Letters February 13, 2023

Strengthening Canada’s foreign investment review regime

Goldy Hyder – President and Chief Executive Officer, Business Council of Canada

Digital Economy and Cybersecurity Regulation

Letter to The Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry, P.C., M.P., regarding Bill C-34, An Act to amend the Investment Canada Act.

Re: Bill C-34, An Act to amend the Investment Canada Act

Dear Minister Champagne:

I am pleased to share with you the Business Council of Canada’s views on Bill C-34, An Act to amend the Investment Canada Act.

Business leaders across the country recognize that Canada’s ability to attract foreign investment is essential in maintaining Canadians’ high quality of life. Foreign investment fuels companies’ expansion, increases demand for domestic goods and services, and promotes market choice and competition. This benefits consumers and creates good, well-paying jobs for Canadians.

That said, foreign investment can in rare circumstances undermine Canada’s national security. For instance, foreign investors with close ties to their governments’ intelligence services may pursue acquisitions to exploit critical infrastructure, engage in espionage, or conduct illicit transfers of technologies.

Recognizing that Canada cannot be the “weak link” among its trade and security partners, the Business Council of Canada is supportive of modernizing the Investment Canada Act to better safeguard the country’s national security.

However, we are concerned that in its current form Bill C-34 may discourage legitimate foreign investment. We therefore propose the following:

1. Carefully tailor the pre-implementation filing requirement

Bill C-34 introduces a new pre-implementation filing requirement for investments in businesses engaged in “prescribed business activities,” where the investor has both the power to direct the business and access to “material assets” or “material non-technical information.”

This requirement will have a material impact on deal timing and transaction planning. It will therefore need to be carefully tailored.

If the list of “prescribed business activities” is too broad, transactions that do not threaten national security may be subject to unnecessary scrutiny. This would chill legitimate foreign investment and increase companies’ capital costs. It could also result in the over-reporting of immaterial transactions, possibly allowing for material investments to be overlooked in the process.

We recommend that the Government of Canada precisely draft the list of “prescribed business activities” so that only activities in highly sensitive areas directly relevant to Canada’s national security are captured by the pre-implementation filing requirement.

We also urge that Bill C-34 be amended to require the Governor-in-Council to define, by regulation, the scope of the terms “material asset” and “material non-technical information.” As currently drafted, the bill provides only that the Governor-in-Council “may” define these terms. As these terms are not well understood terms of art, clarity as to their meaning is essential to avoid uncertainty in the application of the new pre-implementation filing requirement.

2. Exempt American investors from the pre-implementation filing requirement

Bill C-34’s pre-implementation filing requirement does not make an exception for American investors. This stands in contrast with the United States’ own rules, which exempt Canadian investors on the basis of the robust security and intelligence partnership between the two countries.

We urge that Bill C-34 be amended to explicitly exempt American investors from the pre-implementation filing requirement. Doing so is consistent with the principle of reciprocity and would ensure that Canada does not suffer a loss of access to its largest source of foreign investment.

3. Shorten extended national security reviews

In fiscal 2021-2022, the average length of an extended national security review was a lengthy 133 days. If enacted, Bill C-34 will likely contribute to further delays by increasing review bodies’ workload.

Such delays complicate transaction planning, discourage legitimate investment, and add to the cost of raising capital. Undue delays can also prolong the realization of the many recognized benefits of foreign investment.

We therefore ask that the Government of Canada ensure that all agencies involved in the review process have the necessary resources to carry out their work as efficiently as possible.

Minister, thank you for this opportunity to share our views on Bill C-34. We look forward to working with you and your colleagues to help protect Canadians, now and in the future.

Sincerely,