“Canada is open for business, but it's not for sale.”
--Jim Prentice, Minister of Industry, Government of Canada

In 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 firms. …

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 be involved.

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 interests.

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 States.

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 state-owned acquisitions.

  • 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.

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