Thursday, June 26, 2008


Allow more foreign investment, bank mergers in Canada: panel of experts says

OTTAWA — A government-appointed panel of experts has called for a major overhaul of Canada's investment and competition laws that would make it easier for foreign firms to buy Canadian companies.

The major recommendations would end a 10-year prohibition on bank mergers, essentially make only foreign takeovers of over $1 billion reviewable, and allow more foreign competition in the airline sector, telecommunications and uranium mining.

The 134-page report does not directly tackle the hottest topic facing the government on competition policy - national security and investments by state-owned enterprises - but does assume such a test will be enacted by government.

The panel was given a letter from Industry Minister Jim Prentice stating that the government would deal with the issue separately.

On most other matters, the report's 65 recommendations, plus sub-recommendations, place emphasis on opening the doors to foreign investment rather than closing them.

"The panel believes that Canada needs to be more open to competition, as competition spurs the productivity enhancements that underpin our economic performance and ultimately our quality of life," said chair Lynton (Red) Wilson in a release issued alongside the report titled Compete to Win.

The panel calls for increasing the threshold under which foreign takeovers would be reviewed under the Investment Canada Act to $1 billion from the current $295 million, an impact that would eliminate about two-thirds of buyouts that are reviewed.

And it recommends that the onus for determining that a foreign acquisition is to the net benefit for Canada should be shifted from the applicant to the government.

As well, the panel says the government should:

-Liberalize restrictions on foreign investment in air transport, uranium mining, and the telecommunications and broadcasting sectors.

-Remove the de facto ban on bank mergers.

-Allow foreign companies to own a telecommunications business as long as it does not have more than 10 per cent of market share in Canada.

-Increase limit on foreign ownership in the airline sector to 49 per cent.

-And establish a permanent Canadian Competitiveness Panel to encourage competition and report to Parliament annually.

As well, the panel urged all governments to reduce corporate and personal taxes, eliminate all internal barriers to trade and establish a national security regulator to replace the 13 different regulating bodies of the provinces and territories.

The government should use the immigration system to bring in more skilled workers, particularly in areas where Canada faces shortages, the panel said.

If enact, the measures could be as significant to the economy of Canada as the free trade agreement signed with the United Sates in the late 1980s, predicted Thomas D'Aquino, president of the Canadian Council of Chief Executives.

"This is sweet music to our ears," he said. "It's comprehensive, it's deep, its far reaching. It really is a phenomenal blueprint for taking Canada into the 21st century."

While some of the recommendations would be easier to enact under a majority government, Perrin Beatty of the Canadian Chamber of Commerce, a former Tory cabinet minister, said some need immediate attention.

"A lot of the recommendations can start right away," he said. "A good start is the Canada-U.S. border (restrictions to travel and trade). There's a problem there and it's growing daily on the border and we need to act."

One of the hardest selling points may be the overall underlying vision of the report, which appears to downplay concerns that domestically-owned enterprises are vulnerable to foreign acquisition.

The Wilson panel, named after the former BCE Inc. executive who heads it, was formed last July following a wave of foreign takeovers and attempted buyouts in recent years that had many Canadians concerned the country's business core was being hollowed out.

Over the past several years a number of iconic Canadian companies, including the Hudson Bay Company and Alcan Inc. have been bought up or been targets of foreign firms.

But the panel recommendations, if adopted by government, would have the effect of inviting more foreign investment into Canada rather than less.

Wilson said at a press conference following the release that those concerns were taken seriously by the panel.

Current financial conditions and tight credit markets make large leveraged buyouts more difficult today, he said.

"We decided it would not be in Canada's interests to try and erect more barriers, to play defence. It would serve our interests to make sure this economy is vibrant, competitive, productive and is participating in consolidation," he said.

"If you like, we prefer the game go to the other end of the rink."

D'Aquino said he too was concerned about foreign acquisitions, particularly if they involve the loss of headquarters in Canada, but said the way to deal with the issue is not through protectionism but by allowing Canadian firms to become big enough to compete globally.

"Why is it instead of Vale (do Rio Doce) in Brazil buying Inco, why did we not form a national Canadian giant?" he asked. "Part of the impediment was in our competition laws ... the national interest is that we don't put anyone in Canada at a disadvantage who wants to bulk up to be competitive."