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Canada needs more foreign investment: C.D. Howe report
National Post
Fri 13 Aug 2004
Page: FP8
Section:
Financial Post: Canada
Byline: Eric Beauchesne
Source: CanWest News
Service

OTTAWA - A recent outcry of concern in Canada over the
proposed merger of Canadian-owned brewer Molson Inc. and U.S.-based Adolph
Coors Co. was misplaced and based on a myth, says a report by a major economic
think tank.

Canada needs more foreign investment, not less, the C.D. Howe Institute
argues in the report released yesterday. Canada's problem is not that it has
too much foreign investment, but that it has too little investment of all
kinds.

And to attract that foreign investment Canada should reduce corporate
taxes, says the 33-page analysis -- A Capital Story - Exploding the Myths
Around Foreign Investment in Canada -- by Yvan
Guillemette, an institute analyst, and Jack Mintz, a
taxation expert and the institute's president.

While the flow of foreign direct investment into Canada, which is
investment used to acquire or create businesses, increased substantially in
the late 1990s as part of a worldwide spike in cross-border investing, Canada
benefited less than most, the report says. Meanwhile, Canadian companies were
investing abroad at an unusually rapid rate, turning Canada into a net
exporter of capital from its traditional role as a net importer.

"Canadians should ask why Canadian companies find it more profitable to
invest abroad than at home," it says, suggesting that Canada should also
improve its relations with the United States to make it a more attractive
place for businesses to set up shop. It notes that barriers to trade with the
U.S. since the terrorist attacks on that country have increased, which
encourages companies that want to do business there to set up shop south of
the border.

"Foreign direct investment is complementary to trade, and scores of
economic studies show positive economic gains associated with both inward and
outward investment," it says.

However, there has been a long downward trend in Canada's share of foreign
direct investment in North America to 13%, from what was 40% two decades ago.
And the flow of new foreign direct investment into Canada hit a 10-year low
last year of only $8.3-billion.

"These observations signal a deterioration in Canada's relative
attractiveness as a destination for new investments, a critical issue that has
not received enough attention," it says.

And it blames what it argues is Canada's relatively high corporate taxes.
"Although Canada has been reducing corporate taxes ... it still retains one of
the highest corporate tax regimes in the world," it says, calculating that
Canada's effective corporate tax rate is second only to Germany's among major
industrial countries.

The study also argues that fears of increasing foreign control are
unfounded.

"Foreign control of Canadian corporate assets is basically the same now as
it was in 1988, just a little over one-fifth," it says, adding that finding
applies to U.S. multinationals, which don't have any larger presence here than
they did 20 years ago.

Meanwhile, it recommends that along with cutting taxes and improving
relations with the United States, Canadians should stop using the phrase
"foreign investment" to provoke fear.

Edition: All but Toronto
Story Type: Business

Length: 497 words