On Friday, minutes before Prime Minister Harper announced the approval of the Nexen and Progress Energy deals, Industry Canada released a Statement and revised Guidelines for Investments by State-Owned Enterprises. The Statement sets out a list of criteria, which are barely elaborated on by the Guidelines, intended to address the "inherent risks" posed by investments by state-owned enterprises (SOEs) in Canada, particularly in the Canadian oil sands. The criteria seem sensible enough - commercial orientation, freedom from political influence, adherance to sound corporate governance practices and transparency. These are criteria that should apply to any company operating in Canada. The Statement goes on, however, to conclude that "the Minister of Industry will find the acquisition of control of a Canadian oil sands business by a foreign SOE to be net benefit to Canada on an exceptional basis only." If that is the case, what is the point of the criteria? Is the claim that SOEs are likely to meet the criteria only in "exceptional" cases, or is it that the criteria will not actually determine the Minister's decision? The other thing that puzzles me about the Guidelines is the apparent contradiction between the emphasis on "adherance to free market principles" and operating on a "commercial basis", on the one hand, and criteria for assessment that focus on the achievement of public policy goals, such as the "participation of Canadians in its operations in Canada and elsewhere" and the "support of on-going innovation, research and development in Canada", on the other.
The muddled nature of the Statement and Guidelines might have something to do with the government's presumption that the line between "free" markets and state influence is an easy one to draw. Legal scholars, such as Larry Cata Backer, have explored the difficulty in drawing this line with respect to sovereign wealth funds. As noted in a previous blog post here, Canada's approach to foreign investment by SOEs may affect the ability of our own national and public-sector pension funds to invest abroad. Rather than attempt to make difficult distinctions between public and private, free markets and state influence, the Canadian government would do better to draw up the list of criteria that would be used to test any foreign investment in Canada (above the minimum threshold). This approach would provide clarity both to market participants, private and state-owned, and, perhaps more importantly, to Canadian citizens. After all, it is not only foreign SOEs that should have to adhere to high standards of governance and transparency.