Canada

Executive Summary

Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources.  Canada encourages foreign direct investment (FDI) by promoting its stability, global market access, and infrastructure. The United States is Canada’s largest investor, accounting for 47 percent of total FDI. As of 2019, the amount of U.S. FDI totaled USD 402 billion, a 9.2 percent increase from the previous year. Canada’s FDI stock in the United States totaled USD 496 billion, a 12 percent increase from the previous year.

Initial reports indicate Canada suffered a significant decrease in FDI due to the ongoing COVID-19 pandemic. Data from Canada’s national statistical office show inward investment flows decreased by roughly 50 percent in 2020 as compared to 2019.

The United States-Mexico-Canada Agreement (USMCA) came into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The USMCA supports a strong investment framework beneficial to U.S. investors. Foreign investment in Canada is regulated by the Investment Canada Act (ICA). The purpose of the ICA is to review significant foreign investments to ensure they provide an economic net benefit and do not harm national security. In March 2021, the Canadian government announced revised ICA foreign investment screening guidelines that include additional national security considerations such as sensitive technology areas, critical minerals, and sensitive personal data. The new guidelines follow an April 2020 ICA update, which provides for greater scrutiny of foreign investments by state-owned investors, as well as investments involving the supply of critical goods and services.

Despite a generally welcoming foreign investment environment, Canada maintains investment stifling prohibitions in the telecommunication, airline, banking, and cultural sectors. Ownership and corporate board restrictions prevent significant foreign telecommunication and aviation investment, and there are deposit acceptance limitations for foreign banks. Investments in cultural industries such as book publishing are required to be compatible with national cultural policies and be of net benefit to Canada. In addition, non-tariff barriers to trade across provinces and territories contribute to structural issues that have held back the productivity and competitiveness of Canada’s business sector.