Introduction: Canada’s economy has always depended heavily on foreign direct investment. Perhaps dependence breeds resentment, because throughout Canada’s history foreign investment has been welcomed only reluctantly. Suspicion of investment by state-owned enterprises is only the latest chapter in this history. On December 7, 2012, the Government of Canada begrudgingly approved the takeovers of two Canadian oil sands companies, Nexen Inc. and Progress Energy Resources Corp., by two foreign state-owned enterprises, the China National Offshore Oil Corporation (CNOOC) and Malaysia’s PETRONAS, respectively. On the same day, the Government announced new guidelines for reviewing investments by state-owned enterprises and a new policy that further takeovers of oil sands companies by such enterprises would be approved only in “exceptional” circumstances. There are a number of troubling aspects to the Government’s position. It ignores the important role state-owned enterprises such as Norway’s Statoil, Abu Dhabi’s National Energy Company and PetroChina Investment Co. have played in the Canadian oil industry, and the role they could play in the future. It also appears to ignore the interests of Canada’s own public-sector pension funds, which are investing an increasing percentage of their assets abroad, sometimes in industries that carry foreign ownership restrictions or are publicly owned in Canada. Apart from the possible economic impacts, in the era of government bail-outs and large public-sector investment funds, the distinction between state ownership and private ownership may be a poor basis for public policy, particularly in the area of foreign investment.

The paper will proceed as follows. Part I provides a brief general backgrounder on the Canadian foreign investment review process under the Investment Canada Act, including the “net benefit” test. Part II focuses on foreign direct investment (“FDI”) by state-owned enterprises (“SOEs”). Section A reviews the concerns the Canadian Government and others have expressed regarding FDI by SOEs. Section B discusses how state ownership will affect the Government’s assessment as to whether a reviewable investment satisfies the net benefit test. Section C questions the logic of distinguishing between SOEs and privately-owned acquirers in its foreign direct investment review process.

This paper by Gail Henderson can be downloaded: here .