New Foreign Investment Policy Signals Canadian Strategic Retreat From Globalism



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With Canada's largest trading partner taking an "America first" approach to trade even prior to the COVID-19 crisis, can "Canada first" thinking be far behind
Canada International Law
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"There's nothing like a global pandemic to give globalism a bad name."

Susan Delacourt, National Columnist, The Star

With Canada's largest trading partner taking an "America first" approach to trade even prior to the COVID-19 crisis, can "Canada first" thinking be far behind, especially in light of Canada's and other nations' COVID-19 experiences? PPE product hijackings, foreign government threatened restrictions on the export of emergency health supplies, medicine shortages and international border closures, all serve to highlight possible weaknesses in not having domestic sources of supply of critical goods and services.

Canada's recent announcement regarding enhanced scrutiny of certain foreign investments under the Investment Canada Act (see our previous posts of April 22 and April 20, 2020) suggests that the movement away from globalism is already taking place.

Other governments such as Spain and Australia have previously announced changes to their own foreign investment policies.

For public order, public health and public security reasons, Spain recently introduced a new screening mechanism for certain investments made by non-EU and non-EFTA residents. Foreign direct investments in the following business sectors are now subject to the new screening mechanism:

a) critical infrastructure, both physical and virtual, including health, energy, transport, communications, aerospace, defence, water, and electoral and financial infrastructure, as well as real estate crucial for the use of such infrastructure

b) critical technologies including semiconductors, aerospace, artificial intelligence, robotics, defence, cybersecurity, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies

c) supply of critical inputs as well as food security

d) sectors with access to sensitive information, including personal data

e) media

Additionally, foreign direct investments by investors directly or indirectly controlled by non-EU/EFTA governments are subject to Spain's new screening mechanism, regardless of the business of the target.

Australia reduced the threshold amounts which apply in determining whether particular foreign investments are subject to Australia's foreign investment framework to $0 and the decision period for investment reviews involving significant transactions has been extended by up to 6 months. The additional government oversight apparently is directed at ensuring investments are not contrary to the national interest (including Australia's economic and national security) given the increased opportunities to invest in distressed assets.  The changes impact all foreign investors, regardless of their country of origin.

NATO Secretary General Jens Stoltenberg recently warned that "[s]ome may seek to use the economic downturn as an opening to invest in our critical industries and infrastructure, which in turn may affect our long-term security and our ability to deal with the next crisis when it comes".

Canada's recently announced foreign investment review policy change suggests that Canada has, like a number of other Western nations, taken these concerns to heart and that we will see a further strategic shift away from globalism when it comes to foreign investments in Canada's critical infrastructure.

Public Safety Minister, Bill Blair in a recent news release identified ten critical infrastructure sectors which are considered essential to the health, safety, security and economic well-being of Canadians and the effective functioning of government.

Not surprisingly given recent events, the Health Sector is listed as one of those critical infrastructure sectors and, within that sector, manufacturers and distributors of, among other things, medical equipment, medical devices, personal protective equipment (PPE), medical gases, medical isotopes, pharmaceuticals and other health products, blood and blood products, vaccines, testing materials, laboratory supplies, cleaning, sanitizing, disinfecting or sterilization supplies, tissue and paper towel products, and safety gear/clothing were specifically mentioned as being of importance to Canadian security.

Future foreign investment reviews and other governmental decisions will likely increasingly be viewed using a national security lens.  As such, non-Canadians, whether in connection with transaction planning or seeking government contracts, will need to anticipate and address at an early stage potential national security concerns that the Canadian government may have with those proposals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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