A number of commentators have noted that Canadian restrictions on foreign investments may in fact be hampering Canada’s growth. It would appear that the federal government agrees, and plans to take action accordingly.
The Federal Minister of Finance released the Advantage Canada policy paper in November 2006. Among the policies and plans enunciated by the Minister of Finance in Advantage Canada is one entitled ‘Freeing Business to Grow and Succeed.’
Under this heading, the announced policy is to be open to trade and foreign investment so that 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.
The policy paper notes that policy restrictions on foreign investment in Canada have contributed to our economy’s relative decline in foreign direct investment flows. (According to the OECD, Canada has the highest level of explicit restrictions on foreign-equity ownership in the G7 — primarily in the transportation and telecommunications sectors.)
In addition, it states that foreign investment restrictions include both screening procedures under the Investment Canada Act and business operations restrictions, such as restrictions on the length of stay for non-resident executives. Residency requirements for corporate directors may also impede global investment.
These measures can limit opportunities for Canadian firms competing in a global economy to attract expertise, strengthen their networks, and pursue new business opportunities. These policies may contribute to perceptions that Canada is not fully open to foreign investment, and these perceptions matter. The paper notes that a survey of global executives ranked Canada as the least attractive country to invest in among the G7.
As a result, the government is proposing to work to increase foreign investment in Canada by, among other things, reviewing its foreign investment policy framework, including the Investment Canada Act. The aim is to maximize the benefits of foreign investment for Canadians while retaining Canada’s ability to protect national interests.
Time will tell whether a review of Canada’s foreign investment policy will result in significant amendments to the Investment Canada Act and whether the currently protected ‘national interests,’ including cultural businesses, transportation, telecommunications, and certain natural resources, will continue to exist.
Much will also depend on whether the conservative government is re-elected and is given a significant mandate. Given the past history of foreign investment restrictions in Canada, it would be a significant turning point if the present government reforms the Investment Canada Act to eliminate or significantly reduce restrictions on foreign investors in Canada.
For the past 30 years, successive Canadian governments have protected what are perceived to be key ‘national interests.’ It will be interesting, particularly given the growing importance — and clout — of certain foreign state-owned acquirors, to see whether the current government intends now to reduce barriers and open these industries more to market forces.
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