This report outlines the results of the Final Environmental Assessment (EA) of the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA) negotiations. On September 9th, 2012, Canada’s Minister of International Trade and Minister for the Asia-Pacific Gateway, Ed Fast, and China’s Minister of Commerce, Chen Deming, signed a Foreign Investment Promotion and Protection Agreement (FIPA) between Canada and China (see News Release: PM announces signing of new investment agreement with China). Prime Minister Harper and President Hu Jintao of China presided over the signing ceremony, which followed the announcement of the conclusion of negotiations for the FIPA in February 2012, during the Prime Minister’s visit to China (see News Release: PM announces agreement that will facilitate investment flows between Canada and China).
As a basis for these negotiations, negotiators used Canada’s 2004 FIPA model. However, given the extended history of these negotiations, certain aspects of the text reflect approaches used in previous models. The full text of the concluded Agreement is available at: Agreement Between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments on the DFAIT website.
FIPA negotiations are subject to the 2001 Framework for Conducting Environmental Assessments of Trade Negotiations1. The Framework provides a methodology for conducting an EA of a trade or investment negotiation. It is intentionally flexible so that it can be applied to different types of negotiations (e.g., multilateral, bilateral, regional) while ensuring a systematic and consistent approach to meet two key objectives.
The first objective is to assist Canadian negotiators to integrate environmental considerations into the negotiating process by providing information on the possible environmental impacts of the proposed agreement. As such, negotiators and environmental experts are involved in the EA and work proceeds in tandem to the negotiations.
The second objective is to respond to the environmental concerns expressed by the public. The Framework contains a strong commitment to communications and consultations throughout each EA of a trade or investment negotiation.
The process under the 2001 Framework for Conducting Environmental Assessments of Trade Negotiations focuses on the likely economic effects of the trade and investment negotiations and their likely related environmental impacts in Canada. The process involves three phases—the Initial EA, Draft EA and Final EA. The middle phase, also known as the Draft EA, is not undertaken if the agreement in question is not expected to generate significant economic effects and environmental impacts in Canada. Public consultations are an integral part of the EA and are undertaken throughout the process.
An Initial EA of the Canada-China FIPA was completed in January 20082. The Government of Canada opened the Initial EA for public comments from February 20 to March 21, 2008. No public comments were received. In the light of the Initial EA’s conclusions regarding the unlikelihood of significant environmental impacts in Canada, preparation of a Draft EA was subsequently deemed to be unnecessary. The findings of the Initial EA were communicated to Canada’s lead negotiator and were integrated into Canada’s negotiation strategy. The purpose of the Final EA is to document the outcome of the negotiations in relation to the EA process.
While the findings of the Initial EA were valid and accurate at the time of the report’s completion, the results of the Final EA of the Canada-China FIPA negotiations do differ slightly from those found in the Initial EA. In the Initial EA, it was found that significant changes to investment in Canada were not expected to occur as a result of the Canada-China FIPA. In addition, it was found that no significant environmental impacts were expected as a result of the Canada-China FIPA. In this Final EA, the claim that no significant environmental impacts are expected based on the introduction of a Canada-China FIPA are upheld; however, over time, Chinese investors have shown greater interest in investing in Canada, and this trend is likely to continue, if not increase with the introduction of a FIPA. The findings of the Initial EA, along with the more recent developments in Canada’s bilateral investment relations with China were communicated to Canada’s lead negotiator and were made a part of the negotiation strategy.
a. Areas of Growth in Investment
The stock of Canadian FDI in China was valued at approximately C$4.5 billion at the end of 2011. That same year, the stock of foreign direct investment into Canada from China reached approximately C$11 billion. These figures amount to approximately a 24.5% increase in Canadian FDI in China between 2008 and 2011, and approximately a 92.4% increase in Chinese investment in Canada over that same time period. Canadian investors have expressed interest in a broad range of sectors in China, including transportation, biotechnology, education, finance, information technology, manufacturing, and natural resources. As China's economic importance continues to grow, it will remain a priority market for Canada. Sectors of interest for Chinese investors in Canada include natural resources, renewable energy, information and communication technology, food processing, pharmaceuticals and natural medicine, and advanced manufacturing.
b. Estimated Economic Impacts of the Canada-China FIPA
While a FIPA should be a positive factor in investors’ decisions on whether or not to invest, a FIPA does not impose new market access obligations or liberalize existing investment restrictions. Companies and individual investors determine risks through independent economic and political assessments, and determine their willingness to accept those risks and invest in a given market. A FIPA seeks to reduce the risk of investing in a foreign market; however, this type of government-to-government treaty cannot directly facilitate new investments or directly create new opportunities for investment. As such, it is not feasible to establish direct causal link between changes in investment patterns and the presence of a FIPA. Nevertheless, by ensuring greater protection against discriminatory and arbitrary practices, and enhancing predictability of a market’s policy framework, a FIPA allows investors to invest with greater confidence. This increase in investor confidence indirectly encourages increased investment, and potentially attendant benefits such as job creation and broader economic growth.
c. Estimated Environmental Impacts of the Canada-China FIPA
As new flows of investment from China into Canada (or Canada into China) cannot be directly attributed to the presence of a FIPA, there can be no causal relationship found between the implementation of such a treaty and environmental impacts in Canada. It is for this reason that the claim made in the Initial EA, that no significant environmental impacts are expected based on the introduction of a Canada-China FIPA, is upheld. Regardless, as in all Canadian FIPAs, the Canada-China FIPA ensures that the Parties retain the ability to regulate in the public interest, including with respect to environmental issues. Moreover, the FIPA will not inhibit Canada’s ability to develop and implement environmental policies. All foreign investors in Canada are subject to the same laws and regulations as domestic investors, which includes laws aimed at protecting the environment.
No new issues arose during the latter stages of the Canada-China FIPA negotiations with respect to potential environmental impacts in Canada. The environment-related provisions of the Canada-China FIPA are closely reflective of those found in Canada’s FIPA model.
Mirroring Canada’s model, the Canada-China FIPA includes general exceptions with respect to the protection of human, animal or plant life or health, as well as the conservation of exhaustible natural resources. These safeguards, found in Article 33(2), are based on those contained in GATT Article XX and GATS Article XIV.
As per the FIPA model, Article 18 of the Agreement contains a clause whereby the signatories recognize that it is inappropriate to encourage investment by relaxing domestic health, safety of environmental measures. In the event that a Party offers such encouragement, the other Party may request consultations.
Finally, and as is found in the model, Annex B.10 of the Canada-China FIPA provides that regulations designed and applied to advance legitimate public welfare objectives, such as those respecting health, safety and the environment, do not constitute an indirect expropriation.
The Government of Canada encourages and expects all Canadian companies working internationally to respect all applicable laws and international CSR standards, to operate transparently and in consultation with host governments and local communities, and to develop and implement CSR best practices. Adherence to internationally-agreed upon voluntary principles and guidelines is a key part of Canada's CSR approach. According to a Canadian Chamber of Commerce (CCC) a report titled Responsible Business Conduct in a Complex World (2012), 71% of Canadian corporate executives say they believe Corporate Social Responsibility (CSR) is “an essential part of doing business” and needs to be recognized and reported.
Initiatives focused on CSR, or "sustainable development", in China are still in the nascent stages of development. The Beijing Chapter of the Canada-China Business Council (CCBC), one of the longer-standing bilateral business organizations active in China, restructured its executive into committees in 2006, forming a sustainable development committee focused on CSR. The committee organized two independent networking and information events, and several joint networking events with other Chambers of Commerce in 2006/07, bringing together interested companies and Non-Governmental Organizations (NGOs).
The Canadian embassy in Beijing has met with the CCBC's Sustainable Development Committee Chairs to discuss future initiatives. Some of the initiatives discussed include: a) an education seminar that helps companies to properly define CSR and understand the benefits of a CSR policy to the company's bottom line in addition to the countries and regions that they operate; b) a workshop bringing together CSR-minded Canadian and Chinese companies to network and discuss sustainable solutions to common problems facing these businesses; c) development of a list of qualified NGOs that can work with companies to implement sustainable projects in line with companies’ CSR plans and strategies; and d) a joint project with other Chambers of Commerce to investigate hot topics in CSR, such as micro-credit or micro-financing.
In addition to initiatives led by government and associations, some individual Canadian companies continue to provide leadership in this area.
Canada and China are actively engaged in environmental cooperation activities3. Although not specifically linked to the FIPA, these efforts demonstrate existing mechanisms to work together on issues of common concern.
Comments on this report may be sent by email, mail or fax to:
Environmental Assessments of Trade Agreements
Trade Agreements and NAFTA Secretariat
Foreign Affairs and International Trade Canada
125 Sussex Drive, Ottawa, Ontario K1A 0G2
Fax: (613) 992-9392