1. 1 Mario Ste-Marie A/Assistant Deputy Minister Investment, Science & Technology International Trade Canada October 18, 2005 Panel Discussion on Transatlantic Investment Experiences: The Impact of EU Enlargement and Canada as a Gateway to North America

2. 2 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

3. 3 Patterns of International and Canadian Direct Investment in the European Union

4. 4 EU is increasingly important as a destination of global FDI Global Inward FDI Stock by Geographic Area (%) Others Asia & Oceania Latin America European Union North America Source: IPS compilations based on data from UNCTAD  In recent years, the EU has made substantial gains in attracting FDI, largely at the expense of North America. EU (15) EU (25)

5. 5 Large developed EU economies attract most of inward FDI Share of EU Inward FDI Stock by Member State (%), 2004 * EU 10 New Member States Source: IPS compilations based on data from UNCTAD  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 Poland 26.7% Hungary 26.3% Czech Republic 24.6% Slovakia (6.3%) Estonia (4.1%) Cyprus (3.5%) Lithuania (2.8%) Slovenia (2.2%) Latvia (2.0%) Malta (1.5%)

6. 6 Low FDI per capita in NMS suggests strong potential to attract FDI Source: IPS compilations based on data from UNCTAD EU15 83.6% 10NMS 16.4% EU population distribution (2003) FDI per capita by country ($) (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

7. 7 Canada is the third largest non-EU investor in the region Source: IPS compilations based on data from EUROSTAT 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

8. 8 EU is also an increasingly important destination of Canadian Direct Investment Abroad (CDIA), largely in traditional markets Distribution of CDIA Stock by geographic Area (%) EU US Others Source: IPS compilations based on data from Statistic Canada 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). 29% 18%

9. 9 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) European Union United States Source: IPS compilations based on data from Statistics Canada  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.

10. 10 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

11. 11 Canada: A Gateway to North America for the European Union

12. 12 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!

13. 13 U.S. is the major export destination of Canada-based EU firms 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  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.

14. 14 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

15. 15 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. Canada - US Border: Secure and Efficient

16. 16 Canada’s Sectors Offer EU Companies Considerable Potential for Growth: Canada’s Sectors Offer EU Companies Considerable Potential for Growth: Information and Technology  32 000 ICT firms;  work force of 545 000,  38% university degrees 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 Energy - Natural Resources  Oil and gas  Wind energy Canadian Growth Sectors A B C D

17. 17 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)

18. 18 Mario Ste-Marie A/Assistant Deputy Minister Investment, Science & Technology International Trade Canada 111 Sussex Drive Ottawa, Ontario K1A 0G2 www.investincanada.com Mario.Ste-Marie@international.gc.ca