China Investment Corporation Eyes BC Forests, Spells FIPA Danger
The China Investment Corporation(CIC), one of the world's largest sovereign wealth funds, is set to become a powerful landowner in British Columbia if a $100 million deal with Island Timberlands, the second-largest owner of private forests in the province, goes through. The Ancient Forest Alliance (AFA) is concerned that closure of the deal, especially in light of Canada's pending ratification of the Foreign Investment Protection and Promotion Agreement(FIPA), could have negative consequences for protection of BC's treasured old-growth forests, forestry jobs, and the rights of First Nations, according to an AFA press release.
“The Communist Party of China is about to become one of the biggest landowners in British Columbia if this deal goes through," said Ken Wu, executive director of the AFA.
"In light of the proposed Canada-China investment treaty, this could be at the expense of BC’s environment, forestry workers and First Nations,” said Wu, adding, “Chairman Mao’s spirit is seemingly being channelled by Chairman Harper these days, as it’s hard to see how this proposed agreement will be a net benefit to Canadians.”
Chinese investment in Canadian resources has taken on a new significance since the Harper government announced the possibility of entering into a strict trade agreement with China. The deal, an investment treaty with a 31 year lifespan, would strongly dissuade municipal, provincial and federal governments from making any decisions that might affect the profit margin of Chinese investors.
"The China-Canada FIPA would allow Chinese investors in Canada to sue the federal government for lost profits due to new regulations, taxes, and environmental laws enacted federally or provincially. This would undercut the ability of future federal and provincial governments to enact new regulations or policies that might result in a lawsuit by Chinese companies which are accountable to the Chinese government," says the press release.
The Harper government has yet to ratify FIPA, but the consequences of the trade deal have gained new significance after the rushed approval of China's takeover of Canadian oil-producer Nexen. Although Harper promised the sell-out of Canadian resources to foreign state-owned enterprises signals the 'end of a trend and not the beginning,' he did not mention that such acquisitions will continue and that all such sales occurring under a $330 million mark will receive no federal review.
If Island Timberland successfully deals with China, the CIC will own a 12.5 percent in Island Timberland's 254,000 hectares of private forest land on Vancouver Island and the Sunshine Coast.
Under the banner of FIPA the deal between the CIC and Island Timberlands could have significant consequences for how those forests are managed. The Ancient Forest Alliance is calling on the government to establish a $40 million annual "park acquisition fund to purchase and protect endangered ecosystems on private lands." BC has not had an acquisition fund of this kind since 2008.
“While private land trusts are vital for conservation, they simply don’t have the capacity to quickly raise the tens of millions of dollars needed each year to protect most endangered private lands before they are logged or developed —only governments have such funds,” stated TJ Watt, Ancient Forest Alliance campaigner and photographer. “More than ever, considering the potential future difficulties to strengthen environmental laws on private lands under FIPA, the BC government must fund the purchase of the last endangered old-growth forests on private lands before they are logged.”
According to the Ancient Forest Alliance, the combination of FIPA with Chinese investment in BC forests could prove disastrous for the conservation measures needed to ensure responsibly stewardship of the land.
Among other possible concerns, the AFA saysthe Island Timberlands sale, when considered in tandem with FIPA, raises these immediate concerns:
- The future obstruction of "new regulations or taxes to curtail unprocessed 'raw' logs from being exported from BC to sawmills in China and abroad."
- The undermining of "stronger Forest Protection regulations on private forest lands."
- The move away from the establishment of a "Forest Land Reserve" which mirrors other popular conservations strategies such as the "Agricultural Land Reserve."
- The obstruction of "implementation of First Nations land-use plans and shared decision making measures that may require legally-binding orders from the BC government to protect sacred sites, important cultural use sites, and natural resource areas."
Communities across Vancouver Island and the Sunshine Coast, where Island Timberlands holdings are located, are fighting the company's plans to harvest in the region, suggesting the area's unique and highly-prized ecosystems should warrant the land a no-go zone. Island Timberlands should forego logging in these "forest hotspots" and practice "community, ecosystem-based forestry standards" elsewhere.
The company temporarily halted logging plans earlier this month on Cortes Island after protestors blocked operations. The island's community members are currently raising funds for the purchase of a 250 hectare "Children's Forest" that will be protected from future logging.
In a recent interview with trade investment lawyer Gus Van Harten, he told DeSmog that FIPA is preparing Canada "to play the role of the supplier of raw resources to feed the Chinese industrial machine. We will have difficulty competing with Chinese manufacturing because of the extremely low cost of labour in China."
He added, "The real economic benefits is not taking the resources out of the ground, it's adding value by manufacturing the resources and then exporting the manufactures."
What is FIPA? Canada-China Foreign Investment Promotion and Protection Agreement
Red Carpet for China
So what is the Canada-China Investment Treaty? Simply put, it is the most significant trade agreement signed by Canada since NAFTA. Only this time our “partner” is the communist government in Beijing, an authoritarian regime with an appalling record on human rights –and it isn’t getting better. This deal requires that Chinese government-owned companies be treated exactly the same as Canadian companies operating in Canada. Once in force, it lasts a minimum of 15 years. If a future government wants to get out of it, a one year notice is required – and even once the treaty is cancelled, any existing Chinese operations in Canada are guaranteed another 15 years of the treaty’s benefits.
1. Open bar for Chinese state-owned enterprises
The Canada-China Investment Treaty means easier takeovers of Canadian assets, especially in the resource sector. In the context of the possible takeover of Nexen by the Chinese National Offshore Oil Company (CNOOC), it is crucial that we collectively pause to consider the wisdom of granting Chinese state-owned enterprises (SOEs) such an easy access to our natural resources.
2. The right for China to claim damages over Canadian laws
The Canada-China Investment Treaty allows Chinese companies (including state-owned enterprises) to sue the Government of Canada over decisions that can limit or reduce their expectation of profits. In treaty language, this is called “tantamount to expropriation.” China can claim damages against Canada for decisions at the municipal, provincial, territorial or federal level. Even decisions of our courts can give rise to damages. The damage claims start with six months of diplomatic negotiation. If that fails, damage claims move to arbitration – behind closed doors.
3. Secret hearings
The Canada-China Investment Treaty would allow Chinese investors to sue Canada outside of Canadian courts. Special arbitrators would take the decisions. These arbitrators, unlike judges, do not have secure tenures or set salaries. Their decision cannot be subject to judicial review. And the arbitrations are to be secret. Even the fact they are happening is to be secret.
4. Limit right to be heard
Only the federal government is allowed to take part in the arbitration process. Provincial governments or Canadian companies, even if their interests are affected, do not have the right to voice their concerns during the arbitration process.
5. China’s obsession for secrecy
The Canada-China Investment Agreement makes Chinese lawsuits secret . At any time, we will not know if we are being sued and who will decide the case. We will not know what our government is saying on our behalf. We will not know if Canada has been ordered to change government decisions. This is a complete U-turn for Canada who has always insisted on complete openness in investor-state arbitration, for example when signing the Canada-US-Mexico free trade deal.
6. Restrictions on our use of our own resources
The Canada-China Investment Treaty requires that if, in the future, Canada wants to conserve natural resources (fisheries, water, oil, uranium, forests -- everything is covered), and reduce Chinese access to these resources, we are only allowed to do so to the extent we limit our own use of those natural resources.
Chinese seek stake in BC forestry company as FIPA decision looms
Photo of Cortes Island Forest by TJ Watt courtesy of Ancient Forest Alliance
Potential impacts of a $100 million dollar deal between China Investment Corporation (CIC) and Brookfield Asset Management Inc, the majority shareholder in Island Timberlands (IT), have made headlines internationally and alarmed activists in British Columbia. The story was first reported in early November by the Wall Street Journal.
South China Morning Post reported upon it more recently, quoting activist Zoe Miles.
Island Timberlands intends to clear cut a forest Cortes Island residents say they cherish, but so far the community has stopped IT from proceeding.
The industrial scale forestry IT proposes for Cortes Island “gives the corporation all of the profit at the expense of the community," Miles said.
Because IT is exporting raw logs to the Chinese market, as opposed to finished products, Miles said residents will be left with a "devastated ecosystem" and no long-term benefits for locals.
“What we see is that they appear to be far more interested in making a deal with China than they do with the local community, and so, to all appearances, their priority is profit over local benefit,” Miles said.
Islanders want to work with the forestry company to “create a new model that everyone can benefit from and that creates local jobs as well as preserve the integrity of the ecosystem and that they can still make a profit from."
Neither the CIC sale nor the Canada-China FIPA agreement have gone through yet, Kenneth Wu, executive director of the Ancient Forest Alliancesaid.
“And in fact, I think the ratification of FIPA has been stalled by a massive public outcry, including among the Conservative voting base,” he said.
“Many of the activists are pushing for stronger forest practice regulations... to ensure essentially that eco-forestry standards and community standards are implemented on those lands. They’re not anti-logging. They want to see sustainable logging. But the ability to get new laws to strengthen the forest practices standards could be jeopardized," Wu said.
If FIPA is ratified by the federal government, he cautioned, the trade agreement will protect Chinese investors, and allow them to sue for the potential lost profits as a result of new environmental laws, such as a tax for exporting raw logs to Chinese or American mills.
He said such a move would make it difficult to create policies that would respond to the vision of “sustainable forestry” articulated for Cortes Island and other sites.
Relations with First Nations
Weakened regulatory abilities and local resource control aside, the AFA also cautions that the Canada-China FIPA and CIC’s Island Timberlands buy-in could hinder negotiations with First Nations over land-use planning. It could also destabalize joint decision-making, as well as the push to create a “Forest Land Reserve” designation that would protect specific forest areas from development.
For some Cortes Island residents, these possibilities are part of a longer struggle over forest resources. Rick Bockner, himself a professional woodworker, moved to Cortes Island 21 years ago with his two daughters. He was on the island in 1991 when islanders fought Macmillan-Bloedel over what he notes are many of the same trees.
“The difference is that in 1991 those logs probably would have been processed locally. And these days with the provincial government aiding and abetting the corporations in exporting raw logs to foreign markets, we’re finding that there’s no benefit locally from any of this activity, and it’s a sticking point for us,” he said.
Island Timberlands was contacted but did not provide a comment before deadline.
Reasons to worry about the Canada-China trade deal
Canadians feel uncomfortable about the proposed Foreign Investment Protection and Promotion Agreement with China. Tens of thousands of people who probably didn't know what a FIPA was before the end of September have sent letters to their MPs asking that it be torn up.
Many of them are worried that China-based corporations will be able to use the generous investment protections in the FIPA to challenge environmental, public health or conservation measures in Canada.
There are reasons to worry. In fact, there is a large and growing body of case law under existing bilateral investment treaties that Canada and other countries have signed proving that environmental and other non-discriminatory regulations are vulnerable to disputes from foreign investors claiming their profits were unfairly compromised by an otherwise legitimate decision.
As the Harper government seeks to increase Chinese investment in Canadian resources (tarsands, natural gas, mining) and related infrastructure projects, it's important that we understand how the FIPA will affect our ability to set limits on, or effectively regulate, this new activity.
'Fair and equitable' treatment
The FIPA and similar treaties contain guarantees of so-called minimum standards of treatment, or fair and equitable treatment, which arbitrators in investor-state disputes have interpreted much more broadly than the governments who signed the treaties intended. This has been the case in a growing number of disputes related to mining or energy projects that have faced delays or cancellations due to environmental concerns, the rights of indigenous people and local opposition.
There are also protections in the FIPA against so-called indirect expropriation, where a policy or measure that applies equally to all investors, regardless of nationality, has been found to unfairly expropriate the profits of a foreign firm. Several good examples of how these excessive corporate protections have been abused come from investor lawsuits under the FIPA-like rules in the North American Free Trade Agreement (NAFTA), but there are many international cases as well.
Canada already has paid about $170 million in fines or settlements under NAFTA investment disputes. In one of those cases, a U.S. toxic waste disposal firm was awarded about $6 million when a ban on PCB exports to the United States was found to have violated the firm's minimum standards of treatment, and to indirectly expropriate their profits. This ruling was a direct contradiction of Canada's treaty obligation to discourage trade in toxic substances so their disposal can be handled domestically.
A more recent case brought by a U.S. energy firm against Ecuador, in which the government was charged $1.8 billion plus legal fees by an arbitration panel, offers a sobering example to Canada as it contemplates ratifying this FIPA with China.
As the U.S. government watchdog Public Citizen summarizes it, in that case, Occidental breached a 1999 contract with Ecuador that granted the firm rights to explore and extract oil from a section of the Amazon but with some conditions -- among them a requirement that Occidental not portion off any of its claim to other companies. This was a part of Ecuador's energy laws designed to give the government control over who can invest in the sector.
But in 2000, Occidental ignored the contract (and the law) by auctioning off part of its Amazonian claim to an Alberta firm, AEC. A government audit in 2004 found that Occidental had not received proper government authorization for the transfer and the project was seized. The U.S. firm went quickly to arbitration under a U.S.-Ecuador investment treaty.
The panel award, released on October 5, said that Ecuador had breached the treaty's rules on minimum standards of treatment. It decided that 'fair and equitable treatment' should go beyond international law as practiced by states -- the definition Canada insists is strong enough in the FIPA with China -- and that "any penalty the State chooses to impose must bear a proportionate relationship to the violation which is being addressed and its consequences."
Arbitration panels in other cases have claimed that "idiosyncratic" decisions by governments, or decisions that went against the firm's reasonable expectations based on public or private discussions, can breach an investor's minimum standards of treatment. (Consequently, European Union negotiators are pushing for this kind of broad definition of fair and equitable treatment in the Comprehensive Economic and Trade Agreement with Canada, negotiations on which could conclude very soon.)
It's not difficult to imagine a situation in which a Chinese firm finds a similar breach of its rights based on delays, cancellations or alterations to pipeline or tarsands projects, considering the many public assurances from the Harper government about these projects moving ahead smoothly.
"Idiosyncratic" moves by provincial governments -- to seize a greater share of the profits from these projects, for example, or to better regulate for environmental protection -- could also violate the FIPA guarantees, despite Canadian assurances that these standards of treatment relate to international law only. In fact, a recent multi-billion dollar investor-case against Germany resulted in the City of Hamburg diluting its environmental rules on a coal-fired power plant, putting the health of the adjacent Elbe river at greater risk.
In the end, it will be up to an arbitration panel to decide what is and is not legitimate public policy, with expensive consequences.
Why was there no draft report?
Instead of taking this risk seriously, an environmental assessment of the China deal ignores it outright. For this and other reasons, the Council of Canadians, ForestEthics, the Canadian Environmental Law Association and other groups claimed the environmental assessment process was insufficient in their submissions to the government which were due November 11.
The final version of the government's assessment was posted surreptitiously online in mid-October. It says that "the Canada-China FIPA ensures that the Parties retain the ability to regulate in the public interest, including with respect to environmental issues," and that the FIPA "will not inhibit Canada's ability to develop and implement environmental policies."
As we've just seen, both statements are highly misleading. So is the suggestion that foreign investors in Canada "are subject to the same laws and regulations as domestic investors, which include laws aimed at protecting the environment." Time and again, even non-discriminatory measures that treat foreign and national firms equally are disputed as violations of one bilateral investment treaty or another, including NAFTA. This paradoxically results in better treatment for foreign firms than local firms under the global investment arbitration regime.
Also problematic in the environmental assessment is the strange claim that "the FIPA is not expected to generate significant economic or environmental effects in Canada." The confidence that a new investment treaty with China will have no impact whatsoever, as well as the absence of public comments in 2005 and 2008, led the government to skip a crucial part of the assessment process -- the writing of a draft report based on a deeper examination of the potential environmental impacts in the initial assessment.
Any assumption in 2005 that Chinese investment into Canada was not going to change markedly would not have held up in 2008, when it was clear that Chinese firms were expanding their investments globally, including in Canada and especially in energy and resource projects. The government, therefore, had a responsibility to carry out stage two of the environmental assessment process by producing a draft report. Instead, it moved directly from an initial to final environmental assessment without revisiting its earlier assumptions or actively seeking public input.
No effort to engage the public
Another fundamental reason to do another assessment is that there is much more public, political and First Nations concern about the FIPA now than there was at the time of the original environmental consultation in 2005, or the subsequent comment period on the initial assessment report, which was published online in 2008.
This isn't surprising since we only saw a complete FIPA text at the end of September this year. By not giving the many unheard voices adequate time to respond, the government would be violating the second objective of the environmental assessment process, which is "to respond to the environmental concerns expressed by the public."
The Framework "contains a strong commitment to communications and consultations throughout each (environmental assessment) of a trade or investment negotiation." This commitment is neglected by the government's shotgun ratification process, which left no room to discuss or debate the FIPA in the House of Commons and only a one-hour briefing for MPs during a single trade committee session.
By choosing expediency over rigorous study of the FIPA, the government ignored the broader intent of the cabinet directive on the Environmental Assessment of Policy, Plan and Program Proposals, which says that assessments of trade agreements should serve "to strengthen accountability and provide greater public confidence that federal government decisions are being made in full awareness of the potential environmental impact."
The government's failure to consider how recently the public became aware of the FIPA, with its 31 years of protection for often controversial investments in resource and energy projects, has undermined public confidence in the government and the treaty-making process itself.
That confidence could be regained through holding another, more comprehensive environmental assessment of the FIPA with a much more active public engagement, and the possibility of altering or cancelling the treaty if it is found to be not in the public interest. Ratification of the FIPA with China must be postponed until this new assessment has taken place.
Edited by key2thecup, 20 December 2012 - 02:52 PM.