Foreign Ownership DOES Matter

I’ve pasted in below a letter to Ministers Bernier and Flaherty re the just-announced review of the Foreign Investment Act and foreign take-overs of large Canadian corporations. Links to the two research studies cited in the letter showing that foreign ownership of large internationally-oriented corporations does matter in terms of impacts on the Canadian economy can be found at the end.

July 13, 2007

The Honourable Maxime Bernier
Minister of Industry
House of Commons
Ottawa K1A 0A6

The Honourable James Flaherty
Minister of Finance
House of Commons
Ottawa K1A 0A6

Dear Ministers Bernier and Flaherty:

The Canadian labour movement views with great concern the recent surge in foreign take-overs of large Canadian corporations. We are convinced that this works against our long-term interests as a country.

As argued below, the evidence shows that Canadian ownership matters. Research shows that Canadian-owned companies which operate internationally make a much more positive contribution to our economy and to the quality of jobs than do foreign-owned transnational corporations operating in Canada.

We welcome the review of the Investment Canada Act which you jointly announced yesterday, and note that the Panel “will examine whether the Act’s net benefit test is designed appropriately to capture the range of benefits that are crucial to Canada’s economic success.” We hope that the Panel will consult widely on this issue and also examine closely the current process of foreign investment review. This takes place entirely behind closed doors, and has never resulted in a decision to block a foreign take-over.

If the test of “net benefit” to Canada is truly to be applied, there must be open hearings in which the concerns of workers and communities are heard, and not just corporate representations. Further, conditions should be imposed on take-overs to ensure Canadian benefits as they are needed, and these conditions should be made public along with measures
to ensure compliance. If there are no demonstrated net benefits to Canada, applications for take-overs should be rejected.
Given that the review of the Investment Canada Act will not be completed until next June, we call on you to support a more public review process for the proposed foreign take-over of Alcan which raises many issues of concern.

With respect to the issues of substance raised by foreign take-overs, we acknowledge that not all take-overs are bad, and that many transnational corporations operating in Canada make a positive contribution to our economy. However, it is highly simplistic to view high levels of foreign ownership as generally a positive for Canada in a changing global economy.

It is often argued that foreign-owned corporations have higher productivity and sustain better jobs than Canadian corporations. However, many Canadian companies are small and largely confined to the domestic market. The really important comparison is between foreign-owned transnational corporations operating in Canada, and Canadian-owned firms which operate both in Canada and internationally. This is the case with most of our large companies, such as Alcan, Inco, and Falconbridge, which have been or are now being taken over as part of a new wave of international consolidation.

A 2005 Statistics Canada study of the manufacturing sector found that “foreign-controlled plants are more productive, more innovative, more technology intensive, pay higher wages and use more skilled workers.” However, the study also determined that “this foreign-ownership advantage is found to be a multinational advantage… Canadian multinationals are as productive as foreign multinationals.” (J. Baldwin and W. Gu, “Global Links: Multinationals, Foreign Ownership and Productivity Growth in Canadian Manufacturing”).

A major 2006 study jointly undertaken by the Conference Board of Canada and the Quebec-based CRIMT research network systematically compared foreign corporations operating in Canada with Canadian-owned companies which operate internationally. (“Employment Practices in Multinational Companies in Canada”). While performance and practices vary widely within both groups of companies, systematic differences emerge.

Foreign-owned corporations are less likely to maintain a head office in Canada (37% have no head office or Canadian regional office) and they are less likely to join networks of firms in Canada, including networks of firms engaged in labour market issues and training. They are less likely to perform research and development in Canada, and less likely to participate in research and development partnerships with Canadian universities. They are also more oriented to the Canadian and North American markets than internationally-oriented Canadian companies. A significant proportion of foreign-owned companies are very tightly controlled from outside the country, and have little scope to shape their employment practices to Canadian conditions.

The authors of this study conclude that Canadian ownership does matter, and that the ability of Canada to benefit from a more global economy is maximized through domestic ownership of internationally-oriented corporations.

There is growing concern among Canadians over the take-over of many of our leading companies. We trust that these concerns will be reflected in the review of the Investment Canada Act, and that you will not wait to ensure that take-overs such as that of Alcan are comprehensively reviewed.

Yours truly,

Kenneth V. Georgetti
President

c.c. The Hon. Stéphane Dion, Leader of the Opposition
Gilles Duceppe, Leader of the Bloc Québcois
Jack Layton, Leader of the New Democratic Party

References

J. Baldwin and W. Gu, “Global Links: Multinationals, Foreign Ownership and Productivity Growth in Canadian Manufacturing.” Statistics Canada. 2005.

http://www.statcan.ca/bsolc/english/bsolc?catno=11-622-M2005009l
Jacques Belanger et al Employment Practices in Multinational Companies in Canada. CRIMT. 2006

http://www.crimt.org/PDFs/CRIMT_Report_on_MNCs_in_Canada_September_2006.pdf

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