Canada’s Prime Minister Announces Plan to Relax Foreign Investment Restrictions

Excerpt from North American Free Trade & Investment Report
published by WorldTrade Executive, Inc.

by Kim D. G. Alexander-Cook (Stikeman Elliott LLP)

Prime Minister and Conservative Party Leader Stephen Harper announced on September 12 that his party would seek to lift some of Canada’s restrictions on foreign investment if it is returned as the government in the October 14 federal election.

Currently, Canada’s Investment Canada Act requires review and approval of direct acquisitions of Canadian businesses by non-Canadians where Canadian assets exceed a $295 million (adjusted annually) threshold, with lower thresholds applying to direct and indirect acquisitions of Canadian businesses in four “sensitive sectors” — uranium mining, financial services, transportation services and “cultural” businesses. In addition, Canada has sector-specific legislation and/or foreign ownership restrictions in broadcasting, telecommunications, cultural industries, transportation services and uranium production. As well, the financial services sector is subject to ownership restrictions of general application (but not foreign ownership restrictions).

The Prime Minister announced that a Conservative government would open up the airline and uranium-mining sectors to allow increased foreign investment, "subject to negotiation with our trading partners and to considerations of national security." In particular, airline ownership limits would be raised to 49 per cent from the current 25 per cent, as long as Canadian companies were offered reciprocal rights in other countries.

Only foreign investments of more than $1 billion would be reviewed under the Investment Canada Act, up from the current level of $295 million that applies to direct acquisitions, with the change phased in over a four-year period.

To sign up for free International Counsel Law and Finance Briefings

Mexico Enacts Important Commercial Litigation Reform

Excerpt from Latin American Law & Business Report
published by WorldTrade Executive, Inc.

By Oliver J. Armas, Luis Enrique Graham and Salvador Fonseca
(Chadbourne & Parke LLP)

A new system of "preventive" appeals, contained in the recently enacted reforms to the Mexican Code of Commerce, is designed to substantially reduce the complexities that currently tend to complicate commercial proceedings in Mexico.

The current system of appeals in commercial proceedings in Mexico is rather complicated. There are, for instance, intermediate and final appeals; the type of appeal depends on whether the challenge is directed against a resolution issued by the judge during the proceedings (intermediate appeal) or against the final resolution on the merits of the case (final appeal).

Currently, when filing an intermediate appeal, parties have to put forward all of their arguments and allegations before the court of appeals, even though there is the possibility that the issues discussed in the intermediate appeal will become moot once a resolution on the merits is rendered by the court of first instance. The reforms intend to remedy that.

The reforms, which will become effective July 16, 2008, primarily concern the appeals process. A new system of “preventive” appeals aims at substantially reducing the complexities that currently tend to complicate commercial proceedings in Mexico. The reforms also include new rules regarding documentary evidence and testimony from fact and expert witnesses; grant more time (15 instead of 9 business days) to file an answer, and harmonize default rules.

To learn more about Latin American Law & Business Report

To sign up to receive the free Latin American Law & Finance electronic briefing

Foreign Investment in the U.S.: Proposed Regulations

Excerpt from North American Free Trade & Investment Report
published by WorldTrade Executive, Inc.

By David J. Laing and Mark D. Menefee (Baker & McKenzie)

On April 21, 2008, the U.S. Department of Treasury issued proposed regulations which would implement the Foreign Investment and National Security Act of 2007 (“FINSA”). FINSA was enacted in July 2007 in response to what some members of Congress perceived as a failure of CFIUS to investigate thoroughly some investments into the United States. These are proposed regulations to implement FINSA, and these proposed regulations are subject to public comment before final implementation.

The focal point for the government’s review of foreign acquisitions will continue to be the inter-agency Committee on Foreign Investment in the U.S. (“CFIUS”), which is chaired by the Department of Treasury and which has been expanded to include additional agencies. CFIUS is authorized to investigate any foreign investments resulting in “control” of a U.S. entity by a foreign entity.

The proposed regulations would not fundamentally change the general U.S. policy of openness to foreign investments. The proposed regulations clarify what transactions would be subject to review and investigation by CFIUS, and set forth new procedures for notifying CFIUS of proposed transactions. However, FINSA and the proposed regulations confirm that future investments in U.S. entities by foreign entities will receive significantly increased scrutiny by CFIUS.

The regulations also would create important new requirements for the parties who submit voluntary notifications to the government concerning proposed transactions, or who enter into “mitigation agreements” with the U.S. government to reduce specific risks to the national security identified by CFIUS.

Given these proposed regulations, as well as CFIUS’s recent shift toward undertaking much more detailed reviews of transactions, we believe the key to a successful foreign investment in or acquisition of a U.S. company will be to use enhanced due diligence measures to (1) determine promptly if the transaction is covered by the regulations and if it involves critical technologies or infrastructure; (2) voluntarily notify and consult with CFIUS to identify any possible concerns by the government; and (3) if CFIUS expresses particular concerns, be prepared to modify the transaction and/or implement specific compliance procedures.

For more on North American Free Trade & Investment Report

To Sign Up for International Corporate Counsel

China: What Businesses are Open to Foreign Investors?

Excerpt from article in Practical China Tax and Finance Strategies prepared by By Janet Jie Tang , partner at the US law firm Akin Gump Strauss Hauer & Feld LLP and based in Beijing.

The threshold issue for every foreign investor investing in China is whether the business area it plans to invest is open to the foreign investor; if it is open, how open is open to the foreign investor. This threshold issue directly goes to the fundamental policy of the Chinese government regarding the Chinese industries.

One of the key legislations in this regard is the Catalogue Guiding Foreign Investment in Industries (the “Foreign Investment Catalogue”). The Foreign Investment Catalogue lists the business sectors where the Chinese government forbids, restricts (which means it is not forbidden but it is particularly regulated by the Chinese government) or encourages foreign investment. Anything outside of the Catalogue is deemed as a sector that the Chinese government allows for foreign investment. With the development of the Chinese economy and the adjustment of the industry policy due to such development, the Foreign Investment Catalogue, since it was initially issued in 1995, has been amended four times respectively in 1997, 2002, 2004 and 2007. The latest amendment became effective December 2007.

From the latest amendments to the Foreign Investment Catalogue, we can see the changes of the Chinese government’s attitudes towards foreign investment. For example,
(1) Purely export-oriented industries are no longer encouraged (this reflects our government’s adjustment of its policy on trade facing the tremendous trade surplus and rapid growth of the foreign exchange reserve in China);
(2) high-tech industries (such as new materials manufacturing) and certain service industries (such as modern logistics) are encouraged;
(3) For those industries involving natural resources that are non-renewable, they are either forbidden or restricted;
(4) For those business sectors, which may impact the national economic security, such as news websites, services of Internet audio-visual programs, business sites that provide Internet access services and Internet culture operations, they are no longer permitted for foreign investment, and now are forbidden for foreign investment.

For more information

Foreign Investment in the US: President Issues New Order

Excerpt of article by Reginald J. Brown, Lynn R. Charytan, Jamie Gorelick, Stephen W. Preston, Wilmer Cutler Pickering Hale and Dorr LLP in WorldTrade Executive's International Finance & Treasury

On January 23, President Bush issued an Executive Order (Order) amending Executive Order 11858, concerning foreign investment in the United States. The Order provides guidance concerning the implementation of the Foreign Investment and National Security Act (FINSA), which was signed into law on July 26, 2007. Such "guidance," which was issued pursuant to the President's "executive power" under Article II of the Constitution and under the Defense Production Act of 1950, has the full "force and effect of law" and is binding on the executive agencies that are members of the Committee on Foreign Investment in the United States (CFIUS or the Committee).[i]

The Executive Order has been the subject of speculation and some dispute for several months. Rumors abounded in CFIUS-watching circles that the Order was intended to empower the pro-business agency members of CFIUS, such as the Treasury Department, while reducing the role of the national security agencies. In response, the latter agencies, as well as members of Congress, made clear their view that this would undermine a key intention of the CFIUS reform enacted by FINSA.
More Information