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.

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

Thank you.

Mr. Krane, we've talked about a list of certain critical technologies we want to protect in Canada. Certainly, we want to see maximum investment in that. Are there any changes you could recommend for Bill C-34 and the legislation, or anything you think needs to be removed, to maximize that?

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

On that note, would you have a recommendation on where that kind of wording would live in Bill C-34, as a change?

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

That would be great.

Mr. Hersh, the other thing we talked about is the department looking after this. CFIUS is multi-agency. It's not just one. It's not Economic Development. It's across the whole spectrum. This legislation, Bill C-34, and RDI are only for ISED itself.

Do you think there's a recommendation that we need to expand that, just like CFIUS does, or is it okay for it to sit within ISED?

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

Do you have a recommendation for specific wording? What section of Bill C-34 would you make recommendations on based on that?

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

Thank you very much, Mr. Chair.

Thank you to all of our witnesses for joining us today.

This is actually great. Mr. Bhattacharjee and Mr. Hersh, you're right on our wavelength. You must have been listening intently to our discussions at our last meeting on these lists, on who manages the lists and on how we make the recommended changes in legislation to ensure that, when Bill C-34 is passed in the House, we're doing the bare minimum—what CFIUS and the U.K. are doing—but making it great for Canada. Mr. Krane, you touched on a important part: How do we ensure that we also maintain the maximum investment we can in Canada?

I want to focus, Mr. Bhattacharjee, on the comments you were making.

I agree with you to have a list that isn't baked into legislation and that couldn't be reopened in 22 years. I agree with you that we need to look at ways to make it flexible. What recommendations could you make, from a legal perspective, for the legislation that would allow at least a review of that list maybe once every three years? You could tell me if you feel it's different. What we heard before was to have that done.... I'm trying to remember the term right now. It wasn't “in council”. Perhaps it was “in governance”.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Gaheer.

If there are no other questions, that concludes our two hours of committee work for today.

Before we adjourn, I want to thank our witnesses. It's been very interesting. I speak on behalf of all members when I say that was an enlightening conversation. We appreciate your taking the time, and for some of you, it was at the very last minute. We appreciate your presence here this afternoon.

Before we adjourn, though, members, we have budgets to adopt.

You have received the relevant material from the clerk.

I therefore move the adoption of the budgets for the consideration of Bills C‑34 and C‑27. Is there unanimous consent to adopt these budgets?

[Dr. Patrick Leblond]

The issue—and I've said this in other instances—is that sometimes the ownership itself is not the problem. It's the risks associated with that ownership. Obviously, on national security grounds, people will say, “A state-owned enterprise that buys a lobster company or the freight forwarding is not really a national security issue,” although maybe in Nova Scotia it might be considered national security, and I respect that. However, to me this case seems to be much more of a competition issue.

The big question, as you mentioned, in terms of SOEs or others is that, obviously, the thresholds create this kind of problem. If we think that SOEs are a problem—again, what kinds of SOEs are we talking about?—then it's a little bit like the bill here, Bill C-34. We think that anything in terms of either assets or technical information that might be a risk to national security needs to be notified. Ultimately, the minister has to decide whether this flies or not.

Now, if we think that state-owned enterprises in and of themselves are a menace to our economy or to our national security, the same logic should apply. Any state-owned enterprise, regardless of where it's from in the world, should notify an acquisition to the minister. The minister should then decide whether this flies or not, and again be able to justify, if there is a decision, to not investigate or to allow the acquisition to go through.

If the risk is there, why the threshold? You're absolutely right. They might say, “We'll just buy below the threshold and end up exactly where we want to be.”

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

We know that Bill C-34 will also amend the ICA to allow Canada to share case-specific information with international counterparts.

Can you talk to the committee about how this step will facilitate international collaboration and information exchange to potentially address areas where there are common national security threats?

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

My question is again for Mr. Bruce.

We know that companies often hold significant value in IP, intangible assets. The interim conditions that are proposed in Bill C-34 would block access to those assets in order to address the risk of national security injury that could arise during the course of the review of that investment, thereby reducing the threat to national security, while Canadian businesses can continue to operate with minimal impact and continue to review.

Can you talk a little more to the committee about the benefit of having these interim conditions and what sort of interim conditions you'd like to see?

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

Thank you, Mr. Chair.

Mr. Leblond, when you appeared before this committee in 2020, you said we needed to distinguish between what is strategic and what is not. You said that the Investment Canada Act has to be robust in the long term and that its mission is twofold: attracting foreign investors and businesses, but also protecting national security. Do you feel that Bill C‑34, which we are considering today, does a good job of answering those questions?

[Dr. Patrick Leblond]

I'd like to say first that I'm not a lawyer and certainly not a legal expert on the Investment Canada Act.

Certainly, as I was reading Bill C-34, I was surprised with this focus on the unit—in French, unité exploitée—which to me refers much more to the legal entity, the enterprise. Then I was thinking, “Okay, is it the enterprise itself that potentially poses the risk in terms of national security?” No. In fact, the bill talks about important assets or important technical information that is not public. If these are the issues and a foreign company decides to buy these assets or this technical information, bypassing the company itself, does it have an obligation to notify? In terms of my reading, it's not clear, which is why I raise the question.

Then, in terms of a solution, instead of talking about the entity, the unité exploitée, why not talk directly about assets and technical information? Why not make that the focus in terms of national security so that any foreigner who buys these assets—whether through a company, an enterprise or whatever or on its own—should notify the government? Then it's up to the government to decide whether there is a national security implication or not. It would be the same for these technical....

Why have this intermediate step focusing on the entity itself? You know, you could strip it and then say, “Oh, well, there's nothing there,” so the transaction goes on and the national security risk remains.

[Dr. Patrick Leblond, Associate Professor, Graduate School of Public and International Affairs, Faculty of Social Sciences, University of Ottawa, As an Individual]

Thank you, Mr. Chair.

Good afternoon, members of the committee. Thank you for the invitation to discuss Bill C‑34 with you. I will be giving my presentation in French.

However, please feel free to ask questions in English afterwards.

To begin, I would like to discuss three important aspects of the bill: the nature of an investment that threatens Canada's national security, sanctions for failure to comply with undertakings given by a non-Canadian investor, and transparency.

I will start with the nature of an investment that threatens Canada's national security. Subclause 2(1) of the bill, which amends section 11 of the Act by adding a paragraph (c), refers to “an entity carrying on all or any part of its operations in Canada and that has a place of operations in Canada ... or assets in Canada used in carrying on the entity’s operations.” The bill uses the expressions “material assets” and “material non-public technical information.”

What I wonder about is this: what happens if that non-Canadian investor acquires those material assets or that material technical information directly, without acquiring the entity in question that owns the assets or information? For example, what if the investor buys a bank of personal data about Canadians or the source code of the algorithm for an application associated with critical infrastructure? Is the investor required to give a notice in accordance with the procedure proposed in the bill? Is the acquisition covered by the bill?

If the answer is no, there is a risk that an investor that wishes to use the assets or technical information for legitimate commercial purposes will decide, instead, to acquire them directly from the Canadian entity that owns them, rather than acquire the entity itself and risk having the acquisition blocked by the minister for national security reasons. The same reasoning applies to the owners of a Canadian entity who wish to maximize the value of their assets and technical information: they could put the assets or information up for sale, rather than the entity itself.

In that scenario, the threat to national security is still present. If the Investment Canada Act does not apply to a scenario in which the assets or technical information itself is purchased, and not the entity, such as a business, the acquisition of assets or information needs to be covered by another act or acts. What act or acts would that be? To my knowledge, there are none.

That is the first thing I wonder about regarding the bill, given the intangible nature of some assets, whether they are data or technical information. It is therefore easy to acquire them without necessarily acquiring the business that owns them.

I will now move on to the sanctions for non-compliance with undertakings given by a non-Canadian investor. The bill provides that the minister may approve an investment if the non-Canadian investor gives certain undertakings to limit or reduce the risks of injury to national security. What happens if the investor does not honour their undertakings?

The bill provides a maximum penalty of $500,000. If that penalty applies only once, it seems to me to be very little. We need only think of the millions in profit that material assets or technical information can generate. Is a single penalty of $500,000—because the bill does not provide that it be every day or every year—therefore sufficient to encourage, if not compel, a non-Canadian investor to honour their undertakings? At that point, is it not really just an operating cost?

I wonder why a higher penalty is not being considered, such as the one provided in Bill C‑27? That bill talks about a penalty of the higher of 5% of global revenue and $25 million. Why does Bill C‑34 talk only about a penalty of $500,000? On the one hand, personal information is considered to be so important that the penalty can be millions of dollars and possibly as much as 5% of global revenue. On the other hand, however, when we are talking about national security in connection with what may be the same data, the economic sanction is a mere half million dollars. Does this mean that threats to national security are less important? That is my question to you.

In addition, what is to be done if the investor pays the penalty and continues not honouring their undertakings? Does the minister have the power to stop the investment? Although I am not a lawyer, my reading of the act and the bill suggest to me that the minister does not seem to have that power, unlike in the United States, where it is possible to stop an investment retroactively. Would that be the case here? That is what I wonder when I read the bill.

On the subject of transparency, the bill could increase uncertainty on the part of non-Canadian investors who want to invest in Canada and also Canadians who want to sell all or part of their businesses to non-Canadians or obtain financing from non-Canadians. There is therefore a risk that businesses that have or believe they have material assets or material non-public technical information may decide to move their decision-making centre or headquarters out of the country, to the United States in particular.

The greater the uncertainty regarding the application of the act, the higher the risk of a move happening will be. To reduce the uncertainty, there therefore has to be a degree of transparency in the minister's decisions and the undertakings given by non-Canadian investors, without that necessarily meaning that state secrets or trade secrets would be disclosed. Even if the decisions are made on a case by case basis, there have to be clear guidelines, and those guidelines have to be observed. Simply providing a list of material assets or material technical information does not seem to be adequate.

I will stop there. Thank you.

[The Chair, Liberal, Joël Lightbound]

I call this meeting to order.

Ladies and gentlemen, colleagues, I am glad to see you again on this Wednesday afternoon.

Welcome to meeting No. 71 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.

To assist us in the study of this bill, we have with us today, in person, Patrick Leblond, associate professor at the Graduate School of Public and International Affairs of the University of Ottawa Faculty of Social Sciences.

Mr. Leblond, thank you for accepting our invitation to join us, even though it was at short notice. We appreciate it.

We also have Ian Lee, associate professor at the Carleton University Sprott School of Business, who is joining us virtually.

Hello, Mr. Lee, and welcome to the committee.

And last, from Edmonton Global, we have Malcolm Bruce, chief executive officer, who is also joining us by videoconference.

Thank you very much, Mr. Bruce, for joining us this afternoon.

Without further ado, I'll let Mr. Leblond start with five minutes of remarks.

The floor is yours.

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

For the Diefenbaker government, I was not there. I never met John Diefenbaker, but I knew his executive assistant. MP Maguire met John Diefenbaker.

He was first elected prime minister in 1957 in a minority, but he had an overwhelming, smashing victory in 1958, winning many seats. He was only to be surpassed in the number of seats by Brian Mulroney's victory in 1984.

Apparently, in 1958, with the election of the Diefenbaker government:

...greater use was made of standing committees; for the first time, a member of the official opposition was chosen to chair the Public Accounts Committee—

Imagine that. The Conservative government of John Diefenbaker expanded the roles of committees and said examining the spending of government accounts by the public accounts committee is not something that should be chaired by a government member. They, in government, said, “We should have an opposition member chair the public accounts committee.”

Is that a dedication to ministerial accountability? That's a belief in our parliamentary system like we don't see these days.

Again, I will read it, “for the first time, a member of the official opposition was chosen to chair the Public Accounts committee and the Committee began to hold regular meetings”. That's a good concept.

In 1968 there were more significant reforms made to House procedures, including the following—and remember, I don't know what time of the year it was in 1968 that it happened. It could have been under Prime Minister Pearson, or it could have been under newly elected Prime Minister Trudeau, who was fresh faced, and there was Trudeaumania. If it was under him, with all the world before him to change the world and use government for good with an unusual respect for Parliament for the Liberals, in 1968 they made a series of significant reforms to House procedures, including the following three key changes.

The estimates were no longer considered by a committee of the whole of the House but were sent to standing committees. That was a good reform. It gave those expert committees the ability to scrutinize the spending of the departments that the minister is responsible for, i.e. the Fisheries minister in the fisheries committee or the Industry minister in the industry committee.

The second significant reform, according to Treasury Board, that was made in 1968 was that the opposition was given a total of 25 days when it could choose a topic of a debate. Those are colloquially called opposition days, when we get to propose a motion for the House to debate and move and, for the general part in this government, for the government to ignore the vote or, in some cases, vote against it, as they did recently on several opposition days. We were thankful that they voted to send China interference, which the government has been aware of for two years, I believe, yesterday, to the procedure and House committee. Thanks to some of these reforms, those things can happen.

The third thing was that most bills were referred to standing committees. I was talking with MP Blaikie the other day about bills going to standing committees, and talking about the time.... Again I'm going to give a story. There is a standing order that is still on the books today, little used, that committees could be freed up from the arduous work of dealing with legislation, which can throw off the important subject studies that standing committees do. For example, we now have three government bills before the industry committee, which has stopped, halted, right in the middle of the important study we were doing on a Bloc motion to have the electronics and recycling ecosystem studied by the industry committee to understand all types of things. That has been stopped because we now have three bills, Bill C-27 on privacy, Bill C-34, changes to the Investment Canada Act, which I'm sure all members here are very interested in, and Bill C-42, a bill to create, finally, a beneficial corporate ownership registry.

There is a standing order that still exists today that says you can refer bills to legislative committees. These are special committees that get set up for each bill. They exist for a bill, then disappear.

During the days when I was a young legislative assistant to a minister, that's where all bills went. They didn't go to standing committees, except for the budget. They didn't go to standing committees; they went to specially constituted legislative committees that would be set up, for example, to deal with Bill C-21, which changed the Firearms Act. It wouldn't go to security, SECU, as we call it. It would go to a special committee of MPs set up from all parties, and it would have its own budgets, its own clerks and its own travel budgets and then, when the bill was reported back to the House with or without amendments, that legislative committee would disappear.

For example, Mr. Chair, look at the biography of a former chair of this committee whom I knew well, Don Blenkarn, an irascible fellow from Mississauga who was elected and chaired this committee, I believe, for six years during the Mulroney government. He wasn't always a person who followed the government rules, I can tell you, much to the chagrin of then finance minister, Michael Wilson. When you look up his bio, you will see legislative committee after legislative committee after legislative committee listed by bill, because when a finance bill came out of second reading in the House, the legislative committee would set up, and Don Blenkarn would always be one who wanted to be on those bills to examine them.

While this reform in 1968 referred it to standing committees, I know personally that there were further reforms to the Standing Orders to allow for more flexibility. It is something we should use a little more today, those legislative committees, but, like I've said before, I've gone a little off topic from this, but I still think it's about how we hold ministers to account in Parliament.

There are different ways to do it under the Standing Orders, and some are effective, but the key part of it, whether it's a standing committee, a legislative committee, public accounts, the finance committee or two of my favourites, industry and fisheries, is that ministers come because it's a courtesy on both sides.

It's a courtesy to ask the minister to come and explain why this is such a great legislative initiative, but it's also generally polite—like when you get a dinner invitation to somebody's house—to go. I won't say to you, Mr. Chair, since I expect I will get an invitation to dinner with you sometime, “Well, I can only go for half an hour.” I know you want to talk to me about the insights I've provided the committee on ministerial accountability for more than that over dinner and maybe a few glasses of wine.

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

Thank you, Mr. Chair. I'll try to keep this short.

Dr. Burton, Bill C-34 does not propose any change to the definition of “state-owned enterprise” in the Investment Canada Act. Should that be tightened up or expanded or improved?