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FM AMEMBASSY OTTAWA
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UNCLAS SECTION 01 OF 07 OTTAWA 000034 
 
SIPDIS 
 
STATE PASS USTR 
STATE PASS OPIC 
 
STATE FOR EB/IFD/OIA (HATCHER, HICKS)AND WHA/CAN 
TREASURY FOR DO/JMACLAUGHLIN 
USDOC FOR ITA/JKOZLOWICKI 
USTR FOR JKALLMER 
OPIC FOR RO'SULLIVAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB USTR OPIC PGOV CA
SUBJECT:  2009 INVESTMENT CLIMATE STATEMENT FOR CANADA 
 
REF:  08 STATE 123907 
 
(U)  The 2009 Investment Climate Statement for Canada (ICS) follows 
below.  The ICS - which is part of the Country Commercial Guide - is 
also being emailed to EB/IFD/OIA. 
 
Begin text of 2009 ICS for Canada 
 
Chapter 6: Investment Climate 
 
Openness to Foreign Investment 
 
General Attitude 
 
Strong economic fundamentals, proximity to the U.S. market, highly 
skilled employees, and abundant resources are key attractions for 
American investors in Canada.  With few exceptions, Canada offers 
full national treatment to foreign investors within the context of a 
developed open market economy operating with democratic principles 
and institutions.  Canada is, however, one of the few OECD countries 
that still has a formal investment review process.  Foreign 
investment is also prohibited or restricted in several sectors of 
the economy. 
 
Canada's economic development relies on foreign investment flows to 
a significant extent.  The Canadian government estimates that 
foreign investors control about one quarter of Canada's nonfinancial 
corporate assets.  The stock of global foreign direct investment in 
Canada jumped to CDN$509 billion in 2007, a 14.4 percent increase 
from 2006 levels.  U.S. investment accounted for 58 percent of the 
total, down three percentage points from 2006.  The stock of global 
foreign direct investment in Canada over the first three quarters of 
2008 totaled C$525.7 billion. 
 
The United States and Canada agree on important foreign investment 
principles, including right of establishment and national treatment. 
 The 1989 Free Trade Agreement (FTA) recognized that a hospitable 
and secure investment climate is necessary to achieve the full 
benefits of reducing barriers to trade in goods and services.  The 
FTA established a framework of investment principles sensitive to 
U.S. and Canadian interests while assuring that investment flowed 
freely between the two countries and investors were treated in a 
fair and equitable manner.  The FTA provided higher review 
thresholds for U.S. investment in Canada than for other foreign 
investors, but the agreement did not exempt all American investment 
from review nor did the agreement override specific foreign 
investment prohibitions, notably in "cultural industries" (e.g., 
publishing, film, music). 
 
The 1994 North American Free Trade Agreement (NAFTA) incorporated 
the gains made in the FTA, expanded the coverage of the Investment 
chapter to several new areas, and broadened the definition of 
investors' rights.  The NAFTA also created the right to binding 
investor-state dispute settlement arbitration in specific 
situations. 
 
Legal Framework: The Investment Canada Act 
 
Since 1985, foreign investment policy in Canada has been guided by 
the Investment Canada Act (ICA), which replaced the more restrictive 
Foreign Investment Review Act.  The ICA liberalized policy on 
foreign investment by recognizing that investment is central to 
economic growth and key to technological advancement.  The ICA also 
provided for review of large acquisitions by non-Canadians and 
imposed a requirement that these investments be of "net benefit" to 
Canada.  For the vast majority of small acquisitions, as well as the 
establishment of new businesses, foreign investors need only notify 
the Canadian government of their investment. 
Qthe Canadian government of their investment. 
 
Industry Canada must be notified of any investment by a non-Canadian 
to establish a new business, regardless of size; to acquire direct 
control of an existing business that has assets of at least CDN$5 
million; or to acquire the indirect control of an existing Canadian 
business with assets with assets exceeding CDN$50 million in value. 
However, the review threshold is higher for firms from World Trade 
Organization (WTO) member countries, including the United States. 
In 2008, the review threshold for WTO members was CDN$295 million, 
rather than the CDN$5 million level applicable to non WTO investors. 
 For 2009, the review threshold is expected to be CDN$312. 
 
Investment in specific sectors is covered by special legislation. 
 
OTTAWA 00000034  002 OF 007 
 
 
For example, foreign investment in the financial sector is 
administered by the federal Department of Finance. Investment in any 
activity related to Canada's cultural heritage or national identity 
is administered by the Department of Canadian Heritage.  Under 
provisions of Canada's Telecommunications Act, foreign ownership of 
transmission facilities is limited to 20 percent direct ownership 
and 33 percent through a holding company, for an effective limit of 
46.7 percent total foreign ownership.  The Broadcast Act governs 
foreign investment in radio and television broadcasting.  (See below 
for more detail on these restrictions.) 
 
In addition to federal regulation, investment in Canada is also 
subject to provincial jurisdiction.  Restrictions on foreign 
investment differ by province, but are largely confined to the 
purchase of land and to provincially regulated financial services. 
Provincial government policies relating to, inter alia, culture, 
language, labor relations or the environment, can be a factor for 
foreign investors. 
 
U.S. foreign direct investment in Canada is subject to provisions of 
the Investment Canada Act, the WTO, and the NAFTA.  Chapter 11 of 
the NAFTA ensures that future regulation of U.S. investors in Canada 
(and Canadian investors in the United States) results in treatment 
no different than that extended to domestic investors within each 
country, i.e., "national treatment."  Both governments are free to 
regulate the ongoing operation of business enterprises in their 
respective jurisdictions provided the governments accord national 
treatment to both U.S. and Canadian investors. 
 
Existing U.S. and Canadian laws, policies, and practices were 
"grandfathered" under the NAFTA except where specific changes were 
required.  This "grandfathering" froze various exceptions to 
national treatment provided in Canadian and U.S. law, such as 
foreign ownership restrictions in the communications and 
transportation industries.  The Canadian government retains the 
right to review the acquisition of firms in Canada by U.S. investors 
at the levels applicable to other WTO members and has required 
changes before approving some investments. 
 
The U.S. and Canadian governments are free to tax foreign-owned 
companies on a different basis from domestic firms, provided this 
does not result in arbitrary or unjustifiable discrimination.  The 
governments can also exempt the sale of Crown (government owned) 
corporations from any national treatment obligations.  Finally, the 
two governments retain some flexibility in the application of 
national treatment obligations.  They need not extend identical 
treatment, as long as the treatment is "equivalent." 
 
Services Trade 
 
Bilateral services trade is largely free of restrictions, and the 
NAFTA ensures that restrictions will not be applied in the future. 
However, preexisting restrictions, such as those in the financial 
sector, were not eliminated by the NAFTA.  The NAFTA services 
agreement is primarily a code of principles that establishes 
national treatment, right of establishment, right of commercial 
presence, and transparency for a number of service sectors 
specifically enumerated in annexes to the NAFTA.  The NAFTA also 
commits both governments to expand the list of covered service 
sectors (except for the financial services covered by NAFTA Chapter 
Qsectors (except for the financial services covered by NAFTA Chapter 
14). 
 
Federal Procurement 
 
 
NAFTA grants U.S. firms that operate from the United States national 
treatment for most Canadian federal procurement national treatment 
for most Canadian federal procurement opportunities. 
Interprovincial trade barriers, however, often exclude U.S. firms 
established in one Canadian province from bidding on another 
province's procurement opportunities.  As a first step in the 
ongoing and difficult process of reducing trade barriers within 
Canada, the Canadian federal, provincial, and territorial 
governments negotiated an Internal Trade Agreement that came into 
effect on July 1, 1995.  The Agreement provides a framework for 
dealing with intra-Canada trade in ten specific sectors and 
establishes a formal process for resolving trade disputes.  In an 
attempt to further reduce interprovincial trade barriers, the 
provinces of British Columbia and Alberta signed a Trade, 
Investment, and Labor Mobility Agreement (TILMA) in 2006 to ensure 
that any provincial measures will not "operate to impair or restrict 
 
OTTAWA 00000034  003 OF 007 
 
 
trade between or through the territory of the Parties, or investment 
or labor mobility between the Parties."  The Agreement will come 
into full force in April 2009. 
 
Besides the areas described above, the NAFTA includes provisions 
that enhance the ability of U.S. investors to enforce their rights 
through international arbitration; prohibit a broad range of 
performance requirements, including forced technology transfer; and 
expand coverage of the NAFTA investment chapter to include portfolio 
and intangible investments, as well as direct investment. 
 
Investments in Cultural Industries 
 
Canada defines  cultural industries to include:  the publication, 
distribution or sale of books, magazines, periodicals or newspapers, 
other than the sole activity of printing or typesetting;  the 
production, distribution, sale or exhibition of film or video 
recordings, or audio or video music recordings; the publication, 
distribution or sale of music in print or machine-readable form; and 
 
any radio, television and cable television broadcasting undertakings 
and any satellite programming and broadcast network services. 
 
The Investment Canada Act (ICA) requires that foreign investment in 
the book publishing and distribution sector be compatible with 
Canadian national cultural policies and be of "net benefit" to 
Canada.  Takeovers of Canadian-owned and controlled distribution 
businesses are not allowed.  The establishment of new film 
distribution companies in Canada is permitted only for importation 
and distribution of proprietary products.  Direct and indirect 
takeovers of foreign distribution businesses operating in Canada are 
permitted only if the investor undertakes to reinvest a portion of 
its Canadian earnings in Canada. 
 
The Broadcasting Act sets out the policy objectives of enriching and 
strengthening the cultural, political, social, and economic fabric 
of Canada.  The Canadian Radiotelevision and Telecommunications 
Commission (CRTC) administers broadcasting policy.  Under current 
CRTC policy, in cases where a Canadian service is licensed in a 
format competitive with that of an authorized non-Canadian service, 
the commission can drop the non-Canadian service if a new Canadian 
applicant requests it to do so.  Licenses will not be granted or 
renewed to firms that do not have at least 80 percent Canadian 
control, represented both by shareholding and by representation on 
the firms' board of directors. 
 
While Canada allows up to 100 percent foreign equity in an 
enterprise to publish, distribute and sell periodicals, all foreign 
investments in this industry are subject to review by the Minister 
for Canadian Heritage, and investments may not occur through 
acquisition of a Canadian-owned enterprise.  No more than 18 percent 
of the total advertising space in foreign periodicals exported to 
Canada may be aimed primarily at the Canadian market.  Canadian 
advertisers may place advertisements in foreign-owned periodicals, 
and may claim a tax deduction for the advertising costs, including 
in cases where the periodical is a Canadian issue of a foreign-owned 
periodical.  One-half of advertising costs may be deducted in the 
case of publications with zero to 79 percent original editorial 
content, and the full cost of advertising may be deducted in the 
case of publications with advertising may be deducted in the case of 
Qcase of publications with advertising may be deducted in the case of 
publications with 80 percent or more original editorial content. 
This regime is the result of a 1999 agreement between the United 
States and Canada, which balanced U.S. publishers' desire for access 
to the Canadian market against Canada's desire to ensure that 
Canadian advertising expenditures support the production of Canadian 
editorial content. 
 
Investments in the Financial Sector 
 
Canada is open to foreign investment in the banking, insurance, and 
securities brokerage sectors, but there are barriers to foreign 
investment in retail banking.  Foreign financial firms interested in 
investing submit their applications to the Office of the 
Superintendent of Financial Institutions (OSFI) for approval by the 
Minister of Finance. U.S. firms are present in all three sectors, 
but play secondary roles.  Canadian banks have been much more 
aggressive in entering the U.S. retail banking market because there 
are no barriers that limit access.  Although U.S. and other foreign 
banks have long been able to establish banking subsidiaries in 
Canada, no U.S. banks have retail banking operations in Canada, 
which is regarded as a fairly "saturated" market.  Several U.S. 
 
OTTAWA 00000034  004 OF 007 
 
 
financial institutions have established branches in Canada, chiefly 
targeting commercial lending, investment banking, and niche markets 
such as credit card issuance. 
 
Chapter 14 of the NAFTA deals specifically with the financial 
services sector, and eliminates discriminatory asset and capital 
restrictions on U.S. bank subsidiaries in Canada.  The NAFTA also 
exempts U.S. firms and investors from the federal "10/25" rule so 
that they will be treated the same as Canadian firms.  The "10/25" 
rule prevents any non-NAFTA, nonresident entity from acquiring more 
than ten percent of the shares (and all such entities collectively 
from acquiring more than 25 percent of the shares) of a federally 
regulated, Canadian-controlled financial institution.  In 2001, the 
Canadian government raised the ten percent limit for single, 
non-NAFTA shareholders to 20 percent.  Several provinces, however, 
including Ontario and Quebec, have similar "10/25" rules for 
provincially chartered trust and insurance companies that were not 
waived under the NAFTA. 
 
Investments in Other Sectors 
 
Commercial Aviation:  Currently Canada limits foreign ownership of 
Canadian air carriers to 25 percent of voting equity.  In addition, 
foreigners may own nonvoting equity subject to the overall 
requirement that they are not permitted to control a Canadian air 
carrier.  The recently signed Canada-EU Aviation Agreement envisions 
changes to Canadian legislation that will allow up to a 49 percent 
foreign stake in Canadian airlines; but this will require action by 
the parliament and no specific date for the new limits to come into 
force have been announced. 
 
General Aviation:  No non-Canadian (other than Landed Immigrants) 
may register a general aviation aircraft for commercial or personal 
use in Canada. 
 
Energy and Mining:  Generally foreigners cannot be majority owners 
of uranium mines. 
 
Telecommunications:  Under provisions of Canada's Telecommunications 
Act, direct foreign ownership of Type I carriers (owners/operators 
of transmission facilities) are limited to 20 percent.  Ownership 
and control rules are more flexible for holding companies that wish 
to invest in Canadian carriers.  Under these rules, two thirds of 
the holding company's equity must be owned and controlled by 
Canadians. 
 
 
Fishing:  Foreigners can own up to 49 percent of companies that hold 
Canadian commercial fishing licenses. 
 
Electric Power Generation and Distribution:  Regulatory reform in 
electricity continues in Canada in expectation that increased 
competition will lower costs of electricity supply.  Province-owned 
power firms are also interested in gaining greater access to the 
U.S. power market.  Since power markets fall under the competency of 
the Canadian provinces, they are at the forefront of the reform 
effort.  The reforms will also help to further integrate the U.S. 
and Canadian electricity markets. 
 
Real estate:  Primary responsibility for property law rests with the 
provinces.  Prince Edward Island, Saskatchewan, and Nova Scotia all 
limit real estate sales to out-of-province parties.  There is no 
constitutional protection for property rights in Canada. 
Consequently, government authorities can expropriate property after 
paying appropriate compensation. 
 
 
Privatization:  Federal and provincial privatizations are considered 
QPrivatization:  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 Department 
of Transport did not impose any limitations in the 1995 
privatization of Canadian National Railway, whose majority 
shareholders are now U.S. persons. 
 
Investment Incentives 
 
Federal and provincial governments in Canada offer a wide array of 
investment incentives that municipalities are generally prohibited 
from doing.  None of the federal incentives are specifically aimed 
at promoting or discouraging foreign investment in Canada.  The 
incentives are designed to advance broader policy goals, such as 
 
OTTAWA 00000034  005 OF 007 
 
 
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). 
 
Provincial incentives tend to be more investor-specific and are 
conditioned on applying the funds to an investment in the granting 
province.  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.  Incentive 
programs in Canada generally are not oriented toward export 
promotion.  Provincial incentive programs for film production in 
Canada are available to foreign filmmakers. 
 
Conversion and Transfer Policies 
 
The Canadian dollar is fully convertible.  The Canadian government 
provides some incentives for Canadian investment in developing 
countries through Canadian International Development Agency (CIDA) 
programs.  Canada's official export credit agency, the Export 
Development Corporation (EDC), provides political risk insurance to 
Canadian companies with investments in foreign countries and to 
lenders who finance transactions pursued by Canadian companies 
abroad. 
 
Expropriation and Compensation 
 
Canadian federal and provincial laws recognize both the right of the 
government to expropriate private property for a public purpose, and 
the obligation to pay compensation.  The federal government has not 
nationalized any foreign firm since the nationalization of Axis 
property during World War II.  Both the federal and provincial 
governments have assumed control of private firms usually 
financially distressed ones after reaching agreement with the former 
owners.  In December 2008, the province of Newfoundland and Labrador 
acted to take control of assets relating to a U.S. company's 
operations in the province.  The action raised questions as to 
whether the province was expropriating rights and assets of the 
company - possibly without compensation. 
 
Dispute Settlement 
 
Canada is a member of the New York Convention of 1958 on the 
Recognition and Enforcement of Foreign Arbitral Awards.  The 
Canadian government has made a decision in principle to become a 
member of the International Center for the Settlement of Investment 
Disputes (ICSID).  However, since the ICSID legal enforcement 
mechanism requires provincial legislation, the federal government 
must also obtain agreement from the provinces that they will enforce 
ICSID decisions.  Although most provinces have endorsed the 
agreement, full agreement is unlikely in the foreseeable future. 
 
Canada accepts binding arbitration of investment disputes to which 
QCanada accepts binding arbitration of investment disputes to which 
it is a party only when it has specifically agreed to do so through 
a bilateral or multilateral agreement, such as a Foreign Investment 
Protection Agreement (see below).  The provisions of Chapter 11 of 
the NAFTA guide the resolution of investment disputes between NAFTA 
persons and the NAFTA member governments The NAFTA encourages 
parties to settle disputes through consultation or negotiation.  It 
also establishes special arbitration procedures for investment 
disputes separate from arbitration procedures for investment 
disputes separate from the NAFTA's general dispute settlement 
provisions. 
 
Under the NAFTA, a narrow range of disputes dealing with government 
monopolies and expropriation between an investor from a NAFTA 
country and a NAFTA government may be settled, at the investor's 
option, by binding international arbitration.  An investor who seeks 
binding arbitration in a dispute with a NAFTA party gives up his 
 
OTTAWA 00000034  006 OF 007 
 
 
right to seek redress through the court system of the NAFTA party, 
except for proceedings seeking nonmonetary damages. 
 
Performance Requirements and Incentives 
 
The NAFTA prohibits the United States or Canada from imposing export 
or domestic content performance requirements, and Canada does not 
explicitly negotiate performance requirements with foreign 
investors.  For investments subject to review, however, the 
investor's intentions regarding employment, resource processing, 
domestic content, exports, and technology development or transfer 
can be examined by the Canadian government.  Investment reviews 
often lead to negotiation of a package of specific "undertakings," 
such as agreement to promote Canadian products. 
 
Right to Private Ownership and Establishment 
 
Investors have full rights to private ownership. 
 
Protection of Property Rights 
 
Foreigner 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. 
 
Canada has yet to ratify key treaties that protect copyright works 
on the Internet (the World Intellectual Property Organization (WIPO) 
"Internet Treaties") that the government signed in 1997.  Refer to 
the copyright section of this report for more details.  U.S. (and 
many Canadian) companies have complained that Canada's enforcement 
regime against counterfeiting and piracy, both at the border and 
internally, is cumbersome and ineffective and further hampered law 
enforcement officials' legal restrictions from sharing information 
with rights holders 
 
Transparency of Regulatory System 
 
The transparency of Canada's regulatory system is similar to that of 
the United States.  Proposed legislation is subject to parliamentary 
debate and public hearings, and regulations are issued in draft form 
for public comment prior to implementation.  While federal and/or 
provincial licenses or permits may be needed to engage in economic 
activities, regulation of these activities is generally for 
statistical or tax compliance reasons.  The Bureau of Competition 
Policy and the Competition Tribunal, a quasi-judicial body, enforce 
Canada's antitrust legislation. 
 
Efficient Capital Markets and Portfolio Investment 
 
Investment in Canada's capital markets presents no problems to 
investors.  As described above, the markets are open, accessible, 
and without onerous regulatory requirements. 
 
Political Violence 
 
Political violence occurs in Canada to about the same extent as in 
the United States.  For example, protests at the April 2001 Summit 
of the Americas in Quebec City sparked violent confrontations that 
resulted in some property damage.  Protests at the North American 
Leaders, Summit in Montebello, QC in August 2007 led to 
confrontation between police and protesters. 
 
Corruption 
 
On an international scale, corruption in Canada is low and similar 
to that found in the United States.  In general, the type of due 
diligence that would be required in the United States to avoid 
corrupt practices would be appropriate in Canada.  Canada is a 
signatory to the UN Convention Against Corruption. 
Qsignatory to the UN Convention Against Corruption. 
 
Bilateral Investment Agreements 
 
While the terms of the FTA and the NAFTA guide investment relations 
between Canada and the United States, Canada has also negotiated 
international investment agreements with non-NAFTA parties.  These 
agreements, known as Foreign Investment Protection Agreements 
(FIPAs), are bilateral treaties that promote and protect foreign 
investment through a system of legally binding rights and 
 
OTTAWA 00000034  007 OF 007 
 
 
obligations based on the same principles found in the NAFTA.  Within 
Canada's overall foreign investment strategy, FIPAs complement the 
NAFTA.  Canada has negotiated FIPAs with countries in Central 
Europe, Latin America, Africa, and Asia, and has over 100 
international tax treaties in force. 
 
OPIC and Other Investment Insurance Programs 
 
Because Canada is a developed country, the U.S. Overseas Private 
Investment Corporation does not operate in Canada. 
 
Labor 
 
The federal government and provincial/territorial governments share 
jurisdiction for labor regulation and standards. Federal employees 
and those employed in the railroad, airline, and banking sectors are 
covered under the federally administered Canada Labour Code. 
Employees in most other sectors come under provincial labor codes. 
As the laws vary somewhat from one jurisdiction to another, it is 
advisable to contact a federal or provincial labor office for 
specifics, such as minimum wage and benefit requirements.   In 
response to the global economic crisis, Canada's unemployment rate 
rose at the end of 2008 to 6.6 percent. Nevertheless, Canada's 
employment rate remains historically high at 63.1 percent. While 
employment prospects for manufacturing are uncertain, jobs in 
commodities sectors should be more secure during the coming year. 
Recent figures for 2008 show the proportion of union membership 
among those in paid, nonagricultural employment at 29.4 percent. 
Overall union membership reflected a 16.3 percent unionized rate in 
the private sector and a 71 percent unionized rate in the public 
sector. 
 
Foreign Trade Zones/Free Ports 
 
Under the NAFTA, Canada operates as a free trade zone for products 
made in the United States.  U.S. made goods enter Canada duty free. 
 
Foreign Direct Investment Statistics 
 
The United States has long been Canada's top target for foreign 
investment, and Canada is the second largest recipient of U.S. 
direct investment after the United Kingdom.  At the end of 2007, 
Canada hosted some C$295 billion in direct foreign investment from 
U.S. investors.  U.S. investors with large direct investments in 
Canada include major automakers (GM, Ford, Chrysler), integrated 
energy, chemical and mineral producers (e.g., ExxonMobil, 
ChevronTexaco, ConocoPhillips), financial services firms (e.g., Bank 
of America), and retailers (e.g., Wal-Mart).  Canada's total inward 
FDI stock was about 30.7 percent of GDP. 
 
Canadian residents have become increasingly active as worldwide 
investors, and their net international liabilities have been 
shrinking over the past decade relative to national income.  The 
United States is the top destination for Canadian foreign direct 
investment, and Canada has consistently been one of the top ten FDI 
sources for the United States.  In 2007, Canadian foreign direct 
investment in the United States was C$226 billion.  Other major 
destinations for Canadian FDI are the United Kingdom, other European 
Union countries, and Japan. 
 
Wilkins