In our October 2007 Bulletin, we reported that the Honourable Jim Prentice, Minister of Industry, had announced in a speech to the Vancouver Board of Trade that he intended to deal with the issue of national security in the context of foreign investment in Canada and that he would also be addressing specifically the issue of investment in Canada by state-owned enterprises ("SOEs").

On December 7, 2007, the Industry Minister announced the issuance of new Guidelines under the Investment Canada Act directed at clarifying how the Act will be applied to SOEs' future investments in Canada. In that connection, while acknowledging that Canada continues to welcome foreign investment and the benefits that it provides, Mr. Prentice stated that he wanted to ensure that potential SOE investors were aware how the Act would be applied to their investment proposals. In our view, any efforts to improve transparency as to the manner of the Act's administration will be welcomed by the business community.

Under the Investment Canada Act, foreign investments that meet the monetary threshold for review must be approved by the Minister of Industry, or in the case of investments in the cultural industries, by the Minister of Canadian Heritage, to ensure such investments provide net benefit to Canada.

Under the new Guidelines, the review of an investment by an SOE, which is defined as an enterprise that is owned or controlled directly or indirectly by a foreign government, will focus on ensuring that the "governance and commercial orientation" of the SOE will result in net benefit to Canada.

In reviewing an SOE investment, the Minister will continue to use the traditional benefit factors enumerated in section 20 of the Act but will, in undertaking that review, have particular regard to the corporate governance and reporting structure of the non-Canadian SOE investor. In this regard the Minister will, among other things, examine: (i) whether the SOE adheres to Canadian standards of "corporate governance (including, for example, commitments to transparency and disclosure, independent members of the board of directors, independent audit committees and equitable treatment of shareholders), and to Canadian laws and practices"; and (ii) how, and the extent to which, the non-Canadian is owned or controlled by the foreign state.

The Minister will also assess: (a) the ongoing ability of the Canadian business post-acquisition to operate on a commercial basis regarding export and processing location decisions; (b) the participation of Canadians in its operations in Canada and abroad; (c) the support of on-going innovation, research and development in Canada; and (d) the appropriate level of capital expenditures to maintain the Canadian business in a globally competitive position.

Before approving the investment, the Minister may require specific formal undertakings to Canada that address some or all of the foregoing factors. Compliance with any such undertakings will be monitored in accordance with usual practices under the Act.

The next shoe expected to drop will be the introduction of legislation aimed at protecting Canada's national security in the context of foreign investment. However, this new legislation will not be introduced until the new year based on comments made by the Minister.

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