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Canada a “sitting duck” for Chinese investor-state claims on energy: expert

A Canada-China investment treaty, announced this month by the Prime Minister, could attract billions of dollars in energy related lawsuits while compromising Harper’s promise to stay neutral in the Alberta-B.C. dispute over the Northern Gateway pipeline, writes Osgoode Hall Law School professor Gus Van Harten in an article for Troy Media.

“The federal government revealed the Canada-China treaty a few weeks ago and is rushing to finalize it,” says Harten. “The Prime Minister is proceeding without provincial consent, without an opportunity for careful study, and without a serious public debate. Yet the treaty will hamstring governments across Canada for decades in relation to Chinese-owned assets. This includes, for example, B.C. on Northern Gateway.”

On October 1, the Council of Canadians issued an Action Alert, aimed at MPs, demanding a debate on the China-Canada corporate rights pact. We mention in that alert how the investment treaty “will tie the hands of provincial and federal governments hoping to better manage resource and energy projects.” Van Harten’s article describes several possible investor-state scenarios related to the Northern Gateway pipeline project, in which Chinese firms are pursuing a major stake.

1. “B.C. Premier Christy Clark has said her province could frustrate the Northern Gateway project by withholding electricity for it,” he writes. “Under the treaty, a Chinese company can demand ‘treatment no less favourable than that given to Canadian firms (Article 6 of the treaty) or to investors from third countries (Article 5). Chance of success? High, I would guess.”

The case that China’s treaty rights had been violated would not be heard in a Canadian court but taken outside the country to an arbitral panel with the authority to hand out fines against governments. Canadian companies do not have recourse to this process, nor could Canada use this strong extra-legal tool to pursue corporations for violations of environmental rules or labour rights.

2. In the event B.C. denies permits for the Northern Gateway project, writes Van Harten, “A Chinese investor could claim that the denial of B.C. permits was not ‘fair and equitable’ treatment (Article 4) if it could point to general approvals given by Ottawa. Notoriously, many arbitrators have expanded this right significantly by requiring governments to meet ‘legitimate expectations’ of investors, broadly construed, and to maintain a ‘stable regulatory framework’ over the entire life of a project. Democratic choice and provincial jurisdiction are not a defence.”

Van Harten says the chance of success for this type of claim, based on past cases, is moderate, “depending on whether the arbitrators took an expansive approach to the notion of fair and equitable treatment.”

3. If B.C. blocked the pipeline after construction had begun, the chance a Chinese firm could win a case on expropriation is high, says the law professor.

4. “What if public opposition led to protests that hindered the pipeline?” Van Harten asks in the final scenario. “The treaty gives Chinese investors a right to ‘full protection and security’ from public opposition (Article 4). This will oblige governments in Canada to use their police authority to safeguard Chinese assets. The chance of a successful claim is low, but governments in Canada will certainly have to weigh Canadian democratic values against their duty to protect Chinese investors.”

Van Harten has written elsewhere on the pro-investor bias of arbitration panels established under treaties like the Canada-China Foreign Investment Promotion and Protection Agreement. Lawyers and arbitrators, some of them former trade negotiators who jump to the private sector to help firms sue their former employer (government), make a lot of money doing this. The rewards are getting ridiculous, into the billions of dollars, paid out of public coffers.

Like U.S., Canadian, European and other global firms that have gone to investor-state arbitration, Chinese energy companies will not shy away from using this new corporate rights pact with Canada to frustrate energy project delays and regulation.

“The danger for Canada is that, on balance, we are the capital-importer under the treaty,” says Van Harten in his Troy media article. “This is the first deal Canada has signed, since NAFTA, where this is the case. Thus, under the Canada-China treaty, we will be the sitting duck for investors and a dripping roast for the lawyers and arbitrators.”

To demand a debate on the China-Canada investment treaty before it’s ratified, click here.