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Yves Faguy

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Foreign takeovers: When to say no

By Yves Faguy October 2, 2012 2 October 2012

Stephen Gordon doesn't see many reasons why Ottawa should reject a foreign takeover.


Foreign ownership became an issue some fifty years ago, and there were credible reasons for concern. Foreign-owned branch plants tended to be less productive and less interested in innovation. But the problem wasn’t foreign ownership per se, it was the fact that the raison d’être for these branch plants was the high tariff wall protecting Canadian industry. Firms with nothing to fear from foreign competition have little reason to be concerned with low productivity.

Things are very different in the post-NAFTA world.This Statistics Canada study (opens pdf) finds that:

foreign-controlled plants are more productive, more innovative, more technology intensive, pay higher wages and use more skilled workers… [Multinational enterprises (MNEs)] have accounted for a disproportionately large share of productivity growth in the last two decades. Finally, we find robust evidence for productivity spillovers from foreign-controlled plants to domestic-controlled plants arising from increased competition and greater use of new technologies among domestic plants.

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What does "net benefit" mean?

By Yves Faguy September 29, 2012 29 September 2012

Tom Flanagan urges the federal government to approve the CNOOC-Nexen deal before sorting out the "net benefit" rule. Rejecting it would be damaging to Canada's reputation:

After more than 20 years in which neither Progressive Conservative nor Liberal governments rejected any foreign acquisitions, this would be the third rejection in five years by this Conservative government.

Relations with China would certainly be set back, but the damage would also be wider. It would signal to international investors that any large acquisition, no matter how carefully rationalized in economic terms, can be blocked on the basis of an unpredictable variety of political considerations. Uncertainty means risk, and risk deters investment.


 

Jeffrey Simpson imagines the outcome if the roles were reversed:
 

Canada, however, is strong in energy, telecommunications, automobiles, aviation and metals – all products that China considers largely off limits to foreigners. Any free-trade deal for Canada would have to involve access in these sectors. It would also need to provide guarantees for patent protection (intellectual property) because Chinese firms are notorious (let’s be blunt here) for stealing patented technology and adapting it to their own companies. And the rule of law protecting private property is wobbly in China. As for the new investment treaty between Canada and China, only time will tell whether it’ll resolve these challenges. It’s worth noting that the protections contained in the agreement apply only to companies already operating in China.

Free-trade negotiations, in principle, are not to be dismissed lightly. The structure of the Chinese economy, the erratic respect for the rules of property law, and the off-limits areas of the Chinese economy mean that any talks would be long and laborious, with no guarantee that the Chinese government would agree to rules found in free-trade deals that Canada has signed with other countries.

The bid for Nexen is now being reviewed by the Harper government, with the nebulous term “net benefit” before a takeover is approved still unclear. If one part of the “net benefit” became “Can we do there what you’re proposing to do here?” the takeover would never be approved. Quite likely, the government will eventually approve the deal, but the condition of reciprocity won’t be there.

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Interview with Jean Chrétien

By Yves Faguy September 21, 2012 21 September 2012

Interview with Jean Chrétien

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Welcome to National's blog section

By Yves Faguy September 21, 2012 21 September 2012

Well, here we are. I’m not quite sure how to kick things off except to say welcome to National Magazine’s new home online and to this blog. Our aim in this space is to cover legal affairs in a more engaging way for our readers. So please, feel free to comment and share your thoughts. We’re looking for a lively — and respectful — dialogue among people of differing points of view. As things stand, our policy allows for only CBA members to leave comments. But we want to hear from outside the CBA community and will be more than happy to post emails that correct inaccuracies, offer dissenting opinions or have substantive things to say. We look forward to hearing from you.

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Global practice

By Yves Faguy September 12, 2012 12 September 2012

Global practice

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