Canada's new way with foreign investors

Canada has long had the highest level of foreign ownership and control of industry among industrial nations. Currently almost 20 percent of our industry is foreign controlled and in certain specific industries this figure is much higher. This compares to 3 percent for the United States and an even lower figure for Japan. In some other industrialized countries foreign control of industry is so insignificant that it is not officially recorded.

Because of the magnitude of foreign investment, Canadians have had to ensure that new foreign investors conduct their affairs in a manner not detrimental to Canadian economy as a whole.

Let me give you an example of how foreign control over Canadian industry can hinder Canada's capacity to export. There have been cases where foreign-owned businesses have abstained from pursuing export opportunities in circumstances where their Canadian-owned competitors experienced considerable success in selling abroad. Such export inactivity by foreign controlled firms, if practiced on a large scale, could have a significant adverse effect on Canada's merchandise trade balance and economic performance.

This is one of the concerns which the Foreign Investment Review Act is designed to address, in relation to new direct investment coming into Canada. I should emphasize the FIRA applies only to direct foreign investment and covers only the establishment of a new business in an unrelated field or to the takeover of an existing Canadian business. Expansion of existing investment, new investment into a related field, and portfolio investment are not covered by the Act. In fact, FIRA review applies only to between 5 per-cent and 10 percent of the annual growth of foreign investment in Canada.

The act is not designed to prevent foreign investment from entering Canada, but to maximize the benefits therefrom. The fact that over 90 percent of cases reviewed to date have been approved demonstrates that this is not only the intent, but also the result of the Act.

While Canada has a formalized foreign investment screening process administered by a single agency, most other OECD countries, including the US, have a variety of investment restrictions, approval processes, requirements, and informal administrative practices, which control or restrict foreign direct investment. Generally, they are diverse and diffused in a variety of legislation and a range of formal and informal administrative procedures.

The diffuse approach of most other industrial countries compared with the more comprehensive administrative system in Canada reflects a distinction more of form than of substance, with little difference in the impact or restrictive effect upon incoming foreign direct investment. For example, while the US is relatively open in terms of foreign investment, there are a number of sectors where foreign control is prohibited or regulated - e.g. coastal shipping, domestic air carriers, radio, television and telecommunications, nuclear power generation, and many defense contracts. Numerous states have restrictions on foreign investment in specific sectors. Apart from outright prohibitions, the US also has indirect controls on foreign investment, including anti-trust laws, congressional lobbying, and monitoring by such bodies as the Committee on Foreign Investment.

My point in mentioning the practices of other countries is to emphasize that it is important to keep FIRA in perspective.

While we have no apologies for the existence of FIRA, we recognize that there has been much criticism leveled at the administration of the act. Since we in Canada are as concerned about ensuring that Canada remains in fact, as well as in perception, an attractive market for foreign investment, we are attempting to render the approach more positive without sacrificing the principle. We are making it work better.