Mario Ste-Marie A/Assistant Deputy Minister Investment, Science & Technology International Trade Canada October 18,

1. 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

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

4. EU is increasingly important as a destination of global FDI 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

5. Large developed EU economies attract most of inward FDI 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

6. Low FDI per capita in NMS suggests strong 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

7. Canada is the third largest non-EU investor in the region 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

8. 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

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) • 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

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

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. 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

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. 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.

16. 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

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. 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