Canada Publishes 2021 Model Foreign Investment Promotion and Protection Agreement

On May 13, 2021, Canada announced that it had finalized its 2021 Model Foreign Investment Promotion and Protection Agreement (FIPA), which will replace the 2014 version. According to Global Affairs Canada, the agreement is the result of “extensive public consultations initiated in 2018 with a broad range of stakeholders, including from civil society and labour unions, legal experts, representatives of all sizes of Canadian business, representatives of provinces and territories, and Indigenous partners.”

Several changes have been made to the text, including tightening definitions of key definitions and substantive provisions, and some changes to the arbitration proceeding. Many of these changes are inspired by trends in recent bilateral and regional investment treaties, and are already reflected in the recently-concluded CETA.

For example, the new agreement’s definition of investment adds that an investment must “involve the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.” The new agreement also requires the “enterprise of a Party” to have “substantial business activities in the territory of that Party.” However, the new agreement retains an asset-based definition of investment, with an exhaustive list of exceptions.

Provisions on national treatment (NT) and MFN are maintained in the new FIPA, and still cover the establishment, expansion and acquisition phases of investment (commonly called pre-establishment rights). However,  the new model clarifies that for each provision, “like circumstances” pertains to “the totality of the circumstances, including whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public policy objectives.” The definition of MFN also excludes from its scope both dispute settlement provisions and substantive obligations found in other agreements.

Other additions include changes to the minimum standard of treatment (MST) provision, which no longer includes a reference to FET and provides an exhaustive list of measures that constitute a violation.  and a clarification that indirect expropriation does not include non-discriminatory measures that were adopted “in good faith to protect legitimate public welfare objectives, such as health, safety and the environment.” The criteria for assessing compensation in the event of direct or indirect expropriation, however, remain unchanged and are based on the fair market value of the investment.

The 2021 FIPA has added new articles, including an article on the right to regulate to achieve “legitimate policy objectives, such as with respect to the protection of the environment and addressing climate change; social or consumer protection; or the promotion and protection of health, safety, rights of Indigenous peoples, gender equality, and cultural diversity.”

The 2021 FIPA has also added an article on responsible business conduct, which references, in hortatory terms, the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights.  The obligation for investors to respect the laws of the host state is reaffirmed. Notably, with regard to fiscal measures, that all measures taken “by a Party to ensure compliance with the Party’s taxation system or to prevent the avoidance or evasion of taxes” that are non-discriminatory are excluded from the scope of the agreement.

Throughout the preamble and the body of the agreement, references are made to gender equality, SMEs and the rights of indigenous people.  With regard to the latter, the new agreement adds a general exceptions clause specifying that nothing in a FIPA will prevent Canada from adopting or upholding measures aimed at fulfilling Aboriginal treaty rights.

Notably, the agreement includes a new section on investment promotion and facilitation that, for example, requires that authorization procedures adopted or maintained by the Parties “do not unduly complicate or delay the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of an investment in the territory of a Party.”

The agreement maintains access to ICSID, ICSID AF, and UNCITRAL arbitration. However, the 2021 FIPA represents some changes to arbitration procedure including the requirement that parties seek consultation before the submission of a request for arbitration; the encouragement that parties  “consider greater diversity in arbitrator appointments, including through the appointment of women”; the adoption of the UNCITRAL Rules on Transparency; an article on third-party funding, which requires the disclosure of any funding agreement; and an Arbitrator Code of Conduct, which is provided in the agreement.