CANADIAN FOREIGN INVESTMENT SCREENING PROCEDURES AND THE ROLE OF FOREIGN INVESTMENT INTHE CANADIAN ECONOMY HEARINGS BEFORE THE SUBCOMMITTEE ON INTER-AMERICAN ECONOMIC RELATIONSHIPS OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETY-FOURTH CONGRESS FIRST AND SECOND SESSIONS DECEMBER 16, 1975, AND JANUARY 26 AND 27, 1976 Printed for the use of the Joint Economic Committee U.S. GOVERNMENT PRINTING OFFICE 71-507 0 WASHINGTON: 1976 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price $2.50 JOINT ECONOMIC COMMITTEE [Created pursuant to sec. 5(a) of Public Law 304, 79th Con.] HUBERT H. HUMPHREY, Minnesota, Chairman WRIGHT PATMAN, Texas, Vice Chairman SENATE HOUSE OF REPRESENTATIVES JOHN SPARKMAN, Alabama RICHARD BOLLING, Missouri WILLIAM PROXMIRE, Wisconsin HENRY S. REUSS, Wisconsin ABRAHAM RIBICOFF, Connecticut WILLIAM S. MOORHEAD, Pennsylvania LLOYD M. BENTSEN, JR., Texas LEE H. HAMILTON, Indiana EDWARD M. KENNEDY, Massachusetts GILLIS W. LONG, Louisiana JACOB K. JAVITS, New York CLARENCE J. BROWN, Ohio CHARLES H. PERCY, Illinois GARRY BROWN, Michigan ROBERT TAFT, JR., Ohio MARGARET M. HECKLER, Massachusetts PAUL J. FANNIN, Arizona JOHN H. ROUSSELOT, California JOHN R. STARK, Executive Director SENIOR STAFF ECONOMISTS JERRY J. JASINOWSKI JOHN R. KARLIK LOUGHLIN F. McHuGo COURTENAY M. SLATER RICHARD F. KAUFMAN, General Counsel ECONOMISTS WILLIAM R. BUECHNER WILLIAM A. Cox Lucy A. FALCONE ROBERT D. HAMRIN SARAH JACKSON L. DOUGLAS LEE RALPH L. SCHLOSSTEIN GEORGE R. TYLER LARRY YUSPEH MINORITY GEORGE D. KRUMBHAAR, Jr. (Counsel) M. CATHERINE MILLER SUBCOMMITTEE ON INTER-AMERICAN EcoNoMIc RELATIONSHIPS JOHN SPARKMAN, Alabama, Chairman SENATE HOUSE OF REPRESENTATIVES LLOYD M. BENTSEN, JR., Texas GILLIS W. LONG, Louisiana EDWARD M. KENNEDY, Massachusetts LEE H. HAMILTON, Indiana ROBERT TAFT, JR., Ohio MARGARET M. HECKLER, Massachusetts PAUL J. FANNIN, Arizona JOHN H. ROUSSELOT, California (II) CONTENTS WITNESSES AND STATEMENTS TUESDAY, DECEMBER 16, 1975 Long, Hon. Gillis W., acting chairman o' the Subcommittee on Inter- Page American Economic Relationships: Opening statement- 1 Bennett, Roy F., president and chief executive officer, Ford Motor Co. of Canada, Ltd 2 Clarkson, Stephen, professor of political science, University of Toronto, Toronto, Canada-6 Murray, J. Alex, professor of international business, University of Windsor, Windsor, Canada -17 Petty, John R., partner, Lehman Bros., Inc -33 MONDAY, JANUARY 26, 1976 Long, Hon. Gillis W., acting chairman of the Subcommittee on Inter- American Economic Relationships: Opening statement -53 Fayerweather, John, professor of management and international business, New York University -66 Globerman, Steven, professor of economics, York University, Toronto, Canada -70 TUESDAY, JANUARY 27, 1976 Long, Hon. Gillis W., acting chairman of the Subcommittee on Inter- American Economic Relationships: Opening statement -133 Vine, Hon. Richard D., Deputy Assistant Secretary of State for European Affairs, Department of State, accompanied by John H. Rouse, Jr., Director, Office of Canadian Affairs -134 SUBMISSIONS FOR THE RECORD TUESDAY, DECEMBER 16, 1975 Clarkson, Stephen: Prepared statement -11 Murray, J. Alex: Tables: I. Canadian issues that are most important at the present time, 1974-75 -20 II. Opinion as to whether American ownership of Canadian companies has a good effect or a bad effect on our economy -21 III. Reasons for believing that American ownership of Canadian companies is a good thing for the Canadian economy 22 IV. Reasons for believing that American ownership of Canadian companies is a bad thing for the Canadian economy-- 23 V. Percent of a national sample who view foreign investment as a serious problem, 1974-75, by region -24 VI. Proposed solutions to the foreign investment problem, 1974. 24 VII. Percent of a national sample who would be willing to ac- cept a lower standard of living for more control over their economy, 1973-74 and 1974-75 -25 VIII. Preferences of a national sample of Canadians for three foreign policy options, by Province, 1974-75 -26 IX. Percentage who feel that Canada should have more trade agreements with the United States like the Canadian- American automotive pact -27 Chart showing percent indicating that United States investment in the Canadian economy is a "bad thing," 1969-73 - -28 Prepared statement of J. Alex Murray and Lawrence LeDuc -28 (m) IV MONDAY, JANUARY 26, 1976 Fayerweather, John: Article and cartoon from the January 29, 1811, issue of the Kingston Gazette, reprinted in the "Canada Today D'Aujourd'hui," a Cana- Page dian Government publication -82 Study entitled "Elite Attitudes Toward Multinational Firms," from the December 1972 issue of the International Studies Quarterly- 90 Articles: "Nationalism or Continentalism? Canadians React to U.S. Investment," from the September-October 1973 issue of Challenge-the Magazine of Economic Affairs -109 "Canadian Attitudes and Policy on Foreign Investment," from the winter issue of MSU Business Topics - 116 Globerman, Steven: Prepared statement - 73 Long, Hon. Gillis W.: Prepared statement of Thomas M. Franck, professor of law, New York University -54 APPENDIX Written statement of Thomas M. Franck, professor of law, New York University Law School, and director, international law program, the Carnegie Endowment for International Peace - 147 Letter to Acting Chairman Long from Hon. Richard D. Vine, Deputy Assistant Secretary for European Affairs, Department of State, dated February 6, 1976, with an enclosure, regarding Canadian investment in the United States -183 Essay entitled "Canadian-United States Corporate Interface and Trans- national Relations," by Isaiah A. Litvak and Christopher J. Maule, professor and associate professor of economics and international affairs, respectively, Carleton University, Ottawa - 193 Speech entitled "National Independence-Issues and Alternatives," by R. M. MacIntosh, executive vice president, the Bank of Nova Scotia, at the Outlook and Issues 1976 Conference, Ontario Economic Council, Hotel Toronto, Ontario, March 15, 1976 - 214 Letter to Acting Chairman Long from P. J. Lavalle, president, Automotive Parts Manufacturers' Association of Canada, dated December 17, 1975, with an enclosure, regarding the state of the automotive industry in Canada - 227 CANADIAN FOREIGN INVESTMENT SCREENING PROCEDURES AND THE ROLE OF FOREIGN IN- VESTMENT IN THE CANADIAN ECONOMY TUESDAY, DECEMBER 16, 1975 CONGRESS OF THE UNITED STATES, SUBCOMMITTEE ON INTER-AMERICAN ECONOMIC RELATIONSHIPS OF THE JOINT ECONOMIC COMMITTEE, Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 2257, Rayburn House Office Building, Hon. Gillis W. Long (acting chairman of the subcommittee) presiding. Present: Representative Long. Also present: Sarah Jackson and John R. Karlik, professional staff members. OPENING STATEMENT OF REPRESENTATIVE LONG, ACTING CHAIRMAN Representative LONG. The hearing will come to order, please. This morning the Subcommittee on Inter-American Economic Rela- tionships begins its hearings on Canadian foreign investment screening procedures and the role of foreign investment in the Canadian econo- my. There seems to be a growing trend worldwide for governments to regulate operations of foreign companies within their borders. Even in the United States a mandate to investigate growing foreign invest- ment was established last year under the Foreign Investment Study Act by action of Congress. Will this trend toward regulation result in the end of the free flow of capital and a decline in the operations of huge multilateral corporations? Can developing economies continue to attract capital imports needed for sustained economic growth on their own terms? With these hearings on Canada, the Inter-American Economic Relationships Subcommittee in beginning a series of studies of national regulation of foreign investment climates in the Western Hemisphere. The United States and Canada have had a long and felicitous rela- tionship. Not only do we share a common border of more than 5,000 miles, but our economies are closely interrelated. What is happening in Canada today is therefore of great interest to us. In recent decades, Canada has relied heavily on foreign capital to finance its economic growth and particularly on United States foreign direct investment to provide employment for a growing popula- tion. As a result, approximately 60 percent of Canadian manufacturing assets are foreign-owned. Of these, three-quarters are owned by U.S. (I) 2 firms. In some industries, U.S. control is more than 90 percent. How- ever, there has been a growing debate in Canada about the costs of such heavy reliance of foreign capital sources. In 1974 the Canadian Government established the Foreign Invest- ment Review Agency (FIRA) to consider all industrial takeovers by foreign companies in order to determine if such investments were in the Canadian national interest. On October 15, 1975, this Agency put into effect the second phase of its mandate, the review of all new foreign investment unrelated to existing plant capacity on similar grounds. Although these new regulations have not been in effect very long, we would like to examine their impact. Perhaps we can learn something from them not only from the standpoint of the big picture but from the standpoint of our own situation here in the United States. Is the review process likely to be used as a tool to redress regional imbalances by directing all foreign investment to