Nexen decision complicates murky policy
So: the right decision this time, but the promise of endless wrong decisions in future.
By accepting CNOOC’s bid for Nexen (and, at the same time, Petronas’s smaller bid for Progress Energy), while all but slamming the door to other foreign stateowned firms with acquisitive ambitions in this country, the prime minister has probably struck the right balance, politically. He has done so, however, at the cost of total incoherence in policy terms.
Certainly he has done nothing to clarify Canada’s famously murky approach to foreign takeovers. Indeed, he has taken a policy that was already restrictive by international standards, and tightened it further. Where before our foreign investment rules were merely opaque, they are now both complex and opaque.
The “net benefit” test, with all of its many overlapping, arbitrary and subjectively applied criteria, will remain in place for all takeovers, whether by private or stateowned enterprises. In addition, a second battery of tests will now be applied to SOEs: For example, a bid will be accepted or rejected depending on how much “control or influence” the SOE would have over its new subsidiary, and how much control or influence its state owners have over it.
For takeovers by SOEs in the oilsands, yet a third test would apply. That is, they would be prohibited, except in “exceptional circumstances.” The meaning of this is obvious: It would apply in circum- stances that are exceptional.
So our policy towards takeovers will now be based on a series of distinctions: between foreign and domestic firms, as before, but also between private and state-owned firms, between the oilsands and other sectors — and of course, between CNOOC/Petronas and every other SOE. As the prime minister explained, the current amount of state ownership in the oilpatch, as of 5:15 p.m. Eastern Standard Time, is just right. But anything more would be too much.
What is the basis for these multiple distinctions? It has always been a puzzle why Canadians who own shares and want to sell them should be prevented from sell- ing them to the highest bidder, but rather must deliver them at a discount to that small coterie of overstuffed domestic acquisitors who already bestride the Canadian economy.
Is it as unreasonable to distinguish between private firms and SOEs? Not altogether: State ownership, particularly where the state is, shall we say, as problematic as China, does raise legitimate issues. We’d want to make sure we understood their ownership structure, for instance, and that we could enforce our laws upon them.
But the case for blocking takeovers by SOEs, solely because they are state-owned, remains as vague and unsupported after the prime minister’s news conference as before. Yes, it is true that they “play by different rules,” that they “have different incentives,” or have access to “different resources” than private firms. Yes, yes, yes. So what?
What precise harm they could do to us with these “different resources” is never explained. There’s no doubt that they can overpay us for things, as CNOOC may well have done for Nexen. If so, we should shut up and take their money before they have time to reconsider. They might even sell us stuff for less than they should. Again, why would we want to stop them?
What the critics are really saying is that state-owned enterprises sometimes do dumb things, owing to their tendency to pursue political rather than commercial objectives. That is indeed why, as the prime minister noted, state ownership has rather fallen out of favour in this country.
But in this case, the dumb stateowned enterprises are somebody else’s problem. The costs of their mistakes fall on foreign taxpayers, not ours, while the benefits accrue to us. Why self avowed free marketers, amongst whom the prime minister once counted himself, should fail to understand this is yet another puzzle.
I can’t say they look terribly comfortable: demanding more government control in the name of protecting the free market. But it’s no more of a contradiction than a government that keeps proclaiming its openness to foreign investment even as it is tightening the screws on it.
The distinction between the oilsands and other sectors seems to rest on nothing more than our old friend, Strategic Resource Theory. Though the oil is in the ground, though it is owned, taxed and regulated by the government, it is somehow of overriding national interest that the right to extract that oil — and to pay those royalties and taxes — be restricted to Canadian shareholders.
That is, it should be denied to foreign shareholders. Or rather foreign state shareholders. Unless they are from China (or Malaysia), in which case they will be allowed. Or rather, they will not be allowed, from now on. Except in “exceptional circumstances.” As long as they are of “net benefit …”
At the outset of his remarks, the prime minister said, “this is not the beginning of a trend, but the end of a trend.”
Got it. Just one question: What trend?