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The Nexen building in downtown Calgary.

TODD KOROL/Reuters

It was an unlikely sight. Oil-company executives, often the loudest proponents of free trade and foreign capital, waved the Canadian flag over the oil sands this week, as they anxiously await the new rules of the takeover game.

The Harper government has promised to spell out those rules when it determines the fate of Nexen Inc.'s acquisition by China's CNOOC Ltd. By itself, the $15.1-billion (U.S.) transaction is a no-brainer. The Calgary-based oil and gas producer is of little strategic importance to Canada. It extracts most of its production outside the country, in places like the North Sea and the Gulf of Mexico. Before CNOOC came along, it had been on the market for so long that its "for sale" sign had faded. Canadian rivals had plenty of time to buy it. None did.

So there is no reason for Ottawa to block the sale of Nexen – though it needs to hold the Chinese state-owned company to its promises.

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What is much more problematic is life after Nexen. Energy executives expect the deal to cause a stampede of foreign acquisitions in Canada's oil sands, the third-largest crude oil reserves in the world. And they're worried the country is not ready for it.

Prime Minister Stephen Harper promises to clarify the opaque rules by which the government determines if a foreign takeover is beneficial or detrimental to Canada. This playbook will, in his words, set a "pretty clear policy framework." But what should that framework look like?

Underlying the debate is the concern over state-owned acquirers, specifically Beijing-controlled companies. Clearly, the debate would be less emotional if Nexen had been approached by Brazil's Petrobras instead of CNOOC. A lingering fear of China has coloured opposition to the deal.

Former Industry minister Jim Prentice, for one, argues against making clear rules. The man who blocked the sale of the space technology division of MacDonald, Dettwiler & Associates to a U.S. firm in 2008 believes that the vagueness of the "net benefit" test in the Investment Canada Act should stay.

The ambiguity gives the Prime Minister all of the flexibility needed to protect Canada's interests. But it also means the act can be used for partisan considerations, as when the Harper government blocked the $39-billion acquisition of Potash Corp. by BHP Billiton in 2010. The transaction had been ferociously challenged in Saskatchewan and in Alberta, two Conservative strongholds, as federal elections were upcoming. Should foreign takeovers be blocked on such political and unpredictable grounds?

Energy executives, on the other hand, hope the government will lay clear guidelines after Nexen. "It is important to get some ground rules in place before the next one," Murray Edwards, CEO of Canadian Natural Resources Ltd., said this week at a panel discussion in Ottawa. Energy producers – and their shareholders – rightly wish to know which companies are untouchable, and which are not.

Having some predictability is a totally legitimate request. The real issue is where to draw the line in the oil sands. Say Canadian Natural or Suncor Energy Inc. are deemed takeover-proof, and stamped with the red maple leaf. How do you determine which of the other big companies could be put in play? How do you divide them? On sheer size alone? On local production?

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Should Canada have its own state-owned company that would hold strategic minority interests in some of Canada's best energy players? Some politicians in Quebec, including the Coalition Avenir Québec's François Legault, are making a case for greater government intervention in an economy where state-owned giants can no longer be overlooked. Putting the investment risks aside, however, this is a rhetorical question as long as Mr. Harper's Conservatives hold power in Ottawa.

There really is no clear cut way to strike a balance between protecting Canada's energy champions and being open to foreign trade and investments. But as Ottawa struggles to establish these rules, one thing is certain. When faced with foreign acquirers, Canadian companies should enjoy reciprocity in the buyer's market. That means the same access, the same financing conditions, the same protections.

This is not the case with China, even with the new investment treaty between Ottawa and Beijing that was discreetly signed during the last APEC summit in Russia. For new Canadian investors in China, and for resolving disputes, that treaty falls short.

This is where the Nexen transaction should serve as a strong bargaining position. Should the government allow the Nexen deal, it needs to extract something – a better deal from China, and from other foreign countries that want their state-controlled giants to buy Canadian assets. If they're going to come to Canada to play the takeover game, they need to play by a fair set of rules.

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