Industry Canada

Industry Canada

December 07, 2007 17:00 ET

CORRECTION FROM SOURCE: Government of Canada Clarifies Rules on Foreign Investment for State-Owned Enterprises

This document corrects and replaces the release sent earlier today at 2:56 PM (UPDATED CONTENT IN WEB LINK)

OTTAWA, ONTARIO--(Marketwire - Dec. 7, 2007) - The Honourable Jim Prentice, Minister of Industry, today issued Guidelines clarifying the application of the Investment Canada Act as it relates to foreign state-owned enterprises (SOEs) investing in Canada.

"Canada welcomes foreign investment and all of its benefits, such as creating jobs, spurring innovation and enhancing productivity," said Minister Prentice. "These Guidelines spell out what the government expects from foreign SOEs wishing to invest in Canada. We are providing potential SOE investors with clarification on how the existing Investment Canada Act will be applied."

The Investment Canada Act calls for major foreign investments that meet the threshold for review to be assessed by the Minister of Industry to ensure they provide a net benefit to Canada. Authority for the review and approval of foreign investment related to cultural industries resides with the Minister of Canadian Heritage. The Guidelines will also apply to these industries.

With this initiative, the government is delivering on a commitment from Advantage Canada to adopt a principle-based approach to address the concern that there may be rare occasions when foreign investments by SOEs might not benefit Canada.

"These Guidelines underscore that sound principles of corporate governance and commercial orientation are considered when reviewing investments by foreign SOEs. Another issue that our government will be carefully considering in the new year is how best to protect national security while promoting foreign investment in Canada," added Minister Prentice.

The Guidelines can be found at http://www.ic.gc.ca/epic/site/ica-lic.nsf/en/lk00064e.html#state-owned.

BACKGROUNDER

Guidelines for State-Owned Enterprises

In November 2006, the government released Advantage Canada, a long-term plan to improve Canada's economic prosperity. It stated Canada must "be open to trade and foreign investment so goods, services and technologies flow freely into Canada and Canadian firms have ready access to foreign markets to compete with the best in the world."

A study released on November 13, 2007 by Statistics Canada demonstrated the important role that foreign investment plays in Canada. It found that foreign companies operating in Canada have generated two thirds of the productivity growth over the past three decades, paid out higher wages and hired more white-collar workers in the key manufacturing sectors, and contributed more to research and development than their domestic counterparts.

Advantage Canada also identified a concern that there may be rare occasions where foreign investments by state-owned enterprises (SOEs) with non-commercial objectives and unclear corporate governance and reporting may not benefit Canadians. Advantage Canada called for a principle-based approach to address these situations.

On December 7, 2007, Minister Prentice issued Guidelines under the Investment Canada Act (ICA) to clarify factors for assessment of net benefit that are set forth in the Act, as they may apply to concerns about investments by foreign SOEs.

The ICA was established "to encourage investment in Canada...that contributes to economic growth and...to provide for the review of significant investments in Canada by non-Canadians in order to ensure such benefit to Canada." It came into force on June 30, 1985.

Under the ICA, the government generally may review investments by non-Canadians to determine if they are of net benefit to Canada if the investment meets the threshold for review, which in 2007 is $281 million for an investor from a WTO member-state; or if the investment qualifies for review under the cultural provisions of the Act, where lower thresholds apply. In the course of a review, the responsible Minister considers factors such as:

- the impact on the level and nature of economic activity in Canada

- participation by Canadians in the newly acquired business and the sector of which they are a part

- the impact on productivity, efficiency, technological development and innovation

- the impact on domestic competition

- compatibility with industrial, economic and cultural policies

- the impact on Canada's ability to compete globally

Proposed new investments that could result in ownership and control of Canadian cultural businesses by foreign investors are the responsibility of the Minister of Canadian Heritage under the Investment Canada Act. Such businesses include those involved in the publication, distribution or sale of books, magazines, periodicals, newspapers or music in print or machine readable form, as well as the production, distribution, sale or exhibition of film or video products or audio or video music recordings. Potential investments by foreign SOEs in these cultural industries are also subject to the Guidelines.

The Guidelines underscore that sound principles of corporate governance and commercial orientation are considered when reviewing investments by foreign SOEs. During such reviews, the Minister will apply existing ICA principles and will examine:

- the nature and extent of control by foreign government;

- the corporate governance, operating and reporting practices of the SOE, and;

- whether the acquired Canadian business retains the ability to operate on a commercial basis.

The Guidelines also provide an illustrative list of undertakings that SOEs may offer to demonstrate net benefit, such as appointment of Canadians to boards of directors, employing Canadians in senior management positions, incorporation of a company in Canada, or a listing of shares on a Canadian stock exchange. Appropriate monitoring will ensure compliance.

Since 1985, Industry Canada has received notification of 31 acquisitions by foreign SOEs, for a combined asset value of approximately $13.3 billion, or about 2 percent of Canada's total inward foreign direct investment (FDI) stock.

FDI is increasing worldwide, especially in emerging countries, many of which tend to invest primarily through large SOEs. FDI outflows from emerging countries grew on average by more than 20 percent per year over the last two years.

Another issue that needs to be addressed is how best to protect national security while promoting foreign investment in Canada. Unlike most of its trading partners, Canada does not have a mechanism to consider or modify foreign investments that may threaten Canada's national security. The government will be carefully considering how to review national security issues related to foreign investment in the new year.

To help ensure that Canada's broader investment regime is up-to-date and responsive to the changing conditions of a global economy, the Competition Policy Review Panel was formed to look at the Investment Canada Act and the Competition Act. The Panel will be delivering its recommendations in June 2008.

The Guidelines can be found at http://www.ic.gc.ca/epic/site/ica-lic.nsf/en/lk00064e.html#state-owned.

Contact Information

  • Office of the Honourable Jim Prentice
    Minister of Industry
    Deirdra McCracken
    Press Secretary
    613-995-9001
    or
    Industry Canada
    Media Relations
    613-943-2502
    or
    Office of the Honourable Jim Prentice
    Minister of Industry
    Bill Rodgers
    Director of Communications
    613-995-9001