Agreement on Internal Trade

Chapter Six - Investment

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Agreement on Internal Trade
September 1994

Page Index

  1. Article 600: Application of General Rules
  2. Article 601: Relationship to Other Chapters
  3. Article 602: Scope and Coverage
  4. Article 603: Reciprocal Non-Discrimination
  5. Article 604: Local Presence and Residency Requirements
  6. Article 605: Legitimate Objectives
  7. Article 606: Corporate Registration and Reporting Requirements
  8. Article 607: Performance Requirements
  9. Article 608: Incentives
  10. Article 609: Government Enterprises and Monopolies
  11. Article 610: Environmental Measures
  12. Article 611: Non-Application
  13. Article 612: Transparency and Reporting Requirements
  14. Article 613: Preference for Canadians
  15. Article 614: Consultations
  16. Article 615: Working Group on Investment
  17. Article 616: Definitions
  18. Annex 604.4 - Local Presence and Residency Requirements
  19. Annex 608.3 - Code of Conduct on Incentives

Article 600: Application of General Rules

  1. articles 401 (Reciprocal Non-Discrimination), 402 (Right of Entry and Exit), 403 (No Obstacles) and 404 (Legitimate Objectives) do not apply to this Chapter.
  2. For greater certainty, articles 400 (Application), 405 (Reconciliation) and 406 (Transparency) apply to this Chapter, except as otherwise provided in this Chapter.

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Article 601: Relationship to Other Chapters

Except as otherwise provided in this Chapter, in the event of an inconsistency between this Chapter and any other chapter in Part IV, the other chapter prevails to the extent of the inconsistency.

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Article 602: Scope and Coverage

  1. This Chapter applies to measures adopted or maintained by a Party relating to investors of a Party and enterprises.
  2. This Chapter, except as provided in paragraph 6 of Annex 608.3, does not apply to measures relating to procurement by the entities listed in the Annexes to Article 502 (Scope and Coverage) and the entities referred to in Article 502(4). For the purposes of this paragraph, "procurement" means the acquisition by any means, including by purchase, rental, lease or conditional sale, of goods, services or construction.
  3. This Chapter, except as provided in articles 607 and 608, does not apply to measures relating to incentives.

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Article 603: Reciprocal Non-Discrimination

  1. Subject to Article 605, each Party shall accord to an investor of a Party treatment no less favourable than the best treatment it accords, in like circumstances, to an investor of any Party.
  2. Subject to Article 605, each Party shall accord to an enterprise of any other Party, established and carrying on business activities in its territory, treatment no less favourable than the treatment it accords, in like circumstances, to its own enterprises.
  3. With respect to the Federal Government, paragraphs 1 and 2 mean that, subject to Article 605, it shall ensure that any measure it adopts or maintains does not operate so as to discriminate between Provinces or regions.

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Article 604: Local Presence and Residency Requirements

  1. Subject to Article 605, no Party shall require an investor of any other Party to be resident in its territory as a condition for the establishment or acquisition of an enterprise.
  2. Subject to Article 605, no Party shall require an enterprise of any other Party to establish or maintain a representative office or enterprise, or to be resident, in its territory as a condition for carrying on business activities.
  3. For greater certainty, a requirement by a Party that an investor of any other Party:
    1. have an agent for service of notices of proceedings or other judicial documents; or
    2. post a bond or other form of financial security, for a legitimate objective;
    as a condition for carrying on business activities in or into its territory is not a requirement to establish or maintain a local presence or to be resident in its territory.
  4. Each Party shall, no later than December 31, 1995, list in Annex 604.4 its existing measures that are inconsistent with paragraph 1 or 2. Any such listed measure may not be made more restrictive than it was on the date of entry into force of this Agreement.
  5. The Parties shall, no later than December 31, 1996, examine the measures listed in Annex 604.4 and make recommendations to the Committee as to the appropriate retention, removal or replacement of such measures.
  6. No measure that a Party lists or proposes to list in Annex 604.4 shall, before January 1, 1997, be subject to the obligations of paragraphs 1 and 2 or to dispute settlement procedures under this Agreement.

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Article 605: Legitimate Objectives

Where it is established that a measure is inconsistent with Article 603 or 604, that measure is still permissible under this Chapter where it can be demonstrated that:

  1. the purpose of the measure is to achieve a legitimate objective;
  2. the measure does not operate to impair unduly the access of investors of a Party or enterprises that meet that legitimate objective;
  3. the measure is not more restrictive on investors of a Party or enterprises than necessary to achieve that legitimate objective; and
  4. the measure does not create a disguised restriction on investors of a Party or enterprises.

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Article 606: Corporate Registration and Reporting Requirements

The Parties shall endeavour to reconcile extra-provincial corporate registration and reporting requirements for enterprises incorporated under the law of any Party. The Parties shall, no later than July 15, 1995, prepare an implementation plan for consideration by the Committee.

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Article 607: Performance Requirements

  1. No Party shall impose or enforce, in relation to an investor of a Party or an enterprise in its territory, or condition the receipt of an incentive by an enterprise on compliance with, any requirement to:
    1. achieve a specific level or percentage of local content of goods or services;
    2. purchase or use goods or services produced locally; or
    3. purchase goods or services from a local source.
  2. For greater certainty, nothing in paragraph 1 shall be construed to prevent a Party from conditioning the receipt of an incentive on any requirement to carry out economic activities in its territory or to create or maintain employment.
  3. A Party may, under exceptional circumstances, adopt or maintain a measure inconsistent with paragraph 1 for regional economic development purposes, provided that:
    1. the measure does not operate to impair unduly the access of persons, goods, services or investors of another Party;
    2. the measure is not more trade restrictive than necessary to achieve its specific objective; and
    3. the Party promptly notifies the other Parties of the details of the measure.

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Article 608: Incentives

  1. No Party shall, in the provision of incentives to enterprises located in its territory, discriminate against an enterprise on the basis that:
    1. the enterprise is owned or controlled by an investor of another Party; or
    2. the head office of the enterprise is located in the territory of another Party.
  2. Nothing in this Agreement shall be construed to require a Party to provide incentives for activities undertaken outside its territory.
  3. The Code of Conduct on Incentives set out in Annex 608.3 applies to the Parties.

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Article 609: Government Enterprises and Monopolies

  1. A Party may maintain or establish a government enterprise and may maintain, establish or authorize a monopoly.
  2. Further to Article 102(1)(c) (Extent of Obligations), each Party shall ensure that any government enterprise maintained or established by it exercises any delegated administrative or other governmental authority in a manner consistent with this Chapter.

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Article 610: Environmental Measures

  1. No Party shall waive or otherwise derogate from, or offer to waive or otherwise derogate from, its environmental measures as an encouragement for the establishment, acquisition, expansion, ongoing business activities or retention in its territory of an enterprise.
  2. Notwithstanding paragraph 1 and Article 1505(5) (Basic Rights and Obligations), a Party is permitted a reasonable, but as short as possible, period of time to seek compliance by an established enterprise in its territory with its environmental measures.

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Article 611: Non-Application

  1. articles 603, 604 and 605 do not apply to a measure for the privatization of government services, government assets or an enterprise.
  2. articles 603 and 604 do not apply to an existing measure that restricts the acquisition or use of land by non-residents of a Party. Any such measure may not be made more restrictive in its treatment of non-residents than it was on the date of entry into force of this Agreement.
  3. articles 603 and 604 do not apply to a measure:
    1. adopted by Prince Edward Island, after the date of entry into force of this Agreement, that restricts the acquisition or use of land by non-residents of Prince Edward Island; or
    2. adopted by a Party, other than Prince Edward Island, after the date of entry into force of this Agreement, that restricts the acquisition or use of agricultural, recreational or shorefront land by a non-resident of that Party.
  4. Notwithstanding any other provision of this Agreement, in the event of an inconsistency between paragraph 2 or 3 and any other provision of this Agreement, paragraph 2 or 3 prevails to the extent of the inconsistency.

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Article 612: Transparency and Reporting Requirements

  1. Further to Article 406(1) (Transparency), each Party shall ensure that all measures it adopts or maintains pertaining to investors of a Party or enterprises are promptly published or otherwise made available in a manner easily accessible to the Parties and interested persons.
  2. Each Party shall endeavour to reduce or simplify any requirement for the filing or other submission of documents imposed on investors or enterprises.
  3. Each Party shall endeavour to facilitate public access to up-to-date information on its investment-related programs and measures through the development and interconnection of electronic data bases and networks.

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Article 613: Preference for Canadians

  1. Nothing in this Chapter shall be construed to prevent a Party from adopting or maintaining a measure that accords rights or preferences to Canadians.
  2. For the purposes of paragraph 1, "Canadian" means a Canadian citizen, a natural person who is a permanent resident of Canada, or an enterprise controlled by a Canadian citizen or natural person who is a permanent resident of Canada.

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Article 614: Consultations

  1. Where a Party considers that an actual or proposed measure of another Party is or would be inconsistent with this Chapter, it may request consultations with that Party by delivering written notice of the request to the other Party. The Parties concerned shall consult in an effort to resolve the matter.
  2. The Parties concerned may request the Investment Working Group to assist them in the resolution of the matter.
  3. If the matter is not resolved within 90 days after the date of delivery of the request under paragraph 1, recourse may be had to Chapter Seventeen (Dispute Resolution Procedures).

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Article 615: Working Group on Investment

The Parties shall establish a Working Group on Investment which shall:

  1. examine local presence and residency requirements as set out in Article 604;
  2. prepare the annual report on incentives referred to in paragraph 15 of Annex 608.3;
  3. examine matters referred to it under Article 614(2) and paragraph 12 of Annex 608.3 and make recommendations as appropriate; and
  4. examine any other investment matter as directed by the Committee.

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Article 616: Definitions

In this Chapter:

enterprise
means an entity constituted, established or organized under the applicable laws of a Party, whether privately-owned or governmentally-owned, including any corporation, trust, partnership, cooperative, sole proprietorship, joint venture or other form of association, for the purpose of economic gain;
government enterprise
means a Crown corporation within the meaning of the Financial Administration Act (Canada), a Crown corporation within the meaning of comparable provincial law or any equivalent entity formed under other applicable provincial law;
incentive
means:
  1. a contribution with a financial value that confers a benefit on the recipient, including cash grants, loans, debt guarantees or an equity injection, made on preferential terms; or
  2. any form of income or price support which results directly or indirectly in a draw on the public purse;
investor of a Party
means:
  1. a Party;
  2. a Canadian citizen or permanent resident of Canada; or
  3. an enterprise;
that seeks to establish, acquire or dispose of an enterprise;
market
means the geographic or commercial market for a good or service;
monopoly
means an entity, whether privately-owned or owned by a Party, that, in the relevant market in the territory of a Party, is granted the right to be the only provider or purchaser of a good or service.
Working Group on Investment
means the Working Group established under Article 615;

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Annex 604.4
Local Presence and Residency Requirements

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Annex 608.3
Code of Conduct on Incentives

Scope and Coverage

  1. This Annex applies to incentives provided to enterprises by a Party or any entity acting on its behalf.
  2. In this Annex, "incentive" means:
    1. a contribution with a financial value that confers a benefit on the recipient, including cash grants, loans, debt guarantees or an equity injection, made on preferential terms;
    2. a reduction in taxes or government levies otherwise payable aimed at a specific enterprise, whether organized as one legal entity or as a group of legal entities, but does not include a reduction resulting from a provision of general application of a tax law of a Party; or
    3. any form of income or price support that results directly or indirectly in a draw on the public purse.

Purpose

  1. The Parties affirm the application of the operating principles of this Agreement to incentives and shall minimize the adverse effects of their incentives on the economic interests of other Parties.

Prohibited Incentives

  1. No Party shall provide an incentive that is, in law or in fact, contingent on, and would directly result in, an enterprise located in the territory of any other Party relocating an existing operation to its territory.
  2. An incentive shall not be considered to be inconsistent with paragraph 4 where a Party can demonstrate that the incentive was provided to offset the possibility for relocation of the existing operation outside Canada and the relocation was imminent, well known and under active consideration.
  3. No Party shall provide an incentive the primary purpose of which is to enable the recipient enterprise to undercut competitors of another Party in obtaining a specific contract in the territory of a Party.
  4. For greater certainty, paragraph 4 shall not be construed to prevent a Party from carrying out general investment promotion activities such as market information and intelligence.

Avoidance of Certain Incentives

  1. The Parties affirm that economic development within their territories may include the provision of incentives. The Parties acknowledge that certain incentives may harm the economic interests of other Parties. The Parties shall take into account the economic interests of other Parties in developing and applying their incentive measures, and shall endeavour to refrain from providing an incentive that:
    1. sustains, for an extended period of time, an economically non-viable operation whose production adversely affects the competitive position of a facility located in the territory of another Party;
    2. increases capacity in sectors where the increase is not warranted by market conditions; or
    3. is excessive, either in absolute terms or relative to the total value of the specific project for which the incentive is provided, taking into account such factors as the economic viability of the project and the magnitude of the economic disadvantage that the incentive is designed to overcome.
  2. Each Party shall endeavour to refrain from engaging in bidding wars to attract prospective investors seeking the most beneficial incentive package.

Request for Information

  1. Where a Party has reason to consider that an incentive program or an individual incentive package offered or implemented by another Party may be inconsistent with paragraphs 4 through 9, it may request relevant information. The other Party shall respond promptly to any such request.

Consultation

  1. Where, on reviewing the information provided, a Party considers that its economic or commercial interests have been, or are likely to be, adversely affected by an incentive offered by another Party, it may request consultations. The consulting Parties shall make every effort to arrive at a mutually satisfactory resolution, taking into account this Annex.
  2. The consulting Parties may refer the matter to the Working Group on Investment to review it and, where appropriate, to draw the attention of those Parties to relevant information and considerations that would assist them in arriving at a mutually satisfactory resolution.
  3. Where a dispute concerning a matter referred to in paragraphs 4 through 7 has not been resolved within 90 days after the date of delivery of a request under paragraph 11, recourse may be had to Chapter Seventeen (Dispute Settlement Procedures).
  4. Chapter Seventeen (Dispute Settlement Procedures) does not apply to a dispute concerning a matter referred to in paragraph 8 or 9.

Annual Report

  1. The Working Group on Investment shall prepare an annual report on incentives for submission to the Committee that includes:
    1. a short description, including the goals and objectives, of the incentive programs and of the individual incentive packages that are outside established programs offered by each Party;
    2. the total amount of each of the following types of incentives committed by a Party to enterprises in its territory:
      1. cash grants or contributions;
      2. loans or loan guarantees; and
      3. equity injections;
    3. in the case of the Federal Government, the total amount for each Province of each of the types of incentives referred to in paragraph (b) committed by it to enterprises;
    4. the amounts of:
      1. each cash grant or contribution over $500,000;
      2. each loan or loan guarantee over $1,000,000; and
      3. each equity injection over $1,000,000;
      committed by a Party to enterprises in its territory; and
    5. where relevant, a summary of any matter that has given rise to procedures under paragraph 10 or paragraphs 11 through 14.

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