Foreign direct investment (FDI) is undoubtedly a vital element to the development and future growth of the Canadian economy. Over the last several years, the Government of Canada has taken active steps to encourage this advancement and has worked to improve Canada’s investment regime to make it a more attractive investment destination for foreign investors. However, large Chinese investments into the Canadian oil and gas industry over the last few years have led to amendments to the Investment Canada Act, which brought about new regulations pertaining to FDI that address policy concerns about the nature of investments made by State-Owned Enterprises (SOE). These amendments have created new barriers to SOE’s investments into Canada and raise a potentially serious concern as to Canada’s ability to attract FDI into the future.
In the wake of CNOOC’s acquisition of Nexen Inc. and Petrona’s acquisition of Progress Energy in 2012, the Government amended the Investment Canada Act (ICA) in an attempt to strike a balance between its desire to promote FDI in Canada, and concerns about allowing a foreign SOE to acquire control of large Canadian players in key sectors, like the oil sands. The main concern has been that SOEs may be influenced by a foreign government’s political agenda and that this political agenda may conflict with Canadian industrial and economic objectives. The Amendments, which became effective in June 2013, significantly expand the Government’s power to declare that a foreign investing entity is an SOE and consequently, to declare that an otherwise non-reviewable acquisition by an SOE is subject to government review.
While it was hoped that the Government would clarify the treatment of foreign SOEs investing in Canada, the language of the Amendments have created some uncertainty as to how and when SOE investments will be reviewable. Specifically, it is unclear what constitutes “indirect government influence” for the purposes of defining an SOE under the ICA and what qualifies as an “exceptional basis” for approving SOE investments. The newly expanded definition of SOE, to include not just an entity directly or indirectly owned and controlled by a foreign government, but one that is directly or indirectly under foreign government influence, gives the Government greater discretion to label a foreign investor an SOE.
For more detail on SOE and their treatment in Canada see our presentation below –
[slideshare id=43917391&doc=state-ownedenterprisestheinvestmentcanadaactwlllp-150126145123-conversion-gate02]
