May 29, 1972

PC

Steve Eugene Paproski

Progressive Conservative

Mr. Paproski:

He was just sworn in.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
LIB

Russell Clayton Honey (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. Deputy Speaker:

Order, please. The hon. member for Ontario (Mr. Cafik) has the floor.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
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NDP

Leslie Gordon Benjamin

New Democratic Party

Mr. Benjamin:

That's the whole problem.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
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LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

In Prince Edward Island, Premier Campbell has clearly indicated that as far as he is concerned the origin of funds is not the major concern; rather, it is to make sure that the federal government does not take steps to minimize the amount of foreign investment and job creation in the area. In New Brunswick, as far as I can see Premier Hatfield has indicated that this policy is acceptable to him. In Quebec, Gerald Levesque, the former minister of trade and commerce in that province, indicated that they did not want the federal government to close the door on any investment which would create jobs.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
PC

Steve Eugene Paproski

Progressive Conservative

Mr. Paproski:

Who is that-premier Rene Levesque?

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
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LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

Premier Davis, in the province of Ontario has warned the federal government and the people of Ontario against plunging blindly into programs that would produce greater domestic control of the economy but would divert foreign investment from Ontario. He has said that Ontario still needs investment from outside its borders.

May 29, 1972

Foreign Takeovers Review Act

"We cannot live as a province or as a nation unto ourselves". He added, "We must be involved in the total world community; Ontario cannot act in isolation." So it appears that Premier Davis, in what I believe to be one of the richest provinces in Canada, thinks that we have to be careful even there in terms of controls on foreign investment.

Premier Schreyer of Manitoba indicated that he considered the proposal for a review board to be a positive one. He said that provided it does not get too bureaucratic, it can only help and cannot do any harm.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
?

An hon. Member:

Go on, finish it.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

Premier Allan Blakeney in Saskatchewan has taken a different stance and as far as I can see from his statements has indicated that he would like to see a stronger stand taken in respect of foreign control.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
?

Some hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
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LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

In Alberta, the Minister of Industry, Mr. Peacock, has said that he does not oppose Ottawa's examination of foreign investment as long as the federal government does not hamper the province's access to new capital. As far as British Columbia is concerned I really could not give a report. They do not seem to have made any statement in this regard.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
PC

Steve Eugene Paproski

Progressive Conservative

Mr. Paproski:

We are just a new Conservative government there. Give us a little time.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
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LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

I should like to talk for a moment about the present components of foreign investment policy. To deal first with banking institutions, in 1967 the Bank Act was amended to ensure that banks would be 75 per cent Canadian controlled. No person or group, foreign or Canadian, may hold more than 10 per cent of a bank's voting shares. One foreign-controlled bank in Canada at that time, the Mercantile Bank, was not permitted to grow above a certain size without government permission regarding ownership requirements.

In the insurance, loan, trust and sales financing fields, seven years ago the government introduced amendments to the Loan Companies Act, the Trust Companies Act and the Canadian and British Insurance Companies Act to prevent foreign investment takeovers of federally incorporated companies covered by the legislation. The proportion of shares which non-residents could hold was limited to 25 per cent and no single foreigner could hold more than 10 per cent. The law was not made retroactive, but existing foreign-owned holdings above 25 per cent were not allowed to increase.

Last year, in 1971, the Investment Companies Act was amended to prevent further foreign acquisition of sales finance firms covered by the act. The federal law covering these financial institutions does not cover the establishment of new firms, nor does it cover provincially incorporated firms although at least one province, Ontario, has enacted legislation which parallels that of the federal government.

The government has acted to limit foreign ownership in the case of Telesat Canada. Legislation requires that ownership shall be divided between the federal government

and its agents, approved telecommunications carriers and other Canadian citizens and, apart from their holdings, not more than 20 per cent of Telesat's outstanding shares may be held by non-residents. In the field of uranium the government has adopted a policy whereby ownership by non-residents of voting shares in Canadian uranium producing properties will be limited.

In the oil, gas and mining fields, although not a major restriction on foreign control of Canadian investments in these industries, steps have been taken applying to oil, gas and mining leases in the north and offshore. This already covers oil and gas leases in the Yukon, the Northwest Territories and offshore and mining leases in the Northwest Territories and offshore. A current bill would extend coverage of mining leases to the Yukon as well.

The Canadian participation provisions of the Canada oil and gas land regulations, the Canada mining regulations pursuant to the Territorial Lands Act, the Public Lands Grants Act and the Yukon minerals bill restrict leases to Canadian citizens, to corporations which are 50 per cent beneficially owned by Canadians or to companies whose shares are listed on a recognized Canadian stock exchange and in which Canadians have a chance to participate in the ownership and financing. Federal government investment, in partnership with private interests in Panarctic, has helped ensure a significant Canadian element in the development of the oil industry in Canada's north.

In the broadcasting field, under regulations pursuant to the Broadcasting Act foreign-controlled firms holding broadcasting licences are being required to sell to Canadian citizens or to eligible Canadian corporations. To be eligible, the corporation must be incorporated in Canada, the chairman and directors must be Canadian citizens and at least 80 per cent of the voting shares and shares representing in aggregate at least four-fifths of the shares of the paid-up capital must be beneficially owned by Canadian citizens or Canadian-controlled corporations. In addition, regulations respecting Canadian program content are also in force.

In the field of newspapers and periodicals, seven years ago in 1965 amendments introduced to the Income Tax Act provided that firms may not deduct as a business expense the cost of advertising directed primarily at the Canadian market in non-Canadian magazines or periodicals. Exemptions were made for foreign-controlled publications already operating in Canada, notably Time and Reader's Digest. An amendment to the Customs tariff had the effect of prohibiting entering of non-Canadian periodicals containing advertising directed at the Canadian market.

A word about the Canada Development Corporation which I think is one of the components of a Canadian ownership policy. The CDC was established to help develop and maintain strong Canadian-controlled and Canadian-managed firms in the private sector of the economy and to give Canadians greater opportunities to invest and participate in the economic development of Canada. It is expected to invest in enterprises in which it expects have a substantial holding of shares carrying voting rights and in which the total value of shareholders equity would

May 29, 1972

exceed $1 million. The CDC is not expected to make investments that do not meet a profitability criterion.

In regard to tax policy, last June the budget featured several proposals to increase the attractions to Canadians, relative to non-residents, to acquire equity in Canadian enterprises. The then minister of finance listed four main features as follows:

First, Canadian corporations will be permitted to deduct as an expense, interest on funds borrowed to finance the purchase of shares in other corporations . .. (eliminating) a disadvantage which Canadian corporations have had in competing with foreign corporations in takeover bids. Second, the 10 per cent limitation on foreign assets of pension funds and retirement savings plans will have an important influence in channelling the funds of these large intermediaries to Canadian businesses. Third, the lower tax rate for small business will be available only to Canadian-owned companies . . Finally, the form of the dividend tax credit makes the incentive to invest in shares of Canadian corporations even more attractive than it has been for most Canadians.

In addition to this there has been a public investment policy and attendant regulations. Government investment in rail and air transport, telegraph facilities, atomic energy and, at the provincial level, in electricity generating and other utilities has had the effect in increasing and maintaining a high level of Canadian ownership in these areas.

Government regulation in the transportation and communications fields, among others, are also helping to ensure behaviour by national firms that is consistent with national objectives. I think that although public investment and regulations have not been designed primarily as an element of foreign investment policy, they have in some industries ensured a Canadian presence and, in other industries, behaviour consistent with Canadian policy.

May I, for a moment, look at controls that other countries impose on foreign capital investment. Of all the western developed countries, including Japan and Mexico, none has such a high proportion of its economic production controlled by non-nationals as this country. In countries where foreign ownership is at all significant, the foreign owners hre usually from several other countries; but in Canada four-fifths of direct foreign investment comes from one country, the United States, the most industrially powerful country in the world.

Governments use various methods to control and direct foreign investment, including screening processes, exchange controls, control over access to domestic savings, mandatory rules over share transfers, ownership of real property by non-nationals and participation on boards of directors and management. In addition, all countries elaborate specific key sectors in which foreign investment will be prohibited or severely restricted. In cases where specific sectors are not elaborated, an implicit sector approach is often utilized by the general screening process.

The United States, the Netherlands, West Germany and Denmark have very few restrictions on direct foreign investment. The United Kingdom, Australia, Belgium, Italy and France welcome foreign investment but bargain with the potential investor in order to ensure that the

Foreign Takeovers Review Act

foreign investment will meet the needs of the host country. Performance, location and type of industry are all discussed and negotiated in those countries. Sweden and Norway, despite the absence of major formal restrictions, protect key sectors rigidly. Similarly, Italy, Austria, France and the United States exclude foreign investment from significant sectors of their economy. Mexico and Japan follow an actively nationalistic policy. In Mexico the principle is that new foreign capital should be seen as a supplement to internal savings. In Japan foreign participation is not allowed until the industry is seen to be ready to compete internationally.

These countries have used a number of policies to control foreign participation. Some countries have adopted a general screening process whereby all foreign investment requires government approval. This vehicle is used by the United Kingdom, Norway, France, Japan and Mexico. To a lesser extent, often in the guise of exchange controls, Italy, Belgium, Sweden, Denmark, Austria and Australia use this process. Certain countries also use such exchange controls and limit access to domestic savings. Foreign takeovers are often financed by the host countries.

In Canada I believe this is one of our real difficulties. To avoid this France, for example, requires that all or part of an investment requirement must be financed from abroad. In the United Kingdom all takeovers must be financed from abroad. Frankly, I think we ought to move in this direction as well. I think it is inappropriate for foreign people to come to this country and buy up our industries with our money. They do this by borrowing money from our banks and lending institutions. I think the committee must look carefully at this area.

Another technique is limiting share transfers and the percentage of real property which can be held by nonnationals. In Sweden, companies can prevent the sale of their shares to non-nationals. Switzerland and Japan use different categories of shares for foreign nationals, and thus control remains in the hands of nationals, that is, in the hands of citizens of the host country.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
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NDP

Leslie Gordon Benjamin

New Democratic Party

Mr. Benjamin:

What does the hon. member think of that?

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

Switzerland, Norway, Denmark and Sweden do not allow non-nationals to purchase real property. Also, some countries limit participation on boards of directors and in management. For example, the Scan-divanian countries insist that there be a majority of nationals on each board. Other countries, such as Japan, insist that management remains entirely in the hands of citizens of that country no matter what percentage is owned by foreigners. Britain and Australia prefer to see a majority of their nationals on boards of directors. Generally speaking, this is another bargaining point to be settled by those countries.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
NDP

Leslie Gordon Benjamin

New Democratic Party

Mr. Benjamin:

Where does the hon. member stand?

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

All countries, whether they formally assume a liberal or very nationalistic stance, use the key sector approach in this field to some extent. I have enumerated some of the approaches that have been adopted by other countries. When the committee reviews this bill it ought to take those factors into account and consider, particularly,

May 29, 1972

Foreign Takeovers Review Act the question of people coming into this country, taking over our companies and financing those takeovers, so to speak, at our expense. It seems to me that something ought to be done and that the committee should look at this particular problem.

When the committee considers the bill, I hope it will look into another point I am about to raise. On April 23, 1970, when I spoke in the House on foreign investment, I spoke of what I thought was an important area that must be considered. I said we borrow a great deal of our loan capital from our federal and provincial institutions-for instance, we take money from funds set aside for the unemployment insurance fund, and so on-but that equity capital is brought in from abroad, usually from the United States. It seems to me, if we need foreign investment, we need it in the form of loan capital and not in the form of equity investment.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
?

Some hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

I believe the Canadian people want more Canadian control in this area and would be willing to authorize their federal and provincial governments to allow public moneys to be used in equity purchases, even though some risk may be involved. At present our legislation prohibits the federal and provincial governments from using these masses of money except for perfectly safe loan ventures. That course, I believe, has had the tendency of maximizing the degree of foreign control in this country because it has forced people to seek equity money abroad.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
NDP

Douglas Charles Rowland

New Democratic Party

Mr. Rowland:

Read the Manitoba legislation.

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink
LIB

Norman Augustine Cafik

Liberal

Mr. Cafik:

I believe the Canadian people are willing to so authorize their governments and I believe they are willing to take the gamble. If they are willing to do so, I think we ought to encourage them. The same kind of problem is encountered with other financial institutions such as-

Topic:   GOVERNMENT ORDERS
Subtopic:   FOREIGN TAKEOVERS REVIEW ACT
Sub-subtopic:   MEASURE TO CONTROL FOREIGN TAKEOVERS OF CANADIAN COMPANIES
Permalink

May 29, 1972