Let's Get Over "Net Benefit" Test Carping: Or Why Political Law is Still Law...and the World's Still Here

By Keith Edmund White, Editor-in-Chief

More complaining about the dreaded political nature of Canada's revamped "net benefit" test.  Critics seem to be saying, 'If a law's a law, it should always be transparent and consistent--just like jury decisions!'  Keith Edmund White looks at Don Lenihan's criticism of the Harper government new rules of foreign takeovers (i.e. the "net benefit" test), and stands up for the messy, status quo the revamped rules leave in place.  Added bonus:  mention of Conrad Black.

Don Lenihan, Vice President at Ottawa’s Public Policy Forum, hits the Harper government’s new rules on foreign takeovers of strategic Canadian industries (and compliments Conrad Black).
From Lenihan’s iPolitics article:

If we really are at the beginning of a long-term trend that will force the federal government to begin employing controversial (possibly highly controversial) measures to protect Canada’s strategic assets, the goal of the policy should be to ensure that the decisions are transparent, effective and fair.

Unfortunately, on this score the new rules raise more questions than they answer. Do we really want to include all SOEs under one catch-all rule? If an SOE is willing to comply with the same rules as private sector companies, should this make a difference?

If the policy allows “exceptional circumstances” to override the rules, how will these be defined? How will the government deal with future private sector cases that are similar to the Saskatchewan Potash Corp? What other resources or industries could be declared strategic assets?

What options are open to the government to create the kind of “middle ground solution” proposed by Black?

Lenihan echoes the worries of many commentators about Canada’s vague “net benefit” rules.  The tacit underlying assumption of Lenihan’s critique: all legal determinations should be consistent and transparent.  But aren’t foreign takeovers of critical Canadian industries (or of any nation) as political—as say—the political and inconsistent decisions to raise or lower taxes or conclude a foreign investment treaties?  And in the case of foreign takeovers, are any two Canadian industries really the same?

But what will keep Canada from deterring smart foreign investment?  Simple:  If Canada drives away smart investment, it will feel it where it counts--the pocket-book.

Sure, this approach may not have the gossamer shine (and superficiality) of administrative consistency, but there are legal issues that societies do not settle through bright-line rules. And those issues tend to be that way for a reason.

And Lenihan's critique--making a new sub-set of rules for SOEs that comply with private sector practices--shows just how illusory the quest for a Black-ian "net benefit" middle-ground is.  The more Canada tries to make rules for all possible foreign takeover scenarios, the longer the rule becomes, perhaps to the point of incomprehensibility--and the easier it is manipulated.  Just ask anti-Affordable Care advocates how they feel about the ACA being considered a 'tax' and not a 'mandate' by the controlling opinion of the Supreme Court, thereby passing U.S. constitutional muster.  The point:  rules don't always bring clarity, especially when they are voluminous and involve hot-button issues.  

Oh, and wait, we're worried, in the case of Chinese state-owned enterprise CNOOC takeover of Nexen,  of Canada's notoriously illiberal society negatively impacting the struggling, still-malleable but liberal-idolizing economy of China?   

Check out one notable exception to the chorus of "net benefit" naysayers, Jeffrey Simpson's article in last week's The Globe and Mail:

China [owner of Cnooc who put in the bid for Nexen] wants things both ways: that its SOEs can buy elsewhere but others can’t buy in China. That the Harper government has now identified a sector of the Canadian economy essentially off-limits to SOEs can’t logically be objected to by China, which puts big swaths of its economy out of reach of foreign investment or insists that foreign companies can only buy minority interests or participate in joint ventures.

China has been pursuing a policy of locking up natural resources wherever they can be profitably bought, and Canada seemed a likely next target. If China doesn’t like the new Canadian guidelines, there are plenty of other opportunities around the world. If China chooses not to test the guidelines, Alberta’s bitumen oil will still interest other investors.

The challenges of bitumen oil are so many that the new guidelines’ impact is among the least threatening. The changing oil scene in the United States, the difficulty of getting approval for pipelines, the growing emissions of greenhouse gases, the discount price for oil to the U.S. and high production costs are among the industry’s key challenges.

Mr. Harper, whose foreign policy is too often characterized by finger-waving intransigence, struck a reasonable balance in this instance between domestic interests and international concerns.

Is this the best system?  Probably not.

Is it a workable system for a sensitive topic in a democratic society?  Sure seems that way.

In any case, Lenihan should check out the Journal of Parliamentary and Political Law.

Also, to all readers, know that the world (and Canada) will survive the new "net benefit" test; just like the world (and Canada) survived the last one.