Megan Seto
Megan Seto, Lawyer, McInnes Cooper
 

On October 1, 2014, the new Foreign Investment Promotion and Protection Agreement (FIPA) between China and Canada came into force. International investment is a key strategy for businesses that compete globally or aspire to do so, but foreign investment is risky. FIPAs are bilateral investment treaties that establish a framework of legally binding obligations and rights around foreign investment to help businesses in the member nations overcome the risks. China is Canada’s second-largest trading partner. It’s rapid growth and expanding economy has created more opportunity for direct foreign investment. This FIPA especially represents a strong opportunity for small and medium sized businesses in the targeted industries to enter the Chinese market.

5 key obligations of the new China-Canada FIPA: This FIPA will be in force for 15 years after which either nation can terminate it, though its rules will still apply to pre-termination investments for 15 years after termination. Here are five key obligations of it:

  1. Non-discriminatory treatment. Each nation must treat investors from the other at least as well as domestic investors (“National Treatment”) or as any other foreign country’s investors (“Most Favoured Nation Treatment”). But if new Chinese investment in Canada exceeds certain monetary thresholds, Canada can still review and approve acquisitions of Canadian businesses under the Investment Canada Act (and China has an analogous power).
  2. Fair and equitable treatment. Both nations must treat investors according to international law. There are minimum standards addressing a broad range of interests, and expectations related to transparency, performance requirements and transfers and expropriation, all intended to guide investors.
  3. Expropriation. Expropriation (direct or indirect) must: be for a public purpose; be non-discriminatory; comply with domestic due procedures of law; and include compensation.
  4. Dispute resolution. “Foreign” investors and “local” businesses can arbitrate commercial disputes instead of using the foreign state’s domestic court system. Arbitrations follow the International Centre for Settlement of Investment Disputes or the UN Commission on International Trade Law. In this FIPA, the arbitration process is private unless the host government determines there is a public interest in making it public.
  5. Damage Claims.  Investors can bring a damage claim (a claim for monetary compensation) against the foreign nation that failed to comply with the FIPA’s terms.

3 Tips To Make The Most Of The New FIPA: “Big businesses” might already be in the Chinese market, and already well positioned absorb the risks of international investment. Small and medium sized businesses with globalization aspirations will likely benefit the most from the protections that the new China-Canada FIPA affords. This FIPA specifically targets the energy, agriculture, mineral products, seafood, and shipping industries. SMEs in these industry sectors should take a good look at whether and how this new FIPA opens some opportunities for them. Here are three tips to get you started:

  1. Be strategic. First time investors and businesses should consider trading in cities that are traditional trading partners. For example, Zhuhai is a port city in China that shares similarities with Halifax, Nova Scotia, Canada.
  2. Don’t reinvent the wheel. Being strategic might include reaching out to other leaders in your industry to identify opportunities to share knowledge and to coordinate and combine efforts.
  3. Work with leaders and partners. Identify and reach out to people or organizations with knowledge in the area that can help with strategy development, strategic alliances and building international bridges. For example, the Hong Kong-Canada Business Association (which has an Atlantic Canada Section) and the Halifax Port Authority are both identified knowledge leaders in this area.

McInnes Cooper has prepared this document for information only; it is not intended to be legal advice.  You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.

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About the author: Megan Seto is a lawyer with McInnes Cooper. A member of its Tax and Cross-Border Law Teams, Megan is fluent in Taishanese and has a solid working knowledge of Cantonese. She can be reached at megan.seto@mcinnescooper.com.