Canada seeks foreign investment, particularly from the US

Canadian Industry Minister Sinclair Stevens recalls a ``ridiculous'' issue that came before the federal Cabinet in Ottawa in 1979: whether to approve the sale of a food concession. ``There was a chap proposing to buy -- literally -- a peanut stand in the Edmonton West Mall and he happened to be an American,'' he said in an interview. ``So his lawyers said you can't do that until we get you cleared through FIRA.''

FIRA is the Foreign Investment Review Agency, a controversial body that approves or disapproves foreign investments in Canada. Mr. Stevens, whose formal title is minister of regional industrial expansion, wants to abolish that agency and replace it with a new body, named Investment Canada.

This new body, Stevens hopes, will make it clear that Canada now wholeheartedly welcomes United States or other foreign investors.

Indeed, the Progressive Conservative government of Prime Minister Brian Mulroney, which took over from the Liberals last Sept. 4, has moved in a number of ways to strengthen economic ties with the US.

Those links have already tightened faster than many may realize. About the time of World War I, Canada shipped some two-thirds of its exports to Britain and a comparatively small amount to the US. That ratio is now reversed, with Canada selling some 76 percent of its exports to the US last year and only a relatively small proportion to Britain.

Actually, in some months as much as 80 percent of Canadian exports have been going to the US, Mr. Stevens notes.

``When you get up between 70 and 80 percent of your trade with one nation, how much closer to free trade are you going to get?'' he says. ``You're virtually there.''

Stevens was treading on what is politically dangerous ground in Canada and he knew it. Many Canadians are highly nationalistic, keen to safeguard their independence from the US.

In 1911 Canadian Prime Minister Wilfrid Laurier's campaign for reelection centered on his advocacy of a free trade area with the US. He lost -- and Canadian politicians have never forgotten that.

Stevens figures that ``for all practical purposes'' Canada and the US already have free trade. He adds, ``In a political sense, even when that's the reality, there's no point in running around beating your breast about free trade. If you talk too aggressively about it, you worry people. Let's make sure we don't lose the good thing we have going here.''

He was concerned with the possibility of a reaction in Canadian industries that might be hit by the loss of remaining trade barriers. And he also is worried that the US Congress might pass some general protectionist measure that, though not designed specifically to hit Canadian exports, would harm trade.

More trade crosses the border between Canada and the US than any other border -- $110.4 billion last year. Canadians shipped $60.4 billion to the US and bought $50 billion of American goods and services, according to Canadian government statistics. The US sends about one-fifth of its total exports north and receives around the same proportion of its total imports from Canada.

Moreover, Canadians have more than $18.2 billion invested in the US and Americans about $57 billion of direct investment (buildings, plant, and equipment) in Canada.

At a meeting in Quebec City March 17, President Reagan and Prime Minister Mulroney agreed to ``secure and enhance'' their nations' trading arrangements.

Stevens is not very specific about what ``enhance'' means. He talks about removing impediments to trade on a sector by sector, or product by product, basis, similar to the long-existing agreement for free trade in automobiles and auto parts between the two nations.

He mentioned textiles and defense production sharing as possible areas to develop. But he hastened to add: ``You could consider any field.''

Nervous about public reaction to the Mulroney government's more friendly attitude toward the US, the Conservatives took a poll. ``We're getting almost 80 or 90 percent endorsement for better, warmer relationships with the United States,'' said Stevens.

Attitudes today, as in 1911, vary from region to region. In Ontario and Quebec, the most populous and industrialized provinces, residents tend to be somewhat more protectionist and concerned about US business penetration because of the potential damage to their jobs. People in the western and Atlantic provinces, however, are more likely to push for freer trade. They have less to lose.

A government trade policy report released last February held that free trade with the US could boost Canadian real incomes by 5 to 10 percent because of more efficient production runs in some industries. Overall productivity could increase 30 percent. But this would involve 7 percent of the labor force having to shift from certain industries to others -- a socially and politically disruptive factor.

One element in Canada's new enthusiasm for better economic ties with the US is an 11 percent unemployment rate. Any new business, including foreign investment, means more jobs.

Last December, Stevens introduced in Parliament the legislation to create Investment Canada to give ``a new and positive mandate to encourage investment.'' The controversial bill faces some 94 amendments offered by the opposition Liberal and New Democratic parties, but could be proclaimed within a month, he predicts.

In the past, FIRA has not usually been as rough on new foreign investments as its reputation would suggest. Stevens says the agency at its toughest rejected 8 percent of applications, and usually only 3 percent or less.

Since the Conservatives came into office, FIRA has approved all of the more than 500 applications it has received. However, Stevens considers the agency as something of a psychological barrier to foreign investors.

``It conjures up an image that if you are a foreigner, we want to review you before you come into Canada,'' he told the New England-Canada Business Council last month.

The new agency will devote most of its energies to attracting and promoting investment in Canada. It will not review new investments, but will look at foreign acquisitions of existing Canadian properties of $5 million Canadian (US $3.6 million) or more. Even in such cases, Stevens argues, it could expedite such acquisitions by guiding them through Canadian regulatory agencies.