The Evolving BIT: A Commentary on Canada’s Model Agreement

While the revision that gave birth to the United States’ Model bilateral investment treaty (BIT) in April 2012 has been closely observed and commented upon,[1] much less attention has been paid to changes made to the Canadian Model BIT. This is most likely because the text has been revised incrementally over time. The last formal update of Canada’s Model BIT took place in 2004, but since then there has been a continuous effort to refine and better organise the treaty text. Those changes have accumulated significantly over time; the 2012 the model text is about ten pages shorter than the 2004 version. This brief commentary highlights how the Canadian Model has evolved since 2004. The observations that follow do not purport to be exhaustive but simply to cast light on some amendments or new provisions espoused by the 2012 version of the Model.

Probably the first such change to observe concerns the expropriation provision in Article 10 of the 2012 version of the Model (previously Article 13). While most of its provisions have not changed,[2] the new article abandons the explicit requirements of the Hull formula for “prompt, adequate and effective compensation,” [3] in favour of wording that closely echoes the NAFTA.[4] It makes reference to “payment of compensation in accordance with paragraphs 2 and 3” of the same article, requiring that “the fair market value of the expropriated investment immediately before the expropriation took place … be paid without delay and shall be fully realizable and freely transferable.” The same provision subsumes an earlier footnote, now part of the text of Article 10(1), specifying that “this paragraph shall be interpreted in accordance with Annex B.10” on indirect expropriation. Annex B.10 remains unaltered.

Probably the most significant change is the addition of a provision on corporate social responsibility. New Article 16 of the Model entitled Corporate Social Responsibility provides that:

‘Each Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Parties. These principles address issues such as labour, the environment, human rights, community relations and anti-corruption.’

In the framework of its article on general exceptions, Article 18(1) (ex-Article 10(1)) of the Canadian model BIT does away with the chapeau that preceded its earlier general exceptions clause modelled after Article XX GATT. The chapeau’s requirements relating to application of the permissible state measure in a manner that does not constitute arbitrary or unjustifiable discrimination or a disguised restriction on international trade or investment continue to apply by means of a second subparagraph in the same provision.[5] The purpose of this change is unclear, if it is not to disassociate the provision from Article XX GATT and the debate that its inclusion in investment treaties has generated. The cultural exception of the Canadian Model BIT is also slightly different, although also in this case it is not evident how the different wording impacts, if at all, the exception. The definition of what constitutes a “person engaged in a cultural industry” (previously the definition of ‘cultural industries’) is now comprised within Article 18(7) which also incorporates the exception. The latter now reads: “This Agreement does not apply to a measure adopted or maintained by a Party with respect to a person engaged in a cultural industry.”

Some final changes to note consist in the elimination of a few provisions from the new version of the Canadian Model BIT. First, ex-Article 8 on Monopolies and State Enterprises has been deleted, and, at the same time, a second paragraph has been added to Article 2 on Scope regarding the exercise of delegated governmental authority by a person of one of the contracting parties. This change reportedly aims to streamline the Model while explicitly preserving the coverage of monopolies and state enterprises consistent with customary international law. Two further deletions, namely the absence from the current version of the annex on Submissions by Non–Disputing Parties[6] and that of the annex on the standard waiver and consent form,[7] have likewise taken place in order to streamline the Model BIT.

In conclusion, the Canadian Model BIT has evolved since 2004, although its substantive provisions remain generally unaltered. It’s worth noting that Canada also occasionally accepts significant changes to the Model’s core provisions in actual negotiations. This was seen most recently in its agreement with China, where Canada agreed to omit provisions relating to pre-establishment national treatment rights and prohibitions of performance requirements, among other deviations from its Model.[8] In short, as Canada adapts its own Model, it also appears ready to accept changes to some of the core provisions proposed by negotiating partners.

Author: Catharine Titi is a research assistant at the University of Siegen, Germany.