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Policy Interpretation

Interpretation of China-Canada Bilateral Investment Protection Agreement by An Official from the Department of Treaty and Law of MOFCOM

Time:2013-03-05   Hits:2179
On September 9, China’s Minister of Commerce Chen Deming and Canada’s Minister of International Trade Ed Fast signed the Agreement Between the Government of the People's Republic of China and the Government of Canada for the Promotion and Reciprocal Protection of Investments (hereinafter referred to as the Agreement) in Vladivostok, Russia. An official from the Department of Treaty and Law of the Ministry of Commerce explained the main contents and significance of the Agreement today.

I. What are the main contents of the Agreement?

The official pointed out that, with a total number of 35 articles and 6 additional clauses, the Agreement covers the main contents and elements of a conventional investment treaty. This is the most extensive bilateral investment agreement signed by China so far. Besides clauses concerning the definitions of investment, scope of application, minimum standard of treatment, most favored nation treatment, national treatment, expropriation, transfer, subrogation, taxation, disputes settlement, general exceptions and other clauses, the Agreement also includes special provisions on such matters as taxation and prudential carve-out, which is different from the other existing investment treaties between China and other parties, reflecting the new development trend of international investment agreement.

The body part consists four parts. The first part is definition, which defines such concepts as investment, investors, covered investments, income, measures, existing measures, financial services, enterprises, confidential information, disputing investors, disputing Contracting Parties, disputing party, arbitral tribunal, territory and other concepts.

The second part specifies substantive rules, specifically including clauses on scope and application, investment promotion and access, minimum standard of treatment, most favored nation treatment, national treatment, entry of senior management, board members and personnel, exceptions, performance requirements, expropriation, compensation for losses, transfer, subrogation, taxation, disputes between Contracting Parties, refusal of granting most favored nation treatment, as well as the transparency of laws, regulations and policies, etc..
With regard to clauses concerning national treatment, the Agreement follows the Investment Chapter of China-Peru Free Trade Area Agreement, only giving a general description of the existing inconsistent measures, without making access requirements for pre-establishment national treatment, or setting out a negative list of inconsistent measures.

As for prudent carve-out, the Agreement explicitly specifies that the arbitral tribunal for international investments disputes between investors and countries does not have jurisdiction over prudential carve-out issues, and that such issues shall be decided by an ad hoc arbitration tribunal established by the Contracting Parties.

For taxation, the Agreement has the following special provisions: first, in case of any conflict between the Agreement and the taxation agreement signed by the other party with a third party, the taxation agreement shall prevail. Second, constraints of tax measures on entities are only limited to the levy expropriation provisions of the Agreement. Third, the competent government departments of both parties have a bigger role to play in tax issues, and any question by investors about tax measures shall be submitted to the tax departments of both parties for negotiation first; both departments hold that the tax measures does not fall under expropriation, the investors shall not initiate an international arbitration. Fourth, investors may initiate international arbitration only when both departments fail to reach an agreement.

The third part specifies procedural rules, including clauses relating to appeal by an investor from either contracting party, preconditions of appeal for arbitration, appeal for arbitration, consent to arbitration, arbitrator, consent to appointment of arbitrator, consolidation of arbitration procedures, public participation in trial and document, statement of non-disputing party, applicable law, interim measures of protection and final award, as well as the finality and implementation of the award, etc.

With respect to disputes settlement between investors and the host country, the Agreement specifies that if the dispute involves China, investors shall settle disputes through administrative review procedures of the host country before submission for international arbitration.

The fourth part is made up of four clauses, namely general exceptions, exclusions, effectiveness and termination. “General exceptions” set out exceptions of measures related to culture industry, exceptions of fundamental security interests, exceptions of disclosure of competitive law enforcement information and other contents. The duration of the Agreement is 15 years.

The Appendix thereto makes specific provisions on the details of reservation of inconsistent measures, expropriation, transfer and currency exchange procedures, preconditions for appeal for arbitration and exclusion of disputes settlement, etc.

II. What is the significance of signing the Agreement?

The official pointed out that, negotiations over the China-Canada bilateral investment protection agreement was initiated in 1994, and both parties finally reached agreement on a series of core clauses through 22 rounds of formal negotiations and several rounds of informal consultations during the past 18 years, so the result is hard won. The signing of the Agreement will promote two-way investments of between Chinese and Canadian enterprises, deepen Sino-Canada economic and trade cooperation and accelerate the building of Sino-Canada strategic partnership, which will inevitably have profound and positive influences on the development of Sino-Canada economic and trade relations.

As the economies of China and Canada are highly complementary to each other, deepening Sino-Canada economic and trade cooperation is in the fundamental interests of both countries and their people, and is a must to propel Sino-Canada strategic partnership in an all-round manner. We would like to take the opportunity of signing the Agreement, work together with Canada, to implement the Agreement, and to promote two-way investment so as to upgrade Sino-Canada economic and trade cooperation to a new level and contribute to building the strategic partnership between our two countries.
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