The Chinese state company CNOOC’s $15-billion bid for Nexen, a major Canadian oil and gas company, raises major issues about the future of Canada’s economy.
Whether or not the government approves the bid — it is being reviewed under the Investment Canada Act — there are many questions that should be asked about the deal, including:
Should the government allow our resources to be owned by whoever pays the highest price to shareholders of a Canadian company?
By extension, do we want stock markets to decide how best to protect Canadian interests?
The issues become especially important because the Harper government has put most of Canada’s economic eggs in the resource sector instead of manufactured exports.
Some commentators have maintained that the criteria for review — whether it is deemed a ‘net benefit’ to Canada — are too vague, but by using a broad test, the government does retains flexibility when seeking conditions for a takeover or blocking it outright.
Under this laissez-faire approach, favoured by the government, Canada should be wide open to foreign investment. We should not care about country-of-origin or about whether the buyer is state-owned or private. Let the bidding begin, all offers welcome. Maximize the benefits for shareholders.
But do we want to ensure that our resources are exploited according to Canadian priorities? And do we expect governments to play a role? If so, the government needs to ensure a minimum threshold of Canadian ownership in key sectors. With ownership comes control; with Canadian ownership comes a range of options to ensure Canadian interests are protected.
Chinese ownership, on the other hand, gives China an ability to frustrate policies in Canada. The issue could be jobs or value-added business. It could be environmental protection or aboriginal rights. It could be foreign affairs or national security. The point is, governments in Canada and by extension all of us will have less of a say.
Those who ask government to regulate foreign investment are often demeaned, including by the prime minister, as ‘protectionist.’ Yet governments of other major countries take a more active role in protecting nationally-owned firms. In contrast, the Harper government has thrown open the doors to foreign takeovers and foreign influence.
All sorts of foreign takeovers (including, we can assume, by Chinese companies) are no longer subject to the usual review process under the Investment Canada Act because the Harper government raised dramatically the threshold for review of proposed takeovers.
It ceded its powers to review bids for any Canadian company worth less than $1 billion.
As a result, many foreign takeovers of Canadian firms fly under the radar of the government and the public. The economic ramifications will emerge gradually and be very difficult to reverse.
Reviews under the Investment Canada Act are limited in other ways. For example, they apply only to takeovers of existing Canadian companies. Foreign investment in new businesses — so-called greenfield investment, which Canadians support and prefer in opinion polls — are not subject to review.
Second, the prime minister recently raised the stakes of Chinese ownership in Canada. By inking an investment deal with China last month, his government laid a footing for Chinese companies to sue Canada for any law or regulation that we introduce. The lawsuits would be decided, not by Canadian courts, but by international arbitrators who often operate in private and lack the independence of a judicial process. U.S. companies have sued Canada more than 30 times under a similar NAFTA process. The U.S. and Canadian governments at least took steps to make the arbitrations public.
The terms of the Canada-China investment deal are not public. But the government’s announcement that a deal was struck should heighten concerns about Chinese ownership in Canada’s resource sector.
The CNOOC bid poses a conundrum for the government. Its laissez-faire approach, and its allegiances to shareholders in the oilpatch, are pitted squarely against the risks of putting Canada’s economic future in foreign hands.
Undoubtedly, the takeover would enrich Nexen’s shareholders. But is it good for Canada?
Most importantly, are all of these foreign takeovers eroding our ability to ensure that Canada’s resources are exploited based on Canadian priorities? It is not protectionist to ask this question.
Gus Van Harten is a professor at Osgoode Hall Law School in Toronto. He specializes in international investment law. This column was supplied by Troy Media (www.troymedia.com).