2. Bilateral Investment Agreements and Taxation Treaties
The NAFTA guides investment relations between Canada and the U.S. Investment relations with other states are governed by Foreign Investment Protection Agreements (FIPAs). These bilateral treaties promote and protect foreign investment through a system of legally binding rights and obligations based on the same principles found in the NAFTA. Canada has 37 FIPAs in force with countries in Central Europe, Latin America, Africa, and Asia. Canada is actively pursuing FIPAs with 14 countries including India, Pakistan, and Kosovo. Canada views China as an increasingly important trade and investment partner and ratified a FIPA with China in September 2014. The Canada-EU Comprehensive and Economic Trade Agreement (CETA) was signed in October 2016 and came into force provisionally in September 2017. Canada is a partner to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which entered into force in December 2018.
Canada has tax conventions or agreements with many countries, including the U.S.
6. Financial Sector
Capital Markets and Portfolio Investment
Canada’s capital markets are open, accessible, and without onerous regulatory requirements. Foreign investors are able to get credit in the local market. Canada has its own stock market, the Toronto Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. The World Economic Forum ranked Canada’s banking system as the second “most sound” in the world in 2018. Among other factors, Canadian banking stability is linked to high capitalization rates that are well above the norms set by the Bank for International Settlements. The Canadian government and Bank of Canada do not place restrictions on payments and transfers for current international transactions.
Money and Banking System
The Canadian banking industry is dominated by six major domestic banks, but includes a total of 29 domestic banks, 24 foreign bank subsidiaries, 27 full-service foreign bank branches and three foreign bank lending branches operating in Canada. The six largest banks manage close to USD4 trillion in assets. Many large international banks have a presence in Canada through a subsidiary, representative office, or branch of the parent bank. Ninety-nine percent of Canadians have an account with a financial institution.
Foreign financial firms interested in investing submit their applications to the Office of the Superintendent of Financial Institutions (OSFI) for approval by the Finance Minister. U.S. firms are present in all three sectors, but play secondary roles. U.S. and other foreign banks have long been able to establish banking subsidiaries in Canada, but no U.S. banks have retail banking operations in Canada. Several U.S. financial institutions have established branches in Canada, chiefly targeting commercial lending, investment banking, and niche markets such as credit card issuance.
The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are monetary policy, promoting a safe, sound, and efficient financial system, issuing and distributing currency, and being the fiscal agent for Canada.
Foreign Exchange and Remittances
Foreign Exchange Policies
Canada has a free floating exchange rate.
The Canadian dollar is fully convertible and the central bank does not place time restrictions on remittances. Canada provides some incentives for Canadian investment in developing countries through programs offered by Global Affairs Canada.
Sovereign Wealth Funds
Canada does not have a sovereign wealth fund, but the province of Alberta has the Heritage Savings Trust Fund established to manage the province’s share of petroleum royalties. The fund’s net financial assets were US12.9 billion (C17.4 billion) on March 31, 2018. It is invested in a globally diversified portfolio of public and private equity, fixed income, and real assets. The fund follows the voluntary code of good practices known as the “Santiago Principles” and participates in the IMF-hosted International Working Group of SWFs. 45 percent of the Heritage Fund is currently held in equity investments, 14 percent of which are Canadian equities. The fund is currently heavily invested in the U.S. dollar (16 percent of total currency) with more than USD2.9 billion in reserves.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2017||$1,583,000||2017||$1,653,000||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in Partner Country ($M USD, stock positions)||2017||$299,609||2017||$391,208||BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm|
|Host Country’s FDI in the U.S. ($M USD, stock positions)||2017||$373,904||2017||$523,761||BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm|
|Total Inbound Stock of FDI as % host GDP||2017||39%||2017||40%||N/A|
*Host Country Source, Office of the Chief Economist, 2017 FDI Stats, Global Affairs Canada.
Note: Data converted to U.S. dollars using yearly average currency conversions from IRS
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$610,396||100%||Total Outward||$830,445||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$1,513,140||100%||All Countries||$1,204,811||100%||All Countries||$308,328||100%|