VZCZCXRO4251
RR RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #0657 1351458
ZNR UUUUU ZZH
R 141458Z MAY 08
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC 7851
INFO RUCPDOC/USDOC WASHDC
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

UNCLAS OTTAWA 000657 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR WHA/CAN; EEB/OIA; ISN/CATR (MALZAHN) 
DEPT ALSO PASS USTR FOR SULLIVAN, HAMEL, KALLMER 
 
USDOC FOR 4310/MAC/ONA 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ECON CA
SUBJECT:  Direct investment in Canada:  Window closes for ATK to 
amend its proposal to acquire MDA's space business 
 
REF:  (A) Ottawa 0498   (B) 07 Ottawa 1073 
 
Sensitive but Unclassified - protect accordingly.  Not for 
distribution outside USG channels. 
 
¶1. (SBU) SUMMARY:  The 30-day period (ref A) has ended during which 
U.S. defense firm Alliant Tech Systems (ATK) could have convinced 
Canada's Industry Ministry with additional information or proposals 
to approve its proposed acquisition of Canadian firm MDA's space 
business.  As no appeal is allowed, this terminates the process for 
government consideration of ATK's proposed investment.  Embassy 
continues to hold the view (reftels) that Canada's denial of 
permission for this purchase was driven mainly by negative public 
reaction to the proposed sale, and that the denial does not 
necessarily reflect a change in Canada's overall open policy with 
respect to foreign investment.  A blue-ribbon report on competition 
policy, due by the end of June, is likely to frame the government's 
thinking on broad issues of industry, investment and productivity. 
END SUMMARY. 
 
¶2. (SBU) May 8 marked the 30-day anniversary of Industry Minister 
Jim Prentice's public announcement that ATK's proposed acquisition 
of MDA assets, including RADARSAT-2, would not be "of net benefit to 
Canada."  Prentice sent a letter to this effect to ATK on May 8, 
thereby terminating consideration under the Investment Canada Act of 
ATK's proposal.  An Industry Canada official told Embassy that while 
the prospective investor (ATK) may file a new application, if such 
an application is for essentially the same transaction, there is 
little prospect that the Minister will be "satisfied it is of net 
benefit to Canada." 
 
¶3. Normally, a cool reaction by the GOC to a proposed foreign direct 
investment at least leaves the door open to an amended proposal - 
often leading to a non-public dialog between the prospective 
investor and Industry Ministry officials - which may or may not 
result in a direct investment.  Under this arrangement, 
unsatisfactory proposals went unapproved and never led to an 
outright rejection of an investment.  The ATK-MDA case was unique in 
having prompted such an outright denial, apparently because of 
considerable and vocal opposition to the deal and the political 
sensitivities of a minority government (ref A). 
 
¶4. (SBU) A surge in foreign direct investment in Canada in recent 
years (the stock of inward FDI has increased 32 percent from 2004 to 
2007 and now totals more than C$500 billion) has included foreign 
takeovers of some of the most prominent names in Canadian business, 
such as Hudson's Bay Company (retailing), Falconbridge and Inco 
(base metal mining) and Intrawest (ski resort development).  Not 
surprisingly, the FDI increase has stirred up echoes of 
long-standing anxiety about foreign corporate control of Canadian 
private assets - an old theme in Canadian national politics.  Still, 
Embassy concluded in mid-2007 that a balance of political forces 
appeared likely to maintain Canada's relatively open policies on 
foreign investment (ref B). 
 
¶5. (SBU) Since his April 10 statement on the ATK-MDA deal, Industry 
Minister Jim Prentice has repeatedly asserted that foreign 
investment is beneficial to Canada and that there has been no change 
in government policy toward FDI.  Embassy believes this to be the 
case. 
 
¶6. (SBU) Going forward, the current Conservative Party government's 
thinking on industry, investment and productivity is likely to be 
framed by the expected report of a blue-ribbon panel on competition 
Qframed by the expected report of a blue-ribbon panel on competition 
policy, which is due to report to Prentice next month.  This report 
may help to point the way toward further liberalization in certain 
federally regulated industries (notably telecoms and financial 
services).  The panel's terms of reference are available at 
http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/ en/home . 
 
WILKINS