Blindly submitting

TORONTO -- In the 19th century, China was subjected to unequal treaties at the barrel of a gun. Now, Canada is finalizing an unequal treaty with China, at the option of Prime Minister Stephen Harper.

The treaty will not make us a colony of China. But it will be the biggest sacrifice of Canadian sovereignty since NAFTA, perhaps since our independence. It will put us in a position of economic dependence for 31 years, on five weeks' notice to Canadians.

Chinese investors who own assets in Canada will no longer be subject to the absolute authority of Canada's Parliament and legislatures. They will not have to submit finally to decisions of the Supreme Court of Canada or to the Constitution.

The treaty will freeze Canada's open laws on foreign investment, alongside China's closed ones. China will retain more tools to interfere with Canadian businesses than vice versa. Governments in Canada will have less leeway to make sure the coal in British Columbia is mined by Canadians and the fish in Newfoundland and Labrador are processed onshore.

Chinese companies, if they object to decisions, will be able to threaten lawsuits against any government in Canada, behind closed doors. They would employ specialized lawyers, including Canadians, to do so.

Governments that stick to a decision may face potentially catastrophic awards.

They will need to weigh their fealty to Canadian businesses, landowners or workers against the demands of the foreign investor.

The more money at stake, the more pressure on government. Governments will not know how cases will be decided, but will face compensation orders that track back to their original decision.

Cases will be decided by arbitrators who are not judges and who work, usually, as commercial lawyers, professors or corporate board members. Researchers in the field call them legal entrepreneurs.

In other forms of arbitration, each side can sue the other, helping to make the process reciprocal. The arbitrators will have an apparent interest to encourage investor claims as a way to grow their business.

Under investment treaties, only the investors can sue governments, not vice versa.

In their decisions, the arbitrators have expanded their powers. They have regularly allowed investor lawsuits under other treaties even though the dispute related to a contract in which the investor agreed to settle all disputes in another forum. Typically, they have allowed investors to avoid wait periods and other treaty limitations on lawsuits.

Other countries have been traumatized by these arbitrations: the Philippines, India, Argentina, Ecuador, El Salvador, the Czech Republic. They have faced extremely expensive litigation or orders to pay massive compensation.

There are few if any exit options, once the treaty is locked in.

Because the arbitrations are so expensive, the Canada-China treaty will do little to protect small companies abroad. Those investors will continue to rely on local processes, their contracts, and risk insurance to resolve disputes with government. The treaty is mostly about ramping up the power of corporate giants, relative to governments and smaller competitors.

The treaty may or may not have a catastrophic impact on Canada's finances, economy, and bargaining power. None of the feared outcomes may materialize.

Yet the federal government evidently does not want Canadians to learn more. They will have 31 years to repent at leisure.

The treaty has a 15-year minimum term, then requires one year's notice to terminate, and then lasts another 15 years for all investments that exist at the time of termination.

Supporters of the treaty say the concerns are fear-mongering. They say Canada's NAFTA experience, which has been manageable, will be repeated under this treaty.

Yet they do not call for a delay in ratification to allow proper scrutiny and debate. No assessments, no hearings, no referendum.

Foreign-owned businesses deserve protection. But high matters of sovereignty should be resolved in judicial processes. Everyone affected should have his or her rights protected, not just foreign investors.

Any deal that shapes the future of Canada should be put fairly to Canadians.

The Canada-China treaty is unequal. It sacrifices Canadian businesses, taxpayers and voters for the promise of investment from China. The investment will be conditional and the conditions will be locked in by the treaty.

Gus Van Harten is a professor at Osgoode Hall Law School, where he researches and teaches international investment law.

--Troy Media

Republished from the Winnipeg Free Press print edition November 3, 2012 J11