Editorials: The takeover test

Inventing special rules for takeovers by state-owned enterprises is both unnecessary and ill-advised.

Industry Minister Jim Prentice says the government wants to get tough on foreign takeovers. “Canada is open for business, but it is not for sale,” he said in a mid-October speech to the Vancouver Board of Trade. There, he announced that the government is this fall reviewing whether new guidelines are needed to govern the rules for Canadian companies acquired by foreign, state-owned companies — specifically, a “national security test.”

Prentice’s speech comes after a number of Canadian companies have been swallowed up by foreign firms. They include Dofasco, Algoma and Stelco in the steel industry; Alcan, Inco and Falconbridge in metals and mining; and consumer-oriented companies such as Sleeman, Hudson’s Bay Co., and Fairmont and Four Seasons hotels. Prentice says that Canada welcomes foreign investment, but he’s concerned about situations where the would-be buyer is an entity of a foreign government “whose objectives may not be strictly commercial.”

Prentice acknowledges that state-owned enterprises such as SAFRAN Group of France are already operating in Canada, to the benefit of both countries. The bogeyman, however, appears to be China — and some suggest the government wants to head off an invasion of the oil sector by an energy-hungry economic powerhouse flush with cash.

In our opinion, Prentice needn’t bother, as the tools to deal with foreign takeover bids that are “bad” for Canada already exist. As he has noted, the Investment Canada Act gives the industry minister the right — “indeed, the responsibility” — to review investments by non-Canadians, state-owned or not, to ensure they provide a “net benefit” to the country. Canadian jobs, productivity, and competition are among the factors considered.

Rather than trying to score political brownie points with a review of something that already exists, the Harper government should be looking for ways to open Canada up to even more foreign investment. A recent C. D. Howe Institute study by Jack Mintz and Andrey Tarasov released in August said that Canada is an underachiever in this area. They argue that our record as a host to foreign capital is “generally dismal,” with Canada ranking just 46th out of 73 countries when it comes to foreign direct investment between 2001 and 2005. Focusing public attention on the need for a national security test, when we effectively already have one, makes us look like we want the situation to stay that way.