Amendments part of feds' plan to strengthen screening process, says Jim Dinning
Recently passed amendments to the Investment Canada Act target foreign investment from state-owned enterprises and will likely focus on high-tech industries and critical minerals, says Jim Dinning, a partner at Davies Ward Phillips & Vineberg LLP.
The federal Liberals introduced Bill C-34, the National Security Review of Investments Modernization Act, in December 2022. The Bill received Royal assent on March 22, and its amendments will come into force on a date to be determined by Cabinet.
Dinning, who is part of the firm’s competition and foreign investment review practice, says the legislation aligns with the federal government's desire to enhance national security screening of foreign investments.
“That has been an increasing theme over the past number of years. These amendments are giving the government a broader set of powers to even further increase its ability to review investments on national security grounds.”
The amendments indicate that Ottawa’s main national security concerns revolve around investments by foreign state-owned enterprises, he says. This includes an apprehension that some businesses that previously operated on a commercial basis are now operating to serve the foreign government that owns them.
Dinning says the amendments widen the scope of the national security review provisions to address foreign investment from state-owned entities.
The changes will include a new filing requirement prior to investment implementation for prescribed business sectors and new ministerial authority to extend national security reviews, impose conditions, accept undertakings to mitigate national security risk, and review state-owned enterprise investment for their net benefit to Canada.
Net benefit reviews have an economic focus, says Dinning. In net benefit reviews, parties tend to make commitments around employment, capital expenditure, and keeping management in Canada. He says these reviews apply to a tiny proportion of transactions, only around a handful every year. But the amendments allow the government to deem any investment by a foreign state-owned enterprise to be subject to that sort of review.
“We'll see in practice how often that power is used.”
The feds have yet to define the business sectors that will require new filing requirements before investment implementation. “But we do have some insight into what those are likely to be,” says Dinning. The likely sectors include biotechnology, artificial intelligence, medical technology, surveillance, and other high-tech industries.
He also expects a focus on critical minerals.
In December 2022, Ottawa announced Canada’s Critical Minerals Strategy. The government says that the initiative’s aim is to spur economic growth and address climate change through accelerating project development and driving research, innovation, and exploration.
Dinning says there have been policy announcements in recent years from Ottawa attempting to limit the ability of foreign state-owned enterprises to invest in the critical minerals space.
“We expect that to continue to be a focus for the government.”
