May 13, 2015 – Ottawa should end the economic review of foreign direct investment (FDI) into the country, according to a new C.D. Howe Institute report. In “Simplifying the Rule Book: a Proposal to Reform and Clarify Canada’s Policy on Inward Foreign Direct Investment,” author A.E. Safarian warns that Canada’s FDI regime needs reform, including scrapping the vague “net-benefit test.”
“Canada may seem to be doing reasonably well but our global share of FDI is not as high as it once was and it is becoming increasingly dependent on oil and gas,” remarks Safarian.
The author advocates an end to foreign investment economic review, leaving security to a separate committee, and closing some sectors completely or partially to foreign investment, as is now the case, but with these restrictions subject to periodic, mandatory reviews.
“The rationale behind my recommendation rests on the rejection of the widespread idea that securing controlling ownership of a Canadian-owned firm allows a foreign investor, whether or not a state-owned enterprise, to operate at will in Canada,” states Safarian. “Nothing could be further from the truth. There are a large number of regulations, both sectoral and general, for domestic investors which would also apply to the foreign investor.”
Under the author’s proposal, Industry Canada would cease reviewing inward FDI for compliance with a “net benefit” test and would be only one participant in a committee reviewing FDI proposals for national security concerns. It would take central responsibility for monitoring federal sectoral foreign ownership restrictions and would regularly review the effect of such restrictions, including an assessment of the need to keep them in place or to remove them. “Clearly, there needs to be continuing analysis of sectoral limits as technology and government policies change over time,” he argues.
Safarian concludes: “It makes no sense to have separate rules that impose economic conditions on inward FDI different than those in place for domestic firms.”
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.
For more information contact: Daniel Schwanen, Vice President, Research, C.D. Howe Institute; 416-865-1904, or email: kmurphy@cdhowe.org.