Ultimately, it was Stephen Harper’s call to let Chinese state-owned firm CNOOC buy the Canadian energy company Nexen. But the Prime Minister was also determined to send a message.
From today forward, countries that want to invest in Canada must be equally open to investment by Canadian businesses.
Even more important, Canada will not permit certain key assets, such as the oil sands, to become the property of companies owned or controlled by a foreign government, especially if that government is China.
What could be called the Harper Policy on foreign investment will surprise those who see the Prime Minister as an inveterate free trader. But that policy not only accords both with Mr. Harper’s own views on trade, it was the necessary compromise to unify a fractious cabinet and caucus.
According to sources who spoke on condition of anonymity, long before CNOOC announced this summer that it wanted to acquire Nexen, Mr. Harper had been concerned by two emerging trends.
One is the relative economic decline of the United States, which traditionally has been both the principal market for Canadian goods and the principal source of foreign investment. The other is the growing power and aggressiveness of government-controlled companies in emerging nations, especially China.
Mr. Harper envisioned a nightmare scenario, in which the Chinese government, through a state-owned enterprise, sought to acquire a major Canadian petroleum producer.
The CNOOC/Nexen proposal appeared to the Prime Minister to be an overture to that very future.
The government had already moved to block the sale of Potash Corp. by the Anglo-Australian firm BHP Billiton. At the time, the Conservatives promised new guidelines on foreign investment in Canadian companies.
But bureaucrats at Industry Canada had failed to produce those guidelines, arguing that the existing “net benefit” test was sufficient.
Now another bid had landed on Mr. Harper’s desk, only this time involving China and the oil sands, which considerably upped both the economic and political stakes.
Officials in the Department of International Trade were urging swift acceptance of the deal, according to sources.
But resistance from caucus was broad, deep and strong, encompassing both the Reform and Progressive Conservative factions. Many MPs intensely dislike the Beijing government. which is still nominally Communist, and which many suspect of conducting industrial espionage within Canada. Public opinion was also against the deal.
And the government chafed at restrictions on Canadian companies trying to enter or expand into the Chinese market, even as a state-owned company sought increasing control over Canada’s petroleum resources. Not only was caucus largely opposed, the debate within cabinet was intense, with one side favouring an open environment for investment and the other demanding protection for strategic industries. especially from state-owned enterprises in emerging markets.
Mr. Harper’s solution was to permit the CNOOC/Nexen deal, but with tough new rules requiring reciprocity from countries seeking to invest in Canada, and with special restrictions on state-owned enterprises. Cabinet voted unanimously in favour of that solution. And when caucus was briefed Friday, according to sources, any who still had reservations kept those reservations to themselves.
“The Prime Minister is a realist, but he’s also in some ways an economic nationalist,” said Fen Osler Hampson, who is director of Global Security at the Centre for International Governance Innovation. “Clearly, Mr. Harper believes that government does have a role in preventing corporate Canada from being hollowed out by big foreign companies, whether state owned or privately held.”
Nonetheless, the wording of new guidelines contains sufficient elements of what Prof. Hampson calls “studied ambiguity” to leave this and future governments the wiggle room needed to assess each new proposal on its merits, without being bound by regulations.
The Harper Policy hardly inaugurates a new era of protectionism, but it is a far cry from the open-market orthodoxies of a pure free trader. Either way, it is very much this Prime Minister’s own creation.