Opposition say Ottawa courting trouble on foreign takeovers rules

By Julian Beltrame, The Canadian Press - Monday, September 17, 2012 at 6:45 PM - 0 Comments

OTTAWA – The Harper government is again under pressure to spell out clear rules on foreign investment following yet another spurned bid and in advance of the next big ask — the proposed Chinese acquisition of a major Canadian oil company.

NDP and Liberal critics blasted the government for sitting on the issue for two years, saying they now are facing a decision this fall whether to accept China National Offshore Oil Corp.’s (CNOOC) $15.1-billion deal to buy Calgary-based Nexen Inc. without clear guidelines.

Earlier Monday, U.S.-based Lowe’s withdrew its bid to acquire the Rona hardware chain, citing the Quebec company’s opposition.

But analysts said another consideration was likely the political barriers put up from both leading parties in the province, including the Parti Quebecois minority government, that might have made approval under the Investment Canada Act problematic.

“We don’t know what the Canadian government would have done with the Rona takeover, although clearly the government of Quebec was against it and that would have been an important factor in the process,” said Oliver Borgers, a partner in McCarthy Tetrault’s competition law group.

The act calls for a demonstration of a “clear benefit” to Canada, but is unclear what that means beyond that a deal would create or preserve jobs, and generally benefit the economy.

And that’s the problem, say critics — the ambiguity and secrecy of the process allows for too much discretion, including political pressures.

“Ad hockery is what you get when you get when the government is negligent in setting the framework,” said Liberal deputy leader Ralph Goodale, a former finance minister.

“What you’ve got is complete and utter chaos because it will all boil down to what Stephen Harper had for breakfast this morning and how he’s feeling about it.”

The question of political factors coming into play was given more fuel Monday when Conservative MP Rob Anders said he opposed the Nexen takeover, referring to China as a “non-benevolent country.” He added that other MPs in the caucus agree.

NDP energy and natural resources critic Peter Julian called on the government to conduct public hearings on the Nexen bid, accusing the government of listening mostly to CNOOC lobbyists.

Although he did not answer the question directly, Industry Minister Christian Paradis said the Nexen deal will be “scrutinized very closely.” He added that what the NDP was proposing would “deter any form of investment in the country.”

Following the 2010 rejection of BHP Billiton’s bid to buy Potash Corp. (TSX:POT), Ottawa suggested it would clear the confusion of what constitutes “net benefit” under the act, but has not issued new guidelines.

Instead during the spring, Paradis tripled the threshold of purchases that would need to be reviewed to firms with $1 billion in asset value, and said Ottawa would be more open with the reasons behind its decisions.

Opposition parties say the government is inviting trouble because more bids to buy into Canada’s rich resources sectors are almost certainly to occur.

“This is a watershed. The size and scope of this takeover brings us into a whole new range in terms of potential acquisitions of Canadian energy companies,” said Julian. “So the whole issue around net benefit and how the government treats these applications has to be set down.”

Julian said the current approach is not fair to Canadians, who have no faith in the process, or investors, who fear a strong public reaction will scuttle their bid.

But despite some high-profile rejections in the last few years, there seems to be no loss of appetite from foreign investors for Canadian properties. One reason is that Canada’s relatively healthy economy and sound fiscal position has made it a safe heaven for investors.

Borgers said to some extent investors expect some push-back when they seek to purchase assets in foreign countries.

“I don’t think a couple of rejections is going to taint our reputation,” he said. “If you look to many of the large, important economies around the world, there have been many deals rejected and Canada would not be perceived to be far outside that pattern.”

What Canada’s current account deficit says about our vulnerability to a global slowdown

By Andrew Hepburn - Thursday, September 13, 2012 at 10:55 AM - 0 Comments

Budget deficits, whether provincial or federal, tend to get all the press. The other big Canadian deficit—the current account deficit—usually flies well under the radar. Until this week, that is, when Statistics Canada released numbers indicating that our trade deficit with the world expanded from $1.9 billion to $2.3 billion in July.

The current account surplus or deficit is a measure of a country’s trading relationship with the world. You’ve probably heard of a key part of the current account, the trade balance, or exports minus imports. In addition, the current account also measures net investment income, i.e. interest earned from foreign holdings minus interest paid to foreigners, and net financial transfers over a given period.

Canada’s current account balance is significantly in the red. To be precise, as of the second quarter of 2012, our deficit has reached 3.6 per cent of GDP on an annualized basis. As BMO’s Nesbitt Burns noted, this represents a marked deterioration from the 2.8 per cent deficit recorded in 2011. Canada, they wrote, has only seen two years—1975 and 1981—when the current account deficit exceeded 4 per cent of GDP. We’re close what have typically been extreme readings.

Many experts, including economists at BMO, National Bank and the OECD  have pointed to the strong Canadian dollar as responsible for much of the deterioration in Canada’s trade balance. The value of Canada’s net merchandise exports have declined precipitously from almost $70 billion in 2001 to barely above zero in 2011. That number is now negative.

Chart: National Bank

Continue…

Wal-Mart goes to Africa

By Emma Teitel - Friday, June 17, 2011 at 11:25 AM - 0 Comments

Globalization can be a risky business. Starbucks was forced to close its Israeli branches in 2003 because Israelis preferred their own coffee chains, and Kellogg’s expansion into India failed miserably, possibly because Indians don’t eat cold cereal for breakfast. Fortunately for Wal-Mart, though, everyone likes cheap retail. The big box chain that swept through North America, Europe and Asia with its relentless price slashing will soon move into Africa (the “final frontier,” as some marketers call it), having recently bought out the continent’s current megastore—Massmart—for US$2.4 billion.

Foreign investment is no stranger in Africa, but until now the continent’s unpredictable property prices and transport routes, and its isolated neighbourhoods of affluent consumers, have kept offshore retailers away. Wal-Mart plans to beat these challenges using Massmart’s model and experience, though many Africans wish they wouldn’t. Labour unions are afraid the corporation will cut jobs and lower wages. Others view the expansion optimistically, as a much-needed test case for wider foreign investment in African countries. Still, the question remains: even if cheap goods and services benefit the consumer population, will the Wal-Mart way really suit a largely developing continent?

What is the Harper government’s policy on foreign investment?

By John Geddes - Wednesday, November 3, 2010 at 6:53 PM - 0 Comments

Industry Minister Tony Clement’s decision to block Australian mining giant BHP Billiton’s $38.6 billion bid for Saskatchewan’s Potash Corp. leaves a policy vacuum that Prime Minister Stephen Harper must soon fill.

Right or wrong, Clement’s move looks to have been improvised in the face of intense political pressure. He stressed that it was his call alone, and not based on a recommendation from his departmental officials after they scrutinized the deal’s terms.

Continue…

'The decision is mine and mine alone'

By Aaron Wherry - Wednesday, November 3, 2010 at 5:57 PM - 0 Comments

Industry Minister Tony Clement turned up at a waiting podium just now and, after taking a few moments to build the drama, announced that BHP Billiton bid for PotashCorp does not constitute a “net benefit” for Canada. Seems BHP Billiton will have 30 days to resubmit, should it so desire.

Official statement after the jump. Continue…

The Commons: Who loves ya, baby?

By Aaron Wherry - Thursday, October 21, 2010 at 6:58 PM - 0 Comments

The Scene. As he made his first intervention, Michael Ignatieff insisted on staring down Stephen Harper’s empty chair. Perhaps it’s to the point now that the Liberal leader sees Mr. Harper’s dismissive mug wherever he looks. Perhaps he simply found the green felt of the House seats a soothing sight to gaze upon.

His question this day had to do with the potential sale of Potash Corporation of Saskatchewan Incorporated to BHP Billiton Limited and all of the national, economic and social implications within and around that transaction. “Mr. Speaker,” he said, “yesterday when the Prime Minister was asked about the possible sale of Potash Corp he basically shrugged his shoulders and said ‘Australia, America, who cares?’”

In full, the Prime Minister had said, “This is a proposal for an American-controlled company to be taken over by an Australian-controlled company.” Whether Mr. Harper was shrugging at the time, I do not remember. But given that he is given to shrugging reflexively at almost all propositions, it is certainly a distinct possibility. Continue…

Maybe not the whole nine yards, but a few

By Andrew Coyne - Thursday, March 4, 2010 at 10:43 AM - 19 Comments

That was one of the more economically literate Speeches from the Throne in recent memory, even at the cost of saying rather little (and taking rather too long to say it). But what was there was at least mostly in the right direction.

Throne Speeches are tricky things. Lines that seem innocuous turn out to be freighted with meaning. Momentous-sounding announcements turn out to mean not much at all, or never make it into legislation. A pledge to “reform and strengthen education,” for example — meaningless boilerplate, or the beginnings of a national education strategy? An “aggressive” plan to “close unfair loopholes” — a couple of technicalities of interest only to accountants, or wholesale tax reform?

Still, the general tendency of the Speech, at least in its economic chapters, was clear: smaller government, freer trade, less intervention in markets. If hardly a major change in direction — did anyone think that’s what “recalibration” meant? — it does signal the government is turning up the volume on some conservative economic themes that had hitherto been buried in the mix. The government can read the opposition’s body language as well as anyone, and can see they are not spoiling for an election. So it has taken the opportunity to steal a few yards for conservativism, without being unduly provocative.

Indeed, it’s an achievement of sorts that so much of the reaction to the Speech seemed to be in the ho-hum, is-that-all-there-is vein. For it contains at least a couple of potentially important policy initiatives. Opening the doors to foreign investment “in key sectors,” including — but not limited to — telecoms and satellites, is the most startling, even if it was telegraphed in advance. Not long ago this would have been considered a political third rail, and yet it seemed to occasion very little response from the opposition. Good: aside from offering greater choice and competition for consumers, foreign investment will be a vital source of the capital needed if Canada is to improve its dismal productivity performance — as it must, to pay for the coming wave of baby-boom retirees.

The other potentially significant development was the pledge to freeze departmental operating budgets. Again, this seemed to escape notice, with most commentary focused on the symbolic but fiscally insignificant salary freezes imposed on ministers and MPs. But a freeze on departmental budgets, depending how long it is in force, could mean quite sharp cuts in spending in real terms — not enough, certainly, to balance the budget on their own, but perhaps a sign of what is to come in the budget.

It had better. Despite the nod to restraint, the Throne Speech maintains the government’s official line that the budget can be balanced without either raising taxes or cutting transfers to the provinces and elderly. It’s true that you can grow your way out of a deficit, if you don’t care how long it takes: give it 10 straight years of growth, and even the worst profligate can balance its books. But the more leisurely the schedule, the greater the chances of a recession or other unexpected event wrecking all those pleasing fiscal forecasts. And of course, the longer you take to stop adding to the debt, the higher it climbs.

What we need is a serious plan to balance the budget in three or four years, that is within the usual economic or political cycle, coupled with a strategy to tackle the longer-term demographic challenge. That will certainly require either significant cuts in spending or substantial tax increases. I’ve argued it can and should be done by cutting spending. But whether it’s one or the other (or both), it can’t be neither.

A couple of other important omissions from the speech. On the plus side, there were almost none of the usual giveaways to politically powerful industries. To be sure, there was the expected list of shout outs to the forestry, fishing, and farming sectors. But rather than shower them with subsidies and special treatment, the speech proposed to help them by cutting red tape and opening new markets: what might be called “small government activism.” (The glaring exceptions: shipbuilding and supply management.)

More distressing was the absence of any mention of the economic union. To be sure, there is a pledge to press ahead with the creation of a national securities regulator, in place of the current provincial hodgepodge. But until lately the government had much more ambitious plans. A previous Throne Speech, in 2007, vowed to take aggressive action to dismantle provincial trade barriers if they did not do so themselves, if necessary by use of the federal “trade and commerce” power under the Constitution. The Conservative election platform in 2008 added a deadline to this commitment: 2010. Well, here it is 2010, and in a document devoted to competition, productivity and free trade there is no mention of the economic union.

Fine words, as they say, butter no supply-managed parsnips.

FOR THE RECORD: Here’s what the October 2007 Throne Speech had to say about the economic union:

Our government will also pursue the federal government’s rightful leadership
in strengthening Canada’s economic union. Despite the globalization of
markets, Canada still has a long way to go to establish free trade among our
provinces. It is often harder to move goods and services across provincial
boundaries than across our international borders. This hurts our competitive
position but, more importantly, it is just not the way a country should
work. Our government will consider how to use the federal trade and commerce
power to make our economic union work better for Canadians.

And here’s that 2008 platform commitment:

A re-elected Conservative Government led by Stephen Harper will work to eliminate barriers that restrict or impair trade, investment or labour mobility between provinces and territories by 2010. In 2007, the government announced that it was prepared to use the federal trade and commerce power to strengthen the Canadian economic union. Since that time, we have seen progress among the provinces and territories in strengthening the existing Agreement on Internal Trade. We hope to see further progress, but are prepared to intervene by exercising federal authority if barriers to trade, investment and mobility remain by 2010.

A surprisingly detailed throne speech prompts questions

By John Geddes - Wednesday, March 3, 2010 at 3:58 PM - 31 Comments

UPDATED BELOW

The Speech from the Throne uses Canada’s recent success at the Vancouver Olympics and generosity toward Haiti to set a ringingly patriotic tone. Beneath its expected rhetoric about jobs, family and security, a surprising number of specific new initiatives are sketched. But sketched is the word—the speech doesn’t fill in much detail. From my first read-through, at least five striking examples cry out for more precision, sometime very soon.

1. There’s a promise to “aggressively review all departmental spending.” The Conservatives announced on Sept. 25, 2006, that they had “eliminated wasteful and ineffective programs” after a review launched in their very first budget in 2006. How much new waste has crept into the system since then? In other words, how much spending do they expect to cut? (Maybe tomorrow’s budget will tell us.)

2. There’s a promise to “open Canada’s doors further to venture capital and to foreign investment in key sectors, including the satellite and telecommunications industries…” Does this suggest that last year’s controversial Globalive decision was, despite government claims that it did not open the door to more foreign ownership, a harbinger things to come?

3. There’s a promise to support businesses by removing “unnecessary and job-killing regulation and barriers to growth.” The small-business lobby puts cutting red tape right behind reducing taxes as a priority. On the other hand, after the financial meltdown of 2008 was blamed largely on lax regulation, the word no longer carries negative connotations in talk about the economy. So exactly which federal regulations are pointless rather than prudent?

4. There’s a promise to “look to innovative charities and forward-thinking private-sector companies to partner on new approaches to many social challenges.” Does this mean more initiatives like Winnipeg’s recent and controversial government-funded Youth for Christ community centre project? Exactly which social challenges are best handled by private charities or even companies? And what sorts of charities and companies?

5. There are promises to “give police investigative powers for the twenty-first century” and “modernize the judicial tools employed to fight terrorism and organized crime.” Police chiefs often complain that they lack manpower; criminal courts face backlogs. But what are the investigative and judicial powers, rather than resources, that police and judges currently lack when it comes to properly enforcing the law?

UPDATED:

We ask, they answer. Here’s Industry Minister Tony Clement a little while back responding on the Hill to reporters’ questions on what the government intends for the telecommunications sector:

“Well, these will be coming out in due course.  Clearly what we’ve heard from the sector as well as the satellite sector is that in order for them to continue to grow, to continue to innovate, to continue to create new jobs and new opportunity for Canadians there has to be a review of this policy.  This was obviously recommended by the original report on competitiveness, the Red Wilson Report and clearly we’ll be following up on that.”

Now that's (a little) more like it

By Andrew Coyne - Friday, September 12, 2008 at 10:27 AM - 27 Comments

Tories propose foreign-investment rule changes

Canadian Prime Minister Stephen Harper pledged to loosen restrictions on foreign investment if he’s re-elected next month, in a bid to bolster the country’s competitiveness.

The governing Conservative Party would raise the threshold at which a foreign acquisition triggers a government review to US$1-billion, and allow non-Canadians to own bigger stakes in airlines and uranium miners, according to a statement released by the party today in Halifax, Nova Scotia.

It’s not much, but it’s a start: the limit on airlines would only be raised to 49%, and then only where other countries agree do to likewise. So Canadian air travellers will remain hostage to the domestic oligopoly for years to come. And there’s no mention of loosening similar restrictions in telecoms or the financial sector.

Baby steps, then. But at least it’s a baby step in the right direction!

It’s also good politics. After the serial fiascos of recent days — the failed debate putsch, puffin-poop, Ryan Sparrow, the way over-the-top attack on the Green Shift — the Tories needed to change the subject. Campaign 101: you make news — and yards — with policy.

Of course, whether they would keep this promise, or whether Harper might one day suddenly decide to lurch in exactly the opposite direction — as, for example, in the MDA deal — remains as unknowable as ever.