Trade & Customs- Canada With the continuing rise of the Chinese economy, achieving a Canada-China investment treaty has become imperative.
Growing Need for BIT
Towards the end of 2005 negotiations recommenced between Canada and China towards a bilateral investment treaty (BIT) and are still ongoing. Although details of the negotiations are difficult to obtain, the case for the completion of a BIT between Canada and China grows with each passing year.
Trade and investment with China continues to increase at a substantial rate and the Chinese economy has grown at an average annual rate of approximately 10% over the past 16 years. It has become the world's fourth largest economy (twice as large as that of Canada). As the economy has grown, so have Chinese exports and imports, as well as inbound and outbound investment. In this context nearly 120 countries have concluded BITs with China.
Model BIT
Canada is negotiating with China slowly and carefully. It has approached the negotiations with a model based on Chapter 11 of the North American Free Trade Agreement (NAFTA), which is designed to ensure the national treatment of Canadian businesses in China and Chinese businesses in Canada. The lengthy model BIT includes provisions addressing:
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expropriation;
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transfer of funds;
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transparency;
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due process; and
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dispute settlement.
Canada has worked its experience under NAFTA into its model BIT provisions. In particular, it has refined the dispute settlement provisions based on its experience in the Methanex Case and other disputes. Under the model BIT, a corporation that wishes to initiate international arbitration (eg, a Chinese company commencing proceedings against Canada) must waive its right to pursue litigation in other forums. The arbitration process is also intended to be more predictable and expeditious, with timelines and tribunal members' expenses set out in advance. Although it is unlikely that these refinements will entirely vanquish the 'three horsemen' of litigation - cost, delay and uncertainty - they may go some distance towards that objective.
Implications
Canada's thoughtful approach to negotiations with China should deliver positive results in the long run. However, progress in the short term appears to be frustratingly slow. Similarly, the growth of Canadian business investment in China has been limited, at least in comparison to the growth of the Chinese economy and its economic relations with other countries. While Canada's merchandise imports from China totalled nearly C$30 billion in 2005 (a 22% increase on 2004), Canadian exports to and investment in China have not kept pace. For example, in 2005 Canadian investment in China was just over C$1 billion, a relatively low amount considering that Canada invested C$8 billion in Brazil in the same year. In a recent report on reducing barriers to enhanced trade and investment with China, the Canadian Chamber of Commerce suggested that the absence of a high-standards investment treaty with China may be partly responsible for this imbalance.
Next Steps
Minister of International Trade David Emerson has made it clear that completing an agreement with China is one of his department's main priorities. Canadian trade officials report that some progress was made during the last round of negotiations in Vancouver in September 2006. Canada now awaits an invitation from China, which will host the next round.
Given the suspension of World Trade Organization talks and the importance of ensuring that Canada benefits from China's rise in the global economy, Canadian businesses are hopeful that Canada and China will conclude the long-awaited agreement in the near future.
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