A Guarded Welcome for State-Owned Enterprises: C.D. Howe Institute

Nov 26, 2012, 10:00 ET from C.D. Howe Institute

TORONTO, Nov. 26, 2012 /CNW/ - If Canada wants to benefit from Asia's long-term growth potential, there is no getting around the need to do business, carefully, with state-owned enterprises (SOEs), according to a report released today by the C.D. Howe Institute. In "Speed Dating or Serious Courtship? Canada and Foreign State-Owned Enterprises," author Daniel Schwanen discusses how Canada can address concerns about the potential impacts of investment by foreign SOEs in Canadian companies.

The proposed acquisitions of Nexen, a medium-sized Canadian oil and gas producer, by CNOOC, majority-owned by the Chinese state, and of Progress Energy by Malaysia's state-owned Petronas, have put Canada's "net benefit" test for foreign acquisitions of Canadian businesses back in the spotlight, he notes. Together, they have raised fresh concerns about the impact of foreign state-owned enterprise (SOE) investment in Canada, ranging from worries about national security and governance standards to reciprocal access to markets.

While Ottawa's current screening rules and guidelines are likely adequate to address most concerns, says Schwanen, mechanisms should be created to more explicitly address possible anti-competitive impacts of SOE investments and to review whether SOEs keep their good governance commitments. For example, Canada could draw on its competition law, and straightforwardly clarify that related entities controlled by a single foreign state will not be allowed to dominate its oil and gas or other sectors. Governance undertakings could be subject to follow-up audits. To promote reciprocity, Schwanen counsels the launch of a formal governmental dialogue to address barriers to Canadian investments in SOE home countries.

Canada needs to facilitate trade and investment deals other economies where the state currently plays a determining role, including China, concludes Schwanen, and that means learning to engage with economies that do not function like ours, while enforcing and promoting pro-competitive rules of the game in Canada.

For the report go to: http://www.cdhowe.org/speed-dating-or-serious-courtship-canada-and-foreign-state-owned-enterprises/19725

SOURCE C.D. Howe Institute