OTTAWA, June 20, 2005 -- The Honourable David L. Emerson, Minister of Industry, today announced that the Government of Canada is introducing legislation to update Canada's foreign investment legislation. In this respect, the amendments will bring the Act in line with legislation in other G8 countries.
The amendments to the Investment Canada Act will, if enacted by Parliament, enable the government to review foreign investments in those rare instances where they might compromise Canada's national security.
"Canada has opened its doors to trade and investment, and we have benefited greatly," said Minister Emerson. "We continue to encourage and welcome foreign investment and its benefits. This is an update of our security system, not a change in our investment policy."
The proposed measure is consistent with Canada's commitments under the North American Free Trade Agreement and the World Trade Organization. The measure is similar in purpose to legislation already adopted by Canada's major trading partners, such as the United States, Germany and Japan, as well as other industrialized nations, which permits screening of foreign investments for reasons of national security.
"We expect these reviews will be rare, as existing tools are generally adequate in addressing potential national security concerns," added Minister Emerson. "However, we want to ensure that, should the need arise, we will have an appropriate mechanism under the revised legislation."
With these amendments in place, the Minister could recommend and carry out foreign investment reviews for security purposes when such reviews are deemed necessary by the Governor in Council. Upon conclusion of a review, the Governor in Council could order follow-up action, including modifying or disallowing the investment.
The current legislation requires the government to examine all foreign acquisitions of Canadian companies with assets above a threshold ($250 million, in most cases) to ensure they would be of net benefit to Canada.
Under the new legislation, investment review for national security purposes could be conducted for transactions of any asset size.
For more information, please contact:
Christiane Fox
Office of the Honourable David L. Emerson
Minister of Industry
(613) 995-9001
Media Relations
Industry Canada
(613) 943-2502
Backgrounder
Investment Canada Act
The Investment Canada Act (ICA) was established "to encourage investment in Canada ... that contributes to economic growth and ... to provide for the review of significant investments in Canada by non-Canadians in order to ensure such benefit to Canada." It came into force on June 30, 1985.
The ICA provides that the government may review certain investments by non-Canadians to determine whether they are of net benefit to Canada and that, in other cases, a notification must be filed (with the Director of Investments, a federal official who supports the Minister responsible for the review). Of the many hundreds of investments made each year, only about 40 are reviewable.
The ICA distinguishes between investments in cultural businesses and other investments. Since June 1999, the Minister of Canadian Heritage has been responsible for the notification and review of investments in cultural businesses. The Minister of Industry is responsible for all other investments and for general administration of the ICA.
A business that, in the opinion of the Governor in Council, is related to Canada's cultural heritage or national identity, may, on the recommendation of the Minister of Canadian Heritage, be reviewable regardless of its asset value. Otherwise, "cultural" investments to be reviewed by the Minister of Canadian Heritage must meet or exceed specific asset thresholds specified for "economic" reviews in specified sensitive sectors.
To be reviewable by the Minister of Industry, the asset value of the Canadian business must exceed an established threshold and be outside the purview of the Minister of Heritage. The threshold for direct acquisitions by World Trade Organization (WTO) members is currently $250 million in assets of the Canadian business. Indirect acquisitions by WTO members are not reviewable. A lower threshold ($5 million for direct acquisitions and $50 million for indirect acquisitions) applies for certain sensitive sectors (i.e. uranium production, certain financial services, transportation services), or where both the buyer and seller are not from countries or entities that are members of the WTO.
In the course of a review, the Minister must determine whether the investment will likely be of net benefit to Canada. In considering net benefit, the Minister must consider economic factors detailed in the legislation. These include the effect of the investment on domestic competition; on Canada's ability to compete in world markets; on the level and nature of economic activity, productivity, industrial efficiency and product innovation in Canada; on the degree and significance of participation by Canadians; and on the compatibility of the investment with national and provincial economic and industrial policies.
If the Minister finds that the investment is not of net benefit to Canada, and if a restructuring or the provision of undertakings is not sufficient to render it of net benefit to Canada, the investor may not implement it or may be required to divest control of the business if the investment has already been implemented. If a decision is not reached by a statutory time limit or an agreed extension of that time limit, the investment is deemed to be approved.
Day-to-day administration is carried out in each department under the direction of the Director of Investments by a Deputy Director of Investments. Investors demonstrate net benefit to Canada by detailing in confidence their plans for the Canadian business. Frequently, formal undertakings are negotiated with the investor in key areas. Provinces in which the Canadian business has significant activity and federal government departments with policy responsibilities for the industry involved are consulted. Officials recommend whether proposed investments should be allowed to proceed and the respective Minister makes the final decision.
Summary of the Bill
Amendments to the Investment Canada Act
The Bill amends the Investment Canada Act (ICA) to provide for review of foreign investments in Canada that might compromise Canada's national security, and for the government to take appropriate measures where necessary in light of those reviews. These powers are expected to be used rarely, as existing tools are generally adequate in addressing national security concerns. For example, most investments currently subject to the Bank Act are already effectively protected and will not be subject to these provisions.
The ICA -- Canada's principal and general legislation dealing with foreign investment -- currently provides for review of large foreign investments (by the Minister of Industry) and of foreign investments in cultural businesses (by the Minister of Canadian Heritage), to ensure they provide a net benefit to Canada.
The Bill would provide new powers to review foreign investments that might compromise Canada's national security, independent of existing reviews and not subject to sectoral or asset value thresholds. These reviews would be authorized by the Governor in Council (GIC) on recommendation of the Minister of Industry, who would carry them out in consultation with others, as necessary. On completion of the review, the GIC could order further action, including modifying or disallowing the investment.
Vesting these decision powers with the GIC will reinforce that decisions taken under this new part are guided by a focus on national security, without constraining the Minister of Industry or the Minister of Canadian Heritage in carrying out other review activities under the Act.
