Bill C-34

National Security Review of Investments Modernization Act

An Act to amend the Investment Canada Act

This enactment amends the Investment Canada Act to, among other things,
(a) require notice of certain investments to be given prior to their implementation;
(b) authorize the Minister of Industry, after consultation with the Minister of Public Safety and Emergency Preparedness, to impose interim conditions in respect of investments in order to prevent injury to national security that could arise during the review;
(c) require, in certain cases, the Minister of Industry to make an order for the further review of investments under Part IV.1;
(d) allow written undertakings to be submitted to the Minister of Industry to address risks of injury to national security and allow that Minister, with the concurrence of the Minister of Public Safety and Emergency Preparedness, to complete consideration of an investment because of the undertakings;
(e) introduce rules for the protection of information in the course of judicial review proceedings in relation to decisions and orders under Part IV.1;
(f) authorize the Minister of Industry to disclose information that is otherwise privileged under the Act to foreign states for the purposes of foreign investment reviews;
(g) establish a penalty not exceeding the greater of $500,000 and any prescribed amount, for failure to give notice of, or file applications with respect to, certain investments; and
(h) increase the penalty for other contraventions of the Act or the regulations to the greater of $25,000 and any prescribed amount for each day of the contravention.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

I just want to comment briefly.

You know, Mr. Perkins has put forward...and I was so, so annoyed. I looked at my package, and I was like, “What the frick? There are a million things on 'may' and 'shall'.”

I want to clarify for Canadians listening today that “shall”, in legal language, is often used to impose a mandatory obligation or requirement. When a law or regulation uses the term “shall”, it means that the action or condition specified is necessary and must be followed. Failure to comply with the “shall” provision can result in legal consequences or penalties. It indicates that the specified action is mandatory and binding.

“May”, on the other hand, is used to confer discretionary power or give permission. When a law or regulation uses the term “may”, it grants an authority or decision-maker the option to exercise their judgment or discretion in a particular matter. It indicates that the specified action is permissive, allowing the authority or individual to choose whether or not to act.

Let's take this example: “The minister may grant an exemption in exceptional circumstances.” In this case, the minister has the discretionary power to grant an exception under exceptional circumstances, but it is not mandatory.

For the purposes of Bill C-34, again, Canadians are looking for a stronger bill that will, in some cases, dictate that the respective minister take certain actions and do certain things to provide confidence in our institutions and, at other times, exercise great discretionary power in the national interest of Canada. That is why we are putting forward these types of amendments.

Thank you, Mr. Chair.

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

I'm just trying to understand, because the principal thing that we're doing in ours is changing “may” to “shall”. We're not really changing a lot of the other section in the act that Bill C-34 amends.

I don't mind. I'm just trying to understand that this is just an addition, not because my proposed amendment is causing a concern. You're just providing a little more clarity.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you, Chair, and thank you to my colleague for the amendment.

I guess the worry is that there could be cases where the act of imposing interim conditions won't actually reduce the risk. It could actually increase the risk by, for example, disclosing the location of sensitive infrastructure.

I'd like to propose a subamendment, and I'm under the impression that it's already been shared. I move that motion CPC-10, proposing in paragraph (c) to amend clause 15 of Bill C-34 by replacing line 26 on page 8, be amended by replacing the word “review” with the following:

review, provided that the imposition of interim conditions does not introduce significant new risks of injury to national security.

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

Thank you, Mr. Chair.

I'd like to move CPC-10.

This is, again, the “shall” and “may” thing. In its current form, Bill C-34 doesn't compel the minister to conduct a national security review, as we've talked about before. Rather than making it optional, we believe it would be helpful to have an automatic trigger that would compel a minister to go a little deeper into the security review.

As I've mentioned before, my poster children for this are Tanco and Hytera, where the minister of the day, on whatever recommendations he chose, did not go into enough detail. I don't know what the recommendations were, but in my view they needed to go further than the first stage of the review.

My concern in this case is that I just don't see how a state-owned enterprise, a Chinese company, being primarily or controlled through the state-owned enterprise—or if not through the state-owned enterprise, at least by the 2017 national security law that was passed in China requiring it to spy and requiring it to steal technology as part of being a good citizen of the Chinese Communist Party—didn't get the in-depth review for these acquisitions.

How could a telecommunications company and its assets in Canada not be considered strategic? They obviously are in the U.S. I know attitudes may have evolved toward Huawei, and with Hytera being charged last year and the only lithium-producing mine in Manitoba being so critical to the issue going forward.

Hopefully, the Ring of Fire and those things will eventually be developed in Canada, and we're not at the point at which our only lithium-producing company is owned by a Chinese state-owned enterprise and everything it mines goes to China.

Given the emphasis on the EV strategy by the government, and by governments of the day, and the move to that, it was probably a little short-sighted to not get a more in-depth strategic look at either the net benefit or, in this case, the national security review. Perhaps today, security might be viewed a little differently from how it was viewed in 2017. I'm not sure, but hindsight's always 20/20. This forces it to go to a deeper dive. It removes some of that ambiguity and gives the minister a little more heft around the table for the minister's ultimate decision.

I won't go over the diligence of various ministers. I went over that last time and got a few smiles. Regardless of government, not all ministers are created equal. Mr. Masse called this the Maxime Bernier clause, and I tend to agree with that. At least he didn't leave any documents.... Well, maybe he did leave documents around on that too, but I'll leave it there for now. This just provides a suspenders and belt approach, as someone said a few meetings ago.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Perkins.

Unfortunately, I must inform you of a decision of the chair.

Bill C‑34 would authorize the Minister of Industry to make an order for the further review of investments under part IV.1. Amendment CPC‑7 would remove the minister's leeway to make such decisions and confer that authority instead on the Governor in Council.

The House of Commons Procedure and Practice, third edition, reads as follows at page 770:

An amendment to a bill that was referred to a committee after second reading is out of order if it is beyond the scope and principle of the bill.

The chair is of the view that, for the aforementioned reasons, the amendment is beyond the principle of the bill. Consequently, the chair finds this amendment inadmissible.

Mr. Perkins, I anticipate that you will challenge.

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

Bear with me while I flip some papers here; two committees in the same two hours is a little challenging.

We have CPC-7. Bill C-34, in its current form, doesn't compel the minister, in my view, to actually conduct a national security review. I know we've had some discussions and questions about this.

Mr. Schaan said there are three stages. What we're looking for is that the minister, in some cases, rather than having the option of asking for the more detailed reviews in the second and third stages, “shall” do it in certain circumstances. My understanding is that the words “may” and “shall” in legal terms have significantly different meanings. The purpose of this amendment, in other words, is to compel the minister to send certain types of investments to a national security review rather than giving him the option.

Part of the reason for that, as I've expressed before, is my concern that several recent acquisitions by companies controlled directly and indirectly by China—the Communist Party of China—were allowed to go through with what I would call, in a non-technical term, a fairly superficial national security review. I am thinking primarily of the acquisition of the telecommunications company in Vancouver called Norsat. It was bought by Hytera, which also owns the Markham-based company Sinclair, which subsequently was contracted by both the RCMP and the Canada Border Services Agency to provide services and equipment to those agencies after the United States and President Biden actually had banned Hytera from doing business in the United States. It has actually been charged in the United States with 21 counts of espionage.

While that's not an acquisition in terms of the procurement, the whole idea that Hytera itself was able to buy important telecommunications equipment, with the minister having the ability to say that he “may” do it, so he'll just do the basic level of security and not the deeper dive into a state-owned enterprise.... We need to have a greater depth of certainty in the national security review in those cases.

The other case, which I mentioned at a previous committee, is the acquisition of the Tanco mine in Manitoba by a state-owned resource company in China, based out of Beijing, I believe. It acquired the only lithium-producing mine at that time in Canada—obviously critical to the EV strategy going forward for our country. The result is that all the lithium being mined at that mine in Manitoba—our only one—is actually going to China to develop the battery technology in China, rather than being used here in Canada. Again, that went through under Minister Bains, with just a cursory first-level review as he was not compelled to go into the more detailed review.

I know there are examples that go further back and that people would probably like to talk about. Mr. Masse and I have talked about Nexen, for example, and the oil sands, and the list goes on.

We feel that in those circumstances it's essential that the government and cabinet have the benefit of that detailed security review and that it shouldn't be an option. It should be required, and it should be a “shall” rather than a “may”.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Généreux.

You hit the nail on the head. The proposed amendment would amend section 23.1 of the Investment Canada Act. However, the House of Commons Procedure and Practice, third edition, reads as follows at page 771, as I just explained with regard to the previous amendment:

…an amendment is inadmissible if it proposes to amend a statute that is not before the committee or a section of the parent Act, unless the latter is specifically amended by a clause of the bill.

Since section 23.1 of the Investment Canada Act would not be amended by Bill C‑34, the chair is of the view that amendment CPC‑4 is inadmissible.

Since the decision of the chair isn't being challenged, that brings us up to clause 10.

Go ahead, Mr. Vis.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

I move that Bill C‑34 be amended by adding after line 26 on page 6 the following new clause:

9.1 Section 23.1 of the Act is replaced by the following:

23.1 The Minister shall provide reasons for any decision made under subsection 21(1), 22(2) or 23(3) explaining the factors taken into account by the Minister to conclude that he or she is satisfied or is not satisfied that the investment is likely to be of net benefit to Canada, and shall publish in the Canada Gazette the investment implemented or proposed by a non-Canadian.

Mr. Chair, I don't know whether this amendment will suffer the same fate as the other two that we just considered—that is, whether you will have to make a decision regarding them—but we would like this one to be made to the Investment Canada Act.

Once again, I think that, since a number of our parties, including the New Democratic Party, want to do it, I imagine it's because there's a valid reason for doing it. It would be interesting to see later on how this element could be included differently in the act if, considering the decisions you've just made, this amendment isn't suitable. Perhaps there'd be a way to do that differently.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Williams.

I have a decision to make on amendment CPC‑3.

Bill C‑34 would amend the Investment Canada Act by authorizing the Minister of Industry, after consultation with the Minister of Public Safety and Emergency Preparedness, to impose interim conditions in respect of investments in order to prevent injury to national security that could arise during the review under part IV.1 and by allowing written undertakings to be submitted to the Minister of Industry to address risks of injury to national security and allow that minister, with the concurrence of the Minister of Public Safety and Emergency Preparedness, to complete consideration of an investment because of the undertakings.

Amendment CPC‑3 would add a new obligation for the minister to provide reasons for decisions made under subsections 21(1), 22(2) or 23(3) explaining the factors taken into account to conclude that he or she is satisfied or is not satisfied that the investment is likely to be of net benefit to Canada. The bill makes no provision for the providing of such reasons.

The House of Commons Procedure and Practice, third edition, reads as follows at page 770:

An amendment to a bill that was referred to a committee after second reading is out of order if it is beyond the scope and principle of the bill.

The chair is of the view that, for the aforementioned reasons, the amendment is beyond the scope of the bill. Consequently, I find the amendment inadmissible.

[Mark Schaan]

Mr. Chair, I'm not in a position to answer the question that was put by the member.

Section 25.3 is fact-based and use case-specific. A case is determined in consultation with the national security community as to whether or not a given investment meets the test of “could be injurious to national security”. Bill C-34 makes important improvements in a number of ways, but the degree of being able to go back and determine whether or not the national security advice would suddenly rise to the threshold of “could” is not something I'm in a position to answer.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

I was reading a Globe and Mail article by Niall McGee on August 13, 2022, called “China has encroached on Canada's critical minerals industry, with almost no obstruction from Ottawa”.

The article states:

While Canadian politicians claim to want to scrutinize foreign takeovers, over the past five years fewer than 1 per cent have been subject to in-depth security reviews under section 25.3 of the National Security Act, and almost none were blocked. Last year, out of 826 foreign investment filings, Canada conducted only 11 section 25.3 reviews. The government blocked only one of those transactions: Chinese state-owned Shandong Gold Mining Co. Ltd.'s attempted takeover of Canadian gold mining company TMAC Resources Inc.

There was another example that was listed. I believe it was Norsat technologies, where I believe Mr. Masse's amendment comes from. He's nodding in agreement with me. Intellectual property was indeed lost.

The general mood of the Canadian public is that they want this bill strengthened. I'm glad the government brought this forward, but I don't know whether the regulatory approach has done its due diligence. Now, under Australian law, they have the ability to go back.

My question for the official is this: Have any analysts in your department examined Bill C-34 in the context of...? Say Bill C-34 had been in place five years ago. How many more transactions would have been covered under section 25.3 of the National Security Act, in the context of critical takeovers by foreign state-owned enterprises?

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Masse.

I see that Mr. Gaheer wishes to speak, but first I have a decision to render on this amendment.

The proposed amendment would amend section 20 of the Investment Canada Act. The House of Commons Procedure and Practice, third edition, reads as follows at page 771:

…an amendment is inadmissible if it proposes to amend a statute that is not before the committee or a section of the parent Act, unless the latter is specifically amended by a clause of the bill.

Since section 20 of the Investment Canada Act would not be amended by Bill C‑34, the chair is of the view that the amendment is inadmissible.

Before I recognize you, Mr. Lawrence, you understand that the chair's decision can be reversed by a vote but it's otherwise not up for debate.

[The Chair, Liberal, Joël Lightbound]

Yes, Mr. Vis, no one is participating remotely in this meeting.

I would like to make a few comments for the benefit of the witnesses and members.

First, please wait until I recognize you by name before speaking. For those participating by videoconference, click on the microphone icon to activate your mike and please mute yourself when you are not speaking.

Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece which is too close to a microphone. Please be cautious when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on. In order to prevent incidents and safeguard the hearing health of the interpreters, please ensure that you speak into the microphone to which your headset is plugged in and please avoid manipulating the earpiece by placing it on the table, away from the microphone, when it is not in use.

Lastly, a reminder to address all comments to the chair as much as possible, but not necessarily.

Now, I would like to greet three regulars, who are here to discuss Bill C‑34. We therefore welcome Mark Schaan, senior assistant deputy minister, strategy and innovation; James Burns, senior director, investment review branch; and Mehmet Karman, senior policy analyst, investment review branch. Thank you for joining us once again.

(On clause 7)

We are now ready to resume the clause-by-clause. We left off at clause 7. If I'm not mistaken, Mr. Perkins had moved amendment CPC‑2. We will therefore resume where we left off, which is to say at amendment CPC‑2.

Go ahead, Mr. Williams.

[The Chair, Liberal, Joël Lightbound]

Friends and colleagues, I call this meeting to order.

Welcome to meeting No. 81 of the House of Commons Standing Committee on Industry and Technology. Pursuant to the order of reference of Monday, April 17, 2023, we are continuing our study of Bill C‑34, An Act to amend the Investment Canada Act.

Today’s meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Members are attending in person in the room and remotely using the Zoom application. Having said that, I can see that no one is attending the meeting remotely.

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

Thank you, Mr. Chair.

This amendment amends section 15(1) by adding a couple of things. Bill C-34 already does 15(1). We add a couple of a new sections towards the end of the clause. We add a section subsection 15(2) that says:

(2) Despite the limits set out in subsections 14(3), 14.1(1) and (1.1) and 14.11(1) and (2), an investment is reviewable under this Part if

(a) the non-Canadian making the investment is a state-owned enterprise or is controlled by a state-owned enterprise;

(b) the Governor in Council, on the recommendation of the Minister, is of the opinion that [the] review of the investment is in the public interest; and

(c) [that] the Governor in Council issues an order for the review within 21 days after the day on which the non-Canadian gives notice of the investment to the Director.

Bill C-34, in its current form, and the Investment Canada Act provide for essentially, in my understanding, two independent review regimes when a transaction comes forward: the national security review and the net benefit review.

The current threshold trigger of the net benefit review for a state-owned enterprise is a formula, as I understand it.

Mr. Schaan, at the previous meeting I think you said it's $512 million this year. In such cases where the investments are at least equal to that amount, the state-owned enterprise must file an application for a net benefit review, and the potential transaction must be approved by the Minister of Industry. That's my understanding if it's correct. If the Minister of Industry chooses—and it's a choice—the investment can also be sent for a national security review, if within the threshold, after the consultation with the public safety minister. That's my understanding of the way it works now.

The rationale for this amendment is that, in the current form, neither the Investment Canada Act nor Bill C-34 require an automatic filing for a net benefit review of a state-owned enterprise investment if it is below that formula—this year being a $512 million asset value... I think the threshold is on asset value. As a consequence of this, any state-owned enterprise investment made below the $512-million figure will not be subject to a net benefit review.

The proposed amendment seeks to exempt all state-owned enterprises from the threshold limit, regardless of the value of the investment, thereby ensuring that all state-owned enterprise investments will be required to file an application for a net benefit review.

This amendment was drafted based on the feedback received from our members after they expressed the need for a lower review threshold for state-owned enterprises to zero and to ensure greater security of any state-owned enterprise investments. It actually comes, as well, from the industry committee report, which was passed unanimously by this committee, on the review of the Investment Canada Act from a couple of years ago. I think it was actually recommendation one in that report that said this should go to zero.

Experience tells us that, in my province for example—and I think I may have mentioned this when officials were before us—state-owned enterprises, particularly from non-democratic countries, are buying a lot of Canadian assets below that and are getting control of industries. In my case, in the fishery industry, they have been acquiring a lot of the buyers of seafood in Nova Scotia and have been paying three, four or five times the value of the company in order to get access to, and control of, the supply chain of the product.

We know—I've had people contact me since we started to raise this issue in this committee on this bill—that in the Prairies, for example, on mineral rights filings and ownership there, state-owned enterprises and business entities from China have filed and have obtained a lot of mineral rights over land in the Prairies.

We also know from my western colleagues that we are seeing farmland being acquired in the prairies in particular.

All of these types of examples—just a few of these types of examples—are well below the formula limits, and we're being taken advantage of, in my view, for our kindness and generosity and our adherence to world orders when we're seeing companies and entities that do not operate on a fair and open market sort of profit motive. For example, if you look at Hytera.... Not to belabour Hytera, but Hytera rarely makes any money. That's the reason why their companies can win government procurement contracts by underbidding companies in Canada that have to be profitable. They buy them and pay four or five times, as they are in my province, for those businesses—which makes no actual business sense, because you can't get a return in any reasonable time—for purposes other than business.

That's all you can conclude when a company that has public documents like Hytera consistently loses money and continues to win these bids. The purpose of that business has to be something other than what we like to think is an open, fair and competitive market that allows fair and open competition to produce the best value for those who buy the products, based on the great joys of our capital system. That's not happening, because they're taking advantage of these high thresholds.

I think for that reason.... I wasn't part of the study, Mr. Chair, that happened and that was referred to here and was done I think over two Parliaments. I think at the last election it was picked up again, because at the front of the report it shows two different committee structures of members and two different chairs. They produced that report unanimously—I think Mr. Masse was part of that—and unanimously asked for this to go to zero.

I was surprised when BillC-34 was tabled to not see that. The committee recommendation was not included in what I think what was a genuine attempt to not only speed up the system but to give the minister more ability and flexibility to deal with some of these issues that I'm talking about, but it's still a too rigid thing in the sense that the formula on the threshold in our mind, and in this committee's mind at the time, is way too high, and that the only way to ensure that this doesn't happen is to not pick another formula that says, well, $220 million is the formula now for this year, or $100 million, because they will start acquiring businesses under that, and they will continue to do that, which they are doing in my province, well below that. I don't think you would ever say that the formula is $10 million.

I think the only way to get at this—and what is the purpose of the amendment here—is to implement what this industry committee said unanimously in its report, which is that the threshold should be zero. As officials, can you tell me why you think the current formula is more useful—this bill doesn't propose to change the current formula—to prevent what's happening below that number, that somehow that will happen anyway? I think the bill is a formula for the status quo to continue in this area.