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.