Skip to content

Understanding Harper’s changes to the Investment Canada Act

Industry Minister Christian Paradis (right) with Hugo Miller of Bloomberg News at an economic summit in Toronto May 8.

Industry Minister Christian Paradis (right) with Hugo Miller of Bloomberg News at an economic summit in Toronto May 8.

(Updated June 6, 2:11 p.m. ET) At the end of May, Industry Minister Christian Paradis announced he would be changing regulations under the Investment Canada Act which affect the way foreign takeovers are reviewed (or not) by the federal government. Over the next five years, the Harper government will increase the threshold above which a foreign takover of a Canadian firm is reviewed from $330 million to $1 billion. It will also create a voluntary mediation option for the government as an alternative to litigation in the event a firm has failed to comply with any promises it makes when acquiring an approved Canadian investment.

According to CBC, “The changes will be done through regulation rather than presented in front of Parliament and studied in committee. There’s a 30-day public consultation period before they’re final. A news release from … Paradis’ office says the changes were first proposed in 2009 and adjusted based on consultations.”

The $1-billion threshold for triggering a review was a key recommendation of the 2008 Compete To Win report from the public-private Competition Policy Review Panel, which admits the perception that Canada is somehow closed to foreign direct investment is false. As the report points out, “Canada’s total stock of inbound FDI as a proportion of gross domestic product is relatively high among industrialized countries, being more than twice the level in the US and over 12 times the level in Japan.”

Unfortunately, to fix the perception of restrictions to investing in Canada (perpetuated by EU trade negotiators and politicians in the Canada-EU trade talks), Harper and Paradis will actually undermine the government’s ability to hold companies to their promises while not answering the question of when an investment is considered in Canada’s interest or not.

In response to Paradis’ announcement last month, NDP Industry Critic Hélène LeBlanc said, “We have seen a lot of foreign takeovers followed by lay-offs and broken promises,” referring to Caterpillar closing its Electro-Motive Diesel plant in London, Ontario. “We see that small- and medium-sized enterprises, quite often when they become attractive, will be bought by global companies that don’t have deep roots in the community and don’t have the same objectives as building communities, offering long-term jobs.”

Ken Lewenza, president of the Canadian Autoworkers union, concurred that the proposed changes are “a slap in the face to the former workers at Caterpillar’s Electro-Motive Diesel plant,” and that the situation “has been repeated across the country as a result of the already weak foreign investment rules currently in place.” Canadians have already painfully experienced the aftermath of takeovers of Inco, Falconbridge, Alcan and Stelco, he said.

Gus Van Harten, a law professor at Osgoode Hall Law School in Toronto, explains what the changes will mean in a May 30 op-ed in the Vancouver Province what the changes will mean. He says they will do nothing to attract new investment to Canada but will make it exceedingly difficult to make sure takeovers are in the best interests of workers or the communities in which they operate.

“By diluting the rules, the government opens the door to the wrong kind of foreign investment: that which buys Canadian businesses to raid assets and technology and to shutter competition,” writes Van Harten. “It creates an environment where more and more rapacious Caterpillars can eliminate Canadian production and devastate communities. Presumably the government will then throw up its hands – as it did in the Caterpillar case – and say it has no role to play.”

There are alternatives, he adds, pointing to countries like the U.S., Brazil, Europe and China that actually pay attention to foreign takovers.

“They take steps to block foreign raiding of their corporate assets and strategic resources,” he writes. “Canada supports the emergence of Canadian companies through its health, education, and research policies, for example. Yet when our companies prove themselves competitive, the government serves them up for foreign buyers.”

The CAW suggested several improvements to the Investment Canada Act earlier this year but claims they have been ignored in the latest announcement. These included the reintroduction of stricter performance requirements such as technology transfer, minimum employment and training commitments, and targets for investment and innovation activity, which trade deals like NAFTA make difficult to impossible in sectors that have not been exempted from strict rules on how investment is regulated.

The newest NAFTA Chapter 11 ruling against Canada–Exxon Mobil and Murphy Oil challenged R&D payment requirements, under 2004 guidelines amending the Atlantic Accord, for their operations in the Hibernia offshore oil patch–is an example of how little wiggle room the federal or provincial governments have to ensure we get the best deal on foreign investment. For example, the Claimants argue on page 76 of their initial Memorial that (emphasis mine):

By requiring project operators to undertake R&D activity that they otherwise would not, the Board substitutes its own development objectives for the business judgement of investors and, in so doing, distorts investment flows in favour of the Province. This type of regulation is precisely what NAFTA prohibits.

Exxon and Murphy Oil make this claim after quoting UNCTAD, which has said that performance requirements “are and have been used by developed and developing countries… to enhance various development options.” They then argue that an exemption Canada took for the R&D requirements when it passed NAFTA in 1994 doesn’t matter because the 2004 guidelines are more trade-limiting and therefore illegal.

Canada waged a vigorous defence of “sustainable development” in the Exxon case but the Harper government clearly doesn’t believe what it is saying. It is signalling to the world it doesn’t want to regulate corporate activity, in particular in resource extraction. Signing more NAFTA-like deals with the EU, or Foreign Investment Promotion and Protection Agreements with China and other countries, while weakening the government’s ability to review takeovers shows that Harper’s not interested in things like “net benefit” to Canada.

That’s not being a good manager of the economy, it’s being an absentee manager. The fact he has introduced the Investment Canada Act changes as regulations instead of legislation proves this government knows know controversial a move it is.