Mr. Speaker, let me begin by stating that foreign investment plays an important role in the Canadian economy.
Foreign investors bring with them knowledge, capabilities and technology that can increase the productivity, efficiency and competitiveness of Canadian firms. These investments frequently help Canadian-based companies to expand and create jobs for Canadians.
Recognizing the importance of investment flows into the country, Canada has a broad framework in place to promote trade and investment while at the same time protecting Canadian interests. It is important to note that investment flows both into and out of Canada. In fact Canadian international acquisitions exceeded the value of foreign acquisitions over the past several years.
According to one of Crosbie and Company's quarterly M & A reports, 204 Canadian companies acquired foreign companies in 2009 compared with 83 foreign companies acquiring Canadian firms.
In order to ensure that Canadian firms continue to have access to investment opportunities abroad, it is important for Canada to maintain a global investment climate that encourages the free flow of investment.
The Investment Canada Act provides a mechanism to review significant acquisitions of Canadian enterprises by non-Canadian companies to determine if they will be of net benefit to Canada. It also provides a mechanism to review investment that could be injurious to national security.
I would like to take this opportunity to describe how the Investment Canada Act works and how decisions are taken by the minister.
First, the administration of the act is shared between two ministers and their respective departments. The Minister of Canadian Heritage is responsible for the review of investments involving cultural businesses. The Minister of Industry is responsible for the review of all other investments. The Minister of Industry is also responsible for all other aspects of the administration of the act, including initiating enforcement measures.
My comments today will focus on only those investments that are the responsibility of the Minister of Industry. When a foreign investor proposes to acquire a Canadian business, the investor has certain responsibilities under the act.
Foreign investors must file either a notification or an application for review. An investor must file a notification when a new Canadian business is established or when there is an acquisition of control of a Canadian business with assets below the established threshold.
For an investment that is not subject to a net benefit review under the act, where an investor has provided the information required by the Investment Canada regulations, the investor has met its obligations under the act. No further action is required on the part of the investor. Information required under the regulations includes the names of the investor and the Canadian business, their respective addresses, a description of the business of the latter, and its level of assets.
Where a proposed investment is subject to a net benefit review under the act, the investor cannot implement the transaction without the approval of the minister responsible for the act. The investor must provide certain information as part of the filing of an application, including its plan for the Canadian business.
An acquisition is subject to review when the assets of the Canadian business to be acquired are equal to or above the thresholds established in the act. The threshold that applies to WTO members is adjusted each year by an amount equal to the change in the nominal gross domestic product. The threshold is $299 million for 2010. The threshold for cultural businesses remains at the level established in 1985. It is $5 million for direct acquisitions or $50 million for indirect acquisitions.
The act provides the minister an initial 45 days to complete the review of a proposed investment and to make a determination of net benefit. The minister can extend the review period if necessary by 30 days. The review period can be extended further if both the investor and the minister agree.
The Minister of Industry approves an application for review only where he is satisfied, based on the plans, undertakings and other representations of the investor, that the investment is likely to be of net benefit to Canada.
In making his determination of net benefit, the Minister of Industry must consider the factors listed in section 20 of the act. These include the effect of the investment on the level and nature of economic activity in Canada; the degree and significance of participation by Canadians in the Canadian business or new Canadian business; the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; the effect of the investment on competition within any industry or industries in Canada; the compatibility of the investment with national, industrial, economic and cultural policies; and finally, the contribution of the investment to Canada's ability to compete in world markets.
As part of the review process, the investment review branch of Industry Canada consults with federal government departments with policy responsibility for the industrial sector involved in the proposed acquisition, with the Competition Bureau, and with all the provinces in which the Canadian business has substantial activities or assets. The purpose of the consultation is to engage sector specialists at both the federal and provincial level, to identify any policies that should be considered in the review and to obtain the views and concerns of the consulted parties relating to the acquisition.
Industry Canada's investment review branch relies on consulted parties to identify areas of concern for the sector and the specific Canadian business. Once the consulted parties have provided their input, discussions take place with the investor, and legally enforceable undertakings are discussed with the investor to address the concerns of the consulted parties.
Industry Canada's investment review branch staff also perform an independent analysis of the acquisition. To do so, they examine financial statements and annual reports for both the investor and the Canadian business. This information provides an indication of the strategic marketing, operating and financial strengths of each party and assists in the analysis of how the two companies fit together. In addition, the investor is frequently requested to provide additional information to make better understood the plans it has for the Canadian business.
In 2009, the investment review branch of Industry Canada received and processed 415 notifications. In addition, the Minister of Industry approved 22 applications for review. The motion before us asks that the government act immediately to protect the interests of Canadian workers and their communities and the strategic and long-term interests of the Canadian economy by:
improving its review of foreign takeovers that involve key Canadian resource, manufacturing, high tech and, potentially, telecommunications companies, by strengthening the Investment Canada Act by: (a) lowering the threshold for public review; (b) ensuring public hearings are held in affected communities; and (c) requiring publication of the reasons for decisions and conditions to be met by approved foreign owners.
As I have mentioned, under the Investment Canada Act, where an investment is subject to review under the act, the minister must approve an investor's application for review before an investor can implement an acquisition. The minister approves applications only where he is satisfied, based on the plans, undertakings and other representations of the investor, that the investment is likely to be of net benefit to Canada. Under the act there is a rigorous review process that involves careful analysis and extensive consultations with government departments and the provinces.
Let me take a moment at this time to explain the confidentiality provisions of the act. These provisions do not permit the minister to make comments about specific investments without the investor's prior agreement. Divulging confidential information outside of the narrow exceptions of the act is a criminal infraction.
Some of the members of the House have asked why the confidentiality provisions of this act are so strict. The confidentiality provisions of the act reflect the fact that information shared by investors with the government is often commercially sensitive information, which, if disclosed, could harm the competitive position of the investor and its partners, including, for instance, its suppliers.
Unless they are assured that their information will be protected by the government, investors will be reluctant to share information that is critical to the rigorous review process. To ensure that the minister can obtain the information he requires to make his net-benefit determination, very strict confidentiality provisions have been included in the Investment Canada Act, and these must be followed.
During the review process, investors generally provide plans and undertakings to support their position that investments are likely to be of net benefit to Canadians. All approved investments are subject to monitoring to determine the extent to which the plans and undertakings provided by the investor have been implemented.
An evaluation of the implementation of the plans and undertakings provided by the investor is ordinarily performed 18 months after the implementation of the investment. Additional evaluations are performed based on the duration of the plans and undertakings.
The act provides for remedies where a non-Canadian investor implements an investment on terms or conditions that vary materially from those contained in an application or where the investor has failed to comply with a written undertaking. The decision to take enforcement measures under the Investment Canada Act is based on the overall performance of an investor in implementing its plans and undertakings.
Decisions to take enforcement measures are made on a case-by-case basis by the minister, based on the specific circumstances of the transaction. The process for enforcing plans and undertakings provided by an investor during the review process includes seeking an order from a superior court to remedy any gap in the implementation of plans or undertakings.
The government has recently completed a review of the act, and has implemented amendments to ensure that the act will apply to the investments that are most important to the Canadian economy and that will increase the transparency of the act.
In July 2007, the government appointed the Competition Policy Review Panel, chaired by Red Wilson. As part of its mandate, the panel reviewed both the Investment Canada Act and the Competition Act. In June 2008, the panel released its final report, entitled “Compete to Win”, with recommendations to enhance Canada's competitive performance.
The panel concluded that Canada benefits from being open to the world and that attracting greater foreign investment is in Canada's interest. Accordingly, it concluded that the Investment Canada Act should be applied to fewer cases, where the market importance of the transaction is the greatest. To achieve this, it recommended, notably, that the threshold under the act be increased.
The panel also recommended measures to improve the transparency and accountability of the Investment Canada Act while recognizing the importance of preserving commercially sensitive information. Finally, the panel endorsed the creation of a new review mechanism for national security.
In March 2009, the government made a series of amendments to the Investment Canada Act that resulted in the adoption of the panel's core recommendations and conclusions. These amendments were by far the most important legislative changes to the Investment Canada Act since its adoption in 1985. The government recognizes that global markets have evolved and so too must our framework policy.
The amendments ensure that reviews of proposed investments will apply to those investments that are the most important to the Canadian economy and will continue to allow foreign investors to create jobs in Canada by investing here. These amendments also improve transparency in the administration of the act, so that Canadians and foreign investors alike can better understand the workings of the act and its objectives.
More specifically, the amendments reform the act by changing the basis for the general review threshold from the book value of the gross assets to enterprise value. Regulations are required to bring this change into force. Furthermore, the amendments reform the act by raising the general review threshold to $1 billion over a four-year period; it currently stands at $299 million in gross assets.
The amendments also eliminate the application of the lower review threshold in identified sectors, for example, transportation services, financial services, and the uranium production sectors.
The amendments require the minister to justify any decisions to disallow an investment, and allow the minister to disclose administrative information on the review process. Moreover, they require the publication of an annual report on the operations of the act and, finally, they authorize the government to review investments that impair or threaten to impair national security and, if necessary, to take appropriate action.
These amendments will help Canada attract more foreign investment, a key driver of growth, by improving Canada's access to know-how and technology, by enhancing Canadians' ability to innovate and reach global markets, and by continuing to employ Canadians throughout the country.
In conclusion, the act provides a mechanism for the review of significant investment proposals to determine whether they are of net benefit to Canada. The government has examined the act and has introduced amendments to ensure that it applies to the investments that are most important to the Canadian economy, and to improve the transparency of its administration.
The government also has enforcement measures at its disposal, which it can invoke where the minister was not satisfied that investors have fulfilled their obligations under the act.