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Is Canada-China Investment Treaty (FIPA) an attack on Aboriginal Rights?

October 30, 2012

[Update - November 1st, 2012 - Click here to read our letter of today's date to the Department of Justice asking them to advise the Canadian government on the possible illegality of the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA).]

The Canadian government is preparing to ratify the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA) possibly as early as tomorrow (November 1st) – an agreement which many individuals and organizations, including West Coast Environmental Law, have grave and deep concerns about.  But one clear legal problem with the FIPA, which has not been discussed enough, is its impact on Canada’s relations with its First Nations.  By giving new rights to Chinese investors, the treaty risks undermining Canada’s obligations to deal in good faith with First Nations. 

Background on FIPA

FIPA, if ratified, will permit Chinese investors to seek damages before international tribunals if they allege that Canadian laws or other measures have negatively affected their investment in Canada.  Canada would be locked into this agreement for a minimum of 15 years.  Even if Canada decides to get out of the agreement after 15 years, the termination doesn’t take effect for a year, and it continues to apply to existing Chinese investments for a further 15 years –a total of 31 years.

Many have been surprised to learn that the Canadian government expects to ratify the FIPA through an “Order in Council” – an order of Cabinet – without any legislation to implement the agreement.  This situation demonstrates a very odd disconnect between Canada’s domestic laws and its obligations under international law.  While Canada does indeed ratify international treaties through Order in Council, it is only supposed to do so once the treaty is consistent with Canadian law

Unlike some countries which operate according to a monist model (for example, in the United States, once Congress ratifies a treaty it is, in principle, enforceable in US law), Canada operates according to a dualist model:  a treaty that has been signed and ratified by the executive still requires incorporation through domestic law to be enforceable at the national level.  … Canada cannot ratify an international treaty until measures are in place to ensure that the terms of the treaty are enforceable in Canadian law.

In this case the Canadian government appears to be taking the position that FIPA does not require any new legislation and is consistent with existing Canadian law - since the agreement “merely” provides for the Canadian government to pay compensation for actions which violate the FIPA, all of which occurs at the international level, and the Commercial Arbitration Act (Article 35 of Schedule 1) already allows the winners of arbitrations under such agreements to collect in the Canadian courts.  The FIPA Explanatory Memorandum explains:

Considering the nature of the obligations contained in the Agreement, as well as their possible enforcement through investor-state arbitration under Part C of the Agreement, there are only limited requirements, which have already been met. In particular, Article 35 of the Commercial Arbitration Code (a Schedule to the Commercial Arbitration Act) provides for the domestic enforcement of arbitral awards made pursuant to Part C of the Agreement. Therefore, new legislative provisions are not required to implement the Agreement.

Since the arbitration awards are against the Canadian government, this is potentially an expensive position - similar provisions under NAFTA have resulted in situations where the Canadian government (which is bound by the treaty) is on the hook to pay compensation for the actions of provincial governments (which are not directly bound).  That situation prompted Prime Minister Harper to comment that:

I have indicated that in future, should provincial actions cause significant legal obligations for the government of Canada, the government of Canada will create a mechanism so that it can reclaim monies lost through international trade processes.

In recent treaties signed with First Nations in BC, the federal government has already implemented such a “mechanism”; for example the Tsawwassen First Nation Final Agreement includes the following provision.

31. Where Canada informs Tsawwassen First Nation that it considers that a Tsawwassen Law or other exercise of power by Tsawwassen First Nation causes Canada to be unable to perform an International Legal Obligation, Tsawwassen First Nation and Canada will discuss remedial measures to enable Canada to perform the International Legal Obligation. Subject to clause 32, Tsawwassen First Nation will remedy the Tsawwassen Law or other exercise of power to the extent necessary to enable Canada to perform the International Legal Obligation.

First Nations and why FIPA is not consistent with Canadian Law

But what if the Government is wrong – and Canada has not completed its “internal legal procedures” –which Article 35 of FIPA indicates Canada will do before FIPA can be brought into force?

The Crown owes a constitutional duty – under s. 35(1) of the Canadian Constitution – to engage in honourable negotiations “leading to a just settlement of Aboriginal claims,” and to consult and accommodate before taking actions that have the potential to negatively impact on Aboriginal Title and Rights.

First of all, First Nations take the position that the federal government has a legal obligation to consult with them before ratifying FIPA, a duty which has not been met. Indeed, two modern treaties in British Columbia, explicitly reference a consultation requirement. For example, the Maa-nulth First Nations Final Agreement states:

1.7.1 After the Effective Date, before consenting to be bound by a new International Treaty which would give rise to a new International Legal Obligation that may adversely affect a right of a Maa-nulth First Nation Government under this Agreement, Canada will Consult with that Maa-nulth First Nation Government in respect of the International Treaty either separately or through a forum that Canada determines is appropriate.

The Tsawwassen First Nation Final Agreement contains a similar provision.   

But secondly, FIPA itself may violate the constitutionally-protected process of negotiations between the Crown and First Nations. There is a reasonable probability that the threat of multi-million dollar investor-state suits under FIPA will create a disincentive for the Crown to negotiate honourably with First Nations (for example, regarding environmental and cultural protection measures in treaties or other legal agreements). The question is whether this effect is so significant that that it can be said that FIPA therefore “substantially interferes” not just with the First Nations preferred outcomes, but the very process of negotiation. If so, then on the basis of Charter jurisprudence in Canada, a court could hold any legal action taken by Canada to ratify or implement FIPA to be unconstitutional, and it is possible that a First Nation could seek an interim injunction preventing its ratification until they have their day in court. Given the lack of consultation with First Nations on FIPA it is very difficult to see how Canada could justify its infringement of First Nations constitutional rights.

We note that FIPA does incorporate a “reservation” from the Free Trade Agreement between Canada and the Republic of Peru that reads:

Canada reserves the right to adopt or maintain any measure denying investors of Peru and their investments, or service providers of Peru, any rights or preferences provided to aboriginal peoples.

However, this reservation does not to apply to Article 10 of FIPA, the expropriation provisions, which create the risk of investor-state suits for compensation, and which are a major source of the potential impacts on First Nations.  This reservation does not legally remove the obligation of the Crown to act honourably toward First Nations with respect to the ratification and implementation of FIPA.

FIPA raises the specter of the Canadian tax payers being on the hook to Chinese investors if the Crown lives up to its obligations to First Nations in ways that impact the investors.   As a practical matter, that creates a tremendous incentive for the Crown not to live up to its obligation to the First Nations. 

Options for First Nations

With the clock ticking down to the likely ratification date, what can be done? 

Even at this late hour there is the possibility that a First Nation will seek to challenge the legality of the FIPA, and seek an injunction to prevent its ratification.  This would be far from straightforward, as the courts might view the impacts on a First Nation as speculative.  Nonetheless, a First Nation facing development in their territory by companies with Chinese investors, or one with specific treaty provisions regarding consultation on international treaties might well be able to convince a court to hear the case. 

If such a challenge does not occur before the Treaty is ratified, it may be possible for a First Nation to challenge the Commercial Arbitration Act in respect of disputes occurring within their territory.  However, a successful challenge would not remove Canada’s international law obligation to Chinese investors – merely the domestic remedy whereby it is enforced.
It would be far preferable for the Canadian government deal honourably with Aboriginal and Treaty Rights before making any decision about ratification. 

By Jessica Clogg, Executive Director and Senior Counsel, and Andrew Gage, Staff Lawyer

[Update - November 1st, 2012 - Click here to read our letter of today's date to the Department of Justice asking them to advise the Canadian government on the possible illegality of the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA).]