Recent changes to the Investment Canada Act allow the Canadian government to review foreign investments on national security grounds, regardless of the size of the target or of the investment. Accordingly, foreign buyers potentially face a new hurdle when investing in Canada.
“National security” is not defined, but we believe that an appropriate starting point will be whether the Canadian business has strategic or military importance. And although there is limited experience with the new process, we can identify three emerging trends, each of which tends to limit the scope of a possible review of foreign investment on national security grounds:
- Investments in natural resources will not generally trigger national security reviews. In 2009, neither China Investment Corporation’s minority investment in Teck Resources nor China-based Jilin Jien Nickel Industry’s acquisition of Canadian Royalties triggered a national security review. However, transactions involving the acquisition of strategic natural resources, such as uranium, may well trigger a review.
- “National security” is not intended to encompass “national interest.” Despite intense media coverage, political scrutiny and popular opinion that Ericsson’s acquisition of Nortel’s North American wireless business was not in Canada’s national interest, the government declined to review the transaction, a positive early indication that the national security process will not become politicized.
- Enforcement staff will not presume that an investment by a state-owned enterprise or sovereign wealth fund will give rise to national security issues. The United Arab Emirates’ International Petroleum Investment Corporation’s acquisition of NOVA Chemicals Corporation in 2009 did not involve a national security review. This result supports the view that the process will not be triggered solely because the investor is a state-owned enterprise or sovereign wealth fund.