Canada adds economic security assessments to foreign investment review policy

Torys’ Canadian and New York offices will be providing regular briefs on the legal ramifications of the tariffs and other cross-border policy developments on the horizon.

The Government of Canada announced today significant updates to its foreign direct investment review policy. As a result of the “rapidly shifting trade environment,” the government will review investments in Canadian businesses on national security grounds if those investments could undermine Canada’s economic security, including “the enhanced integration of the Canadian business with the economy of a foreign state.”

The changes were formally made to the Guidelines on the National Security Review of Investments under the Investment Canada Act (ICA) (the Guidelines) and in an accompanying broad policy statement.

The Guidelines now explicitly recognize the importance of economic security in national security assessments. In assessing the potential economic security risks of an investment, the government will consider factors such as the size of the Canadian business, its role in the innovation ecosystem, and the impact on Canadian supply chains. Perceived “opportunistic or predatory investment behaviour” by non-Canadians in the current economic environment may also trigger scrutiny.

The policy is similar in some respects to a 2020 policy on national security review of investments during the COVID pandemic. However, that policy was aimed at “public health [and the] supply of critical goods and services.”

This new policy is much broader in scope and seems likely to result in increased scrutiny of investments by U.S. investors, which have normally not been subject to national security reviews.

The announcement also involved several other changes to the Guidelines. They include a new Sensitive Technology List¹. Investments in Canadian businesses engaged in these technologies could be subject to review. The Guidelines also now reflect recent legislative amendments, which allow the Minister to impose interim and final conditions on an investor during a national security review and extend review periods.

Businesses should consider the new policy and Guidelines in their strategic planning and to gauge risks associated with national security reviews. Although the policy is broad in scope, case-by-case risk assessments will be important. This may involve an evaluation of regulatory risk allocation in M&A agreements and de-risking strategies like early upfront interactions with regulators or the early submission of mandatory or voluntary notifications. That said, we do not expect the Canadian government to condition or block transactions from the U.S. or elsewhere on “economic security” grounds as a matter of course. The policy is sending a political signal, and may result in increased regulatory scrutiny, but in practice will likely be used sparingly.

 
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