Ottawa has recently put forth major initiatives to protect against national security threats from China, including the Indo-Pacific and critical minerals strategies along with significant updates to legislation surrounding foreign investment.
Carleton University business professor Ian Lee says the updates to the Investment Canada Act (ICA) are part of a “restructuring of globalization” toward “friendshoring,” aiming to increase coordination among like-minded allies. Canada is thus aligning itself more closely with the U.S. sphere of influence and distancing itself from China, he added.
The Dec. 7 announcement of modernizing the ICA is said to be country-agnostic; however, the feds described China as an “increasingly disruptive global power” in its Indo-Pacific Strategy released Nov. 27.
China has not respected Western democratic norms since its admission to the World Trade Organization about 20 years ago, Lee said, giving as examples the rule of law, respect for human rights, and adherence to intellectual property (IP) norms.
The ICA’s top priorities to protect that were mentioned by François-Philippe Champagne, minister of innovation, science and industry, include critical minerals, sensitive technologies like quantum and artificial intelligence, and personal data.
While the proposed amendments to the ICA will bring greater scrutiny to investments from foreign sources, concerns have been raised that the act should not deter much-needed investment from allies and that it must protect IP.
Protecting IP
The problem is that IP could get transferred before completion of the national security review.
In response, one of the ICA amendments is to give the minister authority to impose interim conditions during the review—to reduce the risk to national security during the review itself, like preventing possible transfer of trade secrets, for example.
“Sometimes we can’t necessarily block a transaction, but we want to make sure that there are conditions respected. That’s what our neighbours to the south do,” Champagne told reporters on Dec. 7.
“The measures are somewhat useful,” Richard C. Owens, a lawyer (retired) specializing in IP, technology, and business, told The Epoch Times.
He said IP can be very easily misappropriated depending on the form it takes and the complexity of the sector in which it originates, and the ministries involved “can’t know how IP works in every sector.”
“Moreover, pre-investment due diligence and discussions are notorious sources of IP leakage and will continue to depend on the vigilance and sophistication of the private enterprise involved,” Owens added.
In a 2021 analysis, retired U.S. Navy captain Stu Cvrk said the Chinese regime uses foreign direct investment to acquire Western companies for the purpose of acquiring cutting-edge technologies and IP.
“The Chinese regime invests in foreign S&T [science & technology] development as a mechanism to fill technology holes in Chinese technical sectors,” he wrote.
Canada’s oilsands had in the past been singled out as being of particular interest to the Chinese regime, as it would get access to the advanced technology and expertise of oilsands development such as extraction and fracking. Now, the battleground is critical minerals given their usefulness in the energy transition.
Critical Minerals
Canada’s new Critical Minerals Strategy, released Dec. 9, will include a focus on lithium and copper. China is currently the dominant player globally in critical minerals.
Donald S. Bubar, CEO of Avalon Advanced Materials Inc., noted the benefits of the right kind of foreign investment to Canadian miners.
“I think they should be encouraging more non-Chinese investment for sure in Canadian resources,” he said in an interview. The company he leads focuses on metals and minerals for clean energy and new technology, such as lithium.
“Working with some of these companies to help define the most efficient way to produce it makes a lot of sense actually,” he said.
Bubar says that for mining, Canada hasn’t created a lot of IP while major international companies are focused more on metals and minerals processing technologies and the reduction of environmental impacts from mining.
Ottawa, on Nov. 2, ordered three Chinese companies to sell their investments in Canadian lithium companies; however, the $960 million takeover of Canadian firm Neo Lithium by Chinese mining giant Zijin, announced in October 2021, remains a done deal.
In the government’s fiscal year 2020–21, two divestiture orders were given and one transaction was blocked under the ICA.
Fine Balance
During a Dec. 7 technical briefing by Innovation, Science and Economic Development (ISED) Canada, journalists raised questions as to how the ICA updates would impact in-bound investment coming from allies including the United States.
According to the backgrounder on the ICA update, “The government is working to ensure that Canada’s foreign investment review regime continues to strike the right balance between promoting foreign direct investment and protecting Canada’s interests.”
Lee says Ottawa is “trying to walk a fine line and balance the needs for foreign investment,” pointing out that the need arises out of Canada being a huge country geographically but having a relatively small population.
The International Monetary Fund (IMF) reported on Dec. 7 that the United States is the world’s top destination for foreign direct investment.
Canada is not in the top 10, according to the IMF, despite Champagne saying that “Canada is a very attractive place to invest.” The minister has also said he’s not concerned the ICA update will stem the flow of venture capital from allies.
More Transparency and Efficiency
The feds want to bring more clarity, efficiency, and transparency to the foreign investment national security review process, which would allow foreign investors and Canadian businesses to plan more effectively.
As an example, the attempted takeover of Canadian infrastructure firm Aecon by a Chinese state-owned construction enterprise was announced in October 2017 and ultimately rejected on national security grounds in May 2018.
ISED told The Epoch Times that it wouldn’t comment on specific transactions as to how the updates to the ICA would ameliorate the process.
“While the ICA restricts our ability to provide details about specific transactions, we can note that every investment is reviewed on its merits,” ISED said.
The national security review process was introduced in 2009, and Ottawa says the amendments are the most significant changes since then.
The new bill proposes seven amendments to the ICA, including a pre-implementation filing for specific investments. One of the aims of this new rule is to prevent the transfer of IP before the government becomes aware of the transaction.
“These changes will help align the [Investment Canada] Act with changing global dynamics and enable it to be more agile,” according to the ISED news release.
Another amendment allows for greater sharing with allies. The minister can disclose information about an investor to international partners in order to support the national security review.
Champagne said, “Our Five Eyes partners, our G7 partners, everyone is tightening up now in light of the new geopolitical reality that we have to face.”
