Mr. Speaker, I thank the member for Peterborough for his excellent speech and his excellent responses to questions.
I am pleased to have the opportunity to debate the importance of international investment to Canadians and to their continued prosperity.
Canada's and the world's economy has fundamentally changed over the past two decades. The dramatic reduction in communications and transportation costs, combined with successive rounds of trade liberalizations and countries' efforts to liberalize their investment regimes, have encouraged greater international competition for capital, technology and markets.
The growth in international flows of capital or foreign direct investment has significantly outpaced the growth of trade in GDP over the past two decades.
World inward investment more than doubled during the 1980s, more than tripled during the 1990s and may well quadruple by the end of this decade. This is a trend that Canadian firms and consumers benefit from, and I will explain how.
The benefits of foreign investment are well-established. First and foremost, foreign investment creates jobs for Canadians. Foreign investment fosters a more competitive domestic economy. Foreign companies investing in Canada create healthy competition for domestic firms, resulting in more efficient production that benefits consumers through lower prices and more innovative products and services. There is significant evidence that increased competition leads to greater use of new technologies among domestic manufacturing plants and that productivity spills over from foreign controlled plants to domestically controlled plants.
Foreign investment also provides Canadian companies linkages to markets. Foreign investment enables Canadian firms to be integrated into global value chains. More must be done to encourage the two way flow of foreign direct investment that helps to galvanize the global value chain. Canadian companies have increased their involvement in China and other overseas countries through contracts with foreign companies and by setting up facilities. Why? It is to tap into these fast growing economies, to secure these markets and to capitalize on Canadian and international advantages.
The vast majority of multinational enterprises driving the global investment trends are our historical trade and investment partners: the United States, Europe and Japan. Combined, they are the source of over 80% of global investments and the destination for two-thirds of global investments.
In addition to our traditional trade and investment partners, new competitors are entering the global stage, namely, China, India, Russia, Mexico and Brazil. With this rise, is the expansion of FDI from emerging economy multinationals. As a result, developing country investments abroad now account for one-tenth of global FDI.
My constituents of Oshawa know firsthand the benefits of FDI and international trade. In 1875, Colonel R.S. McLaughlin relocated his Canadian-owned McLaughlin Carriage Company to Oshawa. After developing a stable and profitable Canadian company, McLaughlin Carriage was sold to the U.S.-based automotive manufacturer General Motors, in 1918.
Since that time, General Motors has invested hundreds of millions of dollars into our region, creating hundreds of thousands of good paying jobs and investing millions into our community. Oshawa now boasts of hosting General Motors of Canada's national headquarters, Canadian Regional Engineering Centre, and North America's largest manufacturing facility. The results have been the development of a strong economy in the region, hundreds of millions of dollars in spinoffs and economic benefits, and a better community.
Granted, over our history there have been some tough times and job losses due to economic slowdowns and pressures from the vast global economy but my constituents and I know, wholeheartedly, the benefits that foreign direct investment by General Motors has brought to Oshawa.
As I have just explained, as an open economy, Canada benefits from international trade and investment. While we are witnessing that companies from around the world are increasingly becoming global in order to remain competitive and enhance their prospects for growth in output and employment, Canadian firms are doing the same and more so.
Over the years, increases in merger and acquisition activity have led to concerns about the hollowing out of Canada's corporate sector. A recent study by the Institute for Competitiveness and Prosperity looked at the number of Canadian globally competitive companies present in Canada in 1985 and the number we had in 2006. The study showed that we had 33 global leaders in 1985. The list included firms like Hiram Walker, Northern Telecom, Canada Malting and Bombardier, to name a few. If Canada is being hollowed out, one would expect that the number of such firms would have declined but the number of Canadian-owned globally competitive firms had grown to 72 by 2006, more than twice as many as we had in 1985. Firms added to the list include Research in Motion, Magna and MacDonald Dettwiler, firms that are recognized as world leaders today.
In fact, the report shows that Canada is growing globally competitive firms at a rate that exceeds the rate of foreign acquisitions. Based on this analysis, the institute has concluded that Canada is clearly not being hollowed out.
The findings of the institute's study are consistent with an earlier study by Statistics Canada. Statistics Canada analyzed trends in the number of head offices and head office employment in Canada between 1999 and 2005. It also finds little evidence that Canada is being hollowed out. In fact the report shows that the number of head offices in Canada and the amount of head office employment actually grew and that foreign controlled firms were the dominant force are driving this growth.
The report concludes that the effect of foreign ownership has not been to reduce the number of head offices in Canada, nor head office employment. As a result of foreign investment, more new head offices were created than lost and employment in head offices was as high after the merger or acquisition than had occurred before. In view of these facts, it is difficult to argue that foreign ownership of Canadian firms is associated with a falling number of head offices and declining employment opportunities.
Recognizing the importance of international investment flows into the country, Canada has a broad framework in place to ensure the efficient flow of investment, while at the same time protecting Canadian interests.
The Investment Canada Act is a key part of that framework. The act provides a mechanism to review significant acquisitions of Canadian businesses by non-Canadians and to determine if it will be of net benefit to Canada. I will take this opportunity to describe how the Investment Canada Act works.
The administration of the act is shared between two ministers and their respective departments. The Minister of Canadian Heritage is responsible for the review of investments involving cultural businesses and the Minister of Industry is responsible for the review of all other investments. Acquisitions are allowed only, when on balance, the transaction is likely to be of net benefit to Canada.
In making his determination, the act requires that the Minister of Industry consider the following factors: first, the effect of the investment on the level and nature of economic activity in Canada; second, the degree and significance of participation by Canadians in the Canadian business or new Canadian business; third, the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; fourth, the effect of the investment on competition within any industry or industries in Canada; fifth, the compatibility of the investment with national industrial economic and cultural policies, including those enunciated by a province; and sixth, the contribution of the investment to Canada's ability to compete in world markets.
As part of the review process, we consult with the federal government department with policy responsibility for the industy sector involved in the proposed acquisition, with the Competition Bureau and with all the provinces in which the Canadian business has substantial activities or assets. I can assure members that any investment reviews conducted under the act are done with such rigour and a view to ensuring that the interests of Canadians are promoted.
I will leave members with four main points today.
First, the Government of Canada recognizes the importance of foreign direct investment to the continued growth and prosperity of the Canadian economy and to Canadians' standard of living.
Second, while there may be a large number of high profile Canadian firms being acquired, the act allows us to ensure that these investments are beneficial to Canadians.
Third, detailed studies suggest that head office employment, particularly in foreign controlled firms rose between 1999 and 2005. FDI into Canada has been and continues to be beneficial.
Fourth, the Government of Canada is committed to ensuring that Canada continues to attract foreign investment in order to sustain economic growth and productivity.