The updated National Security Review Guidelines foreshadow that foreign investment and foreign investors that have historically been unlikely to raise national security risk may now be subject to increased scrutiny and longer reviews. With this significant change to the factors considered in evaluating national security risks, it is more important than ever to seek regulatory advice in the early stages of transaction planning to ensure appropriate regulatory strategies are in place.
Key Takeaways
On 5 March 2025, the Minister of Innovation, Science and Industry ("Minister") announced updates to Canada's National Security Review Guidelines in response to concerns that foreign investors will unfairly target Canadian businesses adversely affected by the US-Canada trade war. Prime Minister Justin Trudeau previewed this risk and forthcoming policy updates during a national address on 4 March 2025 stating that Canada will "take measures to prevent predatory behaviour that threatens Canadian companies because of the impacts of this trade war, leaving them open to takeovers."
With a weakening Canadian dollar and the foreclosure of a major export market due to the US tariffs, Canadian businesses may face declining valuations and liquidity challenges which could incentivize foreign investors to acquire Canadian businesses. Canada's foreign investment law and policy has significantly evolved over the past few years to recognize new potential threats, including in relation to Canada's critical minerals, digital media, foreign takeover threats during the COVID-19 pandemic, and investments from adversarial foreign states, and has undergone incremental change to strengthen the ICA's national security review provisions.
All foreign investment in Canada is subject to the national security review provisions of the ICA. The updated National Security Review Guidelines now explicitly recognize economic security as a factor that will be considered when assessing foreign investment for potential national security concerns. In particular, the Minister will consider "the potential of the investment to undermine Canada's economic security through the enhanced integration of the Canadian business with the economy of a foreign state", which may include an assessment of the Canadian business' size, its place in the innovation ecosystem, and the impact on Canadian supply chains, among other factors. The broad framing of the economic security factor will provide the Canadian government with significant discretion to impose conditions on or seek to prohibit transactions that exploit businesses adversely impacted by the US tariffs, or any other economic conditions.
The Government of Canada has also replaced the existing "sensitive technology areas" with the Sensitive Technology List published in early February 2025, which identifies 11 technology areas considered to be sensitive for the purposes of foreign investment review. Foreign investments involving a listed technology will be subject to increased scrutiny under the ICA to mitigate economic and national security threats in the sensitive technology sector.
Historically, investment from the US has been viewed as "safe" and largely spared from the magnifying glass applied to foreign investment from other jurisdictions, including Russia and China. However, for the first time, the 2023-2024 Investment Canada Act Annual Report confirmed that a US investment was subject to a national security review, which led to the withdrawal of the investment.
In uncertain economic times, the focus on Canada's economic security will cast a shadow across all foreign investment, including from US investors, though it is unlikely to be a bar to foreign investment in most cases. Businesses should continue to explore commercial opportunities in Canada, but engage regulatory counsel early and be prepared for potentially longer regulatory reviews in foreign investments that may have been unlikely to raise concerns a few weeks ago. With the right regulatory strategies, many deals can still be navigated to success.
Baker McKenzie's Canadian Foreign Investment Review and Trade Teams are available to answer any questions on the latest Canadian foreign investment and Canada-US tariff developments.
