The Investment Canada Act Reforms and the Digital Transformation

This brief examines the framing of the proposed reforms to the Investment Canada Act in the context of the digital transformation and the evolving nature of the contemporary innovation-intensive economy. It argues that the Act must go beyond considerations of the size of firms in triggering reviews to take into account their connectedness within the Canadian innovation ecosystem, the importance of the nodes they occupy in that ecosystem, and the value of their data as a capital asset and as a risk factor for national security. As a second major theme, the paper emphasizes the difficulty of structuring the review process based on prescribed sectors given the importance of supply chains in the rivalry to dominate foundational technologies that are considered to be vital both to economic and national security. These supply chains can involve products from across the waterfront of industrial sectors. As a third major theme, it addresses the need to consider virtual operations of foreign firms as part of the national security screening process and argues for a generalization of the concept of “foreign direct investment in Canada” to “operations in Canada”. The latter concept would include a material physical presence as presently captured in the scope of the Act but also a virtual presence such as is addressed in the OECD/G20 Inclusive Framework for taxation of multinationals. The latter provides an initial platform for the formal integration of rules governing foreign entry into Canada’s digital economy and social networks on a virtual basis. Finally, observing that the Act has explicit carveouts for cultural industries, the note emphasizes that these industries now compete in the “attention economy” in which traditional media are being disrupted by social media that operate in Canada on a virtual basis and trigger all the contentious issues in that domain, ranging from personal privacy, to platform liability, content moderation and national security. In the latter regard, the paper emphasizes the present threat to Canadian society and culture from the rise of data-driven, micro-targeted influence that is correlated with and most likely causal in the rise of social divisiveness, which underscores the urgency of generalizing the framework for foreign operations in Canada