There have been two recent developments regarding the government’s intentions to review Canada’s foreign investment policies and competition laws.
The first is the newly released guidelines concerning the regulatory review of investments in Canada by foreign state-owned enterprises (“SOEs”) under the Investment Canada Act (the “ICA”) (“SOE Guidelines”), while the second involves the publication of a discussion paper by the federally-appointed Competition Policy Review Panel which is conducting a more general review of Canada’s investment and competition policies.
The SOE Guidelines released on December 7, 2007 do not create a new review process specifically for foreign SOEs, but provide greater guidance on the government’s treatment of investments by foreign SOEs under the existing foreign investment review process. The SOE Guidelines apply to “an enterprise that is owned or controlled directly or indirectly by a foreign government” and enumerate additional factors for the Minister of Industry to consider in his or her review of whether an investment by a non-Canadian will be of “net benefit to Canada”, including:
- The governance and commercial orientation of SOEs
- the SOE’s corporate governance (such as “whether the non-Canadian adheres to Canadian standards of corporate governance”)
- reporting structure
- compliance with “Canadian laws and practices”
- The extent to which the non-Canadian is owned or controlled by a state
- Whether a Canadian business to be acquired by a non-Canadian that is an SOE will continue to have the ability to operate on a commercial basis.
These factors may have already been used implicitly by the Minister to evaluate investments by SOEs, but the new guidelines provide greater transparency regarding the factors to be considered by the Minister in his or her assessment. Furthermore, the SOE Guidelines also offer examples of the types of binding undertakings that SOEs may be required to provide. The government has yet to release the promised guidelines on national security.
Turning to the Competition Policy Review Panel (the “Panel”), it was created in July 2007 to conduct a more general review of Canada’s competition and foreign investment legislation. On October 30, 2007, the Panel released a discussion paper which examines potential changes to competition policy and investment policy and related amendments to the Competition Act and the Investment Canada Act, foreign investment by Canadians abroad, and Canada as a destination for investment. The Panel’s mandate is not protectionist, and the Panel observes that “the goal for Canada should be to make this country the location of choice for the higher-value elements of these global value chains—whether led by Canadian firms or as part of others’ supply chains.”
With respect to foreign investment, the Panel will focus on potential amendments to the ICA and the specific foreign ownership restrictions applicable in certain sectors of the Canadian economy. The Panel notes that the ICA process has been criticized for a lack of transparency, and there have also been discussions of its fairness, particularly its lack of reciprocity where foreign firms may acquire Canadian businesses when the corresponding opposite transaction could not take place. As regards the Competition Act, the Panel will consider Canada’s approach to conspiracies, efficiencies and market studies and the evolving role of the Competition Bureau in the context of globalization. The Panel will also consider the barriers that Canadian firms face in investing abroad, how the Canadian government could promote Canadian direct investment abroad, and how to make Canada a more attractive investment destination.
The Panel is due to publicly report on its findings in June 2008.