Minister of Small Business, Export Promotion and International Trade appearance before the Special Committee on the COVID-19 Pandemic

2020-06-03

Canada-China FIPA

Issue

Canada-China Foreign Investment Protection and Promotion Agreement

Responsive Lines

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• The Canada-China FIPA provides greater predictability and protection for investment activity, and allow investors to invest in each other's markets with greater confidence.
• The Canada-China FIPA supports Canadian businesses' efforts to explore the growing investment opportunities in China, and provides more stability for Canadian firms with investments in that market.
• To date, no claim has been filed by a Chinese investor against Canada under the FIPA.

Releasable Background

The Canada-China FIPA entered into force on October 1, 2014.

Through the Canada-China FIPA, Canada has secured a high-standard agreement through which to grow Canada's investment presence in China. The FIPA is very similar to the other such agreements to which Canada is a party, and provides a rules-based investment regime, including dispute settlement procedures. The agreement contains comprehensive scope and coverage, and substantive obligations pertaining to national treatment (post-establishment), most-favoured-nation treatment (pre- and post-establishment), minimum standard of treatment, transparency, performance requirements, transfers and expropriation.

Under the FIPA, Chinese investment in Canada continues to be subject to the Investment Canada Act for both the net benefit test for acquisitions, and for national security reviews.

While the China FIPA was criticized by some civil society stakeholders over concerns about Chinese investors suing Canada under investor-state dispute settlement, no such claim has been filed to date.

While China is one of the world's top destinations for foreign direct investment, it remains a challenging market for foreign investors. China maintains strict controls on foreign investment into many areas of its economy.

In addition, many Canadian investors cite diverse concerns including with respect to opaque governmental decision-making, arbitrary governmental authorizations, poor intellectual property rights enforcement, and financial and other preferential treatment afforded to Chinese state-owned enterprises.

U.S. Economic Prosperity Network

Issue

On May 4, Reuters reported on a U.S. initiative to create an "Economic Prosperity Network" of trusted partners to address supply-chain risk and reduce its perceived over-reliance on China.

Responsive Lines

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• Our conversations with U.S. officials indicate that the "Economic Prosperity Network" (EPN) is not yet a fully developed initiative, and will aim to deepen economic relationships with trusted partners on the basis of shared values.
• he U.S. have assured us that Canada will be welcome to participate once they are ready to formally engage with other countries.
• Canada will continue to engage with the U.S. on the EPN, and other U.S. efforts to address supply chain vulnerabilities exposed by the COVID-19 crisis.
• Canada-U.S. cooperation during the pandemic, including our shared and reciprocal measures at the border to ensure the health and safety of Canadians while maintaining the flow of essential trade and medical supplies, shows the importance and closeness of our relationship.
• Combined with the entry into force of CUSMA, Canada and the U.S. are capitalizing on the opportunity to deepen our integration at a time when the security and integrity of supply chains is brought into question.

Releasable Background

In a Reuters report from May 4, 2020 (“Trump Administration Pushing to Rip Global Supply Chains from China”), U.S. Undersecretary of State for Economic Growth, Energy and Environment, Keith Krach, and another unnamed official speak about U.S. efforts to create an alliance of trusted partners under the auspices of an Economic Prosperity Network (EPN). The article includes a fragmented quote from Secretary of State Mike Pompeo, referring to work with Australia, India, Japan, New Zealand, South Korea and Vietnam to “move the global economy forward”, including with respect to supply chain security.

Canadian officials in Washington D.C. are in regular contact with their U.S. and like-minded counterparts and have been able to establish that the media report likely conflated the U.S. State Department-led initiative recently renamed EPN with a separate (and now concluded) “Indo-Pacific Coordination Group” where the U.S. and Indo-Pacific partners cooperated on the immediate COVID-response.

Canadian officials' understanding is that the EPN is a multi-pronged concept encompassing various existing U.S. plurilateral initiatives with the objective of deepening economic relationships on the basis of shared values (e.g. trust, transparency, reciprocity, accountability, and national sovereignty). At this time, it does not appear to include formal work on supply chains. However, Canadian officials continue to engage with other actors across the U.S. Government who are developing supply chain analysis.

Contrary to what was suggested by the media report at issue, the EPN will be open to all “trusted partners” and will not be limited to Indo-Pacific countries. U.S. officials also clarified that EPN participants would not be limited to national governments, but would also include universities, businesses, and other interested organizations. We expect the U.S. State Department to share more specifics about the EPN with potential participants in the near future.