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Exchange of Letters (May 12 and 16, 1988) between the Government of Canada and the Government of the United States of America constituting an Agreement pursuant to paragraph 4 of Annex 1607.3 of the Free Trade Agreement [1988] CATSer 14 (16 May 1988)

E100663 - CTS 1988 No. 50

EXCHANGE OF LETTERS BETWEEN THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA CONSTITUTING AN AGREEMENT PURSUANT TO PARAGRAPH 4 OF ANNEX 1607.3 OF THE FREE TRADE AGREEMENT

I

The Minister of Finance of Canada to the Secretary of the Treasury for the United States of America

OTTAWA, May 12, 1988

The Honourable James A. Baker III
Secretary of the Treasury
Washington, D.C.

Dear Mr. Baker:

I have the honour to inform you, pursuant to paragraph 4 of Annex 1607.3 of the Free Trade Agreement between Canada and the United States of America signed on January 2, 1988, that the policies described below constitute the published policies respecting Canada’s oil and gas and uranium mining industries referred to in that paragraph.

1. The Oil and Gas Industry

Canadian published policy respecting the acquisition by foreign investors of oil and gas businesses in Canada contains the following provisions of relevance to the Investment Canada Act. The policy provides that, in reviewing acquisitions, the Minister responsible for Investment Canada will:

a) disallow the direct acquisition of a healthy Canadian-controlled business with assets of at least $5 million;

b) consider allowing the direct acquisition of a Canadian-controlled business with assets of at least $5 million that is in clear financial difficulty. In such cases the Minister would review the proposed foreign acquisition to evaluate its net benefit to Canada and could negotiate, as necessary, undertakings by the acquiror in relation to the review criteria;

c) normally allow the direct acquisition of a foreign-controlled business with assets of at least $5 million, subject to an agreement with the acquiror on conditions related to Canadian ownership and investment spending; and

d) normally allow the indirect acquisition of a foreign-controlled business with assets of at least $50 million, subject to an agreement with the acquiror on conditions related to Canadian ownership and investment spending.

2. The Uranium Industry Policy (Announced on December 23, 1987)

Investment Canada’s review threshold levels are $5 million in assets for direct acquisitions and $50 million in assets for direct acquisitions for the uranium industry. In reviewing an acquisition in the uranium industry, the Minister responsible for Investment Canada applies the following policy:

a) Non-resident ownership of a uranium mining property shall be limited to 49 per cent at the stage of first production.

b) Non-resident ownership levels of a uranium mining property in excess of 49 per cent shall be permitted if it can be established that the property is in fact Canadian-controlled as defined in the Investment Canada Act.

c) Exemptions to the policy may be granted if it can be established that Canadian partners cannot be found.

d) Properties that were “grandfathered” under the policy existing prior to December 23, 1987 continue to be grandfathered, subject to not increasing their existing non-resident ownership levels.

e) The offer of a three-year grace period beyond first production (available to companies under the policy in force prior to December 23, 1987 before they must meet the non-resident ownership requirement) shall continue to apply under the current policy only for agreements reached within the twelve month period commencing December 23, 1987; and properties covered under such agreements must be brought into production within seven years of signing such agreements.

It is understood that, given that these are grandfathered policies, they may be liberalized but cannot be made more restrictive.

I would be grateful if you would confirm, on behalf of your Government, that the above paragraphs express your understanding of Canada’s investment policies concerning the oil and gas and uranium mining industries.

I have the honour to propose that this letter, which is authentic in English and French, and your letter of confirmation in reply, constitute an agreement between our two Governments to enter into force on the date of your letter in reply and that it be considered an integral part of the Free Trade Agreement when the latter enters into force.

Yours sincerely,

Michael H. Wilson

II

The Secretary of the Treasury for the United States of America to The Minister of Finance of Canada

Washington, May 16, 1988

The Honorable Michael H. Wilson
Minister of Finance of Canada
Ottawa, Ontario

Dear Mr. Wilson:

I have the honor to refer to your letter of May 12, 1988, which reads as follows:

(See Canadian Note of May 12, 1988)

I have the honor to confirm, on behalf of my Government, that your letter expresses our understanding of Canada’s investment policies concerning the oil and gas and uranium mining industries.

I further have the honor to confirm that your letter of May 12, 1988 and this reply constitute an agreement between our two Governments that will enter into force on this day and that it shall be considered an integral part of the Free Trade Agreement when the latter enters into force.

Sincerely,

James A. Baker, III