October 10, 2007 – Canada's Minister of Industry, Jim Prentice, outlined the Canadian Government's position on foreign investment in Canada in a speech before the Vancouver Board of Trade on October 9, 2007.  

The full text of the Minister's speech is available at http://www.ic.gc.ca/epic/site/ic1.nsf/en/h_00000e.html.

The Minister set out six key points in his speech, which are briefly discussed below. 

Canada Is "Open for Business"

The Minister noted that foreign investment creates jobs, spurs innovation and enhances productivity.  He also commented that foreign investment is critical to Canada's success and essential to its prosperity.  Canada is therefore committed to securing foreign investment. 

Similarly, the Minister stated that "[w]e are not – and we will not become – protectionist.  The Investment Canada Act should not – and will not – become a shield to protect Canadian industry from the full rigours of global competition."  However, the Minister added that there should be no doubt about the Government's determination to ensure that Canadian interests are fully protected.

Updating the Investment Canada Act

Foreign investment in Canada is subject to the Investment Canada Act (apart from certain specific sectoral limitations).  The Minister expressed the Government's view that the Investment Canada Act is working well.  However, he acknowledged that the legislation requires periodic updating to ensure that it stays current with changing times.  A recently created "Competition Policy Review Panel" has been given the mandate to do just that, in addition to reviewing key elements of Canada's competition policies.  The Panel is required to report back to the Minister by June 30, 2008.

Continued Application of the "Net Benefit" Test

Under the Investment Canada Act, the Minister is required to ensure that investments in Canada by non-Canadians provide a "net benefit" to Canada.  The Minister confirmed the Government's satisfaction with this test.  According to the Minister, "[i]n most cases, determining whether a transaction produces a net benefit to Canada is pretty straightforward.  Does it create jobs?  Spur innovation?  Advance Canadian interests?  If so, the deal goes forward." 

Takeovers by State-Owned Enterprises

The Minister stated that while there is no inherent presumption against foreign state-owned enterprises being allowed to invest in Canada, transactions of this nature can give rise to legitimate concerns about their impact on Canada's national interests.  According to the Minister, Canada must ensure that foreign state-owned enterprises operate under the same standards as any other commercial enterprise, including those related to transparency, good governance practices and adherence to free market principles.

Based on the Minister's remarks, it appears that while acquisitions by foreign state-controlled entities will not necessarily be blocked altogether, they will likely be subject to demands for relatively more extensive undertakings than have been required in the past to obtain approval under the Investment Canada Act.  For example, foreign state-owned acquirors of Canadian businesses will likely have to agree to undertakings that include requirements such as disclosure of material events or independent representation on boards of directors.

A related issue is what to do about situations in which certain foreign state-owned enterprises seek to acquire companies in Canada, while their host countries do not permit foreign investment (e.g., by Canadian companies).  Significantly, the Minister said that "the proper course is to pursue access through trade negotiations – not to try and use the Investment Canada Act to refuse access to our market".  In other words, it does not appear that the Government intends to introduce special rules under the Investment Canada Act for acquisitions by firms owned by nationals of countries which are less open to inbound investment by Canadians.

Creation of Explicit National Security Test

Unlike a number of other countries, including some of its major trading partners, Canada does not have a national security test for foreign investment.  The Minister confirmed that this is an omission which the Government intends to address.  However, he also confirmed that the Government does not intend to use supposed national security concerns as an "excuse for protectionism" and that the new test will not single out "a particular transaction, or a particular company or a particular country".

Treatment of Pending Transactions

The Minister confirmed that any new rules will not affect transactions that have already been initiated. 

 

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The Government believes that the issues relating to foreign state-owned enterprises and national security require more immediate attention than the timetable for delivery of the Panel's report (by June 30, 2008).  It therefore intends to examine these issues in the Fall.  Other issues relating to foreign investment in Canada will presumably be dealt with under the review Panel's current schedule.

Click here to view a Davies Perspective with additional discussion of the Competition Policy Review Panel.

The foregoing is a summary of a recent development in Canada's foreign investment review law.  If you would like additional information about this topic or any aspect of Canadian foreign investment review or competition law, please contact George Addy, Anita Banicevic, John Bodrug, Mark Katz, Richard Elliott or Chris Margison in the Toronto office at (416) 863-0900 or Hillel Rosen in the Montreal office at (514) 841-6443. 

Davies Ward Phillips & Vineberg LLP, with over 235 lawyers, practises nationally and internationally from offices in Toronto, Montréal, New York and an affiliate in Paris and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and overseas clients. 

The information and comments contained herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstances.  For particular applications of the law to specific situations, the reader should seek professional advice.