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A year and a half after the Potash Corp. decision, Canadians are still in the dark about why the government thought BHP was unfit to buy the company. (Liam Richards for the Globe and Mail/Liam Richards for the Globe and Mail)
A year and a half after the Potash Corp. decision, Canadians are still in the dark about why the government thought BHP was unfit to buy the company. (Liam Richards for the Globe and Mail/Liam Richards for the Globe and Mail)

Changes to reviews of foreign takeovers still miss mark Add to ...

Ottawa is promising to tell Canadians a lot more about foreign takeovers – the ones it reviews and the ones it rejects.

That’s a good thing.

But it’s still well short of what the Conservative government pledged in late 2010 after abruptly killing BHP Billiton’s hostile bid for Potash Corp. of Saskatchewan.

More from Barrie McKenna

Prime Minister Stephen Harper and then-industry minister Tony Clement promised two things. They said they would clarify the key test used to judge foreign takeovers – the so-called “net benefit” determination. And secondly, they said they would get the House of Commons industry committee to review the Investment Canada Act.

Neither of these things has happened.

Instead, the government is giving the Industry Minister new powers to disclose more information about takeovers without betraying commercial secrets. The bill also allows the government to compel would-be foreign acquirers to put up bonds to backstop their commitments to create jobs or invest in Canada. Presumably, that’s to prevent a repeat of Ottawa’s lengthy legal fight with U.S. Steel Corp. over commitments it made after acquiring Stelco in Hamilton.

Again, positive steps. But not enough.

The changes fall short of what’s needed to “bring our investment policy into the modern era,” according to Daniel Schwanen, associate vice-president of international and trade policy at the C.D. Howe Institute.

The problem with the current regime is that “net benefit” has become a moving target. Mr. Schwanen said the criteria seem to change depending on the investment because the rules aren’t obvious.

“We are missing an opportunity to be a lot clearer about what we require of investors, and as a result, we’re missing a chance to be more competitive in terms of attracting good foreign investment,” he said.

Particularly troubling is that a year and a half after the Potash Corp. decision, Canadians are still in the dark about why the government thought BHP was unfit to buy the company.

It’s not like Canada has something against foreign investment in Saskatchewan’s potash industry, or even BHP Billiton’s cash. BHP, an Anglo-Australian mining powerhouse, has begun site work at its proposed $12-billion Jansen potash mine, 100 kilometres north of Regina.

K+S AG of Germany is pushing ahead with the $3.2-billion Legacy potash project near Moose Jaw, Sask.

And Anglo-Australian miner Rio Tinto PLC is teaming up with the Canadian subsidiary of Russia’s JSC Acron to explore for potash in Saskatchewan.

Clearly, Ottawa has no objection to foreigners owning vast swaths of potash, a key ingredient in fertilizer.

Rightly or wrongly, the assumption is that the Potash decision was blatantly political. Blocking the takeover was hugely popular in Saskatchewan, where the Conservatives were anxious to keep the ridings they already held.

Without a clearer sense of what’s really meant by “net benefit,” the risk is that decisions will always be susceptible to the taint of politics, argued Lawrence Herman, a trade lawyer at Cassels Brock in Toronto.

The current law sets out the litmus test for determining if a deal is good for the country, including such factors as its impact on competition, product innovation and compatibility with Canadian industrial policy.

But the criteria are too vague. Mr. Herman said Ottawa can still clarify the net benefit test, without legislation, possibly through regulation.

It’s encouraging that Ottawa intends to better explain future takeover decisions. Clarity is good.

But it doesn’t make up for its failure to explain past ones.

The Potash Corp. decision is a watershed of jurisprudence. And the case remains effectively sealed. It’s one of just two takeovers the government has rejected since the Investment Canada Act came into force in 1985. The other involved a bid by a U.S. company to buy the MacDonald Dettwiler & Associates Ltd.’s geospatial business – a transaction blocked on better-defined “national security” grounds.

The tricky thing about investment is that it’s a two-way street. David Denison, who invests around the world as head of the $140-billion Canada Pension Plan Investment Board, said recently that he likes to invest where rules are transparent and predictable and avoids countries where they’re not. Foreign buyers looking to commit billions to Canadian plants, jobs and resource projects expect the same here.

Mr. Harper insists Canada is open for business.

He should spell out what Canada expects of foreign buyers because murkiness is the enemy of investment.

Follow on Twitter: @barriemckenna

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