Wesley Wark is the director of the Security and Policy Institute for Professional Development at the University of Ottawa.
Ottawa has made a bold, but nerve-tinged, decision to deny the takeover of one of Canada’s major construction and critical infrastructure builders, Aecon. Prime Minister Justin Trudeau said Thursday that “we don’t want trade with China at any cost,” underlining that the denial was based on national security considerations, the details of which will remain secret.
The boldness of the decision is rooted in the important signal it sends that the government is serious about protecting significant critical infrastructure in Canada, including cross-border infrastructure, from potentially harmful foreign investment. Boldness may come at a cost, in terms of the future of Canada-China economic relations, but on that front we shall have to wait. The Chinese embassy in Ottawa has, predictably, decried the decision and warned that it may harm future co-operation.
The Aecon decision could not have been an easy one. There were grounds for much nervousness and anxiety, and not just in regard to the reaction of China. The government had to be sensitive to reactions from allies and trading partners and had to uphold existing Canadian and Canada-U.S. critical infrastructure protection strategies, which rely heavily on close co-operation between the government and the private sector. Ottawa was also rightly worried that Canada might have appeared as a pliable Western bridgehead for a broader Chinese global investment and influence strategy. The fact that the Conservative party opposed the deal probably had little impact on government thinking. Not much daylight seems to exist between Conservative and Liberal approaches to the China investment file.
To help negotiate between boldness and worry, the government had a regulatory process at hand. The national security review of foreign investments was instituted only in 2009. The process has since been used in a mere handful of cases – 13 between 2012 and 2017. The results can be outright denial (as with Aecon), approval or approval with conditions around divestiture or operating restrictions. The process combines professional national-security judgments advanced by Canadian security and intelligence agencies, such as CSIS and CSE, with an ultimate call made by cabinet ministers. The combination of political responsibility and (hopefully) independent and sound security judgment is vital. The experience of wading through this fraught process with Aecon should give current and future governments confidence that this is a regulatory instrument that works.
The national security review under the Investment Canada Act was originally established to ring-fence sensitive defence technologies from foreign takeovers; later, that was extended to the oil sands. The new frontier is critical infrastructure and the Aecon decision is a signal that Canada recognizes this.
The Aecon test was made starker by the nature of the bidder. Aecon’s intended master was a Chinese company with close ties to the Chinese government and engaged in global infrastructure projects – including controversial defence installations – on a massive scale, sometimes with a dubious record. The deal did not smell sweet, however much its backers attempted to dismiss concerns about the takeover.
The Aecon takeover came at a moment when Canada, as with many of its Western partners, is trying to navigate a new global economic landscape, in which Chinese power and reach is on the rise and the exercise of U.S. power is unpredictable and problematic. In particular, and this is where the Aecon takeover was another kind of test bed, the government must figure out a strategic response to China’s massive Belt and Road Initiative, launched by President Xi Jinping in 2013. This initiative seeks to extend Chinese trade and influence globally through massive infrastructure projects that will link China to Western Europe through a new so-called Silk Road and open up global maritime trade routes. China has even announced an Arctic policy, signalling its interest in opportunities for new trade routes, infrastructure projects and resource extraction via Arctic waters open to shipping and commercial exploitation owing to climate change.
Against this global backdrop, the Aecon takeover was a non-starter.
In the future, not only will Canadian governments have to stick to their guns in protecting sovereign critical infrastructure, but Canadian companies seeking foreign investment deals, and their advisers, will have to get smarter about the new and fast-changing global economic landscape.