By Bryan Yau
Happy Friday! With the week wrapping up, it is time for another installment of Friday Finds! This week, we will be discussing President Biden’s actions regarding the Keystone XL pipeline, the implications of “Buy American” provisions for Canadian businesses, and the release of the Ontario Capital Markets Modernization Taskforce’s final report.
On January 20, Joe Biden was inaugurated as the 46th president of the United States. In support of the new administration’s plan to address climate change, one of his first actions as president was the revoking of a cross-border presidential permit required to finish the controversial Keystone XL pipeline. After first being rejected by Obama in 2015, the permit was revived by former president Trump in 2017. At this point, however, it will be closed until at least 2025. This likely signals the end of the $8 billion pipeline, a project that would have carried crude oil from Alberta, to the American Gulf Coast. In response, TC Energy, the Canadian company that first proposed the project, announced that it would be cutting more than 1,000 construction jobs over the coming weeks. This development will undoubtably hurt the provincial economies of Alberta and Saskatchewan which are heavily reliant on the oil and gas industry. More importantly, it signals the seriousness of the Biden administration’s environmental policy on Canadians. Canadian energy exports are heavily reliant on the US and the new administration may take additional actions to curb carbon emissions. Biden’s presidential campaign proposed other policies including environmental “taxes” on imports, as well as large-scale government investments into green energy and “greening the economy”. While the slim democratic Senate majority means that more ambitious environmental policies are less likely to be pursued, there remain clear political and regulatory risks to Canadian businesses that trade with the US. The Canadian government has already signalled its disappointment with the decision, but also opened the door for potential measures to be taken that might mitigate the negative impact of cross-border projects on the environment. These policies would focus on attractive climate packages that Canada can offer the U.S to collectively address climate issues, as well as policy and regulatory co-ordination regarding infrastructure and natural resource development.
On Monday, President Biden signed an executive order imposing strict rules around government spending to ensure less U.S. tax revenue makes its way to foreign companies. These “Buy American” provisions have been proposed as part of a post-COVID recovery plan, and present real and substantial risks for Canadian exporters. The concern is that, if left unchecked, the “Buy American” order could lock out many Canadian exports and may preclude Canadians from bidding for US government projects. Goods and services often cross the US-Canadian borders multiple times for processing before finally reaching the end consumer. In the early parts of the recovery following the Great Financial Crisis, similar “Buy American” provisions forced companies to strip Canadian-made goods out of existing projects and froze Canadian firms from bidding on major projects. This persisted until an agreement between the two federal governments helped loosen or reverse those restrictions. If expanded, these policies could freeze Canadian businesses out any U.S. post-COVID economic action plans, or at least cause prolonged uncertainty for business. These issues were raised in the first phone call between Prime Minister Trudeau and President Biden, and Trudeau expressed hope that the provisions would be expanded to become “Buy North American” provisions instead. This gives rise to the possibility of Canadian policy and legislative co-ordination with the US to facilitate regional economic recovery. In such a scenario, future Canadian and American recovery plans would include the passing of reciprocal legislation to ensure businesses from either country could supply and bid for government and infrastructure projects. The CBLB will continue to update this story as it evolves.
Last week, the Ontario Capital Markets Modernization Taskforce’s (OCMMT) final report was released. The OCMMT was created by the Ontario government in February 2020, with the goal of “reviewing and modernizing Ontario’s capital markets regulatory framework”. The report includes numerous recommendations including: (1) an explicit mission for regulators to “foster capital formation and competition in the markets”; (2) a complete restructuring of the OSC; and (3) a new law aimed at leveling the playing field between independent dealers and large financial institutions by banning “coercive” tied selling. This practice involves making a company’s commercial loans conditional on the borrower agreeing to use the lender’s own investment dealer for future underwriting and advisory services. Under the new proposed law, a senior officer of a bank would be required to attest that no such exclusivity arrangements were imposed when a client is provided with capital markets services. Some of the recommendations made by the interim report released last summer have also changed. One recommendation that proposed requiring public companies to meet specific diversity targets for their boards and executive management teams was changed to become a simple framework shareholders could use to hold companies accountable for their diversity. The OCMMT is also calling on the province to pass the Capital Markets Act – a piece of legislation, never enacted, that was drafted in anticipation of a national securities regulator first proposed by the Stephen Harper government. The report signals a demand for closer integration between Canada’s provincial securities regulators or the creation of a single national entity. The report does not guarantee that new laws and recommendations will be adopted, however, it does have the potential to strongly influence policymaking and legislative action. Many of its recommendations would have far-reaching implications regarding financial services providers, retail investor protection, corporate governance, and the operations of market regulators. It will be important to follow future developments spurred by the recommendations made in the report.
Thank you for tuning in to this week’s Friday Finds! Come back next week for more business law news stories.