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Where’s the harm in selling potash?

COYNE: Why we need fundamental reforms to our foreign investment laws


 
Where's the harm in selling potash?

Hannelore Foerster/Bloomberg/Getty Images

They say the stakes are high in this potash business, but really, I’d no idea. Apparently, if BHP Billiton’s bid for Potash Corporation goes through, a part of Saskatchewan will have to be dug up and moved to Australia.

Or what else can Ralph Goodale possibly have been on about? The normally phlegmatic Liberal deputy leader—and the party’s only Saskatchewan MP—had been in high flight for weeks over the deal. As federal officials pondered whether the takeover was of “net benefit” to Canada, he appeared to enter the stratosphere.

“Never before has there been a takeover of this magnitude,” he quivered, denouncing the deal as a “fire sale” of one of our “key national champions.” And not just a single company: “Canadians will lose control of an entire industry.” And not just the industry: “53 per cent of the world’s reserves [of potash] are in Saskatchewan, and that’s about to move into foreign ownership, presumably permanently.” To sum up: “At stake here is the global supply of a strategic resource vital to food production for generations to come.”

Gosh. I mean, I’m all for free trade, but I draw the line at giving one company a perpetual stranglehold on the world’s food supply—let alone transporting provinces across international borders.

Because that’s what it would take to realize Goodale’s apocalyptic vision. The potash, you see, happens to be buried thousands of feet under the Saskatchewan soil. It’s also owned by the government of Saskatchewan. So even if BHP were buying the province’s vast potash deposits itself, which it’s not—Potash Corporation owns the right to extract the resource, not the resource itself—and even if it were buying the entire industry, which it’s not, in order for Canadians to “lose control” of either the industry or the resource, it would have to physically remove them both from Saskatchewan.

Which is, of course, impossible. The potash is in the ground. It isn’t going anywhere, except by payment of the usual royalties to the government of Saskatchewan, and in conformity with its laws and regulations, exactly as before. All that will change if the deal is approved is that one foreign-owned company—for that is what Goodale’s “national champion” is, with a majority of its shareholders residing outside our borders, along with its Chicago-based CEO—will be bought by another foreign-owned company. So how has this been conjured into the kind of life-threatening calamity that would warrant federal intervention?

Because this involves foreign investment, and in this country, that means logic is thrown out the window. If, after all, Saskatchewan were facing anything like the biblical disaster Goodale predicts, the government of Premier Brad Wall would have a simple solution, and a clear responsibility: nationalize Potash Corporation, returning it to its original owners. That it is not tells you this has more to do with posturing than anything else.

That’s not to say that BHP’s offer, at its current price of $130 a share, is a good one. You needn’t subscribe to any of that pompous twaddle about potash being a “strategic” resource to see that its price on world markets is rising, leaving the bid looking seriously underpriced: as it is, the stock is trading closer to $150. But that’s a decision for the people who actually own the company to make, not the politicians who pretend to.

The former group would include the 49 per cent of its shareholders who are Canadians, who presumably bought the stock in the expectation that one day they would be able to sell it. As Maclean’s went to press it wasn’t clear whether Ottawa would approve the deal, but in a sense the damage has already been done. [UPDATE: The federal government has since rejected the deal.] It isn’t just the long list of expensive conditions that would inevitably be attached to any approval, but the toll on investor confidence, both here and abroad, whether it is approved or not.

Essentially, before buying any Canadian stock, investors will now have to factor in the increased likelihood that a part of their investment will be expropriated in this way, whether up front or at the back end. At a time when Canada desperately needs foreign capital—for without it we cannot finance the massive investments in higher productivity we will need if we are to bear the costs of looking after the retiring baby boomers—we are, in effect, slapping a tax on foreign investment.

Merely approving the deal, then, will not be enough to undo the damage done in the hysteria of the past few weeks. If the Harper government truly believes in open capital markets, it must not only begin to counter the arguments of the nativists (my favourite: the Saskatchewan government might take in less in the way of taxes—as if it were the responsibility of private citizens to arrange their affairs so as to maximize revenues to the state!). It must make fundamental reforms to our foreign investment laws, starting with the “net benefit” test.

No precise definition of this concept exists, nor is any such test imposed on other transactions, least of all those involving governments. It’s simply an invitation to scheming politicians to draw figures in the wind. Fine. If we must perform such pantomimes, at least make it a “net harm” test. Put the onus on the doomsayers to show how their preposterous jeremiads will unfold, rather than obliging those who wish merely to go about their own business to show how they will make everyone else rich, or elected.


 

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