International Trade Committee on Oct. 18th, 2012

[Ian Burney]

The short answer to that question is that China would not agree to be bound to a commitment along those lines, but Canada preserved its ability to meet its policy requirement to have transparent proceedings in the case of challenges taken against measures in Canada.

[The Chair, Conservative, Rob Merrifield]

Okay. Very good.

We'll go with Mr. Hiebert. I believe that you're sharing your time with Mr. Cannan.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

That's correct.

Mr. Burney, I appreciate that the Canada-China FIPA is a strong step toward greater transparency and opportunities for Canadians to invest in China. At least it gives them the same favourable status as other third countries in respect of the approval process.

You said that China was not an easy market for entry of foreign investments, that almost all investments coming into the country must go through an approval process, and that some sectors are completely off limits. Which other sectors besides mining, which you mentioned, are off limits?

You also said that in other sectors, foreign investments are restricted or encouraged. Which other sectors are we talking about, and can you explain what you mean by “restricted or encouraged”? I'd like to understand more fully the constraints that the Chinese put on Canadians investing in their country.

[Ian Burney]

To give a specific answer, we'd probably have to take note of the question and provide more specificity down the road, but basically investments are categorized in those three main categories in the Chinese inward investment law. There are those that are encouraged, those that are restricted, and those that are prohibited. By way of adding to the example I gave of those that are prohibited, I'll see if one of my colleagues can elaborate.

I can tell you that oil and gas investments fall mainly into the encouraged category and so face a less restrictive policy regime than mining. Basically, it has to do with the level of screening procedures. Depending upon the category, there would be a higher threshold to meet for the inward screening mechanisms.

[John O'Neill, Director, Investment Trade Policy Division, Department of Foreign Affairs and International Trade]

Sectors where investment is prohibited include radioactive materials and rare earth metals. Areas where there are restrictions and approval is required are oil and gas, the manufacturing sector, and financial services.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

They're discouraged. If they're restricted, Canadian companies can't really access markets in the financial services or manufacturing sectors.

[John O'Neill]

It is open to Canadian investors to access those markets, but there are approval processes. There are Canadian investors active in the financial services area and in the manufacturing area. I don't know about oil and gas, but there are active Canadian investors in those other areas, which have an approval process.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

I will share the balance of my time with my colleague.

[The Chair, Conservative, Rob Merrifield]

Okay, go ahead.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

In respect of transparency, I understand this negotiation started in 1994. Is that correct?

[Ian Burney]

Yes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

The agreement is on www.international.gc.ca.

[Ian Burney]

Yes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

There was an opportunity for the opposition parties to debate this when in 2008 our government brought in a process to allow public debate in the House of Commons if the opposition felt this was important to debate.

[Ian Burney]

That's my understanding of how the parliamentary process works for treaties, yes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I have a question. If the Nexen deal is approved, will the FIPA agreement allow Chinese corporations to sue the Canadian government outside of our court system?

[Ian Burney]

The FIPA has an investor-state dispute settlement mechanism, so an investor in Canada who felt the obligations under the treaty were being violated would have recourse to investor-state arbitration, just like a Canadian investor in China would have access to investor-state arbitration if it felt that the obligations were not being fulfilled.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

If a Chinese company owns a Canadian resource like Nexen, can it covertly sue Canadian governments, whether municipal, provincial or federal, if the government does anything that threatens the company's profits?

[Ian Burney]

I certainly wouldn't characterize it as “covertly”. As the previous discussion makes clear, the investor-state process would be carried out in a fully transparent fashion in Canada.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Does Canada achieve anything in this investment agreement that China has not provided to previous countries with which it has signed similar agreements?

[Ian Burney]

Yes, this is the first time China has accepted any language on transparency provisions in one of its investment treaties. As I indicated, the ratchet mechanism is very rare in China's investment agreements, so there are a number of areas where Canada made significant strides in the negotiation of this investment agreement.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

The last question has to do with the timing. This is unprecedented in the sense that we're trying to provide stability and confidence in Canadian investment. We're for trade. We're for investment. Reinforce for us one more time how this will help Canadian investors.

[Ian Burney]

We've heard consistently from Canadian stakeholders in the business community that they value this agreement a great deal, and particularly the access to investor-state mechanisms, because it provides the kind of confidence and stability with respect to their investments that removes risk, which is the key factor in undertaking a large-scale investment in a foreign country.

This is strongly supported by business stakeholders in Canada. I think there were public statements of support from most of the large business associations in Canada at the time it was signed.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Just to clarify one last time, this agreement will then allow the protection of Canadian investors in China who right now would have to deal with a Chinese court system.

[Ian Burney]

That's correct.