International Trade Committee on Oct. 18th, 2012

[Dr. Vicky Sharpe]

That would be correct for 2012, yes. We haven't done anything for 2013.

[Don Davies, NDP, Vancouver Kingsway, BC]

Right. It's the 2012 budget that was tabled in the House in the spring and the Budget implementation act that is being tabled today. It's that budget.

[Dr. Vicky Sharpe]

It's that budget, yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

And your $550 million is not in this budget, is it?

[Dr. Vicky Sharpe]

No, it's not.

[Don Davies, NDP, Vancouver Kingsway, BC]

Can you tell us why you requested an additional $550 million? I take it you thought that was a good idea. You've already talked about getting an enormous leverage of $14 in private sector money for every dollar, so I take it you would have to agree with me that it's probably not a wise economic or policy decision to not give that money that your group asked for in the budget.

[Dr. Vicky Sharpe]

I would say that we are bound by various constraints in our funding agreement and we had foreseen a future that was, if you like, much the same. What we've been doing since then is seeing how we could further leverage. In fact, we believe that we have a better plan, a superior one, that won't require the same amounts of money but will in fact, because we anticipate.... I can't talk about these plans because they are not signed and sealed—

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay, and I'm not actually going to ask you about them, Ms. Sharpe, because—

[Dr. Vicky Sharpe]

—but I have arrangements with industry to leverage it.

[Don Davies, NDP, Vancouver Kingsway, BC]

I'm sorry, I have limited time, so I need to focus my questions.

[Dr. Vicky Sharpe]

I'm sorry.

[Don Davies, NDP, Vancouver Kingsway, BC]

The Green Energy Act in Ontario, which was an act meant to stimulate a sustainable green energy sector, was unfortunately caught up in trade rules, as we know. In fact, there's apparently a ruling that's going to come out soon that will find the Ontario government's attempt to stimulate a domestic green energy technology industry violated trade rules.

Do you have any comment on that? As we are thinking of negotiating a trade agreement with Japan, are there any pitfalls to avoid there, in your view? Do you have any comment on that?

[Dr. Vicky Sharpe]

I think one can arrange to make sure that in dealing in a businesslike fashion, one can see returns and benefits to a country without it having to be written down explicitly. I think you're referring to the FIT program in Ontario, the feed-in tariff program. There was some language in there that is also around commercial opportunities, recognizing that SDTC is working in the pre-commercial arena. I believe that what we're looking at is enhancing business in a way that is equitable and fair. I'm not seeing it exactly as a comparable situation, but I may have missed your point.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

I want to thank all of our witnesses—Mr. Stringham, Ms. Sharpe, and Mr. Thaker—for being here.

I thank the questioners. It's been very informative and will help prepare us in our study.

At this time I want to suspend, as we make way for our next hour of presenters.

We have DFAIT here, dealing with the Government of Canada, and the Government of the People's Republic of China, for promotion of reciprocal protection of investments.

Thank you very much, and with that we will suspend.

[The Chair, Conservative, Rob Merrifield]

Okay, we would like to call the meeting back to order.

We have our DFAIT representatives here. We want to thank them for coming in. There's a table full of them. I think we have one on the way who will be here shortly, but I believe we have Ian Burney making a presentation.

Welcome back, Ian, and thank you for being here.

This is a very important issue that our committee is keen to briefed on. We look forward to your comments, and then we will proceed with questioning. The floor is yours.

[Ian Burney, Assistant Deputy Minister, Trade Policy and Negotiations Branch, Department of Foreign Affairs and International Trade]

Thank you very much, Mr. Chairman. We certainly appreciate this opportunity to appear before the committee to provide a briefing on the Canada-China foreign investment promotion and protection agreement, or FIPA.

I've been introduced, so let me introduce my colleagues who are here with me from the Department of Foreign Affairs. I have Laurent Cardinal, who is the director general for the North America trade policy but also has oversight for our FIPA program; Cam MacKay, who I think you've seen recently in a different capacity, but his day job is director general for China trade policy. John O'Neill is the director of our investment policy division and runs the FIPA program; Vernon MacKay, to his left, was the lead negotiator for the Canada-China FIPA.

We're hoping that Sylvie Tabet will join us in a moment. She's the director and general counsel of the trade law bureau.

Mr. Chair, the signature of the Canada-China Foreign Investment Promotion and Protection Agreement, or FIPA, the combination of many years of effort, is a significant milestone in the continuing roll-out of the government's ambitious global commerce strategy. Indeed, deepening Canada's trade and investment ties with the largest, most dynamic and fastest-growing markets in the world, such as China, is an essential feature of the government's pro-trade plan for creating jobs, growth and long-term prosperity.

The FIPA is a tangible expression of the government's determination to help Canadian businesses compete on a level playing field in markets abroad, and will serve as an important plank in our burgeoning economic relationship with China.

Mr. Chair, a FIPA is a bilateral investment treaty designed, first and foremost, to protect Canadian investment abroad through legally binding provisions. By ensuring greater protection against discriminatory and arbitrary practices, and enhancing the predictability of the policy framework in markets abroad, a FIPA allows businesses to invest with greater confidence. An improved business environment can lead to new investments, thus expanding and deepening the economic relations between the treaty partners.

The Canada-China FIPA, Mr. Chairman, is a high-standard agreement. It's comprehensive in its scope and coverage.

This treaty covers various forms of investment, including tangible assets such as real estate or other property acquired for business purposes, portfolio investments and other forms of participation in a company or joint venture, and intangible assets, such as a mining concession or intellectual property rights.

In terms of its commitments, this agreement includes reciprocal obligations related to non-discrimination, a minimum standard of treatment under international law, expropriation, free movement of capital, performance requirements, and dispute resolution, among others.

In fact, this agreement contains all of the core substantive obligations that are standard in all 24 of our FIPAs currently in force.

One of the most important obligations in the treaty is to provide non-discriminatory treatment on a national treatment and most-favoured-nation basis. The national treatment obligation requires, with respect to activities after the establishment of an investment, that Canada and China treat each other's investors and their investments no less favourably than national investors or their investments in similar circumstances.

The most-favoured-nation obligation requires, with respect to activities leading up to and after the establishment of an investment, Canada and China to treat each other's investors and their investments no less favourably than investors or investments of a third country in similar circumstances. For Canadian businesses seeking to set up in China, this obligation means that China cannot treat a Canadian company less favourably than they would any other foreign company seeking to do the same.

Like our other FIPAs, the agreement with China includes an obligation not to fall below an absolute standard in the treatment of investments of the other party. Thus, Canadian investments in China have a right to treatment not lower than the minimum standard established under customary international law. This means, for example, that they may not be denied justice or due process of law or may not be treated in a manifestly arbitrary manner.

Also noteworthy are the obligations on parties to provide compensation to investors in the event of an expropriation. Such compensation must be based on fair market value and paid in a timely manner. As well, the treaty provides that investors are permitted to make financial transfers related to their investments freely and without delay.

As in all of Canada's FIPAs, this agreement provides mechanisms for the resolution of disputes. Disputes may be brought on a state-to-state basis, or an investor may bring a claim directly to international arbitration for resolution. This latter mechanism, known as investor-state dispute settlement, is a key element of the protection provided by the FIPA to Canadian investors abroad. Indeed, it is a common feature in most modern investment agreements. This allows Canadian companies to be assured of access to an impartial dispute resolution mechanism, which can be particularly important in operating environments where the local judicial system may not be well developed or independent of political influence.

Mr. Chairman, it is Canada's long-standing policy to permit public access to such proceedings. Canada's FIPA with China reflects this policy, and will allow Canada to make all documents submitted to an arbitral tribunal available to the public, subject to the protection of confidential business information. It is noteworthy that this is the first bilateral investment treaty in which China has accepted language on transparency of proceedings.

The Canada-China FIPA, like our other FIPAs, ensures that the federal, provincial, and territorial governments have full policy flexibility in key areas such as health and public education.

In addition, all foreign investors in Canada, including those from China, are subject to the same laws and regulations as domestic investors. This includes laws aimed at protecting the environment and those ensuring the highest labour, health, building, and safety standards.

Of course, as is the case with all proposed foreign investments of significance into Canada, we will continue to have the ability to ensure that investments from China bring concrete benefits to Canadians. Under the Canada-China FIPA, Chinese investment in Canada will continue to be subject to the Investment Canada Act for review under both the net benefit test for acquisitions above the applicable thresholds and for national security concerns with respect to any investment. Moreover, any decisions taken by Canada under the Investment Canada Act are specifically excluded from challenge under the dispute settlement provisions of the FIPA.

An important feature of Canada's FIPAs is the so-called ratchet provision. This means that with few exceptions, China's existing nonconforming laws and regulations are locked in and cannot become more restrictive with respect to Canadian investments. Moreover, as the laws are liberalized over time, the new level of openness is locked in at each reform. This provision brings policy predictability to Canadian investors, and is a large gain for Canada, as China has agreed to it in only a few of its other investment treaties.

Mr. Chair, it is clear that Canada's investment relationship with China is significant and in constant growth. The stock of foreign direct investment into Canada from China was C$10.9 billion at the end of 2011. Statistics for that same year show that the stock of Canadian direct investment in China was valued at nearly C$4.5 billion. With China destined to become the largest economy in the world during the coming decade, the opportunities for Canada will only grow.

China is not, however, an easy market for entry of foreign investments. Almost all investments coming into the country must go through an approval process. Some sectors are completely off limits to foreign investment, such as mining of certain minerals. In other sectors, foreign investments are restricted or "encouraged", meaning that they are subject to foreign equity caps or requirements for Chinese control or joint venture arrangements.

While the FIPA with China is not meant to and does not remove these barriers to entry, it does assure Canadian investors that they will be treated at least as favourably as investors from third countries as they go through the approval process.The Canada-China FIPA will support Canadian businesses' efforts to explore the growing investment opportunities in the world's second-largest economy across a range of key sectors, including financial services, natural resources, transportation, biotech, education, information technology, and manufacturing.

In closing, Mr. Chairman, I will say that Canada obviously wants to continue to expand its relationship with China, but we want to see it expand in a way that produces clear benefits for both sides.

Canadian companies that do business abroad rely on fair, transparent, predictable, and non-discriminatory rules. In the absence of a FIPA, Canadian investors rely primarily on the laws and institutions of the host country for protection, which adds a variety of risks to their ventures.

By ensuring greater protection against discriminatory and arbitrary practices and by enhancing policy predictability, the FIPA will allow Canadians to invest in China with greater confidence. This agreement will help Canadian companies in their efforts to compete and win abroad, which in turn will help build a stronger Canadian economy here at home.

I thank you, Mr. Chairman.

My team and I will be pleased to answer any questions.

[The Chair, Conservative, Rob Merrifield]

We want to thank you for your intervention and your briefing. The committee is very keenly interested in this.

We'll start with Mr. Davies, for seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thanks, Mr. Chairman.

Thank you for being here.

What ballpark is the current estimate of Chinese investment currently in Canada?

[Ian Burney]

At the end of 2011, it was $10.9 billion.

[Don Davies, NDP, Vancouver Kingsway, BC]

What is the current amount of Canadian investment in China?

[Ian Burney]

It was $4.5 billion at the end of 2011.

[Don Davies, NDP, Vancouver Kingsway, BC]

I want to turn to article 6, national treatment. If I understand this correctly, no national treatment is to be given by the party for any future investment. National treatment is to apply only to existing investment. Is that correct?

[Ian Burney]

It's somewhat the other way around. There is no national treatment with respect to establishing an investment, but there is national treatment with respect to the treatment of investment once it's established.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay.

Article 8 says that the parties do not have to apply most-favoured-nation status or most-favoured-nation treatment or national treatment to any existing nonconforming measures. Is it a fair assumption on my part that there are more nonconforming measures in China right now than in Canada? Am I generally correct about that?