Dubai or not Dubai?: A review of foreign investment and acquisition laws in the U.S. and Canada

Vanderbilt Journal of Transnational Law, Nov, 2008 by Chris Lalonde

In promoting FINSA, the Bush administration largely touted the measure as a compromise of sorts with Congress and a means to improve and reform the CFIUS system. (52) The Treasury Department noted recent controversies over particular foreign investments as well as "troubling signs that other countries are pursuing barriers to foreign investment, and increasingly negative media coverage of the U.S. investment climate" as reasons necessitating the changes. (53) Others have said that these reforms would give Congress greater confidence in the CFIUS review process and would deter potential political conflicts over their decisions. (54) Proponents of the bill have also been quick to point out that scrutiny of such transactions has not affected U.S. openness to such deals because "CFIUS has reviewed on average only about 5 percent of such deals per year, restricting or blocking only a few" since 2000, and while foreign investment is still well below its peak in 2000 at $321 billion, there was a "sharp upsurge in 2006 that brought it to $183 billion." (55)

FINSA has not been entirely well received, however, as some have been critical of the changes required by the new Act. Critics have bristled at the extension of CFIUS review to transactions beyond those related specifically to homeland security and to those that implicate "critical infrastructure and critical technologies." (56) These critics are concerned about creating such broad standards that by "some estimates, the business sectors encompassed by these terms comprise over 65% of the domestic US economy," potentially bringing a significant part of the U.S. economy under the reach of CFIUS review. (57) There also appears to be a general distaste toward the prospect of a CFIUS application becoming a "required stop in the process of evaluating, negotiating and closing an investment in a US business with substantial industrial or technology activities." (58)

From its humble beginnings as Executive Order 11,858 to FINSA, CFIUS and Exon-Florio have come to define the quantity of foreign investment handled in the United States. (59) Over the years, CFIUS's power has grown to a level that has led to conflicts with other branches of the government regarding the balancing of national security concerns with the promotion of foreign investment. The pertinent quandary then becomes the maintenance of that balance, especially considering that foreign countries may be headed toward an approach less favorable to foreign investment.

III. CANADA: THE INVESTMENT CANADA ACT

A. Canadian Investment Before the Investment Canada Act

The strictness of Canadian governmental review of foreign investments has ebbed and flowed over the years based in part on public opinion and political control. (60) The Canadian approach has vacillated from laissez-faire to strict controls.

Prior to the 1970s, the Canadian investment climate was open to foreigners and free of significant barriers to completing foreign acquisitions transactions. (61) During the 1970s, however, concerns arose about the high level of foreign investment and its potentially negative effects on the economy. (62) The 1972 Gray Report legitimized the concerns finding that "nearly 60 percent of manufacturing activities and 76 percent of the energy sector were foreign controlled, and that, in certain industries, such foreign ownership exceeded 90 percent." (63) The Gray Report found that foreign investment was "so prevalent as to impede legitimate Canadian economic objectives" and recommended a general review policy for foreign investments. (64)