Harper Says Canada to Loosen Takeover Rules Beyond EU

Canada will relax rules on foreign investment for the U.S., Mexico and 12 other countries as a result of its free trade pact with the European Union.

Canada announced last week it will raise the threshold for reviewing foreign investment from EU countries to C$1.5 billion ($1.5 billion) from C$344 million, as part of its trade agreement with the region. Canada will similarly boost the review limit for non-EU countries with which it has signed trade pacts, Prime Minister Stephen Harper said.

“By necessity, it should be understood it raises that threshold not only for Europe, but for all countries with which we have trade agreements,” Harper said in an Oct. 18 interview in Brussels.

The move underscores the importance Harper is placing on the U.S. and Europe as he seeks foreign capital to sustain the recovery, even as scrutiny of investment from emerging countries such as China is heightened. Canada’s free trade partners, including the EU, produced about $36.4 trillion last year, representing about half of global output, according to International Monetary Fund data.

“Obviously, the 42 countries in the world with which we have free trade agreements are good partners that give us few or no concerns,” Harper said. More than half of foreign direct investment in Canada comes from the U.S., according to Statistics Canada data.

Review Threshold

The Canadian government currently reviews foreign takeovers of businesses with assets of at least C$344 million. Harper said last year he will raise that threshold to C$1 billion in enterprise value for private investment, while keeping it at the existing level for state-owned enterprises.

“With respect to raising foreign takeover thresholds, provisions in the Canada-European Union Trade agreement will be extended to all of Canada’s FTA partners,” Adam Taylor, director of communications for Canadian Trade Minister Ed Fast, said in an e-mail.

Investment by Chinese state-owned companies in Canada’s energy industry has become contentious, prompting Harper to implement investment restrictions for state-owned companies last year, including a ban on future oil-sands takeovers except under “exceptional circumstances.”

After that policy came into effect, mergers and acquisitions in the oil sands fell this year to the lowest since 2004, data compiled by Bloomberg show. Smaller developers including Athabasca Oil Corp. (ATH) and BlackPearl Resources Inc. (PXX) are lagging behind peers after the government introduced the rules. Athabasca fell 41 percent since the rules were made public on Dec. 7, versus a 12 percent total return for the Standard & Poor’s/TSX Energy Index.

Security Concerns

Canada is also stepping up scrutiny of security in studying foreign takeovers. The government cited national security concerns in rejecting Manitoba Telecom Services Inc. (MBT)’s C$520 million sale of its Allstream unit to an investment firm co-founded by Egyptian billionaire Naguib Sawiris this month.

Harper said in the interview that BlackBerry Ltd., which has drawn the interest of foreign companies such as Lenovo Group Ltd. (992), should be wary of a potential sale that raises national-security concerns.

Canada has increasingly relied on foreign capital to finance investment, running cumulative current account deficits of C$265 billion since the last quarter of 2008. The current account is the broadest measure of international trade.

Under the Canada-EU pact, EU investments can still be reviewed to determine whether they are of “net benefit” and meet national security requirements, Harper said.

‘Far-Fetched’

“I think it would be far-fetched to see any kind of European investment as a national security challenge,” he said.

In addition to the U.S., Mexico and the EU, Canada has free trade agreements with Norway, Iceland, Switzerland, Liechtenstein, Panama, Jordan, Colombia, Peru, Costa Rica, Chile, Israel and Honduras.

Canada is also negotiating free trade agreements with Japan, South Korea, India and Singapore and is part of the Trans-Pacific Partnership trade talks seeking a Pacific-region agreement.

While the Trans-Pacific trade talks are the second-most important initiative for the country right now, Harper said they are “dwarfed” by the EU agreement.

“The TPP today consists principally of countries that Canada already has trade agreements with or are very small economies,” Harper said in the interview last week after announcing the EU trade agreement. “The one big exception of which is Japan.”

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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