Things to consider during COVID-19 review of Investment Canada Act

The CBA’s Competition Law Section is weighing in on Parliament’s review of the Investment Canada Act. It appeared before the House of Commons Committee on Industry, Science and Technology on June 18 to present its conclusions.

In the context of the economic upheaval wrought by the COVID-19 pandemic the Committee is studying a number of issues, including whether the Act’s current valuation thresholds are adequate to trigger a net benefit review given the potential extreme devaluation of companies in strategic industries, and whether Canada should place a temporary moratorium on acquisitions from state-owned enterprises of authoritarian countries.

The CBA Sections primary conclusions are that there’s no need to adjust the ICA’s national security regime because it already gives the government tremendous powers; and that the government may not be able to lower the thresholds for a net benefit review because of its international treaty obligations.

The CBA Section says that with few exceptions any foreign investor must file under the ICA whenever it acquires control of an existing Canadian business. In 2018/19, the last year for which statistics are available, there were 962 filings. Of that number, nine were subject to a net benefit review because they exceeded the thresholds. Another nine were subject to a national security notice.

In its submission the Section details some of the background behind the setting of the current level of thresholds and the impact those thresholds have had on government reviews.

“As the government implemented even higher net benefit thresholds, it did so knowing that it retained national security jurisdiction over any investment insensitive and critical sectors that would no longer be subject to net benefit review, such that if an investment as particularly sensitive or strategic it could elect to review it under the national security provision. As such, the government had a degree of ‘protection’ when implementing the higher net benefit thresholds, via the national security review regime.”

Meanwhile, the Section notes that some of those increases to net benefit thresholds have also been enshrined in Canada’s international trade agreements, which “appears to limit its ability to meaningfully reduce the net benefit thresholds.” It suggests the Committee confirm this with international trade experts.

While that means that Canada’s ability to respond to a devaluation of companies because of the higher net benefit thresholds may be limited, it could respond under national security provisions.

There is no consensus among Section members about whether the Committee should impose a moratorium policy on investments from certain countries or in certain sectors.

“At a minimum, great care would be required to clearly define sectors or countries where different thresholds or some sort of temporary ‘moratorium’ would apply, to avoid ambiguities or create uncertainty on the application of the ICA. Otherwise, a chilling effect on entirely benign investments could occur, precisely at a time when Canada is facing severe economic challenges.”

Debbie Salzberger of McCarthy Tetrault LLP, Chair of the Section’s Foreign Investment Review Committee, and Vice Chair Michael Kilby of Stikeman Elliott LLP appeared before the Industry Committee.