is open for business, but it's not for sale.” --Jim
Prentice, Minister of Industry, Government of Canada
1985, the Investment Canada Act
(“ICA”) was enacted, replacing the Foreign
Investment Review Act.
The enactment of the ICA
ushered in a period, which continues to this day, in which foreign investment
has been welcomed in all but a few protected sectors. Indeed, it may be that no
acquisition has ever been formally rejected under the ICA. Even acknowledging
that some investments may have been informally discouraged by the Minister of
Industry and/or Investment Review Division of the federal Department of
Industry, which administers the legislation except in the cultural arena, this
is a remarkable record.
The welcome mat thus far
provided under the ICA, coupled with global consolidation in natural resources
industries, and hungry private equity, resulted in record numbers of foreign
takeovers of Canadian business icons in 2006 and 2007. Entities such as Alcan,
Inco, Falconbridge, Dofasco, Four Seasons, Hudson’s Bay Company and others have
been acquired. This has, predictably, given rise to a renewal of the debate as
to the merits and appropriate limits of foreign investment in Canada, and
whether the ICA, which provides for the review of acquisitions of large
Canadian businesses by non-Canadians according to a “net benefit to Canada”
test, is adequate.
Also, transactions such as
Abu Dhabi-controlled TAQA’s bid for PrimeWest Energy Trust have revived the
debate respecting the role of foreign state-owned enterprises in Canada. And,
since 9/11, issues of national security have also been debated. Indeed, in 2005
Bill C-59 was introduced to amend the ICA to provide for the review of foreign
acquisitions of Canadian businesses based on national security grounds. While
the bill never became law due to competing priorities and an intervening
election that resulted in a change of government, the concerns that led to the
introduction of the bill remain.
In July 2007, Canada’s new Conservative Government appointed a Competition Policy Review Panel
(www.competitionreview.ca) to conduct a review of Canada’s competition and
foreign investment laws. The terms of reference of the panel are, in part, to
examine whether the ICA’s net benefit test is designed appropriately to capture
the range of benefits that are crucial to Canada’s economic success. The
Panel’s report to the Minister is expected in June 2008.
Meanwhile the Conservative
Government, in part in response to the growing clamour for action, by Canadian
nationalists and others, has promised new legislation in early 2008 to deal
with proposed acquisitions by foreign state-owned enterprises and national
security concerns. Specifically, on October 9, 2007, Jim Prentice, the federal
Minister of Industry, said in a speech to the Vancouver Board of Trade:
Our government's concern is not with the ownership
of the foreign capital being invested in this country, but rather with how that
capital behaves in the marketplace. Our interest is ensuring that state-owned
enterprises in Canada are operating under the same standards as any other
commercial enterprise operating in Canada, including those related to
transparency, good governance practices and whether they operate according to
free market principles.
There is no inherent presumption against these
State-owned enterprises are welcome to invest in our
country, but …it is important that we protect Canada and we protect Canada's
assets in certain circumstances where foreign state-controlled interests might
Does this mean that we are less-than-committed to
open markets? Of course not. “Free markets” do not mean a free pass. Canada is
open for business, but it's not for sale. And like other countries around the
world, it's important that we have safeguards in place to protect our
In the same speech,
Minister Prentice asserted the right of Canada to review and block transactions
in the name of national security, bringing Canada into line with a host of
other countries including Australia, Germany, Japan, China and the United
Summarized, the position of
the Government is as follows:
Canada remains open to foreign investment.
The ICA is working well, but it needs to be updated
to incorporate a national security test and, likely, to deal with foreign
The ICA will continue to apply its net benefit test,
which has resulted in the approval of virtually every proposed acquisition, albeit
frequently subject to negotiated undertakings.
Consideration will be given to establishing
guidelines on acquisitions by state-owned enterprises.
Transactions that are already “in process” will
proceed under the terms of the current legislation.
Of course, it is possible
that the Competition Policy Review Panel will recommend even further changes.
The Canadian Competition Bureau issued a template document for use as a form of Consent Agreement, to be filed with the Competition Tribunal to resolve concerns the Bureau may have with proposed mergers.
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