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       *Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 136   December 8, 2014
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Adrian P. Torres ([log in to unmask])
        *Canada’s non-reciprocal BIT with China: Would the US or Europe do
the same?*
Gus Van Harten* <#14a2c902898167f6__edn1>

The Canada-China bilateral investment treaty (BIT) – ratified by Canada on
September 12, 2014, after a two-year delay following its signature in 2012
– provides a useful reference for future investment negotiations involving
Canada or China and other countries.

To China’s advantage, the BIT is especially remarkable for its
non-reciprocal elements. These elements go beyond the usual non-reciprocity
of BITs between capital-exporting and capital-importing states because the
Canada-China BIT reflects a formal non-reciprocity in the terms of the
treaty, as well as effective non-reciprocity. This raises the question of
whether other states, especially the United States (US) and the European
Union (EU), would agree to similar concessions with China.

First, the Canada-China BIT allows a right of market access by Chinese
investors to Canada, but not vice versa. Unlike any other investment treaty
concluded by Canada, this BIT provides for most-favored-nation (MFN)
treatment, but not national treatment, at the pre-establishment stage of
investment. Since Canada has given pre-establishment national treatment
rights to foreign investors from third countries in other BITs, while China
has not, the MFN clause in the Canada-China BIT will extend the rights
enjoyed by these third-country investors in Canada to Chinese investors.
Yet, Canadian investors will obtain such rights in China only if – and it
is a big if – they are given by China to third-country investors in a
future BIT.

Hence, it was inaccurate for Armand de Mestral to conclude in a recent
*Perspective* that “the BIT affords scant protection to the pre-investment
phase of foreign investment” and that “no right of establishment is
provided.”[1] <#14a2c902898167f6__edn2> These statements are only true for
Canadian investors in China, not for Chinese investors in Canada.

Second, the BIT is also non-reciprocal due to the relatively extensive
liberalization and transparency of the Canadian economy as compared to the
Chinese economy. This is because the BIT excludes from its
post-establishment national treatment obligation any existing measure
(including any “law, regulation, rule, procedure, decision, requirement,
administrative action, or practice”) of either country that discriminates
against the other’s investors, effectively locking in the resulting
non-level playing field between the two countries.

In light of this, assertions by Canadian proponents of the BIT that it will
give robust protection to Canadian investors are questionable. How
difficult will it be for a Chinese authority, at any level, to pressure or
punish a Canadian investor by requiring the investor to comply with a
discriminatory requirement or practice that existed at the time the BIT
entered into force?

Third, the BIT has a broader carve-out for investment screening decisions
by China than by Canada. Canada’s carve-out is limited to decisions under a
federal statute, the Investment Canada Act. On the other hand, China’s
carve-out covers any of its “Laws, Regulations and Rules relating to the
regulation of foreign investment.” By implication, the treaty allows China
at any level of government to block Canadian investments, while limiting
Canada’s screening powers to those of the federal government and to
monetary thresholds and other limitations under the Investment Canada Act.
Thus, even if Canadian investors one day obtained a right of establishment
in China – e.g., by piggybacking on a future treaty between China and the
US that incorporated pre-establishment national treatment – China would
still retain broad powers to reject Canadian investments.

Fourth, the Canada-China BIT departs from Canada’s usual treaty practice –
which largely tracks the US model and current European approach – in other
important ways:

   - It scales back Canada’s and the other NAFTA states’ position on
   transparency in investor-state arbitration. In particular, the treaty
   allows either government to settle an investor lawsuit without public
   knowledge after it is filed, but before an award is issued.

   - It allows a complex “reach-back” on MFN treatment that undermines the
   reliability of language in the BIT aimed at preserving regulatory

   - It omits reservations to the BIT’s obligations on performance
   requirements, including a reservation for preferential treatment of
   aboriginal peoples that is found in all of Canada’s other relevant treaties
   – a deplorable concession, given the lack of economic opportunities and
   poor living conditions of Canada’s aboriginal population.

   - It has a minimum lifespan of 31 years, including a 16-year effective
   minimum term and a 15-year survival clause for existing investments at the
   time of termination. Most of Canada’s BITs can be terminated on one year’s
   notice, with no minimum term, plus a 10 to 20-year survival clause.

Will other states accept these elements in a BIT, or will China move fully
to the US or EU model? The Canada-China BIT signifies China’s willingness
to accept some elements of the latter, and highlights areas in which the US
or EU could sacrifice significant concerns.

As for the Canada-China BIT, beyond concerns about flaws in investor-state
arbitration, there were clear reasons for Canada to reject this treaty on
its terms. Its quiet ratification by Canada’s federal Cabinet leaves the
question: what would justify Canada agreeing to a deal that is formally and
effectively non-reciprocal? Is it remotely possible that the US or the EU
would do the same?

* <#14a2c902898167f6__ednref1> Gus Van Harten is Associate Professor at
Osgoode Hall Law School.This *Perspective* is based on a comparison of the
text of the Canada-China BIT with other relevant treaties concluded by
Canada, most modeled on NAFTA and broadly similar to the US model BIT and
the European Commission’s current approach to investment treaties. The
analysis is elaborated in a forthcoming article in the *Canadian Yearbook
of International Law*. The author thanks David Gantz, James Saulino and
Wenhua Shan for their helpful peer reviews. *The views expressed by the
author of this Perspective do not necessarily reflect the opinions of
Columbia University or its partners and supporters. Columbia FDI
Perspectives (ISSN 2158-3579) is a peer-reviewed series.*
[1] <#14a2c902898167f6__ednref2> Armand de Mestral, “The Canada-China BIT
2012: Perspectives and implications,” *Columbia FDI Perspectives*, No. 129,
September 2, 2014.
        *The material in this Perspective may be reprinted if accompanied
by the following acknowledgment: “Gus Van Harten, ‘Canada’s non-reciprocal
BIT with China: Would the US or Europe do the same?,’ Columbia FDI
Perspectives, No. 136, December, 8 2014. Reprinted with permission from the
Columbia Center on Sustainable Investment (
<>).” A copy should kindly be sent to the
Columbia Center on Sustainable Investment at [log in to unmask]
<[log in to unmask]>.*
For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Adrian Torres, [log in to unmask] or [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 135, Stephen M. Schwebel, “In defense of bilateral investment
   treaties,” November 24, 2014.
   - No. 134, Roel Nieuwenkamp and Kimmo Sinivuori, “The road to
   responsible investment treaties,” November 10, 2014.
   - No. 133, Julian Donaubauer, Birgit Meyer and Peter Nunnenkamp, “The
   crucial role of infrastructure in attracting FDI,” October 27, 2014.

*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements:*

   - *On March 8-13, 2015, *CCSI will offer a new interdisciplinary Executive
   Training course on Sustainable Investments in Agriculture
   designed primarily for public sector officials and civil society
   representatives from low- and middle-income countries, whose
   responsibilities relate to investments, agriculture, land or rural
   development. The course will take place at Columbia University and will
   provide an overview of pressing issues related to agricultural investments,
   as well as an introduction to relevant practical skills. Please visit the
   training website
   the application materials and additional details about the program. *The
   deadline for applying is December 31, 2014*
   - CCSI, the Sciences Po Law School Clinic, and the Columbia Law School
   Human Rights Institute recently published an outcome document
   a roundtable focused on human rights impact assessments (HRIAs) of
   large-scale foreign investments. By sharing the roundtable outcomes, this
   document aims to support HRIA practitioners, company officials, civil
   society representatives, and other stakeholders focused on human rights and
   foreign investment in further reflection on the objectives and methods of
    - *On June 8-19, 2015*, CCSI will hold its third annual Executive
   Training in Extractive Industries and Sustainable Development
   Columbia University. The program is designed to equip mid-level public
   sector officials and civil society representatives from resource-rich
   developing countries with the necessary skills to promote the responsible
   development of the extractive industries sector in resource-rich developing
   countries and to encourage a rich dialogue about best practices from around
   the globe. The two-week training emphasizes the interdisciplinary nature of
   resource-based development. Please visit the training website
   the application materials and additional details about the program. *The
   deadline for applying is March 1, 2015*

        Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
             *Copyright © 2014 Columbia Center on Sustainable Investment
(CCSI), All rights reserved.*
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