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The federal government promised more clarity on foreign investment rules after the rejection of BHP’s proposed $38.6-billion (U.S.) takeover of Potash Corp. of Saskatchewan Inc.

The Harper government appears to have dropped plans to clarify the rules for foreign takeovers, leaving investors in the dark as to how Ottawa would react if an acquirer were to bid for a major Canadian company.

When the government killed BHP Billiton Ltd.'s proposed takeover of Potash Corp. of Saskatchewan in late 2010, the industry minister at the time, Tony Clement, promised to spell out the principles to guide the global business community on takeovers of Canadian companies. He also said he would ask the House of Commons industry committee to study the Investment Canada Act, the piece of legislation that governs such deals, and suggest improvements to it.

But more than a year later, new Industry Minister Christian Paradis is still quiet on the issue, and the industry committee is not studying the matter, according to two of its members, an indication that the issue is not high on the government's agenda.

The lack of action is a growing source of frustration on Bay Street, where lawyers and bankers argue that the percolating confusion threatens to cause real harm to the level of foreign investment in the country. It is also a concern because of takeover rumours surrounding Research In Motion Ltd., the smartphone maker that has been hit by a string of troubles, including poor sales of its BlackBerry phones.

The Investment Canada Act has existed since the mid-1980s and currently gives the industry minister the right to turn down deals of more than $312-million, if the government determines the transaction is not a "net benefit" to the country. That provision had never been used to block a takeover by a foreign investor until 2008, when Ottawa rejected Alliant Techsystems' bid for a division of MacDonald Dettwiler and Associates Ltd., which was followed by the rejection of BHP's proposed $38.6-billion (U.S.) takeover of Potash Corp.

Lawrence Herman, a lawyer at Cassels Brock who once represented Canada in numerous international meetings at organizations such as the OECD and United Nations, wants Ottawa to clarify the rules around the "net benefit" clause.

"These are shrouded in secrecy, and I don't think that's good enough for Canada," Mr. Herman said in an interview.

"[Mr. Clement]promised general principles, and those weren't issued. You don't need to have a Commons committee examine those kinds of things, they can be done by the minister. That should have been done as promised, and it hasn't been," he said.

Industry Canada spokesman Derek Mellon said: "We continuously review all of our marketplace framework laws, including the Investment Canada Act, to ensure they are up to date and effective. The Act was recently updated [in 2009]to improve the transparency of our foreign investment review process. It is premature to make any comments on any specific proposed changes to the Act."

In the wake of the 2010 Potash decision, "the concern is that Canada has become protectionist and will review transactions through a political lens with a sharp domestic-preference focus, rather than an international business and investment focus," Norton Rose lawyer Derek Burney wrote in a recent paper.

Opposition MPs say that they would like more clarity on the Investment Canada Act.

"The rules are so vague right now and the decisions are very unpredictable," said Guy Caron, an NDP MP who is on the industry committee and is the Opposition industry critic. "It creates a lot of uncertainty for foreign companies that want to invest, but also for Canadian companies who really don't know what to do with this."

At the moment, the industry committee is studying e-commerce in Canada, and, at the request of a Kitchener-Waterloo MP, is taking a look at Waterloo's Perimeter Institute for Theoretical Physics, said Liberal MP Geoff Regan, who is on the committee. Perimeter is a research centre founded by RIM co-CEO Mike Lazaridis.

RIM has been the subject on periodic takeover talk for years, but its highly publicized woes have shaved its stock market value to less than $9-billion, making it a more plausible target.

Any bidder would almost undoubtedly be foreign, creating the next big test of the Investment Canada Act. And there is already speculation that Ottawa would protect the firm. New York Times reporter Ian Austen recently wrote that RIM is a point of pride for the Canadian government, "which has been increasingly reluctant to let foreign companies buy major domestic corporations."

Political observers suggest that the reason there's no action in Ottawa on this file could be precisely because the government wants to keep all its options open.

Before he left the industry minister post, Mr. Clement suggested in a letter to The Globe and Mail that he thought the Investment Canada Act as currently written was working.

"The high level of foreign investment in Canada is a solid sign that our review process instills confidence," he wrote in February, months after his Potash decision. "Under the act, our government has approved 162 transactions with an asset value of $239.9-billion."