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UPDATE 3-Canada urged to ease foreign investment rules
June 26, 2008 / 1:11 PM / 9 years ago

UPDATE 3-Canada urged to ease foreign investment rules

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By Louise Egan

OTTAWA, June 26 (Reuters) - Canada should lower barriers to foreign investment in telecommunications, uranium mining and air transport, and lift a ban on domestic bank mergers, an expert panel commissioned by the government said on Thursday.

In a report that was prompted by widespread concerns that home-grown businesses were being gobbled up by foreign interests at an unprecedented rate, the Competition Policy Review Panel warned against greater protectionism.

“We decided it would not be in Canada’s interest to try to erect more barriers, to play defense,” the panel’s chairman, Lynton “Red” Wilson, told reporters after releasing the report.

Canada can only start “participating in international consolidations in its own right” if it opens up its doors to foreign capital and streamlines the approval process for investment and takeovers, the five-member panel concluded.

“We would prefer to see the game go to the other end of the rink,” said Wilson, a well-known businessman and the former chief executive of BCE Inc (BCE.TO), parent of Bell Canada.

The Conservative government commissioned the panel in July 2007. The report contained 61 recommendations.

Big business was supportive of the proposals, but many wondered whether the minority government would let the proposals die on paper, especially if there is an election soon.

“The key now is to make sure that the government addresses the report’s recommendations with the seriousness they deserve,” said Perrin Beatty, head of the Canadian Chamber of Commerce. “I‘m optimistic. I‘m hopeful,” he said

One of the more contentious issues dealt with in the report was that of big mergers in the domestic banking sector, which have been on hold since 1998.

Wilson urged policy makers to reconsider. “We leave to political masters the judgment involved in what they believe is in the public interest from their point of view,” he said.

But mergers may remain political taboo because Canada’s smaller-sized banks helped the industry emerge relatively unscathed from the global credit crisis, experts say.

“Our banks, because they are more regulated, did not engage in the same practices that led to the collapse of real estate in the U.S.,” said Peggy Nash, legislator with the New Democratic Party.

SENSITIVE SECTORS

On foreign investment restrictions in sensitive industries, the report made specific proposals for each sector.

For airlines, it urged Ottawa to raise the ceiling on foreign ownership to 49 percent of voting equity from 25 percent. The government should decide by the end of 2009 whether to allow foreign investors to set up domestic air carriers.

A two-stage easing of telecommunications and broadcasting regulations was also recommended, in line with guidance given by the government last year. Current rules limit foreign ownership of a telecom provider to 20 percent in an operating company and 33.3 percent in a holding firm.

In the uranium industry, the report said an easing of foreign ownership rules should be subject to the passage of national security legislation, and reciprocity agreements.

The national security legislation has yet to be drafted by Industry Minister Jim Prentice, even though he advised the panel last October that he was removing that issue from its mandate because he wanted to act on it prior to the panel’s June 2008 deadline. “Canadians and non-Canadians are entitled to clarity,” he said at that time.

His foot-dragging has become a sore point for the political opposition. “This minister’s failure to act and his dilly-dallying on the national security test issue is creating more investor uncertainty, not less,” Liberal legislator Scott Brison told Reuters.

The panel also suggests a series of measures to speed up the review process for mergers and foreign investment, although it acknowledged that Ottawa has only ever vetoed one foreign takeover deal.

It recommended raising the threshold for authorities to review foreign investment projects to C$1 billion from C$295 million.

Instead of the current policy where companies must show their investment is of “net benefit” to Canada, the onus would fall on the industry minister to satisfy that it is contrary to Canada’s national interest before blocking a transaction. (Editing by Frank McGurty)

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