OTTAWA - Germany is pushing the European Union to demand that Canada get rid of its screening system for European investors, freshly leaked government documents show.
In a memo to European officials who are negotiating a free-trade agreement with Canada, Germany says Canada must stop applying the Investment Canada Act to European firms that want to buy into Canada, especially in the energy sector.
The deal with Canada must deliver "ambitious results with new market access and clear rules," says the Oct. 25 memo obtained by The Canadian Press. "This includes the abolition of reservations in the Investment Canada Act and of ministerial discretion.
"The German and EU energy industry should also benefit from additional, non-discriminatory market access."
The investment act is the set of rules and guidelines Ottawa is using right now to try and amend the corporate behaviour of a Chinese state-run enterprise seeking to take over Calgary-based Nexen Inc.
The act requires Ottawa to approve foreign acquisitions of domestic firms. Only acquisitions that are of "net benefit" to Canadians are approved. Officials at Industry Canada make recommendations, but their minister has the ultimate say.
In the past, takeovers were routinely approved. But the federal Conservatives have turned down three high-profile deals in the last few years. They are now in the midst of intense negotiations with China's CNOOC to make sure transparency, management, employment and investment undertakings are up to scratch.
Granting the EU its wish to get rid of the net benefits test would deprive the Conservatives of a useful tool in controlling what happens in the oil patch and elsewhere.
Trade consultant Laura Dawson says that's why Ottawa would never concede to such a demand.
"Under no circumstances would they agree," she said.
Trade and investment deals usually apply only to treatment of investors once they are approved to invest in the other country and don't usually pertain to the approval system itself, she said. Many countries have screens for foreign investors — often linked to national security — and such screens are not generally subject to trade pacts.
"Everybody's got something, so it would be bizarre that Canada would agree," she said.
Still, the German demand made it into the EU's own list of demands, according to leaked EU documents posted last weekend by La Presse and dated Nov. 6. Those documents summarized the state of play and said exempting EU investors from the Investment Canada Act remains an "important offensive interest."
The German memo also urges European negotiators to demand more access to the Canadian banking sector — another sacred cow for the federal government.
"Germany seeks new market access for its financial services providers across all sectors," the note says. "This would entail core obligations for financial services on the side of Canada."
Canadian regulations don't specifically forbid foreign takeovers of Canadian financial institutions, but a provision that no single shareholder can own more than 10 per cent effectively acts as a barrier.
That rule made Canada look archaic a decade ago, but has stood the country's financial sector in good stead over the last few years of global financial crisis, said Dawson.
"Now our financial services sector is considered to be the envy of the world," she said, adding that she doubts Canadian negotiators would feel too much European pressure to liberalize the banking sector, especially given the state of Europe's banks.
Officials in International Trade Minister Ed Fast's office refused to answer any questions on specific details of the trade negotiations, saying talks are at a sensitive stage.
"We caution Canadians against attaching credibility to speculation that stems from leaked, draft documents," spokesman Adam Taylor said in an email exchange. "The process of negotiations continues to unfold. Negotiators are engaged in focused discussions on the remaining issues, but some important work remains to be done."
The German memo also pushes the EU to drive a harder bargain on investor-state dispute mechanisms in the treaty.
Canada wants to give European investors the same treatment it offers American and Mexican investors under NAFTA. But Germany wants its companies to be able to demand full compensation if new environmental or labour legislation hurts their bottom line.
That demand has also been taken up by the European Union, but is being opposed by Canada, according to other documents obtained previously by The Canadian Press.
The German memo also shows a strong push for more Canadian concessions on rules of origin for auto manufacturers. Patent terms for pharmaceuticals were also still contentious.
Germany makes clear that the EU has to drive a hard bargain with Canada because the Canada-EU deal will be a blueprint for negotiations with the United States expected soon.
The memo also expresses deep concern about how the Canadian provinces will be held to the provisions agreed to by the federal government.
"It is vital to have a legally unambiguous inclusion of the Canadian provinces ... so that it can be ensured that the Canadian commitments also apply to the provinces, especially on public procurement, investment and services," the German memo says.
The memo says Canadian negotiators have run into constitutional issues at home and are trying to resolve the provincial responsibility issue by an exchange of letters that would outline what the provinces are committed to.
Canada and the European Union had pledged to finish three years of talks on the massive trade agreement by the end of 2012, but it now looks like negotiations will drag into the new year.