Presentation on theme: "1 Key Foreign Investment Review Laws and Case Studies Presented at:China International Service Industries Forum November 22, 2009 Presented by:Mr. Jesse."— Presentation transcript:
1 Key Foreign Investment Review Laws and Case Studies Presented at:China International Service Industries Forum November 22, 2009 Presented by:Mr. Jesse I. Goldman Partner, Internal Trade and Customs Group Bennett Jones LLP One First Canadian Place, 34 th Floor, Toronto, Ontario, Canada Tel:
2 Overview of China’s Outward Foreign Direct Investment (“OFDI”) OFDI totaled 40.7 billion (US dollars) in 2008 Large state-owned enterprises are major players in China’s OFDI China investment is heavily focused in the resource (25%) and services sectors (47%)
3 United States All investors granted national treatment - no automatic review of large investments BUT… National Security Reviews – discretion to review transactions resulting in foreign control of US businesses to determine effect on national security “Control” - power, direct or indirect, whether or not exercised, to decide important matters affecting an agency Automatic review where investment involves: Entity controlled by foreign government Critical infrastructure
4 Canada Notification required for new Canadian business or acquisition of “control” of a Canadian business “Acquiring control” – majority of voting shares OR 1/3 of voting shares unless investor can prove no control Foreign investments above a certain value threshold triggers review and must be approved (must provide net benefit to Canada) Threshold for WTO Member Countries (lower for non-WTO members) Calculated annually (based on Canada’s GDP growth) 312 million in 2009 (CND dollars)
5 Canada Cont’d Threshold for investors from WTO Member countries: New thresholds on “enterprise value” – will increase to 600 million and to 1 billion over the next 4 years Lower thresholds for protected sectors: cultural industries Indirect acquisitions not reviewable for investors from WTO Member countries, but subject to notification New Security Review Mechanism - can review investments where reasonable grounds exist to believe investment could be injurious to national security.
6 Australia Must notify government of certain investments : Direct investment by foreign governments or companies owned 15% or more by a foreign government (including new business) Investments in certain real estate Acquisition of “substantial interest” or “acquiring control” of business requires review and approval Threshold for review – 219 million (AUS dollars) “Substantial interest” or “control” - 15% of voting power or issued shares No notification or review for establishing new business (except if investor is foreign government)
7 Brazil Foreign investments generally not subject to review or verification BUT exceptions: must get approval for investment in financial sector and purchase of property near border areas require approval Mandatory registration with the Central Bank of Brazil Specific restrictions No investment in nuclear energy, health services, hydraulic power generation, or postal services Only 50 units of undefined exploration units can be acquired by foreigners 70% of capital of media must remain with Brazilians Foreign participation in public air transport limited to 20% of voting shares
8 India Most investments only require notification to Reserve Bank of India Prior approval by Foreign Investment Promotion Board required for: Certain sectors above permitted foreign equity ceilings Will also need clearance under national and state laws/regulations (e.g. environmental clearance) Restrictions – no investment in arms/ammunition, atomic energy, railway transport, coal and lignite, mining Negotiation of Bilateral Investment Treaty (“BIT”) between India and China
9 Russia All foreign investments must be registered with: Moscow Registration Chamber State Chamber Approval required for companies that have “strategic importance” to national security and defense Some Industries deemed to have to have strategic importance E.g. natural resource exploration/extraction, mass media, natural monopolies, space, weapons, aviation Entities controlled by foreign states acquiring control over any Russian business must be approved
10 Korea No approval required (some exceptions – i.e. foreign financial institutions) Notification of foreign investments to: Domestic or foreign bank offices in Korea Invest Korea OR Any one of KOTRA’s overseas trade centre Restrictions: no investment in television, radio broadcasting, and nuclear power generation 24 business sectors partially restricted Percentage of foreign ownership capped E.g. air transport – no more than 49% foreign equity E.g. farming of beef cattle – no more than 49% foreign equity
11 China Minmetals Corporation (2004) Facts: China Minmetals (SOE) negotiated to purchase Noranda Inc., Canada’s largest mining company. Opposition concerned that China Minmetals was likely to export raw materials and processing out of Canada. China Minmetals lost funding and deal fell through.
12 China Minmetals Corporation (2004) Key Considerations: Speculation that Canada would have blocked the deal – not likely to be of a net benefit to Canada. U.S. pressure on Canada to block Chinese investment in the energy sector Result: Development of “National Security” review that allows Canada to block foreign investments on grounds of national security
13 Teck Cominco Ltd. (2009) Facts: In July 2009, the CIC acquired 17.5% of class B subordinate voting shares in Teck Cominco, a Canadian mining company. The $1.7 billion deal received little opposition. New “national security” regulations were still in draft form.
14 Teck Cominco Ltd. (2009) Key Considerations: Little opposition because the CIC signed deal that was restrictive If National Security Regulations had been in force, CIC acquisition would have been subject to review. Investment Canada could have reviewed the investment up to 45 days after the acquisition on national security grounds.
15 Teck Cominco (2009) Results: Acquisition suggests that Canada’s concerns over Chinese investment in energy/natural resources sectors have subsided Recent $1.9 billion investment by PetroChina in two planned Canadian oil sands projects Provided no issues of “national security”, Canada’s foreign investment rules should not affect growth of the Chinese presence in Canada
16 Conclusions and Key Considerations Most countries require some from of notification of foreign investments Review and approval process often triggered by monetary thresholds or acquisition of "control" of domestic business Some countries moving towards greater openness and clarity Australia relaxed restrictions on residential real estate investment Canada changed monetary thresholds for investment review to lower number of reviewable investments Constitutional amendments in 1995 eliminated distinction between foreign and national capital in Brazil Problem for China: Investment by state-owned enterprise often triggers automatic review (e.g. Australia, Canada, US, Russia)
17 THANK YOU Mr. Jesse Goldman Partner, International Trade and Customs Group Bennett Jones LLP One First Canadian Place, 34 th Floor Toronto, Ontario M5X 1A4 Tel.: Toronto Office 3400-One First Canadian Place Toronto, ON M5X 1A4 Calgary Office 4500 Bankers Hall East 855 – 2nd Street S.W. Calgary, AB T2P 4K7 Edmonton Office 1000 ATCO Centre – 105 Street Edmonton, AB T5J 3T2 Ottawa Office 1900 World Exchange Plaza 45 O’Connor Street Ottawa, ON K1P 1A4