Industry Committee on Feb. 13th, 2023

[The Chair, Liberal, Joël Lightbound]

Resuming the meeting.

We are now ready to begin the second hour of the meeting of the Standing Committee on Industry and Technology.

With us are two representatives of the Department of Industry: Francis Bilodeau, assistant deputy minister, and Mark Schaan, senior assistant deputy minister, strategy and innovation policy sector.

Thank you both for joining us.

Without further ado, we will continue the discussion.

I give the floor to Nathaniel Erskine‑Smith for five minutes.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much.

I want to start with Mr. Kennedy. I want to speak specifically to the role that our.... Do we still have the minister here?

[The Chair, Liberal, Joël Lightbound]

The minister just left.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Okay, so then my question is for Mr. Kennedy, specifically in relation to the federal funding role.

We have the sustainable development technology fund and the SIF, yet there are a couple of other models that are of interest to me. I look at Bioindustrial Innovation Canada, for example, which is a non-profit focused on sustainable chemistry. They invest, they have a return and then they invest again into new companies. They're doing good, but they're also profitable in terms of a sustainable financing model. It's the same with the DMZ out of Ryerson. Their flagship incubator program takes two and a half per cent and they're able to stand up very good companies. There's a lot of success there, but they're also a sustainably financed initiative and operation.

When you look at investing in companies or standing up new programs, are we looking at this question of sustainable financing and making sure that our federal funding and taxpayer money is going a longer distance?

[Simon Kennedy, Deputy Minister, Department of Industry]

Thank you for the question.

I would say yes. That is something we look at.

The honourable member noted that there are a bunch of different models. Certainly, we're mindful of the strengths and weaknesses of the different models. For example, the strategic innovation fund, which is the biggest fund administered by ISED, can take warrants but generally can't hold equity. It doesn't issue loans in the classic sense, the way a bank would. If we wanted to make significant changes to a fund like that, we would actually have to change its underlying structure so that it could hold equity. It would function very differently. The oversight would be different under the Financial Administration Act.

These are all issues that we are certainly mindful of. We work very closely with other entities like the Canada Infrastructure Bank and so on, which actually have different kinds of authorities. We work very closely with provincial organizations, like Investissement Québec, which again have different authorities.

We're alive to this. Those are policy choices as to how governments decide to set up some of these instruments. We do our best within the design to—

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

I recognize that, but in terms of providing advice to government—and you're in one of the most senior roles in providing that kind of advice to government—it does strike me, when you look at something like the sustainable development technology fund, for example. For that fund, which is taking in, I would say, risky but important bets, it makes a lot of sense that there would probably be some kind of equity that comes back in some instances, whereas it may not make sense for other programs. Maybe it makes sense; maybe it doesn't.

I don't think we have a culture in the government, frankly—or I don't think we have a history across governments—of looking at a return in the way that we've seen in the two examples I used. It's possible to invest in important things from a public interest perspective and also have a return to ensure that we see greater value for those dollars and that we extend those dollars.

Changing lanes, let's go to the conversation we had recently—

[The Chair, Liberal, Joël Lightbound]

Mr. Erskine-Smith, Mr. Kennedy would like to....

[Simon Kennedy]

On Mr. Erskine-Smith's question, if you look at, for example, a program that can hold equity, the equity can earn a return and you can use that to reinvest. That's one way of doing it.

Another way is to set up a program that has a repayment schedule. The companies are repaying, the money goes to the consolidated revenue fund and that money is then available to the Minister of Finance to determine how to spend it. There may still be funds coming back to the government to be recycled, but those two different funds are designed in a very different way.

If I use the strategic innovation fund as an example, we actually calibrate the kinds of grants and lending and so on that we do. If you're a pre-revenue company with really great intellectual property, but you actually don't have a lot of revenue coming in, that might result in a kind of structure where we take on more risk. If you're a company where there is a benefit to Canada, but actually you as a company have deep pockets and can generate a lot of revenue, we might put something on the table that is fully repayable and you have to repay the Crown.

In the case of the strategic innovation fund, we don't have a revolving fund where the money comes in and sits on our balance sheet and we can lend out it again, but the money is still coming back to the Crown. It's still going back into the government's coffers.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Maybe, if it's a good investment. If it's not, then it disappears.

We know very clearly, when it comes to Bioindustrial Innovation and with the DMZ, that if the bets don't work then they don't have a business model anymore, whereas with the strategic innovation fund, if the bets don't work then we don't know. It's a good point.

I'm out of time, so it would be very helpful, actually, and I would like to know.... You can follow up in writing. I'm sorry; you made more work for yourself, so I apologize. It would be very helpful for you to lay out, when we look at the supercluster money and at SIF money, what the return on those investments have been, however you characterize it. I would like to know.

I think we should be clear-eyed about how we put a lot of money into these programs. What's been the public interest return? It might be a return to taxpayers in terms of economic activity. It might be public interest advancement in particular technologies. I would love to know what the credible return is on the money we've invested in the innovation ecosystem through the strategic innovation fund in particular. I would expand that to the sustainable development technology fund. However, I think we should be clear-eyed about what return we're getting for the work that we're putting in.

If you could follow up in writing, that would be appreciated.

[Simon Kennedy]

That would be fine, Mr. Chair. There's no trouble.

Certainly, as the deputy minister at ISED, I would hope that we would always strive to make sure there's a return to taxpayers, whether it's a public benefit return or an actual monetary return for the investments made.

I'd be very happy to come back to the member with an answer to the question. Thanks.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

I'm not dismissive about it. I know you care as well. It's just not always clear to us what that return is.

I appreciate it.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. Perkins, the floor is yours.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

Thank you, Deputy Minister.

My initial question is a bit of a follow up to Mr. Erskine-Smith's in the sense that I actually did an Order Paper question, trying to get some information on SR and ED. It came back very light. I understand it ended up going to the Canada Revenue Agency and not to the Department of Industry.

I've been told quite often that the top users of SR and ED are technically Canadian companies, but it's almost exclusively foreign multinationals that own those companies. In essence, Canadian taxpayer money is being used to subsidize, through the SR and ED credit, foreign multinationals.

This may be a bit unfair because you haven't seen it, but the Canada Revenue Agency, in response to my Order Paper question, said that “the SR&ED program does not isolate the requested information for foreign-controlled corporations filing SR&ED investment tax credit.... Therefore, the requested information cannot be provided”. The idea is that they don't track the ownership of the companies that are claiming the tax credit.

Don't you think it would be an important thing for us to know whether or not we're subsidizing, essentially, foreign companies? In tracking one of our largest, if not the largest.... I think we spend more in SR and ED tax credits than we do in the SIF program. Wouldn't it be good to know whether or not we're subsidizing foreign multinationals?

[Simon Kennedy]

I'd be very happy to try to answer the honourable member's question.

I would say that we don't administer the program. The responsibility for tax policy is with the finance ministry. It's administered by the CRA. I'm really at a disadvantage. I think that would be probably best directed to them.

However, I certainly appreciate the question.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Okay, thank you.

Along the same lines.... I've met with most of the granting councils in my role as the industry critic. One of the things that they shared with me is that, basically, most of the research they had done and that they do is generally matched by private sector companies to leverage that money in the research. In almost every single case—more than nine out of 10 cases—the IP that develops out of that is owned by the multinationals and not by the institution where the Canadian taxpayer money is going. In more than 90% of the cases, they said, it's a foreign multinational that is funding it. It's not generally a Canadian company. In essence, we're subsidizing the invention of new things for foreign multinationals in our universities.

Do you track that, as well, in terms of how much of the IP we fund through the granting councils is not actually owned by Canada?

[Simon Kennedy]

I might ask one of my colleagues if they have a better answer than I do.

We have a great deal of statistical analysis on intellectual property and the ownership of IP. With regard to the member's question, I don't know the answer to that specific one. A colleague might, but I'd certainly be happy to get back with some detail on that space if we have it.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Maybe you could table some of those numbers, unless, Mr. Schaan, you have something to add.

[Mark Schaan, Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, Science and Economic Development Canada, Department of Industry]

I don't have anything at the ready in terms of percentages. I would just note, though, a couple of important efforts in this space that I think are worth noting.

One is that, through the national intellectual property strategy that was first unveiled in 2018 but then subsequently added to in a number of subsequent years, there's been considerable effort placed on trying to ensure the maximization of intellectual property in the Canadian space.

One of those programs is actually a tool called “ExploreIP” that allows for federally funded research and development through the universities and colleges to be held in a repository, to be easily partnered with Canadian small and medium-sized enterprises—

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

For commercialization—

[Mark Schaan]

—for commercialization purposes with a tool to be able to try to understand its access and its current relevance to your goal.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

That's on the ones we own, whereas it seems like 90% of them go to.... Because I'm running out of time, I'll move on to my next question on the issue in 2017 of the takeover by Hytera of Norsat and then the takeover of the Tanco mine in 2019 by Sinomine. I know this predates you, Deputy, but in both cases, the previous minister, Navdeep Bains, did not ask for a national security review.

Could you explain to us how the department comes to the conclusion that when a Chinese state-owned enterprise is taking over Canadian assets in telecommunications and mining the advice to the minister would be that you don't even need to do a national security review?

[Simon Kennedy]

I would just have maybe a general answer to that. There is a formal process that can be triggered to get additional time, and you get put into a formal process, but as a general rule, for any investment that comes across our desk or that is drawn to our attention—and this can be even just intelligence that's gleaned from the press—there is a proactive effort to look at potentially problematic investments.

The national security community is involved in that. We work very closely with our partners in the Public Safety ministry, the RCMP, CSIS and others, and it's through that assessment process that typically a judgment is made as to whether a particular investment presents a concern. If it presents a concern, then additional measures can be taken or the investment can be blocked. As you might understand, I'm not really in a position to talk about those particular historic investments.

What I can say is that the tempo of activity and level of scrutiny have generally gone up significantly. If you look at the statistics, that's very clear. We publish an annual report with statistics on the use of the Investment Canada Act, and the numbers of blocks, reviews and so on have generally been going up.

With Bill C-34, our hope, as the minister explained—is to have a more flexible set of tools that will allow us to be even that much more responsive going forward.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

I'm going to push my luck with one more question. I'll try to ask it quickly.

Last week in the public accounts committee, officials stated in regard to the Medicago case and the closing of the biotechnology company that the government's prepaid contract was to buy 20 million doses of the vaccine at $30 a dose—in other words, $600 million—and that there was actually negotiation going on as to how much the government would have to pay for those vaccines that were not produced or delivered.

Is it true that we are going to be paying some portion of that $600 million for vaccines that never got produced or delivered?

[Simon Kennedy]

What I would say, just for clarification, is that with regard to Medicago there are two laneways. Laneway number one is the negotiation of these doses that was done under these advance purchase agreements. That's led by Public Services and Procurement, working closely with the Health portfolio. Then there's our work with the company to actually support the development of the vaccine and to support the expansion of their facility in Canada. That's principally us.

I'd certainly be happy to talk a bit about the work we did to support them in developing the vaccine and building out their facility in Quebec City, but we were not directly involved. It's not really our authority, the dose purchases, the actual purchase of the vaccine.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Ms. Lapointe, the floor is yours for five minutes.