Thank you, Mr. Chair and honourable members.
My name is Sandy Walker. I am a partner in the competition foreign investment group at Fraser Milner Casgrain in Toronto. I am the past chair of the foreign investment review committee of the Canadian Bar Association and I have been dispensing foreign investment advice for the last 15 years.
I am here today at the invitation of the committee and I am speaking in my personal capacity. In my limited time, I would like to focus primarily on the need for predictability and transparency in the Investment Canada Act, which I'm going to call the ICA. Time permitting, I will also touch on the issue of compliance with undertakings.
When foreign investors are considering an investment in Canada, they need to understand the rules. If the rules are clear, investors can plan their investments accordingly. As you have no doubt heard over the course of these hearings, there are a number of aspects of the ICA that generate uncertainty for investors. For example, the net benefit to Canada criteria set out in section 20 are very broad and can be interpreted flexibly. While this latitude permits the minister to review investments on a case-by-case basis, too much latitude can introduce uncertainty, detract from predictability, increase the risk to the investor and the Canadian business, and may well discourage investment that is beneficial to Canada.
Uncertainty in the application of the ICA can be reduced in a number of ways.
First, issue ministerial decisions on transactions. The 2009 amendments to the ICA require the minister to issue reasons when the minister turns down an investment. However, reasons are not required if the minister approves an investment or if the investor withdraws its application, even if the investor withdrew the application because the minister initially rejected the investment, as appears to have occurred with respect to the Potash Corporation case. The issuance of reasons in all cases would help establish a body of decision-making that would help foreign investors understand the rules for investing in Canada and would also give the public an appreciation of why the investment is good for Canada. Such decisions would, of course, need to be sanitized of competitively sensitive information.
Second, to reduce uncertainty we should be developing and publishing a body of opinions on the interpretation of the Investment Canada Act. Some transactions raise difficult interpretation issues. For example, should an investment of a Canadian in a Canadian-listed company with no Canadian assets that generate revenue—basically the company just has a mine in Chile or Kazakhstan—be subject to the Investment Canada Act?
The minister is currently able to provide opinions under section 37 of the act, but does so infrequently. Opinions are important because they ensure careful consideration and consistency in the interpretation of the act. Making these opinions available in summary form would assist in developing greater certainty and transparency, but in order for the opinion process to be used more regularly, opinions would need to be provided on an expedited basis. Forty-five days, which is the maximum time period allowed under the act, is too long. Transactions often proceed on a much faster track.
Third, issue more guidelines and interpretation notes. Given the wide discretion the minister has under the Investment Canada Act, more guidance on how Industry Canada views the section 20 factors would be useful. The net benefit test will never be black and white, because many of the section 20 factors are not quantifiable, but guidelines could clarify government policy in certain cases. For example, the PotashCorp decision raises the question of whether the government considers certain industries to be so critical —so key or strategic —to Canada's economy that foreign investments in them will not be considered or will merit intense scrutiny. Conversely, if this is not the case, investors should know.
Guidance would also be useful in respect of national security. There is no definition of national security, which I completely understand, but it would be helpful to see some illustrative examples of the types of transactions that would be considered injurious to Canada's national security.
I'll touch briefly on compliance with undertakings. I think there's a lot of public skepticism about foreign investors living up to their undertakings and I believe in some cases this may relate to a lack of understanding about the nature of undertakings. They are commitments made to the Canadian government based on projected circumstances, and if those circumstances diverge widely from reality through no fault of the investor, Industry Canada recognizes this by either not holding the investor accountable or accepting a new undertaking.
In other words, there's a kind of force majeure or escape clause for foreign investors, as in most commercial contracts. This is justifiable, because the Canadian business could become uneconomic if the investor is forced during a recession to live up to commitments made in good faith during a boom period.
If there is disagreement between the government and the investor as to the validity of the reason for the non-compliance, it may make sense to bring in a third-party arbiter to determine if it is appropriate to release the investor from its obligations. Litigation is currently the only means of resolving disputes between the investor and the government, and that is a long-drawn-out and costly process.
