Investment Canada Act
Encyclopedia
The Investment Canada Act (ICA) is a Canadian Federal law governing large foreign direct investment
in Canada
. The ICA was one of the first acts of Brian Mulroney
's newly elected Progressive Conservative
government, receiving royal assent
on June 20, 1985. The Act empowers the government to forbid foreign investments of "significant" size if they do not present a "net benefit to Canada." As of 2010, Canadian policy is to consider over $299 million "significant."
(FIRA), which was renamed Investment Canada. FIRA had been set up by Pierre Trudeau
's Liberal
government to limit increasing US ownership of Canadian business. Canadian nationalists criticized FIRA's effectiveness, noting that in practice it was rarely used to actually forbid an investment. The business community and Opposition Progressive Conservative Party criticized FIRA for its activism, saying it had stifled investment from the emerging global economy.
and Martin
Liberal governments.
Foreign investment in Canada rose significantly in the wake of the ICA, from approximately $100 billion in 1985 to over $550 billion in 2006.
The ICA was invoked for the first time when in 2008 the Conservative government of Stephen Harper blocked the sale of the space division of MacDonald, Dettwiler & Associates
, a Vancouver
-area technology company, to US-based Alliant Techsystems
.
In 2010, the Harper government imposed conditions for approval of the hostile takeover of Potash Corporation by Australia-based mining conglomerate BHP Billiton
for over $38 billion. On November 15, 2010, BHP-Billiton withdrew its bid, saying the conditions had proved too onerous.
amongst foreign investment analysts. The scale of impact is difficult to measure and has not been widely studied.
Nationalist critics believe the Act is too narrow and, as a matter of policy, should more heavily restrict foreign investment.
Critics note that Canada's share of world direct investment fell significantly after 1985. Some of this is due to large increases in emerging economies' receipt of FDI, but Canada's share has fallen even amongst developed countries, and in the late 2000s Canada became a net investor in the world.
Some critics note that the Harper government's use of the ICA has seemed unpredictable, resulting in a "chilling" effect on foreign investment in Canadian companies. This hidden effect, if it exists, could suppress the value of Canadian shares and companies by deterring potential investors from even considering Canada as a market or destination. In response to this criticism, on November 15, 2010 the Harper government signalled its intention to provide clear guidelines for its use of the ICA.
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
. The ICA was one of the first acts of Brian Mulroney
Brian Mulroney
Martin Brian Mulroney, was the 18th Prime Minister of Canada from September 17, 1984, to June 25, 1993 and was leader of the Progressive Conservative Party of Canada from 1983 to 1993. His tenure as Prime Minister was marked by the introduction of major economic reforms, such as the Canada-U.S...
's newly elected Progressive Conservative
Progressive Conservative Party of Canada
The Progressive Conservative Party of Canada was a Canadian political party with a centre-right stance on economic issues and, after the 1970s, a centrist stance on social issues....
government, receiving royal assent
Royal Assent
The granting of royal assent refers to the method by which any constitutional monarch formally approves and promulgates an act of his or her nation's parliament, thus making it a law...
on June 20, 1985. The Act empowers the government to forbid foreign investments of "significant" size if they do not present a "net benefit to Canada." As of 2010, Canadian policy is to consider over $299 million "significant."
History
The Act was intended to signal Canada's openness to foreign investment and coincided with a narrowed mandate of the Foreign Investment Review AgencyForeign Investment Review Agency
Invest In Canada is the Government of Canada organization that promotes and attracts foreign direct investment into Canada. As a bureau in the Department of Foreign Affairs and International Trade, Invest In Canada assists companies planning to invest in Canada or to expand their Canadian...
(FIRA), which was renamed Investment Canada. FIRA had been set up by Pierre Trudeau
Pierre Trudeau
Joseph Philippe Pierre Yves Elliott Trudeau, , usually known as Pierre Trudeau or Pierre Elliott Trudeau, was the 15th Prime Minister of Canada from April 20, 1968 to June 4, 1979, and again from March 3, 1980 to June 30, 1984.Trudeau began his political career campaigning for socialist ideals,...
's Liberal
Liberal Party of Canada
The Liberal Party of Canada , colloquially known as the Grits, is the oldest federally registered party in Canada. In the conventional political spectrum, the party sits between the centre and the centre-left. Historically the Liberal Party has positioned itself to the left of the Conservative...
government to limit increasing US ownership of Canadian business. Canadian nationalists criticized FIRA's effectiveness, noting that in practice it was rarely used to actually forbid an investment. The business community and Opposition Progressive Conservative Party criticized FIRA for its activism, saying it had stifled investment from the emerging global economy.
Effects
While the ICA gives Investment Canada the power to restrict investment, its mandate is only to "review...significant investments...in a manner that encourages investment, economic growth and employment opportunities" unless proposed investments specifically injure national security. The Mulroney government never invoked the Act to deter a foreign investment, nor did its successors, the ChrétienJean Chrétien
Joseph Jacques Jean Chrétien , known commonly as Jean Chrétien is a former Canadian politician who was the 20th Prime Minister of Canada. He served in the position for over ten years, from November 4, 1993 to December 12, 2003....
and Martin
Paul Martin
Paul Edgar Philippe Martin, PC , also known as Paul Martin, Jr. is a Canadian politician who was the 21st Prime Minister of Canada, as well as leader of the Liberal Party of Canada....
Liberal governments.
Foreign investment in Canada rose significantly in the wake of the ICA, from approximately $100 billion in 1985 to over $550 billion in 2006.
The ICA was invoked for the first time when in 2008 the Conservative government of Stephen Harper blocked the sale of the space division of MacDonald, Dettwiler & Associates
MacDonald Dettwiler
MacDonald, Dettwiler and Associates Ltd. is a Richmond, British Columbia-based Canadian aerospace, information services and products company, employing over 3000 people throughout Canada, the United States and the United Kingdom, under the MDA brand name....
, a Vancouver
Vancouver
Vancouver is a coastal seaport city on the mainland of British Columbia, Canada. It is the hub of Greater Vancouver, which, with over 2.3 million residents, is the third most populous metropolitan area in the country,...
-area technology company, to US-based Alliant Techsystems
Alliant Techsystems
Alliant Techsystems Inc., most commonly known by its ticker symbol, ', is one of the largest aerospace and defense companies in the United States with more than 18,000 employees in 22 states, Puerto Rico and internationally, and 2010 revenues in excess of an estimated...
.
In 2010, the Harper government imposed conditions for approval of the hostile takeover of Potash Corporation by Australia-based mining conglomerate BHP Billiton
BHP Billiton
BHP Billiton is a global mining, oil and gas company headquartered in Melbourne, Australia and with a major management office in London, United Kingdom...
for over $38 billion. On November 15, 2010, BHP-Billiton withdrew its bid, saying the conditions had proved too onerous.
Criticism
While the Act was not used to formally block takeover bids and investments, its presence and vague mandate enables diplomats, public representatives and civil servants to informally dissuade investors, and creates a sense of government riskGovernment risk
Government risk is an investment term used to collectively describe the impact of prospective changes in legislation, policies of the executive branch within existing legislation, and corruption....
amongst foreign investment analysts. The scale of impact is difficult to measure and has not been widely studied.
Nationalist critics believe the Act is too narrow and, as a matter of policy, should more heavily restrict foreign investment.
Critics note that Canada's share of world direct investment fell significantly after 1985. Some of this is due to large increases in emerging economies' receipt of FDI, but Canada's share has fallen even amongst developed countries, and in the late 2000s Canada became a net investor in the world.
Some critics note that the Harper government's use of the ICA has seemed unpredictable, resulting in a "chilling" effect on foreign investment in Canadian companies. This hidden effect, if it exists, could suppress the value of Canadian shares and companies by deterring potential investors from even considering Canada as a market or destination. In response to this criticism, on November 15, 2010 the Harper government signalled its intention to provide clear guidelines for its use of the ICA.