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Midterm 2008 Summer - Barry

Midterm 2008 Summer - Barry - Questions#1 Explain the rules...

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Questions #1: Explain the rules governing foreign ownership in Canada, how the interests of corporations and government differ concerning foreign takeovers, and provide one example of a foreign takeover that would illustrate Mr. D’Alessandro’s concerns. With the emergence of the recent takeover bid of Montreal-based Alcan from New York-based Alcoa, the controversial issue over whether the government should tighten the foreign ownership arises. The business corporations led by Mr. D’Alessandro, president and CEO of Manulife Financial and other CEOs of big Canadian companies called for tighter restriction of foreign ownership in Canadian sensitive sectors 1 while the government refused to change the related rules in the Investment Canada Act (ICA). 2 Foreign investment in Canada was a “legacy” of the National Policy introduced by Sir John A. Macdonald in 1878. This policy focused on imposing high tariff on imported manufactured goods and welcoming foreign investment in Canada. Hence foreign investors saw it as an opportunity to invest in Canadian domestic market to avoid the trade barrier. This method of doing business resulted in a high foreign ownership in Canada, 3 and it is typically through the acquisition of Canadian business assets or voting shares (ICA). 4 All foreign investments in Canada are subjects to notification and review, rules and regulations set by ICA (established in 1985), and other international trade agreements of which Canada is a member of, such as WTO, NAFTA, and APEC. 5 All investments in order to ensure the “net benefit” of Canada are subjects to notification, and review is needed in special circumstance only. An acquisition transaction is reviewed if it exceeds $5 million for direction investment, $50 million for indirect investment, or $5 million 1 http://ezproxy.library.yorku.ca/login?url=http://proquest.umi.com.ezproxy.library.yorku.ca/pqdweb? 2 http://www.theglobeandmail.com/servlet/story/LAC.20070530.RBOMBARDIER30/TPStory/Technology 3 Wesson (2007: 68-71) 4 http://strategis.ic.gc.ca/epic/site/ica-lic.nsf/en/h_lk00071e.html 5 http://www.apec.org/apec/enewsletter/december_vol1/inthenewse.primarycontentparagraph.0001.LinkURL.Downl oad.ver5.1.9 1
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with 50% of the asset or business acquired is located in Canada. 6 For WTO investors and vendors, the amount of threshold for review is adjustable, and it is $281 million in 2007. 7 There are some restrictions on foreign investment in general and in specific sensitive sectors. The general rules are any investment must be of “net benefit” to Canada and must obey the Canadian status rule and ownership rule. The foreign ownership is restricted in some sensitive sectors. In telecommunication, the foreign ownership is restricted to 20% of voting shares of telecommunication and media companies or 33.3% of holding companies. 8
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Midterm 2008 Summer - Barry - Questions#1 Explain the rules...

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