Not any more

John Ivison: Tories walk fine line on Potash

In Canada on August 25, 2010 at 10:28

The Harper government already stands accused of selling out Canada by waving through the US$40-billion purchase of Potash Corp. of Saskatchewan — even though there is no deal yet. The logic of this argument is that Ottawa never turns down takeovers of Canadian companies by foreigners because it would send the wrong signals to international investors.

Tony Clement, the Industry Minister, disputes this and says the federal government will be reviewing any bids “very closely.” Senior Conservatives say that lessons have been learned from the days when such companies as Brazil’s Companhia Vale de Rio Doce bought Canadian nickel producer Inco and then failed to live up to the job and investment commitments made at the time of purchase.

Mr. Clement is said to have ruled out giving any potential purchaser carte blanche in the wake of other deals that turned sour, such as U.S. Steel’s purchase of Hamilton-based steel producer Stelco. The federal government is suing U.S. Steel, claiming it contravened employment and production promises when it shut down plants in Hamilton and Fort Erie.

The Conservative government is attempting to walk a fine line in its approach to foreign takeovers. On the one hand, it is in the process of implementing the recommendations of the Competition Policy Review Panel, chaired by former Bell Canada chief executive Lynton “Red” Wilson, which urged the liberalization of foreign ownership in a number of sectors, including telecommunications and broadcasting. No legislation has been tabled yet — ostensibly because none of the opposition parties back the government’s moves to loosen up foreign ownership — but the Conservatives think portraying themselves as the party of free markets, free enterprise and free trade is a vote winner.

They respond to fears that Canada is losing some of its largest companies by citing the Wilson report that claims foreign control of Canadian assets is lower now than it was in the 1960s and 1970s. “It’s hard to close the door when RIM is tackling the world,” said one senior source.

But it’s clear that the laissez-faire days that characterized the Harper government’s approach when Maxime Bernier was industry minister are long gone. “It’s a little bit of a balancing act,” said the government insider.

The Harper government signalled it is prepared to stymie takeovers it considers inimical to the national interest when it blocked the $1.3-billion deal between Aliant Technologies and B.C. aerospace company MacDonald Dettwiler on the grounds it did not provide a “net benefit” to Canada. It followed that move by introducing a national security test to head off takeovers by state-owned foreign firms — a move many perceived as being directed against China.

The suggestion is that the Harper government is prepared to use either tool to foil any bid for Potash it doesn’t like. But David Emerson, who served as industry minister in Paul Martin’s Liberal government and international trade minister in Stephen Harper’s first Conservative ministry, said that both the “net benefit” and security tests are blunt instruments that leave investors in the dark about how bids for Canadian companies will be received by Ottawa.

He said the current process, where the Canadian government is forced to sue companies that don’t live up to their commitments, is “unwieldy and unsatisfactory.”

The solution, in the resource sector at least, is simple, he says: governments must set rigorous conditions, in exchange for extraction permits.

After all, the resources belong to the Canadian people and companies merely hold the licensing extraction rights. “If you’ve got commitments and your resource extraction permits depend on meeting those conditions, you’re going to meet them,” Mr. Emerson said.

“I think what we’ll see are stronger, clearer, more strategic conditions to resource extraction permits. I would argue that for natural resources that’s a great way to require management to be here in Canada and to require research and development. Then, you don’t get into the great debate about foreign ownership restrictions and whether there is coded discrimination against a particular country, which is what a lot of this is about.”

Mr. Emerson has some skin in this game, given that he sits on the International Advisory Board of the China Investment Corp., the $300-billion sovereign wealth fund responsible for managing part of China’s foreign exchange reserves.

But he offers an elegant solution that relieves government from acting as judge and jury when it comes to mining company takeovers.

National Post

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