Canada Tightens Rules on Foreign Investment in Digital Media Sector

Canada has announced that it will increase its scrutiny of foreign investment in the interactive digital media sector, which includes video games and virtual reality devices, to prevent state-sponsored actors from posing a risk to national security. The new rules, which took effect on Friday, will apply to entities owned or influenced by foreign states, especially those that engage in activities that may harm Canada’s interests.

The Rationale Behind the New Rules

According to Innovation Minister Francois-Philippe Champagne, the new rules are designed to protect Canada’s sovereignty and security in the digital space, which is increasingly vulnerable to foreign interference and manipulation. He said that hostile state-sponsored or state-influenced actors may try to use their investments in the interactive digital media sector to spread disinformation, influence public opinion, steal intellectual property, or compromise critical infrastructure.

Champagne did not name any specific countries or entities that are targeted by the new rules, but Canada has repeatedly accused China and Russia of meddling in its domestic affairs and undermining its values and interests. Both countries have denied the allegations and accused Canada of being biased and hypocritical.

Foreign Investment
Foreign Investment

The Implications of the New Rules

The new rules mean that foreign entities wishing to invest in the interactive digital media sector in Canada may have to undergo a more rigorous and lengthy review process by the federal government, and may have to provide stricter and longer-term commitments, especially regarding creative independence, corporate governance, and transparency. The government will also consider various factors when assessing the potential impact of the investment, such as the reach and audience of the products’ content, the online features of the products, and the degree of control or influence the investor would have on the Canadian business.

The new rules may affect the attractiveness and the viability of the interactive digital media sector in Canada, which is one of the largest and most innovative in the world, with more than 700 companies and 60,000 employees. The sector contributes more than C$7 billion ($5.2 billion) to the Canadian economy annually, and exports its products to more than 100 countries. The sector also relies on foreign investment and collaboration to grow and compete in the global market.

The Reaction to the New Rules

The new rules have received mixed reactions from the stakeholders and the experts in the interactive digital media sector. Some have welcomed the new rules as a necessary and prudent measure to safeguard Canada’s national security and digital sovereignty, and to ensure that the sector operates in a fair and transparent manner. Others have expressed concern that the new rules may create uncertainty and confusion for the investors and the businesses, and may discourage or hinder foreign investment and innovation in the sector.

The new rules have also raised questions about the definition and the scope of the interactive digital media sector, and the criteria and the process for the review of the foreign investment. Some have also wondered whether the new rules are consistent and compatible with Canada’s international obligations and commitments, such as the World Trade Organization and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

The new rules are part of Canada’s broader efforts to update and modernize its foreign investment regime, which dates back to 1985. The government has said that it will continue to monitor and review the foreign investment trends and issues, and will adjust its policies and practices as needed.

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