China-Nexen deal pivotal for Harper agenda

As a former deputy minister at Industry Canada, there was no one in government who knew the Investment Canada Act more intimately than Paul Boothe.

The top-tier bureaucrat, who has since migrated to academia, was instrumental in guiding a relatively young Conservative government when it surprisingly blocked the sale of domestic space technology, including the Radarsat-2 satellite, to an American firm in 2008.

After recently poring over the pros and cons of the $15.1-billion energy deal between Chinese-controlled CNOOC and Calgary's Nexen, Boothe can't see any good reason for turning down the deal. He's also well aware the answer may not be yes.

Despite attempts over the years to make approvals of foreign investment as clinical as possible, the CNOOC-Nexen decision comes down to pure politics.

Harpers legacy

If Prime Minister Stephen Harper selected legacy items to be hallmarks of his first seven years in office, diversifying Canada's trade and investment away from the United States towards the burgeoning economies of Asia and securing the prosperity of our resource economy would be near the top of the list.

But the CNOOC-Nexen proposal is making him confront a deeply embedded Conservative queasiness about state involvement in business, and a long-standing mistrust of China.

Even though CNOOC controlled by the state-owned China National Offshore Oil Corporation may pass the net-benefits test, it may not pass the smell test.

"People are afraid of the unknown," said Conservative MP Merv Tweed of Brandon, Man. one of many politicians who has been lobbied in CNOOC's highly orchestrated campaign.

The CNOOC offer is a neat fit for so much of the Conservative rhetoric these days. It's the natural manifestation of Harper's aggressive campaign to court Asia, bring foreign investment to Canada and have global recognition of the value of the oilsands.

Opposition to the deal

But the NDP opposition is against the deal. Public opinion is not on side. The business community is split.

And the Conservative caucus has a history of being leery of China, with Harper ignoring the rising power for his first few years in office. His first visit to the country was in 2009, five years after the previous official trip by a Canadian prime minister.

Conservative MPs have been targeted by anti-CNOOC letter-writing campaigns. And they say they're hearing about it on doorsteps in their ridings.

"On paper it looks like a good exchange that will bring wealth and growth to this area," said one Conservative MP whose views echoed those of many Conservatives who spoke with The Canadian Press.

"However, the other side of the coin is the fact that it is a state-run enterprise, a government-owned company," the MP said, speaking frankly in return for anonymity. "That's what's causing the apprehension."

That such simple observations must be cloaked in anonymity shows just how politically sensitive the CNOOC deal has become for Conservatives.

So Harper's looming decision is not merely one of looking at the economic benefits, or deciding how to handle state-owned enterprises. It also has to pre-empt a public backlash.

The complexity of that task was made clear late Friday when the government announced a second extension to Dec. 10 for reviewing the deal.

CNOOC's efforts

CNOOC has taken great pains to make sure its case looks air-tight. The company has laid out an offer, both publicly and in private discussions with regulators, that caters directly to the Investment Canada Act. It has committed to keeping management in Canada, listing on the Toronto Stock Exchange, maintaining Nexen's corporate social responsibility program, sticking with its capital investment plan and making Calgary the head office of its North American interests.

That was widely viewed as just the company's opening offer, and negotiations with Ottawa will no doubt see it pressured for more.

"When you look at what they've said about their plans in terms of investment, in terms of employment, in terms of governance, in terms of social things like corporate responsibility all of those things are consistent with the criteria in the Investment Canada Act," said Boothe, who cautions that he does not know what is happening behind closed doors and bases his analysis on information in the public realm.

There's no doubt, however, the deal is forcing Harper and a very tight group of confidantes to address some larger, uncomfortable issues.

"There are some bigger questions: About should we have state-owned enterprises investing in Canada? How much from a certain country? How much from China?" Boothe said.

"In my view, those are discussions about the rules themselves rather than discussions about the application of the current rules for this particular deal."