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A Nexen oil sands facility near Fort McMurray, Alta. CNOOC Ltd. is acquiring Nexen in a $15.1-billion (U.S.) deal.Jeff McIntosh/The Canadian Press

Ottawa should take another stab at rewriting its foreign investment rules because what it has done so far has created the mistaken impression that Canada doesn't welcome offshore money, a new study concludes.

The confluence of the federal government's rejection of two major takeovers and the introduction of a new test for oil sands investment has magnified the uncertainty among potential investors, according to a report released Thursday by the Institute for Research on Public Policy.

"Investors are not in the business of playing a lottery," explained co-author Dany Assaf, a competition lawyer at law firm Torys LLP in Toronto.

"In today's world, people have a variety of options to deploy their investments. They prioritize, and they go where it's easiest to invest their money."

Ottawa blocked the takeovers of Potash Corp. of Saskatchewan Inc. in 2010 and MacDonald Dettwiler and Associates Ltd. in 2008. Last year, it approved takeovers of Nexen Inc. and Progress Energy Resources Corp. by foreign state-owned enterprises, or SOEs, but promised all future oil sands takeovers by SOEs would be approved only on an "exceptional basis."

The combination of the decisions and new rules has left potential investors and many Canadians confused about what is and is not allowed. "People are trying to understand what the foreign investment landscape looks like," said Mr. Assaf, whose clients include Canadian companies investing overseas and foreign companies doing so in Canada. "In trying to answer questions, you can introduce new questions."

The report argues for takeover rules that are at once much tougher and more explicit. But it says the controversial net-benefit test should remain.

Mr. Assaf and co-author Rory McGillis, a Torys associate, say the rules on acquisitions by SOEs should include options for demanding investment reciprocity, the posting of bonds to back up commitments, a pledge to supply the Canadian market with resources in times of economic crisis and restrictions on future investments by investors who don't respect the rules.

And while they don't want to get rid of the controversial net-benefit test, the authors say the law should be amended to explicitly mention commitments on the role Canadian management will play, compatibility with Canadian trade and environmental policies, and where deals fit with Canadian trade and investment objectives.

The report also urges the government to explicitly reject the notion that there are "strategic assets" that should be put out of reach for foreign investors. The term isn't contained in the Investment Canada Act, but use of the term by federal and provincial officials has created confusion. "It is not in Canada's interest to allow the use of 'strategic asset' to become a politicized code to prevent a [takeover] from being approved for political reasons," the report says.

The report also urges Ottawa to publish a "model list" of typical commitments by foreign investors, including such things as maintaining a head office, keeping local management and investing in research and development.

And finally, the report recommends that Ottawa issue basic national security guidelines, similar to those in the U.S. On the whole, however, the authors concluded that Canada's investment rules "measure up well" compared to regimes in most other countries.

Mr. Assaf said he hopes the report helps "reset the discussion and the debate" in Canada.

"The objective is to maintain Canada's national interest while attracting as much global capital as possible on beneficial terms," the report says.