Senator Chuck Schumer, New York Democrat and one of the leading figures in the Democratic majority, wants the U.S. government's Committee on Foreign Investment in the United States (known as CFIUS) to intervene to block the China National Offshore Oil Corporation (CNOOC) -- a state-owned firm -- from purchasing Nexen, a Canadian energy company active in the oil sands of Alberta.
At first glance, it seems awfully presumptuous of the United States government to intervene at all. But CNOOC actually requested the CFIUS review of their investment to avoid future trouble. Since the Chinese have posed the question, should the United States make trouble?
Senator Schumer and some prominent Republicans have concerns about the investment, but they have called on CFIUS to block the CNOOC investment in Nexen in order to make a point about reciprocal access to the Chinese market for U.S. and Canadian investors. And while the Nexen sale may go through, U.S. politicians are signaling that the United States is watching China carefully, and could intervene against future investments.
This kind of political posturing is understandable in a U.S. election year. China is a rising power with an impressive economy built around large, state-owned firms like CNOOC. U.S. officials blocked CNOOC's investment in Unocal in 2005 out of concern that the Chinese government would manipulate the investment for strategic purposes.
Sovereign wealth funds and state-owned firms are not always bad, but pose problems in a free market context when they behave according to political dictates and not to generate the best returns to their shareholders the taxpayers.
And it is true that China often does not treat foreign investors in China fairly, often providing legal sanction to the theft of intellectual property and canceling contracts for political reasons. China has historically been plagued by corruption, even within the ruling Communist Party.
To understand Chinese behaviour, it has to be recognized that China's economy is dependent on imported resources and needs secure access to foreign supplies of energy, including oil. In the past, CNOOC has invested in dodgy places like Sudan to gain access to oil. In a developing country with weak rule of law and poor state capacity, Chinese investment can finance local corruption and even human rights abuses.
As a country with a history of outside interventions by imperial powers, Chinese foreign policy has traditionally avoided intervention in the domestic affairs of other countries. As a result, China has been accused by the governments of Canada and the United States (among others) and civil society groups of turning a blind eye to the human rights and environmental records of the countries that benefit from Chinese investments.
Now, with Nexen, China is seeking to invest in a western country with strong rule of law: Canada. Moreover, Canada and the United States have pledged (in the Canada-United States Free Trade Agreement) not to withhold oil supplies from one another even in times of shortage, so Nexen could not divert oil to China from North American buyers that had contracted for it at a market price.
The real challenge of the CNOOC purchase of Nexen is for China to show that its state-owned firms can play by the rules in a well-governed market economy. Accordingly, the last thing that either Washington or Ottawa should do is to politicize the investment review process -- exactly what China has been accused of doing at home. Instead, CNOOC should be allowed to make a transparent investment and demonstrate, by its behaviour, that it will be a good investor and corporate citizen in North America.
To that end, neither Washington nor Ottawa should bend or waive the rules for CNOOC, either. The Chinese company should be treated fairly, like any other foreign investor, so long as it behaves by that standard. And herein lies the strategic opportunity in the Nexen deal.
After the Japanese invasion of China's Manchuria province in 1931, the League of Nations imposed an oil embargo on Japan -- like China, an oil-poor rising economy at that time. Although meant to punish Japanese militarism, the oil embargo hurt the entire Japanese economy, fueled a nationalist reaction and convinced the Japanese government that the United States was opposed to Japan's rise; the attack on Pearl Harbor soon followed.
It is clear that China needs oil to fuel its economy. It is also clear that China will go to dubious places to obtain the oil it needs, and that China's investments can underwrite undemocratic regimes that do not respect human rights norms.
Now, China is looking to Canada for oil. The Obama administration and the Harper government should give this investment full scrutiny, and approve or reject the investment on the merits. By demonstrating the principle of equal treatment under the rule of law, the governments could use the Nexen investment to send an important signal to China of how governments ought to behave toward firms in a free market economy.
The U.S. rejection of CNOOC's bid for Unocal put the company and the Chinese government on notice. CNOOC's Nexen bid has been more transparent and forthright. China will learn more from a positive experience with free markets as it revamps investment rules at home. And Beijing will know that Washington and Ottawa are watching.
Follow Christopher Sands on Twitter: www.twitter.com/sandsathudson
While I realize that the U.S. is our largest customer , and probably always will be because of our common border and the proximity of their markets , it does not mean we have to be " little brother " . We need to elect a government that will stand up for what is in the interests of the people , not just corporations . Harper is slowly giving away , if he has not already done so , any possibility of independence and we are going to find it a huge problem to try to turn things around .
And yes I still support their position on many things , but sadly, I believe they have become less than effective because of a certain repetitious nature of their message as well as a lack of any sense of reality. This is the real world and it is a hard place to live in . Airy, fairy messages don't cut it . You have to realize you are in the big leagues.
Additionally , I believe that Maude Barlow has become inneffective in her leadership role . I think she should be spending all her time lobbying in Canada and forget out of country attendance at confences . The only way to reach Canadians with your message is through the media and constant , consistent effort to popularize a theme . This takes money and work since the media are interested in stories that will resonate with readers . Better the money being spent on going to conferences be used to grab the attention of Canadians . When was the last time you saw a steady reference to the Council in all the media ?
Time for Harper and company to say "NO" to the Chinese on this deal-reason, this is Canada, its our country and our oil, when investing in this country you deal with Canadian officals period.
And when hes at it he should also remind the American government to keep their noses "out of our business" as well
The research by Forest Ethics Advocacy was based on an analysis of shareholder information in January 2012 from Bloomberg Professional of more than a dozen companies, including nine with headquarters in Canada, and six with their head offices in other countries. It found 71 per cent of the ownership of oilsands production was foreign, while the foreign-based companies controlled 24.2 per cent of the sector's production.
"Some notably Canadian oil companies, such as Suncor, Canadian Oil Sands and Husky, are predominantly owned by non-Canadians," said the report. "The data also shows us that more than half of Canada's oil and gas revenue goes to foreign entities."
http://www.canada.com/business/Majority+oilsands+ownership+profits+foreign+says+analysis/6599547/story.html
...too late,
As far as free trade is concerned , it appears to me the only benefit to Canada has been less than the froth on top of a glass of beer.
Read 'em and weep.
And yes, in the free trade agreement its obvious that we gave away a little too much, somewhere I have heard that our oil being shipped to the US is discounter by $20/bbl, if this is correct then the government may be right in finding new markets.
http://viableopposition.blogspot.com/2012/01/canadas-oil-sands-are-we-exporting.html
Perhaps the Harper government should be considering Canada's energy security ahead of security for both China and the United States.
Do we need to see John Boehner handing out tobacco company cheques on the house floor again to remind people of that?
Perhaps they should deal with that first before supposing to tell Canadians what we should be doing.
From what I can read , it does not seem that things are much better here , particularly with the Harper crowd . The current investigation of DelMastro for illegal contributions and manipulation of the system tells you things are not basically different here in Canada . Perhaps a little better concealed from the light of day because Elections Canada can't afford to alienate anyone .