When it was announced in July that Chinese National Offshore Oil Corporation (CNOOC) was bidding to acquire Canadian oil company Nexen for $15 billion, it didn’t only become an issue of concern for the Canadian government, but also one for the federal government in the United States.

During his recent visit to the Canadian Arctic this August, Prime Minister Stephen Harper responded to questions about the impending deal by indicating that reciprocity and public opinion regarding the sale of a Canadian oil company to a Chinese entity would play significant roles in a decision to either approve or deny the deal.

A sale of this type must receive federal government approval, according to Canadian law that stipulates that the foreign acquisition of a Canadian company must offer a net benefit to Canada.

"This is a significant transaction with significant implications for the Canadian economy, both today and in the long term, and I think those considerations need scrutiny and they need some clear, long-term policy direction," said Harper.

"Our government will take the time we have to properly scrutinize this transaction, and to assess that – if it is to go ahead – that it will only go ahead if it is in the best long-term interests of the Canadian economy,” he added.

“Not just [the] net benefit of Canada, but in the best long-term interests of the Canadian economy. And that will be measured across a range of considerations.”

The U.S. government began raising objections as soon as the bid was announced.

High on their list of concerns is a matter brought forward by Democrat Edward Markey on July 30 regarding Nexen’s offshore oil operations in the U.S. and a piece of legislation known as the 1995 Deep Water Royalty Relief Act. Under that act, oil companies were offered royalty relief in exchange for investing in the Gulf of Mexico at a time when oil prices were relatively low.

Nexen took advantage of that opportunity.

According to Markey, the company hasn’t paid royalties on 32 million barrels of oil and 34 million cubic feet (mmcf) of natural gas that they have produced in the Gulf of Mexico as of May, 2012.

Markey suggested that that situation should have to be rectified for the U.S. government to approval CNOOC’s acquisition of Nexen.

"Giving valuable American resources away to wealthy multi-national corporations is wasteful, but giving valuable American resources away to a foreign government is far worse: it has the potential to directly undermine American economic and national security," Markey said in a letter to Treasury Secretary Timothy Geithner.

Greg Anderson, a political science professor at the University of Alberta, specializing in Canada-U.S. relations, international trade and finance, and U.S. foreign economic policy, thinks those concerns are something of a political smokescreen.

“It’s linked to this Keystone nonsense where they’re talking about gateway pipelines,” said Anderson, referring to the TransCanada Keystone XL pipeline project that is currently in limbo due to objections from south of the border and the Enbridge Northern Gateway project that is presently under regulatory review in Canada.

Keystone would ship Alberta oil sands bitumen to refineries in Texas. Northern Gateway would send that product to China and other Pacific Rim markets, including California.

“Keystone kind of goes down in flames, at least temporarily, and then all of a sudden the rhetoric changes: we’re going to build a pipeline to the west coast and ship it to the Chinese,” Anderson continued.

“And even though that is at best – as I understand it – at best a decade away, given all the hurdles that have to be managed on that front, First Nations and so on and so forth, that perks up ears in the U.S. congress.

“Whenever you play that card, then the national security hawks come out and they say, ‘Oh my god, the Chinese are taking over.’ And, to some extent, it’s part of what congress does. There’s a kind of great theatre quality to what the U.S. congress is up to most of the time. They like to fire off letters – grumpy letters – to the president, get members of the administration to come up to the hill and testify, so they can kind of embarrass them and puff out their chests and bang the gavel a little bit. So, some of it is much ado about nothing.”

Anderson doubts that congress has thought through all the implications of CNOOC acquiring a stake in the oil sands in Alberta and Horn River Basin shale gas in British Columbia as a result of buying Nexen, particularly in terms of those assets becoming preferred resources for a booming Chinese economy at a time when the U.S. is trying to ramp up oil and liquefied natural gas (LNG) exports to Asia.

“I sometimes question how bright some of the members of congress actually are, that they’ve actually played it out that far,” said Anderson.

“It could be sort of raising national security red herrings,” he continued. “It could be basic private sector concerns over who’s actually going to… get the benefits of extraction from different parts of North America.

“That’s just about money it seems to me.”

Anderson doesn’t seem to think that the U.S. government is going to be able to stop this deal, partly because of lessons learned by CNOOC after their failed bid to acquire Unocal, a California-based oil company, in a similar manner.

“That was a high profile attempted purchase anyway,” said Anderson. “And it raised hackles for exactly the same reasons. And I think the Chinese learned a little bit from that. They got burned by it. And so they’ve done things a little bit more slowly this time. And Nexen is not a gigantic firm, but it’s a stake in the oil sands, and it’s an important one for them.

“Ultimately, it’s a Canadian firm and a Chinese firm,” he continued. “And the bulk of the decision-making will happen here in Canada. And it’s not beyond the Harper government to stand in the way of things… Any time there’s a foreign acquisition like that, it’s always possible. But my guess is that Harper’s not going to stand in the way of this particular one.

“So, some of it is grandstanding and some of it is probably just about money. But I don’t think it’s going to stand in the way of ultimately this deal completing itself and going through.”

However, Anderson does admit that the mention of China acquiring a Canadian company does raise some eyebrows at home, too.

“I think everybody looks at the Chinese economy with some degree of mystery,” said Anderson. “It’s a bit opaque the way a lot of these firms run. And it’s unclear how arm’s length from the state they actually are in some cases. And so they’re not 100 per cent transparent in many respects. And so people get a little nervous about that.

“They see what a lot of Chinese firms are doing in Africa, for example, and elsewhere, and it’s a big resource grab in some ways. And so people kind of look at this and they wonder if these companies are just arms of the State and they’re just pursuing a state driven industrial policy of some kind. So, everybody’s a little nervous about that.”

Canadians are also nervous about China’s human rights record and skeptical of the idea that Canada can export its values along with its resources, an idea mentioned by Harper during a recent visit to the Asian nation.

“In some ways that is already happening,” said Anderson. “You look at the China of today versus thirty years ago and it’s completely different. I mean, the Chinese are trying to hold it together in terms of one state, two systems. So, you’ve got this… increasingly open capitalist system, but it remains to be seen whether or not you will ultimately have a liberalization of politics as well.”

Anderson suggested that concerns about such deals should not only exist in the U.S. in Canada, but that China also has to tread lightly as it continues to grow its economic ties to western democracies.

“They know they’re on a bit of a powder keg and they have to be really careful with the way this all gets managed,” he said. “Otherwise, the folks in the Communist Party are going to be done.”

Anderson noted that the risk to the Communist Party in China is explained by an idea known as modernization theory.

“The idea is that you have this initial opening in terms of economics,” he said. “And, ultimately, in order to have an open economic system, you have to have the free flow of information, and that includes political information. And so what kind of restrictions can you permanently maintain on the flow of information before it ultimately opens the politics as well.

According to Anderson, the decision will likely be made in favour of CNOOC because Nexen is not a large Canadian company on the scale of Encana or Canadian Natural Resources.

“Another reason I think the Harper crowd is not going to stand in the way of this is one is that Nexen is not doing so well and it could use the little boost,” he added.

Besides, the federal government likely isn’t as concerned with the origin of the investment money going into the oil sands as they are about the trickle down effects to other Canadian industries, not to mention the benefits of shipping that oil to Asian markets.

“I don’t think they care whether it’s ExxonMobil or Imperial Oil doing things up there or if it’s CNOOC,” said Anderson.

“Whenever you get CNOOC investing in Nexen, it suddenly makes people a little bit nervous. I mean, if it was a French company or a British company, nobody would bat an eyelash. But it’s a Chinese company and so everybody gets a little bit excited about it,” he said.

Yet the owners of the company have no bearing on how the company will operate when on Canadian soil.

“But all of that said, they’re going to have to operate under Canadian law. So, it’s not as if there’s going to be a conduit across the Pacific to China. I mean, they’re going to have to operate under the same rules that BP or ExxonMobil or any other foreign multinational in Canada have to operate under,” he said.

“In some ways there’s not that much cause for concern as long as they’re not breaking the law in Canada.”