While nervousness over the stock market and Canada's economic outlook have grabbed the lion's share of headlines in the current election campaign, one promise by the Conservatives has largely gone under the radar.

In the early days of the campaign, the Conservatives said more must be done to boost the country's productivity. To that end, Leader Stephen Harper pledged to open up some sectors of the economy to more foreign ownership and change the rules governing takeovers.

Current sector limitations on foreign ownership

Airlines: Maximum of 25 per cent

Telecommunications/broadcasting: Foreign ownership limited to 20 per cent of voting shares of an operating company and 33.3 per cent of a holding company.

Uranium: Maximum of 25 per cent.

Banking: The country's biggest banks must  be widely held, meaning no shareholder, foreign or domestic, can own more than 20 per cent of any class of voting shares or 30 per cent of any class of non-voting shares.

"We are a party of free enterprise, free markets and free trade," Harper said when he announced his proposal.

"These principles form the cornerstone of our prosperity. But we also believe a government needs to know when to be able to draw the line when any foreign takeover would jeopardize our national security."

Harper's promises included:

  • Raising over a four-year period the threshold for a foreign investment review to $1 billion in business value from the current level of $295 million in gross asset value.
  • Requiring ministers responsible for foreign investment reviews to provide reasons if a transaction is disallowed, and, conversely, if an investment is permitted to proceed.
  • Creating a new national security review process in the Investment Canada Act.

The result would mean that larger, more sensitive takeovers would wind up going under the microscope.

Harper also pledged to permit changes to the country's foreign ownership rules in the airline and uranium mining sectors.

He said a re-elected Conservative government would permit foreign ownership of Canadian airlines to rise to 49 per cent from 25 per cent, but only on the condition that Canada gets equal access to international flight routes and landing rights through an Open Skies agreement.

Air Canada and WestJet have both applauded the proposal, saying it will give them more access to capital.

Harper also said foreign ownership of uranium mines would be permitted, provided Canada gets rights in the country of a foreign owner and that any investments from foreign parties meet a national security test.

Cameco Corp., the country's top uranium producer, supports the move. Currently, the company is required under provincial jurisdiction to maintain its headquarters in the province of Saskatchewan.

Analysts said the door could be opened to a deal involving Cameco, but they don't expect a quick sale of the company.

While the companies involved in the sectors in question have said they will benefit from the move, opponents of the move say it doesn't protect important Canadian sectors.

"This concept of just throwing the doors open and letting Canadian resources disappear and Canadian jobs disappear, and let the chips fall where they may, is not a balanced approach," NDP Leader Jack Layton said following Harper's announcement.

Rejection

The proposed changes to the way takeovers are examined came after the Conservatives became the only government in Canadian history to reject a planned takeover of a domestic firm by a foreign party.

In April 2008, the government rejected the $1.3-billion sale of Vancouver-based MacDonald, Dettwiler and Associates' space-technology division to Alliant Techsystems Inc., a Minnesota-based space and weapons company.

At that time, Industry Minister Jim Prentice said he was "not satisfied" the sale would have been a net benefit for Canada.

Critics of the sale, including former Canadian Space Agency head Marc Garneau, had called on Prentice to block the deal, saying it would have handed over taxpayer-funded technology, in this case,. Radarsat-2. The system is capable of peering through cloud cover and darkness to detect objects at resolutions of up to three metres, and is cited as a key to Canada maintaining sovereignty in the Arctic.

Until that time, the federal government had never in the 23-year history of the Investment Canada Act blocked a foreign takeover because of a failure of the "net benefit" test. Ottawa had reviewed and approved 1,587 foreign takeovers, according to figures from Industry Canada. Another 11,214 foreign acquisitions required notification under the Act, but not a formal review.

Mergers

Whichever party forms the next government may also have to deal with the elephant that has been sitting in the room for 10 years: possible mergers involving Canada's biggest banks. Former finance minister Paul Martin blocked two proposed bank mergers in their tracks almost a decade ago.

During the current election, the banks have been keeping quiet on the topic.

Royal Bank chief executive officer Gordon Nixon said in early September that, for the time being, mergers are just not something the banks are considering, although he did say he is still in favour of unions.

In submissions to the federal government-appointed panel led by Lynton Wilson on competitiveness, which reported earlier this year, both Royal Bank and Scotiabank argued for the freedom for Canada's bank to unite.

Harper has thrown cold water during the election campaign on the topic of making changes to limits on bank mergers, saying the Conservatives "don't believe the marketplace is ready" for them.

That goes against the recommendations of the Wilson panel, which called for banks to be given permission to join, and for the country's telecommunications sector to be opened up to increased levels of foreign ownership.

Other parties

The changes to the foreign ownership laws are a Conservative initiative, and the other major parties in the current campaign have limited positions on the issue, if at all.

The NDP's platform said the party would strengthen the Investment Canada Act.

"Foreign takeovers of Canadian companies will be subject to stringent tests respecting job protection and creation, head office location, and the promotion of research and development in Canada," the platform document says.

The Green party platform doesn't specifically address foreign ownership rules, but its emphasis on local development over global development could lead one to believe the party isn't in favour of increased foreign ownership.

The Liberal platform is also quiet on the topic of foreign ownership restrictions.