Why We're Still Talking About Nexen

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September 25, 2012
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The proposed takeover of Nexen by the China National Offshore Oil Corporation has dominated business and international news reporting in Canada since it was first announced on July 23, (although the rumour mill started spinning long before then).

There are two overlapping topics of debate keeping Nexen and CNOOC on the radar.

The first is the takeover itself: what it means for the Canadian economy in the short and long term, what it means for the future of oil sands development and energy exports to Asia in particular, and the potential implications for our national security.

Most commentators have taken a rather negative view of things. As Asia Pacific Foundation of Canada President Yuen Pau Woo says, “critics on the left are in rare alignment with critics on the right in their uniform opposition to the deal.” Those on the left who typically favour government involvement in the economy are wary of a State-owned enterprise (SOE) buying a private asset, while those on the right who typically think the government should keep its hands to itself now want it to knock CNOOC out of the ring.

The second conversation is about the approval process: whether it is too opaque – damagingly so in that it risks discouraging further investment in Canada by Chinese companies and others, as Steven Globerman argues in an article for the Financial Post – or whether there are valid reasons for keeping the details of the review process under wraps, and serious questions of national security to be considered.

Upping the stakes in these debates are the recent public statements of interest by Canadian and Chinese government officials in negotiating some kind of free trade agreement.

"We want to do more to see Canadian goods exported to China," said Foreign Minister Baird in a recent interview with Global News. "There are obvious opportunities for us to collaborate and have more prosperity and more jobs that trade brings."

More directly, Chinese Ambassador to Canada Ambassador Zhang Junsai told the Globe and Mail, “It’s high time to do the exploratory work on the possibility of a free-trade agreement. Under a free-trade agreement, there will be more and more trade and investment.”

Should Canadians urge the Harper government to let this deal proceed as smoothly as possible (at least from this point on), acknowledging an inevitable rise in the level of Chinese FDI in Canada? Nexen shareholders recently showed their supreme confidence in the deal, with 99 percent voting in favour, but many in the Canadian foreign policy and business communities appear reluctant to leave scrutinizing the deal up to Industry Minister Christian Paradis.

Ambassador Zhang’s media rounds are evidence that the Chinese government is not going to stand quietly on the sidelines either, although it’s difficult to predict what impact his statements will have on the majority of Canadians who dislike the deal. Luckily for CNOOC, the tenor of Canadian dislike is far more muted than was American sentiment in 2005 when the company made a bid for the American company Unocal only to withdraw in the face of an intensely hostile political environment. 

Still, CNOOC is being publicly criticized for its human right’s record and has become a general target for those who claim the business practices of Chinese SOEs will introduce corruption to the oil patch. These critiques are getting fresh coverage thanks to the publication of a letter from Amnesty International Canada to Minister Paradis calling out CNOOC for human rights violations. A recent CSIS report which claims that certain SOEs "with close ties to their home governments have pursued opaque agendas or received clandestine intelligence support for their pursuits here” is doing the same for corporate and political espionage.

Exactly how valid these concerns are remains open to debate. As Margart Cornish wrote in a recent report on the behaviour of Chinese SEOs abroad for the CIC:

Foreign corporations must all abide by Canadian laws and all Canadian jurisdictions have the wherewithal to enforce vigorously their health and safety, labour, and environmental protection laws … Should an SOE be found to operate in non-commercial ways that disadvantage Canadian market or a Canadian company, Canada has a robust range of policy and legal forms of recourse.

The conversations swirling around CNNOC and Chinese FDI in the energy sector show no signs of abating. Whether they support the deal or not, the majority of Canadians seem to think this relatively small takeover is too big a deal for a “hands-off” approach by the government, and too big a deal to stand back and allow ideological rhetoric to decide policy.

There is a serious potential consequence of all this talk. As we debate the implications of the Nexen deal, we are setting the parameters for a future debate: what kind of free trade agreement we want with our second largest trading partner.

Photo courtesy of Reuters