In the face of sweeping tariffs that the United States is imposing on Canada, the government released amended Guidelines on the National Security Review of Investments (“the Guidelines”) to expand its interpretation of the national security provisions in the Investment Canada Act (“ICA”) to expressly include “economic security” as a consideration. The Guidelines are effective immediately and further changes on timing may be coming depending on the extent to which inbound investments are caught by these new rules.
Any inbound investment into Canada may be subject to national security review by the Canadian government. Historically, these reviews focused on acquisitions or investments in defence, critical infrastructure, financial services, uranium mining and businesses that collect or manage personally identifiable information of Canadians. For the most part, the reviews have targeted inbound investment from China.
The tariff situation with the United States has changed the situation. The Guidelines indicate that the Canadian government will expressly consider whether a foreign investment will “undermine Canada’s economic security” to consider “the size of the Canadian business, its place in the innovation ecosystem and the impact on Canadian supply chains.” It is widely expected that the current trade situation with the United States could weaken the Canadian dollar and put downward pressure on the value of Canadian businesses making them vulnerable to takeovers. The changes to the Guidelines seemingly indicate an intention on the part of the Canadian government to review inbound investments by American firms especially in Canadian manufacturing and IP-heavy business.
Investors looking to invest in these types of business should plan accordingly. Indeed, along with the addition of “economic security,” the Guidelines also refer to the Sensitive Technology List, which identifies eleven broad technology areas that the government considers to be sensitive. Investments in businesses that own or use these types of technologies will prove to be more challenging for non-Canadians in the days ahead.
Canadian trade developments will remain fluid for some time. Investors and Canadian businesses need to keep monitoring investment rules which could change again as they did following the outbreak of COVID-19.
If you have any questions about foreign investment laws, please contact us, any member of our Competition Law group, or your usual MLT Aikins contact.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
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