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New Foreign Investment Restrictions – COVID-19 Uncertainty

Many businesses will suffer greatly from the economic slowdown caused by the COVID-19 pandemic. While many governments are supporting citizens and businesses through wealth transfers and stimulus packages, some are also beginning to show concern for the vulnerability of domestic business to “predatory foreign investors.” This is how the Canadian government has described potential risks to domestic businesses amid the COVID-19 crisis in the Policy Statement on Foreign Investment Review and COVID-19  released by Innovation, Science and Economic Development Canada.

The above mentioned policy statement outlines the government’s plan to more critically and broadly scrutinize all foreign investment in Canada during the COVID-19 crisis. In particular, the statement indicates that the government will scrutinize “investments of any value, controlling or non-controlling, In Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians.” This serves to expand scrutiny under the Investment Canada Act by removing the minimum valuation review threshold and controlling interest stipulations in industries related to public health and critical goods and services, and though the government did not specify exactly which sectors were subject, they will likely be broadly interpreted by Innovation, Science and Economic Development Canada. The statement also makes special reference to national and economic security threats potentially stemming from “state-owned enterprises” motivated by “non-commercial imperatives,” and highlights the governments removal of minimum valuation review thresholds for all transactions involving a state-owned enterprise in any sector.

Though, notably, the U.S. has not expanded their foreign investment review process amid the COVID-19 crisis, Canada is not alone in taking such measures. Australia has adopted similar, though less severe protocols, and, nearly a month ago, the European Commission published guidelines for EU member states to more critically scrutinize foreign investment during this crisis. Spain, for example, has adopted a measure which requires government pre-approval for a range of deal types with foreign investors across a wide array of sectors. France’s government has taken an even more direct approach, indicating that they are prepared to buy controlling interest in or wholly nationalize companies in strategic sectors. Italy has not implemented as stringent crisis measures but is reportedly contemplating broadening the definition of “strategic sectors” to enhance their regulatory power.

Amid allegations that the US was trying to secure rights to potential coronavirus vaccines made by the German biotech company CureVac, these European developments are reflective of a broader concern for Europe’s position between a rising China and a less supportive United States. Moreover, while it is the COVID-19 crisis that is creating the vulnerabilities that Canada and others are aiming to address, broader burgeoning security concerns regarding foreign influence, irrespective of the health crisis, may be an external contributor to the political will in Canada and other western countries to create less hospitable foreign investment climates.

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