Negotiations for a bilateral Foreign Investment Promotion and Protection Agreement (“FIPA“) between Canada and China have been ongoing for over a decade. They commenced in 1994, were interrupted pending China’s accession to the World Trade Organization (“WTO“), and resumed in September 2004. After much debate and no shortage of opposition, the Canada-China FIPA (“C-C FIPA“) was signed on September 9, 2012 and officially came into force on October 1, 2014.
The main purposes of a FIPA are to establish clear investment rules and measures to protect foreign investors against discriminatory or arbitrary government practices, to provide effective compensation in the event of an expropriation and to enhance the overall predictability of the policy framework governing foreign investments. The existence of a FIPA has proven to be useful in terms of promoting the parties’ respective markets as a stable destination for investment with clearly defined and enforceable rules. In fact, foreign investors often look to the existence of a strong investment protection agreement as a key consideration in their decision-making process. It is important for both Canadian and Chinese businesses and investors to understand what their respective rights are and how they will be protected under this new agreement.
Foreign investment has become an essential corporate strategy for many Canadian companies competing in the global economy, allowing them to gain access to foreign markets, acquire new technologies, and gain access to investors and funding among a panoply of other important benefits. Although the statistics show that inflows of foreign direct investment (“FDI“) from China into Canada are increasing, they remain but a small portion of the total FDI inflows into Canada, leaving much potential for expansion and growth.
The C-C FIPA represents the first major economy-wide agreement between Canada and China. Given the protections offered under the Agreement, Canadian businesses will have further impetus to expand their presence in, and partnerships and investments with China to truly take advantage of the economic possibilities. The C-C FIPA creates a certain degree of security which can only serve to encourage further investment between both countries and help Canadian businesses gain access to the rapidly developing Chinese market. The C-C FIPA does provide a foundation of rights upon which investors, both Canadian and Chinese, can rely. Parties interested in investing in or exploring business and/or investment opportunities in either Canada or China should consider the provisions of the C-C FIPA in their business/investment planning. Woods, LaFortune LLP can help interested parties identify potential opportunities in either market and assist in the structuring and planning of business and investments to take advantage of favourable provisions and avoid issues down the road.
For a more detailed analysis of the relevant provisions of the C-C FIPA and their applicability to your business, as well as specific investor-state dispute settlement provisions, please visit our publications section.
