On December 1, 2011, the C.D. Howe Institute issued a report on the Investment Canada Act entitled Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick, authored by Philippe Bergevin and Daniel Schwanen.
In issuing the report, whose principal recommendation is to amend the test for foreign investment review in Canada from a “net benefit to Canada test” to a “national interest test”, the C.D. Howe Institute said in its news release earlier today:
“’Canada needs a regime that casts the net wider in protecting Canada’s national interests, but is less obtrusive to any single investment,’ according to Daniel Schwanen, Associate Vice President, International and Trade Policy at the C.D. Howe Institute. ‘The current lack of transparent criteria risks setting dangerous precedents for investment into Canada and Canadian investments abroad.’
Canada benefits from foreign investment, say the authors, but the Investment Canada Act creates unnecessary barriers to it. Currently, before approving any foreign investment above a specific dollar threshold, Canada imposes a test of its “net benefit to Canada,” including its potential effect on Canadian employment, exports, and productivity. The test requires a prospective foreign investor to share confidential plans with the federal government and to demonstrate how these plans would be of net benefit to Canada. As a condition of approval, investors also may be obligated to make legally binding promises, or undertakings, concerning the net benefit of the investment over a period of a few years.
The current test is subjective and unpredictable, the authors argue, and does not necessarily cover many situations where Canada’s interests might be involved beyond the narrow calculation of a net benefit. Furthermore, the test is a throwback to an outdated industrial policy that was detrimental to the economy’s long-run growth.
The authors recommend scrapping the current test and replacing it with a national interest test. This would require the federal government, if denying a proposal, to show that the proposed foreign investment was contrary to Canadian interests. The new test would address concerns over national security or state-owned investors, and could replace existing sectoral investment restrictions. When a proposed investment does not affect governments’ abilities to apply Canadian laws or pursue legitimate policy goals, the national interest test would lower obstacles to that investment.”
For the complete report see:
C.D. Howe Report – Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick
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