Posted by Woods LaFortune LLP on Jan 30, 2015

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...

Posted by Woods LaFortune LLP on Jan 28, 2015

The Canada-China FIPA entered into force on October 1, 2014, after long negotiations that spanned well over a decade. This agreement represents China’s 140th bilateral investment treaty and Canada’s 25th. The main purposes of a FIPA are to establish clear investment rules and measures to protect foreign investors against discriminatory or arbitrary government practices, to provide effective compensation in the event of an expropriation and to enhance the overall predictability of the policy framework governing foreign investments. The existence of a FIPA has proven useful in terms of promoting the Parties’ respective markets as a more attractive and stable destination for investment with clearly defined and enforceable rules. China’s continued growth as an economic superpower is significant for global investment and holds particular importance for Canadians, now that the Canada-China FIPA is in place. Foreign Direct Investment (FDI) has rapidly become an essential corporate strategy for Canadian companies competing in the global economy, allowing them to gain access to foreign markets and acquired new technologies among a panoply of other important benefits. Although the statistics show that inflows of FDI from China are increasing, they remain but a small portion of total FDI inflows into Canada, leaving much untapped  potential for expansion and growth. For investors and or/business owners in Canada and China, it is important to gain a basic understanding of the Canada-China FIPA’s implications and how they may affect your bottom line. The FIPA offers many substantive investor protections that can often be leveraged by investors and/or companies, whose investments may have been negatively affected by a Government measure, to secure proper compensation. For a preliminary overview of the Canada-China FIPA, the protections it offers to investors from both countries and its dispute settlement mechanisms (ISDS) see our presentation “The Canada-China FIPA and its Impact on Investment Relations” [slideshare id=43916866&doc=canada-chinainvestmentwlllp-150126143838-conversion-gate01] Here is some more text after the...

Posted by Woods LaFortune LLP on Jan 23, 2015

We began exploring Buy America provisions in the wake of the South Park Bridge Project in Colorado [https://www.wl-tradelaw.com/buy-america-and-the-integrated-north-american-economy/]. In that case, the U.S. Government ultimately decided not to require that Canadian steel used in the Bridge Project be removed. However, the Canadian Government faced mounting pressure to implement reciprocal local content restrictions to retaliate against Buy American provisions. These desired restrictions would effectively ban the use of foreign products and materials in any major federal infrastructure projects. In November 2014, the U.S. again attempted to apply Buy America restrictions, but this time to a project on Canadian soil, at the Port of Prince Rupert in British Columbia [https://www.wl-tradelaw.com/buy-america-affecting-projects-in-canada/].  In response, the Canadian Government issued an Order under the Foreign Extraterritorial Measures Act (FEMA) to counter the application of the Buy America provisions to the Port of Prince Rupert Project, valued at $15 million [https://www.wl-tradelaw.com/canada-u-s-cuba-the-spirit-of-free-trade-and-building-ports-part-1/]. This order effectively prohibits compliance with the Buy America requirements in connection with this particular project and means that bidders cannot agree to use only U.S.-made iron and steel. On January 22, 2015, the Government of Alaska cancelled bids for the Port of Prince Rupert Project “for the time being”, likely to avoid the implications of a trade dispute with Canada. The Alaskan Government stated that regular operations would be maintained at the facility until a proper solution can be found. Suggested courses of action have included Alaska seeking a waiver from the U.S. Federal Government of the Buy America provisions, as well as having the State directly fund the project, none of which have proved acceptable or feasible to Alaska thus far. The State of Alaska’s Governor’s Office has suggested that they are hoping to re-engage in the late fall. The Government of Canada’s response to this potential trade dispute has been widely applauded by Canadian steel industry advocates as a strong showing of leadership in upholding the spirit of free trade. Minister of International Trade, Ed Fast, stated that the application of Buy America on Canadian soil was completely unacceptable and an “affront to Canadian sovereignty” and that “Buy America provisions deny both countries’ companies and communities the clear benefits that arise from...