Howard Balloch, now chairman of investment firm Canaccord Genuity Asia, says while the current rules, which have been widely criticized for their lack of clarity, need to be improved, the government needs to keep some room to manoeuvre.
"I would be surprised if that in doing so that they remove all flexibility," he said of the current review of the Investment Canada Act guidelines.
Under the rules in place, deals involving WTO member countries valued at more than $330 million must be a "net benefit" to Canada, however just what constitutes a "net benefit" exactly is unclear.
And while businesses may want a crystal clear definition, Balloch said he would preserve some flexibility in the approval process to prevent companies from artificially designing deals to pass muster even if they were not in the national interest.
The review comes as Industry Canada examines a $15.1-billion takeover offer by China National Offshore Oil Company for Calgary-based Nexen Inc. (TSX:NXY) and Malaysia's Petronas works to try to reverse a decision by the government to deny its bid for Progress Energy Resources Corp. (TSX:PRQ).
A report has suggested that Canada is looking at a possible two-track review system, one for typical companies and a second for state-owned companies.
The concern is the amount of influence a government may or may not have over the operations of state-owned companies.
"I think there is a tendency to see a state-owned company from China differently than a state-owned company from France or Norway," Balloch said.
But Balloch, who served as ambassador to China from 1996 to 2001, noted CNOOC and Nexen have made several commitments in hopes of winning approval, including a pledge to maintain the head office in Calgary and seek a Toronto Stock Exchange listing.
CNOOC has also committed to place some $8 billion of its assets under the control of Nexen's management in Canada as well as to carry on Nexen's social responsibility programs in Canada and around the world.
"From what I've seen CNOOC and Nexen have gone out of their way to show it is in the national interest," Balloch said.
Concerns about CNOOC's bid for Nexen have come from several corners including Prime Minister Stephen Harper, who has said the deal "raises a range of difficult policy questions." At a news conference in Senegal earlier this month, he said there's a national security angle that factors into Canada's relationship with China.
Canadian Security Intelligence Service has also raised concerns regarding foreign investment by state-owned firms in its annual report earlier this year. Though it did not name specific countries, it said certain state-owned enterprises have pursued what it called opaque agendas or received clandestine intelligence support for their pursuits in Canada.
Sarah Kutulakos, executive director of the Canada China Business Council, suggested a general lack of understanding of China by Canadians has contributed to the uneasiness in connection with the deal.
"There isn't a great understanding about China right now, but there is an understanding if you did the same surveys that show people are worried about China also show a great understanding that the economic opportunity is with China," she said.
Kutulakos said billions are going to be needed to develop the oilsands over the coming decades and that money is going to have to come from somewhere.
"That money isn't going to come from a whole lot of places, so I do think we put at risk Canada's reputation as a country that is open to foreign investment," she said of the CNOOC review.