Canada tightens foreign investment review, citing economic impact of COVID-19

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The Peace Tower on Parliament Hill in Ottawa is seen amid the COVID-19 pandemic on Saturday, April 18, 2020.

Justin Tang / The Canadian Press

The federal government is following the lead of other countries and is tightening up its review of foreign takeovers of Canadian companies whose values ​​fell due to the COVID-19 pandemic.

The objective, according to Saturday’s policy statement, is “to ensure that incoming investments do not pose new risks to Canada’s economy or national security, including the health and safety of Canadians” .

Rules already in place to control foreign direct investment by state-owned enterprises or state-connected entities will now apply to all investments, regardless of their value, said the weekend’s policy statement. The government will also pay particular attention to “investments of any value, whether controlled or not” in companies involved in public health or the provision of essential goods and services.

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According to the news release, the broader objective that Ottawa applies to state-linked entities is that the pandemic heightens the fear that they may be “motivated by non-commercial imperatives that could harm the economic or national security interests of the government.” Canada”.

The new policy will remain in place until “the economy recovers from the effects of the COVID-19 pandemic.”

The change follows in the footsteps of countries like Australia, Germany, Spain and France that have taken steps to limit or deepen acquisitions by foreign investors. One month after the start of the pandemic, innovation and legal experts say that Canada’s decision is slow and should not be limited to the calendar of the pandemic, since COVID-19 exposed the country’s vulnerabilities when it is too dependent on international actors for criticism. goods.

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Innovation, Science and Economic Development Minister Navdeep Bains was not available for an interview on Saturday.

In a statement, he said that increased control is necessary to put a buffer between economically weakened companies and “opportunistic investors”.

Mr. Bains ‘office did not say if he had previously identified foreign entities trying to take advantage of many companies’ falling valuations, but the Canadian Chamber of Commerce said it was not aware of no opportunistic purchases so far. The chamber’s chief director of international policy, Mark Agnew, said the pandemic had shown that the country needed to protect key sectors.

“Naive thinking will leave us unprepared for future pandemics,” said Agnew in a statement.

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He warned that the national economy still needs foreign capital and that the Ottawa decision could have a “deterrent effect.” The chamber also asked Ottawa to publicize the changes more widely, which were announced on a federal government website and reported to certain journalists.

Onboard clothing stores are seen on Robson Street in Vancouver on Thursday, April 16, 2020.

DARRYL DYCK / The Canadian Press

The federal government should be clear about the areas that will be looked at more broadly, said Agnew.

Paul Boothe, retired professor and former associate deputy minister for Industry Canada, said the policy statement warns businesses that the government will take a closer look at certain transactions.

Attracting foreign investment has been at the heart of the Liberal government’s concerns since its first election in 2015. To further advance its program, Ottawa created Investment Canada in 2018. Saturday’s policy marks a departure from the previous position of the federal government.

The new policy was rejected by Jim Balsillie, president of the Council of Canadian Innovators, who said it was not thought through enough and did not follow several measures.

Jim Balsillie speaks at the Globe and Mail Summit on Canada’s Future on June 26, 2019 in Toronto.

Glenn Lowson / The Globe and Mail

“It confuses foreign direct investment with foreign portfolio investment, its short-term applicability ignores the sustained capacity that a sovereign country needs, and its narrow scope ignores the breadth of strategic assets needed to protect the interests of Canadians Said Mr. Balsillie.

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“The person who developed this policy should speak to experts in innovation policy who understand how strategic technologies are developed, commercialized and cross-border.”

Natalie Raffoul, Ottawa patent attorney at Brion Raffoul LLP, said that the pandemic has revealed the vulnerability of becoming too dependent on international sources for essential products. To avoid repetition, she said that more emphasis should be placed on the development and protection of Canadian-made patents and other intellectual property so that there is more national control over supply chains – no only for health and safety, but for the overall prosperity and security of the country. .

“It is great to see the government doing this, but I hope it is not just a COVID-19 specific measure and that they will now consider long-term consideration of foreign direct investment,” said Mrs. Raffoul. She highlighted the distinction between foreign direct investment, which leads to foreign control, and portfolio foreign investment, which gives Canadian businesses access to money without losing control.

Saturday’s announcement comes a day after Prime Minister Justin Trudeau announced $ 1.2 billion in assistance for startups and small businesses. With businesses weakened by the economic crisis triggered by a pandemic already in desperate need of cash, Raffoul said Ottawa is slow to implement the new measures.

Prime Minister Justin Trudeau speaks during his daily press conference on the COVID-19 pandemic outside his residence at Rideau Cottage on Saturday April 18, 2020.

Justin Tang / The Canadian Press

“We have been waiting a month now,” she said, “so I hope these programs can now evolve quickly to ensure that our innovative businesses are protected so that we don’t lose the ground we already have. “

Jim Hinton, a Kitchener-Waterloo-based intellectual property lawyer with Own Innovation, Jim Hinton, a Kitchener-Waterloo-based intellectual property lawyer, also has a comprehensive review of foreign takeovers during the pandemic. Cash-strapped businesses can increase their coffers by selling their patents or save money by letting their patents expire, which could cause Canada to lose even more of its domestic intellectual property and do so. discount, he said.

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“The tide is gone and we are now shown that we do not have the innovation capacity you need to weather economic and health storms,” ​​he said.

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