Foreign Investment Protection and Promotion Agreements (FIPAs) to Promote and Facilitate Trade between Canada and Certain African Countries

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1 Financial institutions Energy Infrastructure, mining and commodities Transport Technology and innovation Life sciences and healthcare Foreign Investment Protection and Promotion Agreements (FIPAs) to Promote and Facilitate Trade between Canada and Certain African Countries 10 things to know 1. Introduction The Government of Canada s Global Markets Action Plan targets three distinct types of markets: emerging markets with broad Canadian interests, emerging markets with specific opportunities for Canadian businesses, and established markets with broad Canadian interests. In particular, with respect to the second type of market described above, Canada seeks to deepen commercial engagement in Africa, Latin America and Asia, with a focus on investment promotion and protection. Within Africa, Benin, Burkina Faso, Cameroon, Côte d Ivoire, Ghana, Madagascar, Mali, Morocco, Nigeria, Senegal, Tanzania, Tunisia and Zambia are identified as emerging markets that offer specific opportunities for Canadian businesses. One of the tools the Canadian government uses to help promote and facilitate trade in such emerging markets is to negotiate Foreign Investment Protection and Promotion Agreements (FIPAs) with the relevant countries. 2. Objective of Foreign Investment Protection and Promotion Agreements FIPAs are bilateral agreements aimed at protecting and promoting foreign investment through legally-binding rights and obligations. The objective of each FIPA is to encourage reciprocal investment in each country that is a party to the FIPA (a Contracting Country). FIPAs set out the respective rights and obligations of the Contracting Countries with respect to the treatment of foreign investment. Subject to agreed exceptions, FIPAs seek to ensure that investors from a Contracting Country: will not be treated worse than similarly situated domestic investors or other foreign investors, will not have their investments expropriated without prompt and adequate compensation, will not be subject to treatment lower than the minimum standard established in customary international law, and in most circumstances, will be free to invest capital and repatriate their investments and returns. 1 See #5 below for more details. 3. Existing Agreements between Canada and Certain African Countries Canada has entered into FIPAs with eight African countries. FIPAs between Canada and each of Egypt, Tanzania and Benin are in force. FIPAs between Canada and each of Burkina Faso, Cameroon, Nigeria, Côte d Ivoire, Mali and Senegal have been signed but are not yet in force. These agreements will come into force when each party to the agreements has notified the other party that it has completed the procedures required in its territory to bring the FIPA into force. All of the existing FIPAs (those in force as well as those signed but not yet in force) are substantially similar, with minor differences pertaining to some of the more specific provisions (particularly those relating to exceptions and reservations see #6 below). 4. Investments Covered by the FIPAs A covered investment is generally an investment in one of the Contracting Countries by an investor (a natural person or an 1

2 enterprise making an investment) of the other Contracting Country existing on the date the FIPA came into force, as well as an investment made or acquired subsequently. An investor of a Contracting Country generally means: an enterprise constituted or organized under the laws of the Contracting Country (whether or not for profit, whether privately owned or governmentally owned, including a corporation, trust, partnership, sole proprietorship, joint venture or other association and a branch of any such entity); or an individual who is a citizen or permanent resident of the Contracting Country. Investment includes: an enterprise, or a share or other form of equity participation or other interest in an enterprise that entitles the owner to a share in the income or profits of the enterprise, or the assets of that enterprise on dissolution, certain loans or advances made to an enterprise (including a bond, debenture or other debt instrument), a commitment of capital or other resources in the territory of a Contracting Country to economic activity in that territory, and intellectual property rights and any other tangible or intangible, moveable or immovable, property and related property rights acquired or used for economic benefit or other business purpose. An investment generally does not include a claim to money that arises solely from a commercial contract for the sale of goods or services by a national or enterprise in the Contracting Country to an enterprise in the other Contracting Country, the extension of credit in connection with a commercial transaction (such as trade financing), or any other claim to money that does not involve the kinds of investments described above. 5. Obligations of the Contracting Countries FIPAs encourage the creation of favourable conditions for reciprocal investment in the Contracting Countries. While the specific wording of each FIPA must be consulted to determine the exact scope of its protections, the obligations fall within certain well-established categories set out here. Each Contracting Country is required to: treat investors of the other Contracting Country and covered investments no less favourably than it treats, in like circumstances: its own investors (National Treatment), and investors and investments of countries that are not parties to the FIPA (Most-Favoured Nation Treatment), provide for fair and equitable treatment and full protection and security of covered investments and investors of the other Contracting Country in accordance with the principles of international law (Treatment of Investments), and provide non-discriminatory treatment or National Treatment or Most-Favoured Nation Treatment with respect to measures it adopts or maintains relating to compensation for losses incurred by investments in its territory as a result of armed conflict, civil strife, natural disaster or similar cause (Compensation for Losses). FIPAs permit transfers of funds (i.e. contributions to capital, payment of profits, dividends or capital gains, proceeds from the complete or partial sale or liquidation of a covered investment, and other payments made under contract) relating to a covered investment to be made freely and without delay, into and out of the particular territory, subject to any exceptions under a Contracting Country s domestic law related to matters such as bankruptcy and insolvency, securities regulation and criminal offenses (Transfer of Funds). To guarantee Compensation for Expropriation, FIPAs prohibit a party from expropriating or nationalising any covered investment in its territory, unless such expropriation or nationalisation is: in the public interest, in accordance with due process of law, effected in a non-discriminatory manner, and accompanied by payment of prompt and adequate compensation. Each Contracting Country must publish or otherwise make available to all interested persons its laws, regulations, procedures and administrative rulings of general application respecting all matters covered by the FIPA. FIPAs also prohibit a Contracting Country from imposing certain performance requirements in connection with an investment (Performance Requirements). For example, a Contracting Country may not impose the following requirements in connection with the establishment of an investment in its territory: to export a given level or percentage of a good or service, to achieve a given level or percentage of domestic content, or to transfer technology, a production process or other proprietary knowledge to a person in its territory. FIPAs also prohibit limitations that require senior management to meet specific nationality characteristics (Senior Management). However, a Contracting Country may require that a majority of a board of directors, or any committee thereof, be comprised of members of a particular nationality or territory (provided the requirement does not materially impair the ability of the investor to exercise control over its investment). Each Contracting Country must grant temporary entry to nationals employed by an investor of the other Contracting Country who seeks to render managerial or executive services to an investment in that territory, subject to its laws, regulations and policies relating to the entry of aliens (Temporary Entry). 02 Norton Rose Fulbright

3 Most of the Contracting Countries to the various FIPAs have reserved the right to maintain and adopt certain measures that do not conform to the provisions relating to National Treatment, Most-Favoured Nation Treatment, Performance Requirements, Senior Management and Temporary Entry (see #6 below). 6. Exceptions & Reservations Generally, FIPAs: do not apply the protective provisions regarding National Treatment, Most-Favoured Nation Treatment, Performance Requirements, Senior Management and Temporary Entry to pre-existing non-conforming measures maintained by a Contracting Country and each Contracting Country is required to provide the other a list (as a guideline only) of such nonconforming measures, have a limited application to tax measures, and only require National Treatment and Most-Favoured Nation Treatment on tax measures, except for tax measures on income, capital gains or the taxable capital of corporations, include exceptions permitting non-compliance with the FIPAs protective provisions in respect of certain intellectual property rights in a manner consistent with certain other international agreements (i.e. the Agreement on Trade-Related Aspects of Intellectual Property Rights and the Marrakesh Agreement Establishing the World Trade Organization, done at Marrakesh on 15 April 1994), permit Contracting Countries to adopt or enforce noncomplying measures necessary to protect life or health or for the conservation of living or non-living exhaustible natural resources, and reasonable non-complying measures for prudential reasons such as ensuring the integrity and stability of a Contracting Country s financial system, and do not apply to non-discriminatory measures of general application taken by a public entity in pursuit of monetary and related credit or exchange rate policies, or to measures adopted by either Contracting Country with respect to a cultural industry (including, for example, the production, publication, sale and distribution of books, magazines, newspapers, films, music recordings). The categories of reserved measures that are most prevalent across the various FIPAs are social services, rights or preferences accorded to socially or economically disadvantaged minorities, government securities (i.e. bonds, treasury bills or other debt securities issued by the Contracting Party or a provincial/state or local government in the Contracting Party), the licensing of fishing or fishing related activities, telecommunications services, and the establishment or acquisition in the particular party s territory of an investment in the services sector. 7. Dispute Settlement Mechanisms Each FIPA provides a mechanism for the settlement of disputes as between an investor and a host Contracting Country. Disputes may be submitted to arbitration for breach of a substantive obligation and for loss or damage as a result of the breach if consultations held to resolve the claim are unsuccessful. Generally, arbitrations are to be governed by the ICSID Convention, the Additional Facility Rules of ICSID or the UNCITRAL Arbitration Rules, as determined under the terms of the FIPA. Each FIPA includes a detailed list of applicable procedural requirements. Each FIPA also provides a mechanism for the settlement of state-to-state disputes between Contracting Countries concerning the interpretation or application of the FIPA. Decisions of the arbitration panel are binding on both Contracting Countries. Within 60 days of the decision the parties must make a determination on the manner in which to resolve the dispute (which would normally involve implementing the decision of the panel). If the Contracting Countries fail to make a determination, the Contracting Country bringing the dispute will be entitled to compensation or to suspend benefits equivalent to those awarded by the panel. 8. ICSID Convention The International Centre for Settlement of Investment Disputes (ICSID) is the leading international arbitration institution devoted to investor-state dispute settlement. It was established by the ICSID Convention, which itself establishes rules under which investment disputes between states and nationals of other states may be resolved, including by means of arbitration. The ICSID regime provides more certainty with respect to enforcement of awards than other arbitration mechanisms because all ICSID contracting states, whether or not parties to the dispute, are required by the Convention to recognize and enforce ICSID arbitral awards. Canada s ratification of the ICSID Convention on November 1, 2013 made it possible for Canadian investors and the government of Canada to participate in ICSID Convention arbitration. In line with ICSID requirements, the FIPAs provide that arbitrations may be governed by the ICSID Convention if both the investor s Contracting Country and the host Contracting Country are party to the ICSID Convention. Each of the eight African countries with which Canada has entered into FIPAs is a party to the ICSID Convention. 9. Term of Agreements Canada Egypt FIPA In force November 3, 1997 for an initial term of fifteen years. Thereafter, the FIPA continues in force indefinitely, but may be terminated by either party on one year s written notice. Norton Rose Fulbright 03

4 Canada Tanzania FIPA In force December 9, 2013 for an initial term of ten years, during which the FIPA cannot be terminated. Thereafter, the FIPA will continue in force indefinitely, but may be terminated by either party on one year s written notice. All of the other FIPAs (including those that are in force and those that have been signed but are not yet in force) Provide that the FIPA may be terminated by either party on one year s written notice. Sunset Provisions If a FIPA is terminated, its substantive protections remain in force for investments made prior to termination for a substantial period (generally fifteen years). 10. Future FIPAs with Other African Countries Canada has concluded negotiations to enter into FIPAs with Zambia, Madagascar and Guinea, but has not yet signed agreements with these countries. Negotiations with Ghana, Kenya and Tunisia remain ongoing. Global Capabilities Norton Rose Fulbright is recognized around the world for delivering superior global solutions to clients across all industry sectors. With offices across Canada, Africa and around the world, our teams of lawyers are uniquely positioned to provide pragmatic advice on cross-border and multi-jurisdictional transactions and disputes in these regions. We have unparalleled experience advising on mergers and acquisitions, debt and equity capital markets and international arbitrations, acting for a range of major international clients including financial institutions, mining houses and global corporate leaders who value our international experience and local market expertise. We will work with you to navigate these bilateral agreements and keep you at the forefront of trade developments in the region. 04 Norton Rose Fulbright

5 Authors Janet Wong Associate T: Michael Sabusco Partner T: Contacts If you would like further information please contact: Canada South Africa Dawn Whittaker Senior Partner T: Georg Kahle Director Norton Rose Fulbright South Africa Inc. T: Crae Garrett Partner T: Alastair Dixon Director Norton Rose Fulbright South Africa Inc. T: Martin Valasek Partner T: Norton Rose Fulbright 05

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