Canada's Secret Treaty with China Is Setting Us Up For Some Big Problems

Li Keqiang, China's current head of government. via Flickr.

In the excellent HBO documentary Hot Coffee, director Susan Saladoff explains what happens when individuals sign off on "mandatory arbitration" clauses, which are commonplace in everything from employment to credit card agreements to gym memberships (probably). Basically, by agreeing to one of these fine print clauses, one waives the right to go to trial for any legal complaint related to the contract. Instead, one is required to bring legal complaints before an arbitrator.

The defendant is often a corporation that just screwed over a consumer or employee and they use the mandatory arbitration clause to mitigate the legal costs of a civil court case. The arbitrator is hired by the defendant, so they're likely to rule in favour of the defendant, and the arbitration is held in secret, so nobody knows about it. In other words, it's a legal loophole that allows corporations to get away with, well, pretty much anything.

This is the kind of loophole that has a good chance of being used as a tool by Chinese state-owned enterprises (SOEs) to threaten and influence legislation by Canadian governments. It's not exactly the same as the mandatory arbitration clauses that are built into the contracts that bind us on a daily basis, but the principle is the same. In this iteration, the parties that stand to benefit are Chinese investors in Canada, including enterprises owned by the Chinese government, and the parties that stand to lose are the Canadians that have become a part of this agreement without being consulted.

The Canadian Government, you see, is working towards a Foreign Investment Promotion and Protection Act (FIPA, don't ask about the other 'P') treaty with China, which is ostensibly meant to protect Canadian investors of Chinese businesses from unfair treatment at the hands of the Chinese government, and vice versa. These measures include arbitration agreements that might force various levels of Canadian government to face arbitration in Chinese tribunals if they are sued by Chinese investors. That includes legislation from federal, provincial, or municipal governments, as well as First Nations communities.

The treaty, Canada's largest trade deal since NAFTA, was signed (but not ratified) in secret last September. It was done without being tabled in the House of Commons and without the consultation of the provinces. Treaty-making, apparently, is a "royal prerogative," and as such, does not need to be debated in Parliament, giving Canadians just one more reason to oppose the monarchy.

In a radio interview with CBC's The Current last October, Gus Van Harten, an expert in international investment law, expressed that this deal was remarkably lopsided and possibly unconstitutional. Canada has already entered into 24 FIPA agreements, but the agreement with China is the only one in which the foreign country's investment in Canada greatly outweighs Canadian investment in said foreign country. Furthermore, it means disputes between Chinese investors and Canadian lawmakers can be handled by Chinese arbitrators, rather than by the relatively open legal systems of a legitimate democracy.

"The centrepiece of this treaty," Van Harten said in October "is an arbitration mechanism that will allow Chinese investors to challenge any decision that is taken by any level of government anywhere in the country, take those disputes outside of the Canadian legal system and Canadian courts at their option, and subject them to these special arbitration tribunals. This is not a court. They're not fair, open, independent in the way Canadians are used to courts in Canada and other democratic countries."

If we use the power of reason, we can see that if Canadian lawmakers are threatened by legal action from foreign investors, and they can't fight those legal claims except through secret arbitration by a foreign power, then they will probably avoid enacting any laws that might compromise the profits of those foreign investors. Given that some of these foreign investors are owned by the Chinese state, the alarming conclusion follows that, thanks to this FIPA, Canadian democracy will be influenced by the Chinese state. (You can find a good summary of this problem, and how it has affected various nations, at the Corporate Europe Observatory). Rabble has suggested that the environmental regulations in C-38 and C-45 were gutted for fear of lawsuits from Chinese investors, which isn't as crazy as it might seem when you consider some of Van Horton's examples of previous lawsuits brought about from agreements like this:

• About a year and a half ago, Phillip Morris sued Australia, under an investment treaty, for introducing anti-smoking legislation.
• In 2007, a group of Italian firms sued South Africa for black empowerment legislation enacted post-Apartheid.
• A Chinese investor sued Belgium for US$2.28 billion in losses incurred when the country nationalized Fortis, a Belgian Dutch bank, during the recession.

Perhaps the most frightening part of FIPA, however is the fact that we may never know how much the government's resources are being compromised by these Chinese tribunals. "We can't really know how often Chinese investors have sued under these treaties," Van Harten said "because there's a high level of confidentiality associated with these treaties."

The treaty, which (again) was negotiated and signed in secret without Parliamentary approval or any outside consultation, will handicap all levels of Canadian government for 31 years, meaning that future governments will avoid making laws that might result in a lawsuit that has to be handled in a foreign arbitration tribunal.

Thus far, the NDP have opposed the bill, but that opposition has proved ineffective against the Conservative majority government. In October, Van Hartan told The Vancouver Observer that the provinces could oppose FIPA on the grounds that it is unconstitutional, but the provinces have proved unwilling to do so. Unexpectedly, the only group currently standing in the way of the FIPA's ratification is the Hupacasath First Nation in British Columbia, a small community of only about 300 members that has filed a constitutional challenge to the treaty. The FIPA may affect treaty rights with First Nations, giving foreign investors rights that overlap with those of the Hupascath, which would be a breach of the constitution. The government, of course, claims the international treaty constitutes an exception to the case. This includes rights over coal that can be found on Hupascath land.

Given the grounds on which this bill can be opposed (the secrecy in which it was signed, the questionable constitutionality, the negative effects it will have on Canadians who deal with Chinese investors), and given the effects it may have on Canadian democracy for the next 31 years, it's a little surprising that this David and Goliath showdown between Hupascath and the Canadian government is our last hope to keep this FIPA from happening. The Hupascath probably won't be successful in their challenge to the federal government; the little guy usually isn't. It's too bad that when it comes to this treaty with China, it's Canada legislators that'll eventually be the little guys.

Follow Alan on Twitter: @alanjonesxxxv

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