The Nexen – CNOOC Deal & the Unasked Question
One of the hot topics in Parliament these days is the proposed $15 billion takeover of Canadian energy giant Nexen by the China National Offshore Oil Corporation (CNOOC). Industry Minister Christian Paradis claims there will be a thorough review against the Investment Canada Act test for ‘net benefit.’ The NDP have started challenging the deal, finally joining me in raising concerns about the takeover of Canadian oil sands companies by Chinese state-owned enterprises. Conservative MPs claim the review will include national security concerns, but the refusal to include a definition of ‘national security’ in the 2009 amendments to the Act does not inspire confidence.
Meanwhile, there is an even larger issue that no one is asking about. On September 8, when Prime Minister Harper was in Vladivostok, he and President Hu signed the Foreign Investment Promotion and Protection Agreement (FIPPA) between China and Canada. The text is still secret. I asked last week in Question Period when the text would be public and if we would be able to debate it in the House before the Nexen decision is made. Unfortunately, I got the pre-prepared answer from Minister Paradis about the thoroughness of the Nexen review with zero relevance to my question. The summary on the Foreign Affairs website about the FIPPA and various analyses by large trade-focused law firms suggests it will operate the same way Chapter 11 of NAFTA works.
Chapter 11 of NAFTAset the template for what are generally called ‘investor-state provisions.’ I talked to our negotiators for NAFTAa few years ago and believed them when they told me the idea was only to create a binding agreement to ensure any expropriation of investor property was compensated. But the provisions of Chapter 11 of NAFTA have been interpreted in a far more damaging way. The term ‘tantamount to expropriation’ has been interpreted to mean changes in domestic laws that reduce a foreign corporation’s expectation of profits.
Chapter 11 of NAFTA is now understood to allow corporations from Mexico or the USA to claim damages against Canada if any level of Canadian government (municipal, provincial or federal) causes them to experience less profit than had been anticipated. Canada actually repealed a law limiting a toxic gasoline additive, MMT, when the US-based manufacturer, Ethyl Corporation of Richmond, Virginia sued under Chapter 11–and we paid over $10 million in damages. The reality is that for the company to win in the Chapter 11 claim there was no need to show any scientific or policy flaw in the government’s decision. As Barry Appleton, the Toronto-based lawyer who represented Ethyl Corporation said at the time, if you were making a profit adding liquid plutonium to children’s breakfast cereal and a government made that illegal, you can claim damages under Chapter 11.
Canada has also paid millions in damages to a PCB disposal company, SD Myers of Ohio, for loss of profits when Canada banned the export of PCB contaminated waste. And without waiting for any decision from the NAFTA Chapter 11 arbitration, in 2010 Prime Minister Harper ordered a payment of $130 million to US-based Abitibi Bowater when Newfoundland and Labrador insisted the company had no right to keep water rights and forest cutting rights to sell to a new buyer when it closed its mill. At the time, the Prime Minister said he will create a mechanism to ensure that if provinces create liability under investment rules, provinces would have to compensate the federal government. The fact there was an argument to be made by Newfoundland and Labrador (Abitibi Bowater was benefiting from a 99-year lease, with water rights and logging contingent on running the mill) never got noticed as the money was paid out. The Prime Minister did not listen to the merits of the argument, cutting Premier Danny Williams off at the knees. Williams was left looking like a Canadian version of Hugo Chavez.
The idea that decisions by municipal, provincial and federal government can result in multi-million dollar payments to multinational corporations is quite distressing. As Steven Shrybman, lawyer for Council of Canadians, has said, ‘Chapter 11 is fundamentally corrosive of democracy.’
This outrage only gets more outrageous if the claims for multiple millions in damages come not from a private corporation, but from corporations which are branches of a foreign government. In the case of China, the FIPPA could mean that an authoritarian enormous country will have the right to claim damages if any level of democratically-elected government in Canada passes a law China claims hurts profits. China will, if offended by any new health, labour, or environmental law, be able to make a claim for damages. I have already witnessed the chilling effect of Canada knowing a US based corporation can sue under Chapter 11. It was rumoured that former Liberal Health Minister Allan Rock refused to ban cosmetic use of pesticides for fear of Chapter 11 claims by US pesticide manufacturers.
What happens when Canadian laws, passed democratically, are struck down in hotel room arbitrations over claims launched by the Communist Party of China?
I hope against hope that the text, whenever we see it, does not convey Chapter 11-like rights for state-owned Chinese enterprises to claim damages in retaliation against Canadian laws. If it does, I will hope for support of my constituents to do whatever is required to protect Canadian sovereignty and democracy.
After this article was filed, on September 26, the FIPPA text was tabled. MP May promises an analysis as soon as possible.