Foreign Direct Investment and the National Interest: A Way Forward

The Investment Canada Act has worked well for Canada, but if we are to remain competitive in global capital markets, we need to more proactively and clearly communicate to foreign investors what we expect of them.La Loi sur Investissement Canada a bien servi les interets du pays. Mais pour rester competitif sur le marche mondial des capitaux, le Canada doit communiquer ses attentes aux investisseurs etrangers de facon plus active et plus claire.SummaryThe federal government's effective rejection of BHP Billiton's bid for Saskatchewan's Potash Corporation in 2010 was seen as a flashpoint in the recent evolution of the Investment Canada Act (ICA), which many hoped would lead to greater clarity in the rules of the game for foreign direct investment (FDI). But uncertainty persists and, with the introduction of provisions such as "exceptional" circumstances, new questions have been raised. While the federal government has undertaken measures to address specific gaps in the ICA, it has done so without conducting a more general reassessment of the overall policy regime.What is Canada's national interest with respect to FDI? Is there a need for further policy reform in light of the patterns and flows of changes in international capital, trade and investment? Where do we stand in relation to other global competitors for investment? In this study, Dany Assaf and Rory McGillis examine these questions as they pertain to the ICA and assess how transparent, clear and coherent the Act is compared with the regimes of 11 other countries.They argue that international rankings like the OECD's FDI Restrictiveness Index misrepresent Canada as being guarded toward foreign investment, while other countries employ more informal means to reject investments. In practice, since 1985 the ICA has produced only two refusal decisions that have ultimately blocked takeovers (in noncultural industries).However, the fact that these rejections have all occurred in recent years and are part of a global trend toward greater scrutiny suggests the need for a more transparent review process. This would provide greater certainty for investors and all Canadians alike, and it would avoid the need for drastic policy amendments in reaction to the specific issues raised by high-profile cases, as happened with Nexen and Progress Energy Resources.Assaf and McGillis argue in favour of keeping the net benefit test, the centrepiece of the current review process. They argue that it has worked comparatively well over its long history, and investors are familiar with its overall direction. They recommend the government focus instead on better communicating to investors what is expected of them. Among other things, they recommend the government* modernize the net benefit test to include additional criteria such as an investment's compatibility with environmental, fiscal and trade policy objectives;* publish a model list of undertakings to inform investors of the requirements that may be attached to a transaction's approval;* adopt formal guidelines for national security reviews; and* amend the guidelines for state-owned enterprises to clarify issues of reciprocity, "exceptional" circumstances and other specific requirements (e.g., bonds).As a more general comment, the authors note with concern the increasing reference in public discourse to the concept of "strategic assets." As the term is open to broad political interpretation, they say it is of little practical utility for policy and should be strongly resisted.ResumeLe rejet, par Ottawa, de l'offre publique d'achat de BHP Billiton en vue d'acquerir Potash Corporation en 2010 a ete considere comme un point tournant dans l'evolution de la Loi surinvestissement Canada (LIC). Ils etaient nombreux a esperer que ce refus susciterait des changements et clarifierait les regles du jeu en matiere d'investissement direct etranger (IDE). Mais une certaine confusion persiste, alors que, parmi d'autres modifications, la reference a des « circonstances exceptionnelles » souleve de nouvelles questions. …