Canada, Investment, and the Multilateral Agreement on Investment Business: Sectoral Implications

November 25, 1997

Thank you Mr. Chairman. It is a great pleasure for the Business Council on National Issues (BCNI) to have the opportunity to address your sub-committee.

The Business Council is composed of the chief executives of Canada’s largest enterprises — enterprises that collectively are responsible for the great majority of the country’s private sector investment, exports, and research and development. Tom d’Aquino, the President and Chief Executive of the Business Council, asked me to pass on his personal regrets at not being able to be here today. Time pressures related to BCNI’s hosting of the APEC CEO Summit, which concluded yesterday in Vancouver, prevent him from being here today.

I will address the specific theme of today’s discussion in a moment, but wanted first to outline for you the Business Council’s general views towards investment and the MAI.

CANADA, INVESTMENT, AND THE MAI

The Business Council strongly supports an active Canadian participation in the ongoing negotiations in Paris on a Multilateral Agreement on Investment. The principles Canada is pursuing there are the right ones. As a mid-sized country highly dependent on both trade and investment flows for its continued economic development, Canada stands to benefit from appropriate multilateral rules which would increase the security and protection of investors and their investments.

As a nation, Canada strikes a near balance between being both a major capital importer and capital exporter. In 1996, the total stock of foreign direct investment in Canada was approximately $180 billion, while Canadian foreign direct investment abroad was approximately $170 billion.

Canada … including Canadian firms, employees, and governments … all stand to benefit from improved disciplines governing the treatment of foreign direct investment.

With regard to inward investment, recent studies have indicated that for each billion dollars invested over a five year period in Canada, something in the order of 45,000 jobs are created. Canada’s attractiveness as a location for foreign direct investment would unquestionably be improved if Canada were to be a party to a Multilateral Agreement on Investment which incorporated non-discrimination as its main principle. The gains in terms of the acquisition of advanced technology and new knowledge and management skills are not easily quantifiable, but probably of even greater importance.

Non-discriminatory treatment for Canadian firms investing abroad is equally important. In order to remain competitive, both at home and abroad, Canadian firms need to be more and more active globally. Discriminatory investment barriers against Canadian firms harm their ability to compete on an equal basis with others, and thereby to grow. A Multilateral Agreement on Investment could help to remove some of these investment barriers.

The Business Council recognizes that these negotiations, involving all 29 OECD members, are extremely complex and that the details of the negotiations across a broad range of areas are still being worked out.

The core objectives that the Business Council continues to seek in these negotiations remain the following:

For Inward Investment

That the MAI contributes to job creation, income growth, transfer of technology and management skills, and increased government revenues;

For Outward Investment

That the MAI contributes to a significant reduction in the barriers to investment facing Canadian firms, allowing them to remain competitive in the international economy, and in the process to create more and better paying jobs in Canada.

KEY STUMBLING BLOCKS TO AN AGREEMENT

The Business Council has followed the course of the negotiations closely. We see a number of outstanding issues as being of critical importance. They include:

The "REIO" clause. The European Union has been pressing for a general exception for regional economic integration agreements (REIOs). Such an exception would permit members of a REIO to discriminate against non-members in the treatment accorded investors and investment. Were such a clause to be included in the MAI, it would undermine a critical rationale for Canada participating in these talks. It needs to be rejected firmly.

Linked (in a negotiating sense) to EU efforts to obtain a special REIO clause are calls from the Europeans for "sub-national" levels of government to be included in the agreement. Canada, the United States, and Australia, all federal states where the sub-federal levels of government have jurisdictional authority over broad areas of investment policy, have yet to indicate their intentions clearly here.

From BCNI’s perspective, the exclusion of the "REIO" clause, combined with the inclusion of sub-national commitments, would be the optimum negotiated outcome possible. Canada’s negotiators should be working in this direction, if they are not already.

The ongoing dispute over the United State’s Helms Burton Act, and how it might be played out within the MAI, and disappointing commitments to date with regard to taxation issues, will also require our continued attention.

Finally, the recent postponement of a vote on a bill to grant the United States President fast-track negotiating authority has cast a pall of uncertainty over the ability of United States negotiators to deliver on any negotiated trade and investment agreements, including the MAI.

SECTORAL IMPLICATIONS FOR BUSINESS

Turning now to the sectoral implications for business of an MAI, we are concerned that within the services sector as a whole, an overlap in commitments and rules between the WTO and possible new commitments and rules in the MAI could quite possibly lead to the end result of no new liberalization commitments.

The problem, as we see it, is the following:

Over 60 percent of new investment flows take place in services industries, and indeed the greatest bulk of investment barriers are in these much more regulated services industries. Multilateral rules already exist in this area, under the rubric of the WTO General Agreement on Trade in Services (GATS). One of the few general obligations of the GATS is the requirement on the part of all parties to extend most favoured nation treatment (MFN) to all WTO Members (in essence what this means is that any liberalization measures granted any other country also be granted to WTO members). The only means to avoid compliance with this general obligation would be for a WTO member:

1. 
   

   to have taken what is termed an "MFN exemption" at the time of the conclusion of the Uruguay Round, or

   
   
2. 
   

   to be part of an economic integration agreement (such as the EU or NAFTA).

The reality of this rule overlap (in effect the overlap between existing investment rules and commitments under the WTO Services Agreement and the potential rules and commitments of the MAI) is apparently leading most OECD delegations involved in the MAI negotiations to the position that they cannot afford to legally bind liberalization in services industries, since they would have to provide this same measure of liberalization to other non-OECD WTO Members, without obtaining anything in return from these non-MAI signatories.

Equally worrisome, this rule overlap may also be serving as a disincentive for non-OECD countries to accede to the MAI since they might well calculate that as far as services are concerned, they could obtain all the benefits of MAI liberalization commitments (using the WTO/GATS mfn rule to obtain these), without having to meet the obligations of the MAI.

We are aware that efforts have been made by the negotiating parties to deal with this problem, but that it remains outstanding. We can only urge a speedy resolution to this problem; without one we fear that there might never be any real investment liberalization in the services sector under the rubric of the OECD.

In specific business sectors, we have been operating on the assumption that the Canadian government will be requesting similar types of exceptions and reservations to those which it obtained in the NAFTA. This includes those relating to the agriculture, automotive, business services, energy, uranium, fisheries, air, land, and water transportation, cultural, telecommunications and financial services sectors.

It is difficult if not impossible for the Business Council to comment today on the key question of barriers to Canadian investment abroad, as we have not had the opportunity to see or analyze the proposed reservations and exceptions of other OECD players, and how these might impact on Canadian business interests. It is of course only when the final list of exceptions and reservations are known that a fully informed judgment can be brought to bear on the specific sectoral impact of an MAI deal on Canadian business.

Suffice it to say that the Business Council will be looking for real improvements in the treatment accorded to Canadian foreign direct investment abroad. This is particularly the case if, as we understand it, the government is preparing to offer its other OECD negotiating partners essentially NAFTA treatment. This represents significant liberalization on the part of Canada vis a vis its OECD partners. We therefore expect balancing liberalization commitments from our negotiating partners.

This concludes the Business Council’s formal statement before the committee today. I would be happy to answer any questions the committee may have regarding matters in the statement, or indeed any other issues related to investment and the MAI.