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That includes takeovers from China. Some commentators would ban deals with Chinese entities but it is magical thinking to believe we can ignore what by some measures is already the world’s largest economy.
Canada is not the only country increasing its scrutiny of foreign investment because of the pandemic. Australia, Germany, France and Italy have all made similar announcements. Most other countries have significantly lowered the review threshold and specified which sectors are of most concern. Germany has also created a fund to help its firms fight opportunistic takeovers.
We believe enhanced reviews will work better for Canada if three goals are met:
First, speedy decisions on acquisitions of distressed assets. Most enhanced scrutiny reviews will use a national security test that is opaque and can take 200 days or longer. But if these really are distressed assets, and if there are lots of them, we will need more timely decisions to save firms and the jobs associated with them.
Second, transparency around the definition of “critical sector” and about issues raised in the review process. Australia openly declared all sectors critical, while France listed such areas as food safety, defence, energy, AI, quantum computing and cyber security, among others. In Canada, we have left “critical sectors” undefined beyond health.
Third, keeping economic security at the forefront. The legal basis for enhanced reviews will fall almost exclusively under the national security provisions of the act, not the economic-based “net benefit” rules. Are takeovers of distressed firms national security or economic issues? We think economic security is mainly at play, even when Chinese firms target technology businesses or specific elements of the energy sector. National security reviews are led by the deputy minister of public security. But in the case of distressed firms, a better approach would be to have the deputy minister of finance or innovation chair, or at least co-chair, the review. In most other countries, including the U.S. and Germany, economic agencies lead the foreign investment review process with input from other relevant government departments.
