National-security agencies counselled Ottawa against allowing a Chinese firm to take over a Montreal high-tech company, warning it would undermine a technological edge that Western militaries have over China, The Globe and Mail has learned.
“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,” said a national-security assessment prepared for cabinet by the Department of National Defence and the Canadian Security Intelligence Service in 2015.
The acquisition of ITF Technologies of Montreal by Hong Kong-based O-Net Communications is the focus of a growing controversy after Prime Minister Justin Trudeau’s government reversed a Harper cabinet order that sought to unwind this foreign purchase.
The Liberals, who have made deepening relations with China a key foreign-policy objective, cancelled the order for O-Net to abandon its purchase of ITF and instead said they will grant the Hong Kong firm a second chance to win national-security approval.
National security officials were particularly concerned about O-Net, according to a source familiar with the 2015 assessment, because they considered the Hong Kong firm effectively controlled by the Chinese state. A corporate presentation prepared by O-Net in 2015 indicates more than 25 per cent of its shares are owned by a company that is a subsidiary of Chinese state-owned China Electronics Corporation.
The review of this takeover conducted while the Harper government was in office in 2015 concluded the transaction would be “injurious to national security.”
In November, 2016, however, Ottawa under the Liberal government answered a legal challenge of the Harper cabinet decision by setting aside the divestment order and beginning a second national security review.
Innovation Minister Navdeep Bains’s office and department have declined to explain the about-face on the Chinese-takeover deal, citing national security and commercial confidentiality.
Deepening trade relations with China, including a free-trade deal, is a key foreign-policy objective for Mr. Trudeau, and the Liberals are also loosening restrictions on outside investment. Briefing notes prepared by Global Affairs for the Trudeau cabinet say China feels Canada’s national-security reviews unfairly target Beijing.
ITF, formerly Avensys, is a leader in “fibre-laser” technology that is used in telecommunications, data communications and industrial applications. Its website no longer displays information on military applications of its products, but an archived version of the site from 2015 shows ITF was offering “a range of robust, high-power components” that are military-grade for the defence market.
Sources familiar with the 2015 national-security assessment said that, in this case, it would not be possible for the buyer to take steps that would reduce or eliminate negative consequences of the transaction, which the government calls “mitigation.” The only option was for O-Net to unwind the takeover of ITF.
The security assessment did not elaborate on its reference to military use of laser technology. Directed-energy weapons using fibre lasers are part of what analysts describe as a growing market, and the leading companies are in North America.
Mr. Bain’s office did not respond to a request for comment this week when asked about the cabinet briefing document, and O-Net’s lawyers declined to make a statement.