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Government of Canada Releases Foreign Investment Review Update to Investment Canada Act

On March 24, 2021, Canada’s Minister of Innovation, Science, and Industry, François-Philippe Champagne, announced updates to the Guidelines on the National Security Review of Investments, which fall under section 38 of the Investment Canada Act (ICA). This update provides significant textual additions and clarity to the guidelines, which were last modified in 2016. 

The guidelines now include: 

  • Paragraph 7: A new guideline pertaining to investments by state-owned enterprises, which states that “[t]he Government will subject all foreign investments by state-owned investors, or private investors assessed as being closely tied to or subject to direction from foreign governments, to enhanced scrutiny under Part IV.1, regardless of the value of the investment.” 
    • Part IV.1 refers to the section of the Investment Canada Act that outlines the national security process
  • Paragraph 8 (previously Paragraph 6): The addition of a more comprehensive list of factors that the relevant Minister and/or Governor in Council will use to make a national security determination under the ICA. 
  • The addition of a line, in reference to the above-mentioned determining factors, states “[i]nvestments that do not possess any of the above-listed characteristics may nevertheless present national security concerns where the investment would be injurious to Canada’s national security.”
  • The addition of an Annex (“ANNEX A – Sensitive Technology Areas”), a “non-exhaustive list of technology areas that may be considered sensitive for the purposes of review under the national security provisions of the Investment Canada Act.” 

Minister Champagne, along with Ministers Blair and Hajdu, also released a “Research Policy Statement” on the same day, calling on “members of the research community – including those in government, academia, and the private sector – to take extra precautions to protect the security of their research, intellectual property, and knowledge development.” 

This statement also notes that the government has asked members of the Government of Canada – Universities Working Group (which includes the U15 Group of Canadian Research Universities and Universities Canada, among others), to “develop specific risk guidelines to integrate national security considerations into the evaluation and funding of research partnerships.” 

The Government of Canada is seen as actively addressing national security concerns and perceived deficiencies related to foreign investment and sensitive academic research areas. The addition of paragraph seven – enhanced scrutiny directed towards firms deemed “state-owned investors, or private investors assessed as being closely tied to or subject to direction from foreign governments” – is a telling sign. There was previously no reference to state-owned enterprises in the national security review guidelines. This adds a layer of complication to the national security review process in the case of Chinese investment transactions. Director Emeritus of the China Institute Gordon Houlden has noted “that while many Chinese firms are de facto SOEs and do not operate independently from the Chinese government, it can be difficult to ascertain whether a given firm should be treated as a SOE.” Further, the guideline does not specifically outline what constitutes close ties and/or directives from a foreign government.

The inclusion of a more comprehensive list of relevant factors utilized by the Minister and/or Governor in Council to make a national security determination (in addition to the inclusion of a “sensitive technology areas” list) could be a welcome addition for foreign investors, including those from China. The CIUA previously noted that “outlin[ing] a list of “sensitive” economic areas could benefit both foreign investors and Canada” in a December 2020 occasional paper analyzing the Standing Committee on Industry, Science, and Technology (INDU)’s study of the Investment Canada Act. The paper states that “[a] defined list – with yearly reviews to add/clarify business areas that become, or will become sensitive – could be beneficial, if only to increase clarity and reduce ambiguity in what is a broad, subjective process.”

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