3. Recent Policy Developments
In November 2006, the government released Advantage Canada, a long-term plan to improve Canada's economic prosperity. It stated Canada must "be open to trade and foreign investment so goods, services and technologies flow freely into Canada and Canadian firms have ready access to foreign markets to compete with the best in the world."
Advantage Canada also identified a concern that there may be rare occasions where foreign investments by state-owned enterprises (SOEs) with non-commercial objectives and unclear corporate governance and reporting may not benefit Canadians. Advantage Canada called for a principle-based approach to address these situations.
Guidelines-Investments by State-Owned Enterprises
On December 7, 2007, the Minister of Industry issued guidelines under the Investment Canada Act (ICA or the Act) to clarify the factors that are taken into consideration in assessing the net benefit of investments by foreign SOEs.
The guidelines emphasize that sound principles of corporate governance and commercial orientation are to be considered when reviewing investments by foreign SOEs. During such reviews, the Minister will apply existing principles under the Act and will examine:
- the nature and extent of control by a foreign government;
- the corporate governance, operating and reporting practices of the SOEs, including whether the investor adheres to Canadian standards of corporate governance and to Canadian laws and practices; and
- whether the acquired Canadian business retains the ability to operate on a commercial basis regarding the following: where to export; where to process; the participation of Canadians in its operations in Canada and elsewhere; support of ongoing innovation, research and development; and the appropriate level of capital expenditures to maintain the Canadian business in a globally competitive position.
The guidelines also provide a list of undertakings that SOEs may offer to demonstrate net benefit, such as appointing Canadians to boards of directors, employing Canadians in senior management positions, incorporating a company in Canada, or listing the shares of the acquiring company or the Canadian business on a Canadian stock exchange.
Competition Policy Review Panel
In July 2007, the Government of Canada established the Competition Policy Review Panel to review Canada's competition and foreign investment policies and to recommend ways of improving Canada's productivity and competitiveness. One of the key elements of the panel's core mandate was to review the Act. The panel consulted widely, receiving 155 written submissions, commissioning over 20 research projects and speaking to over 150 participants at 13 regional and thematic consultations. It provided its report, Compete to Win, to the Government of Canada in June 2008.
The report contained specific policy recommendations including amending the Act to reduce barriers to foreign investment by increasing the review threshold and applying it to all non-cultural sectors, by adopting enterprise value as the basis for setting the ICA threshold for all but cultural businesses, and by increasing transparency and predictability.
Government's Response to the Panel's Recommendations
Legislative Amendments
On February 6, 2009, the Government of Canada responded to the core recommendations of the Competition Policy Review Panel by introducing legislation to amend the Act as part of the Budget Implementation Act , 2009 (Bill C-10). The Bill received Royal Assent on March 12, 2009.
The amendments reformed the net benefit review process by:
- changing the basis for the general review threshold from the book value of assets to enterprise value (this amendment requires regulations for its implementation; see " Pending Regulations " subsection);
- raising the general review threshold to $1 billion over a four-year period (in 2010, it stood at $299 million in asset value) (this amendment requires regulations for its implementation; see "Pending Regulations " subsection);
- eliminating the application of the lower review threshold ($5 million for direct acquisitions and $50 million for indirect acquisitions) in identified sectors (i.e., transportation services, financial services and uranium production sectors);
- requiring the Minister to justify any decisions to disallow an investment and allowing the Minister to disclose administrative information on the review process where this does not prejudice investors; and
- requiring the publication of an annual report on the administration of the Act.
The legislation also amended the Act by adding Part IV.1 , Investments Injurious to National Security, as discussed in Section 2 of this report.
New National Security Regulations
In addition to the legislative amendments, the National Security Review of Investments Regulations under the Act were registered and came into force on September 17, 2009.
These regulations prescribe the various time periods within which the Minister and/or the Governor in Council must take action to trigger a national security review, to conduct the review and, after the review, to order measures with respect to the reviewed investment to protect national security. The regulations also provide a list of investigative bodies with which confidential information can be shared.
Pending Regulations
The Regulations Amending the Investment Canada Regulations were published for comment in the Canada Gazette Part I, Vol. 143, No. 28 on July 11, 2009. These regulations, however, have not yet been registered.
In general, the proposed regulations would amend the existing Regulations Respecting Investment in Canada to define the methodology for calculating the enterprise value of a Canadian business for the purposes of determining whether an application for review or notification is required to be filed; to remove references to the uranium, financial services and transportation sectors; to modify the information requirements for non-Canadian investors; and to provide that the signing authority in respect of applications for review and notifications must be the investor or an officer or director of a company or equivalent for another entity.