Foreign Investment Review Act

Summary of Foreign Investment Review Act

An act of the Canadian Parliament directed toward protection of Canada's economy from domination by foreign direct and portfolio investment. The act is concerned with the establishment or takeover of Canadian businesses only; the acquisition of shares in Canadian firms, where such acquisition does not constitute control, is not subject to the act.

The act provides that “non-eligible”persons (anyone other than a resident Canadian or landed immigrant) must apply to the Foreign Investment Review Agency (FIRA) to establish or acquire a business or businesses in Canada, or to expand an existing business. In considering an application by such persons (including firms controlled by them), FIRA will address numerous factors including, inter alia: the effect of the investment on the Canadian economy, including employment, resource processing, and export potential; the degree of participation by Canadians in the enterprise, and the industry as a whole; the effect the proposed venture would have on advancing Canadian technology and industry; the competitive effect on established Canadian businesses; and compatibility with Canadian economic policies.

With the exception of small businesses (defined as having gross assets under two million dollars and fewer than one hundred employees), the act applies to investments in every sector of Canada's economy.

The Foreign Investment Review Act has been strongly criticized by many foreign governments, especially the United States, as arbitrary and protectionist, and was, in 1984, the object of formal enquiry before the General Agreement on Tariffs and Trade.

In December 1984, the newly elected Conservative government introduced the Investment Canada Act, which would abolish FIRA and encourage foreign investment. Under the proposed law, a new agency, Investment Canada, would be established: this agency would be limited to reviewing: (1) direct takeovers of Canadian firms having gross assets of more than five million dollars; (2) indirect takeovers (i.e., the acquisition of a Canadian firm by reason of the purchase of its foreign parent) where the acquired Canadian company has gross assets of more than fifty million dollars; (3) acquisition by foreigners of certain “culturally sensitive”enterprises.

The Investment Canada Act was approved by the House of Commons in June 1985, and awaits Senate approval and the Royal Assent, which are assured. It is contemplated that the new act will be fully implemented with supporting regulations by the end of 1985.

(Main Author: William J. Miller)