Branch plant economy
Encyclopedia
The branch plant economy is the phenomenon of United States
companies building factories (branch plants) in Canada
, primarily to sell products in the Canadian market. In the period between the American Civil War
(early 1860s) and World War I
, U.S. companies began to look to Canada as a new market. The branch plants built in Canada were strictly under American rule. Canadian tariff
s on imported products led U.S. companies to build factories in Canada, in effect bypassing the tariffs.
Some economists are concerned that this phenomenon means that Canada's manufacturing base may be too reliant on outside expertise and resources, and that it may lead to proportionately less research and development
spending in Canada. Additionally, the degree to which Canadian manufacturing in particular is directed from outside of the country has raised concerns that it is more difficult to direct economic priorities in the interests of Canadians.
An upsurge of Canadian nationalism
in the 1960s and early 1970s led the Liberal
governments of Lester Pearson and Pierre Trudeau
to implement policies aimed at regulating foreign investment. The views of Walter L. Gordon
were especially influential in the 1960s. Further left, the Waffle
emerged in the New Democratic Party
on a program based on Canadian economic nationalism and independence. These developments led to measures such as the creation of Petro-Canada
, a government-owned oil and gas company, implemented by the Trudeau government in the mid-1970s to increase Canadian control over the oil industry. The crown corporation was created as one of the demands of the NDP in exchange for their support of Trudeau's minority government. Trudeau also established the Foreign Investment Review Agency
to regulate foreign investment in the economy and limit the takeover of Canadian-owned companies by foreign multinational corporation
s.
The election of Brian Mulroney
's Progressive Conservative
government in the 1984 election
brought this period of economic nationalism to an end. Mulroney's government dismantled FIRA and moved to privatize Petro-Canada. The Mulroney government's negotiation and implementation of the Canada-US Free Trade Agreement resulted in increased economic integration between the US and Canada, and was opposed by economic nationalists in the 1988 election
.
The Canada-US FTA, the North American Free Trade Agreement
and the World Trade Organization
may bring branch plants to an end as the elimination of many tariffs and trade controls makes it much easier for a foreign supplier to sell in the Canadian market without having a branch plant in the country. Numerous plants, particularly in the textile and manufacturing sector, have shut down and moved to Mexico
or other countries with lower wages and costs of production.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
companies building factories (branch plants) in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, primarily to sell products in the Canadian market. In the period between the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
(early 1860s) and World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
, U.S. companies began to look to Canada as a new market. The branch plants built in Canada were strictly under American rule. Canadian tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s on imported products led U.S. companies to build factories in Canada, in effect bypassing the tariffs.
Some economists are concerned that this phenomenon means that Canada's manufacturing base may be too reliant on outside expertise and resources, and that it may lead to proportionately less research and development
Research and development
The phrase research and development , according to the Organization for Economic Co-operation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of...
spending in Canada. Additionally, the degree to which Canadian manufacturing in particular is directed from outside of the country has raised concerns that it is more difficult to direct economic priorities in the interests of Canadians.
An upsurge of Canadian nationalism
Canadian nationalism
Canadian nationalism is a term which has been applied to ideologies of several different types which highlight and promote specifically Canadian interests over those of other countries, notably the United States...
in the 1960s and early 1970s led the Liberal
Liberal Party of Canada
The Liberal Party of Canada , colloquially known as the Grits, is the oldest federally registered party in Canada. In the conventional political spectrum, the party sits between the centre and the centre-left. Historically the Liberal Party has positioned itself to the left of the Conservative...
governments of Lester Pearson and Pierre Trudeau
Pierre Trudeau
Joseph Philippe Pierre Yves Elliott Trudeau, , usually known as Pierre Trudeau or Pierre Elliott Trudeau, was the 15th Prime Minister of Canada from April 20, 1968 to June 4, 1979, and again from March 3, 1980 to June 30, 1984.Trudeau began his political career campaigning for socialist ideals,...
to implement policies aimed at regulating foreign investment. The views of Walter L. Gordon
Walter L. Gordon
Walter Lockhart Gordon, PC, CC, FCA was a Canadian accountant, businessman, politician, and writer.-Education:...
were especially influential in the 1960s. Further left, the Waffle
The Waffle
The Waffle was a radical wing of Canada's New Democratic Party in the late 1960s and early 1970s. It later transformed into an independent political party, with little electoral success before it permanently disbanded in the mid-1970s...
emerged in the New Democratic Party
New Democratic Party
The New Democratic Party , commonly referred to as the NDP, is a federal social-democratic political party in Canada. The interim leader of the NDP is Nycole Turmel who was appointed to the position due to the illness of Jack Layton, who died on August 22, 2011. The provincial wings of the NDP in...
on a program based on Canadian economic nationalism and independence. These developments led to measures such as the creation of Petro-Canada
Petro-Canada
Petro-Canada was a crown corporation of Canada in the field of oil and natural gas. It was headquartered in the Petro-Canada Centre in Calgary, Alberta. In August, 2009, Petro-Canada merged with Suncor Energy, a deal in which Suncor investors received approximately 60 per cent ownership of the...
, a government-owned oil and gas company, implemented by the Trudeau government in the mid-1970s to increase Canadian control over the oil industry. The crown corporation was created as one of the demands of the NDP in exchange for their support of Trudeau's minority government. Trudeau also established the Foreign Investment Review Agency
Foreign Investment Review Agency
Invest In Canada is the Government of Canada organization that promotes and attracts foreign direct investment into Canada. As a bureau in the Department of Foreign Affairs and International Trade, Invest In Canada assists companies planning to invest in Canada or to expand their Canadian...
to regulate foreign investment in the economy and limit the takeover of Canadian-owned companies by foreign multinational corporation
Multinational corporation
A multi national corporation or enterprise , is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation...
s.
The election of Brian Mulroney
Brian Mulroney
Martin Brian Mulroney, was the 18th Prime Minister of Canada from September 17, 1984, to June 25, 1993 and was leader of the Progressive Conservative Party of Canada from 1983 to 1993. His tenure as Prime Minister was marked by the introduction of major economic reforms, such as the Canada-U.S...
's Progressive Conservative
Progressive Conservative Party of Canada
The Progressive Conservative Party of Canada was a Canadian political party with a centre-right stance on economic issues and, after the 1970s, a centrist stance on social issues....
government in the 1984 election
Canadian federal election, 1984
The Canadian federal election of 1984 was held on September 4 of that year to elect members of the Canadian House of Commons of the 33rd Parliament of Canada...
brought this period of economic nationalism to an end. Mulroney's government dismantled FIRA and moved to privatize Petro-Canada. The Mulroney government's negotiation and implementation of the Canada-US Free Trade Agreement resulted in increased economic integration between the US and Canada, and was opposed by economic nationalists in the 1988 election
Canadian federal election, 1988
The Canadian federal election of 1988 was held November 21, 1988, to elect members of the Canadian House of Commons of the 34th Parliament of Canada. It was an election largely fought on a single issue: the Canada-U.S. Free Trade Agreement ....
.
The Canada-US FTA, the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
and the World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
may bring branch plants to an end as the elimination of many tariffs and trade controls makes it much easier for a foreign supplier to sell in the Canadian market without having a branch plant in the country. Numerous plants, particularly in the textile and manufacturing sector, have shut down and moved to Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
or other countries with lower wages and costs of production.