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GETTING THE DOMESTIC ENVIRONMENT RIGHT

MAKING CANADA A MAGNET FOR TALENT AND INVESTMENT

In the new international marketplace, businesses scour the world for greater efficiencies, cost savings and competitive advantage, and nations compete against nations to attract this business activity. Canada fares quite well on the broad factors that influence business location decisions: education and health care, a healthy environment with abundant green spaces, cultural richness and diversity, and dynamic communities. We are also competitive on many specific business environment factors: good financial and physical infrastructure, excellent universities and research facilities, sound fiscal management, smart regulatory controls, skilled labour and a ready supply of qualified professionals. We are among the most open major economies to inward and outward trade and investment. Growing two-way foreign investment benefits us significantly: foreign-controlled firms operating in Canada now account for 45% of exports and 30% of total business revenues.

Our competitiveness on these fronts cannot be taken for granted: foreign and domestic investors alike are constantly reassessing options. When our performance in attracting investment weakens, as it has in recent years, there are long-term implications for the well-being of Canadians. This trend must be reversed. We must continuously improve our business and investment climate to attract and retain all types of investment, and that means recognizing the criteria on which decisions are made, building on our strengths and addressing perceived weaknesses.

The Government cannot and will not attempt to address every key variable for modern business. Firms have various strategies, some more successful than others, to deal with continually changing and unpredictable variables, such as exchange rates or energy prices. Companies have access to a variety of short-term financial instruments to hedge against the risk of unfavourable exchange rate movements. In the longer term, flexible globalized companies adapt to sustained changes in accordance with the circumstances. Clearly, "low dollar" periods give companies an edge that they can parlay into market expansion abroad. A high dollar, by contrast, can reduce the cost of investments abroad (e.g. to secure access to resources or markets), and favour renewing industrial plant by importing productivity-enhancing machinery, equipment and technology. Canada's business community has proven itself remarkably resilient in adapting to these shifts in external variables, and undoubtedly will maintain this performance in the future.

Canada lags behind other G7 countries and Australia in highly qualified personnel (e.g. science and technology professionals and technicians). Canada ranks 12th among the countries of the OECD in its ratio of R&D; spending to GDP, and Canadian performance in taking new technologies to market is also cause for concern. With foreign-owned companies responsible for a third of private sector R&D; spending in Canada, diminished investment threatens to weaken our performance further. These trends threaten our future prosperity.

The Government's international commerce strategy focuses on making us a more attractive location for investment through such actions as:

• Smart regulation. In today's world, regulation is a significant competitive advantage and a key instrument for achieving our social, environmental and economic objectives; the Government's Smart Regulation: Report on Actions and Plans of March 2005 sets out how it will pursue these objectives, implement the recommendations of the External Advisory Committee on Smart Regulations, and, by internalizing a global perspective, eliminate the differences that make no difference.
• Investing in people. The Government will help workers to upgrade their skills through lifelong learning and targeted skills development, to make sure that their qualifications are relevant to the needs of globally competitive business and to provide options for communities and individuals grappling with economic change; we will promote the internationalization of education through academic networking among Canadian colleges, universities and international partners and through student exchange programs to build our educational and cultural assets.
• Enabling new Canadians. In order to enhance the attraction of Canada to highly skilled immigrants, the Government will facilitate their integration through new admissions processing, credentials recognition, training and support programs.
• Innovation. The Government will strengthen innovation by providing access to early-stage financing for innovative firms, and by actively encouraging university research and the commercialization of new technologies by Canadian companies and research institutions; and we will support international science and technology partnerships between Canadian firms and research institutes and their counterparts in other countries, particularly China and India, where the Prime Minister's interventions during his January trips have opened doors to expand such contacts significantly.

PROVIDING THE RIGHT SERVICES TO BUSINESS

Canadian SMEs are significant players in international commerce, doing business in every country. Our Trade Commissioner Service provides assistance to all Canadian companies, but often plays a crucial role in assisting SMEs with market intelligence, contacts and troubleshooting when entering new markets. The Trade Commissioner Service is also responsible for developing export prospects, financial options and investment opportunities, as well as nurturing relationships and international agreements. Its work is complemented by that of other parts of the Government, including Export Development Canada and the Canadian Commercial Corporation. Further support comes from trade missions, and the focused pursuit of important business opportunities, which are typically bid on by major corporations that in turn rely on a web of smaller players within their value chains.

Commercial relationships in the global economy go well beyond exports and imports. Companies can get access to technology, expertise, resources, inputs or distribution networks through franchising or licensing deals, strategic alliances, personnel exchanges or management contracts. They can also proceed by way of investment, whether to create new facilities, acquire access to resources or distribution channels, or cement alliances. In fact, for some areas this is a critical element in corporate strategies: growing a business abroad may only be possible by establishing a foreign branch or an affiliate, especially where there are strict national controls (e.g. banking or insurance, industries where Canadian firms operate worldwide), or where regulatory or tariff barriers make trade an uneconomic way to service the market. International investment is therefore often important to assure a firm's long-term growth and profitability.

The Canadian economy also benefits from outward investment, which contributes to competitiveness and to increased R&D;, and leads to technology transfers and spillovers to our economy. We must support such international business appropriately with the right rules-based framework, both within the receiving country and between Canada and that country: the confidence to invest and expand must be based on assurances of predictable and equitable treatment.

We will therefore enhance our capacity and flexibility in support of Canadian companies wherever they do business, including through support for investment and non-equity arrangements as drivers of international growth.

Our trade resources, while considerable, are limited compared to the efforts deployed in key markets by competitors such as the United States, China, Brazil, and the European Union, not to mention more focused competitors like Australia (with 12 trade offices in China compared to Canada's eight, half of which are contracted and operated by the Canada-China Business Council). These limited means dictate focus and efficiency: we must work smarter than the competition to ensure that our trade and investment activities have the maximum impact. The Government will consult stakeholders about two possible initiatives to deliver on this.

First, businesses need as many trade representatives as their competitors in key markets. Moving trade commissioners from one country to another is a short-term answer to specific opportunities such as major engineering and infrastructure projects, but a sustained Canadian presence would be far more effective. Our clients need to have a say in where our scarce resources are best allocated: these people on the ground are key sources of business intelligence for Canadian firms, helping to identify and correct potential barriers to trade and investment, and helping to make the right business connections in a diverse and complex environment.

And second, we need to improve our ability to showcase our innovations to the world. The federal government's February 2005 Budget provided funding to expand science and technology links and international R&D; teamwork, but bridging the gap between domestic innovation and international commercialization will take effort and collaboration across the government. As there is currently no regular, blue-ribbon international global technology summit, we will examine how to create and host one to attract global technology leaders to Canada.

SELECTED TRADE AND INVESTMENT PARTNERS

The Government will:

• expand the tools available for equity financing and use the full range of instruments of Export Development Canada, CIDA-INC and the Canadian Commercial Corporation to support international commerce, especially for SMEs;
• develop a program to increase international science and technology collaboration by Canadian organizations, to promote Canadian R&D; capacity abroad, and to accelerate the commercialization of R&D;
• examine innovative ways to attract strategic foreign investment, exploring in particular the creation of an annual Global Technology and Innovation Summit to position Canada as the springboard to North America;
• create new links among tourism, trade and investment, and showcase Canada through major events such as the 2010 Olympic and Paralympic Winter Games in British Columbia;
• provide the Trade Commissioner Service with new tools to support Canadian businesses in their overseas activities, extending beyond export opportunities to include potential joint venturing, outward investment, and R&D; partnerships;
• create a permanent office to support Canadian businesses pursuing major international infrastructure projects; and
• create a forward-looking and flexible framework for consultations and engagement to ensure that stakeholders, clients and interested citizens continue to actively contribute to Canada's international trade and commerce positions and priorities.