September 12, 2008 / 12:52 PM / 9 years ago

PM vows to relax foreign investment curbs

<p>Conservative leader and Canada's Prime Minister Stephen Harper is flanked by security while delivering a speech to the Halifax Chamber of Commerce in Halifax, Nova Scotia September 12, 2008. REUTERS/Chris Wattie</p>

OTTAWA (Reuters) - Prime Minister Stephen Harper promised on Friday to permit more foreign investment in airlines and uranium but not in telecommunications, and he said he would not act on recommendations to allow bank mergers.

A reelected Conservative government would also add a national security provision to its Investment Canada Act. That would allow more foreign investment only if domestic security concerns are not compromised and if the other countries involved open up their markets.

“We are a party of free enterprise, free markets and free trade,” said Harper, campaigning in Nova Scotia for the general election to be held on October 14. “These principles form the cornerstone of our prosperity, but we also believe government needs to be able to draw the line when any foreign takeover would jeopardize our national security.”

In June, the government-appointed Competition Review Panel urged the government to lower barriers to foreign investment in uranium mining, air transport and telecommunications, and lift a ban on domestic bank mergers.

Harper said he would proceed in uranium and airlines only. He said he will also agree to lift the general threshold for reviewing foreign investments to transactions worth C$1 billion ($943 million) from the current C$295 million.

“We will allow for increased foreign ownership in the airline sector subject to negotiation with our trading partners, and we will allow foreign ownership of uranium mining and producing, provided that such investments meet a national security test and that Canada also receives comparable benefits from investor nations,” he said.

The new foreign investment threshold for airlines would be 49 percent, up from 25 percent, he said.

The sector, suffering from surging fuel costs and a weak economy, has called for relaxed ownership limits for years.

The change would allow Canadian carriers to raise cash from a bigger pool of sources and take part in the consolidation under way in the sector, said Rick Erickson, president of independent airline consultants RP Erickson & Associates.

“Forty-nine percent would give carriers a lot more confidence in transactions,” he said.

“Canadian carriers could look at some infusion of offshore money -- it could be European, it could be Asian money. As it stands now, the 25 percent is not enough.”

Air Canada ACa.TO, the country’s biggest carrier, said it welcomed the prospect.

Analysts said the relaxation of restrictions could also open the door for more consolidation in uranium. But top producer Cameco Corp (CCO.TO) would likely still be protected from takeover by separate legislation that caps foreign voting ownership at 25 percent. “My understanding is that it wouldn’t apply,” Conservative spokesman Bill Rodgers said.

Harper, whose promises could depend on a Conservative election win, said Canada is the only country in the Group of Seven industrialized nations without a national security test in its foreign investment reviews.

The Conservatives are leading the main opposition Liberals in the polls, and Liberal leader Stephane Dion did not oppose the proposal on Friday, saying only that his party had been the first to advocate a national interest test.

However, Canadian Auto Workers President Ken Lewenza said it could mean a wholesale sell-off of Canada’s resources.

“How does allowing more foreign control of our airlines or our uranium industry create more Canadian jobs or build our economy?” Lewenza asked in a statement.

Harper’s announcement prompted a reporter’s query about whether he would not be seen as being too close to Washington.

Harper responded that his government was the first one in Canada to reject a foreign takeover bid, and it was done against a U.S. firm. In May it blocked the sale of satellite technology of MacDonald Dettwiler and Associates Ltd (MDA.TO) to U.S. rocket-maker Alliant Techsystems Inc ATK.N.

($1=$1.06 Canadian)

Additional reporting by Cameron French, Jeff Jones and Louise Egan; editing by Frank McGurty

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