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.

[Mark Schaan]

Mr. Chair, I would note two important factors. One is that the wide definition and the standardized definition of SOE currently within the act allow for a consideration of a number of questions of importance that the member has raised under the existing definition of state-owned enterprise as a function of the act, and thereby allow the minister the capacity to be able to consider that.

With respect to a decision post, let's imagine that all factors have been protectively assuaged and appropriately mitigated to allow for an investment to continue. Not this provision, but other provisions that the committee will hear about today include the capacity for binding undertakings under the national security provisions of the act. Undertakings have been routinely used under the act to ensure that a number of factors of import are actually brought to bear, including the Canadian makeup of a board and the Canadian makeup of a management team.

The investments require a number of those elements that I think underscore what is at the heart of the comments I heard, which is that there needs to be a binding mechanism by which the investment can be held to account. We believe that is the case under the undertaking provisions that now exist under the net benefit clauses and that will now apply, should Bill C-34 pass, under the national security provisions of the act.

[The Chair, Liberal, Joël Lightbound]

I call this meeting to order.

Welcome to meeting No. 79 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 we are proceeding to clause‑by‑clause consideration.

Today's meeting is taking place in a hybrid format, pursuant to the House order of Thursday, June 23, 2022.

We have with us today Mark Schaan, Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, at Innovation, Science and Economic Development Canada; Jamieson McKay, Director General, Strategy and Innovation Policy, from the Department of Industry; and Mehmet Karman, Senior Policy Analyst, also from the Department of Industry.

Thanks to the three of you for being here today.

I'd like to call new clause 1.1, as consideration of clause 1 is postponed.

Mr. Perkins.

[Mark Schaan]

I'll address two aspects of your question.

First, just to touch on your previous question, it is worth noting that influence, ultimate control, control in fact and meaningful control are all factors that are extraordinarily important to the understanding of a given investment. They are obviously factors that are considered within the national security provisions of the act.

With respect to Bill C-34, which continues to work through the parliamentary process in terms of modernizing and updating the Investment Canada Act, it does make fundamental improvements to the overall functioning of the act. That said, many of the core aspects, notably the continued usage of a national security review for all investments and a net benefit review of those that meet the threshold are an important part.

Some of the improvements, though, for instance, are things like the capacity for us to have binding undertakings under the national security provisions of the act. Right now, for something that we put in through the order-making process and other aspects, it will allow for those in a more direct way. It will also allow us to be able to maintain things like an ongoing set of sensitive technologies in sensitive industries, which will allow us to ensure that we've been very clear about the types of investments that will need preclearance as a function of the act.

[James Burns, Senior Director, Policy, Department of Industry]

Wonderful. I'll be very brief. Thank you very much.

Good afternoon. My name is James Burns. I'm the director responsible for the Investment Canada Act at ISED. We administer the Investment Canada Act on behalf of the government.

It's a pleasure to be here to support your important study on foreign ownership and corporate concentration in fishing licences and quota.

Today, I'm going to talk briefly about the Investment Canada Act as a whole, and then I'll take questions from members. I understand that not everyone is necessarily intimately familiar with how the act works, so I'll take the liberty of giving an overview.

The act plays an important role in our economy. It aims to make Canada an attractive destination for foreign investment, thanks to our stable and transparent regulatory regime. In doing so, the act supports economic growth, innovation and well-paying jobs, while protecting Canada's national security.

At a high level, the ICA provides for the review of significant acquisitions of control in Canadian businesses by non-Canadians for their overall net benefit to Canada. The ICA also provides for the review of all foreign investments on national security grounds.

Net benefit reviews focus on the economic impact of acquisitions of control of the most valuable Canadian businesses by non-Canadians. A net benefit review is triggered by a monetary threshold, which ranges this year from $512 million for state-owned enterprises up to $1.9 billion for private sector investors from countries with which Canada has a free trade agreement.

Canada is an open economy. We are a trading nation. We are an attractive destination for foreign investment, which is needed for our economic prosperity. These thresholds are in place to ensure regulatory certainty for investors and to facilitate investment.

On the other side of the act, the Investment Canada Act provides authority to review foreign investments that could be injurious to Canada's national security. Here I wish to emphasize that all foreign investment, no matter the value or where it originates from, including greenfield and minority investments, is subject to review for national security. The national security review process is undertaken in consultation with national intelligence and security agencies. The national security review provisions apply to all industries, including the fisheries sector.

The Government of Canada has not hesitated to take action to block transactions that are not in Canada's interest. We have never and will never compromise Canada's national security.

Our annual report provides useful statistics on our net benefit reviews as well as guidance on the use of our national security review authorities. I would note that there have been over 30 blocks or divestiture orders and investor withdrawals over the past five years.

We have been making efforts to provide more transparency and guidance for foreign investors in Canadian businesses. For example, our national security guidelines have an illustrative list of factors that are considered during national security reviews. As an example, the effects of a transaction on the transfer of sensitive technology, critical minerals and sensitive personal data are considered.

The last point I'll note is that in December 2022, the government introduced Bill C-34 to modernize specifically the national security provisions of the Investment Canada Act. This bill is currently being studied by the standing committee on science and industry. The goal of these amendments is to ensure that Canada is able to address evolving threats that can arise from foreign investment while also enhancing transparency and efficiency in the national security review process.

Thank you very much for your time. I'm happy to take any questions you may have.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Madame Lapointe.

This concludes our last round of questions.

I want to thank the witnesses with us for taking the time today. This is our last meeting on Bill C-34 before we head to clause-by-clause, so your words will be with us as we go to study the bill in depth and clause by clause.

Thank you very much.

With that, the meeting is adjourned.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you.

Mr. Fay, you talk about data a lot. It's very important. We've been dealing with Bill C-27 as well and some other bills. It's good timing that they're all being talked about at the same time.

Let's include intangible assets and IP with data. What recommendations can you make for Bill C-34 that would review and protect those assets in Canada?

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

That totally makes sense.

You mentioned that you're not entirely familiar with Bill C-34, the ICA. However, in your time at CFIUS looking at the development of foreign investment controls, investment security, and foreign investment review mechanisms, is there anything else that maybe the U.S. isn't doing but other nations are doing and that Canada could learn from?

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

Thank you, Mr. Chair.

Thank you to all the witnesses for making time for the committee and for their testimony.

My questions are also for Ms. Black. It think it's very interesting to compare the Canadian regime with the American one.

In your opening testimony, you mentioned five points. I think a lot of them show that what Bill C-34 proposes, actually, brings the ICA in line with what the U.S. does. For example, Bill C-34 would “authorize the Minister of Industry, after consultation with the Minister of Public Safety...to impose interim conditions [on] investments in order to prevent” a potential national security injury from taking place “during the review”. Would you say that that's in line with the interim measures that CFIUS has?

[Bob Fay, Managing Director, Digital Economy, Centre for International Governance Innovation]

Chair and honourable members of the committee, thank you very much for the opportunity to present here today.

Please allow me to make three comments related to Bill C-34.

First, intangible assets, particularly data, have changed the nature of economic growth and created new value chains, thus requiring a fresh lens and a renewed focus on the benefits and harms that may come from foreign direct investment. First-mover advantages, economies of scale and scope, network effects and asymmetric information derived from data create greater economic concentration that can leave Canada beholden to foreign firms and also reduce our economic resiliency.

Further, foreign direct investment may be used to capture Canadian intellectual property and data, which can reinforce such impacts. For example, data can not only allow investors to ring-fence a particular market; it could also allow investors to move into other sectors that may be sensitive and not anticipated with the initial investment. In other words, the capture of data can create issues across sectors and not just in a specific market. Thus, one needs to consider how data may be used across the list of sensitive technology areas and outside of them, not just within those specific areas. This can arise from any investment and not just those by state-owned enterprises.

Data is extremely valuable. We have an idea of the aggregate value of data, with experimental estimates from Statistics Canada placing it around $200 billion Canadian, though we need more detailed and updated estimates. Because data is not explicitly valued on balance sheets, monetary thresholds for a review miss the capture of data that may be the reason behind the investment. Data need not only be held in large firms but also smaller ones, so where the investment takes place in the value chain is important.

Second, data creates geopolitical issues that touch upon national security, and Canada needs to be active in setting global rules. Countries and firms are strategically setting rules around the uses of data, particularly personal data, that can give rise to national security concerns and have a direct impact on Canada.

Canada needs to be actively engaged internationally in setting these rules, including standards, since Canada can be held accountable under such rules: for example, adequacy decisions by the European Union for its general data protection regulation. Just as Canada may be judged by its adequacy to rules set in other jurisdictions, Canada should also assess other countries on the prospective uses of our personal data and whether they meet Canadian values. In this regard, it is important that Canada's own governance is up to date with respect to privacy legislation, for example.

Third, data requires a whole-of-government approach, as well as new forms of governance. Although it is important to take a national security perspective to foreign investments, it also requires that other policy areas be taken into consideration, including privacy, data governance, competition and consumer protection, public safety and so on.

There are a few examples. Investment that could lead to greater economic concentration may make our economy less innovative and resilient. This is linked to competition policy. Also, personal data can be combined with other data to reveal patterns of behaviour, which can then be used to create social tensions and undermine our institutions and democracy. This is clearly linked to public safety and national security.

A recent example from the European Union and the United States that links privacy and national security is the so-called Schrems II decision from the Court of Justice of the European Union, which invalidated the EU-U.S. Privacy Shield, which relates to the cross-border transfers of personal data, on account of “invasive U.S. surveillance programs”, arguing that it did not provide adequate recourse for individuals whose data may be used by U.S. intelligence agencies.

Our regulatory structures, therefore, need to adapt. As I noted in my submission to the consultations on the Competition Act, digital technologies are challenging all policy frameworks, and broader regulatory and policy-making structures need to be considered. In this context, the interaction of investment review under the ICA and the Competition Act is very important.

I would urge that decisions on investments wait until respective reviews are completed so that the expertise of each area can be drawn together for a broader assessment, given the intricate linkages that may exist.

Thank you.

[Kate McNeece, Partner, Competition, Antitrust and Foreign Investment, McCarthy Tétrault LLP, As an Individual]

Good afternoon, Mr. Chair and honourable members of the committee.

My name is Kate McNeece, and I'm a partner in the competition, antitrust and foreign investment group at the law firm of McCarthy Tétrault. Thank you very much for inviting me to appear before you today.

Before I begin my statement, I want to note that I am appearing here in my personal capacity. The views expressed today are my own and not those of my law firm or any client of McCarthy Tétrault. However, my submissions today are informed by my experience in assisting both foreign investors—including state-owned enterprises—and Canadian businesses navigate reviews under both the net benefit and the national security provisions of the Investment Canada Act.

I want to keep my remarks today brief, so I'm going to focus on just one aspect of Bill C-34 that I find welcome: the new provision empowering the minister to negotiate binding undertakings with the foreign investor to mitigate national security concerns.

Under the current ICA, the Governor in Council can impose conditions on an investment in the final stage of the review, but in practice this power has not been used since 2017. Empowering the minister to consider and accept binding undertakings during the primary national security review can improve the efficiency of the national security process by resolving matters prior to the final GIC review period. However, I believe the benefit of this provision will be limited if not paired with a greater level of transparency than currently exists.

First, when a national security review is ordered, the investor is customarily provided with very little information about the nature of the national security concern. In my experience, the foreign investor may not be able to discern the precise nature of the national security concern or even which business line or lines of the Canadian business it applies to. This lack of disclosure means that the investor's ability to provide representations to the minister or to propose meaningful and practicable undertakings to address the concern will be limited, undermining the potential benefits of this new process.

Second, the undertakings process will proceed more smoothly if there is sufficient context for the investor to evaluate the minister's requests for mitigation. If the minister cannot provide meaningful feedback to the investor on its proposed undertakings in the national security context, the undertakings negotiation process may move slowly or stall altogether.

Finally, further public disclosure of the undertakings that are agreed to with foreign investors is warranted for reasons of transparency and accountability. There are likely good policy reasons for not disclosing mitigation measures on a case-by-case basis. However, the minister could disclose mitigation measures on an anonymized or summary basis, as CFIUS does in the committee's annual report to Congress.

This disclosure would improve the administration of the Investment Canada Act by providing a remedial road map for investors—not to mention Canadian businesses—trying to assess the national security risk posed by a given investment. It would also demonstrate to potential investors that the undertakings process is not being used as a back door to obtain a net benefit type of undertakings for investments that are not reviewable under part IV of the act, and highlight to the public the steps that the Canadian government is taking to protect national security while ensuring Canada remains a welcome home for appropriate foreign investment.

Of course, there will be information that the government cannot share with the merging parties or with the public due to security reasons. It may be difficult as a practical matter to find the appropriate balance, but by including in Bill C-34 measures to improve transparency—such as an obligation to provide reasons for ordering a national security review, a clear legal standard for national security undertakings and a requirement to include information about mitigation measures in the annual report—Parliament can improve the efficiency of the ICA national security process and highlight its commitment to transparency and the rule of law in its administration.

Thank you very much for the opportunity to present these remarks. I'd be happy to answer any questions.

[The Chair, Liberal, Joël Lightbound]

I call this meeting to order.

Welcome to meeting No. 76 of the House of Commons Standing Committee on Industry and Technology.

Pursuant to the order of reference of Monday, April 17, 2023, we are studying 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 Thursday, June 23, 2022.

I'd like to apologize to the witnesses for today's delay because of votes at the House. Thank you for your patience.

I'd also like to thank the witnesses for being here on a sunny Monday afternoon.

Today, we have with us by videoconference, senior counsel Laura Black, appearing as an individual, Kate McNeece, partner, competition, antitrust and foreign investment at McCarthy Tétrault, and the Honourable Christian Paradis, who is a lawyer and former minister.

With us in Ottawa are Bob Fay, managing director, digital economy at the Centre for International Governance Innovation, and Tim Gilbert, managing partner at Gilbert's LLP. Thank you for coming in person.

Since we have a large group of witnesses, without further ado, I will give the floor to Ms. Black for five minutes.

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

Thank you.

We know that Bill C-34 will also allow the Minister of Innovation, Science and Industry to disclose specific information regarding national security reviews to foreign states.

What are your views on this approach? Do you think it will adequately facilitate collaboration and information sharing between countries to combat national security threats? Would you amend this part of the bill in any way?

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

Okay.

This question is open to anyone.

In June 2020, in his testimony before this committee—he also recently appeared—Charles Burton from the Macdonald-Laurier Institute stated that some enterprises controlled or owned by a foreign state “use multiple firms with multiple investments to get under the wire of our thresholds, but they actually violate what I would regard as the intention of our act.”

Do the amendments to the Investment Canada Act address the concerns raised at that meeting, yes or no? Why or why not?

How would the enactment of Bill C-34 affect prospective acquisitions of Canadian businesses by foreign state-owned or state-controlled enterprises?

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I have one more question for all members here.

Would the amendments in Bill C-34 adequately protect us regarding intangible assets such as intellectual property as well as from foreign investments that could be injurious to national security? If not, what recommendations would you make to compensate for that?

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

Thank you to all of the witnesses, who are extremely knowledgeable.

One of the issues contained in the bill C-34, An Act to amend the Investment Canada Act lies close to my heart. I'll provide some context with the example of a transaction that was very significant for Quebec, namely the acquisition of Rona by Lowe's.

In fact, the minister had set conditions, but in the end, five years later, we realized that there was not much left of the company in Quebec. For example, Garant shovels can't always be found in Rona stores anymore. Before the transaction, the supply chain of Rona's suppliers included a Quebec ecosystem. In addition, the head office was located in Quebec, of course.

I would like each witness to answer my question in turn.

Do you feel that the conditions put forward by the minister, in terms of accountability and transparency, are an improvement? Should we go even further? Of course, we also have to think about national security.