Ratification of the Canada-China BIT

It was announced last week that Canada ratified its bilateral investment treaty (BIT) with China that was signed about two years ago.  The treaty will take effect on October 1, 2014.  At the time of the signing, a Canadian international investment law scholar named Gus Van Harten wrote an editorial warning of dire consequences if Canada ratified the BIT.   In particular, he expressed concern that the BIT would impose constraints on Canada's sovereignty and put important policy questions in the hands of foreign arbitrators.

In an earlier phase of international investment, when capital flowed primarily from developed to developing nations, only the latter had to worry about constraints on their sovereignty.  But as more capital has begun to travel in the opposite direction, established democracies like Canada will increasingly have to respond to claims brought against them by foreign investors.  The Canada-China BIT, like other recent BITs that both Canada and the United States have entered into, adopts a narrower definition of fair and equitable treatment that should in theory avoid the most serious sovereignty concerns described in my prior posts.  But as other commentators have observed, some tribunals have proceeded to apply the same broad standard used in arbitral precedent as if the limiting language were not there.

The United States has not yet signed a BIT with China, but the countries did agree recently to restart negotiations.  It will be interesting to see whether the United States tries a different approach to fair and equitable treatment or otherwise departs from its model BIT in anticipation of the possibility that the protections of a China-U.S. BIT will be invoked as much by Chinese investors against the U.S. government as by U.S. investors against the Chinese government.