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Panel Discussion on Transatlantic Investment Experiences: The Impact of EU Enlargement and Canada as a Gateway to North America. Mario Ste-Marie A/Assistant Deputy Minister Investment, Science & Technology International Trade Canada October 18, 2005. Key issues for discussion.

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Panel Discussion on

Transatlantic Investment Experiences:

The Impact of EU Enlargement and Canada as a Gateway to North America

Mario Ste-Marie

A/Assistant Deputy Minister

Investment, Science & Technology

International Trade Canada

October 18, 2005


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Key issues for discussion

  • Explore recent Canadian Direct Investment trends in the Enlarged EU in the context of global developments

  • Highlight major advantages of Canada as North America’s gateway for businesses from the EU



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EU is increasingly important as a destination of global FDI the European Union

Global Inward FDI Stock

by Geographic Area (%)

  • In recent years, the EU has made substantial gains in attracting FDI, largely at the expense of North America.

Others

Latin America

Asia & Oceania

North

America

European

Union

EU (15)

EU (15)

EU (25)

EU (25)

Source: IPS compilations based on data from UNCTAD


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Large developed EU economies attract most of inward FDI the European Union

Share of EU Inward FDI Stock by Member State (%), 2004

  • Mostly large and developed EU economies account for the bulk of inward FDI stock in the EU.

  • The 10 New Member States (NMS) in the Enlarged EU together held under 6% of the EU’s total FDI stock in 2004.

  • Poland, Hungary and the Czech Republic are the dominant destinations of international FDI in the NMS (77%)

Distribution (%) of

Inward FDI Stock in EU 10

New Member States (NMS), 2004

Czech Republic

24.6%

Slovakia (6.3%)

Hungary

26.3%

Estonia (4.1%)

Cyprus (3.5%)

Lithuania (2.8%)

Poland

26.7%

Slovenia (2.2%)

Latvia (2.0%)

Malta (1.5%)

* EU 10 New Member States

Source: IPS compilations based on data from UNCTAD


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Low FDI per capita in NMS suggests the European Unionstrong potential to attract FDI

EU population

distribution

(2003)

  • Per capital FDI in NMS is substantially below the levels achieved in the EU-15 countries, on average.

  • Potential for NMS to attract FDI from within Europe in the near future is very promising, especially for cost competitiveness reasons

EU15

83.6%

10NMS

16.4%

FDI per capita

by country ($)

(2003)

Source: IPS compilations based on data from UNCTAD


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Canada is the third largest non-EU investor in the region the European Union

Distribution of Inward FDI Stock in the EU from Extra-EU Investing Countries 2002 (%)

  • The bulk (about 70%) of investment in the EU originates from within the member countries.

  • In 2004, Canada was the 3rd largest foreign direct investor in the EU among non-EU investors, following the United States and Switzerland

Source: IPS compilations based on data from EUROSTAT


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EU is also an increasingly important destination of Canadian Direct Investment Abroad (CDIA), largely in traditional markets

Distribution of CDIA Stock in the EU-25

by country, Top 15

2004 (%)

  • EU has been attracting an increasingly larger share of CDIA since 2000, largely at the expense of the traditionally important U.S. market (21% to 27%)

  • U.K. and Ireland have attracted over one-half of Canada’s direct investment in the EU.

  • Hungary is the only significant destination of CDIA among the three major NMS (Poland, Hungary and Czech Republic).

Distribution of CDIA Stock

by geographic Area (%)

18%

29%

29%

Others

US

EU

Source: IPS compilations based on data from Statistic Canada


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CDIA is the dominant mode for accessing the EU market

Sales of Foreign Affiliates of Canadian MNEs versus Canadian Exports:

EU versus the U.S., 2003

($Billion)

  • Investment is preferred to trade as a commercial strategy for delivering Canadian goods and services to the EU.

  • In contrast, trade dominates investment as a means of serving the U.S. market.

European Union

United States

Source: IPS compilations based on data from Statistics Canada


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Key Points

  • Marked shift in global FDI to EU since 2000, largely going to developed EU-15

  • The NMS, most notably Poland, Hungary and Czech Republic, have made impressive gains in attracting FDI

  • Trend is likely to accelerate as more developed European economies look to invest in NMS to improve cost competitiveness

  • Canada is the third largest investor in EU among non-EU countries with CDIA diversifying from the U.S. to the EU and other regions since 1990

  • Although most CDIA in EU is still headed to “Old Europe”, Hungary has attracted a significant share of CDIA – more understanding of this phenomenon is needed

  • Investment in EU is the preferred mode by Canadian businesses serving the EU market


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Canada:

A Gateway to North America for the European Union


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Canada enjoys strong trade and Investment linkages with the United States

  • 2-way trade in goods and services = CAN$680 billion in 2004.

  • Averages over CAN$1.3 million dollars a minute in trade.

  • Canada and the U.S. investment stock between the two countries totaling CAN$432 billion in 2004.

  • The U.S. trades more with Canada than with all of the countries of the E.U. combined!


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U.S. is the major export destination of Canada-based EU firms

  • EU-controlled firms in Canada account for almost a quarter of Canadian merchandise exports to the U.S. by foreign companies.

  • The overwhelming proportion of exports (95%) by German-controlled firms and more than 80% of exports by other major EU-controlled firms in Canada are destined for the U.S. market.

Percentage of Canadian Exports to the U.S. by Country of Control of Exporting Firms, 2002 (%)

Source: IPS compilations based on data from Statistics Canada


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Why Do EU Firms Invest in Canada?

  • Canada offers a First Rate Business Environment:

  • Easy Access to Markets

    • Geography and NAFTA provide easy access to the world’s most prosperous market

  • Excellent Economic Fundamentals

    • Overall government budget in surplus

    • Low inflation and low interest rates

  • A Cost-Competitive Business Environment

    • Low overall business costs

    • Competitive tax system (particularly for R&D)

  • An Energetic and Welcoming Infrastructure

    • Ease in establishing a new business

    • The world’s best-educated workforce

    • Strong technological environment


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    Canada - US Border: Secure and Efficient

    Smarter Borders

    • January 1994 – North America Free Trade Agreement establishes world’s largest free trade area giving Canada direct access to over 400 million people with a combined GDP of over US$11.4 trillion.

    • A secure flow of goods and people at the border is a key priority for both Canada and the United States.

    • December 2001- Canada and the USA signed a declaration to build a Smart Border for the 21st Century to accommodate the growth in trade and commerce

    • March 2005 – Security and Prosperity Partnership for North America calls for common border security and improved regulatory cooperation and collaborative energy and transportation infrastructure.


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    Canada’s Sectors Offer EU Companies Considerable Potential for Growth:

    Canadian Growth Sectors

    A

    Information and Technology

    • 32 000 ICT firms;

    • work force of 545 000,

    • 38% university degrees

    B

    Medical Devices

    • 22, 000 employees

    • $2 B in exports in 2003

    • Strengths – cardiovascular/radiation therapy equipment/medical imaging

    • Automotive

    • a North American integrated auto industry;

    • 8th largest in the world;

    • employs half a million workers

    C

    • Energy - Natural Resources

    • Oil and gas

    • Wind energy

    D


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    Conclusion

    Canadian and EU companies share the same preferred commercial strategy to access each others markets:

    • To serve the EU, Canadian companies are investing in the EU

    • To serve North America, EU companies invest in Canada as the gateway to North America

    • TIEA has the potential to improve prospects for investors in both directions (regulatory cooperation and investment)


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    Mario Ste-Marie

    A/Assistant Deputy Minister

    Investment, Science & Technology

    International Trade Canada

    111 Sussex Drive

    Ottawa, Ontario

    K1A 0G2

    www.investincanada.com

    [email protected]


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