Editor's note: This column was originally published on January 24, 2017.
Michael Byers holds the Canada Research Chair in Global Politics and International Law at the University of British Columbia
A Canadian company and its world-leading technology could soon end up in Chinese hands – against the advice of Canada's security agencies.
Montreal-based ITF Technologies produces fibre lasers for communication and industrial applications. Some of its technology is specifically directed to military use, including the development of directed-energy weapons, which some see as the future of warfare.
In 2015, ITF was bought by Hong Kong-based O-Net Communications. The Harper government initially approved the sale, subject to a national security review conducted by the Department of National Defence and the Canadian Security Intelligence Service.
After receiving the "national security assessment," the Harper government ordered that the sale be cancelled. The assessment, obtained by The Globe and Mail, included the following warning: "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."
Yet, three months ago, the Trudeau government cancelled the decision. It ordered a new national security review, thus reopening the door to the Chinese company. The government refuses to answer questions about this move, citing national security and commercial confidentiality. But clearly, it is willing to proceed against the previous advice of its own security agencies.
This shocking development is part of an emerging pattern. Last year, the government allowed Com Dev International to be sold to U.S.-based Honeywell without a national security review. Com Dev played an important role in the development and construction of Canada's newest military satellite, Sapphire.
Ottawa also allowed the sale of Allstream's fibre-optic network to Zayo Group, a U.S. company, again without a national security review. Allstream's network, which stretches across Canada, carries a great deal of confidential federal government data. Back in 2013, the Harper government blocked a proposed sale of Allstream to an Egyptian company on the basis that it "provides critical telecommunications services to businesses and governments, including the Government of Canada."
The Harper government had learned from experience how to balance the promotion of foreign investment with national security. Most of the learning came in 2008, when MacDonald Dettwiler and Associates, the maker of the iconic "Canadarm," proposed to sell its space division to a U.S.-based company. Included in the proposed sale was Radarsat-2, a remote-sensing satellite funded largely by the Canadian government because of its importance to security and Arctic sovereignty.
After a bruising public debate, the Harper government blocked the MDA sale, using the only test – whether the investment "is likely to be of net benefit to Canada" – available to it under the Investment Canada Act. As a result of that experience, the Harper government amended the Investment Canada Act in 2009 to include a specific national security test. The test allows Ottawa to scrutinize any foreign takeover that might injure national security, regardless of the monetary value of the sale. This is the test the Trudeau government has repeatedly chosen to ignore.
Ironically, MDA, the very same company that prompted the adoption of the national security test, successfully circumvented that test in 2016 when it moved its place of incorporation and head office to the U.S., while retaining its listing on the Toronto Stock Exchange. The purpose of the move was to give MDA access to the U.S. military and intelligence satellite market without selling itself and thus being made subject to an Investment Canada Act review. Although the move was entirely legal, it is difficult to imagine any other country allowing a national jewel like MDA to slip away so easily.
Today, some reports suggest that allowing O-Net to have another shot at buying ITF Technologies is all about improving Canada-China relations. Briefing notes prepared by Global Affairs Canada for the Trudeau cabinet, obtained by The Globe and Mail, explain that China feels unfairly targeted by national security reviews. China's complaints cannot be taken seriously. The country has long been suspected of stealing foreign technologies, including the plans for Lockheed Martin's F-35 stealth fighter jet.
The Trudeau government likes to boast that it relies on "evidence-based decision making." Yet the whole point of a national security review for foreign investments is to ensure that all considerations, from all interested parties, are heard – and not just the arguments advanced by the companies concerned. In this case, Canada's security agencies have spoken. When it comes to foreign investment, the Trudeau government does not seem to want their advice. Even national security, it seems, is up for sale.