Message from the Director of Investments to the Minister of Industry
Dear Minister:
I am pleased to present the Investment Canada Act Annual Report for the 2009-10 fiscal year. This is the first annual report prepared on the administration of the Act since 1992-93. As responsibility for the review of foreign investment proposals in cultural businesses was transferred to the Minister of Canadian Heritage in 1999, this report relates only to investments in non-cultural Canadian businesses.
The 2009-10 fiscal year has been particularly noteworthy in the evolution of the Act, as we implemented some of the most significant amendments to the Act since its adoption in 1985. These amendments, which received Royal Assent on March 12, 2009, lower obstacles to foreign investment by focusing net benefit reviews on those transactions that have the greatest impact on the Canadian economy, improve transparency in the administration of the Act and authorize the government to review investments on national security grounds. In fact, this report is being published in response to an amendment introduced to increase transparency in the administration of the Act. These amendments were made following the 2008 report of the Competition Policy Review Panel.
As part of its efforts to implement these amendments to the Act, Industry Canada developed the new National Security Review of Investments Regulations in consultation with Public Safety Canada. These regulations took effect on September 17, 2009. Industry Canada also performed extensive work on other regulations needed to fully implement the changes to the Act and pre-published the proposed amendments to the Regulations Respecting Investment in Canada in the Canada Gazette in July 2009.
The 2009-10 year was notable for a fragile global economic recovery. Over the past several years, foreign investment in Canada has clearly been influenced by record high levels of world foreign direct investment, a commodity boom unparalleled in recent memory, the worst financial crisis since the Great Depression and a subsequent uneven global recovery. The administration of the Act over the 2009-10 fiscal year is therefore deserving of the attention this report affords.
I look forward to continuing to support you in administering the Investment Canada Act.
Yours sincerely,
Simon Kennedy
Director of Investments
Executive Summary
The Investment Canada Act (ICA or the Act) came into force in 1985, replacing the Foreign Investment Review Act. Its purpose is twofold: to provide for the review of significant foreign acquisitions of control of Canadian businesses for their likely net benefit to Canada and to provide for the review of foreign investments that could be injurious to national security.
This is the first annual report on the administration of the Act since 1992-93. It responds to a new legislative requirement adopted in March 2009 that requires the Director of Investments to provide a report to the Minister for each fiscal year on the administration of the Act. The Minister shall make this report available to the public. As responsibility for the review of acquisitions of cultural businesses was transferred to the Minister of Canadian Heritage in 1999, this report does not cover the cultural sector.
The report contains three core sections (sections 2 to 4):
Section 2 provides an overview of the Act and its administration. It is intended essentially as an introduction to the Act and touches on all its key aspects. These include how the Act applies to various transactions, the process followed by the Minister and departmental officials in the conduct of reviews, and the monitoring and enforcement of investments reviewed under the Act.
Section 3 discusses recent policy changes to the Act. Over the last few years, the Act went through its most important changes since 1985. These address contemporary challenges on the investment landscape, including the rise of sovereign investors, the need to safeguard national security and the growing global competition for foreign investment.
On December 7, 2007, the Minister of Industry issued guidelines for the review of investments by state-owned enterprises. These guidelines clarify the fact that governance and commercial orientation are taken into account by the Minister when reviewing investments by state-controlled entities. The guidelines do not set new policy but rather describe how the Minister carries out his or her work in reviewing such investments.
On February 6, 2009, a number of important amendments to the Act were introduced in Parliament, responding to the core recommendations and conclusions of the June 2008 report by the Competition Policy Review Panel, Compete to Win. This legislative package included the following:
- Amendments to enhance transparency in the administration of the Act: These provisions, which came into force on March 12, 2009, include the requirement to publish an annual report on the administration of the Act. The provisions now enable the Minister to give reasons for a decision to approve an investment under the Act and require the Minister to do so for a decision not to approve an investment.
- A new part to the Act, Part IV.1 Investments Injurious to National Security: This new part, which was deemed to have come into force retroactively on February 6, 2009, authorizes the federal government to review investments on national security grounds. Concomitant regulations, the National Security Review of Investments Regulations, came into force on September 17, 2009.
- Amendments to refocus net benefit reviews on the most significant transactions by making changes to the thresholds above which acquisitions are reviewable under the Act: The lower review thresholds of $5 million for direct acquisitions and $50 million for indirect acquisitions were eliminated for the transportation services, financial services and uranium production sectors. These sectors are now subject to the general review threshold. Since March 12, 2009, the lower thresholds apply only to cultural businesses. The general review threshold, which currently stands at $312 million (for calendar year 2011) for investors from World Trade Organization member countries, applies to all other sectors. The February 6, 2009, legislative package also included provisions to raise the general review threshold progressively to $1 billion over a four-year period and to change the basis for this threshold from the book value of the assets to the enterprise value of the Canadian business to be acquired. These provisions are to come into force on a date to be determined by the Governor in Council, shortly after regulations defining the concept of enterprise value are adopted.
Section 4 provides information on investment activity under the Act.
As indicated above, under the ICA, foreign acquisitions of control of Canadian businesses are reviewable if the value of their assets is equal to or exceeds specified thresholds. Where this is not the case, foreign investors must still notify the Minister of their acquisitions. Foreign investors must also notify the Minister when they are establishing a new Canadian business (a greenfield investment).
In the period from April 1, 2009, to March 31, 2010 (fiscal year 2009-10), the total number of filings received under the ICA (i.e., approved applications for review and certified notifications) was 437. The Minister approved 23 applications for review that had a total asset value of $30.8 billion. The average asset value for these applications was $1.34 billion, almost double the average for fiscal year 2008-09. The total number of notifications received during fiscal year 2009-10 stood at 414 (109 for the establishment of new Canadian businesses and 305 for the acquisition of control of existing Canadian businesses) with a total asset value of $30.1 billion. The average asset value for these notifications was $72.6 million, almost 150 percent greater than the average for fiscal year 2008-09.
In terms of enforcement, in July 2009, for the first time since the ICA came into force, the Attorney General of Canada, on behalf of the Minister of Industry, filed a Notice of Application with Canada's Federal Court seeking an order for the United States Steel Corporation (U.S. Steel) to take appropriate measures to remedy the default in the production- and employment-related undertakings that were provided when its investment was approved in 2007. This case is still ongoing.