The Trudeau government's decision to greenlight a Chinese takeover of a Canadian high-tech firm that sells satellite-communication systems to the American military jeopardizes U.S. national security, a congressional commission warned Monday and urged the Pentagon to "immediately review" its dealings with Vancouver-based Norsat International.
The U.S.-China Economic and Security Review Commission told The Globe and Mail that the Liberals appear to be willing to sacrifice national-security interests of its most important ally in exchange for obtaining a bilateral free-trade deal with China.
"Canada's approval of 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," Commissioner Michael Wessel said.
"Canada may be willing to jeopardize its own security interests to gain favour with China," said Mr. Wessel, adding it shouldn't put the security of a close ally at risk in the process.
Ottawa approved the takeover of Norsat by Hytera Communications of Shenzhen, China, in early June. The government conducted a routine security analysis but did not proceed with a full-fledged national-security review to determine the impact on the transfer of proprietary technology outside Canada.
"The U.S. military and other domestic clients of Norsat should immediately review their purchases as well as the exposure they have to existing products from the company they use to determine what security risks might arise," said Mr. Wessel, a Democrat who has sat on the commission since 2001.
Norsat's customers include the U.S. Department of Defence, the U.S. Marine Corps, the U.S. Army, aircraft manufacturer Boeing, NATO, Ireland's 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.
The 12-member U.S. commission monitors, investigates and submits an annual report to Congress on national-security implications of bilateral trade between the United States and the People's Republic of China.
Mr. Wessel said the commission will advise Congress to examine Ottawa's decision to approve the Hytera-Norstar deal as it begins a statutory review of the Committee on Foreign Investment in the United States (CFIUS), which reports to Treasury Secretary Steven Mnuchin. CFIUS is an interagency committee that reviews national-security concerns of foreign investments in U.S. companies.
"This transaction and Canada's actions must be taken into account," Mr. Wessel said.
Two former directors of the Canadian Security Intelligence Service, Richard Fadden and Ward Elcock, have told The Globe that they would have recommended that the Hytera-Norsat transaction be subject to an in-depth national-security review to determine if it was injurious to Canada and its allies.
David Mulroney, a former Canadian ambassador to China, has called the Hytera takeover of Norsat "worrying," and questioned why the government is spending billions of dollars on new military hardware if "you're not doing the basics to counter other threats to national security."
The Norsat sale to China has temporarily been put on hold after a U.S. hedge fund made an unsolicited bid on Monday.
Privet Fund Management of Atlanta offered $11.50 (U.S.) a share. Norsat's independent board of directors has asked Hytera to match the bid or the company will accept the Privet offer and pay a termination fee of $2.5-million to Hytera.
If Privet buys Norsat, the takeover will be subject to a preliminary security screening that all Canadian companies being sold to foreign interests must undergo. Given that the potential buyer is an American firm, it is unlikely that federal officials would recommend a more in-depth national-security review.
However, a U.S. business source expects Hytera will outbid Privet, suggesting the firm – 52-per-cent owned by Chinese billionaire Chen Qingzhou – will get state financing to gain control of the Canadian technology firm.
Ottawa's decision to consent to Hytera's takeover without a national-security review has been roundly criticized by Conservative and NDP MPs, who expressed concern about handing over sensitive satellite technology to China.
"Canada's defence policy cannot include selling national-security secrets to appease communist dictatorships even if they happen to have secured the admiration of our Prime Minister," Conservative Leader Andrew Scheer told the Commons on Monday. "This deal requires a formal national-security review"
Prime Minister Justin Trudeau responded that the government "followed the advice given to us by our national-security agencies." He told MPs all foreign takeovers are subjected to a national-security review when, in fact, they are only screened for their potential to injure the country's security.
A formal national-security review is an extensive probe that examines the potential impact on Canada's defence capabilities and economic interests and investigates the transfer of proprietary technology outside Canada.
A key foreign-policy cornerstone of the Trudeau government is closer relations with China, including a potential bilateral free-trade deal and an extradition treaty.
Beijing has made clear that national-security reviews, which it regards as protectionism, will be on the negotiating table. The Liberals appear to be listening to the Chinese and have adopted a less risk-averse approach to capital from China.
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 in a deal that gave China a foothold in Canada's health-care sector.
In March, the government approved a Chinese takeover of a Montreal high-tech firm, ITF Technologies – the very same transaction that had previously been blocked by the former Conservative government after it became convinced the deal would undermine a technological edge Western militaries have over China.
Hytera drew international headlines in March when telecom-equipment giant Motorola filed a high-profile lawsuit against it, accusing the Chinese firm of large-scale theft of its proprietary technology.
When Hytera made a bid for Sepura, a mobile digital radio equipment maker in Cambridge earlier this year, Britain conducted a national-security review and imposed strict stipulations.
In Ottawa, the Norsat deal has dominated Question Period. Last week, Innovation Minister Navdeep Bains at first talked up the robustness of the preliminary screening process and then later claimed a full-scale review had taken place. On Monday, he placed the onus on the Norsat decision on CSIS and military intelligence.
"Did Canada's national-security agencies examine this deal? Yes, they did. Did the government follow the security agencies' recommendation? Yes, we did. We have done our due diligence," he said.
The Conservatives and NDP asked the Commons Speaker last week to rule that Mr. Bains was not telling the truth when he said a national-security review had taken place. They accused Mr. Bains of conflating the initial screening process and a formal review to confuse Canadians.
Mr. Bains's own department told The Globe last week that it had advised Norsat that, after a security screening "no order for review would be made." A department spokesman explained, "this was because, following the extended screening process, there are no outstanding national-security concerns." Norsat published the same information on June 2 in a news release.