Skip to main content

The Canada-China investment treaty (a.k.a. the Foreign Investment Promotion and Protection Agreement) is a questionable deal for Canada. Most important, it has key implications for the constitutional role of the provinces, first nations and superior courts.

By the workings of its investor-state mechanism, the treaty will authorize arbitrators to make an extraterritorial damages award against Canada due to, for example, a provincial law in Alberta that affected a Chinese-owned mine. The award would be enforceable against assets of, say, Hydro-Québec in more than 100 countries, entirely beyond the authority of Canadian courts. Alternatively, the arbitrators could order the federal government to refrain from conduct that the government was obliged to take under a federal-provincial agreement or an aboriginal treaty. If the federal government did not comply, it could face ongoing monetary liability to a Chinese investor. None of these outcomes could be overruled by the Supreme Court of Canada even on grounds of unconstitutionality.

Does this make the treaty unconstitutional? Maybe, maybe not. Should the matter be examined and resolved before the federal government locks in the treaty next week for 31 years? I tend to think so.

This FIPA is different from other FIPAs concluded by Canada because its de facto inequality works against our interests, rather than in favour. Typically, Canada signs FIPAs with countries whose investors do not own major assets in Canada. With Canada-China, Canadian taxpayers assume disproportionate liabilities to Chinese firms in exchange for strong protections for Canadian companies in China.

The treaty also cements de facto inequality on market access. Each country must open its economy to the other's investors in a limited way. But both countries exempt their existing legal framework from this obligation. Canada's existing framework under the Investment Canada Act is relatively open and transparent and has been nailed down specifically in the treaty. China's existing framework, especially in strategic sectors, is closed, opaque and described vaguely in the treaty as the "Laws, Regulations, and Rules relating to the regulation of foreign investment." Advantage China.

More important, the treaty affects the Constitution. It allows arbitrators, beyond Canadian courts and, in some situations, any court, to review decisions of any legislature, government, court, tribunal, first nation or municipality that affects any Chinese-owned asset. The arbitrators have immense power to issue monetary orders; more rarely, they issue non-monetary orders. Most significant for Canadian voters and taxpayers, they can order an elected legislature to pay compensation to Chinese investors in situations where Canadian courts would not for reasons of legislative supremacy.

The constitutional issues were examined 14 years ago by a B.C. legislative committee that held extensive hearings on the proposed Multilateral Agreement on Investment. The MAI had an investor-state mechanism that was essentially the same as in the Canada-China treaty. The B.C. committee elaborated on the implications of investor-state arbitration for provincial powers over natural resources, conservation, environmental protection and labour rights, for example, as well as first nations treaty rights. Its questions are pertinent now more than ever:

How is it that the federal government can expose provincial measures to binding international arbitration without the province's consent? How can a valid provincial policy that addresses a vital environmental issue and that enjoys overwhelming public support come under direct attack in this way? Who will pay if a provincial measure is found to violate the federal government's treaty obligations? Setting aside the jurisdictional issues, is it fiscally responsible for the federal government to negotiate an agreement that exposes it to open-ended liability for provincial government measures?

These are not hypothetical questions. Several countries have faced catastrophic awards under these treaties, the arbitrators have steadily grown their role, investors increasingly sue developed states and the amounts at stake have escalated to tens or even hundreds of billions of dollars. The arbitrators are on a roll; questions of democracy and judicial independence remain outstanding.

I'm just an academic specialist in investment treaties. Please discount accordingly my view that the treaty erodes Canadian values of federalism, legislative supremacy and the rule of law. The immediate question is: What if the federal government got this FIPA wrong? What if it's unconstitutional? After the treaty enters into effect, its legal consequences will be beyond the authority of any Parliament, provincial legislature or Canadian court until 2043.

Gus Van Harten is an associate professor at Osgoode Hall Law School.