Canada: Hanging Out the Welcome Sign

The new Prime Minister offers assurances to U.S. investors

The message was clear. "Canada is open for business again," said Brian Mulroney. His audience, 1,450 U.S. executives and their guests at an Economic Club of New York dinner in Manhattan's Hilton Hotel, evidently liked what they heard: they gave Canada's new Prime Minister two standing ovations. Mulroney, 45, vowed that his government would be "there to assist and not to harass the private sector in creating new wealth and the new jobs that Canada needs."

In the minds of many U.S. businessmen, that would be quite an improvement. Under former Prime Minister Pierre Trudeau, whose Liberal Party held power for 20 of the past 21 years, the government bowed to surges of economic nationalism and adopted policies that sometimes made U.S. investors feel unwelcome. Mulroney's Progressive Conservative Party won a landslide victory over the Liberals after campaigning, among other issues, against a number of Trudeau-era restrictions on foreign investment. Last week's speech, which marked Mulroney's second appearance in the U.S. since taking office, indicated that the Prune Minister intends to make good on his promises. Said he: "Our government has embarked on a fundamental change in our economic direction."

That change comes as Canada struggles to climb back from its most severe recession since World War II. From mid-1981 to late 1982, an estimated 550,000 people lost their jobs, and the unemployment rate rose from 6.8% to 12.8%: Despite two years of modest improvement, employment has still not returned to prerecession levels. Canadian industry continues to operate substantially below capacity. Said Mulroney last week: "My government considers the creation of jobs its top priority. It is, for us, a moral imperative."

A key part of that strategy is to encourage foreigners to build new plants and expand existing ones in Canada. To that end, Mulroney has announced his intention to close down Canada's decade-old Foreign Investment Review Agency, which screened all new foreign investments. In its place, he is creating Investment Canada, an agency that will, in the Prime Minister's words, "encourage and facilitate investment." Like its predecessor, however, Investment Canada will have the right to review potential foreign entrants into businesses deemed important to Canada's cultural heritage and national identity. Most direct takeovers of existing Canadian businesses whose assets exceed $3.8 million will still be eligible for review.

Mulroney said he also plans to alter the controversial "back-In" provision of the 1980 National Energy Program. The rule stipulates that the Canadian government is entitled to 25% of any successful offshore oil discovery by a foreign firm. The party's position during the campaign last summer was to exact the same share as before, but turn it over to private Canadian companies willing to pay for the share instead of having the government keep it. From the point of view of U.S. firms, that still means an off-putting surrender of a quarter of any new discovery.