This article originally appeared on The Tyee.

Imagine if you lived in a nice quiet community of about 30 people, and the Chinese government got permission to plunk a $20-billion liquefied natural gas (LNG) plant on your doorstep.

Holy snapping duck shit! Chances are you’d want a pretty strong say in whether that could or should happen, under what conditions, with whose permission — and you’d want a very clear, objective analysis of the costs and benefits, and the risks, to you, your family, your neighbours, not to mention the physical place that would be so massively disrupted by such a project — you know, the place you currently call home.

Most of us don’t live in nice quiet communities of 30 people — or maybe we do. On my residential block in East Vancouver, I’d say that (based on the census’s estimated average of 2.6 people per household in Vancouver) there are 30 people on my side of the street alone. Maybe you live in an old apartment building with 30 people in it total; maybe a condo with 30 people on your floor. Anyway, 30 people isn’t a lot, but $20 billion is, and right now, on Digby Island — right across the harbour from Prince Rupert in northern B.C. — the tiny community of Dodge Cove is staring down a project that would pretty much destroy it.

It’s become a “sacrifice zone” — yet another bucolic corner of the world at risk of being flattened on the anvil of progress.

“This community has a right to exist unmolested,” says Des Nobels, Dodge Cove resident, long-time fisherman, diligent regional politician and a tired man with a tether whose end he is very close to arriving at. “They (the company planning the project) says we’re their only problem, and we assured them we’ll be as big a problem as possible.”

The company that wants to pipe fracked gas to Digby Island — home to the Prince Rupert airport, Dodge Cove’s motley lot, and barely a stone’s throw from the City of Prince Rupert itself — is Aurora LNG. Aurora is a joint venture between Nexen Energy and INPEX Gas British Columbia Ltd. INPEX is Japan’s largest oil and gas exploration and production company, and its B.C. subsidiary fracks shale gas in the Horn River, Cordova and Liard basins in B.C.’s northeast. Nexen was a Canadian company till it was bought in 2013 by CNOOC Ltd., China’s national oil company.

Nexen and INPEX want to build a pipeline to an LNG plant and export terminal they intend to build on Digby Island, near the mouth of the Skeena River. If that has a familiar ring to it, maybe that’s because Malaysia’s national oil company, Petronas, wants to do pretty much the same thing, terminating on nearby Lelu Island — where a mighty resistance has already been joined by some members of the Gitwilgyoots tribe of the Lax Kw’alaams First Nation. Petronas already has qualified with controversial approval to build its project (First Nations, and others, are contesting the permit in court). Aurora doesn’t have an environmental certificate yet but it is working hard to get one — and it could be mere weeks away from succeeding.

“Aurora has been very good at flying under the radar,” Nobels said.

While much of the media chatter about pipelines in B.C. has been about Enbridge’s Northern Gateway project (permit denied), Petronas’s Pacific NorthWest LNG (approved), Kinder Morgan’s TransMountain project (approved, also being fought in court), and Shell’s recent decision to shelve its Prince Rupert LNG project due to market conditions, Aurora LNG has been quietly undergoing an assessment by B.C.’s Environmental Assessment Office. Through what the boffins call a “substituted process,” the federal government takes a back seat, deferring to Christy Clark’s gas-loving government to objectively examine the pros and cons of the deal and impose whatever conditions it deems necessary if the project passes muster.

These approval processes typically cost millions of dollars. Aurora’s proposal has been in review for more than two years now, and in addition to the proponent and its galaxy of high-priced experts, more than 100 interested parties — the province, the feds, First Nations, local governments, a “full suite of the agencies” according to the EAO’s project assessment manager Sean Moore — have been poring over Aurora’s plans as part of a technical working group. Its work will be completed on July 8. By Labour Day, Aurora could be approved.

“It’s a pretty rigorous review,” Moore told me.

It’s a stitch up, says Nobels. “The province can do anything it wants.”

Behold The Allure of the Energy Megaproject https://t.co/Tnq3veVhG9 @Gillwave @TheTyee @discoursemedia #AuroraLNG #bcpoli #bcelxn17 pic.twitter.com/BjbPqk2pqO

— DeSmog Canada (@DeSmogCanada) March 21, 2017

The EAO review perforce includes consultation with First Nations, paid for by the federal government, which announced last December that its Participant Funding Program transferred $364,560 to the province to help seven First Nations groups evaluate Aurora’s project. The Gitga’at, Gitxaala, Kitselas and Kitsumkalum First Nations each got $54,040 from the government for the process, while Lax Kw’alaams and Metlakatla received $67,550 apiece, and the Métis Provincial Council of British Columbia got $13,300. The people of Dodge Cove? At first they were told there was no money for them. Then on the last day of February they were told they could have $12,000, but it couldn’t be applied retroactively to work they had done in the consultation process. The public comment period closed nine days later.

“An afterthought… an afterthought — if we were thought of at all,” says Nobels, He doesn’t begrudge area First Nations getting funds to participate in the project review, but in the case of his community “we basically volunteer our time, search for inconsistencies with what little technical knowledge we have, call in favours from friends… it’s an extremely onerous and lengthy endeavor which takes its toll on people who aren’t versed in all of this.”

Moore said he “cannot comment on the fairness or adequacy of how governments choose to fund public consultation processes” — that’s a policy issue, and the EAO’s policy is that it doesn’t fund public interest groups. He says local communities can rely on “all the agencies that are looking out for their concerns,” but concedes “there is probably a trust challenge.”

Yeah, just maybe. Especially when the province writes, as it did in early February, warning the North Coast Regional District that proposed amendments to Dodge Cove’s Official Community Plan — the only land-use process that gives voice to local interests — “appear to attempt to prohibit key elements of the proposed LNG facility development, in an attempt to render the project infeasible.” It warns that the province has entered into agreements that “provide the proponents with the exclusive right to move forward with the planning necessary to build LNG export infrastructure at their proposed facility sites.”

Brian Hansen, assistant deputy minister and lead negotiator, energy and LNG initiatives in the Ministry of Natural Gas Development, claims in a nicely ironic twist that the province is not being properly consulted with by the community, even though — when it comes to planning processes — “(the province) can do what they damn well want,” Nobels says.

In other words, there is a manifest lack of fairness any time big oil and gas, or mining, or logging, or any resource extractor with a commodity lust and some capital, comes to town. This is not exactly breaking news. For decades now, the Dodge Coves of this province — be they on Vancouver Island, Haida Gwaii, in the Great Bear, the Kootenays, the Cariboo, the Chilcotin, up north, on Burnaby Mountain, wherever — have been where the David and Goliath battles between industry and community have been inequitably joined.

The technical tables are always stacked against communities, which is why local activists end up resorting — in ways that offend the order of the bureaucratic, technocratic and legalistic mind — to public sympathy. Which is why they end up being called activists in the first place, because industry and their government sponsors prefer to restrict all activity to processes they control. Going outside the process to engage a battle for hearts and minds retains its potency for people who feel that the system renders them impotent. But while this route offers those who resist industrial projects a channel to protest, it also offers industry and governments powerful opportunities to deceive.

Primping the wares

Like pornography, the imagery that proponents of industrial development use these days to primp their wares is soulless, plotless, spotless, and hairless. (Mmm: note to self: that’s a good name for a law firm, or maybe a corporate communications consultancy). These days no proposal for an industrial project that threatens our environment comes without videos or television ads extolling the proponent’s almost childlike reverence for nature, its almost custodial sense of duty to nurture the ecosystems it is about to befoul, its solemn vow to mitigate any “disturbance,” its prophylactic commitment to safety, its championing of the benefits to everyman — the worker, and his or her dependents — and of course an almost prayerful obeisance to the betterment of Indigenous people.

See what I mean? This is Pacific Northwest LNG's rendering of its spotless industrial plant on Lelu Island.

Enbridge’s campaign ads for Northern Gateway were like Dove soap commercials, its depictions of the B.C. coast more suited to promoting a 10-day wilderness adventure in the Great Bear than what its project was actually going to do there, which was to bring tar sands oil to tidewater and clutter our waterways with tankers. Its scripts presumably were written by robots, since it defies belief that an actual human could come up with tripe like, “The first step in making things better is to be sure that it’s not at the expense of making other things worse.” That would be almost Hippocratic if it weren’t so utterly moronic.

Aurora LNG has produced some YouTube bling of its own, including animation of its Digby Island facilities (albeit set to music that would kill even the healthiest libido) that makes the place look like a university campus or a small airport with nice, tidy outbuildings fed by clean white pipes, which rather airbrushes the degree to which these plants are dirty, noisy, dangerous industrial sites that destroy local habitat and pollute the air with, among other things, greenhouse gases that we are supposed to be reducing. Meanwhile, the animation showing the impeccably choreographed arrival and departure of massive LNG tanker ships seems to favour blue skies and waveless and windless ocean conditions for which B.C.’s north coast is not exactly renowned. And of course whenever newspapers or television stations run stories about LNG plants, they illustrate them with company handouts of lovely neat, clean, almost always bright white buildings and pipes and tanks and rustless ships berthed at glistening docks. Is there not a photo editor left in Canadian journalism who might think to find an image of what these facilities actually look like when they are operating?

Meantime, after taking Aurora’s “facility tour” on YouTube, you can “meet the team” before viewing another video about your “neighbour of choice,” which might seem a bit ripe to people on Digby Island. Who is choosing whom, exactly? But what’s really curious about all these manipulations is that, other than letting viewers meet the team who are duty bound to say nice things because they are on the payroll, the illustrations seldom depict even cartoon people doing actual work at an actual LNG plant — surprising, given that every sales pitch about LNG features the promise of good, local jobs. Perhaps my favourite entry in the unintended irony category comes courtesy of Pacific NorthWest LNG, the Canadian front for Petronas, which has been at pains to promise jobs and other benefits to local First Nations, all the while assuring everyone that its planned operations on Lelu Island and nearby Flora Bank pose no threat to wild salmon. Check out their Current Opportunities page, scrolling down to look at the background image, with its echo of Toni Onley’s coastal scenes, complete with a fishboat christened — this is cute — Lelu. Note that the spotless boat has neither skipper nor crew, which probably wasn’t intended to be a comment on current or future job opportunities for local fisherfolk.

Aurora, unnaturally

Word has it that Petronas might move its loading docks away from Flora Bank to nearby Ridley Island, an already industrialized site. Lelu will still be flattened to make way for the gas plant — assuming Petronas goes ahead at all, market conditions being what they are.

Over on Digby Island, meantime, some of the locals probably feel like the ghost crew of the good ship Lelu. In the public comment period that ended March 9, almost 800 comments were posted, an overwhelming number (773 against, to 25 for) registering their opposition to Aurora’s plans. Many of the comments were generated via computer-assisted campaigns run by the Sierra Club and the Wilderness Committee, the kind of formulaic write-in responses that governments tend to discount as being biased and unscientific. Many commentators, however — including a number of people from Digby Island for whom that last-minute $12,000 came too late — posted detailed, sophisticated and often heartfelt critiques of the project.

To read all 800 or so comments, which I did, is to detect an air of fatalism in some of the responses, and a clear sense of distrust and despair at a process triggered by a proposal that came out of nowhere and that, even if it never gets built, has placed an unconscionable burden on a few people who have nothing else to draw upon except their love of place. One resident calls it a “death sentence” for the community, and another talks of “falsifying” of information presented on maps displayed at project open houses that didn’t even show there was a community of Dodge Cove on Digby Island. “It is ridiculous to wipe an over 100-year-old community off the maps to present to the public a pretty picture of where Aurora LNG wants to build,” the writer said. (In my reading of the comments, there was one Dodge Cove resident who thought the arrival of industry might bring with it a more reliable water supply, so community opposition is not unanimous.)

Aurora has done much to burnish its image. It even sounds innocuous. After all, Aurora is the Roman goddess of the morning. It’s also the name of the princess in Sleeping Beauty. It’s a town in Ontario. It’s a naturally occurring electrical phenomenon, as in borealis. And now, on the north coast of B.C., it is an unnaturally occurring industrial phenomenon that could also lighten the night sky, yet another flickering green light in Christy Clark’s gas-lit casino economy.

Will it happen? If getting a passing grade from a B.C.-led environmental review seems like an awfully low bar, perhaps low gas prices will function as a brake on Aurora’s plans. But Des Nobels isn’t so sure. “CNOOC have the supply, they are the market, they own the ships, they have all the capital in the world. The Chinese want the gas, they want to take it home and do things with it.”

If Aurora gets its permit, Nobels said the people of Dodge Cove can look forward to another couple of years of invasive exploration and site assessment and four to five years of construction.

“The net effect of all of the impacts will probably be enough to drive most of us out.”

And then those settlement-free maps will prove to have been prescient — there’ll be no problem community of Dodge Cove after all.

Image: Province of BC

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.

This post is second in a series on the Canada-China Investment "Straitjacket:" Exclusive Interview with Gus Van Harten. You can read Part 1 here and Part 3 here.

Right now Canadians stare down the barrel of a 31-year long legal trade agreement with the Chinese government that did not become public knowledge until September 26, 2012.

The trade treaty, known as the Foreign Investment Protection Agreement or FIPA, has garnered notable opposition in the past three weeks, with NDP trade critic Don Davies calling for public hearings, Green Party MP Elizabeth May calling for an emergency Parliamentary debate, and campaign organizations Leadnow.ca and SumofUs.org gathering over 39,300 opposition signatures (and counting) to deliver in person to Ottawa.

Yesterday, the Canadian Press reported the Harper government's refusal to host public hearings. Elizabeth May's October 1 request was also denied on the grounds that FIPA does not meet the test of emergency.

The trade agreement, or treaty, as it is called, is slated for ratification at the end of this month. The Commons trade committee will be briefed on the document in a one hour hearing.

With a trade deal that threatens Canadian sovereignty looming on the horizon and a government committed to expediting its approval, DeSmog caught up with trade investment lawyer and Osgoode professor Gus Van Harten to talk through some of the details.

In this segment Van Harten discusses why the Canadian government would pursue a deal of this sort, outlining the implications of the agreement for environmental legislation in Canada and development in the tar sands, especially in light of the spring's Omnibus budget bill C-38.

[view:in_this_series=block_1]

Van Harten also considers the implications of the trade agreement for undecided energy projects like the Northern Gateway Pipeline and, significantly, if first nations and environmental groups were to blockade projects of this sort – who's rights the government would be obliged to protect. 

Below is Part 2 of our interview:

Carol Linnitt: As you have described it, it doesn't seem to make much sense for Canada to sign this agreement.

Gus Van Harten: I can tell you – trying to think about why the government would sign the China-Canada deal – it’s very unfavourable to Canada because of the way in which, as I was saying earlier, we have an open economy and China’s is closed, so the deal really, in fact appears likely to benefit Chinese investors far more than Canadian investors in China, because there will just be more Chinese investment here, because we’ve allowed more in. But I was trying to think why the government might do it, well I thought of different reasons, one might be that they sort of want to score the political bragging rights, of, ‘we signed the deal’, which is, you know, very short sighted, but sometimes governments are kind of shallow like that.

Another explanation would be that they want to open up the economy to this investment, and so that shareholders in Canadian companies in the oil patch can sell their shares at a premium to the Chinese, and get that benefit.

But another more troubling explanation which would require greater sophistication by the government but is not – certainly shouldn’t be ruled out – is that they foresee changes in attitudes about the oil patch, in the United States, in Canada, and that this may lead to new regulations on the oil patch, in that, climate can’t just be wished away forever, and that governments might take steps to regulate the oil patch in ways that investors wouldn’t like.

If you bring in a lot of Chinese investments, and you sign the Canada investment deal, you kind of get the Chinese investors to do your dirty work for you, for years after the current government is gone, because the Chinese investors can beat up on new governments that actually do take steps to change the balance between the investor rights in the oil patch and the general interest in addressing climate change or other issues like pollution and so on.

CL: Wow.

GVH: So that’s probably the most troubling aspect, is that this is designed to be a straitjacket, and it will have effect on Chinese investments that have been let in for the next 31 years after the deal’s been signed. Because the deal has a 15 year term, you have to give another year’s notice to terminate the deal and then after it’s terminated it still applies for another 15 years for investments that are in the country at the time of termination.

CL: So you’re saying that this deal has an active shelf life of 15 years, but stays in effect for 31 years?

GVH: Yes, the treaty does, meaning the treaty will be available to protect Chinese investors, including not just the Nexen investors, if they’re allowed to buy Nexen, but any other Chinese investors who come into the oil patch. I don’t think the government wants to see the whole oil patch Chinese owned, but I think it’s quite likely we’ll see significant portions of it Chinese owned, and once significant portions are Chinese owned, the you’ve also given lawyers who work for the Chinese investors this powerful tool to beat up on governments anywhere in Canada, you really frustrate the ability of Canadians to elect governments that are going to get more serious about the environmental consequences of the oil patch. That will be for 31 years from the date of this deal coming into effect, which is right now forecast to be about a two weeks away.

CL: And what’s the significance of that for, say, something like the northern gateway pipeline project that’s still in decision process?

GVH: Well, I mean, first of all, if that pipeline is owned, if foreign investors are spending money in relation to the proposed pipeline, then they right there could conceivably use the China-Canada deal to object to decisions taken by Canada, for example the British Columbian government, in objection to the pipeline. So the BC government may say ‘we don’t like the deal for the pipeline, we won’t supply electricity to it,’ well if they did that and the pipeline had Chinese money in it, the Chinese investors could say ‘you are discriminating against us, you don’t treat other investors in pipelines the same way in BC, so why are you discriminating with this pipeline, you’re not allowed to do it, and any money we lose as a result, you have to compensate us. You, Canada.’

And that’s not just the money that they put into the pipelines, they that’s their lost profits, that’s the money that otherwise reasonably would have earned, had this pipeline gone forward.

CL: I’m thinking about how tenuous the situation has already become in terms of environmental regulations after the Omnibus budget bill was passed and we saw a severe weakening of our environmental reviews and assessments and regulations. In effect the Harper government has instituted this new legal framework in which our pre-existing environmental laws have been weakened, gutted and now we are introducing this new 'straitjacket' to maintain those laws because of the possible difficulty of ever reinstituting them in stronger ways.

GVH: Yes, exactly, and let me spell it out very precisely. In many cases the arbitrators have allowed the investors to argue under the treaties that their treatment by the government was unfair and inequitable, if the government did not provide a stable regulatory framework. So if the regulatory framework is in a particular state, let’s say its currently denuded state because of the changes in the spring budget to environmental legislation, investors from China now say ‘well, we’re going to invest now because we don’t think any of our projects will be subject to environmental assessments and fisheries act regulations’, and so on. A new government comes in when the projects are underway, and says, ‘well actually we’re putting the laws back in place’. The Chinese investor can then say 'ah, but you can’t because we made our investments based on an expectation that there was a stable regulatory framework and that the previous government promised us that that regulatory framework would be stable’.

And so you can’t change the laws so easily. I’m not saying that the arbitrators necessarily would, but many have, interpreted the treaties broadly enough to allow the Chinese investors to receiver full market compensation in those circumstances from the new government due to a change in the regulatory framework. And, in a way, some of the things that the Harper government has done, I understand second hand – but have not confirmed this myself – that one of the ministers, I think Joe Oliver, had said at press conferences that they were changing the environmental laws because that’s what the investors wanted. If he did in fact say something along these lines, the he could have done nothing more to feed the arguments to the  investors’ lawyers down the road, if a new government decided to put the laws back in place. Because Chinese investors would be able to point specifically to his statements, which would be statements on behalf of Canada, that Canada was prepared to remove its environmental laws in order to bring in Chinese investment because that’s what investors wanted. It almost becomes part of the deal. A new government can reverse that decision, but they will have to pay for it.

CL: Well, that is astounding to hear.

GVH: Yeah, it’s kind of disheartening to those who care about, let’s say, protecting the environment for future generations. But on the other hand, the system has invoked very strong reactions by some countries, and increasingly governments that don’t put investor rights ahead of the rights and interests of everyone else are taking steps to unplug the system as best they can. But the decision to allow the China-Canada investment deal to come into effect will have the greatest impact on Canada’s ability to take sovereign decision with respect to its resource sector since any treaty we have signed since NAFTA. And it is comparable to NAFTA in terms of the effect that it will have. Yet it does not allow any access by Canadian exporters to the Chinese market, unlike NAFTA for the U.S. market. For this reason, it seems to be just a very lopsided deal for Canada.

CL: And this is why the conversation that you see coming, even from conservatives, expressing concerns about the fact that China is not a benevolent nation, that this is why that statement is so significant. They’re not talking about whether these are nice guys or not. This is a much more meaningful and significant thing to say about a county like China when you’re preparing to engage in this kind of deal.

GVH: Well let me give you another example. Under the treaties investors are entitled to something called ‘full protection and security’. Now what that has been interpreted by arbitrators in some cases to mean, among other things, that the government has to protect the investors’ property, assets, from public opposition and public protest. So let’s imagine that there are blockades of the pipeline as it’s being built through British Columbia, let’s say by native groups and by environmentalists. The Chinese will have an expectation, backed by the treaty, that the Canadian government through its police, through the courts, will take strong steps to protect the Chinese investors’ business plans from public opposition.

Now, sometimes public protests in opposition to foreign investments in other countries, I’m thinking in particular of a couple of cases in Latin America, one involving oil drilling in the Amazon by Texaco and then Chevron, and the other involving the disputes over a privatised water system in a city in Bolivia, some of those protests have actually led to violence, people have died, and that becomes part of the context for the arbitrators deciding whether the governments’ protection of the investor were sufficient. So it’s a concern, and I think it’s fair to say the Chinese investors may have a different view of how to handle that kind of situation from what we’re used to in Canada.

CL: And suddenly the onus is placed on the federal government to uphold this agreement, and their loyalty will in some sense be split between preserving this agreement that they have with the company and also protecting the rights of the citizens.

GVH: Yes, exact. So the question that the government will now have to face is, how is it going to balance its obligations to respect Canadian democratic protests, including when it’s actually effective in frustrating a pipeline, to balance that against its new obligations to provide full protection and security, backed by a very powerful international arbitration process, which tends often to favour the investors in its legal approach, and to provide that full protection and security under the treaty to Chinese investors. That’s the question the government will now have presented for itself.

[END OF INTERVIEW PART 2]

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

Stay tuned for Part 3 of my interviews with Gus Van Harten.

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.

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.