National Security Concerns Block Proposed Foreign Investment

New business from Chinese state-owned enterprise rejected by federal government

According to media reports, the Canadian government recently used the national security provisions in the Investment Canada Act (ICA) to block a Chinese state-owned enterprise from establishing a new business in Canada. The Chinese investor, Beida Jade Bird, planned to build a $30 million fire alarm manufacturing facility in Saint-Bruno de Montarville, Québec. The investment was reportedly prohibited because the site was located close to facilities operated by the Canadian Space Agency.

What You Need To Know

This is the first reported case in Canada involving the rejection of a foreign investment due to the proximity of the existing or planned Canadian business to a sensitive government facility. It is also the first case involving the rejection on national security grounds of a proposal to establish a new business (as opposed to the acquisition of an existing one).

The case illustrates the increasing and widespread use of the ICA to block foreign investments on national security grounds. There have been a number of "proximity" cases in the U.S., where foreign investments have been rejected due to the proximity of acquired facilities to military bases, presumably due to espionage risk, and the potential for Canada to take a similar approach has long been recognised by specialist advisers. The case also demonstrates the broad jurisdiction of the ICA where there is a potential national security concern: it covers proposals to establish new businesses, not simply proposals to acquire existing businesses, regardless of their size. For parties planning foreign investment transactions, the case should be taken as a reminder that national security risk assessments always ought to be part of the process.

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