By Dario Valoncini, Foreign Direct Investment department at the Italian Trade Agency within the Italian Minister of Foreign Affairs in Canada
BREXIT has created new opportunities for many Canadian companies to expand their European market approach
ABSTRACT: The EU-Canada economic trends have been more than positive in the past few years. Both trade in goods and in services has grown since the coming into force of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) on 21 September 2017 (provisionally). When it comes to Foreign Direct Investment (FDI), CETA has introduced detailed investment protection standards as well as an effective and fair alternative dispute resolution mechanism (ADR). The EU27 block remains among the preferred target for Canadian companies investing abroad: France, Germany, Ireland, Italy, the Netherlands and Spain always score within the top 20 for Canadian outbound FDI. The UK has traditionally scored similarly high but BREXIT is forcing many Canadian companies to re-think their European and UK market approach. Thanks to good political relationships, common economic interests, and technical tools such as CETA, the collaboration with the European Union could be an outstanding opportunity for Canada. MAIN TEXT: Over the past few years, the Europe-Canada relationship has grown steadily and positively. The EU-Canada summit of 2019 stated, through the voice of Donald Tusk[1], former President of the European Council, that the two entities are like-minded partners and do and will cooperate on several sectors. CETA, the Paris Agreement and the Ocean Partnership are only the latest tools of cooperation between the EU and Canada. During these past few months, every major country experienced waves of nationalism. Whether driven by political, economic, or cultural reasons, many countries have started to look inwards, focussing on options within their own national borders rather than internationally or globally. The European Union was not stranger to this trend before the COVID-19 pandemic hit earlier this year and is even more so these days. Immigration, BREXIT, populism, and internal socio-economic differences have led member countries to reconsider their national borders for addressing economic and political options. Over the past few months, the EU27 block as we know it has been challenged in its role in international geopolitics, bridging the needs and demands between East and West. Nevertheless, it has shown great strength, union and solidarity allowing the new EU ruling class[2] to approve the Next Generation EU recovery plan[3], to help mitigate the shock from the COVID-19 pandemic and lead member states to a more sustainable future. EU member states can now access new liquidity to improve the national entrepreneurial ecosystem and infrastructure. The EU initiatives will create a most fruitful environment for new sustainable business opportunities for national and foreign investors, notwithstanding the difficulties of the last two quarters. Canada should look out for this opportunity. In June 2020, UNCTAD released its WIR-2019 (UNCTAD – World Investment Report 2020[4]). In this yearly report, the U.N. body focuses on trends in foreign direct investment (FDI) worldwide. This year such document has been heavily influenced by the effect of the COVID-19 pandemic in 2020 FDI forecasts. The report outlines that 2020 will register -40% FDI balance compared to 2019 (when the balance registered 1.54 trillion in new investments). Such data would be the lowest since 2005. A preliminary trend analysis for the coming years outlines that pre-COVID-19 figures will be reached not before 2022. 2019 registered a positive trend compared to 2018. FDI towards Europe registered a +18% compared to 2018, for a total or $429 billion in new investments. Such data grants EU the 1st place as the most competitive geographical area in the world for FDI, marking once again Europe as a great place to improve businesses. However, investors should be aware, COVID-19 has not only had an impact on a macroeconomic level but also on a policy making level. Fear of supply and market shortage has led governments worldwide to enact new policies on FDI screening. Such mechanisms are typically introduced not to limit foreign investment flows but to enable national governments to monitor such investments before they occur. For example, the EU published the following documents: Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe's strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation)[5]. The EU Commission aimed at protecting the EU’s critical assets and technologies from potential foreign investors during the market disruption caused by the worldwide pandemic. The FDI Guidelines set forth general principles on FDI screening procedures applicable to all EU27 member states. Canada enacted similar policies for incoming investments. In June 2020, the Standing Committee on Industry, Science and Technology introduced the Time Limits and Other Periods Act (COVID-19). By means of such policy, the Minister of Industry, Science and Innovation has a longer FDI reviewing time than originally granted by Investment Canada Act (ICA). Overall, the EU-Canada economic trends have been more than positive in the past few years. Both trade in goods and in services has grown since the coming into force of CETA on 21 September 2017 (provisionally)[6]. When it comes to FDI, CETA introduced precise investment protection standards as well as an effective and fair alternative dispute resolution mechanism (ADR). The EU27 block remains within the preferred target for Canadian companies investing abroad: France, Germany, Ireland, Italy, the Netherlands and Spain always score within the top 20 for Canadian outbound FDI. The UK has traditionally scored similarly but BREXIT is forcing many Canadian companies to re-think their European and UK market approach. Thanks to good political relationships, common economic interests, and technical tools such as CETA the future of the European Union could be an outstanding opportunity for Canada. Dario Valoncini is a lawyer, his experience includes providing assistance in the acquisition and disposal of businesses with a focus on cross-border transactions and general corporate and restructuring matters. Working for international law firms, Dario assisted a range of international clients in connection to commercial and real estate investment opportunities. Currently, Dario heads the Foreign Direct Investment department at the Italian Trade Agency within the Italian Minister of Foreign Affairs in Canada where he facilitates investments and establishment of Canadian companies and firms in Italy. Dario holds a Juris Doctor (J.D.) from the University of Milan and more recently received a global profession Masters of Law (LL.M.) from the University of Toronto. Dario also studied abroad at Peking University (China) and the University of Tübingen (Germany) taking Law courses in the subject of Business Law in German. Dario is qualified as a lawyer in Ontario and provides his expertise to international clients in both Common Law and Civil Law jurisdictions. For more experts on European Union topics in Canada visit EUCAnet expert database
[1] EU-Canada summit, Montreal, Canada, 17-18 July 2019 - https://www.consilium.europa.eu/en/meetings/international-summit/2019/07/17-18/ [2] Parliament elects the von der Leyen Commission - https://www.europarl.europa.eu/news/en/press-room/20191121IPR67111/parliament-elects-the-von-der-leyen-commission [3] E.U. Adopts Groundbreaking Stimulus to Fight Coronavirus Recession - https://www.nytimes.com/2020/07/20/world/europe/eu-stimulus-coronavirus.html [4] World Investment Report 2020 - https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2769 [5] Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation) - https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020XC0326%2803%29 [6] https://webgate.ec.europa.eu/isdb_results/factsheets/country/overview_canada_en.pdf