The disintegration of BHP Billiton Ltd. 's bid for Potash Corp. has stirred a global reassessment of Canada, a country with an abundance of resources, but a splintering reputation among those with the money to extract them.
BHP officially abandoned its $38.6-billion (U.S.) pursuit of Potash over the weekend after it became clear that despite its offer of "unprecedented" concessions, it could not meet Ottawa's criteria for providing a net benefit for Canada.
That has renewed international concern about Canada's openness to external investment, as investors, analysts and executives sought to reconcile the words of a government that claims to welcome outside capital, but has now acted otherwise.
"The Canadian government's decision surprised me and probably a lot of Australian investors. Canada has been perceived as generally welcoming of international companies entering the fray in the resources space," said Tim Schroeders, a portfolio manager at Pengana Capital in Melbourne, which owns BHP shares.
Investors are also set to question BHP executives at the company's annual meeting Tuesday in Australia, where CEO Marius Kloppers will be under pressure to explain his next move for the world's biggest mining company. Mr. Kloppers has attempted three major deals since taking over the top job in 2007, and three times he has struck out.
The questions over Canada's stance regarding foreign takeovers stem from the fact that this is not the first time Ottawa has squelched a deal.
"We already saw the MacDonald Dettwiler and Associates Ltd. intervention a couple of years ago," said Chris Sands, a senior fellow at the Hudson Institute, a non-partisan U.S. think tank. "It's going to be harder for Canada to make the claim that it really does believe in market principles when it comes to foreign direct investment."
That, in turn, may make it more difficult for Canadian companies to invest abroad, since it hurts their ability to stand on a moral argument that their own home country resolutely supports such work. It may also damage the Harper government's diplomatic efforts abroad, some of which have already been hurt by a perception that Canada does not play fair.
Mr. Sands pointed to negotiations on a Trans-Pacific Partnership agreement that is meant to strengthen economic ties between Pacific trading nations. Australia, the U.S., New Zealand and even Chile are involved. Canada is not.
"The New Zealanders have made sure Canada cannot participate because they resent the fact that Canada does supply management," he said, pointing to dairy production and the Canadian Wheat Board.
"So Canada is getting attacked and excluded from international negotiations, in part because it's seen as deviating from international neo-liberal norms. And whatever the excuse that comes forward, this is happening on the Harper government's watch. And it's terrible for his reputation."
Efforts to burnish that reputation have already begun. On Monday, the government of Saskatchewan, whose criticism of the bid played a central role in persuading both its own people and Ottawa to turn against it, launched an expansive new website and marketing program aimed at promoting the virtues of investing and living in the province.
Even among those who believe Canada's global image remains solid, however, there are warnings that protectionism can backfire.
"Canada, at least from an energy resource development perspective, is still seen as an open-border country," said John Hofmeister, former president of Royal Dutch Shell PLC's U.S. operations.
The problem, he said, is that erecting walls around a certain commodity generally speeds the search for alternatives.
"You end up losing in the end. That's my view. That's why I trust markets more than I trust governments," he said.
Yet Canada's reputation may benefit from the fact that it's not the first to stand up in defence of an important commodity.
"I'm both disappointed and a little surprised, but not really surprised," said a New York hedge fund manager. "The Chinese got absolutely crucified trying to buy Unocal in my country. And I don't think [the BHP rejection]will scare away other deals. Resource deals in Vancouver and Calgary are not in the least going to be derailed by this."
And even in Australia, investors doubt the failure of the BHP bid will trigger a tit-for-tat response to Canadian investments. But, investors say, it should at very least spur Ottawa's push to bring greater clarity around its rules for outside capital.
With a file from David Ebner in Vancouver