Fisheries Committee on June 1st, 2023

[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 Vice-Chair, Conservative, Mel Arnold]

Thank you for your opening remarks.

We'll go the first round of questioning. We'll start with Mr. Small.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Thank you, Mr. Chair.

Thank you to the witnesses for coming out to take part in our study.

My question, Mr. Chair, is for Mr. Burns.

I just heard you mention national security. Food security is part of national security. Would you agree?

[James Burns]

It can certainly be interpreted as that, yes.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

What percentage of the Canadian fishery would a company like Royal Greenland be allowed to buy in terms of the processing sector?

[James Burns]

Thanks for the question. I'm not sure I have the ability to answer that question. We don't really look at it in those terms.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Along that same line of questioning, Mr. Burns, if a foreign company like Royal Greenland, for example, which is state-owned, were to make significant buy-ins in the Canadian fishing industry, do you think that could possibly eventually represent a threat—and I am just using Royal Greenland as an example—to our national food security?

[James Burns]

We engage on a regular basis with a number of different partners across the Government of Canada to identify areas of most significant import to our national security. These partners can include security and intelligence agencies as well as Natural Resources Canada, Transport Canada and other like parties.

We haven't, to date, had engagements with any interdepartmental partners that have raised fisheries or the concentration of ownership as a significant national security threat to Canada. To date we haven't yet had to answer that question.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

This past Monday, May 29, the clerk of this committee circulated an email from a Global Affairs official who wrote,

Canada's most recent investment treaties (starting roughly 2000) include an exception where we maintain the full policy flexibility to discriminate on the basis of nationality in relation to licensing of fisheries and other fisheries related activities.

However, in your opening statement today you stated that the core commitments in an investment treaty include a commitment that:

Parties cannot discriminate against investors of the other Party based on their nationality, whether in comparison to Canadian investors or investors of a third country.

Please clarify what you mean by “discriminate”.

[James Burns]

I'll refer this question to my colleague Ms. Melia.

[Shendra Melia]

Thank you for the question, Mr. Chair.

Perhaps I could just take a minute to explain in a little more detail what kind of provisions I was referring to.

First I would say the most obvious one is that in many of our investment agreements, we explicitly exempt, as I mentioned, licensing of fishing and fishing-related activities from non-discrimination commitments. Those would be commitments related to national treatment and to most favoured nation treatment.

This includes Canada's main free trade agreements, such as the agreement with the United States and Mexico, the CPTPP and CETA. It also includes our modern FIPAs.

In practical terms, what this means is that Canada has full policy flexibility to accord preferential treatment to Canadian investors when licensing fishing activities without having to extend that same treatment to investors of other countries.

Second, our investment agreements allow Canada to give preferential treatment to investors of one country over investors of another country when that preferential treatment is something that we have negotiated in the context of an international agreement.

The first treatment that I mentioned is what we call “national treatment”. The second one is what we typically refer to as “most favoured nation treatment”. These protections have been developed and negotiated in the context of our trade agreements, in consultation with Fisheries and Oceans Canada. As I mentioned in my opening remarks, in negotiating trade agreements, we always consult with relevant departments and agencies as well as provinces and territories and stakeholders.

Hopefully, Mr. Small, I have answered the question you asked.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Sort of, I guess....

In light of Canada's commitments in its trade and investment agreements, is Canada allowed to prohibit foreign investment in specific sector activities, such as owning commercial fishing licences and quota?

[Shendra Melia]

To answer that question, I guess what I would say is that the reservations Canada has taken in its trade agreements are related to fishing licences as well as fishing-related activities. The exception specifies that fishing-related activities include—and I'll quote here just to be very clear on what we have negotiated in the context of our international trade agreements—“entry of foreign...vessels to Canada's exclusive economic zone, territorial sea, internal waters or ports, and use of any services therein”.

That said, I guess what I would say to conclude is that we would defer to regulatory experts and legal counsel to really define exactly what that means.

[The Vice-Chair, Conservative, Mel Arnold]

Thank you.

That's your time, Mr. Small.

We'll now go to Mr. Morrissey for six minutes.

[Bobby Morrissey, Liberal, Egmont, PE]

Thank you, Chair.

My question—l'll ask whoever is prepared to address it to speak to it—is that one of the growing concerns on the east coast fishery is the growing concentration of Chinese ownership within the lobster supply chain at the dock level. What are the existing trading agreements that Canada has with China? What are the major ones that govern how we interact with Chinese companies?

[Shendra Melia]

The main international investment treaty that governs our interactions with China is the agreement that we negotiated that is referred to as a “foreign investment and promotion and protection agreement”.

In broad terms, this agreement contains more or less the same commitments one would find in most of Canada's international investment treaties. I'd say one notable difference is that it doesn't guarantee equal treatment to Canadian and Chinese investors before an actual investment is made. We refer to this as “treatment pre-establishment”. It's before the company actually comes and establishes in Canada.

With respect to the treatment of fisheries and fishing, the Canada-China FIPA is in line, I'd say, with most of our modern practices and provisions. As I mentioned in my opening remarks, the agreement contains two key exceptions, or what we call “reservations”, that directly deal with fishing and fisheries. As I mentioned already, the first one is that it explicitly exempts licensing of fishing.

[Bobby Morrissey, Liberal, Egmont, PE]

Okay. That's fine. I understand it on the licensing side.

[Shendra Melia]

Yes. Just to be clear again, it doesn't contain any market access commitments.

[Bobby Morrissey, Liberal, Egmont, PE]

One of the concerns that has been getting a lot of attention is the ability of companies in Canada that are 100% owned by China to be incurring losses in Canada because they're not dealing with Canadian banks: They get their cash flow by coming in and out. They do not require operating financing, so they incur losses in Canada and they sell into the Chinese market—they're Chinese-held companies—at a higher profit, therefore undermining some of the Canadian-owned companies that don't have the ability to do that.

Are you aware of this practice? How is it governed under our trading agreements?

Am I clear on where I'm going?

[Shendra Melia]

To answer the question specifically, I am not aware of that specific practice, and I would say that I cannot speak to its coverage under our international treaties. I don't believe that it's something we would be negotiating in the context of an international investment treaty.

[Bobby Morrissey, Liberal, Egmont, PE]

Canadian companies are frustrated because those Chinese companies show a loss here. They don't pay taxes like Canadian companies, so we're losing in multiple ways. They're also at a competitive advantage in their own market, with a significant disadvantage to the Canadian producer, which will ultimately have a negative impact on the purchase price that fishers receive.

Who is monitoring this particular practice?

More and more, there has been a huge and growing presence of Chinese-backed companies and money buying up east coast Canadian seafood processing companies. They can indirectly get into the licensed part through the processor they have, if they finance it. This is a serious issue.

In fact, I'll go to the issue of the Halifax live shipment terminal. It's now 100% owned by Chinese interests. They'll only serve their own interests. It's blocking out some of the Canadian companies.

Again, who is monitoring this?

[Shendra Melia]

I think the question is probably best answered by colleagues at Fisheries and Oceans Canada. They have a deep expertise on the issues—

[Bobby Morrissey, Liberal, Egmont, PE]

Fisheries and Oceans Canada?

[Shendra Melia]

Well, my understanding is that they have deep expertise on all issues related to Canada's competitiveness in the fisheries and fisheries processing industries.

That's my answer, Mr. Chair.

[Bobby Morrissey, Liberal, Egmont, PE]

I'm a bit alarmed that external affairs...and nobody answered from the Department of Industry, though I see that Mr. Burns wants to get in.

Nobody should be surprised. This has been making the media in this last while.

It's a real concern developing on the east coast, from the fish harvester right through. If they get total control of the processing and shipping, they then control the price paid to fishers.