Canadian COMPETITION LAW

Given that the Canadian Federal Government’s review of the CNOOC/Nexen was extended, again, last Friday until December 10th, this excellent note a couple days ago by Bruce Lyons (Competition Policy Blog in the U.K.) caught my eye: Beware of Siren Advice for Political Control of Foreign mergers.

In this thoughtful but critical note, Lyons argues that the U.K. which, unlike many other major jurisdictions, does not even have mandatory merger control notification, should be wary of potential government intervention in the change of control of its firms.

In this regard, Lyons discusses a recent review by a former U.K. trade minister (Lord Heseltine) entitled No stone unturned in pursuit of growth which, according to Lyons, includes proposals to interpose U.K. government review into foreign acquisitions to achieve objectives, among others, including building U.K. research and development capacity and domestic supply chains.

Given the fact that a series now of high-profile transactions in Canada have been blocked (or at minimum delayed) by either the Federal Government or Federal regulators (for example, as widely reported, BCE’s proposed acquisition of Astral, Malaysian state-owned Petronas’ efforts to acquire Canadian Progress and now last Friday CNOOC’s bid to acquire Nexen) it struck me as rather surprising that another leading jurisdiction would be contemplating adopting rules to reduce merger clearance certainty, increase opaqueness and insert government omniscience in a world where investment borders are rapidly dissolving.

According to Lyons’ note, the U.K.’s former trade minister provides a list of capabilities that should be kept out of foreign hands, including the U.K.’s R&D capability, intellectual property, advanced manufacturing capabilities and expertise in complex finance and insurance (all of which, according to the former finance minister, are “vital to the U.K.’s future prosperity”).  In a world of increasing “communities” of thought, partnerships and free-flow of capital, such insular and xenophopic thinking also struck me as, well, rather like Japan in the 16th or 17th centuries.  Canada recently officially eliminated lower foreign investment review thresholds for all “sensitive” industries, except cultural industries, although this may not be obvious given the predominance of the term “sensitive” in discussions of assets varying from potash, to shale gas to big-box improvement stores.

Like Canada, however, there is at least one core problem with such an approach: it is not clear (in fact significantly far from clear) that a federal government should claim ownership to any of these assets which have been developed, built and marketed by private firms with private shareholder financing and considerable risk.

In short, the dialogue that is playing out in Canada and it seems now other jurisdictions with existing or proposed foreign investment  controls, is the extent to which the state can control the alienation and sale of privately developed assets and the free movement of capital.  It is, to varying degrees, an expropriation of property question.  Or perhaps more accurately, as there is no actual transfer of property to the Federal Government, more of an issue of whether the alienation of private assets should be determined by public referendum.

In any event, Mr. Lyons’ recent note regarding the surprisingly similar debate it seems emerging in the U.K. brings into sharp relief many of the property/ownership, free movement of capital issues that are presently playing out in Canada.

There has been a lot of ink spilled considering the appropriate criteria or factors that should determine clearance of foreign transactions in Canada, whether the Investment Canada Act’s net benefit to Canada criteria need to be revamped and whether the current test is sufficiently transparent.

Perhaps the more important question is whether the Federal Government should have the power to negotiate significant investments in Canada at all, which appears to be the question being currently raised in the U.K. (or at minimum, as some have proposed, to re-engineer Canada’s foreign investment rules to require the onus to shift to the Government to establish that a proposed transaction is not in the interests of Canada, based on more transparent rules).

And at the moment, following the rejection of Petronas/Progress and delayed review of CNOOC/Nexen, Mr. Harper is on another Asian trade mission – to India.  Most curious.

____________________

For more information about our regulatory law services contact us: contact

For more regulatory law updates follow us on Twitter: @CanadaAttorney

Comments are closed.