Ottawa’s national security designation for foreign investment and strategic technologies is a big step in the right direction

By Benjamin Bergen, Executive Director of the Council of Canadian Innovators

Among the cacophony of headlines in March — vaccines, provincial budgets, and the big boat blocking the Suez Canal — a seismic shift in Canada’s economic policy mindset didn’t grab much media play.

On March 24, in an unassuming statement headlined “Minister Champagne highlights updated guidelines on national security review of foreign investments,” the federal government formally declared that artificial intelligence, quantum science, space technology, energy storage and medical technology, among other technologies will be considered as potential national security factors in reviewing foreign takeovers.

Minister Champagne also issued a new mandate to develop a coordinated approach to safeguarding Canada’s research ecosystem.

The national security announcement was tied to a report from the House of Commons Industry Committee which recommended a broader suite of reforms to the Investment Canada Act. One of the major ideas behind the committee’s recommendations was that Ottawa should give more careful consideration to the role of intangible assets — data and intellectual property — when assessing the net benefit of foreign takeovers of Canadian companies.

The committee’s recommendations provide a roadmap for a major shift in Ottawa’s mindset toward foreign takeovers, that would put IP and data-rich Canadian firms on the same level so they can be carefully scrutinized like our regulators study transactions in the traditional economy of physical goods and infrastructure.

And we know that Minister Champagne is already convinced, because his new guidelines now state that sensitive personal data may also be a national security consideration in studying foreign acquisitions, which is entirely appropriate in a world where digital services create abundant amounts of health data, geolocation data, and other deeply personal information.

At the Council of Canadian Innovators, we’ve spent years talking about the importance of intangible assets as the central consideration in Canada’s economic development strategies, because they are the drivers of wealth-creation in the 21st century. Unlike takeovers of physical infrastructure, IP and data move seamlessly across borders with a stroke of a pen or the click of a mouse, which is why our presentation to the Industry Committee last spring advocated for the government to develop a new framework for the “net benefit” test that accounts for the transfer of intangible assets that may be of economic or security importance for Canada.

Intangible assets are where the action is in the 21st century economy and policymakers around the world — in the U.K., France, the United States and Germany — are updating their policies around foreign direct investment to reflect an economy where the most valuable assets are no longer rooted in the physical world. These announcements show that Minister Champagne is moving to bring the government’s economic policies in line with our economic peers.

The Canadian technology ecosystem is growing and there has been an increase of both company creation and foreign investment over the last decade. Canada is now a vibrant and dynamic ecosystem where companies and partnerships get launched over a coffee, foreign firms set up branch plants to tap into our talent pool, and strategic technologies get developed at our universities and post-secondary institutions. This also means that there is an increase of company sales, mergers and acquisitions, and transfers of valuable IP and data out of Canada.

In its report, the Industry Committee wrote, “There is much merit in investigating whether the net benefit review process continues to serve the economic interests of Canadians,” adding “the increasing role intangible assets play in the Canadian economy is precisely the kind of structural economic change … (that) would justify reforming the ICA.”

Had the federal government taken this approach earlier, perhaps the sale of Montreal-based Element AI just a few months ago would have triggered a review under the ICA. For years, Element benefited from government funding, and prided itself on being a place where PhD-level research talent worked to commercialize artificial intelligence.

Was it a net-benefit to the Canadian economy to let this research be acquired by San Francisco-based ServiceNow, along the data used to develop Element AI’s algorithms? We have no idea, because back in December, AI wasn’t considered a technology of national strategic importance to Canada, and the acquisition price didn’t meet the threshold to trigger an ICA review.

Reviewing acquisitions that threaten to snuff out promising Canadian companies with innovative, strategically important assets is one important plank in Canada’s innovation strategy. It needs to be paired with strategies that support our market-proven, scaling technology firms, as strategically important champions in the 21st century economy, so they can stay independent, and grow into the pillars of our future economy.

In Minister Champagne, Canadian technology entrepreneurs see a leader who understands the national value of strategic technologies and intangible assets. We’re happy he heard our calls to reform the government’s framework for studying foreign acquisitions because it will make Canadian innovation ecosystem stronger and better positioned to build the national economy, we’ll need on the other side of the COVID-19 pandemic.