States Policies and MNCs Selected Cases—Canada, Japan, & LDCs !Focuses on a comparative assessment of past and present policies in a country/region specific context, including Canadian initiatives like the Foreign Investment Review Agency and National Energy Program, the evolution of Japanese FDI out of pioneering initiatives like Import Substitution Industrialization, and attempts to emulate these policies elsewhere. !

ReadingsDavid Leyton-Brown, “Canadianizing Oil and Gas: The National Energy Program, 1980-83,” and Peter Dobell, “Reducing Vulnerability: The ‘Third Option,’” from Don Munton & John Kirton, eds., Canadian Foreign Policy: Selected Cases. !Kenichi Miyashita and David Russell (1994) chapters 1 and 2, from Keiretsu: Inside the Hidden Japanese Conglomerates, New York: McGraw Hill. !John Madely (1999) chapters 1 & 2 Big Business, Poor Peoples, London: Zed books. !!

Investment Policy in Canada and Canadian MNCs

In Search of Canadian Investment Policy (part one)

• Can Canada have an industrial policy? • 1960s-1970s NDP “Waffle faction” • Silent Surrender, Kari Levitt • An overstated view • Foreign ownership constrains, but does not

control Canadian economy

Extraterritoriality

• “Canadian” subsidiaries of US firms subject to American trade laws & policies !

• Canadian response: FEMA 1985

Canadian Policy “Options”

1. Regulation 2. Public ownership 3. De-regulation

Regulation

• Most states “regulate” FDI in some way • Canada has favoured a flexible strategy • 1973-4: FIRA • Grew out of “Gray Report” • 1972: minority Liberal government

FIRA

• Central agency • Considered:

– Kind of product – Kind of technology – Sources of finance – Plans for research, development, & expansion

Core goal/mandate of FIRA

“to block those investments that increase the market share of the MNC (in Canada) without making a substantial contribution to economic growth”

2. Public Ownership

• Regulation cannot change an essentially colonial relationship

• Public ownership only effective response • Can be achieved through nationalization

strategies (especially in strategic sectors like resources or finances)

• Can be achieved through gradual buyouts

The National Energy Program (NEP)

• Introduced October 28, 1980 • Three broad goals 1. Energy security ! 2. Pricing fairness & revenue

sharing ! 3. Increased Canadian participation in oil

& gas industry

Mechanisms

• Price controls & taxation measures • Creation of a Canadian Crown Corporation

(Petro-Canada) • Development of the Crown Interest

provision • Any new company with a lease on Canada Lands

had to yield a 25% equity in that lease

Bad timing

3. De-regulation

• Trade & investment liberalization of the 1980s

• 1984: Mulroney forms majority government • Spells end of FIRA & NEP • Culminates in FTA of 1989 • Post-1989: marked increased in IFDI in

Canada

Overall patterns to IFDI in Canada

• High level of US FDI in Canada a constant of Canadian economy in every era

• Has declined from historic high of 86% of all IFDI in 1950, to roughly 57% of IFDI today

• Canada in 1960s received 31% of total US FDI • Today Canada receives about 15% of total US

FDI • Suggests a diversification in IFDI in Canada

• In absolute terms, IFDI in Canada continues to rise

• In relative terms, however, Canada a declining host of global FDI

• In 1967 18.2% of global FDI went to Canada

• Today 8% of global FDI comes to Canada

In Search of Canadian Investment Policy (part two)

• Canadian MNCs face relatively small domestic economy

• CDIA (Canadian Direct Investment Abroad) seeks to exploit economies of scale & new markets

• Inward & outward FDI unbalanced in favour of IFDI (ratio of .74)

• But vastly improved from 1970 (ratio of .25)

CDIA concentrated in US

• US the traditional market for CDIA • 58% of CDIA goes to US • 30% of CDIA goes to Europe • Canada 3rd largest investor in US • CDIA highly concentrated

– Resource & resource-based manufacturing (wood, paper, mining, smelting about 40%)

– Financial services (banking, finance, insurance, real estate)

– Technology-intensive industries (e.g. communication equipment)

General Points about Canadian MNCs

• Of the 1,000 largest MNCs in North America, 823 are American, 158 Canadian, and 19 Mexican

• Only 15 Canadian MNCs in the top 500 global companies

21

Canada's biggest companies by 2013 revenue (source: Financial Post) !!

Suncor Energy Inc., Calgary Royal Bank of Canada, Toronto (Oc13) Magna International Inc.*, Aurora, Ont. Alimentation Couche-Tard Inc.*, Laval, Que. (Ap13) The Toronto-Dominion Bank, Toronto (Oc13) George Weston Ltd., Toronto Enbridge Inc., Calgary Imperial Oil Ltd., Calgary Power Corp. of Canada, Montreal The Bank of Nova Scotia, Halifax (Oc13) Onex Corp.*, Toronto Caisse de dépôt et placement du Québec, Quebec City Husky Energy Inc., Calgary Walmart Canada Corp., Mississauga, Ont Brookfield Asset Management Inc.*, Toronto Bank of Montreal, Montreal (Oc13) BCE Inc., Verdun, Que. Bombardier Inc.*, Montreal Manulife Financial Corp., Toronto Cenovus Energy Inc., Calgary Empire Co. Ltd., Stellarton, N.S. (My13) Canadian Imperial Bank of Commerce, Toronto (Oc13) Costco Wholesale Canada Ltd., Nepean, Ont. (Au13) Agrium Inc.*, Calgary Canadian Natural Resources Ltd., Calgary Catamaran Corp.*, Schaumburg, Ill. Sun Life Financial Inc., Toronto Thomson Reuters Corp.*, New York

Rio Tinto Alcan Inc.*, Montreal Rogers Communications Inc., Toronto Barrick Gold Corp.*, Toronto Air Canada, St-Laurent, Que. Valero Energy Inc., Montreal Hydro-Québec, Montreal (De12) Canadian Tire Corp., Ltd., Toronto Honda Canada Inc., Markham, Ont. (Mr13) TELUS Corp., Vancouver METRO INC., Montreal (Se13) Canada Mortgage and Housing Corp., Ottawa (De12) Canadian National Railway Co., Montreal McKesson Canada Corp.*, St-Laurent, Que. CGI Group Inc., Montreal (Se13) Direct Energy Marketing Ltd., Toronto Novelis Inc.*, Atlanta, Ga. (Mr13) Federated Co-operatives Ltd., Saskatoon (Oc13) Teck Resources Ltd., Vancouver Ford Motor Co. of Canada, Ltd.*, Oakville, Ont. Cargill Ltd., Winnipeg (My13) TransCanada Corp., Calgary The Jim Pattison Group, Vancouver

Controversies• Canadian mining companies easily worst offenders in

environmental, human rights and other abuses around the world says global study in 2010 (Canadian Centre for the Study of Resource Conflict, an independent, non-profit think tank)

• this report never made public • “Of the 171 companies identified in incidents involving mining

and exploration companies over the past 10 years, 34 per cent are Canadian,” Toronto Star, Oct 19, 2010

• gold, copper and coal mining hotspots • most “extreme” incidents reported: India, Indonesia, the

Philippines and the Democratic Republic of Congo • but majority of issues reported in Latin America, followed by

sub-Saharan Africa, and Southeast Asia

Is there a Canadian policy of CDIA?

• little perceived need for an overarching policy • Canadian FDI generally viewed as trade-enhancing (not trade-

displacing) • Canadian FDI also does not appear to come at the expense of

domestic investment • “policy” largely reactive • e.g. Harker Commission Report Feb, 2000 to Foreign Affairs Min.

Axworthy • high-level report on international oil industry, including Canada's

Talisman Energy Inc concluding that Talisman was helping to prolong the civil war in Sudan

• recommended Talisman should be forced to uphold its human rights obligations but did not recommend sanctions

• in general: Ottawa neither officially discourages or encourages CDIA

Political considerations

• Canada’s role as a major source of IFDI tends to shape & constrain its view of CDIA

• Tendency toward corporate neutrality • Business not the business of government • Why? • Guyana & Alcan: case study

Lack of central coordination among government departments & agencies

• Different areas of policy relevance (Foreign Affairs, Industry Trade & Commerce, Finance, National Revenue, Energy Mines & Resources, Immigration)

• 1970s saw numerous attempts to streamline & rationalize bureaucracy

Official “support” for CDIA? Two Limited examples

1. CIDA (formerly EAO 1960) • Semi-autonomous agency under Foreign

Affairs • Primary mandate is AID but has supported

some CDIA initiatives in recent years

2. EDC • Form of official insurance for certain types of FDI • Introduced in 1969 as the Foreign Investment

Guarantee Programme • Guarantees limited to “certain defined political

risks” • FDI must benefit home & host state alike

Conclusions

• Inward & outward FDI in Canada characterized by official policy ambivalence

• From 1980s onward IFDI characterized by liberalization & CDIA characterized by highly limited & conditional support