Thank you very much, and thank you for the opportunity to speak to this committee on a topic that's very much related to the research I've been doing for the last decade.
The Government of Barbados has sought to contribute to the academic discourse on international business, especially as it relates to the longstanding relationship between Barbados and Canada. This study is part of that initiative, and the ongoing analysis of that longstanding relationship will involve researchers and academics from the University of the West Indies and the Rotman School of Management and others.
The objective of this study was to look at the effects of that longstanding relationship between Canada and Barbados on the Canadian economy. The results of the study clearly establish that the Canada–Barbados relationship has in fact enhanced the global competitiveness of Canadian multinationals.
Policy changes that adversely affect this relationship would hurt those multinationals, but more importantly, policy changes that adversely affect that relationship would negatively affect the Canadian economy broadly based. There would be reduced Canadian trade, Canadian employment, and Canadian business investment. It is incorrect to assume that changes in that relationship would necessarily result in increased government tax revenue in Canada.
To put this discussion into a broader perspective, let me take you back to 1970. In 1970, for every dollar of investment Canadians had invested abroad, there was $4 invested in Canada. Canada was very much a host economy to foreign investment. Here we are 37 years later, when Canadian multinationals have more investment abroad than there is foreign investment in Canada. The pace at which Canadians have expanded abroad far outpaces the rate at which foreigners are investing in the Canadian economy.
When you dig deep into this data, two results clearly stand out that I think are very important for this committee to consider. First of all, when you look at the data, Canadian multinationals are increasingly locating outside the United States. Increasingly, multinationals are opening markets for Canadian exports in Latin America and East Asia and in Europe. Second, much of these investments is facilitated by conduit jurisdictions like Barbados.
The next point is incredibly important to make, and I'm going to try to say it as clearly as I possibly can. Because Canadian multinationals are going into increasingly unfamiliar environments outside the traditional market, the United States, they're faced with a lot of risk, a lot more risk than they would face when they went to their traditional markets. Therefore, it's very difficult for these Canadian multinationals to compete against companies from the United States and Europe that have longstanding relationships with these markets.
Allowing Canadian multinationals to access these markets through a conduit jurisdiction such as Barbados results in a reduction in the cost of capital for these multinationals that results in the multinationals being more competitive and therefore better able to compete in the global marketplace.
There's a widely held view that simply because a Canadian multinational uses the conduit jurisdiction and there's a tax benefit associated with it, somehow this is bad for Canada. Well, the study I've worked on and the study that was cited to this committee last week by Professor Hines from the University of Michigan clearly show that you need to go beyond that very simple view. The simple fact that there's a tax benefit associated with using these conduit jurisdictions does not mean that the use of these conduits is somehow bad for the Canadian economy.
I want to point out one important distinction between a tax haven and an offshore financial centre. In the handout I circulated to the committee, on page 6 there's a really nice quote from the OECD, which clearly states that Barbados is not a tax haven. There's a fundamental distinction between a tax haven and an offshore financial centre, and it's fundamentally important that, in creating policies that relate to offshore financial centres and tax havens, this distinction be well understood.
The final point I want to make is that when a Canadian multinational accesses an economy in Latin America, the impact on Canadian economic activity is significantly larger than if that Canadian multinational had gone directly to those markets. When a Canadian multinational goes to Latin America through a conduit such as Barbados, that Canadian multinational experiences a reduction in the cost of capital. It's more competitive, and this results in increased production within Canada to service those foreign markets. There will be increased Canadian trade, increased Canadian employment, and so on.
The last two points I want to make are these. The results indicate that changes in the current use of Barbados would hurt the Canadian economy, broadly based; there would be reduced Canadian trade; there would be reduced Canadian production. And furthermore, you cannot assume that tampering with that relationship will result in enhanced tax revenue for the Canadian government.
Thank you.