3

Carol Linnitt — Fri, 19 Oct 2012 18:00:52 +0000

This is the third and final post in the series China-Canada Investment "Straitjacket:" Exclusive Interview with Gus Van Harten. You can access Part 1 here and Part 2 here.

Canada has already begun the short countdown to the day the China-Canada Investment Deal becomes ratified in the House of Commons, although the nation has been granted no opportunity to clarify or discuss the full economic or environmental significance of the agreement – the most significant in Canada's history since NAFTA. Prime Minister Harper, who signed the agreement in Vladivostok in September, is forcing this deal through with such force and brevity it makes the undemocratic Omnibus budget bill C-38 look like a dress rehearsal. International investment lawyer and trade agreement expert Gus Van Harten has landed center-stage in the controversy as one of the only figures willing and qualified to speak up against the investment agreement. He told DeSmog that Canada's rush to enter into an investment deal of this sort endangers Canadian democracy, threatens Canadian sovereignty and could fracture the government's loyalty to its people. In this post, the final segment of our interview with Van Harten, he discusses in more detail just how bad this deal is for Canada economically and how much it threatens to corrupt our way of doing business.

[view:in_this_series=block_1]

Below is Part 3 of our interview: Carol Linnitt: I’ve got a couple other questions for you. Maybe I’ll ask you about transparency. So, any challenge that Chinese investors might pose to the Canadian government in regards to legal frameworks, this all can happen behind closed doors, in the sense that the Canadian public will have no idea that this is happening whatsoever, and have no possibility of even participating in a discussion about the outcome or the decisions the Canadian government makes. Gus Van Harten: In the arbitrations, the only parties that have a right to standing are the national government of the country that’s been sued, the federal government, and the investors. No one else, native groups in BC, the British Columbia government, domestic Canadian companies, even if their rights or interests are affected directly by the occasion, let’s say their reputation is affected, they have no right of standing. That is because it’s an international arbitration, so it’s not exceptional in that context. What’s exceptional is that they allow this private investor to go into the international arbitration, but no other private party. The point is, the Canadian government reserved the right in the treaty to keep claims by Chinese investors against Canada, against the Canadian governments, to keep those confidential if the Canadian government decides that it is in the public interest to do that. So that raises the question, when will the Canadian government think it is not in the public interest to tell Canadians that Canada has been sued by a Chinese investor? The treaty clearly contemplates that there will be such situations. If the government wanted to make all of these claims public, it could easily have done so in the treaty, because that’s what it has done in the past treaties, that it signed with countries like Romania for example. CL: Okay. GVH: So we can presume that some or many or even all of the arbitration claims may not in fact be made public. That is, the hearings may not be made public and documents associated with the arbitration may not be made public. I should stress, the treaty does provide for any awards to be made public, but also important are the submissions that the parties are making in the arbitration, especially our own government on our behalf. Those should also be public, but the government has said that it can keep them confidential if the government considers it to be in the public interest under the treaty. CL: This is interesting too because if we are looking at this deal as a great economic opportunity in terms of Canada’s doors being open to the fastest growing global economy in the world right now, is there additional element of say, economic entanglement that will complicate these issues further, if say we become reliant upon Chinese investment and also the availability of Chinese markets for our products. Does that add an additional layer of complication to the way that decisions will be made with this deal? GVH: Well, what this deal is setting up is for us to play the role of the supplier of raw resources to feed the Chinese industrial machine. We will have difficulty competing with Chinese manufacturing because of the extremely low cost of labour in China. Because the lack of regulation of various aspects that we would regulate here, because of the immense amount of money the Chinese are investing in research and development, and because the Chinese are very quickly copying western technology, they in fact use foreign investment as a way to get access to western technology. So the Chinese strategy is to set itself up as the manufacturing centre, and that’s where the money is. The real economic benefits is not taking the resources out of the ground, it’s adding value by manufacturing the resources and then exporting the manufactures. No country, or very few, has ever industrialised, and based its development on industrialisation, other than by setting up a manufacturing sector. So we are, in a sense, setting up conditions when we will simply supply resources to manufacturing in China. And that in a way is a kind of economically dependent relationship, because you’re more vulnerable economically if your economy is too dependent on simply exporting raw materials and you leave the economic benefits from value-added activity and from the super profits that can come from developing manufactured goods that are the edge of the technology frontier. You give those opportunities over to China. And I think it’s quite clear that that’s the Chinese strategy and this deal fits right into it. It would be more beneficial to Canada if the deal at least allowed Canadian investors to buy Chinese companies, on a relativity widespread basis. But the deal does not do that. Also there could be benefits in having a wider trade deal in that Canadian exports would have more favourable access to the Chinese market than other countries receive under the world trade organisation rules. But we also haven’t got that because we were told there’s not going to be any trade deal for at least another ten years, if ever, so I think the Chinese have really got what they wanted out of this deal, and Canada did not get much in return if our aim was to counterbalance Chinese foreign ownership of our economy with opportunities for Canadian companies to own profitable assets in China or with opportunities to increase our ability to compete by exporting goods to China, other than obviously the raw materials in which the Chinese will own the rights. CL: And we’ve already seen a major flagging of the manufacturing sector in Canada just by virtue of how much emphasis has been put on the export of raw materials, bitumen being just one of those. [For the impact of the tar sands on the Canadian manufacturing sector, read the Pembina Institute's "In the Shadow of the Boom: How Oilsands Development is Reshaping Canada's Economy."] GVH: 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. CL: And doing so under a rubric of foreign design that might not serve Canadian interests or the interest of local communities, or upholding the rights of First Nations. GVH: Economically, socially, politically, culturally, it’s less in Canadian control. CL: I’m so baffled that this kind of information hasn’t been highlighted by the media, who have been covering this topic, because I‘m just shocked at how bad this deal is, how much it doesn’t seem like a good opportunity for Canadians. Arguments in terms of economic security don’t even really hold. Speaking environmentally, which is such a relevant issue with climate and the tar sands right now, this is a disaster. And in terms of the pipeline, which is massively important on the west side of Canada, no one is talking about the significance of this deal for these issues that are in the spotlight right now. GVH: Well, people don’t understand how the treaties work and that’s entirely fair, I mean it’s complex, but those who do understand them, lawyers and academics, you see, I would say most of them make significant income, either working for investors or for states in investor-state arbitrations, working as arbitrators in these arbitrations, or working as experts hired by the investor or the state in the arbitration. I can’t say that there’s a massive conspiracy, but there’s certainly a link between the way in which some commentators frame the system and evaluate risks arising from the system and tend to, in my view, understate those risks, slip them under the rug. A link between that and their own career track, and their own career interests, is apparent. Whether it’s actually those interests that influence them I don’t know, on an individual basis, but in terms of watching how the technical literature is written, how people comment publicly on the system, it seems to me that there is a legal and arbitration industry that has a lot of interest in these treaties, and less interest in how the treaties affect Canadian interests, for example, in our case. CL: So the way that the treaty and this deal have been negotiated, it’s all said and done at this point, so it’s not as though the Canadian government could redefine its terms for example, at this stage. GVH: Nothing’s completed yet, the treaty has not been ratified. CL: Okay. GVH: It’s been signed but not ratified, and it has to be ratified to come into effect. The Canadian government said, ‘look, it’s going to come into effect after we’ve put it before parliament for 21 days, and that’s it. We’re not going to have any public hearings about it; we’re not going to have a vote in parliament about it, of course it would probably win the vote anyway; we’re not going to put it to provincial legislators for a vote; we’re not going to put it to a referendum.’ This is going to be in force after 21 days, that’s sitting days of parliament, that’s it. But, in the meantime the government can change its mind. I don’t think they will, but at best it’s important to at least, at this time, make people aware of just how significant a long-term decision this is going to be. CL: So what could you foresee being…how can we stop this? That’s the question I really want to ask. GVH: Yes, other people are asking that question. I talked to one or two people about it and there are some ideas, but I’m not really that optimistic. Not through the legislative process because the government controls that. The provinces might object, and the courts might play a role, possibly, but I'm not really holding my breath. I know that some provinces are aware of this and are not happy about it. I hope the provinces do pay attention and that one of them might take action to delay ratification, but time is getting very short. CL: Yes, very short. GVH: For example, I would have thought the current BC government and the incoming NDP government in BC would not be very keen to hear about how its options with respect to the northern gateway pipeline might be frustrated by this deal. CL: That would have been my next question, that is, what is BC’s stance? So that’s interesting. Perhaps some really, really outspoken provincial opposition could sway public opinion about the benefits of this deal. GVH: …to show how this deal appears designed to stop BC from blocking the Northern Gateway Pipeline. CL: That would definitely be relevant for people to be thinking about right now. It’s hard not to be blindsided by some of the unexpected elements in the pipeline argument, you know, between provincial legislation and federal legislation, the transformation of our laws while the hearings are in place, that affect those hearings, province to province deals; it’s had to wrap your mind around who actually has the decision making authority when it comes to this pipeline, and this is a really interesting new element to add to this whole issue. GVH: Yes, I assume that here are people in the provincial governments that are looking at this, but I don’t think there are very many who really understand the implications fully. CL: And people who are in those positions have a thousand things to juggle, and just to wrap your head around this treaty and to get the details of it straight is a lot of work, and it’s the kind of complications that don’t play out well in the media. It’s difficult to try to inform people about these kinds of things because of the sorts of technicalities difficulties involved. GVH: It’s complicated, true. And a government can always throw up some lawyer in a suit to say, ‘oh no, it’s fine’. CL: Okay, I just have one last question for you. I wonder if you’re familiar at all with the 'Ethical Oil' campaign. GVH: You mean Ezra Levant’s thing? CL: Yes, yes. GVH: Vaguely, I didn’t really pay much attention to it. CL: Well it's still in play as as public opinion machine that is very active. In relation to the China-Canada deal, one Ethical Oil writer named Jamie Ellerton has written two pieces on Huffington Post Canada, arguing that Canada’s oil will still be the most ethical oil in the world, even if China has a massive stake in the oil sands. He’s saying our human rights record, our way of doing business, all of these things will persist, even if other international players who don’t have good human rights records are involved, or we’re entering into partnerships with them. [Read: Ellerton's "No Foreign Investments Can Tarnish Our Ethical Oil" and "Just Because They're Communitsts Doesn't Mean We Can't Do Business With Them."] And that’s, for me, a very frustrating narrative that is emerging when we’re discussing things like the oil sands. I feel like there’s more serious conversations to be had and arguments in favour of 'ethical oil' are simply emotional fodder and not at all the specific conversations we need to have about Canada's economy, energy diversity, climate action, First Nations rights, democracy and the significance of our decisions for future generations. So I would like to counteract that narrative, and I’m wondering if you could talk about the meaning of this deal for Canada in term of Ellerton's argument. If we consider ourselves responsible actors, and we have a good human rights record, could something like this deal have the capacity to transform that side of Canada? That way of doing business? How would that happen, what would that look like, what’s the potential for Canada’s position on those types of issues to change? GVH: I think that’s a bit more removed, I mean it’s just a bit more speculative. As to how this deal might undermine our reputation for ethical oil, I think the debate about whether Canadian oil is ethical, is really about something fundamental about the tar sands, and whether that oil should ever be taken out of the ground, because it’s going to go into the atmosphere in carbon, and if it does, if a large amount of it does, the risks in terms of climate catastrophes are obviously going to be higher. So I am not sure this deal really accentuates, or somehow undermines, the case that otherwise would be in place for ethical oil. CL: The side of it that I’m trying to pick up on is the issue of sovereignty. We may be able to say right now that Canada has great management structures in place, and equitable regulatory frameworks, and so on and so forth, even though I don’t think that’s the case, especially with first nations and… GVH: I guess perhaps the point is, you can't really talk about Canadian ethical oil anymore: it’s really Chinese oil. It’s Chinese oil that, because of this deal, is insulated from regulations and legislation in Canada, so this deal makes it increasingly Chinese oil. Rather than Canadian. It comes out of the ground in Canada, but many of the decisions about whether and how to take it out of the ground are going to be made by the Chinese investors. And they’re going to be able to avoid, potentially, attempts by the Canadian parliament or a provincial legislature, Canadian governments, to put environmental, health and other kinds of standards on the exploitation of that resource. CL: I guess the reality is that by going ahead with this deal we are relinquishing some of our decision-making authority about the way that these resources are developed. So you can’t just blanket it and say that this oil’s developed according to Canadian values, because that will no longer be the case. And, in fact, I don’t think it is the case right now. But, this is just a perfect point in case, where we are relinquishing our authority and our value base will change accordingly. Well, that gives me a lot of important material to work with. I’ll be in touch with you, thanks again for your time, I really appreciate it. GVH: Okay, well good luck with your writing. CL: Yeah thanks, and you too. Nice to talk to you, bye. [END OF INTERVIEW] Gus Van Harten continues to write on the topic and has recently addressed an open letter to Prime Minister Harper and the Honourable Edward Fast, Minister of International Trade and Minister of the Asia-Pacific Gateway, urging them to halt the trade agreement's ratification. Van Harten's research is freely available on the Social Science Research Network and the International Investment Arbitration and Public Policy website. Images from the "PM visits China" photo gallery.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

China Investment Treaty “a Straitjacket” for Canada: Exclusive Interview with Trade Investment Expert Gus Van Harten

Carol Linnitt — Wed, 17 Oct 2012 21:23:50 +0000

This post is the first of a series on the Canada-China Investment "Straitjacket:" Exclusive Interview with Gus Van Harten. You can access Part 2 here and Part 3 here.

I recently picked up a copy of Francis Fukuyama's 2011 book, The Origins of Political Order. Sitting on the bedside table at the house I was staying at, the book made for some 'light' bedtime reading. I heaved the enormous tome onto my lap and, opening it to a random page, read this alarming passage:

There is no rule of law in China today: the Chinese Communist Party does not accept the authority of any other institution in China as superior to it or able to overturn its decisions. Although the People's Republic of China has a constitution, the party makes the constitution rather than the reverse. If the current Chinese government wanted to nationalize all existing foreign investments, or renationalize the holdings of private individuals and return the country to Maoism, there is no legal framework preventing it from doing so. (Pg 248)

My concerns with China's treatment of foreign investments arose in light of China's recent bid for Nexen, a Canadian company with large holdings in the Alberta tar sands. Since Canada is having trouble with the management of the tar sands now, what would it look like if we had Chinese state-owned enterprises like the Chinese National Offshore Oil Company (CNOOC) in the mix?

It turns out the problem is of magnitudes greater than I had originally conceived, and concerns not only Canada's management of its resources, but its sovereignty, its democracy, and the protection of the rights and values of its citizens.

Perhaps most strikingly, Canada is embracing this threat, showing telltale signs the real culprit in this dangerous deal isn't China at all.

In order to untangle the web of an international trade deal as complex as the China-Canada Investment Treaty, which establishes the terms of the Nexen deal – the biggest overseas takeover by a Chinese company – I spoke with Professor Gus Van Harten of Osgoode Law School, an expert on foreign investment deals of this sort.

Below is Part 1 of our interview:

Carol Linnitt: Thanks for taking my call, and for making time for me to ask you some questions. I really appreciate that.

[view:in_this_series=block_1]

Gus Van Harten: No problem at all.

CL: I guess I’ll just jump right in. The first question I have regards Canada’s sovereignty over its resources when it engages in these kinds of transactions with state-owned enterprises. Could you talk about Canada’s ability to maintain its sovereignty over the tar sands with this potential Chinese acquisition of Nexen under the Canada-China investment deal?

GVH: Okay, so when we talk about sovereignty, the way a country exercises sovereignty over its territory is by being able to pass laws and enact regulations that apply to companies and anyone else operating in its territory. And if there are any disputes about the laws or the regulations, then those get decided in the courts of the country.

What’s really different about the China-Canada investment deal – although it tracks especially NAFTA in Canada's case, although NAFTA obviously relates to American investors – is that it allows disputes about how laws and regulations or even court decisions have been made, to be decided outside of the Canadian courts. So they’re decided by international arbitrators at the option of the investor…and the China-Canada investment deal and many of these other investment treaties … give the power, and quite immense power, to the investor to challenge any decision that Canada would make, whether by the Canadian Parliament, or a provincial legislature, by the Supreme Court of Canada or a lower court, or by Cabinet or some low-level government official. Anything can be challenged by skipping Canadian courts and going straight to these international arbitrators.

And the international arbitration process, for a number of reasons, is really, I would say, without wishing to make personal allegations about any of the arbitrators, objectively slanted in favour of the investors. That’s not unique to the China-Canada deal. But what is unique is that this is the first time since NAFTA that Canada is entering into a deal that allows for these kinds of lawsuits with a country that is likely to have investors that own a lot of assets in Canada. Okay? You get my drift?

CL: Yes.

GVH: So Canada has other investment deals with countries like Romania, but there are not a lot of Romanian investors in Canada. There are more Canadian investors in Romania. But in this case it seems very likely that there will be a lot more Chinese investment in Canada than Canadian investment in China, and that’s because the China-Canada investment deal has another element, which is that it does not require each country to open up its economy to investment from the other country. Now, Canada is already very open to foreign investment, including Chinese investment, whereas China is relatively closed.

So for that reason, going forward, we are likely to see major purchases of assets in the resource sector, especially the oil sands obviously, by Chinese companies, but I don’t think we’re likely to see anything like the same amount of investment by Canadian companies in China, because the Chinese government won’t allow it, it puts more restrictions on foreign investments. You have to do a joint venture, for example.

They just won’t allow their major companies to be bought up by foreigners in the way that Canada has in the last 10, 15 years. And Canada is increasingly open to having that done, because the Harper government has raised the threshold for the review of foreign takeovers of Canadian companies under the investment Canada Act from about 330 million now, it’s going to go up in about 5 years to 1 billion dollars, meaning the Chinese can buy any Canadian company worth less than a billion dollars without any government review, under the usual process, under the Investment Canada Act. So the Nexen takeover is subject to review because it’s worth more than a billion but there could be a lot of purchases by Chinese investors we won’t even hear about.

The point is, we’re open to foreign investment, and it’s only once the investment is allowed in that the rights of the foreign investors kick in under the deal. So it’s much more likely that Chinese investors will benefit from being able to sue any Canadian exercise of sovereignty than vice-versa.

CL: What kind of potential litigation do you see happening? What are the types of regulatory frameworks or legal frameworks that you could foresee being a problem, say in the development of the tar sands?

GVH: I’ve tracked all the known investment treaty lawsuits brought by companies, and most of these lawsuits are brought by American and Western European companies against developing countries. But there’s been a lot of lawsuits against Canada under NAFTA, and Canada’s been sued more than any other developed country. A Chinese company just launched its first lawsuit against Belgium for two or three billion dollars, which is a very large amount, involving the kind of winding-down or takeover of a Belgian bank, in which the Chinese invested before the last financial crisis. So it’s quite reasonable to expect Chinese investors will be in a position to sue Canada in the way that other companies have sued other countries under these treaties.

Now in tracking those cases to date, there are about 300 that have led to a known decision, not all of which you can really evaluate, so it’s maybe between 150 and 200 that can be evaluated on this point; that is, what kind of disputes do they relate to? There are four main areas:

1) One of the major areas is resource disputes. Resource disputes lead to a lot of investor lawsuits in cases to date.

2) Another area is environmental and health regulations, and I would say most of the lawsuits against Canada under NAFTA, there have been about 30, relate to one of those two areas, a significant majority. So we have a reasonable basis to expect that Chinese investors, where we make decisions in the resource sector and/or related to health and environmental regulations, that they will generate lawsuits under investment treaties.

3) The other two areas incidentally are privatisation, disputes arising from privatisation of major infrastructures, such as water systems or gas transmission lines, led to a lot of disputes. So if we’re talking about a privately owned pipeline, subject to regulation in Canada, then that is also an area that’s ripe for investor-state disputes that could be resolved by these arbitrators.

4) The fourth area is tax disputes and financial sector disputes, and those often link in to the resource sector too, because a government will, for example raise royalty rates on the basis that there has been a windfall profit. This has happened in the oil and gas sectors. Many countries have put new taxes on what they consider to be windfall profits by companies in the relevant sector, and those have generated disputes.

So I really can’t imagine any area of government decision making in Canada other than the resource sector specifically, with the huge money that’s going to be wrapped up in the oil sands, and on piping the oil out of the oil sands, that would be more likely to lead to disputes involving Canada.

When we open up other areas of the resource sector, like in the north, in northern Ontario, the Ring of Fire, those will also be ripe for disputes if there’s a significant foreign investment, which there almost certainly will be.

The biggest loss for Canada under NAFTA was a lawsuit brought by companies owned partly by Exxon against Canada, because of Canada and Newfoundland & Labrador’s process for putting research and development spending requirements on companies operating in the Hibernia, Terra Nova oil projects were objected to by the foreign Exxon-owned companies. The tribunal based that decision on a reading of Canada’s exceptions, Canada actually had exempted Hibernia and Terra nova from the NAFTA provisions, but the tribunal apparently adopted a, very unfriendly for us, interpretation of those exceptions, making them very narrow, and we lost on that basis. This is significant because we’re relying on the same types of exceptions in the Canada-China deal.

CL: So that means that not only can China, say for example, challenge the current regulatory framework, but they can also retroactively challenge pre-existing Canadian decisions about Canadian resources?

GVH: Yes, they can challenge existing decisions, and they can challenge existing legal frameworks, although there are grandfathering provisions with respect for some of the standards in the treaty. But it gets quite complicated as to which existing laws are exempted and which are not, and this goes back to the point about the case I just mentioned. It’s that the arbitrators may not consider Canada’s exceptions for its existing laws, including provincial laws, they may not consider them sufficient to avoid liability in the way that the Canadian government is telling us that they are. And incidentally I should add also, the case in which this was decided is called Mobil Oil and Murphy Oil versus Canada. The award in that case was issued in May of this year, and, despite Canada’s government stated policy to make all documents public, it is still sitting on that award and has not made it public. So we cannot see the basis on which the arbitrators in effect defeated our exceptions under NAFTA, reportedly, and we cannot evaluate the risks associated with using potentially the same exceptions under the Canada-China deal as well as other trade deals the government is negotiating.

CL: So there’s no way at this current stage that we could make an informed decision about whether the China Nexen deal would potentially be a good thing for Canada?

GVH: Well I’m not sure about that, but anyone outside the government is unable to evaluate whether or not the exceptions that the government is relying on to exempt certain existing laws are really reliable, or whether this decision actually frustrates our legal approach, or both.

[The exceptions Van Harten is referring to are stated clearly in this explanatory memorandum.]

This isn’t a central point, I should add, this is something of a more peripheral point to what we were speaking about earlier. The bigger point is that we’re essentially delegating a judicial component of Canadian sovereignty to international arbitrators. And the arbitrators, I should stress, are not subject to review in any court, whether a Canadian court, or an international court. And the arbitrators themselves aren’t judges. In this case the arbitrators are often corporate lawyers whose main career is to work for large companies and other foreign investors, or they’re moonlighting academics, or sometimes they’re members of corporate boards.

Put it this way, the process is not independent in the way that most Canadians would think of a judicial process.

The other point that’s quite important is that it is very reasonable to expect that in relation to Canada’s resource sector, because of the amount of money at stake and the possibility that governments will try to take steps to ensure that Canadians and the Canadian economy benefit from the exploitation of our finite resource. This is something that all governments have an obligation to do, some do better than others.

If a new government came in or if the circumstances change, say the price of oil in the international market goes up to $200 a barrel, we could quite likely see a government say, “Well, we’re going to raise the royalty rates”, or they’re going to say, “We’ve got enough, we don‘t need to attract as much foreign investment anymore, so we’re going to start demanding a bit more of a share from these projects.”

That is just a minefield under the Canada-China investment deal for lawsuits by China against Canada, and these would potentially be multi-billion dollar lawsuits. The largest lawsuit I’ve heard of is a lawsuit against Pakistan that involves claims in excess of 100 billion dollars, which is sort of hard to get your head around.

CL: Yes.

GVH: It's a massively important decision-making power that the arbitrators have.

CL: And when this sort of international arbitration occurs, is it usually for the purpose of an award, or can it also be for the purpose of re-establishing a legal framework in favour of the investors? Say the investor has a problem with the way that the local government wants to build a pipeline, or manage a certain resource, or deal with privatisation of resources. Can the decision of this international arbitrator actually end up instituting certain laws or changes in the legal framework?

GVH: Generally the arbitrators do not do that; they just award money. They require compensation of the foreign investor out of the public purse of the government. Now that in itself reflects a change in the government's decision, because the government will have taken a decision to pass a law, it will have said ‘we’re not going to compensate everyone in the world who is disadvantaged by this law.’ That’s not how parliaments work.

When Parliaments pass a general law, they don’t compensate all the businesses that now have lost profits they would otherwise have earned over the next ten or twenty years had the law not been passed. But the arbitrators do award that kind of compensation in some cases. They order, in effect, the state to pay compensation for legislation when parliament otherwise would not have, or when the Canadian courts would have ordered parliament not to have done it. So in that way they change decisions but the change is related to the monetary implications for taxpayers.

CL: Right.

GVH: Now the monetary implications in themselves can be huge and can actually exceed in their impact a non-monetary order. It’s actually easier sometimes for a government just to change a decision or tweak it than to have to pay a massive award for all the lost profits of the investors. The threat of a lawsuit, especially if it involves a lot of money, can be used in the early stages of a dispute to get a government to change decisions, or to deter it from making certain decisions. It’s not clear the extent to which this happens because it’s extremely difficult to research, because we never really hear about these cases, because they never lead to an award, they get settled even sometimes before the investor has brought a claim. You see what I mean?

CL: Yes, absolutely.

GVH: Threaten Canada with a lawsuit, and parliament changes its decision while it’s still in the committee stage. We could find out about that. Or for, for example, the federal government may lean on a provincial government to change its decision. We might never know.

CL: So in effect, when these massive state-owned enterprises are purchasing large stakes in a resource, they’ve got big muscles to flex, basically, they have a lot of power to exercise in the way laws are managed and shaped.

GVH: These treaties are like a dream for the lawyers who work for big companies. It’s just a wonderful additional tool to use to threaten and intimidate and beat up on governments.

And I believe that lawyers in Canada, Canadian lawyers in law firms, may be quite keen on the China-Canada investment deal as they see work for themselves, representing Chinese investors and helping them understand how they can sue, or threaten to sue, governments in Canada. And in fact, it’s regularly the case that you have this section of the Canadian legal community that promotes actively the ability of foreign investors to sue or threaten to sue the Canadian government.

CL: My goodness, the more you talk about this, the more it sounds like absolute madness.

GVH: Yeah, I’ve hardly even gotten started.

[END OF INTERVIEW PART 1]

Gus Van Harten has written extensively on foreign investment deals. His research is freely available on the Social Science Research Network and the International Investment Arbitration and Public Policy website.

The Harper government has recently decided to extend the review period for the CNOOC purchase of Nexen for an additional 30 days until mid-November. The China-Canada Agreement, however, is slated to pass into legislation on October 31, 2012 without open parliamentary debate.

Campaing organizations Leadnow.ca and SumofUs.org have launched an effort to stop this deal before it's even begun.

Stay tuned for Part 2 of this series based on my interviews with Gus Van Harten.

Images from "PM Visits China" Photo Gallery.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.