Financial Times (11.8.10)

Canada to toughen rules on foreign investment

By Bernard Simon in Toronto

Canada plans to toughen its foreign-investment law with a view to forcing greater transparency and accountability from investors in the wake of the political storm over BHP Billiton’s bid for PotashCorp.

Tony Clement, industry minister, told the Financial Times the review was not specifically linked to the BHP deal which his government all but scuppered last week by ruling that it did not offer a “net benefit” to Canada, as required under the Investment Canada Act.

“The prime minister and I both feel the process worked very well in the review of the BHP bid,” Mr Clement said, but added: “There are some points of view out there that are worth looking at.”

In particular, he said the government would seek to compel foreign investors to make public their undertakings on jobs, local processing, technology transfers, competition and other commitments typically made to meet the “net benefit” test.

Mr Clement said he was also open to ideas on how to improve the enforcement of these undertakings: “If there is a delinquent investor, let’s talk about ways that we can advance Canada’s interests in those cases.”

The review process applies only to deals where the value of the target company’s assets exceeds C$299m (US$299m). The threshold is lower for prospective buyers from non-members of the World Trade Organisation. BHP’s bid is only the second deal that Ottawa has turned down out of 1,600 reviewed since the Investment Canada Act came into force in the mid-1980s.

Mr Clement held out little hope of the government changing its mind in the BHP case before the December deadline for a final decision. BHP said last week that it would review its options. It declined to comment on Mr Clement’s remarks.

Undertakings to the government have typically included escape clauses to take account of changed business conditions.

In the first case of its kind, the government has taken US Steel to court over its alleged failure to stick to undertakings on jobs when it took over an Ontario steelmaker three years ago. Many investors have insisted such commitments expire after a specified period.

Elsewhere, takeovers have been vetoed at government level for national security reasons – for instance Chinese oil company Cnooc’s tilt at Unocal of the US in 2005, and Dubai company DP World’s attempt to buy five US port facilities in 2006.