Ottawa’s ‘national security’ review a warning to foreign investors

Ottawa’s ‘national security’ review

 a warning to foreign investors

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Almost a year after a groundbreaking ceremony attended by Saint-Bruno’s Mayor and Quebec Economy Minister Jacques Daoust last summer, there is no factory. In June, La Presse, citing unnamed sources, reported that the federal government had conducted a national security review and had rejected the location of the factory as too close to the headquarters of the Canadian Space Agency, just under two kilometres away.

MAPLE ARMOR

JEFF GRAY.TORONTO CITY HALL REPORTER

PUBLISHED JULY 1, 2015UPDATED MAY 15, 2018

An apparent move by the federal government to quash a plan by a Chinese company to build a factory in Saint-Bruno-de-Montarville, Que., is the latest indication of Ottawa's willingness to use its opaque national security review process to block foreign investments it sees as potential threats.

Last summer, a newly formed Canadian subsidiary of Beijing-based Beida Jade Bird Group, which is controlled by China's Peking University, announced plans to invest $30-million, build a 130,000-square-foot manufacturing plant and hire more than 70 people. The company, called Maple Armor Fire Solutions Canada Inc., planned to build fire-alarm systems for the Chinese market, which values a "Made in Canada" sticker on this kind of product as a symbol of quality.

But almost a year after a groundbreaking ceremony attended by Saint-Bruno's Mayor and Quebec Economy Minister Jacques Daoust last summer, there is no factory. In June, La Presse, citing unnamed sources, reported that the federal government had conducted a national security review and had rejected the location of the factory as too close to the headquarters of the Canadian Space Agency, just under two kilometres away.

The rejection is the latest such move by Ottawa, which has grown increasingly wary of investments from state-owned enterprises from China and elsewhere. In 2009, the federal government added to the Investment Canada Act the ability to block mergers or foreign investment over national security concerns. A handful of high-profile deals have been shot down by secretive national security reviews. But lawyers say an unknown number of other transactions, which have never been made public, have also been vetoed in recent years.

The Globe could not confirm the reason for the rejection of Maple Armor's plans. A spokeswoman for the town of Saint-Bruno said officials were alerted by the company in April that the factory was not going ahead, because of a "decision by Industry Canada." An Industry Canada spokeswoman said confidentiality requirements prohibit the department from offering any comment.

Quebec's provincial government gave the company $3-million in interest-free loans and a $1-million grant. Chantal Corbeil, a spokeswoman for the government agency Investissement Québec, confirmed that Industry Canada had vetoed the site in Saint-Bruno, but could not say why. She said the provincial investment agency is still assisting the company, which now plans to locate its factory somewhere else, likely in Montreal's South Shore area. A representative from the company could not be reached.

Lawyers who specialize in Canada's foreign investment rules say the case appears to be the first time an investment has been vetoed for its location. It is also the first known case of the quashing of the establishment of a new business, as opposed to the acquisition of a Canadian asset.

The United States has blocked or reviewed sensitive foreign investments owing to their proximity to military bases. In 2012, President Barack Obama blocked a privately owned Chinese company from building wind turbines close to a U.S. Navy military site in Oregon, citing national security concerns.

Omar Wakil, a lawyer with Torys LLP, said Canadian national security reviews for foreign investments, while still rare, are on the rise. "We are seeing an increased number of transactions being scrutinized under this provision."

Oliver Borgers, a lawyer with McCarthy Tétrault LLP, said he knows of others deals, never made public, that have been quashed by security reviews, but could not provide specifics. He said foreign investors with potentially sensitive transactions, no matter what size, need to get clearance from Industry Canada well in advance before going ahead.

Brian Facey, a lawyer with Blake Cassels & Graydon LLP, said the Maple Armor case, if the reports are true, shows the government is not shy about using its review powers: "I think what this suggests is that the national security provisions of the Investment Canada Act are not just window dressing."

Several high-profile deals have been undone by national security reviews in recent years, including Manitoba Telecom Services Inc.'s attempt in 2012 to sell its Allstream unit to Accelero Capital Holdings, an investment firm co-founded by Egyptian billionaire Naguib Sawiris. In 2013, Prime Minister Stephen Harper himself warned that any foreign bid for Waterloo, Ont.-based BlackBerry Ltd. would face close scrutiny, after reports that China's Lenovo Group Ltd. was planning a takeover.