The U.S. defence department will review all its business dealings with Norsat International Inc. after the Vancouver-based satellite technology company closed a deal that will allow it to be swallowed up by a Chinese telecom giant.
The Pentagon's re-evaluation could have serious repercussions for Norsat and its new Chinese owner, Hytera Communications Corp. of Shenzhen, China. Norsat sells communications equipment to branches of the U.S. military and the North Atlantic Treaty Organization.
"Current contracts already awarded will be reviewed on a case-by-case basis and appropriate measures will be taken, in accordance with the terms of those contracts and consistent with U.S. laws and department regulations and policies," defence department spokesman Lieutenant-Colonel Roger Cabiness said on Monday in a statement to The Globe and Mail.
Lt.-Col. Cabiness said the "department reviews the implications of the transfer of ownership of any firms that the department has contracts for equipment and or services."
The Liberal government has taken heavy criticism in Parliament and from members of the U.S. House of Representatives Armed Services Committee and a congressional watchdog for approving the Norsat takeover without conducting a comprehensive national security review.
Prime Minister Justin Trudeau has defended the decision to forgo a full review, saying Canada consulted Washington before concluding Hytera's takeover does not pose any national security risks. He has refused to say who was consulted in the Trump administration or whether the Americans had objected to the sale.
The U.S. embassy in Ottawa has declined to comment on whether Washington was consulted and whether it had any national security concerns.
Lt.-Col. Cabiness did not directly criticize Ottawa's decision to approve the Norsat deal, but he noted the way Washington handles potential national security concerns with any takeover of U.S. high-tech firms by Chinese investors.
"Within the [U.S. government] foreign investment review process, the department emphasizes that transfers of sensitive technologies and capabilities should be carefully vetted to mitigate potential risks to U.S. and allied security interests," he said in an earlier statement to The Globe.
Conservative public safety critic Tony Clement said the Pentagon review casts in doubt the government's repeated assertions in Parliament that it takes national security seriously when it involves China.
"This is going to have huge repercussions for Norsat. It also raises the question of whether NATO should be reviewing its contracts with the company," Mr. Clement said. "It also begs the larger question of why the Canadian government did not foresee this when they gave the green light to the takeover in the first place."
Shareholders of Norsat on June 22 voted in favour of the Hytera takeover after the company turned down a competing bid from a U.S. hedge fund. Norsat said in a statement last week that it expects the sale will close by the third quarter of 2017.
Concerns about the deal include the transfer of sensitive technology to China's military-industrial complex as well as the fact that the company was sued by Motorola Solutions over allegations it stole patents and trade secrets.
Last week, Congressman Walter Jones, who sits on the House of Representatives Armed Forces Committee, called on the Pentagon to review all its contracts with Norsat.
"The United States cannot stop Canada from allowing the Chinese takeover of Norsat," Mr. Jones told The Globe. "We can, and should, however, re-evaluate any business dealing that potentially affects our defence initiatives."
Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, which reports to Congress, also called for a Pentagon review, saying "the sale of Norsat to a Chinese entity raises significant national security concerns for the United States as the company is a supplier to our military."
Mac Thornberry, chairman of U.S. House of Representatives Armed Services Committee, urged Ottawa last week to be "more vigilant" in approving Chinese investor takeovers of Canadian high-tech firms that specialize in military hardware.
Norsat's customers include the U.S. Department of Defence, the U.S. Marine Corps, the U.S. Army, the giant aircraft manufacturer Boeing, NATO, the Irish Department of Defence, the Taiwanese army, and major media companies such as CBS News and Reuters. Norsat says its technology is also used by NAV Canada, operator of the country's civil air navigation service.
Two former directors of the Canadian Security Intelligence Service – Richard Fadden and Ward Elcock – have said the Norsat transaction should have been subjected to a full-scale security review.
Mr. Trudeau has offered a changing storyline when pressed to defend his government's handling of the Norsat deal since The Globe first reported on the lack of a formal security review in early June. At one point, he said the deal had undergone a national security review when it, in fact, had gone through a much less thorough security screening. He later told Parliament the Americans were consulted, but refused to answer when asked to whom the government talked. The Prime Minister later emphasized how the decision not to hold a review was made on the advice of public officials, and he implied that his opposition critics did not trust the civil service as the Liberals do.
Since the Liberals came to power, they have been much more open than the former Conservative government to investment from China in a number of key sectors.
In February, Ottawa approved the sale of one of British Columbia's biggest retirement-home chains to a Beijing-based insurance titan with a murky ownership structure, giving China-based Anbang Insurance Group a foothold in Canada's health-care sector.
In March, the government approved the takeover of a Montreal high-tech firm, ITF Technologies – which the Conservatives had blocked on the grounds it would undermine a technological edge that Western militaries have over China.
At the time, CSIS had recommended against the takeover, saying the ITF technology transfer would give China access to "advanced military laser technology" and would diminish "Canadian and allied military advantages."
Hytera, which is 52 per cent owned by Chinese billionaire Chen Qingzhou, drew international headlines in March when telecom equipment giant Motorola filed a high-profile lawsuit accusing the Chinese company of large-scale theft of its proprietary technology.