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Bains’s mixed messages on Norsat a cause for concern

Michael Byers holds the Canada Research Chair in Global Politics and International Law at the University of British Columbia

Earlier this year, Norsat – a British Columbia-based satellite manufacturer that builds ground terminals for the U.S. military's most advanced communications satellites – received a generous takeover offer from a large Chinese communications firm, Hytera.

Navdeep Bains, the Minister of Innovation, Science and Economic Development, granted permission for the takeover. He did so without asking the Department of National Defence (DND) and the Canadian Security Intelligence Service (CSIS) to conduct a national security review, as would normally be done under the Investment Canada Act.

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After the story broke, Mr. Bains was grilled about the matter in the House of Commons. He replied, perhaps unintentionally, that a national security review had been conducted – even though his office and Norsat both say that one was not.

When contacted by Globe and Mail reporters, a "senior U.S. government official" described the situation as "fairly sensitive" and refused to say whether Washington had been consulted.

Another senior official – Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, said "Canada's approval of the sale of Norsat to a Chinese entity raises significant national-security concerns for the United States as the company is a supplier to our military."

This week, it emerged that Norsat has received a competing offer from a U.S.-based hedge fund. But Hytera, which seems intent on the acquisition, will likely just raise its offer.

All of which raises the question – what the heck is going on?

Mr. Bains is certainly not a Chinese agent. Most likely, he and his department saw this as a simple foreign investment with no reason for concern and therefore no need for an in-depth review by security experts at DND and CSIS.

But this was a mistake. Had the takeover been subjected to a review, DND would have explained that Norsat is a world leader in portable satellite communications terminals and that its customers include the U.S. Marine Corps and the U.S. Army.

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DND would have identified that Norsat is developing portable receivers specifically for the new U.S.-led Wideband Global Satellite system, the purpose of which is to provide secure wide-bandwidth communications for, among other things, drones and F-35 fighter jets – the kind that Canada might buy.

DND itself has contributed $340-million to the latest Wideband Global Satellite and spent another $112-million on support services and communications terminals. Last week's defence policy review mentions a plan for two new Canadian-owned satellites to extend the system to the Arctic, at an estimated cost of $1.5-billion.

A review by CSIS would have warned that investments by the same Chinese company have raised security concerns in other countries. In Britain, Hytera's takeover of a mobile digital-radio equipment maker was only approved after strict security protections were imposed.

In the United States, Hytera is being sued by Motorola, which alleges the Chinese company stole its proprietary technology when serving as a distributor for Motorola products in China.

Last but not least, CSIS would have explained that even privately owned Chinese tech companies are closely linked with the Chinese military.

A national security review would also have given Mr. Bains the time to reflect on whether it makes sense to allow foreign companies to buy technologies that have only been developed because of Canadian taxpayer support.

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Norsat has received more than $8-million from the Strategic Aerospace and Defence Initiative (SADI), a program managed by Mr. Bains's own department, which provides loans in support of research and development. The company also receives funding from the National Research Council of Canada.

Despite these concerns, it is possible, of course, that Mr. Bains might still have approved the takeover of Norsat. He already has a record of playing down national security concerns when it comes to foreign acquisitions of sensitive technologies.

Earlier this year, Mr. Bains refused to accept the result of a national security review ordered by the Harper government with respect to the sale of Montreal-based ITF Technologies, which produces fibre lasers for military uses, to Hong Kong-based O-Net Communications.

The Globe and Mail obtained a copy of that review, which warned: "If the technology is transferred, China would be able to domestically produce advanced military laser technology to Western standards sooner than would otherwise be the case, which diminishes Canadian and allied military advantages."

Yet Mr. Bains rejected that warning and ordered a new national security review. Then, without making the results of the second review public, he approved the sale.

Navdeep Bains is not a Chinese agent. But he sure does look like one sometimes.

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