Statement Regarding Investment by Foreign State-Owned Enterprises
Our Government has a long-standing reputation for welcoming foreign investment. Canada has a broad framework in place to promote trade and investment, while at the same time advancing Canadian interests.
In response to increased levels of global foreign SOE investment, in 2007 the Government released guidelines that outline some of the key considerations the Minister of Industry accounts for when reviewing foreign investments made by SOEs to determine if they are likely to be of net benefit to Canada. The considerations focus on concerns that foreign SOEs could present certain risks. First, foreign SOEs are, although to varying degrees, inherently susceptible to foreign government influence that may be inconsistent with Canadian national industrial and economic objectives. Second, SOE acquisitions of Canadian businesses may also have adverse effects on the efficiency, productivity and competitiveness of those companies, which may have negative effects on the Canadian economy in the longer term. The continued growth of foreign SOE transactions, with a particular increase in acquisitions of control of Canadian businesses, suggests that further clarification would be useful for the marketplace.
For these reasons, the Government is clarifying how it applies the Investment Canada Act. The Canadian oil sands are of global importance and immense value to the future economic prosperity of all Canadians. While the vast majority of global energy deposits are state-controlled, Canada's oil sands are primarily owned by innovative private sector businesses. If the oil sands are to continue to develop to the benefit of all Canadians, the role of private sector companies must be reinforced.
For these reasons, while the Government welcomes foreign investment, it is clarifying how it applies the Investment Canada Act (ICA) to foreign SOE investment in the Canadian oil sands, and the broader Canadian economy. Under the ICA, the burden of proof is on foreign investors to convince the Minister that the investment is likely to be of net benefit to Canada. For the purposes of evaluating proposed investments by foreign SOEs, Section 20 of the ICA and supporting Guidelines require that the investor satisfies the Minister of the investment's commercial orientation; freedom from political influence; adherence to Canadian laws, standards and practices that promote sound corporate governance and transparency; and positive contributions to the productivity and industrial efficiency of the Canadian business.
Each case will be examined on its own merits; however, given the inherent risks posed by foreign SOE acquisitions in the Canadian oil sands the Minister of Industry will find the acquisition of control of a Canadian oil sands business by a foreign SOE to be net benefit to Canada on an exceptional basis only.
In applying the ICA, the Minister of Industry will also continue to carefully monitor SOE transactions throughout the Canadian economy to determine whether they are likely of net benefit to Canada. The Minister of Industry will closely examine the degree of control or influence an SOE would likely exert on the Canadian business that is being acquired; the degree of control or influence an SOE 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 SOE acquiring the Canadian business. Where due to a high concentration of ownership a small number of acquisitions of control by SOEs could undermine the private sector orientation of an industry, and consequently subject an industrial sector to an inordinate amount of foreign state influence, the Government will act to safeguard Canadian interests.
Also consistent with the above, the Government intends to liberalize the review threshold under the Investment Canada Act to $1 billion in enterprise value over four years only for private sector investors. The review threshold for foreign SOEs will remain at $330 million in asset value. This will mean that the Government will retain its current authorities to assess the net benefit of foreign SOE transactions in the future.
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