Hanging Out the Welcome Sign

By Jamie Murphy

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.

As Mulroney reminded his listeners, Canada is by far the U.S.'s largest trading partner. Total commerce between the two countries last year exceeded $90 billion, an amount that surpassed U.S. trade with Japan by more than $27 billion. Moreover, said Mulroney, the second largest U.S. trading partner "is not Germany or Japan but Ontario, a province of Canada." Looking up from his text, he added, "How do you like them apples?"

Just fine, judging by Mulroney's reception last week--though some U.S. executives, who recall similar declarations of amity during the Trudeau years, remain skeptical. "U.S. executives understand the cycles of Canadian anti-Americanism," said one listener. "They know that when they [the Canadians] are down, they tend to cozy up to Americans." Other executives, however, were less critical. After Mulroney's speech, Edward Hennessy, chairman of Allied Corp., told the Prime Minister, "What you said here tonight is indeed a breath of fresh air."

Encouraged by Mulroney's initial moves, the Reagan Administration is giving him the benefit of the doubt. U.S. relations with Canada will inevitably become clearer following President Reagan's planned trip to Quebec in March, a few weeks before the Mulroney government's new budget and a number of important policy papers are unveiled. "We're watching as events unfold, and we're encouraged," said a U.S. official. It seems unlikely that any Canadian government could stimulate the economy much while facing a budget deficit of $26.5 billion, which is even higher than this year's U.S. deficit on a per capita basis. Finance Minister Michael Wilson calls reduction of the deficit "the key to growth and job creation" in his country. But Wilson fears that "Canadians may not fully grasp its consequences or share my concern about it." He is expected to announce deep government spending cuts in the spring.

Mulroney's administration has already proposed $2.65 billion worth of cuts in government spending for research, wildlife protection, student loans and industrial incentives. He vowed during his campaign to keep hands off the universal availability of major Canadian social welfare programs. His promise to increase defense spending appears to be temporarily sidelined.

Following Mulroney's speech, Canadian television viewers heard a member of the New York audience quip, "I'm glad Canada is part of the United States again." The remark offended many Canadians and fueled arguments by Mulroney's opponents that he is selling out the country to the U.S. Ed Broadbent, leader of the New Democratic Party, warned that Investment Canada will have the effect of enabling U.S. firms to buy up Canadian competitors and then close them down.

Such fears may be less threatening to Mulroney's popularity among Canadians than his apparent obsession with secrecy--civil servants are now forbidden to give background or off-the-record briefings to reporters without high-level authorization--and a growing feeling that he is moving more cautiously than necessary, especially for a Prime Minister whose party controls 211 of the 282 seats in Parliament. Mulroney has commissioned numerous studies, reviews and consultations, and is awaiting their conclusions next spring before proposing a detailed legislative program. Yet his slow and careful approach has not kept him from winning an impressive 50% approval rating in recent polls. If U.S. businessmen were included in the sample, the score would no doubt be higher. --By Jamie Murphy.

Reported by Ross H. Munro/Washington and Frederick Ungeheuer/ New York

With reporting by Ross H. Munro, Frederick Ungeheuer