Canada needs to clarify rules for foreign takeovers amid increased risk of state-led acquisitions, committee said

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OTTAWA – Canada needs to clarify its foreign investment rules as the COVID-19 pandemic exposes the country to an increased risk of strategic takeovers by aggressive foreign players like China, according to several international affairs experts.In testimony to a House of Commons committee on Monday, experts reiterated a longstanding assertion that Canada needs to define more clearly what it considers to be its “strategic interests”, particularly when the fallout Economic impacts of the pandemic have made many Canadian companies ready for acquisition. . In recent months, Ottawa has signaled that Canadian assets are at higher risk of foreign takeovers and has decided to take a closer look at the proposed acquisitions.

Charles Burton, a senior researcher at the Macdonald-Laurier Institute in Ottawa, said that the potential takeovers by Chinese state-owned enterprises are of particular concern, as they could be used on behalf of the Chinese Communist Party to advance its foreign strategic interests.

“Most, if not all, serve the interests of the Chinese state and are not simply aimed at improving the profitability of the business in Canada through sound investment,” he said.

For years, Ottawa has struggled to find a balance between attracting foreign investment and delaying political takeovers by foreign states. These concerns reached new heights in 2013 when Ottawa threatened to reject – but ultimately approved – China’s purchase of the oil sands giant Nexen for $ 15 billion. Most recently, in 2018, the Liberal government rejected the takeover of the Canadian construction company Aecon by a Chinese state-owned enterprise, citing risks to national security.

Burton reiterated concerns over the Chinese takeover of strategic assets such as energy and telecommunications on Monday. Many investments made by Chinese companies are made solely for strategic rather than commercial interests, he said – like those being pursued under the Chinese Belt and Road initiative.

“Many projects funded by China are in fact losers, but still serve the geostrategic interest of the People’s Republic of China,” he said.

These projects are increasingly taking the form of “debt trap diplomacy,” said Burton, in which the Chinese government lends money to struggling states on difficult terms, as part of a long-term plan to take over the asset at a later date.

Most, if not all, serve the interests of the Chinese state

In April, Industry Minister Navdeep Bains proposed policy changes that would allow Ottawa to take a closer look at “investments of any value, whether controlled or not” by foreign companies, particularly those related to public health or the provision of essential goods and services. It also removed the thresholds for the review of investments in any sector by public or state-linked entities.

Attorney General David Lametti also introduced draft legislation that would extend the time allowed for the review of foreign takeovers.

Other experts in the group disagreed that Canada is currently at greater risk of foreign takeovers, saying that the hundreds of billions of capital injected into the economy by the federal government and the Bank from Canada have kept businesses relatively healthy.

“I don’t see widespread panic selling,” Daniel Schwanen, vice president of research at the C.D. Howe Institute.

Schwanen, like others who testified on Monday, said that Ottawa needs to be clearer in how it defines its strategic interests and threats to national security, because the vagueness around the issue has caused confusion among many foreign buyers.

It is difficult to distinguish what constitutes a strategic industry

He also stressed that any change to Canada’s foreign investment should be careful not to unnecessarily scare vital sources of finance for domestic businesses.

“Foreign investment can be a very useful means of providing capital for these companies,” he said, warning against “knee-down” opposition to foreign takeovers.

Experts who testified before the committee on Monday also recognized that narrowing the wording around what constitutes strategic interest could prove difficult, as it would force Ottawa to choose essential industries effectively over non-essential industries.

“Everyone wants their industry to be strategic,” said Patrick Leblond, professor of international affairs at the University of Ottawa. “It is difficult to distinguish what constitutes a strategic industry.”

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