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Principles, not mere pragmatism, should drive the Nexen decision Add to ...

The federal government must soon decide whether to allow the friendly takeover of Nexen by the Chinese National Overseas Oil Company (CNOOC) and, if so, on what conditions. The decision is complicated by the fact that CNOOC is owned by the Chinese government – and China is a country with which Canada is anxious to expand trade relations, but whose Communist government practises and promotes a version of capitalism and “democracy” unacceptable to many Canadians.

One approach to making this decision is to make it on purely pragmatic grounds by simply applying the so-called “net benefit to Canada” test: approve the deal if the perceived benefits appear to outweigh the costs, or can be made to do so by attaching conditions, such as requiring reciprocal trade and investment concessions from China.

Application of the net benefit to Canada test includes such considerations as:

• Whether Nexen occupies such a strategic position in the energy sector that its ownership should be kept in Canadian or at least North American-based hands (most analysts think not);

• Whether there is anything about CNOOC’s environmental, social, or governance record or standards that make its ownership of Nexen disadvantageous for Canada;

• Whether having Nexen owned by a state-owned enterprise (SOE) has positive or negative consequences for Canada, especially if that “state” is Communist China.

On the global stage, whether we recognize it or not, the Western democracies, including Canada, are engaged in a deadly serious political competition with China. This competition pits the well-developed Chinese Communist ideology of state-controlled capitalism and state-directed “democracy” against the older Western ideology of market-driven capitalism and citizen-directed democracy. This competition is especially keen in developing countries where the West and China compete for resources, and where Chinese SOEs are key agents on behalf of their government.

Regrettably, the West appears to be losing this competition. Market-driven capitalism has been seriously discredited by the recent financial-sector collapse, the European debt crisis and the continued weakness of the American economy. Citizen-directed democracy has likewise been seriously discredited by the excesses of the Arab spring and by riots in the streets of Spain and Greece protesting the austerity measures required to repair their economies.

Whereas the Great Wall of China once kept China isolated and insulated from the rest of the world, today the Great Web of China, woven from the silken but strong-as-steel threads of trade and government-to-government relations, extends China’s influence to dozens of countries in Asia, Africa, the Middle East and Latin America. All over the globe, China consistently offers state-directed capitalism and state-controlled democracy as a superior and more stable alternative to the market-driven capitalism and citizen-directed democracy of the West.

If Canada’s decision to approve or block the CNOOC takeover of Nexen, or to approve it subject to conditions, is to be based on principled as well as pragmatic considerations, it is the principles of market-driven capitalism and citizen-directed democracy that especially need to be respected and applied.

If we believe in market-driven capitalism, we should resist state ownership of the means of production, whether by our own governments or agencies of foreign governments. If we believe in citizen-driven democracy, whatever decision is ultimately made on the CNOOC-Nexen deal, it must ultimately be capable of carrying the judgment of a majority of Canadians.

Adherence to the principle of market-driven capitalism will encourage, rather than discourage, the sale to China of oil and other commodities, goods and services on the open market. It welcomes doing business with CNOOC or other Chinese SOEs and expanding trade with China through a variety of commercial arrangements on a dozen fronts. It does not preclude foreign investment or takeovers of Canadian companies by foreign-based multinationals if they conform to Canadian laws and win the approval of existing shareholders.

But takeovers by state-owned enterprises, especially those owned by a government whose values are at fundamental variance with our own, should be opposed on principle, unless such takeovers can be structured so that, when Canadian values and those of the owners of the SOE conflict with respect to their Canadian-based operations, it is the Canadian perspective that will prevail.

With respect to meeting China’s need for resources, the Japanese model might be especially instructive. Without making corporate ownership an issue, Japan has secured many of the raw materials it needs for its industrialization via joint ventures and long-term supply contracts with Canada and Australia, with both countries still retaining ultimate control of their assets and resource sectors.

Finally, adherence to the principles of citizen-driven democracy means that ultimately any government approval or disapproval of the CNOOC-Nexen deal must carry the judgment of the Canadian people. More than 60 per cent of Canadians currently oppose what they know of the deal. This does not automatically mean that applying “the democratic test” kills the deal, but that, instead of directing all their energies toward persuading politicians and bureaucrats in Ottawa of its merits, the major proponents of the deal should be working hard to convince a majority of the Canadian electorate that it is advantageous and defensible on both pragmatic and principled grounds.

Preston Manning is president and CEO of the Manning Centre for Building Democracy.

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