'Foolish' for Ottawa to be too clear on foreign investment guidelines: Harper

TORONTO -- The Prime Minister defended his government's prerogative to restrict which foreign state-owned companies can bring their business to Canada, saying Friday that it would be "foolish to provide absolute clarity" when it comes to investment guidelines.

Critics say Canada needs clearer rules for foreign investors, particularly in the light of the Conservative government's oft-repeated refrain that the country is open for business.

But when it comes to large, state-owned investment proposals, Stephen Harper said there has to be a "margin for the government to exercise its judgement."

"I think it would be foolish for the Canadian government to provide absolute clarity," Harper told a Toronto audience on Friday.

"It is absolutely necessary when the investor is a foreign government, for the government of Canada to be able exercise its discretion and have direct conversations with those foreign investors."

Since the Conservatives came to power in 2006, the Harper government has repeatedly tweaked the Investment Canada Act, making it more restrictive with a recent virtual ban on majority acquisitions in the oil patch by state-owned enterprises.

The government also rejected two major takeovers -- that of Macdonald, Dettwiler and Associates Ltd. by an American firm, and of Potash Corp. by Australia's BHP Billiton.

And recently it rejected the sale of Manitoba Telecom Service's Allstream division to the Egyptian investment group Accelero Capital, citing "national security" concerns.

Last fall, the government kept China's CNOOC and Malaysia's Petronas on the hook for months before finally approving their acquisitions in the oil and gas sector, while also amending the rules so that such deals would be unlikely in the future.

Meanwhile, a report released this week from the Asia Pacific Foundation of Canada, in Vancouver, found that while Canada is on the radar for Chinese investors, it is not seen as a destination of choice.

Yet Harper launched a smooth defence Friday.

Calling his government "more interventionist," Harper said Canadians don't want to see entire sectors of the economy belong to another country.

"We welcome foreign direct investment of all kinds....but I don't think as Canadians we would want to see entire sectors of the Canadian economy become predominantly state owned by a foreign country,"he said.

"I don't think that's good for the Canadian economy. It's not the kind of model we're seeking."

Ian Lee of Carleton University's Sprott School of Business said Harper's comments suggest Canada has a two-tier system when it comes to foreign investment.

"What I think Harper was saying is that we are going to reserve to the government of Canada maximum discretion over foreign state-owned enterprises," said Lee. "But in saying that, he's saying between the lines that we are not going to do that to private for-profit companies coming from an OECD country."

The government's intense scrutiny of foreign state-owned companies, particularly when they come from non-democratic countries, is understandable to a point, said Lee.

"(Foreign state-owned companies) are serving the policy agenda of a government," he said. "They are not ordinary competing companies, playing by the rules of the market, trying to maximize shareholder value."

Harper's comments on investment guidelines came at a moderated question and answer session in Toronto that was hosted by Western University's Ivey School of Business.

During his talk, Harper also said the kind of sweeping trade deal Canada recently inked with the European Union would not be possible with countries like India and China because such a comprehensive agreement is "just not their kind of framework."

He noted, however, that the new CETA deal --which he calls "big in terms of marketplace and broad in terms of scope" -- helps ensure Canada is a strong player in global supply chains.

The prime minister also said the new Canada-EU free trade agreement has "greatly diminished" the country's chances of getting marginalized.

"It's our big breakthrough in dealing with the problem of isolation we saw when we came to government," he said of the deal.

Harper acknowledged that Canada's dairy products sector -- particularly cheese -- is likely to feel an impact from higher competition, and noted that the government will provide transitional assistance.

But any negative impact of the deal on Canadian industries would be "small and transitionary," Harper said.

"We have not identified a lot of really obvious losers. The support for the agreement is virtually unanimous," he said. "There will be some short, mid-term impact but it will not be large."

Some dairy farmers are calling the trade deal a government giveaway.