Wednesday, November 10, 2010
Canada's foreign investment laws need a reboot, by Ken Lewenza
By Ken Lewenza, Special to The Windsor Star
Last week's decision by the federal government to block the hostile $40 billion takeover of Potash Corp. touches on a much deeper challenge facing Canadians. In the face of rampant globalization, Canada needs more tools to regulate foreign investment, to make sure that it helps our economy (rather than hollowing it out). The current Investment Canada Act does not do this; it's been mostly a rubber stamp since it was implemented in 1985. It should be scrapped and replaced with more powerful measures.
Indeed, the potash decision represents only the second foreign takeover ever turned down under the Investment Canada Act. The only other case was Ottawa's refusal to allow the sell-off of the space assets of MDA to a U.S. armaments giant in 2008. In that case, the CAW helped lead the opposition; that takeover would have badly undermined our already-weak high-tech capabilities. Ironically, it was the Stephen Harper government -- perhaps the most pro-business government in our history -- that blocked both of those takeovers.
I give full credit to Saskatchewan Premier Brad Wall for putting the broader issue of foreign takeovers once again squarely on the national agenda. He's a conservative, business-friendly politician, to be sure; and many of his policies have hurt working people in his home province. But this time he put the province's interests (and the country's) ahead of his own ideology. And in so doing, he did us all a favour, because our foreign investment policies are well overdue for a fundamental rethink.
The Investment Canada Act supposedly ensures that each takeover provides some kind of "net benefit" to Canada. But in practise that test has been applied so loosely it has become meaningless. Most takeovers aren't even reviewed, because they don't meet the thresholds under the Act. When reviews do occur, they are perfunctory, secretive, and unenforceable.
The philosophical presumption behind the Investment Canada Act is that foreign investment is generally a good thing, and Canada wants as much of it as we can get. This philosophy is hardly surprising. After all, the Act was the creation of Brian Mulroney's government -- the same one that brought us continental free trade. Only when a takeover struck a particular political nerve with Canadians, did it even get a second glance from the regulators.
The CAW is not opposed to foreign investment on principle. After all, our entire auto assembly industry is 100 per cent foreign-owned. Many other valuable, high-value sectors (from computers to aerospace to machinery) are also heavily foreign-owned. If a foreign company brings something to Canada that we don't have (such as technology, real capital equipment, engineering and design capabilities, and more), and if that company actually builds a business here (rather than just taking over one that Canadians built), then foreign investment is clearly beneficial.
But foreign investment has its drawbacks, too. It results in an outflow of profits and interest to foreign owners, dragging down our national balance of payments to the tune of about $40 billion per year. With foreign control, crucial decisions regarding the future of Canadian operations are made somewhere else. (We constantly face that challenge in the auto industry, where it's often a struggle just to get foreign-based executives to recognize Canada as a separate jurisdiction.) And it negatively affects the structure of our economy: Foreign investors have been interested more in our natural resources than anything else, reinforcing our backwards evolution as a resource supplier to the rest of the world.
To overcome those inherent costs and disadvantages, a foreign investor needs to demonstrate -- concretely, publicly, and enforceably -- that it will deliver other benefits that genuinely enhance Canada's economic capacities.
I get angry when business lobbyists and commentators (like last week's Economist magazine) denounce any measure to control foreign investment as "protectionist" -- as if it is somehow illegitimate for a government to protect its citizens' best interests. But it isn't emotion or "nationalism" that motivates our concern about takeovers. It's bread-and-butter economics. Because the reality, contrary to free-market doctrine, is that many foreign transactions do not benefit Canadians.
We learned the hard way from the huge takeovers that Investment Canada rubber-stamped during the last commodities upswing (including Falconbridge, Stelco, Alcan, and Inco) that Canadian facilities, and Canadian jobs, will be jettisoned by foreign executives the minute they need to cut capacity or reduce debt. Every one of those takeovers supposedly guaranteed a "net benefit" to Canada, according to Investment Canada. Yet every one hurt us, and badly.
Now is the time to abandon the presumption that foreign investment is inherently good. Instead, let's put in place the regulatory ability to separate the wheat from the chaff. We must screen foreign investments that are genuinely helpful, from those that aren't.
Ken Lewenza is National President of the Canadian Auto Workers.
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