Sean Speer and Shuvaloy Majumdar welcome reports that Ottawa is considering relaxing foreign investment restrictions, but caution that all foreign investment is not created equal -- state-owned enterprises present a real security threat to Canada.
By Sean Speer and Shuvaloy Majumdar, Nov. 28, 2016
New reports that Ottawa may relax restrictions on foreign investment in previously protected sectors such as broadcasting and telecommunications is welcome news. It’s the type of structural reform that could provide a long-term boost to the Canadian economy. The Trudeau government has already signalled progress on opening up the aviation sector and will deserve considerable credit if it maintains such ambition across other parts of the economy.
But such a liberalization should not be executed unthinkingly. Federal investment policy should be prepared to distinguish between state-owned enterprise (SOE) investment and investment from different sources – and maintain the capacity to exclude investments that aren’t in the national interest.
Not all foreign investment is created equal. It’s neither an act of market infidelity nor security-driven paranoia to limit SOE investment in certain sectors or from certain countries. It’s a matter of seeing the world as it is.
Federal investment policy should be prepared to distinguish between state-owned enterprise (SOE) investment and investment from different sources
Open capital flows benefit the Canadian economy directly and indirectly through greater access to capital and new technologies, competency and expertise, and competition and consumer choice. One of us has recently written, for instance, about how eliminating investment restrictions in the telecommunications sector is the best means of achieving the sustainable, market-based competition for consumer ends that successive governments have prioritized. But we’re also clear-eyed about different types of investment and the motivations of different types of investors and think that Canadian policy should be too.
Current investment policy distinguishes between market-oriented investment and SOE investment in the Canadian economy. SOE investment is to be evaluated on a case-by-case basis and subjected to reasonable tests such as the scope for political influence. SOE investment in the oil sands in particular is to be excluded save for “an exceptional basis only.”
Remember this policy wasn’t developed in the abstract in 2012. It stemmed from a practical case involving Chinese SOE investment in the oil sands, just as all investment-related decisions are in response to real-life proposals. Yet there’s a tendency to discuss this topic in vague, conceptual terms. Let us be precise: Chinese SOEs are controlled and influenced by the Chinese government and are plainly agents of the Chinese state. Former senior CSIS official Ray Boisvert has said: “state-owned enterprises have the same marching orders or essentially the same mandate or mission” as the broader Chinese state. These companies have non-market objectives including corporate espionage, the acquisition of strategic resources and geopolitical calculations.
As such, with respect to the Trudeau government’s recent pivot to China, it will require careful calibration to broaden our economic relationship given Canada’s market-based capitalist model and China’s declining state-owned, centrally planned, single-party communism. It’s thus a cruel coincidence that reports that Ottawa may relax these investment restrictions just happened to coincide with the Department of National Defence’s recruitment website being subjected to a cyberhack. It’s far from the first time that government websites and technology have been the target of cyber conflagration, or that foreign governments seek influence in Canadian political life through various proxies.
It is notable that new information from CSIS lays the blame for these types of attack at the foot of Russia and China. Surely this mounting evidence should cause federal policy makers at least momentary pause. Relaxing restrictions on SOE investment by companies that are inextricably tied to governments responsible for these actions strikes us as imprudent, to say the least. Why would we reward such behaviour and possibly make the country more susceptible to such risks?
Ottawa shouldn’t fall victim to the presumption that all foreign investment is the same.
One can be pro-market and pro-foreign investment without failing to recognize that certain types of investment are better than others. It’s therefore reasonable for national governments to impose targeted restrictions in the national interest, namely, protecting our capitalist democracy from aggressive state-owned action.
The Trudeau government should be lauded for its interest in liberalizing Canada’s foreign investment restrictions to bring greater dynamism to the Canadian economy. But, in so doing, Ottawa shouldn’t fall victim to the presumption that all foreign investment is the same. Maintaining current restrictions on SOE investment is in the national interest.
Sean Speer and Shuvaloy Majumdar are Munk senior fellows at the Macdonald-Laurier Institute.