Foreign Ownership in Canada [3.4.2]

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Canada imposes foreign ownership restrictions in the telecommunications sector. Specifically, section 16 of the Telecommunications Act[1] requires that in order to be eligible to operate in Canada, a telecommunications common carrier must be a “Canadian-owned and controlled corporation,” incorporated or continued under the laws of Canada. In 2002, the Canadian Government requested that the Standing Committee on Industry, Science and Technology undertake a review of the foreign restriction limitations in Canada . The Committee found that restrictions on foreign investment have impeded capital investment by new entrants as well as the growth and productivity of the telecommunications sector, and recommended that the Government remove the existing minimum Canadian ownership requirements, including the requirement of Canadian control, applicable to telecommunications common carriers.[2] The Committee's view was that the Investment in Canada Act, which prescribes thresholds that, if passed, make the foreign acquisition of a Canadian business subject to a “net benefit” review by the Minister of Industry would provide the Canadian government with adequate legislation to ensure that substantial foreign ownership will be exercised consistently with public interest and will not threaten Canadian sovereignty.[3] To date, however, Canada has not changed its foreign ownership restrictions in the telecommunication sector.

ENDNOTES

[1] Canada, Telecommunications Act 1993. Canadian ownership and control is defined as follows: (a) not less than 80% of the members of the board of directors of the corporation are individual Canadians; (b) Canadians beneficially own, directly or indirectly, in the aggregate and other than by way of security only, not less than 80% of the corporation's voting shares issues and outstanding; and (c) the corporation is not otherwise controlled by persons that are not Canadians.

[2] “Opening Canadian Communications to the World,” Report of the Standing Committee on Industry, Science and Technology, April 2003.

[3] Id. at Chapter 3. See also http://strategis.ic.gc.ca/epic/internet/inica-lic.nsf/en/home?OpenDocument . The threshold for review in 2005 for direct acquisitions by WTO investors is $250 million. The “net benefit” to Canada is determined by the following factors: (i) the effect on the level of economic activity in Canada, including the effect on employment, on resource processing, on the utilization of parts and services produced in Canada and on the exports from Canada; (ii) the degree and significance of participation by Canadians in the Canadian business or new Canadian business and in any industry or industries in Canada; (iii) the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; (iv) the effect of the investment on competition within an industry in Canada; (v) the compatibility of the investment with national industrial, economic and cultural policies; and (vi) the contribution of the investment to Canada's ability to compete in world markets.

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