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Canada’s FIPAs and FTAs with Latin America: Serving Canadian Interests? J Cameron Mowatt Borden Ladner Gervais, LLP Va

Canada’s FIPAs and FTAs with Latin America: Serving Canadian Interests? J Cameron Mowatt Borden Ladner Gervais, LLP Vancouver, B.C. May 26, 2011. Canada’s FIPAs and FTAs in the Americas. FIPA: Foreign Investment Protection Agreement

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Canada’s FIPAs and FTAs with Latin America: Serving Canadian Interests? J Cameron Mowatt Borden Ladner Gervais, LLP Va

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  1. Canada’s FIPAs and FTAs with Latin America: Serving Canadian Interests? J Cameron Mowatt Borden Ladner Gervais, LLP Vancouver, B.C. May 26, 2011

  2. Canada’s FIPAs and FTAs in the Americas FIPA: Foreign Investment Protection Agreement A bilateral investment treaty (BIT) containing specific types of protection for the investors of the two contracting parties when investing in each other’s territory, usually providing investors with the right to submit claims for damages to investor-state arbitration FTA: Free Trade Agreement A treaty containing mutual commitments to promote and facilitate two-way trade in goods and services between the contracting parties, sometimes incorporating the typical provisions of a FIPA or BIT

  3. Basic Features of FIPAs and BITs • FIPAs and BITs typically contain: • protection against direct or indirect expropriation; • entitlement to fair and equitable treatment and full protection and security; • entitlement to national treatment; • most-favoured nation treatment for compensation for losses suffered due to war or civil strife; and • freedom to make transfers of investment returns • the right to submit claims for damages arising from a breach of the treaty to binding arbitration

  4. Investor-State Arbitration • Claim for Damages: Investors are entitled to seek awards monetary compensation for losses arises from treaty breaches, such as uncompensated expropriations • Direct Access to Arbitration: Instead of submitting to the courts of the host state, the foreign investor initiates an investor-state arbitration under a FIPA, BIT or FTA. Diplomatic espousal is no longer required • Independent Tribunal: Two of the three members of the arbitral tribunal will be independent of the host state – the arbitrator appointed by the disputing investor and the chair of the tribunal cannot be a national of the host state or of the investor’s home state

  5. Canada’s FIPAs • Canada was a relative late-comer to the international investment treaty regime • When Canada began negotiating FIPAs in 1989, the major capital exporting states such as the United Kingdom and the Netherlands already had a very wide network of BITs with capital importing states • Canada now has 18 FIPAs in force, 8 new FIPAs awaiting entry into force and 8 FIPAs under negotiation, plus  three FTAs (including the NAFTA) that contain NAFTA-style investment protection, plus 2 further FTAs with investment protection provisions pending, for a total of 39 when all pending treaties have entered into force

  6. Canada’s FIPAs and FTAs (Illustrative List)

  7. RomaniaHungaryBulgariaMoldovaUkraine CroatiaAlbaniaCzech RepublicSlovak Republic ArmeniaGeorgiaAzerbaijanKazakhstanUzbekistanKyrgyz NAFTACanadaUnited StatesMexico TunisiaMoroccoSenegalZaire HaitiJamaicaGrenadaTrinidad and Tobago TurkeyLebanon IsraelEgyptJordanBahrain BangladeshThailandSri LankaPhilippines El SalvadorHondurasNicaraguaPanamaEcuadorPeruBoliviaChileArgentinaUruguay CameroonCongo Democratic RepublicCongo RepublicMozambiqueSouth Africa Bilateral Investment Treaties of the United States(Illustrative List) LatviaEstoniaLithuaniaPolandBelarusRussia

  8. RomaniaHungaryBulgariaMoldovaUkraine Czech RepublicSlovak Republic CroatiaBosnia and HerzegovinaAlbania ArmeniaGeorgiaAzerbaijanKazakhstanUzbekistanKyrgyz MongoliaChinaKorea CubaDominican Rep.HaitiJamaicaAntigua and BarbudaGrenadaDominicaTrinidad and Tobago MaltaTunisiaMoroccoSenegalZaire TurkeyLebanon IsraelEgyptJordan BahrainUnited Arab EmiratesYemenOman ColombiaVenezuelaGuyanaEcuadorPeruBoliviaChileParaguayArgentinaUruguay NepalPakistanIndiaBangladeshHong KongVietnamLaosThailandSri LankaPhilippinesMalaysiaSingaporeIndonesia Papua New GuineaVanuatu Bilateral Investment Treaties of the United Kingdom(Illustrative List) LatviaEstoniaLithuaniaPolandBelarusRussia MexicoBelizeHondurasNicaraguaCosta RicaPanama SenegalSierra LeoneCote d’IvoireGhanaBeninNigeriaCameroonAngolaCongo Democratic RepublicBurundiCongo RepublicMozambiqueZimbabweLesothoSwazilandSouth Africa

  9. Canada’s FIPAs and FTAs with Latin American States FIPAs by year of entry into force: • Argentina 1993 • Ecuador 1997 • Venezuela 1998 • Panama 1998 • Uruguay 1999 • Costa Rica 1999 • Peru 2007 FTA’s by year of entry into force: • NAFTA 1994 • Chile 1997 • Peru 2009 (Columbia - pending)

  10. Growth of Investment Treaty Claims(worldwide)

  11. Investment Treaty Claims in North America • Canada, the United States and Mexico have experienced a similar volume of claims, ranging from 12 to 15 claims that have been submitted to arbitration • United States: has successfully defended 9 claims and has 3 claims pending • Canada: has successfully defended 4 claims, paid 2 awards, settled 2 claims and has 4 claims pending • Mexico: has successfully defended 7 claims, paid 7 awards and has 1 claim pending

  12. Investment Treaty Claims in Central America • Costa Rica: 5 claims – 1 dismissed, 1 award for expropriation, 1 stayed for non-payment of fees, 2 pending – both by resort owners affected by restrictions for the protection of breeding sea turtles • Honduras: 3 claims – 1 settled, 2 pending – all arising from highway projects • Guatemala: 3 claims – all pending, 2 arising from electricity distribution concessions and 1 from the termination of a railroad development concession. • Panama: 1 claim – successfully defended – arising from investment in a power generation project – (annulment proceedings pending) • Nicaragua: 1 claim – resolved and withdrawn - arising from a dispute concerning the recognition of a trademark

  13. Investment Treaty Claims in South America - Group 1 • Chile: 3 claims – 1 claim successfully defended, 1 award in favour of frustrated property developer, 1 award in favour of a newspaper publisher (annulment proceedings pending) • Paraguay: 3 claims – 1 successfully defended, 1 settled, 1 pending – 2 arising from service contacts with government entities and 1 from alleged negligent supervision of a financial institution • Peru: 6 claims – 2 successfully defended, 1 settled, 3 pending – arising from power generation projects, food manufacturing facilities, a gold mining venture and a highway construction project • Uruguay: 2 claims – 1 award, 1 pending – a claim by Phillip Morris arising from requirements for oversized warning labels on cigarettes

  14. Investment Treaty Claims in South America - Group 2 • Argentina: at least 54 claims – 6 successfully defended, 5 final awards, 16 settled or withdrawn, 34 pending – most arising from investment in public service concessions rendered inutile by “pesification” and other fiscal measures imposed during the 2000-2001 financial crisis • Venezuela: 18 known claims – 1 dismissed, 2 awards, 4 settled or withdrawn, 11 pending – most arising from direct expropriation of investments in oil and gas, mining and other strategic industries • Ecuador: 18 known claims – 3 successfully defended, 3 awards, 4 settled or withdrawn, 8 pending – most arising from taxes on windfall profits in the energy sector and from power generation projects • Bolivia: 4 known claims – plus 14 new oil and gas expropriations plus threatened cancellation of 2 mining joint ventures – 2 settled or withdrawn, potentially 18 are pending

  15. Current Concerns for Canadian Investors • Argentina: Canada-Argentina FIPA in force since 1993 – no known claims by Canadian companies arising from the 2000-2001 economic crisis • Venezuela: Canada-Venezuela FIPA in force since1998 – at risk are investors in the oil and gas, mining and financial services sectors; at least one Canadian mining company has a claim pending • Ecuador: Canada-Ecuador FIPA in force since1998; at risk – investors in the oil and gas and mining sectors – one Canadian investor has sued and lost in connection with retroactive changes to the VAT law • Bolivia: Canada has no FIPA with Bolivia – at risk are investors in all natural resource sectors

  16. Concluding Remarks • Investor-State arbitration should be seen as remedy of last resort for Canadian investors who face unwarranted government interference with their business activities in Latin America • Although time consuming and expensive, in certain situations investor-state arbitration may be the only realistic means of obtaining compensation for losses arising from arbitrary, discriminatory or confiscatory measures • With the notable exception of Bolivia, Canada has adequate investment treaty coverage with Latin American states where the economic and/or political landscape presents a significant risk • Canadians contemplating investment in Bolivia or other states that have no FIPA with Canada should consider investing through a third state that has treaty coverage and/or obtain political risks insurance

  17. J Cameron Mowatt Partner, Borden Ladner Gervais, LLP1200 Waterfront Centre, 200 Burrard Street Vancouver, British Columbia, V7X 1T2, CanadaDirect: 604.640.4178 - Email: cmowatt@blg.com www.blg.com

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