On 14 August 2018, the Honourable Jim Carr, Minister of International Trade Diversification, announced the launch of a public consultation on Canada’s foreign investment promotion and protection agreements (FIPAs). This is Canada’s first formal update of its 2004 model FIPA, which is largely based on the North America Free Trade Agreement (NAFTA).
Currently, Canada has 36 FIPAs. Twenty have been concluded since 2004, including one with China that came into force in 2014. Canada’s FIPAs protect over $ 653 billion worth of Canadian foreign investment overseas, approximately 30% of Canada’s GDP in 2017, according to the Government of Canada.
One significant feature of FIPAs—like other international investment agreements—is that they include investor-state dispute settlement (ISDS) mechanism. ISDS allows investors to sue host government in international arbitration for the latter’s alleged violation of the treaty. FIPAs have been frequently used by Canadians and Canadian companies to sue foreign governments. To date, 28 cases were litigated under Canadian FIPAs and investment chapters in free trade agreements (FTAs). Canadian companies also initiated arbitration under the NAFTA in 17 instances and 15 of them were against the U.S. government. Meanwhile, investors have also brought Canada before international tribunals. Out of the 27 cases against Canada to date, 26 of them were brought by the U.S. investors under the NAFTA.
As Canada aims to reflect and respond to the interests of all Canadians, especially women, Indigenous peoples and owners of small and medium-sized enterprises through the “progressive trade agenda”, it is curious to see what the new Canadian model FIPA would look like. Canada’s most recent treaty experience in the freshly inked Comprehensive Economic and Trade Agreement (CETA) with European Union (EU) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with other trading partners may shed some light. However, the negotiation of both treaties started long before Canada proposed the “progressive trade agenda”, therefore, they may not fully reflect Canada’s current view on progressive trade.
Many issues in FIPA should be addressed for Canada to implement the progressive trade agenda and one of them is investment dispute resolution. What approach Canada should take regarding the ISDS? Canada took different approaches toward the ISDS in CETA and CPTPP. In CETA, Canada embraced EU’s proposal of a standing Appellate Tribunal for investment arbitration. At this moment, however, both the EU and Canada have put this part on hold without implementation. In CPTPP, the ISDS mechanism continues to be once-for-all arbitration (subject to very limited review). Given the rise of the recent debate on ISDS, Canada should consider which approach is most suitable to promote its free trade agenda in its future FIPAs.
The public is invited to submit their opinions until October 28, 2018. The details can be found here.
Tereposky & DeRose has extensive arbitration, consultation and negotiation experience under NAFTA and CETA. If you are interested in participating in the FIPA public consultation, we are happy to assist.