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Foreign Takeovers: Pressure Mounts for Job Protection, Clearer Regs

Labour, and some corporate voices, say it's time to put some muscle on the Investment Canada Act.

By Ben Christopher 26 Jan 2012 | TheTyee.ca

Ben Christopher reports on labour and industry issues for The Tyee and others.

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On the bus to Jan. 21 rally in support of CAW 27 workers locked out of U.S.-owned Electro Motive Diesel Company in London, Ontario. Photo by Tom Balint, CAW 99.

It goes something like this: a large multinational corporation saunters across the border, snaps up a Canadian business, and immediately throws a few hundred more of this country's remaining middle-class manufacturing jobs onto the chopping block.

That's exactly the scenario playing out in London, Ontario, say organized labour advocates, where over 500 workers have been locked out of an Electro Motive Diesel plant after the unionized workforce refused to ratify a new contract that would see their pay cut in half and their benefits slashed.

All of this just 18 months after the train company was scooped up by a subsidiary of the U.S. heavy machinery giant, Caterpillar, in a 2010 acquisition deal.

It's bad news for the members of London's local CAW 27, who staged a "day of action" rally in London this Saturday. But it could happen to anyone. That's the warning coming from a growing chorus of labour supporters, who say the bureaucratic machinery designed to protect Canadian jobs from mercenary multinationals -- a little-known piece of legislation called the Investment Canada Act -- has been willfully mothballed.

And it's not just unions complaining about the Act. Also looking for increased transparency and disclosure of government dealings in the assessment of foreign takeover bids, at least according to one economist, are foreign investors themselves.

A benefit to whom?

As it reads on paper, the Investment Canada Act is fairly straightforward. A foreign company cannot take over a domestic one unless it can be shown that the investment "is likely to be of net benefit to Canada," the legislation reads.

But according to Canadian Labour Congress president Ken Georgetti, the exact meaning of "net benefit" has not always been entirely clear.

"The circumstances of this lockout once again illustrate the shortcomings of the Investment Canada Act in protecting Canadian workers in foreign takeovers of Canadian companies," Georgetti wrote in an open letter to the Prime Minister early this month.

That the proposed wage cuts and subsequent lockout in London were introduced so soon after Electro Motive Diesel was purchased by the Caterpillar subsidiary, Progress Rail Services, is proof, says the CLC president, that the 2010 deal was not properly vetted.

By all accounts, it wasn't. According to a spokesperson for Industry Canada, the Electro Motive purchase was never subject to a full review. Instead, because the dollar figure attached to the deal fell beneath the cutoff for investments deemed big enough to review (which in 2010, stood at $299 million for companies operating within WTO member states), Progress Rail Services was simply required to notify the government of its intent to purchase the company.

Georgetti says that simply isn't good enough. The Act must be reformed, he says, to make job creation and protection the overt standard by which "benefit" is defined, to lower the cut-off of reviewable investments, and to make the decision process transparent and open to public input.

"The Act fails to ensure that foreign-owned takeovers of Canadian business have a 'net benefit' to Canada," Georgetti continues in his letter. "And once again, Canadian workers with decent-paying jobs vital to the health and growth of the Canadian economy are being betrayed by the weakness of the Act."

Georgetti points to other recent "failures" of the Act, which include the 2006 purchase of Toronto-based nickel concern, Inco, by the Brazilian mining conglomerate Vale, and the 2007 purchase of Hamilton's Steelco by U.S. Steel. In both cases, proposed cost reduction campaigns by the new owners resulted in protracted labour disputes.

Rubber stamped

As it happens, Electro Motive Diesel may not be the ideal poster child for the dangers of foreign ownership. When the company was picked up by Caterpillar's subsidiary in 2010, they were purchased from a consortium of private equity firms based out of New York and Boston. Before that, EMD was owned by one of the world's largest multinational corporations: General Motors. When the London, Ontario plant was opened in 1949, it was Detroit giant GM that built it up to the prominence, which Georgetti now says is under attack by foreign corporations.

But that isn't necessarily the point, says Andrew Jackson, chief economist for the Canadian Labour Congress. "We aren't opposed to foreign ownership in general," he says. "Some foreign owned companies operating in Canada provide good jobs and invest quite a bit in Canada."

But there does need to be additional oversight when an acquisition is made, he argues. Multinational corporations are more likely to streamline their operations by shutting down components of their new purchase that the company is already performing elsewhere, and abandoning ties with Canadian suppliers. In addition, he argues that Industry Canada regulators need to ensure foreign businesses aren't simply gobbling up the Canadian competition to gain access to valuable R&D, or to gain untoward control over a particular natural resource.

While regulators might be making those kinds of assessments, there is no way to be sure, he says.

"The government does have a lot of discretion to turn down a foreign takeover if it's deemed not to be a net benefit to Canada," says Jackson. "But the impression is that for the most part, applications are glanced at and rubber stamped."

From FIRA to Investment Canada

SFU professor Marjorie Griffen Cohen shares that impression of the Act.

"In practice it means almost nothing," she wrote in an email exchange with The Tyee. "Right now everything simply goes to the highest bidder and that type of process rarely allows the needs of the people or the country to be considered."

But things weren't always this way, she says.

In 1973, Pierre Trudeau created the Foreign Investment Review Agency, which established a rigorous screening process for large-scale foreign investments. Introduced just two years after the advent of the first Canadian Content regulations, the establishment of FIRA was a response to considerable public concern over the growing power of multinational corporations and the growing influence that those corporations (especially the American ones) were seen to exert over the national economy and Canadian culture.

But in the 1980s, the Mulroney government found FIRA restrictions too onerous a set of constraints on foreign companies wishing to do business in Canada. They protected Canadian jobs, the argument went, by coddling inefficient businesses at the expense of economic growth and dynamism. In 1985, FIRA was given the friendlier designation, Investment Canada, and the Investment Canada Act was passed, greatly reducing the agency's mandate.

Since then, says Cohen, under Conservative and Liberal governments alike, federal oversight over foreign investment has been cursory and, worse yet, utterly opaque.

"I imagine that the lack of any serious evaluation and even criteria for evaluation is not something the government would want to have visible," she says.

Unlikely bedfellows

In this call for additional transparency, organized labour is joined by an unlikely bedfellow: multinational corporations and global capital markets.

"The [Investment Canada Act] is often criticized for a lack of transparency both by investors and by citizens or groups interested in monitoring approval processes and commitments made," writes Steven Globerman, an economist who teaches at Western Washington University and SFU. "Investors also have concerns about consistency in the application of the criteria for reviewing investments."

These concerns came to a head in Nov. 2010 when, in one of the first times in recent memory, the Act was used to kill a major investment proposal, blocking Australian mining giant BHP's takeover bid of the Potash Corporation of Saskatchewan. Then-minister of industry Tony Clement explained the decision as a necessary step to retain national control over a vital natural resource.

But at the time, some critics claimed that politics had much more to do with it. Saskatchewan Premier Brad Wall had come out strongly against the proposed takeover in the lead up to the Industry Canada decision. Throughout that fall, Wall rallied opposition to the idea of foreign ownership across Saskatchewan -- a province the federal Conservatives needed the support of in the upcoming 2011 election.

In a paper published last fall by the University of Calgary School of Public Policy, international business attorney Lawrence L. Herman sums up the critique from the business side:

"More transparency and public disclosure of ministerial decision-making will lead to more consistency, as foreign investors will know the hurdles they have to meet," says Herman.

In other words, while labour and capital may differ over how aggressively they'd like to see foreign investments vetted, both want a peak behind the curtain at Industry Canada.

'We just can't write letters anymore'

To labour organizers in London and throughout Ontario fighting against what they see as an assault on the Canadian middle class, debate over the minutiae of federal foreign investment policy can seem a little abstract.

In a show of solidarity with the locked out London workers, Doug Nesbitt is helping to organize a series of pickets at Caterpillar equipment dealerships in and around Kingston this coming Friday. Acting independently of CAW, the Queen's University TA and co-chief steward of the Public Service Alliance of Canada local says similar demonstrations of support have and will take place in Toronto, Hamilton, Peterborough, and London.

Nesbitt says he hopes that by putting pressure on local suppliers, the financial pinch "will run up the chain to Caterpillar itself."

Asked about possible reforms to the Investment Canada Act, Nesbitt says that while the business plans of some foreign corporations may deserve special scrutiny, Canadian corporations are often no better. Either way, he says, that is not the focus of his campaign.

"The union in Canada is in a tough place," he says. "They are going to be destroyed unless we change the way that organized labour does solidarity work. We can't just write letters anymore. We have to actually start applying economic and political pressure."  [Tyee]

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