Reference:

May 7 edition of the Telegraph-Journal (New Brunswick, Canada)

Janice Harvey


Give Them an Inch and They Take a Mile

by Janice Harvey

A couple of days after last week's column on the Multilateral Agreement on Investment (MAI) ran, this item appeared in the business section of this paper: "Canada losing export race to foreign businesses". The latest information from Statistics Canada shows that foreign-owned firms are dramatically increasing their share of the Canadian economy.

Exports now account for 37 percent of economic activity in Canada (up from 24 percent in 1990), undoubtedly the result of free trade arrangements with the United States. These numbers are touted as proof of the great success of free trade. They are the steroids Team Canada politicians and businessmen use to pump themselves up for their trade junkets. They are the economic miracle of this century.

They are the stuff of myth. The FTA and NAFTA opened the door to U.S. investment, dropping many of the barriers that in the past ensured some level of sovereignty over our domestic economy. Statistics Canada's recent report on foreign ownership shows that in 1995, the foreign-controlled share of corporate revenues earned in Canada hit 29.8 percent, up a full percentage point from the previous year and representing the greatest one-year increase in more than 25 years. This number reflects stronger revenue growth in foreign versus domestic firms (three times greater), foreign takeovers of domestic companies, and the privatization of some government operations. The major economic sectors implicated are wood, paper, chemicals, transportation and electronics.

According to Statistics Canada, foreign-controlled firms operating in Canada are a step ahead in the global marketplace because of their international affiliations. This automatically places them ahead of Canadian firms in the export race, as Canada's [economy] shifts from production aimed at the domestic market to production for the export market.

Free market proponents will argue that who owns revenue is moot as long as the economic activity is happening. Yet one only has to look at our stagnating domestic economy and associated unemployment figures to know that it does matter -- a great deal. Profits earned in Canada by foreign-owned companies don't stay in Canada, nor do foreign-controlled companies create stable jobs. Sure, we can all point to a few notable exceptions to this rule. But if it were generally true that an export-oriented economy dominated by foreign companies is good for Canada, our economic picture would look a whole lot different.

In fact, it might look a bit more like the United States, where unemployment has been in the 5 percent range -- half the Canadian level -- for the past year and is holding strong (to the chagrin of financial markets worried that a tight labour market will push up wages). The difference between the two countries, of course, is that the bulk of foreign companies operating in Canada are based in the U.S. Clearly the benefits of free trade and an export-oriented economy flow to the larger economy those foreign companies call home.

There is one blip in this good news story for foreign companies operating in Canada. They are unable to qualify for some of the tax breaks available to Canadian-owned companies and thus they bear a greater tax burden than their domestic counterparts. Which brings me back to the MAI. This preferential tax treatment for Canadian companies is exactly the type of annoyance foreign corporations want a Multilateral Agreement on Investment to abolish.

This tax situation would be covered under the National Treatment provision of the MAI, which would require countries to treat foreign investors at least as well as domestic firms, regardless of their competitive advantage in international markets (the level playing field is, of course, another myth perpetuated by free traders).

To refresh your memory on the MAI, it provides nothing less than a Charter of Rights and Freedoms for global corporations. It is designed to guarantee them a stable investment climate (no surprises), easy repatriation of profits (no special tax or re-investment obligations), open market access (no national ownership barriers), and freedom from any obligations to serve local economic needs wherever they choose to invest. At this point, the MAI is being negotiated by the 29 industrialized member countries of the OECD, including Canada. The intent is to open it up to all countries once finalized.

The MAI would make it easier for foreign investors to move assets across international borders, hastening job flight from industrialized countries and increasing pressure on all nations to compete for investment capital through lower wages and labour, environmental and consumer safety standards. It would prevent countries from limiting what foreign investors can own (such as natural resources or strategic industries) or from imposing any obligations on foreign investors (such as hiring local managers, creating jobs, sharing technological know-how, or using local suppliers). It would prohibit any national or provincial restrictions on the movement of capital, such as the "speed bumps" some counties use to require certain investments to stay put for a period of time, even if public subsidies have been provided, .

The MAI would restrict a country's ability to limit public subsidies to domestic companies, and at the same time prevent a country from making those subsidies conditional on corporate behaviour, thus undermining any corporate accountability laws. And it would allow corporations a direct role in enforcing the terms of the MAI, inviting widespread challenges to national and provincial laws that foreign companies might view as violating their "rights" as investors.

The Mulroney government signed trade agreements that are gutting our domestic economy, and entrenching high unemployment and flight of both capital and profits out of Canada. Statistics Canada confirms this in spades. Now the Chretien government is poised to deliver the knock-out punch in its complicity with the U.S. and Japan in moving the MAI forward. Foreign ownership percentages will only get higher, with predictable results. No amount of grandstanding and chest-beating about the wonders of an export-driven economy will change the fact that Canada as a nation is being relegated to the sidelines in favour of global corporate profits.

Canada's pandering to offshore investors has a powerful symbol in a local controversy. Enterprise Saint John, an economic development agency, has publicly announced it wants the Millidgeville North School as a high tech business park in order to lure new companies to the city. It is, apparently, ideal in location and design, perfect for those "image-conscious" high tech firms looking for a favourable climate in which to invest. The problem is, Millidgeville North School is now occupied -- by 700 students and teachers. That doesn't deter Enterprise Saint John, whose leader feels if a thousand jobs coming to the city would hinge on getting that location, well, the school should be sacrificed. While Education Minister Jim Lockyer has said the school is not for sale, I'm not so convinced. Very little of what Canadian society values has proven to be sacred in the face of, first, trade liberalization and now, under the MAI, protection of foreign capital and profits.

The MAI is an election (June 2, 1997) issue of utmost importance, yet you won't find Prime Minister Chretien soliciting your opinion on it. Better you offer it without waiting to be asked.


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