State-Owned Enterprises

In 2006, as part of its long-term economic plan, Advantage Canada, our Government raised concerns about acquisitions of control by state-owned enterprises (SOEs) with non-commercial objectives and unclear corporate governance.

Recognizing the growing importance of investments by SOEs internationally, the Minister of Industry introduced Guidelines on State-owned Enterprises under the Investment Canada Act (Act) in 2007. The Guidelines clarify that governance and commercial orientation are taken into account by the Minister of Industry when reviewing investments by SOEs.

The global investment landscape has continued to evolve. Transactions involving SOEs are increasing significantly. In Canada, SOE investment grew from a marginal percentage to over 20 percent of the total asset value of foreign investment subject to the Act from 2008 to 2011. In addition, the nature of these investments has changed, with greater emphasis on the acquisition of control of Canadian businesses and greater interest in the resource sector.

In response to this changing landscape, the government needs to be clear and transparent in its oversight and application of the Act. This is crucial to ensuring a stable and predictable environment for both foreign investors and domestic companies, and is essential to cementing Canada's reputation as a world-leading investment destination.

The Government has updated the definition of an SOE to include, in addition to entities that are owned by a foreign government, entities that are influenced directly or indirectly by a foreign government.

The Government is therefore clarifying how investments by foreign SOEs are evaluated.

As part of the foreign investment review process, the burden of proof is on foreign investors to satisfy the Minister that their investment is likely to be of net benefit to Canada. The investor will need to demonstrate that:

  • The investment is commercially oriented;
  • Freedom from political influence;
  • Canadian laws will be adhered to;
  • Standards and practices will be implemented to promote sound corporate governance and transparency; and
  • Positive contributions will be made to the productivity and industrial efficiency of the Canadian business.

In cases where investments by foreign SOEs would result in the acquisition of control of a Canadian oil sands business, they will only be found to be of net benefit on an exceptional basis. The Minister will also continue to carefully monitor SOE transactions throughout the Canadian economy and will closely examine the degree of control or influence a state-owned enterprise would likely exert on the Canadian business that is being acquired; the degree of control or influence a state-owned enterprise would likely exert on the industry in which the Canadian business operates; and the extent to which a foreign state is likely to exercise control or influence over the state-owned enterprise acquiring the Canadian business.

This clarification does not change Canada's approach to foreign investment. Canada continues to welcome foreign investment that benefits our economy. Investments to acquire minority interests proposed by foreign SOEs, including joint ventures, continue to be welcome in the development of Canada's economy.

In addition, the Guidelines are being revised to clarify how the Act applies when an investment under review is being proposed by an investor that is owned, controlled or influenced by a foreign state. Specifically, these changes:

  • Address inherent concerns regarding foreign state influence, transparency and non-commercial activities;
  • Stress that the burden of proof is on foreign investors to demonstrate that proposed investments will likely be of net benefit to Canada;
  • Emphasize the importance of free market principles, and the impact of the proposed investment on employment, production and capital levels in Canada;
  • Highlight the consideration of productivity and industrial efficiency; and
  • Revise text on undertakings to indicate they may "supplement" the investor's plans.

These changes underscore the importance of promoting commercially based foreign investment for our resource sector and our economy as a whole.