The Trudeau government is being accused of bowing to Beijing by cancelling a cabinet order to break up a Chinese takeover of a Montreal high-tech firm despite warnings from national security agencies that the deal would undermine a technological edge Western militaries have over China.
The Liberal government recently set aside a Harper government decision from 2015 that would have required Hong Kong-based O-Net Communications to abandon its purchase of Montreal's ITF Technologies. Ottawa then ordered a fresh review.
But the change in direction has raised questions from opposition parties, experts and a former spy chief.
Conservative public safety critic Tony Clement said the Liberals agreeing to a do-over of the national security review is a sign that "China has undue influence" over Canadian economic and foreign policy.
"Regardless of what the second review finds, the fact they have ordered a second review despite the factual findings of Canada's national security personnel indicates that the damage has been done. It shows Canadian policy can be compromised by foreign interests and foreign powers – in this case, China."
The Globe and Mail revealed this week that, in 2015, both the Canadian Security Intelligence Service and the Department of National Defence issued warnings against allowing the sale. These assessments prompted the Conservative government in July, 2015, to order a breakup of the transaction on the grounds it would be injurious to national security – a move that China's O-Net immediately appealed to the Federal Court.
"If the technology is transferred, China would be able to domestically produce advanced military laser technology to Western standards sooner than would otherwise be the case, which diminishes Canadian and allied military advantages," a national-security assessment prepared for cabinet by the Department of National Defence and CSIS said in 2015.
Instead, the Liberals in November, 2016, granted O-Net a second chance to win national security approval for the transaction and Ottawa began a new review of the deal.
The Trudeau government is keen to deepen relations with Beijing, including signing a trade agreement with the Chinese. According to 2015 briefing books prepared for the international trade minister, national security reviews of takeovers are a source of friction between Canada and the Chinese – scrutiny that China believes has "unfairly targeted" the Asian country.
Innovation Minister Navdeep Bains, speaking at a cabinet retreat in Calgary, declined to explain the change of heart on O-Net. His office said national security and commercial confidentiality limit what can be said by the minister.
"I can assure you and the Canadian public that any decision we take will advance our national interest," Mr. Bains told reporters.
Ward Elcock, a former head of CSIS, said he wasn't familiar with the facts of the O-Net case. He said while he's not concerned by the decision to take a second look at the transaction, it likely indicates Ottawa came under pressure to do so.
"Presumably it has been lobbied hard by somebody. Presumably that means the Chinese or somebody on behalf of the Chinese," he said.
He said while the Harper government was prone to "err on a more protective side," the Liberals are clearly more pro-Chinese and more oriented to doing business with China.
Mr. Elcock said how the Liberals ultimately decide on the O-Net case will be telling, adding that he would certainly oppose a transaction where there are valid security concerns.
"I do worry about the naivete of the incoming government," he said of the Liberals. "And this will obviously be a bellwether on whether those worries are legitimate or not."
Former Canadian ambassador to China David Mulroney has expressed surprise at the cancellation of the O-Net divestment order.
NDP MP Nathan Cullen on Monday called the decision surprising, given the warnings from CSIS and DND. "I thought Trudeau was supposed to be all about evidence-based decision-making. This is a case where politics is trumping clear evidence" on foreign policy.
"This is not the same as selling to New Zealand. This is selling to a country with clear global ambitions and zero democratic accountability," the NDP MP said.
Sandy Walker, a Dentons LLP lawyer who is a specialist in the Investment Canada Act, said if a fresh review of the O-Net transaction is indeed an effort to demonstrate fairness to China, then she wondered how it would affect Canada-Chinese relations should Ottawa once again reject the deal.
She also wondered how a pending Canada-U.S. renegotiation of trade terms might affect Ottawa's attitude toward a security review of the O-Net transaction given President Donald Trump's administration is very concerned about China. "Is the possibility of an adverse outcome for the Chinese investor more likely if the Canadian government has to contend on this second review with potential concerns of the new Trump administration at the same time as Canada is about to launch into a renegotiation of NAFTA with the U.S.?"
A spokesman for the Chinese embassy in Canada said Beijing expects fair treatment of overseas Chinese acquisitions. "We hope that the Canadian side can look at overseas purchases by Chinese companies in an objective and unbiased perspective, level the playing field for this normal business conduct. We oppose politicizing normal commercial acquisitions," Yang Tianwen said.
O-Net had argued in its legal challenge that the government in 2015 did not provide the company with "any consequential details or insight" to back up its national-security concerns and did not offer the firm an opportunity to respond.