PM Trudeau under fire for being soft on Chinese firm’s takeover of Canadian satellite-technology company

This past summer, Prime Minister Justin Trudeau’s Liberal government came under heavy fire from Canadians and Conservative politicians, as well as the U.S. defense and security professionals for Ottawa’s approval of a controversial Chinese firm’s takeover of a Vancouver satellite technology company without full-fledged national security review. This revealed Trudeau’s and his Liberal government’s very soft and “naïve” stance toward national security matters – and China.

This Canadian company, Norsat International sells military-sensitive satellite technologies and materials to the U.S. Department of Defense, U.S. Marine Corps, U.S. Army and the North Atlantic Treaty Organization (NATO). Its defense clients also include the Republic of Ireland Department of Defense, Taiwan Army and Scandinavian defense forces.

Therefore, the sale of Norsat to the Chinese firm, Hytera Communications Corp. of Shenzhen, should have substantial implications on the national security of not only Canada but also Western allies. But Trudeau’s Liberal Party government approved the sale after only routine security screening that all foreign takeovers of Canadian companies undergo – without conducting a full-scale national security review properly – required by law for the sale of companies that might affect Canada’s national security.

Canada’s Investment Canada Act requires full-scale scrutiny of proposed acquisition of Canadian companies by foreign companies when the acquisition raises concerns that national security might be affected. The clause requiring such strict security review was added to the Act during the Harper Conservative government to avoid any ad hoc decision that often causes national security controversy.

Trudeau, however, refuted at a news conference that there is no need to do any further reviews of the sale of Norsat to the Chinese telecom firm and that the sale will not harm Canada’s national security. He defended strongly his government’s decision to allow the Chinese firm to take over Norsat, saying that Canada’s professionals of national security agencies unearthed no significant national security risk in the initial government review and concluded that there are no further reviews needed.

Since media first reported about Norsat’s sale to Hytera in June, Trudeau’s comments flip-flopped. When asked by the Globe and Mail, he first said a full-fledged review was done, but it turned out that the government review was a preliminary review. He also said his government consulted with U.S. officials before deciding to approve Norsat’s sale, but would not disclose who in the U.S. Trump administration, neither what reaction the U.S. administration officials made.

U.S. national security experts are not easy to be convinced. The U.S. government, apparently concerned about the Norsat deal, was going to review on its own all Norsat contracts with Pentagon, saying that the takeover by a Chinese telecom giant of the Canadian company that supplies materials and technologies to the U.S. military would likely to have serious impacts on the U.S. security.

Norsat’s clients also include major media, such as CBS TV and Reuters, as well as NAV Canada, operator of the country’s civil air navigation service. The transfer of Norsat’s sensitive technologies used in the military, civil aviation and media to a Chinese company – which means in China that these technologies will eventually fall into the hands of the Chinese government and the military – will have no small implications on national security. But, Trudeau said – almost nonchalantly – in the Parliament in response to Opposition members that it would be no big deal from where and which company the particular technology comes. “It doesn’t matter what country it’s from or what deal it is.” (Globe and Mail, June 27)

These concerns about possible national security risks further increase when you are reminded that in March, Motorola Solutions of Chicago filed a lawsuit against Hytera, a giant radio transceiver and other wireless equipment manufacturer, alleging that the Chinese firm had obtained proprietary information illegally. Motorola claimed that three of its former engineers stole more than 7,000 proprietary technology files and provided them to Hytera. (Space News, June 15)

Michael Byers, Canada Research Chair in Global Politics and International Law at the University of British Columbia, said: “A review by CSIS would have warned that investments by the same Chinese company have raised security concerns in other countries.” According to Dr. Byers, Hytera’s takeover of a mobile digital-radio equipment maker in Cambridge, Britain, was only approved after strict security protections were imposed. (Globe and Mail, June 22)

A billionaire Chen Qingzhou owns majority of the company, but a Chinese sovereign owns more than 2% of the share.

Hytera said in a statement in reply to the Globe and Mail in June that it would “strictly obey local laws and regulations,” but did not make committal reply on how it intends to maintain contracts with clients, including the U.S. military. (Globe and Mail, June 27)

This is not the first case. In March this year, the Trudeau government reversed the decision by the former Conservative government that had blocked the sale of ITF Technologies to Hong Kong-based O-Net Communications, which is partially owned by the Chinese government. The Canadian Security Intelligence Service (CSIS) had opposed the takeover on grounds that it would result in the transfer of advanced military laser technology to China, eroding military advantage of Canada and its Western allies and raising their security risks.

CSIS officials considered O-Net is effectively controlled by the Chinese state as the company’s corporate statement indicates more than 25% of its shares are owned by a company that is subsidiary of Chinese state-owned China Electronics Corporation. (Globe and Mail, Jan. 23)

Needless to say, an overwhelming majority of Canadians oppose the sale of these two domestic high-technology companies with military customers to the controversial, if not suspicious, Chinese investors. A poll by Nanos Research conducted in late June found that 76% of Canadians oppose or somewhat oppose the takeover of Norsat (18% support or somewhat support), and nearly four-fifth or 78% of Canadians oppose or somewhat oppose China’s purchase of Montreal-based ITF Technologies. (Globe and Mail, July 2)

Prime Minister Trudeau has made deepening trade and economic relations with China a key foreign policy objective of his administration since he took power almost two years ago. Ottawa is now in the midst of exploratory free-trade talks.

Critics like Andrew Scheer, who became Conservative Party leader in May, are accusing the Liberal government of trying to “appease” China as it aims to negotiate free-trade agreement, by forgoing full national-security reviews. The center-left New Democratic Party (NDP) also has criticized, saying “This is not the same as selling to New Zealand. This is selling to a country with clear global ambitions and zero democratic accountability.”

It is well-known that China has introduced advanced Western technologies (by stealing, or forcing technology transfer through mergers and joint ventures) to modernize the industry and turn them to military use. It is also widely suspected that China is eager to conclude free-trade agreements with industrially advanced countries like Canada, because, once it has a free-trade agreement, Chinese firms’ investment in, or acquisition of, sensitive high-tech companies would be approved more smoothly without causing national security and nationalistic controversies.

It’s almost two years since Justin Trudeau took power, and has received praise for his generous policies to take more refugees into Canada and liberal social policies, including his personal sympathy for sexual minorities. But many of Canadians, including his supporters, are hoping that he realizes that it’s about time to learn about China’s nature and understand that Canada is a member of the Western alliance and responsible for the allies’ security, not just Canada’s. Otherwise, Canada’s neighbors cannot sleep well – including Japanese.

Footnote:
Shareholders of Norsat on June 22 voted in favor of the Hytera takeover.

Since the start of the Trudeau government, Chinese investment cases in Canada have been conspicuously increasing in non-military but strategically important sectors – not just in military and security-related areas. Some examples. In February, Ottawa approved the sale of one of British Columbia’s biggest retirement-home chains to a Beijing-based insurance giant with a murky ownership structure, giving Anbang Insurance Group a foothold in Canada’s health-care sector.

In July, a company with ties to a state-created Chinese investment firm, GM resorts, acquired the Grouse Mountain ski resort and entertainment complex owned by the McLaughlin family since 1989 – an important Vancouver landmark – causing shocks and concerns to local people. The new owners promised no changes to staff, management or operations, but many are wondering about the ultimate intentions of the company and its Chinese affiliate.

Justin Trudeau’s father and former Prime Minister Pierre Trudeau, one of Canada’s most respected politician, recognized China and opened diplomatic ties with Beijing on Oct. 13, 1970, ahead of the U.S. any other Western allies, and maintained close relations with China. Therefore, the son is said by many observers to be highly conscious – probably more conscious than any other politician – about the father’s achievements and this may be influencing his China policy. But he must remember that his father was not just nice to China.

 

By Yoshikazu Ishizuka, Senior Consultant, TOCS

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