Canada-China Relations Committee on June 19th, 2023

[The Chair, Liberal, Ken Hardie]

I call the meeting to order.

Welcome to meeting number 22 of the House of Commons Special Committee on the Canada–People’s Republic of China Relationship. Pursuant to the order of reference of May 16, 2022, the committee is meeting on its study of Canada-People's Republic of China relations, with a focus on investment funds.

I'd like to offer a few comments for the benefit of the witnesses and members.

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.

Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike. Please mute your mike when you're not speaking.

There is interpretation. For those on Zoom, you have the choice at the bottom of your screen of either floor, English or French audio. For those in the room, you can use the earpiece and select the desired channel. I'm sure that those on Zoom are pretty much housebroken in terms of what we need to do here. We need to click the little planet at the bottom of the screen.

Although this room is equipped with a really excellent audio system, feedback events can occur. We need to avoid them. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece worn too close to a microphone. We therefore ask all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on. In order to prevent injuries and incidents, and to safeguard the hearing health of the interpreters, I invite participants to ensure that they speak into the microphone into which their headset is plugged. Avoid manipulating the earbuds, placing them on the table, away from the microphone, when they are not in use.

All comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

In accordance with the committee's routine motion concerning connection tests for witnesses, I am informing the committee that all witnesses have completed the required connection tests in advance of the meeting.

We have quite a number of folks sitting in. MP Garnett Genuis is substituting for MP Raquel Dancho. The shoes are killing him.

Mr. Maninder Sidhu is substituting for MP Rob Oliphant.

Mr. Francesco Sorbara, when he gets here, will be substituting for MP Emmanuel Dubourg.

Mr. Alexis Brunelle-Duceppe is substituting for MP Denis Trudel.

We also have Mr. James Bezan substituting, probably for Michael Chong, for a wee bit.

There's also Mr. Fast, of course, with his lawn sign there. Mr. Fast is in here for Mr. Seeback.

Before we welcome our witnesses for the first panel, I know that I've probably seriously jeopardized my chance for a Christmas card from you guys for having this meeting tonight, but we needed to finish the panels for our study on the investments. In order to do that, we have two more panels to hear from. With that, our analysts can then set about drafting the report. That's why we are here.

With respect to that report, I'll let everybody know that you will be able to submit instructions to the analysts by email. I would ask for them later this week—let's say by Friday noon. Friday noon gives you lots of time to come up with any instructions that you might wish to pass along.

With that, I'd like to welcome our witnesses for the first panel. From the Department of Finance, we have James Wu, director general, funds management division, by video conference; and Kathleen Wrye, director, pensions policy, financial crimes and security division.

From the Department of Foreign Affairs, Trade and Development, we have David Hutchison, director general, trade portfolio strategy and coordination; and Jodi Robinson, acting director general, Northeast Asia.

Each department will have up to five minutes to deliver some opening remarks.

We will start with the Department of Finance.

[Kathleen Wrye, Director, Pensions Policy, Financial Crimes and Security Division, Department of Finance]

Thank you, and good evening, Mr. Chair and members of the committee.

My name is Kathleen Wrye, and I'm the director of the pensions policy team in the financial sector policy branch of the Department of Finance.

I would like to thank the committee for this invitation to appear.

I am here today to answer your questions about federally regulated registered pension plans, so I would like to take this opportunity to provide you with a bit of context on the federal pension standards legislation—the Pension Benefits Standards Act, 1985, or PBSA.

Under the PBSA, the federal government regulates the workplace pension plans of Crown corporations and private-sector employers in areas under federal jurisdiction, such as telecommunications, banking and interprovincial transportation, as well as private pension plans in the territories.

The Office of the Superintendent of Financial Institutions is responsible for supervising federally regulated plans, with the mandate to protect the rights and interests of plan beneficiaries.

Most workplace pension plans in Canada are provincially regulated, with approximately 7% of registered pensions in Canada being regulated at the federal level. At this time, there are over 1,200 federally regulated pension plans.

Federal pension legislation imposes a fiduciary duty on plan administrators with respect to the administration of the plan and the investment of the assets. Ultimately, plan administrators must act in the best interests of all plan members and beneficiaries.

As fiduciaries, plan administrators are required to act prudently and account for any factor that could materially affect the financial performance of the pension fund. This includes, for example, considerations such as geopolitical issues, human rights, governance and climate risks, to the extent that they could materially affect the financial performance of plan investments.

There is growing acceptance that environmental, social and governance, or ESG, considerations may be relevant to the risk-adjusted returns of pension plans and should be taken into account when making investment decisions.

The Canadian Association of Pension Supervisory Authorities, which is a national association of pension regulators, has been consulting on draft guidelines to support pension plan administrators in fulfilling their fiduciary duties and giving appropriate consideration to ESG factors. These draft guidelines note that pension administrators should consider whether any particular ESG factors are relevant to investment performance and take appropriate action based on that determination.

They also suggest that plan administrators may determine that it is consistent with their fiduciary duty to use ESG information, including ethical or impact investing considerations, as a deciding factor between otherwise equivalent investment options.

With respect to federally regulated pension plans, in budget 2022 the government announced that it would move forward with requirements for disclosure of ESG considerations for federally regulated pension plans.

Legislative amendments were made through Budget Implementation Act, 2022, No. 1, and the department is currently working on regulatory amendments that will contain these detailed disclosure requirements.

To close, I would like to thank the committee for allowing me to provide some additional context. I look forward to answering any questions you may have.

[The Chair, Liberal, Ken Hardie]

Thank you very much, Ms. Wrye.

Now, for the Department of Foreign Affairs, Trade and Development, who will be speaking?

Mr. Hutchison, you have the floor.

[David Hutchison, Director General, Trade Portfolio Strategy and Coordination, Department of Foreign Affairs, Trade and Development]

Thank you, Mr. hair.

Thank you for the opportunity to address the committee. My name is David Hutchison and I am the Director General of Trade Portfolio Strategy and Coordination at Global Affairs Canada. My branch is a part of the Canadian Trade Commissioner Service, or TCS.

Canada's trade commissioner service, the TCS, is a network of over 1,000 international business professionals working in over 160 locations around the world and across Canada. The TCS is a client-service organization that helps Canadian businesses export goods and services to the world.

Over 90% of TCS clients are small and medium-sized Canadian exporters of goods and services. The TCS also promotes foreign direct investment into Canada.

Given the committee's focus on Canadian institutional investors, I should note that promoting Canadian direct investment abroad, CDIA, is not a core mandate of the TCS. Our engagement with Canadian investors abroad is limited and takes place on a responsive basis.

I would like to give you an overview of how responsible business conduct, or RBC, fits into the consulting services of the TCS. It is important to have robust RBC practices to get the best human rights and sustainable development outcomes. By encouraging businesses to identify and mitigate risks, robust RBS practices also contribute to making them more resilient and more competitive. Hence, training our clients in RBC is very much a part of the TCS' consulting services.

It is important to note that TCS services are offered on a discretionary basis. They can be withdrawn at any time. When credible questions about a client's conduct are raised, the TCS will engage with the client to reinforce expectations concerning RBC.

It is important to note that the vast majority of Canadian exporters and TCS clients are honest and ethical business people, and they are a credit to our country. However, in rare instances, when we are made aware of clear violations of Canadian law and/or policy related to RBC, we have withdrawn and will withdraw services for clients.

The TCS also has procedures in place to alert the RCMP to allegations of bribery involving Canadian companies.

With respect to China in particular, I would like to start by giving you an overview of the Canada-China economic relationship.

China is Canada's second-largest export market. Canadian exports to China totalled $36.7 billion in 2022.

With a population of 1.4 billion people, China remains an important market for Canadian businesses of all sizes and from all sectors, including many clients of the Trade Commissioner Service.

We recognize that doing business in China requires a sober strategy that allows us to take a clear look at the situation. We know, for example, that there is substantial and credible evidence of systematic human rights violations in China and of the use of forced labour in various sectors of the economy.

As with other markets, the TCS aims to help our clients understand not only the opportunities, but also the potential risks of doing business in China, and to help them mitigate those risks.

Engaging with clients about the situation in Xinjiang is especially important. Committee members may be aware that in January 2021 the government announced a range of measures, including a Xinjiang integrity declaration for Canadian companies seeking support from the TCS, a business advisory on doing business with Xinjiang-related entities, and enhanced education and advice on this issue for TCS clients.

These measures are in addition to Canada's existing prohibition on imports of goods made using forced labour. Just to note, the TCS does not oversee or administer Canada's import prohibition. This work is led by ESDC and CBSA.

Let me end by noting that promoting responsible business conduct is a priority for the Trade Commissioner Service and an essential part of the services we offer our clients.

The TCS will continue to support Canadian exporters working in China and in other foreign markets. We will continue to advise them on international trade opportunities and on the relevant risks and challenges, including on human rights abuses.

[The Chair, Liberal, Ken Hardie]

Thank you, Mr. Hutchison.

We'll now begin our questions with Mr. Genuis, for six minutes or less.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Chair.

I want to start by asking our finance officials about Canadian investments in the Asian Infrastructure Investment Bank.

Our party has long opposed Canadian entry in the AIIB. At the time of initially expressing this opposition, we were aligned with the Obama administration, which saw this bank as Chinese state controlled and as a tool of China's state foreign policy. We didn't see any point in having Canadian taxpayers fund that.

According to the latest edition of the public accounts, Canada has shares worth about $1 billion U.S. in AIIB, some of which are paid in, although most of which are not paid in and are callable. The government has just recently announced suspending activity with the bank in response to some of these criticisms, which are in fact long-standing but have since been repeated by someone who used to work for the bank. In the midst of suspending activities with the bank, though, large portions of Canadian capital are already in the bank.

I wonder if you could clarify what it actually means to say that Canada has suspended activities with the bank, given that a substantial amount of taxpayers' money is already in the bank and presumably continues to be available to the bank for its use.

[Kathleen Wrye]

I'm afraid I'm not able to answer questions with respect to the Asian Infrastructure Investment Bank, as my area of expertise is federally regulated pensions policy.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you.

Is Mr. Wu able to answer those questions?

[James Wu, Director General, Funds Management Division, Department of Finance]

Mr. Chair, similarly, the Asian Infrastructure Investment Bank is not part of the purview for our discussion today. I would flag and I note that, of course, the Deputy Prime Minister provided a press release June 14 stating that the Department of Finance is conducting a review at this time, so we're in the process of gathering—

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Yes. I can read the press release. Are you able to give me information beyond what's in the press release or not?

[James Wu]

Not at this time.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Your minister is the governor of the bank. I would welcome a response to the committee in writing from the department, if one is available. The last time I raised this issue was with Michael Sabia, who was at the time the deputy minister. He strongly denied my assertions that the bank was Chinese state controlled. I think it would be useful to find out where the government stands now and what it means by suspending that activity.

I'd also like to know what the timeline is for this review. Is this just a “say we're reviewing it to get out of the news” issue, or is there an actual serious review whereby we're going to hear back with a decision and a series of actions in response? These criticisms are not new. They're long-standing.

I'll move on to some other items.

Mr. Hutchison, in terms of your testimony, you talked about how, if there are violations of Canadian law, you will withdraw services from companies. Does it go any further than that? Is public information released that certain companies have been found to be violating the law or involved in serious violations of human rights? Do you refer the matter to law enforcement? Are there any next steps, or do you just quietly say they can't have any help from you anymore and then move on?

[David Hutchison]

Mr. Chair, the TCS takes allegations of misconduct by clients seriously. In the event of a clear violation of Canadian or international law, we could refer it to law enforcement.

The other thing we do is that if we withdraw services, we will advise other members of our portfolio, such as EDC and CCC, but we will also maintain commercial confidentiality. We don't name the companies that we no longer provide service to.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

If you're breaking the law and are receiving government services in the process, then you have the comfort of knowing that your privacy will be protected nonetheless.

How many instances have there been in which you have referred these matters to law enforcement in, let's say, the last 12 months?

[David Hutchison]

Mr. Chair, I don't have a precise answer on that. I would be happy to endeavour to provide an answer to the committee.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you. If you're coming back to the committee with that information, I would like you to be able to provide, for each of the last five years, let's say, how many companies have had services withdrawn and in how many of those instances you have provided a referral to law enforcement. Would you be able to provide that information to the committee, broken down by year?

[David Hutchison]

Mr. Chair, we will look into, in terms of following our procedures, what we can release to the committee, which we will be very happy to share.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Just to reiterate, although I think there should be some public information around the names, I am in this instance not asking for that. I'm just asking for numbers of companies per year and what proportion of those were referred to law enforcement. I don't see any reason why you wouldn't be able to provide that information. The committee is asking you for it. Can you assure us that you'll be able to provide that information?

[David Hutchison]

Mr. Chair, we'll endeavour to provide all the information we can.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Okay. Thank you.

Finally, to our finance officials, you talked about what's in the best interests of investors. Human rights factors could be taken into consideration insofar as that may impact financial performance. If I understand you right, though, human rights factors are taken into consideration only to the extent that they impact financial performance. If they don't impact financial performance, then investors are not to take that into consideration. Is that correct?

[The Chair, Liberal, Ken Hardie]

Mr. Genuis, your time is up.

Perhaps we could get a written response to that, please. All written responses, by the way, should be sent to our analysts, and through them to the committee members. Again, we'd appreciate something by the end of the week, so that we can work on that draft report.

We'll now go to Mr. Fragiskatos, for six minutes or less.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Chair.

Thank you to the officials for being here tonight.

I want to pick up on the discussion of human rights, but I want to understand in general terms the place of human rights and the applicability of it within the overall framework when it comes to pensions.

Maybe I could go to Ms. Wrye to begin with, and then Mr. Hutchison to follow.

[Kathleen Wrye]

As I alluded to in my opening remarks, the legal frameworks for federal pensions all rely heavily on the concept of fiduciary duty, that duty with respect to the plan beneficiaries. As fiduciaries, plan administrators are required to account for any factor that could materially affect the financial performance of the pension fund, including ESG. Those are environmental, social and governance factors, so you would imagine that issues with human rights would fall within the social aspect.

Plan administrators may consider that it is consistent with that fiduciary duty to consider all these factors as another lens, as they would consider any risks to pension funds and to their investments.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I did say I was going to Mr. Hutchison, but I'll stay with you, Ms. Wrye, for a moment. Maybe ranking is not the right word, but in terms of factors that exist within the overall framework, is there anything you can share about the place of human rights within analyses that are given on such questions?

[Kathleen Wrye]

I can't really speak to a ranking within pension legislation. As I said, it relies generally on the concept of fiduciary duty, and within that, there is the responsibility to consider all factors. The factors that would be considered would be relevant to what the actual investment was and what country it was in, all of those things. Plan administrators would need to look to see all the factors that need to be considered.