CANADA TRENDS AND DEVELOPMENTS Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
threatens Canadian companies because of the impacts of this trade war, leaving them open to takeovers. Investments from US companies are now expected to be subject to a higher level of scrutiny under the Investment Canada Act (per - haps to the same extent as an investment from Russia.) On 5 March 2025, the Canadian government updated the guidelines to the Investment Cana - da Act to include the potential of an investment to undermine Canada’s economic security as a factor to consider. The stated concern is that in the “rapidly shifting trade environment” (a delicate way of referring to the trade war), some Canadian businesses could see their valuations decline, making them susceptible to oppor- tunistic or predatory investment behaviour by non-Canadians. When these businesses are important to Canada’s economic resiliency due to their size, their impact on the innovation eco- system, or their place in Canadian supply chains or those of allies on whom Canada relies, the Canadian government has taken the position that it would run counter to Canada’s interest to allow them to fall victim to this type of behaviour to the detriment of Canada’s national security. The announcement did not identify US investors specifically so it is likely that all non-Canadian investors will be subject to this additional level of scrutiny. Foreign acquirors of Canadian com - panies or assets should prepare for increased closing timelines in the event the ICA approval process becomes more aggressive. Government procurement All levels of government are contemplating excluding US companies from government pro - curement. Ontario, for example, has announced that US companies will be banned from CAD30 billion worth of procurement contracts. Many cities are doing the same. There will be varying
rules about US ownership and it is not clear the extent to which having a Canadian presence will be sufficient. Immigration policies Canada has long prided itself on its welcoming immigration policy. Many companies find Cana - da to be more attractive than the U.S. when they need workers since visas are more plentiful and faster in Canada. This may change. Canada is already committed to reducing the number of temporary foreign workers allowed into Canada. Tax policies A key government tool is tax policy. There is growing discomfort at the number of ostensibly Canadian companies that have US owners and yet receive generous subsidies or investment tax credits, such as the Scientific Research and Experimental Development (SR&ED) tax credit. The Canadian government may revisit its tax policies in order to provide better protection for Canadian companies. Free trade agreements are in tatters The tariffs imposed by the United States are a clear breach of the United States – Mexico – Canada Agreement (the USMCA). Canada is fil - ing a grievance under the USMCA, for what that is worth. Donald Trump took credit for renego- tiating the USMCA in his first term as the Presi - dent and has now effectively ripped it up. Canada will be cautious in its future negotiations with the United States given that it is now viewed as an unreliable trading partner. The USMCA covers a lot of different industries, all of which may be subject to changing government poli - cies. The USMCA by its terms is up for renewal in the summer of 2026. There is little doubt that those negotiations will be challenging.
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