- Threshold for review of foreign deals rises to C$1.5 billion
- New government must decide whether to ratify TPP agreement
Canada’s universe of foreign-investment restrictions is shrinking further.
The published text of the Trans Pacific Partnership shows Canada will more than double the threshold at which foreign acquisitions are currently reviewed from signatory countries to C$1.5 billion ($1.1 billion), the same level that already applies to the country’s existing free-trade partners.
The planned changes are consistent with former Prime Minister Stephen Harper’s strategy of easing investment restrictions with the country’s historical trade links -- North America, Europe, Japan -- while increasing scrutiny of investments from outside of Canada’s historical commercial partnerships, targeted largely at emerging countries such as China.
“Having fewer barriers to investment is usually a good thing,” said Peter Glossop, who advises on competition and antitrust matters at law firm Osler, Hoskin & Harcourt LLP in Toronto. “The big question is when all of this will come into force.”
It now falls to Prime Minister Justin Trudeau’s Liberal government to ratify the Pacific trade pact. On Wednesday, he named former journalist Chrystia Freeland as his minister of international trade and one of her first tasks will be to review the agreement, which Harper signed on to two weeks before last month’s election.
“We believe in trade. We understand that Canada is a trading nation,” Freeland told reporters Thursday, pledging to review the pact and submit it to a vote in parliament, where her party holds a majority. “What we really want to have happen now is a period for Canadians to become familiar with this agreement.”
Canada is also raising the threshold for reviewing foreign investment from European Union countries to C$1.5 billion as part of its trade agreement with the region, which was signed in 2013 but has yet to be ratified. The pact with Europe means Canada would be obligated to raise the threshold for all countries it has free trade agreements with, including the U.S. regardless of the Pacific partnership accord.
Since the investment review thresholds were already poised to rise for U.S. and European companies, the big catch for Canada under the Pacific accord is Japan, which according to data from the Organization for Economic Development and Cooperation was responsible for $134 billion in outward foreign direct investment in 2013. With Japan and other signatories of the Pacific accord, Canada will be loosening access to about 60 percent of the world’s pool of foreign direct investment once trade pacts with the European Union and Pacific accord are finalized.
State-owned enterprises still have a lower threshold of C$369 million under all of the country’s trade agreements.
Foreign investors to Canada from countries that are not free-trade partners are faced with tighter restrictions. The threshold at which foreign acquisitions are reviewed from companies based in World Trade Organization-member countries is pegged at an enterprise value of more than C$600 million. The threshold will increase to C$800 million in two years, and then rise to C$1 billion two years after that. Once it hits that level, the threshold will be indexed to nominal gross domestic product growth.