1. Openness To, and Restrictions Upon, Foreign Investment
Canada and the United States (U.S.) have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2017, the U.S. had a stock of USD391 billion of foreign direct investment (FDI) in Canada. U.S. FDI stock in Canada represents 49 percent of Canada’s total investment. Canada’s FDI stock in the U.S. totaled USD523 billion.
U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes. NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds. The Canadian government has blocked investments on only a few occasions.
Canada, the United States, and Mexico completed negotiations for a modernized and rebalanced NAFTA agreement on September 30, 2018. The new United States-Mexico-Canada Agreement (USMCA) was signed by all three countries November 30, 2018 and will come into force after the completion of the domestic ratification processes by each individual member of the agreement. The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.
Although foreign investment is a key component of Canada’s economic development, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.
2. Bilateral Investment Agreements and Taxation Treaties
The NAFTA guides investment relations between Canada and the U.S. Investment relations with other states are governed by Foreign Investment Protection Agreements (FIPAs). These bilateral treaties promote and protect foreign investment through a system of legally binding rights and obligations based on the same principles found in the NAFTA. Canada has 37 FIPAs in force with countries in Central Europe, Latin America, Africa, and Asia. Canada is actively pursuing FIPAs with 14 countries including India, Pakistan, and Kosovo. Canada views China as an increasingly important trade and investment partner and ratified a FIPA with China in September 2014. The Canada-EU Comprehensive and Economic Trade Agreement (CETA) was signed in October 2016 and came into force provisionally in September 2017. Canada is a partner to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which entered into force in December 2018.
Canada has tax conventions or agreements with many countries, including the U.S.
4. Industrial Policies
Federal and provincial governments in Canada offer a wide array of investment incentives that municipalities are generally prohibited from offering. The incentives are designed to advance broader policy goals, such as boosting research and development or promoting regional economies. The funds are available to any qualified Canadian or foreign investor who agrees to use the monies for the stated purpose. For example, Export Development Canada can support inbound investment under certain specific conditions (e.g., investment must be export-focused; export contracts must be in hand or companies have a track record; there is a world or regional product mandate for the product to be produced). The government also announced the USD 940 million Strategic Innovation Fund in 2017, which provides repayable or non-repayable contributions to firms of all sizes across Canada’s industrial and technology
sectors in an effort to grow and expand those industries. One of the explicit goals of the program is to attract new investments to Canada.
The Liberal government invested USD 730 million over five years, beginning in 2018, to support five business-led supercluster projects that have the potential to accelerate economic and investment growth in Canada. The superclusters are now operational, and feature projects in digital technologies, food production, advanced manufacturing, artificial intelligence in supply chain management, and ocean industries. 450 businesses, 60 post-secondary institutions, and 180 other partners are involved in the supercluster projects. Several U.S. firms are participants, including Microsoft, Boeing, Lockheed Martin, and GE.
Several provinces offer an array of incentive programs and services aimed at attracting foreign investment that lower corporate taxes and incentivize research and development. The Province of Quebec officially re-launched its “Plan Nord” (Northern Plan) in April 2015, a 20-year sustainable development investment initiative that is intended to harness the economic, mineral, energy, and tourism potential of Quebec’s northern territory. Quebec’s government created the “Société du Plan Nord” (Northern Plan Company) to attract investors and work with local communities to implement the plan. Thus far, Plan Nord has helped finance mining projects in northern Quebec and began building the necessary infrastructure to link remote mines with ports. The provincial government is actively seeking other foreign investors who desire to take advantage of these opportunities.
Provincial incentives tend to be more investor-specific and are conditioned on applying the funds to an investment in the granting province. For example, Ontario’s Jobs and Prosperity Fund provides USD2.5 billion from 2013 to 2023 to enhance productivity, bolster innovation, and grow Ontario’s exports. To qualify, companies must have substantive operations (generally three years) and at least C10 million in eligible project costs. Alberta offers companies a 10 percent refundable provincial tax credit worth up to C400,000 annually for scientific research and experimental development encouraging research and development in Alberta as well as Alberta Innovation Vouchers worth C15,000 to C50,000 to help small early-stage technology and knowledge-driven businesses in Alberta get their ideas and products to market faster. Newfoundland and Labrador provide vouchers worth 75 percent of eligible project costs up to C15,000 for R&D, performance testing, field trials, and other projects.
Provincial incentives may also be restricted to firms established in the province or that agree to establish a facility in the province. Government officials at both the federal and provincial levels expect investors who receive investment incentives to use them for the agreed purpose, but no enforcement mechanism exists.
Incentives for investment in cultural industries, at both the federal and provincial level, are generally available only to Canadian-controlled firms. Incentives may take the form of grants, loans, loan guarantees, venture capital, or tax credits. Provincial incentive programs for film production in Canada are available to foreign filmmakers.
Foreign Trade Zones/Free Ports/Trade Facilitation
Under the NAFTA, Canada operates as a free trade zone for products made in the U.S. Most U.S. made goods enter Canada duty free.
Performance and Data Localization Requirements
Data localization is an evolving area in Canada. Privacy rules in two Canadian provinces, British Columbia and Nova Scotia, mandate that personal information in the custody of a public body must be stored and accessed only in Canada unless one of a few limited exceptions applies. These laws prevent public bodies such as primary and secondary schools, universities, hospitals, government-owned utilities, and public agencies from using non-Canadian hosting services.
The Canada Revenue Agency stipulates that tax records must be kept at a filer’s place of business or residence in Canada. Current regulations were written over 30 years ago and do not take into account current technical realities concerning data storage.
5. Protection of Property Rights
Foreign investors have full and fair access to Canada’s legal system, with private property rights limited only by the rights of governments to establish monopolies and to expropriate for public purposes. Investors from NAFTA countries have mechanisms available to them for dispute resolution regarding property expropriation by the Government of Canada. The recording system for mortgages and liens is reliable. Canada is ranked 34 in 2019 in the World Bank’s “Ease of Registering Property” rankings. About 89 percent of Canada’s land area is Crown Land owned by federal (41 percent) or provincial (48 percent) governments; the remaining 11 percent is privately owned. British Columbia began a 15 percent tax on foreign buyers of residential real estate in the Metro Vancouver area in August 2016.
). In early 2017, the province announced that foreign buyers with work permits would be exempt from the tax. In 2018, British Columbia increased this tax to 20 percent and expanded its geographical coverage to include several other metro areas, including that of the provincial capital Victoria.
A 2014 Supreme Court decision recognized the existence of aboriginal title on land in British Columbia, which has ramifications for aboriginal land claims across Canada. While stopping short of giving aboriginals a veto on projects, the decision gives them increased influence on the economic development of any land with a colorable (potentially valid) aboriginal title claim.
In terms of non-resident access to land, including farmland, Ontario, Newfoundland and Labrador, New Brunswick and Nova Scotia have no restrictions on foreign ownership of land. However, Prince Edward Island, Quebec, Manitoba, Alberta and Saskatchewan maintain measures aimed at prohibiting or limiting land acquisition by foreigners. The acreage limits vary by province, from as low as five acres in Prince Edward Island to as high as 40 acres in Manitoba. In certain cases, provincial authorities may grant exemptions from these limits, for instance for investment projects. In British Columbia, Crown land cannot be acquired by foreigners, while there are no restrictions on acquisition of other land.
Intellectual Property Rights
Canada was placed on the Watch List in the U.S. Trade Representative’s 2019 Special 301 Report. While this represents an improvement from 2018 when Canada was on the Special 301 Priority Watch List, Canada remains the only G7 country identified in the report. The report applauds Canada’s agreement to important intellectual property (IP) provisions in the USMCA that will significantly improve Canada’s IP environment once implemented. Canada’s commitment to high IP standards was welcomed through the seizure of suspected counterfeit items from the Pacific Mall in Ontario, which was listed in the 2017 Notorious Markets List. Right holders also report that Canadian courts have established meaningful penalties against circumvention devices and services. Canada has also made positive progress in reforming proceedings before the Copyright Board related to tariff-setting procedures for the use of copyrighted works.
Significant challenges to adequate and effective protection of IP rights remain in Canada, including poor border and law enforcement with respect to counterfeit or pirated goods, weak patent and pricing environment for innovative pharmaceuticals, deficient copyright protection, and inadequate transparency and due process regarding geographical indications.
Canada continues to exclude shipments of goods in-transit to the U.S. from counterfeit inspection, which permits large-scale shipments of counterfeit and pirated goods to enter our highly integrated supply chains.
On pharmaceuticals, Canada has drawn concern from stakeholders by proposing changes that would dramatically reshape how the Patented Medicine Prices Review Board evaluates patented pharmaceuticals and sets their ceiling prices. Further, the U.S. has serious concerns about the fairness of Canada’s Patented Medicines (Notice of Compliance) proceedings as amended in September 2017. Canada’s long-anticipated proposal to provide for patent term restoration for delays in obtaining marketing approval appears to be disappointingly limited in duration, eligibility, and scope of protection. The U.S. also has serious concerns about the breadth of the Minister of Health’s discretion in disclosing confidential business information.
Commercial-scale online piracy is a significant issue in Canada where some notorious copyright-infringing websites are hosted or operated. Stream-ripping, the unauthorized converting of a file from a licensed streaming site into an unauthorized copy, is now a dominant method of music piracy, including in Canada, causing substantial economic harm to music creators and undermining legitimate online services. Industry is also concerned with uneven application of new notice and notice regulations requiring Internet Service Providers (ISPs) to notify (and address) sites of trademark or copyright infringements. Canada’s ambiguous education-related exemption added to the 2012 copyright law has significantly damaged the market for educational publishers and authors. While Canadian courts have helped clarify this exception, confusion remains and the educational publishing sector reports lost revenue from licensing.
On Geographical Indications (GIs), the U.S. has concerns about lack of due process and transparency relating to the GI system in Canada, including commitments Canada made without public notification or opposition procedures to protect certain GIs under the Comprehensive Economic and Trade Agreement with the EU, which came into force provisionally on September 21, 2017. These measures negatively affect market access for U.S. agricultural producers. The U.S. prefers the protection or recognition of GIs, including with respect to existing trademarks, safeguards for the use of common names, and meaningful opposition and cancellation procedures.
6. Financial Sector
Capital Markets and Portfolio Investment
Canada’s capital markets are open, accessible, and without onerous regulatory requirements. Foreign investors are able to get credit in the local market. Canada has its own stock market, the Toronto Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. The World Economic Forum ranked Canada’s banking system as the second “most sound” in the world in 2018. Among other factors, Canadian banking stability is linked to high capitalization rates that are well above the norms set by the Bank for International Settlements. The Canadian government and Bank of Canada do not place restrictions on payments and transfers for current international transactions.
Money and Banking System
The Canadian banking industry is dominated by six major domestic banks, but includes a total of 29 domestic banks, 24 foreign bank subsidiaries, 27 full-service foreign bank branches and three foreign bank lending branches operating in Canada. The six largest banks manage close to USD4 trillion in assets. Many large international banks have a presence in Canada through a subsidiary, representative office, or branch of the parent bank. Ninety-nine percent of Canadians have an account with a financial institution.
Foreign financial firms interested in investing submit their applications to the Office of the Superintendent of Financial Institutions (OSFI) for approval by the Finance Minister. U.S. firms are present in all three sectors, but play secondary roles. U.S. and other foreign banks have long been able to establish banking subsidiaries in Canada, but no U.S. banks have retail banking operations in Canada. Several U.S. financial institutions have established branches in Canada, chiefly targeting commercial lending, investment banking, and niche markets such as credit card issuance.
The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are monetary policy, promoting a safe, sound, and efficient financial system, issuing and distributing currency, and being the fiscal agent for Canada.
Foreign Exchange and Remittances
Foreign Exchange Policies
Canada has a free floating exchange rate.
The Canadian dollar is fully convertible and the central bank does not place time restrictions on remittances. Canada provides some incentives for Canadian investment in developing countries through programs offered by Global Affairs Canada.
Sovereign Wealth Funds
Canada does not have a sovereign wealth fund, but the province of Alberta has the Heritage Savings Trust Fund established to manage the province’s share of petroleum royalties. The fund’s net financial assets were US12.9 billion (C17.4 billion) on March 31, 2018. It is invested in a globally diversified portfolio of public and private equity, fixed income, and real assets. The fund follows the voluntary code of good practices known as the “Santiago Principles” and participates in the IMF-hosted International Working Group of SWFs. 45 percent of the Heritage Fund is currently held in equity investments, 14 percent of which are Canadian equities. The fund is currently heavily invested in the U.S. dollar (16 percent of total currency) with more than USD2.9 billion in reserves.
7. State-Owned Enterprises
Canada has more than 40 state-owned enterprises (SOEs) at the federal level, with the majority of assets held by three federal crown corporations: Export Development Canada, Farm Credit Canada, and Business Development Bank of Canada. Canada also has over 100 SOEs at the provincial level that contribute to a variety of sectors including finance; power, electricity and utilities; and transportation. The Treasury Board Secretariat provides an annual report to Parliament regarding the governance and performance of Canada’s federal crown corporations and other corporate interests.
There are no restrictions on the ability of private enterprises to compete with SOEs. The functions of most Canadian crown corporations have limited appeal to the private sector. The activities of some SOEs such as VIA Rail and Canada Post do overlap with private enterprise. As such, they are subject to the rules of the Competition Act to prevent abuse of dominance and other anti-competitive practices. Foreign investors are also able to challenge SOEs under the NAFTA and WTO.
Federal and provincial privatizations are considered on a case-by-case basis, and there are no overall limitations with regard to foreign ownership. As an example, the federal Ministry of Transport did not impose any limitations in the 1995 privatization of Canadian National Railway, whose majority shareholders are now U.S. persons.
8. Responsible Business Conduct
Canada encourages Canadian companies to observe the OECD Guidelines for Multinational Enterprises in their operations abroad and provides a National Contact Point for dealing with issues that arise in relation to Canadian companies. Canada’s Corporate Social Responsibility strategy, “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad” is available on the Global Affairs Canada website: .
Despite the increased level of official attention paid to Responsible Business Conduct, the activities of Canadian mining companies abroad remain the subject of some critical attention and have prompted calls for the government to move beyond voluntary measures. Canada is a supporter of the Extractive Industries Transparency Initiative (EITI).
Canada’s National Contact Point for the OECD Guidelines for Multinational Enterprises
International Trade Portfolio Division
Global Affairs Canada
125 Sussex Drive
Ottawa, Ontario K1A 0G2
Tel: (1-343) 203-2341
Fax: (1-613) 944-1574
12. OPIC and Other Investment Insurance Programs
The U.S. Overseas Private Investment Corporation does not operate in Canada.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
*Host Country Source, Office of the Chief Economist, 2017 FDI Stats, Global Affairs Canada.
Note: Data converted to U.S. dollars using yearly average currency conversions from IRS
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$610,396||100%||Total Outward||$830,445||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$1,513,140||100%||All Countries||$1,204,811||100%||All Countries||$308,328||100%|