On October 9, 2007 Jim Prentice, Minister of Industry, announced that, this fall, the Government of Canada will examine the need for guidelines on takeovers by foreign state-owned enterprises (SOEs). The Government also will carefully consider the creation of an explicit national security test that will be applied to foreign investment.

Effect on Existing and Unannounced Transactions

The Minister was sensitive to suggestions in the media that recent acquisition activity by the Abu Dhabi national energy company (TAQA) had prompted his remarks. He stated that transactions “already in train” and “already in the works” will proceed under the current rules and regulations. However, the scope of this statement is unclear. At the very least, it should mean that a transaction which already has been announced and submitted to the Investment Review Division of Industry Canada will be reviewed under existing law and policy. Assurances to this effect were provided by the Prime Minister last week. But, the situation is much less clear for transactions which may be announced (but not yet submitted for review) before any changes are implemented. It is also unclear whether transactions which would otherwise not be reviewable under the Investment Canada Act will be subject to new rules for SOEs and national security.


The Minister’s speech brings forward one of the tasks of the Competition Policy Review Panel which was struck in July 2007. One of the Panel’s mandates is to study the treatment of SOEs and the need for a national security review clause. The Minister’s speech elaborates on a policy statement made in November 2006 which announced a review of Canada’s investment policy framework. The speech also builds on Bill C-59. That Bill was introduced by the prior government in June 2005 to enable a review of any investment where there are “reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security.” This bill never became law. (See Osler Update:Canada Proposes Amendments to its Foreign Investment Review Laws to Allow for the Review of Transactions on National Security Grounds.

Focus of Consideration

The Minister stated that there is “no inherent presumption” against SOEs. The Minister further stated that the “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.” The focus of the Government will be on ensuring that SOEs operate “under the same standards as any other commercial enterprise operating in Canada.” In particular, these standards include “transparency, good governance practices and whether they [SOEs] operate according to free market principles.” The announcement leaves open what types of entities will be considered SOEs and what might be required to satisfy commercial operating standards.

The Minister cited the lack of a national security test as “an oversight that should be addressed.” Emphasizing that other countries – including Australia, Germany, Japan, the United Kingdom, China and the United States – limit foreign investment in certain sectors of the economy, the Minister committed to considering the implementation of an explicit national security test in Canada. The Minister noted that such consideration would involve a review of similar provisions in other G8 countries and Canada’s NAFTA and WTO obligations. However, he provided no further guidance.


Stressing that “Canada is open for business, but it’s not for sale,” the Minister’s announcement puts both SOEs and investors who may raise security issues on notice that future investment in Canada will be subject to increased scrutiny.