The Peace Tower on Parliament Hill in Ottawa is seen, in the midst of the COVID-19 pandemic, on Saturday, April 18, 2020.

Justin Tang/The Canadian Press

The federal government is following the lead of other countries and tightening scrutiny of foreign takeovers of Canadian firms whose values have plummeted due to the COVID-19 pandemic.

The goal, according to the Saturday policy statement is to "ensure that in-bound investment does not introduce new risks to Canadas economy or national security, including the health and safety of Canadians.

Rules already in place to vet foreign direct investment from state-owned enterprises, or state-connected entities, will now apply to all investments, no matter their value said the weekend policy statement. The government will also pay close attention to investments of any value, controlling or non-controlling in businesses involved in public health or the supply of critical goods and services.

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According to the statement, the broader lens Ottawa is applying to state-linked entities is because the pandemic amplifies the concern that they may be motivated by non-commercial imperatives that could harm Canadas economic or national security interests.

The new policy will stay in place until the economy recovers from the effects of the COVID-19 pandemic.

The change follows in the footsteps of countries like Australia, Germany, Spain and France that have taken steps to limit or further scrutinize takeovers from foreign investors. A month into the pandemic, innovation and legal experts say Canadas move comes late and that it shouldnt just be limited to the pandemics time-frame as COVID-19 has laid bare the countrys vulnerabilities when it is too reliant on international players for critical goods.

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Innovation, Science and Economic Development Minister Navdeep Bains was not available for an interview Saturday.

In a statement, he said the enhanced scrutiny is needed to put a buffer between economically weakened companies and opportunistic investors."

Mr. Bains office did not say whether it has already identified foreign entities trying to take advantage of the lower valuations of many companies, but the Canadian Chamber of Commerce said it was not aware of any opportunistic buying so far. Still the chambers senior director of international policy, Mark Agnew, said the pandemic has shown the country needs to protect key sectors.

Naive thinking will leave us ill prepared for future pandemics, Mr. Agnew said in a statement

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He cautioned that the domestic economy still needs foreign capital and the move by Ottawa could have a chilling effect. The chamber also called on Ottawa to more widely publicize the changes, which were announced on a federal government website and flagged to some journalists.

Boarded up clothing stores are seen on Robson Street, in Vancouver, on Thursday, April 16, 2020.

DARRYL DYCK/The Canadian Press

The federal government should be clear about which sectors will be subject to the broader scrutiny, Mr. Agnew said.

Paul Boothe, a retired professor and former associate deputy minister at Industry Canada, said the policy statement puts companies "on notice that the government will be taking a closer look at some transactions.

Attracting foreign investment has been a big focus of the Liberal government since is was first elected in 2015. To push its agenda Ottawa established Invest Canada in 2018. Saturdays policy marks a departure from the federal governments previous stance.

The new policy was panned by Jim Balsillie, chairman of the Council of Canadian Innovators, who said its not adequately thought through and falls short on several measures.

Jim Balsillie speaks at The Globe and Mail's Canada Future Forward Summit, June 26, 2019, in Toronto.

Glenn Lowson/The Globe and Mail

It confuses foreign direct investment with foreign portfolio investment, its short term applicability ignores the sustained capacity a sovereign country requires, and its narrow scope ignores the breadth of strategic assets required to protect Canadians interests," Mr. Balsillie said.

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"Whoever developed this policy needs to talk to innovation policy experts who understand how strategic technologies are developed, commercialized and move across borders.

Natalie Raffoul, an Ottawa patent lawyer with Brion Raffoul LLP, said the pandemic has revealed the vulnerability in becoming too dependent on international sources for critical goods. To prevent a repeat, she said more focus needs to be put on developing and protecting Canadian-made patents and other intellectual property so there is more domestic control over supply chains not just for health and safety, but for the countrys overall prosperity and security.

Its great to see the government doing this, but I hope that its not just a COVID-19 specific measure and that theyre going to be now long-term looking at scrutinizing foreign direct investment, Ms. Raffoul said. She stressed the distinction between foreign direct investment, which leads to foreign control, and foreign portfolio investment, which gives Canadian companies access to cash without forfeiting control.

Saturdays statement comes a day after Prime Minister Justin Trudeau announced $1.2 billion in help for startups and small businesses. Given that companies, weakened by the pandemic-sparked economic crisis, are already desperate for cash, Ms. Raffoul said Ottawa is late implementing the new measures.

Prime Minister Justin Trudeau speaks during his daily press conference on the COVID-19 pandemic, in front of his residence at Rideau Cottage on Saturday, April 18, 2020.

Justin Tang/The Canadian Press

We waited now a month, she said, so hopefully these programs can now move quickly to ensure that our innovative companies are going to be protected so we dont lose the ground that we already have.

The heightened scrutiny of foreign takeovers during the pandemic is also missing protections for patents, according to Jim Hinton, a Kitchener-Waterloo-based intellectual property lawyer with Own Innovation. Cash-strapped companies can boost their coffers by selling their patents or save money by letting patents lapse, which risks Canada losing even more of its domestically-made intellectual property and doing so at a discount, he said.

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The tide has gone out and we are now shown that we dont have the innovation capacity that you need to weather both economic and health storms," he said.

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