Finance Committee on May 28th, 2013

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I see what you're saying. The system is being discussed right now.

I believe the provinces understood the Supreme Court's decision, as well as the federal government's responsibility. No province objected to the current structure developing to meet its objectives in accordance with the responsibilities that were set out by the Supreme Court.

My question wasn't about the current system, but more about what the system could become with the cooperation of the provinces, who fully appreciate what the ruling means.

The passport regime is fairly limited at the moment. The provinces are very eager to expand the parameters of the current structure to bring the federal government into the fold. So we could expand those parameters rather than have the federal government impose a regulatory body that the provinces object to.

[Nicolas Marion]

Thank you for the question and the comment.

I think what the federal government is trying to do is improve the securities regulatory framework. And to do that, it must indeed work with the provinces to come up with a governance framework that works, is more effective and better meets the needs of suppliers and the various marketplace participants. I think the objective you mentioned is very much in line with the government's, which is to strengthen the securities regulatory framework.

As for the initiatives involving the talks with provinces, I would say that there have been a number of discussions over the past 16 months and even prior to that. A group of advisors from the provinces and territories took part. It brought together the 10 provinces and the territories. The spirit of cooperation continues.

There is no doubt that the approach has changed since the Supreme Court's ruling, but the discussions are ongoing. A number of multilateral meetings have been held, and some of them were attended by representatives from every single province and territory. The ultimate goal is really to improve the securities regulatory framework, to make Canada more competitive internationally, while addressing the recommendations of the IMF and the OECD to establish a national body.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I think there is agreement on the objectives. The disagreement has to do with the means being used to achieve the end.

[The Chair, Conservative, James Rajotte]

All right. Merci.

(Clauses 133 to 135 inclusive agreed to on division)

Colleagues, I'm going to suspend and take a health break here. It's been requested by a couple of you.

Because we are getting into a big area next, I suspect there'll be a lot of debate. Also, you should have before you the answer from DND to Mr. Brison's question. Please review that. Hopefully that addresses all the concerns that have been raised.

We'll suspend and take a brief break. Thank you.

[The Chair, Conservative, James Rajotte]

Colleagues, I call this meeting back to order.

This is meeting number 125 of the Standing Committee on Finance doing clause-by-clause of Bill C-60.

We left off at clause 136. I have three amendments by Ms. May.

Ms. May, you can address them separately in statements or you can address them together if you wish.

(On clause 136)

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you, Mr. Chair. If I address them together, it's one minute per amendment, so it's three minutes in a block, correct?

[The Chair, Conservative, James Rajotte]

Correct.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you.

I again wish to place on the record that in submitting to the finance committee's request that I provide amendments, with the instruction to have one minute per amendment to present them, I'm in no way precluding my rights under those that any member of Parliament in my circumstances has at report stage. So I participate without prejudice.

I'm grateful for an opportunity to address the changes I'm proposing. We're now moving to division 6, the Investment Canada Act. I know other parties also have concerns. The first block of my amendments all address definitions found in clause 136. This of course is the attempt, the general effort, which I support, to provide a definition for “state-owned enterprise” and to further amend the definition of “Canadian”.

All of my amendments within the Investment Canada Act go to two areas. One, which we'll get to later, is on some concerns that were raised by the competition subsection of the Canadian Bar Association about the way in which state-owned enterprises are valued compared to how WTO private investors are valued. But throughout this you'll also find a thread of concern about the national security implications of increased foreign investment in Canada, particularly by state-owned enterprises. In that, I would flag now for my friends in the Conservative Party that if you were willing to consider an amendment that comes up later, which is Green Party amendment 6, which deals directly with providing an actual definition of national security...when I speak to that, that's the one that I hope and pray you will actually consider, because I think it's important in the national interest.

Speaking to the amendments that I'm presenting as a block right now, they all relate to definitions. Under state-owned enterprise, Green Party amendment 2 attempts to insert the notion that when we're looking at state-owned enterprises of governments that are obviously not Canadian, we're looking at governments particularly that are:

pursuing political or economic objectives that are potentially injurious to Canada's national security

The second amendment within this block, Mr. Chair, is Green Party amendment 3, which is looking at the extent of control. What we're doing here is taking the direction that we support in the government's efforts to provide specificity in this area, but we're tightening the amendment and making the definitions more stringent to reduce the level of ministerial discretion. We are calling on the minister in our amendment to provide guidelines that would be specific to examples of where a foreign government would be considered to have sufficient influence or direction over an entity to make it a state-owned enterprise.

Lastly, Mr. Chairman, it's looking at influence and direction of state-owned enterprises, again tightening definitions.

I hope these will be considered favourably by the committee.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. May.

I will take these amendments separately....

Sorry, on the amendments, Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

I guess the question is, do we get to speak to clause 136, or do we have to address it through these amendments? Will you accept a debate on clause 136?

[The Chair, Conservative, James Rajotte]

Yes, you can address clause 136 after the vote on the amendments.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay.

Regarding these three amendments that deal with the definitions, in general, we share the concerns about the definitions. We just have a concern about Green Party amendment 2. We're concerned that it isn't properly part of a definition of state-owned enterprise, whether or not it's pursuing objectives harmful to Canada. I want to express our concern about that change.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

Is there further discussion on the amendments?

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Could I respond?

[The Chair, Conservative, James Rajotte]

I'm sorry, Ms. May. Your time is up.

(Amendments negatived [See Minutes of Proceedings])

We'll go to clause 136.

Ms. Nash, you wanted to address clause 136.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Yes. I know we'll have a third discussion of the Investment Canada Act under several clauses, but this division and the changes the Conservatives are making here are tinkering with an act that everyone recognizes is broken and needs a wholesale review.

This process has not been working for Canadians for some time now. You only have to ask anybody who has seen their workplace taken over. I look at Mr. Van Kesteren in the Chatham and London area. We've seen workplaces taken over by foreign companies. The review has been in secret. We don't know what the conditions are, and subsequently the facility has closed. People have been left in the lurch, or they've been kept out in a lockout or strike for several months before closure takes place. The impact not just on the people directly involved in working for these employers but for entire communities has been major.

The problem is that the way the act is written now is vague and confusing for all concerned. So much of it, of course, takes place in secret. We don't have proper transparency. The government is tweaking in this omnibus bill, but we're calling for a full parliamentary review of the act, an overhaul of this legislation, to increase transparency and ensure better protection for Canadian workers and their communities.

The Conservatives have promised to take serious action on the Investment Canada Act. We don't see that in this bill, so we'll get into some of the specifics as we go through subsequent clauses.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Nash.

Ms. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

Certainly it is really important that Canada remain open for business. We do have a distinction between free market investments and entities controlled by foreign governments. In my own riding, Sun Peaks was originally Tod Mountain. A Japanese company created a great resort and opportunity within Canada and employed many Canadians.

Could the officials talk a little about what we are accomplishing with clause 136? How does this provide some clarity around state-owned enterprises and private investment?

[The Chair, Conservative, James Rajotte]

Who would like to address that?

[Paul Halucha, Director General, Marketplace Framework Policy Branch, Strategic Policy Sector, Department of Industry]

Specifically dealing with the definition of state-owned enterprises provided in the act, the Bill C-60 proposals to amend the ICA include the definition of state-owned enterprises. If we go back to December of last year, when the Prime Minister made the announcement around the two SOE transactions that were under review at that time, he provided a policy clarification around state-owned enterprises. We undertook a series of actions, including the updating of the SOE guideline at that time.

The definition we've added into the act at this point effectively repeats the definition that he articulated and that was added into the SOE guideline in December. To that extent, it's not new. I would argue that it's a very clear definition, as follows:

(a) the government of a foreign state, whether federal, state or local, or an agency of such a government;

(b) an entity that is controlled or influenced, directly or indirectly, by a government or agency referred to in paragraph (a); or

(c) an individual who is acting under the direction of a government or agency referred to in paragraph (a) or who is acting under the influence, directly or indirectly, of such a government or agency;

The definition reflects the existing SOE guideline definition, that it is “an enterprise that is owned, controlled or influenced, directly or indirectly by a foreign government”.

The issues that have I think attracted a bit of attention in committee, and certainly from legal practitioners who are responsible for dealing with foreign investors in terms of brokering investments in Canada, are around the definition of “influence”. It has not been defined in the act. It's to be determined on a case-by-case basis.

It's important to always remember that the Investment Canada Act provides the minister with a discretionary authority. It provides him with the legal obligation to review each transaction on its merits. Therefore, similar to that, the discretionary authority around state-owned enterprises is provided.

So through the review process, investors are expected to address in their plans and undertakings the inherent characteristics of state-owned enterprises, and specifically that they are susceptible to state influence. Investors must also demonstrate their strong commitment to transparent and commercial operations.

In assessing influence, there are many factors that the minister could consider. In undertaking our analysis, we identified a number that we believed would be of extreme relevance, and I would offer them up to the committee in terms of providing further information around how influence could be assessed in the context of specific transactions.

One example would be the special shares of a corporation. Frequently you have companies where there's.... It's not direct control, there's not indirect control, but a foreign state retains a share of the ownership of the company, and with that are associated negative covenants, which often permit it to make veto decisions around important corporate decisions. That's an example of influence.

Secondly, there's the track record of the company. To the extent that foreign states operate around the world, the minister can look at what the experiences are of other state-owned enterprises, or the same one if it's making an investment in Canada, to understand how the foreign state has influenced—if it has—the operations in those foreign jurisdictions.

Thirdly, there's the state's ability to nominate or replace board members and appoint senior management. That's an obvious way of exercising influence that would not be captured by the definitions of control or indirect control.

Finally, there's any authority under foreign law or the corporation's governing documents preventing a foreign state from directing the affairs of business.

Those are examples.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. McLeod.

(Clause 136 agreed to)

(On clause 137)

I have two amendments. The first is NDP-10.

Monsieur Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Clause 137 seeks to gradually triple the reviewability threshold for foreign investors. The current threshold is set at $344 million, and the goal is to raise it to $1 billion. That means a lot more foreign acquisition transactions will no longer be subject to an adequate review under the provisions set out in the Investment Canada Act up to this point.

Ever since the Investment Canada Act came into force, the threshold has always gone up, but never so significantly. Many problems with the Investment Canada Act have come to the fore in recent months. Concerns include a lack of transparency and insufficient guidelines for the minister under the act. This lack of clarity has a tremendous influence on the decisions made by foreign investors looking to invest in Canadian companies, indeed acquire them.

The lack of clarity has been singled out time and time again. The Minister of Industry, who is, of course, responsible for such things, examined a number of acquisitions. And those decisions did nothing to clarify the conditions for acquisitions permitted by the government.

In that respect, the proposed amendments in this bill do nothing to rectify that lack of clarity and transparency, problems that should, indeed, be dealt with. The government had promised to do just that, not only during the election campaign, but also numerous times before and after the election.

The goal of amendment NDP-10 is to increase the threshold at which the Minister of Industry is required to conduct a review. We are proposing that the threshold be raised by $1 million next year, after which, increases would be tied to inflation. We want to make sure that foreign acquisitions provide a net benefit for Canada, as planned. The government will still have to determine what a net benefit for Canada means.

We're talking about foreigners looking to invest directly in Canada, but we're also talking about direct acquisitions, which often benefit Canada. That is something the review can show. However, they also regularly conflict with Canadian economic interests. If you don't believe me, just think about recent cases involving Vale Inco, Xstrata-Falconbridge and White Birch Paper. A review is absolutely necessary. If the threshold is increased to $1 billion, many acquisitions will take place without any evidence to show that the transaction was in Canada's economic interests.

This amendment addresses that problem by calling for a modest increase at first, after which the threshold would keep pace with the rate of inflation. That approach ensures that the government carries out the appropriate reviews.

We would also like to see more clarity and transparency, concerns the bill fails to address.

[The Chair, Conservative, James Rajotte]

Merci.

Is there further discussion?

The vote will be on amendment NDP-10.

(Amendment negatived [See Minutes of Proceedings])

We'll go next to Ms. May, with amendment PV-5, please.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you, Mr. Chair.

This amendment, as I indicated earlier.... My concerns with the Investment Canada Act are drawn from two concerns: national security, and the concerns of the national competition law section of the Canadian Bar Association. This amendment is in line with recommendations that were received by the committee on May 17 from that group of the CBA.

The bottom line is that the way the act is currently drafted creates an unintended consequence, and I will quote from the CBA:

The playing field in a competitive bid scenario would be tilted against private sector investors and in favour of SOE investors.

That's because of what I believe is a drafting mistake. When you get down on page 68, to “subsection 1.1”, they don't carry through enterprise value. We're dealing with only asset value, calculated in a manner prescribed. As a result, you could have an SOE that had an asset book value below the threshold level, but an enterprise level that might have been $1 billion. As a result, in a competitive bid, I think the drafting has accidentally given an SOE a potential advantage over a private sector investor.

That's what my amendment tries to repair.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. May.

Is there further discussion?

Ms. Nash.