TPC warns of renewed calls for increased accountability and justification of investments

Broad-based calls for accountability for public spending and obligations stemming from international trade agreements could impact on the way in which Canada’s flagship business assistance program invests in private sector technology projects. Technology Partnerships Canada (TPC) is anticipating that its investment practices may be challenged under the North American Free Trade Agreement, much in the same way they were successfully challenged under World Trade Organization (WTO) rules by the Brazilian government in the late 1990s.

The latest potential challenge comes from the United States, which has ramped up its requests for information about TPC in recent months. TPC executive director revealed the US scrutiny in Ottawa late last month during a presentation at the National Research Council’s Regional Innovation Summit. He says that the requests don’t concern just aerospace and defence-related investment, but those TPC makes in the areas of information and communications technologies and biotechnology.

“Governments are probing whether or not other governments are providing subsidies that may contravene international obligations,” says Parker. “Unless we can be very articulate and very clear that basically we are not providing a subsidy or something that gives advantage to a Canadian company, then there is a challenge. We know that because on a monthly basis we are getting pinged by the United States Department of Commerce.”

FIRST LEVEL OF SCRUTINY

Parker describes the requests for information as “the first level of scrutiny” and expects that they will become more detailed and persistent in the months ahead.

“Right now they’re saying ‘Tell us about TPC. Tell us the details of how you go about making investments. What are the criteria, what are the arrangements?’ We’re at that point now,” he says. “Until that point in time where TPC is able to assure that there is a level playing field, that the global playing field is being respected, I’m not sure what the response is going to be. That’s a dilemma for the future.”

More immediately, TPC is feeling the fallout from the federal sponsorship scandal and resulting calls for increased accountability and transparency of public spending. The problem is acute for TPC as it routinely enters into binding agreements with companies engaged in pre-competitive R&D projects. Parkers says that, with an investment portfolio exceeding $1 billion, previous guarantees of confidentiality “no longer applies”.

“Every agreement we have entered into is subject to review. That puts a very different focus on what it means for the government to enter into an investment contract with a company,” says Parker. “The question of what should be out in the public domain continues to be examined. We will have to be cautious (and) put out a notice saying we are not able to be in a position to assure companies that there will be confidentiality in terms of its relationships with ourselves ... That’s going to change the dynamics and cause companies to be cautious, very careful about getting into a substantial contract with government if there is not the opportunity to make those assurances.”

The experience with the WTO and TPC’s investments in Bombardier’s regional jet development program. TPC ultimately lost its fight against Embraer, one of Brazil’s largest exporting firms. The dispute as finally resolved last year after six years (R$,January 30/03). But TPC took remedial action in 1999 with a restructuring that moved its investments further away from the marketplace (R$, November 24/99).

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