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Opening the door to foreign corporate takeover of Canada’s economy

By: | February 24, 2014

In the second of this 5-part series: CETA will facilitate the “de-Canadianization” of our industries, a process that could be extremely difficult to reverse

Marilyn Reid
Cutting through the spin on CETA is a series examining the reticent nature of a treaty that threatens Canada’s economic sovereignty

> Other Posts in this Column
According to Canada’s premiers, the federal government will gut nearly $36 billion in funding to the provinces over the 10 years of the new provincial-federal Health Accord, which may pressure cash-strapped provinces to privatize health care.

Ask Canadians about CETA (the Canada Europe Comprehensive Economic and Trade Agreement) and the few who have heard of it will say it’s a trade agreement. After all, that’s what the title implies. It’s deceptive wording though for a contract whose real objective is to profoundly weaken Canada’s control over its own economy.

This second installment of Cutting through the spin on CETA will focus specifically on the links between government’s increasing open door policy to foreign investment, the gradual privatization of public services, and CETA.

“de-Canadianization” through foreign direct investment

The view that foreign direct investment (FDI) in our country creates new industries and new jobs is very different from the reality. A report by the Canadian Centre for Policy Alternatives looked at foreign investment in Canada in the 17 years after the signings of  the Canada US Free Trade Agreement in 1987 and the North American Free Trade Agreement (NAFTA) with the US and Mexico in 1994. It concluded that 96.6 per cent of foreign investment was for mergers or takeovers of existing Canadian businesses during that period. Only 3.4 per cent was for the start-up of new businesses. Mergers and acquisitions may do wonders for the share value of corporations, but to what extent do they benefit the real economy?

Foreign takeovers continue into the 21st century, but the focus is increasingly on Canada’s natural resources. Between 2005 and 2009 the mining and gas extraction sector, in particular, received an average of 32 per cent of FDI flows into Canada.

The de-Canadianization of our industries through takeovers has been made easier by new federal government thresholds set for foreign acquisitions of Canadian companies beyond which there must be a pre-merger government review. Five years ago the threshold was $344 million. Then, last June, it was increased to $1 billion. Under CETA, European corporations will be able to invest up to $1.5 billion in Canadian enterprises before they have to get government approval.

To further encourage new investment, the federal government lowered the corporate tax rate to 15 per cent in 2012 (from 28 per cent in 2000). The corporate surtax has also been eliminated, along with both the federal and provincial capital taxes. This deliberate decrease in corporate revenues has contributed to a decline in government spending, measured as a percentage of GDP, from 53 per cent in 2002 to 42 per cent in 2012.

P3s: Public Private Partnerships

Fewer revenues available to deliver programs and maintain infrastructure create problems for provinces and municipalities. The federal government’s solution is a kind of disguised privatization called Public Private Partnerships, or P3s. In a P3, municipalities or provinces partner with an investor in the private sector for the delivery of services over a given period of time, usually from 20-35 years. This will often involve not only the delivery of the service, but the building of a new facility or the upgrading of existing infrastructure.

Unlike in most of the other provinces, P3s are virtually unknown in Newfoundland and Labrador.  Former Premier Williams astutely questioned their merit. In his 2010 book Public Service Private Profits, economist John Loxley detailed the performance of P3s in Canada, concluding that, over the long term, the additional finance cost to governments of Canadian P3s was “very significant”. He also noted that P3s  in Canada demonstrated “a uniformly abysmal record of accountability and transparency.”

It will be difficult for our province to continue to resist the federal push towards P3s. Take the example of waste water management. The federal government has introduced new federal regulations that will require the upgrade of 25 per cent of all Canadian municipal wastewater treatment systems, at a total cost of at least $20 billion. At the same time, new federal programs and policies are making it more difficult for municipalities to access federal funding to make these upgrades unless they partner with a corporate investor in a P3 relationship.

 Any municipal or provincial government in partnership with an EU corporation will, consequently, find it both difficult and expensive to reverse the privatization of services.

Nothing under CETA itself can force the privatization of public services. However, once a province or municipality makes the decision to include a private party in the delivery of services, it must, under CETA rules, include European corporations in the bidding process. This isn’t a level playing field. Because local businesses often don’t have the substantial financial backing necessary to invest in a partnership, P3s will tend to favour the big EU corporations, which will be entitled to the rights negotiated for them under CETA. Any municipal or provincial government in partnership with an EU corporation will, consequently, find it both difficult and expensive to reverse the privatization of services, or even to insist on higher standards, if they are not satisfied with the performance of their partner. To do so brings the risk of expensive CETA lawsuits in offshore tribunals where Canadian law counts for nothing.

What about P3s in health care? A first glance at leaked CETA documents gives the impression that the federal government is going to protect all parts of health care that are – and here the wording is important – “maintained for the public purpose”. As with waste water management, however, there’s a back door route that will open up our public health care programs to foreign investment through P3s.

According to Canada’s premiers, the federal government will gut nearly $36 billion in funding to the provinces over the 10 years of the new Health Accord between provinces and federal government. This means cash-strapped provinces will be under increased economic pressure to privatize health care through P3s or otherwise. Under CETA, European corporations must be offered equal access to the delivery of these services. But there’s another insidious risk too. As privatization creeps into the system, the success of corporate challenges as to whether or not public services meet the “public purpose” criteria could depend on the ruling of an external trade or investment tribunal.

Reason to be uneasy

Do you see the doublespeak in the federal government’s position on CETA? On the one hand it says there is nothing in CETA that forces the privatization of public services. On the other hand, it takes measures that decrease funding to provinces and municipalities. Then it introduces access to funding constraints that push these lower levels of government toward partnerships with foreign corporations that have full access to corporate benefits under CETA.

Are you uneasy with increasing foreign control of our resource industries, particularly given that CETA will straitjacket the ability of government to regulate these industries?

If these questions resonate with you, you probably concur with the assessment of Stuart Trew of the Council of Canadians. “The kind of investments CETA will encourage is parasitic rather than productive. CETA will lead to the diminishment of our public assets, while at the same time providing foreign corporate investors both in our service and resource sectors with a corporate rights package. In the end, we lose control over both sectors.”

Part 3 in this series will look specifically at how our federal and provincial governments have failed to defend our traditional sovereign rights throughout the negotiating process. Prepare to be alarmed.

Click here to read Part 1

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