Policies Toward Foreign Direct Investment

With few exceptions, Canada offers full national treatment to foreign investors within the context of a developed open market economy operating with democratic principles and institutions. Canada reviews investments under the ICA. Foreign investment is prohibited or restricted in several sectors of the economy such as telecoms, airlines and culture. The U.S. and Canada agree on important foreign investment principles, including right of establishment and national treatment.

The U.S. has long been Canada’s primary source for foreign investment, and Canada is the second largest source of FDI in the U.S. after the United Kingdom (U.K.). Nearly 50 percent of Canada’s FDI comes from the U.S. At the end of 2016, the most recent year available, U.S. FDI in Canada was USD 364 billion. The U.S.’ share of FDI in Canada has declined considerably since 2005 when it was 63.2 percent of Canada’s total FDI stock. According to the United Nations Conference on Trade and Development (UNCTAD), Canada attracted 3.3 percent of the world’s FDI in 2015.

Canadian residents have become increasingly active as worldwide investors. Canadian FDI in the U.S. was USD 454 billion in 2016, an increase of 12 percent (USD 55 billion) compared to 2015 (http://bea.gov/international/direct_investment_multinational_companies_comprehensive_
data.htm ). The U.S. is the top destination for Canadian FDI. The U.S.’ share of total Canadian FDI in 2016 increased to 47.5 percent from 44 percent in 2015 (http://www.international.gc.ca/economist-economiste/performance/state-point/state_2017_point/index.aspx?lang=eng ).

The Canadian government launched a new federal agency, Invest in Canada, in March 2018. The agency will help global business navigate Canada’s investment landscape and promote inward FDI.

Limits on Foreign Control and Right to Private Ownership and Establishment

Aerospace and Defense ‑ Commercial Aviation: Canada limits foreign ownership of Canadian air carriers to 25 percent. In addition, foreign interests may not control a Canadian air carrier. One Canadian airline has put a special procedure in place for foreign share transfers that reclassifies its stock as variable voting shares. This allows non-Canadians to own more than 25 percent of the equity while reducing foreign voting rights and allowing the airline to remain Canadian with at least 75 percent of its voting interests owned and controlled by Canadians. Bill C-49 is in Parliament and would increase foreign ownership limits for commercial airlines to 49 percent.

Aerospace and Defense – General Aviation: No non-Canadian (other than permanent residents) may register a general aviation aircraft for commercial or personal use in Canada.

Energy and Environmental Industries: Canada continues to encourage additional foreign investment in its energy sector to develop its vast oil and gas resources. In Quebec, calls for tender for energy projects vary between 30 and 60 percent of local content. Canada has faced several investment disputes involving energy in recent years. A U.S. oil and gas company filed a notice of arbitration under NAFTA Chapter 11 in September 2013, following the Government of Quebec’s announced suspension of oil and gas exploration beneath the Saint Lawrence River in June 2011. The U.S. company filed an additional memorial in April 2015 stating that Quebec’s provincial legislation effectively destroyed the economic potential of its investment and deprived it of the ability to enjoy any economic benefit from the investment. The USD 118.9 million damages claim is still active and the government of Canada filed a counter-memorial in January 2016. Further, the company claims the suspension breached NAFTA expropriation and minimum standard of treatment provisions.

Energy and Environmental Industries – Mining: Generally, foreigners cannot be majority owners of uranium mines.

Energy and Environmental Industries – Electric Power Generation and Distribution: Regulatory reform in electricity continues in Canada in expectation that increased competition will lower costs of electricity supply. Province-owned power firms are interested in gaining greater access to the U.S. power market. Since power markets fall under the jurisdiction of the Canadian provinces, they are at the forefront of the reform effort. Several Canadian provinces have introduced initiatives to encourage the development and implementation of renewable sources of electricity.

Finance – Financial Services: Chapter 14 of the NAFTA deals specifically with the financial services sector, and eliminates discriminatory asset and capital restrictions on U.S. bank subsidiaries in Canada. The NAFTA also exempts U.S. firms and investors from the federal “10/25” rule so that they will be treated the same as Canadian firms. The “10/25” rule prevents any non-NAFTA, nonresident entity from acquiring more than 10 percent of the shares (and all such entities collectively from acquiring more than 25 percent of the shares) of a federally regulated, Canadian-controlled financial institution. The limit for single, non-NAFTA shareholders is 20 percent. Several provinces, however, including Ontario and Quebec, have similar “10/25” rules for provincially chartered trust and insurance companies that were not waived under the NAFTA.

The requirement that bank ownership be “widely held” with no more than 25 percent of its shares owned by a single shareholder is said to prevent ownership concentration without discriminating against foreign investors; however, Canadian influence is still exerted through certain requirements of the Bank Act:

• the head office of a bank must be located in Canada;
• shareholders’ meetings are required to be held in Canada;
• two-thirds of the directors must be resident Canadians;
• the chief executive officer of the bank must ordinarily be resident in Canada;
• important corporate and transactional documents must be kept in Canada;
• certain administrative changes require ministerial approval.

Information & Communication – Telecommunications: Under provisions of Canada’s Telecommunications Act, foreign ownership of transmission facilities is limited to 20 percent direct ownership and 33 percent through a holding company, for an effective limit of 46.7 percent total foreign ownership. Canada also requires that at least 80 percent of the members of the board of directors of facilities-based telecommunications service suppliers be Canadian citizens.

Canada amended the Telecommunications Act in June 2012 to rescind foreign ownership restrictions on carriers with less than 10 percent share of the total Canadian telecommunications market. Foreign-owned carriers are permitted to continue operating if their market share grows beyond 10 percent provided the increase does not result from the acquisition of or merger with another Canadian carrier. The policy change was part of the Canadian government’s strategy to facilitate more competition in the telecom sector.

Canada defines cultural industries to include: the publication, distribution or sale of books, magazines, periodicals or newspapers, other than the sole activity of printing or typesetting; the production, distribution, sale or exhibition of film or video recording, or audio or video music recordings; the publication, distribution or sale of music in print or machine-readable form; and any radio, television and cable television broadcasting undertakings and any satellite programming and broadcast network services.

The Broadcasting Act sets out the policy objectives of enriching and strengthening the cultural, political, social, and economic fabric of Canada. The Canadian Radio-television and Telecommunications Commission (CRTC) administers broadcasting policy. When a Canadian broadcast service is licensed in a format competitive with that of an authorized non-Canadian service, the commission can drop the non-Canadian service if a new Canadian applicant requests it to do so. Licenses will not be granted or renewed to firms that do not have at least 80 percent Canadian control, represented both by shareholding and by representation on the firms’ board of directors.

Canada allows up to 100 percent foreign equity in an enterprise to publish, distribute and sell periodicals, but all foreign investments in this industry are subject to review by the Minister for Canadian Heritage, and investments may not occur through acquisition of a Canadian-owned enterprise. No more than 18 percent of the total advertising space in foreign periodicals exported to Canada may be aimed primarily at the Canadian market. Canadian advertisers may place advertisements in foreign-owned periodicals, and may claim a tax deduction for the advertising costs, including in cases where the periodical is a Canadian issue of a foreign-owned periodical.

This regime is the result of a 1999 U.S.-Canada agreement, which balanced U.S. publishers’ desire for access to the Canadian market against Canada’s desire to ensure that Canadian advertising expenditures support the production of Canadian editorial content.

Other Investment Policy Reviews

Canada has not conducted an Investment Policy Review through the Organization for Economic Co-operation and Development (OECD), WTO, or UNCTAD in the past three years.

Business Facilitation

Innovation, Science and Economic Development Canada (ISED) works with Global Affairs Canada (GAC) to encourage foreign companies to invest in Canada and to promote an open, rules-based global investment regime. The Canadian Trade Commissioner Service has a comprehensive website “Invest in Canada” with the needed information for starting and registering a business in Canada. It can be found at the following website: http://www.international.gc.ca/investors-investisseurs/index.aspx?lang=eng . While the website is available in several languages, navigation can be difficult. In addition to Federal registration, businesses may also be required to register with the provincial, territorial, and municipal revenue agencies (http://www.cra-arc.gc.ca/tx/bsnss/tpcs/bn-ne/bro-ide/menu-eng.html ). Canada ranks 18th on the 2017 World Bank’s Ease of Doing Business Scale. For more general information on the Canadian business climate, see:

• http://iab.worldbank.org ;
• http://ger.co/how-it-works/information-portals ;
• http://www.doingbusiness.org/data/exploretopics/starting-a-business .

In its 2018 budget, the Canadian government launched a Canadian Women Entrepreneurship Strategy to break down the barriers to growth-oriented entrepreneurship that will include new funding from the regional development agencies targeted to women entrepreneurs, mentorship, and skills training, as well as targets for federal procurement from women-led business. The Procurement Strategy for Aboriginal Business promotes subcontracting to Aboriginal firms and encourages Aboriginal firms to form joint ventures with other Aboriginal and non-Aboriginal businesses (http://www.aadnc-aandc.gc.ca/eng/1100100032802/1100100032803). Departments must set aside procurement contracts for competition among Aboriginal businesses when an Aboriginal population is the end user of the good or service being procured and the value exceeds USD 3,884 (C5,000).

Outward Investment

Canada does not restrict domestic investors from investing abroad. Canadian companies are encouraged to invest abroad through Export Development Canada (EDC), which created the Canadian Direct Investment Abroad (CDIA) program. CDIA offers Canadian businesses a range of solutions to obtain financing and research international markets in support of long-term business objectives.